Adv Accountssums

Problem 1:
Receipts and payments account of a club for one year is given below 31.03.1991:
RECIPTS AMOUNT AMOUNT PAYMENTS AMOUNT AMOUNT
To balance b/d 3,000.00 By salaries 1,500.00
To subscription 20,000.00 By electricity 300.00
To donation 5,000.00 By sports expenses 1,000.00
To entrance fees 1,000.00 By sports goods purchased 9,000.00
To interest 100.00 By books purchased 5,000.00
To charity show receipts 2,400.00 By miscellanous expenses 700.00
By charity show expenses 2,000.00
By investment made 8,000.00
By Balance c/d 4,000.00
31,500.00 31,500.00
Adjustments:
1. subscription received inclue Rs. 500 for 89-90 and Rs. 600 for 91-92 but Rs. 100 due for 90-91.
2. entrance fees to be capatilized
3. salary due Rs. 300 and interest due Rs. 500.
4. opening asset - sports goods Rs. 3000 Books - Rs. 2000 and Investment Rs. 6000.
prepare Income and Expenditure account.
EXPENDITURE AMOUNT AMOUNT INCOME AMOUNT AMOUNT
To salaries 1,500.00 By subscription 20,000.00
Add: salaries due 300.00 1,800.00 Less: 89-90 500.00
To electricity 300.00 Less:91-92 600.00
To sports expenses 1,000.00 18,900.00
To miscellanous expenses 700.00 Add: 90-91 100.00 19,000.00
To charity show expenses 2,000.00 By interest 100.00
To surplus 16,200.00 Add: interest due 500.00 600.00
By charity show recipts 2,400.00
22,000.00 22,000.00
NON-PROFIT ORGANISATION
Lakshmi Page 1 Income Expenditure
Problem 2:
Receipts and payments account as on 31.03.96
cash in hand 50.00 Salary 2,400.00
cash at bank 565.00 Rent 720.00
subscription 4,550.00 Postage 30.00
Interest on investment 2,000.00 Printing and stationery 255.00
bank interest 25.00 Electricity charges 300.00
sale of furniture 300.00 Meeting expenses 150.00
Libaray books purchased 1,000.00
Investment in bonds 1,000.00
cash in hand 155.00
Cash in bank 1,480.00
7,490.00 7,490.00
Adjustments:
1. Subscription for 94-95 Rs. 100, 96-97 Rs. 150
2. On 1.4.95, investment - Rs. 40000, Furniture - Rs. 3000, Liabrary books - Rs. 5000 Outstanding rent - Rs. 60,
Outstanding salary - Rs. 200.
3. On 31.03.96 Rent outstanding - Rs.60, Salary - Rs. 200.
4. Book value of furniture sold - Rs. 250.
Prepare income and expenditure account and Balance Sheet.
Opening balance sheet as on 1.4.95:
LIABILITIES AMOUNT AMOUNT ASSETS AMOUNT AMOUNT
Outstanding rent 60.00 Investment 40,000.00
Outstanding salaries 200.00 Furniture 3,000.00
Capital fund (Balance) 48,455.00 Library books 5,000.00
Salaries outstanding 100.00
Cash at bank 565.00
Cash in hand 50.00
48,715.00 48,715.00
To Salaries 2,400.00 By Subscription 4,550.00
To Rent 720.00 Less: 94-95 100.00
To Postage 30.00 Less: 96-97 150.00 4,300.00
To Printing & Stationery 255.00 By Bank interest 25.00
To Electricity 300.00 By Interest on Investment 2,000.00
To Meeting Expenses 150.00 By Profit on Sale of furniture 50.00
To Surplus 2,520.00
6,375.00 6,375.00
Closing Balance sheet as 31.03.96
Capital fund 48,455.00 Investment 40,000.00
Add: Surplus 2,520.00 50,975.00 Add: Additional investments 1,000.00 41,000.00
Outstanding rent 60.00 Laibrary books 5,000.00
Outstanding salries 200.00 Add: Additional books 1,000.00
Subscription outstanding 150.00 6,000.00
Furniture 3,000.00
Less: Book value 250.00 2,750.00
Cash in bank 1,480.00
Cash in hand 155.00
51,385.00 51,385.00
Problem 3:
Cash book as on 31.12.95
By Balance b/d 2,350.00 Salaries 1,200.00
By Entrans fees 300.00 Electricity 120.00
By Subscription Newspapers and Journals 525.00
94 50.00 Fixed deposits 2,500.00
95 3,500.00 Utensils 200.00
96 75.00 3,625.00 Payment to creditors 1,000.00
By Profit from refreshment 100.00 Balance carried to next year 1,150.00
By Locker rents 200.00
By Sundry income 120.00
6,695.00 6,695.00
The assests and liabilities on the 1st january 1995 were utensils - Rs. 800, Furniture - Rs. 2500, consumable
stores - Rs. 350, and creditors - Rs. 1200
On 31.12.95 value of consumbles sores was Rs. 700, creditors amounted to Rs. 550, the subscriptions outstanding
were Rs. 75, and the interest accured on fixed deposit was Rs. 25.
Opening Balance sheet as on 1.1.95:
Creditors 1,200.00 Furniture 2,500.00
Capital fund (balance) 4,850.00 Utensils 800.00
Consumable stores 350.00
Subscription accured 50.00
Cash balance 2,350.00
6,050.00 6,050.00
Creditors account
PARTICULARS AMOUNT AMOUNT PARTICULARS AMOUNT AMOUNT
To Cash 1,000.00 By Balance b/d 1,200.00
To Balance c/d 550.00 By Purchase 350.00
1,550.00 1,550.00
To Salaries 1,200.00 By Subscriptions 3,500.00
To Electricity 120.00 Add: outstanding 75.00 3,575.00
To News papers and Journals 525.00 By Profit from refreshment 100.00
2,175.00 By Locker rent 200.00
By Interest accrued 25.00
By Sundry Income 120.00
4,020.00 4,020.00
Utensiles:
Consumbles stores = opening stock+purchases-closing stock
0.00
So, there is no consumption of consumable stores during the year.
Balance sheet as on 31.12.95:
Capital fund 4,850.00 Consumble stores 700.00
Add: Surplus 2,175.00 Fixed deposit 2,500.00
7,025.00 Cash Balance 1,150.00
Add: Entrance fees 300.00 7,325.00 Interest accured 25.00
Creditors 550.00 Outstanding subscription 75.00
Subscription received 75.00 utensils 800.00
Add: Furniture 200.00 1,000.00
Furniture 2,500.00
7,950.00 7,950.00
Problem 4:
From the following particulars related to venkatasamy charitable hospital, prepare an income and expenditure
account for the year ended 31st december 1995 and balance sheet as on that date
Balance in hand on 1.1.95 7,130.00 Payment for Medicines 30,950.00
Subscription 48,000.00 Honarium to medical staff 9,000.00
Donations 14,500.00 Salaries to house staffs 27,500.00
Interest on investment at 7% 7,000.00 Petty expenses 460.00
Proceeds from annual day 10,450.00 Equipment purchase 15,000.00
Expenses for annual day 751.00
Closing balance 3,779.00
87,080.00 87,080.00
Additional Information:
31.12.94 31.12.95
Subscription due 240.00 280.00
Subscription recived in advance 65.00 100.00
Stock of medicine 8,810.00 9,740.00
Value of equipment 21,200.00 31,600.00
Buildings 40,000.00 38,000.00
Outstanding liability to medicine
suppliers 10,000.00 8,000.00
Opening balance sheet as on 1.1.95
Creditors 10,000.00 Cash in hand 7,130.00
Subscripition received in advance 65.00 Value to equipment 21,200.00
Capital fund 167,315.00 Buildings 40,000.00
Value of medicine stock 8,810.00
Subscription due 240.00
Investment 100,000.00
177,380.00 177,380.00
To Honoarium to medical staff 9,000.00 By Subscription 48,000.00
To Salaries to house staff 27,500.00 Add: Due(beginning) 280.00
To Petty expenses 460.00 Less:Advance (beginning) 240.00
To Expenses for annual day 751.00 Add:Advance(end) 65.00
To Depriciation for equipment 4,600.00 Less: due (end) 100.00 48,005.00
To Depriciation to buildings 2,000.00 By Interest on investment 7,000.00
To medicine consumed 27,660.00 By proceeds from annual day 10,450.00
6,516.00
71,971.00 71,971.00
Creditors account(medicine)
To payment to medicine 30,590.00 By Balance b/d 10,000.00
To Balance c/d 8,000.00 By purchase 28,590.00
38,590.00 38,590.00
Closing balance sheet:
Capital fund 167,315.00 Building 40,000.00
Less: Deficit 6,516.00 Less: Depriciation 2,000.00 38,000.00
Add: Donations 14,500.00 175,299.00 Equipment 21,200.00
Subscripiton advance 100.00 Add: Additional equipment 15,000.00
Creitors 8,000.00 Less: Depriciation 4,600.00 31,600.00
Subscripition due 280.00
Stock 9,740.00
Cash in hand 3,779.00
183,399.00 183,399.00
Problem 5:
The Literary society showed the following position on 31st December 1995 balance sheet as at 31st December 1994
Capital fund 79,300.00 Electrical fittings 15,000.00
Outstanding expenses 700.00 Furniture 5,000.00
Books 40,000.00
Investment in securities 15,000.00
Cash at bank 2,500.00
80,000.00 80,000.00
Receipts and payments for the year ending 31.12.95:
To balance b/d By Electricity charges 720.00
Cash at bank 2,500.00 By postage and stationery 500.00
Cash in hand 2,500.00 By Telephone charges 500.00
To Entrance fees 3,000.00 By Books purchased(1.1.95) 6,000.00
To Membership subscription 20,000.00 By Outstanding expenses 700.00
To Sale proceed of old newspapers 150.00 By Rent 8,800.00
To Hire of lecture hall 2,000.00 By Investment in securities(1.7.95) 4,000.00
To Interest on securities 800.00 By Salaries 6,600.00
By Balance c/d
30,950.00 30,950.00
You are required to prepare income and expenditure account for the year ending 31.12.95:
1. Membership subscription included Rs. 1000 received in advance
2. Provide for outstanding Rent - Rs. 400 and Salaries - Rs. 300
3. Books to be deperciated @ 10% including additions. Electrical fittings and furniture are also to be depreciated
at the same rate.
4. 75% of the entrance fees to be capitalized
5. Interest on securities to be calculated at 5% p.a
To Electricity charges 720.00 By Subscription 20,000.00
To Postage and Stationery 500.00 Less: advance 1,000.00 19,000.00
To Telephone charges 500.00 By Entrance fees 750.00
By Interest on securities 850.00
To Rent 8,800.00 By Sale proceed of old newspaper 150.00
Add: Outstanding Rent 400.00 9,200.00 By Hire of lecture hall 2,000.00
To Salaries 6,600.00 By Deficit 1,670.00
Add: Outstanding salaries 300.00 6,900.00
To Deperciation
Books 4,600.00
Electricals 1,500.00
Furniture 500.00 6,600.00
24,420.00 24,420.00
Opening balance 79,300.00 Electrical fitting 15,000.00
Less: Deficit 1,670.00 Less: Deperciation 1,500.00 13,500.00
Add: Entrance fees 2,250.00 79,880.00 Books 40,000.00
Outstanding rent 400.00 Add: Additional books purchased 6,000.00
Outstanding salaries 300.00 Less: Deperciation 4,600.00 41,400.00
Subscription advance 1,000.00 Investment on securities 15,000.00
Add: additional investment 4,000.00 19,000.00
Interest accured 50.00
Furniture 5,000.00
Add: Deperciation 500.00 4,500.00
81,580.00 81,580.00
Problem 6:
On 1.4.95 the financial position of Babu sangshad, a clutural club
Capital fund 4,200.00 Equipments 1,640.00
Creditors for expenses 160.00 Furniture 1,160.00
Bar stock 880.00
Outstanding subscripiton for 94 & 95 240.00
Cash 440.00
4,360.00 4,360.00
The receipts and payments for the year ended 31.3.96:
To Opening balance 440.00 By Creditors for 94-95 160.00
To Subscripitions By General expenses 9,240.00
1994-95 160.00 By Printing and satationery 600.00
1995-96 8,160.00 By Equipment purchases 31.6.96 640.00
1996-97 120.00 By Lighting and rent 1,080.00
ToBar Sales 10,240.00 By purchase of bar goods 5,840.00
To Receipts from annual day 800.00 By Annual day expenses 1,280.00
By closing expenses 1,080.00
19,920.00 19,920.00
1. Rs. 264 is yet to be received as subscrition for the year 1995-96.
2. Bar Stock as on 31.3.96 - Rs. 840, furniture to be written down by Rs. 100.
3. Deperciation on equipments to be provided at 25% p.a.
Prepare bar trading account and income and expenditure account for the year ended 31.3.96 and balance sheet
as on that date.
Bar trade account:
To opening bar stock 880.00 By Bar sales 10,240.00
To purchases for bar 5,840.00 By closing bar stock 840.00
To Gross profit 4,360.00
11,080.00 11,080.00
To General Expenses 9,240.00 By Subscripition 8,160.00
To Printing and stationery 600.00 Add: Outstanding subscripition 264.00 8,424.00
To Lighting and Rent 1,080.00 By receipts from annual day 800.00
To Annual day expenses 1,280.00 By Gross profit of bar sales 4,360.00
To Deperciation
Equipment 410.00
Furniture 100.00 510.00
To Surplus 874.00
13,584.00 13,584.00
Balance sheet as on 31.3.96
Capital fund 4,200.00 Equipment 1,640.00
Add: surplus 874.00 5,074.00 Add: Additions 640.00
Subscripition received in advance 120.00 Less: Depreciation 410.00 1,870.00
Furniture 1,160.00
Less: Depreciation 100.00 1,060.00
Outstanding subscription 264.00
Cash 1,080.00
Outstanding subscription 94-95 80.00
Closing Bar Stock 840.00
5,194.00 5,194.00
Problem 7:
The following is the receipt and payment account for Tamil Mandalam for the year ended 31.3.1996.
To balance c/d 12,500.00 By Salaries 2,500.00
To Subscription 52,500.00 By Printing and Stationery 1,250.00
To Annual day receipts 26,800.00 By Annual day expenses 1,500.00
Symposium receipts 22,500.00 By Symposium expenses 10,000.00
To Dividends on shares 2,500.00 By Telephone charges 2,500.00
By Sundry expenses 2,000.00
By Shares purchased 75,000.00
By Postage and Telegrams 2,200.00
By Building Maintance 6,340.00
By Cash at bank 13,510.00
116,800.00 116,800.00
Additional information:
1. The value of builing owned by the society stood at Rs. 50000 on 1st April 1995. Depreciation @ 5% p.a is to be
provided.
2. There are 200 members paying subscripition @ 250 per annum each
3. As on 1st April 1995 no subscription had been received in advance but subscripition were outstanding to the
extent of Rs. 1000. As at 31st March 1996 subscriptions outstanding were Rs. 1500
4. Postage stamps worth Rs. 250 were with the secretary at the beginning of the year and the stamps at the end
of the year were of the value of Rs. 150.
5. The investment in shares at the beginning of the year were to the extent of Rs. 5000.
6. An amount of Rs. 250 in respect of the annual day reciepts was yet to be received
7. Hire of telephone paid in advance Rs. 300
8. Outstanding amount of symposum receipts on 31.3.1996 Rs. 2500. Prepare the income and expenditure account
for the year ended 31st March 1996 and the Balance sheet as on that date.
Opening Balance Sheet as on 01.04.1995:
Capital Fund (Balance) 68,750.00 Building 50,000.00
Investment on shares 5,000.00
Outstanding subscripition 1,000.00
Postage and stamps 250.00
Cash 12,500.00
68,750.00 68,750.00
To Salaries 2,500.00 By Subscripitions 50,000.00
To Printing and Stationery 1,250.00 By Annual day receipts 26,800.00
To Annual day expenses 1,500.00 Add: outstanding 250.00 27,050.00
To Symposium expenses 10,000.00 By Symposium receipts 22,500.00
To Sundry Expenses 2,000.00 Add: outstanding 2,500.00 25,000.00
To Building Maintainance 6,340.00 By Dividend on shares 2,500.00
Add: Additions during the year 2,500.00
Less: Prepaid expenses 300.00 2,200.00
To Postage and stamps
Opening 250.00
Less: Closing 150.00 2,300.00
To Deperciation 2,500.00
To Surplus 73,960.00
104,550.00 104,550.00
Subscripition account:
To Outstanding at beginning 1,000.00 By Cash collected 52,500.00
To income 50,000.00 By Outstanding at end 1,500.00
To Received in advance 3,000.00
54,000.00 54,000.00
Closing Balance Sheet as on 31.03.96:
Capital fund 68,750.00 Investment 5,000.00
Add: Surplus 73,960.00 142,710.00 Add: Additional investment 75,000.00 80,000.00
Subscripition received in advance 3,000.00 Buildings 50,000.00
Less: Deperciation 2,500.00 47,500.00
Annual day receipts due 250.00
Prepaid telephone charges 300.00
Closing postage and stamps 150.00
Bank Balance 13,510.00
Subscripition outstanding 1,500.00
Symposium expenses due 2,500.00
145,710.00 145,710.00
Problem 8:
The Baalance sheet of New City College as at 31st March 2003 was as follows:
Capital Fund 2,100,000.00 Land & Buildings 2,000,000.00
Building Construction Fund 800,000.00 Furniture 300,000.00
General Fund outstanding 640,000.00 Labouratory equipment 250,000.00
Salaries (teachers) 160,000.00 Library books 360,000.00
Investments 650,000.00
Accrued tution fees 10,000.00
Cash and Bank 130,000.00
3,700,000.00 3,700,000.00
To Opening balance (1.4.2003) 130,000.00
By Salaries & Allowance - teachers
and staffs 4,200,000.00
To Govt. grants - revenue 5,000,000.00 By Non- teaching staffs 2,000,000.00
To Donation for building
construction 200,000.00 By Printing and stationery 80,000.00
To Tution fees and session charges 1,820,000.00 By Laboratory expenses 60,000.00
To Investment income 70,000.00 By Laboratory equipments 120,000.00
To Rental income - college hall 40,000.00 By Library books 250,000.00
By Office expenses 60,000.00
By Electricity & Telephones 75,000.00
By Audit fees 2,000.00
By Municipal taxes 1,000.00
By Building repairs 40,000.00
By Purchase of furniture 80,000.00
By Games and sports 20,000.00
By Welfare expenses 30,000.00
By New investments 150,000.00
By Closing Balance - 31.03.2004 92,000.00
7,260,000.00 7,260,000.00
Other Information:
1. Tution fee outstanding as on 31.03.2004 - Rs. 40000
2. Salary of teaching staff outstanding for March 2004 - Rs. 250000
3. Books received as donations from various parties - Rs. 30000 (valued)
4. Outstanding building repair expenses as on 31.03.2004 - Rs. 15000
5. Applicable depreciation rates:
Land and Buildings 2%
Furniture 8%
Laboratory equipment 10%
Library books 20%
You are required to prepare the Income and Expenditure account for the year ended 31st March 2004 and a Balance
sheet as on that date.
To Teaching staff salary 4,200,000.00 By Tution fees 1,820,000.00
Add: Outstanding 250,000.00 Add: outstanding 40,000.00
Less: last year liability 160,000.00 4,290,000.00 Less: Accrued last year 10,000.00 1,850,000.00
To Non- teaching staff salaries 2,000,000.00 By Govt.grants 5,000,000.00
To Printing and stationery 80,000.00 By Rental income 40,000.00
To Laboratory expenses 60,000.00 By Investment income 70,000.00
To Office expenses 60,000.00 By Valued book donations 30,000.00
To Electricity and telephones 75,000.00
To Audit fees 2,000.00
To Municipal taxes 1,000.00
To Building repairs 40,000.00
Add: Outstanding 15,000.00 55,000.00
To sports and games 20,000.00
To Welfare expenses 30,000.00
To Deperciation
Land and building 40,000.00
Furniture 30,400.00
Laboratory equipments 37,000.00
Liabrary books 128,000.00 235,400.00
To surplus 81,600.00
6,990,000.00 6,990,000.00
Balance sheet New City College:
Capital fund 2,100,000.00 Building 2,000,000.00
Building contruction fund 800,000.00 Less: Depreciation 40,000.00 1,960,000.00
Add: Donation 200,000.00 1,000,000.00 Laboratory equipments 250,000.00
General fund 640,000.00 Add: Additions during the year 120,000.00
Add: Surplus 81,600.00 721,600.00 Less: Depreciation 37,000.00 333,000.00
Outstanding teacheers salary 250,000.00 Furniture 300,000.00
Outstanding building repairs 15,000.00 Add: Additions during the year 80,000.00
Less: Depreciation 30,400.00 349,600.00
Liabrary books 360,000.00
Add: Books donation 30,000.00
Add: New investments 150,000.00 800,000.00
Cash 92,000.00
Accrued income 40,000.00
4,086,600.00 4,086,600.00
Income and Expenditure - Section 2:
Problem 1:
From the following, prepare an Income and Expenditure Account for the year ended 31st March 2000
Particulars Amount Amount Particulars Amount Amount
1-Apr-99 31-Mar-00
To Balance By Salaries 360,000.00
Cash at Bank 45,500.00 By Rent 60,000.00
Cash in Office 5,500.00 51,000.00 By Printing and Stationery 14,500.00
2000, March 31: By Postage and Telegrams 2,500.00
To Subscription (including Rs. 20000 By Purchase of Bicylce 9,500.00
for 2000-2001) 300,000.00 By Purchase of Government Bonds 68,000.00
To Interest on Investments 150,000.00 By Balance:
To Bank Interest 1,000.00 Cash in Office 1,200.00
To Sale Proceeds of Car 25,000.00 Cash in Bank 11,300.00 12,500.00
527,000.00 527,000.00
Income and Expenditure Account for the year ended 31st March 2000:
Expenditure Amount Amount Income Amount Amount
To Salaries 360,000.00 By Subscription 300,000.00
To Rent 60,000.00 Less: Received in advance 20,000.00 280,000.00
To Printing and Stationery 14,500.00 By Interest on Investments 150,000.00
To Postage and Telegrams 2,500.00 By Bank Interest 1,000.00
By Deficit - excess of expenditure 6,000.00
437,000.00 437,000.00
Problem 2:
The following is the Receipts and Payments Account of the Bombay Sports Club for the year ending 31st March 2000:
Receipts Amount Amount Payments Amount Amount
To Balance 1st Apirl 1999 3,000.00 By Rent 52,000.00
To Entrance Fees 5,500.00 By Stationery Expneses etc 30,680.00
To Subscriptions, 1998-99 2,000.00 By Wages 53,300.00
To Subscriptions, 1999-2000 169,000.00 By Billards Table 39,000.00
To Subscriptions, 2000-2001 3,000.00 By Repairs and Renewals 8,060.00
To Locker Rents 5,000.00 By Interest 15,000.00
To Special Subscriptions for Governor's By Balance, 31st March 2000 23,960.00
Party 34,500.00
222,000.00 222,000.00
Locker Rent Rs. 600 referred to 1998-99 and Rs. 900 is still owing; Rent Rs. 13000 pertained to 1998-99 and Rs. 13000 is still due; Stationery expenses etc
Rs. 3120 related to 1998-99, still owing Rs. 3640 . Subscriptions upaid for 1999-2000, Rs. 4680 special subscription for Governor's party outstanding
Rs. 5500.
From the above information you are required to make out an income and expenditure account of the club for the year ending 31st March 2000.
Income and Expenditure Account of Bombay Sports Club for the year ending 31st March 2000:
To Rent 52,000.00 By Entrance Fees 5,500.00
Less: Relating to 1998-99 13,000.00 By Subscription 169,000.00
39,000.00 Add: Outstanding 4,680.00 173,680.00
Add: Outstanding 13,000.00 52,000.00 By Locker Rent 5,000.00
To Stationery Expneses 30,680.00 Less: Related to 1998-99 600.00
Less: Relating to 1998-99 3,120.00 4,400.00
27,560.00 Add: Outstanding 900.00 5,300.00
Add: Outstanding 3,640.00 31,200.00
To Wages 53,300.00
To Repairs and Renewals 8,060.00
To Interest 15,000.00
To Surplus - Excess Income over Exp. 24,920.00
184,480.00 184,480.00
Problem 3:
From the following information relating to Indian Cricket Club, prepare Income and Expenditure for the year ending 31st March 2000 and Balance
Sheet as at that date, abstract of Hon. Secretary's Cash Book for the year is as follows:
To Member's subscription 80,000.00 By Upkeep of Field and Pavilion 20,000.00
To Member's admission fees 3,000.00 By Expenses regarding Tournament 37,000.00
To Sale of old balls, bats etc 500.00 By Rates and Insurance 2,000.00
To Hire of ground 3,000.00 By Telephone 4,500.00
To Subscription for Tournament 40,000.00 By Printing and Stationery 1,000.00
To Bank Drawn 40,000.00 By General Charges 2,200.00
To Donation 100,000.00 By Secretary's Honnorarium 5,000.00
By Grass Seeds 1,300.00
By Bats, Balls etc 27,000.00
By Bank Lodged 166,500.00
266,500.00 266,500.00
Assets as on 1st Apirl 1999: Amount
Cash at Bank 30,000.00
Stock of Bats, Balls etc 15,000.00
Printing and Stationery 2,000.00
Subscription due 5,000.00
Liabilities as on 1st Apirl 1999 Nil
Donation and Surplus on account of tournament should be kept in Reserve for a permanent Pavilion. Subscription due at 31st March 2000 Rs. 7500
write off 50% on Bats, Balls account and 25% of Printing and Stationery Account.
Income and Expenditure Account of Indian Cricket Club for the year ending 31st March 2000:
To Upkeep of Field and Pavilion 20,000.00 By Subscription 80,000.00
To Rates and Insurance 2,000.00 Less: Relating to 1999-2000 5,000.00
To Telephone 4,500.00 75,000.00
To Printing and Stationery 750.00 Add: Outstanding 7,500.00 82,500.00
To General charges 2,200.00 By Admission fees 3,000.00
To Secretary's Honnorium 5,000.00 By Old Balls, Bats 500.00
To Bats, Balls etc 27,000.00 By Hire of Ground 3,000.00
Add: Stock as on 1st April 1999 15,000.00
42,000.00
50% written off 21,000.00
To Grass seeds 1,300.00
To Surplus - Excess of Income 32,250.00
89,000.00 89,000.00
Balance Sheet of Indian Cricket Club as on 31st March 1999:
Liabilities Amount Amount Assets Amount Amount
Capital (Balance) 52,000.00 Cash at Bank 30,000.00
Stock of Balls, Bats etc 15,000.00
52,000.00 52,000.00
Reserve for permanent pavilion 100,000.00
Add: Subscription for tournament 10,000.00
110,000.00
Less: Expenditure regarding tornament 7,000.00 103,000.00
Add: Bank Lodged 30,000.00
166,500.00
196,500.00
Less: Bank Drawn 40,000.00
156,500.00
Balance Sheet of Indian Cricket Club as on 31st March 2000:
Capital 52,000.00 Cash at Bank 156,500.00
Add: Surplus for the year 32,250.00 84,250.00 Stock of Balls, Bats etc 21,000.00
Reserve for permant pavilion 103,000.00 Printing and Stationery 2,250.00
187,250.00 187,250.00
Problem 4:
The Mahant Club's accounts on 31st March 1999 showed that annual subscription outstanding were Rs. 5000 from 50 memebers and that subscriptions
had been received for 1999-2000 from 20 members. The total number of members on 31st March 1999 was 1500 . During the year ended 31st March
2000, 25 members left or died (5 of which were those who owed subscription on 31st March 1999) and 40 others were admitted; they paid Rs. 150 as
admission fee; 15 of these paid subscriptions for 1999-2000 as well. The total amount received during 1999-2000 as subscription were Rs. 147000
Prepare the subscriptions account and show the amount to be credited or debited to the income and expenditure account for the year ended 31st
March 2000 in respect of the above.
Working Notes:
Subscription outstanding on March 31 2000
No. of memebers on March 31 1999 1,500.00
New Admission 40.00
1,540.00
Less: Withdrawls and deaths:
No. of memebers on 31st March 2000 25.00
No. of memebers on 31st March 2000 1,515.00
Total amount receivable @ Rs.100 for
1515 memebers 151,500.00
Add: Received in advance on 31st March 2000 1,500.00
Outstanding on 31st March 1999 4,500.00
157,500.00
Less: Received cash during the year 147,000.00
Received in advance in March 1999 2,000.00 149,000.00
8,500.00
Subscription Account:
To Subscription outstanding By Subscription received in advance 2,000.00
Account - Transfer 5,000.00 By Bank 147,000.00
To Subscription Received in advance 1,500.00 By Subscription irrecoverable 500.00
To Income and Expenditure A/C- By Subscription Outstanding 8,500.00
Transfer of subscriptions pertaining to
the year 151,500.00
158,000.00 158,000.00
Problem 5:
The Misguided Club has a research endownment of Rs. 1800000 which it has invested in 15% debentures of a company, purchased at 90. Besides the
endownment, the club had on Apirl 1, 1999 Rs. 45000 relating to research during 1999-2000, the club under took a project which cost Rs. 167000 in cash
besides time devoted by the general staff of the club which would be valued at Rs. 12000. Show how you would recommeded the above to be
treated in the accounts of the club for the year ended 31st March 2000.
The club should prepare the Researh Endownment Income Expenditure Account as follows:
Reasearch Endownment Income and Expenditure Account:
To Expenditure on Research - Cash 167,000.00 By Interest on 15% Debentures @
By Expenses 12,000.00 Rs. 2000000 300,000.00
By Surplus 121,000.00
300,000.00 300,000.00
Working Note:
Calculation of Cash at end:
Cash in hand on 1st April 1999 45,000.00
Add: Net surplus 121,000.00
Cash in hand on 1st April 1999 166,000.00
The balance sheet of the Misguided club:
Reasearch endownment fund: Reasearch endownment fund investment
Balances on 1 Apirl 1999 1,845,000.00 15% Debentures (face value Rs.2000000) 1,800,000.00
Add: Net surplus 121,000.00 Cash 166,000.00
1,966,000.00 1,966,000.00
1,966,000.00 1,966,000.00
Problem 6:
From the following particulars, calculate the amount of subscriptions to be credited to the income and expenditure account for the year ended 31st March 2001
31-Mar-00 31-Mar-01
Rs Rs
Outstanding subscriptions 15,000.00 12,000.00
Subscription received in advance 9,000.00 5,400.00
A sum of Rs. 146700 was received as subscriptions during the year ended 31st March 2001.
Calculation of subscription income:
Subscription received during the year 146,700.00
Less: Outstanding subscription as March 2001 15,000.00
131,700.00
Add: Outstanding subscription as on March 2000 12,000.00
143,700.00
Add: Subscription received in advance
as on March 31st 2000 9,000.00
152,700.00
Less: Subscription received in advance
as on March 31st 2001 5,400.00
147,300.00
Problem 7:
From the following particulars, prepare subscriptions Account for the year ended 31st March 2001:
1. Subscriptions in arrear on
31st March 2000 1,500.00
2. Subscription received in advance as
on 31st March 2000 for the year 2000-01 3,300.00
3. Total subscription received during
the year (including Rs. 1200 for the
year 2000-01 and Rs. 3600 for the year
2001-2002 117,900.00
4. Subscription in arrear on 31st
March, 2000 for the year 2000-01 1,200.00
Subscription Account:
To Subscription in arrear on By Subscription Received in Advance
1st April 2000 1,500.00 on 1st April 1999 3,300.00
To Subscription Received in Advance By Bank/Cash 117,900.00
on 31st March 2001 3,600.00 By Subscription in arrear on
31st March 2000:
To Income and Expenditure 117,600.00 For 1999-2000 300.00
For 2000-2001 1,200.00 1,500.00
122,700.00 122,700.00
Problem 8:
On the basis of the following information, calculate the amount that will be shown against the item Sports Material Used in the Income and Expenditure
Account of a sports club for the year ended 31st March 2000:
Stock of Sports Mateial on 1st April 1999 60,000.00
Creditors for Sports Material on 1st April 1999 40,000.00
Amount paid for sports Material during
the year ended 31st March 2000 216,000.00
Stock of Sports Material on 31st March 2000 26,000.00
Creditors for Sports Material on 31st March 2000 10,000.00
Amount paid for Sports Material during
the year ended 31st March 2000 216,000.00
Add: Creditors for Sports Material
on 31st March 2000 10,000.00
226,000.00
Less: Creditors for Sports Material on
1st April 1999 40,000.00
Sports materials purchased during the year 186,000.00
Add: Stock of Sports Materials on
1st April 1999 60,000.00
246,000.00
Less: Stock of Sports Materials on
31st March 2000 26,000.00
Sports Materials used to be shown in 220,000.00
Income and Expenditure Account
Problem 9:
From the following particulars, prepare income and expenditure account:
Fees collected, including Rs. 80000 on account of the previous year 380,000.00
Fees for the year outstanding 10,000.00
Salary paid including Rs. 8000 on account of the previous year 98,000.00
Salary Outstanding at the end of the year 9,000.00
Entertainment expenses 3,000.00
Tournament expenses 42,000.00
Meeting Expneses 18,000.00
Travelling expneses 6,000.00
Purchase of books and periodicals, including Rs. 19000 for purchase of books 29,000.00
Rent 18,000.00
Postage, Telegrams and Telephones 15,000.00
Donations received 20,000.00
Income and Expenditure Account:
To Salaries 98,000.00 By Fees 380,000.00
Add: Outstanding Salaries at the end Add: Outstanding during the year 10,000.00
of the year 9,000.00 390,000.00
107,000.00 Less: Outstanding during the previous
Less: Outstanding during pervious year 80,000.00 310,000.00
year 8,000.00 99,000.00 By Donation 20,000.00
To Entertainment expenses 3,000.00
To Tournament Expenses 42,000.00
To Meeting Expenses 18,000.00
To Travelling Expenses 6,000.00
To Rent 18,000.00
To Postage 15,000.00
To Printing and Stationery 4,000.00
To Books and Periodicals 29,000.00
Less: Books Capitalised 19,000.00 10,000.00
To Surplus - Excess of expenditure 115,000.00
330,000.00 330,000.00
Problem 10:
Gvaskar Cricket Club gives you that the following Receipts and Payments Account for the year ended 31st March 2000:
To Balance of Cash on By Salaries and Wages 12,000.00
1st April 1999: By Sports Equipment 46,785.00
At Office 150.00 By Stationery and Printing 1,220.00
At Bank 14,200.00 14,350.00 By Maintenance of Ground 6,000.00
To Subscription 61,100.00 By Prizes 1,060.00
To Admission Fees 350.00 By Balances of Cash on 31st March 2000
To Interest on Investment @ 9% At Office 380.00
per annum for full year 9,000.00 At Bank 17,355.00 17,735.00
84,800.00 84,800.00
The following additional information is provided to you:
1-Apr-99 31-Mar-00
Subscriptions due 480.00 560.00
Subscriptions Received in Advance 80.00 40.00
Sports Equipment 21,800.00 29,700.00
Land and Buildings (cost less
Depreciation) 80,000.00 76,000.00
Prepare Income and Expenditure Account for the year ended 31st March 2000 and Balance Sheet as at that date.
Calculation of Sports Equipment Used:
Stock of Sports Equipment on 1st April 1999 21,800.00
Add: Sports Equipment Purchased during the
year 1999-2000 46,785.00
68,585.00
Less: Stock of Sports Equipment as on 31 Mar 2000 29,700.00
38,885.00
Calculation Income on Account of Subscriptions:
Amount Received during the year 61,100.00
Add:
Subscription received in advance on
1st Apirl 1999 80.00
Subscripiton due on 31st April 2000 560.00 640.00
61,740.00
Less:
Subscription received in advance
on 31st March 2000 40.00
Subscription due on 1st April 1999 480.00 520.00
61,220.00
Balance Sheet of Gavaskar Cricket Club as on 1st April 1999:
Subscription Received in Advance 80.00 Land and Building 80,000.00
Capital (Balance) 216,550.00 Investment 100,000.00
Stock of Sports Equipments 21,800.00
Cash at Office 150.00
216,630.00 216,630.00
Income and Expenditure Account:
To Salaries and Wages 12,000.00 By Subscription 61,220.00
To Sports Equipment Used 38,885.00 By Admission Fees 350.00
To Stationery and Printing 1,220.00 By Interest on Investment 9,000.00
To Maintance of Ground 6,000.00
To Prizes 1,060.00
To Depreciation 4,000.00
To Surplus 7,405.00
70,570.00 70,570.00
Balance Sheet of Gavaskar Cricket Club as on 31st March 2000:
Capital 216,550.00 Sports Equipments 29,700.00
Add: Surplus 7,405.00 223,955.00 Land and Building 80,000.00
Subscription received in advance 40.00 Less: Depreciation 4,000.00 76,000.00
Cash at Office 380.00
223,995.00 223,995.00
Problem 11:
The Kolkatta Association submits to you its Recipts and Payments Account for the year ending on 31st March 2000. You are required to prepare the
Income and Expenditure Account and the Balance Sheet relating to the year
Opening Balance: Establishment (includes Rs. 4000 for
Cash in Hand 2,500.00 2000-2001) 60,000.00
Balance at Bank 205,500.00 Telephone Charges 5,400.00
Subscription (including Rs. 7500 for Electric Charges 2,500.00
2000-2001) 212,500.00 Stamps and Stationery 6,000.00
Hall Rent 12,500.00 Travelling 1,500.00
Interest on Securities 10,000.00 Meeting Expenses 5,000.00
Donation Received 100,000.00 Rent 55,000.00
Telephone Receipts 500.00 Library 30,000.00
Donation Given 50,000.00
Closing Balances:
Cash in Hand 3,100.00
Balance at Bank 325,000.00
543,500.00 543,500.00
The association also gives the following information:
1. The association holds 10% Government Securities amounting to Rs. 200000 on 1st April 1999 . The securities were purchased at par.
2. The Library account stood at Rs. 200000 as on 1 April 1999.
3. Half of the donation received is to be transferred to the capital fund
4. Rent Rs. 5000 is still payable.
5. Provide Rs. 23000 as depreciation on Library Account.
Working Notes:
Balance Sheet as on 1st April 1999:
Capital (Balance) 608,000.00 Library Account 200,000.00
10% Government Securities 200,000.00
608,000.00 608,000.00
The Kolkatta Association Income and Expenditure Account for the year ended 31st March 2000:
To Establishment 60,000.00 By Subscription 212,500.00
Less: Paid in Advance 4,000.00 56,000.00 Less: Received in Advance 7,500.00 205,000.00
To Telephone Charges 5,400.00 By Hall Rent 12,500.00
To Electric Charges 2,500.00 By Interest on Securities 10,000.00
To Stamps and Stationery 6,000.00 Add: Interest accured on 31st March 00 10,000.00 20,000.00
To Travelling 1,500.00 By Telephone Receipts 500.00
To Meeting Expneses 5,000.00 By Donation Received 100,000.00
To Rent 55,000.00 Less: 50% transferred to Capital fund 50,000.00 50,000.00
Add: Outstanding 5,000.00 60,000.00
To Depreciation on Library Account 23,000.00
To Donation Given 50,000.00
288,000.00 288,000.00
Balance Sheet as on 31st March 2000:
Capital 608,000.00 Liabrary 230,000.00
Add: Donation 50,000.00 Less: Depreciation 23,000.00 207,000.00
Add: Surplus 78,600.00 736,600.00 10% Govt. Securities at Par 200,000.00
Subscription received in advance 7,500.00 Add: Interest accured 10,000.00 210,000.00
Rent Outstanding 5,000.00 Establishment Advance Expenses 4,000.00
749,100.00 749,100.00
Problem 12:
From the following Trial Balance and the necessary information given below for a public school, prepare Income and Expenditure Account for the year
1999-2000 and a Balance Sheet as at 31st March 2000.
Debit Balances Amount Amount Credit Balances Amount Amount
Buildings 250,000.00 Admission Fees 5,000.00
Furniture and Fittings 40,000.00 Tution and Other Fees received 200,000.00
Library Books 60,000.00 Creditors for Supplies 6,000.00
Investment @ 9% 200,000.00 Rent for the Hall 4,000.00
Salaries 200,000.00 Miscellaeous Receipts 12,000.00
Stationery 15,000.00 Government Grant 140,000.00
General Expenses 8,000.00 General Fund 400,000.00
Annual Sports Expenses 6,000.00 Donation (Received for purchase
Cash at Bank 20,000.00 of Library Books) 25,000.00
Cash in Hand 1,000.00 Sale of Furnture 8,000.00
800,000.00 800,000.00
Tution and Other Fees yet to be received for the year are Rs. 10000 . Salaries yet to be paid amount to Rs. 12000 . Furniture costing Rs. 15000 was
purchased on 1st October, 1999 . The book value of the furniture sold (on 30th September, per annum on Library Books and @ 5% per annum on
Buildings).
Working Notes:
Calculation of Loss on Sale of Furniture:
Book Value on 1st April 1999 of 30th
September, 1999 20,000.00
Less: Depreciation on Rs. 20000 for
6 months 1,000.00
19,000.00
Less: Sale of Furniture 8,000.00
Loss 11,000.00
Depreciation on Furniture and Fittings:
Full year 500.00
For 6 months 750.00
For 6 months 1,000.00
Total Depreciation 2,250.00
Depreciation for items in use 1,250.00
To Salaries 200,000.00 By Admission Fees 5,000.00
Add: Outstanding 12,000.00 212,000.00 By Tution and Other Fees 200,000.00
To Stationery 15,000.00 Add: Outstanding 10,000.00 210,000.00
To General Expenses 8,000.00 By Rent for Hall 4,000.00
To Annual Sports Expenses 6,000.00 By Miscellanous Receipts 12,000.00
To Loss on Sale of Furntiure 11,000.00 By Government Grant 140,000.00
To Depreciation: By Income from Investment 18,000.00
Furniture and Fittings 2,250.00
Library Books 9,000.00
Buildings 12,500.00 23,750.00
389,000.00 389,000.00
Balance Sheet as on 31st March 2000:
General Fund 400,000.00 Buildings 250,000.00
Add: Surplus 113,250.00 513,250.00 Less: Depreciation 12,500.00 237,500.00
Donation for purchase of books 25,000.00 Furniture and Fittings 20,000.00
Creditors for Suppliers 6,000.00 Less: Depreciation 1,250.00 18,750.00
Rent Outstanding 12,000.00 Library Books 60,000.00
Interest on investment due 18,000.00
Tution and Other Fees due 10,000.00
556,250.00 556,250.00
Locker Rent Rs. 600 referred to 1998-99 and Rs. 900 is still owing; Rent Rs. 13000 pertained to 1998-99 and Rs. 13000 is still due; Stationery expenses etc
Rs. 3120 related to 1998-99, still owing Rs. 3640 . Subscriptions upaid for 1999-2000, Rs. 4680 special subscription for Governor's party outstanding
From the above information you are required to make out an income and expenditure account of the club for the year ending 31st March 2000.
From the following information relating to Indian Cricket Club, prepare Income and Expenditure for the year ending 31st March 2000 and Balance
Donation and Surplus on account of tournament should be kept in Reserve for a permanent Pavilion. Subscription due at 31st March 2000 Rs. 7500
The Mahant Club's accounts on 31st March 1999 showed that annual subscription outstanding were Rs. 5000 from 50 memebers and that subscriptions
had been received for 1999-2000 from 20 members. The total number of members on 31st March 1999 was 1500 . During the year ended 31st March
2000, 25 members left or died (5 of which were those who owed subscription on 31st March 1999) and 40 others were admitted; they paid Rs. 150 as
admission fee; 15 of these paid subscriptions for 1999-2000 as well. The total amount received during 1999-2000 as subscription were Rs. 147000
Prepare the subscriptions account and show the amount to be credited or debited to the income and expenditure account for the year ended 31st
The Misguided Club has a research endownment of Rs. 1800000 which it has invested in 15% debentures of a company, purchased at 90. Besides the
endownment, the club had on Apirl 1, 1999 Rs. 45000 relating to research during 1999-2000, the club under took a project which cost Rs. 167000 in cash
besides time devoted by the general staff of the club which would be valued at Rs. 12000. Show how you would recommeded the above to be
From the following particulars, calculate the amount of subscriptions to be credited to the income and expenditure account for the year ended 31st March 2001
On the basis of the following information, calculate the amount that will be shown against the item Sports Material Used in the Income and Expenditure
The Kolkatta Association submits to you its Recipts and Payments Account for the year ending on 31st March 2000. You are required to prepare the
1. The association holds 10% Government Securities amounting to Rs. 200000 on 1st April 1999 . The securities were purchased at par.
From the following Trial Balance and the necessary information given below for a public school, prepare Income and Expenditure Account for the year
Tution and Other Fees yet to be received for the year are Rs. 10000 . Salaries yet to be paid amount to Rs. 12000 . Furniture costing Rs. 15000 was
purchased on 1st October, 1999 . The book value of the furniture sold (on 30th September, per annum on Library Books and @ 5% per annum on
VALUVATION OF GOODWILL:
Average profit Method:
Goodwill = FMAPxNo. Of years of purchase
Weighted average profit Method:
Weighted average profit = Total of products/ Total of weights
Goodwill = Weighted average profit x No. of years of purchase
Super profit Method:
Super profit = FMAP - Normal profit
Normal profit = Average capital employed x NRR
Goodwill = Super profit x No. of years of purchase
Note:
NRR - Normal Rate of Return
FMAP - Future Maintaainable Average Profit
Capitalise Method:
Goodwill = Capitalized value - Average capital employed
Capitalized value = FMAP/NRR
Capitalization of super profit Method:
Goodwill = Super profit / NRR
Annuity Table:
Goodwill = Super profit x Annuity factor.
FUTURE MAINTAINABLE AVERAGE PROFIT (FMAP)
Profits given xxx
Less: Non-recurring incomes xxx
Add: Non-recurring expenses xxx
VALUATION OF GOODWILL AND SHARES
Lakshmi Page 48 Valuation of Goodwill and Shares
Less: Anticipated increase in expenses in future xxx
Add: Anticipated increase in income in future xxx
Less: Non-business income(income from investments) xxx
FMAP xxx
Notes:
1. If adjustments are given for a particular year, adjust the profit of that year.
2. Adjustments are given on average or for future, adjust after calculating average profit
Average capital employed:
Assets:
Take assets at revised vlue except investments and iscellanous expenditure
Liabilities:
Less the external liabilities such as secured loans, unsecure loans, current liabilities and provisions.
Closing capital employed:
closing capital employed xxx
Less: 50% of the current year average profit xxx
Average capital xxx
Notes:
Do not deduct the 50% of the current year profit if:
1.Dividends were distributed
2. When NRR is given on closing capital
3. When NRR is given on net tangible capital (closing capital)
Problem 1:
The following particulars are avialable in respect of the business carried on by a trader:
1. Profits earned for the years:
1998 - 1999 50,000.00
1999-2000 60,000.00
2000 - 2001 55,000.00
2. Normal rate of return is 10%
3. Present value of annuity of one rupee for 5 years at 10% is Rs. 3.78
4. Average capital employed is Rs. 300000
5. The profit included non-recurring profits on an average basis of Rs. 3000
You are required to calcualte the value of goodwill:
1. As per five year purchase of super profit.
2. As per capitalization of super profit method
3. As per annuity method,
4. 2years purchase of average profit.
Average profit 55,000.00
Less: Non-recurring
profit 3,000.00
FMAP 52,000.00
FMAP 52,000.00
Less: Normal profit(300000x10%) 30,000.00
Super profit 22,000.00
Goodwill at:
Capitalization of super profit 220,000.00
Annuity method 83,160.00
Average profit method 104,000.00
Problem 2:
Profits of S Ltd., for last six years are as follows:
1975 12,000.00
1976 14,000.00
1977 15,000.00
1978 16,000.00
1979 20,000.00
1980 25,000.00
Year Profits Weights Product
1975 12,000.00 1 12,000.00
1976 14,000.00 2 28,000.00
1977 15,000.00 3 45,000.00
1978 16,000.00 4 64,000.00
1979 20,000.00 5 100,000.00
1980 25,000.00 6 150,000.00
21 399,000.00
Weighted average profit 19,000.00
Goodwill 95,000.00
Problem 3:
A firm earned a profit of Rs. 8000, Rs. 10000, Rs. 12000, and Rs. 18000 during 1999, 2000 , 2001 and 2002
respectively. The firm has average capital investment of Rs. 50000. Pure rate of return on investment
is 10% p.a and risk premium expected is 5%. Calculate the goodwill of the firm based on three years of
purchase of average super profit of last four years. Also calculate goodwill by Capitalization Method.
Assume that the landlord has decided to increase rent of building by Rs. 500p.a
Year Profits Weights Product
1999 8,000 1 8,000
2000 10,000 2 20,000
2001 12,000 3 36,000
2002 18,000 4 72,000
10 136,000
Less: Increase in rent 500.00
FMAP 13,100.00
Less: Normal profit 7,500.00
SUPER PROFIT 5,600.00
Super profit Method:
Goodwill 16,800.00
Capitalization of super profit
Goodwill 37,333.33
Capitalization Method:
Capitalized value 87,333.33
Goodwill 37,333.33
Problem 4:
The summarized balance sheet of the company as on 31st March 2001 is as follows:
Share capital 6500 equity shares
of Rs. 100 each 650,000.00 Goodwill 50,000.00
1500 6% preference share of Rs. 100 150,000.00 Freehold property 375,000.00
profit and loss account 450,000.00 Plant and Machinery
5% debentures 300,000.00 (less depreciation) 350,000.00
Sundry Creditors 239,250.00 Current assets:
Stock 370,000.00
Debtors 399,250.00
Bank 245,000.00
1,789,250.00 1,789,250.00
Profit after tax for the 3 years 1998-99, 1999-2000 and 2000-01 after charging debentures interst were Rs. 220500,
Rs. 322500 and Rs. 240000 respectively. Mr. X is interested in buying all the equity shares and requires you to let
him to know proper price. You get the following information.
1. The normal rate or return is 10% on net assets attributed.
2. Goodwill may be calculated at 3 times of the adjusted average super profit of 3 years referred to abov e.
3. The value of freehold property is to be ascertained on the basis of 8% return. The current rental value is Rs.50400
4. Rate of tax applicable is 50%
5. 10% of profits for 1999-2000 referred to above is arose from a transaction of a non-recurring nature.
6. A provision of Rs. 15750 on sundry debtors was made in 2000-2001 which is no longer required, profit for the
year 2000-2001 is to be adjusted for this item
7. A claim of Rs. 8250 against the company is to be provided and adjusted profit for the year 2000-2001. Ascertain
the value of goodwill of the company. The capital employed may be taken as on 31st March 2001.
Average cpaital Employed:
ASSETS
Freehold property 375,000.00
Plant and Machinery 350,000.00
Stock 370,000.00
Bank 245,000.00
Debtors 399,250.00
Add: Provisions of debtors 15,750.00 415,000.00
1,755,000.00
Less: LIABILITIES
Debentures 300,000.00
Sundry creditors 239,250.00
Claim to be provided 8,250.00 547,500.00
CAPITAL EMPLOYED 1,207,500.00
FMAP
1998-1999 220,500.00
1999-2000 322,500.00
Less: 10% @ 322500 32,250.00 290,250.00
2000-2001 240,000.00
Less: Provisions required no longer 15,750.00
Less: 50% Tax 7,875.00
Less: Claim 8,250.00
Less: 50% Tax 4,125.00 235,500.00
746,250.00
Less: Normal profit @ 10% on 1207500 120,750.00
SUPER PROFIT 128,000.00
Goodwill 384,000.00
Problem 5:
Balance sheet as on 31 March 2006:
Equity share capital 500,000.00 Land and building 600,000.00
Preference share capital 400,000.00 Plant and Machinery 500,000.00
General Reserve 200,000.00 Investment 300,000.00
Workmen compensation fund 100,000.00 (Face value Rs. 400000)
Staff provided fund 300,000.00 Debtors 400,000.00
Debentures 300,000.00 Stock 100,000.00
Creditors 100,000.00 Prepaid Expenses 50,000.00
Other current liabilties 200,000.00 cash balance 100,000.00
preliemenary expenses 50,000.00
2,100,000.00 2,100,000.00
1. Profits of 2002-2003, 2003-2004, 2004-2005 & 2005-2006 after tax of Rs. 300000, Rs. 250000, Rs. 400000, & Rs. 300000
respectively.
2. Investments represents 10% government securities made during 2001-2006
3. Tax rate applicable @ 40%
4. Expected increase in managerial expenses Rs. 40000
5. NRR on average capital employed is 10%
Calculate goodwill.
Calculation of Average Capital Employed:
ASSETS:
Prepaid Expenses 50,000.00
Land and Building 600,000.00
Debtors 400,000.00
Stock 100,000.00
Cash Balance 100,000.00
1,750,000.00
Less: LIABILITIES
Creditors 100,000.00
Staff providend fund 300,000.00
Other current liabilities 200,000.00 900,000.00
Capital Employed 850,000.00
Closing average capital:
Current year profit 300,000.00
Less: Investments 400000 @ 10% 40,000.00
Less: Tax @ 40% 16,000.00
244,000.00
Less: 50% on 244000 122,000.00
Average Capital Employed 728,000.00
FMAP
Less: Managerial expenses 40,000.00
Less: Tax @ 40% 16,000.00 24,000.00
288,500.00
Capitalized value 2,885,000.00
Less: Capital Employed 728,000.00
Goodwill 2,157,000.00
Problem 6:
The Balance sheet of a company as at 30.06.2001 as at 30.06.2001 as follows:
Share capital (Rs. 100 each) 150,000.00 Goodwill at cost 25,000.00
Profit and Loss a/c 193,500.00 Land and Building 110,000.00
Bank overdraft 21,500.00 Plant and Machinery 100,000.00
Creditors 90,500.00 Current assets and adv. 240,000.00
Provision for taxation 19,500.00
475,000.00 475,000.00
Following additional information was available:
1. Profit after tax at 50% were as follows:
1996-97 20,000.00
1997-98 44,000.00
1998-99 51,500.00
1999-2000 58,000.00
2000-2001 65,000.00
2. Dividend was distributed at 10% in the years 1997-98, 1998-99 and 15% in the year 1999-2000 and 2000-2001.
Market price of the share ruiling on 30.06.2001 was Rs. 125.
3. Profits given above were calculated after charging Rs. 20000 for managerial renumeration but it is to be
increased to Rs. 30000 on 01.07.2001.
4. The company has secured a contract and the advantage of it ahs been valued at Rs. 20000 p.a for next 5 years.
You are required to calculated goodwill at 5 years purchase of expected future earnings in excess of normal return
on capital employed during the year 2000-2001
Dividend 12.50
Market price 125.00
NRR 10%
ASSETS:
Current assets 240,000.00
450,000.00
Less: LIABILITIES
Bank overdraft 21,500.00
Creditors 90,500.00
Provision for taxation 19,500.00 131,500.00
Calculation of FMAP:
Year Profit Weights Product
1997 44,500.00 1 44,500.00
1998 51,500.00 2 103,000.00
1999 58,000.00 3 174,000.00
2000 65,000.00 4 260,000.00
219,000.00 10 581,500.00
Less: Increase in Expenses 10,000.00
Add: Increase in Profit 20,000.00
68,150.00
Less Normal profit @ 10% on 318500 31,850.00
Goodwill 181,500.00
Problem 7:
The balance sheet of X Ltd., as on 31.03.78:
8% preference shares of Rs. 10 each 50,000.00 Goodwill 10,000.00
10000 Equity shares of Rs. 10 each 100,000.00 Fixed assets 180,000.00
Reserves (including Prov. Tax Rs.10000) 100,000.00 Investments(5% govt. loan) 20,000.00
8% Debentures 50,000.00 Current assets 100,000.00
Creditors 25,000.00 Preliemenary Expenses 10,000.00
Discount on debentures 5,000.00
325,000.00 325,000.00
The average profit of the company (after deducting interest on debentures and taxes) is Rs. 30000. The market value
of the machinery included in fixed asset is Rs. 5000 more. Expected rate of return is 10% evaluate goodwill of the
company at five times of the super profit.
ASSETS
Fixed assets 180,000.00
Add: Machinery value 5,000.00 185,000.00
285,000.00
Less: LIABILITIES
Creditors 25,000.00
Taxation 10,000.00 85,000.00
Less: 50% of current year profit 15,000.00
Average Capital employed 185,000.00
FMAP
Profit 30,000.00
Less: Normal profit @ 10% 0n 185000 18,500.00
Goodwill 57,500.00
VALUVATION OF SHARES
Assets Based Value/Internsic Values:
Internsic value = (Assets available for equity share holders)/No. of equity shares
Computation of Assets available:
Assets:
All assets are at revised value including goodwill and investments but excluding miscellanous expenditure.
Liabilities:
Less all external liabilites and preference shares.
Earnings Based Value: (yield Value)
Earnings Based Value = (ERR/NRR) x paid up value per share.
ERR - Expected Rate of Return
NRR - Normal Rate of Return
PUV - Paid up value
ERR = (profit available for equity share holders / paid up capital) x 100
Profit available for equity share holders:
Average profit after tax (including
income from investments) xxx
Less: Dividend on non-preference shares xxx
Less: Transfer to reserve xxx
Profit available for equity share holders xxx
Fair Value:
Problem 1:
Following is the Balance sheet of x ltd.,
Share capital 1000
6% preference share of Rs. 10 each 10,000.00 Fixed assets 30,000.00
3000 Equity Share of 10 each 30,000.00 Current assets 25,000.00
7% Debentures 10,000.00 Preliemenary Expenses 2,000.00
Debenture redemption fund 5,000.00 Discount on debtors 3,000.00
Deperciation Fund 10,000.00 Profit and Loss a/c 12,000.00
Sundry Creditors 7,000.00
72,000.00 72,000.00
1. Debentures interest is owing for one year.
2. Book debts included in current assests are doubtfull to the extent of Rs. 2000 for which no provisions have
made.
3. Market value of investment included in current asset is Rs. 2000 while asset has been shown at cost of
Rs. 3500.
Find the value of equity shares.
Internsic value method:
Assets available for equity shareholders:
ASSETS:
Fixed Assets 30,000.00
current Assets 25,000.00
Less: Bad debts 2,000.00
Less: Investments 1,500.00 21,500.00
51,500.00
Less: LIABILITIES
Prefrence shares 10,000.00
Depreciation fund 10,000.00
Debentures Interest 700.00 37,700.00
13,800.00
Internsic value 4.60 per share.
Problem 2:
Following is the Balance Sheet of XYZ Ltd.,
Preference share capital of Rs. 10 200,000.00 Fixed assets 400,000.00
Equity share capital of Rs. 10 each 300,000.00 current assets 248,000.00
General reserve 5,000.00 preliemenary expenses 10,000.00
Debenture reedemption fund 25,000.00 Discount not written off 5,000.00
Investment fluctuaation fund 10,000.00 Profit and Loss a/c 27,000.00
5% debentures 50,000.00
Creditors 90,000.00
690,000.00 690,000.00
1. Current assets included investment of Rs. 50000 market price of which is Rs. 48000. Debtors included in current
assets are doubtful to the extent of Rs. 5000, for which no provision has been made so far.
2. Stock at end did not include a return of Rs. 1000 though transaction was prperly recorded and posted.
3. Debtors interest woing for one year and preference share dividend are in arrears for 2 years. Assuming that
other assets are woth book value, find the value of equity share.
ASSETS:
Fixed assets 400,000.00
Less: Investments 2,000.00 241,000.00
641,000.00
Less: LIABILITIES
Preference shares 200,000.00
Creditors 90,000.00
Debentures interest 2,500.00 352,500.00
288,500.00
Interensic value 9.62 per share
Problem 3:
The following is the Balance sheet of a company as on 31-12-1986.
Share Capital:
6% Preference share of Rs. 10 140,000.00 Fixed Assets 400,000.00
30000 Equity shares of Rs. 10 300,000.00 Investment (non-trading) 50,000.00
General Reserve 50,000.00 Current Assets 200,000.00
Profit and Loss a/c 40,000.00 Preliemenary Expenses 10,000.00
5% Debentures 100,000.00
Bills Payable 30,000.00
660,000.00 660,000.00
Average annual profit (including Rs. 5000 non- trading income) is Rs. 50000. Goodwill is to be valued at 3 years
purchase of super profit. Normal return on cpaital employed is 10%. Calculate fair value of each equity share.
Capital Employed:
ASSETS:
Current Assets 200,000.00
600,000.00
Less: LIABILITIES
Bills Payable 30,000.00 130,000.00
470,000.00
Less: 50% of Current year profit 22,500.00
Less: Normal profit at 10% on 447500 44,750.00
250.00
Super Profit
Goodwill 750.00
Valuation of Shares:
Net assets for goodwill 470,000.00
Add: Goodwill 750.00
Add: Investments 50,000.00
Less: Preference shares 140,000.00
380,750.00
Interensic value per share 12.69 per share.
Yield value of share:
Less: Dividend of prefrence shares 8,400.00
Profit available for equity share holders 41,600.00
ERR 13.87%
Yield value 13.87 Per share
Fair value of share 13.28 Per share.
Problem 4:
The Balance sheet of a company as on 31-03-2001 are as follows:
Share Capital
2000 Shares of Rs.100 each 200,000.00 Land and Buildings 110,000.00
General Reserve 40,000.00 Plant and Machinery 130,000.00
Profit and Loss a/c 32,000.00 Patents and Trademarks 20,000.00
Sundry creditors 128,000.00 Stock 48,000.00
Income tax 60,000.00 Debtors 88,000.00
Preliemenary Expenses 12,000.00
460,000.00 460,000.00
The expert valuer vlued the land and building at Rs. 240000 goodwill at Rs. 160000 and plant and machinery at
Rs. 120000. Depreciation is charged at 15% on plant and 10% on buildings. Out of the total debtors , it is found
that debtors of Rs. 8000 are bad. The profits of the company have been as follows:
1998-99 80,000.00
1999-2000 90,000.00
2000-2001 106,000.00
The company follows the pratice of transferring 25% of profit to general reserve. Similare typer of companies
earn 10% of the value of their shares. Ascertain the companies shares under
1. Interensic value per share
2. Yield value per share
3. Fair value of share.
1. Interensic value per share
Profits avilable for equity share holders:
Assets:
Land and Buildings 240,000.00
Goodwill 160,000.00
Patents and Trademarks 20,000.00
Stoc k 48,000.00
Bank balance 52,000.00
Debtors 88,000.00
Less: Bad Debts 8,000.00 80,000.00
720,000.00
Less: LIABILITIES
Income Tax 60,000.00 188,000.00
532,000.00
Interensic value of share 266.00 per share
2. Yield value per share
1998-99 80,000.00 1 80,000.00
1999-2000 90,000.00 2 180,000.00
2000-2001 98,000.00 3 294,000.00
6 554,000.00
Less: Transfer to reserve 25% 23,083.33
profits avialble to equity shareholders 69,250.00
ERR 0.35
Yield vlaue of share 346.25 per share
3. Fair value of share.
Fair value of share 306.13 per share.
Problem 5:
The following is the Balance Sheet of Modern cool Ltd, as on 31-03-1998:
Share capital Land and Buildings 270,000.00
Authorised and Issued Plant and Machinery 100,000.00
6000 shares of Rs. 100 each full paid 600,000.00 Stock 360,000.00
Profit and Loss a/c 40,000.00 Sundry Debtors 160,000.00
Bank overdraft 10,000.00
Creditors 80,000.00
Proposed Dividend 60,000.00
890,000.00 890,000.00
The net profits of the company after deducting usual working expenses before providing for taxation:
1992-1993 200,000.00
1991-1992 220,000.00
1990-1991 180,000.00
1989-1990 220,000.00
1988-1989 170,000.00
On the 31 st March 1993 Land and Buildings were valued at Rs. 280000 and Plant and Machinery at Rs. 120000.
Sundry debtors on the same date of included Rs. 4000 as irrecoverable
Having regard to the nature of the business a 10% return, on net tangible capital invested, is considered reasonable
You are required to value the companys shares ex dividend, your own valuation of goodwill may be based on five
years purchase of the annual super profits (the tax rate s to be assumed at 50%).
Valuvation of Goodwill:
Capital Employed
Assets:
Stock 360,000.00
Sundry Debtors 160,000.00
Less: Bad Debts 4,000.00 156,000.00
916,000.00
Less: Liabilities
Bank Overdraft 10,000.00
Creditors 80,000.00
Provision for dividend 60,000.00 250,000.00
197,200.00
Less: Profit at 50% tax 98,600.00
FMAP 98,600.00
Less: Normal Profit @ 10% 66,600.00
32,000.00
Goodwill 160,000.00
Net assests based for goodwill 666,000.00
Add: Goodwill 160,000.00
826,000.00
Internsic value 137.67 per share
Problem 6:
The Balance sheet of Diamond Ltd, as on 31-03-2001:
(Rs. In lakshs)
Share capital of fully paid up shares Land and Building 110.00
of Rs. 100 each 200.00 Plant and Machinery 130.00
General reserve 40.00 Patent and Trademarks 20.00
Profit and Loss account 32.00 Stock 48.00
Sundry creditors 128.00 Sundry debtors 88.00
Provision for income tax 60.00 Bank Balance 52.00
Preliemenary Expenses 12.00
460.00 460.00
The expert valuer valued the land and building at Rs. 240 lakshs, goodwill at Rs. 160 lakshs and plant and machinery
at Rs. 120 lakhs. Out of the total debtors it is found that debtors for Rs. 8 lakhs are bad. The profits of the company
are as follows: (Rs. In lakshs)
1998-1999 92.00
1999-2000 88.00
2000-2001 96.00
The company follows the practice of transferring 25% to general reserve. Similar types of companies earn at 10%
of the value of their shares. Plant and machinery and land and building depreciated at 15% and 10% respectively.
Ascertain the value of shares of the company under
1. Interensic value
2. Yield value
3. Fair value.
1. Interensic value
Assets:
Land and Building 240.00
Plant and Machinery 120.00
Patents and Trademark 20.00
Stock 48.00
Bank balance 52.00
Goodwill 160.00
Sundry debtors 88.00
Less: Bad debts 8.00 80.00
720.00
Less: Liabilities
Creditors 128.00
Provision for income tax 60.00 188.00
532.00
Interensic value 266.00
2. Yield value
Average profit 268.00
89.33
Less: Transfer to Reserve 22.33
67.00
ERR 0.34
Yield value 335.00 per share
Fair value of share 300.50 per share
Problem 7:
The Balance sheet as on 31-12-2001:
5000 equity shares of Rs. 100 each 500,000.00 Goodwill 100,000.00
Calls in arrears at Rs. 25 50,000.00 450,000.00 Land and Building 300,000.00
12% Prefrence shares 1,000,000.00 Plant and Machinery 900,000.00
General reserve 500,000.00 Loose tools 150,000.00
Reserve fund 50,000.00 Investment 500,000.00
Pension fund 300,000.00 Stock 350,000.00
Workmens compenstion fund 200,000.00 Debtors 300,000.00
Staff welfare fund 100,000.00 Bank balance 200,000.00
10% debentures 200,000.00 Prepaid expenses 100,000.00
Creditors 100,000.00 Preliemenary expenses 200,000.00
Other liabilities 200,000.00
3,100,000.00 3,100,000.00
Adjustments:
1. Profits of past 4 years given below after tax at the rate of 50%
2004 400,000.00
2005 300,000.00
2006 400,000.00
2007 400,000.00
2. Investment represent 10% government securities having a face value of Rs. 600000 and market value of
Rs. 550000 (purchase in 2000)
3. Tax from next year is going to be 40%
4. A Building was acquired in 2005 for Rs. 200000 was charged to wages account (depreciation 20% wdv)
5. Profits of 2006 includes as abnormal loss of Rs. 50000
6.Of the debtors of 40000 are bad
7. Land and building appreciated by 30% and plant and machinery reduced by 20%
8. Claim for damages Rs. 10000 is yet to be provided
9. NRR @ 10% on net tangible assets
10. Calculate the fair value for both the categories of shares by incorporting your own value of goodwill.
Valuation of Goodwill:
working notes
Land and building at 2005 200,000.00
Less: depreciation at 20% 40,000.00
Land and building @ 2005 160,000.00
Less depreciation @ 20% for 2006 32,000.00
Land and building at end of 2006 128,000.00
Less depreciation @ 20% for 2007 25,600.00
Land and building at end of 2007 102,400.00
Assets:
Land and building 300,000.00
Add: omitted land and building
after depreciation 102,400.00
402,400.00
Add: Appreciation @ 30% 120,720.00 523,120.00
Loose tools 150,000.00
Stock 350,000.00
Debtors 300,000.00
Less: Bad debts 40,000.00 260,000.00
Bank 200,000.00
Prepaid expenses 100,000.00
2,303,120.00
Less: Liabilities
Claim for damages 10,000.00
Staff welfare fund 100,000.00
Pension fund 300,000.00
Other liabilities 200,000.00 910,000.00
Capital employed 1,393,120.00
Particulars 2004 2005 2006 2007
Profit befor tax 800,000.00 600,000.00 800,000.00 800,000.00
Less: income from investment 60,000.00 60,000.00 60,000.00 60,000.00
Add: Wrongly charged L&B 200,000.00
Less: Depreciation @ 20% on WDV 40,000.00 32,000.00 25,600.00
Add: Abnormal loss 50,000.00
Less: Insurance claim to be provided 10,000.00
Profit befor tax 740,000.00 700,000.00 758,000.00 664,400.00
Average profit 2,862,400.00
715,600.00
Less: Tax @ 40% 286,240.00
FMAP 429,360.00
Goodwill 2,900,480.00
Valuation of Shares
Net assets for Goodwill 1,393,120.00
Add: Goodwill 2,900,480.00
Add: Investments 550,000.00
Less: Preference shares 1,000,000.00
3,843,600.00
Add: Calls in arrears 50,000.00
3,893,600.00
Interensic vale for full paid shares 778.72 per share
Interensic value for calls in arrear at Rs. 25 per
share 753.72 per share
Yeild Value of share
Average profit before tax 715,600.00
Add: Income from investment 60,000.00
775,600.00
Less: Tax 40% 310,240.00
Profit after tax 465,360.00
Less: Transfer of 25% to reserve 116,340.00
Profit available for equity share holders 349,020.00
ERR 77.56
Yeild value for fully paid shares 775.60
Yeild value for partly paid shares at Rs. 75 581.70
Fair value of fully paid shares 777.16
Fair value of partly paid shares 667.71
Problem 8:
Share capital 100000 equity shares Fixed assets:
of Rs. 10 each 1,000,000.00 Machinery 800,000.00
Less: Calls in arrears of Rs. 2 50,000.00 950,000.00 Factory shed 300,000.00
Rerserves and Surplus: Vechicles 200,000.00
General reserve 400,000.00 Furniture 50,000.00
Profit and Loss a/c 230,000.00 Current Assets:
Current Liabilities: Stock 400,000.00
Bank overdraft 500,000.00 Debtors 750,000.00
Creditors 500,000.00 Bank Balance 60,000.00
Misc. Expenses
Preliemenary expenses 20,000.00
2,580,000.00 2,580,000.00
The following additional information is furnished:
1. Machinery and Factory shed as worth 30% above their book value. Depreciation and appreciated value of
Mahcinery and factory shed is not to be considered for valuation of goodwill and shares.
2. For the purpose of valuation of shares and goodwill is to be considered on the basis of 4 years purchase of
shares based on average profit (after tax) of last 3 years. Profits of the 3 years after tax are as follows
200,000.00
250,000.00
100,000.00
3. In the year ended 31.03.1998 new addition to factory shed costing Rs. 20000 was charged to profit and loss a/c is
20% on reducing balance method.
4.In a similar business return on average capital employed is 15% after tax
5. Income tax at 50%
Find out the value of each fully paid and partly share on net assets basis. Show your working to the nearest
rupee. Your working will form part of the answer.
Calculation of average profit
Particulars 1999 2000 2001
Profit before tax 400,000.00 500,000.00 200,000.00
Less: Factory shed depreciation @ 20% 4,000.00 3,200.00 2,560.00
Adjusted profit before tax 396,000.00 496,800.00 197,440.00
Less: Tax at 50% 181,706.67
FMAP 181,706.67
Goodwill 726,826.67
Machinery 800,000.00
Add: 30% appreciation 240,000.00 1,040,000.00
Factory shed 300,000.00
Add: ommitted factory shed 10,240.00
310,240.00
Add: 30% appreciation 93,072.00 403,312.00
Goodwill 726,826.67
Vechicles 200,000.00
Furniture 50,000.00
Stock 400,000.00
Debtors 750,000.00
3,630,138.67
Less: Liabilities
Bank Overdraft 500,000.00 1,000,000.00
Net assets 2,630,138.67
Add: Calls in arrears 50,000.00
2,680,138.67
Interensic value of shares
Interensic value for fully paid shares 26.80 per share
Interensic value for partly paid shares of Rs. 98 24.80 per share
Problem 9:
The following is the Balance Sheet of G Ltd, as at 31-12-2002
5000 Equity shares of Rs. 100 each Land and Buildings 1,000,000.00
fully paid 500,000.00 Machinery 200,000.00
Profit and Loss a/c 750,000.00 Stock 300,000.00
Bank Loan 250,000.00 Debtors 180,000.00
Proposed dividend 120,000.00 Preliemenary expenses 30,000.00
Income tax provision 200,000.00
1,920,000.00 1,920,000.00
Net profit for the five years
1997 220,000.00
1998 250,000.00
1999 175,000.00
2000 300,000.00
2001 160,000.00
Profits of 1998 was Rs. 20000 less due to loss by theft and profit of year 2000 included a profit of Rs. 30000 on sale
of long term investments. Land and building revalued at Rs. 1500000 and a return of 10% on tangible capital
employed (before adjustment) is considered reasonable goodwill is calculated on 5 years purchase of annual super
profit (simple average profit method). Also find interensic value of share. Proposed divided has been subsequtely
approved and paid.
Capital Employed:
Assets:
Land and Buildings 1,500,000.00
Stock 300,000.00
Debtors 180,000.00
Bank balance 210,000.00
2,390,000.00
Less: Liabilities
Bank Loan 250,000.00
Proposed dividend 120,000.00
Income tax provision 200,000.00 670,000.00
Capital employed 1,720,000.00
Average profit:
1997 220,000.00
1998 250,000.00
Add: Loss by theft 20,000.00 270,000.00
1999 175,000.00
2000 300,000.00
Less: income from investment 30,000.00 270,000.00
2001 160,000.00
1,095,000.00
Goodwill 235,000.00
Assets 2,390,000.00
Less: proposed dividend 120,000.00
2,270,000.00
Less: Liabilities 550,000.00
Net assets available for equity share holders 1,720,000.00
Interensic value of share 344.00 per share
Problem 10:
The Balance Sheet of Boomex Ltd., as on 31.03.2005 are as follows:
Equity Shares (Rs. 10) 1,000,000.00 Goodwill 200,000.00
General Reserve 500,000.00 Equipment (at Cost) 1,800,000.00
12% Debentures 600,000.00 Debtors 300,000.00
Provision for depreciation on Cash and Bank 150,000.00
equipment 300,000.00 Advance Suspense a/c 50,000.00
Staff welfare fund 80,000.00
Proposed dividend 150,000.00
3,200,000.00 3,200,000.00
You are required to calculate the value of each share on assets basis. The following further information is
available:
1. A fair tax return on capital employed for this type of business is 18%
2. Equipment is to revalued at Rs. 16000000
3. Stocks are considered to have to net realisable value of Rs. 660000.
4. Goodwill in this type of business is normally valued at 3 years super profit.
5. Inclueded in the debtors is a balance of Rs. 20000 which may prove irrcoverable.
6. Profit for last 3 years (before interest and taxes) are:
2004-05 1,080,000.00
2003-04 1,020,000.00
2002-03 1,100,000.00
7. Company profits are taxed at 40%.
Assets:
Equipment 1,600,000.00
Stock 660,000.00
Debtors 300,000.00
Less: Bad Debts 20,000.00 280,000.00
2,690,000.00
Less: Liabilities
Staff Welfare fund 80,000.00
Propotion for depreciation 300,000.00
Debentures 600,000.00 1,500,000.00
Capital Employed 1,190,000.00
2002-03 1,100,000.00
2003-04 1,020,000.00
2004-05 1,080,000.00
Less: Bad Debts 20,000.00 1,060,000.00
3,180,000.00
Average Profit 1,060,000.00
Less: Tax 40% 424,000.00
FMAP 636,000.00
Less: Normal profit at 18% 214,200.00
Super Profit 421,800.00
Goodwill 1,265,400.00
Net assets based on goodwill 1,190,000.00
Add: Good Will 1,265,400.00
Profits available for equity shares 2,455,400.00
Interensic value of shares 24.55 Per share.
Yield value of shares:
Profit available for equity share holders: 636,000.00
ERR 0.64
yield value 35.33 per share
Fair value 29.94 per share
Section -2
Problem 1:
The net profits of a company afterr providing for taxation for the past five years are Rs. 78 lakh, Rs. 82 lakh, Rs. 88 lakh, Rs. 93 lakh. The capital employed
in the business is Rs. 8 crore on which the reasonable rate of return of 10% is expected. It is expected that the company will be able to maintain its super
profits for the next five years.
1. Calculate the value of the goodwill of the business on the basis of an annuity of super profits, taking the present value of an annuity of one rupee
for the five years at 10% interest as Rs. 3.78?
2. How would your answer differ if the goodwill is valued by capitalising the excess of the annual profits over the reasonable return on capital employed
on the basis of the same return of 10%?
How you any comment to offer?
Total Profit for five years:
1st Year 7,800,000.00
2nd Year 8,200,000.00
3rd Year 8,800,000.00
4th Year 9,300,000.00
5th Year 9,900,000.00
Total 44,000,000.00
Less: 10% on capital employed of
Rs. 80000000 8,000,000.00
Super Profit 36,000,000.00
1. Value of Goodwill on annuity method:
Present value of annuity factor for
Rs. 8 laksh 3.78
Value of goodwill 30,240,000.00
2. Capitalized value of goodwill 80,000,000.00
Comment:
The value of goodwill based on annuity method is very far as compared to the value of goodwill based on capitalization of superprofits because super
profits will not continue for ever.
Problem 2:
The following is the balance sheet of Bharat Manufacturing Co., Ltd as at 31st March 2001:
LIABILITIES AMOUNT AMOUNT ASSETS AMOUNT
300000 Equity Shares of Rs. 10 each Goodwill, at cost
fully paid 3,000,000.00 Plant and Machinery
Capital Reserve 100,000.00 (cost less depreciation)
General Reserve 695,000.00 Furniture and Fixtures
Profit and Loss Account 15,000.00 (cost less depreciation)
Sundry Creditors 1,285,000.00 Stock
Provision for Taxation 750,000.00 Debtors
Proposed Dividend 660,000.00 Cash at Bank
Preliminary Expenses
6,505,000.00
The following additional information is provided to you:
1. The reasonable return on capital employed in the industry in which Bharat Manufacturing Co., Ltd is engaged is 18%.
2. The rate of tax is 50% . The balance in Provision for Taxation Account is in respect of profits for the year ended 31st March 2001
3. The year 2000-2001 was a normal year and the prospects for 2001-2002 are equally good.
Calculate value of goodwill at three years purchae of the super profits of the company. Ignore corporate dividend tax
Calculation of Capital Employed:
Assets:
Goodwill, at cost 250,000.00
Furniture and Fixtures 300,000.00
Stock 1,600,000.00
Debtors 1,000,000.00
Cash at Bank 2,455,000.00
Total Assets 6,455,000.00
Less: Liabilities
Sundry Creditors 1,285,000.00
Provision for Taxation 750,000.00
Total Liabilites 2,695,000.00
Closing average Capital
Current year Profit 750,000.00
Less: 50% of current year Profit 375,000.00
Closing average Capital 375,000.00
Average capital Employed 3,385,000.00
FMAP 750,000.00
Normal Profit 609,300.00
Goodwill 422,100.00
Problem 3:
From the following particulars calculate the intrinsic value of one equity share of Hilton Ltd:
Balance Sheet of Hilton Ltd as at 31st March 2001:
200000 Equity Shares of Rs. 10 each 2,000,000.00 Goodwill, at cost
General Reserve 700,000.00 Furniture, cost less depreciation
Profit and Loss Account 450,000.00 Investment at cost
14% Debentures 500,000.00 (market value Rs. 550000)
Sundry Creditors 550,000.00 Stock
Provision for Taxation 450,000.00 Debtors
Employees Provided Fund 600,000.00 Bank Balance
Expenses on issue of Debentures
5,250,000.00
Goodwill is revalued as on this date at Rs. 260000 , whereas debtors are subject to a provision of bad debts @ 5%
Assets available for Equity Shareholders:
Assets:
Goodwill 260,000.00
Furniture, cost less depreciation 300,000.00
Investment at cost 550,000.00
Stock 2,200,000.00
Debtors 600,000.00
Less: Bad Debts 30,000.00 570,000.00
Bank Balance 1,300,000.00
Less: Liabilities
Sundry Creditors550,000.00
Employees Provided Fund 600,000.00
Total Liabilities 2,100,000.00
Assets available for Equity Shareholders: 3,080,000.00
Internsic Value of Equity Share Holders 15.40 per share
Problem 4:
From the following particulars, calculate the value of equity shares:
2000 9% Preference shares of Rs. 100 each 200,000.00
50000 Equity Shares of Rs. 10 each, Rs. 8 per share paid up 400,000.00
Expected Profit per year before tax 218,000.00
Rate of tax 40%
Transfer to general reserve every year 20% of Profit
Normal rate of earning 15%
Expected Profit before tax 218,000.00
Less Tax @ 40% 87,200.00
Profit after Tax 130,800.00
Less: Transfer to General Reserve 20%
on Rs. 130800 26,160.00
Profit available for Dividend 104,640.00
Less: Preference share of 9% on Rs. 200000 18,000.00
Amount available for Equity Share Holders 86,640.00
Rate of dividend or earning on one equity shares 21.66%
Normal rate of earning 15%
Hence, value of one equity share 11.55
Problem 5:
From the following information calculate the value of an equity share:
1. The paid up share capitl of the company consists of 1000 14% preference shares of Rs. 100 each and 20000 equity shares of Rs. 10 each
2. The annual profits of the company for the last four years after providing for depreciation but before taxation have been Rs. 190000, Rs. 210000
Rs. 205000 and Rs. 215000. The prospects of the company for the future are equally good. The rate of taxation is 50%
3. The company transfers 20% of its profits remaining after tax to General Reserve before declaring any dividend; the transfer being considered as
adequate.
4. The noramal return expected by investors on equity shares from the type of business carried on by the company is 20%
Total Profits for last four years
I year 190,000.00
II year 210,000.00
III year 205,000.00
IV year 215,000.00
Total 820,000.00
Average Profit 205,000.00
Less: Tax @ 50% 102,500.00
Less: Transfer of Profit @ 20% 20,500.00
Prefrence Dividend @ 14% on
Rs. 100000 14,000.00
34,500.00
Amount available for Equity Share Holders 68,000.00
Rate of Return for Equity Shareholders 34%
Normal Rate of Return 20%
Hence, value of one equity share 17.00
Problem 6:
X Ltd is to take over the business of Y Ltd. On 1st April 2001 . For the purpose you are required to calculate the value of Y Ltd's goodwill on the
basis of capitalization of earnings. The following is the balance sheet of Y Ltd. As at 31st March 2001:
50,000 Equity Shares of Rs. 10 each 500,000.00 Goodwill, at cost
General Reserve 140,000.00 Plant and Machinery
Profit and Loss Account 170,000.00 Cost less depreciation
Sundry Creditors 100,000.00 Furniture cost less depreciation
Provision for Taxation 170,000.00 Stock
Debtors 50,000.00
Less: Provision for Bad Debts 1,000.00
Cash at Bank
1,080,000.00
Y Ltd's average profits before tax for the last five years have been Rs. 325000 without any wide flucutuations. Future prospects are equally good.
The normal rate of return is 20% while the rate of tax is 50%
Average Profit Before Tax 325,000.00
Less: Tax @ 50% 162,500.00
Average Profit after Tax 162,500.00
Capitalisation of Rs. 162500 812,500.00
Net Tangible Assets of the Company:
Furniture 35,000.00
Stock 350,000.00
Debtor less Bad Debts 49,000.00
Less: Liabilities
Total Liabilities 270,000.00
Net Tangible Assets 740,000.00
Goodwill 72,500.00
Problem 7:
The following is the summarised balance sheet of Chandra Ltd as at 31st March 2001:
50,000 Equity Shares of Rs. 10 each 500,000.00 Machinery
Share Premium 100,000.00 Furniture
General Reserve 239,400.00 Stock
Profit and Loss Account 157,600.00 Debtors
Sundry Creditors 409,400.00 Cash in Hand
Provision for Taxation 197,000.00 Cash at Bank
1,603,400.00
The company transfers 20% of its profits (after tax) to General Reserve. Net Profits before taxation for the last three years have been as follows:
For the year ended 31st March 1999 272,000.00
Machinery is valued at 320,000.00
Average yield in this type of business is 20% . The rate of tax is 50%
Calculate the value of one equity share on the basis of (a) intrinsic Value and (b) Yield Value.
Assets:
Furniture 100,000.00
Stock 620,000.00
Debtors 206,000.00
Less: Liabilities
Assets available for Equity Share Holders 1,077,000.00
Intrinsic Value of one equity share 21.54
(b) Yield Value
Total 1,032,000.00
Less: Tax @ 50% 172,000.00
172,000.00
Less: Transfer @ 20% 34,400.00
137,600.00
Rate of Dividend 27.52%
Value of Per share 13.76
Problem 8:
The summarised Balance Sheet of BK Ltd as at 31st March 2001 is as follows:
Rs in Lakhs Rs in Lakhs Rs in Lakhs
30 lakh Equity shares of Rs. 10 each 300.00 Goodwill
10 lakh Equity shares of Rs. 10 each Other Fixed Assets
and Rs. 8 paid up 80.00 Current Assets
Reserves 180.00 Preliminary Expenses
11% Debentures 100.00
Current Liabilities 90.00
750.00
The goodwill is independently valued at Rs. 50 lakh and other fixed assets at Rs. 420 lakhs. There was a contingent liability of Rs. 20
lakh which has become payable. Determine the value of both the shares under net assets method.
Assets:
Goodwill 50.00
Fixed Assets 420.00
Current Assets 220.00
Call on 10 lakh equity shares @ Rs.2 per share 20.00
710.00
Less: Liabilities:
Contigent Liabilities 20.00
Debentures 100.00 210.00
Assets available for Equity Share Holders 500.00
Value Per Share 12.50
Value Per Share for Partly Paid Share 10.50
Problem 9:
The Profits of a company, limited by shares, for the year ended 31st March, 2001 were Rs. 60 lakh. After setting apart amounts for interest on
borrwoings, taxation and other provisions, the net surplus available to shareholders estimated at Rs. 1500000. The company's capital base consisted
at:
(a) 10,00,000 Equity Shares of Rs. 10 each, Rs. 5 per share paid up and
(b) 25000 12% Cumulative redeemable preference shares of Rs. 100 each fully paid up
Enquires in the stock market reveal that shares of companies engaged in similar business and declaring a dividend of 15% on equity
shares are quoted at a premium of 10% . What do you expect the market value of the company's equity shares to be , basing your
working on the yield method.
Net Surplus Avilable for to Shareholders 1,500,000.00
Less: Preference shares 300,000.00
Amount avialable for equity dividend 1,200,000.00
Rate of Dividend 24.00%
Expected market value @ 15% dividend 55.00
Expected Market Value @ 24% Dividend 88.00
Problem 10:
Ascertain the value of goodwill of the Prosperous Co., Ltd carrying on business as Retail Traders from the following information supplied to you:
Rs in '000 Rs in '000 Rs in '000
Paid Up Capital Goodwill, at cost
Share of Rs. 100, each fully paid 250,000.00 Land and Buildings
Profit and Loss Appropriation A/c 36,650.00 Stock in Trade
Bank Overdraft 28,350.00 Book Debts less Prov.for bad debts
475,000.00
The company commenced its operations in 1984 with paid up capital of Rs. 250000 thousand profit (after taxation) have been as follows
for the recent years.
year ending 31st March Rs in '000
1997 20,000.00 (loss)
1998 44,000.00
1999 51,500.00
2000 58,500.00
2001 65,000.00
The loss in 1996-97 occurred due to a prolonged strike:
Income tax paid so far has been at the average rate of 40% but is likely to be 50% from now onwards, dividends were distributed at the
rate of 10% in1998 and 1999 and at the rate of 15% on the paid up capital in 2000 and 2001. The market price of the share is rolling at the
end of the year ended 31st March, at Rs. 125. Profits till 2001 have been ascertained after debiting Rs. 20000 thousand as remuneration
to the manager. The compan has approved a remuneration of Rs. 30000 thousand with effect from 1st April, 1999. The company has been
able to secure a contract for supply of materials at advantageous prices. The advantage has been valued at Rs. 20000 thousand per
annum for the nex five years.
Capital Employed:
Stock in Trade 150,000.00
Book Debts less Prov.for bad debts 90,000.00
450,000.00
Less: Liabilities
Bank Overdraft 28,350.00
168,350.00
Capital Employed at the end 281,650.00
Less: 50% of current year profit 32,500.00
Normal Profit:
Average Dividend for 4 years 12.50%
Ruling Price 125.00
Normal Rate of Return 10.00%
Average Expected Profit in Future:
Year Profit Weight Product
1998 44,000.00 1.00 44,000.00
1999 51,500.00 2.00 103,000.00
2000 58,500.00 3.00 175,500.00
2001 65,000.00 4.00 260,000.00
10.00 582,500.00
Average profit (after tax) 58,250.00
Average Profit (before tax) 97,083.33
Less: Increase in remuneration of
managing director 10,000.00
87,083.33
Add: Savings in cost of materials 20,000.00
FMAP 107,083.33
Less: Tax @ 50% 53,541.67
Expected Profit in Future 53,541.67
Goodwill at 3 years of purchase 66,380.00
Problem 11:
The following is the balance sheet of X Ltd., as at 31st March 2001:
Rs in Lakhs Rs in Lakhs Rs in Lakhs
Share Capital:
10000 share of Rs. 10 each 100.00 Land and Building
General Reserve 40.00 Plant and Machinery(cost less
Profit and Loss Account 46.00 Depreciation)
Sundry Creditors 49.00 Trade Marks
Workmens savings account 15.00 Stock
Debtors
Cash at Bank
250.00
The Plant and Machinery worth is Rs. 60 lakhs and Land and Buildings have been valued at Rs. 120 laksh by an independent valuer, Rs. 4 lakh of
the debts are bad. The profits of the company have been as follows:
1998-1999 40.00
1999-2000 45.00
2000-2001 53.00
It is the company practice to transfer 25% of the profits to the reserve. Ignoring taxation, find out the value of the shares. Similar companies give
yield of 10% on the market value of their shares. Goodwill may be taken to be worth Rs. 60 lakhs.
(i) yield basis:
1998-1999 40.00
1999-2000 45.00
2000-2001 53.00
138.00
Less: Bad Debts 4.00
Total Profit for 3 years 134.00
Average Profit 44.67
Less: Increase in depreciation on
Land and Building @ 10% on
Rs. 65 lakhs the increased value 6.50
38.17
Add: Decrease in depreciation on
Plant and Machninery at 15% on
Rs. 5 lakhs , the decreased value 0.01
Adjusted Half year Profits 38.17
Less: Transfer to Reserve 9.54
Profits available for Dividend 28.63
Percentage of dividend 28.63
Value of one share 28.63
(ii) Intrinisic Value:
Assets:
Goodwill 60.00
Land and Building 120.00
Plant and Machinery 60.00
Trade Marks 10.00
Stock 24.00
Debtors 44.00
Less: Bad Debts 4.00 40.00
Cash in Bank 46.00
360.00
Less: Liabilities
Sundry Creditors 49.00
Workmen compensation fund 15.00
64.00
Net Assets 296.00
Value per share 29.60
Problem 12:
Richa wants to buy all the shares of Zed Ltd. Whose balance sheet as at 31st March 2001, is given below:
Share Capital 600,000.00 Fixed Assets 1,000,000.00
General Reserve 150,000.00 Less: Depreciation 270,000.00
Profit and Loss Account 75,000.00 10% Tax-free Govt. securities
14% Debentures 100,000.00 Current Assets
Sundry Creditors 108,500.00 Preliminary Expenses
1,176,500.00
The Provision for taxation is only for the current year and is @ 50% of the profits. The company transfers 10% of its profits after tax to
its general reserve. Other companies in the same industry show an income of 20% on capital employed.
Richa seeks your advice as to the amount she should pay for the shares. What will be your advice?
Assets:
Current Assets 370,000.00
1,100,000.00
Less: Liabilities
351,500.00
748,500.00
Less: Transfer to General Reserve 128,700.00
Less: Balance on Profit and Loss a/c 75,000.00 53,700.00
802,200.00
Less: Half yearly closing average 71,500.00
Average Capital Employed 730,700.00
General Rate of Return20%
Normal Profit 20% on Rs. 730700 146,140.00
Less: Interest on Tax-Free govt. Sec 6,000.00
Opening Profit 137,000.00
Normal Profit being higher than the actual operating profit, there is no super profit and hence no goodwill. The business must be valued
on capitalization basis since otherwise the return will be less than 20%
Value of Opening Assets 685,000.00
Add: 10% Tax-Free govt. securities 60,000.00
Total value of business 745,000.00
Richa, therefore, is advised to pay Rs. 745000 for all the shares of Zed Ltd
Suggested Questions and Answers:
Problem - 13: June 2003 Q.No:2
The following is the Balance Sheet of G Ltd as at 31st December 2002:
50,000 Equity Shares of Rs. 100 each 500,000.00 Land and Buildings
Profit and Loss a/c 750,000.00 Machinery
Bank Loan 250,000.00 Stock
Creditors 100,000.00 Debtors
Proposed Dividend 120,000.00 Bank Balance
Income Tax Provision 200,000.00 Prelimenary Expenses
1,920,000.00
Net Profit for the five years ending 31st December 2002 were as follows:
Year 1997 220,000.00
Year 1998 250,000.00
Year 1999 175,000.00
Year 2000 300,000.00
Year 2001 160,000.00
Profits of 1998 was Rs. 20000 less due to loss by theft and profits of the year 2000 included a profit of Rs. 30000 on sale of long term
investments. Land and building is revalued at Rs. 1500000 and a return of 10% on tangible capital employed (before adjustment) is
concsidered reasonable. Goodwill is to be calculated on five years purchase of annual super profits (simple average method). Also find
out the intrinsic value of the share. Propsoed dividend has been subsequently approved and paid.
Year 1997 220,000.00
Year 1998 250,000.00
Add: Loss by Theft 20,000.00 270,000.00
Year 1999 175,000.00
Year 2000 300,000.00
Less: Profit on sale of long term 30,000.00 270,000.00
Year 2001 160,000.00
Total Adjusted Profit 1,095,000.00
Capital Employed:
Assets:
Land and Buildings 1,000,000.00
Stock 300,000.00
Debtors 180,000.00
Less: Liabilities
Bank Loan 250,000.00
Income Tax Provision 200,000.00
Rate of Return 10%
Goodwill 485,000.00
Valuation of Shares - Interensic Value Method:
Net Assets as per valuation of
Goodwill 1,220,000.00
Assets Available for Equity share Holders 1,705,000.00
Intrinsic Value per share 341.00 per share
Problem 14: June 2005-Q.No: 4(b)
The summarized balance sheet of Tinker Ltd as on 31st March 2005 as follows:
Equity Shares of Rs. 10 each 5,000,000.00 Goodwill
General Reserve 1,000,000.00 Plant and Machinery
Dividend equilization reserve 500,000.00 Investments
Share Premium 300,000.00 Stocks
Profit and Loss Account 200,000.00 Debtors
Sundry Creditors 1,500,000.00 Cash and Bank
8,500,000.00
The companys profit and loss account for the year ended 31st March 2005 showed a net profit (before tax) of Rs. 2500000. The profit includes interest
on investment of Rs. 50000. Goodwill is being written off Rs. 50000 per annum. The applicable income tax rate is 40%. It is expected that the
company will be able to maintain its present level of performance. Plant and Machinery is revalued at Rs. 7000000. Future depreciation charge is to
go up by Rs. 100000. Normal return on capital employed may be taken at 10%. Compute the value of goodwill of the company based on 4 years
purchaseof maintainable super profit. The capital employed figure is to be calculated on the basis of last year end position.
Capital Employed:
Assets:
Plant and Machinery 7,000,000.00
Stocks 800,000.00
Debtors 950,000.00
Less: Liabilities
Sundry Creditors 1,500,000.00
Profit Before Tax 2,500,000.00
2,550,000.00
Less:
Investment Interest 50,000.00
Additional depreciation 100,000.00 150,000.00
Adjusted Profit 2,400,000.00
Less: Tax @ 40% 960,000.00
Profit After Tax 1,440,000.00
Normal Rate of Return10%
Normal Return 750,000.00
Value of Goodwill 2,760,000.00
The net profits of a company afterr providing for taxation for the past five years are Rs. 78 lakh, Rs. 82 lakh, Rs. 88 lakh, Rs. 93 lakh. The capital employed
in the business is Rs. 8 crore on which the reasonable rate of return of 10% is expected. It is expected that the company will be able to maintain its super
1. Calculate the value of the goodwill of the business on the basis of an annuity of super profits, taking the present value of an annuity of one rupee
2. How would your answer differ if the goodwill is valued by capitalising the excess of the annual profits over the reasonable return on capital employed
The value of goodwill based on annuity method is very far as compared to the value of goodwill based on capitalization of superprofits because super
AMOUNT
250,000.00
850,000.00
300,000.00
########
########
########
50,000.00
########
1. The reasonable return on capital employed in the industry in which Bharat Manufacturing Co., Ltd is engaged is 18%.
2. The rate of tax is 50% . The balance in Provision for Taxation Account is in respect of profits for the year ended 31st March 2001
3. The year 2000-2001 was a normal year and the prospects for 2001-2002 are equally good.
Calculate value of goodwill at three years purchae of the super profits of the company. Ignore corporate dividend tax
AMOUNT
200,000.00
300,000.00
600,000.00
########
600,000.00
########
50,000.00
########
Goodwill is revalued as on this date at Rs. 260000 , whereas debtors are subject to a provision of bad debts @ 5%
1. The paid up share capitl of the company consists of 1000 14% preference shares of Rs. 100 each and 20000 equity shares of Rs. 10 each
2. The annual profits of the company for the last four years after providing for depreciation but before taxation have been Rs. 190000, Rs. 210000
3. The company transfers 20% of its profits remaining after tax to General Reserve before declaring any dividend; the transfer being considered as
X Ltd is to take over the business of Y Ltd. On 1st April 2001 . For the purpose you are required to calculate the value of Y Ltd's goodwill on the
AMOUNT
60,000.00
265,000.00
35,000.00
350,000.00
49,000.00
311,000.00
10,000.00
########
Y Ltd's average profits before tax for the last five years have been Rs. 325000 without any wide flucutuations. Future prospects are equally good.
AMOUNT
240,000.00
100,000.00
620,000.00
206,000.00
3,400.00
434,000.00
########
The company transfers 20% of its profits (after tax) to General Reserve. Net Profits before taxation for the last three years have been as follows:
Calculate the value of one equity share on the basis of (a) intrinsic Value and (b) Yield Value.
AMOUNT
Rs in Lakhs
70.00
450.00
220.00
10.00
750.00
The goodwill is independently valued at Rs. 50 lakh and other fixed assets at Rs. 420 lakhs. There was a contingent liability of Rs. 20
lakh which has become payable. Determine the value of both the shares under net assets method.
The Profits of a company, limited by shares, for the year ended 31st March, 2001 were Rs. 60 lakh. After setting apart amounts for interest on
borrwoings, taxation and other provisions, the net surplus available to shareholders estimated at Rs. 1500000. The company's capital base consisted
(b) 25000 12% Cumulative redeemable preference shares of Rs. 100 each fully paid up
Enquires in the stock market reveal that shares of companies engaged in similar business and declaring a dividend of 15% on equity
shares are quoted at a premium of 10% . What do you expect the market value of the company's equity shares to be , basing your
Ascertain the value of goodwill of the Prosperous Co., Ltd carrying on business as Retail Traders from the following information supplied to you:
AMOUNT
Rs in '000
25,000.00
110,000.00
100,000.00
150,000.00
90,000.00
475,000.00
The company commenced its operations in 1984 with paid up capital of Rs. 250000 thousand profit (after taxation) have been as follows
Income tax paid so far has been at the average rate of 40% but is likely to be 50% from now onwards, dividends were distributed at the
rate of 10% in1998 and 1999 and at the rate of 15% on the paid up capital in 2000 and 2001. The market price of the share is rolling at the
end of the year ended 31st March, at Rs. 125. Profits till 2001 have been ascertained after debiting Rs. 20000 thousand as remuneration
to the manager. The compan has approved a remuneration of Rs. 30000 thousand with effect from 1st April, 1999. The company has been
able to secure a contract for supply of materials at advantageous prices. The advantage has been valued at Rs. 20000 thousand per
AMOUNT
Rs in Lakhs
55.00
Plant and Machinery(cost less
65.00
10.00
24.00
44.00
46.00
6.00
250.00
The Plant and Machinery worth is Rs. 60 lakhs and Land and Buildings have been valued at Rs. 120 laksh by an independent valuer, Rs. 4 lakh of
It is the company practice to transfer 25% of the profits to the reserve. Ignoring taxation, find out the value of the shares. Similar companies give
AMOUNT
730,000.00
60,000.00
370,000.00
16,500.00
########
The Provision for taxation is only for the current year and is @ 50% of the profits. The company transfers 10% of its profits after tax to
its general reserve. Other companies in the same industry show an income of 20% on capital employed.
Richa seeks your advice as to the amount she should pay for the shares. What will be your advice?
Normal Profit being higher than the actual operating profit, there is no super profit and hence no goodwill. The business must be valued
AMOUNT
########
200,000.00
300,000.00
180,000.00
210,000.00
30,000.00
########
Profits of 1998 was Rs. 20000 less due to loss by theft and profits of the year 2000 included a profit of Rs. 30000 on sale of long term
investments. Land and building is revalued at Rs. 1500000 and a return of 10% on tangible capital employed (before adjustment) is
concsidered reasonable. Goodwill is to be calculated on five years purchase of annual super profits (simple average method). Also find
AMOUNT
500,000.00
########
500,000.00
800,000.00
950,000.00
250,000.00
########
The companys profit and loss account for the year ended 31st March 2005 showed a net profit (before tax) of Rs. 2500000. The profit includes interest
on investment of Rs. 50000. Goodwill is being written off Rs. 50000 per annum. The applicable income tax rate is 40%. It is expected that the
company will be able to maintain its present level of performance. Plant and Machinery is revalued at Rs. 7000000. Future depreciation charge is to
go up by Rs. 100000. Normal return on capital employed may be taken at 10%. Compute the value of goodwill of the company based on 4 years
A holding company is one which holdes 51% or more of the shares in another company (subsidiary
company). For example, A Ltd holds 75% of shares in B Ltd., and B Ltd., holdes 80% of shares in C Ltd.
Here A Ltd., has two subsidiaries ( subsidiary company of a subsidiary is also a subsidiary of holding
company).
It is mandatary to consolidates the accounts of subsidary company with its holding company and reported
to the shareholders.
Steps in Consolidation:
1. Ratio of holding company and the minority in subsidary company.
2. Calculation of capital profit, all profits earned by subsidary company before the shares are acquired by
holding company.
3. Revenue Profit Calculation:
All profits earned by subsidary company after the shares are acquired by holding company.
4. Minority Interest:
Add: Face value of shares held by minority company
Add: Minority share of capital profit
Add: Minority share of bonus issue
Add: Minority share of revenue profit.
Note: Minority interest will be shown in the liability side of the consolidated balance sheet
Cost of control:
Amount paid for shares in subsidary company xxx
Less: Face value of shares hed by holding company xxx
Less: Holding company share of capital profit xxx
Less: Holding companys share of bonus issue xxx
Goodwill/(capitla reserve) xxx
When the holding company pays it is knwn as goodwill, where as if holding company is paying low them
it is called as capital reserve.
Consolidated Profit and Loss account:
Profit and Loss account of the holding company xxx
Add: Revenue profit of the holding company xxx
Note:
1. Dont take sharecapital of subsidary company in consolidated balance sheet.
2. Dont take holding companies investment.
HOLDING COMPANIES
Lakshmi Page 120 Holding Company
Problem 1:
Consolidate the following Balance Sheet:
LIABILITIES H Ltd S Ltd ASSETS H Ltd S Ltd
Capital at Rs. 1 per share 1,400.00 1,000.00 900 Shares in S Ltd 1,200.00
Creditors 500.00 Sundry assets 200.00 1,800.00
Profit an Loss account 300.00
1,400.00 1,800.00 1,400.00 1,800.00
When H Ltd acquired shares in S Ltd the profit and loss in the later had a credit balance of Rs. 200
Ratio:
The total number of shares in S Ltd 1,000
Out of 1000 shares 900 shares held by H Ltd., therefore the ratio between the two compaines is 9:1.
Capital Reserve:
S Ltd, profit before acquisation 200.00
H Ltd., capital reserve 180.00
S Ltd., capital reserve 20.00
Revenue Profit:
Profit of S Ltd 300.00
Less: S Ltd profit before acquisation 200.00
100.00
H Ltd. Revenue profit 90.00
S Ltd. Revenue profit 10.00
Minority Interest:
Face value of shares held by S Ltd 100.00
Add: Capital profit of S Ltd 20.00
Add: Revenue profit of S Ltd 10.00 30.00
Minority Interest 130.00
Cost of Control:
Amount paid by H Ltd 1,200.00
Less: Face value of shares held
by H Ltd 900.00
Less: Capital profit of H Ltd 180.00 1,080.00
Goodwill 120.00
Consolidated profit and loss account:
As per balance sheet profit of H Ltd 0.00
Add: Revenue profit of H Ltd 90.00
90.00
Share capital 1,400.00 Goodwill 120.00
Creditors Assets:
H Ltd., H Ltd., 200.00
S Ltd., 500.00 500.00 S Ltd., 1,800.00 2,000.00
Profit and loss account 90.00
Minority Interest 130.00
2,120.00 2,120.00
Stock Reserve:
When holding or subsidary company purchased or sold goods at invoice price ( with profit) mutually, the profit
element on the unsold stock held on the balance sheet date should be eliminated from profit and loss account in step 6
and from stock in the balance sheet.
Problem 2:
Following are the Balance sheet of R Ltd and S Ltd as at 31.12.1994:
LIABILITIES R Ltd S Ltd ASSETS R Ltd S Ltd
Share capital
Equity Shares of Rs. 10 each 400,000.00 150,000.00 Fixed assets 500,000.00 240,000.00
General reserve 50,000.00 40,000.00 Investments in 15000 shares
Profit and loss account 30,000.00 25,000.00 in S Ltd on 1.1.94 200,000.00
12% debentures 200,000.00 Current assets (including
Current Liabilities 320,000.00 285,000.00 Rs. 10000 stock in trade
purchased from R Ltd) 300,000.00 260,000.00
1,000,000.00 500,000.00 1,000,000.00 500,000.00
Prepare a consolidated balance sheet as at 31.12.94 assuming that :
1. S Ltd general reserve and proift and loss account stood at Rs 25000 and Rs. 10000 respectively on 1.1.1994
2. R Ltd., sells goods at profit of 25% on cost.
Ratio:
The entire share of 15000 shares held by S Ltd acquired by R Ltd.,
Capital Reserve:
As the entire shares of S Ltd held by R Ltd., the entire profit of before acquisation is capital profit.
Capital reserve of R Ltd 35,000.00
Reserve Profit:
General reserve of S Ltd 40,000.00
Profit and loss account of S Ltd 25,000.00
65,000.00
Less: Capital reserve 35,000.00
30,000.00
Minority Interest:
As the entire shares held by R Ltd in the year starting itseelf , so there is no minority interest.
Cost of Control:
Amount paid by R Ltd 200,000.00
Less: Face value of shares 150,000.00
Less: Capital reserve of R Ltd 35,000.00 185,000.00
Goodwill 15,000.00
Consolidated profit:
Profit and loss a/c of R Ltd
as per balance sheet 30,000.00
Add: Reserve Profit of R Ltd 30,000.00
60,000.00
Less: Stock Reserve 2,000.00
58,000.00
Consolidated Balance Sheet of R Ltd and S Ltd:
Share capital 400,000.00 Goodwill 15,000.00
General reserve 50,000.00 Fixed assets
Profit and Loss account 58,000.00 R Ltd 500,000.00
12% debentures 200,000.00 S Ltd 240,000.00 740,000.00
Creditors Stock 560,000.00
R Ltd 320,000.00 Less: Stock reserve 2,000.00 558,000.00
S Ltd 285,000.00 605,000.00
1,313,000.00 1,313,000.00
Mutually Indebtness:
1. If debtors/creditors include any amount due mutually between holding and subsidary company. The same must be
reduced from debtors and creditors in the consolidated balance sheet.
2. Bills payable and Bills receivable will be adjusted in the same manner ( for non-discounted portion)
Problem 3:
Share capital 500,000.00 200,000.00 Goodwill 100,000.00
General Reserve 200,000.00 60,000.00 Plant and Machinery 200,000.00 120,000.00
Profit and Loss a/c 150,000.00 50,000.00 Building 150,000.00 130,000.00
Secured Loan 80,000.00 Investment 250,000.00 50,000.00
Unsecured Loan 40,000.00 Stock 80,000.00 50,000.00
Creditors 100,000.00 60,000.00 Debtors 100,000.00 40,000.00
Bills payable 50,000.00 20,000.00 Bills receivable 50,000.00
Bank 20,000.00 80,000.00
Cash 50,000.00 30,000.00
1,000,000.00 510,000.00 1,000,000.00 510,000.00
Note: Liability of bills discounted of H Ltd is Rs. 20000
1. H Ltd acquired 16000 shares of Rs. 10 each is S Ltd., on 1.4.2000 at a cost of Rs. 200000. Balance sheet of S ltd on
1.4.2000 showed balance in general reserve of Rs. 20000 and profit and loss a/c Rs. 20000 (credit)
2. Bills payable of S Ltd include Rs. 10000 due to H Ltd., which has discounted bills worth of Rs. 6000
3. Sundry creditors of H Ltd., include Rs. 20000 due to S Ltd.
4. Closing stock of H Ltd., includes a stock worth of Rs. 60000 supplied by S Ltd., which had invoiced to H Ltd at cost
plus 20%. Prepare consolidated balance sheet.
Ratio:
Total shares of S Ltd 20,000.00 Shares, out of which 16000 shares acquired by
H Ltd., so the ratio between two companies is 4:1
Capital Reserve:
Profit and Loss a/c of S Ltd 20,000.00
Less: Preliemenary expenses 10,000.00
Capital reserve 30,000.00
Capital reserve of H Ltd 24,000.00
Capital reserve of S Ltd 6,000.00
Reserve Profit
Less: opening balance 40,000.00
Reserve Profit 70,000.00
Reserve profit of H Ltd 56,000.00
Reserve profit of S Ltd 14,000.00
Minority Interest:
Face value of shares held by
S Ltd 40,000.00
Add: Capital profit of S Ltd 6,000.00
Add: Revenue profit of S Ltd 14,000.00 20,000.00
Minority Interest 60,000.00
Cost of control:
Less: Face value of shares held
by H Ltd 160,000.00
Less: Capital profit 24,000.00 184,000.00
Goodwill 16,000.00
Consolidated profit:
Profit of H Ltd as per balance
sheet 150,000.00
Add: Revenue profit 56,000.00
206,000.00
Less: Stock reserve 10,000.00
196,000.00
Consolidated balance sheet of H Ltd and S Ltd
General reserve 200,000.00 Plant and Macinery 320,000.00
Profit 196,000.00 Building 280,000.00
Secured Loan 80,000.00 Investment 100,000.00
Unsecured Loan 40,000.00 Debtors 140,000.00
Creditors 160,000.00 Less: Mutually owned 20,000.00 120,000.00
Less Mutually owned 20,000.00 140,000.00 Stock 130,000.00
Less: stock reserve 10,000.00 120,000.00
Bills payable 70,000.00 Bills receivable 50,000.00
Less: Mutually owned 4,000.00 66,000.00 Less: Mutually owned 4,000.00 46,000.00
Minority Interest 60,000.00 Cash 80,000.00
Bank 100,000.00
1,282,000.00 1,282,000.00
Problem 4:
H Ltd., acquired, 2000 equity shares of Rs. 100 each from S Ltd., on 31 st March 2000. The summarised Balance Sheet of
the compaines as on 31 March 2001 were as follows:
Equity share capital @ Rs. 100 Fixed assets 700,000.00 250,000.00
each 800,000.00 250,000.00 Current Assets 400,000.00 200,000.00
Reserves 300,000.00 50,000.00 2000 shares in S Ltd at cost 300,000.00
Profit and Loss a/c 100,000.00 100,000.00
Creditors 200,000.00 50,000.00
1,400,000.00 450,000.00 1,400,000.00 450,000.00
S Ltd., had a credit balance of Rs. 50000 in the reserve and Rs. 20000 in profit and loss account when H Ltd acquired
shares in S Ltd. S Ltd issued bonus shares in the ratio of one for every five shares held out of the profits earned during
2000-2001. This is not shown in the above balance sheet of S Ltd prepare a consolidated balance sheet of H Ltd., and its
subsidary on 31 March 2001 giving all necessary working.
Ratio:
The total number of equity shares of S Ltd 2,500 shares
In the above 2500 shares 2000 shares were acquired by H Ltd., hence the ratio between the two companies 4:1
Capital Profit:
Capital Profit 70,000.00
Capital Profit of H Ltd 56,000.00
Capital Profit of S Ltd 14,000.00
Revenue Profit
Reserves of S Ltd as per balance sheet 50,000.00
Profit of S Ltd as per balance sheet 100,000.00
150,000.00
Less: Opening balance 70,000.00
80,000.00
Less: Bonus shares issued 50,000.00
Revenue Profit 30,000.00
Revenue profit of H Ltd 24,000.00
Revenue profit of S Ltd 6,000.00
Minority Interest:
Face value of shares held by S Ltd 50,000.00
Add: Revenue profit of S Ltd 6,000.00
Add: Bonus share of S Ltd 10,000.00 30,000.00
Cost of Control:
Amount Invested by H Ltd 300,000.00
Less: Face value of shares
held by H Ltd 200,000.00
Less: Capital Profit of H Ltd 56,000.00
Less: Bonus share of H Ltd 40,000.00 296,000.00
Goodwill 4,000.00
Consolidated Profit:
Profit of H Ltd as per balance sheet 100,000.00
Add: Revenue Profit 24,000.00
124,000.00
Consolidated Balance Sheet of H Ltd and S Ltd
General reserve 300,000.00 Fixed asssets 950,000.00
Profit and Loss a/c 124,000.00 Current assets 600,000.00
1,554,000.00 1,554,000.00
Revaluation of assets:
Increase in value is capital profit therefore it has to be added with the capital profit and to concerned assets.
Problem 5:
The following are the Balance Sheet of H Ltd and S Ltd as on 31.3.2001
Equity share capital at Rs. 100 Goodwill 40,000.00 30,000.00
each 500,000.00 200,000.00 Land and Building 200,000.00 225,000.00
12% Preference share capital Plant and Machinery 160,000.00 90,000.00
at Rs. 100 each 100,000.00 Shares in S Ltd @ cost 350,000.00
General reserve 130,000.00 60,000.00 (2000 equity shares & 500
P&L a/c as on 1.4.2000 60,000.00 20,000.00 12% preference shares)
Profit earned during the year 80,000.00 70,000.00 Stock 100,000.00 85,000.00
Bills Payable 40,000.00 Debtors 40,000.00 80,000.00
Creditors 180,000.00 60,000.00 Bank 60,000.00 30,000.00
950,000.00 550,000.00 950,000.00 550,000.00
Contingent Liability
Bills discounted 50,000.00 20,000.00
Other Information:
1. H Ltd acquired shares in S Ltd on 31 st March 2001. On this date, land and building is valued at Rs. 285000 and plant
and machinery at Rs. 60000. S Ltd provides deperciation of fixed assets @ 10% p.a
2. In January 2001, S Ltd issued to its shareholders one bonus shares for every four equity shares held. However, the
entry for bonus issue is not yet made in the books of S Ltd.
3. Bills payable of S Ltd., includes bills of Rs. 10000 accepted in favour of H Ltd.
Prepare consolidated balance sheet as at 31.03.2001
Ratio
Total number of shares of S Ltd 2,000.00
The entire 2000 shares were acquired by H Ltd on 31 March 2001.
Revenue Profit:
As the shares of S Ltd acquired by H Ltd at the end of the financial year, so there is no revenue profit.
Capital Profit:
General reserve 60,000.00
Profit and Loss a/c 20,000.00
80,000.00
Add: Current year profit 70,000.00
150,000.00
Less: Preliemenary Expenses 10,000.00
140,000.00
Less: Bonus Issue 50,000.00
90,000.00
Add: Increase in Land and Building 60,000.00
Less: Decrease in Plant and Machinery 30,000.00
Minority Interest:
Preference shares held by S Ltd 1,000.00
out of the above 1000 shares of S Ltd 500 shares held by H Ltd
Therefore, the minority interest of 500 shares held by S Ltd 50,000.00
Cost of control:
Amount paid by H Ltd for
acquiring S Ltd shares 350,000.00
Less: Face value of preference shaes 50,000.00
Less: Capital profit of H Ltd 120,000.00
Less: Bonus issue 50,000.00 420,000.00
Capital Reserve (70,000.00)
Less: Goodwill as per B/S 70,000.00
0.00
Consolidated Balance Sheet:
Share capital 500,000.00 Land and Building 485,000.00
General reserve 130,000.00 Plant and Machinery 220,000.00
Bills Payable 40,000.00 Debtors 120,000.00
Creditors 240,000.00 Bank 90,000.00
1,100,000.00 1,100,000.00
Note:
Ignore Bills Payable in the adjustment if there is no bills payable in asset side of acquiring company in the given
Balance Sheet which denotes that the bills were discounted, so ajustment is not necessary.
Adjustment for Depreciation:
When an asset goes up, depreciation during the post acquisation period will also goes up. Therefore it should be
deducted from Revenue Profit.
Problem 6:
Balance Sheet of H Ltd & S Ltd as on 31.3.2008:
Share capital @ Rs. 100 each 500,000.00 700,000.00 Goodwill 100,000.00 100,000.00
General Reserve 300,000.00 100,000.00 Investment 400,000.00 200,000.00
Profit and Loss a/c 400,000.00 200,000.00 Land and Building 300,000.00 180,000.00
Creditors 200,000.00 100,000.00 Plant and Machinery 200,000.00 240,000.00
Other Liabilities 50,000.00 60,000.00 Stock 100,000.00 300,000.00
Bills Payable 50,000.00 40,000.00 Debtors 80,000.00 90,000.00
Bills receivable 20,000.00 30,000.00
Preliemenary expenses 0.00 20,000.00
Sundry assets 300,000.00 40,000.00
1,500,000.00 1,200,000.00 1,500,000.00 1,200,000.00
Adjustment:
1. H Ltd acquire 3000 shares in S Ltd for Rs. 350000 on 1.10.2007.
2. The profit and loss account and general reserve stood at Rs. 100000 and Rs. 300000 respectively on 1.4.2007
3. A bonus issue of 2 shares for every 5 shares held was made on 1.11.2007 out of pre acquisation reserve.
4. Debtors of S Ltd includes 40000 due from H Ltd for goods supplied at a profit 25% on cost (half of the goods
remained unsold on 31.3.2008)
5. All receivables of H Ltd are from S Ltd
6. Land and Building and Plant and Machinery which stood at Rs. 200000 and Rs. 300000 on 1.4.2007, where
revalued at Rs. 400000 & Rs. 200000 respectively on the date of purchase of shares.
Ratio:
Total shares of S Ltd 7,000.00
Out of the above 7000 shares inclued 2000 shares of bonus shares. So, in the remaining 5000 shares H Ltd acquired 3000
shares so, the ratio between the two companies is 3:2
Working Notes:
P&L of S Ltd as on 31.3.2008 200,000.00
General reserve of S Ltd as on 31.3.2008 100,000.00
300,000.00
Less: Opening Balance 200,000.00
Profit from 1/4/2007 to 31/3/2008 100,000.00
Capital profit
400,000.00
200,000.00
Add: Profit upto 1.10.2007 50,000.00
250,000.00
Add: Increase in Land and Building 210,000.00
460,000.00
Less: Decrease in Plant and Machinery 70,000.00
390,000.00
Less: Preliemenary Expenses 20,000.00
Capital profit 370,000.00
The capital profit of H Ltd 222,000.00
The capital profit of S Ltd 148,000.00
Depreciation calculation:
Land & Plant &
Building Machinery
As per balance sheet 180,000.00 240,000.00
Less: Adjustment 200,000.00 300,000.00
20,000.00 60,000.00
Depreciaton Precentage 10% 20%
Revalued on 1.10.2007 400,000.00 200,000.00
Book value on 1.10.2007 190,000.00 270,000.00
210,000.00 (70,000.00)
Revenue Profit:
Profit after 1.10.2007 50,000.00
Less:Increase in land and building 10,500.00
Add: Decrease in plant and Machinery 7,000.00
Revenue profit 46,500.00
The revenue profit of H Ltd 27,900.00
The revenue profit of S Ltd 18,600.00
Minority Interest:
Face value of shares held by S Ltd 200,000.00
Add: Bonus issue 80,000.00 246,600.00
Cost of Control
Amount invested by H Ltd for
acquiring shares in S Ltd 350,000.00
Less: Bonus isssue 120,000.00 642,000.00
Capital Reserve 292,000.00
Less: Goodwill as per B/S 200,000.00
Net Capital Reserve 92,000.00
Consolidated Profit
Profit of H Ltd as per B/S 400,000.00
Add: Revenue Profit of H Ltd 27,900.00
427,900.00
Less: Stock Reserve 4,000.00
Profit 423,900.00
Share capital 500,000.00 Investments 250,000.00
General Reserve 300,000.00 Land and Building 480,000.00
Profit and Loss a/c 423,900.00 Add: Appreciation 210,000.00
Capital Reserve 92,000.00 Less: Additional depreciation 10,500.00 679,500.00
Minority Interest 446,600.00 Plant and Machinery 400,000.00
Creditors 300,000.00 Less: Depreciation 7,000.00
Less: Mutually owned 40,000.00 260,000.00 Add: Loss on depreciation 70,000.00 463,000.00
Other Liabilities 110,000.00 Debtors 170,000.00
Bills Payable 90,000.00 Less: Mutually owned 40,000.00 130,000.00
Less: Mutually owned 20,000.00 70,000.00 Stock 400,000.00
Less: Mutually owned 4,000.00 396,000.00
Bills Recievable 50,000.00
Less: Mutually owned 20,000.00 30,000.00
Sundry Assets 340,000.00
2,202,500.00 2,288,500.00
Adjustments for Dividends:
Proposed dividend: (given in the Balance Sheet)
Add it to the concerned profit from which such dividend is proposed
Proposed dividend ( given in adjustment ):
1. If holding company declares the entire proposed dividend should be deducted from profit and loss account
i.e. from step no 6.
2. If subsidary company declares only minority share of such dividend will be deducted from minority interest and
shown respectively in the Balance Sheet.
Dividend declared and paid by subsidary company:
1. Out of revenue profit - No adjustment is required
2. Out of Capital Profit
a. Deduct the whole amount of dividend from the balance out of which it is declared
b. Holding company share of dividend should be deducted from cost of control ( if the accountant has taken the
dividend to profit and loss account deduct the amount from profit and loss account)
Problem 7:
Following are the Balance Sheet of H Ltd and S Ltd., as at 31.03.2001
Equity Share Capital(Rs. 10 each) 1,000,000.00 700,000.00 Fixed Assets 800,000.00 900,000.00
General Reserve 200,000.00 300,000.00 Investments in S Ltd 500,000.00
Profit and Loss account 300,000.00 300,000.00 Current Assets 700,000.00 1,300,000.00
Current Liabilities 500,000.00 900,000.00
2,000,000.00 2,200,000.00 2,000,000.00 2,200,000.00
The following further information is furnished:
1. H Ltd acquired 30000 shares in S Ltd as on 1.4.2000. When reserves and profit and loss a/c position was as follows:
2. On 1.10.2000 S Ltd issued 2 shares for every 5 shares held, as bonus shares at a face value of Rs. 10 per share.
No entry is made in the books of H Ltd for receipt of these bonus shares.
3. On 30.06.2000 S Ltd declares dividend out of pre-acquisation profit at 20% and H Ltd credited the recipt of dividend
on its profit and loss account.
4. S Ltd.,owned H Ltd Rs. 120000 for purchase of stock from H Ltd., the entire stock held by S Ltd on 31.3.2001 H Ltd
made a profit of 20% on cost.
5. H Ltd transferred a machinery to S Ltd., for Rs. 100000. The book value of the machine of H Ltd was Rs. 75000.
Prepare a consolidated balance sheet as at 31.03,2001.
Ratio:
The total number of shares of S Ltd 70,000.00
Bonus shares of S Ltd 20,000.00
Net shares of S Ltd 50,000.00
Therefore in the above 50000 shares S Ltd acquired 30000 shares. So, the ratio between the two companies is 3:2
Capital Profit:
General Reserve 500,000.00
300,000.00
Less: Dividend 100,000.00 100,000.00
Capital Profit of H Ltd 240,000.00
Capital Profit of S Ltd 160,000.00
Revenue Profit:
Profit of S Ltd 300,000.00
General Reserve 300,000.00 600,000.00
Revenue Profit of H Ltd 120,000.00
Revenue profit of S Ltd 80,000.00
Minority Interest:
Face value of S Ltd shares 200,000.00
Add: Capital Profit of S Ltd 160,000.00
Add: Revenue Profit of S Ltd 80,000.00
Add: Bonus Issue of S Ltd 80,000.00 320,000.00
Minority Interest: 520,000.00
Cost of Control:
Less: Face value of H Ltd 300,000.00
Less:Dividend issue 60,000.00 720,000.00
Consolidated Profit:
H Ltd profit on Balance Sheet 300,000.00
Add: Revenue profit of H Ltd 120,000.00
Less: Stock reserve 20,000.00
Less: Dividend Issue 60,000.00
Less: Profit on sale of Machinery 25,000.00
Profit of H Ltd 315,000.00
Share capital 1,000,000.00 Fixed assets 1,700,000.00
General Reserve 200,000.00 Less: Loss of sale of machin 25,000.00 1,675,000.00
Profit and Loss a/c 315,000.00 Current Assets 2,000,000.00
Minority Interest 520,000.00 Less: Stock Reserve 20,000.00
Capital reserve 220,000.00 Less: Mutually Interest 120,000.00 1,860,000.00
Current Liabilities 1,400,000.00
Less: Mutually owned 120,000.00 1,280,000.00
3,535,000.00 3,535,000.00
Problem 8:
The following is the balance sheet as on 31.3.2001:
Share capital
Equity shares @ Rs. 100 each 1,000,000.00 800,000.00 Fixed assets 500,000.00 400,000.00
General reserve 200,000.00 200,000.00 Investment in S Ltd 500,000.00
Profit and Loss a/c 400,000.00 300,000.00 Current assets 800,000.00 1,100,000.00
Current Liabilities 200,000.00 200,000.00
1,800,000.00 1,500,000.00 1,800,000.00 1,500,000.00
The following is the further information is furnished:
1. H Ltd., acquired 3000 shares in S Ltd on 1.4.2000, when the reserves and surplus position of S Ltd was as under:
2. On 1.10.2000 S Ltd issued 3 shares for every 5 shares held as bonus shares at face value of Rs. 100 each share. No entry
is made in the books H Ltd for receipt of these bonus shares.
3. On 30.6.2000. S Ltd declared a dividend out of pre-acquisation profits at 2% and H Ltd credited the receipt of dividend
to its profit and loss account.
4. H Ltd, transferred a machinery to S Ltd for Rs. 80000. The book value of the machinery was Rs. 60000.
Prepare consolidated balance sheet of S Ltd and H Ltd.
Ratio
The number of shares in S Ltd 8,000.00
Less: Bonus issue by S Ltd 3,000.00
Net shares of S Ltd 5,000.00
Out of above 5000 shares H Ltd acquired 3000 shares, so, the ratio between the two companies is 3:2
Capital Profit
Less: Bonus issue 300,000.00 200,000.00
Profit and Loss account 200,000.00
Less: Dividend delcared 10,000.00 190,000.00
The capital profit of H Ltd 234,000.00
The capital profit of S Ltd 156,000.00
Revenue Profit
Profit of S Ltd 300,000.00
500,000.00
The revenue profit of H Ltd 66,000.00
The revenue profit of S Ltd 44,000.00
Minority Interest:
Face value of shares of S Ltd 200,000.00
Add: Capital Profit of S Ltd 156,000.00
Add: Bonus share of S Ltd 120,000.00 320,000.00
Cost of control:
Amount invested by H Ltd 500,000.00
Less: Capital Profit of S Ltd 234,000.00
Less: Bonus share 180,000.00
Less: Dividend 6,000.00 720,000.00
Consolidated profit
H Ltd profit as per B/S 400,000.00
Add: Revenue profit of H Ltd 66,000.00
466,000.00
Less: Dividend 6,000.00
Less: Profit on machinery sale 20,000.00 26,000.00
Share capital 1,000,000.00 Fixed assets 900,000.00
General reserve 200,000.00 Less: sale of machinery 20,000.00 880,000.00
Profit 440,000.00 Current assets 1,900,000.00
Capital reserve 220,000.00
Current liabilities 400,000.00
2,780,000.00 2,780,000.00
Section 2
Problem 1:
From the balance sheets given below, prepare a consolidated balance sheet of A Ltd, and its subsidary company B Ltd:
Balance Sheet as at 31st March 2001:
Liabilities A Ltd B Ltd
Share Capital:
Equity shares of Rs. 10 each 2,500,000.00 600,000.00
General Reserve 360,000.00 120,000.00
Profit and Loss Account 240,000.00 180,000.00
Trade Creditors 350,000.00 100,000.00
3,450,000.00 1,000,000.00
Assets A Ltd B Ltd
Land and Building 640,000.00 200,000.00
Machinery 1,260,000.00 340,000.00
Furniture 140,000.00 60,000.00
40000 Equity shares in B Ltd 500,000.00 0.00
Stock in Hand 410,000.00 250,000.00
Debtors 380,000.00 100,000.00
Bank Balance 120,000.00 50,000.00
3,450,000.00 1,000,000.00
At the date of acquisation by A Ltd of its holding of 40000 equity shares in B Ltd the latter company had undistributed profit and reserve amounting to
Rs. 100000 none of which has been distributed since then
Shares:
Total no of shares of B Ltd 60,000.00
No. of shares brought by A Ltd 40,000.00
Balance in B Ltd 20,000.00
The ratio of A and B Ltd is 2:1
Calculation of Capital Reserve:
B Ltd general reserve and profit at
the time of acquisation 100,000.00
A Ltd Share 66,666.67
Minority share of B Ltd 33,333.33
Calculation of Revenue Profit
Total balance on B Ltd general reserve
and profit and loss account on 31st
,March 2001 300,000.00
Less: B Ltd General reserve and Profit
at the time of acquisation 100,000.00
A Ltd Share 133,333.33
Minority share of B Ltd 66,666.67
Calculation of Cost of Control:
Amount by holding company 500,000.00
Less: Face value of share 400,000.00
Less: Holding Companys capital
profit 66,666.67 466,666.67
Cost of Control - Goodwill 33,333.33
Calculation of Minority Interest:
Face value of shares held by
Minority Co 200,000.00
Add: B Ltd Capital Reserve 33,333.33
Add: BLtd Revenue Profit 66,666.67 100,000.00
Consolidated Profit and Loss account:
Profit and Loss account of Holding Company 240,000.00
Add: Revenue Profit of the Holding Company 133,333.33
Consolidated Profit 373,333.33
Consolidated Balance Sheet of A Ltd and its subsidiary B Ltd as at 31st March 2001:
250000 Equity shares @ Rs. 10 each 2,500,000.00 Goodwill 33,333.33
Minority Interest 300,000.00 Land and Building
General Reserve 360,000.00 A Ltd 640,000.00
Profit and Loss Account 373,333.33 B Ltd 200,000.00 840,000.00
Trade Creditors Machinery
A Ltd 350,000.00 A Ltd 1,260,000.00
B Ltd 100,000.00 B Ltd 340,000.00 1,600,000.00
450,000.00 Furniture
A Ltd 140,000.00
B Ltd 60,000.00 200,000.00
Stock in Hand
A Ltd 410,000.00
B Ltd 250,000.00 660,000.00
Debtors
A Ltd 380,000.00
B Ltd 100,000.00 480,000.00
Bank Balance
A Ltd 120,000.00
B Ltd 50,000.00 170,000.00
3,983,333.33 3,983,333.33
Problem 2:
On April 1998 S Ltd., issued at par 10% pereference shares for Rs. 100000 . On this date, S Ltd's General reserve and Profit and Loss account showed
the balances of Rs. 80000 and Rs. 53600 respectively. On July 5, 1998 S Ltd paid a final divended of 12% equity shares for the year ended 31st March
1998 . S Ltd also paid tax on distributed profits @ 10% H Ltd credited the dividend received to its profit and loss account.
On April 1, 1998 H Ltd acquired 80% equity shares in S Ltd for Rs. 300000 . On this date machinery of S Ltd was revalued at 250000 . No entry for
this made in the books of S Ltd.
On March 31, 1998 the summarised balance sheet of H Ltd and its subsidiary S Ltd stood as follows:
Liabilities H Ltd S Ltd Assets H Ltd S Ltd
Equity Share Capital 800,000.00 300,000.00 Machinery 625,000.00 270,000.00
10% Preference Share Capital 0.00 100,000.00 Furniture 85,000.00 50,000.00
General Reserve 400,000.00 150,000.00 Shares in S Ltd 300,000.00 0.00
Profit and Loss Account 200,000.00 90,000.00 Stock 400,000.00 190,000.00
Loans 110,000.00 0.00 Loan to H Ltd 0.00 10,000.00
Bills Payable 0.00 4,000.00 Debtors 150,000.00 80,000.00
Creditors 170,000.00 76,000.00 Bank 120,000.00 110,000.00
Preliminary Expenses 0.00 10,000.00
1,680,000.00 720,000.00 1,680,000.00 720,000.00
The following further information is furnished:
1. S Ltd., provides depreciation on Machinery @ 10% on written down value. No machine was sold or purchased during the year.
2. H Ltd remitted a cheque of Rs. 100000 to S Ltd on 27th March, 1999 for repayment of loan, which was received by S Ltd in April 1999.
3. No part of preliminary expenses was written off during the year.
Prepare Consolidated balance sheet of H Ltd., and S Ltd as at 31st March 1999.
Working Notes:
Calculation of revaluatio of S Ltd's Machinery:
Balance of Machinery Account on 31.3.1999 270,000.00
Add: Depreciation for 1998-99 30,000.00
Book value on 1.4.1998 300,000.00
Less: Amount at which revalued on 1.4.1998 250,000.00
Loss on Revaluation 50,000.00
Ratio between H and S Ltd is 8:2
Calculation of Capital Profits:
General reserve as on 1.4.1998 80,000.00
Profit and Loss account as on 1.4.1998 53,600.00
133,600.00
Less: Loss on revaluation Machinery 50,000.00
Dividend paid for 1997-98 for
on July 5, 1998 36,000.00
Tax on distributed profit 10% paid 3,600.00
Preliminery expesnes on 1.4.1998 10,000.00 99,600.00
Holding Co's H Ltd Share 27,200.00
Minority Co's S Ltd Share 6,800.00
Calculation of Revenue Profit:
To General Reserve 150,000.00 By Balance b/f 53,600.00
Less: Opening general reserve 80,000.00 70,000.00 By Net Profit for the year 146,000.00
To Final dividend at 12% 36,000.00
To Tax on distributed profit @ 10% 3,600.00
To Balance c/f 90,000.00
199,600.00 199,600.00
Net profit for 1998-99 as per books of
account 146,000.00
Add: Excess depreciation 5,000.00
Amount available to shareholders 151,000.00
Less: Preference dividend on Rs. 100000 10,000.00
Balance available to equity share holders 141,000.00
Paid up value of preference shares 100,000.00
Prefrence dividend for one year 10,000.00
Paid up value of equity shares of S Ltd 60,000.00
Minority share of Capital profit 6,800.00
Minority share of Revenue Profit 28,200.00
Amount invested by H Ltd 300,000.00
Less: Dividend received out of
pre-acquisation profit 28,800.00
271,200.00
Less: Paid up value of 80% equity shares 240,000.00
H Ltd' s Capital Profit 27,200.00 267,200.00
Cost of Capital - Goodwill 4,000.00
Book value of S Ltd's Machinery as on 31.3.1999
Value of machniery on 31.3.1999 270,000.00
Less: Capital loss on revaluation 50,000.00
220,000.00
Add: Add back excess depreciation on Rs. 50000 5,000.00
Machniery value on Consolidated B/S 225,000.00
Consolidated Profit and Loss Account:
H ltd profit 200,000.00
Less: Wrongly credited S Ltd dividend 28,800.00
171,200.00
Add: Post acquisation S Ltd Profit 112,800.00
Consolidated Balance Sheet of H Ltd and its Subsidary S Ltd as on 31st March 1999:
Equity Share Capital 800,000.00 Goodwill 4,000.00
Minority Interest 205,000.00 Machinery
General Reserve 400,000.00 H Ltd 625,000.00
Profit and Loss Account 284,000.00 S Ltd 225,000.00 850,000.00
Bills Payable 4,000.00 Furniture
Creditors H Ltd 85,000.00
H Ltd 170,000.00 S Ltd 50,000.00 135,000.00
S Ltd 76,000.00 246,000.00 Stock
Loans 110,000.00 H Ltd 400,000.00
S Ltd 190,000.00 590,000.00
Debtors
H Ltd 150,000.00
S Ltd 80,000.00 230,000.00
Bank
H Ltd 120,000.00
S Ltd 110,000.00 230,000.00
Cash in transist 10,000.00
2,049,000.00 2,049,000.00
Problem 3:
The balance sheet of H Ltd and its subsidiary S Ltd on 31st March 1999 were as under:
Share Capital: Land and Building 600,000.00 0.00
Equity shares of Rs. 10 each, fully paid 2,000,000.00 500,000.00 Plant and Machinery 2,000,000.00 0.00
General Reserve 300,000.00 100,000.00 Furniture and Fixtures 90,000.00 100,000.00
Profit and Loss Account: 30000 shares in S Ltd at cost 650,000.00 0.00
Balances on 1st April 1998 400,000.00 200,000.00 Stock 400,000.00 750,000.00
Profit for the year ended 31st Debtors 100,000.00 280,000.00
March, 1999 500,000.00 250,000.00 Cash in hand 10,000.00 15,000.00
Bills Payable 150,000.00 Cash at Dena Bank 0.00 105,000.00
Creditors 300,000.00 300,000.00 Bills Receivable 0.00 100,000.00
Canara Bank - Overdraft 200,000.00 0.00
3,850,000.00 1,350,000.00 3,850,000.00 1,350,000.00
All the 30000 shares in S Ltd, were acquired by H Ltd on 1st october, 1998 . Bills receivable held by S Ltd are all accepted by H Ltd, included in
debtors of S Ltd is a sum of Rs. 60000 owing by H Ltd, in respect of goods supplied by S Ltd.
You are required to prepare a consildated balance sheet of H Ltd, and its subsidiary S Ltd, as at 31st March 1999 . Give all your working notes
clearly.
Working Notes:
Total No. of Shares in S Ltd 50,000.00
Shares acquired by H Ltd 30,000.00
Balance with S Ltd 20,000.00
The Profit sharing ratio between H and S Ltd is 3:2
Calculation of Capital Profit:
Profit and Loss Account: 200,000.00
Current year profit till the date of acquisation 125,000.00
Profit for the year ended 31st March 1999 250,000.00
Profit from 1st October 1998 to 31st March 1999 125,000.00
Less: Paid up value of 30000 shares 300,000.00
Less: H Ltd capital profit 255,000.00 555,000.00
Face value of shares in S Ltd 200,000.00
S Ltd capital Profit 170,000.00
S Ltd Revenue Profit 50,000.00 220,000.00
Add: Revenue Profit of H Ltd 75,000.00
Consoldiated Profit 975,000.00
200000 equity shares @ Rs. 10 each 2,000,000.00 Goodwill 95,000.00
Minority Interest 420,000.00 Land and Building
Consoldated Profit 975,000.00 H Ltd 600,000.00
General Reserve 300,000.00 S Ltd 0.00 600,000.00
Bills Payable 150,000.00 Plant and Machinery
Less: Mutual owing 100,000.00 50,000.00 H Ltd 2,000,000.00
Creditors S Ltd 0.00 2,000,000.00
H Ltd 300,000.00 Furniture and Fixtures
S Ltd 300,000.00 H Ltd 90,000.00
600,000.00 S Ltd 100,000.00 190,000.00
Less: Mutual owing 60,000.00 540,000.00 Stock
Bank overdraft 200,000.00 H Ltd 400,000.00
S Ltd 750,000.00 1,150,000.00
Debtors
H Ltd 100,000.00
S Ltd 280,000.00
380,000.00
Less: Mutual owing 60,000.00 320,000.00
Cash in Hand
H Ltd 10,000.00
S Ltd 15,000.00 25,000.00
Bills Receivable 100,000.00
Less: Mutual owing 100,000.00 0.00
4,485,000.00 4,485,000.00
Problem 4:
The Balance Sheet of H Ltd, and its subsidiary S Ltd., as on 31st March, 1999 are as follows:
Liabilities H Ltd S Ltd The following is the additional information:
Equity share capital Rs. 100 each 3,000,000.00 1,500,000.00 1. H Ltd, acquired 12000 equity shares in S Ltd on 1st April 1998.
General reserve as on 1st April 1998 800,000.00 400,000.00 2. Bills receivable of H Ltd includes Rs. 30000 accepted by S Ltd
P&L Account as on 1st April 1998 200,000.00 250,000.00 3. Accounts receivable of H Ltd include Rs. 100000 due from S Ltd
Net profit for the year 1998-99 600,000.00 400,000.00 4. Inventories of S Ltd include goods purchased from H Ltd for Rs. 125000 which
15% Depreciation 1,000,000.00 0.00 invoiced by H Ltd at a profit of 25% on Cost
Creditors 400,000.00 270,000.00 5. Both H Ltd and S Ltd have proposed 10% dividend for the year 1998-99, but no
Bills Payable 60,000.00 30,000.00 effect has been given in the balance sheets.
6,060,000.00 2,850,000.00 Prepare a consolidated balance sheet of H Ltd and its subsidiary S Ltd as on 31st
Assets H Ltd S Ltd March, 1999 giving proper working notes. Ignore corporate dividend tax.
Premises 1,400,000.00 900,000.00
Machinery 1,200,000.00 700,000.00 Total No. of shares in S Ltd 15,000.00
Investment in shares of S Ltd 1,700,000.00 Shares acquired by H Ltd 12,000.00
Inventories 700,000.00 450,000.00 Balance Shares @ S Ltd 3,000.00
Debtors 500,000.00 420,000.00 The share ratio is 4:1
Cash and Bank 380,000.00 200,000.00
Bills Receivable 180,000.00 80,000.00
Miscellaneous Expenditure 100,000.00
6,060,000.00 2,850,000.00
Working Notes:
Calculation of Capital Reserve:
Profit during the year 1998-99 400,000.00
H Ltd Share 320,000.00
S Ltd Share 80,000.00
General Reserve for 1998 400,000.00
Less: Opening reserve 400,000.00 0.00
Profit during the year 1998 250,000.00
H Ltd Share 200,000.00
S Ltd Share 50,000.00
Amount paid by H Ltd 1,700,000.00
Less: Paid up value of shares
acquired by H Ltd 1,200,000.00
H Ltd Capital Profit 320,000.00
H Ltd Revenue Profit 200,000.00
1,720,000.00
Less: 80% of Miscellanous expenses 80,000.00 1,640,000.00
Paid up value of S Ltd 300,000.00
Add: S Ltd General Reserve 80,000.00
S Ltd Profit on 1.4.1998 50,000.00
S Ltd net profit for the year 1998-99 80,000.00
210,000.00
510,000.00
Less: S Ltd Miscellanous Expenditure 20,000.00
Balance on 1.4.1998 200,000.00
Add: Net Profit for the year 600,000.00
800,000.00
Less: Proposed Dividend 300,000.00
500,000.00
Add: S Ltd Capital Profit 320,000.00
820,000.00
Less: Unrealised Profit 20,000.00 800,000.00
Equity Shares 3,000,000.00 Goodwill 60,000.00
Minority Interest 490,000.00 Premises
General Reserve 800,000.00 H Ltd 1,400,000.00
Consolidated Profit 800,000.00 S Ltd 900,000.00 2,300,000.00
15% Debentures 1,000,000.00 Machinery
Bills Payable H Ltd 1,200,000.00
H Ltd 60,000.00 S Ltd 700,000.00 1,900,000.00
S Ltd 30,000.00 Inventories
90,000.00 H Ltd 700,000.00
Less: Mutual Owing 30,000.00 60,000.00 S Ltd 450,000.00
Creditors 1,150,000.00
H Ltd 400,000.00 Less: Unrealised Profit 20,000.00 1,130,000.00
S Ltd 270,000.00 Debtors
670,000.00 H Ltd 500,000.00
Less: Mutual Owing 100,000.00 570,000.00 S Ltd 420,000.00
Proposed Dividend 300,000.00 920,000.00
Less: Mutual Owing 100,000.00 820,000.00
Cash and Bank
H Ltd 380,000.00
S Ltd 200,000.00 580,000.00
Bills Receivable
H Ltd 180,000.00
S Ltd 80,000.00
260,000.00
Less: Mutual Owing 30,000.00 230,000.00
7,020,000.00 7,020,000.00
Problem 5:
The Balance Sheet of Hari Ltd and its subsidiary Suri Ltd, as at 31st March 1999 are as follows:
Liabilities Hari Ltd Suri Ltd Assets Hari Ltd Suri Ltd
Share Capital: Plant and Machinery 480,000.00 90,000.00
Equity Shares of Rs. 10 each, fully paid 400,000.00 100,000.00 Furniture 15,000.00 27,000.00
General Reserve on 1.4.1998 280,000.00 34,000.00 Investments 200,000.00
Profit and Loss Account 170,000.00 42,000.00 Stock 95,000.00 42,000.00
Creditors 70,000.00 35,000.00 Debtors 60,000.00 32,000.00
Cash at Bank 70,000.00 20,000.00
920,000.00 211,000.00 920,000.00 211,000.00
The following information is also given to you:
1. Hari Ltd acquired 8000 equity shares in Suri Ltd as at 1st July 1998 at cost of Rs. 200000
2. Stock of Hari Ltd includes Rs. 6000 relating to stock purchased from Suri Ltd, which follows the practice of charging 25% extra on the cost for
determining the sale price.
3. Creditors of Hari Ltd include Rs. 10000 on account of purchase of goods from Suri Ltd.
4. Profit and Loss Account of Hari Ltd includes dividend @ 10% for the year 1997-98 received from Suri Ltd which declared and paid in August 1998
5.Balances on Suri Ltd's Profit and Loss Account on 1st April 1998 was Rs. 27000 . Dividend @ 10% for the year 1997-98 was declared out of this
balance in August 1998. Suri Ltd also paid Rs. 1000 as tax on distributed profit in August 1998.
6. Profits during the year 1998-99 have been earned on uniform basis throughout the year.
Prepare a consolidated balance sheet of Hari Ltd and its subsidiary Suri Ltd, as at 31st March 1999. Submit all your working notes neatly.
Total No of shares in Suri Ltd 10,000.00
Shares acqried by Hari Ltd 8,000.00
Balance shares in Suri Ltd 2,000.00
The ratio is 4:1
To Dividend for 1997-98 10,000.00 By Balance b/f 27,000.00
To Tax on Distributed Profit 1,000.00 By Net Profit for the year
To Balance c/f 42,000.00 (Balancing figure) 26,000.00
53,000.00 53,000.00
Profit till 1st July 6,500.00
Profit after acquisation 19,500.00
Hari Ltd Revenue Profit 15,600.00
Suri Ltd Revenue Profit 3,900.00
General Reserve on 1.4.1998 34,000.00
Add: P&L Account balances on 1.4.98 27,000.00
Less: Dividend Paid 11,000.00 16,000.00
Add: Profit till July 1998 6,500.00
Hari Ltd's Capital Profit 45,200.00
Suri Ltd's Capital Profit 11,300.00
Calculation of Cost of Control
Amount Paid by Hari Ltd 200,000.00
Less: Dividend out of pre-acquisation 8,000.00
paid up share value of Hari Ltd shares 80,000.00
Hari's Capital Profit 45,200.00 133,200.00
Goodwill 66,800.00
Calculation of Minority Interest
Paid-up value of Suri Ltd Share 20,000.00
Add: Suri's Capital Profit 11,300.00
Hari's Capital Profit 3,900.00 15,200.00
Profit and Loss Account for Hari Ltd 170,000.00
Less: Dividend of pre-acquisation 8,000.00
162,000.00
Add: Hari's Revenue Profit 15,600.00
177,600.00
Less: Unrealised Profit 1,200.00
Consolidated Balance Sheet of Hari Ltd and its Subsidiary Suri Ltd
Equity Shares 400,000.00 Goodwill 66,800.00
Minority Interest 35,200.00 Plant and Machniery
Consolidated Profit 176,400.00 Hari Ltd 480,000.00
Current Liabilities Suri Ltd 90,000.00 570,000.00
Hari Ltd 70,000.00 Furniture
Suri Ltd 35,000.00 Hari Ltd 15,000.00
105,000.00 Suri Ltd 27,000.00 42,000.00
General Reserve 280,000.00 Hari Ltd 95,000.00
Suri Ltd 42,000.00
137,000.00
Debtors
Hari Ltd 60,000.00
Suri Ltd 32,000.00
92,000.00
Cash at Bank
Hari Ltd 70,000.00
Suri Ltd 20,000.00 90,000.00
986,600.00 986,600.00
Problem 6:
The following are the balance sheets of RM Ltd and its subsidiary GM Ltd, as at 31st March 2000:
Liabilities RM Ltd GM Ltd
Fully paid equity shares Rs. 10 each 600,000.00 200,000.00
General Reserve 340,000.00 80,000.00
Creditors 70,000.00 35,000.00
1,110,000.00 375,000.00
Assets RM Ltd GM Ltd
Machinery 390,000.00 135,000.00
Furniture 80,000.00 40,000.00
80% Share in GM Ltd 340,000.00
Stock 180,000.00 120,000.00
Debtors 50,000.00 30,000.00
Cash at Bank 70,000.00 50,000.00
1,110,000.00 375,000.00
The following additional information is provided for you:
1. Profit and Loss Account of GM Ltd stood at Rs. 30000 on 1st April 1999, wheres general reserve has remained unchanged since that date.
2. RM Ltd acquired 80% shares in GM Ltd on 1st October 1999 for Rs. 340000 as mentioned above.
3. Included in debtors of GM Ltd is a sum of Rs. 10000 due from RM Ltd for goods sold at profit of 25% on cost price. Till 31st March 2000 only half
of the goods had been sold while the remaining goods were lying in the godwon of RM Ltd as on that date.
Prepare consolidated balance sheet as at 31st March 2000 . Show all the calculations clearly.
Working Notes:
Balance of GM Ltd Profit and Loss
Account on 31st March 2000 60,000.00
Less: Opening balance as on 1st April 1999 30,000.00
Profit for the year 30,000.00
Profit till 1st October 1999 15,000.00
Profit of GM Ltd after acquisation (Revenue Profit) 15,000.00
RM Ltd's Revenue Profit 12,000.00
GM Ltd's Revenue Profit 3,000.00
General Reserve of GM Ltd as on 1st April 1999 80,000.00
Profit of GM Ltd as on 1st April 1999 30,000.00
Pre-acquisation Profit 15,000.00
RM Ltd's Capital Profit 100,000.00
GM Ltd's Capital Profit 25,000.00
Amount paid by RM Ltd 340,000.00
Less: Face value of shares acquired 160,000.00
RM Ltd's Capital Profit 100,000.00 260,000.00
Goodwill 80,000.00
Face value of GM Ltd's Share 40,000.00
Add: GM Lts's Revenue Profit 3,000.00
GM Ltd's Capital Profit 25,000.00 28,000.00
Profit and Loss account 100,000.00
Add: Revenue Profit of GM Ltd 12,000.00
112,000.00
Consolidated Balance Sheet of RM Ltd and its subsidiary GM Ltd as on 31st March 2000:
Equity Share capital 600,000.00 Goodwill 80,000.00
Minority Interest 68,000.00 RM Ltd 390,000.00
Creditors GM Ltd 135,000.00 525,000.00
RM Ltd 70,000.00 Furniture
GM Ltd 35,000.00 RM Ltd 80,000.00
105,000.00 GM Ltd 40,000.00 120,000.00
Consolidated Profit 111,000.00 RM Ltd 180,000.00
GM Ltd 120,000.00
300,000.00
Debtors
RM Ltd 50,000.00
GM Ltd 30,000.00
80,000.00
Cash at Bank
RM Ltd 70,000.00
GM Ltd 50,000.00 120,000.00
1,214,000.00 1,214,000.00
Problem 7:
A Ltd acquired 8000 equity shares of B Ltd on 1st April 2000 . The following are the balance sheets of the two companies as at 31.3.2000.
Liabilities A Ltd B Ltd 1. The bills receivable of A Ltd include Rs. 10000 accepted by B Ltd.
Equity shares of Rs. 100 each 2,000,000.00 1,000,000.00 2. Sundry Debtors of A Ltd include Rs. 50000 due from B Ltd
General Reserve (1.4.2000) 400,000.00 200,000.00 3. Stock of B Ltd, includes goods purchased from A Ltd for Rs. 60000 which are
Profit and Loss Account (1.4.2000) 100,000.00 60,000.00 invoiced by A Ltd, at a profit of 25% at cost.
Profit for the year 2000-2001 200,000.00 80,000.00
Sundry Creditors 100,000.00 100,000.00 Prepare a consolidated balance sheet of A Ltd and its subsidiary B Ltd.
Bills Payable 30,000.00 10,000.00
2,830,000.00 1,450,000.00
Assets A Ltd B Ltd
Land and Building 500,000.00 300,000.00
Plant and Machinery 500,000.00 600,000.00
Stock 150,000.00 100,000.00
Sundry Debtors 100,000.00 120,000.00
Investment in shares of B Ltd at cost 1,000,000.00
Bills Receivable 80,000.00 10,000.00
Cash and Bank Balances 500,000.00 320,000.00
2,830,000.00 1,450,000.00
Working Notes:
Shares:
Total no. of shares in B Ltd 10,000.00
Shares acquired by A Ltd 8,000.00
Balance shares with B Ltd 2,000.00
The ratio between A and B Ltd is 4:1
General Reserve 1.4.2000 200,000.00
Profit and Loss Account 1.4.2000 60,000.00
260,000.00
A Ltd Capital Profit 208,000.00
B Ltd Capital Profit 52,000.00
A Ltd's Revenue Profit 64,000.00
B Ltd's Revenue Profit 16,000.00
Amount paid by A Ltd 1,000,000.00
Less: Face value for paid up share 800,000.00
A Ltd of Capital Profit 208,000.00 1,008,000.00
Face value of B Ltd 200,000.00
Add: B Ltd Capital Profit 52,000.00
B Ltd Revenue Profit 16,000.00 68,000.00
A Ltd Profit for the year 200,000.00
Add: Revenue Profit of A Ltd 64,000.00
264,000.00
Add: Profit on 1.4.2000 100,000.00
364,000.00
Consolidated Balance Sheet of A Ltd and its subsidiary B Ltd as on 31st March 2000:
Equity Share Capital 2,000,000.00 Land and Building
General Reserve 400,000.00 A Ltd 500,000.00
Consolidated Profit 352,000.00 B Ltd 300,000.00 800,000.00
Minority Interest 268,000.00 Plant and Machinery
Capital Reserve 8,000.00 A Ltd 500,000.00
Creditors B Ltd 600,000.00 1,100,000.00
A Ltd 100,000.00 Stock
B Ltd 100,000.00 A Ltd 150,000.00
200,000.00 B Ltd 100,000.00
Less: Mutual owing 50,000.00 150,000.00 250,000.00
Bills Payable Less: Unrealised Profit 12,000.00 238,000.00
A Ltd 30,000.00 Debtors
B Ltd 10,000.00 A Ltd 100,000.00
40,000.00 B Ltd 120,000.00
Less: Mutual owing 10,000.00 30,000.00 220,000.00
Bills Receivable
A Ltd 80,000.00
B Ltd 10,000.00
90,000.00
Cash at Bank
A Ltd 500,000.00
B Ltd 320,000.00 820,000.00
3,208,000.00 3,208,000.00
Problem 8:
The balance sheet of H Ltd and its subsidiary S Ltd as on 31st March 2001 were as follows:
Share Capital 10,000.00 6,000.00 Sundry Assets 16,000.00 10,000.00
General Reserve 4,000.00 Investment - 400 shares in S Ltd 4,000.00
Creditors 2,000.00 2,200.00
20,000.00 10,000.00 20,000.00 10,000.00
The shares were purchased by H Ltd in S Ltd on 30th September 2000
On 1st April 2000, the profit and loss account of S Ltd, showed a loss of Rs. 30 lakhs which was written off from out of the profits earned during the
year. Profits were earned uniformly over the year 2000-2001
Prepare consolidated Balance Sheet of H Ltd and S Ltd as on 31st March 2001 given all workings.
Shares:
Total no. of shares 600.00
No. of shares held by H Ltd 400.00
Balance at S Ltd 200.00
The Ratio between H and S Ltd is 2:1
To Balance b/f 3,000.00 By Net Profit - Balancing figure 4,800.00
To Balance c/d 1,800.00
4,800.00 4,800.00
Net Profit for the year 4,800.00
Net Profit upto 30th September 2000 2,400.00
Loss as on 1st April 2000 3,000.00
Less: Net Profit during the year 2,400.00
Capital Loss 600.00
H Ltd capital loss 400.00
S Ltd Capital Loss 200.00
Profit after acquisation 2,400.00
H Ltd Revenue Profit 1,600.00
S Ltd Revenue Profit 800.00
Less: Face value of H Ltd 4,000.00
Less: H Ltd Capital loss 400.00 3,600.00
Goodwill 400.00
Face value of shares of S Ltd 2,000.00
Add: S Ltd Revenue Profit 800.00
Less: S Ltd Revenue Profit 200.00 600.00
Add: H Ltd Revenue Profit 1,600.00
Equity Shares 10,000.00 Goodwill 400.00
Minority Interest 2,600.00 Sundry Debtors
Consolidated Profit 5,600.00 H Ltd 16,000.00
General Reserves 4,000.00 S Ltd 10,000.00 26,000.00
Creditors
H Ltd 2,000.00
S Ltd 2,200.00 4,200.00
26,400.00 26,400.00
At the date of acquisation by A Ltd of its holding of 40000 equity shares in B Ltd the latter company had undistributed profit and reserve amounting to
On April 1998 S Ltd., issued at par 10% pereference shares for Rs. 100000 . On this date, S Ltd's General reserve and Profit and Loss account showed
the balances of Rs. 80000 and Rs. 53600 respectively. On July 5, 1998 S Ltd paid a final divended of 12% equity shares for the year ended 31st March
On April 1, 1998 H Ltd acquired 80% equity shares in S Ltd for Rs. 300000 . On this date machinery of S Ltd was revalued at 250000 . No entry for
1. S Ltd., provides depreciation on Machinery @ 10% on written down value. No machine was sold or purchased during the year.
2. H Ltd remitted a cheque of Rs. 100000 to S Ltd on 27th March, 1999 for repayment of loan, which was received by S Ltd in April 1999.
All the 30000 shares in S Ltd, were acquired by H Ltd on 1st october, 1998 . Bills receivable held by S Ltd are all accepted by H Ltd, included in
You are required to prepare a consildated balance sheet of H Ltd, and its subsidiary S Ltd, as at 31st March 1999 . Give all your working notes
1. H Ltd, acquired 12000 equity shares in S Ltd on 1st April 1998.
2. Bills receivable of H Ltd includes Rs. 30000 accepted by S Ltd
3. Accounts receivable of H Ltd include Rs. 100000 due from S Ltd
4. Inventories of S Ltd include goods purchased from H Ltd for Rs. 125000 which
5. Both H Ltd and S Ltd have proposed 10% dividend for the year 1998-99, but no
Prepare a consolidated balance sheet of H Ltd and its subsidiary S Ltd as on 31st
March, 1999 giving proper working notes. Ignore corporate dividend tax.
2. Stock of Hari Ltd includes Rs. 6000 relating to stock purchased from Suri Ltd, which follows the practice of charging 25% extra on the cost for
4. Profit and Loss Account of Hari Ltd includes dividend @ 10% for the year 1997-98 received from Suri Ltd which declared and paid in August 1998
5.Balances on Suri Ltd's Profit and Loss Account on 1st April 1998 was Rs. 27000 . Dividend @ 10% for the year 1997-98 was declared out of this
Prepare a consolidated balance sheet of Hari Ltd and its subsidiary Suri Ltd, as at 31st March 1999. Submit all your working notes neatly.
1. Profit and Loss Account of GM Ltd stood at Rs. 30000 on 1st April 1999, wheres general reserve has remained unchanged since that date.
3. Included in debtors of GM Ltd is a sum of Rs. 10000 due from RM Ltd for goods sold at profit of 25% on cost price. Till 31st March 2000 only half
A Ltd acquired 8000 equity shares of B Ltd on 1st April 2000 . The following are the balance sheets of the two companies as at 31.3.2000.
1. The bills receivable of A Ltd include Rs. 10000 accepted by B Ltd.
3. Stock of B Ltd, includes goods purchased from A Ltd for Rs. 60000 which are
Prepare a consolidated balance sheet of A Ltd and its subsidiary B Ltd.
On 1st April 2000, the profit and loss account of S Ltd, showed a loss of Rs. 30 lakhs which was written off from out of the profits earned during the
Under this method of accounting, profits from the business earned in different locations are ascertained. It is used
to measure the performance of different branches.
Dependend Branches:
1. They do not have independent authority to purchase goods or to pay for expenses.
2. Accounts of the branches are maintained by head offices.
3. Branch remitts the cash collected perodically to head office and also obtained or rembersed cash for expenses.
4. Branch cannot find out its profit or loss therefore final accounts are prepared in the books of head office.
Debtors Method:
Under this method every branch is treated as debtor transactions between head office and branch are recorded
through "Branch Account" and profit or loss is ascertained.
Important Points:
1. Cash remitted by branch will equal to cash sales, plus cash collected from debtors plus sale of assets and direct
payments by branch customers.
2. Branch account recoreds only transactions between head office and branch, therefore ignore branch transactions
with outsiders. Example, bad debts, discount allowed, credit sales, sales returns from branch.
PARTICULARS AMOUNT AMOUNT PARTICULARS
To Balance b/d By Goods returned from
Opening Branch Debtors xxx Branch
Opening Branch Stock xxx By Cash remitted form
Opening Branch Assets xxx xxx branch
To Goods sent to Branch xxx By Stock Reserve (O. Stock)
To Cash sent to Branch for expenses xxx By Goods sent to Branch
To Goods returned from branch (Profit) xxx (profit)
To Stock Reserve ( C. Stock) xxx By Balance c/d
To Net Profit xxx Closing stock
Debtors
Assets
xxx
BANK ACCOUNTS
BRANCH ACCOUNT FORMAT
Lakshmi Page 184 Branch Accounts
Problem 1:
A company with its head office at Bombay has a branch at calcutta. The branch receives all goods from head
office, who also remits cash for all expenses. Sales are made by the branch on credit as well as for cash.
Total sales by the branch for the year ending 31.03.2001 amounted to Rs. 560000 out of which 20% is cash sales.
The following further information is relevant. (1.4.2000)
Stock 25,000.00
Debtors 60,000.00
Cash 120.00
(31.12.2000)
Stock 36,000.00
Debtors 48,000.00
Cash 180.00
Expenses incurred by branch:
Salaries 36,000.00
Rent 12,000.00
Petty Expenses 5,600.00
All sales are made by the branch at cost plus 25%
You are required to prepare the calcutta branch account in the books of the head office for the year ended
31.03.2001
Sales 560,000.00
Less: Profit on sales 112,000.00
Cost of goods sold 448,000.00
Cost of goods send = Opening Stock+Goods Sent to branch-Closing Stock
Goods sent to branch -11,000.00
459,000.00
Branch Debtors account
To Balance b/d 60,000.00 By Balance c/d
To Credit sales 448,000.00 By Cash collected from
debtors
508,000.00
Branch Account
To Balance b/d By Cash Remitted
Opening debtors 60,000.00 Cash sales
Opening Stock 25,000.00 Cash collected from debtors
Cash 120.00 85,120.00 By Balance c/d
To goods send to branch 459,000.00 Closing Stock
To Cash send for expenses Closing Debtors
Salaries 36,000.00 Closing Cash
Rent 12,000.00
Petty Expenses 5,600.00 53,600.00
To Net Profit 58,460.00
656,180.00
Problem 2:
Sonali chain stores of calcutta has a branch in burdwan. Goods are sent to branch at cost. Branch sells only goods
received from head office. Branch sales are partly cash and partly credit. All cash collected by branch are sent to
head office. Following are the details of transactions relating to branch for the year ended on 31.12.2000
(all figures in Rupees)
PARTICULARS AMOUNT
Stock at Branch 1.1.2000 6,800.00
Debtors at Branch 1.1.2000 7,000.00
Goods in transist on 1.1.2000 4,800.00
Goods sent to branch during the year 78,600.00
Goods received by branch during the year 74,800.00
Goods returned by branch 2,000.00
Returned goods received by head office
during the year 1,600.00
Cash sales at branch during the year 54,000.00
Credit sales at branch during the year 35,500.00
Returns by branch customers 500.00
Cash received on ledger a/c 33,000.00
Branch salary and wages paid by Head office 6,700.00
Expenses paid by Head office 800.00
Branch Outstanding Salary 1,200.00
Branch Prepaid wages 500.00
Bad debts written off 200.00
Wastage of stock at Branch 400.00
Other particulars are given below:
1. Goods in transist Rs. 4800 included gogds costing Rs. 3200 sent by head office to branch and goods costing
Rs. 1600 returned by branch to head office in previous year.
2. During this year cash Rs. 5000 sent by branch to head office on 27.12.2000 which received by head office on
31.1.2001
3. Branch maintains a steady gross profit @ 20% on sales.
Show the branch account in the head office to record the above transactions.
Branch Debtors account
To Balance b/d 7,000.00 By Balance c/d
To Credit sales 35,500.00 By Cash collected from
debtors
By Bad debts
By Returns by branch
customers
42,500.00
Branch Stock account:
To Balance b/d 6,800.00 By goods returned by branch
To goods received by branch 74,800.00 By credit sales
By cash sales
Less: Profit @ 20%
By wastage
By closing stock (balance)
81,600.00
Goods in transist:
Opening Balance 4,800.00
Head office to branch office 3,200.00 Branch office to head office
Add: goods send 78,600.00 Add: Goods send
Less: Goods returned 74,800.00 Less: goods received
7,000.00
Total goods in transist 9,000.00
Branch Account:
To balance b/d By goods returned
stock 6,800.00 By cash remitted by branch
debtors 7,000.00 cash sales
goods in transist 4,800.00 18,600.00 Cash colledted
To goods send to branch 78,600.00 By Balance c/d
To cash send for branch expenses stock
Salary 6,700.00 debtors
Add: salary outstanding 1,200.00 goods in transist
7,900.00
Less: prepaid wages 500.00 7,400.00
To sundry expenses 800.00
To Net profit 9,000.00
114,400.00
Problem 3:
S Ltd maintains a branch at calcutta to which it sends goods at cost plus 25% . Calcutta branch sells goods both in
cash and credit. All collections and cash sales are directly deposited to headoffice banck account and all expenses
are paid by the head office directly. From the following information, please prepare branch account in the books
of head office.
PARTICULARS AMOUNT AMOUN T
1.4.2000:
Stock (Invoice price) 30,000.00
Debtors 40,000.00
Transactions during the year:
Goods send to branch at cost 140,000.00
Goods returned by branch at
invoice price 10,000.00
Goods returned by debtors to
branch 3,000.00
Credit sales 120,000.00
Cash sales 30,000.00
Bad debts 2,000.00
Discount allowed 3,000.00
Abnormal loss of goods at
cheaque sent by head office to branch
rent 4,000.00
salaries 6,000.00
petty expenses 2,000.00
31.12.2001:
Stock (Invoice price) 40,000.00
Debtors 45,000.00
Outstanding rent 1,000.00
Branch debtors:
To branch b/d 40,000.00 By discount allowed
To credit sales 120,000.00 By bad debts
By goods returned by branch
By balance c/d
By cash collected
160,000.00
Branch Account:
To balance b/d By goods returned by branch
stock 30,000.00 By cash remitted by branch:
debtors 40,000.00 70,000.00 cash collected
To goods sent to branch 175,000.00 cash sales
To cheque sent by branch By stock reserve
for expenses By goods sent to branch
Rent 4,000.00 By balance c/d
Salaries 6,000.00 Stock
Petty expenses 2,000.00 Debtors
Outstanding rent 1,000.00 13,000.00
To goods returned by branch 2,000.00
To stock reserve 8,000.00
273,000.00
Problem 4:
Shetty solvents Co., Bangalore opend a branch at Hyderabed on 1st January, 1981. The following information is
available in respect of the branch for the year 1981.
PARTICULARS AMOUNT AMOUN T
Goods sent to branch 75,000.00
Cash sales at branch 50,000.00
Credit sales at branch 60,000.00
Staff salaries paid by head office 15,000.00
Office salaries paid by head office 12,000.00
Petty cash expenses by head office 6,000.00
Petty cash at branch (31.12.81) 500.00
Debtors of branch at 31.12.81 5,000.00
Stock of branch at 31.12.81 27,000.00
Prepare branch account profit and loss account from the branch for the year 1981
Branch Debtors account:
To credit sales 60,000.00 To cash collected
To balance c/d
60,000.00
Branch Account:
To goods send to branch 75,000.00 By cash remitted
To Expenses met by head office Cash collected
Salaries 15,000.00 cash sales
Office expenses 12,000.00 27,000.00 By Balance c/d
To cash remitted by H.O for stock
petty expenses 6,000.00 debtors
To Net profit 29,500.00 petty cash
137,500.00
Problem 5:
The Bhundi shoes ltd, is having its branch at Ajmer. Goods are invoiced to the branch at 20% profit on sale.
Branch has been instructed to send all cash daily to head office. All expenses are paid by the head office except
petty expenses which are met by the branch manager. From the following particulars prepare branch account, in
the books of Bhundi branch account.
PARTICULARS AMOUNT AMOUNT
Stock as on 1.1.1981 15,000.00
Sundry debtors as on 1.1.1981 9,000.00
Cash in hand on 1.1.1981 400.00
Office furniture as on 1.1.981 1,200.00
Goods invoiced from head office
(invoice price) 80,000.00
Goods returned to H O 1,000.00
Goods returned by debtors 480.00
Cash received from debtors 30,000.00
Discount allowed to debtors 30.00
Expenses paid by H O
Rent 1,200.00
Salary 2,400.00
Statitonery & printing 300.00
Petty expenses paid by the branch manager 280.00
Depreciation is to the provided on branch furniture at 10% p.a
Stock on 31.12.1981 at Invoice price 14,000.00
Branch Debtors Account:
To balance b/d 9,000.00 By Cash from debtors
To Credit sales 30,000.00 By Goods returned by debtors
By Discount allowed
By Balance c/d
39,000.00
Branch Account:
To Branch b/d By Cash remittance
Stock 12,000.00 Cash remittance
Debtors 9,000.00 cash sales
Cash in hand 400.00 By goods returned by
Furniture 1,200.00 22,600.00 branch
To goods send to branch 64,000.00 By Balance c/d
To branch expenses Stock
Salary 2,400.00 Cash
Rent 1,200.00 Furniture
Stationery 300.00 3,900.00 Debtors
To net profit 2,700.00
93,200.00
Problem 6:
Jaggu Bros. operate a retail branch in Gumanpura. All purchases are made by the head office at Madargate,
goods being charged out to the branch at cost price. All cash received by branch is remitted to Madargate. Branch
petty expenses are paid out of an imprest which s reimbursed by head office from time to time. From the
following particulars relating to Gumanpura branch, you are required to prepare branch account for calculating
profit in the books of Head office.
January 1, 1981
Stock at cost 7,000.00
Petty cash 700.00
Plant 8,000.00
December 31, 1981
Stock at cost 6,300.00
Goods sent to branch 40,800.00
petty expenses paid by branch
out of imprset 630.00
Cash sales during the year 60,700.00
Sale of plant on 1st July 900.00
(book value of plant on date of sale
is Rs. 950)
Expenses paid by H. O 4,200.00
It is required to write off plant at 10% p.a
Branch account:
To Branch b/d By Cash remitted by branch
Stock 7,000.00 cash sales
Petty cash 700.00 7,700.00 Sale of plant
To Goods sent to branch 40,800.00 By balance c/d
To plant 8,000.00 Stock
To petty expenses in imprest 630.00 Plant
To Expenses paid by HO 4,200.00 Depreciation on plant
68,300.00
Problem 7:
Spraylac paints co., ltd at surat has a branch at Kotah. Goods are invoiced to the branh at selling price being cost
plus 25% . The branch sends all cash received to head office and all expenses being paid by HO . From the
following particualrs prepare the branch account in the books of head office.
Invoice value of stock on 1.1.1983 25,000.00
Invoice value of Stock on 31.12.1983 30,000.00
Sundry debtors on 1.1.1983 24,000.00
Bad debts 2,000.00
Goods from HO 180,000.00
Salaries 9,600.00
Rent 4,800.00
Sundry expenses 1,800.00
cash collected from customers 64,000.00
Branch debtors account:
To balance b/d 24,000.00 By bad debts
Credit sales 70,000.00 By cash collected from
customers
By balance c/d (balance)
94,000.00
To balance b/d By cash remitted
Stock 25,000.00 cash sales
Debtors 24,000.00 49,000.00 cash collected from debtors
To goods send to branch 180,000.00 By Goods send to branch
To expenses paid by HO By stock reserve
Salareis 9,600.00 By balance b/d
Rent and taxes 4,800.00 Stock
Sundry expenses 1,800.00 16,200.00 Debtors
To stock reserve 6,000.00
271,000.00
Debtors system does not excrise or disclose the flow of stock and debtors. Under stock and debtors system
separate accounts are maintained for stock and debtors as well as expenses.
Format for Stock and Debtors Account:
To Balance b/d By Goods returned from
Opening Branch Debtors xxx Branch
Opening Branch Stock xxx By Cash remitted form
Opening Branch Assets xxx xxx branch
To Goods sent to Branch xxx By Stock Reserve (O. Stock)
To Cash sent to Branch for expenses xxx By Goods sent to Branch
To Goods returned from branch (Profit) xxx (profit)
To Stock Reserve ( C. Stock) xxx By Balance c/d
To Net Profit xxx Closing stock
Debtors
Assets
STOCK AND DEBTORS SYSTEM
xxx
Branch Stock Account:
To Balance b/d ( O. Stock) xxx To Goods returned to H.O
To Goods send to Branch xxx To Cash (Sales)
To Sales Returns xxx To Debtors (Credit Sales)
To Surplus in stock (balance) xxx To Normal Loss
To Abnormal Loss
To Balance c/d
xxx
Branch Adjustment Account:
To Stock Reserve (C. Stock) xxx By Stock Reserve (O. Stock)
To Goods returned to H.O xxx By Goods send to Branch
To Abnormal loss (Profit) xxx (profit)
To Normal loss (Full) xxx By Surplus (Profit)
To Gross Profit (Balance) xxx
xxx
Branch Expenses Account:
To Sundry Expenses xxx By Profit & Loss a/c
To Depreciation xxx
To Bad Debts xxx
To Discount Allowed xxx
xxx
Branch Account:
To Branch Expenses xxx By Gross profit
To Abnormal loss (cost) xxx By Surplus (cost)
To Net Profit xxx
xxx
Problem 1:
M Ltd., has a branch at Lucknow goods are invoiced from head office at cost plus 50%. Branch remitts all cash
received to head office and all expenses are met by head office. Prepare in the books of M Ltd. Under stock and
debtors system to show profit earned at the branch from the following ( all figures in rupees).
1.4.2000
Stock (invoice price) 15,600.00
Debtors 8,700.00
Goods invoiced at cost 54,000.00
Cash Sales 35,000.00
Credit Sales 30,100.00
Cash collected from debtors 29,800.00
Goods returned by debtors 1,500.00
Surplus in stock (invoice price) 300.00
Discount allowed by Debtors 350.00
Expenses at Branch 6,700.00
Debtors account
To balance b/d 8,700.00 By Cash collected
To Credit Sales 30,100.00 By Sales Returns
By Discount allowed
By Balance c/d
38,800.00
Branch Stock account
To Opening Stock 15,600.00 By Cash
To Goods send 81,000.00 By Debtors
To Sales Returns 1,500.00 By Balance c/d
To Surplus 300.00
98,400.00
To Stock Reserve 11,100.00 To Stock reserve
To Goods returned 1,500.00 To Surplus
To Gross profit 19,700.00 To Goods send to branch
32,300.00
Branch Profit and Loss a/c
To Branch Expenses 6,700.00 By Profit and Loss a/c
To Discount allowed 350.00
7,050.00
Branch Account:
To Branch Expenses 7,050.00 By Gross Profit
To Net Profit 12,850.00 By Surplus
19,900.00
Problem 2:
P has its branch at chandigarh and Gwailor to whom goods are invoiced at cost plus 25%.Following information
is available for the transactions at chandigarh branch for the year 31.1.2001.
Balances on 1.4.2000
Stock at Invoice price 40,000.00
Debtors 12,000.00
Petty Cash 150.00
Transactions during 2000-01:
Goods sent to branch at invoice price 420,000.00
Goods returned to head office
at invoice price 15,000.00
Goods pilfered at invoice price 3,000.00
Normal loss at invoice price 350.00
Goods loss by fire at invoice price 4,000.00
Insurance company paid to HO 3,000.00
Cash sent for petty expenses 32,000.00
Bad debts 400.00
Goods transferred to gwailor branch
Insurance company paid to HO 200.00
Goods returned by debtors 500.00
Balances on 31.3.2001:
Debtors 11,000.00
Petty Cash 250.00
Stock ?
To balance b/d 12,000.00 By Goods returned by debtors
To Credit Sales 180,000.00 By Bad debts
By balance c/d
By cash collected (balance)
192,000.00
To Balance b/d 40,000.00 By cash sales
To Goods send to branch 420,000.00 By credit sales
To goods returned by debtors 500.00 By Normal loss
By Abnormal loss
By goods returned to HO
By goods transferred to
gwailore
By Balance c/d
460,500.00
To Stock reserve 28,230.00 By Stock Reserve
To Normal loss 350.00 By Goods send to branch
To Abnormal loss 1,400.00
To Goods returned to HO 3,000.00
To Goods transferred to gwaliore 2,400.00
92,000.00
Petty Cash Account:
To balance b/d 150.00 By Petty Expenses (balance)
To cash spent for petty expenses 32,000.00 By balance c/d
32,150.00
To Branch expenses 31,900.00 By Profit and Loss a/c
To Insurance paid 200.00
To Bad debts 400.00
32,500.00
Branch Account:
To Branch expenses 32,500.00 By Gross profit
To Abnormal loss 5,600.00
Less: Insurance claimed 3,000.00 2,600.00
56,620.00
Problem 3:
D Ltd., has two branches in cochin and Banglore. During the year ended 31.3.2001 goods have been invoiced to
the cochin branch at 20% above the cost and to the Banglore branch at 25% above the cost. The branches do not
maintain complete books of accounts but the following figures are available for the year ended on 31.3.2001
PARTICULARS COCHIN BANGLORE
Opening stock at invoice price 10,000.00 10,000.00
Goods send to branch 50,000.00 40,000.00
Amount remitted by branch 80,000.00 80,000.00
Amount remitted by HO 15,000.00 15,000.00
Goods returned by branch at
Cash as on 1.4.2000 2,000.00 1,000.00
Cash as on 31.3.2001 1,000.00 500.00
Goods returned by customers to
branch at selling price 5,000.00 4,000.00
Expenses at branch in cash 9,000.00 3,000.00
All sales at branches are for cash. During the year, cochin Branch purchased fixed assets worth Rs. 4000 and this
amount is included in the figure of branch expenses. Cochin branch transferred to Banglore branch stock costing
to (HO) Rs. 5000 during the year. The Banglore branch remitted Rs. 2000 to the cochin branch also during the
year. These was closing stock of Rs. 24000 valued at invoice price at the cochin branch. There was no closing
stock adjustment account in the head office books stood at following position as on 1.4.2000
For Cochin 2500(cr)
For Banglore 2000(cr)

Branch stock account
Goods sent to branch account
Branch stock adjustment account
Branch profit and loss account
Branch expenses account in the books of head office ignoring depreciation.
Branch cash account
PARTICULARS COCHIN BANGLORE PARTICULARS
To balance b/d 2,000.00 1,000.00 By Amount remitted by
To Amount remitted by HO 15,000.00 15,000.00 Branch
To Banglore 2,000.00 By Expenses by branch
To Cash sales 76,000.00 73,500.00 By Sales returns
By Cochin
By Balance c/d
95,000.00 89,500.00
Branch stock Account:
To Balance b/d 10,000.00 10,000.00 By sales
To Goods send to branch 50,000.00 40,000.00 By goods returned to HO
To Sales returns 5,000.00 4,000.00 By Transfer
To Transfer 6,250.00 By Balance c/d
To surplus 44,000.00 13,250.00
109,000.00 73,500.00
Branch Adjustment account
To Stock reserve 4,800.00 By stock reserve
To Transfer 1,000.00 By Goods send to branch
To goods returned to Branch 600.00 By Transfer
To Gross profit 14,400.00 17,062.50 By Surplus
20,800.00 17,062.50
Branch Profit and Loss account:
To Expenses 9,000.00 3,000.00 By Gross profit
To Net profit 40,600.00 24,000.00 By Surplus (cost)
49,600.00 27,000.00
Problem 4:
Hari Haran of Madras opened a branch at culcutta, goods are invoiced from the head office at cost plus 33.33%.
Branch is allowed to make sales at invoice price only. Expenses of the branch are paid by the head office.
Transactions during the year were as follows:
Stock in the beginning of the year
Goods invoiced by head office 88,000.00
Sales: Cash 50,000.00
Goods returned by the branch
to Head office 2,000.00
Sales returns by branch debtors 800.00
Stock at the end of invoice price 7,000.00
Branch Expenses:
Freight and cartage 500.00
Rent 1,000.00
Salary 3,900.00
Bad debts 50.00
Depreciation on furniture 80.00
Advance to branch 200.00
Branch stock account:
To Balance b/d 8,000.00 By Sales
To Goods send to branch 88,000.00 Cash sales
Less: Sales returns 2,000.00 86,000.00 Credit sales
Less: Sales returns
By Balance c/d
By surplus(balance)
94,000.00
Branch Stock adjustment account:
To Shortage 1,800.00 By Stock reserve
To Stock reserve 1,749.87 By Goods send to branch
To branch expenses 5,730.00
23,498.24
Problem 5:
Pasific paper productions send goods to Agra branch at cost plus 25% . You are given the following particulars:
Opening stock at branch at invoice
price 5,000.00
Goods send to brant at invoice price 20,000.00
Loss in transist at invoice price 2,500.00
Theft at invoice price 1,000.00
Loss in weight (normal)
at invoice price 500.00
Sales 25,500.00
Expenses 8,000.00
Closing stock at branch at invoice
price 6,000.00
Claim received from insurance
company for loss in transist 2,000.00
You are required to prepare in the books of head office.
1. Branch stock account.
2. Branch Adjustment account
3. Branch Profit and Loss account.
To balance b/d 5,000.00 By Sales
To Goods send to branch 20,000.00 By Normal loss
To Surplus (balance) 10,500.00 By Abnormal loss
By Balance c/d
35,500.00
Branch Stock Adjustment Account:
To Stock Reserve 1,200.00 By Stock Reserve
To Normal loss 500.00 By Goods send to branch
To Abnormal loss 700.00 By Surplus
To Gross Profit 4,700.00
7,100.00
Branch Account
To Branch expenses 8,000.00 By Gross profit
To Abnormal loss 1,000.00 By Surplus (cost)
Less: Profit loading 200.00 800.00
13,100.00
FINAL ACCOUNT SYSTEM
Under this system of Trading profit and loss account is prepared to ascertain profit or loss made by Branch.
Opening stock, Goods send to branch, closing stock of branch are recoreded at cost price. Direct expenses such
as wages and carriage inwards are debited to Trading account.
Indirect expenses are charged to profit and loss a/c.
Treatment of Losses:
1. A Normal Loss - Ignore
2. Abnormal Loss - Credit in Trading account with cost of abnormal loss and debit it with profit and loss
account after deducting insurance claim if any.
Problem 1:
C Ltd in Bombay started on 1.4.2001 has two branches at Kanpur and Luknow. All goods sold at the branch
are received from head office invoiced at cost plus 25%. All expenses relating to branch are paid by the
head office. Each branch has its own sales ledger and sends weekly statement. All cash collected are remitted
daily to head office by the branches. The following particulars relating to the year 21.3.2002 have been
extracted from the weekly statement sent by the branch.
KANPUR LUCKNOW
Credit sales 125,400.00 110,000.00
Cash sales 78,600.00 85,200.00
Sales return 2,300.00 1,200.00
Sundry debtors 34,500.00 23,600.00
Rent and Rates 3,200.00 4,500.00
Bad debts 6,000.00
Salaries 16,000.00 18,000.00
General Expenses 2,600.00 1,500.00
Goods received from head office 150,000.00 125,000.00
Advertisment 7,500.00 5,200.00
Closing stock 45,000.00 35,000.00
You are required to prepare the Branch account as they would appear in the books of head office, showing the
profit or loss for the period and Trading and Profit and Loss account seperatly for each branch.
Trading and Profit and Loss Account:
PARTICULARS KANPUR LUCKNOW PARTICULARS
To Goods send to branch 120,000.00 100,000.00 By Sales
To Gross Profit 117,700.00 122,000.00 By Closing stock
237,700.00 222,000.00
To Rent and Rates 3,200.00 4,500.00 By Gross Profit
To Bad debts 6,000.00
To Salaries 16,000.00 18,000.00
To General Expenses 2,600.00 1,500.00
To Advertisment 7,500.00 5,200.00
To Net Profit 82,400.00 92,800.00
117,700.00 122,000.00
Problem 2:
M/s B & Co with its head office in Madras invoiced its goods to its Branch at Bombay at 20% less than
the catalogue price which is cost plus 50% with instruction that cash sales were made at invoice price
and credit sales at catelogue price. Discount on credit sales at 15% on prompt payment will be allowed.
From the following particulars available from branch, prepare Branch Trading and Profit and loss a/c
for the year ended 31.3.2001. in the head office books, so as to show the actual profit or loss of the Branch
for the year 2000-2001.
Stock on 1.4.2000 (invoice
price) 12,000.00
Goods received from H.O
(Invoice Price) 132,000.00
Debtors 1.4.2000 10,000.00
Cash realised from Debtors 85,635.00
Discount allowed to Debtors 13,365.00
Expenses at branch 6,000.00
Remittance to HO 120,000.00
Debtors 31.3.2001 11,000.00
Cash in hand 31.3.2001 5,635.00
Stock on 31.3.2001 (Inovice
price) 15,000.00
It was reported that a part of stock at the branch was lost by fire during the year whose value is to be
ascertained and provision should be made for discount allowed to the debtors as on 31.3.2001on the
basis of the year trned of the prompt payment.
Catelogue price Invoice price relationship:
Cost 100.00
Add: 50% 50.00
Invoice Price 150.00
Less 20% 30.00
Catelogue price 120.00
Computation of Abnormal Loss:
To O.Balance 10,000.00 By Cash sales
To Goods received from HO 110,000.00 By Credit Sales
By Abnormal loss (balance)
By Balance c/d
120,000.00
Debtors a/c
To Balance b/d 10,000.00 By Cash collected from
To Credit sales 100,000.00 Customers
By Discount allowed
By Balance c/d
110,000.00
Provision for Discount:
Current year gross collection 99,000.00
Discount allowed 13,365.00
Discount allowed rate 15%
Prompt payers 89,100.00
Prompt payers in percentage 90%
Provision for Discount: 1,485.00
To Opening Stock 10,000.00 By Sales
To Goods received from HO 110,000.00 By Abnormal loss
To Gross Profit 41,000.00 By Closing stock
161,000.00
To Loss of stock 2,500.00 By Gross profit
To Discount allowed 13,365.00
To Provision for Discount 1,485.00
To Sundry Expenses 6,000.00
41,000.00
Problem 3
Puskar enterprise has its head office in Ranchi and a Branch in Imphal. The following trial balance has
been extracted from the books of account as on 31.03.2005
PARTICULARS
DEBIT CREDIT DEBIT
Capital 1,650,000.00
Debtors 300,000.00 180,000.00
Purchases 2,742,000.00
Sales 2,550,000.00
Goods send to branch at I.V 1,140,000.00 1,125,000.00
Fixed assests net 1,050,000.00 200,000.00
Stock on 1.4.2004 24,000.00 60,000.00
Stock adjustment unrealised 12,000.00
profit
HO/BO current account 525,000.00
Administration and selling
expenses 841,500.00 74,500.00
Cash and Bank 46,500.00 39,000.00
Provision for bad debts 27,000.00
Other Relevant Information:
1. All goods are purchased by head office. Goods are send to branch at cost plus 25%
2. Stock at 31
st
March 2005 were valued at
H.O 36,000.00
B.O 45,000.00 (Invoice Price)
3. Depreciation is to be provided at 10% on book value.
4. Bad debts provision is to be maintained at 5% on debtors as at the end of the year
5. Cash in transist from branch to head office as at 31.3.2005 was Rs. 150000
6. Goods in transist form head office to branch at 31.3.2005 at Invoice Price was Rs. 15000
PARTICULARS H.O B.O PARTICULARS
To O.Balance 24,000.00 60,000.00 By Sales
HEAD OFFICE BRANCH OFFICE
To Purchases 2,742,000.00 By Goods send to branch
To Goods from HO 1,125,000.00 By C stock
To Gross Profit 960,000.00 171,000.00
3,726,000.00 1,356,000.00
To Admin and selling exp 841,500.00 74,500.00 By Gross profit
To Depreciation 105,000.00 20,000.00 By Stock Adjustment
To Stock adjustment 12,000.00 By Provision for bad debts
To Provision for bad debts 15,000.00 9,000.00
To Net profit 25,500.00 75,000.00
999,000.00 178,500.00
Balance Sheet of Puskar Enterprise as on 31.3.2005
LIABILITY AMOUNT AMOUNT ASSETS
Capital 1,650,000.00 Fixed asset
Add: Profit of HO 25,500.00 Less: Depreciation
Add: Profit of BO 75,000.00 1,750,500.00 Current asset:
Current account HO 525,000.00 Stock in hand
Less: Branch 360,000.00 Less: stock adjusted
Less: Cash in transist 150,000.00 Add: Goods in transist
Less: Goods in transist 15,000.00 0.00 Debtors
Creditors 150,000.00 Less: Provision for Bad
Debts
Cash and Bank
1,900,500.00
Section 2
Problem 1:
Star Ltd invoices goods to its branch at cost. From the following particulars, prepare branch account for the year ended 31st March, 2001 in the books of
the company:
Branch stock on 1st April 2000 305,260.00
Branch Debtors on 1st April 2000 74,200.00
Transaction at the branch during the year:
Goods received from Head office 2,460,000.00
Goods returned to Head office 23,500.00
Cash Sales 2,145,000.00
Discount allowed to debtors 16,000.00
Sales returned by debtors 8,500.00
Expenses paid by head office 141,800.00
On 31st March 2000 stock at branch 327,110.00
Memorandum Branch Debtors Account:
To Balance b/d 74,200.00 By Cash Collected
To Credit Sales 840,600.00 By Discount allowed
By Sales Returns
By Balance c/d (balance)
914,800.00
Branch Account:
To Branch Opening: By Bank
Stock 305,260.00 Cash Sales
Debtors 74,200.00 379,460.00 Cash Collected from Debtors
To Goods send to Branch 2,460,000.00 By Goods send to HO (Returns)
To Expenses paid by HO 141,800.00 By Branch Closing:
To Net Profit 404,650.00 Stock
Debtors
3,385,910.00
Problem 2:
Janata Shoe Co., sholapur has a branch at Delhi. Goods are invoiced to the granch at cost. The branch is authorised to sell the goods for cash only. Except
petty expenses which are paid by the branch itself out of petty cash maintained or impreset system, all expenses are paid by the head office.
From the following particulars, prepare in the books of head office, Branch Account and Goods sent to Branch Account for the year ending 31st March 2000:
Stock at Branch on 1st April 1999 141,300.00
Furniture at Branch on 1st April 1999 53,000.00
Imprest Petty cash at branch on 1st April 1999 1,000.00
Goods send to branch during the year 1,320,000.00
Cheques send to branch during the year:
Salaries 84,000.00
Rent 36,000.00
Advertisment 55,000.00
183,350.00
Goods returned by branch to head office 5,600.00
Sales at branch during the year 1,574,500.00
Stock at Branch on 31st March 2000 154,000.00
Depreciation is Charged on Furniture at 15% p. a on written down value method.
Branch Account:
To Branch Opening To Bank - Sales
Stock 141,300.00 To Goods returned
Furniture 53,000.00 By Branch Closing:
Petty Cash 1,000.00 195,300.00 Stock
To Goods send to Branch 1,320,000.00 Furniture
To Bank Petty Cash
Salaries 84,000.00
Rent 36,000.00
183,350.00
1,780,150.00
Goods sent to Branch Account:
To Branch Account - Returns 5,600.00 By Branch Account
To Trading Account - Transfer 1,314,400.00
1,320,000.00
Problem 3:
Nakul Co., Delhi invoices goods to its branch in Faridabad at cost. The branch sells goods at cost plus 25% and remits all the cash collected by it to head
office. All the branch expenses are paid by head office. From the following details, prepare branch account showing profit earned by the branch during
the year ended 31st March 2000.
Goods send to branch 760,000.00
Cash Collected by branch from its debtors 214,200.00
Branch Expenses paid by Head Office 92,550.00
31-Mar-99 31-Mar-00
Branch Stock 76,000.00 ?
Branch Debtors 28,400.00 39,200.00
Branch Furniture 23,000.00 19,550.00
Branch Expenses Outstanding 4,500.00 0.00
There has been no addition to or disposal of branch furniture during the year.
Branch Account:
To Branch Opening By Branch Expenses Outstanding
Stock 76,000.00 By Bank
Debtors 28,400.00 Cash Sales
Furniture 23,000.00 127,400.00 Cash Colleted from Debtors
To Goods send to Branch 760,000.00 By Brach Closing
To Bank - Expenses 92,550.00 Stock
To Net Profit 95,000.00 Debtors
Furntiure
1,074,950.00
Cost of Sales 746,000.00
Closing Stock = Opening Stock+Goods send to branch-cost of sales
Closing stock 90,000.00
Problem 4:
A trader has its branch at Kolkata to which the goods are invoiced at cost plus 20%. Prepare branch account in the books of the head office after taking into
consideration the following information also:
Opening stock at branch 72,000.00
Cash Sales at Branch 52,500.00
Credit Sales at Branch 123,000.00
Collection from debtors 113,700.00
Goods received from head office 90,000.00
Branch Expenses:
Paidy by Head Office 9,000.00
Paid by Branch 18,000.00
Expenses unpaid 4,200.00
Closing Stock at Branch 54,000.00
Closing Balance of Branch Debtors 27,480.00
Goods from head office to branch remaining in
transist on closing day 10,800.00
Working Notes:
To Balance b/d (balance figure) 18,180.00 To Cash collected
To Credit Sales 123,000.00 To Balance b/d
141,180.00
Branch Cash Account:
To Cash Sales 52,500.00 By Branch Expenses - Paid by branch
To Cash collected 113,700.00 By Bank Remittance (balance figure)
166,200.00
Goods send by HO and received by Branch 90,000.00
Goods send by HO and goods in transist 10,800.00
Total goods send by Head Office 100,800.00
Opening balance of stock reserve 12,000.00
Loading in respect of goods send to branch 16,800.00
Closing balance of stock reserve 9,000.00
Reserve on goods in transist 1,800.00
Branch Account:
To Branch Opening Stock 72,000.00 By Branch stock reserve
To Branch Opening Debtors 18,180.00 By Goods send to branch (loading)
To Goods send to Branch 100,800.00 By Bank remittance
To Bank Expenses 9,000.00 By Branch closing stock
To Branch Expenses Outstanding 4,200.00 By Branch closing debtors
To Branch Stock Reserve 9,000.00 By goods in transist
To Reserve on goods in transist 1,800.00
269,280.00
Problem 5:
Pagare Ltd., has its branch at Indore where goods are sold for cash as well as on credit. The branch meets its expenses out of cash collected from its debtors
and cash sales and remits the balance of cash to head office. On 31st March 1999 the assets at the branch were as follows:
Stock 115,000.00
Debtors 28,700.00
Furniture 45,000.00
During the year ended 31st March 2000 the following transactions took place at the branch
Cost of goods received from the head office 850,000.00
Sales:
Cash 711,400.00
Credit 275,100.00 986,500.00
Cash discount allowed to debtors 4,400.00
Bad debts off 3,600.00
Goods returned by debtors to branch 5,000.00
Cost of goods sent by branch to HO 14,000.00
Expenses Paid:
Salaries 60,000.00
Rent and Rates 24,000.00
Petty Expenses 3,000.00 87,000.00
Furniture purchased by branch on 1st October 1999:
Payment made by head office by cheque 20,000.00
On 31st March 2000 stock at branch was valued at Rs. 147000 . Furniture is subject to deprectiation @ 10% per annum. Prepare important ledger account in
the books of the head office for the year ended 1999-2000
Goods send to branch account:
To Branch Account - Returns 14,000.00 By Branch Account
To Trading Account - Transfer 836,000.00
850,000.00
Memorandum Branch Debtors Account:
To Balance b/f 28,700.00 By Cash
To Credit Sales 275,100.00 By Cash discount
By Bad debts
By Sales returns
By Balance c/d
303,800.00
Ascertainent of Remittance:
Add: Cash collected from customers 259,700.00
971,100.00
Less: Expenses Paid 87,000.00
Cash Remittance 884,100.00
Calculation of book value of furniture as on 31st March 2000:
Furniture on 1st April 1999 45,000.00
Less: Full year depreciation @ 10% pa. 4,500.00 40,500.00
Furniture purchased on 1st October 1999 20,000.00
Less: Depreciation for six months 1,000.00 19,000.00
Furniture as on 31st March 2000 59,500.00
Branch Account:
To Branch Opening Stock 115,000.00 By Bank Remittance
To Branch Opening Debtors 28,700.00 By Goods returned
To Branch Opening Furniture 45,000.00 By Branch stock
To Goods send to branch 850,000.00 By Branch closing debtors
To Branch furniture 20,000.00 By Branch closing furniture
1,135,700.00
Problem 6:
A head office in Mumbai has branch in Ahmedabad to which goods are invoiced by the head office at cost price plus 25%. All cash received by the branch
is daily remitted to the head office. All expenses are paid from Mumbai. From the following particulars, show how the branch account will apear in the
head office books (entries are to be made at invoice price)
Stock on 1st April 1999 - at invoice price 125,000.00
Debtors on 1st April, 1999 120,000.00
Goods invoiced from Mumbai 400,000.00
Remittance to Mumbai
Cash received from debtors 295,000.00 455,000.00
Goods returned to head office 24,000.00
Cheques received from Mumbai
Wages and Salaries 110,000.00
Rent, Rates etc., 30,000.00
Sundry expenses 5,100.00 145,100.00
Stock on 31st March 2000 - Invoice price 150,000.00
Debtors on 31st March 2000 225,000.00
Branch Account:
To Balance b/f By Bank
Branch Stock 125,000.00 Cash Sales
Branch Debtors 120,000.00 From Debtors
245,000.00 By Goods send to branch
Less: Stock reserve 25,000.00 220,000.00 By Goods send to branch - loading
To Goods send to branch 400,000.00 By Balance c/d
To Bank Branch Stock
Wages and Salaries 110,000.00 Branch Debtors
Rent, Rates etc., 30,000.00 Less: stock reserve
Sundry expenses 5,100.00 145,100.00
899,200.00
Problem 7:
The Bharat Stores Ltd., Agra has its branch at Kanpur. Goods are invoiced to the branch at selling price cost plus 25%. The branch keeps its own sales ledger
and deposits all cash received daily to the credit of head office account opend at state bank of India, Kanpur. All expenses are paid by cheque from Agra.
From the following details, prepare a branch account in the head office books and make the necessary adjustments therein to arrive at the actual branch profit
and loss account during the year ended 31st March 2000:
Stock 1st April 1999 75,000.00 Sundry Expenses
Stock 31st March 2000 90,000.00 Cash sales for the year
Sundry Debtors 1st April 1999 42,000.00 Credit Sales
Sundry Debtors 31st March 2000 54,000.00 Cash received from ledger accounts
Goods invoiced from HO 546,000.00 Wages paid
Rent, Rates and Taxes 24,000.00 Wages still owing
Branch Account:
To Branch Stock 75,000.00 By Branch stock reserve
To Branch Debtors 42,000.00 By Bank
To Goods send to branch 546,000.00 Cash Sales
To Bank From Debtors
Rent, Rates and Taxes 24,000.00 By Goods sent to Branch - Loading
Sundry Expenses 4,800.00 By Branch Stock
Wages 20,400.00 49,200.00 By Branch Debtors
To Wages Outstanding 2,000.00
To Branch Stock Reserve 18,000.00
790,200.00
Problem 8:
C Ltd., of Kolkata has a branch at Patna and in order to maintain strict control on stocks, invoices goods to the branch at selling prich which is cost plus 33.33%
From the following particulars, make out the branch stock account, branch debtors accout, goods sent to branch account and other necessary to show the
profit or loss made there.
Stock on 1st April 1999 - Invoice Price 150800.00
Debtors on 1st April 1999 114,000.00
Goods invoiced to branch during the year - Invoice
Price 670,000.00
Sales at Branch:
Credit Sales 374,000.00 684,000.00
Cash received from debtors 400,000.00
Bad debts written off 2,500.00
Discount allowed to customers 3,000.00
Expenses at the branch 67,000.00
Stock on 31st March 2000 - Invoice Price 134,800.00
Branch Stock Account
Particulars Amount Amount Particulars
To Balance b/f 150,800.00 By Bank - cash sales
To Goods send to Branch 670,000.00 By Credit Sales
By Branch Stock adjustment - loding
By Branch P& L Account
By Balance c/d
820,800.00
Branch Spoliage 2,000.00
Branch Spoliage - Loading 499.96
Branch Spoliage - Cost 1,500.04
Note:
Spoliage Rs. 2000 shown in the Branch Stock Account is the balancing figure. It has been split in two parts, loading Rs. 500 has been debited to Branch
Stock Adjustment and the Cost Rs. 1500 has been debited to Branch Profit and Loss Account.
To Balance b/d 114,000.00 By Cash Collected from Debtors
To Credit Sales 374,000.00 By Bad Debts
By Cash Discount
By Balance c/d
488,000.00
Goods send to Branch Account:
To Branch Stock - Loading 167,487.44 By Branch Stock
To Trading Account - Transfer 502,512.56
670,000.00
To Bad Debts 2,500.00 By Branch Profit & Loss A/C
To Discount 3,000.00
To Branch Expenses 67,000.00
72,500.00
Branch Stock Reserve Account
To Branch Stock Reserve (Balance) 3,999.70 By Balance b/d
37,697.17
Branch Stock Adjustment Account:
To Branch Stock Account - Spoliage 499.96 By Goods send to branch
To Branch Profit & Loss Account 170,987.17 By Branch Stock Reserve
(Gross Profit - Balancing Figure)
171,487.14
Branch Profit and Loss Account:
To Branch Stock Account - Spoliage 1,500.04 By Branch Stock Adjustment Account
To Branch Expenses 72,500.00
To Net Profit - Balance figure 96,987.14
170,987.17
Problem 10:
Ebnoy stores Ltd., with its head office at Delhi, invoiced goods to its branch at Jaipur at 20% less that the list price which is cost plus 100% with
instruction that cash sales were to be made at invoice price and credit sales at catalogue price (i.e list price)
From the following information avaliable from branch, prepare branch stock accout, branch debtors account, branch cash account, branch adjustment
account with branch profit and loss account for the year ending March 31, 2001
Stock at invoice price on 1st April 2000 600.00
Debtors on 1st April 2000 500.00
Goods invoiced by head office to branch 6,600.00
Sales:
Cash 2,304.00
Credit 5,000.00 7,304.00
Cash received from Debtors 4,282.00
Expenses at branch 868.00
Remittance to head office 6,500.00
Debtors on March 31, 2001 922.00
Stock at invoice price on March 31, 2001 880.00
During the year there was a burglary in the godwon in the branch resulting in loss of goods; there was no insurance cover.
Working Notes:
Excess of list price over invoice price of credit sales 1,000.00
Cost price 100.00
List price 200.00
Invoice price 160.00
Calculation of goods lost in burglary:
Opening stock 600.00
Add: Goods invoiced to branch 6,600.00
7,200.00
Less: Cash Sales 2,304.00
Invoice price of credit sales 4,000.00 6,304.00
896.00
Less: Closing Stock 880.00
Goods lost in Burglary 16.00
Cost of goods lost in burglary 10.00
Opening Branch stock Reserve 225.00
Loading on goods send to branch 2,475.00
Closing Stock Reserve 330.00
To Balance b/d 600.00 By Bank - Cash Sales
To Goods send to branch 6,600.00 By Credit Sales
To Branch Adjustment Account 1,000.00 By Branch Adjustment A/C - Loss on loading
By Profit and Loss A/C - Cost
By Balance c/d
8,200.00
Branch Debtors Account
To Balance b/d 500.00 By Cash collected
To Credit Sales 5,000.00 By Branch P& L A/C -Balance figure
By Balance c/d
5,500.00
To Cash Sales 2,304.00 By Bank remittance
To Debtors collection 4,282.00
By Balance c/d
6,586.00
To Branch Stock- loading on burglary 6.00 By Opening stock - loading
To Closing stock - loading 330.00 By Loading on goods send to branch
To Gross Profit 3,364.00 By Branch stock
3,700.00
To Branch stock - cost of loss due to burglary 10.00 By Branch adjustment
To Branch discount 296.00
To Branch - Expenses 868.00
3,364.00
Problem 11:
XY Limited, with its head office at Kolkata invoiced goods to its branch at Mumbai at 20% less that the catalogue price, which is cost plus 50%, with the
instructions that cash sales were to be made at invoice price and credit sales at catalogue price less discount of 15% on prompt payment.
From the following particulars available from the Branch, prepare Branch Stock Account, Branch Debtors Account, Branch Cash Account, Branch Adjustment
Account and Branch Profit and Loss Account for the year ending 31st March, 2001. Show necessary working Notes:
Stock (at invoice price) as on 1st April 2000 120,000.00 Remittances to bank
Debtors as on 1st April 2000 100,000.00 Debtors as on March 31, 2001
Goods received by Branch from Head Office 1,320,000.00 Cash in hand as on March 31 2001
Cash Sales 460,000.00 Stock (at invoice price ) on March 31, 2001
Credit Sales 1,000,000.00 It was further reported that a part of the stock was lost by fire (not insured) during the
Cash received from Debtors 856,350.00 year, whose value is to be ascertained and a provision should be made for discount to
Discount allowed to Debtors 133,650.00 be allowed to debtors as on 31st March, 2001 on the basis of year's trend of prompt
Cash Expenses at Branch 60,000.00 payments.
Working Notes: Debtors who made prompt payment
If cash price 100.00 during the current year and got 15% discount
Catalogue price 150.00 Total debtors who made payment during the
Invoice price is 20% less than catalogue price current year
Invoice price 120.00 Percentage of debtors during profit
Opening Branch Stock Reserve 20,000.00 Hence, provision for discount on debtors is to be made on 90% of Rs. 110000 or on
Loading in aspect of goods sent to branch220,000.00 Rs. 99000
Excess profit on credit sales 200,000.00 Provision for discount
Closing Branch Stock Reserve 25,000.00
To Balance b/f 120,000.00 By Branch cash sales
To Goods send to branch 1,320,000.00 By Branch Credit Sales
To Branch Adjustment Account - profit 200,000.00 By Branch adjustment A/C
(loading on loss by fire)
By Branch Profit and Loss Account
(Cost of loss by fire)
By Balance c/f
1,640,000.00
To Balance b/d 100,000.00 By Cash Colleted from debtors
To Credit Sales 1,000,000.00 By Branch discount
By Balance c/d
1,100,000.00
To Branch Sales 460,000.00 By Branch expenses
To Branch Debtors- collected from debtors 856,350.00 By Branch Remittances
By Balance c/d
1,316,350.00
To Branch Stock Account - loss by fire 5,000.00 By Branch Opening Stock reserve
To Branch Closing stock reserve 25,000.00 By Branch stock account
To Gross Profit 410,000.00 By Goods send to Branch
440,000.00
To Branch Stock Account - loss by fire 25,000.00 By Gross Profit
To Branch Expenses
Discount to Debtors 133,650.00
Cash Expenses 60,000.00 193,650.00
To Provision for Debtors 14,850.00
410,000.00
Under this method of accounting, profits from the business earned in different locations are ascertained. It is used
3. Branch remitts the cash collected perodically to head office and also obtained or rembersed cash for expenses.
4. Branch cannot find out its profit or loss therefore final accounts are prepared in the books of head office.
Under this method every branch is treated as debtor transactions between head office and branch are recorded
1. Cash remitted by branch will equal to cash sales, plus cash collected from debtors plus sale of assets and direct
2. Branch account recoreds only transactions between head office and branch, therefore ignore branch transactions
AMOUNT AMOUNT AMOUNT
xxx
xxx
xxx
xxx
xxx
xxx
xxx xxx
xxx
BANK ACCOUNTS
BRANCH ACCOUNT FORMAT
A company with its head office at Bombay has a branch at calcutta. The branch receives all goods from head
office, who also remits cash for all expenses. Sales are made by the branch on credit as well as for cash.
Total sales by the branch for the year ending 31.03.2001 amounted to Rs. 560000 out of which 20% is cash sales.
You are required to prepare the calcutta branch account in the books of the head office for the year ended
48,000.00
460,000.00
508,000.00
112,000.00
460,000.00 572,000.00
36,000.00
48,000.00
180.00 84,180.00
656,180.00
Sonali chain stores of calcutta has a branch in burdwan. Goods are sent to branch at cost. Branch sells only goods
received from head office. Branch sales are partly cash and partly credit. All cash collected by branch are sent to
head office. Following are the details of transactions relating to branch for the year ended on 31.12.2000
1. Goods in transist Rs. 4800 included gogds costing Rs. 3200 sent by head office to branch and goods costing
2. During this year cash Rs. 5000 sent by branch to head office on 27.12.2000 which received by head office on
8,800.00
33,000.00
200.00
500.00
42,500.00
2,000.00
35,000.00
54,000.00
89,000.00
17,800.00 71,200.00
400.00
8,000.00
81,600.00
1,600.00
2,000.00
1,600.00
2,000.00
1,600.00
54,000.00
33,000.00 87,000.00
8,000.00
8,800.00
9,000.00 25,800.00
114,400.00
S Ltd maintains a branch at calcutta to which it sends goods at cost plus 25% . Calcutta branch sells goods both in
cash and credit. All collections and cash sales are directly deposited to headoffice banck account and all expenses
are paid by the head office directly. From the following information, please prepare branch account in the books
3,000.00
2,000.00
3,000.00
45,000.00
107,000.00
160,000.00
10,000.00
107,000.00
30,000.00 137,000.00
6,000.00
35,000.00
40,000.00
45,000.00 85,000.00
273,000.00
Shetty solvents Co., Bangalore opend a branch at Hyderabed on 1st January, 1981. The following information is
55,000.00
5,000.00
60,000.00
55,000.00
50,000.00 105,000.00
27,000.00
5,000.00
500.00 32,500.00
137,500.00
The Bhundi shoes ltd, is having its branch at Ajmer. Goods are invoiced to the branch at 20% profit on sale.
Branch has been instructed to send all cash daily to head office. All expenses are paid by the head office except
petty expenses which are met by the branch manager. From the following particulars prepare branch account, in
30,000.00
480.00
30.00
8,490.00
39,000.00
30,000.00
50,000.00 80,000.00
800.00
11,200.00
120.00
1,080.00
8,490.00 12,400.00
93,200.00
Jaggu Bros. operate a retail branch in Gumanpura. All purchases are made by the head office at Madargate,
goods being charged out to the branch at cost price. All cash received by branch is remitted to Madargate. Branch
petty expenses are paid out of an imprest which s reimbursed by head office from time to time. From the
following particulars relating to Gumanpura branch, you are required to prepare branch account for calculating
9,000.00
60,700.00
900.00 61,600.00
6,300.00
350.00
50.00 6,700.00
68,300.00
Spraylac paints co., ltd at surat has a branch at Kotah. Goods are invoiced to the branh at selling price being cost
plus 25% . The branch sends all cash received to head office and all expenses being paid by HO . From the
2,000.00
64,000.00
28,000.00
94,000.00
64,000.00
108,000.00 172,000.00
36,000.00
5,000.00
30,000.00
28,000.00 58,000.00
271,000.00
Debtors system does not excrise or disclose the flow of stock and debtors. Under stock and debtors system
xxx
xxx
xxx
xxx
xxx
xxx
xxx xxx
STOCK AND DEBTORS SYSTEM
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
M Ltd., has a branch at Lucknow goods are invoiced from head office at cost plus 50%. Branch remitts all cash
received to head office and all expenses are met by head office. Prepare in the books of M Ltd. Under stock and
29,800.00
1,500.00
350.00
7,150.00
38,800.00
35,000.00
30,100.00
33,300.00
98,400.00
5,200.00
100.00
27,000.00
32,300.00
7,050.00
7,050.00
19,700.00
200.00
19,900.00
P has its branch at chandigarh and Gwailor to whom goods are invoiced at cost plus 25%.Following information
500.00
400.00
11,000.00
180,100.00
192,000.00
105,000.00
180,000.00
350.00
7,000.00
15,000.00
12,000.00
141,150.00
460,500.00
8,000.00
84,000.00
92,000.00
31,900.00
250.00
32,150.00
32,500.00
32,500.00
56,620.00
56,620.00
D Ltd., has two branches in cochin and Banglore. During the year ended 31.3.2001 goods have been invoiced to
the cochin branch at 20% above the cost and to the Banglore branch at 25% above the cost. The branches do not
maintain complete books of accounts but the following figures are available for the year ended on 31.3.2001
All sales at branches are for cash. During the year, cochin Branch purchased fixed assets worth Rs. 4000 and this
amount is included in the figure of branch expenses. Cochin branch transferred to Banglore branch stock costing
to (HO) Rs. 5000 during the year. The Banglore branch remitted Rs. 2000 to the cochin branch also during the
year. These was closing stock of Rs. 24000 valued at invoice price at the cochin branch. There was no closing
AMOUNT COCHIN BANGLORE
80,000.00 80,000.00
9,000.00 3,000.00
5,000.00 4,000.00
2,000.00
1,000.00 500.00
95,000.00 89,500.00
76,000.00 73,500.00
3,000.00
6,000.00
24,000.00
109,000.00 73,500.00
2,000.00 2,500.00
10,000.00 10,000.00
1,250.00
8,800.00 3,312.50
20,800.00 17,062.50
14,400.00 17,062.50
35,200.00 9,937.50
49,600.00 27,000.00
Hari Haran of Madras opened a branch at culcutta, goods are invoiced from the head office at cost plus 33.33%.
Branch is allowed to make sales at invoice price only. Expenses of the branch are paid by the head office.
50,000.00
36,000.00
800.00 85,200.00
7,000.00
1,800.00
94,000.00
1,999.85
21,498.39
23,498.24
Pasific paper productions send goods to Agra branch at cost plus 25% . You are given the following particulars:
25,500.00
500.00
3,500.00
6,000.00
35,500.00
1,000.00
4,000.00
2,100.00
7,100.00
4,700.00
8,400.00
13,100.00
Under this system of Trading profit and loss account is prepared to ascertain profit or loss made by Branch.
Opening stock, Goods send to branch, closing stock of branch are recoreded at cost price. Direct expenses such
2. Abnormal Loss - Credit in Trading account with cost of abnormal loss and debit it with profit and loss
C Ltd in Bombay started on 1.4.2001 has two branches at Kanpur and Luknow. All goods sold at the branch
are received from head office invoiced at cost plus 25%. All expenses relating to branch are paid by the
head office. Each branch has its own sales ledger and sends weekly statement. All cash collected are remitted
daily to head office by the branches. The following particulars relating to the year 21.3.2002 have been
You are required to prepare the Branch account as they would appear in the books of head office, showing the
AMOUNT KANPUR LUCKNOW
201,700.00 194,000.00
36,000.00 28,000.00
237,700.00 222,000.00
117,700.00 122,000.00
117,700.00 122,000.00
M/s B & Co with its head office in Madras invoiced its goods to its Branch at Bombay at 20% less than
the catalogue price which is cost plus 50% with instruction that cash sales were made at invoice price
and credit sales at catelogue price. Discount on credit sales at 15% on prompt payment will be allowed.
From the following particulars available from branch, prepare Branch Trading and Profit and loss a/c
for the year ended 31.3.2001. in the head office books, so as to show the actual profit or loss of the Branch
It was reported that a part of stock at the branch was lost by fire during the year whose value is to be
ascertained and provision should be made for discount allowed to the debtors as on 31.3.2001on the
AMOUNT AMOUNT
38,333.33
66,666.67
2,500.00
12,500.00
120,000.00
AMOUNT AMOUNT
85,635.00
13,365.00
11,000.00
110,000.00
AMOUNT AMOUNT
146,000.00
2,500.00
12,500.00
161,000.00
41,000.00
41,000.00
Puskar enterprise has its head office in Ranchi and a Branch in Imphal. The following trial balance has
CREDIT
1,311,000.00
360,000.00
7,500.00
H.O B.O
2,550,000.00 1,311,000.00
BRANCH OFFICE
1,140,000.00
36,000.00 45,000.00
3,726,000.00 1,356,000.00
960,000.00 171,000.00
12,000.00
27,000.00 7,500.00
999,000.00 178,500.00
AMOUNT AMOUNT
1,250,000.00
125,000.00 1,125,000.00
81,000.00
12,000.00
15,000.00 84,000.00
480,000.00
24,000.00 456,000.00
235,500.00
1,900,500.00
Star Ltd invoices goods to its branch at cost. From the following particulars, prepare branch account for the year ended 31st March, 2001 in the books of
AMOUNT AMOUNT
810,000.00
16,000.00
8,500.00
80,300.00
914,800.00
AMOUNT AMOUNT
2,145,000.00
810,000.00 2,955,000.00
By Goods send to HO (Returns) 23,500.00
327,110.00
80,300.00 407,410.00
3,385,910.00
Janata Shoe Co., sholapur has a branch at Delhi. Goods are invoiced to the granch at cost. The branch is authorised to sell the goods for cash only. Except
petty expenses which are paid by the branch itself out of petty cash maintained or impreset system, all expenses are paid by the head office.
From the following particulars, prepare in the books of head office, Branch Account and Goods sent to Branch Account for the year ending 31st March 2000:
AMOUNT AMOUNT
1,574,500.00
5,600.00
154,000.00
45,050.00
1,000.00 200,050.00
1,780,150.00
AMOUNT AMOUNT
1,320,000.00
1,320,000.00
Nakul Co., Delhi invoices goods to its branch in Faridabad at cost. The branch sells goods at cost plus 25% and remits all the cash collected by it to head
office. All the branch expenses are paid by head office. From the following details, prepare branch account showing profit earned by the branch during
AMOUNT AMOUNT
By Branch Expenses Outstanding 4,500.00
707,500.00
214,200.00 921,700.00
90,000.00
39,200.00
19,550.00 148,750.00
1,074,950.00
A trader has its branch at Kolkata to which the goods are invoiced at cost plus 20%. Prepare branch account in the books of the head office after taking into
AMOUNT AMOUNT
113,700.00
27,480.00
141,180.00
AMOUNT AMOUNT
By Branch Expenses - Paid by branch 18,000.00
By Bank Remittance (balance figure) 148,200.00
166,200.00
AMOUNT AMOUNT
12,000.00
By Goods send to branch (loading) 16,800.00
148,200.00
54,000.00
27,480.00
10,800.00
269,280.00
Pagare Ltd., has its branch at Indore where goods are sold for cash as well as on credit. The branch meets its expenses out of cash collected from its debtors
and cash sales and remits the balance of cash to head office. On 31st March 1999 the assets at the branch were as follows:
On 31st March 2000 stock at branch was valued at Rs. 147000 . Furniture is subject to deprectiation @ 10% per annum. Prepare important ledger account in
AMOUNT AMOUNT
850,000.00
850,000.00
AMOUNT AMOUNT
259,700.00
4,400.00
3,600.00
5,000.00
31,100.00
303,800.00
AMOUNT AMOUNT
884,100.00
14,000.00
147,000.00
31,100.00
59,500.00
1,135,700.00
A head office in Mumbai has branch in Ahmedabad to which goods are invoiced by the head office at cost price plus 25%. All cash received by the branch
is daily remitted to the head office. All expenses are paid from Mumbai. From the following particulars, show how the branch account will apear in the
AMOUNT AMOUNT
160,000.00
295,000.00 455,000.00
24,000.00
By Goods send to branch - loading 75,200.00
150,000.00
225,000.00
30,000.00 345,000.00
899,200.00
The Bharat Stores Ltd., Agra has its branch at Kanpur. Goods are invoiced to the branch at selling price cost plus 25%. The branch keeps its own sales ledger
and deposits all cash received daily to the credit of head office account opend at state bank of India, Kanpur. All expenses are paid by cheque from Agra.
From the following details, prepare a branch account in the head office books and make the necessary adjustments therein to arrive at the actual branch profit
4,800.00
324,000.00
210,000.00
Cash received from ledger accounts 198,000.00
20,400.00
2,000.00
AMOUNT AMOUNT
15,000.00
324,000.00
198,000.00 522,000.00
By Goods sent to Branch - Loading 109,200.00
90,000.00
54,000.00
790,200.00
C Ltd., of Kolkata has a branch at Patna and in order to maintain strict control on stocks, invoices goods to the branch at selling prich which is cost plus 33.33%
From the following particulars, make out the branch stock account, branch debtors accout, goods sent to branch account and other necessary to show the
Amount Amount
310,000.00
374,000.00
By Branch Stock adjustment - loding 499.96
1,500.04
134,800.00
820,800.00
Spoliage Rs. 2000 shown in the Branch Stock Account is the balancing figure. It has been split in two parts, loading Rs. 500 has been debited to Branch
Amount Amount
By Cash Collected from Debtors 400,000.00
2,500.00
3,000.00
82,500.00
488,000.00
Amount Amount
670,000.00
670,000.00
Amount Amount
72,500.00
72,500.00
Amount Amount
37,697.17
37,697.17
Amount Amount
167,487.44
3,999.70
171,487.14
Amount Amount
By Branch Stock Adjustment Account 170,987.17
170,987.17
Ebnoy stores Ltd., with its head office at Delhi, invoiced goods to its branch at Jaipur at 20% less that the list price which is cost plus 100% with
instruction that cash sales were to be made at invoice price and credit sales at catalogue price (i.e list price)
From the following information avaliable from branch, prepare branch stock accout, branch debtors account, branch cash account, branch adjustment
During the year there was a burglary in the godwon in the branch resulting in loss of goods; there was no insurance cover.
Amount Amount
2,304.00
5,000.00
By Branch Adjustment A/C - Loss on loading 6.00
10.00
880.00
8,200.00
Amount Amount
4,282.00
By Branch P& L A/C -Balance figure 296.00
922.00
5,500.00
Amount Amount
6,500.00
86.00
6,586.00
Amount Amount
225.00
By Loading on goods send to branch 2,475.00
1,000.00
3,700.00
Amount Amount
3,364.00
3,364.00
XY Limited, with its head office at Kolkata invoiced goods to its branch at Mumbai at 20% less that the catalogue price, which is cost plus 50%, with the
instructions that cash sales were to be made at invoice price and credit sales at catalogue price less discount of 15% on prompt payment.
From the following particulars available from the Branch, prepare Branch Stock Account, Branch Debtors Account, Branch Cash Account, Branch Adjustment
Account and Branch Profit and Loss Account for the year ending 31st March, 2001. Show necessary working Notes:
1,200,000.00
110,000.00
Cash in hand as on March 31 2001 56,350.00
Stock (at invoice price ) on March 31, 2001 150,000.00
It was further reported that a part of the stock was lost by fire (not insured) during the
year, whose value is to be ascertained and a provision should be made for discount to
be allowed to debtors as on 31st March, 2001 on the basis of year's trend of prompt
Debtors who made prompt payment
during the current year and got 15% discount 891,000.00
Total debtors who made payment during the
990,000.00
Percentage of debtors during profit 90%
Hence, provision for discount on debtors is to be made on 90% of Rs. 110000 or on
14,850.00
Amount Amount
460,000.00
1,000,000.00
5,000.00
By Branch Profit and Loss Account 25,000.00
150,000.00
1,640,000.00
Amount Amount
856,350.00
133,650.00
110,000.00
1,100,000.00
Amount Amount
60,000.00
1,200,000.00
56,350.00
1,316,350.00
Amount Amount
By Branch Opening Stock reserve 20,000.00
200,000.00
220,000.00
440,000.00
Amount Amount
410,000.00
410,000.00
Statement of affairs method:
Two statememnt of affairs (balance sheet) are prepared to ascertain the profit or loss made during the year.
STATEMENT OF PROFIT
Closing capital xxx
Add: Drawings xxx
Less: Additional Capital xxx
Less: Opening Capital xxx
Profit for the year xxx
Problem 1:
Opening capital Rs. 60000 Drawings Rs. 5000, Capital added during the year Rs. 10000, and closing capital
Rs. 90000
Calculate profit or loss for the year.
Statement of proift:
Closing capital 90,000.00
Add: Drawings 5,000.00
Less: Additional Capital 10,000.00
Less: Opening Capital 60,000.00
Problem 2:
Mr. X could not keep complete records . He furnished you the following information for the year 2001-2002
1.4.2001 31.3.2001
Stock in trade 37,400.00 46,800.00
Sundry debtors 24,000.00 28,000.00
Sundry creditors 18,000.00 3,000.00
Bills recivables 8,000.00 10,000.00
Bills payables 2,000.00 400.00
Furniture & Fixtures 1,200.00 1,200.00
Buildings 24,000.00 24,000.00
Bank balance 8,700.00 1,660.00
ACCOUNTS FROM INCOMPLETE RECORDS
Lakshmi Page 250 Single Entry
Additional capital introduced Rs. 5000, Drawings Rs. 15000. A provision @ 10% is required for doubtful debts
and depreciation @ 5% p.a is to be written down for furniture and fixtures and buildings. Rs.6000 outstanding for
wages and Rs. 2400 for salaries, prepaid insurance amounted to Rs. 400 outstanding legal expenses Rs. 1400.
Find out by statement of affairs method, the profit and loss account.
Statement of affairs as on 1.4.2001:
Bills payable 2,000.00 Stock in trade 37,400.00
Sundry Creditors 18,000.00 Sundry debtors 24,000.00
Opening Capital (balance) 83,300.00 Bills recivebles 8,000.00
Furiture & Fixtures 1,200.00
Buildings 24,000.00
103,300.00 103,300.00
Sundry creditors 3,000.00 Stock 46,800.00
Bills payable 400.00 Debtors 28,000.00
Oustanding wages 6,000.00 Less: provision for debtors 2,800.00 25,200.00
Outstanding legal expenses 1,400.00 Bills recivables 10,000.00
Outstanding salaries 2,400.00 Furniture 1,200.00
Bank o.d 1,660.00 Less: Depreciation 60.00 1,140.00
Closing capital (balance) 91,480.00 Buildings 24,000.00
Prepaid insurance 400.00
106,340.00 106,340.00
Statement of proift:
Closing capital 91,480.00
Add: Drawings 15,000.00
Less: Additional Capital 5,000.00
Less: Opening Capital 83,300.00
Problem 3:
A and B are in patnership, sharing profits in the ratio of two-thirds and one - thirds respectively. The books are
kept on a single entry system and their statement of affairs as at 31.3.2001 should be position as following:
Capital
A 10,000.00 Freehold buildings 6,000.00
B 4,000.00 Plant and Machinery 2,000.00
Creditors 5,000.00 Office furniture 500.00
Loan 1,000.00 Stock 4,000.00
Bills payable 500.00 Debtors 6,000.00
Bills recievables 1,500.00
Cash 500.00
20,500.00 20,500.00
On 31.3.2002 the books disclosed the following information:
Debtors Rs. 8000, Creditors on open account Rs. 8500, Creditors on loan Rs. 1600 and cash Rs. 800. The stock was
valued at Rs. 4200 and bills receivable amounted to Rs. 1400 and bills payable nill.
An examination of cash book showed that during the year A had drawn on account of profit Rs. 1500 and B of
Rs. 600. A had in addition withdrawn Rs. 2000 on account of capital on 30th september 2001.
The patners agree to reduce the previous valuation of plant and machinery by 5% and the office furniture by 10%
by way of depreciation and to charge 5% by way of interest on capital. Prepare a statement of profit dividing
profits between A & B . Prepare a statement of affairs showing the position as at 31.3.2002
Creditors 8,500.00 Debtors 8,000.00
Creditors loan 1,600.00 Bills receivable 1,400.00
Closing Capital (balance) 12,650.00 Stock 4,200.00
Free hold building 6,000.00
Furniture 500.00
Less: Depreciation 50.00 450.00
Plant and machinery 2,000.00
Less: Depreciation 100.00 1,900.00
Cash 800.00
22,750.00 22,750.00
Statement of profit:
Closing capital
A 8,433.33
B 4,216.67 12,650.00
Add: Drawings
A 1,500.00
B 600.00
Additional drwaings by A 2,000.00 4,100.00
Less Additional capital 0.00
Less: Interest on capital
A 250.00
B 200.00
A 200.00 650.00
Opening capital
A 10,000.00
B 4,000.00 14,000.00
Profit for the Year 2,100.00
Capital of A & B:
A 1,400.00
B 700.00
Problem 2:
Mr. Raju keeps his single entry system. From the following prepare trading and profit and loss account for the year
ended 31.3. 2002, together with balance sheet as on that date. Cash book analysis shows the following information:
Interest charges 100.00
Personel withdrawels 2,000.00
staff salaries 8,500.00
other business expenses 7,900.00
payments to creditors 15,000.00
Further details available:
Particulars 1.4.2001 31.3.2002
Stock in hand 9,000.00 10,220.00
creditors 8,000.00 5,500.00
debtors 22,000.00 30,000.00
furniture 1,000.00 1,000.00
office premises 15,000.00 15,000.00
Bank balance as on 31.3.2002 2,425.00
cash in hand 75.00
Received from debtors 25,000.00
Provide 5% interest on X's capital balance as on 1.4.2001. provide Rs. 1500 for provision for bad debts 5% for
depreciation on all fixed assets, 5% group incentive for all staffs on net profit after meeting all expenses and the
comission.
Cash a/c:
To debtors 25,000.00 By creditors 15,000.00
To cash sales 15,000.00 By interest charges 100.00
By staff salaries 8,500.00
By drawings 2,000.00
By other expesnses 7,900.00
By cash and bank balance 2,500.00
By deficit 4,000.00
40,000.00 40,000.00
Debtors a/c
To balance b/d 22,000.00 By cash collected from debtors 25,000.00
To credit sales 33,000.00 By balance c/d 30,000.00
55,000.00 55,000.00
Creditors a/c:
To cash sales 15,000.00 By balance b/d 8,000.00
To balance c;d 5,500.00 By credit purchases 12,500.00
20,500.00 20,500.00
Opening balance sheet:
Opening capital (balance) 35,000.00
Creditors 8,000.00 stock 9,000.00
Band o.d 4,000.00 debtors 22,000.00
Furniture 1,000.00
office premises 15,000.00
47,000.00 47,000.00
Trading and profit and loss account:
To opening stock 9,000.00 By sales
To purchses 12,500.00 Cash sales 15,000.00
To gross profit 36,720.00 Credit sales 33,000.00 48,000.00
By closing stock 10,220.00
58,220.00 58,220.00
To interest charges 100.00 By gross profit 36,720.00
To salaries 8,500.00
To business expenses 7,900.00
To provision for bad debts 1,500.00
To depreciation 800.00
To Interest on capital 1,750.00
To comission 16,170.00 770.00
36,720.00 36,720.00
Opening capital 35,000.00 Stock 10,220.00
Add: Net profit 15,400.00 Debtors 30,000.00
50,400.00 Less: provision for debtors 1,500.00 28,500.00
Less: Drawings 2,000.00 Furniture 1,000.00
48,400.00 Less: provision for debtors 50.00 950.00
Add: interest on capital 1,750.00 50,150.00
Office premises 15,000.00
outstanding comission 770.00 Less: provision for debtors 750.00 14,250.00
creditors 5,500.00 Cash 2,500.00
56,420.00 56,420.00
Problem 3:
The following is the balance sheet of the retail business of Mr. Raja as on 31.3.2001:
Capital 125,000.00 Furniture and fittings 25,000.00
Creditors for goods 30,000.00 Stock 75,000.00
outstanding rent 1,000.00 Sundry debtors 20,000.00
156,000.00 156,000.00
You are furnished with the following informaion:
1. Mr. Raja always sells his goods at a profit of 25% on sales.
2. Goods are sold for cash and credit. Credit customers pay by cheaque only.
3. payments for purchases are always made by cheaque.
4. It is the practice of Mr. Raja to send to the bank every week end and taking of the week after paying every week
salary of Rs. 250 to the clerk and sundry expenses of Rs. 50 and personel expenses of Rs. 100.
5. Analysis of the bank pass book for the period ened disclosed the following information:
payment to creditors 75,000.00
payment of rent 4,000.00
Amount remitted to bank 135,000.00
(including cheaque for Rs. 10000
received from customers to whom
goods were sold on credit.)
6. The following are the balances as on 31.3.2002
stock 32,500.00
creditors for goods 32,500.00
sundry debtors 30,000.00
On the evening of 31.3.2002 cashier absconded with available cash in cash box. Prepare a statement showing the
amount of cash defaulted by cashier and also profit and loss account, for the period ended 31 march 2002 and the
Balance sheet as on that date.
Cost of goods sold 120,000.00
Profit at 25% on cost 40,000.00
Total sales 160,000.00
Creditors a/c
To Payment to creditors 75,000.00 By balance b/d 30,000.00
To balance c/d 32,500.00 By purchases (balance) 77,500.00
107,500.00 107,500.00
Debtors a/c
To Balances b/d 20,000.00 By cash collected from debtors 10,000.00
To credit sales 20,000.00 By balance c/d 30,000.00
40,000.00 40,000.00
Bank a/c
To balance b/d 35,000.00 By Creditors 75,000.00
To Debtors 10,000.00 By rent 4,000.00
To cash 125,000.00 By balance c/d (balance) 91,000.00
170,000.00 170,000.00
Cash a/c
To balance b/d 1,000.00 By bank 125,000.00
To cash sales 140,000.00 By salaries 3,250.00
By sundry expenses 650.00
By Drawings 1,300.00
By Cashier a/c 10,800.00
141,000.00 141,000.00
Trading and profit and loss account:
To Opening stock 75,000.00 By sales 160,000.00
To Purchases 77,500.00 By closing stock 32,500.00
192,500.00 192,500.00
To salaries 3,250.00 By Gross profit 40,000.00
To expenses 650.00
To rent 4,000.00
Less: Outstanding 1,000.00 3,000.00
40,000.00 40,000.00
Capital 125,000.00 Furniture and fittings 25,000.00
Add: Net profit 33,100.00 stock 32,500.00
Less: Drawings 1,300.00 156,800.00 Debtors 30,000.00
Creditors 32,500.00 Bank 91,000.00
Cashier a/c 10,800.00
189,300.00 189,300.00
It is a system in which the purchase makes an initial payment and balance in instalments on regular
intervals with interest. Buyer becomes the owner of the asset only on the payment of last instalments. In
case of default, if any the seller has the right to reposses the goods. If goods are repossed, no amount will
be collected or paid to the buyer.
Accounting for Industrial goods:
Both the vendor and buyer will maintain proper ledger accounts.
Hire purchase price = cash price + Interest (or)
Hire purchase price = Down payment + Total number of instalments paid.
Normally instalments are paid once in a year in case of industrial goods.
Down payment is also considered as instalments but no interest is charged on the outstanding cash price
at beginning of the each year.
In the books of buyer:
On purchase of asset
Asset a/c Dr
To seller a/c
Dwonpayment paid:
Seller a/c Dr
To Cash a/c
Interest payable:
Interest a/c Dr
To Seller a/c
Instalment paid:
Seller a/c Dr
To Cash a/c
For Depreciation:
Depreciation a/c Dr
To Asset a/c
HIRE PURCHASE
Lakshmi Page 259 Hire Purchase
For depreciation and Interest:
Profit and Loss a/c Dr
To Interest a/c
To Depreciation a/c
In the Books of Seller:
On sale of Asset:
Buyer a/c Dr
To Hire sales a/c
Downpayment received:
Cash a/c Dr
To Buyer a/c
Interest recievables:
Buyer a/c Dr
To Interest a/c
Instalments received:
Cash a/c Dr
To Buyer a/c
For Depreciation:
No entry
For Depreciation and Interest:
Interest a/c Dr
To Profit and loss a/c
Problem 1:
Cash price Rs. 400000. Downpayment Rs. 100000. Remaining in 4 equal installments together with interest
of 10% p.a.. Depreciation at 10% SLM .
Table showing Interest and Instalments:
Cash price 400,000.00
PARTICULARS Amount Interest Installments
Less: Down payment 100,000.00
I year 300,000.00 100,000.00
75,000.00 30,000.00 105,000.00
II Year 225,000.00
75,000.00 22,500.00 97,500.00
III Year 150,000.00
75,000.00 15,000.00 90,000.00
IV Year 75,000.00
75,000.00 7,500.00 82,500.00
Problem 2:
Cash price Rs. 200000. Down payment Rs. 50000 . Remaining amount in 3 equal installments with interest of
12% p.a and depreciation at 10% WDV . Calculate Hireprice and interest.
Statement of Interest and Installments:
PARTICULARS Amount Interest Installments
Less:Downpayment 50,000.00 50,000.00
I year 150,000.00
50,000.00 18,000.00 68,000.00
II Year 100,000.00
50,000.00 12,000.00 62,000.00
III Year 50,000.00
50,000.00 6,000.00 56,000.00
36,000.00 236,000.00
Machinery a/c
I year:
To Seller a/c 200,000.00 By Depreciation 20,000.00
200,000.00 200,000.00
II Year:
To balance b/d 180,000.00 By Depreciation 18,000.00
180,000.00 180,000.00
III year
To balance b/d 162,000.00 By Depreciation 16,200.00
162,000.00 162,000.00
Seller a/c
To Cash (Downpayment?) 50,000.00 By Machinery 200,000.00
To Cash 68,000.00 By Interest 18,000.00
218,000.00 218,000.00
To Cash 62,000.00 By Machinery 100,000.00
To balance c/d 50,000.00 By Interest 12,000.00
112,000.00 112,000.00
To Cash 56,000.00 By Machinery 50,000.00
By Interest 6,000.00
56,000.00 56,000.00
Problem 3:
Y Limited purchased a machinery from X Ltd. Downpayment is Rs. 100000 and installments of Rs. 50000
each for 4 years. X limited depreciates the machine @ 10% SLM. Show necessary accounts in the books of
the both the compaines . Cash price Rs. 250000
Since interest is not given the total interest should be apportioned in the ratio of HP Price outstanding.
Downpayment 100,000.00
Installment for per year 50,000.00
No. of years 4
Hirepurchase total 300,000.00
principal cash price 250,000.00
Interest rate for 4 years 50,000.00
Interest calculation for 4 years:
Hire purchase outstanding Ratio Interest
200,000.00 4.00 20,000.00
150,000.00 3.00 15,000.00
100,000.00 2.00 10,000.00
50,000.00 1.00 5,000.00
10.00 50,000.00
In the books of Y Ltd:
Machinery a/c
To X Ltd 250,000.00 By Depreciation a/c 25,000.00
250,000.00 250,000.00
To Balance b/d 225,000.00 By Depreciation a/c 25,000.00
225,000.00 225,000.00
200,000.00 200,000.00
175,000.00 175,000.00
X Ltd a/c
To Cash downpayment 100,000.00 By Machinery a/c 250,000.00
To cash 50,000.00 By Interest 20,000.00
To balance c/d 120,000.00
270,000.00 270,000.00
To cash 50,000.00 By Balance b/d 120,000.00
135,000.00 135,000.00
95,000.00 95,000.00
To balance c/d By Interest 5,000.00
50,000.00 50,000.00
RE-POSSESSION - COMPLETE RE-POSSESSION
1. Charges depreciation and interest till the date of default.
2. Transfer the balance in the sellers a/c to the asset a/c
3. The balance in asset a/c represents loss due to repossession
In the books of seller:
1. Charges interest till the date of default.
2. Transfer the balance in buyers a/c to repossessed goods a/c
3. Re-possessed goods are re-conditioned and resold.
Problem 4:
A ltd., purchases a machinery from B ltd. Downpayment of Rs. 10000 . Installment including interest are
Rs. 25000, Rs. 13000, Rs. 12000 and Rs. 110000 from 1-4 years. Interest rate 10%. Show necessary accounts in
the books of both the companies
Statement showing cashprice, Interest and Installment:
11,000.00 1,000.00 10,000.00 4th year
22,000.00 2,000.00 10,000.00 3rd year
33,000.00 3,000.00 10,000.00 2nd year
55,000.00 5,000.00 20,000.00 1st year
60,000.00
Problem 5:
A Ltd purchased a truck costing Rs. 400000 on Hirepurchase from B ltd. Downpayment Rs. 100000 and
balance in 3 equal installments together with interest of 10% . Charges for depreciation is @ 20% p.a WDV
A Ltd could not pay the 2nd installment. The truk was reposed by B ltd. B ltd spend Rs. 20000 for
reconditiioning and sold it for Rs. 240000 . Show necessary accounts in the books of both companies
cash price 400,000.00
Downpayment 100,000.00 100,000.00
I Year 300,000.00
100,000.00 30,000.00 130,000.00
II Year 200,000.00
100,000.00 20,000.00 120,000.00
III year 100,000.00
100,000.00 10,000.00 110,000.00
60,000.00 460,000.00
Machinery a/c
To B Ltd 400,000.00 By Depreciation 80,000.00
400,000.00 400,000.00
To Balance b/d 320,000.00 By Depreciation 64,000.00
320,000.00 320,000.00
B ltd a/c
To Cash downpayment 100,000.00 By Machinery a/c 400,000.00
To cash 130,000.00 By Interest 30,000.00
To balance c/d 200,000.00
430,000.00 430,000.00
To Truck a/c 220,000.00 By Balance b/d 200,000.00
220,000.00 220,000.00
A Ltd a/c
To Hire purchase 400,000.00 By Cash - Downpayment 100,000.00
To Interest 30,000.00 By Cash 130,000.00
By balance c/d 200,000.00
430,000.00 430,000.00
To Balance b/d 200,000.00 By Re-possessed goods 220,000.00
To Interest 20,000.00
220,000.00 220,000.00
Re- Possesed goods a/c
To A Ltd 220,000.00 By cash a/c 240,000.00
To Cash a/c 20,000.00 By Cash
By balance c/d
240,000.00 240,000.00
Problem 6:
A machinery is sold on hire purchase. The terms of payment is four annual installments of Rs. 6000 at the
end of each year commencing from the date of agreement. Interest is charged @ 20% and is included in
the annual payment of Rs. 6000
Show machinery account and hire vendor account in the books of the purchaser who defaulted in the
payment of the third yearly payment whereupon the vendor repossessed the machinery. The purchaser
provides depreciation on the machinery @ 10% on written down value basis.
All workings should part of your answer.
PARTICULARS INSTALMENTINTEREST PRICIPAL
AMOUNT
4th Installment 6,000.00
Interest 1,000.00 1,000.00 5,000.00
5,000.00
Add: 3rd Installment 6,000.00
11,000.00
Interest 1,833.33 1,833.33 4,166.67
9,166.67
Add: 2nd Installment 6,000.00
15,166.67
Interest 2,527.78 2,527.78 3,472.22
12,638.89
Add: 1st installments 6,000.00
18,638.89
Interest 3,106.48 3,106.48 2,893.52
15,532.41 8,467.59 15,532.41
Machinery a/c
To vendor a/c 15,532.41 By Depreciation 1,553.24
15,532.41 15,532.41
13,979.17 13,979.17
12,581.25 12,581.25
Hire vendor a/c
To Bank 6,000.00 By Machinery a/c 15,532.41
To Balance c/d 12,638.89 By Interest 3,106.48
18,638.89 18,638.89
To Bank 6,000.00 By Balance b/d 12,638.89
15,166.67 15,166.67
To Re-possisson a/c 11,000.00 By Balance b/d 9,166.67
11,000.00 11,000.00
PARTIAL RE-POSSISSON
1. The value of the assets repossessed as per the buyer and seller.
2. The difference in value will be loss transferred to profit and loss a/c
3. Balance of installments will be paid in future.
In the books of seller:
The value of assets takenover is transferred to Re-possessed goods account.
Problem 7:
X Ltd acquired 5 trucks having a cash price of Rs. 100000 each on hirepurchase basis from Y Ltd.
Downpayment 20% and remaining in 4 equal installments. Two truks were repossessed by Y Ltd, by
depreciating them at 20% SLM. These were reconditioned at a cost of Rs. 6000 each and sold for Rs. 75000
each. X ltd, charges depreciation at the rate of 20% WDV method.
Less: Downpayment 100,000.00
400,000.00
1 year 400,000.00
Installment 100,000.00 60,000.00 160,000.00
2 year 300,000.00
Installment 100,000.00 45,000.00 145,000.00
3 year 200,000.00
Installment 100,000.00 30,000.00 130,000.00
Truck a/c
To y ltd 500,000.00 By Depreciation 100,000.00
500,000.00 500,000.00
400,000.00 400,000.00
By X Ltd 80,000.00
By Profit and Loss a/c 22,400.00
320,000.00 320,000.00
Y Ltd a/c
To Downpayment 100,000.00 By Truck a/c 500,000.00
To Cash 160,000.00 By Interest 60,000.00
560,000.00 560,000.00
To Cash 145,000.00 By balance b/d 300,000.00
345,000.00 345,000.00
To Cash 80,000.00 By balance b/d 200,000.00
230,000.00 230,000.00
To Hire purchase a/c 500,000.00 By Downpayment 100,000.00
To Interest 60,000.00 By cash 160,000.00
560,000.00 560,000.00
To Balance b/d 300,000.00 By cash 145,000.00
To Interest 45,000.00 By Balance c/d 200,000.00
345,000.00 345,000.00
To Balance b/d 200,000.00 By Repossesed goods a/c 80,000.00
To Interest 30,000.00 By Balance c/d 150,000.00
230,000.00 230,000.00
Re-possessed goods:
To X Ltd 80,000.00 By Cash 150,000.00
To Cash 12,000.00
To Profit and Loss a/c 58,000.00
150,000.00 150,000.00
In 5 trucks 2 trucks were repossed in which hirepurchase charges depreciated at 20% wdv and hire vendor
at 20% SLM method.
HP @ HV @ HP @ 20% (REMAINING)
20% WDV 20% SLM
cash price 200,000.00 200,000.00 300,000.00
Less: Depreciation
1 year 40,000.00 40,000.00 60,000.00
2 year 32,000.00 40,000.00 48,000.00
3 year 25,600.00 40,000.00 38,400.00
102,400.00 80,000.00 153,600.00
Loss 22,400.00
Section 2
Problem 1:
Based on particulars given below, give entries in the books of the purchaser and the seller the hire purchase and the installment systems
(a) X & Co Purchaser Y & Co seller
Date of Purchase - April 1 1997; goods purchased - lorries; cash price - Rs. 590000 .
Instalment of Rs. 200000 on sigining of agreement. Balance in the three annual instalments of Rs. 200000 each payable on 31st March every
year.
Rate of Interest - 25% p.a . Deperciation - 15% on the diminishing balances.
(b) All particulars as above except that the rate of interest was not given.
(c) All Paritculars as in (a) above except that the cash price is not given.
Assume that both X & Co and Y & Co close their books of account on 31st March every year. Make the all calculations in the nearest rupee.
Calculation of Interest:
Particulars Amount Interest Instalments
Cash Price 590,000.00
Less: Downpayment 200,000.00 200,000.00
I Year 390,000.00
200,000.00 97,500.00 297,500.00
II Year 190,000.00
190,000.00 47,500.00 237,500.00
Calculation of Interest when interest Rate is not given:
Hire price 800,000.00
Less: Cash Price 590,000.00
Total Interest 210,000.00
Working Notes
1997-1998 600,000.00 3.00 105,000.00
1998-1999 400,000.00 2.00 70,000.00
1999-2000 200,000.00 1.00 35,000.00
6.00 210,000.00
Calculation of Rate of Interest when Cash price is not given:
Amount due and paid on 31-03-00 200,000.00
Less: Interest year ended 31.03.00 40,000.00
Amount due on 1st April 2000 160,000.00
Add: Amount paid on 31 Mar 1999 200,000.00
Second Installment 360,000.00
Less: Interest year ended 31.03.99 72,000.00
Amount due on 1st April 1999 288,000.00
Add: Amount paid on 31 Mar 1998 200,000.00
First Installment 488,000.00
Less: Interest year ended 31 Mar 1998 97,600.00
Amount due on 1 Apr 1998 390,400.00
Amount paid on 31.03.1997 200,000.00
Calculation of Depreciation:
Less: I year Depreciation 88,560.00
501,840.00
Less: II year Depreciation 75,276.00
426,564.00
Less: III year Depreciation 63,984.60
362,579.40
Problem 2:
On 1st April 1998, Mr. A Purchased from Mr.B a Machine on hire purchase system. The each price of the machine was Rs. 80000. Mr.A paid Rs. 20000
on signing of agreeemnt and balance in three annual instalments of Rs. 20000 each together will interest @ 12% p.a on balances of cash price remaining
outstanding , the first instalment falling due on 31st March 1999. He charged depreciation on machine at 15% p.a on reducing balances of the machine.
He closed his books of account every year on 31st March .
You are required to prepare in Mr. A's ledger the following accounts:
1. The account of Mr. B, the hire vender
2. Machinery Account
3. Interest Account
4. Depreciation Account.
working Notes:
60,000.00
I st Installments20,000.00 7,200.00 27,200.00
40,000.00
2nd Installments 20,000.00 4,800.00 24,800.00
20,000.00
20,000.00 2,400.00 22,400.00
14,400.00 94,400.00
Calculation of Depreciation:
Less: Depreciation for 1997-98 12,000.00
68,000.00
57,800.00
49,130.00
In the books of Mr. A:
B Account:
Date Particulars Amount Amount Date Particulars
01.04.98 To Downpayment 20,000.00 01.04.98 By Machinery a/c
31.3.99 To Bank 27,200.00 31.3.99 By Machinery a/c
By Interest a/c
27,200.00
31.3.2000 To Bank a/c 24,800.00 31.3.2000 By Machinery a/c
By Interest a/c
24,800.00
31.3.2001 To Bank a/c 22,400.00 31.3.2001 By Machinery a/c
By Interest a/c
22,400.00
Machinery Account:
1.04.1998 To B a/c 20,000.00 1.04.1998 By Depreciation a/c
31.03.1999 To B a/c 20,000.00 By Balance c/d
40,000.00
1.04.1999 To Balance b/d 28,000.00 1.04.1999 By Depreciation a/c
31.03.2000 To B a/c 20,000.00 31.03.2000 By Balance c/d
48,000.00
1.04.2000 To Balance b/d 37,800.00 1.04.2000 By Depreciation a/c
31.03.2001 To B a/c 20,000.00 31.03.2001 By Balance c/d
57,800.00
Interest A/C
31.03.1998 To B a/c 7,200.00 31.03.1998 By Profit and Loss a/c
14,400.00
Depreciation Account:
31.03.1999 To Machinery a/c 12,000.00 31.03.1999 By Profit and Loss a/c
30,870.00
Problem 3:
On 1st April 1998 Gopinath & Co acquired a machine hire purchase. The terms of the contract were as follows:
1. The cash price of the machine was Rs. 100000
2. Rs. 40000 was to be paid on the signing of the contract.
3. The balance was to be paid in annual instalments of Rs. 20000 plus interest
4. Interest Chargeable on outstanding balance was at 18% per annum
Depreciation at 10% per annum is to be written off on the straight line method.
You are required to show:
(a) The relevant account in the books of Gopinath & Co for two years from April 1, 1997 to 31st March, 1999.
(b) The machinery account in the balance sheet of the hire purchaser as at 31st March 1999.
Working Notes:
(i) Calculation of Interest:
60,000.00
I Year Instalments 20,000.00 10,800.00 30,800.00
40,000.00
II Year Instalments 20,000.00 7,200.00 27,200.00
20,000.00
III Year Instalments 20,000.00 3,600.00 23,600.00
21,600.00 121,600.00
(ii) Calculation of Depreciation:
Less: Depreciation @ 10% 10,000.00
Cash Price - II year 100,000.00
In Gopinath & Co's Ledger:
Machinery Account:
I Year To Hire Vendor 40,000.00 I Year By Depreciation
To Hire Vendor 20,000.00 By Balance c/d
60,000.00
II year To Balance b/d 50,000.00 II year By Depreciation
To Hire Vendor 20,000.00 By Balance c/d
70,000.00
III Year To Balance b/d 60,000.00
Hire Vendor
I Year To Downpayment 40,000.00 I Year By Machinery a/c
II Year To Bank a/c 30,800.00 II Year By Machinery a/c
By Interest
30,800.00
III Year To Bank a/c 27,200.00 III Year By Machinery a/c
By Interest
27,200.00
Interest A/C
1 year To Hire vendor 10,800.00 1 year By Profit and Loss a/c
2nd Year To Hire vendor 7,200.00 2nd Year By Profit and Loss a/c
18,000.00
Depreciation a/c
1 year To Machinery A/c 10,000.00 1 year By Profit and Loss a/c
2nd Year To Machinery A/c 10,000.00 2nd Year By Profit and Loss a/c
Problem 4:
On 1st April 1998, a Motor Transport Co., ordered a motor vechicle whose each cash price was Rs. 250000 and entered into a hire purchase agreement to
pay eight quarterly instalments of Rs. 36740 each, the first payment to be made on 30th June, 1998. The rate of interest of is 15% p.a and the vechicle are to
be depreciated at 10% p.a. on the diminishing balance.
show the motor vechicle account in the books of the hire purchase for the two years, ended 31st March 2000.
Working Notes:
(i) Calculation of Interest:
Less: 1st Instalment - June 1998 36,740.00 9,375.00 46,115.00
222,635.00
Less: 2nd Instalment - Sep 1998 36,740.00 8,348.81 45,088.81
194,243.81
Less: 3rd Instalment - Dec 1998 36,740.00 7,284.14 44,024.14
For the whole year 1998 25,007.96 135,227.96
164,787.96
Less: 4th Instalment - Mar 1999 36,740.00 6,179.55 42,919.55
134,227.50
Less: 5th Instalment - June 1999 36,740.00 5,033.53 41,773.53
102,521.04
Less: 6th Instalment - Sep 1999 36,740.00 3,844.54 40,584.54
69,625.57
Less: 7th Instalment - Dec 1999 36,740.00 2,610.96 39,350.96
35,496.53
Less: 8th Instalment - Mar 2000 1,243.47 1,243.47
36,740.00
(ii) Calculation of Depreciation:
Less: Depreciation 25,000.00
225,000.00
Less: II year Depreciation 22,500.00
202,500.00
Table Format:
Date Amount paid Interest Towards Depreciation
Cash Price
30-Jun-98 36,740.00 9,375.00 27,365.00 225,000.00
30-Sep-98 36,740.00 8,348.81 28,391.19
31-Dec-98 36,740.00 7,284.14 29,455.86
31-Mar-99 36,740.00 6,179.55 30,560.45 25,000.00
30-Jun-99 36,740.00 5,033.53 31,706.47
30-Sep-99 36,740.00 3,844.54 32,895.46
31-Dec-99 36,740.00 2,610.96 34,129.04
31-Mar-00 36,740.00 1,243.47 35,496.53 22,500.00
Motor Machinery Account:
30-Jun-98 To Hire vendor a/c 27,365.00 31-Mar-99 By Depreciation a/c
30-Sep-98 To Hire vendor a/c 28,391.19 By Balance c/d
31-Dec-98 To Hire vendor a/c 29,455.86
31-Mar-99 To Hire vendor a/c 30,560.45
115,772.50
1-Apr-99 To Balance b/d 90,772.50 31-Mar-00 By Depreciation a/c
30-Jun-99 To Hire vendor a/c 31,706.47 By Balance c/d
30-Sep-99 To Hire vendor a/c 32,895.46
31-Dec-99 To Hire vendor a/c 34,129.04
31-Mar-00 To Hire vendor a/c 35,496.53
225,000.00
1-Apr-00 To Balance b/d 202,500.00
Problem 5:
Shyam Purchases a TV Set on hire purchasee basis for Rs. 5000 and makes the payment in the following order.
I Instalment after one year of agreement 2,000.00
2nd Instalment after two years of agreement 1,000.00
3rd Instalment after three years of agreement 1,000.00
The cash price of TV Set is 4,400.00
Prepare the necessary ledger accounts in the books of hire vendor.
working Notes:
Calculation of Interest:
Total Interest 600.00
Year Amount OutstandingRatio Interest
1 4,000.00 4.00 342.86
2 2,000.00 2.00 171.43
3 1,000.00 1.00 85.71
7.00 600.00
Shyam Account: - In the books of Hire vendor ledger:
year I To Sales a/c 4,400.00 year I By Bank - Downpayment a/c
To Interest a/c 342.86 By Balance c/d
4,742.86
Year II To Balance b/d 3,742.86 Year II By Bank - First Instalment
3,914.29
Year III To Balance b/d 1,914.29 Year III By Bank - Second Instalment
2,000.00
Year IV To Balance b/d 1,000.00 Year IV By Bank - Final Instalment
Interest A/C
year I To Profit and Loss a/c 342.86 year I By Shyam a/c
Year II To Profit and Loss a/c 171.43 Year II By Shyam a/c
Year III To Profit and Loss a/c 85.71 Year III By Shyam a/c
Problem 6:
On 1st February, 1998 Delhi Motors Co., sold on hire purchase basis to Mrs. Satya, a car whose cash price was Rs. 100000 . The terms of the contract were
as follows:
(i) Rs. 40000 to be paid immediately on the signing of the contract.
(ii) The balance in three annual instalments (payable on 31st January) of Rs. 20000 plus yearly interest due @ 18% p.a on outstanding balances remaining
after each payment.
On 31st January 2000, Mrs. Sathya failed to pay the instalment and hence Delhi Motors Co., took possession of the car which was valued at Rs. 44480 .
In February 2000 the company spend Rs. 1300 in each for materials and Rs. 680 worth of factory labour used to make the car ready for resale. On 12th
the car was sold for Rs. 50000 . Delhi Motors Co., closes its books of account every year on 31st March. Prepare the following accounts in its ledger.
1. The account of Mrs. Sathya the customer,
2. Repossessed Goods Account.
In Delhi Motors Co's Ledger:
Mrs. Sathya Account:
1-Feb-98 To Sales a/c 100,000.00 1-Feb-98 By Downpayment
31-Mar-98 To Interest 1,800.00 31-Mar-98 By Balance c/d
101,800.00
1-Apr-98 To Balance b/d 61,800.00 31-Jan-99 By Bank - First Installment
31-Jan-99 To Interest 31-Mar-99 By Balance c/d
(on Rs. 60000@18% for 10 months) 9,000.00
31-Mar-99 To Interest
(On Rs. 40000 @ 18% for 2 Months) 1,200.00
72,000.00
1-Apr-99 To Balance b/d 41,200.00 31-Jan-00 By Repossessed goods
31-Jan-00 To Interest 6,000.00 31-Jan-00 By Loss on Repossession of goods
(On Rs. 40000 @ 18% for 10 Months)
47,200.00
Repossession Account:
31-Jan-00 To Mrs. Sathya 44,480.00 31-Mar-00 By Bank - Sale Proceed of car
1-Feb-00 To Cash - Materials 1,300.00
1-Feb-00 To Wages 680.00
50,000.00
Problem 7:
A Cycle dealer sells bicycles on hire purchase at 24 monthly instalments of Rs. 50 each. The bicycle costs him Rs. 750 . Ignoring interest and depreciation,
show how much profit he makes when half the instalments are paid? What will be the profit if interest is not ignored?
(i) When interest is ignored:
Total amount of Instalments 600.00
Less: Half cost 375.00
PROFIT 225.00
Problem 8:
On 1st April 1998 Jolly Tourist Transport Co., took three cars of the cash sale price of Rs. 100000 each on hire purchase system
from Tata Motors Ltd. The terms of the hire purchase contract include a total cash down payment of Rs. 75000 and the payment of the remaining cash price
of the cars in three equal instalments together with interest @ 18% per annum on outstanding balances, the instalment with interest being payable on
31st March every year.
First year dues were duly paid but thereafter the hire vendor failed. Consequently, Tata Motors Ltd. Served notice for repossession of the cars. But after
negotiations. Tata Motors Ltd., agreed to leave one car with the hire purchaser and adjust the value of the other two cars against the outstanding amount.
Jolly Tourist Transport Co., provided depreciation at 20% per annum on diminshing balances but Tata Motors Ltd. Took back the two cars, valuing them on
the basis of 25% annual depreciation on straight line basis. The hire vendor sold the repossessed cars for a total sum of Rs. 140000 after spending Rs. 25000
to renovate the cars.
You are required to prepare the necessary ledger accounts in the books of both the parties on the assumption that they close their books of account on
31st March every year.
working Notes:
Calculation of agreed value of two cars seized:
Cash price of two cars 200,000.00
Less: Depreciation on Rs. 200000
on striaght Line basis @ 25% for
two years 100,000.00
Agreed value of two cars 100,000.00
Calculation of loss on default:
Cash Price of two cars 200,000.00
Less: Depreciation Provided on
31st March 1999 @ 20% p.a 40,000.00
160,000.00
Less: Depreciation Provided on
31st March 2000 32,000.00
128,000.00
Less: Agreed value of cars taken over 100,000.00
Loss on default 28,000.00
In the Books of Jolly Transport Co's Ledger - Cars Account:
1-Apr-98 To Tata Motors Ltd a/c 300,000.00 31-Mar-99 By Depreciation
By Balance c/d
300,000.00
1-Apr-99 To Balance b/d 240,000.00 31-Mar-00 By Depreciation
By Tata Motors Ltd(agreed value)
By Profit and Loss a/c
(Loss on default)
By Balance c/d
240,000.00
Tata Motors Ltd Account:
1-Apr-98 To Bank 75,000.00 1-Apr-98 By cars
31-Mar-99 To Bank 115,500.00 31-Mar-99 By Interest on Rs. 225000 @18%
31-Mar-99 To Balance c/d 150,000.00
340,500.00
31-Mar-00 To Cars Account - agreed value 1-Apr-99 By Balance b/d
of two cars 100,000.00 By Interest on Rs. 150000 @18%
100,000.00
1-Apr-00 By Balance b/d
In Tata Motors Ltd's Ledger - Jolly Tourist Transport Co
1-Apr-98 To Sales a/c 300,000.00 1-Apr-98 By Bank
31-Mar-99 To Interest a/c 40,500.00 31-Mar-99 By Bank a/c
By Balance c/d
340,500.00
1-Apr-99 To Balance b/d 150,000.00 31-Mar-00 By Goods Repossessed goods a/c
To Interest a/c 27,000.00 By Balance c/d
177,000.00
Goods Repossessed Account:
31-Mar-00 To Jolly Tourist Transport Co., 100,000.00 By Bank
To Bank - Expenses on renovation 25,000.00
To Profit on sale 15,000.00
140,000.00
Based on particulars given below, give entries in the books of the purchaser and the seller the hire purchase and the installment systems
Instalment of Rs. 200000 on sigining of agreement. Balance in the three annual instalments of Rs. 200000 each payable on 31st March every
Assume that both X & Co and Y & Co close their books of account on 31st March every year. Make the all calculations in the nearest rupee.
On 1st April 1998, Mr. A Purchased from Mr.B a Machine on hire purchase system. The each price of the machine was Rs. 80000. Mr.A paid Rs. 20000
on signing of agreeemnt and balance in three annual instalments of Rs. 20000 each together will interest @ 12% p.a on balances of cash price remaining
outstanding , the first instalment falling due on 31st March 1999. He charged depreciation on machine at 15% p.a on reducing balances of the machine.
Amount Amount
By Machinery a/c 20,000.00
By Interest a/c 7,200.00
27,200.00
24,800.00
22,400.00
Amount Amount
By Depreciation a/c 12,000.00
40,000.00
48,000.00
57,800.00
Amount Amount
14,400.00
Amount Amount
30,870.00
Amount Amount
By Depreciation 10,000.00
60,000.00
70,000.00
Amount Amount
10,800.00
30,800.00
7,200.00
27,200.00
Amount Amount
18,000.00
Amount Amount
On 1st April 1998, a Motor Transport Co., ordered a motor vechicle whose each cash price was Rs. 250000 and entered into a hire purchase agreement to
pay eight quarterly instalments of Rs. 36740 each, the first payment to be made on 30th June, 1998. The rate of interest of is 15% p.a and the vechicle are to
Amount Amount
115,772.50
225,000.00
Amount Amount
By Bank - Downpayment a/c1,000.00
4,742.86
By Bank - First Instalment 2,000.00
3,914.29
By Bank - Second Instalment 1,000.00
2,000.00
By Bank - Final Instalment 1,000.00
Amount Amount
By Shyam a/c 342.86
By Shyam a/c 171.43
By Shyam a/c 85.71
On 1st February, 1998 Delhi Motors Co., sold on hire purchase basis to Mrs. Satya, a car whose cash price was Rs. 100000 . The terms of the contract were
(ii) The balance in three annual instalments (payable on 31st January) of Rs. 20000 plus yearly interest due @ 18% p.a on outstanding balances remaining
On 31st January 2000, Mrs. Sathya failed to pay the instalment and hence Delhi Motors Co., took possession of the car which was valued at Rs. 44480 .
In February 2000 the company spend Rs. 1300 in each for materials and Rs. 680 worth of factory labour used to make the car ready for resale. On 12th
the car was sold for Rs. 50000 . Delhi Motors Co., closes its books of account every year on 31st March. Prepare the following accounts in its ledger.
Amount Amount
By Downpayment 40,000.00
101,800.00
By Bank - First Installment 30,800.00
72,000.00
By Repossessed goods 44,480.00
By Loss on Repossession of goods 2,720.00
47,200.00
Amount Amount
By Bank - Sale Proceed of car 50,000.00
50,000.00
A Cycle dealer sells bicycles on hire purchase at 24 monthly instalments of Rs. 50 each. The bicycle costs him Rs. 750 . Ignoring interest and depreciation,
show how much profit he makes when half the instalments are paid? What will be the profit if interest is not ignored?
On 1st April 1998 Jolly Tourist Transport Co., took three cars of the cash sale price of Rs. 100000 each on hire purchase system
from Tata Motors Ltd. The terms of the hire purchase contract include a total cash down payment of Rs. 75000 and the payment of the remaining cash price
of the cars in three equal instalments together with interest @ 18% per annum on outstanding balances, the instalment with interest being payable on
First year dues were duly paid but thereafter the hire vendor failed. Consequently, Tata Motors Ltd. Served notice for repossession of the cars. But after
negotiations. Tata Motors Ltd., agreed to leave one car with the hire purchaser and adjust the value of the other two cars against the outstanding amount.
Jolly Tourist Transport Co., provided depreciation at 20% per annum on diminshing balances but Tata Motors Ltd. Took back the two cars, valuing them on
the basis of 25% annual depreciation on straight line basis. The hire vendor sold the repossessed cars for a total sum of Rs. 140000 after spending Rs. 25000
You are required to prepare the necessary ledger accounts in the books of both the parties on the assumption that they close their books of account on
Amount Amount
300,000.00
By Tata Motors Ltd(agreed value) 100,000.00
By Profit and Loss a/c
(Loss on default) 28,000.00
240,000.00
Amount Amount
300,000.00
By Interest on Rs. 225000 @18% 40,500.00
340,500.00
By Balance b/d 150,000.00
By Interest on Rs. 150000 @18% 27,000.00
177,000.00
By Balance b/d 77,000.00
Amount Amount
75,000.00
By Bank a/c 115,500.00
340,500.00
By Goods Repossessed goods a/c 100,000.00
177,000.00
Amount Amount
140,000.00
140,000.00
Problem 1:
From the following information prepare profit and loss account of ABC Bank ltd for the year ended 31.3.2001:
Interest on loan 259,000.00
Interest on FD 275,000.00
Rebate on B/D 49,000.00
Comission 8,200.00
Establishment 54,000.00
Interest on cash credit 223,000.00
Rent and Taxes 18,000.00
Interest on overdraft 154,000.00
Directors fees 3,000.00
Auditors fees 1,200.00
Interest on current account 42,000.00
Interest on balance with RBI 50,000.00
Profit on sale of land, building and assets 2,000.00
Profit on exchange transaction 10,000.00
Interest on RBI borrowings 12,000.00
Interest on borrowings from other banks 10,000.00
Employees salaries 20,000.00
Interest on savings bank deposit 68,000.00
Postage and Telegram 1,400.00
Sundry Charges (cr) 1,700.00
Bad debts to be written off amounted to Rs. 40000 provision for taxation may be made @ 35% transfer 25% to
statutory reserve and 5% to revenue reserve.
Interest Earned (shedule 13)
Interest on loan 259,000.00
Interest on balance with RBI 50,000.00
Discount on bills 49,000.00
735,000.00
Other Incomes (shedule 14)
Commission 8,200.00
Profit on sale of land, building and assets 2,000.00
Profit on exchange 10,000.00
Sundry charges 1,700.00
BANK ACCOUNTS
21,900.00
Interest Expended (shedule 15)
Interest on current account 42,000.00
Interest on RBI 12,000.00
Interest on borrowings from other banks 10,000.00
Interest on Savings bank 68,000.00
Interest on FD 275,000.00
407,000.00
Operating Expenses (schedule 16)
Establishment 54,000.00
Rent and Taxes 18,000.00
Auditors fees 1,200.00
Employee salaries 20,000.00
Postage 1,400.00
Printing 2,900.00
100,500.00
Provision for Tax 73,290.00
Profit and Loss Account:
Incomes
Interest Earned 735,000.00
Other Income 21,900.00
756,900.00
Expenditure:
Interest Expended 407,000.00
Other Expenses 100,500.00
contingencies:
Bad debts 40,000.00
Provision for tax @ 35% 73,290.00
620,790.00
Net Profit 136,110.00
Appopoitation:
25% statutory reserve 34,027.50
5% Reserve 6,805.50
Balance carried to Balance Sheet 95,277.00
Problem 2:
From the following information prepare Profit and Loss Account of Vasavi Bank Ltd for the year ended 31st March
1995.
Interest on loans 300.00
Interest on Fixed deposit 275.00
Comission 10.00
Exchange and Brokerage 20.00
Salaries and Allowances 150.00
Bills on discount (gross) 152.00
Interest on cash credit 240.00
Interest on temporary O.D in
current account 30.00
Interest on SB Deposit 87.00
Postage and Telegram 10.00
Printing and Stationery 20.00
Sundry Expenses 10.00
Rent 15.00
Taxes and Licenses 10.00
Audit Fees 10.00
1. Rebate on bills discounted Rs. 30000.
2. Salary of MD Rs. 30000
3. Bad Debts Rs. 40000
4. Provision for Income tax rate 55% and
5. Interest of Rs. 4000 doubtful debts was wrongly credited to interest on loans.
Interest on Loans 300,000.00
Less: Doubtfull debts 4,000.00 296,000.00
Less:Rebate 30,000.00 122,000.00
688,000.00
Comission 10,000.00
Exchange and Brokerage 20,000.00
30,000.00
Interest on Fixed Assets 275,000.00
Interest on Savings Bank Account 87,000.00
362,000.00
Rs. In Thousands
Salary to MD 30,000.00
Salaries and allowances 150,000.00
Postage and Telegrams 10,000.00
Sundry Expenses 10,000.00
Rent 15,000.00
Taxes and Licenses 10,000.00
Audit fees 10,000.00
255,000.00
Provision for tax @ 55% 61,000.00
33,550.00
Incomes
Total Income 718,000.00
Expenditure:
Operating Expenses 255,000.00
Provision for Contigencies:
Provision for taxation @ 55% 33,550.00
Bad Debts 40,000.00
Total Expenditure 690,550.00
NET PROFIT 27,450.00
Less: Statutory Reserve @ 25% 6,862.50
Income Recoganisation
Performing Assets:
No problem is anticipated in recovering principle or interest.
Non-Performing Asset (NPA)
When a loan or interest is outstanding for more than 90 days, it will be classified as NPA
Income Recognisation:
Performing Asset - Due Basis
NPA - Receipt Basis.
PROVISION FOR BAD DEBTS
Standard Assets 4%
Sub - Standard Assets 10% upto 18 months after due date
Doubtfull Assets 100%
Loss Asset 100%
Problem 4:
From the following information prepare profit and loss a/c of Jaipur Bank Ltd., for the year ended 31.03.2001
Interest earned in term loans 12.12
Interest earned on term loans
classifed as NPA 5.12
Interest received on term loan
classifed as NPA 1.12
Interest on cash credit and overdraft 27.72
Interest earned but not received
cash credit and OD treated as NPA 7.72
Comission 1.12
Loss on sale of investment 10.12
Profit on revaluation of Investment 1.12
Income from Investments 17.80
Salaries , Bonus and Allowances 15.10
Rent, Taxes and lighting 1.20
Printing and stationery 80.00
Directors fees and allowances 1.12
Legal charges 12.00
Repairs and Maintenance 15.00
Insurance 20.00
Other Information:
Make necessary provision on risk assets:
Sub - Standard 10.00
Doubtful for 1 year 8.00
Doubtful for 2 year 1.20
Loss assets 80.00
The bank has classified investment costing Rs. Four thousand as current investment, market value of which is
380 thousand.
Interest on Term loans 12.12
Less: Not received (NPA) 4.00 8.12
Interest on cash credit 27.72
Less: Cash credit treated as NPA 7.72 20.00
Income from Investment 17.80
45.92
Comission 1.12
Add: Profit on sale of Investment 1.12
Less: Loss on revaluation of
Investment 10.12
Less: Loss on revaluation of
current investment 2.00
(9.88)
Salaries 15.10
Rent and Taxes 1.20
Printing and Stationery 80.00
Directors fee 1.12
Legal charges 12.00
Repairs 15.00
Insurance 20.00
144.42
PROVISION FOR BAD DEBTS
Sub - Standard 100.00
Doubtful Assets 9.20
Loss of assets 80.00
189.20
Incomes
Interest Earned 45.92
Other Income -9.88
Total Income 36.04
Expenditure:
Interest Expended 0.00
Operating Expenses 144.42
Provision for bad debts 189.20
Total Expenditure 333.62
NET PROFIT
Less: Statutory Reserve @ 25% 0.00
Balance carried to Balance Sheet 0.00
Problem 5:
Prepare Profit and Loss a/c for the year ended 31.03.2008.
Interest on loans 675,000.00
Salaries 26,250.00
Rent paid 9,600.00
Locker Rent 25,200.00
Interest on SBI 85,000.00
Interest on OD 100,000.00
Depreciation 8,500.00
Comission 18,000.00
Interest on Fixed Deposit 14,000.00
Interest on Borrwing from RBI 62,000.00
Income from Investment 46,000.00
Interest on balance to RBI 6,000.00
Establishment charges 4,000.00
ADJUSTMENTS
Opening Rebate 6,000.00
Closing Rebate 12,000.00
Bad Debts 30,000.00
Provision for Taxation 40%
Transfer of 10% to Revenue Reserve.
Interest on Loans 675,000.00
Interest on OD 100,000.00
Interest on Cash Credit 18,000.00
Interest from Investment 46,000.00
Add: Opening Rebate 6,000.00
Less: Closing Rebate 12,000.00 56,000.00
901,000.00
Locker Rent 25,200.00
Comission 18,000.00
Sundry charges 7,000.00
50,200.00
Interest on Fixed Assets 85,000.00
Interest on Savings Bank Account 14,000.00
161,000.00
Salaries 26,250.00
Rent 9,600.00
Directors Fees 12,000.00
Establishment Charges 4,000.00
60,350.00
Provision for Tax @ 40% 699,850.00
279,940.00
Incomes
Total Income 951,200.00
Expenditure:
Operating Expenses 60,350.00
Provision for Contigencies:
Provision for taxation @ 55% 279,940.00
Bad Debts 30,000.00
Total Expenditure 531,290.00
NET PROFIT 419,910.00
Less: Statutory Reserve @ 25% 104,977.50
10% Reserve on Rs. 419910 41,991.00
Section 2
Problem 1:
On 31st March, 2005 a bank held the following bills discounted by it earlier:
Date of Bills Terms of Discounted Amount to
Bills % p.a Bills
17-Jan-05 4 8.5 730000
7-Feb-05 3 9 1460000
9-Mar-05 3 8.75 364000
You are required to calculate the Rebate of Bills Discounted. Also show the necessary journal entry for the rebate.
Date of Bills Date of No of Days Amount of Discount
Maturity after Bill for Days
31-03-2005 after
31-03-2005
17-Jan-05 20-May-05 50 730000 8500
7-Feb-05 10-May-05 40 1460000 14400
9-Mar-05 12-Jun-05 73 364000 6370
Total Rebate 29270
Problem 2:
On 1st April, 2003 the opening balance of Rebate on Bills Discounted Account of a bank was Rs.107500. On 31st March 2004 the bank finds that its Interest
Discount on Advances/Bills/Account shows a credit balance of Rs. 289600 and no adjustments have been made in the account yet. The bank has earned
discount by discounting the bills. It is ascertained that the proportionate discount not yet earned on the bills discounted which will mature during the
year 2004-05 amounted to Rs. 112750
Pass journal entries regarding rebate on bills discounted. Also show the following ledger accounts:
1. Rebate on Bills Discounted Account, and
2. Interest/Discount on Advances/Bills Accounts.
Jounranl Entries:
Rebate on Bills Discounted A/C 107500
To Interest and Discounts A/C 107500
(Opening balance of Rebate on Bills Discounted
Account, being income of the current year
credited to Interest and Discount A/C)
Interest and Discounts A/C Dr 112750
To Rebate on Bills Discounted A/C 112750
(Interest and discounts received this year but
not yet earned transferred to Rebate on Bills
Discounted Account to be carried forward to
the next Accounting Year)
Ledger:
REBATE ON BILLS DISCOUNTED ACCOUNT:
PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
To Interest and Discounts A/C 107500 1-Apr-04 By Balance b/f 107500
To Balance c/d 112750 31-Mar-04 By Interest and Discount a/c 112750
220250 220250
1-Apr-04 By Balance b/d 112750
INTEREST AND DISCOUNT ACCOUNT
PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
To Rebate on Bills Discounted 112750 31-Mar-04 By Balance b/d 289600
To Profit and Loss a/c 284350 By Rebate on Bills Discounted 107500
397100 397100
Problem 3:
On the basis of the following information regarding Capital Funds and Assets of a commercial Bank as on 31st March 2005, calculate Risk Weighted
Assets Ratio, giving detailed working notes:
(Rs. In 000)
Capital Funds:
Equity Share Capital 70.00
Statutory Reserve 95.15
Capital Reserve (on sale of Fixed assets) 10.00
Revaluation Reserve 4.00
Assets:
Cash 19074.00
Balance with Reserve Bank of India 61017.00
Balance with other banks 11318.00
Investments in Government Securities 97808.00
Investment in other approved securities 31545.00
Investments in shares of joint stock companies
in the private sector 5000.00
Investments in debentures of joint stock
companies in the private sector 38338.00
Loans and Advances:
(a) Loans guaranteed by Govt. of India 12678.00
(b) Loans granted to public sector undertakings
of State Governments 21978.00
(c) Others 71750.00
Premises 17028.00
Furniture and Fixtures 7824.00
Other Fixed Assets 11583.00
Off-balance Sheet Item:
Acceptances, Endorsements and Letter of Credit 46344.00
working notes:
(i) Capital Funds Tier I:
Equity Share Capital 70.00
Capital Reserve (on sale of Fixed assets) 10.00
Capital Funds Tier II
Revaluation Reserve 4.00
Less: Discount @ 55% 2.2 1.80
CAPITAL FUNDS 176.95
(ii) Risk Adjusted Assets: Amount Percentage Weighted Amount
Cash 19074.00
Balance with Reserve Bank of India 61017.00
Balance with other banks 11318.00
Investments in Government Securities 97808.00
Investment in other approved securities 31545.00
Investments in shares of joint stock companies
in the private sector 5000.00 100% 5000.00
Investments in debentures of joint stock
companies in the private sector 38338.00 100% 38338.00
Loans and Advances:
(a) Loans guaranteed by Govt. of India 12678.00
(b) Loans granted to public sector undertakings
of State Governments 21978.00 100% 21978.00
(c) Others 71750.00 100% 71750.00
Premises 17028.00 100% 17028.00
Furniture and Fixtures 7824.00 100% 7824.00
Other Fixed Assets 11583.00 100% 11583.00
Off-balance Sheet Item:
Acceptances, Endorsements and Letter of Credit 46344.00 100% 46344.00
Risk Adjusted Assets 219845.00
Risk Adjusted Assets Ratio = (capital funds/Risk Adjusted Assets)*100
Risk Adjusted Ratio 8.05%
Problem 4:
On 31st March 2007, Bharat Commercial Bank Ltd, finds its advances classified as follows:
Rs in '000
Standard Assets 745650.00
Sub-Standard Assets 46400.00
Doubtful Assets:
Upto one year 12830.00
One year to three years 7820.00
More than three years 3290.00
Loss assets 5175.00
Calculate the amount of provision to be made by the bank agaist the abovementioned advances.
Amount % Required
Rs in '000 as provision Provision
Standard Assets 745650.00 4% 29826.00
Sub-Standard Assets 46400.00 10% 4640.00
Doubtful Assets:
Upto one year 12830.00 20% 2566.00
One year to three years 7820.00 30% 2346.00
More than three years 3290.00 100% 3290.00
Loss assets 5175.00 100% 5175.00
Total Provision Required 47843.00
Problem 5:
The following are the balances of nominal accounts appearing in the books of Kalyani Bank Limited as on 31st March 2007:
Debit Balances: (Rs. In '000)
Interest on deposits 76185
Interest on Reserve Bank of India/Inter-Bank 5047
Payment to and provisions for employees 19803
Rent, taxes and lighting 2718
Depreciation to banks properity 1416
Printing and Stationery 675
Law Charges 189
Postages, Telegrams, Telephones etc 967
Repairs and Maintenance 1049
Insurance 2590
Auditors Fees and Expenses 303
Directors fees , allowances and Expesnses 144
Other Expenditures 2501
Credit Balances:
Interest on bills 83745
Discount on bills 4819
Income in investments 28031
Interest on balances with Reserve Bank of India
and other inter-bank funds 7233
Commission, exchange and brokerage 10345
Profit on sale of investments 2569
Profit on exchange transactions 1604
Miscellaneous income 113
Prepare Profit and Loss Account for the year ended 31st March, 2007 after taking into consideration the following information also:
(i) The above mentioned interest on advances includes interests amounting to Rs. 9 thousand on NPA which has not been received.
(ii) Rebate on bills discounted on 31st March 2007 exceeds rebate on bills discounted on 31st March, 2006 by Rs. 21 thousand. The abovementioned
amount of discount on the bill is to be adjusted for this excess.
(iii) On 31st March, 2007 banks advances have been classified as below:
(Rs. In '000)
Standard Assets 654821
Secured Portion of Doubtful Assets:
Upto one year 480
One year to three years 370
More than three years 150
Unsecured Porition of Doubtful Assets 248
Loss Assets 139
You are required to make the necessary provision against advances
1. Provision to be made for income tax including surcharge @ 35%
2. Transfer is to be made to statutory reserve @ 40% and to Revenue Reserve @ 20%
3. The Paid up share capital of the bank is Rs. 100000 thousand. Dividend is Proposed @ 25%
SCHEDULE 13-INTEREST EARNED
Interest/Discount on Bills/advances
Discount on bills 88564
Interest on Balances with RBI and other 28031
inter-bank funds 7233
TOTAL 123828
SCHEDULE 14-OTHER INCOME
Commission, exchange and brokerage 10345
Profit on sale of investments 2569
Profit on exchange transactions 1604
Miscellaneous income 113
TOTAL 14631
SCHEDULE 15- INTEREST EXPENDED
Interest on deposits 76185
Interest on Reserve Bank of India/Inter-Bank 5047
TOTAL 81232
SCHEDULE 16-OPERATING EXPENSES
Payment to and provisions for employees 19803
Rent, taxes and lighting 2718
Depreciation to banks properity 1416
Printing and Stationery 675
Law Charges 189
Postages, Telegrams, Telephones etc 967
Repairs and Maintenance 1049
Insurance 2590
Auditors Fees and Expenses 303
Directors fees , allowances and Expesnses 144
Other Expenditures 2501
TOTAL 32355
WORKING NOTES
1. Interest on advances 83745
Less: NPA Credited but not received 9
83736
2. Discount on bills discounted 4819
Less: Excess of rebate on bills discounted on
31.03.04 over its amount on 31.03.03 to be
provided for 21
4798
Interest on advances as adjusted in (1) as above 83736
Add: Discount on bills after adjustement
as above (2) 4798
Interest/discount on advances/ bills to appear
in schedule 13 88534
4. Calculation of Provision against advances (Rs. In '000) (Rs. In '000)
Amount % Required Amount of Provision
Standard Assets 6548.21 4% 262
Sub-standard Assets 2160 10% 216
Secured Portion of Doubtful Assets:
Upto one year 480 20% 96
One year to three years 370 30% 111
More than three years 150 100% 150
Unsecured Porition of Doubtful Assets 248 100% 248
Loss Assets 139 100% 139
1222
5. Interest Earned 123828
Add: Other Income 14631
138459
LESS:
Interest Expended 81232
Operating Expenses 32355
Provision against advances 1222 114809
Profit Before Tax 23650
Income tax @ 35% 8278
Net Profit for the year 15373
Transfer to Stautory Reserve @ 40% 6149
Transfer to Revenu Reserve @ 20% 3075
Proposed divided @ 25% of paid up capital
of Rs. 100000 thousand 25000
Provision and Contigencies:
Provision as against advances 1222
Provision for Income tax 8278
9499
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2004:
I. Income:
Interest Earned -Schedule 13 123828
Other Income-Schedule 14 14631
Total 138459
II. EXPENDITURE
Interest Expended - Schedule 15 81232
Operating Expenses - Schedule 16 32355
Total 113587
III. PROFIT
Net Profit for the year 15373
Profit brought forward 1873
Total 17246
Transfer to Statutory Reserve 6149
Transfer to Revenue Reserve 3075
Proposed Divided 2500
Balance Carried to Balance Sheet 5522
17246
On 1st April, 2003 the opening balance of Rebate on Bills Discounted Account of a bank was Rs.107500. On 31st March 2004 the bank finds that its Interest
Discount on Advances/Bills/Account shows a credit balance of Rs. 289600 and no adjustments have been made in the account yet. The bank has earned
discount by discounting the bills. It is ascertained that the proportionate discount not yet earned on the bills discounted which will mature during the
On the basis of the following information regarding Capital Funds and Assets of a commercial Bank as on 31st March 2005, calculate Risk Weighted
Prepare Profit and Loss Account for the year ended 31st March, 2007 after taking into consideration the following information also:
(i) The above mentioned interest on advances includes interests amounting to Rs. 9 thousand on NPA which has not been received.
(ii) Rebate on bills discounted on 31st March 2007 exceeds rebate on bills discounted on 31st March, 2006 by Rs. 21 thousand. The abovementioned
Re-Placement of Assets:
Certain assets used by electricity comapanies are allowed to claim depreciation under straight line
method, where the life is estimatable but when life of an asset cannot be estimated applying straight
line method is possibel. When assets are replaced by electricity companies, the cost of replacement is
charged against revenue.
Improvement if any is capitalized - added to the value of asset.
Amount to be Capitalized = cost of new asset - current cost of old asset (CCOA)
CCOA = cost of old asset + Inflation
CCOA - The amount that would have been spent if replacement is done with improvement
Amount charged to revenue account = CCOA - Old materials used and sold.
Journal Entries
When new is installed:
Asset a/c Dr
To Cash a/c
To Stores a/c
When old asset is replaced:
Re-Placement a/c (CCOA) Dr
Asset a/c (Balance)
To Cash a/c
To Stores a/c
For old materials sold and used:
Cash a/c (sale) Dr
Asset a/c Dr
To Replacement a/c
Amount charged to revenue account:
Revenue a/c Dr
To Re-Placement a/c
ELECTRICITY COMPANY
Lakshmi Page 323 Electricity Companies
Problem 1:
Indian railways decided to reconstruct a railway station in 2001 . Cost of reconstruction was Rs. 500000
station was originally build in 1971 at a cost of Rs. 200000. During the intervening period, cost of
construction had increased by Rs. 40000 was used for reconstruction (included in Rs. 500000) and the
balance was disposed off journalise.
Old cost of asset 200,000.00
Add: Inflation @ 50% 100,000.00
CCOA 300,000.00
Improvement 200,000.00
New asset 500,000.00
Less: Materials used 40,000.00
460,000.00
Amount to be charged to revenue account 240,000.00
Journal Entries:
Replacement a/c Dr 300,000.00
Station a/c Dr 160,000.00
To Cash a/c 460,000.00
Cash a/c Dr 20,000.00
Station a/c Dr 40,000.00
To Replacement a/c 60,000.00
Revenue a/c Dr 240,000.00
Problem 2:
The ABC Electricity company decided to replace some parts of its plant by an improved plant. The plant
to be replaced was built in 1978 for Rs. 2700000 . It is estimated that it would now cost Rs. 4000000 to
build a new plant of same size and capacity. The cost of the new plant as per the improved design was
Rs. 8500000 and in additional material belonging to old plant valued at Rs. 275000 was is used in
construction of new plant. The balance of the plant was sold for Rs. 150000 . Compute the amount to be
written off the revenue.
Old cost of asset 2,700,000.00
Add: Installation 1,300,000.00
CCOA 4,000,000.00
Old materials used and cash 4,775,000.00
utilised 8,775,000.00
Amount charged to CCOA 3,575,000.00
Problem 3:
Electric supply Ltd., rebuilt and re-equipped one of their mines at a cash cost of Rs. 4000000 . The old
mains thus superssed cost of Rs. 1500000 . The capacity of new main is double that of old main Rs. 70000
was realised from sale of old materials. Four old motors valued at Rs. 200000 salvaged from the old main
were use in the reconstruction. The cost of labour and materials is respectively 30% and 25% higher now
man when the old main was built. The propotion of labour to materials in the main then and now is 2:3
The total cost of old asset is Rs. 1500000 which contains Labour and Materials at the Ratio of 2:3
Cost of Old Asset:
Labour:
Propotionate labour cost 600,000.00
Add: Inflation @ 30% 180,000.00 780,000.00
Materials:
Propotionate Mateiral cost 900,000.00
Add: Inflation @ 25% 225,000.00 1,125,000.00
CCOA 1,905,000.00
Improvement (balance) 2,295,000.00
New asset value 4,200,000.00
Working Note 1:
New asset 4,000,000.00
Add: Old materials
used 200,000.00
Net value of asset 4,200,000.00
Amount charged to revenue account = CCOA - Old materials used and sold
1,635,000.00
Journal Entries:
Replacement a/c Dr 1,905,000.00
Mains a/c 2,095,000.00
To Cash a/c 4,000,000.00
Cash a/c Dr 70,000.00
Mains a/c 200,000.00
Revenue a/c Dr 1,635,000.00
To Replacement a/c 1,635,000.00
Electricty company in India are governed by the Electricy supply act 1948. Electricity companies in
India are required to submit information to the related state government in the prescribed forms which
are in line with the double account system.
Fixed assets and Contigency Reserves:
A fixed asset may be sold for an amount exceeding its written down value. The excess is then credited
to the contingency reserve account.
All electricity companies are required to maintain contigency reserve .
From the revenue of each year a company appropriates to this revenue from the revenue of each year,
a sum not less than 1/4% and not more than 1/2% of the original cost of fixed assets. This done until
the contigency reserve amounts to 5% of the original cost of the fixed asset. The amount of the
reserve has to be invested in trust securities. The reserve may be utilised with the approval of state
government for the following purpose.
1. To meet expenses or loss of profits arising out of accidents, strikes or circustances which the
management could not prevent.
2. To meet expenses on replacement or removal of plant. This is for expenses other than those
necessary for normal maintaince or renwals.
3. Compensation payable under any law in force for which no other provision is made.
Appropriation of Proifts:
Electricity companies cannot charge any rate they like. They can charge only such rates which would
give them a reasonable return. The electricity companies have to adjust their rates that their clear
profit in any year does not as far as possibel exceed the amount of reasonable return by more than 20%
of the amount of the reasonable return.
Clear Profit:
This is the difference between total income and total expenditure.
Reasonable Return:
The law has defined reasonable return as follows so that the electricity companies do not earn too
high profit. Reasonable return is the sum of following:
1. RBI Rate (primary Lending Rate) plus 2% on CAPITAL BASE
2. Income from investment other than contigency reserve
3. 1/2% on loan for EB
4. 1/2% on Debentures
5. 1/2% on loan from approved institutions.
6. 1/2% on Balance in Development reserve and Consumer Benefit Reserve.
CAPITL BASE:
1. Cost of fixed asset Amount contributed by consumers for service lines
2. Cost of work in progress
3.Cost of Intangibel and fictious assets
4.Contigency Reserve Investments.
5. Monthly average of current assets
LESS:
DISPOSAL OF SURPLUS PROFIT
1.Provision for depreciation at fixed assets
2.Loan from EB
3.Debentures
4.Security deposit of customers
5. Balance in Development Reserve.
6. Balance in Traiff and Dividend control reserve (TDCR)
Disposal of Excess:
If clear profit exceeds the reasonable return, the surplus has to be disposed as follows:
1. 1/3 of the surplus not exceeding 5% of the reasonable return will placed at the disposal of undertaking
2. Of the balance, one half is to be transferred traiff and dividend control reserve (It
is the reserve which can be utilised whenever the clear profit is less than the reasonable return)
3. The balance will be distributed among consumers by the way of reduction on rates or by the way of
special rebate.
Development Reserve:
An amount equal to income tax and super tax (calculated at current rate) which would have been paid
for the development rebate allowed by income tax authorities is transferred to development reserve
account. The rebate is allowed by income tax authorities on installation of new plant and machinery.
Note:
An electricity undertaking must adjust the rates in such a manner that the amount of clear profit in any
year does not exceed the reasonable return by more than 20% of the reasonable return.
Problem 1:
Profit 1,000,000.00
Reasonable
Return 800,000.00
Show the disposal of surplus
Surplus = Profit Reasonable Return
200,000.00
20% of Reasonable Return 160,000.00
Therefore surplus exceeds
Balance distribitable to
Customers 40,000.00
Surplus within 20% of RR 160,000.00
1/3 of 160000 or not exceeding
5% of reasonable return
53,333.33
40,000.00 40,000.00
Balance 120,000.00
TDCR @ of 120000 60,000.00
CBR @ of 120000 60,000.00
Problem 2:
The following balances relates to electricity company and pertains to its accounts for the year ended
31
st
December 2001:
Share capital 10,000,000.00
Reserve fund (invested 5% on govt.
securities atpart) 6,000,000.00
Contingency reserve (invested 6% on State
govt. loans) 2,000,000.00
Loan from EB 3,000,000.00
Development Reserve: 1,000,000.00
Fixed assets 20,000,000.00
Depreciation Reserve on fixed asset 8,000,000.00
Consumers deposit 7,500,000.00
Amount contributed by consumers
towards fixed assets 200,000.00
Intangible assets 500,000.00
TDCR 600,000.00
Current asset Monthly average 2,000,000.00
The company earned a post tax profit of Rs. 9 lakhs. Show how the company will be dealt with under the
provisions of the electricity act, assuming that the bank rate during the year was 8%.
CAPITL BASE:
Fixed assets 20,000,000.00
LESS: Consumers contribution 200,000.00 19,800,000.00
Add:
Intangible assets 500,000.00
Contgency reserve 2,000,000.00
Monthly average current asset 2,000,000.00
24,300,000.00
LESS:
Development Reserve: 1,000,000.00
Depreciation 8,000,000.00
Loan from EB 3,000,000.00
Consumers deposit 7,500,000.00
TDCR 600,000.00 20,900,000.00
CAPITL BASE: 3,400,000.00
Reasonable Reserve:
RBI rate @ 10% (8%+2%) on RR 340,000.00
Income from other investment 360,000.00
% loan on EB 15,000.00
% on Debentures 4,000.00
% on Development Reserve 5,000.00
Reasonable Reserve 724,000.00
Surplus = Profit Reasonable Return
176,000.00
Therefore surplus exceeds 20% of RR 176,000.00
Balance distributable to consumers 31,200.00
Surplus within 20% of RR 144,800.00
1/3 of 144800 or not exceeding 5% of RR
48,266.67
36,200.00 36,200.00
Balance 108,600.00
TDCR @ of 108600 54,300.00
CBR @ of 108600 54,300.00
Section 2
Problem 1:
Bright Electricity Ltd., earned a profit of Rs. 2695000 for the year ended 31st March, 2001 after debenture interest at 14% and Rs. 500000 . Calculate the
reasonable return after taking into consideration of the following facts also:
Fixed assets (Original Cost)#########
Formation and other expenses 1,000,000.00
Monthly average of current assets (net) 5,000,000.00
Revenue fund (represented by 8% govt. securities) 2,000,000.00
Contigencies reserve investments 500,000.00
Loan from Electricity board3,000,000.00
Total depreciation on fixed assets, written off to date 4,000,000.00
Traiffs and dividends control reserve 100,000.00
Security deposit received from customers 400,000.00
Assume the bank rate to be 10%
Calculation of Capital Base:
Fixed assets #########
Cost of Intangible assets 1,000,000.00
Monthly average current assets 5,000,000.00
Contigencies reserve Investments 500,000.00
#########
Less:
Depreciation 4,000,000.00
Loan from Electricity board3,000,000.00
Traiffs and dividends control reserve 100,000.00
Security deposit received from customers 400,000.00
8,000,000.00
CAPITAL BASE #########
Calculation of Reasonable Return:

Yield @ 12% on "Capital Base" 2,220,000.00
Income from investment other than contigencies 160,000.00
1/2% Loan from EB 15,000.00
1/2/2 On loan from Debentures2,500.00
REASONABLE RETURN 2,397,500.00
Problem 2:
The following are the balsances as on 31st March 2001 in the books of Utopian Railway Company Ltd. Make out the receipts and expenditure on
capital account for the year 2000-2001 and the general balance sheet as on 31st March 2001
Traffic accounts due from other railways 131,900.00
Expenditure on lines open for traffic 288,000.00
Expenditure on working stock96,000.00
Expenditure on motor boats 48,000.00
Expenditure on docks, harbours and wharves 45,000.00
Subscription to other companies 30,000.00
Preference shares paid up as on 31st March 2001 255,000.00
Equity shares as on 1st April 2000 240,000.00
Equity shares issued in 2000-2001 and paid up 60,000.00
Premium on shares as on 1st Apirl 2000 16,500.00
Premium on shares received in 2000-2001 6,600.00
Net revenue account, balance at credit 860.00
Renewals Reserve Account 7,500.00
Sundry creditors 3,750.00
Cash on deposit in Bank 13,500.00
Share stock 7,500.00
Sundry debtors 16,500.00
Receipts an Expenditure on Capital Account of Utipial Railway Co., Ltd for the year ended 31st March 2001
Date Expenditure Expediture Expenditure Total Receipts Receipts Recipts Total
P.Y C.Y P.Y C.Y
Expenditure on lines open for traffic 288,000.00 288,000.00 Equity Shares 240,000.00 60,000.00 300,000.00
Expenditure on working stock 96,000.00 96,000.00 Preference shares 255,000.00 255,000.00
Expenditure on motor boats 48,000.00 48,000.00 Share premium16,500.00 6,600.00 23,100.00
Expenditure on docks, harbours and wharves 45,000.00 45,000.00 Debemtires 99,000.00 99,000.00
Subscription to other companies 30,000.00 30,000.00
Balance of Capital a/c 103,500.00 66,600.00 170,100.00
610,500.00 66,600.00 677,100.00 610,500.00 66,600.00 677,100.00
Balance Sheet of Utopian Railway Co. Ltd as on 31st March 2001:
Date Liabilities Amount Amount Date Assets Amount Amount
Balance of Capital a/c 170,100.00 Traffic accounts due from other railways 131,900.00
Sundry Creditors 3,750.00 Sundry debtors 16,500.00
Net Revenue Account 860.00 Investments 8,700.00
Renewals Reserve Account 7,500.00 Share stock 7,500.00
Cash on deposit in Bank 13,500.00
182,210.00 182,210.00
Problem 3:
The following are the balances on 31st March 2001, in the books of the Guntur Power and Light Co., Limited:
Debit Credit
Lands on April 1, 2000 60,000.00
Lands, expanded during the year 2,000.00
Machinery on April 1, 2000 240,000.00
Machinery expended during 2000-2001 2,000.00
Maines, including cost of laying 80,000.00
Maines, expended during 2000-2001 20,400.00
Equity Shares 219,600.00
Sundry Creditors 400.00
Depreciation Account 100,000.00
Sundry Debtors for current supplied 16,000.00
Other Debtors 200.00
Cash 2,000.00
Cost of generation of Electricity14,000.00
Cost of distribution of Electricity2,000.00
Rent, Rates and Taxes 2,000.00
Management 4,800.00
Sale of Current 52,000.00
Rent of meters 2,000.00
Interest on Debentures 4,000.00
Interim Dividend 8,000.00
Balance of Net Revenue Account, April 1, 200011,400.00
465,400.00 465,400.00
From the above trial balance, prepare capital account, General Balance Sheet, Revenue Account and Net Revenue Account.
Revenue Account of Guntur Power and Light Co., Ltd for the year ended 31st March 2001:
Date Particulars Amount Amount Date Particulars Amount Amount
To Cost of Generation of Electricity14,000.00 By Current sales 52,000.00
To Cost of Distribution of Electricity2,000.00 By Rent of Meters 2,000.00
To Rent, Rates and Taxes 2,000.00
To Management Expenses 4,800.00
To Balance carreid to net revenue a/c 23,200.00
54,000.00 54,000.00
Net Revenue Account of Guntur Power and Light Co., Ltd for the year ended 31st March 2001:
To Interest on Debentures 4,000.00 By Balance of Net Revenue A/c 11,400.00
To Interim Dividend 8,000.00 By Balance of Revenue a/c 23,200.00
To Balance carried to Balance Sheet 22,600.00
34,600.00 34,600.00
Receipts and Expenditure on Capital Account of the Guntur Power and Light Co., Ltd for the year ended 31st March 2001:
P.Y C.Y P.Y C.Y
To Land 60,000.00 2,000.00 62,000.00 By Equity Shares 219,600.00 219,600.00
To Machinery 240,000.00 2,000.00 242,000.00 By Debentures 80,000.00 80,000.00
To Maines 80,000.00 20,400.00 100,400.00 By Balance on Capital A/C 80,400.00 24,400.00 104,800.00
380,000.00 24,400.00 404,400.00 380,000.00 24,400.00 404,400.00
General Balance Sheet of Guntur Power and Light Co., Ltd for the year ended 31st March 2001:
Balance from capital account 299,600.00 Capital Account 404,400.00
Sundry creditors 400.00 Sundry Debtors 16,000.00
Balance from Net Revenue 22,600.00 Other Debtors 200.00
Depreciation Account 100,000.00 Cash 2,000.00
422,600.00 422,600.00
Problem 4:
The Trial Balance of the Lunar Light Co., Ltd on 31st March 2001 was as follows:
Balances on
31-Mar-00 Particulars Debit Credit
Rs Rs
Authorised capital:
20000 Equity Shars of Rs. 500 each
Susbscribed Paid Up Capital:
15000 shares of Rs. 500 each , Rs. 400
######## paid up 6,000,000.00
14% First Mortgage Debentures:
######## 3200 Debentures @ Rs. 1000 each 3,200,000.00
36,900.00 Securities Premium Reserve 41,050.00
820,000.00 Depreciation Fund 820,000.00
Depreciation Fund Investments 820,000.00
######## Freehold Land3,355,000.00
######## Buildings 1,286,250.00
776,340.00 Mains and Meters 849,280.00
######## Plant 3,879,000.00
32,000.00 Wages and Vans 47,500.00
20,000.00 Office Furniture 20,000.00
Stock on Hand (1st April 2000):
Coal 385,300.00
Other Materials 2,160.00
Purchases:
Coal 1,713,490.00 1,752,320.00
Repairs and Renewals of Plant 368,470.00
Repairs and Maintanince 189,820.00
Wages 279,200.00
Salaries 44,550.00
Directors Fees 95,000.00
Rates and Taxes 94,600.00
Bad Debts 32,100.00
Legal Charges 1,300.00
Audit Fees 2,450.00
General Expenses:
Administrative Expenses 106,530.00
Sickness and Accident:
Compensation paid to workmen 42,200.00 200.00
Certificate Fees 3,988,260.00
Sale of Electricity-Power 1,272,500.00
Sale of Electricity-lighting, heating etc
Dividend Paid 1,244,000.00
Interest on Debentures 448,000.00 408,670.00
Balance in Current Account @ Prosperty 141,125.00
######### 17,666,260.00
Stock on Hand on 31st March, 2001:
Coal 346,470.00
Depreciation is to be provided as follows:
15% of value of plant, and 10% of value of buildings on 1st Apirl 2000
Prepare Revenue Account, Capital Account, Net Revenue Account and General Balance Sheet under the Double Account System.
Revenue Account of Lunar Light Co., Ltd., for the year ended 31st March 2001:
Cost of Generation: By Sale of Energy of Lighting ########
To Coal and Fuel consumed 1,752,320.00 By Sale of Energy for Power ########
To Oil, Waste and stores 23,260.00 By Certification Fees 200.00
To Wages at Station 279,200.00
To Repairs and Replacement 368,470.00
To Repairs and Maintance 189,820.00
Distribution: 0.00
Public Lamps: 0.00
Rent, Rates and Taxes:
To Rent, Rates and Taxes 94,600.00
Management Expenses:
To Directors Fees 95,000.00
To Salaries 44,550.00
To Audit Fees 2,450.00
To General Administrative Expenses 106,530.00
To Compensation of workmen 42,200.00
To Bad Debts 32,100.00
Legal Charges:
To Legal Charges 1,300.00
Depreciation:
To Depreciation on Buildings 115,000.00
To Depreciation on Plant 522,330.00
To Interest on Depreciation @ 4% 32,800.00
To Profit carried to Net Revenue a/c 1,559,030.00
5,260,960.00 ########
Net Revenue Account of Lunar Light Co., Ltd for the year ended 31st March 2001:
To Interest On Debentures 448,000.00 To Balance from last a/c 408,670.00
To Dividend Paid 1,244,000.00 To Balance from Revenue A/C ########
To Balance carried to Balance Sheet 275,700.00
1,967,700.00 ########
Recepits and Expenditure on Capital Account of Lunar Light Co.,Ltd for the year ended 31st March 2001:
P.Y C.Y P.Y C.Y
To Land 3,200,000.00 155,000.00 3,355,000.00 By Equity shares of Rs. 500 each ######## 375,000.00 ########
To Buildings 1,150,000.00 136,250.00 1,286,250.00 By 14% of Debentures ######## 0.00 ########
To Plant 3,482,200.00 396,800.00 3,879,000.00 By Securities Premium 36,900.00 4,150.00 41,050.00
To Main and Meters 776,340.00 72,940.00 849,280.00 0.00
To Wagons and Vans 32,000.00 15,500.00 47,500.00 0.00
To Furniture 20,000.00 0.00 20,000.00 0.00
To Balance 201,360.00 201,360.00 397,340.00 397,340.00
8,861,900.00 776,490.00 9,638,390.00 ######## 776,490.00 ########

General Balance Sheet of Lunar Light Co., Ltd as on 31 March 2001:
Capital Accout: Amount Received 9,241,050.00 Capital Account: Amount Expended ########
Sundry Creditors 183,260.00 Sundry Debtors 434,970.00
Net Revenue Account 275,700.00 Depreciation Fund Investment 820,000.00
Depreciation Fund 1,490,130.00 Stock of Coal and Other Materials 351,820.00
11,190,140.00 ########
Problem 5:
An electricity company laid down a main at of Rs. 500000 . Some years later the company laid down an auxilary main for one - fifth of the length of the
old main at cost of Rs. 150000 and also replaced the rest of the length of the old main at a cost of Rs. 600000, the cost of materials, and labour having gone up
by 15%. Sale of old materials realised Rs. 8000 . Old materials valued at Rs. 10000 were used in renewal and those valued at Rs. 5000 were used in the
construction of the auxiliary main.
You are required to give the journal entries for recording above transactions. Show how you would apportion the above expenditure between capital and
revenue.
Original cost of Main 500,000.00
Orignial cost of 4/5 th of Main 400,000.00
Present cost of 4/5th Main @ 15%
Inflation 460,000.00
Amount to be Capitalized = cost of new asset - current cost of old asset (CCOA)
Cost of New Asset600,000.00
Amout to be capitalised 140,000.00
Cost of Auxiliary Main 150,000.00
Total cost to be capitalised 290,000.00
Amount charged to Revenue account 735,000.00
Replacement Account:
To Bank 450,000.00 By New Main (Auxiliary main) 5,000.00
By Bank (sale Material) 8,000.00
By Revenue Account 437,000.00
450,000.00 450,000.00
Journal Entries:
Main Menu a/c Dr 140,000.00
Replacement a/c Dr 450,000.00
To Bank a/c 590,000.00
(Being Replacement of 3/4th of old
main at a total cost of Rs. 600000
including use of materials valued at
Rs. 10000 from the old Main)
New Main a/c Dr 150,000.00
To Bank a/c 5,000.00
(Being an auxiliary main laid down
at a total cost of Rs. 15000 including
material valued at Rs. 5000 taken
from the old main)
Bank a/c Dr 8,000.00
(Being sale of material from the old
main which has been replaced)
Revenue a/c Dr 437,000.00
(Being Transfer of revenue account
To Replacement a/c)
Problem 6:
An electricity company rebuilt and reequipped a power station and the connecting lines during the year ended 31st March 2001 . For the purpose, it
purchased materials for Rs. 1085000 and used stores costing Rs. 490000 from the existing stock. The cost of labour came to Rs. 522000 . The estimated
supervisiory overheads atributed to this project were Rs. 13000 . The power station was erected during the year ended 31st March, 1980 at the cost of
Rs. 500000 . The index of cost in the line stood at 385 in the year ended 31st March 2001, taking the year ended 31st March 1980 as the base year. Discarded
materials from the old power station fetched Rs. 12000.
Show journal entries to record the above mentioned transactions relating to the replacement of the power station. Show all your workings.
Cost of Old Assets 500,000.00
Add: Inflation 1,425,000.00
CCOA 1,925,000.00
Improvement (balance) 185,000.00
New Asset 2,110,000.00
Cost of New Asset:
Cost of Materials 1,085,000.00
Labour Cost 522,000.00
Overheads 13,000.00 1,620,000.00
Old materials used 490,000.00
Total cost of New Asset 2,110,000.00
Amount to be Capitalised 185,000.00
Journal Entries:
Replacement a/c 1,925,000.00
185,000.00
To Bank a/c 1,607,000.00
To Purchase a/c 490,000.00
To salary a/c 13,000.00
Bank a/c Dr 12,000.00
(Amount realised from sale of
Materials from old Power station
credited to replacement a/c)
Problem 7:
A railway station had to be replaced by a new one. The new station cost Rs. 800000, whereas the old one had cost only Rs. 200000, materials forming 3/7th
of the total expenditure and labour accounting for the rest. Prices of materials have doubled and wages rates have gone up by 250% since the old station was
built. Materials worth Rs. 38000 were used in the new station and sale proceeds of the materials were Rs. 11000 . These materials were obtained by pulling
down the old station. Pass journal entries and show the total amount capitalized and written off.
Cost of Old Asset 200,000.00
Materials 85,714.29
Labour 114,285.71
Present Cost:
Materials 171,428.57
Labour 400,000.00
Total Present cost 571,428.57 533,429.00
Amount to be capitalized 228,571.43
Journal Entries:
Replacement A/C Dr 533,428.57
New Station A/C Dr 228,571.43
To Bank A/C 762,000.00
Bank A/C Dr 11,000.00
To Replacement A/C 11,000.00
New Station A/C38,000.00
Revenue A/C 484,428.57
Problem 8:
U Electricity Ltd., earned a profit of Rs. 2695000 during the year ended March 31, 2001, after debenture interest at 14% on 500000 . With the help of the
figures given below, show the disposal of the profits. Assume the bank rate to be 10%
Original cost of fixed assets #########
Formation and other Expenses 1,000,000.00
Monthly Average of Current assets 5,000,000.00
Reserve fund (8% govt. securities) 2,000,000.00
Contigencies Reserve Investments 500,000.00
Loan from Electricity Board 3,000,000.00
Total Depreciation written off date 4,000,000.00
Traiffs and Dividends Control Reserve 100,000.00
Security Deposit received from
customers 400,000.00
Calculation of Capital Base:
Original cost of fixed assets #########
Cost of Intangible assets 1,000,000.00
Contigencies Investment 500,000.00
Monthly Average of Current asset 5,000,000.00
#########
Less:
Depreciation written off 4,000,000.00
Loan form EB 3,000,000.00
Security Deposit of Customers 400,000.00
Traiffs and Dividends Control Reserve 100,000.00
8,000,000.00
CAPITAL BASE #########
Calculation of Reasonable Return:
12% on Capital Base 2,220,000.00
Income from Investment other than
contigencies 160,000.00
1/2% Loan from EB 15,000.00
1/2% on Debentures 2,500.00
REASONABLE RETURN 2,397,500.00
Profit after debenture interest 2,695,000.00
Less: Reasonable Return 2,397,500.00
SURPLUS 297,500.00
20% of reasonable return 479,500.00
Hence, one- third of surplus is99,166.67
50% of above surplus 49,583.33
Bright Electricity Ltd., earned a profit of Rs. 2695000 for the year ended 31st March, 2001 after debenture interest at 14% and Rs. 500000 . Calculate the
The following are the balsances as on 31st March 2001 in the books of Utopian Railway Company Ltd. Make out the receipts and expenditure on
Receipts and Expenditure on Capital Account of the Guntur Power and Light Co., Ltd for the year ended 31st March 2001:
Prepare Revenue Account, Capital Account, Net Revenue Account and General Balance Sheet under the Double Account System.
An electricity company laid down a main at of Rs. 500000 . Some years later the company laid down an auxilary main for one - fifth of the length of the
old main at cost of Rs. 150000 and also replaced the rest of the length of the old main at a cost of Rs. 600000, the cost of materials, and labour having gone up
by 15%. Sale of old materials realised Rs. 8000 . Old materials valued at Rs. 10000 were used in renewal and those valued at Rs. 5000 were used in the
You are required to give the journal entries for recording above transactions. Show how you would apportion the above expenditure between capital and
An electricity company rebuilt and reequipped a power station and the connecting lines during the year ended 31st March 2001 . For the purpose, it
purchased materials for Rs. 1085000 and used stores costing Rs. 490000 from the existing stock. The cost of labour came to Rs. 522000 . The estimated
supervisiory overheads atributed to this project were Rs. 13000 . The power station was erected during the year ended 31st March, 1980 at the cost of
Rs. 500000 . The index of cost in the line stood at 385 in the year ended 31st March 2001, taking the year ended 31st March 1980 as the base year. Discarded
Show journal entries to record the above mentioned transactions relating to the replacement of the power station. Show all your workings.
A railway station had to be replaced by a new one. The new station cost Rs. 800000, whereas the old one had cost only Rs. 200000, materials forming 3/7th
of the total expenditure and labour accounting for the rest. Prices of materials have doubled and wages rates have gone up by 250% since the old station was
built. Materials worth Rs. 38000 were used in the new station and sale proceeds of the materials were Rs. 11000 . These materials were obtained by pulling
U Electricity Ltd., earned a profit of Rs. 2695000 during the year ended March 31, 2001, after debenture interest at 14% on 500000 . With the help of the
Problem 1:
From the following details, make up cattle account in the books of Feeders Ranch Ltd.
Cattle - Opening value of livestock 100 300,000.00
Cattle food - Opening stock 30,000.00
Purchases of cattle food 135,000.00
Purchase of cattle during the year 200 585,000.00
Sales of cattle during the year 150 562,500.00
Sales of slaughtered cattle (Total) 40 180,000.00
Sales of carcases (dead animals) 5 750.00
Cattle - Closing value of livestock 115 585,000.00
Cattle food - Closing stock 37,500.00
Out of calves born during the year 4 died and the carcases of the calves did not realise . Crop worth
Rs. 22500 grown in the farm was used for feeding Rs. 15000 is estimated to be wages for rearing etc.
Slaughterhouse expenses amounted to Rs. 22500 . Charge depreciation of Rs. 7500 and insurance Rs. 3750.
Calves born during the year:
PARTICULARS UNITS PARTICULARS UNITS
Opening stock 100 Sale 150
Purchases 200 Slaughted cattle 40
Calves born during the year 14 Carcases 5
Closing Stock 115
Calves died 4
314 314
Profit and Loss account of Feeders Ranch Ltd:
To Opening stock 300,000.00 By Sales 562,500.00
To Opening cattle food 30,000.00 By Sales of slaughter 180,000.00
To Purchase of cattle food 135,000.00 By Sale of Carcases 750.00
To Purchase of cattle 585,000.00 By Cattle food 37,500.00
To Crop 22,500.00 By Closing stock 585,000.00
To Rearing Expenses 15,000.00 By Claves died
To Slaughter house expenses 22,500.00
To Insurance 3,750.00
To Calves born during the year (14) 244,500.00
FARM ACCOUNT
Lakshmi Page 354 Farm Accounts
1,365,750.00 1,365,750.00
Lakshmi Page 355 Farm Accounts
This method of accounting is applicable to organisations involved in works which is carried for more than 1
years. Profit has to be reported annually in the financial statements. When a contract takes more than 1 year
to complete, it is necessary to estimate profit till the end of the 1 st year, 2nd year and so on.
TERMS USED IN CONTRACT:
Contractor:
The person performing the work, the work becames current asset (building, machinery, factory etc)
Contractee:
The person who offers the work the building, machinery, factory etc is a fixed asset.
Contract price:
Price agreed for work.
Fixed price contract:
Price is a fixed irrespective of the cost of excution
Cost plus contract:
Price of the contract depends on cost excution plus profit margin agreed.
Contract with Esclation clause:
Initally a price is agreed for a work. It is increased when there is an inflation.
INCOME REGONIATION
PERCENATGE OF COMPLETION INCOME TO BE RECONGANISED
Below 25% Nil
25% to 49% 1/3xNotional Profit x (cash received/work certified)
50% and above 2/3xNotional Profit x (cash received/work certified)
Percentage of completion = (work certified/contract price)*100
Work certified referrs to value of work certified by an authorised person.
Work in Progress (WIP) = work certified + work uncertified
CONTRACT ACCOUNTING
CONTRACT ACCOUNT FORMAT
To Materials issued xxx By Material returned and
To Wages xxx Transferred xxx
To Plant installed xxx By Profit and Loss a/c
To Sundry Expenses xxx Material lost xxx
To Notional profit (balance) xxx Plant at site xxx xxx
By Plant returned xxx
(after depreciation)
By WIP xxx
By Balance c/d
Material at site xxx
Plant at site xxx xxx
xxx xxx
Computation of notional profit:
A contract account is seperately prepared for each work undertaken to ascertain notional profit (estimated
profit).
Problem 1:
Construction Ltd., is engaged in two contracts A and B during a year. A was commenced on 1st Apirl and B on
1st October 2006 . The following particulars are obtained.
PARTICUALRS CONTRACT CONTRACT
A B
Contract price 600,000.00 500,000.00
Materials Issued 160,000.00 60,000.00
Materials returned 4,000.00 2,000.00
Materials at site - closing 22,000.00 8,000.00
Direct labour 150,000.00 42,000.00
Direct expenses 66,000.00 7,000.00
Establishment expenses 25,000.00 10,000.00
Plant installed at cost 80,000.00 70,000.00
Cost of work not yet certified 23,000.00 135,000.00
Value of work certified 420,000.00 135,000.00
Cash received 378,000.00 125,000.00
Architect fees 2,000.00 1,000.00
During the period materials amounted to Rs. 9000 have been transferred from contract A to Contract B.
Depreciation is to be provided at 15% p.a. You are required to show:
1. Contract accounts
2. Contractees accounts,
3. Extract from balance sheet as on the closing date.
Clearly showing the calculation of Work in progress. Accounting year ends on 31.3.2007
To Mateirals issued 160,000.00 60,000.00 By Materials transferred 9,000.00
To Direct labour 150,000.00 42,000.00 By Materials returned 4,000.00 2,000.00
To Plant installed at cost 80,000.00 70,000.00 By Materials at site 22,000.00 8,000.00
To Extablishment expenses 25,000.00 10,000.00 By Work in progress 443,000.00 270,000.00
To Architect fees 2,000.00 1,000.00 By Plant after depreciation 68,000.00 64,750.00
To Materials transferred 9,000.00
To Direct expenses 66,000.00 7,000.00
To Notional Profit 63,000.00 145,750.00
546,000.00 344,750.00 546,000.00 344,750.00
To Profit and Loss a/c 37,800.00 44,984.57 By Notional Profit 63,000.00 145,750.00
To work in progress 25,200.00 100,765.43
63,000.00 145,750.00 63,000.00 145,750.00
Working Notes:
Contract A:
Percentage of work done 70%
Profit transferred 37,800.00
Contract B:
Percentage of work done 27%
Profit transferred 44,984.57
Problem 2:
A company of contractors began to trade on 1st January 1998 . During 1988 the company was engaged in only
one contract of which the contract of Rs. 5000000 of the plant and materials charged to contract, plant costing to
Rs. 50000 and materials costing to Rs. 40000 were lost in acciedent. On 31st December 1988, plant costing
Rs. 50000 was returned to stores. Cost of work uncertified amounted to Rs. 20000 and materials costing Rs. 40000
were in hand at site. Charge 10% depreaciation on plant. Compile profit and loss account and Balance Sheet
from the following:
TRAIL BALANCE AS ON 31ST DECEMBER 1998
Share capital 1,200,000.00
Cash received - 80% of work certifed 2,000,000.00
Charged to contract:
Materials 900,000.00
Plant 250,000.00
Wages 1,400,000.00
Expenses 70,000.00
Total 3,300,000.00 3,300,000.00
To Materials 900,000.00 By Plant returned 45,000.00
To Plant 250,000.00 By work in progress 2,520,000.00
To Wages 1,400,000.00 By Profit and Loss a/c
To Expenses 70,000.00 Materials lost 40,000.00
To Notional Profit 210,000.00 Plant lost 50,000.00 90,000.00
By Balance c/d
Materials at site 40,000.00
Plant at site 135,000.00
2,830,000.00 2,830,000.00
To Profit and Loss a/c 112,000.00 By Notional profit 210,000.00
To work in progress 98,000.00
210,000.00 210,000.00
Working Notes
Materials returned and Plant at site:
Plant installed 250,000.00
Less: Plant lost 50,000.00
200,000.00
Less: Plant returned 50,000.00
150,000.00
135,000.00
Plant returned 50,000.00
Less: Depreciation @ 10% on
plant returned 5,000.00
45,000.00
Percentage of work completed 50%
Profit to be transferred 112,000.00
Profit and Loss a/c
To Plant and Materials lost 90,000.00 By contract 112,000.00
112,000.00 112,000.00
Balance Sheet:
Share capital 1,200,000.00 Land and Building 430,000.00
Net profit 22,000.00 Plant at stores (returned) 45,000.00
Plant at site - after depreciation 135,000.00
Work in Progress 2,520,000.00
Less: Cash received 2,000,000.00
work in progress reserve 98,000.00 422,000.00
Materials at site 40,000.00
1,322,000.00 1,322,000.00
Loss of Stock
Computation of Claim:
1. When policy amount is equal to or more than stock on the date of fire, actual loss suffered can be claimed.
2. When policy amount is less than the stock " Average Clause " should be applied to claim.
Average clause = (policy amount / stock on the date of fire) x Stock destroyed
3. When stock on the date of fire is not given, prepare memorandum of trading account to ascertain stock
on the date of fire. (Normal or average gross profit ratio can be used).
4. When Gross Profit ratio is not given, prepare previous financial years trading account and compute
gross profit ratio.
Gross profit ratio = (Gross profit/Sales) x 100
Problems 1:
Insurance claim policy amount is Rs. 250000 case (a) Stock on date of fire 200000 and slavage value (saved) is
Rs. 20000.
Actual loss / claim 180,000.00
(b) Stock on date of fire is 400000 and slavage rate is Rs. 100000.
Since policy is less than the stock " Average Clause " should be applied
Stock 400,000.00
Slavage 33.33%
Average clause 187,500.00
Problem 2:
A fire occurred in the premises of a merchant on 5.6.89 and a considerable part of the stock was destroyed.
The value of stock saved was Rs. 4500 . The books disclosed on that on 1.4.99 . The books disclosed on that
on 1.4.89 the stock was valued at Rs. 36750 . The purchase to the date of fire amounted to Rs. 104940 and the
sale is Rs. 156500 . On investigation it was found that during past five years the average gross profit on sales
was 36% . Calculate the claim to be made.
Stock saved 4,500.00
Opening stock 36,750.00
Purchase 104,940.00
Sales 156,500.00
Average Gross Profit 36%
INSURANCE CLAIMS
Memorandum Trading account:
To Purchase 104,940.00 By Loss incurred 41,530.00
198,030.00 198,030.00
Loss incurred 41,530.00
Less: Stock saved 4,500.00
Claim to be made 37,030.00
Problem 3:
A fire occurred in the premises of a kumar on 1.9.93 and a consideriable part of the stock was destroyed.
Calculate the claim to be made
Stock as on 1.1.93 25,300.00
Purchases from 1.1.93 to till the date of fire 50,400.00
Sales from 1.1.93 to till the date of fire 156,000.00
Manufacturing expenses 60,000.00
Goods taken by kumar at cost 2,500.00
The rate gross profit at cost 30%
Value of goods salvaged 3,600.00
To Purchases 50,400.00 By Loss on the date of fire 13,200.00
Less: Drawings 2,500.00 47,900.00
To Manufacturing expenses 60,000.00
169,200.00 169,200.00
Loss incurred 13,200.00
Problem 4:
A fire occurred in the premises of suresh on 1.4.1987 and a considerable part of the stock was destroyed.
Calculate the claim to be made.
Stock on 1.1.1987 60,000.00
Purchases from 1.1.1987 to till the date
of fire 210,000.00
Wages paid from 1.1.1987 to till the
date of fire 15,000.00
(Including wages of Rs. 3000 paid for installing a new machinery)
Carriage inwards from 1.1.1987 to till
the date of fire 5,000.00
Carriage outwards from 1.1.1987 to
till the date of fire 7,000.00
Gross profit ratio on sales for last three years were as follows:
1984 20%
1985 25%
1986 24%
Value of goosds salvaged is Rs. 600 . Policy amount for loss of stock due to fire Rs. 32000 (Average
clause applicable).
To Wages 15,000.00
To Carriage inwards 5,000.00
(20+25+24)/3 363,600.00 363,600.00
Loss on stock 43,600.00
Less: Slavaged stock 600.00
Policy amount 32,000.00
Claim 32,446.51
Problem 5:
A fire ocurred in the premises of Ramesh on 30.10.1984 and a considerable part of the stock was destroyed.
Calculate the claim to be made.
Stock on 31.12.1983 30,000.00
Sundry creditors on 31.12.83 200,000.00
Sundry creditors on 30.10.84 400,000.00
Goods returned to creditors 10,000.00
Cash paid to creditors 40,000.00
Gross profit ratio 20%
Sundry debtors
To balance b/d 80,000.00 By Cash collected from debtors 288,000.00
To Sales (balance) 268,000.00 By Balance c/d 60,000.00
348,000.00 348,000.00
Sundry Creditors
To Cash paid to creditors 40,000.00 By Balance b/d 200,000.00
To Balance c/d 400,000.00 By Purchases (balance) 240,000.00
440,000.00 440,000.00
323,600.00 323,600.00
Loss due to fire 55,600.00
Problem 6:
The premises of a merchant caught fire on 1.10.92 and his stock was damaged. The stock was fully insured.
Compute claim to be made.
Stock on 31.12.91 26,544.00
Stock on 31.12.90 19,228.00
Purchases from 1.1.92 to till the date of
fire 70,000.00
Purchases upto 31.12.91 90,516.00
Sales upto 31.12.91 104,000.00
1. In May 1992 goods costing Rs. 5000 were given as free sample for advertising purpose. No entry was
made in the books
2. During 1992 a clerk had misappropriated unrecoreded cash sales of Rs. 2000
3. The rate of Gross profit is constant
4. The stock Salvage was Rs. 1500.
Trading account for the year 1990-1991:
To Purchases 90,516.00 By Closing stock 26,544.00
130,544.00 130,544.00
To Opening Stock 26,544.00 By Sales 100,000.00
To Purchases 70,000.00 Add: Unrecorded 2,000.00 102,000.00
Less: Samples sent 5,000.00 65,000.00 By Loss of stock 9,944.00
111,944.00 111,944.00
Loss of stock 9,944.00
Less: Slavaged goods 1,500.00
This policy covers concequential loss by fire. Normal business is dislocated due to fire. The profit lost
during the dislocation period shall be claimed under this policy.
Basic terms:
Indemdity period / policy period:
Period for which policy is taken.
Dislocation period:
The time during which normal slaes was not attained due to fire.
Standing Charges:
Fixed expenses
Turnover:
Sales
For example:
Policy period = 1.10.2007 to 30.9.2008
Dislocation Period = 1.02.2008 to 1.06.2008
Actual Sales:
Actual sales during dislocation period
Standard turnover:
Sales during the corresponding period of location in the last accounting year . For example: 1.02.2007 to
1.06.2007
Short sales:
Short sales = Standard Sales - Actual Sales.
Saved turnover:
Turnover achieved due to extra effort or extra cost during the dislocation period.
LOSS OF PROFIT POLICY
Accounting year turnover:
Sales during the last accounting year.
Annual turnover:
Sales during the 12 months immediately preceeding the fire accident.
Trend:
Increase or decrease in trend based on past experience should be adjusted with standard turnover,
accounting year turnover and annual turnover.
Steps for computation of claim
1. Loss of Profit
Loss of Profit = Short sales x Gross profit ratio
Gross Profit Ratio = ((Net profit + Insured Standard charges)/Accounting year turnover)) x 100
Claim for increased cost of working:- Step 2
Claim will be the least of the following:
1. Actual Increased cost
2. ((Net profit + Insured Standard charges)/(Net profit + All standard charges)) x Increased cost of working
3. Saved turnover x Gross Profit Ratio
Total claim step 3:
Loss of profit xxx
Add: Increased cost of working xxx
Less: Savings in standard charges
if any xxx
Average Clause:
When policy amount is less than Gross profit on adjusted annual turnover, then claim is
Claim = (Total claim (step 3) x Policy amount / Gross profit on annual turnover))
Problem 1:
Financial year ends on 31.12.2002 with turnover of 200000 . Fire takes place on 1.6.2003, period of
interruption being 5 months and period of indemnity accoriding to policy 6 months.
Net profit for 2002 Rs. 12000 and insured standing charges Rs. 24000 and sum insured is Rs. 42240
Uninsured standard charges Rs. 2000 . Standard turnover Rs. 75000.
Turnover for the period of interruption is Rs. 22500 . Annual turnover Rs. 220000 . Additional expenses
Rs. 4000 with a savings of insured standard charges Rs. 1500 . But for this additional expesnses the turnover
after the fire would have been only Rs. 12500 . The expesnes on putting the fire out were Rs. 500 . During
2003 increase in turnover is expected to be 20% and increase in Gross Profit Ratio is expected by 2% .
Calculate the claim.
Loss of Profit
Gross profit 0.18
Add: Increase in G.P Ratio 0.02
20%
Short sales 90,000.00
Less: Actual turnover 22,500.00
67,500.00
Loss of profit 13,500.00
Increased cost of working
Actual Increased cost 20,000.00
ICW 3,789.47
Saved charges 2,000.00
The least of above is 2,000.00
Loss of Profit
Add: ICW 2,000.00
Less: Saved stock 1,500.00
Total claim 14,000.00
Annual turnover 220,000.00
Add: Trend at 20% on 220000 44,000.00
264,000.00
Gross profit on annual turnover 52,800.00
Claim 11,202.65
Add: Expenses to put off fire 500.00
Amount Recoverable 11,702.65
Problem 2:
A fire brokeout in 1.2.2008 and dislocation continue upto 1.6.2008
Sales - 1.2.2008 to 1.6.2008 80,000.00
Sales - 1.2.2007 to 1.6.2007 500,000.00
Sales for the year 2007 1,000,000.00
Standing charges during 2007 100,000.00 (60% insured)
Net profit 2007 190,000.00
Increased cost of working 5,000.00 per month
(For this expenses sales would have been Rs. 10000 only)
Savings in standing charges 1,500.00 per month
Trend 10% Increase
Loss of profit:
Short sales 550,000.00
Less: Actual sales 80,000.00
Loss of Profit 470,000.00
Increase in cost of working:
Step 1:
Actual increased cost 20,000.00
Step 2:
ICW 17,241.38
Step 3:
Saved turnover 70,000.00
17,500.00
The least of above is 17,241.38
Add: ICW 17,241.38
Total claim 128,741.38
Problem 3:
The cost structure of All in one Ltd as follows:
Materials 30%
Labour 20%
Variable overhead 20%
Fixed overheads 15%
Net Profit 15%
Sales 100%
Sales for 2003 amounted to Rs. 3000000 . Future sales are expected to increase by 60% in 2004 and on that basis
loss of profit policy was taken on 1.1.2004 . All expenses were insured. In 2004, opening stock was Rs. 400000
There was fire on 1 st september and dislocation continued upto 30th november. During which period sales
amounted to Rs. 300000 . Sales for corresponding period in the perious year was Rs. 800000 . Through 60%
increase was budgted, actual sales were only 25% higher . Sales in 2004 upto 31st August amounted to
Rs. 750000 . Purchase during the period were Rs. 500000 . The cost structure remained same as before.
Calculate insurance claims for (a) loss of profit and loss of stock
Trading account upto fire:
To Purchases 500,000.00 By Loss of stock in fire 375,000.00
1,125,000.00 1,125,000.00
Short sales 1,000,000.00
Less: Actual sales 300,000.00
700,000.00
Problem 4:
On 20th June the godown and business premises of a merchant were affected by fire and from accounting
records salvaged, the following information is made available to you.
Stock of goods at cost on 1st Apirl 2008 100,000.00
Stock of goods at below cost as on
31 March 2009 108,000.00
Purchases of goods for the year from
1st Apirl 2008 to 31.3.2009 420,000.00
Sales for the same period 600,000.00
Purchases less returns for the period
1st Apirl 2009 to 20th June 2009 140,000.00
Sales less returns for the same period 310,000.00
Sales upto 20th June 2009 includes Rs. 40000 for which goods had not been despatched. Purchases upto to 20th
May 2008 did not include Rs. 20000 for which purchase invoice had not been received from suppliers, though
goods have been received at godown. Goods salvaged from the accident were worth Rs. 12000 and these were
handed over to the insured. Ascertain the value of claim for loss of goods / stocks which could be preferred on
the insurer.
Trading account for the year 2008-2009:
To Purchases 420,000.00 By Closing stock 118,800.00
Add: Goods not invoiced 20,000.00 440,000.00
To Net profit (balance) 178,800.00
718,800.00 718,800.00
To Purchases 140,000.00 By Loss at fire 41,180.00
351,180.00 351,180.00
Loss at fire 41,180.00
Less: Goods salvaged 12,000.00
Actual claim to be made 29,180.00
Royalty:
It is the amount payable by the tenant or hirer or lessee to the owner or lessor or landlord based on production or output or sales subject to a minimum
rent (Dead Rent)
Shortworkings:
Excess amount paid over actual royalty value (Minimum Rent - Royalty value). The shortworkings can recouped (Recovered/Adjusted) as per the terms
of royalty agreement. If shortworkings cannot be recovered it will be takent to Profit and Loss Account.
Journal Entries - Tentants:
I. Royalty Payable:
(a) With Shortworkings:
Royalty Payable a/c Dr
Shortworkings a/c Dr
To Landlord a/c
(b) Without Shortworkings:
Royalty Payable a/c Dr
To Landlord a/c
II. Amount Paid:
(a) With Recovery Shortworkings:
Land lord a/c Dr
To Cash/Bank a/c
To Shortworkings a/c
(b) Without Recovery of Shortworkings:
Land lord a/c Dr
To Cash/Bank a/c
III. When Shrotworkings are lapsed:
Profit and Loss a/c Dr
Production a/c Dr
To Royalty a/c
STEPS IN POSTING LEDGER ACCOUNTS
1. Record the cash payments - Debit to landlord account.
2. Credit Royalty Payable and shortworkings arised in the landlord account. (Debit shortworkings if it is recovered)
3. Royalty payable is debited with landlord account and transferred to production account.
4. Shortworkings based on landlord account. (Lapsed if any transferred to Profit and Loss a/c)
Problem 1:
(A) Bengal coal co., are lessees of a mine on a royalty of Rs. 20 per tonne of coal raised, with a dead rent of Rs. 400000 per annum, and power to recoup
"Shortworkings" during the first five years of the lease. The output for the first five years was as follows:
1st Year 2500 Tonnes
2nd Year 12000 Tonnes
3rd Year 20000 Tonnes
4th Year 30000 Tonnes
5th Year 30000 Tonnes
Write up Dead Rent a/c, Royalties a/c, Shortworkings a/c, and Landlord a/c in the companys ledger.
Royalty
(B) Workout the above question for the fifth year assuming that the output in that year is 40000 tonnes.
YEAR OUTPUT ROYALTY DEAD RENT
20.00
I 2,500 50,000.00 400,000.00
II 12,000 240,000.00 400,000.00
III 20,000 400,000.00 400,000.00
IV 30,000 600,000.00 400,000.00
V 30,000 600,000.00 400,000.00
V 40,000 800,000.00 400,000.00
Problem 2:
The S.G Mines Co., Ltd took from D a lease of a mine for a period of 25 years from 1st April 1995., on a royalty of Rs. 5 per tonne of mineral got with a Dead Rent of Rs. 20000 and power
to recoup shortworkings during the first five years of the lease.
The annual outputs were as follows:
For the year ended 31st March 1996 2000 tonnes
Give Journal entries in the books of the company and in the books of D.
5.00
1996 2000 10000 20000
1997 3000 15000 20000
1998 4000 20000 20000
1999 4500 22500 20000
2000 5000 25000 20000
Problem 3:
The R Co., Ltd leased a property from A at a royalty of Rs. 10 per tonne with a minimum rent of Rs. 20000 per annum. Each year's excess of minimum rent over royalties is recoverable
out of the royalties of next fiver years. In the event of a strike the minimum rental not being reached, the lease provided that minimum rent would stand reduced proportionate to time
actually worked. Accounts are closed on 31st March of every year.
1992-93 nil
1993-94 6000
1994-95 18500
1995-96 22500
1996-97 35000
1997-98 12000
1998-99 30000
YEAR OUTPUT DEAD RENT
(Actual Royalty) ARISED
1992-93 0 20000 20000
1993-94 6000 20000 14000
1994-95 18500 20000 1500
1995-96 22500 20000
1996-97 35000 20000
SHORTWORKINGS
1997-98 12000 13333 1333
1998-99 30000 20000
Minimum Rent A/C
YEAR PARTICULARS AMOUNT YEAR
1992-93 To A a/c 20,000.00 1992-93
1993-94 To A a/c 20,000.00 1993-94
20,000.00
1994-95 To A a/c 20,000.00 1994-95
20,000.00
1997-98 To A a/c 13,333.33 1997-98
13,333.33
Royalty A/C
1993-94 To A a/c 6,000.00 1993-94
1993-94 To A a/c 18,500.00 1993-94
1995-96 To A a/c 22,500.00 1995-96
1996-97 To A a/c 35,000.00 1996-97
1997-98 To A a/c 12,000.00 1997-98
1998-99 To A a/c 30,000.00 1998-99
124,000.00
Shortworkings A/C
1992-93 To A a/c 20,000.00 1992-93
1993-94 To Balance b/d 20,000.00 1993-94
To A a/c 14,000.00
34,000.00
1994-95 To Balance b/d 34,000.00 1994-95
To A a/c 1,500.00
35,500.00
1995-96 To Balance b/d 35,500.00 1995-96
35,500.00
1996-97 To Balance b/d 33,000.00 1996-97
33,000.00
1997-98 To Balance b/d 18,000.00 1997-98
To A a/c 1,333.00
19,333.00
1998-99 To Balance b/d 16,833.00 1998-99
16,833.00
1999 To Balance b/d 2,833.00
Problem 4:
P.Quick obtaines lease from R.Rich to work in a mine, the terms being a royalty of Rs. 10 per tonne merging into a minimum rent of Rs. 20000 p.a, there being granted to the lessee the
right to recoup shortworkings during the first four years of the lease. P.Quick sublets part of the property to V.Poor, the terms being a royalty of Rs. 12.50 per tonne merging in a
minimum rent of Rs.9600 per annum. V.Poor has the right of recoupment in the two years following the shortworkings. The amount of ore (in tonnes) extracted is as follows
YEAR P.QUICK V.POOR TOTAL
1 1100 400 1500
2 1160 540 1700
3 1300 700 2000
4 1400 900 2300
5 1800 1200 3000
6 800 1200 2000
10.00
1 1500 15000 20000
2 1700 17000 20000
3 2000 20000 20000
4 2300 23000 20000
5 3000 30000 20000
6 2000 20000 20000
12.50
1 400 5000 9600
2 540 6750 9600
3 700 8750 9600
4 900 11250 9600
5 1200 15000 9600
6 1200 15000 9600
Problem 5:
A, a scientist, holds a patent for the manufacture of electric blankets. He allows the Ideal Manufactures Ltd., to use the patent for the royalty of Rs. 10 per blanket manufactured subject to
a minimum rent of Rs. 10000 in the first year, Rs. 12000 in the second year and Rs. 15000 thereafter. Any shortworkings is recoverable out of the royalties of the three subsequnet to the
year in which the shortworkings arise. The output is as under
YEAR OUTPUT
1 300
2 400
3 1900
4 2000
5 2800
10.00
1 300 3000 10000
2 400 4000 12000
3 1900 19000 15000
4 2000 20000 15000
5 2800 28000 15000
Problem 6:
Munim wrote a book on accountancy and got it published with Pacioli on the terms that royalties will be 15% on published price of the copies sold with a minimum of Rs. 100000 per year.
Munim gave the undertaking to revise the book when requested by the publisher and to pay of Rs. 5000 to Pacioli per month for every month of delay after six months of the request made
by Pacioli. In the event of delay, the condition of minimum amount of Rs. 100000 payable to Munim was not to apply. This arrangement was to last for 10 years in the first instance. The
number of copies sold and published price were as follows:
YEAR NO. OF COPIES SOLD PUBLISHED
PRICE
1 2000 300
2 4000 300
3 5000 375
4 2000 375
5 6000 450
At the end of the third year, Munim was requested to revise the book; the revised manuscript reached Pacioli only just two months before the end of the 4th year.
YEAR NO. OF COPIES SOLD TOTAL ROYALTY
PRICE 15%
1 2000 600000 90000
2 4000 1200000 180000
3 5000 1875000 281250
4 2000 750000 112500
5 6000 2700000 405000
Problem 7:
Help Ltd of USA gave know how facilities in respect of a chemical product to IDC Ltd., of Delhi on the terms mentioned below.
1. A Royalty of 2.25% on sales will be paid subject to a minimum of $1400.
2. IDC Ltd would be entitiled to recoup shortworkings within three years subsquent to the one in which shortworkings arose.
3. The minimum amount payable to Help Ltd. Will be free of Indian income tax (which may be assumed to be 30% for the purpose) and in the USA currency.
The agreement came into force on 1st April, 1997. Sales were as follows:
1997-98 1344000
1998-99 2016000
1999-2000 2296000
2000-2001 3024000
The $ worth Rs. 42 till 10th November 1999, and Rs. 36 thereafter.
YEAR OUTPUT-ROYALTY DEAD RENT
2.50% ARISED
1997-98 33600 58800 25200
1998-99 50400 58800 8400
1999-2000 57400 50400
2000-2001 75600 50400
Problem 8:
The Super Market Ltd., rented a premises from K. Nath for its departmental store on the basis that a rent of Rs. 80000 per annum will be paid and in addition the undermentioned percentage
of sales will be paid subject to a minimum rent of Rs. 50000 per annum (excess amount over the due on the years sales being recoverable during the next two years) . 1% sales up to Rs. 50
lakhs, 3/4% between 50 lakhs and Rs. 1 crore and .5% of sales above Rs. 1 crore. Accounts are closed every year on 31st March . Sales for the first six years, each ending on 31st March, were:
1994-1995 3000000
SHORTWORKINGS
1995-1996 4500000
1996-1997 6500000
1997-1998 8000000
1998-1999 9500000
1999-2000 12500000
1994-1995 3000000 30000 50000
1995-1996 4500000 45000 50000
1996-1997 6500000 48750 50000
1997-1998 8000000 60000 50000
1998-1999 9500000 71250 50000
1999-2000 12500000 62500 50000
It is the amount payable by the tenant or hirer or lessee to the owner or lessor or landlord based on production or output or sales subject to a minimum
Excess amount paid over actual royalty value (Minimum Rent - Royalty value). The shortworkings can recouped (Recovered/Adjusted) as per the terms
of royalty agreement. If shortworkings cannot be recovered it will be takent to Profit and Loss Account.
Land Lord:
I. Royalty Receivables:
(a) With Shortworkings:
Tenant a/c Dr
To Royalty Receivable a/c
(b) Without Shortworkings:
Tenant a/c Dr
To Royalty Receivable a/c
II. Amount Received:
(a) With Recovery Shortworkings:
Cash/Bank a/c Dr
Shortworkings Suspense a/c
To Tenant a/c
(b) Without Recovery of Shortworkings:
Cash/Bank a/c Dr
To Tenant a/c
III. When Shrotworkings are lapsed:
Shortworkings Suspense a/c Dr
To Profit and Loss a/c
Royalty Recievables a/c Dr
To Profit and Loss a/c
2. Credit Royalty Payable and shortworkings arised in the landlord account. (Debit shortworkings if it is recovered)
3. Royalty payable is debited with landlord account and transferred to production account.
4. Shortworkings based on landlord account. (Lapsed if any transferred to Profit and Loss a/c)
(A) Bengal coal co., are lessees of a mine on a royalty of Rs. 20 per tonne of coal raised, with a dead rent of Rs. 400000 per annum, and power to recoup
"Shortworkings" during the first five years of the lease. The output for the first five years was as follows:
Write up Dead Rent a/c, Royalties a/c, Shortworkings a/c, and Landlord a/c in the companys ledger.
Royalty
(B) Workout the above question for the fifth year assuming that the output in that year is 40000 tonnes.
ARISED RECOUPED IRRECOVERABLE PAYMENT TO LANDLORD
350,000.00 - - 400,000.00
160,000.00 - - 400,000.00
- - - 400,000.00
- 200,000.00 - 400,000.00
- 200,000.00 110,000.00 400,000.00
- 400,000.00 90,000.00 490,000.00
The S.G Mines Co., Ltd took from D a lease of a mine for a period of 25 years from 1st April 1995., on a royalty of Rs. 5 per tonne of mineral got with a Dead Rent of Rs. 20000 and power
ARISED RECOUP IRRECOVERABLE PAYMENT
10000 0 0 20000
5000 0 0 20000
0 0 0 20000
0 2500 0 20000
0 5000 7500 20000
The R Co., Ltd leased a property from A at a royalty of Rs. 10 per tonne with a minimum rent of Rs. 20000 per annum. Each year's excess of minimum rent over royalties is recoverable
out of the royalties of next fiver years. In the event of a strike the minimum rental not being reached, the lease provided that minimum rent would stand reduced proportionate to time
RECOUP IRRECOVERABLE
2500
15000
SHORTWORKINGS
SHORTWORKINGS
SHORTWORKINGS
2500
10000 4000
PARTICULARS AMOUNT
To Shortworkings a/c 20,000.00
To Royalties a/c 6,000.00
20,000.00
20,000.00
13,333.33
PARTICULARS AMOUNT
30,000.00
124,000.00
PARTICULARS AMOUNT
34,000.00
35,500.00
By A a/c 2,500.00
35,500.00
By A a/c 15,000.00
33,000.00
19,333.00
By A a/c 10,000.00
16,833.00
P.Quick obtaines lease from R.Rich to work in a mine, the terms being a royalty of Rs. 10 per tonne merging into a minimum rent of Rs. 20000 p.a, there being granted to the lessee the
right to recoup shortworkings during the first four years of the lease. P.Quick sublets part of the property to V.Poor, the terms being a royalty of Rs. 12.50 per tonne merging in a
minimum rent of Rs.9600 per annum. V.Poor has the right of recoupment in the two years following the shortworkings. The amount of ore (in tonnes) extracted is as follows
5000 20000
3000 20000
0 20000
3000 5000 20000
10000 30000
20000
4600 9600
2850 9600
850 4600 9600
1650 1200 9600
850 14150
15000
A, a scientist, holds a patent for the manufacture of electric blankets. He allows the Ideal Manufactures Ltd., to use the patent for the royalty of Rs. 10 per blanket manufactured subject to
a minimum rent of Rs. 10000 in the first year, Rs. 12000 in the second year and Rs. 15000 thereafter. Any shortworkings is recoverable out of the royalties of the three subsequnet to the
7000 10000
8000 12000
4000 15000
5000 15000
6000 22000
Munim wrote a book on accountancy and got it published with Pacioli on the terms that royalties will be 15% on published price of the copies sold with a minimum of Rs. 100000 per year.
Munim gave the undertaking to revise the book when requested by the publisher and to pay of Rs. 5000 to Pacioli per month for every month of delay after six months of the request made
SHORTWORKINGS
SHORTWORKINGS
SHORTWORKINGS
by Pacioli. In the event of delay, the condition of minimum amount of Rs. 100000 payable to Munim was not to apply. This arrangement was to last for 10 years in the first instance. The
At the end of the third year, Munim was requested to revise the book; the revised manuscript reached Pacioli only just two months before the end of the 4th year.
MINIMUM RENT
SHORTWOR
KINGS
ARISED &
IRRECOVER
ABLE
PAYMENT TO
MUNIM
100000 10000 100000
100000 180000
100000 281250
92500
100000 405000
Help Ltd of USA gave know how facilities in respect of a chemical product to IDC Ltd., of Delhi on the terms mentioned below.
2. IDC Ltd would be entitiled to recoup shortworkings within three years subsquent to the one in which shortworkings arose.
3. The minimum amount payable to Help Ltd. Will be free of Indian income tax (which may be assumed to be 30% for the purpose) and in the USA currency.
RECOUP IRRECOVERABLE PAYMENT
58800
58800
7000 18200 50400
15400 60200
The Super Market Ltd., rented a premises from K. Nath for its departmental store on the basis that a rent of Rs. 80000 per annum will be paid and in addition the undermentioned percentage
of sales will be paid subject to a minimum rent of Rs. 50000 per annum (excess amount over the due on the years sales being recoverable during the next two years) . 1% sales up to Rs. 50
lakhs, 3/4% between 50 lakhs and Rs. 1 crore and .5% of sales above Rs. 1 crore. Accounts are closed every year on 31st March . Sales for the first six years, each ending on 31st March, were:
SHORTWORKINGS
20000 50000
5000 50000
1250 50000
5000 55000
1250 70000
62500
SHORTWORKINGS
Royalty
It is also known as capital reduction. It is a process by which capital (liabilities) are reduced and assets are
written off. Necessary provisions of the companies act should also be followed.
Accounting Entries:
1. Reduction in liabilities:
Liability a/c Dr
To Capital Reduction a/c
2.Conversion of Liability:
Old Liability a/c Dr
To New Liability a/c
To Capital Reduction a/c (balance)
Example: Converting debentures into equity
3. Increase in Liabilities:
Capital Reduction a/c Dr
To Liability a/c
4.For Increase in value of Assets:
Assets a/c Dr
5.To write off the assets:
To Assets a/c
6. For Balance in Capital Reduction:
To Capital Reserve a/c
Problem 1:
The following is the Balance Sheet of S Ltd as on 31st March 2001
13% cum preference shares of By Fixed Assets 1,500,000.00
100 each 100,000.00 By Current Assets 3,500,000.00
Equity Shares of @ Rs. 10 each 700,000.00 Profit and Loss a/c 300,000.00
Current Liabilities 3,900,000.00
5,300,000.00 5,300,000.00
INTERNAL RECONSTRUCTION
The following schemes of reorganisation is sanctioned:
1. Fixed assets are to be written down by 33.33%.
2. Current assets are to be revalued at Rs. 2700000.
3. Preference shareholders decide to forego their right to arrears of dividend which are in arrears for 3 years.
4. The taxation liability of the company is settled at Rs. 400000 and the same is paid immediatley.
5. One of the creditors of the company to whom the company owes Rs. 2500000 and decides forego 50% of the
claim. He is allotted 100000 equity shares of Rs. 5 each in part of satisfaction of the balance of his claim
6. The rate of interest on debentures is increased to 11% . The debenture holders surrenders their debentures of
Rs. 75 each.
7. The existing equity and preference shares are reduced to Rs. 5 and Rs. 75 each respectively.
Adjustment Entries:
Equity share capital a/c Dr 350,000.00
Prefrence share capital a/c Dr 25,000.00
To Capital Reduction a/c 375,000.00
8% debentures a/c Dr 300,000.00
To 11% debentures a/c 75,000.00
Working Note:
Liability to creditors 2,500,000.00
Less: Liability foregone - 50% 1,250,000.00
1,250,000.00
Less: Equity shares allotted
100000 shares @ Rs. 5 each 500,000.00
Settlement to be made in cash 750,000.00
Creditors a/c Dr 1,750,000.00
To Capital Reduction a/c 1,250,000.00
To Equity Share capital a/c 500,000.00
Provision for Taxation a/c Dr 300,000.00
Capital Reduction a/c Dr 100,000.00
To Cash a/c 400,000.00
Capital Reduction a/c 1,600,000.00
To Fixed assets a/c 500,000.00
To Current asset a/c 800,000.00
Capital Reduction a/c
To Cash 100,000.00 By Equity Shares 350,000.00
To Fixed assets 500,000.00 By Prefrence Shares 25,000.00
To Current asset a/c 800,000.00 By 8% Debentures 75,000.00
To Profit and Loss a/c 300,000.00 By Creditors 1,250,000.00
1,700,000.00 1,700,000.00
Revised Balance Sheet of S Ltd after reconstruction as on 31.03.2001:
Preference Share capital 75,000.00 Fixed assets 1,500,000.00
Equity Share capital 350,000.00 Less: Written off 500,000.00 1,000,000.00
Add: Issued to Creditors 500,000.00 850,000.00 Current Assets 3,500,000.00
11% Debentures 225,000.00 Less: Written off 800,000.00
Current liabilities 3,900,000.00 Less: Tax Paid 400,000.00 2,300,000.00
Less: Claim settled to creditors 1,750,000.00 2,150,000.00
3,300,000.00 3,300,000.00
Problem 2:
The Balance sheet of X Ltd., as on 31 March 2001 is as follows:
Share Capital: Fixed Assets:
4000 6% cumulative preference Freehold property 425,000.00
shares at Rs. 100 each 400,000.00 Plant 50,000.00
75000 Equity shares @ Rs. 10 each 750,000.00 Patents 37,500.00
6% Debentures Goodwill 130,000.00
(secured on freehold property) 375,000.00 Traded investment 55,000.00
Accured Interest 22,500.00 Current Assets:
Current Liabilities: Debtors 485,000.00
Bank overdraft 195,000.00 Stock 425,000.00
Creditors 300,000.00 Defferred advertising 100,000.00
Directors Loan 100,000.00 Profit and Loss a/c 435,000.00
2,142,500.00 2,142,500.00
Adjustments:
The court approved a scheme of re organisation to take effect on 1.4.2001 whereby:
1. Preference share to be writted down to Rs. 75 each and equity shares of Rs. 2 each respectively.
2. On the preference share dividends which are in arrears for four years, three fourth to be waived and equity shares
of Rs. 2 each to be allotted for the remaining quarter.
3. Accured interest on debentures to be paid in cash
4. Debenture holders agreed to take over the freehold property, book value of Rs. 100000 at valuation of Rs. 120000
in part repayment of their holdings and to provide additional cash of Rs. 130000 secured by a floating charge on
companies assets at an interest rate of 8% p.a
5. Patents, Goodwill and Deffred advertising to be written off
6. Stock to be written off by Rs. 65000
7. Amount of Rs. 68500 to be provided for bad debts.
8. Remaining free-hold properties is to revalued at Rs. 387500.
9. Trade investments be sold for Rs. 140000
10. Directors to accept settlement of their loans as to 90% thereof by allotment of equity shares of Rs. 2 each and as
to 5% cash and balance 5% being waived.
11. There were capital commitements totalling Rs. 250000 . These contracts are to be collected on payment of
5% of the contract price as a penalty.
12. Ignore taxation and cost of scheme.
You are requested to show journal entries reflecting the above transactions (including cash transaction) and
prepare the Balance Sheet of the company after completion of the scheme.
Adjustment Entries:
1. Preference shares a/c Dr 100,000.00
Equity Shares a/c Dr 600,000.00
Working Note 1:
Preference share dividend arrear
for 4 years @ 6% 96,000.00
Less : Amount foregone 72,000.00
Dividend settled by issuing 24,000.00
equity shares of Rs. 2 each of 12000 shares.
To Equity Share Capital a/c 24,000.00
3. Accured Interest a/c Dr 22,500.00
To cash a/c 22,500.00
4. Debentures a/c Dr 120,000.00
To Freehold Property a/c 100,000.00
To Capital Reduction a/c(profit) 20,000.00
Cash a/c Dr 130,000.00
To 8% Debentures 130,000.00
To Patents a/c 37,500.00
To Goodwill a/c 130,000.00
To Deffered advertising a/c 100,000.00
To Stock a/c 65,000.00
To Debtors (bad debts) 68,500.00
Working Note 2:
Freehold property as per B/S 425,000.00
Less: Sold to debentures 100,000.00
325,000.00
Less: Revalued as per book value 387,500.00
Profit 62,500.00
Freehold property a/c Dr 62,500.00
Cash a/c Dr 140,000.00
To Investment a/c 55,000.00
To Capital Reduction a/c (profit) 85,000.00
Directors loan a/c Dr 100,000.00
To Equity share capital 90,000.00
To cash 5% 5,000.00
Capital Reduction a/c 12,500.00
To Cash 12,500.00
To Patents a/c 37,500.00 By Preference Share capital 100,000.00
To Goodwill a/c 130,000.00 By Equity Share capital 600,000.00
To Deffered advertising a/c 100,000.00 By Debentures 20,000.00
To Stock a/c 65,000.00 By Freehold property 62,500.00
To Debtors (bad debts) 68,500.00 By Investment (cash) 85,000.00
To Profit and Loss a/c 435,000.00 By Directors loan 5,000.00
To Cash 12,500.00
To Equity Capital 24,000.00
872,500.00 872,500.00
Balance Sheet of X Ltd., after reconstruction as on 31.3.2001
Preference share capital 400,000.00 Revalued Freehold asset 387,500.00
Less: Reduction 100,000.00 300,000.00 Patents 50,000.00
Equity Share Capital 750,000.00 Debtors 485,000.00
Less: Reduction 600,000.00 Less: Bad Debts 68,500.00 416,500.00
150,000.00 Stock 425,000.00
Add: Allotted on Dividends 24,000.00 Less: Written off 65,000.00 360,000.00
Add:Allotted for directors loan 90,000.00 264,000.00 Cash:
6% Debentures 375,000.00 Debentures 130,000.00
Less: Freehold property sold 120,000.00 255,000.00 Investment 140,000.00
8% Debentures 130,000.00 Less: Directors loan waived 5,000.00
Bank O.D 195,000.00 Less: Capital Liability 12,500.00
Creditors 300,000.00 Less: Interest accured paid 22,500.00 230,000.00
1,444,000.00 1,444,000.00
Problem 3:
The Balance Sheet of X Ltd as on 31.3.2001
Share Capital: Building 400,000.00
12000 @ 7% Preference shares Plant 268,000.00
of Rs. 50 each 600,000.00 Goodwill 318,000.00
15000 Equity shares @ Rs. 50 each 750,000.00 Stock 400,000.00
Loans 573,000.00 Debtors 328,000.00
Sundry Creditors 207,000.00 Preliemenary Expenses 11,000.00
Other Liabilities 35,000.00 Profit and Loss a/c 440,000.00
2,165,000.00 2,165,000.00

The company is now earning profits but it is short of working capital. A scheme of reconstruction has, therefore,
been approved which is followed:
1. Equity Shareholders have agreed that their Rs. 50 share being reduced to Rs. 2.50 for each shares they held.
2. The Preference Shareholders have agreed to cancel the arrears of prefrence dividend and to accept for each of
Rs. 50 preference shares for new 5% preference sharesof Rs. 10 each plus six new equity shares of Rs. 2.50 each, all
credited as fully paid shares.
3. Lenders to the company of Rs. 150000 have agreed to convert their loans into shares and for this purpose, they
will allotted 12000 new 5% preference shares of Rs. 10 each and 12000 new equity shares of Rs. 2.50 each, all credited
as fully paid
4. The directors have agreed to subscribe in cash for Rs. 40000 new equity shares of Rs. 2.50 each in addition to any
shares to be subscribed for them under (1) above.
5. Of the above cash received Rs. 200000 is to be used to reduce loans due by the company.
6. Authorised capital is to be increased to the figures of Rs. 600000 for preference capital and Rs. 750000 for equity
capital.
7. The equity share capital cancelled is to be applied to write of preliemenary expenses and debit balance of profit
and loss account, reduce Rs. 35000 form the value of plant and any balance remaining to be used to written down
the value of goodwill.
Pass Journal Entries to record the scheme of reconstruction in the books of the company:
Adjustment Entries:
Equity Share capital a/c Dr 712,500.00
(Being Equity Share reduced by
Rs. 47.50)
Cash a/c Dr 112,500.00
To Equity Share capital a/c 112,500.00 45,000.00
(Being fresh equity shares issued
at Rs. 2.50 each)
12% Perference shares a/c 600,000.00
Capital Reduction a/c 60,000.00
To Preference share capital 480,000.00
(Being 12% perference shares
converted into 5% peference
shares and new equity shares
were issued freshly at Rs. 2.50
each)
Loan a/c Dr 150,000.00
To 5% Pereference share capital a/c 120,000.00
To Equity share capital a/c 30,000.00
(Being Loan of directors
converted into preference shares
and equity shares )
Cash a/c Dr 100,000.00
(Being fresh equity shares
issued for cash)
Loan a/c Dr 200,000.00
To Cash a/c 200,000.00
(Being cash paid to loan)
To Preliemanary Expenses a/c 11,000.00
To Plant a/c 35,000.00
(Being some assets are written
off)
To Peference Shares 60,000.00 By Equity Share capital 712,500.00
To Plant 35,000.00
To Preliemanary Expenses 11,000.00
To Goodwill (balance) 166,500.00
712,500.00 712,500.00
Balance Sheet of X Ltd., after reconstruction as on 31.3.2001
Preference share capital 480,000.00 Building 400,000.00
Add: Directors loan compensation 120,000.00 600,000.00 Plant 268,000.00
Equity share capital 750,000.00 Less: Written off 35,000.00 233,000.00
Less: Capital Reduction 712,500.00 Goodwill 318,000.00
37,500.00 Less: Written off 166,500.00 151,500.00
Add: New issues for cash: Stock 400,000.00
Fresh issue of equity shares 112,500.00 Debtors 328,000.00
Dividend Compensation 180,000.00 Shares 112,500.00
Loan compensation 30,000.00 Add: Directors Issue 100,000.00
Shares to Directors 100,000.00 460,000.00 212,500.00
Loan 573,000.00 Less: Loan repaid 200,000.00 12,500.00
Less: Paid 200,000.00
Less: Loan converted 150,000.00 223,000.00
Other Liabilities 35,000.00
1,525,000.00 1,525,000.00
SHARE SURRENDER METHOD
When shares are surrendered:
Equity Share capital a/c Dr
To Share surrender a/c
When shares reconverted
Share surrender a/c Dr
To Equity Share capital a/c
When shares are not utilised:
Share surrender a/c Dr
Problem 4:
The following is the Balance Sheet of a company as on 31.3.2001:
Authorised, Issued and Goodwill 50,000.00
Subscribed capital of 30000 Plant 300,000.00
Equity shares of Rs. 10 each 300,000.00 Loose tools 10,000.00
2000 8% Preference shares of Debtors 250,000.00
Rs. 100 each 200,000.00 Stock 150,000.00
Securities Premium 90,000.00 Cash 10,000.00
Unsecured loan (from director) 50,000.00 Bank 35,000.00
Creditors 300,000.00 Preliemenary Expenses 5,000.00
Outstanding Expenses (Including Profit and Loss a/c 200,000.00
directors remuneration 20000) 70,000.00
1,010,000.00 1,010,000.00
Note: Dividends for cumulative preference shares are in arrears for 4 years.
The following scheme of reconstruction has been agreed upon and duly approved by court.
1. Equity Shares to be converted into 150000 shares of Rs. 2 each
2. Equity Shareholders to surrender to the company 90% shares of their holdings.
3. Preference shareholders agreed to forego their rights to arrears of dividends in consideration of which 8%
preference shares converted to 9% preference shares.
4. Sundry creditors agree to reduce their claim by one fifith in consideration of their getting shares of Rs. 35000
out of the surrendered equity shares.
5. Directors agree to forego the amounts due on account of unsecured loan and directors renumeration.
6. Surrendered shares not otherwise utilised to be cancelled.
7. Assets to be reduced as under:
Goodwill 50,000.00
Tools 8,000.00
Stock 20,000.00
Plant 40,000.00
8. Any surplus after meeting losses should be utilised in writing down the value of plant further.
9. Expenses of reconstruction to Rs. 10000.
10. Further 50000 equity shares were issued to be existing members for increasing the working capital.
The issue was fully subscribed and paid up.
11. Authorised capital was suitably increased.
A member holding 100 Equity shares opposed the scheme and his shares were taken over by the Director in
payment of Rs. 1000 as fixed by the court.
You are required to pass Journal entries for giving effect to the above arrangement and also to drawn up the
resultant balance sheet of the company.
Adjusting Entries:
Equiaty Share capital a/c Dr 300,000.00
(Being Equity shares converted
to 150000 equity shares of Rs. 2
each)
Equity Share capital a/c Dr 270,000.00
To Share Surrender a/c 270,000.00
(Being 90% of the Equity shares
Surrendered)
8% Preference share capital a/c Dr 200,000.00
To 9% Preference share capital a/c 200,000.00
(Being 8% Preference share
capital converted into 9%
preference share capital)
Creditors a/c Dr 60,000.00
(Being Liability of Creditors
reduced by one fifith )
Share surrender a/c Dr 35,000.00
(Being Share of Rs. 35000 value
has been reconstructed)
Directors Loan a/c Dr 50,000.00
Outstanding Expenses a/c Dr 20,000.00
(Being loan foregone)
Share surrender a/c Dr 235,000.00
(Being surrendered shares
untilised)
To Goodwill a/c 50,000.00
To Plant a/c 40,000.00
To Tools a/c 8,000.00
To Debtors a/c 15,000.00
To Stock a/c 20,000.00
To Preliemenary Expenses a/c 5,000.00
(Being assets were written off)
To Cash a/c 10,000.00
(Being expenses for reconstruction
expenses written off)
Cash a/c Dr 100,000.00
To Equity Shares capital a/c 100,000.00
(Being fresh issue of shares for
cash)
To Sudry Assets 338,000.00 By Creditors 60,000.00
To Cash 10,000.00 By Directors loan 50,000.00
To Plant (balance) 17,000.00 By Share surrender 235,000.00
By Outstanding Expenses 20,000.00
365,000.00 365,000.00
Balance Sheet after Reconstruction
Equity Shares 300,000.00 Plant 300,000.00
Less: Surrendered 270,000.00 Less: Written off 47,000.00 253,000.00
30,000.00 Loose tools 10,000.00
Add: Issued to creditors 35,000.00 Less: Written off 8,000.00 2,000.00
Add: Issued to Directors 100,000.00 165,000.00 Debtors 250,000.00
9% preference shares 200,000.00 Less: Written off 15,000.00 235,000.00
Share premium 90,000.00 Stock 150,000.00
Creditors 300,000.00 Less: Written off 20,000.00 130,000.00
Less: Foregone 60,000.00 240,000.00 Cash 10,000.00
Outstanding expenses 70,000.00 Add: Debtors 100,000.00
Less: Foregone 20,000.00 50,000.00 Less: Expenses 10,000.00 100,000.00
Bank 35,000.00
745,000.00 755,000.00
Absorption:
An existing company takes over or purchases another existing company.
Amalgamation:
Two existing companies join together.
External Reconstruction:
A new companies is formed to take over the assets and liabilities an old company (loss making company).
Amalgamation - In nature of merger:
An amalgamation will be called as merger only when all the following conditions are satisfied.
1. Purchase consideration should paid only in the form of shares.
2. All liabilities and assets should be taken over.
3. Assets and liabilities should be recorded at the existing book value.
4. Minimum 90% shareholders of selling company (transfer company) should became shareholders in
transferring company (buying company).
Purchase Consideration:
Amount payable by the purchasing company to the vendor company is called purchase consideration
Net Payment Method:
Total value of shares, cash, etc allotted to the shareholders of transferor company should be taken. Any amount
paid to outsiders (debentures, creditors etc.,) will not part of purchase consideration AS 14
Purchase consideration under net payment method is calculated as under:
Purchase consideration = (Assets taken over at revised value - External liabilities at revised value)
Internsic Value Method:
Shares are exchanged based on internsic values. For example A Ltd's market price is Rs. 40 per share and B Ltd
Market price is Rs.60 per share. Here six shares of A is equal to 4 equal of B. Therefore for every 6 shares in A Ltd.
4 shares in B Ltd will be allotted.
Accounting Entries in the Books of Purchasing Company
(applicable to all cases except merge)
1. For Purchase consideration:
Business Purchase a/c Dr
To Liquidator of Selling company a/c
2. For assets and liabilities taken over:
Assets a/c Dr (revised value takenover)
Goodwill a/c Dr (balance)
To External liabilites a/c (revised value takenover)
To Business purchase a/c
To Capital Reserve a/c (balance)
AMGALGAMATION AND ABSORPTION
Lakshmi Page 394 Amalgamation and Aborsption
For Purchase consideration - Settlement of Money:
Liquidator of selling company a/c Dr
To Share capital a/c
To Securities Premium a/c
To Cash/Bank a/c
4. When Liquidation expenses of selling company is brone by purchasing company:
Goodwill/Capital Reserve a/c Dr
To Cash/Bank a/c
Accounting Entires in the Books of Selling Company:
A realisation account is prepared to record the realisation of assets and payment of liabilities.
1. Transfer of assets to Realisation:
Realisation a/c Dr
To Sundry Assets a/c
Notes:
1. Transfer assets at book value.
2. Transfer cash and bank balances only when they are taken over by the purchasing company.
3. Do not transfer ficitious assets (profit & loss a/c, preliemenary expenses, underwritting comission)
2. Transfer of ficitious assets:
Equity shareholders a/c Dr
To Ficitious assets a/c
3. Transfer of liabilities:
External liabilities a/c Dr
To Realisation a/c
(Don't transfer capital and Reserves)
4. For purchase consideration due:
Purchasing company a/c Dr
To Realisation a/c
5. For Purchase consideration Received:
Cash/Bank a/c Dr
Shares in purchasing company a/c
To Purchasing company a/c
u
Realisation a/c Dr
To Cash a/c
(No entry if liquidating expenses paid by purchasing company ).
7. Sale of Assets not taken over:
Cash/Bank a/c Dr
To Realisation a/c
8. Payment of liabilities not taken over:
Realisation a/c Dr
To Cash a/c
9. Settlement to Preference Shareholders :
Transfer:
Preference Shareholders a/c Dr
Realisation a/c (excess)
To Preference shareholders a/c
Settlement:
Preference Shareholders a/c Dr
To Cash/Sales a/c
10. For Profit in Realisation:
Realisation a/c Dr
To Equity Shareholders a/c
11. Transfer of Capital and Reserves:
Equity Shareholders Capital a/c Dr
Reserves a/c Dr
To Equity Shareholders a/c
12. Final Settlement:
Equity shareholders a/c Dr
To Cash / Bank a/c
To Shares in purchasing a/c
Problem 1:
The Pig Iron Company agrees to absorb the business of the Iron ore Company Ltd as on 30th June 1989 and to take
over the assets and liabilities at their balancesheet values, in which exchange for which it is to issue 12 shares of Rs. 10
each, of every share of Rs. 100 each in the Iron ore Company Ltd. The expenses of absorbtion (Rs. 10000) will be paid
by Pig Iron Company Ltd. The balance sheet of the two companies are as follows:
The Iron Ore Company Ltd
Capital: Land and Building 300,000.00
5000 ordinary shares of Rs. 100 each 500,000.00 Plant and Machinery 200,000.00
Contigency fund 10,000.00 Sundry Debtors 55,000.00
Sundry Creditors 58,000.00 Less: Reservers for doubtful
Bills Payable 42,000.00 debts 5,000.00 50,000.00
Stock 25,000.00
610,000.00 610,000.00
The Pig Iron Company Ltd
Nominal Capital: Land and Buildings 500,000.00
200000 Ordinary shares of Rs.10 each 2,000,000.00 Plant and Machinery 300,000.00
Issued: Goodwill 100,000.00
100000 ordinary shares of Rs. 10 each 1,000,000.00 Stock 60,000.00
Reserves 60,000.00 Sundry Debtors 120,000.00
Sundry Creditors 120,000.00 Cash at bank 100,000.00
1,180,000.00 1,180,000.00
Show Journal entries in the books of both companies:
Purchase consideration - Net Payment Method:
No. of shares allotted to Iron Ore Company 60,000.00
Value of shares @ Rs. 10 each 600,000.00
The purchase consideration 600,000.00
Journal Entries of Pig Iron Company:
Business purchase a/c Dr 600,000.00
To Liquidator of Iron Ore company a/c 600,000.00
(being purchase consideration due)
Land and Buildings a/c Dr 300,000.00
Plant and Machinery a/c Dr 200,000.00
Debtors a/c Dr 50,000.00
Stock a/c Dr 25,000.00
Cash at Bank a/c 35,000.00
90,000.00
To Creditors a/c 58,000.00
To Bills Payable a/c 42,000.00
To Purchase consideration a/c 600,000.00
(being assets and liabilites are takenover)
Liquidator of Iron ore company a/c Dr 600,000.00
To Share capital a/c 600,000.00
(being purchase consideration settled)
Goodwill a/c Dr 10,000.00
To Cash a/c 10,000.00
(being liquidation expenses brone by
pig ore co.)
Journal Entries in the books of Iron Ore Company (selling Company)
Realisation a/c Dr 610,000.00
To Sundry Assets a/c 610,000.00
(being assets transferred to realisation)
Bills Payable a/c Dr 42,000.00
To Realisation a/c 100,000.00
(being liabilities are realised)
Pig Iron ore company a/c Dr 600,000.00
Shares in Pig Iron ore company a/c Dr 600,000.00
To Pig Iron Ltd a/c 600,000.00
Realisation a/c Dr 90,000.00
To Equity Shareholders a/c 90,000.00
Equity share cpaital a/c Dr 500,000.00
Contigency a/c Dr 10,000.00 510,000.00
Realisation a/c:
To Sundry Assets 610,000.00 By creditors 58,000.00
To Equity Shareholders 90,000.00 By Bills payable 42,000.00
By Pig Iron (pc) 600,000.00
700,000.00 700,000.00
Equity share holders a/c
To Shares in Pig Iron Company 600,000.00 By Realisation 90,000.00
By Equity Share capital 500,000.00
By Contigent Fund 10,000.00
600,000.00 600,000.00
Balance Sheet of Pig Iron ore company
Ordinary shares 1,600,000.00 Land and Buildings 800,000.00
Reserves 60,000.00 Plant and Machinery 500,000.00
Creditors 178,000.00 Goodwill 200,000.00
Bills Payable 42,000.00 Stock 85,000.00
Debtors 170,000.00
Less: Expenses 10,000.00 125,000.00
1,880,000.00 1,880,000.00
Problem 2:
Deva Ltd and Asura Ltd carrying on similar business agreed to amalgamated by transferring their undertakings to a
new company. Devasura Ltd. The balance sheets of two companies as on the date of transfer were as follows:
LIABILITIES DEVA ASURA ASSETS DEVA ASURA
LTD LTD LTD LTD
Share capital: Land and Buildings 465,000.00 255,000.00
Equity shares of Rs. 100 each 500,000.00 300,000.00 Plant and Machinery 560,000.00 358,000.00
6% Preference shares of Rs. 100 each 500,000.00 250,000.00 Furniture and Fittings 79,000.00 34,000.00
5% Debentures 40,000.00 Stock 81,500.00 52,000.00
Profit and Loss a/c 115,000.00 55,000.00 Debtors 56,000.00 24,600.00
Sundry Creditors 75,000.00 35,000.00 Cash at Bank 87,000.00 22,500.00
General Reserve 200,000.00 70,000.00 Cash in hand 6,400.00 3,900.00
1,390,000.00 750,000.00 1,390,000.00 750,000.00
The terms of agreement as follows:
1. The purchase consideration consisted of:
The assumption of liabilities of both the companies
The discharge of the debentures in Asura Ltd at a premium of 5% by the issue of 7% debentures in Devasura Ltd.
The issue of 10 equity shares of Rs. 10 each at a premium of Rs. 2 per share for each preference shares held in both the
companies.
The issue of 10 Equity shares of Rs. 10 each at a premium of Rs. 2 per share and Rs. 22 in cash for each equity share in
Deva Ltd and 5 equity shares of Rs. 10 each at premium of Rs. 2 per share and Rs. 80 in cash for every equity share in
Asura Ltd.
2. All assets and liabilities of the two companies were taken over at their book value except that a provision at 5% was
to be raised on debtors.
3. In order to raise working capital and to pay the purchase consideration Devasura Ltd decided to issue 30000 equity
shares of Rs. 10 each at a premium of Rs. 2.50 per share. You are required to :
Pass journal entries in the books of Deva Ltd., to close its accounts and show the opening balance sheet of Devasura Ltd.
Calculation of Purchase Consideration:
PARTICULARS DEVA ASURA
LTD LTD
Preference shares for equity shares 600,000.00 300,000.00
Equity shares 600,000.00 180,000.00
Cash paid 110,000.00 240,000.00
TOTAL 1,310,000.00 720,000.00
Total no. of shares issued 140,000 shares
Entries in the books of Devasura Ltd:
Business purchase a/c Dr 2,030,000.00
To Liquidator of Deva Ltd a/c 1,310,000.00
To Liquidator of Asura Ltd a/c 720,000.00
(being purchase consideration due)
Land and Buildings a/c Dr 720,000.00
Furniture and Fittings a/c Dr 113,000.00
Stock a/c Dr 133,500.00
Bank a/c Dr 109,500.00
Cash in hand a/c Dr 10,300.00
Goodwill a/c (balance) 101,130.00
To Debentures a/c 42,000.00
To Business consideration a/c 2,030,000.00
(being assets and liabilities were taken over)
Liquidator of Deva Ltd a/c Dr 1,310,000.00
Liquidator of Asura Ltd a/c Dr 720,000.00
To Cash a/c 350,000.00
To Share capital a/c 1,400,000.00
To Share premium a/c 280,000.00
(being purchase consideration settled by means of
cash and shares)
Cash a/c Dr 375,000.00
To Securities premium a/c 75,000.00
Entries in the books of Deva and Asura Ltd
Realistion a/c:
PARTICULARS DEVA ASURA PARTICULARS DEVA ASURA
To Sundry assets 1,334,900.00 750,000.00 By Debentures 40,000.00
To Preference shares 100,000.00 50,000.00 By Creditors 75,000.00 35,000.00
By devasura ltd 1,310,000.00 720,000.00
By Equity Shareholders (bal) 49,900.00 5,000.00
1,434,900.00 800,000.00 1,434,900.00 800,000.00
Preference shares a/c
To Equity shareholders in By Preference shareholders 500,000.00 250,000.00
Devasura Ltd 600,000.00 300,000.00 By Realisatio a/c 100,000.00 50,000.00
600,000.00 300,000.00 600,000.00 300,000.00
Devasura Ltd a/c
To Realisation a/c 1,310,000.00 720,000.00 By Cash a/c 110,000.00 240,000.00
By Shares in Devasura Ltd 1,200,000.00 480,000.00
1,310,000.00 720,000.00 1,310,000.00 720,000.00
Equityshareholders a/c
To Preliemenary Expenses a/c 55,100.00 By Equity share capital a/c 500,000.00 300,000.00
To Realisation a/c 49,900.00 5,000.00 By General Reserve a/c 200,000.00 70,000.00
To Cash a/c 110,000.00 240,000.00 By Profit and Loss a/c 115,000.00 55,000.00
To Shares in Devasura Ltd 600,000.00 180,000.00
815,000.00 425,000.00 815,000.00 425,000.00
New Balance sheet of Devasura Ltd:
Equity Share capital 1,700,000.00 Land and Buildings 720,000.00
Securities premium 355,000.00 Plant and Machinery a/c Dr 918,000.00
Creditors 110,000.00 Furniture and Fittings a/c Dr 113,000.00
7% Debentures 42,000.00 Debtors a/c Dr 76,750.00
Stock a/c Dr 133,500.00
Bank a/c Dr 109,500.00
Cash in hand a/c Dr 375,000.00
Add: Opening Balance 10,300.00
385,300.00
Less: Closing Balance 350,000.00 35,300.00
Goodwill 101,130.00
2,207,000.00 2,207,180.00
-180.00
Problem 3:
The Balance Sheet of A Ltd and B Ltd as on 31st March 1992, were as follows:
LIABILITIES A LTD B LTD ASSETS A LTD B LTD
Share capital: Goodwill 700,000.00
50000 preference shares of Rs. 100 each 5,000,000.00 Patents 2,000,000.00
1500000 equity shares of Rs. 10 each 15,000,000.00 Land and Buildings 6,000,000.00
400000 equity shares of Rs. 10 each 4,000,000.00 Plant and Machinery 15,500,000.00
General Reserve 8,000,000.00 Motor vechicles 400,000.00
Profit and Loss a/c 900,000.00 320,000.00 Furniture 250,000.00
Creditors 500,000.00 210,000.00 Investment 1,150,000.00
Stocks 3,500,000.00 2,390,000.00
Cash at Bank 450,000.00 170,000.00
Debtors 800,000.00 620,000.00
29,400,000.00 4,530,000.00 29,400,000.00 4,530,000.00
A new company, C Ltd, was formed to acquire the assets and liabilities of A Ltd., and B Ltd. The terms of acquisation of
business were as under:
1. C Ltd to have an authorised share capital of Rs. 35000000 divided into 50000 13% preference shares of Rs. 100 each and
3000000 equity shares of Rs. 10 each
2. Business of A Ltd valued at Rs. 30000000; settlement being Rs. 6000000 cash and balance by issue of fully-paid equity
shares at Rs. 12.
3. Business of B Ltd., valued at Rs. 4800000 to be stasified by issue of fully-paid equity shares at Rs. 12.
4. Preference shares of A Ltd., were redeemed.
5. C Ltd., made a public issue of 30000 preference shares at par and 300000 equity shares at Rs. 12 . The issue was
underwritten at the comission allowed by law and was fully subscribed. All obligations were met:
6. D, who motted the scheme, was allotted 40000 equity shares (fully paid) at Rs. 12 in consideration of his service.
Make journal entries in the books of A Ltd and B Ltd to close their books of accounts and prepare the Balance Sheet of C Ltd.
Purchase consideration of A Ltd 30,000,000.00
Purchase consideration of B Ltd 4,800,000.00
Total consideration 34,800,000.00
Entries in the Books of C Ltd:
Business Consideration a/c Dr 34,800,000.00
To Liquidator of A Ltd 30,000,000.00
To Liquidator of B Ltd 4,800,000.00
Land and Buildings a/c Dr 6,000,000.00
Plant and Machinery a/c 15,500,000.00
Patents 2,000,000.00
Motor vechicles a/c Dr 400,000.00
Furniture a/c Dr 250,000.00
Investment a/c Dr 1,150,000.00
Stocks a/c Dr 5,890,000.00
Cash at Bank a/c Dr 620,000.00
Debtors a/c Dr 1,420,000.00
Goodwill a/c Dr 2,280,000.00
To creditors a/c 710,000.00
To Business Purchase a/c 34,800,000.00
Liquidity of A Ltd a/c Dr 30,000,000.00
Liquidator of B Ltd a/c Dr 4,800,000.00
To cash a/c 6,000,000.00
To Share capital 24,000,000.00
To Share premium a/c 4,800,000.00
To Securities premium a/c 80,000.00
Entries in the books of A Ltd and B Ltd:
Realisation a/c:
PARTICULARS A LTD B LTD PARTICULARS A LTD B LTD
To Sundry assets 29,400,000.00 4,530,000.00 By Creditors 500,000.00 210,000.00
To Equity share capital 1,100,000.00 480,000.00 By Business purchase (C Ltd) 30,000,000.00 4,800,000.00
30,500,000.00 5,010,000.00 30,500,000.00 5,010,000.00
Preference share capital a/c
To cash 5,000,000.00 By Preference share capital 5,000,000.00
5,000,000.00 5,000,000.00
C Ltd a/c
To Realisation a/c 30,000,000.00 4,800,000.00 By Cash a/c 6,000,000.00
By Shares in C Ltd 24,000,000.00 4,800,000.00
30,000,000.00 4,800,000.00 30,000,000.00 4,800,000.00
Equity share capital a/c
By Cash 1,000,000.00 By Equity share capital 15,000,000.00 4,000,000.00
To Shares in C Ltd 24,000,000.00 4,800,000.00 By General Reserve 8,000,000.00
By Profit and Loss a/c 900,000.00 320,000.00
By Realisation a/c 1,100,000.00 480,000.00
25,000,000.00 4,800,000.00 25,000,000.00 4,800,000.00
New Balance sheet of C Ltd:
Equity Share capital 27,400,000.00 Patents 2,000,000.00
Share premium 5,480,000.00 Land and Buildings 6,000,000.00
Preference shares 3,000,000.00 Plant and Machinery 15,500,000.00
Creditors 710,000.00 Motor vechicles 400,000.00
Furniture 250,000.00
Investment 1,150,000.00
Stock 5,890,000.00
Debtors 1,420,000.00
Goodwill 2,760,000.00
Cash 890,000.00
Underwritting comission 330,000.00
36,590,000.00 36,590,000.00
0.00
Problem 4:
Following is the Balance Sheet of Y Ltd as at 31.03.2002
Share Capital:
Issued and paid up 250000 equity Goodwill 800,000.00
shares of Rs. 10 each as Rs.8 2,000,000.00 Building 700,000.00
10% 100000 preference shares of Plant and Machinery 1,300,000.00
Rs. 10 each 1,000,000.00 Current Assets:
Reserves & Surplus Stock 700,000.00
General Reserve 600,000.00 Sundry debtors 900,000.00
Profit and Loss a/c 800,000.00 Bank Balances 660,000.00
Creditors 400,000.00 Miscellanous Expenses:
Workmens's compensation fund 300,000.00 Preliemanry Expenses 40,000.00
5,100,000.00 5,100,000.00
X Ltd decided to absorb the business of Y Ltd., at the respective value of assets and trade liablities except buildings which was
valued at Rs. 1200000 and plant and Machinery at Rs. 1000000.
The Purchase consideration was payable as:
1. Assumption of trade liabilities
2. Payment of liquidation expenses of Rs. 5000 and workmen's profit sharing fund at 10% premium
3. Issue on equity share of Rs. 10 each fully paid at Rs. 11 per share for every preference share and every equity of shares of
Y Ltd and a payment of Rs. 4 per equity share in cash.
Calculate the purchase consideration and show necessary journal entires in the books of Y Ltd.
Cash payment of liquidation expenses 5,000.00
Workmen Compensation fund 330,000.00
Equity Shares for preference shares 1,100,000.00
Equity shares 2,750,000.00
Cash for equity shares 1,000,000.00
Total Purchase Consideration 5,185,000.00
Entries in the books of X Ltd:
Business purchase a/c Dr 5,185,000.00
To Liquidator of Y Ltd a/c 5,185,000.00
Land and Building a/c Dr 1,200,000.00
Plant and Machinery a/c Dr 1,000,000.00
Stock a/c Dr 700,000.00
Bank a/c Dr 660,000.00
Goodwill a/c Dr 1,125,000.00
To Purchase Consideration a/c 5,185,000.00
Liquidator of Y Ltd a/c Dr 5,185,000.00
To Bank a/c 1,335,000.00
To Equity share capital a/c 3,500,000.00
To Share premium 350,000.00
Entries in the books of Y Ltd:
Realisation a/c:
To Goodwill 800,000.00 By creditors 400,000.00
To Buildings 700,000.00 By Business purchase 5,185,000.00
To Plant and Machinery 1,300,000.00
To Stock 700,000.00
To Sundry Debtors 900,000.00
To Bank 660,000.00
To Liquidation expenses 5,000.00
To workmen fund 30,000.00
To Preference shares 100,000.00
To Profit on realisation 390,000.00
5,585,000.00 5,585,000.00
Preference share a/c
To Equity Shares in X Ltd 1,100,000.00 By Preference shares 1,000,000.00
By Realisation a/c 100,000.00
1,100,000.00 1,100,000.00
X Ltd a/c
To Realisation a/c 5,185,000.00 By Bank a/c 1,335,000.00
By Equity shareholders a/c 3,850,000.00
5,185,000.00 5,185,000.00
Equity Shareholders a/c
To Preliemenary Expenses 40,000.00 By General Reserve 600,000.00
To Bank 1,000,000.00 By Equity share capital 2,000,000.00
To Shares in Y Ltd 2,750,000.00 3,750,000.00 By Profit and Loss a/c 800,000.00
By Profit on Realisation 390,000.00
3,790,000.00 3,790,000.00
Problem 5:
The following are the abridged balance sheets of P Ltd and S Ltd., as on 31st March 1999: (Rupees in Thousand)
LIABILITIES P LTD R LTD
Equity share capital (Rs. 10 each) 8,000.00 3,000.00
10% Preference share capital (Rs.100) 1,000.00
General Reserve 4,610.00 980.00
Statutory Reserve 390.00 125.00
Profit and Loss account 563.00 355.00
12% Debentures 250.00
Current Liabilities 1,437.00 990.00
Total 15,000.00 6,700.00
ASSETS
Fixed assets 11,000.00 4,730.00
Current assets 4,000.00 1,970.00
Total 15,000.00 6,700.00
On 1st Apirl 1999 P Ltd takes over R Ltd on the following terms:
1. P Ltd will issue 350000 equity shares of Rs. 10 each at par to the equity share holders of R Ltd
2. P Ltd will issue 11000 10% perefernce shares of Rs. 100 each at par to the pereference shares of the R Ltd
3. The debentures of R Ltd will be converted into equal number of 12.5% debentures of the same denomiation
You are informed that the stautory reserves of R Ltd are to be maintained for two more years. You are required to show the
balance sheet of P Ltd immediately after the above mentioned scheme of amalgamation assuming that the amalgamation is
in the nature of purchase.
Equity shares 3,500,000.00
Preference shares 1,100,000.00
Purchase Consideration 4,600,000.00 4,600.00
Entries in the books of P Ltd (Buying company)
Business purchase a/c Dr 4,600.00
To Liquidator of R Ltd a/c 4,600.00
Fixed assets a/c Dr 4,730.00
Current assets a/c Dr 1,970.00
To Capital Reserve 860.00
To Current liabilities a/c 990.00
To Debentures a/c 250.00
To Purchase consideration 4,600.00
12% Debentures a/c Dr 250.00
To 12.5% Debentures a/c 250.00
Liquidator of R Ltd a/c Dr 4,600.00
To Sharecapital a/c 4,600.00
Realisation a/c:
To Sundry Assets 6,700.00 By Sundry liabilities 15,000.00
To Preference Shares 100.00 By P ltd BC 4,600.00
To Equity Shares 12,800.00
19,600.00 19,600.00
Preference share a/c
To Preference shares 1,100.00 By Preference shares 1,000.00
By Realisation a/c 100.00
1,100.00 1,100.00
P Ltd a/c
To Realisation a/c 4,600.00 By Equity Share capital 3,500.00
By Preference Share Capital 1,100.00
4,600.00 4,600.00
Equity share holders a/c
To Shares in P Ltd 17,260.00 By Equity Share Capital 3,000.00
By General Reserve 980.00
By Stautory Reserve 125.00
By Profit and Loss a/c 355.00
By Profit on Realisation 12,800.00
17,260.00 17,260.00
Preference Shares 1,100.00 Fixed assets 15,730.00
Equity Share capital 11,000.00 Current Assets 5,970.00
12.5% Debentures 250.00
Capital Reserve 860.00
21,742.00 21,700.00
21,742.00
21,700.00
-42.00
AMALGAMATION IN THE NATURE OF MERGER:
A business combination will be called as merger only when all conditions are satisfied as per AS 14 . There is no difference
in accounting treatment in the books of selling company/old company/Transfer company.
In the books of amalgamated company (purchase company):
1. All assets and liabilities including reserves should be taken over by the purchasing company.
2. All assets and liabilities is to be recorded in book value.
Excess of purchase consideration over paid up capital of selling company should be adjusted with Reserves.
MEANING OF MERGER:
If all the following coditions are satisfied . A buisness combination is called as merger:
1. When all the assets and liabilities are taken over.
2. Assets and liabilities of transferor's companies, have to be recorded at bookvalue in the books of transfree company.
3. Minimum 90% of shareholders in transferor company should became shareholders in amalgamation company.
4. Purchase consideration paid only in the form of shares.
5. Business of transferor companies should be continued by transferee company atleast for a period of 2 years.
If any of the above conditions, are not satisfied the amalgamation will be called as purchase or absorbtion.
Problem 6:
On 31st March 1999 Thin Ltd was abosorbed by Thick Ltd., the later taking over all the assets and liabilities of the former at
book values. The consideration for the business was fixed a Rs. 400000 to be discharged by the transfree company in the form
of fully paid equity shares of Rs. 10, to be distributed among the shareholders of the transferor company, each shareholder
getting two shares for every shares held in the transferor company. The balance sheet of the two companies as on 31st March
1999, stood as under:
LIABILITIES THICK LTD THIN LTD
Share Capital:
Authorised 1,500,000.00 500,000.00
Issued and subscribed:
Equity shares of Rs.10 each fully paid 900,000.00 200,000.00
General Reserve 180,000.00 50,000.00
Profit and Loss account 20,502.00 12,900.00
Workmens compensation Fund 12,000.00 9,000.00
Sundry Creditors 58,567.00 30,456.00
Staff Providend Fund 10,200.00 4,000.00
Provision for taxation 12,300.00 5,000.00
Total 1,193,569.00 311,356.00
ASSETS THICK LTD THIN LTD
Goodwill 200,000.00 60,000.00
Plant and Machinery 412,000.00 100,000.00
Furniture 80,000.00 30,000.00
Stock in trade 265,500.00 60,000.00
Sundry Debtors 221,200.00 46,000.00
Prepaid Insurance 700.00
Incometax refund Claim 6,000.00
Cash in hand 869.00 356.00
Cash at bank 14,000.00 8,300.00
Total 1,193,569.00 311,356.00
Amalgamation expenses amounting to Rs. 1000 were paid by Thick Ltd. You are required to:
1. Prepare realisation account and equity shareholders account in the books of Thin Ltd
2. Pass the necessary journal entries in the books of Thick Ltd
3. Prepare the Balance Sheet of Thick Ltd immediately after amalgamation.
Purchase Consideration 400,000.00
Entries in the books of Thick Ltd:
Business Purchase a/c Dr 400,000.00
To Liquidator of Thin Ltd 400,000.00
Furniture a/c Dr 30,000.00
Stock in trade a/c Dr 60,000.00
Sundry Debtors a/c Dr 46,000.00
Prepaid Insurance a/c Dr 700.00
Incometax refund a/c Dr 6,000.00 42,900.00
Cash in hand a/c Dr 356.00
Cash at Bank a/c 8,300.00
Capital Reserve a/c 137,100.00
To workmen compensation fund a/c 9,000.00
To Staff providend fund a/c 4,000.00
To Provision for taxation a/c 5,000.00
To Business Consideration a/c 400,000.00
Liquidator of Thin Ltd a/c 400,000.00
To Share Capital a/c 400,000.00
General Reserve a/c Dr 1,000.00
To Cash a/c 1,000.00
To Goodwill 60,000.00 By Sundry Creditors 30,456.00
To Plant and Machinery 100,000.00 By Staff providend fund 4,000.00
To Furniture 30,000.00 By Provision for taxation 5,000.00
To Stock in trade 60,000.00 By Thick Ltd 400,000.00
To Sundry Debtors 46,000.00
To Prepaid Insurance 700.00
To Income tax refund 6,000.00
To Cash in hand 356.00
To Cash in Bank 8,300.00
To Equity Shareholders - Profit 128,100.00
439,456.00 439,456.00
To Realisation a/c 400,000.00 By Shares in Thick Ltd 400,000.00
400,000.00 400,000.00
To Equity Shares in Thick Ltd 400,000.00 By Equity share holders 200,000.00
By General Reserve 50,000.00
By Realisation 128,100.00
By Profit and Loss 12,900.00
By Workmen Fund 9,000.00
400,000.00 400,000.00
Issued Capital 1,300,000.00 Goodwill 260,000.00
General Reserve 180,000.00 Plant and Machinery 512,000.00
Less: New Reserve 137,100.00 Furniture 110,000.00
Less:Cash expenses 1,000.00 41,900.00 Stock in Trade 325,500.00
Workment compensation fund 21,000.00 Sundry Debtors 267,500.00
Profit and Loss a/c 20,502.00 Cash in hand 1,225.00
Provision for Taxation 17,300.00 Cash in Bank 21,300.00
Staff Providend Fund 14,200.00 Prepaid Insurance 700.00
Income Tax Fund 6,000.00
1,414,902.00 1,504,225.00
89,323.00
A new company is formed to take over assets and liabilities of an existing company. In case of internal reconstruction
no new entity is formed becomes purchasing company and the old company is the selling company.
The Balance Sheet of Poddar Ltd., as follows:
Issued and subscribed Capital: Freehold Property 120,000.00
10000 6.5% pref shares of Rs. 10 100,000.00 Patents 49,000.00
12000 fully paid Rs. 100 each 120,000.00 Book Value 24,000.00
5% Debentures 20,000.00 Stock 36,000.00
Interest Accrued 4,000.00 24,000.00 Bank 1,000.00
Trade Creditors 16,000.00 Profit and Loss a/c 30,000.00
260,000.00 260,000.00
The following scheme of reconstruction was duly passed:
1. Modern Ltd., to be formed to take over the business of podder Ltd.
2. One share of Rs. 5 fully paid in Modern Ltd., to be issued for every three equity shares on Poddar Ltd.
3. Three shares of Rs. 5 paid in Modern Ltd.
4. Debentures holders to be paid in fully by Modern Ltd.
5. The creditors in Poddar Ltd to receive 80% of the amount due to them in fully paid shares of Rs. 5 each in
Modern Ltd., in full settlement.
6. Patents and debit balance of profit and loss account to be written off
7. Arrears of preference dividends to be cleard by issue of one share of Rs. 5 fully paid in Modern Ltd for every
two shares held.
8. Any balance available in the scheme to be used in reducing the value of freehold property.
Give Journal entries to close the books of Poddar Ltd and prepare realisation account, account of preference
shareholders and account of equity shareholders.
Equity shares 20,000.00
For Preference Share capital 30,000.00
Dividend 2,500.00
Total Consideration 52,500.00
In the Books of Purchasing Company (Modern Ltd)
Business Purchase a/c Dr 52,500.00
To Liquidator of Poddar Ltd a/c 52,500.00
Freehold property a/c Dr 28,300.00
Book debts a/c Dr 24,000.00
To Debentures 24,000.00
To Business Purchase a/c 52,500.00
EXTERNAL RECONSTRUCTION
Lakshmi Page 410 External Reconstruction
Liquidator of Poddar Ltd a/c Dr 52,500.00
To Equity sharecapital a/c 12,800.00
Realisation account:
To Freehold Property 120,000.00 By Creditors 16,000.00
To Patents 49,000.00 By Debentures 24,000.00
To Book Debts 24,000.00 By Business Purchase 52,500.00
To Stock 36,000.00 By Preference Shares 67,500.00
To Bank 1,000.00 By Equity Share Holders 70,000.00
230,000.00 230,000.00
Preference shareholders account:
To Shares in Modern Ltd 32,500.00 By Preference shares 100,000.00
100,000.00 100,000.00
Equity shareholders account:
To Profit and Loss a/c 30,000.00 By Equity Share capital 120,000.00
To Shares in Moddar Ltd 20,000.00
120,000.00 120,000.00
Balance Sheet:
Equity Shares 52,500.00 Freehold Property 28,300.00
Add: Shares issued to creditors 12,800.00 65,300.00 Book Debts 24,000.00
Debentures 24,000.00 Stock 36,000.00
Bank 1,000.00
89,300.00 89,300.00
Problem 2:
The abridged Balance Sheet of P Ltd as at 31st December 1994 is as under:
24000 Equity shares of Rs. 10 240,000.00 Goodwill 5,000.00
5000 8% cumulative pref. shares 50,000.00 Fixed Assets 257,000.00
8% Debentures 100,000.00 Stock 50,000.00
Interest accrued on debentures 8,000.00 Debtors 60,000.00
Creditors 100,000.00 Bank 1,000.00
Preliemenary Expenses 15,000.00
498,000.00 498,000.00
The following scheme is passed and sactioned by the court:
1. A new company, PK Ltd is formed with Rs. 300000 dividend into 30000 equity shares of Rs. 10 each
2. The new company will acquire the assets and liabilities of P Ltd on the following terms:
3. Old companys denbentures are paid by similare debentures in new company and for outstanding accrued
interest, shares of equal amount are issued at par.
4. The creditors are paid for every Rs. 100, Rs. 16 in cash and 10 shares issued at par.
5. The prefrence shareholders are to get equal number of equity shares at par. For arrears dividend amounting
to Rs. 12000, 5 shares are issued at par each Rs. 100 in full satisfication.
6. Equity shareholders are issued one share at par for 3 shares held.
7. Expenses of Rs. 8000 are to be borne by the new company as part of purchase consideration
8. Current assets are to be taken at book value (except which is to be reduced by Rs. 3000). Goodwill to be
eliminated balance of purchase consideration being attributed to fixed assets.
9. Remaining shares of the new company are issued at par and are fully paid.
Purchase Consideration:
Equity Shares 50,000.00
Add: Dividend 6,000.00 56,000.00
Preference shares 80,000.00
Total Purchase Consideration 136,000.00
Entries in the Books of Purchasing Company:
Business Consideration a/c Dr 136,000.00
To Liquidator of P Ltd a/c 136,000.00
To Debentures a/c 108,000.00
To Business Purchase a/c 136,000.00
Liquidation of P Ltd a/c 136,000.00
Outstanding Interest accrued a/c 8,000.00
To Cash a/c 16,000.00
To Equity Shares a/c 100,000.00
To Cash a/c 8,000.00
Authorised Share Capital 300,000.00
Less: Purchase Consideration 136,000.00
Less: Creditors 100,000.00
Less: Outstanding Interest 8,000.00 244,000.00
Balance Shares 56,000.00
In the books of selling Company
Realisation account:
To Sundry Assets 373,000.00 By Debentures 108,000.00
To Preference shareholders 6,000.00 By Creditors 100,000.00
By PK Ltd 136,000.00
By Equity shareholders 35,000.00
379,000.00 379,000.00
PK Ltd account:
To Realisation a/c 136,000.00 By Shares in PK Ltd 136,000.00
136,000.00 136,000.00
Preference Shareholders account:
To Shares in PK Ltd 56,000.00 By Preference share capital 50,000.00
By Realisation a/c 6,000.00
56,000.00 56,000.00
Equity Shareholders account:
To Profit and Loss a/c 110,000.00 By Equity Share Capital 240,000.00
To Preliemenary Expenses 15,000.00
To Realisation 35,000.00
To Shares in PK Ltd 80,000.00
240,000.00 240,000.00
Balance Sheet of PK Ltd after Amalgamation:
Equity Share Capital 300,000.00 Fixed Assets 252,000.00
Debentures 100,000.00 Add: Cash Expenses 8,000.00 260,000.00
Stock 47,000.00
Debtors 60,000.00
Bank 1,000.00
Add: Issued Shares 56,000.00
Less: Expenses 8,000.00
Less: Creditors 16,000.00 33,000.00
400,000.00 400,000.00
Problem 3:
Sun Ltd and Moon Ltd agreed to amalgamate and form a new company Star Ltd., with an authorised capital of
Rs. 5 lakhs divided into 5000 Equity Shares of Rs. 10 each on 31st March 2008 . The condensed Balance Sheet of
respective companies were as follows:
SUN LTD MOON
LTD
Fixed assets 4.00 3.00
Current Assets 3.00 2.00
7.00 5.00
Less: Current Liabilities 3.00 1.00
Representing Capital 4.00 4.00
Revaluation was agreed upon as follows:
SUN LTD MOON
LTD
Debtors and Creditors include Rs. 50000 owed by Sun Ltd to Moon Ltd. The consideration for amalgamation is
to be satisfied by the issue of shares and debentures as under:
1. 33000 Equity Shares of Star Ltd to Sun Ltd and Moon Ltd in the ratio of profitability of their respective
business computed on average net profit during the last four years which were as follows:
SUN LTD MOON
LTD
2.00 3.00
-1.00 2.00
4.00 3.00
5.00 4.00
2. 15% Debentures of Star Ltd at par to provide an income equivalent to 10% return on capital employed in
their respective business as at 31st March 2008 after revaluation
You are required to:
1. Compute the amount of shares and debentures to be issued to Sun Ltd., and Moon Ltd.
2. Balance Sheet of Star Ltd, showing the position immediately after amalgamation
3. Computation of Capital Reserve/Goodwill
Computation of amount of shares to be issued:
Average yearly net profit 2.50 3.00
5.50
Total no. of shares to be shared 33,000 shares
Sun Ltd 15,000
Moon Ltd 18,000
The value shares allotted to Sun and Moon Ltd
Sun Ltd 150,000.00
Moon Ltd 180,000.00
Total 330,000.00
Computation of Debentures to be issued to Star Ltd
SUN LTD MOON
LTD
8.00 5.00
Less: Current Liabilities 2.00 2.00
Capital Employed 6.00 3.00
10% of Capital Employed 0.60 0.30
60,000.00 30,000.00
15% of Debentures issued at par to cover the above income
Sun Ltd 400,000.00
Moon Ltd 200,000.00
Total purchase consideration 930,000.00
Computation of Capital Reserve or Goodwill:
Fixed Assets taken over 8.00
Current assets taken over 5.00
Less: Mutual owing 0.50 4.50
12.50
Less
Current Liabilities taken over 4.00
Less: Mutual owing 0.50 3.50
9.00
Less: Consideration 9.30
Goodwill 0.30
Authorised 50000 share capital 5.00
Goodwill 0.30
Issued and subscribed shares 3.30 Fixed Assets 8.00
15% Debentures 6.00 Current Assets 4.50
12.80 12.80
BASIS
FLOOR AREA All expenses in connection with
Building.
LIGHT POINTS /FLOOR
AREA No. of lights and electricity points.
NO. OF EMPLOYEES Supervision, refreshments , canteen.
ASSET VALUE Plant and Machinery
SALES Audit fees, Advertisment.
Problem 1:
PARTICULARS DEPT A DEPT B TOTAL
Opening Stock 40,000.00 50,000.00 90,000.00
Purchases 200,000.00 300,000.00 500,000.00
Sales 400,000.00 600,000.00 1,000,000.00
Closing Stock 30,000.00 20,000.00 50,000.00
Wages 30,000.00 40,000.00 70,000.00
The common expeneses are:
Carriage Inwards 5,000.00
Carriage Outwards 10,000.00
Comission paid 20,000.00
DEPARTMENTAL ACCOUNTS
EXPENSES
Insurance on stock 7,000.00
Indirect wages 7,000.00
Audit fees 20,000.00
Rent 15,000.00
Bad debts 6,000.00
Prepare departmental trading Profit and Loss account.
Departmental Trading account:
PARTICULARS DEPT A DEPT B PARTICULARS DEPT A DEPT B
To Opening stock 40,000.00 50,000.00 By Sales 400,000.00 600,000.00
To Purchases 200,000.00 300,000.00 By Closing Stock 30,000.00 20,000.00
To Wages 30,000.00 40,000.00
To Carriage Inwards 2,000.00 3,000.00
To Gross Profit 158,000.00 227,000.00
430,000.00 620,000.00 430,000.00 620,000.00
To Advertisment 8,000.00 12,000.00 By Gross Profit 158,000.00 227,000.00
To Carriage Outwards 4,000.00 6,000.00
To Comission Paid 8,000.00 12,000.00
To Insurance on Stock 3,500.00 3,500.00
To Indirect wages 3,000.00 4,000.00
To Audit Fees 8,000.00 12,000.00
To Rent 6,000.00 9,000.00
To Bad Debts 2,400.00 3,600.00
To Net Profit 115,100.00 164,900.00
158,000.00 227,000.00 158,000.00 227,000.00
Problem 2:
Mr. D is earining uniform rate of gross profit in all three departments he is handling . Following are the relevant details.
Purchases:
Department G 15,000 cartons
Department M 20,000 cartons
Department N 15,000 cartons
The total cost of purchases amounted to Rs. 600000.
Sales:
Department G 16,000 Cartons @ Rs. 20 per carton
Department M 22,000 Cartons @ Rs. 15 per carton
Department N 17,000 Cartons @ Rs. 10 per carton
Details of opening stock:
Department G 4,000 cartons
Department M 5,000 cartons
Department N 4,000 cartons
You are required to prepare:
Prepare the Trading account for the three departments in coloumnar form. Also show the workings in respect of the following:
1. Gross profit (%) assuming that three is no stock situation.
2. Department wise purchase price value and
3. Valuation of opening and closing stock.
Closing Stock = Opening stock + Purchases - Sales.
Department G 3,000 units
Department M 3,000 units
Department N 2,000 units
Purchase price is not available individually for departments G,M and N, but it is given that gross profit rate is uniform.
Gross Profit margin can be formed by calculating sale value of purchased units
Department G 300,000.00
Department M 300,000.00
Department N 150,000.00
Total 750,000.00
Less: Purchases (cost) 600,000.00
PROFIT 150,000.00
Profit Margin 20%
Cost = Selling price - Margin
Department G 16.00
Department M 12.00
Department N 8.00
O.Stock Purchases Sales Closing Stock
Department G 64,000.00 240,000.00 320,000.00 48,000.00
Department M 60,000.00 240,000.00 330,000.00 36,000.00
Department N 32,000.00 120,000.00 170,000.00 16,000.00
Departmental Trading Account:
PARTICULARS D M G PARTICULARS D M G
To Opening Stock 64,000.00 60,000.00 32,000.00 By Sales 320,000.00 330,000.00 170,000.00
To Purchases 240,000.00 240,000.00 120,000.00 By Closing Stock 48,000.00 36,000.00 16,000.00
To Gross Profit 64,000.00 66,000.00 34,000.00
368,000.00 366,000.00 186,000.00 368,000.00 366,000.00 186,000.00

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