SCANNER

SECTION-I
Compiles Question asked in the Intermediate Examination of ICWAI under Syllabus 2002 from June 04 onwards. 2 SCANNER [SEC-I] n FINANCIAL ACCOUNTING

[GROUP - I]
SCANNER [SEC-I] n FINANCIAL ACCOUNTING 3 FINANCIAL ACCOUNTING BASIC CONCEPTS Objective -Type Questions : Q1. Can a company change the method of providing depreciation? [Ref : Q1. (i), Dec 06 / Paper-10] Q2. What are the three major considerations governing the selection and application of Accounting Policies? [Ref : Q1. (a), Dec 08 / Paper-10] Q3. Distinguish between proprietary theory and entity theory. [Ref : Q1. (j), Dec 07 / Paper-10] Q4. (a) List out any four of accounting concepts. (b) State the components of financial statement. (c) State with reasons whether the following statements are True or False :(i) Accounting principle is general rule followed in preparation of financial statements. [Ref : Q1. (a), (c), (e)(i), June 07 / Paper-10] Q5. Accounting involves communication. Comment. [Ref : Q1. (a), Dec 06 / Paper-10] Q6. (a) What according to ICAI conceptual framework, are the qualitative characteristics that financial statements should observe and maintain in order to improve the usefulness of financial information? (b) What is negative net worth? (c) What is meant by general purpose financial statement? (d) Briefly state the three major characteristics which should be considered for the purpose of selection and application of acounting policies. [Ref : Q1. (b), (c), (d), (e) June 06 / Paper-10] Q7. (a) A company has incurred a net loss during an accounting period, but its net worth (assets liabilities) has increased. How could this happen? (b) What is the implication of a high price earning (P/E) ratio? (c) Indicate any three areas in respect of which different accounting policies may be adopted by different enterprises. [Ref : Q1. (b), (c), (e) Dec 05 / Paper-10] Q8. (a) What is the primary consideration in the selection of accounting policies by an enterprise? (b) Which of the following is not a satisfactory balance sheet equation? (i) Assets liabilities = owners equity; (ii) Assets = liabilities + owners equity; (iii) Assets = liabilities owners equity; (iv) Assets owners equity = liabilities. (c) State any two ways to create a Secret Reserve. [Ref : Q1. (a), (g), (h) June 04 / Paper-10] 4 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Descriptive & Practical Questions : Q1. Write short notes of the following : (a) Phases of Accounting process. (b) Accrual basis of Accounting. [Ref : Q8. (a) , (b) Dec 07 / Paper-10] Q2. (a) Conceptual Framework of Accounting. [Ref : Q8. (a) June 04 / Paper-10] Q3. The following is the Balance Sheet of the retail business of Sri Lahiri as at 31st December, 2007 : Liabilities Rs. Assets Rs. Sri Lahiris Capital 2,00,000 Furniture 20,000 Liabilities for Goods 41,000 Stock 1,40,000 Rent 2,000 Debtors 50,000 Cash at Bank 29,000 Cash in hand 4,000 2,43,000 2,43,000 You are finished with the following information : (1) Sri Lahiri sells his goods at a profit of 20% on sales. (2) Goods are sold for cash and credit. Credit customers pay by cheques only. (3) Payments for purchases are always made by cheques. (4) It is practice of Sri Lahiri to send to the Bank every weekend the collections of the week after paying every week salary of Rs. 900 to the clerk, Sundry expenses of Rs. 150 and personal expenses Rs. 300. Analysis of the Bank Pass Book for the 13 weeks period ending 31st March, 2008 disclosed the following : Rs. Payments to creditors 1,50,000 Payments of rent upto 31.3.2008 by cheque 8,000 Amounts deposited into the bank 2,50,000 (including Rs. 60,000 received from debtors by cheques) The following are the balances on 31st March, 2008 : Rs. Stock 80,000 Debtors 60,000 Creditors for goods 73,000 On the evening of 31st March, 2008 the Cashier absconded with the available cash in the cash book. There was no cash deposit in the weekend on that date. You are required to prepare a statement showing the amount of cash defalcated by the Cashier and also working notes on (1) Purchases (2) Total Sales (3) Credit Sales (4) Cash Sales for the 13 weeks upto 31.3.2008 and Bank Balance as on that date. [Ref : Q4. Dec 08 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 5 HIRE PURCHASE Objective -Type Questions : Q1. State the function of interest suspense account under the Instalment purchase system. [Ref : Q1. (e) June 04 / Paper-10] Descriptive & Practical Questions : Q1. A machinery is sold on hire purchase. The terms of payment is four annual instalments of Rs. 6,000 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. 6,000. 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% per annum on written down value basis. All workings should form part of your answer. [Ref : Q7. Dec 08 / Paper-10] Q2. Kamala Agencies started business on 1st April, 2005. During the year ended 31st March, 2006 they sold under mentioned durables under two schemes Cash Price Scheme (C.P.S) and Hire Purchase Scheme (H.P.S). Under the C.P.S they priced the goods at cost plus 25% and collected it on delivery. Under the H.P.S the buyers were required to sign a Hire Purchase Agreement undertaking to pay for the value of the goods including finance charges in 30 installments, the value being calculated at cash price plus 50%. The following are the details available at the end of 31st March, 2006 with regard to the products : Product Nos. Nos. Nos. Cost per No. of No. of

purchased sold sold unit installments installments under under Rs due during received C.P.S H.P.S the year during the year T.V. Sets 90 20 60 16,000 1080 1000 Washing Machines 70 20 40 12,000 840 800 The following were the expenses during the year : Rs. Rent 1,08,000 Salaries 1,50,000 Commission to Salesmen 12,000 Office Expenses 1,26,000 From the above information, you are required to prepare : (a) Hire Purchase Trading Accounts, and (b) Trading and Profit & Loss Account. [Ref : Q3. June 06 / Paper-10] 6 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q3. Mr. Glostar commenced business on 1st April 2003. He sells washing machines of a standard type and size on hire purchase terms. The total amount, including interest payable for each washing machine is Rs. 4,500. Customers are required to pay an initial deposit of Rs. 900, followed by eight quarterly instalments of Rs. 450 each. The following trial balance is extracted from Mr. Glostars books as on 31.3.2004 : Trial Balance Particulars Debit Credit Rs. Rs. Capital 15,00,000 Furniture 1,50,000 Purchases 27,00,000 Cash collected from customers 11,47,500 Salaries and wages 1,92,000 Office expenses 82,500 Creditors 2,49,000 Bank overdraft 2,94,000 Bank interest 6,000 Drawings 60,000 31,90,500 31,90,500 850 machine were sold during the year on hire purchase terms. Mr. Glostar has decided to take credit of profits and interest in proportion to cash collections. He purchases at a cost of Rs. 3,000 each. You are required to prepare the hire purchase Trading A/c, Profit & Loss A/c and Balance Sheet as on that date. All workings are to be shown. [Ref : Q5. June 04 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 7 ROYALTY Descriptive & Practical Questions : Q1. Tile Company leased land in 2002 at a royalty of 10 paise per ton on all the clay raised. Dead Rent was Rs. 10,000. Short working was to be recouped during the first 4 years. The clay raised in the first four years was as follows : Tons Tons 2002 75,000 2004 60,000 (Strike for 3 months) 2003 90,000 2005 1,20,000 There was a provision for proportionate reduction in dead rent in case of stoppage of work by strike, lockout, accident etc. Show Ledger accounts in the books of the Tile Company. [Ref : Q5. Dec 06 / Paper-10] Q2. Nabipur Ltd., owns certain patent rights. It has granted a licence to Ashoke Ltd. to use such rights on royalty basis. The royalty is payable at Rs. 50 per unit produced. Asoke Ltd. has issued a sub-license to Kaniska Ltd. on the basis of a royalty of Rs. 60 per unit sold. The minimum royalty payable by Kaniska Ltd. is fixed at Rs. 75,000 per annum. Short workings can be recouped within one year from the last date of the year in which they occur. The following particulars are available for the three years of working : Ashoke Ltd. Kaniska Ltd. Year Sales Closing stock Production Closing stock (units) (units) (units) (units) 1 6,000 1,500 600 300 2 7,500 3,000 3,000 600 3 13,500 4,500 4,500 1,350 You are required to : (a) prepare in the books of Ashoke Ltd., a statement showing analysis of royalties receivable and royalties payable, and (b) show royalty receivable account and royalty payable account in the books Asoke Ltd. [Ref : Q7. June 05 / Paper-10] 8 SCANNER [SEC-I] n FINANCIAL ACCOUNTING RECEIPTS & PAYMENT ACCOUNTS Objective -Type Questions : Q1. In case of membership fees of club, how to treat the same in the Income and Expenditure A/c and Balance Sheet? [Ref : Q.1 (a), June 07 / Paper-10] Descriptive & Practical Questions : Q1. The following informations were obtained from the books of Dignity Foundation Recreation Club as on 31.03.2007. At the end of the first year of the club you are asked to prepare Receipts and Payments Account, Income and Expenditure Account for the year ended 31.03.2007 and the Balance Sheet as at 31.03.2007 on mercantile basis : i) Donation received for building and library room Rs. 1,00,000 ii) Other revenue income and actual receipts : Revenue Income Actual Receipts Rs. Rs. Entrance Fees 20,000 20,000 Subscription 17,000 16,000 Locker rent 800 800 Sundry Income 1,400 860 Refreshment account 20,000 ii) Other revenue expenditure and actual payments : Revenue Income Actual Receipts Rs. Rs. Land (Cost Rs. 10,000) 10,000 Furniture (Cost Rs. 1,46,000) 1,30,000 Salaries 6,000 5,800 Maintenance of club 3,000 2,000 Rent 6,000 6,000 Refreshment account 12,000 Donations to the extent of Rs. 12,500 were utilized for the purchase of library books, balance was still unutilized. In order to keep it safe, 9% Govt. bonds of Rs. 80,000 were purchased on 31.03.2007. Remaining amount was pur in the bank on 31.03.2007 under the term deposit. Depreciation at 10% P.A. was to be provided for the whole year on Furniture and Library books. [Ref : Q.3, Dec. 07 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 9 Q2. (a) Rangakarmi, an amateur theatre organization, charges its members an annual subscription of Rs. 200 per member. It accrues for subscription owing at the end of each year and also adjusts for subscriptions received in advance. The organization closes its accounts every year at 31st December. The following particulars are available : (1) On 1st January, 2005, 20 members owed Rs. 4,000 for the year 2004. (2) In December, 2004, 5 members paid Rs. 1,000 for the year 2005. (3) During the year 2005, the organization received cash subscriptions of Rs. 85,000. The details are : For 2004 Rs. 4,000

For 2005 Rs. 79,000 For 2006 Rs. 2,000 Rs. 85,000 (4) At close of 31st December, 2005, 15 members had not paid their 2005 subscriptions. Prepare the subscriptions account. [Ref : Q.5. (a), June. 06 / Paper-10] Q3. Modern City School is a privately run educational institution. Its Balance Sheet as on 31st March, 2004 was as follows : Rs. Rs. Capital Fund 20,00,000 Land 8,00,000 Development Fund 10,00,000 School Buildings 15,00,000 Special Donation Fund 6,00,000 School Bus 8,00,000 General Fund 6,50,000 Furniture 2,00,000 Employee super annuation fund 5,00,000 Laboratory equipment Outstanding salaries (March, 05) Science Lab. 2,00,000 Teaching Staff 1,50,000 Computer Lab. 50,000 Non-teaching staff 80,000 Library books 2,50,000 Outstanding electricity bill 20,000 Investment in Govt. Securities 8,00,000 Tuition fee outstanding 60,000 Cash and Bank 3,40,000 50,00,000 50,00,000 10 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Receipts and payments account for the year ended 31st March, 2005 Rs. Rs. Opening Balance 3,40,000 Salaries Admission Fee 9,00,000 Teaching staff 58,00,000 Tution Fee 80,00,000 Non-teaching staff 10,00,000 Contribution to special donation Purchase of library books 1,00,000 funds (from ex-students) 3,00,000 Purchase of science lab equipment 50,000 Interest on investments 75,000 Purchase of computers 60,000 Construction of new school buildings 4,00,000 Purchase of school bus 6,00,000 Purchase of Govt. Securities 5,00,000 Education tour expenses 1,50,0000 Annual function 1,00,000 Building maintenance exp. 1,50,000 Purchase of new furniture 60,000 Electricity 80,000 Printing, postage stationery and other expenses 1,40,000 Closing balance 4,25,000 96,15,000 96,15,000 The following further information is available : (1) Interest accrued but not received Rs. 10,000 (2) The school has decided to charge depreciation as follows : School buildings (excluding new construction) 5% School furniture (excluding new additions) 10% Lab equipment Science lab (old & new) 8% Computer lab (old & new) 20% School bus (excluding the one newly acquired during the year) 15% Library books (old & new) 10% (3) Amount to be contributed to employee superannuation fund Rs. 1,50,000 during the year (4) Outstanding expenses at the end of the year : Staff salaries Teaching staff Rs. 80,000 Non-teaching staff Rs. 20,000 Telephone bill Rs. 2,000 SCANNER [SEC-I] n FINANCIAL ACCOUNTING 11 (5) Building contractors bill outstanding as on 31st March, 2005 Rs. 70,000 (6) Tuition fee receivable as on 31st March, 2005 Rs. 50,000 (7) Admission fee includes Rs. 2,50,000 representing collection towards development fund. You are required to prepare an income and expenditure account for the year ended 31st March, 2005 and a Balance Sheet as on that date. [Ref : Q.4, Dec. 05 / Paper-10] Q4. The Balance Sheet of New City College as at 31st March 2003 was as follows : Rs. Rs. Capital Fund 21,00,000 Land & Buildings 20,00,000 Building Construction Fund 8,00,000 Furniture 3,00,000 General Fund Outstanding 6,40,000 Laboratory Equipment 2,50,000 Salary (teachers) 1,60,000 Library Books 3,60,000 Investments 6,50,000 Accrued Tuition Fee 10,000 Cash & Bank 1,30,000 37,00,000 37,00,000 The receipts and Payments account for the year ended 31st March 2004 was drawn as under : Rs. Rs. To Opening balance (1.4.2003) 1,30,000 By Salaries & AllowancesTo Govt. Grants (revnue) 50,00,000 Teaching Staff 42,00,000 To Donation for Building By Non-Teaching Staff 20,00,000 Construction 2,00,000 By Printing & Stationary 80,000 To Tuition Fees & Session Charges 18,20,000 By Laboratory Exp. 60,000 To Investment Income 70,000 By Laboratory Equipment 1,20,000 To Rental Income (College Hall) 40,000 By Library Books 2,50,000 By Office Exp. 60,000 By Electricity & Telephone 75,000 By Audit fees 2,000 By Municipal Taxes 1,000 By Building Repairs 40,000 By Purchase of Furniture 80,000 By Games & Sports 20,000 By Welfare Exp. 30,000 By New Investments 1,50,000 By Closing Balance (31.3.2004) 92,000 72,60,000 72,60,000 12 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Other Information : (i) Tuition fee outstanding as on 31.3.2004 Rs. 40,000. (ii) Salary of teaching staff outstanding for March 2004 Rs. 2,50,000. (iii) Books received as donations from various parties Rs. 30,000 (valued). (iv) Outstanding building repair expenses as on 31.3.2004 Rs. 15,000. (v) Applicable depreciation rates : Land & 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. [Ref : Q.6, June. 04 / Paper-10] Q5. The following information were obtained from the books of Young Bengal Club as on 31.3.2007 at the end of first year of the club. You are required to prepare Receipt and Payments Account, Income and Expenditure Account for the year ended 31.3.2007 and a Balance Sheet as at

31.3.2007 on mercantile basis : (i) Donations received for Building and Library Books - Rs. 2,00,000. (ii) Other revenue incomes and actual receipts : Rev. Income (Rs.) Actual Receipts (Rs.) Entrance Fees 17,000 17,000 Subscription 20,000 19,000 Locker Rents 600 600 Sundry Income 1,600 1,060 Refreshment Account 16,000 (iii) Other revenue expenditure and acutal payments : Rev. Expenditure (Rs.) Actual Payments (Rs.) Land (Cost Rs. 10,000) 10,000 Furniture (Cost Rs. 1,46,000) 1,30,000 Salaries 5,000 4,800 Maintenance of Play Grounds 2,000 1,000 Rent 8,000 8,000 Refreshment Account 8,000 Donations to the extent of Rs. 25,000 was utilized for the purchase of Library Books, balance was utilized. In order to keep it safe, 9% Govt. Bonds of Rs. 1,60,000 were purchased on 31.3.2007. Remaining amount was put in the Bank on 31.3.2007 under term deposit. Depreciation at 10% p.a. was to be provided for the whole year on Furniture and Library Books. [Ref : Q4. June. 07 / Paper-2] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 13 Q6. SMS Recreation Club provides you with the following details and requests you to prepare. (1) Income and Expenditure A/c for the year ended 31.3.2006 & (2) Balance Sheet as on 31.03.2006. Detailed submitted : 1. Receipts and Payments A/c for the year ended 31.03.2006. Receipts Amount Amount Rs. Rs. Cash on Hand b/d 490.00 Bank Balance SBI b/d 42,000.00 Subscription 2003-2004 11,000.00 2004-2005 5,500.00 2005-2006 1,10,000.00 2006-2007 16,500.00 1,43,000.00 Hall Rent 2,00,000.00 Chair Hire Charges 12,000.00 Parking Charges 11,000.00 Sale of Scrap 720.00 Other Income 10,000.00 4,19,210.00 Payments Amount Amount Rs. Rs. Books 12,000.00 Computer (Depreciate @ 60%) 42,000.00 Electricity 13,500.00 Telephone 12,500.00 Salary 24,000.00 Party Expenses 90,000.00 Gift to Children 55,000.00 Repairs and maintenance 8,500.00 FD 1,50,000.00 Cash on Hand c/d 2,550.00 Bank Balance SBI c/d 9,160.00 4,19,210.00 14 SCANNER [SEC-I] n FINANCIAL ACCOUNTING 2. List of balances 31.03,2005 31.03.2006 Car (Depreciated @ 20%) 52,000.00 ? Sports items 58,000.00 49,000.00 Building (Depreciate @ 10%) 3,00,000.00 ? Furniture (Depreciate @ 15%) 1,60,000.00 ? Crockery (Depreciate @ 15%) 56,000.00 ? Salary o/s 4,000.00 ? Creditors 5,000.00 10,000.00 3. Club has 220 members and Rs. 550/- was collected as yearly subscription. 4. There was no payment to creditors during the year and the increase in creditors is due to purchase of some sports items. 5. Club has an accountant who was paid Rs. 2,000/- per month up to Jan 06 and there was an increment of Rs. 500/- from Feb 06. 6. FD made on 31.03.2006. [Ref : Q3. June. 06 / Paper-2] Q7. From the following information given about Victory Always Education Society for the year ending 31.03.2003 : Prepare : (a) Income and Expenditure A/c an (b) Balance Sheet Trial Balance as on 31.03.2003 Dr. Cr. Particulars Amount Amount Rs. Rs. Library Books 2,30,000 Books purchased during the year 52,200 Furniture and Fixtures 1,59,500 Addition to Furnitures during the year 35,500 Buildings 37,89,000 Investment 21,25,000 Investment Reserve Fund 1,85,000 Creditors 1,77,900 Debtors 59,700 Entrance fee 2,02,600 Examination fee 32,500 SCANNER [SEC-I] n FINANCIAL ACCOUNTING 15 Certificate fee 7,800 Subscription Received 2,75,800 Hire Charges 95,500 Interest 85,000 Other receipts 4,400 Salary 1,55,900 Printing and stationery 8,500 Postage and Telephone 2,500 Insurance 10,400 Examination Expenses 24,000 Periodicals 15,600 Awards and Prizes Fund 2,15,000 Awards and Prizes Investments 2,10,400 Awards and Prizes Income 10,200 Awards and Prizes Fund Bank Balance 2,450 Donations (Capital) 1,99,000 General Expenses 5,250

Capital Fund 5,471,720 Bank Balance 65,500 Cash on Hand 1,520 69,62,420 69,62,420 The following information is also given : Rs. Subscription Receivable as on 31.03.2003 22,500 Subscription for FY 2003-04 7,850 Interest accrued on Investment 6,250 O/s Salary as on 31.03.2004 12,500 Prepaid Insurance as on 31.03.2004 4,500 Depreciation is to be provided at the following rate : Library Books 15% PA Building 1% PA Furniture and Fixture 10%PA (50% Depreciation to be provided on additions) [Ref : Q3. June. 04 / Paper-2] 16 SCANNER [SEC-I] n FINANCIAL ACCOUNTING PARTNERSHIP ACCOUNTING Descriptive & Practical Questions : Q1. Pradip and Parimal ar equal partners. Pradip, by agreement, retires and Gopal joins the firm on the basis of one-third share of profits on 1.4.2007. The balances of the books as on 31st March, 2007 were : Dr. Cr. Rs. Rs. Goodwill 10,000 Fixed Assets at Cost 1,20,000 Current Assets : Stock 60,000 Debtors 40,000 Bank Balance 8,000 Creditors 20,000 Provision for Depreciation 12,000 Capital Accounts : Pradip 1,04,000 Parimal 1,02,000 2,38,000 2,38,000 Goodwill and Fixed Assets valued at Rs. 30,000 and Ra. 1,40,000 respectively and it was agreed to be written up accordingly before admission of Gopal as partner. Sufficient money is to be introduced so as to enable Pradip to be paid off and leave Rs. 5,000 Cash at Bank; Parimal and Gopal are to provide such sum as to make their Capitals proportionate to their share of profits. Assuming the agreement was carried out, show the Journal entries required and prepare the Balance Sheet after admission of Gopal. All workings should form part of your answer. [Ref : Q.6, June. 07 / Paper-2] Q2. A, B, and C are partners sharing profits and losses in the ratio of 3 : 2 : 1. D is admitted as a new partner on 31.12.2005 for an equal share and is to pay Rs. 25,000 as capital. Following is the balance sheet on the date of admission : Liabilities Rs. Assets Rs. Capital : A 30,000 Land and Building 25,000 B 30,000 Plant and Machinery 20,000 C 20,000 Furniture and fixture 15,000 Creditors 15,000 Stock 10,000 Bills Payable 5,000 Debtors 15,000 Bills Receivable 10,000 Bank 5,000 1,00,000 1,00,000 SCANNER [SEC-I] n FINANCIAL ACCOUNTING 17 Following are the required adjustment on Ds admission : (i) Out of the creditors, a sum of Rs. 5,000 is owing to D. (ii) Bills worth Rs. 8,000 were discounted with the bankers, out of which, a bill of Rs. 2,000 was dishonoured on 31.12.2005, but no entry has been passed for that. Due dates of the other discounted bills fall in January, 2006. (iii) Unexpired insurance premium Rs. 600. (iv) Expenses debited to the Profit and Loss A/c includes a sum of Rs. 1,000 paid for Bs personal life insurance policy. (v) A provision for bad debt @ 5% is to be created against Debtors. (vi) Expenses on revaluation amounting to Rs. 1,010 are paid by A. (vii) During 2005, part of the furniture was sold for Rs. 2,500, the book value of the furniture sold was Rs. 4,000 adn the written doen value on the date of sale is Rs. 3,500, the proceeds was wrongly credited to the Sales Account. You are required to prepare the Revaluation A/c and the Balance Sheet after Ds admission. [Ref : Q.4, Dec. 06 / Paper-2] Q3. The following is the Balance Sheet of A and B, who share profits and losses as 3 : 2 respectively, as at 31.12.04 : Liabilities Rs. Assets Rs. Capital A 35,000 Land and Building 30,000 B 30,000 Plant and Machinery 20,000 Reserve 10,000 Stock 10,000 Creditors 25,000 Debtors 20,000 Less : Provision For doubtful debts 1,000 19,000 Bank 11,000 Cash 10,000 1,00,000 1,00,000 On 1.1.2005, C joins the firm and brings in the following assets : Stock Rs. 21,000 ; Investments Rs. 12,000 ; Cash Rs. 15,000 ; Debtors Rs. 10,000. Following were agreed Upon : (i) The new profit sharing ratio among A, B and C will be equal. (ii) The Capitals of the partners should also be equal taking Cs capital as base. (iii) The reserve of the new firm will be Rs. 15,000. (iv) Provision for doubtful debts is to be created @ 10% of total debtors. (v) An investment provision of Rs. 2,000 is to be created. You are required to prepare the Balance Sheet of the new firm. [Ref : Q.4, Dec. 05 / Paper-2] 18 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q4. A and B are partners sharing profits and losses in the ratio 3 : 2. Their Balance sheet stood as under on 1.1.2003 : Liabilities Rs. Assets Rs. Capital Accounts Buildings 35,000 A 29,000 Machinery 19,000 Furniture 5,000 B 15,000 Reserve 10,000 Stock 15,000 Creditors 28,500 Debtors 9,400 Outstanding Expenses 4,000 Less : Provisions for Bad Debts 400 9,000 Prepaid Insurance 1,500 Cash 2,000 86,500 86,500 C is admitted as a new partner introducing a capital of Rs. 21,000. The capitals of the partners are to be adjusted in the new profit-sharing ratio, which is 5 : 3 : 2 taking Cs capital as base. C is to bring premium for goodwill in cash. Goodwill amount being calculated on the basis of Cs

share in the profits and capital contributed by him. Following revaluations are made : (i) Stock to be depreciated by 5%; (ii) Provisions for bad debts is to tbe raised to Rs. 500 ; (iii) Furniture to be depreciated by 10%; (iv) Buildings are revalued at Rs. 41,350. Prepare necessary Ledger Accounts and the Balance Sheet of the new firm. [Ref : Q.7, Dec. 04 / Paper-2] Q5. (b) R & S are in partnership shareing profit and losses at the ratio 3 : 2. They take T as a new partner. Calculate the new profit sharing ratio if : (i) T purchase 10 1 th sahre from R. (ii) R & S agree to sacrifice th share to T in the ratio of 2 : 3. (iii) Simply gets th share of profit. [Ref : Q7. (b), June 04 / Paper-2] Q6. The Balance Sheet of P & R, a Partnership Firm, as at 31st March, 2003, is as follows : Liabilities Rs. Assets Rs. Capital Account : Goowill 14,000 P 26,400 Land and Building 14,400 R 33,600 60,000 Furniture 2,200 Contingency Reserve 6,000 Stock 26,000 Sundry Creditors 9,000 Cash at Bank 12,000 75,000 75,000 SCANNER [SEC-I] n FINANCIAL ACCOUNTING 19 P & R share Profits and Losses as 1 : 2. They agree to admit S (who is also in business of his own) as a third partner from 1.4.2003. The Assets are revalued as under : Goodwill Rs. 18,000, Land and Building Rs. 30,000, Furniture Rs. 6,000. S brings the following Assets into Partnership Goodwill Rs. 6,000, Furniture Rs. 2,800, Stock Rs. 13,600. Profits in the new firm are to be sahred equally by the three Partners and the Capital Accounts are to be so adjusted as to be equal. Prepare Revaluation Account, Partners Capital Account and Balance Sheet after the admission of S. [Ref : Q.3, June 03 / Paper-2] Q7. Morning, Day and Night Carry on business in partnership sharing the Profits and Losses in the proportion of 25%, 25% and 50% respectively. Their Blance Sheet as on 31.03.2005 was as under : Liabilities Rs. Assets Rs. Sundry Creditors 1,20,000 Cash/Bank 1,00,000 General Reserves 80,000 Sundry Debtors 75,00,000 Capitals Inventories 10,00,000 Morning 24,00,000 Fixed Assets W.D.V 4,00,000 Day 24,00,000 Investment (At cost) Night 50,00,000 98,00,000 (Market Value Rs. 15,00,000) 10,00,000 1,00,00,000 1,00,00,000 On 1st April, 2005 Morning and Day retired and Night continued the business. Night paid Rs. 36,00,000 to Morning and Rs. 36,00,000 to Day in full and final discharge of their claim in the partnership. This amount was brought in by Night for the purpose of payment to the retiring partners. None of the assets and liabilities are to be revalued. You are asked to : (i) Pass accounting entries in relation to the above in the books of business Unit. (ii) Prepare the Balance Sheet of the business unit after the above transactions are recorded. [Ref : Q3. (a), June 05 / Paper-2] 20 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q8. ASHA, REKHA and ASHOK are partners sharing Profits and Losses in the ratio of 5 : 3 : 2 respectively. On March 31, 2007 they decided to dissolve the partnership firm and on that date their Balance Sheet was a follows : Balance Sheet as on March 31, 2007 Liabilities Rs. Assets Rs. Capital : Cash at Bank 12,000 Asha 96,000 Debtors 50,400 Ashok 84,000 1,80,000 Less : Provision 2,400 48,000 General Reserve 24,000 Rekhas Capital 12,000 Creditors 72,000 Land & Building 96,000 Bills Payable 24,000 Stock 54,000 Mrs. Ashoks Loan 12,000 Furniture 36,000 Investment Fluctuation Fund 6,000 Bills Receivable 30,000 Investments 30,000 3,18,000 3,18,000 The terms of dissolution are as follows : (a) Rs. 22,800 were paid to a Creditor as against only Rs. 15,600 provided for in the books of Accounts. (b) There was bad debts of Rs. 8,400 and discount of 10% was allowed to Debtors. (c) Bills payable were due on an average after 3 months were paid immediately at a discount of 12% p.a. (d) Investment realized Rs. 26,400 ; Land and Building was sold for Rs. 1,20,000, Stock realized 20% less. (e) Ashok agreed to pay Mrs. Ashoks loan and took over furniture at Rs. 33,600. (f) A rebate of 1,200 was given to Bills Receivable and Expenses of dissolution were Rs. 3,600 which were paid by Rekha. Prepare Realisation Account, Bank Account and Partners Capital Accounts to close the books of firm. [Ref : Q3., Dec. 07 / Paper-2] Q9. A, B, C and D are partners in a garage comprising (i) petrol sales, (ii) repairs and servicing, and (iii) second-hand car dealing. A is responsible for petrol sales, B for repairs and servicing, and C for second-hand car dealing, while D acts purely in an advisory capacity. The partnership agreement provides for the following : (a) Each partner is to receive commission of the net profit of the partners own department as under : A 10%, B 15% and C 20%. SCANNER [SEC-I] n FINANCIAL ACCOUNTING 21 (b) A total salary of Rs. 11,000 is payable to D which is to be allocated among the above three departments in the ratio of 3 : 4 : 4 respectively. (c) 50% of the net profit of each department after charging commission and salary will be distributed to A, B and C as under : Petrol sales A, B and C Equally Repairs and Servicing A : B : C = 2 : 2 : 1 Second-hand Car Dealing A : B : C = 3 : 2 : 1 (d) The balance of the profit of the firm will be shared equally by all partners after charging interest on capital @ 10% p.a. The net profits of the departments for the year ended 31.12.2002 were as under : Petrol Sales Rs. 20,000 ; Repairs and Servicing Rs. 40,000 ; Second-hand car dealing Rs. 50,000. The partners capitals are : A Rs. 40,000 ; B Rs. 30,000 ; C Rs. 25,000 ; D Rs. 10,000. You are required to prepare the Profit and Loss Appropriation Account for the year ended 31.12.2002. [Ref : Q6. Dec. 03 / Paper-2] Q10. Black, Red and White were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. The Trial Balance of the firm as on 31st March, 2008 was as follows : Rs. Rs. Machinery at Cost 1,20,000 Depreciation on Machinery 60,000 Capital A/c : Black 68,000 Red 45,000 White 23,000 Drawings A/c : Black 25,000

Red 23,000 White 17,000 Stock in Trade 65,000 Sundry Debtors 65,300 Sundry Creditors 60,500 Bills Payable 24,200 Profit for the year ended 31st March, 2008 1,24,300 Cash at Bank 89,300 4,05,000 4,05,000 Interest on capital accounts at 10% p.a. on the amount standing to the credit of partners capital account at the beginning of the year, was not provided before preparing the above Trial Balance. 22 SCANNER [SEC-I] n FINANCIAL ACCOUNTING On 1st April, 2008 they formed a Private Limited Company with an authorised share capital of Rs. 2,00,000 in shares of Rs. 10 each to be divided in different classes to take over the business of partnership. You are informed as under : (i) Machinery is to be transferred at Rs. 70,000. (ii) Shares in the company are to be issued to the partners, at par, in such numbers, and in such classes as will give the partners, by reason of their share holding alone, the same rights as regards interest on capital and the sharing of profit and losses as they had in the partnership. (iii) Before transferring the business, the partners wish to draw from the partnership profits to such an extent that the bank balance is reduced to Rs. 50,000. For this purpose sufficient profit of the year are to be retained in profit sharing ratio. (iv) All assets and liabilities except machinery and the bank are to be trasferred at their book value as on 31st March, 2008. You are required to prepare : (a) Capital Accounts showing all adjustments required to dissolve the partnership. (b) Statement showing the workings of the number of shares of each class to be issued by the company to each of the partners and a statement of additional drawings in cash. (c) The Balance Sheet of the company immediately after acquiring the business of the partnership and issuing of shares. [Ref : Q.6, Dec. 08 / Paper-10] Q11. Amalesh and Kamalesh are two partners sharing Profits and Losses in the ratio of 3 : 2. On 30th September, 2005, they admit Bimalesh as a partner and the new profit sharing ratio as 2 : 2 : 1. Bimalesh brought in fixture Rs. 3,000 and cash Rs. 12,000, the goodwill being (i) Amalesh and Kamalesh Rs. 20,000 and (ii) Bimalesh Rs. 10,000 but neither figure is to be brought into the books. On 31st March, 2006, the partnership is dissolved, Amalesh retiring and the other two partners forming a company called Bomex Ltd. with equal capitals, taking over all remaining assets and liabilities, goodwill being agreed at Rs. 40,000 and brought into books of the company. Amalesh agrees to take over the business car at Rs. 3,700 plant was sold for Rs. 3,000 being in excess of requirements. The profits of the two preceding years were Rs. 16,200 and Rs. 20,000 respectively and it was agreed that for the half year ended 30th September, 2005, the net profit was to be taken as equal to the average of the two preceding years and the current year. No entries had been made when Bimalesh entered, expect cash. No new book being opened by Bomex Ltd., Amalesh agreed to have Rs. 45,000 as loan to the company, secured by 12% Debentures. The following is the Trial Balance as on 31.3.2006 : SCANNER [SEC-I] n FINANCIAL ACCOUNTING 23 Dr. Cr. Rs. Rs. Capital Accounts : Amalesh 40,000 Kamalesh 25,000 Bimalesh 12,000 Drawing Account : Amalesh 11,000 Kamalesh 10,000 Bimalesh 4,800 Sundry Debtors 35,000 Sundry Creditors 16,000 Plant (Book Value of Plant sold Rs. 4,000) 23,000 Fixtures 7,000 Stock on 31.3.2006 12,000 Motor Car 2,700 Cash at Bank 17,300 Profit and Loss Account for the year 29,800 1,22,800 1,22,800 Prepare : (i) Goodwill Adjustment Account, (ii) Capital Account of Partners, (iii) Profit and Loss Appropriation Account, (iv) Balance Sheet of Bomex Ltd. as on 31st March, 2006. [Ref : Q.4, June 06 / Paper-10] 24 SCANNER [SEC-I] n FINANCIAL ACCOUNTING BRANCH AND DEPARTMENT Objectives -Type Questions : Q1. In respect of dependent branch, the Head Office (under Branch Accounting method) follows certain methods of accounting. List them out clearly. [Ref : Q1. (h), Dec. 04 / Paper-10] Descriptive & Practical Questions : Q1. Shewag & Co., with headquarters at Chennai, maintains a branch at Kochi. Goods are invoiced to the Kochi branch at cost plus 25%. In respect of the Kochi branch, the following information pertaining to the year ended 31.3.2008 are made available to you : Rs. Goods sent to branch at invoice price 6,25,000 Cash sales effected by branch 1,76,000 Goods returned by customers to branch 10,000 Bad Debts 5,000 Discount allowed to customers 2,000 Amount received from branch debtors 3,40,000 Cheques of customers which got dishonoured 8,000 Branch expenses met in cash 72,900 As on 31.3.2007 As on 31.3.2008 Rs. Rs. Stock at branch (at invoice price) 1,25,000 1,75,000 Branch Debtors 40,000 95,000 Adopting the Stock and Debtors system, you are required to prepare the following Ledger Accounts, as appearing in the books of the Head Office : (a) Kochi Branch Debtors Accounts ; (b) Kochi Branch Stock Account ; and (c) Kochi Branch Adjustments Account. [Ref : Q6., June 08 / Paper-10] Q1. SCANNER [SEC-I] n FINANCIAL ACCOUNTING 25 Q2. Puskar Enterprise has its head office in Ranchi and branch in Imphal. The following trial balance has been extracted from the books of account as at 31st March 2005 : The following is the Trial Balance as on 31.3.2006 : Head Office Branch Dr. Cr. Dr. Cr. Rs. Rs. Rs. Rs. Capital 16,50,000 Debtors 3,00,000 1,80,000 Creditors 1,50,000 Purchases 27,42,000 Sales 25,50,000 13,11,000

Goods sent to branch at Invoice price 11,40,000 11,25,000 Fixed assets (net) 10,50,000 2,00,000 Stock (1 April 2004) 24,000 60,000 Stock adjustment (unrealised profit) 12,000 Head office/branch current a/c 5,25,000 3,60,000 Administrative and selling expenses 8,41,500 74,500 Cash and Bank 46,500 39,000 Provision for bad debts 27,000 7,500 55,29,000 55,29,000 16,78,500 16,78,500 Other relevant information : (1) All goods are purchased by the head office. Goods are sent to branch at cost plus 25 per cent. (2) Stocks at 31 March 2005 were valued at : H.O. Rs. 36,000 Branch Rs. 45,000 (invoice price) (3) Depreciation is to be provided on fixed assets at 10% on book value. (4) Bad debt provision is to be maintained at 5% on debtors as at the end of the year. (5) Cash in transit from branch to head office at 31, March 2005 was Rs. 1,50,000. (6) Goods in transit from head office to branch at 31 March 2005 at invoice price was Rs. 15,000. Prepare, in columner form, the branch and head office trading and profit and loss accounts for the year ended 31 March 2005 and a combined balance sheet for Puskar Enterprise as on that date. [Ref : Q5., June 05 / Paper-10] 26 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q3. M/s Star & Co. has two departments which maintain separate records. Prepare Trading and Profit & Loss A/c for each department and Balance Sheet for the company for the year ended 31.3.2003. Provide depreciation on Plant and Machinery @ 33 %. Building by 5%, Furniture @ 10%, other un-allocated expenses to be allocated on the basis of net sales of each department. Dept. I Dept. II Rs. Rs. Opening Stock (1.4.02) 1,00,000 80,000 Purchases 9,20,000 7,60,000 Purchase Returns 8,000 4,000 Sales 25,32,000 19,68,000 Sales Return 12,000 8,000 Wages & Salaries 7,20,000 6,40,000 Misc. expenses 1,40,000 1,28,000 Closing Stock (31.3.03) 1,04,000 96,000 General balances for the year : Rs. Debtors 7,60,000 Creditors 6,92,000 Plant & Machinery 9,60,000 Land 3,20,000 Building 4,80,000 Furniture 1,92,000 Sales overheads 5,12,000 Cash on 31.3.03 32,000 Bank balance on 31.3.03 4,40,000 Capital 20,00,000 [Ref : Q3. June 04 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 27 ACCOUNTING STANDARD Objective -Type Questions : Q1. (a) Define a cash and cash equivalents as suggested in accounting standard 3 to be used for preparing a cash flow statement. (b) What is the objective of Accounting Standard? (c) State whether each of the following statement is true or false. (i) Going concern means that business has entrered into a process of liquidation. (ii) The principle of consistency requires that all business enterprises should follow the same method of accounting. (d) When parties are considered Related as per A.S. 18? [Ref : Q1. (d) - (f), (i), (j), Dec 08 / Paper-10] Q2. (a) Under which Accounting Standard cash flow statement is prepared How do you treat Profit & Loss on sale of Fixed Assets for calculating cash flows from operating activities? (b) State the disclosure requirement in case of accounting for the effects of change in foreign exchange rates. (c) State with reasons whether the following is True or False : Hema Pvt. Ltd. adopts the practice of disclosing the significant policies pertaining to each relevant item in the appropriate schedule (wherein the said item forms a part) to the Income Statement or Balance Sheet. This is a perfectly valid disclosure. (d) State whether the following statements/facts are True or False : (i) Super profit basis of goodwill valuation does not account for normal and Extra-Profit. (ii) Intrinsic value is EPS XPE Ratio. (e) How are Government grants in the form of non-monetary grants accounted for? [Ref : Q1. (d), (e), (f), (g), (j), June 08 / Paper-10] Q3. (a) An intangible asset is an identifiable monetary asset. (b) What are the disclosure requirements pertaining to events occurring after the Balance Sheet date under the Accounting standards? (c) When can an item qualify to be a prior period item? (d) What is the objective of Accounting standards? (e) Can a company change the method of providing depreciation? [Ref : Q1. (a), (c), (d), (f), (h), Dec. 07 / Paper-10] Q4. The inventory under AS 2 is valued on the basis of cost price or current replacement cost whichever is lower. [Ref : Q1. (e)(ii), June 07 / Paper-10] 28 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q5. (a) Define cash and cash equivalent as suggested in accounting standard 3 to be used for preparing a cash flow statement. (b) Distinguish between prior period items and accounting estimates. (c) State the disclosure requirement in a case where the Profit and Loss Account and Balance Sheet of a company do not comply with the accounting standard. [Ref : Q1. (c), (d), (g), Dec. 06 / Paper-10] Q6. (a) How should rentals repayable under operating leases be accounted for in accordance with AS 19? (b) State four items which are not to be included in determining the cost of inventories in accordance with paragraph 6 of AS 2 (Revised). [Ref : Q1. (a), (h), June 06 / Paper-10] Q7. (a) Define financing activities as suggested in accounting standard 3, to be used for preparing a cash flow statement. (b) What is the objective of Accounting Standards? [Ref : Q1. (f), (g), Dec. 05 / Paper-10] Q8. (a) What is the legal status of accounting standards issued by the Instiute of Chartered Accountants of India? (b) What do you mean by fundamental accounting assumptions? [Ref : Q1. (f), (h), June 05 / Paper-10] Q9. Can proceeds from sale of Fixed Assets in excess of original cost be directly credited to Capital Reserve? [Ref : Q1. (f), Dec. 04 / Paper-10] Q10. (a) When is an asset judged to have suffered an impairment loss? (b) How should basic earnings per share be calculated under AS-20? [Ref : Q1. (b), (c), June 04 / Paper-10] Descriptive & Practical Questions : Q1. Contingencies and envents occurring after balance sheet date (AS 4 revised). [Ref : Q8. (b), June 08 / Paper-10] Q2. Advantages of setting Accounting standards. [Ref : Q8. (d), Dec. 07 / Paper-10] Q3. What is meant by global convergence of accounting standards? Discuss the benefits of

convergence. What are the impediments to convergence? [Ref : Q7. June 06 / Paper-10] Q4. Discontinuing operations. [Ref : Q8. (d), June 04 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 29 JOINT STOCK COMPANIES Objective -Type Questions : Q1. What is the legal status of accounting standards issued by the Institute of Chartered Accountants of India? [Ref : Q1. (f), June 05 / Paper-10] Q2. Bonus issue can be made out of profits to make partly paid-up shares as fully paid-up shares. [Ref : Q1. (a)(i), Dec. 07 / Paper-10] Q3. Mention the funds out of which a company can purchase its own shares. [Ref : Q1. (d), Dec. 04 / Paper-10] Q4. State the cases where the creation of Debenture Redemption Reserve is not mandatory as per SEBI guidelines. [Ref : Q1. (h), Dec. 08 / Paper-10] Descriptive & Practical Questions : Q1. The Balance Sheet of AB Ltd. as at 31st March, 2006 was as follows : Sources of Funds Rs. 8000 A Class Equity Shares of Rs. 100 each fully paid 8,00,000 2000 B Class Equity Shares of Rs. 100 each fully paid 2,00,000 Security premium 1,00,000 General reserve 4,00,000 10% Debentures of Rs. 100 each 14,00,000 Secured loans 6,00,000 35,00,000 Employment of funds Fixed Assets Net of Depreciation 28,00,000 Working Capital 7,00,000 35,00,000 You are given the following information : (a) B Class Equity Shares are with differential rights as to dividends, voting or otherwise. (b) On 1st April, 2006 company in terms of its articles and through its special resolution decided to buy-back the B Class equity shares at a premium of Rs. 50 per share. Necessary approvals were obtained in due course and the buy-back arrangement was completed by 30th June, 2006. (c) On 30th September, 2006 company declared the issue of fully paid bonus shares (A Class) to A Class equity shareholders in the ratio of one share for every four shares held and the issue was successfully completed by 31st December, 2006. Journalese the transactions in the books of AB Ltd. [Ref : Q6. Dec. 07 / Paper-10] 30 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q2. (a) Explain the meaning of free reserves in the context of buy back of shares. State the adjustments that should be made to arrive at the net amount available for the purpose for the buy back. (b) The Balance Sheet of BXT Ltd. as on 31st March, 2005 was as follows : Rs./Lakh Rs./Lakh Share Capital Fixed Assets Equity shares of Rs. 10 each, Land and buildings 15.50 fully paid 20.00 Plant and machinery 9.00 Reserves and surplus : Investments General Reserve 7.00 Corporate securities 4.00 Securities premium 5.00 Current assets Profit and Loss account 8.00 Stock 7.00 Secured loan Debtors 10.00 10% debentures 6.00 Cash and Bank 12.00 Unsecured loan Term loan 4.00 Current liabilities and provision Trade creditors 5.00 Accruals 2.50 57.50 57.50 The company has decided to buy back the maximum number of equity shares per missible under the law and has completed the necessary formalities in this respect. The buy back is to take place at a price of Rs. 20 per share. Pass the necessary journal entries and prepare the pst buy back Balance Sheet. [Ref : Q3. (a), (b) Dec. 05 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 31 PREPARATION OF FINAL ACCOUNTS Objective -Type Questions : Q1. Under what headings will you show the following item in the Balance Sheet of a company? Sinking Fund. [Ref : Q1. (c), June 08 / Paper-10] Q2. State with reasons whether the following statements are true or false : (a) The debit balance in the Profit & Loss A/c is treated as surplus. (b) Goodwill is a fictitious Assets. [Ref : Q1. (e), Dec. 07 / Paper-10] Q3. (a) Define accounting regulations. State in this context the present framework of corporate accounting in India. (b) Accounting to sec. 79 of the Companies Act, 1956, what are the two provisions when companies cannot issue share at a discount. (c) When can revenue be recognized in the case of a transaction of sale of goods? [Ref : Q1. (b), (e), (h), Dec. 06 / Paper-10] Q4. Can dividend be declared out of profit on re-issue of forfeited shares? [Ref : Q1. (g), June 06 / Paper-10] Q5. In accordance with the provisions of the Companies Act it is necessary to group the items appearing in the companys balance sheet under certain headings : What are these headings? [Ref : Q1. (h), Dec. 05 / Paper-10] Descriptive & Practical Questions : Q1. Disclosure requirements as per Companies Act, 1956 in case of non-compliance of accounting standards. [Ref : Q8. (a), Dec. 08 / Paper-10] Q2. Due to paucity of profits a company proposes to declare dividends out of its general reserves. From the under mentioned data you are asked to ascertain the amount which can be drawn from general reserves as per Declaration of Dividend and Reserve Rules 1775 : Rs. 10,000 10% preference shares of Rs. 100 each fully paid 10,00,000 30,000 equity shares of Rs. 100 each fully paid 30,00,000 General reserve 8,00,000 Securities Premium 2,00,000 Credit balance of profit and loss account 20,000 Net profit for the year (after tax) 1,80,000 Average dividend during last five years 15% [Ref : Q7. Dec. 07 / Paper-10] 32 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q3. From the following particulars furnished by OPTEX Ltd., prepare the Balance Sheet as at 31st March, 2006 as required by Part I, Schedule VI of the Companies Act. Give notes at the foot of the Balance Sheet as may be found necessary : Debit (Rs.) Credit (Rs.) Equity Capital (face value of Rs. 100) 10,00,000 Land 2,00,000 Building 3,50,000 Plant and Machinery 5,25,000 Furniture 50,000 Calls in Arrears 1,000 General Reserve 2,10,000 Loan from State Financial Corporation 1,50,000 Stock : Finished 2,00,000

Raw Materials 50,000 2,50,000 Sundry Creditors (for goods and expenses) 2,00,000 Loans (unsecured) 1,21,000 Preliminary expenses 13,300 Cash at Bank 2,47,000 Cash Balance 30,000 Profit & Loss Account 1,00,000 Proposed Dividend 60,000 Advances 42,700 Sundry Debtors 2,00,000 Provision for Taxation 68,000 19,09,000 19,09,000 The following additional information is also provided : (a) Miscellaneous expenses included Rs. 5,000 audit fees and Rs. 700 for out of pocket expenses paid to the auditors. (b) 2000 Equity Shares were issued for consideration other than cash. (c) Debtors of Rs. 52,000 are due for more than six months. (d) The Cost of Assets : Building Rs. 4,00,000 Plant and Machinery Rs. 7,00,00 Furniture Rs. 62,500 (e) The balance of Rs. 1,50,000 in the loan account with State Finance Corporation is inclusive of Rs. 7,500 for interest accrued but not due. The Loan is secured by hypothecation of the Plant & Machinery. (f) Balance at Bank includes Rs. 2,000 with Simplex Bank Ltd., which is not a scheduled Bank. (g) Bills Receivable for Rs. 2,75,000 maturing on 30th June, 2006 have been discounted. (h) The company had contract for the erection of machinery at Rs. 2,50,000 which still incomplete. [Ref : Q7. Dec. 06 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 33 Q4. P. K. Daga furnishes you with following data and request you to draw up his Trading and Profit & Loss Account for the year ended 31.3.2008 and Balance Sheet as on that date : 31.3.2007 31.3.2008 Rs. Rs. Building 40,000 40,000 Machinery 30,000 31,000 Furniture 8,000 7,000 Stock 6,000 7,500 Debtors 4,500 ? Bills Receivable 1,500 Nil Cash and Bank 4,000 5,000 Creditors ? 3,500 Bills Payable 3,000 2,000 Additional Information : (1) Closing Cash in hand amounted to Rs. 700.00 (2) Proceeds of B/R received in cash Rs. 12,000 from Bank on discounting @ 5% Rs. 1,900 Rs. 13,900 (3) Collection from Debtors in cash Rs. 15,000 and by cheque Rs. 45,000. (4) B/R endorsed to Creditors Rs. 1,000. (5) Bad Debt Rs. 400. (6) Total Sale Rs. 1,00,000 (including Rs. 23,200 in cash) (7) Cash Purchase Rs. 20,500. (8) Paid against B/P by cheque Rs. 10,000. (9) Payment to Creditors Rs. 15,000 in cash and Rs. 41,000 by cheque. (10) On 1.4.2007, a machine having book value Rs. 6,000 was sold at a profit of Rs. 500. On the same day, Furniture having a book value Rs. 3,000 was sold at a loss of Rs. 200. Both the proceeds were received by cheque. (11) Assets bought during the year were paid for by cheque. (12) Daga draws Rs. 500 every month in cash. (13) General Expenses amounted to Rs. 5,000 during the year. All such expenses were paid in cash. (14) An amount was borrowed during the year in cash. (15) Amount deposited and withdrawn from Bank were Rs. 24,500 and Rs. 20,000 respectively. (16) Daga maintains a constant margin of 20% on sale. [Ref : Q4. June 08 / Paper-10] 34 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q5. The following is the Balance sheet of Shri Raman as on 30th June, 2005 : Liabilities Rs. Assets Rs. Capital Account 96,000 Building 65,000 Loan 30,000 Furniture 10,000 Creditors 62,000 Motor Car 18,000 Stock 40,000 Debtors 34,000 Cash in hand 4,000 Cash at Bank 17,000 1,88,000 1,88,000 A riot occurred on the night of 30th June, 2006 in which all books and records were lost. The Cashier had absconded with the available cash. Shri Raman gives you the following information : (a) His sales for the year ended 30th June, 2006 were 20% higher than the previous years. He always sells his goods at cost plus 25%, 20% of the total sales for the year ended 30th June, 2006 were for cash. There were no cash purchases. (b) On 1st July 2005, the stock level was raised to Rs. 60,000 and stock was maintained at this new level all throughout the year. (c) Collections from debtors amounted to Rs. 2,80,000 of which Rs. 70,000 was received in cash. Business expenses amounted to Rs. 40,000 of which Rs. 10,000 was outstanding on 30th June, 2006 and Rs. 12,000 was paid by cheques. (d) Analysis of the pass book revealed the following : Rs. Payment to Creditors 2,75,000 Personal Drawings 15,000 Cash deposited in Bank 1,43,000 Cash withdrawn from Bank 24,000 (e) Gross Profit as per last years audited accounts was Rs. 60,000. (f) Provide depreciation on Building and Furniture at 5% and Motor Car at 20%. (g) The amount defalcated by the cashier may be treated as recoverable from him. Prepare the Trading and Profit & Loss Account for the year ended 30th June, 2006 and the Blance Sheet as on that date. [Ref : Q4. June. 07 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 35 Q6. The following particulars have been furnished in respect of Mr. Brights business. From these you are required to prepare Trading A/c, Profit & Loss A/c and Balance Sheet6 as on 31.3.2003 : 1.4.2002 31.3.2003 Rs. Rs. Cash 3,750 Bank balance 7,50,000 5,25,000 Debtors 25,00,00 31,25,000 Creditors 22,50,000 25,00,000 Stock 3,75,000 6,25,000 Analysis of the bank pass book the following have been revealed : (a) Withdrawal for petty cash expenses @ Rs. 37,500 per month. (b) Collection from debtors Rs. 33,75,000. (c) Sales price being cost + 33 3

1 %. (d) Any difference in Cash A/c and Bank A/c to be treated as personal drawings of Mr. Bright. (e) Petty cash expenses during the year Rs. 4,46,250. (f) All purchases were made on credit and paid by cheques. (g) All sales were made on credit and dues collected by cheques. [Ref : Q4. June. 04 / Paper-10] 36 SCANNER [SEC-I] n FINANCIAL ACCOUNTING ACCOUNTING - SERVICE SECTOR Objective -Type Questions : Q1. State the disclosure requirements in the financial statements of a contractor. [Ref : Q1. (b), June 07 / Paper-10] Q2. When is a banking company allowed to form subsidiary companies? [Ref : Q1. (d), June 04 / Paper-10] Q3. For what purposes Contingency Reserve may be utilized by an electricity undertaking? [Ref : Q1. (g), Dec. 08 / Paper-10] Q4. Tariff and Dividend Control Reserves of an Electricity undertaking can never be utilized. [Ref : Q1. (b)(i), June 08 / Paper-10] Q5. What is meant by non-banking assets? [Ref : Q1. (g), June 05 / Paper-10] Q6. For what purposes contingency reserve may be utilized by an electricity under taking ? [Ref : Q1. (j), Dec. 05 / Paper-10] Q7. State how fixed assets when discarded and sold are recognized in the Accounts of Electricity Companies. [Ref : Q1. (c), June 05 / Paper-10] Q8. What do you mean by clear profit? [Ref : Q1. (j), June 04 / Paper-10] Q9. Statutory Liquidity Ratio (SLR) of Banking Companies? [Ref : Q1. (a), June 08 / Paper-10] Descriptive & Practical Questions : Q1. Y Ltd. undertook a contract No. 80 for Rs. 7,50,000. The contract account showed the following particulars : 2005 : Materials Rs. 1,00,000, Wages Rs. 60,000, Overheads Rs. 15,000, Materials returned Rs. 8,000. The Plant at its depreciated value was transferred to contract No. 88. Uncertified work Rs. 15,000. 2007 : Materials Rs. 1,60,000, Wages Rs. 1,00,000, Overheads Rs. 28,000 and Materials Sold Rs. 4,000. The amount of work certified at the end of the first year was Rs. 1,00,000. The work certified upto the end of the second year was Rs. 4,00,000 and the work certified in the third year was Rs. 3,50,000. 80 percent of the certified work was received in cash. Profit to be taken credit for are one-third and one-half on cash basis in each of the two years respectively. Depreciate plant by 10 percent on balance at the beginning of each year. Prepare accounts in respect of the contract at the end of each year. [Ref : Q5. Dec. 08 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 37 Q2. Y Ltd. undertook a contract No. 80 for Rs. 7,50,000. The contract account showed the following particulars : 2003 : Materials Rs. 30,000, Wages Rs. 25,000, Overheads Rs. 10,000, Plant Rs. 1,00,000 and Materials at site at close Rs. 3,000. 2004 : Materials Rs. 1,00,000, Wages Rs. 60,000, Overheads Rs. 15,000, Materials returned Rs. 8,000. The Plant at its depreciated value was transferred to contract No. 88. Uncertified work Rs. 15,000. 2005 : Materials Rs. 1,60,000, Wages Rs. 1,00,000, Overheads Rs. 28,000 and Materials Sold Rs. 4,000. The amount of work certified at the end of the first year was Rs. 1,00,000. The work certified upto the end of the second year was Rs. 4,00,000 and the work certified in the third year was Rs. 3,50,000. 80 percent of the certified work was received in cash. Profit to be taken credit for are one-third and one-half on cash basis in each of the two years respectively. Depreciate plant by 10 percent on balance at the beginning of each year. Prepare accounts in respect of the contract at the end of each year. [Ref : Q6. Dec. 06 / Paper-10] Q3. Statutory reserve in case of accounting of banking companies. [Ref : Q8. (b), Dec. 08 / Paper-10] Q4. Calculate the amount of provision to be made by a nationalized bank in respect of doubtful debts on the following information : Rs. in crores Some advances not exceeding Rs. 25,000 in each case 10 Advances over due for more than 30 months (of which 50% is fully secured) 50 Advances over due for 15 months 60 Fully secured advances repayments being regular 40 Non-recoverable unsecured advances 20 Total of loans and advances 180 [Ref : Q5. (a), (b), June 08 / Paper-10] Q5. Restriction of dividends in case of banking company. [Ref : Q8. (a), June 08 / Paper-10] 38 SCANNER [SEC-I] n FINANCIAL ACCOUNTING Q6. Clear profits of Karikal Electricity Corporation Ltd. is Rs. 70,000 for the year ended 31st March, 2006. Other details are as follows : Rs. Development Reserve 2,00,000 Loan by Electricity Board 4,00,000 Depreciation Provision 60,000 Tariff and Dividend Control Reserve 50,000 Cost of Fixed Assets 8,00,000 Compulsory Investment against Contingency Reserve 2,00,000 Working Capital 2,00,000 Rate of interest on investment against contingency reserve is 5% p.a. Reserve Bank rate is 9%. From the data given above find out : (a) The Capital base; (b) Reasonable Return; (c) Disposal of surplus; (d) Distribution of clear profits. [Ref : Q6. June 07 / Paper-10] Q7. Wind Mill Ltd. Supplying electicity maintains its accounts on double account basis. It incurred an expenditure of Rs. 25,00,000 to renovate its works. The relevant part of old works had costed Rs. 10,00,000. The capacity of new works will be double the capacity of old works. A sum of Rs. 5,00,000 is realized by the sale of old materials. Old materials of the value of Rs. 2,00,000 are used in the new works. Cost escalation (since old works were built) is as follows : Materials 20% Labour 25% The cost constitutes 5 3 th for materials and 5 2 th for labour. Show (a) the amount of improvement to be capitalized, (b) the amount to be written off to revenue, (c) Journal Entries to record the transactions. [Ref : Q2. June 05 / Paper-10] SCANNER [SEC-I] n FINANCIAL ACCOUNTING 39 Q8. The following information is obtained from the books of Paragon Insurance Co. in respect of fire insurance as on 31.12.2003. Prepare the Fire Insurance Revenue account for the year ended 31.12.2003 : Increase the additional reserve by 10% of the net premium. Rs. Reserve for unexpired risk on 1.1.03 8,75,000 Additional reserve on 1.1.03 1,75,000

Claims paid 5,95,000 Estimated liability in respect of outstanding claims On 1.1.03 1,13,750 On 31.12.03 1,57,500 Managerial Exp. (including Rs. 52,500 Legal Expenses in connection with claims) 4,90,000 Re-insurance premium 1,31,250 Claims covered by re-insurance 35,000 Premiums 19,68,750 Interests & dividends (less Income Tax) 1,01,500 Profit on sale of investments 19,250 Commission 2,66,000 [Ref : Q7. June 04 / Paper-10] SCANNER [SEC-II] n FINANCIAL ACCOUNTING 209

SCANNER
SECTION-II
Compiles Question asked in the Intermediate Examination of ICWAI under Syllabus 2008 in December 08 and June 09. 210 SCANNER [SEC-II] n FINANCIAL ACCOUNTING

[GROUP - I]
SCANNER [SEC-II] n FINANCIAL ACCOUNTING 211 FINANCIAL ACCOUNTING ACCOUNTING CONVENTIONS AND PRACTICES Objective -Type Questions : Q1. Distinguish between liability and provisions. [Ref : Q1. (a), June 09 / Paper-5] 3 Q2. State whether following statements are true or false : (i) Goodwill is a fictitious assets. (ii) Land is a depreciable asset. [Ref : Q1. (d), June 09 / Paper-5] 4 Descriptive & Practical Questions : Q1. Materiality concept. [Ref : Q8. (e), Dec 08 / Paper-5] 3 Q2. What are the objects of charging depreciation and problems of measurement of depreciation? Explain. [Ref : Q2. (b), June 09 / Paper-5] 5 Q3. State the advantages and disadvantages of Weighted Average method of valuation of inventory. [Ref : Q5. (b), June 09 / Paper-5] 5 212 SCANNER [SEC-II] n FINANCIAL ACCOUNTING ROYALTY Descriptive & Practical Questions : Q1. Define the Concept of Minimum/Dead Rent. [Ref : Q3. (b), June 09 / Paper-5] 5 HIRE PURCHASE Objective -Type Questions : Q1. Choose the correct answer : Under the hire-purchase system the buyer becomes the owner of goods : (i) Immediately after the delivery of goods. (ii) Immediately after the down payments. (iii) Immediately after the first instalment is paid. (iv) Immediately after the payment of last instalment. [Ref : Q1. (h), Dec. 08 / Paper-5] 3 Descriptive & Practical Questions : Q1. Sunshine Company sells goods for cash and on hire purchase and latter being the cash retail price plus 12.5% thereon. Following are the particulars for the year ended 31st December, 2007 : Rs. Stock with hire purchase (at hire purchase price) with customers on 1.1.2007 29,700 Purchase during the year 1,58,400 Stcok at shop : On 1.1.2007 22,000 On 31.12.2007 26,400 48,400 Cash Sales during the year 79,200 Cash received during the year (Hire purchase instalments) 1,01,750 Instalments due but not received : On 1.1.2007 4,400 On 31.12.2007 6,600 Hire purchase sales during the year 1,18,800 Prepare the following : (a) General Trading Account. (b) Hire Purchase Trading Account. (c) Hire Purchase Sales Account, for the year ended 31st December, 2007. [Ref : Q4. (a), June 09 / Paper-5] 10 Q2. Distinguish between Hire Purchase System and Instalment System. [Ref : Q4. (b), June 09 / Paper-5] 5 SCANNER [SEC-II] n FINANCIAL ACCOUNTING 213 RECEIPTS & PAYMENTS/INCOME & EXPENDITURE ACCOUNTS Objective -Type Questions : Q1. A non-profit organisation has furnished the following data in connection with finalisation of accounts for the year ended 31st March 2008 : Rs. Membership subscriptions received as per books 57,000 Subscription in arrear for 2007-08 1,400 Contribution to indoor games section included in item no. one above 2,000 Advance receipt of subscriptions (for 2008-09) 480 Subscription outstanding for 2006-07 now received 3,000 The amount of subscription to be taken as income for 2007-08 is A : Rs. 57,000, B : Rs. 51,520, C : Rs. 55,000, D : Rs. 52,920, Select the correct one. [Ref : Q1. (f), Dec. 08 / Paper-5] 3 Descriptive & Practical Questions : Q1. The income and expenditure account of an association for the year ended 31st March 2008 is as under : Rs. Rs. To Salaries 1,20,000 By Subscription 1,70,000 Printing and Stationery 6,000 Entrance fee 4,000 Telephone 1,500 Contribution for dinner 36,000 Postage 500 General expenses 12,000 Interest and bank charges 5,500 Audit fees 2,500 Annual dinner expenses 25,000 Depreciation 7,000 Surplus 30,000 Total 2,10,000 2,10,000 The aforesaid income and expenditure account has been prepared after the following adjustments : Subscription outstanding as on 31st March 2007 16,000

Subscription outstanding on 31st March 2008 18,000 Subscription received in advance as on 31st March 2007 13,000 Subscription received in advance as on 31st March 2008 8,400 214 SCANNER [SEC-II] n FINANCIAL ACCOUNTING Salaries outstanding as on 31st March 2007 6,000 Salaries outstanding as on 31st March 2008 8,000 Audit fees for 2006-2007 paid during 2007-2008 2,000 Audit fee for 2007-2008 not paid 2,500 The building owned by the association since 1990 costs 1,90,000 Equipment as on 31st March 2007 valued at 52,000 At the end of the year after depreciation of Rs. 7,000, equipment amounted to 63,000 In 2006-2007, the association raised a bank loan of which is still not paid 30,000 Cash in hand as on 31st March 2008 28,500 You are required to prepare Receipts and Payments Account of the association for the year ended 31st March 2008 and the Balance Sheet as at that date. [Ref : Q6. (a), Dec. 08 / Paper-5] 10 Q2. Distinguish between Receipts and Payments Account and Income and Expenditure Account. [Ref : Q6. (b), Dec. 08 / Paper-5] 5 Q3. The following is the Receipts and Payment Account of Sodepore Recreation Club for the year ended 31.12.2008 : Rs. Rs. To Cash in hand 1,000 By Rent of Club House 2,600 Cash at Bank 12,000 Painting of Club House 1,400 Members Subscription Wages of Ground Maintenance 3,000 2007 200 General Expenses 2,600 2008 3,600 Electricity Charges 3,600 2009 400 4,200 Investment 20,000 Life Membership Subscription 4,000 Secretarys Honorarium 1,200 Sale of Ticket of annual exhibition 20,000 Annual Meeting Expenses 800 Sale of refreshment 24,000 Sports Equipment 3,600 Interest on investment 2,600 Purchase of refreshment 11,000 Sale of furniture 200 Printing & Stationery 1,000 (Original Cost on 1.1.02 Insurance 600 Rs. 1,000) Cash in hand 4,000 Cash at Bank 12,600 68,000 68,000 The following information are available to you : (a) On 31.12.2007 outstanding subscription for 2007 was Rs. 300. (b) On 31.12.2007 advance subscription for 2008 received was Rs. 100. (c) On 31.12.2008 outstanding subscription for 2008 was Rs. 600. [Ref : Q6. (b), Dec. 08 / Paper-5] 5 SCANNER [SEC-II] n FINANCIAL ACCOUNTING 215 PARTNERSHIP ACCOUNTING Objective -Type Questions : Q1. A & B are two partners of a firm sharing the profits & losses in the ratio of 7/12 and 5/12 respectively. On 1st April 2008 they take C as a partner giving him 1/6 share. A & B agreed further to share the future profits in the ratio of 13/24 and 7/24 respectively. C, in addition to his capital, brings in Rs. 96,000 as his goodwill for 1/6 share. This goodwill amount is to be shared between A & B. The share of goodwill amount of A & B respectively will be : A : Rs. 24,000 and Rs. 72,000 B : Rs. 72,000 and Rs. 24,000 C : Rs. 56,000 and Rs. 40,000 D : Rs. 52,000 and Rs. 44,000 Choose the correct answer :. [Ref : Q1. (g), Dec. 08 / Paper-5] 3 Q2. State briefly the Rule of Gerner vs. Murray. [Ref : Q1. (f), June 09 / Paper-5] 4 Descriptive & Practical Questions : Q1. A and B carry on independent business in provisions and their position as at 31.03.09 are reflected in the Balance Sheets given below : AB Rs. Rs. Stock in Trade 1,70,000 98,000 Sundry Debtors 89,000 37,000 Cash at Bank 13,000 7,500 Cash in hand 987 234 Furniture and fixture 2,750 1,766 Investments 513 2,76,250 1,44,500 Represented by Sundry Creditors for Purchases 1,10,000 47,000 Expenses 13,250 2,000 Caipital Account 1,53,000 95,500 2,76,250 1,44,500 Both of them want to form a partnership firm from 1st April, 2009 on the following understanding : (a) The capital of the partnership would be Rs. 3 lakhs which would be contributed by them in the ratio of 2 : 1. 216 SCANNER [SEC-II] n FINANCIAL ACCOUNTING (b) The assets of the individual business would be evaluated by C at which values, the firm will take them over and the value would be adjusted against the contribution due by A and B. (c) C gave his valuation report as follows : Business of A : Stock in Trade to be written down by 15% and a portion of Sundry Debtors amounting to Rs. 9,000 estimated unrealisable not to be assumed by the firm; furniture and fixtures to be valued at Rs. 2,000 and investments to be taken of market value of Rs. 1,000. Assets of B : Stocks to be increased by 10%, and Sundry Debtors to be admitted at 85% of their value; rest of the assets to be assumed at their book value. (d) The firm is not to assume any Creditors other than dues on acount of purchase made. Prepare the opening Balance Sheet of the firm. [Ref : Q5. (a), June 09 / Paper-5] 10 Q2. Suchandra, Ashmita and Kasturi were running partnership business sharing Profit and Losses in 2 : 2 : 1 ratio. Their Balance Sheet as on 31.03.2008 stood as following : (Rs. in 000s) Liabilities Rs. Rs. Assets Rs. Rs. Fixed Capital : Fixed Assets 920.00 Suchandra 690.00 Investment 115.00 Ashmita 460.00 Current Assets : Kasturi 230.00 1,380.00 Stock 230.00 Current Account : Debtors 632.50 Suchandra 138.00 Cash at Bank 287.50 1,150.00 Kasturi 92.00 230.00 Unsecured Loan 230.00 Current Liabilities 345.00 2,185.00 2,185.00 On 1.4.2008, they agreed to form new company Tata (P) Ltd. withAshmita and Kasturi each taking up 460 eq. share of Rs. 10 each, which shall take over the firm as going concern including Goodwill, but excluding cash and bank balance. The following are also agreed upon : (a) Goodwill will be valued at 3 years purchase of super profit. (b) The actual profit for the purpose of Goodwill valuation will be Rs. 4,60,000. (c) The normal rate of return will be 18% p.a. on Fixed Capital. (d) All other assets and liabilities will taken at Book value. (e) Ashmita and Kasturi are to acquire interest in the new company at the ratio 3 : 2.

(f) The purchase consideration will be payable partly in shares of Rs. 10 each and partly in cash. Payment in cash being to meet the requirement to discharge Suchandra, who has agreed to retire. (g) Realisation expenses amounted to Rs. 1,17,300. You are required to close the books of the firm by passing necessary journal entries. [Ref : Q4. (a), Dec. 08 / Paper-5] 10 SCANNER [SEC-II] n FINANCIAL ACCOUNTING 217 BRANCH AND DEPARTMENTAL ACCOUNTS Descriptive & Practical Questions : Q1. Write short notes on treatment of abnormal losses in Branch Account. [Ref : Q4. (b), Dec. 08 / Paper-5] 5 ACCOUNTING STANDARDS Objective -Type Questions : Q1. Match the following : I AS1 I Contingencies and events occuring after the Balance Sheet date. II AS3 II Accounting for Fixed Assets. III AS4 III Disclosure of Accounting policies. IV AS10 IV Cash flow statement. [Ref : Q1. (d), Dec. 08 / Paper-5] 4 Q2. Match the following : 1. AS-7 (i) Earning per Share 2. AS-9 (ii) Construction Contracts (Revised) 3. AS-19 (iii) Revenue Recognition 4. AS-20 (iv) Leases [Ref : Q1. (c), June 09 / Paper-5] 3 Q3. State whether the following statements are true or false : (i) AS-26 applies when computer software is acquired for sale in the ordinary course of business. (ii) Cost incurred in salaries/wages in internally generated software are included in the cost computation. [Ref : Q1. (g), June 09 / Paper-5] 3 Descriptive & Practical Questions : Q1. Mention any five areas in which different accounting policies may be adopted by different enterprises. [Ref : Q3. (b), Dec. 08 / Paper-5] 5 Q2. Segment reporting. [Ref : Q8. (d), Dec. 08 / Paper-5] 5 Q3. State clearly the provisions contained in the Accounting Standard in respect of Revaluation of fixed Assets. [Ref : Q6. (b), June 09 / Paper-5] 5 Q4. Disclosure requirement in a case where the companies do not comply with Accounting standard. [Ref : Q8. (d), June 09 / Paper-5] 3 218 SCANNER [SEC-II] n FINANCIAL ACCOUNTING JOINT STOCK COMPANIES Objective -Type Questions : Q1. Distinguish between shares and stock. [Ref : Q1. (a), Dec. 08 / Paper-5] 3 Q2. What is meant by Revesionary Bonus? [Ref : Q1. (e), Dec. 08 / Paper-5] 3 Q3. Choose the correct answer : The excess amount received over the face value of shares, should be credited to (i) Current Liabilities; (ii) Currents Assets; (iii) Reserves & Surplus; (iv) Securities Premium Account. [Ref : Q1. (b), June 09 / Paper-5] 3 Q4. Can dividend be declared out of Security Premium Account? [Ref : Q1. (e), June 09 / Paper-5] 3 Q5. State whether the following statements are true or false : (i) Capital Redemption Reserve Account is created to meet legal requirements. (ii) Partly paid-up preference shares can be redeemed. (iii) Capital Redemption Reserve Account cannot be utilised for issuing fully paid bonus shares. [Ref : Q1. (h), June 09 / Paper-5] 3 Descriptive & Practical Questions : Q1. Mention any five purposes for which share premium account can be utilised. [Ref : Q3. (a), Dec. 08 / Paper-5] 5 Q2. The summarized balance sheet of A Co. Ltd. as on 30th June 2008 is as under : Share Capital : 10% redeemable preference shares of Rs. 100 each 10,00,000 Equity shares of Rs. 10 each 15,00,000 12% Debentures 7,00,000 Revenue reserves 40,00,000 Total 72,00,000 Represented by Net assets 72,00,000 The redeemable preference shares were due for redemption on 31st August 2008 and were redeemed and duly paid off. The company is permitted to redeem the debentures at any time at a premium of 10% and did so on 30th September 2008. The company was in a reasonably liquid position but to assist in providing funds for redemption of the redeemable preference shares, a rights issue of equity shares was made. 20000 equity shares were issued for cash at a premium of Rs. 20 per share, Rs. 12.50 payable on application SCANNER [SEC-II] n FINANCIAL ACCOUNTING 219 on 15th July 2008 and the balance on allotment on 31st July 2008. All cash due was received on the due dates. During the three months ended 30th September 2008, the company traded at a profit of Rs. 2,50,000. Required : (i) Pass journal entries (including cash transactions) showing the relevant entries in respect of the above. (ii) Prepare summarized balance sheet of the company as on 30th September 2008. [Ref : Q7. (a), Dec. 08 / Paper-5] 10 Q3. Reserve Capital. [Ref : Q8. (e), June 09 / Paper-5] 3 Q1. Bonus shares. [Ref : Q8. (c), Dec. 08 / Paper-5] 3 Q2. Discuss the conditions of Companies Act with regard to buy-back of shares. [Ref : Q7. (b), June 09 / Paper-5] 5 220 SCANNER [SEC-II] n FINANCIAL ACCOUNTING PREPARATION OF COMPANY ACCOUNTS Descriptive & Practical Questions : Q1. Preparation the Balance Sheet as at 31st March, 2008 from the particulars furnished by Vision Ltd., as per Schedule VI of Companies Act. Rs. Equity Share Capital (Rs. 10 each fully paid) 8,00,000 Calls in arrear 800 Land 1,60,000 Building 2,80,000 Plant & Machinery 4,20,000 Furniture 40,000 General Reserve 1,68,000 Loan from IDBI 1,20,000 Loans (Unsecured) 96,800 Provision for Taxation 54,400 Sundry Debtors 1,60,000 Advances (Dr.) 34,160 Proposed dividend 48,000 Profit & Loss A/c. 80,000 Cash balance 24,000 Cast at Bank 1,97,000 Preliminary Expenses 10,640 Sundry Creditors (For goods & expenses) 1,60,000 Stock : Finished goods 1,60,000 Raw material 40,000 2,00,000 Adjustment :

(i) 1500 equity shares were issued for consideration other than cash. (ii) Loan of Rs. 1,20,000 fro IDBI is inclusive of Rs. 6,000 for interest accrued but not due. The loan is hypothecated by plant & machinery. (iii) Debtors of Rs. 50,000 are due for more than six months. (iv) The cost of assets : Rs. Building 3,20,000 Plant & Machinery 5,60,000 Furniture 50,000 SCANNER [SEC-II] n FINANCIAL ACCOUNTING 221 (v) Bank balance includes Rs. 2,000 with Trust Bank Ltd., which is not a schedule Bank. (vi) Bills receivable for Rs. 2,20,000 maturing on 30th June, 2008 have been discounted. (viii) The company had contract for the erection of machinery at Rs. 1,50,000 which is still incomplete. [Ref : Q2. (a), June 09 / Paper-5] 10 222 SCANNER [SEC-II] n FINANCIAL ACCOUNTING ACCOUNTING SERVICES IN ORGANIZATIONS Objective -Type Questions : Q1. Match the following items shown below : I Cash Reserve I Electric Supply Co. II Clear Profit II Construction Company III Escalation clause III Banking Company [Ref : Q1. (b), Dec. 08 / Paper-5] 3 Q2. Choose the correct answer : The amortization of amount of software commences from the date when it is (i) available for use (ii) put to use (iii) developed upto 75%. [Ref : Q1. (c), Dec. 08 / Paper-5] 3 Descriptive & Practical Questions : Q1. Distinguish between Statutory Reserve and Cash Reserve in respect of Banking Companies. [Ref : Q5. (b), Dec. 08 / Paper-5] 5 Q2. Escrow Account. [Ref : Q8. (a), June 08 / Paper-5] 3 Q3. Statutory Reserve in case of Bank. [Ref : Q8. (c), June 08 / Paper-5] 3 Q4. Kanpur Electric Supply Company rebuild and reequipped one of their plant at a cost of Rs. 80,00,000. The old plant thus, superceded, cost of Rs. 30,00,000. The capacity of new plant is thrice of the old plant. Rs. 1,00,000 realised from sale of old materials. Four old motors valued at Rs. 2,00,000 salvaged from old plant, were used in the construction. The cost of labour and material was respectively 20% and 25% lower than now. The proportion of labour to material in the plant then and now in 2 : 1. Show the journal entries for recording the above transactions if accounts are maintained under double entry system. [Ref : Q3. (a), Dec. 08 / Paper-5] 10 Q5. Double Accounting system. [Ref : Q8. (b), Dec. 08 / Paper-5] 3 SCANNER [SEC-II] n FINANCIAL ACCOUNTING 223 Q6. Following balance have been extracted from the books of an electricity company at the end of 2007 : (Figures in 000) Share Capital 1,00,000 Reserve fund (investment in 4.5% Govt. securities at par) 50,00 Contingencies reserve investment in 5% State Loan 10,00 8% debenture 20,00 Loan from State Electricity Board 40,00 Development Reserve 10,00 Fixed Assets 2,00,00 Depreciation reserve on fixed assets 50,00 Consumer deposit 55,00 Amount contributed by consumer for fixed assets 1,00 Intangible assets 5,00 Tariffs and dividend control reserve 5,00 Current Assets (monthly average) 20,00 The compnay earns a profit of Rs. 8,50,000 (after tax) in 2007. Show how the profit is to be dealt with by the company, assuming bank rate is 5%. [Ref : Q5. (a), Dec. 08 / Paper-5] 10 Q7. Re-insurance. [Ref : Q8. (a), Dec. 08 / Paper-5] 3 Q8. The following balances have been extracted from the books of Star Insurance Co. Ltd. for the year ending 31st December, 2006 : Rs. Amount of Life Assurance at the beginning of the year 12,56,450 Claims by death 93,584 Claims by maturity 77,136 Premia 1,68,457 Expenses of management 23,912 Commission 29,233 Consideration for annuities 8,496 Interest, dividends and rents 41,969 Income-tax paid on profit 2,448 Surrenders 17,414 Annuities 23,536 Bonus paid in cash 7,560 Bonus paid in reduction of premium 2,800 Preliminary expenses 480 Claims admitted but not paid at the end of the year 64,027 Annuities due but not paid 17,904 Capital paid up 4,80,000 224 SCANNER [SEC-II] n FINANCIAL ACCOUNTING Government Securities 13,52,712 Sundry Assets 4,54,488 Investment Reserve 48,000 Prepare the Revenue Account and the Balance Sheet after taking into account the following : Rs. (i) Claims covered under re-insurance 8,000 (ii) Further claims intimated 6,400 (iii) Further bonus utilised in reduction of premium 1,200 (iv) Interest accrued 12,320 (v) Premium outstanding 5,920 (vi) Bonus surrendered 4,000 [Ref : Q3. (a), June 08 / Paper-5] 10 ACCOUNTING INTERPRETATION OF FINANCIAL STATEMENTS Q1. Solvency Ratio. [Ref : Q8. (b), June 08 / Paper-5] 3 Q2. From the following information relating to ND Ltd, prepare a Balance Sheet as on 31.12.2007. Current Ratio 2 Fixed Assets/Shareholders net worth .60 Reserve & Surplus/share capital .25 Average Debt collection period 2 months G. P. Ratio 25% Cost of sales/closing stock 9 times Net working Capital Rs. 4,00,000 Liquid Ratio 1.5 [Ref : Q2. (a), Dec. 09 / Paper-5] 10 Q10. The following extracts of financial information relate to Complex Ltd. : (Rs. in lakhs) Balance Sheet as at 31st March 2008-09 2007-08 Rs. Rs. Share Capital 10 10 Reserves and Surplus 30 10 Loan Funds 60 70

100 90 Fixed Assets (Net) 30 30 SCANNER [SEC-II] n FINANCIAL ACCOUNTING 225 (Rs. in lakhs) Balance Sheet as at 31st March 2008-09 2007-08 Rs. Rs. Current Assets : Stock 30 20 Debtors 30 30 Cash at Bank 10 20 Others Current Asset 30 10 100 80 Less : Current Liabilities 30 20 Net 70 60 Total Assets 100 90 Sales (Rs. lakhs) 270 300 (i) Calculate for the two yers Debt Equity Ratio, Quick Ratio and Working Capital Turnover Ratio. (ii) Find the Sales volume that should have been generated in 2008-09 if the company were to have maintained its Working Capital Turnover Ratio. Note : All Current Liabilities are quick liabilities. [Ref : Q6. (a), June 08 / Paper-5] 10

REVISIONARY TEST PAPER

THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA 12, SUDDER STREET, KOLKATA-700 016

GROUP I DECEMBER 2010

DIRECTORATE OF STUDIES 2 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

Paper-5 : FINANCIAL ACCOUNTING

GROUP - I
Group-I : Paper-5 : Financial Accounting 3

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

INTERMEDIATE EXAMINATION (REVISED SYLLABUS - 2008)

GROUP - I
Paper-5 : FINANCIAL ACCOUNTING

Q. 1. State whether following statements are True/False. (i) Expenses + Loss+ Assets=Income+ Gains+ Liabilities. (ii) Bank Overdraft is a Real Account. (iii) Short workings is the amount by which the minimum rent falls short of the actual royalty. (iv) Hire purchase stock represents the installments from buyers not yet due. (v) Life Membership fee is an item of liability in case of a club. (vi) The inventory under AS 2 is valued on the basis of cost price or current replacement cost which ever is lower. (vii) Goodwill is a fictitious asset. (viii) Debit balance in the Profit and Loss A/c is treated as surplus. (ix) A and B divide profit in the ratio of 5:3. Z is admitted for 1/5 share in the business. The new profit sharing ratio is 5:3:2. (x) Gaining Ratio is applicable at the time of retirement of a partner. (xi) The contract of insurance is a contract of guarantee. (xii) Issue of Sweat Equity shares is a non-cash transaction. (xiii) Stock Turnover ratio is Average Stock/Net Sales. (xiv) High Capital Gearing ratio means high return to equity shareholders even in case of low profit. (xv) AS 4 deals with prior period adjustments. (xvi) The amortization of the amount of software commences from the date when it is available for use. (xvii) Changing of rings and pistons of an engine to increase efficiency is in the nature of revenue expenditure. (xviii) Preference shares may be redeemed from the General Reserve. (xix) In case of a Branch situated in New York, Balance in Head Office A/c in the Branch Books is to be taken at Dollars. (xx) Buy back is permitted only in respect of fully paid-up shares. Answer 1.
(i) The Statement is True. (ii) False Bank O/D is a personal account. (iii) False Short workings is the amount by which the minimum rent exceeds the actual royalty. (iv) The Statement is True. (v) The Statement is True. 4 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

(vi) False As per AS 2 on valuation of inventories, inventory is valued at the lower of historical cost and net realizable value. (vii) False Goodwill is an intangible asset. (viii) False Debit balance in the Profit and Loss A/c is treated as deficit or loss as expenses are more than income. (ix) True As new share is 5/8*4/5=1/2. Bs new share is 3/8*4/5=3/10. So new share is (:3)/(10:1/5). Multiplying the ratio with 10, the new ratio is 5:3:2. (x) The Statement is True. (xi) False The contract of insurance is a contract of indemnity. (xii) The Statement is True. (xiii) Stock Turnover ratio Cost Of Goods Sold/ Average Stock. (xiv) False High Capital Gearing ratio means high return to equity shareholders in case of high profit. (xv) False AS 4 deals with Contingencies and Events occurring after the Balance Sheet Date. (xvi) The Statement is True. (xvii) The Statement is True. (xviii) False According to Section 80 of the Companies Act Preference Shares can be redeemed out of profits or out of fresh proceeds of a fresh issue of shares made for the purpose of redemption. (xix) False It should be taken at Indian Rupees. (xx) The Statement is True.

Q. 2A. Choose the correct alternative : (i) Bank Reconciliation Statement is prepared to : (a) rectify the mistakes in pass book. (b) to rectify the mistakes in cash book. (c) to arrive at balance as per bank statement. (d) to find the reasons of differences in balance as per Cash Book and Bank Statement. (ii) Which of the following is a Revenue Expenditure? (a) Construction of Factory shed. (b) Sales Tax paid in connection with purchase of Office Equipment. (c) Legal Expenses in connection with defending a title to firms property. (d) License fees. (iii) Capital is shown on the liability side because of : (a) Business Entity Concept. (b) Conservatism Concept. (c) Accrual Concept. (d) Duality Concept. (iv) Depreciation is a process of: (a) apportionment (b) valuation (c) allocation (d) appropriation
Group-I : Paper-5 : Financial Accounting 5

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (v) For Sales Return at Branch, in case of dependent branches, entry to be passed in HO books, (a) Debit Branch Debtors A/c, Credit Branch Stock A/c. (b) Debit Branch Stock A/c , Credit Branch Debtors A/c. (c) Debit Sales A/c, Credit Branch Debtors A/c. (d) Debit Sales A/c, Credit Branch Stock A/c. (vi) Which of the following is treated as contingent liability as per AS 4? (a) Obligations under retirement benefit plan. (b) Commitments arising from long term lease contract. (c) Arrears of fixed cumulative dividends. (d) Liabilities of Life and General Insurance out of policies issued by enterprise. (vii) Which of the following is not a unsecured loan in Balance sheet of a Company? (a) Acceptance of Fixed Deposits. (b) Creation of Sinking Funds. (c) Loans and advances from others. (d) Short term loans from Banks. (viii) Any profit prior to incorporation may be:

(a) Credited to Capital Reserve A/c. (b) Debited to Goodwill A/c (c) Debited to Suspense A/c (d) None of the above. (ix) Which of the following terms is related to Accounts of Electricity Companies? (a) Clear profit (b) Work uncertified (c) NPA (d) Claims outstanding. (x) Current Ratio is a : (a) Efficiency Ratio (b) Profitability Ratio (c) Solvency Ratio (d) Yield Ratio. Answer 2A.
(i) (d) to find the reasons of differences in balance as per Cash Book and Bank Statement. (ii) (c) Legal Expenses in connection with defending a title to firms property. (iii) (a) Business Entity Concept. (iv) (c) allocation (v) (b) Debit Branch Stock A/c , Credit Branch Debtors A/c. (vi) (c) Arrears of fixed cumulative dividends. (vii) (b) Creation of Sinking Funds. (viii) (a) Credited to Capital Reserve A/c. 6 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

(ix) (a) Clear profit. (x) (c) Solvency Ratio.

Q. 2B. Match the items in Column (I) with the items shown in Column (II) : Column (I) Column (II) (i) Minimum Rent (a) Insurance A/c (ii) Average Clause (b) Contract A/c (iii) Undervaluation of asset (c) Sinking Fund (iv) Work certified (d) Company Accounts (v) DRFI (e) Capital Reserve (vi) Money at call and in short notice (f) Allocation (vii) Calls-in-arrear (g) Royalty A/c (viii) Profit Prior to Incorporation (h) Appropriation (ix) Charging of Depreciation (i) Bank Account (x) Charging of Rent (j) Secret Reserve Answer 2B. Column (I) Column (II)
(i) Minimum Rent (a) Royalty A/c (ii) Average Clause (b) Insurance A/c (iii) Undervaluation of asset (c) Secret Reserve (iv) Work certified (d) Contract A/c (v) DRFI (e) Sinking Fund (vi) Money at call and in short notice (f) Bank Account (vii) Calls-in-arrear (g) Company Accounts (viii) Profit Prior to Incorporation (h) Capital Reserve (ix) Charging of Depreciation (i) Allocation (x) Charging of Rent (j) Appropriation

Q. 2C. Fill up the blanks : (i) Recording of fixed assets at cost ensures adherence of concept. (ii) Conversion of debt into equity shares is transaction. (iii) Amount received on account of Legacies is generally taken to . (iv) Errors in Principle affect Balance Sheet. (v) Average Clause is intended to discourage . (vi) Premium brought in by a new partner is shared among old partners in their ratios. (vii) As per AS 28 recoverable amount of an asset is higher of and Value in use. (viii) Yield method of valuing shares is also known as method.
Group-I : Paper-5 : Financial Accounting 7

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (ix) Cost of incorporating a Company should be debited to A/c. (x) Velocity Ratios are also known as ratios. (xi) The Double Account System is a method of presenting Annual Financial statements of . Answer 2C.
(i) cost (ii) non-cash (iii) Balance Sheet (iv) does not (v) under-insurance (vi) sacrificing (vii) Net selling price (viii) Earning Capacity (ix) Preliminary Expenses (x) Turnover (xi) Public Utility Concerns

Q. 3. NN Ltd. owns certain patent rights. It has granted a license to AA Ltd. to use such rights on royalty basis. The Royalty payable is Rs. 50 per unit produced. AA Ltd. Has issued sub-license to KK Ltd. On the basis of a Royalty of Rs. 60 per unit sold. The minimum Royalty payable by KK Ltd is fixed at Rs. 75000/ - per annum. Short Workings can be recouped within one year from the last date of the year in which they occur. The following particulars are available for the first three years of working : AA Ltd. Year Sales (units) Closing Stock (units) 1 6000 1500 2 7500 3000 3 13500 4500 KK Ltd. Year Production (units) Closing Stock (units) 1 600 300 2 3000 600 3 4500 1350 You are required to : (a) Prepare in books of AA Ltd. a statement showing analysis of Royalties Receivable and Royalties Payable, and (b) Show Royalty Receivable A/c and Royalty Payable A/c in books of AA Ltd.
8 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 3. Books Of AA Ltd. Analysis of Royalty Payable Year Production (Consolidated Units) Rate Amount Rs. Rs.
1 7500+600 = 8100 50 405000 2 9000+3000 = 12000 50 600000 3 15000+4500 = 19500 50 975000

Analysis of Royalty Receivable Year Sales Minimum Royalty Excess of S/W S/W S/W S/W Amount Unit Rent @Rs.60 Royalty over Occurred Adjusted Lapsed c/f Receivable Min. Rent (Rs) (Rs) (Rs) (Rs) (Rs)
1 300 75000 18000 - 57000 - - 57000 2 2700 75000 162000 87000 - 57000 - - 105000 3 3750 75000 225000 150000 - - - - 225000

Dr. Royalty Payable Account Cr.

Year end 1 To NN Ltd 405000 1 By Royalty Receivable A/c 30000 By P/L A/c 375000 405000 405000 2 To NN Ltd 600000 2 By Royalty Receivable A/c 150000 By P/L A/c 450000 600000 600000 3 To NN Ltd 975000 3 By Royalty Receivable A/c 225000 By P/L A/c 750000 975000 975000

Dr. Royalty Receivable Account Cr.

Year end 1 To Royalty Payable A/c 30000 1 By KK Ltd. 18000 600 Rs.50 By P/L A/c 12000 30000 30000 2 To Royalty Payable A/c 150000 2 By KK Ltd. 162000 To P/L A/c 12000 162000 162000 3 To Royalty Payable A/c 225000 3 By KK Ltd. 225000 Group-I : Paper-5 : Financial Accounting 9

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Q. 4. GHI Associates entered into a financial lease agreement on 1.4.2006 with FBG Leasing Ltd. for lease
of a car. The price of the car was Rs. 400,000 and the quarterly lease rentals were agreed at Rs. 90 per thousand payable at the beginning of every quarter. ABC Associates kept up their payments but by 25.3.2007 they approached and obtained the consent of the leasing company for treating the arrangement as one of Hire-purchase from the beginning on the following terms : Period: 3 years Quarterly hire : Rs. 60,000 payable at the beginning of the quarter. It was agreed that the lease rentals paid will be treated as hire monies and that the balance due upto 31.3.2007will be settled by GHI Associates on that date with interest at 18% p.a. on various instalments due during the year. The rate of depreciation on the car is 25%. Show the following accounts in the books of ABC Associates for the year 2006-2007. FBG Leasing Ltd.s A/c and Interest Suspense A/c. Calculations are to be rounded off to the nearest rupee.

Answer 4. Books of GHI Associates FBG Leasing Limited Account

Dr. Cr. Rs. Rs. 2007 2007

March 25 To Lease rental A/c 144000 March 25 By Car on Hire 400,000 Purchase A/c March 31 To Bank 106800 March 25 By Interest 320000 Suspense A/c March 31 To Balance c/d 480000 By Interest A/c 10800 730800 730800

Interest Sustpense Account Dr. Cr. Rs. Rs. 2007 2007

March 25 To FBG Leasing Ltd. A/c 320000 March, 31 By Interest on Hire 145454 purchase A/c March, 31 By Balance c/d 174546 320000 320000

Working Notes : (i) Calculation of balance payable on 31st March, 2006 and the Amount of Interest Calculation of Difference Payable on 31.3.2007and Interest
Date Quarterly Hire Quarterly Lease Difference Interest (18% p.a) Amount of Charges Rental Paid Payable From To Interest Rs. Rs. Rs. Rs. 1.4.06 30,000 36000 24000 1.4.06 31.3.07 4320 1.7.06 30,000 36000 24000 1.7.06 31.3.07 3240 1.10.06 30,000 36000 24000 1.10.06 31.3.07 2160 1.1.07 30,000 36000 24000 1.1.07 31.3.07 1080 144000 96000 10800 10 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

Amount payable on 31st March, 2007

Rs.
Balance due 96000 Interest due 10800 106800 (1) Ascertainment of Total Amount of Interest on Hire Purchase

Rs.
Hire Purchase Price of the car (Rs. 60,000 12 installments) 720000

Less : Cash Price 400000

Total Amount of Interest 320000 (2) Calculation of Interest on Hire Purchase Attributable to the year 2006-2007 Date Interest Calculation Interest Rs. 1.4.06 1.7.06 320000 11/66 53333 1.10.06 320000 10/66 48485 1.1.07 320000 9/66 43636 145454

Q. 5. The Balance Sheet of New City College as at 31st March 2009 was as follows: Rs. Rs.
Capital Fund 2100000 Land and Building 2000000 Building Construction Fund 800000 Furniture 300000 General Fund Outstanding 640000 Laboratory Equipment 250000 Salary(teachers) 160000 Library Books 360000 Investments 650000 Accrued Tuition Fee 10000 Cash and Bank 130000

3700000 3700000
The Receipts and Payments account for the year ended 31st March 2010 was drawn as under:

Rs. Rs.
To Opening Bal.(1/4/2009) 130000 By Salaries & Allowances(teachers) 4200000 To Govt . Grants 5000000 By non- teaching staff 2000000 To Donation for Building Construction 200000 By Printing & Stationary 80000 To Tuition fees & session charges 1820000 By Lab. Exp 60000 To Investment Income 70000 By Lab. Equipment 120000 To Rental Income (College Hall) 40000 By Library Books 250000 By Office Equipment 60000 By Electricity & Telephone 75000 Group-I : Paper-5 : Financial Accounting 11

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

By Audit Fees 2000 By Municipal Taxes 1000 By Building Repairs 40000 By Purchase of Furniture 80000 By Games and Sports 20000 By Welfare Exp. 30000 By New Investments 150000 By Cl.Bal. (31/3/2010) 92000

7260000 7260000 Other informations :

(i) Tuition fee outstanding as on 31/3/2010 Rs . 40000 (ii) Salary of teaching staff outstanding for March 2010-Rs. 250000 (iii) Books received as donations from various parties- Rs. 30000 (valued) (iv) Outstanding building repair expenses as on 31/3/2010-Rs. 15000 (v) Applicable depreciation rates : Land and Building 2% Furniture 8% Lab. Equipment 10% Library Books 20% You are required to prepare the Income and Expenditure A/c for the year ended 31st March 2010 and a Balance Sheet as on that date.

Answer 5. New City College Income and Expenditure A/c for the year ended 31/3/2010 Rs. Rs.
To Salaries : Tuition Fees 1820000

Add : Outstanding 40000 Add: Outstanding 250000 1860000 4450000 Less : Accrued last year 10000 1850000 Less: Last year Liability 160000 4290000 Revenue Grant 5000000
Teaching staff 4200000 Non-teaching staff 2000000 Investment income 70000 Building Repairs 40000 Rental Income 40000

Add: Outstanding 15000 55000 Value of donation of books 30000

Office Exp. 60000 Printing & Stationary 80000 Lab. Exp 60000 Electricity & Telephone 75000 Audit Fee 2000 12 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

Municipal Tax 1000 Games & Sports 20000 Welfare Expenses 30000 Depreciation : Building 40000 Furniture 30400 Lab. Equip 37000 Book 128000 235400 Excess of Income over Expenditure transferred to General Fund 81,600

6990000 6990000 Balance Sheet as on 31/3/2010 Liabilities Rs. Rs. Assets Rs. Rs.
Capital Fund 2100000 Land & Buildings 2000000

Less: Depreciation 40000 1960000 Add: Donation 200000 1000000 Furniture 300000
Building Construction Fund 800000 General Fund 640000 Additions 80000

Add: Transfer from 81600 721600 380000

Income & Exp. A/c Outstanding Teachers 250000

Less: Depreciation 30400 349600

Salary Outstanding Building 15000 Lab Equipment 250000 Repair Exp. Addition 120000 370000

Less: Depreciation 37000 333000

Library Books 360000 Addition 250000 Donated Value 30000 640000

Less: Depreciation 128000 512000

Investments 650000 Addition 150000 800000 Tuition Fee accrued 40000 Cash and Bank 92000

4086600 4086600 Q. 6. The following information were obtained from the books of Dignity Foundation Recreation Club as on 31.3.2009. At the end of first year of the club you are asked to prepare Receipts and Payments Account, Income and Expenditure Account for the year ended 31.3.2009 and a Balance Sheet as at 31.3.2009 on mercantile basis : (i) Donation received for building and library room : Rs. 100000/Group-I : Paper-5 : Financial Accounting 13

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (ii) Other revenue income and actual receipts : Revenue Income Actual Receipts Rs. Rs.
Entrance Fees 20000 20000 Subscription 17000 16000 Locker rent 800 800 Sundry Income 1400 860 Refreshment Account - 20000

(iii) Other revenue expenditure and actual payments : Revenue Expenditure Actual Payment Rs. Rs.
Land (Cost Rs. 10000) - 10000 Furniture (Cost Rs. 146000) - 130000 Salaries 6000 5800 Maintenance of club 3000 2000 Rent 6000 6000 Refreshment Account - 12000 Donations to the extent of Rs. 12500/- were utilized for purchase of library books, balance was still unutilized. In order to keep it safe ,9% Govt. bonds of Rs. 80000/- were purchased on 31.3.2009. Remaining amount was put in the bank on 31.3.2009 under term deposit. Depreciation at 10% p.a. was to be provided for the whole year on Furniture and Library books.

Answer 6. Dignity Foundation Recreation Club Dr. Receipts and Payments Account for the Year ended 31st March, 2009 Cr. Receipts Rs Payments Rs.
To Donation for Building 100000 By Land 10000 and Library Room By Furniture 130000 To Entrance Fees 20000 By Salaries 5800 To Subscription 16000 By Maintenance of Club 2000 To Locker Rents 800 By Rent 6000 To Sundry Income 860 By Repayment 12000 To Refreshment 20000 By Library Books 12500 By 9% Govt. Bonds 80000 To Balance c/d (O/D) 108140 By Term Deposits 7500

265800 265800
14 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Dr. Income and Expenditure Account for the Year ended 31.3.09 Cr. Expenditure Rs. Rs. Income Rs. Rs.
To Salaries 5800 By Entrance fees 20000

Add: Outstanding 200 6000 By Subscription 16000 To Maintenance of Club 2000 Add: Outstanding 1000 17000 Add: Outstanding 1000 3000 By Locker Rent 800
To Rent 6000 By Sundry Income 860 To Depreciations:

Add: Outstanding 540 1400

Furniture 14600 By Refreshment 8000 Library Books 1250 15850 (20000-12000) Surplus of Income over Expenditure 16350

47200 47200 Balance Sheet as at 31st March, 2009 Liabilities Rs. Rs. Assets Rs. Rs.
Capital fund (surplus) 16350 Land 10000 Building and Library Room Fund 100000 Furniture 146000 Creditors for Furniture 16000

Less: Depreciation 14600 131400

Creditors for Expenses : Library books 12500 Outstanding Salaries 200

Less: Depreciation 1250 11250

Maintenance of Club 1000 9% Govt. Bonds 80000 Bank O/D 108140 Bank term deposit 7500 Subscriptions receivable 1000 Sundry Income Receivable 540

241690 241690 Working Notes :

Bank Term Deposit : Donation received 100000 Donation Utilised 12500 Govt Bond, 80000 = Rs. 7500

Q. 7. A, B and C were in partnership sharing profits and losses in the ratio of 9 : 4 : 2. B retired from the partnership on 31st March, 2010, when the firms balance sheet was as under : Rs. in thousand Rs. Rs. Sundry creditors 900 Cash and bank 426 Capital accounts : Sundry debtors 600 A 4050 Stock 1200 B 1800 Furniture 399 C 900 6750 Plant 1275 Land and building 3750 7650 7650
Group-I : Paper-5 : Financial Accounting 15

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Bs share in goodwill and capital was acquired by A and C in the ratio of 1 : 3, the continuing partners bringing in the necessary finance to pay off B. The partnership deed provides that on retirement or admission of a partner, the goodwill of the firm is to be valued at three times the average annual profits of the firm for the four years ended on the date of retirement or admission. The profits of the firm during the four years ended 31st March, 2010 in thousands of rupees were : Rs. 2006-07 675 2007-08 375 2008-09 900 2009-10 1050 The deed further provided that goodwill account is not to appear in the books of accounts at all. The continuing partners agreed that with effect from 1st April, 2010, G, son of A is to be admitted as a partner with 25% share of profit. A gifts to G, by transfer from his capital account, an amount sufficient to cover up 12.5% of capital and goodwill requirement. The balance 12.5% of capital and goodwill requirement is purchased by G from A and C in the ratio of 2 : 1. The firm asks to you : (i) Prepare a statement showing the continuing partners shares; (ii) Pass journal entries including for bank transactions; and (iii) Prepare the balance sheet of the firm after G s admission. Answer 7. (i) Statement showing the partners shares ABCG
Ratio before retirement of B 15 9 15 4 15 2 Adjustment on retirement 15 1 () 15 3 () New ratio before admission of G 15 10 15 5 On admission of G Gift by A ( 100 12.5 ) 8 1 () 8 1 Purchase from A & C.* 24 2 () 24 1 () 24 3 () New ratio 24 11 24 7 24 6 * Purchase from A = 15 10 1/8 = 2/24 Purchase from C. = 15 5 1/8 = 1/24 16 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (ii) Journal Entries Dr. Cr. Rs. Rs.
1. As capital A/c Dr. 1,50,000 C s capital A/c Dr. 4,50,000 To Bs capital A/c 6,00,000 (Being purchase of goodwill by A and C from B) 2. As capital A/c Dr. 11,25,000 To Gs capital A/c 11,25,000 (Being gift made by A to G) 3. Bank A/c Dr. 46,50,000 To As capital A/c 11,62,500 To Cs capital A/c 20,81,250 To Gs capital A/c 14,06,250 (Being capital brought in by the partners) 4. Bs capital A/c Dr. 24,00,000 To Bank A/c 24,00,000 (Being final payment made to B on retirement) 5. Gs capital A/c Dr. 2,81,250 To As capital A/c 1,87,500 To Cs Capital A/c 93,750 (Being goodwill adjusted on admission)

(iii) Balance Sheet as on 1st April, 2010 Liabilities Rs. Assets Rs.
Sundry creditors 9,00,000 Cash and bank 2676,000 Capital accounts : Sundry debtors 6,00,000 A 4125,000 Stock 12,00,000 C 2625,000 Furniture 399,000 G 2250,000 Plant 1275,000 90,00,000 Land and building 3750,000

99,00,000 99,00,000 Working Notes :

(Rs. in thousand) (1) Adjustment of Goodwill on Retirement : Value of Goodwill = Average Profits Years of Purchase Share of B = 2250 4/15 = 600 Average Profits = 4 6753759001050 Value of Goodwill = 750 3 = 2250 Group-I : Paper-5 : Financial Accounting 17

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

Adjustment through partners capital accounts A : *600=150(Dr.) B : 4/15*2250=600(Cr.) C : *600=450(Dr.) (2) Closing Balances of Capital Accounts Bs share of capital (including goodwill) = 1,800 + 600 = 2400 This represents 4/15th share of capital requirement of the firm. Thus, total capital = 2400*15/4=9000 Hence, closing capital balances (in new profit sharing ratio of 11 : 7 : 6) should be adjusted as follows: A : 11/24*9000=4125 C : 7/24*9000=2625 G :6/24*9000=2250 (3) Gift by A to G : *2250=1125 (Debit to As capital A/c and credit to Gs capital A/c) (4) Adjustment of Goodwill on Admission Goodwill of the firm = 2250 Gs share of goodwill = 6/24 2250 = 562.50 (a) Gift by A = *562.50 = 281.25 (Included in the gift of 1125 see W.N. 3)

(b) Purchase from A and C = 281.25 (in 2 : 1 ratio) Thus, adjustment of goodwill purchased through capital accounts A : 2/3*281.25=187.50(Cr.) C : 1/3*281.25=93.75(Cr.) G : *562.50=281.25(Dr.) (5) Amount brought in by Partners

Dr. Partners Capital Accounts Cr. ABCGABCG Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To B 150 450 By Balance b/d 4050 1800 900 To G 1125 By A and C 600 To A & C 281.25 By Cash and Bank 1162.5 2081.25 1406.25 To Cash and Bank 2400 (Bal. figure) To Balancd c/d 4125 2625 2250 By A 1125.00 By G 187.5 93.75 5400 2400 3075 2531.25 5400 2400 3075 2531.25 18 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

(5) Cash and Bank Amount given (as on 31.3.10) 426 Amount brought in by partners 4650 (1162.50 + 2081.25 + 1406.25) 5076

Less : Payment to B 2400

Balance as on 1.4.10 2676 Net increase = Rs. 2676 (Equivalent to the value of goodwill)

Q. 8. The firm of PQR & Associates was dissolved on 31.3.2010, at which date its Balance Sheet stood as follows : Liabilities Rs. Assets Rs. Creditors 5,00,000 Fixed Assets 1,12,50,000 Bank Loan 12,50,000 Cash and Bank 5,00,000 Ps Loan 25,00,000 Capital P 37,50,000 Q 25,00,000 R 12,50,000 Total 1,17,50,000 1,17,50,000 Partners share profits equally. A firm of Professional Accountants is retained to realize the assets and distribute the cash after discharge of liabilities. Their fees which are to include all expenses is fixed at Rs. 2,50,000. No loss is expected on realization since fixed assets include valuable land and building. Realisations are : S.No. Amount in Rs. 1 7,50,000 2 37,50,000 3 37,50,000 4 75,00,000 5 75,00,000 The Accountant in the firm decided to pay off the partners in Higher Relative Capital Method. You are required to prepare a statement showing distribution of cash with necessary workings.
Group-I : Paper-5 : Financial Accounting 19

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 8. M/s PQR & Associates Statement of showing Distribution of Cash (Under Higher Relative Capital method) Particulars Amount Creditors Bank Ps loan Capital A/cs available Loan P Q R Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Balance due 5,00,000 12,50,000 25,00,000 37,50,000 25,00,000 12,50,000 1st Instalment (including cash and bank balances) 12,50,000 Less: Liquidators Expenses and fees 2,50,000 10,00,000

Less: Payment to Creditors

and repayment of Bank Loan in the ratio of 2:5 (10,00,000) (2,85,715) (7,14,285) Balance Due Nil 2,14,285 5,35,715 25,00,000 37,50,000 25,00,000 12,50,000 2nd Instalment 37,50,000

Less: Payment to Creditors

and repayment of bank loan in full settlement (7,50,000) 214285 535715 30,00,000

Less: Repayment of Ps Loan 25,00,000 (25,00,000)

5,00,000

Less: Payment to Mr. P towards

relative higher capital (W.N. 1) (500000) 5,00,000 Balance Due Nil 3250000 2500000 1250000 3rd Instalment 37,50,000

Less: Payment to Mr. P

towards higher relative capital (W.N. 2) (7,50,000) 7,50,000 30,00,000 25,00,000 25,00,000 1250000

Less: Payment to Mr. Q &

Mr. R towards excess capital (W.N. 1&2) (25,00,000) 12,50,000 12,50,000 5,00,000 12,50,000 12,50,000 12,50,000

Less: Payment to all the

partners equally (5,00,000) 1,66,667 1,66,667 1,66,666 Nil 10,83,333 10,83,333 10,83,334 Balance due 4th Instalment 75,00,000

Less: Payment to all

the partners equally (75,00,000) 25,00,000 25,00,000 25,00,000 Realisation profit credited to Partners 14,16,667 14,16,667 14,16,666 5th Instalment 75,00,000

Less: Payment to all

partners equally (75,00,000) 12,50,000 12,50,000 12,50,000 Realisation profit 26,66,667 26,66,667 26,66,666 credited to partners 20 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Working Notes :
(i) Scheme of payment of surplus amount of Rs. 5,00,000 out of second Instalment :

Capital A/cs PQR Rs. Rs. Rs.

1. Capital Balance 37,50,000 25,00,000 12,50,000 2. Profit Sharing Ratio (PSR) 1 1 1 3. Proportionate Capital (12) 37,50,000 25,00,000 12,50,000 4. Taking Rs Capital as Base (being the smallest PQR) 12,50,000 12,50,000 12,50,000 5. Surplus Capital (1-4) 25,00,000 12,50,000 Nil 6. PSR 1 1 7. Proportionate Capital (56) 25,00,000 12,50,000 8. Taking Qs Capital as Base (being the smallest) PSR 12,50,000 12,50,000 9. Absolute Surplus (5-8) 12,50,000 So Mr. P should get Rs. 12,50,000 first which will bring down his capital account balance from Rs. 37,50,000 to Rs. 25,00,000. Accordingly, surplus amounting to Rs. 5,00,000 will be paid to Mr. P towards higher relative capital. (ii) Scheme of payment of Rs. 37,50,000 realized in 3rd Installment : Payment of Rs. 7,50,000 will be made to Mr. P to discharge higher relative capital. This makes the higher capital of both Mr. P and Mr. Q Rs. 12,50,000 as compared to capital of Mr. R. Payment of Rs. 12,50,000 each of Mr. P & Mr. Q to discharge the higher capital. Balance Rs. 5,00,000 equally to P, Q and R, i.e., Rs. 166,667 Rs. 1,66,667 and Rs. 1,66,666 respectively.

Q. 9. D, E and F were partners in business, sharing profits & losses in the ratio 2:1:1. Their Balance Sheet as at 31.3.10 is as follows : Balance Sheet as at 31.3.10 (Figures in Rs.000) Liabilities Rs. Assets Rs. Fixed Capital: Fixed Assets 900 D 600 Investments 150 E 300 Current Assets: F 300 1200 Stock 300 Current Accounts: Debtors 180 D 120 Cash & Bank 450 930 E 60 180 Unsecured Loans 600 1980 1980 On 1.4.10, it is agreed among the partners that AB (P) Ltd. a newly formed company with E and F having each taken up 300 shares of Rs. 10 each will take over the firm as a going concern including goodwill but excluding cash & bank balances. The following points are also agreed upon: (a) Goodwill will be valued at 3 years purchase of super profits. (b) The actual profit for the purpose of goodwill valuation will be Rs. 300,000.
Group-I : Paper-5 : Financial Accounting 21

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (c) Normal rate of return will be 15% on fixed capital. (d) All other assets and liabilities will be taken over at book values. (e) The purchase consideration will be payable partly in shares of Rs. 10 each and partly in cash. Payment in cash being to meet the requirement to discharge D, who has agreed to retire. (f) E and F are to acquire equal interest in the new company. (g) Expenses of liquidation Rs. 120,000. You are required to prepare the necessary Ledger Accounts. Answer 9.

Rs.
Capital employed on 31.3.10 (Fixed capital) 12,00,000

Calculation of Goodwill :
Weighted average of actual profits 3,00,000

Less:

Normal profits at 15% of Rs. 12,00,000 1,80,000 Super profits 1,20,000 Goodwill at 3 years purchase, i.e. 120,000 3 3,60,000

Calculation of Purchase Consideration :

Total assets as per Balance Sheet 19,80,000

Less: Cash & Bank balances 4,50,000

15,30,000

Add: Goodwill 3,60,000

18,90,000

Less: Unsecured loans 6,00,000

Purchase Consideration 12,90,000

Dr. Realization Account Cr. Rs. Rs.

To Sundry Assets 15,30,000 By Unsecured loans 6,00,000 To Goodwill 3,60,000 By AB(P) Ltd. 12,90,000 To Bank : expenses 1,20,000 By Capital A/c: D 60,000 E 30,000 F 30,000 1,20,000

2010,000 20,10,000 Dr. Partners Capital Accounts Cr. DEFDEF Rs. Rs. Rs. Rs. Rs. Rs.
To Realisation 60,000 30,000 30,000 By Bal. c/d 6,00,000 3,00,000 3,00,000 To Cash 8,40,000 By Cur. A/c 1,20,000 60,000 To C (Cap. adj) 30,000 By Goodwill 18,00,000 90,000 90,000 To Shares in By E AB (P) Ltd.) 3,90,000 3,90,000 (Cap. adj) 30,000 9,00,000 4,50,000 4,20,000 9,00,000 4,50,000 420,000 22 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Dr. Cash & Bank Account Cr. Rs. Rs.
To Balance b/d 4,50,000 By Realisation A/c expenses 1,20,000 To AB (P) Ltd. (Balancing Figure) 5,10,000 By As Capital A/c 8,40,000

9,60,000 9,60,000 Dr. AB(P) Ltd. Account Cr. Rs. Rs.

To Realisation A/c 9,00,000 By Cash A/c 5,10,000 By Equity Shares (Balancing Fig.) 390,000 (39,000 shares of Rs. 10 each)

900,000 900,000
Proportion of equity capital E:F = 1:1 No. of shares = 19,500 2 39,000 shares each.

Q. 10. From the following information, prepare (a) Reconciliation of Head Office Account in Branch Books and of the Branch Account in the Head Office Books; and (b) The Trading and Profit & Loss Account of the Head Office for the year ended 31st March, 2010. Head Office Branch Rs. Rs. Opening Stock 10,000 4,500 Purchases 1,15,000 Sales 2,05,000 1,55,000 Other Expenses 15,200 6,200 Closing Stock 5,200 3,100 The Branch books show the Head Office Account at Rs. 9,000 (Cr.) and the Head Office books show the Branch Account at Rs. 24,000 (Dr.). The Branch receives all its supplies from the Head Office, which are invoiced at 25% over cost. During the year, the Head Office sent invoices to the Branch to the tune of Rs. 1,04,500. The Head Office credits its Sales Account with the invoice price of the goods sent to the Branch. The Head Office billed the Branch for Rs. 12,000 on 31st March 2010 representing the Branchs share of the expenses incurred by the Head Office. The said expenses had not been recorded in the books of the Branch. The expenses of the Branch are met by the Head Office from time to time for which amounts are sent in advance to the Branch. A sum of Rs. 3,000 sent to the Branch by the Head Office on 29th March, 2010 in this connection, was received by the Branch on 3rd April, 2010.
Group-I : Paper-5 : Financial Accounting 23

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 10. Dr. Reconciliation Account of the Branch (Memorandum) (in H.O. Books) Cr. Rs. Rs.
To Balance b/d 24,000 By Remittance in Transit 3,000 (as per H.O. books) Transit to Branch By H.O. Expenses (Entry not yet 12,000 made in Branch Books) By Balance (as per Br. Books) 9,000 24,000 24,000

Dr. Memorandum Reconciliation Account of H.O. Accounts (in Branch Books) Cr. Rs. Rs.
To Balance (as per H.O. Books) 24,000 By Balance b/d (as per Br. Books) 9,000 By Expenses 12,000 By H.O. Cash in transit 3,000 24,000 24,000

Dr. Trading and Profit and Loss Account Cr. for the year ended 31.3.2010 H.O. Branch Total H.O. Branch Total Rs. Rs. Rs. Rs. Rs. Rs.
To Opening 10,000 4,500 14,500 By Sales 1,00,500 1,55,000 2,55,000 Stock By Goods sent 1,04,500 1,04,500 To Purchase 1,15,000 1,15,000 to Branch H.O. To Goods 1,04,500 1,04,500 By Closing 5,200 3,100 8,300 from H.O. Stock Profit 85,200 49,100 1,34,300 2,10,200 1,58,100 3,68,300 2,10,200 1,58,100 3,68,300 To Expenses 15,200 6,200 21,400 By Gross Profit 85,200 49,100 1,34,300 To H.O. Exp. 12,000 12,000 By Opening 900 900 To Stock 620 620 Stock reserve req. (Reserve) (31001/5) (45001/5) To Net Profit 70,280 30,900 1,01,180 86,100 49,100 1,35,200 86,100 49,100 1,35,200

Note : It is assumed that branch profit is to be ascertained on the basis of invoice value of the goods
sent to the Branch since H.O. Sales A/c is credited by such a figure. Entries for Stock Reserve in respect of unrealised profit on stock still lying with the Branch, are therefore made in the H.O. books. 24 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Q. 11. An Indian company has a branch at New York. Its Trial Balance as at 31st March, 2010 is as follows : Dr. Cr. US $ US $ Plant and machinery 180000 Furniture and fixtures 12,000 Stock, Oct. 1, 2009 84,000 Purchases 360,000 Sales 624,000 Goods from Indian Co. (H.O.) 120,000 Wages 3000 Carriage inward 1500 Salaries 9,000 Rent, rates and taxes 3000 Insurance 1500 Trade expenses 1500 Head Office A/c 171,000 Trade debtors 36,000 Trade creditors 25500 Cash at bank 7500 Cash in hand 1500 820500 820500 The following further information is given : (1) Wages outstanding $ 1500 (2) Depreciate Plant and Machinery and Furniture and Fixtures @ 10 % p.a. (3) The Head Office sent goods to Branch for Rs. 5910000 (4) The Head Office shows an amount of Rs. 6450,000 due from Branch. (5) Stock on 31st March, 2010 $ 78,000. (6) There were no in transit items either at the start or at the end of the year. (7) On March 1, 2008, when the fixed assets were purchased, the rate of exchange was Rs. 44 to 1 $. On April 1, 2009, the rate was Rs. 45 to 1 $. On March 31, 2010, the rate was Rs. 46 to 1 $. Average rate during the year was Rs. 45 to 1 $.

You are asked to prepare : (a) Trial balance incorporating adjustments given under 1 to 4 above, converting dollars into rupees. (b) Trading and Profit and Loss Account for the year ended 31st March, 2010 and Balance Sheet as on that date depicting the profitability and net position of the Branch as would appear in India for the purpose of incorporating in the main Balance Sheet.
Group-I : Paper-5 : Financial Accounting 25

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 11. (a) In the books of the Indian Company New York Branch Trial Balance (in Rupees) as on 31st March, 2010 (Rs. 000) Dr. Cr. Conversion Dr. Cr. US $ US $ rate Rs. Rs.
Plant and Machinery 1,62,000 46 74,52,000 Depreciation on plant and machinery 18,000 46 8,28,000 Furniture and fixtures 10,800 46 4,96,800 Depreciation on furniture and fixtures 1200 46 55,200 Stock, Oct. 1, 2009 84,000 45 37,80,000 Purchases 360,000 45 1,62,00,000 Sales 624,000 45 2,80,80,000 Goods from Indian Co. (H.O.) 1,20,000 59,10,000 Wages 4,500 45 2,02,500 Outstanding wages 1,500 46 69,000 Carriage inward 1,500 45 67,500 Salaries 9,000 45 4,05,000 Rent, rates and taxes 3,000 45 1,35,000 Insurance 1,500 45 67,500 Trade expenses 1,500 45 67,500 Head Office A/c 1,71,000 64,50,000 Trade debtors 36,000 46 16,56,000 Trade creditors 25,500 46 11,73,000 Cash at bank 7,500 46 3,45,000 Cash in hand 1,500 46 69,000 Exchange gain 19,65,000 (balancing figure) 3,77,37,000 3,77,37,000 26 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (b) New York Branch Trading and Profit and Loss Account for the year ended 31st March, 2010 Dr. Cr. Rs. Rs.
To Opening stock 37,80,000 By Sales 2,80,80,000 To Purchases 1,62,00,000 By Closing stock 35,88,000 To Goods from Head Office 59,10,000 (78,000 US $ 46) To Wages 2,02,500 To Carriage inward 67,500 To Gross profit c/d 55,08,000 3,16,68,000 3,16,68,000 To Salaries 4,05,000 By Gross profit b/d 55,08,000 To Rent, rates and taxes 1,35,000 To Insurance 67,500 To Trade expenses 67,500 To Depreciation on plant and machinery 8,28,000 To Depreciation on furniture and fixtures 55,200 To Net Profit c/d 39,49,800 55,08,000 55,08,000

Balance Sheet of New York Branch as on 31st March, 2010 Liabilities Rs. Rs. Assets Rs. Rs.
Head Office A/c 64,50,000 Plant and machinery 82,80,000

Add : Net profit 39,49,800 1,03,99,800 Less : Depreciation 8,28,000 74,52,000

Foreign currency Furniture and fixtures 5,52,000 Translation reserve 19,65,000

Less : Depreciation 55,200 4,96,800

Trade creditors 11,73,000 Closing stock 35,88,000 Outstanding wages 69,000 Trade debtors 16,56,000 Cash in hand 3,45,000 Cash at bank 69,000 1,36,06,800 1,36,06,800

Note : (1) Depreciation has been calculated at the given depreciation rate of 10% on WDV basis.
(2) The above solution has been given assuming that the New York branch is a non-integral foreign operation of the Indian Company. Group-I : Paper-5 : Financial Accounting 27

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Q. 12. Department A sells goods to Department B at a profit of 25% on cost and to Department C at 10% profit on cost. Department B sells goods to A and C at a profit of 15% and 20% on sales, respectively. Department C charges 20% and 25% profit on cost to Department A and B, respectively. Department Managers are entitled to 10% commission on net profit subject to unrealised profit on departmental sales being eliminated. Departmental profits after charging Managers commission, but before adjustment of unrealised profit are as under : Rs. Department A 72,000 Department B 54,000 Department C 36,000 Stock lying at different departments at the end of the year are as under : Dept. A Dept. B Dept. C Rs. Rs. Rs. Transfer from Department A 30,000 22,000 Transfer from Department B 28,000 24,000 Transfer from Department C 12,000 10,000 Find out the correct departmental Profits after charging Managers commission. Answer 12. Calculation of correct Profit Department A Department B Department C Rs. Rs. Rs.
Profit after charging managers commission 72,000 54,000 36,000

Add back : Managers commission (1/9) 8,000 6,000 4,000

80,000 60,000 40,000

Less : Unrealized profit on stock

(Working Note) 8,000 9,000 4,000 Profit before Managers commission 72,000 51000 36,000

Less : Commission for Department

Manager @10% 7,200 5,100 3,600 64,800 45,900 32,400

Working Note : Unrealised Profit on Stock Dept. A Dept. B Dept. C Total Rs. Rs. Rs. Rs.
Department A 30,000 6,000 5 1 22,000 2,000 11 1 8,000 Department B 100 15 28,000 = 4,200 100 20 24000 = 4800 9,000 Department C 12,000 2,000 6 1 10,000 2,000 5 1 4000 28 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Q. 13. (a) Briefly indicate the items, which are included in the expression borrowing cost as explained in AS 16. Answer 13. (a)
Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds. As per Para 4 of AS 16 on Borrowing Costs, borrowing costs may include : (i) interest and commitment charges on bank borrowings and other short-term and long-term borrowings; (ii) amortization of discounts or premiums relating to borrowings ; (iii) amortization of ancillary costs incurred in connection with the arrangement of borrowings; (iv) finance charges in respect of assets acquired under finance leases or under other similar arrangements; and (v) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

Q. 13. (b) Write short note on Effect of Uncertainties on Revenue Recognition. Answer 13. (b)
Para 9 of AS 9 on Revenue Recognition deals with the effect of uncertainties on Revenue Recognition. The Para states : 1. Recognition of revenue requires that revenue is measurable and at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 2. Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc. revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize, revenue only when it is reasonably certain that the ultimate collection will be made. When there is uncertainty as to ultimate collection, revenue is recognized at the, time of sale or rendering of service even, though payments are made by installments. 3. When the uncertainty relating to collectability arises subsequent to the time of sale or rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 4. An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits; the recognition of revenue is postponed. 5. When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognized.

Q. 14. (a) How should rentals repayable under operating leases be accounted for in accordance with AS 19? (b) State four items which are not to be included in determining the cost of inventories in accordance with paragraph 6 of AS 2? (c) When are parties considered Related as per AS 18? Answer 14. (a)
According to AS 19, rental payable under an operation lease should be charged against revenue on a straight line basis to over the lease period. If any other method is more representative of the time pattern of the users benefit, such method can be used.

Group-I : Paper-5 : Financial Accounting 29

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 14. (b)
In determining the cost of inventories in accordance with paragraph 6 of AS 2, it is appropriate to exclude certain costs and recognize therein as expenses in the period in which they are incurred. Examples of such cost are (i) abnormal amounts of waste materials, labour or other production costs, (ii) storage costs unless those costs are necessary in the production process prior to a further production stage, (iii) administrative overheads that do not contribute to bring the inventories to their present location and condition, and (iv) selling and distribution cost.

Answer 14. (c)

Parties are considered Related if at any time during the reporting period one party has ability : (i) to control the other party, (ii) to exercise significant influence over the other party in making financial and /or operating decisions, then by virtue of AS 18 both parties would be considered related. Here the term control means : (i) ownership directly or indirectly, of more than 50% of the voting power of an enterprise, (ii) the composition of the board of directors (company) or the Governing Body (other enterprise) (iii) a substantial interest in voting power and the power to direct by Statute or by agreement, the financial/operating policies of the enterprise (20% or more interest in voting power) Significant influence : (i) refers to participation in the financial and/or operating policy decisions of an enterprise but not control of those policies, (ii) may be gained by ownership in share (including investment through intermediaries restricted to mean subsidiaries as defined in AS-21 Consolidated Financial Statement).

Q. 15. How would you deal with the following in the annual accounts of a company for the year ended31st March, 2009? (a) The Board of Directors decided on 31.3.2009 to increase the sale price of certain items retrospectively from 1st January, 2009. In view of this price revision with effect from 1st January, 2009 the company has to receive Rs. 20 lacs from its customers in respect of sales made from 1st January, 2009to 31st March, 2009 and the Accountant cannot make up his mind whether to include Rs. 20 lacs in the sales for 2009-10. Answer 15. (a)
Price revision was effected during the current accounting period 2008-2009. As a result, the company stands to receive Rs. 20 lacs from its customers in respect of sales made from 1st January, 2009 to 31st March, 2009. If the company is able to assess the ultimate collection with reasonable certainty, then additional revenue arising out of the said price revision may be recognized in 2008-2009 vide Para 10 of AS 9.

Q. 15. (b) The company undertook a contract for building a crane for Rs. 15 lacs. As on 31.03.09 it incurred a cost of Rs. 2.25 lacs and expects that there will be Rs. 13.5 lacs more for completing the crane. It has received so far Rs. 1.5 lacs as progress payment.
30 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 15. (b)
Para 21 of AS 7 (Revised) Construction Contracts provides that when the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognized as revenue and expenses respectively with reference to the stage of completion of the contract activity at the reporting date. As per para 32 of the standard, during the early stages of a contact it is often the case that the outcome of the contract cannot be estimated reliably. Nevertheless, it may be probable that the enterprise will recover the contract costs incurred. Therefore, contract revenue is recognized only to the extent of costs incurred that are expected to be recovered. As the outcome of the contract cannot be estimated reliably, no profit is recognized. Para 35 of the standard states that when it is probable that the total contacts costs will exceed total contract revenue, the expected loss should be recognized as an expense immediately. Thus the foreseeable loss of Rs. 75000 (expected cost Rs. 15.75 lacs less contract revenue Rs. 15 lacs should be recognized as an expense in the year ended 31st March, 2009. Also, the following disclosures should be given in the financial statements : (i) the amount of contract revenue recognized as revenue in the period; (ii) the aggregate amount of costs incurred and loss recognized up to the reporting date; (iii) amount of advances received; (iv) amount of retentions; and (v) gross amount due from/due to customers Amount.

Q. 15. (c) P Ltd., used certain resources of Q Co. Ltd. In return Q Ltd. received Rs. 30 lacs and Rs. 45 lacs as interest and royalties respective from Y Co. Ltd. during the year 2008-2009. You are required to state whether and on what basis these revenues can be recognized by Q Ltd. Answer 15. (c)
As per para 13 of AS 9 on Revenue Recognition, revenue arising from the use by others of enterprise resources yielding interest and royalties should only be recognized when no significant uncertainty as to measurability or collectability exists. These revenues are recognized on the following bases : (i)

Interest : on a time proportion basis taking into account the amount outstanding and the rate

applicable.

Royalties : on an accrual basis in accordance with the terms of the relevant agreement. Q. 16. (a) What is meant by Sweat Equity Shares? (b) State the cases where the creation of Debenture Redemption Reserve is not mandatory as per SEBI guidelines. (c) State the conditions which are required to be fulfilled by a Joint Stock Company to buy-back its equity shares. Answer 16. (a)
(ii) The Companies (Amendment) Act, 1999 introduced through section 79A a new type of equity shares called Sweat Equity Shares. The expression sweat equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions by whatever name called. However , specified guidelines in this respect must be followed.

Answer 16. (b)

The following are the cases where Debenture Redemption Reserve is not mandatory as per SEBI guidelines : (i) Infrastructure Company. Group-I : Paper-5 : Financial Accounting 31

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

(ii) A company issuing debenture with a maturity period of not more than 18 months.

Answer 16. (c)

As per section 77A(2) of the Companies Act, 1956 a joint stock company has to fulfill the following conditions to buy-back its own equity shares : (i) The buy-back is authorized by its articles. (ii) A special resolution* has been passed in general meeting of the company authorizing the buy-back. (iii) The buy-back does not exceed 25% of the total paid up capital and free reserves of the company. Provided the buyback must not exceed 25% of its total paid up equity capital in that financial year. (iv) The ratio of the debt owed by the company is not more than twice the capital and its free reserves after such buy-back. (v) All the shares for buy-back are fully paid up. (vi) The buy-back is made out of the free reserves (which include securities premium) or out of the proceeds of a fresh issue of any shares or other specified securities. (vii) The buy-back is completed within 12 months of the passing of the special resolution or a resolution passed by the Board. (viii) The buy-back of the shares listed on any recognized stock exchange is in accordance with the regulations made by the SEBI in this behalf. (ix) Before making such buy-back, a listed company has to file with the Registrar and the SEBI a declaration of solvency in the prescribed form.

Q. 17. The Balance sheet of WYX Ltd. as at 31st December, 2008 inter alia includes the following : Rs. 75000, 8% Preference shares of Rs. 100 each Rs. 70 paid up 52,50,000 150000 Equity shares of Rs. 100 each fully paid up 1,50,00,000 Securities premium 7,50,000 Capital redemption reserve 30,00,000 General reserve 75,00,000 Under the terms of their issue, the preference shares are redeemable on March 31, 2009 at a premium of 5%. In order to finance the redemption, the company makes a right issue of 75000 equity shares of Rs. 100 each at Rs. 20 being payable on application, Rs. 35 (including premium) on allotment and the balance on January 1, 2010 The issue was fully subscribed and allotment made on March 1, 2009. The monies due on allotment were received by March 30, 2009. The preference shares were redeemed after fulfilling the necessary conditions of Section 80 of the Companies Act, 1956. The company decided to make the minimum utilization of general reserve. You are asked to pass the necessary journal entries and show the relevant extracts from the Balance Sheet as on March 31, 2009 with the corresponding figures as on 31st December, 2008. Note : Party paid up Preference Share cannot be redeemed. Hence, the company share call the amount due
from the Preference Shares. 32 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 17. WYX Ltd. Journal Entries
Dr. Cr. Rs. 000 Rs. 000 8% Preference Share Final Call Account Dr. 2250 To 8% Preference Share Capital Account 2250 (Being the final call made on 75000 preference shares @ Rs. 30 each to make them fully paid up) Bank Account Dr. 2250 To 8% Preference Share Final Call Account 2250 (Being the final call amount received on 75000 preference shares @ Rs. 30 each) Bank Account Dr. 1500 To Equity Share Application Account 1500 (Being the application money received on 75000 equity shares @ Rs. 20 per share) Equity Share Application Account Dr. 1500 To Equity Share Capital Account 1500 (Being the application money on 75000 equity shares transferred to equity share capital account vide Boards resolution dated...) Equity Share Allotment Account Dr. 2625 To Equity Share Capital Account 1875 To Securities Premium Account 750 (Being the amount due on 75000 equity shares @ Rs. 35 per share *including premium Rs.10 vide Boards resolution dated...) Bank Account Dr. 2625 To Equity Share Allotment Account 2625 (Being the allotment money received on 75000 equity shares @ Rs. 35 per share) 8% Preference Share Capital Account Dr. 7500 Premium on Redemption of Preference Shares Account Dr. 375 To Preference Shareholders Account 7875 (Being the amount payable to preference share holders on redemption) Group-I : Paper-5 : Financial Accounting 33

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

Preference Shareholders Account Dr. 7875 To Bank Account 7875 (Being the payment made to preference shareholders) Securities Premium Account Dr. 375 To Premium on Redemption of Preference Shares Account 375 (Being the premium payable on redemption of preference shares charged to share premium account) General Reserve Dr. 4125 To Capital Redemption Reserve 4125 (Being the amount transferred to capital redemption reserve on redemption of preference shares for the balance not covered by proceeds of fresh issue of shares)

Balance Sheet of WYX Limited As at 31st March, 2009 (after redemption of preference shares) (Relevant extracts)
Amount Amount Rs. (000) Rs. (000) As on As on 31.3.09 31.12.08 1. Sources of funds Shareholders funds :

(a) Share Capital Issued, subscribed and paid-up 1,50,000 equity shares of Rs. 100 each, fully paid up 15,000 15,000 75000 equity shares of Rs. 100 each, Rs. 45 called up and paid up 3,375 75000, 8% Redeemable preference shares of Rs. 100 each, Rs. 70 called-up and paid-up (redeemed on 31st March, 2009) 5,250 18,375 20,250 (b) Reserves and Surplus : Capital redemption reserve 7,125 3,000 Securities premium account 1,125 750 General reserve 3,375 7,500 11,625 11,250 The cash and bank balance will be decreased by Rs. 15,00,000 on 31.3.09 as compared to the balance on 31.12.2008. 34 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Working Notes : Rs. 000
(i) Transfer to capital redemption reserve Nominal value of preference shares redeemed (Rs. 100 75,000) 7,500

Less : Proceeds of fresh equity issue [(Rs. 20 + 25) 75,000)] 3,375

Transfer to capital redemption reserve 4,125 (ii) Capital redemption reserve as on 31.3.09 Balance as on 31.12.08 3,000

Add : Transfer from general reserve 4,125

Balance as on 31.3.09 7,125 (iii) General reserve as on 31.3.09 Balance as on 31.12.08 7,500

Less : Transfer to capital redemption reserve 4,125

Balance as on 31.3.09 3,375 (iv) Securities premium as on 31.3.09 Balance as on 31.12.08 750

Add : Amount received @ Rs. 10 per share on fresh issue of 75,000 equity shares 750
1,500

Less : Premium on redemption of preference shares 375

Balance as on 31.3.09 1,125 (v) Change in cash and bank balance Receipts : (31.12.08 - 31.3.09) Application money on 75,000 equity shares @ Rs. 20 per share 1,500 Allotment money on 75,000 equity shares @ Rs. 35 per share 2,625 Final call on 75,000, 8% Preference shares @ Rs. 30 per share 2,250 6,375

Payments :
Amount paid to preference shareholders on redemption 7,875 Reduction in cash and bank balance 1,500

Q. 18. ABC Limited recently made a public issue in respect of which the following information is available : (a) No. of partly convertible debentures issued 4,00,000; face value and issue price Rs.100 per debenture. (b) Convertible portion per debenture 60%, date of conversion on expiry of 6 months from the date of closing of issue. (c) Date of closure of subscription lists 1.5.2009, date of allotment 1.6.2009, rate of interest on debenture 15% payable from the date of allotment, value of equity share for the purpose of conversion Rs. 60 (Face Value Rs. 10). (d) Underwriting Commission 2.5 %. (e) No. of debentures applied for 300000.
Group-I : Paper-5 : Financial Accounting 35

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (f) Interest payable on debentures half-yearly on 30th September and 31st March. Write relevant journal entries for all transactions arising out of the above during the year ended
31st March, 2010 (including cash and bank entries).

Answer 18. In the books of ABC Ltd. Journal Entries Dr. Cr. Date Particulars Amount Amount Rs. Rs.
1.5.09 Bank A/c Dr. 3,00,00,000 To Debenture Application A/c 3,00,00,000 (Application money received on 300,000 debentures @ Rs. 100 each) 1.6.09 Debenture Application A/c Dr. 3,00,00,000 Underwriters A/c Dr. 1,00,00,000 To 15% Debentures A/c 4,00,00,000 (Allotment of 300,000 debentures to applicants and 100,000 debentures to underwriters) Underwriting Commission Dr. 10,00,000 To Underwriters A/c 10,00,000 (Commission payable to underwriters @ 2.5 % on Rs. 4,00,00,000) Bank A/c Dr. 99,00,000 To Underwriters A/c 99,00,000 (Amount received from underwriters in settlement of account) 30.9.09 Debenture Interest A/c Dr. 20,00,000 To Bank A/c 20,00,000 (Interest paid on debentures for 4 months @ 15% on Rs. 400,00,000) 30.10.09 15% Debentures A/c Dr. 2,40,00,000 To Equity Share Capital A/c 40,00,000 To Securities Premium A/c 2,00,00,0000 (Conversion of 60% of debentures into shares of Rs. 60 each with a face value of Rs. 10) 31.3.10 Debenture Interest A/c Dr. 15,00,000 To Bank A/c 15,00,000 (Interest paid on debentures for the half year) 36 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Working Note : Calculation of Debenture Interest for the half year ended 31st March, 2010
On Rs. 1,60,00,000 for 6 months @ 15% = Rs. 12,00,000 On Rs. 2,40,00,000 for 1 months @ 15% = Rs. 300,000 Rs. 15,00,000

Q. 19. Provisional Balance Sheet of STP Ltd. as at 31st March, 2009 was as under : Balance Sheet as at 31st March, 2009 Liabilities Rs. Rs. Assets Rs. Share Capital Fixed Assets (at cost less 125,000 equity shares of Rs. 10 depreciation) 1750,000 each, Rs. 7 per share called up 875000 Cash & Bank balances 5,00,000 Less : Calls in arrear on 25,000 Other Current assets 1500,000 shares @ Rs. 2 per share 50,000 825,000 Add : Calls in advance on 100,000 shares @ Rs. 3 per share 300,000 1125,000 20,000, 10% Redeemable preference shares of Rs. 10 each, fully paid up 5,00,000 Reserves & Surplus : General Reserve 750,000 Profit & Loss Account 675,000 Current Liabilities 700,000 3750000 3750,000 Calls in arrear are outstanding for 6 months. Calls in advance were also received 6 months back. Interest @ 10% p.a. on calls in advance and 12% p.a. on calls in arrear are allowed/charged. The Board of Directors have recommended that : (i) Dividend for the year 2008-09 be allowed @ 20% on equity shares. (ii) Money on calls in advance be refunded and partly paid equity shares be converted as fully paid up by declaring bonus dividend to shareholders. (iii) The preference shares, which are redeemable at a premium of 10% any time after 31st March, 2009 may be redeemed by issue of 10% Debentures of Rs. 100 in cash. Show Journal Entries to give effect to the above proposals including payment and receipt of cash and redraft the Profit and Loss Account and Balance Sheet of STP Ltd.
Group-I : Paper-5 : Financial Accounting 37

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 19. Journal Entries STP Ltd. Dr. Cr. Rs. Rs.
Interest on Calls in Arrear A/c Dr. 3000 To Profit & Loss A/c 3000 (Being interest @ 12 % p.a. on Rs. 50,000 for 6 months credited to Profit and Loss Account) Bank A/c Dr. 53000 To Calls in Arrear A/c 50000 To Interest on Calls in Arrear A/c 3000 (Being interest on calls in arrear received) Profit & Loss A/c Dr. 15000 To Interest on Calls in Advance A/c 15000 (Being interest @ 10% on Rs. 3,00,000 for 6 months allowed on calls in advance) Profit & Loss A/c Dr. 225000 To Preference Dividend 50000 To Equity Dividend 175000 (Being dividend @ 10% on Preference share capital & 20% on Equity share capital proposed) Profit & Loss A/c Dr. 375000 To Bonus to Equity Shareholders A/c 375000 (Being bonus dividend declared) Share Final Call A/c Dr. 375000 To Equity Share Capital A/c 375000 (Being final call made @ Rs. 3 on 1,25,000 shares) Bonus to Equity shareholders A/c Dr. 375000 To Share Final Call A/c 375000 (Being adjustment of bonus dividend against final call) Calls in Advance A/c Dr. 300000 Interest on Calls in Advance A/c Dr. 15000 To Bank A/c 315000 (Being amount of calls in advance along with interest refunded) Bank A/c Dr. 550000 To 10% Debentures A/c 550000 (Being 5,500 Debentures of Rs.100 each issued in cash) 38 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

Profit & Loss A/c Dr. 50000 To Premium on Redemption of Preference shares A/c 50000 (Being premium payable on redemption) Profit & Loss A/c Dr. 13000 General Reserve A/c Dr. 487000 To Capital Redemption Reserve A/c 500000 (Transfer to capital redemption reserve) Preference Share Capital A/c Dr. 500000 Premium on Redemption of Preference Shares A/c Dr. 50,000 To Preference Shareholders A/c 550000 (Amount due on redemption of preference shares) Preference Shareholders A/c Dr. 550000 To Bank A/c 550000 (Amount paid to preference shareholders)

Profit & Loss Account of STP Ltd. for the year ended 31st March, 2009 Dr. Cr. Rs. Rs.
To Interest on calls in advance 15,000 By Balance b/d 6,75,000 To Balance c/d 6,63,000 By Interest on calls in arrear 3,000 6,78,000 6,78,000 To Premium on redemption 50,000 By Balance b/d 6,63,000 To Preference Dividend 50,000 To Equity Dividend 1,75,000 To Bonus Dividend 3,75,000 To Capital Redemption Reserve 13,000 6,63,000 6,63,000 Group-I : Paper-5 : Financial Accounting 39

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Balance Sheet of STP Ltd. as on 31st March 2009 Liabilities Rs. Assets Rs.
Share Capital: Fixed Assets 17,50,000 125,000 equity shares of Rs. 10 each (Cost less depreciation) fully paid up 12,50,000 (Of the above equity shares Cash & Bank balance (W.N.) 2,38,000 Rs. 3 per share has not been received in cash but has been capitalised Other Current Assets 15,00,000 by issuing bonus dividend) Reserves & Surplus : Capital Redemption Reserve 5,00,000 General Reserve 7,50,000 Less: utilised for redemption of preference share 4,87,000 2,63,000 Profit & Loss Account 10% Debentures 5,50,000 Current liabilities 7,00,000 Proposed dividend 2,25,000

34,88,000 34,88,000 Working Note : Cash and Bank balance as on 31st March, 2009 Rs.
Cash and bank balance (given) 5,00,000

Add: Recovery of calls in arrear and interest thereon 53,000

Proceeds from issue of 10% Debentures 5,50,000 11,03,000

Less: Payment of calls in advance and interest thereon 3,15,000

Redemption of preference shares 5,50,000 2,38,000

Note : In the absence of information, it has been assumed that the amount of calls in arrear has been
received in the given solution. It has been assumed that 20% dividend on equity shares has been proposed before the equity shares are made fully paid by way of bonus dividend. 40 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Q. 20. The following is the Balance sheet of SS Ltd. as on 31.03.2009. Liabilities Rs. Assets Rs. Share Capital : Fixed Assets : Authorised Gross Block 6,00,000 20,000 10% redeemable preference Less : Depreciation 2,00,000 4,00,000 share of Rs. 10 each 2,00,000 Investments 2,00,000 1,80,000 Equity Shares of Rs. 10 each 18,00,000 Current Assets, 20,00,000 Loans & Advances : Issued, Subscribed and paid up Inventory 50,000 capital : Debtors 50,000 20,000, 10% redeemable Cash & Bank balance 1,00,000 2,00,000 preference share of Rs. 10 each 2,00,000 Miscellaneous Expenditure 20,000 equity shares of Rs. 10 each 2,00,000 to the extent not written off 40,000 Reserve and Surplus : General Reserve 2,40,000 Securities premium 1,40,000 Profit and Loss Account 37,000 Current Liabilities & Provision : 23,000 8,40,000 8,40,000 For the year ended 31.3.2010, the company made a net profit of Rs. 30,000 after providing for Rs. 40,000 depreciation and writing off miscellaneous expenditure of Rs. 40,000. The following additional information is available with regard to companys operation. (1) The preference dividend for the year ended 31.3.2010 was paid before 31.3.2010. (2) Except cash & balances, other current assets and current liabilities on 31.3.2010, was the same as on 31.3.2009. (3) The company redeemed the preference share at a premium of 10%. (4) The company issued bonus shares in the ratio of 1 share for every two equity shares held as on 31.3.2010. (5) To meet the cash requirements of redemption, the company sold a portion of the investments, so as to leave a minimum balance of Rs. 60,000 after such redemption. (6) Investments were sold at 90% cost as on 31.3.2010. Prepare : (i) Necessary Journal entries to record redemption and issue of shares. (ii) Cash & Bank Account. (iii) Balance Sheet as on 31.3.2010.
Group-I : Paper-5 : Financial Accounting 41

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 20. Journal Entries Date Particulars Amount Amount Rs. Rs.
Bank A/c Dr. 90,000 Profit & Loss A/c Dr. 10,000 To Investment A/c 1,00,000 (Being the investment sold at 90% cost) 10% Redeemable Preference Share Capital A/c Dr. 2,00,000 Premium on redemption of Preference Share Dr. 20,000 To Preference Shareholders A/c 2,20,000 (Being the amount payment on redemption of preference share at a premium of 10%) Preference Shareholders A/c Dr. 2,20,000 To Bank A/c 2,20,000 (Being the amount paid to preference shareholders) General Reserve A/c Dr. 1,00,000 To Capital Redemption Reserve A/c 1,00,000 (Being the amount transferred to capital redemption reserve A/c) Securities Premium A/c Dr. 20,000 To Premium on redemption of Preference Shares A/c 20,000 (Being the premium on redemption of preference shares adjusted against Securities Premium A/c) Capital Redemption Reserve A/c Dr. 1,00,000 To Bonus to Shareholders A/c 1,00,000 (Being the bonus payable to shareholders in the ratio of 2 :1) Bonus to Shareholders A/c Dr. 1,00,000 To Equity Share Capital A/c 1,00,000 (Being utilisation of bonus dividend towards the issue of 10,000 equity shares of Rs. 10 each at par) 42 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Dr. Cash and Bank Account Cr. Particulars Amount Particulars Amount Rs. Rs.
To Balance b/d 1,00,000 By Preference Dividend A/c 20,000 To Cash from operations By Preference Shareholders A/c 2,20,000 Net Profit 30,000 By Balance c/d 60,000

Add: Depreciation 40,00

Mis. Expenditure 40,000 1,10,000 To Investment A/c 90,000

3,00,000 3,00,000 Balance Sheet as on 31-03-2010 Liabilities Amount Assets Amount Rs. Rs. Share Capital : Fixed Assets : Authorised Capital Gross Block 6,00,000 20,000 10% redeemable preference Less : Depreciation 2,40,000 3,60,000
shares of Rs. 10 each 2,00,000 Investments (market value Rs. 90,000 1,00,000 1,80,000 Equity Shares of Rs. 10 each 18,00,000

Current Assets, Loans & Advances :

20,00,000 Inventory 50,000

Issued , Subscribed and Debtors 50,000 paid up capital : Cash & Bank balances 60,000 1,60,000 30,000 equity shares of Rs. 10 each Miscellaneous Expenditure : Nil
fully paid including 10,000 bonus shares 3,00,00

Reserve and Surplus :

General Reserve (2,40,000 1,00,000) 1,40,000 Securities premium (1,40,00020,000) 1,20,000

Profit and Loss Account 37,000

Current Liabilities & Provisions : 23,000 6,20,000 6,20,000 Working Note : Profit and Loss A/c Dr. for the year ended on 31-03-2010 Cr. Particulars Amount Particulars Amount Rs. Rs.
To Preference Dividend A/c 20,000 By Balance b/d 37,000 To Investment (loss on sale) 10,000 By Net Profit 30,000 To Balance c/d 37,000

67,000 67,000
Group-I : Paper-5 : Financial Accounting 43

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Q. 21. The Trial balance of CDX Ltd. as at 31st March, 2010 shows the following items : Dr. Cr. Rs. Rs. Advance payment of income-tax 550000 Provision for income-tax for the year ended 31.3.2009 300000 The following further information are given : (i) Advance payment of income-tax includes Rs. 350000 for 2008-09. (ii) Actual tax liability for 2008-09 amounts to Rs. 380000 and no effect for the same has so far been given in accounts. (iii) Provision for income-tax has to be made for 2009-10 Rs. 400000 You are required to prepare (a) provision for income-tax account, (b) advance payment of incometax account, (c) liabilities for taxation account and also show, how the relevant items will appear in the profit and loss account and balance sheet of the Company. Answer 21. CDX Ltd. (a) Provision for Income Tax (2008-09) Account Dr. Cr. Rs. Rs.
31.3.08 To Advance Payment of 1.4.07 By Balance b/d 3,00,000 Income-tax A/c 3,50,000 31.3.08 By Profit and Loss A/c 80,000 To Liability for Taxation A/c 30,000

3,80,000 3,80,000 Provision for Income-tax (2009-10) Account Rs. Rs.

31.3.08 To Balance c/d 4,00,000 31.3.08 By Profit and Loss A/c 4,00,000

4,00,000 4,00,000 (b) Advance Payment of Income Tax Account Rs. Rs.
31.3.08 To Balance b/d 5,50,000 31.3.08 By Provision for Incometax (2008-09) A/c 3,50,000 By Balance c/d 2,00,000

5,50,000 5,50,000 (c) Liability for Taxation Account Rs. Rs.

31.3.08 To Balance c/d 30,000 31.3.08 By Provision for Incometax A/c 30,000

30,000 30,000
44 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Profit and Loss Account for the year ended 31st March, 2010 (Extracts) Rs. Rs.
Profit before Taxation .....

Less : Taxation for the year 4,00,000

Taxation adjustment of previous year 80,000 4,80,000 Net Profit .....

Balance Sheet of CDX Ltd. As at 31st March, 2010 (Extracts) Liabilities Rs. Assets Rs.
Current Liabilities and Provisions Current Assets, Loans and Advances A. Current Liabilities B. Loans and Advances Liability for Taxation (2006-07) 30,000 Advance payment of B. Provisions Income-tax 2,00,000 Provision for Income-tax 4,00,000

Q. 22. The following is the Trial Balance of SBS Limited as on 31.3.10 :

(Figures in Rs. 000)

Debit Rs. Credit Rs. Land at cost 385 Equity Capital (Shares of Rs. 10 each) 525 Plant & Machinery at cost 1347.5 10% Debentures 350 Debtors 168 General Reserve 227.5 Stock (31.3.10) 150.5 Profit & Loss A/c 126 Bank 35 Securities Premium 70 Adjusted Purchases 560 Sales 1225 Factory Expenses 105 Creditors 91 Administration Expenses 52.5 Provision for Depreciation 301 Selling Expenses 52.5 Suspense Account 7 Debenture Interest 35 Interim Dividend Paid 31.5 2922.5 2922.5 Additional Information : (a) On 31.3.10 the company issued bonus shares to the shareholders on 1 : 3 basis. No entry relating to this has yet been made. (b) The authorized share capital of the company is 87500 shares of Rs. 10 each. (c) The company on the advice of independent valuer wish to revalue the land at Rs.630000 (d) Proposed final dividend 10%. (e) Suspense account of Rs. 7000 represents cash received for the sale of some of the machinery on 1.4.09 The cost of the machinery was Rs. 17500 and the accumulated depreciation thereon being Rs. 14000
Group-I : Paper-5 : Financial Accounting 45

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (f) Depreciation is to be provided on plant and machinery at 10% on cost. You are required to prepare SBS Limiteds Profit & Loss account for the year ended 31.3.10 and a balance sheet on that date in vertical form as per the provisions of Schedule VI of the Companies Act, 1956. Your answer to include detailed schedules only for the following : (1) Share Capital (2) Reserves & Surplus (3) Fixed Assets Ignore previous years figures & taxation. Answer 22. SBS Limited Balance Sheet as at 31.3.10 I. Sources of funds
Schedule No. (Rs. 000) (1)

Shareholders funds :

(a) Capital 1 700 (b) Reserves & Surplus 2 700 1400 (2) Loan funds 10% Debentures 350

Total 1750 II. Application of funds : (1) Fixed Assets : 3

Land 630 Gross Block (1347.5 17.5) 1330

Less: Depreciation
(301 + 133 - 14) 420 910 1540 (2)

Current assets :

Stock 150.5 Debtors 168.0 Cash 35.0 353.5

Less: Current Liabilities:

Creditors 91.0 Proposed dividend 52.5 143.5 210

Total 1750
46 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA SBS Limited Profit & Loss Account for the year ended 31.3.10
(Rs. 000) Sales 1225.0 Other income (profit on sale of machinery) 3.5 Total income 1228.5

Less : Expenses:
Purchases 560

Factory expenses 105 Administration expenses 52.5 Selling expenses 52.5 Depreciation 133 Interest on Debentures 35 938 290.5 Net Profit before dividend Dividend : Interim 31.5 Final 52.5 84.0 Balance carried to balance sheet 206.5

Working Notes :
Bonus issue proportion = 1:3 No. of shares = 52500 1/3 = 17500 shares

Debit (Rs.) Credit (Rs.)

(1) General Reserve Account Dr. 1,75,000 To Equity Share Capital Account Rs. 1,75,000 (Being reserves capitalized) (2) Land Account Dr. 2,45,000 To Revaluation Reserve Account Rs. 2,45,000 (Being land revalued)

Schedules SCHEDULE 1 Rs. Share Capital

Authorised 87500 Shares of Rs. 10 each 8,75,000 Issued, subscribed & fully paid-up 70000 shares of Rs. 10 each 7,00,000 [of the above, 17500 shares are alloted as fully paid by way of Bonus Shares. Bonus Shares were issued by utilising the general reserve] Group-I : Paper-5 : Financial Accounting 47

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA SCHEDULE 2 Rs. Reserves and Surplus
Share Premium Account 70,000 Revaluation reserve 2,45,000 General reserve (2,27,500 1,75,000) 52,500 Balance in profit & loss A/c (1,26,000 + 2,06,500) 3,32,500 7,00,000

SCHEDULE 3 Fixed Assets As on 1/4/2009 Additions Deductions Depreciation Net Block Rs. Rs. Rs. Rs. Rs.
Land 3,85,000 2,45,000 6,30,000 Plant & Machinery 13,47,500 17,500 4,20,000 9,10,000

Total 17,32,500 2,45,000 17,500 4,20,000 15,40,000

Land was revalued upward by Rs. 2,45,000 during the year.

Q. 23. (a) State the respective heads of the following items in Balance Sheet of a Company : (i) Uncalled liability on share partly paid. (ii) Loose tools. (iii) Future installments payable under hire- purchase agreements. (iv) Unclaimed dividends. (v) Public deposit (vi) Discount on issue of shares. (vii) Proposed dividend. (viii) Share premium account. (ix) Interest accrued but not due on loans (x) Immovable properties. Answer 23. (a) Item Heading Sub-heading
(i) Uncalled liability on share partly Contingent liability, shown as paid. a footnote to Balance Sheet. (ii) Loose tools. Current Assets, Loans and Current Assets Advances (iii) Future installments payable under Secured Loans hire-purchase agreements. (iv) Unclaimed dividends. Current Liabilities (v) Public deposit Unsecured Loans (vi) Discount on issue of shares. Miscellaneous Expenditure (vii) Proposed dividend. Current Liabilities and Provisions Provisions 48 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Item Heading Sub-heading
(viii) Share premium account. Reserves and Surplus Reserves (ix) Interest accrued but not due Current Liabilities and Provisions Current Liabilities on loans (x) Immovable properties. Investments

Q. 23. (b) (i) A major fire has damaged the assets in a factory of a limited company on 4th April-four days after the year end closure of account. The loss is estimated at Rs. 55 crores out of which Rs. 16 crores will be recoverable from the insurers. Explain briefly how the loss should be treated in the final accounts for the previous year. (ii) There is a sales tax demand of Rs. 3.50 crores against a company relating to prior years against which the company has gone on appeal to the appellate authority in the department. The grounds of appeal deal with points covering Rs. 3 crores of the demand. State how the matter will have to be dealt with in the final accounts for the year. Answer 23. (b)
(i) The loss due to break out of fire is an example of event occurring after the balance sheet date that does not relate to condition existing at the balance sheet date. It has not affected the financial position as on the date of the balance sheet and therefore requires no specific adjustments in the financial statements. However, paragraph 8.6 of AS-4 states that disclosure is generally made of events in subsequent periods that represent unusual changes affecting the existence of the enterprise at the balance sheet date. In the given case, the loss of assets in a factory is considered to be an event affecting the existence of the enterprise after the balance sheet date. Hence, as recommended in paragraph 15 of AS-4, disclosure of the event should be made in the report of the approving authority that represent material changes and commitments affecting the financial position of the enterprise. (ii) The undisputed part of sales tax liability of Rs. 0.50 crore should be considered as actual liability and adequately provided for. Accounting standard 29 deals with Provisions Contingent Liabilities and Contingent Assets. According to the standard, an enterprise should not recognize a contingent liability but should disclose it, as required by paragraph 68, unless the possibility of an outflow of resources embodying economic benefits is remote. Accordingly the company should disclose the disputed part of sales tax liability of Rs. 3 crore as contingent liability in their financial statements of the year. However, the above disclosed contingent liability should be reviewed continuously and if it becomes probable that an outflow of future economic benefit will be required, then recognize the contingent liability as a provision.

Q. 24. Write short note on : (a) Classification of investments by a banking company. (b) Valuation Balance Sheet. (c) Double Accounts System. (d) Votable and non-votable items. Answer 24. (a)
The investment portfolio of a bank would normally consist of both approved securities (predominantly government securities) and other securities (shares, debentures, bonds etc.). Banks are required to classify their entire investment portfolio into three categories : Group-I : Paper-5 : Financial Accounting 49

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (i) Held-to-maturity : Securities acquired by banks with the intention to hold them up to maturity
should be classified as held-to-maturity (ii)

Held-for-maturity : Securities acquired by banks with the intention to trade by taking advantage of Available-for-sale : Securities which do not fall within the above two categories should be classified

shortterm price interest rate movements should be classified as held-for trading/maturity. (iii)

as available-for-sale.

Answer 24. (b)

For the purpose of ascertaining , the insurance company calculates its net liability on all outstanding policies. For calculating net liability the actuaries calculate the present value of future liability on all the policies in future as present value of future premium to be received on all policies in future. The excess of the present values of future liability over the present value premium is called the net liability. It is by comparing the life insurance fund and net liability in respect of policies, that profit of life insurance business can be as estimated. If the fund is more than net liability , the difference represents profit. On the other hand , excess of net liability over the life assurance fund represents loss for intervaluation period. The profit or loss in life insurance business is ascertained by preparing a statement called Valuation Balance Sheet which is given below :

Valuation Balance Sheet as on........

To Net liability as per actuarys By Life Assurance Fund as per valuations Balance Sheet To Surplus (net profit) By Deficiency (net loss)

Answer 24. (c)

Double Accounts system is the name given to the system of preparing the final accounts of certain statutory companies formed by special Acts of Parliament, usually public utility undertakings (for example Electricity Companies). The double accounts system is not a special method of keeping accounts, rather a special method of presenting accounts which are kept under the normal double entry system. Under this system, separate accounts in respect of capital and revenue are prepared in order to show clearly the capital receipts and the manner in which the amounts thereof have been invested. The final accounts prepared under the double accounts system normally consist of : (i) Revenue Account (ii) Net Revenue Account (iii) Capital Account (Receipts and Expenditure on capital account) (iv) General Balance Sheet. The Revenue account is analogous to the Profit & Loss Account of a company with some exceptions. The Net Revenue Account resembles with appropriation portion of the Profit & Loss Account of a company. The Balance Sheet is presented in two parts namely Capital Account and General Balance Sheet. The Capital Account shows the total amount of capital raised and its sources and also the manner and extent to which this capital has been applied in the acquisition of fixed assets for the purpose of carrying on the business. The General balance sheet includes the other items. The Double Accounts System in its pure form does no longer exist but the statements submitted to State Governments by electricity companies generally follow the principle of Double Accounts System. It may be noted that for presenting accounts to the shareholders, electricity companies normally follow Schedule VI of the Companies Act, 1956. 50 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 24. (d)
Certain items of expenditure are charged to the consolidated fund or public fund account. They are incurred regardless of legislative approval. These are called non-votable items. Other items are votable and expenditure thereon can be made only after the sanction of Parliament. The Govt. makes the demand for grants for these items of expenditure. These demand may be reduced or even rejected but in case of non-votable items, it can at best be debated and nothing more than that.

Q. 25. (a) Briefly describe with reference to Accounting Standard 7 on Accounting for construction contracts, the methods which may be used for recognizing revenue on construction contracts. Answer 25. (a)
As per Accounting Standard 7 on Accounting for Construction Contracts, two methods of accounting commonly followed by contractors for recognizing revenue on construction contracts are the percentage of completion method and the completed contract method. Under the percentage of completion method, revenue is recognized as the contract activity progresses based on the stage of completion reached. The costs incurred in reaching the stage of completion are matched with this revenue, resulting in the reporting of results which can be attributed to the proportion of work completed. Although (as per the principle of prudence) revenue is recognized only when realized, under this method, the revenue is recognized as the activity progresses even though in certain circumstances it may not be realized. Under the completed contract method, revenue is recognized only when the contract is completed or substantially completed; that is, when only minor work is expected other than warranty obligation. Costs and progress payments received are accumulated during the course of the contract but revenue is not recognized until the contract activity is substantially completed. Under both methods, provision is made for losses for the stage of completion reached on the contract. In addition, provision is usually made for losses on the remainder of the contract. It may be necessary for accounting purposes to combine contracts made with a single customer or to combine contracts made with several customers if the contracts are negotiated as a package or if the contracts are for a single project. Conversely, if a contract covers number of projects and if the costs and revenues of such individual projects can be identified within the terms of the overall contract, each such project may be treated as equivalent to a separate contract.

Q. 25. (b) Y. Ltd. undertook a contract No. 80 for Rs. 7,50,000. The contract account showed the following particulars : 2008 :
Materials Rs. 30,000, Wages Rs. 25,000, Overheads Rs. 10,000, Plant Rs. 1,00,000 and Materials at site at close Rs. 3,000.

2009 :
Materials Rs. 1,00,000, Wages Rs. 60,000, Overheads Rs. 15,000, Materials returned, Rs. 8,000. The Plant at its depreciated value was transferred to contract No. 88. Uncertified work Rs. 15,000.

2010 :
Materials Rs. 1,60,000, Wages Rs. 1,00,000, Overheads Rs. 28,000 and Materials Rs. 4,000. The amount of work certified at the end of the first year was Rs. 1 ,00,000. The work certified upto the end of the second year was Rs. 4,00,000 and the work certified in the third year was Rs. 3,50,000. 80 percent of the certified work was received in cash. Profit to be taken credit for are one-third and one-half on cash basis in each of the two years respectively. Depreciate plant by 10 percent on balance at the beginning of each year. Prepare accounts in respect of the contract at the end of each year. Group-I : Paper-5 : Financial Accounting 51

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 25. (b) Dr. Contract No. 80 Account Cr. 2008 : Rs. 2008 : Rs.
To Materials 30,000 By Work-n-Progress A/c : To Wages 25,000 Materials 3,000 To Overheads 10,000 Plant 90,000 To Plant 1,00,000 Certified Work 1,00,000 To Balance c/d 28,000 1,93,000 1,93,000 To Profit & Loss Account 7,467 By Balance b/d 28,000 To Work-in-Progress Account 20,533 28000 28,000

2009 : 2009 :
To Work-in-Progress Opening By Work-in-Progress Opening balance transferred: provision transferred 20,533 Materials 3,000 By Materials returned 8,000 Plant 90,000 By Contract No. 88 Plant Certified Work 1,00,000 transferred 81,000 To Materials 1,00,000 By Work-in-Progress c/d: To Wages 60,000 Uncertified Work 15,000 To Overheads 15,000 Certified Work 4,00,000 To Balance cld 1,56,533 5,24,533 5,24,533 To Profit & Loss Account 62,613 By Balance b/d 1,56,533 To Work-in-Progress 93,920 1,56,533 1,56,533

2010 : 2010 :
To Work-in-Progress : By Work-in-Progress 93,920 Uncertified Work 15,000 By Bank sale of materials 4,000 Certified Work 4,00,000 By Contractees Account To Materials 1,60,000 (4,00,000 + 3,50,000) 7,50,000 To Wages 1,00,000 To Overheads 28,000 To Profit & Loss Account 1,44,920 8,47,920 8,47,920

Notes :
Profit credited in 2008 and 2009 : 2008 (Rs.) 2009 (Rs.) Accounting Profit 28,000 1,56,533 Cash Profit on 80% basis 22,400 1,25,226 Proportionate profit to be credited 3 1 22,400 2 1 1,25,226 = 7,467 = 62,613 52 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

In absence of specific direction, on profit in 2008 would have been considered as extent of completion was less than one-third. In 2010 the entire work was certified and hence no provision is necessary.

Q. 26. (a) From the following details prepare Acceptances, Endorsements and other Obligation A/c as would appear in the general ledger. On 1.4.09 Acceptances not yet satisfied stood at Rs. 3345,000. Out of which Rs. 30 lacs were subsequently paid off by clients and bank had to honour the rest. A scrutiny of the Acceptance Register revealed the following : Client Acceptances/Guarantees Remarks
Rs. P 1500,000 Bank honoured on 10.6.09 Q 1800,000 Party paid off on 30.9.09 R 750,000 Party failed to pay and bank had to honour on 30.11.09 S 1200,000 Not satisfied upto 31.3.10 T 750,000 -doX 405,000 -do-

Total 6405,000 Answer 26. (a) Acceptances, Endorsements and other Obligation Account (in General Ledger) (Rs. 000) Dr. Cr. Date Particulars Rs. Date Particulars Rs.
2009-10 To Constituents liabilities for 1.4.09 By Balance b/d 3345 acceptances/guarantees etc. (Paid off by clients) 3,000 2009-10 By Constituents liabilities To Constituents liabilities for for acceptances/ acceptances/guarantees etc. 345 guarantees etc. P 1500 (Honoured by bank Q 1800 Rs. 22.30 lakhs less R 750 Rs. 20 lakhs) 10.6.09 To Constituents liabilities for S 1200 acceptances/guarantees etc. T 750 (Honoured by bank) 1500 X 405 6405 30.9.09 To Constituents liabilities for acceptances/guarantees etc. (Paid off by party) 1800 30.11.09 To Constituents liabilities for acceptances/guarantees etc. (Honoured by bank on partys failure to pay) 750 31.3.10 To Balance c/d (Acceptances not yet satisfied) 2355

9750 9750
Group-I : Paper-5 : Financial Accounting 53

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Q. 26. (b) From the following information find out the amount of provisions required to be made in the Profit & Loss Account of a commercial bank for the year ended 31st March, 2010 : (i) Packing credit outstanding from Food Processors Rs. 90 lacs against which the bank holds securities worth Rs. 22.50 lacs. 40% of the above advance is covered by ECGC. The above advance has remained doubtful for more than 3 years. (ii) Other advances : Assets classification Rs. in lacs Standard 4500 Sub-standard 3300 Doubtful : For one year 1350 For two years 900 For three years 600 For more than 3 years 450 Loss assets 900 Answer 26. (b) (i) (Rs. in lacs) Rs. Rs.
Amount outstanding (packing credit) 90.00

Less : Realisable value of securities 22.50

67.50

Less : ECGC cover (40%) 27.00

Balance 40.50 Required provision : Provision for unsecured portion (100%) 40.50 Provision for secured portion (100%)* 22.50 63.00 (ii) Other advances :

(Rs. in lacs)
Assets Amount % of Provision Rs. provision Rs. Standard 4500 0.40* 18 Sub-standard 3300 10 330 Doubtful : For one year 1350 20 270 For two years 900 30 270 For three years 600 30 180 For more than three years 450 100* 450 Loss 900 100 900 Required provision 12,000 2418

Note : Doubtful advances have been taken as fully secured. However, in case, the students assume that no
security cover is available for these advances, provision will be made for 100%. * As per the Master Circular issued by RBI DBOD No. BP. BC. 11/21.04.048/2005-06 dated November 4, 2005. 54 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Q. 27. (a) Prudence Life Insurance Co. furnishes you the following information: Rs. Life Insurance fund on 31.3.2010 1,30,00,000 Net liability on 31.3.2010 as per actuarial valuation 1,00,00,000 Interim bonus paid to policyholders during intervaluation period 7,50,000 You are required to prepare : (i) Valuation Balance Sheet; (ii) Statement of Net Profit for the valuation period; and (iii) Amount due to the policyholders. Answer 27. (a) (i) Prudence Life Insurance Co. Valuation Balance Sheet as at 31st March, 2010 Rs. Rs.
To Net Liability as per actuarial valuation 100,00,000 By Life Assurance Fund 130,00,000 To Surplus 30,00,000 130,00,000 130,00,000

Statement showing Net Profit for the valuation period Rs.

(ii) Surplus as per Balance Sheet (i.e., Valuation Balance Sheet) 30,00,000

Add: Interim bonus paid 7,50,000

37,50,000

Amount due to policyholders Rs.

(iii) 95% of net profit due to policyholders (95% of Rs. 37,50,000) 35,62,500

Less:

Interim bonus already paid 7,50,000 Amount due to policyholders 28,12,500

Q. 27. (b) From the following figures appearing in the books of Fire Insurance division of HBC General Insurance Company, show the amount of claim as it would appear in the Revenue Account for the year ended 31st March, 2010 : Direct Business Re-Insurance Rs. Rs. Claim paid during the year 7005000 1050000 Claim Payable 1st April, 2009 1144500 130500 31st March, 2010 1218000 79500 Claims received 345000 Claims Receivable 1st April, 2009 97500 31st March, 2010 169500 Expenses of Management 345000 (includes Rs. 52500 Surveyors fee and Rs. 67500 Legal expenses for settlement of claims)
Group-I : Paper-5 : Financial Accounting 55

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 27. (b) HBC General Insurance Company (Abstract showing the amount of claims) Rs. 000 Rs. 000 Claims less Re-insurance :
Paid during the year 7830

Add : Outstanding claims at the end of the year 1128

8958.0

Less : Outstanding claims at the beginning of the year 1177.5 7780.5 Working Notes : Rs. 000 Rs. 000
1. Claims paid during the year Direct business 7005 Reinsurance 1050 8055

Add : Surveyors fee 52.5

Legal expenses 67.5 120 8175

Less : Claims received from re-insurers 345

7830 2. Claims outstanding on 31st March, 2010 Direct business 1218.0 Reinsurance 79.5 1297.5

Less : Claims receivable from re-insurers 169.5

1128 3. Claims outstanding on 1st April, 2009 Direct business 1144.0 Reinsurance 130.5 1275.0

Less : Claims receivable from re-insurers 97.5

1177.5

Q. 28. RX Electricity Company Limited decides to replace one of its old plants with a modern one in April, 2009. The plant when installed in the year 2003, costed the company Rs. 32.50 lacs the components of materials and labour being in the ratio of 7:3. It is ascertained that the cost of labour and materials have risen by 35% and 27% respectively. The cost of new plant is Rs. 82.50 lacs and in addition old materials worth Rs. 115,000 are reused. Old materials worth Rs. 210,000 are sold. Under double account system compute the following: (i) The amount to be written off to Revenue A/c. (ii) The amount to be capitalized. (iii) Draw up the necessary Journal entries. (iv) Draw up the Replacement Account.
56 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA Answer 28. (i) Statement showing amount to be written off to Revenue Account Rs.
Cost of old plant 32,50,000

Add: Increase in cost of material 32,50,000 7/1027/100 6,14,250

Increase in cost of Labour 32,50,000 3/1035/100 3,41,250 Current cost of old plant 42,05,500

Less: Cost of Material used 1,15,000

Cost of Material sold 2,10,000 (-) 3,25,000 Amount to be written off to Revenue A/c 38,80,500

(ii) Statement showing amount to be capitalised Rs.

Cost of new plant excluding the value of old materials used 82,50,000

Less: Current cost of old plant 42,05,500

Current cost to be capitalized 40,44,500

Add: Value of old material used 1,15,000

Total amount to be capitalized 41,59,500

(iii) Journal Entries in the Books of RX Electricity Company Ltd. Rs. Rs.
(a) Replacement Account Dr. 42,05,500 To Bank Account 42,05,500 (Being the replacement of old plant by a new plant; the current cost of replacement Rs. 42 05 500) (b) Plant Account Dr. 41,59,500 To Replacement Account 1,15,000 To Bank Account 40,44,500 (Being additional cost of new plant capitalized and also old materials used in construction of new plant) (c) Bank Account Dr. 2,10,000 To Replacement A/c 2,10,000 (Being the sale of old materials for Rs. 2 10,000) (d) Revenue A/c Dr. 38,80,500 To Replacement Account 38,80,500 (Being the balance of replacement account transferred to revenue account) Group-I : Paper-5 : Financial Accounting 57

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA (iii) Replacement Account Dr. Cr. Rs. Rs.
To Bank A/c 42,05,500 By New Plant A/c 1,15,000 By Bank A/c 2,10,000 By Revenue A/c (Balancing figure) 38,80,500 42,05,500 42,05,500

Q. 29. From the following information relating to ST Ltd. , prepare a Balance Sheet as on 31.3.2010. Current Ratio 3 Fixed Assets/Shareholders Networth 0.9 Reserve & Surplus/Share Capital 0.25 Average Debt Collection period 3months G.P Ratio 25 % Cost of Sales/Closing Stock 13.5 times Net Working Capital Rs. 600,000 Liquid Ratio 2.25 Answer 29.
(i) Current Ratio = CA/CL=3 Or, CA = 3 CL Net Working Capital = CA CL= 6,00,000 Or, 3 CL- CL = 6,00,000 Or, 2 CL = 6,00,000 Or, CL = 3,00,000 Thus CA = 9,00,000 (ii) Liquid Ratio = (CA Stock)/CL = 2.25 Or, (9,00,000-Stock)/3,00,000 = 2.25 Or, Stock = 225000 (iii) Cost of Sales/Closing Stock = 13.5 Cost Of Sales=22500013.5 = Rs. 30,37,500 (iv) G/P Ratio = 25% Cost of Sales/Sales = 75% Sales = 3037500/75% = Rs. 40,50,000 (v) Average Debt Collection period = 3 months = 4 times Or, Sales/Debtors = 4 Or, Debtors = 40,50,000/4 = Rs. 10,12,500 58 Revisionary Test Paper (Revised Syllabus-2008)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA

(vi) Fixed Assets/Networth = 0.9 Or, Working Capital/ Net worth = 1 0.9 = 0.1 Or, Networth = Rs. 6,00,000/0.1 = Rs. 60,00,000 Fixed Assets = 0.9 60,00,000 = Rs. 54,00,000 (vii) Reserves & Surplus/Share Capital = 0.25/1 Reserves & Surplus+ Share Capital = 1+0.25 = 1.25 Reserves & Surplus = 60,00,000 0.25/1.25 = 12,00,000 Share Capital = Rs. 12,00,000/0.25 = Rs. 48,00,000

Balance Sheet as on 31.3.2010 Liabilities Rs. Assets Rs.

Share Capital 48,00,000 Fixed Assets 54,00,000 Reserves & Surplus 12,00,000 Current Assets 9,00,000 Current Liabilities 3,00,000 63,00,000 63,00,000

Q. 30. ABC Ltd. firm has a sales of Rs.6 crores, Variable cost Rs. 3.5 crores and Fixed cost of Rs. 0.65 crores. The firm has debt and equity resources worth of Rs.7 crores and 10 crores respectively. With the data given show : (i) The firms ROI. (ii) EBIT if sales decline to Rs.4 crores. (iii) If the industrys assets turnover is 4 times, does the firm has high or low asset turnover? The cost of debt is 12%. Ignore taxation. Answer 30. (Rs. Crore)

Sales 9.0

Less : Variable cost 5.25

Contribution 3.75

Less : Fixed Cost 0.975

EBIT 2.775

Less : Interest 1.26

EBT 1.515 Total Investment = Debt + Capital 10.5+15 = 25.50 Crores (i) ROI = EBIT/Total Investment = 2.775/25.5 = 10.88% (ii) If Sales decreases to 6 crores Sales 6.0 As Sales decreases by 33.33%, Variable Cost also decreases by 33.33% 3.5 Contribution 2.5

Less : Fixed Cost 0.975

EBIT 1.525

Less: Interest 1.26

EBT 0.265 (iii) Asset turnover = Sales/Total asset = 9/25.5 = .3529 The firm has a much lower Asset turnover as compared to the industry.