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CA IPCC Solved Question Paper 2022 : Accounting

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PAPER 1 : ACCOUNTING Question No. 1 is compulsory. Answer any four questions from the remaining five questions. Wherever necessary, suitable assumptions may be made and indicated in answer by the candidates. Working Notes should form part of the answer. Question 1 Answer the following questions: (a) Suraj Limited provides you the following information: (i) It received a Government Grant @40% towards the acquisition of Machinery worth ` 25 Crores. (ii) It received a Capital Subsidy of ` 150 Lakhs from Government for setting up a Plant costing ` 300 Lakhs in a notified backward region. (iii) It received ` 50 Lakhs from Government for setting up a project for supply of arsenic free water in a notified area. (iv) It received ` 5 Lakhs from the Local Authority for providing Corona Vaccine free of charge to its employees and their families. (v) It also received a performance award of ` 500 Lakhs from Government with a condition of major renovation in the Power Plant within 3 years. Suraj Limited incurred 90% of amount towards Capital expenditure and balance for Revenue Expenditure. State, how you will treat the above in the books of Suraj Limited. (b) SM Enterprises is a leading distributor of petrol. A detailed inventory of petrol in hand is taken when the books are closed at the end of each month. For the month ending June 2021 following information is available: (i) Sales for the month of June 2021 was `30,40,000. (ii) General overheads cost `4,00,000. (iii) Inventory at beginning 10,000 litres @ ` 92 per litre. (iv) Purchases-June 1, 2021, 20,000 litres @ ` 90 per litre, June 30, 2021, 10,000 litres @ ` 95 per litre. (v) Closing inventory 13,000 litres. You are required to compute the following by FIFO method as per AS 2: (i) Value of Inventory on 30 th June, 2021. (ii) Amount of cost of goods sold for June,2021. The Institute of Chartered Accountants of India 2 INTERMEDIATE EXAMINATION: MAY 2022 (iii) Profit/Loss for the month of June,2021. (c) XYZ Limited provided you the following information for the year ended 31 st March, 2022. (i) The carrying amount of a property at the end of the year amounted to ` 2,16,000 (cost/value ` 2,50,000 and accumulated depreciation ` 34,000). On this date the property was revalued and was deemed to have a fair value of ` 1,90,000. The balance in the revaluation surplus relating to a previous revaluation gain for this property was ` 20,000. You are required to calculate the revaluation loss as per AS 10 (Revised) and give its treatment in the books of accounts. (ii) An asset that originally cost ` 76,000 and had accumulated depreciation of ` 62,000 was disposed of during the year for ` 4,000 cash. You are required to explain how the disposal should be accounted for in the financial statements as per AS 10 (Revised). (d) Zebra Limited began construction of a new plant on 1 st April,2021 and obtained a special loan of ` 20,00,000 to finance the construction of the plant. The rate of interest on loan was 10%. The expenditure that was incurred on the construction of plant was as follows: ` 1st April,2021 1st August,2021 1st January,2022 10,00,000 24,00,000 4,00,000 The company's other outstanding non-specific loan was ` 46,00,000 at an interest rate of 12%. The construction of the plant completed on 31 st March,2022. You are required to: (a) Calculate the amount of interest to be capitalized as per the provisions of AS 16 "Borrowing Cost". (b) Pass a journal entry for capitalizing the cost and the borrowing cost in respect of the plant. (4 Parts X 5 Marks = 20 Marks) Answer (a) (i) As per AS 12 Accounting for Govt. Grants , two methods of presentation in financial statements of grants related to specific fixed assets are regarded as acceptable alternatives. Under the first alternative, the grant of ` 10 crores (40% of 25 crores) is shown as a deduction from the gross value of the asset concerned in arriving at its book value. The grant is thus recognized the profit and loss statement over the useful The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 3 life of a depreciable asset by way of a reduced depreciation charge. Under second alternative method, grant amounting ` 10 crores is treated as deferred income which is recognized in the profit and loss statement on a systematic and rational basis over the useful life of the asset. (ii) In the given case, the grant amounting ` 150 lakhs received from the Central Government for setting up a plant in notified backward area may be considered as in the nature of promoters contribution. Thus, amount of ` 150 lakhs should be credited to capital reserve and the plant will be shown at ` 300 lakhs. (iii) ` 50 lakhs received from Govt. for setting up a project for supply of arsenic free water in notified area should be credited to capital reserve. Alternatively, if it is assumed that the project consists of capital asset only, then the amount of ` 50 lakhs received from Govt. for setting up a project for supply of arsenic free water should either be deducted from cost of asset of the project concerned in the balance sheet or treated as deferred income which is recognized in the profit and loss statement on a systematic and rational basis over the useful life of the asset. (iv) ` 5 lakhs received from the local authority for providing corona vaccine to the employees is a grant received in nature of revenue grant. Such grants are generally presented as a credit in the profit and loss account, either separately or under a general heading Other Income . Alternatively, ` 5 lakhs may be deducted in reporting the related expense i.e. employee benefit expenses. (v) ` 500 Lakhs will be reduced from the renovation cost of power plant or will be treated as deferred income irrespective of the expenditure done by the entity out of it as it was specifically received for the purpose major renovation of power plant. However, it may be, later on, decided by the Govt. whether the grant will have to be refunded or not due to non-compliance of conditions attached to the grant. (b) ` Cost of closing inventory for 13,000 litres as on 30 th June 2021 10,000 litres @ ` 95 3,000 litres @ ` 90 Value of inventory (determined at cost in absence of NRV) 9,50,000 2,70,000 12,20,000 Calculation of cost of goods sold Opening inventories (10,000 litres @ ` 92) Purchases June 1 (20,000 litres @ ` 90) June 30 (10,000 litres @ 95) The Institute of Chartered Accountants of India 9,20,000 18,00,000 9,50,000 36,70,000 4 INTERMEDIATE EXAMINATION: MAY 2022 Less: Closing inventories Cost of Goods Sold (12,20,000) 24,50,000 Calculation of Profit Sales (Given) (A) Cost of Goods Sold Add: General Overheads Total Cost (B) Profit (A-B) 30,40,000 24,50,000 4,00,000 28,50,000 1,90,000 (c) (i) As per AS 10, a decrease in the carrying amount of an asset arising on revaluation should be charged to the statement of profit and loss. However, the decrease should be debited directly to owners interests under the heading of revaluation surplus to the extent of any credit balance existing in the revaluation surplus in respect of that asset. Calculation of revaluation loss and its accounting treatment ` Carrying value of the asset as on 31 st March, 2022 a 2,16,000 Revalued amount of the asset Total revaluation loss on asset b c=a-b (1,90,000) 26,000 Adjustment of previous revaluation reserve Net revaluation loss to be charged to the Profit and loss account d e=c-d (20,000) 6,000 (ii) AS 10 states that the carrying amount of an item of property, plant and equipment is derecognized on disposal of the asset. It further states that the gain or loss arising from the derecognition of an item of property, plant and equipment should be included in the statement of profit and loss when the item is derecognized. Gains should also not be classified as revenue. Calculation of loss on disposal of the asset and its accounting treatment ` Original cost of the asset Accumulated depreciation till date Carrying value of the asset as on 31 st March, 2022 a 76,000 b 62,000 c=a-b 14,000 Cash received on disposal of the asset d Loss on disposal of asset charged to the Profit and loss account e=c-d The Institute of Chartered Accountants of India 4,000 10,000 PAPER 1 : ACCOUNTING 5 (d) Total expenses to be capitalized for borrowings as per AS 16 Borrowing Costs : ` Cost of Plant (10,00,000 + 24,00,000 + 4,00,000) 38,00,000 Add: Amount of interest to be capitalized (W.N.) 3,24,000 41,24,000 Journal Entry ` 31st March, 2022 Plant A/c Dr. To Bank A/c [Being amount of cost of plant and borrowing cost thereon capitalized] ` 41,24,000 41,24,000 Working Note: Computation of interest to be capitalized: Expenditure 1st April, 2021 1st August, 2021 1st August, 2021 1st 2022 January, ` 10,00,000 On specific borrowing ` 10,00,000 x 10% 1,00,000 On specific 24,00,000 borrowing On non-specific borrowings ` 10,00,000 x 10% 1,00,000 4,00,000 On non-specific borrowings ` 14,00,000 ` 4,00,000 1,12,000 8 x 12% 12 3 x 12% 12 12,000 3,24,000 Alternatively, interest cost to be capitalized can be derived by computing average accumulated expenses in the following manner. Computation of Average Accumulated Expenses: 1st April, 2021 1st August, 2021 10,00,000 x 12/12 10,00,000 x 12/12 14,00,000 x 8/12 1st January, 2022 4,00,000 x 3/12 10,00,000 10,00,000 9,33,333 1,00,000 30,33,333 The Institute of Chartered Accountants of India 6 INTERMEDIATE EXAMINATION: MAY 2022 Computation of interest to be capitalized: ` On specific borrowing ` 20,00,000 x 10% 2,00,000 On non-specific borrowing ` (30,33,333- 20,00,000) x 12% 1,24,000 3,24,000 NOTE: Since specific borrowings are earmarked for construction of a particular qualifying asset, it cannot be used for construction of any other qualifying asset except for temporary investment. Therefore, once the commencement of capitalization of borrowing cost criteria are met, actual borrowing cost incurred on specific borrowing shall be capitalized irrespective of the fact that amount had been utilized in parts. Question 2 (a) The following particulars relate to hire purchase transactions: (i) Mita purchased three bikes from Nita on hire purchase basis, the cash price of each bike being ` 1,00,000 (ii) Mita charged depreciation @ 20% on written down value method. (iii) Two bikes were seized by the Nita when second instalment was not paid at the end of the second year. Nita valued the two bikes at cash price less 30% depreciation charged under written down valued method. (iv) Nita spent ` 5,000 on repairs of the bikes and then sold them for a total amount of ` 85,000. You are required to compute: (i) Agreed value of two bikes taken back by Nita. (ii) Book value of the bike left with Mita. (iii) Profit or loss to Mita on two bikes taken back by Nita. (iv) Profit or loss of bikes repossessed, when sold by Nita. (10 Marks) (b) Surya Limited, which operates a wholesale warehouse, had a fire in the premises on 31st January 2022 which destroyed most of the building, although stock of the value of ` 3.96 lakhs was salvaged. The company has an insurance policy covering the stock for ` 600 Lakhs, and loss of profits including standing charges for ` 250 Lakhs with a six-month period of indemnity. The company's last annual accounts for the year ended December 31 st ,2021 showed the following position: The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Particulars To Opening Stock To Purchases To Gross Profit c/d Particulars (` in Lakhs) 412.50 1812.50 300.00 7 (` in Lakhs) By Sales By Closing Stock 2000.00 525.00 2525.00 To Variable Expenses To Standing Charges To Net Profit 80.00 167.50 52.50 2525.00 By Gross Profit b/d 300.00 300.00 300.00 The company's record show that the turnover for January 2022 of ` 100 Lakhs had been the same as for the corresponding month in the previous year, payments made in January 2022 to trade creditors were ` 106.68 Lakhs and at the end of that month the balance owing to trade creditors had increased by ` 3.32 Lakhs. The company's business was disrupted until the end of April 2022, during which period the turnover fell by ` 180.00 Lakhs compared with the same period in the previous year. You are required to compute the claim to be lodged with the Insurance Company for Loss of Stock and Loss of Profit. (10 Marks) Answer (a) ` (i) 2,00,000 Price of two Bikes = ` 1,00,000 x 2 Less: Depreciation for the first year @ 30% 60,000 1,40,000 Less: Depreciation for the second year = ` 1,40,000 x (ii) (iii) 30 100 42,000 Agreed value of two Bikes taken back by the hire vendor Cash purchase price of one Bike 98,000 1,00,000 Less: Depreciation on ` 1,00,000 @20% for the first year 20,000 Written drown value at the end of first year 80,000 Less: Depreciation on ` 80,000 @ 20% for the second year 16,000 Book value of Bike left with the hire purchaser 64,000 Book value of one Bike as calculated above 64,000 Book value of Two Bikes = ` 64,000 x 2 The Institute of Chartered Accountants of India 1,28,000 8 INTERMEDIATE EXAMINATION: MAY 2022 Value at which the two Bikes were taken back, calculated in (i) above Hence, loss to hire purchaser on machine taken back by hire vendor (` 1,28,000 ` 98,000) (iv) 98,000 ` 30,000 Profit or loss on Bikes repossessed when sold by hire vendor Sale proceeds 85,000 Less: Value at which Bikes were taken back Repairs 98,000 5,000 Loss on resale (1,03,000) 18,000 (b) Computation of claim for Loss of Stock Calculation of the value of stock destroyed by fire: Value of stock as per Memorandum Trading A/c (W.N. 1) Less: Salvaged value of stock Value of claim to be lodged for loss of stock ` (in lakhs) 550.00 3.96 546.04 As Policy amount is ` 600 lakhs and the insurable amount is 550 lakhs so average clause will not be applicable. The value of claim is equal to value of loss i.e. ` 546.04 lakhs. Computation of claim for loss of profit ` (in lakhs) Short sales (given in the question) Gross Profit: Net Profit for the last financial year Add: Insured Standing Charges 180 52.50 167.50 220.00 Turnover for the last financial year Rate of Gross Profit = 220/2,000 X 100 = 11% Sales for 12 months up to date of loss is ` 2,000 lakhs Claim: Loss of profit for short sales (11% of `180 lakhs) G.P. on sales up to the date of loss of fire is ` 220 lakhs Insurable amount = ` 220 lakhs Loss of profit policy taken = ` 250 lakhs As policy amount is more than insurable amount average clause will not be applicable. Value of claim to be lodged for loss of profit = ` 19.80 lakhs The Institute of Chartered Accountants of India 19.80 PAPER 1 : ACCOUNTING 9 Working Notes: 1. Memorandum Trading Account ` (in lakhs) ` (in lakhs) To Opening Stock 525 By Sales 100 To Purchases 110 By closing stock (bal. fig.) 550 To Gross profit* (15% of 100 Lakhs) 15 650 * Gross profit ratio = 300/2000 = 15% 2. 650 Trade Creditors A/c ` (in lakhs) ` (in lakhs) To Bank A/c 106.68 By Balance b/d 106.68 To Balance c/d 110.00 By Purchases 110.00 216.68 216.68 (106.68 + 3.32) Note: It is assumed that all standing charges are insured for the purpose of computation of gross profit. Question 3 (a) Stevie and Alicia are in partnership sharing profits and losses equally. They maintain their books on Single Entry System. The following balances are available from their books as on 31.3 .2021 and 31.3 .2022: Particulars 31.3.2021 31.3.2022 ` ` Building 3,00,000 3,00,000 Equipment 4,80,000 5,44,000 Furniture 50,000 50,000 Debtors Creditors ? 1,30,000 2,00,000 ? ? 1,40,000 90,000 70,000 1,20,000 ? Stock Bank loan Cash The Institute of Chartered Accountants of India 10 INTERMEDIATE EXAMINATION: MAY 2022 The transactions during the year ended 31.3.2022 were the following: Collection from Debtors Payment to Creditors Expenses Paid Drawings by Stevie Discount allowed Discount received 7,60,000 5,00,000 80,000 60,000 11,000 9,600 Other information: (i) On 1.4.2021, an equipment of book value ` 40,000 was sold for ` 30,000. On 1.10.2021, some more equipment were purchased. (ii) Cash sales amounted to 10% of total sales. (iii) Credit sales amounted to ` 9,00,000. (iv) Credit purchases were 80% of total purchases. (v) Cash Purchases amounted to ` 1,30,000. (vi) The firm sells goods at cost plus 25%. (vii) Outstanding expenses were ` 6,000 as on 31.3.2022. (viii) Capital of Stevie as on 31.3.2021 was ` 30,000 more than the capital of Alicia, equipment and furniture to be depreciated at 10% p.a. and building @ 2% p.a. (apply depreciation of new equipment for 1/2 year) You are required to prepare: (i) Trading and Profit and Loss Account for the year ended31.3 .2022 and; (ii) Balance Sheet as on that date. (12 Marks) (b) PQR Limited has three departments L, M and N. The following information is provided for the year ended 31.3 .2022: Opening stock Opening reserve for unrealized Profit Materials Consumed Direct labour Closing stock Sales Area occupied (sq. mtr.) No. of employees The Institute of Chartered Accountants of India L` 10,000 32,000 18,000 10,000 5,000 60 M` 16,000 4,000 40,000 20,000 40,000 3,000 40 N` 38,000 6,000 10,000 1,60,000 2,000 20 PAPER 1 : ACCOUNTING 11 The following information is provided: Stocks of each department are valued at cost to the department concerned. Stocks of L are transferred to M at cost plus 20% and stocks of M are transferred to N at a gross profit of 20% on sales. Other common expenses are salaries and staff welfare, ` 36,000 and Rent, ` 12,000. You are required to prepare Departmental Trading, Profit and Loss Account for the year ending 31.3 .2022. (8 Marks) Answer (a) Trading and Profit and Loss A/c for the year ended 31.3.2022 ` To Opening stock (W.N.3) ` 2,90,000 By Sales - Cash (W.N.1) To Purchases-Cash 1,30,000 Credit (W.N.2) 5,20,000 To Gross profit c/d Credit 6,50,000 By Closing stock To Loss on sale of equipment (40,000-30,000) By Discount received 6,000 Furniture 5,000 49,200 Alicia s A/c 2,00,000 9,600 60,200 80,000 6,000 To Discount allowed profit To Net transferred to: Stevie s capital A/c 11,40,000 By Gross profit b/d Building Add: Outstanding expenses 1,40,000 10,000 To Depreciation To Expenses paid 9,00,000 10,00,000 2,00,000 11,40,000 Equipment (W.N.4) 1,00,000 86,000 11,000 21,200 capital 21,200 42,400 2,09,600 The Institute of Chartered Accountants of India 2,09,600 12 INTERMEDIATE EXAMINATION: MAY 2022 Balance Sheet as on 31st March, 2022 Equity and Liabilities ` Assets ` Stevie s capital (W.N.7) 5,60,500 Building Less: Drawings (60,000) Less: Depreciation 5,00,500 Equipment Add: Net profit 21,200 Alicia s capital (W.N.7) Sundry (W.N.5) 21,200 creditors (6,000) (49,200) Furniture 50,000 5,51,700 Less: Depreciation (5,000) 1,40,400 Bank loan Debtors 4,94,800 45,000 2,00,000 70,000 Stock Outstanding expenses 2,94,000 5,44,000 5,21,700 Less: Depreciation 5,30,500 Add: Net profit 3,00,000 1,40,000 6,000 Cash balance (W.N.8) 12,89,800 1,16,000 12,89,800 Working Notes: 1. Calculation of total sales Cash sales = 10% of total sales Credit sales = 90% of total sales = ` 9,00,000 Total sales = 9,00,000 90 100 = 10,00,000 Cash sales = 10% of 10,00,000 = ` 1,00,000 2. Calculation of total purchases Cash purchases = ` 1,30,000 Credit purchases = 80% of total purchases Cash purchases = 20% of total purchases Total purchases = 1,30,000 20 100 = ` 6,50,000 Credit purchases = 6,50,000 1,30,000 = ` 5,20,000 3. Calculation of opening stock Stock Account ` To Balance b/d (Bal. Fig.) 2,90,000 ` By Cost of goods sold 10,00,000 125 The Institute of Chartered Accountants of India 100 8,00,000 PAPER 1 : ACCOUNTING To Total purchases (W.N.2) 6,50,000 13 By Balance c/d 1,40,000 9,40,000 4. 9,40,000 Purchase of equipment & depreciation on equipment Equipment Account ` To Balance b/d 4,80,000 To Cash-purchase (Bal. Fig.) 1,04,000 ` By Cash -equipment sold 30,000 By Profit and Loss Account (Loss on sale) 10,000 By Balance c/d 5,44,000 5,84,000 5,84,000 Depreciation on equipment: @ 10% p.a. on ` 4,40,000 (i.e. ` 4,80,000 ` 40,000) @ 10% p.a. on ` 1,04,000 for 6 months (i.e. during the year) 5. = = 44,000 5,200 49,200 Calculation of closing balance of creditors Creditors Account ` To Cash To Discount received To Balance c/d (Bal. Fig.) 6. ` 5,00,000 By Balance b/d 1,30,000 9,600 By Credit purchases (W.N.2) 5,20,000 1,40,400 6,50,000 6,50,000 Calculation of opening balance of debtors Debtors Account ` To Balance b/d (Bal. Fig.) To Sales (Credit) ` 71,000 By Cash 9,00,000 By Discount allowed By Balance c/d 9,71,000 The Institute of Chartered Accountants of India 7,60,000 11,000 2,00,000 9,71,000 14 INTERMEDIATE EXAMINATION: MAY 2022 7. Calculation of capital accounts of Stevie & Alicia as on 31.3.2021 Balance Sheet as on 31.3.2021 Liabilities ` Assets Combined Capital Accounts of 10,91,000 Building Stevie & Alicia (Bal. Fig.) Equipment Creditors 1,30,000 Bank Loan 90,000 ` 3,00,000 4,80,000 Furniture 50,000 Debtors (W.N.6) 71,000 Stock (W.N.3) 2,90,000 Cash balance 1,20,000 13,11,000 13,11,000 ` Combined Capitals of Stevie & Alicia 10,91,000 Less: Difference in capitals of Stevie & Alicia (30,000) 10,61,000 10,61,000 Stevie s capital as on 31.3.2021= Alicia s capital as on 31.3.2021 = 8. 2 10,61,000 2 = 5,30,500 + 30,000 = ` 5,60,500 = ` 5,30,500 Cash Account ` ` To Balance b/d 1,20,000 By Creditors 5,00,000 To Debtors 7,60,000 By Purchases 1,30,000 To Equipment (sales) 30,000 By Expenses 80,000 To Cash sales (W.N.1) 1,00,000 By Stevie s drawings 60,000 By Bank loan paid (90,000-70,000) 20,000 By Equipment purchased (W.N.4) 1,04,000 By Balance c/d (Bal. Fig.) 1,16,000 10,10,000 The Institute of Chartered Accountants of India 10,10,000 PAPER 1 : ACCOUNTING (b) 15 PQR Ltd. Departmental Trading and Profit and Loss Account for the year ended 31 st March, 2022 L M N Total L M N Total ` ` ` ` ` ` ` ` To Opening stock 10,000 16,000 38,000 To Material consumed 32,000 40,000 72,000 By Interdepartmental To Direct labour 18,000 20,000 38,000 To Inter-departmental transfer 60,000 1,20,000 1,80,000 By Closing 10,000 stock To Gross profit 10,000 24,000 12,000 64,000 By Sales transfer 60,000 1,20,000 To Rent 6,000 To Net profit 24,000 40,000 1,80,000 10,000 60,000 46,000 70,000 1,60,000 1,70,000 4,00,000 To Salaries and 18,000 staff welfare 1,60,000 1,60,000 70,000 1,60,000 1,70,000 4,00,000 12,000 6,000 36,000 By Gross profit b/d 10,000 3,600 2,400 12,000 By Net loss 14,000 8,400 3,600 12,000 24,000 12,000 60,000 24,000 24,000 12,000 46,000 14,000 24,000 12,000 60,000 Combined Profit and loss account for the year ended 31 st March, 2022 ` To Net loss (L) To Stock reserve (M 3,333 + N 2,667) 14,000 6,000 (Refer W.N.) To Balance transferred to profit and loss account ` By Stock reserve b/d (M 4,000 + N 6,000) By Net profit (M 8,400 + N 3,600) 10,000 12,000 2,000 22,000 The Institute of Chartered Accountants of India 22,000 16 INTERMEDIATE EXAMINATION: MAY 2022 Working Notes: 1. Calculation of Inter Department Transfer (i) From Dept L to Dept M Opening Stock + Material Consumed + Direct Labour Cost Closing Stock 10,000 + 32,000 + 18,000 -10,000 = 50,000/Profit on transfer is 20% of Cost = ` 10,000/-. Hence transfer = ` 60,000 (ii) From Dept M to Dept N Opening Stock + Material Consumed + Direct Labour + Inward Transfer Closing Stock 16,000 + 40,000 + 20,000 + 60,000 40,000 = ` 96,000/Profit on transfer = 20% of sale value i.e. 25% of cost price = ` 24,000 Hence, stock transferred to N at a value of ` 1,20,000 2. Calculation of unrealized profit on closing stock (i) Stock reserve of M department ` Cost - Material consumed + Direct labour cost 60,000 Transfer from L department 60,000 1,20,000 Closing Stock of M department 40,000 ` 60,000 Proportion of stock of L department = ` 40,000 ` 1,20,000 = ` 20,000 Stock reserve =` 20,000 20 = ` 3,333 (approx.) 120 (ii) Stock reserve of N department ` Closing Stock (being stock transferred from M department) 10,000 Less: Profit (stock reserve) 10,000 20% (2,000) Cost to M department 8,000 Proportion of stock of L department = ` 8,000 Stock reserve = 4,000 20 120 = ` 667 (approx.) Total stock reserve = ` 2,000 + ` 667 = ` 2,667 The Institute of Chartered Accountants of India ` 60,000 ` 1,20,000 = ` 4,000 PAPER 1 : ACCOUNTING 17 Question 4 Cool Limited was formed to take over a running business of Fire Enterprises with effect from 1st April,2021. The company was incorporated on 1st August,2021 and the certificate of commencement of business was received on 1 st October 2021. No entries relating to the transfer of the business were entered in the books which were continued until 31 st March,2022. The following Trial Balance was extracted from the books as on 31 st March,2022. Particulars Dr. (` ) Sales Cost of Goods sold 19,20,000 15,54,000 Rent 80,000 Salaries Travelling Expenses 42,000 16,800 Depreciation Carriage outward 9,600 800 Printing & Stationary 4,800 Advertisement 16,000 Miscellaneous Expenses Directors' fees 25,200 1,200 Managing Director's Remuneration Bad debts Commission & Brokerage to selling Agents Audit fees Interest on Debentures Interest to Vendors Selling & Distribution Expenses Preliminary Expenses Underwriting Commission Fixed Assets Current Assets 8,200 3,200 16,000 6,000 3,000 4,200 24,000 3,000 1,800 7,30,000 87,600 Cool Limited s Capital as on 1 st April, 2021 Current Liabilities Debentures Total The Institute of Chartered Accountants of India Cr. (` ) 5,56,000 61,400 26,37,400 1,00,000 26,37,400 18 INTERMEDIATE EXAMINATION: MAY 2022 Additional Information: (a) Total Sales for the year arose evenly up to the date of the certificate of commencement where-after they spurted to record an increase of two third during the rest of the year. (b) The Company deals in one type of product. The unit cost of goods sold was reduce d by 10% since 1 st August, 2021 as compared to the pre incorporation period. (c) Rent of old office building was increased by 20% since 1 st November,2021. It had to also occupy additional space from 1 stJuly, 2021 for which rent was ` 6,000 p.m. (d) The Salaries were tripled from 1 st July,2021. (e) Travelling Expenses include ` 4,800 towards sales promotion. (f) Depreciation includes, ` 600 for new assets acquired in August 2021. (g) Purchase consideration was discharged by the company on 30 th September, 2021 by issuing ` 60,000 Equity shares of ` 10 each. You are required to prepare the Profit & Loss Statement in a columnar form for the year ended 31st March,2022 showing the allocation of profits between pre-incorporation and postincorporation periods indicating the basis of apportionment. (20 Marks) Answer Statement of Profit & Loss of Cool Limited for the year ended 31 st March,2022 showing the allocation of profits between pre and post incorporation periods Particulars Note Revenue from Operations (W.N 2) PrePostincorporation incorporation ` ` 4,80,000 14,40,000 Other Income - - I. Total Income 4,80,000 14,40,000 II Expenses: 11,34,000 41,800 Costs of Goods sold (W.N. 3) Employee Benefits Expense 1 4,20,000 8,400 Finance Costs Depreciation and Amortization Expense 2 3 2,800 3,000 4,400 6,600 Other Expenses 4 44,200 1,54,600 4,78,400 13,41,400 1,600 98,600 Total Expenses III Profit for the Period (I-II) The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 19 Notes relating to apportionment of expenses for pre and post incorporation periods for the year ended 31.3.2022 Particulars 1 2 3 4 Employee benefit expenses: Salaries (W.N.5) Managing director s remuneration Finance cost: Debenture interest (postincorporation) Interest paid to vendor (2:1) (W.N.7) Other expenses: Rent (office building) (W.N.4) Travelling expenses (W.N.6) Carriage outward Printing & Stationery Advertisement Misc. expenses Sales promotion expenses (W.N.6) Commission & brokerage Selling & distribution expenses Audit fee* Director s fee (postincorporation) Bad debts Preliminary expenses Underwriting commission Depreciation on fixed assets (W.N.8) Ratio Total 1:4 post 42,000 8,200 Pre Post Incorporation Incorporation ` ` 8,400 - 33,600 8,200 8,400 41,800 3,000 - 3,000 4,200 2,800 1,400 2,800 4,400 1:2 1:3 1:2 1:3 1:2 80,000 12,000 800 4,800 16,000 25,200 4,800 14,000 4,000 200 1,600 4,000 8,400 1,200 66,000 8,000 600 3,200 12,000 16,800 3,600 1:3 1:3 post post 16,000 24,000 6,000 1,200 4,000 6,000 12,000 18,000 6,000 1,200 1:3 post post 3,200 3,000 1,800 800 post 9,600 - 44,200 3,000 2,400 3,000 1,800 1,54,600 6,600 *Audit fee considered to be relating with company audit. If considered as related with tax audit, it will be divided in pre and post incorporation periods on the basis of turnover. The Institute of Chartered Accountants of India 20 INTERMEDIATE EXAMINATION: MAY 2022 Working Notes: 1. Time Ratio Pre incorporation period = 1 st April, 2021 to 31 st July, 2021 i.e. 4 months Post incorporation period is 8 months Time ratio is 1: 2. 2. Sales ratio Let the monthly sales for first 6 months (i.e. from 1.4.2021 to 30.09. 2021) be x Then, sales for 6 months = 6x Monthly sales for next 6 months (i.e. from 1.10.21 to 31.3.2022) = x + Then, sales for next 6 months = 2 5 x= x 3 3 5 x X 6 = 10x 3 Total sales for the year = 6x + 10x = 16x Monthly sales in the pre incorporation period = ` 19,20,000/16 = ` 1,20,000 Total sales for pre-incorporation period = ` 1,20,000 x 4 = ` 4,80,000 Total sales for post incorporation period = ` 19,20,000 ` 4,80,000 = ` 14,40,000 Sales Ratio = 4,80,000 : 14,40,000 Sales Ratio = 1 : 3 3. Cost of goods sold Cost of goods ratio between pre and post incorporation periods can be calculated as follows: Let cost of goods sold in the pre-incorporation period be `100 Then cost of goods sold in the post-incorporation period is `90 Sales Ratio (as calculated above) = 1:3 Then, cost of goods sold ratio = (100 x 1): (90 x 3) = 100: 270= 10:27 4. Apportionment of Rent ` Total Rent 80,000 Less: additional rent from 1.7.2021 to 31.3.2022 54,000 Rent of old premises for 12 months 26,000 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 21 Let monthly rent for old building is x pm. Rent for April to July will be 4x and rent from Aug to March will be : 9x i.e. (x + x + x + 1.2x + 1.2x + 1.2x + 1.2x + 1.2x) Pre Post Apportionment of rent for old space (` 26,000 in 4:9 ratio) 8,000 18,000 Add: Rent for new space 6,000 48,000 14,000 66,000 Total 5. Apportionment of Salary Let the salary per month from 01.04.2021 to 30.06.2021 is x Salary per month from 01.7.2021 to 31.03.2022 will be 3x Hence, pre incorporation salary (01.04.2021 to 31.07.2021) = 6x Post incorporation salary from 01.08.2021 to 31.03.2022 = (3x X 8) i.e.24x Ratio for division 6x: 24x or 1: 4 i.e. pre = ` 8,400 and for post = ` 33,600 6. 7. Travelling expenses and sales promotion expenses Pre Post ` ` Traveling expenses ` 12,000 (i.e. ` 16,800- ` 4,800) distributed in Time ratio (1:2) 4,000 8,000 Sales promotion expenses ` 4,800 distributed in Sales ratio (1:3) 1,200 3,600 Interest paid to vendor till 30 th September, 2021 ` 4,200 Interest for pre-incorporation period 4 6 Interest for post incorporation period i.e. for ` 4,200 2 August, 2021 & September, 2021 = 6 The Institute of Chartered Accountants of India Pre Post ` ` 2,800 1,400 22 8. INTERMEDIATE EXAMINATION: MAY 2022 Depreciation Total depreciation 9,600 Less: Depreciation exclusively for post incorporation period 600 Remaining (for pre and post incorporation period) 9,000 4 Depreciation for pre-incorporation period 9,000 12 Pre Post ` ` 600 3,000 8 Depreciation for post incorporation period 9,000 12 6,000 3,000 6,600 Question 5 (a) Given below is the extract of Balance Sheet of Daisy Limited as at 31st March,2021. Particulars 15% 650 Redeemable Preference Shares of ` 100 each, ` 80 per share paid up 22,500 Equity Shares off ` 10 each, ` 9.50 per share paid up Revaluation Reserve Capital Reserve (realized in cash) General Reserve Securities Premium ` 52,000 2,13,750 45,000 500 40,000 500 Profit & Loss Account Current Liabilities 40,500 1,07,750 Fixed Assets 3,71,500 1,00,000 Non-Current Investments [Face value ` 50,000] Bank Balance 28,500 The following information are provided: On 1st April,2021, the Board of Directors decided to make a final call of ` 20 on Redeemable Preference Shares and to redeem the same at a premium of 10% on 1 st June, 2021. The investments of the face value of ` 20,000 are sold at the market price which was 150% of the face value. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 23 It is decided to issue sufficient number of Equity Shares of ` 10 each at a premium of 25% after leaving a balance of ` 50,000 in bank account. It was also decided to convert the partly paid-up Equity shares into fully paid up without requiring the shareholders to pay for the same. On 1st July,2021 the Board decided to issue fully paid bonus shares to the equity shareholders in the ratio of one for five. You are required to pass the necessary journal entries for the above. (10 Marks) (b) Walkaway Footwears has its head office at Nagpur and Branch at Patna. It invoiced goods to its branch at 20% less than the list price which is cost plus 100%, with instruction that cash sales were to be made at invoice price and credit sales at catalogue price (i.e. list price). The following information was available at the branch for the year ended 31 st March,2022. (Figures in `) Stock on 1st April,2021 (invoice price) Debtors on 1st April, 2021 12,000 10,000 Goods received from head office (invoice price) Sales: Cash Credit 1,32,000 46,000 1,00,000 1,46,000 Cash received. from debtors Expenses at branch 85,000 17,500 Debtors on 31 st March, 2022 Stock on 31 st March,2022 (invoice price) 25,000 17,600 Remittances to head office 1,20,000 You are required to prepare Branch Stock Account, Branch Adjustment Account, Branch Profit & Loss Account and Branch Debtors Account for the year ended 31st March,2022. (10 Marks) Answer (a) Journal Entries 2021 April 1 Dr. (`) 15% Redeemable Preference Share Final Call A/c To 15% Preference Share Capital A/c (For final call made on 650 preference shares @ ` 20 each to make them fully paid up) The Institute of Chartered Accountants of India Cr. (`) Dr. 13,000 13,000 24 INTERMEDIATE EXAMINATION: MAY 2022 Bank A/c Dr. 13,000 To 15% Preference Share Final Call A/c 13,000 (For receipt of final call money on preference shares) 1st June 15% Redeemable preference share capital A/c Premium on redemption of pref. share A/c Dr. 65,000 Dr. 6,500 To Redeemable Preference Shareholders A/c (Being amount payable to preference shareholders on redemption) 71,500 Bank A/c Dr. 30,000 Profit & Loss A/c To Investment A/c Dr. 10,000 40,000 (Being investment sold out and loss on sale debited to Profit & Loss A/c) [Book value = ` 1,00,000 x ` 20,000/ ` 50,000 = ` 40,000. Sale proceeds = ` 20,000 x 150/100 = ` 30,000] Bank A/c To Equity share capital A/c Dr. 50,000 40,000 To Securities premium A/c 10,000 (Being 4,000 equity shares of ` 10 issued at premium of ` 2.50 per share) Preference shareholders A/c To Bank A/c Dr. 71,500 71,500 (Being amount paid to preference shareholders) Profit and loss A/c/ General reserve A/c * Dr. 25,000 To Capital redemption reserve A/c 25,000 (Being amount equal to nominal value of preference shares transferred to Capital Redemption Reserve A/c on its redemption as per the law i.e. face value of shares redeemed ` 65,000 less fresh equity shares issued ` 40,000) Profit and Loss A/c ** To Premium on redemption of preference shares A/c (Being premium on preference shares adjusted from P&L A/c) The Institute of Chartered Accountants of India Dr. 6,500 6,500 PAPER 1 : ACCOUNTING Profit & Loss/ General reserve A/c* 25 Dr. 11,250 To Bonus to shareholders A/c (Being 50 paisa for 22,500 shares making partly paid up as fully paid up) Share final call A/c 11,250 Dr. 11,250 To Equity share capital A/c (for making the final call due) Bonus to shareholders A/c 11,250 Dr. 11,250 To Equity share final call A/c 11,250 (Adjusted at final call) July 1 Capital Redemption Reserve A/c Dr. 25,000 Securities Premium A/c Dr. 10,500 Capital Reserve A/c Profit & Loss A/c / General Reserve* Dr. 500 Dr. 17,000 To Bonus to shareholders A/c (Being balance in reserves capitalized to issue bonus shares) Bonus to shareholders A/c To Equity share capital A/c 53,000 Dr. 53,000 53,000 (Being 5,300 fully paid equity shares of ` 10 each issued as bonus in ratio of 1 share for every 5 shares held (22,500+4,000) divided by 5) Note: *Different combination of utilisation of available balances of general reserve and P& L A/c is possible in the given entries. ** Securities premium has not been utilized for the purpose of premium payable on redemption of preference shares assuming that the company referred in the question is governed by Section 133 of the Companies Act, 2013 and hence the company has to comply with the prescribed Accounting Standards. *** As per the sequence of the information given in the question it has been considered that the fresh issue of equity shares is made at the time of the redemption of preference shares. Alternatively, it may be assumed that shares are issued after the redemption of preference shares. In that case the amount transferred to Capital Redemption Reserve will get changed. The Institute of Chartered Accountants of India 26 INTERMEDIATE EXAMINATION: MAY 2022 (b) In the books of walkaway footwears Patna Branch Stock Account Amount Amount Particulars (`) (`) 1.1.21 To Balance b/d 12,000 31.12.21 By Bank A/c (Cash 46,000 sales) Goods sent to 31.12.21 To branch A/c 1,32,000 By Branch debtors 1,00,000 A/c (credit sales) To Branch 20,000 31.12.21 By Shortage in stock 400 adjustment A/c A/c (Surplus over By Balance c/d 17,600 invoice price) 1,64,000 1,64,000 Particulars Patna Branch Adjustment Account Particulars 31.12.21 Amount Particulars Amount (`) (`) To Stock reserve 6,600 31.12.21 By Stock reserve 4,500 ` 17,600 x ` 12,000 x 60/160 (closing 60/160 stock) (Opening stock) To Shortage 150 By Goods sent to 49,500 branch A/c (400x 60/160) To Branch profit & 67,250 (` 1,32,000 x loss A/c (Gross 60/160) profit) By Branch stock 20,000 A/c 74,000 74,000 Branch Profit & Loss Account Particulars To Branch expenses A/c To Shortage in stock A/c To Net profit (transferred to Profit & Loss A/c) The Institute of Chartered Accountants of India Amount Particulars (`) 17,500 By Branch adjustment A/c 250 (Gross Profit) 49,500 67,250 Amount (`) 67,250 67,250 PAPER 1 : ACCOUNTING 27 Branch Debtors Account Particulars Amount (`) 1.1.21 To Balance b/d 31.12.21 To Branch stock A/c Particulars Amount (`) 10,000 31.12.21 By Bank A/c 1,00,000 85,000 By Balance c/d (bal. fig.) 25,000 1,10,000 1,10,000 Question 6 Answer any four of the following: (a) The following information is provided by Exe Limited for 31st March,2022: Particulars Net Profit before Income Tax and Managerial Remuneration, but after Depreciation and Provision for Repairs Depreciation provided in the Books Provision for repairs for Machinery during the year Depreciation Allowable under Schedule II Actual Expenditure incurred on Repairs during the year Provision for Income Tax ` 9,40,000 4,05,000 35,000 3,40,000 25,000 1,50,000 You are required to calculate the Managerial Remuneration for Exe Limited as on 31 st March, 2022 in the following situations: (i) There is only one Whole Time Director. (ii) There are two Whole Time Directors. (iii) There are two Whole Time Directors, a part time Director and a Manager. (b) Following is the extract of the Balance Sheet of Sujata Foods Limited as at 31st March,2021: Particulars Authorised Capital 1,00,000 12% Preference shares of ` 10 each 5,00,000 Equity shares of ` 10 each Issued and Subscribed capital 8,000 12% Preference shares of ` 10 each fully paid The Institute of Chartered Accountants of India ` 10,00,000 50,00,000 60,00,000 80,000 28 INTERMEDIATE EXAMINATION: MAY 2022 90,000 Equity shares of ` 10 each, ` 8 paid up Reserves and Surplus General Reserve Capital Redemption Reserve Securities Premium (Collected in cash) Profit and Loss Account Revaluation Reserve 7,20,000 1,20,000 75,000 25,000 2,00,000 80,000 On 1st April 2021, the company has made final call @ ` 2 each on 90,000 equity shares. The call money was received by 15 th April,2021. Thereafter, the company decided to capitalize its reserves by way of bonus at the rate of one share for every four shares held, it also decided that there should be minimum reduction in free reserves. On 1st June 2021, the Company issued right shares at the rate of two shares for every five shares held on that date at issue price of ` 12 per share. All the right shares were accepted by the existing shareholders and the money was duly received by 20 th June,2021. You are required to pass necessary journal entries in the books of the Sujata Foods Limited for bonus issue and rights issue. (c) State whether the following statements are 'True' or 'False'. Also give reason for your answer. (i) Certain fundamental accounting assumptions underline the preparation and presentation of financial statements. They are usually specifically stated because their acceptance and use are not assumed. (ii) If fundamental accounting assumptions are not followed in presentation and preparation of financial statements, a specific disclosure is not required. (iii) All significant accounting policies adopted in the preparation and presentation of financial statements should form part of the financial statements. (iv) Any change in an accounting policy, which has a material effect should be disclosed. Where the amount by which any item in the financial statements is affected by such change is not ascertainable, wholly or in part, the facts need not to be indicated. (d) The following information is provided by Alpha Limited, for the year ended 31st March, 2022: (i) Net profit before taking into account income tax and income from law suits but after taking into account the following items was ` 40 lakhs. (ii) Depreciation on Fixed Assets ` 10 lakhs. (iii) Discount on issue of Debentures written of ` 60,000. (iv) Interest on Debentures paid ` 7,00,000. (v) Book value of investments ` 6 lakhs (Sale of Investments for ` 6,40,000). The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 29 (vi) Interest received on investments ` 1,20,000. (vii) Compensation received ` 1,80,000 by the company in a suit filed. (viii) Income tax paid ` 21,00,000 (ix) Current assets and current liabilities in the beginning and at the end of the year were as detailed below: Stock Sundry Debtors Cash in hand Bills Receivable Bills Payable Sundry Creditors Outstanding Expenses As on 31.3.2021 As on 31.3.2022 ` ` 24,00,000 4,16,000 3,92,600 1,00,000 90,000 3,32,000 1,50,000 26,36,000 4,26,200 70,600 80,000 80,000 3,42,600 1,63,600 You are required to prepare Cash Flow Statement from Operating Activities in accordance with AS-3 (revised) using the indirect method for the year ended 31 st March,2022. (e) On 1st April 2021 Ms. Jayshree has 5,000 equity shares of Rama Limited (a listed company) of face value of` 10 each. Ms. Jayshree has purchased the above shares at ` 15 per share and paid a brokerage of 2% and stamp duty of 1 %. On 15th May,2021 Ms. Jayshree purchased another 5,000 shares of Rama Limited at ` 18 including brokerage and stamp duty. On 26th August,2021 Rama Limited issued one bonus equity share for every 1 equity share held by the shareholders. On 23rd October,2021 Rama Limited announced a Right Issue which entitles the holders to subscribe 1 equity share for every 2 equity shares held at ` 20 per share. Shareholders can exercise their rights in full or in part. Ms. Jayshree sold 1/4 th of entitlement to Mr. Mike for a consideration of ` 10 per share and subscribed the rest on 1 st November 2021. Ms. Jayshree also sold 10,000 shares at ` 25 per share on 1st November,2021. The shares of Rama Limited were quoted at ` 11 per share on 31 st March,2022. You are required to prepare Investment account for Ms. Jayshree for the year ended 31st March 2022. (4 Parts X 5 Marks = 20 Marks) The Institute of Chartered Accountants of India 30 INTERMEDIATE EXAMINATION: MAY 2022 Answer (a) Calculation of net profit u/s 198 of the Companies Act, 2013 ` ` Net profit before income tax and managerial remuneration but after depreciation and provision for repairs Add: Depreciation provided 9,40,000 4,05,000 Provision for repairs 35,000 4,40,000 13,80,000 Less: Repairs 25,000 Depreciation as per schedule III 3,40,000 3,65,000 Profit u/s 198 10,15,000 Maximum Managerial remuneration under Companies Act, 2013 (i) When there is only one Whole time director: The remuneration payable to any one managing director; or whole-time director or manager should not exceed 5% of the net profits of the company. Therefore Managerial remuneration will be ` 50,750 i.e 5% of `10,15,000. (ii) When there are two Whole time directors: if there are more than one such director, remuneration should not exceed 10% of the net profits to all such directors and manager taken together. Therefore Managerial remuneration will be `1,01,500 i.e 10% of `10,15,000. (iii) When there are two whole time directors, a part time director and a manager, then 11% of the net profits of the company. Therefore Managerial remuneration will be ` 1,11,650 i.e 11% of `10,15,000. (b) Journal Entries in the books of Sujata Foods Ltd. 2021 April 1 Equity Share Final Call A/c Dr. Dr. Cr. ` ` 1,80,000 To Equity Share Capital A/c 1,80,000 (Final call of ` 2 per share on 90,000 equity shares made due) April 15 Bank A/c The Institute of Chartered Accountants of India Dr. 1,80,000 PAPER 1 : ACCOUNTING 31 To Equity Share Final Call A/c 1,80,000 (Final call money on equity shares received) Capital Redemption Reserve A/c Dr. 75,000 Securities Premium A/c Dr. 25,000 General Reserve A/c Profit and Loss A/c Dr. Dr. 1,20,000 5,000 To Bonus to Shareholders A/c 2,25,000 (Bonus issue of one share for every four shares held, by utilising various reserves as per Board s resolution dated .) Bonus to Shareholders A/c Dr. 2,25,000 To Equity Share Capital A/c 2,25,000 (Capitalization of profit) June 20 (c) (i) Bank A/c To Securities Premium A/c To Equity Share Capital A/c (Being Right issue of 2 shares for every 5 shares held as per board resolution dated ..) Dr. 5,40,000 90,000 4,50,000 False: As per AS 1 Disclosure of Accounting Policies , certain fundamental accounting assumptions underlie the preparation and presentation of financial statements. They are usually not specifically stated because their acceptance and use are assumed. Disclosure is necessary if they are not followed. (ii) False: As per AS 1, if the fundamental accounting assumptions, viz. Going Concern, Consistency and Accrual are followed in financial statements, specific disclosure is not required. If a fundamental accounting assumption is not followed, the fact should be disclosed. (iii) True: To ensure proper understanding of financial statements, it is necessary that all significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed. The disclosure of the significant accounting policies as such should form part of the financial statements and they should be disclosed in one place. The Institute of Chartered Accountants of India 32 INTERMEDIATE EXAMINATION: MAY 2022 (iv) False: Any change in the accounting policies which has a material effect in the current period or which is reasonably expected to have a material effect in later periods should be disclosed. Where such amount is not ascertainable, wholly or in part, the fact should be indicated. (d) Alpha Ltd. Cash Flow Statement (from Operating Activities) for the year ended 31 st March, 2022 ` ` Cash flow from Operating Activities Net profit before income tax and extraordinary items: 40,00,000 Adjustments for: Depreciation on Property, plant and equipment Discount on issue of debentures Interest on debentures paid Interest on investments received Profit on sale of investments 10,00,000 60,000 7,00,000 (1,20,000) (40,000) Operating profit before working capital changes 16,00,000 56,00,000 Adjustments for: Increase in inventory Increase in Sundry Debtors (2,36,000) (10,200) Decrease in Bills receivables 20,000 Increase in Sundry Creditors 10,600 Increase in Bills payables Increase in outstanding expenses Cash generated from operations Income tax paid Cash flow from ordinary items (10,000) 13,600 (2,12,000) 53,88,000 (21,00,000) 32,88,000 Cash flow from extraordinary items: Compensation received in a suit filed 1,80,000 Net cash flow from operating activities 34,68,000 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING (e) 33 In the books of Ms. Jayshree Investment Account (Equity shares in Rama Ltd.) Date Particulars 1.4.21 To Balance b/d 15.5.21 To Bank A/c 26.8.21 To Bonus issue (W.N.1) 1.11.21 To Bank A/c (right shares) (W.N.4) 1.11.21 To Profit & Loss A/c No. of shares 5,000 5,000 Amount (`) No. of shares Amount (`) By Bank A/c 10,000 2,50,000 31.3.22 By Balance c/d 17,500 1,92,500 31.3.22 By Profit & Loss A/c (loss on valuation) Date 77,250 1.11.21 90,000 10,000 Particulars --- 7,500 1,50,000 9,386 1,34,636 27,500 4,51,886 27,500 4,51,886 Working Notes: (1) Profit on sale of shares (average cost basis) on 1.11.21 10,000 shares @ ` 25 per share = 2,50,000 Cost of shares sold = [(77,250 + 90,000 + 1,50,000)/27,500 x 10,000] = ` 1,15,364 Profit on sale of shares = ` 1,34,636 (2) Value of shares on 31.3.22 [(77,250 + 90,000 + 1,50,000)/27,500 x 17,500] = ` 2,01,886 or ` 1,92,500 (17,500 shares at ` 11) Shares will be valued at `, 1,92,500 as market value is less than cost. Note: Average cost basis has been considered for valuation of shares at the year end and for calculation of cost of shares sold in the given answer. The Institute of Chartered Accountants of India

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