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CA IPCC : Sample / Mock Test Paper (with Model Answers) - ACCOUNTING Sep 2014

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Test Series: September, 2014 MOCK TEST PAPER 1 INTERMEDIATE (IPC) : GROUP I PAPER 1: ACCOUNTING Question No. 1 is compulsory. Answer any five questions from the remaining six questions. Wherever necessary suitable assumptions may be made and disclosed by way of a note. Working Notes should form part of the answer. (Time allowed: three hours) 1. (Maximum Marks: 100) (a) A Company is in the process of setting up a production line for manufacturing a new product. Based on trial runs conducted by the company, it was noticed that the production lines output was not of the desired quality. However, company has taken a decision to manufacture and sell the sub-standard product over the next one year due to the huge investment involved. In the background of the relevant accounting standard, advise the company on the cut-off date for capitalization of the project cost. (b) In 2011, Royal Ltd. issued 12% fully paid debentures of Rs. 100 each, interest being payable half yearly on 30th September and 31 st March of every accounting year. On 1st December, 2012, M/s. Kumar purchased 10,000 of these debentures at Rs. 101 cum-interest price, also paying brokerage @ 1% of cum-interest amount of the purchase. On 1st March, 2013 the firm sold all of these debentures at Rs. 106 cum-interest price, again paying brokerage @ 1 % of cum-interest amount. Prepare Investment Account in the books of M/s. Kumar for the period 1st December, 2012 to 1st March, 2013. (c) An item of machinery was purchased on 1-4-2011 for Rs. 2,00,000. The WDV depreciation rate applicable to the machinery was 15%. The written down value of the machinery as on 31-3-2013 was Rs. 1,44,500. On 1-4-2013, the enterprise decided to change the method from written down value (WDV) to straight line method (SLM). The enterprise decided to write off the book value of Rs. 1,44,500, over the remaining useful life of machinery i.e. 5 years. Out of the total useful life of 7 years, 2 years have already elapsed. Comment, whether the accounting treatment is correct. If not, give the correct accounting treatment with reasons. (d) On 1st April, 2012, Libra Motors Co. sells a truck on hire purchase basis to Hari Transport Co. for a total hire purchase price of Rs. 9,00,000 payable as to Rs. 2,40,000 as down payment and the balance in three equal annual instalments of The Institute of Chartered Accountants of India Rs. 2,20,000 each payable on 31st March 2013, 2014 and 2015. The hire vendor charges interest @ 10% per annum. You are required to ascertain the cash price of the truck for Hari Transport Co. Calculations may be made to the nearest rupee. (4 x 5 = 20 Marks) 2. K Ltd.and L Ltd.were amalgamated on and from 1st April, 2012. A new company C Ltd. was formed to take over the business of the existing companies. The summarized Balance Sheets of K Ltd.and L Ltd.as on 31st March, 2012 are given below: Liabilities Share Capital Equity Shares of Rs. 100 each 12% Preference shares of Rs. 100 each Reserves and Surplus Revaluation Reserve General Reserve Investment Allowance Reserve Profit and Loss Account Secured Loans 10% Debentures (Rs. 100 each) Current Liabilities and Provisions Trade payables (Rs. in lakhs) (Rs. in lakhs) K Ltd. L Ltd. Assets K Ltd. L Ltd. Fixed Assets 800 750 Land and Building 550 400 300 200 Plant and 350 250 Machinery Investments 150 50 150 100 Current Assets, 170 150 Loans and Advances 50 50 50 30 60 Inventory Trade Receivable Cash and Bank 30 420 190 2,000 1,500 350 300 300 250 350 200 _____ _____ 2,000 1,500 Details of Trade payables and Trade receivables are as under: (Rs. in lakhs) K Ltd. Trade payables Sundry Creditors Bills Payable Trade receivables Sundry Debtors Bills Receivable The Institute of Chartered Accountants of India (Rs. in lakhs) L Ltd. 270 150 420 120 70 190 250 50 300 300 50 350 Additional Information: (1) 10% Debentureholders of K Ltd. and L Ltd. are discharged by C Ltd. issuing such number of its 15% Debentures of Rs. 100 each so as to maintain the same amount of interest. (2) Preference shareholders of the two companies are issued equivalent number of 15% preference shares of C Ltd. at a price of Rs. 150 per share (face value of Rs. 100). (3) C Ltd. will issue 5 equity shares for each equity share of K Ltd. and 4 equity shares for each equity share of L Ltd. The shares are to be issued @ Rs. 30 each, having a face value of Rs. 10 per share. (4) Investment allowance reserve is to be maintained for 4 more years. Prepare the Balance Sheet of C Ltd. as on 1st April, 2012 after the amalgamation has been carried out on the basis of Amalgamation in the nature of purchase. (16 Marks) 3. ABC Ltd. took over a running business with effect from 1st April, 2013. The company was incorporated on 1st August, 2013. The following summarized Profit and Loss Account has been prepared for the year ended 31.3.2014: To To To To To To To To To To To To To To To Salaries Stationery Travelling expenses Advertisement Miscellaneous trade expenses Rent (office buildings) Electricity charges Director s fee Bad debts Commission to selling agents Tax Audit fee Debenture interest Interest paid to vendor Selling expenses Depreciation on fixed assets The Institute of Chartered Accountants of India Rs. 48,000 By Gross profit 4,800 16,800 16,000 37,800 26,400 4,200 11,200 3,200 16,000 6,000 3,000 4,200 25,200 9,600 Rs. 3,20,000 To Net profit 87,600 3,20,000 3,20,000 Additional information: (a) Total sales for the year, which amounted to ` 19,20,000 arose evenly upto the date of 30.9.2013. Thereafter they spurted to record an increase of two-third during the rest of the year. (b) Rent of office building was paid @ ` 2,000 per month upto September, 2013 and thereafter it was increased by ` 400 per month. (c) Travelling expenses include ` 4,800 towards sales promotion. (d) Depreciation include ` 600 for assets acquired in the post incorporation period. (e) Purchase consideration was discharged by the company on 30th September, 2013 by issuing equity shares of ` 10 each. Prepare Statement showing calculation of profits and allocation of expenses between pre and post incorporation periods. (16 Marks) 4. On 31st December 2013, the Balance Sheet of A, B, and C who were sharing profits and losses in proportion to their capital stood as follows: Liabilities Creditors Employees provident fund A s capital A/c B s capital A/c C s capital A/c Contingency reserve Workmen compensation reserve Rs. 20,000 1,600 72,000 48,000 24,000 30,000 6,000 Assets Cash at bank Debtors Less : Provision Inventory Machinery Land & building 2,01,600 Rs. 20,000 400 Rs. 16,000 19,600 18,000 48,000 1,00,000 2,01,600 B retires and the following adjustments of the assets and liabilities have been agreed upon before the ascertainment of the amount payable to B: (a) Out of the amount of insurance which was debited entirely to Profit and Loss Account, Rs. 2,000 to be carried forward as an unexpired insurance. (b) Land and building to be appreciated by 10%. (c) Provision for doubtful debts to be brought up to 5% on debtors. (d) Machinery to be depreciated by 5%. (e) Provision of Rs. 3,000 to be made in respect of an outstanding bill of repairs. The Institute of Chartered Accountants of India (f) Goodwill of the entire firm be fixed at Rs. 36,000 and B's share of the same be adjusted into the accounts of A and C who are going to share future profits in the proportion of 3/4 and 1/4 respectively. (No Goodwill account being raised). (g) The entire capital of the firm as newly constituted be fixed at Rs. 1,20,000 between A and C in the proportion of 3/4 and 1/4 after passing entries in their accounts for adjustments i.e. actual cash to be paid off or to be brought in by the continuing partners as the case may be. (h) B to be paid Rs. 6,000 in cash and the balance to be transferred to his loan account. Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the firm of A and C after retirement. (16 Marks) 5. Perfect Society (not registered under the Companies Act) showed the following position on 31st March, 2012: Balance Sheet as on 31st March, 2012 Liabilities Capital fund Expenses payable Rs. Assets 7,93,000 Electrical fittings 7,000 Furniture Books Investment in securities Cash at bank ______ Cash in hand 8,00,000 Rs. 1,50,000 50,000 4,00,000 1,50,000 25,000 25,000 8,00,000 The receipts and payment account for the year ended on 31st March, 2013 is given below: Rs. To Balance b/d By Electric charges Cash at bank 25,000 By Postage and stationary Cash in hand 25,000 50,000 By Telephone charges To Entrance fee 30,000 By Books purchased To Membership subscription 2,00,000 By Outstanding expenses paid To Sale proceeds of old 1,500 By Rent papers To Hire of lecture hall 20,000 By Investment in securities To Interest on securities. 8,000 By Salaries By Balance c/d Cash at bank _______ Cash in hand 3,09,500 The Institute of Chartered Accountants of India Rs. 7,200 5,000 5,000 60,000 7,000 88,000 40,000 66,000 20,000 11,300 3,09,500 You are required to prepare income and expenditure account for the year ended 31 st March, 2013 and a balance sheet as at 31st, March, 2013 after making the following adjustments: Membership subscription included Rs. 10,000 received in advance. Provide for outstanding rent Rs. 4,000 and salaries Rs. 3,000. Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also to be depreciated at the same rate. 75% of the entrance fees is to be capitalized. Interest on securities is to be calculated @ 5% p.a. including purchases made on 1.10.2012 for Rs. 40,000. (16 Marks) 6. (a) Prepare the General Ledger Adjustment Account as will appear in the Debtors Ledger from the information given below: Debtors Ledger Balance on 1.4.2012 Transactions for the year ended 31.3.2013: Total sales Cash sales Received from debtors (in full settlement of Rs. 1,18,000) Returns from debtors Bills accepted by customers Bills receivables dishonoured Bills receivable discounted Bills receivable endorsed to creditors Endorsed bills dishonoured Bad debts written off (after deducting bad debts recovered Rs. 600) Provision for doubtful debts Transfer from debtors ledger to creditors ledger Transfer from creditors ledger to debtors ledger Balance on 31.3.2013 Debtors ledger Dr. Rs. 94,400 Cr. Rs. 480 2,40,000 16,000 1,16,400 5,200 40,200 3,000 10,000 8,000 2,000 4,400 1100 2,200 3,800 760 (b) On 29th August, 2012, the godown of a trader caught fire and a large part of the stock of goods was destroyed. However, goods costing Rs. 1,08,000 could be The Institute of Chartered Accountants of India salvaged incurring fire fighting expenses amounting to Rs. 4,700. The trader provides you the following additional information: Cost of stock on 1st April, 2011 Cost of stock on 31st March, 2012 Purchases during the year ended 31st March, 2012 Purchases from 1st April, 2012 to the date of fire Cost of goods distributed as samples for advertising from 1st April, 2012 to the date of fire Cost of goods withdrawn by trader for personal use from 1st April, 2012 to the date of fire Sales for the year ended 31st March, 2012 Sales from 1st April, 2012 to the date of fire Rs. 7,10,500 7,90,100 56,79,600 33,10,700 41,000 2,000 80,00,000 45,36,000 The insurance company also admitted firefighting expenses. The trader had taken the fire insurance policy for Rs. 9,00,000 with an average clause. Calculate the amount of the claim that will be admitted by the insurance company. (8 + 8 =16 Marks) 7. Answer any four of the following: (a) M accepted the following bills drawn by S: On 8th March, 2013, Rs. 4,000 for 4 months. On 16th March, 2013, Rs. 5,000 for 3 months. On 7th April, 2013, Rs. 6,000 for 5 months. On 17th May, 2013, Rs. 5,000 for 3 months. He wants to pay all the bills on a single day. Find out this date. (b) What are the advantages of outsourcing the accounting functions? (c) Try Ltd. sold its building to Apex Ltd. for Rs. 60 lakhs on 30.09.2012 and gave possession of the property to Apex Ltd. However, documentation and legal formalities are pending. Due to this, the company has not recorded the sale and has shown the amount received as an advance. The book value of the building is Rs. 25 lakhs as on 31st March, 2013. Do you agree with this treatment? If you do not agree, explain the reasons with reference to the accounting standard. (d) Sure Ltd. undertook a construction contract for Rs. 50 crores in April, 2012. The cost of construction was initially estimated at Rs. 35 crores. The contract is to be completed in 3 years. While executing the contract, the company estimated the cost of completion of the contract at Rs. 53 crores. The Institute of Chartered Accountants of India Can the company provide for the expected loss in the book of account for the year ended 31st March, 2013? (e) What are the issues, with which Accounting Standards deal? The Institute of Chartered Accountants of India (4 x 4 =16 Marks) Test Series: September, 2014 MOCK TEST PAPER - 1 INTERMEDIATE (IPC) : GROUP I PAPER 1: ACCOUNTING SUGGESTED ANSWERS/HINTS 1. (a) As per para 9.3 of AS 10 Accounting for Fixed Assets , expenditure incurred on start-up and commissioning of the project, including the expenditure incurred on test runs and experimental production, is usually capitalized as an indirect element of the construction cost. However, the expenditure incurred after the plant has begun commercial production i.e., production intended for sale or captive consumption, is not capitalized and is treated as revenue expenditure even though the contract may stipulate that the plant will not be finally taken over until after the satisfactory completion of the guarantee period. In the present case, the company did not stop production even if the output was not of the desired quality, and continued the substandard production due to huge investment involved in the project. Capitalization should cease at the end of the trial run, since the cut-off date would be the date when the trial run was completed. (b) In the books of M/s Kumar Investment Account for the period from 1st December 2012 to 1st March, 2013 (Scrip: 12% Debentures of Royal Ltd.) Date Particular s Nominal Interest Value (Rs. ) Cost (Rs. ) Date Particulars 1.12.2012 To Bank A/c 10,00,000 20,000 10,00,100 1.03.2013 By Bank A/c (W.N.1) (W.N.2) 1.3.2013 To Profit & loss A/c 30,000 Nominal Interest Value (Rs. ) 10,00,000 50,000 10,00,000 50,000 10,00,100 1.3.2013 By Profit & loss A/c 10,00,000 50,000 10,00,100 Cost of 12% debentures purchased on 1.12.2012 Rs. Cost Value (10,000 Rs. 101) = 10,10,000 Add: Brokerage (1% of Rs. 10,10,000) = 10,100 Less: Cum Interest (10,000 x 100 x12% x 2/12) = (20,000) Total = 10,00,100 The Institute of Chartered Accountants of India 9,99,400 700 Working Notes: (i) Cost (Rs. ) (ii) Sale proceeds of 12% debentures sold on 1st March, 2013 Rs. Sales Price (10,000 Rs. 106) = 10,60,000 Less: Brokerage (1% of Rs. 10,60,000) = (10,600) Less: Cum Interest (10,000 x 100 x12% x 5/12) = (50,000) Total = 9,99,400 (c) As per para 15 of AS 6, Depreciation Accounting , when the method of depreciation is changed, depreciation is recalculated in accordance with the new method from the date of the assets coming into use. The deficiency or surplus arising from retrospective re-computation of depreciation in accordance with the new method is adjusted in the statement of profit & loss in the year in which the method of depreciation is changed. Calculation of Surplus/Deficiency due to change in method of depreciation Rs. Purchase price of plant as on 01-04-2011 2,00,000 Less: Depreciation as per SLM, for the year 2011-12 (Rs. 2,00,000 7 years) (28,571) Balance as on 31-3-12 Less: Depreciation for the year 2012-13 (Rs. 2,00,000 7 years) 1,71,429 (28,571) Balance as on 31-3-2013 Book value as per WDV method 1,42,858 1,44,500 Book value as per SLM Deficiency 1,42,858 1,642 Deficiency of Rs. 1,642 should be charged to Profit & Loss account. Therefore, the accounting treatment done by the enterprises is wrong i.e. book value of Rs. 1,44,500 will not be written off over the remaining useful life of machinery i.e. 5 years. Note: It is assumed that when the company changed the method of depreciation from WDV to SLM, it re-calculated the depreciation amount on the basis of useful life and has not continued with WDV rate of depreciation. (d) Ratio of interest and amount due = Rate of int erest 10 = = 1 11 100 + Rate of int erest 110 There is no interest element in the down payment as it is paid on the date of the transaction. Instalments paid after certain period includes interest portion also. The Institute of Chartered Accountants of India Therefore, to ascertain cash price, interest will be calculated from last instalment to first instalment as follows: Calculation of Interest and Cash Price No. of instalments Amount due at the time of instalment Interest Cumulative Cash price [1] [2] [3] (2-3) = [4] 3rd 2,20,000 1/11 of Rs. 2,20,000 = Rs. 20,000 2,00,000 2nd 4,20,000 [W.N.1] 1/11 of Rs. 4,20,000 = Rs. 38,182 3,81,818 1st 6,01,818 [W.N.2] 1/11of Rs. 6,01,818 = Rs. 54,711 5,47,107 Total cash price = Rs. 5,47,107+ 2,40,000 (down payment) =Rs. 7,87,107. Working Notes: 1. Rs. 2,00,000+ 2nd instalment of Rs. 2,20,000= Rs. 4,20,000. 2. Rs. 3,81,818+ 1st instalment of Rs. 2,20,000= Rs. 6,01,818. 2. Balance Sheet of C Ltd. as at 1st April, 2012 Particulars Note No. (Rs. in lakhs) I. Equity and Liabilities (1) Shareholder's Funds (a) Share Capital (b) Reserves and Surplus 1 2 1,200 1,750 3 60 4 610 (2) Non-Current Liabilities Long-term borrowings (3) Current Liabilities Trade payables Total 3,620 II. Assets (1) Non-current assets (a) Fixed assets i. Tangible assets The Institute of Chartered Accountants of India 5 1,550 ii. Intangible assets 6 20 (b) Non-current investments 7 200 (c) Other non-current assets 8 100 (2) Current assets (a) Inventories 600 (b) Trade receivables 9 650 (c) Cash and cash equivalents 500 Total 3,620 Notes to Accounts (Rs. in (Rs. in lakhs) lakhs) 1. Share Capital Equity share capital 70 Lakhs Equity shares of Rs. 10 each 5 Lakhs Preference shares of Rs. 100 each 700 500 (all the above shares are allotted as fully paid-up pursuant to contracts without payment being received in cash) 2. Reserves and surplus Securities Premium Account On equity shares - 70 lakh shares x Rs. 20 = 1,400 On preference shares - 5 lakh shares x Rs. 50 = 250 Investment Allowance Reserve 3. 4. 1,200 1,650 100 Long-term borrowings 15% Debentures Trade payables Sundry creditors 60 390 Bills Payables 5. 220 Tangible assets Land and Building 950 Plant and Machinery 6. 1,750 600 610 1,550 Intangible assets Goodwill [W.N. 2] (110-90) The Institute of Chartered Accountants of India 20 7. Non-current Investments Investments 8. Other non-current assets 9. 200 Amalgamation Adjustment Account Trade receivables 100 Sundry Debtors 550 Bills receivable 100 650 Working Notes: (Rs. in lakhs) K Ltd. L Ltd. (1) Computation of Purchase consideration (a) Preference shareholders: 3,00,00,000 i.e. 3,00,000 shares Rs. 150 each 100 450 2,00,00,000 i.e. 2,00,000 shares Rs. 150 each 100 (b) 300 Equity shareholders: 8,00,00,000 5 i.e. 40,00,000 shares Rs. 30 each 1,200 100 7,50,00,000 4 i.e. 30,00,000 shares Rs. 30 each 100 (2) Amount of Purchase Consideration Net Assets Taken Over Assets taken over: Land and Building Plant and Machinery Investments Inventories Sundry Debtors Bills receivable The Institute of Chartered Accountants of India 900 1,650 1,200 550 350 150 350 250 50 400 250 50 250 300 50 Cash and bank Less: Liabilities taken over: Debentures Sundry Creditors Bills payable Net assets taken over Purchase consideration Goodwill Capital reserve 3. 300 2,000 40 270 150 200 1,500 20 120 70 (460) 1,540 1,650 110 (210) 1,290 1,200 ____90 Statement showing calculation of profits for pre and post incorporation periods for the year ended 31.3.2014 Particulars Gross profit (1:3) Less: Salaries (1:2) Stationery (1:2) Advertisement (1:3) Travelling expenses (W.N.3) Sales promotion expenses (W.N.3) Misc. trade expenses (1:2) Rent (office building) (W.N.2) Electricity charges (1:2) Director s fee Bad debts (1:3) Selling agents commission (1:3) Audit fee (1:3) Debenture interest Interest paid to vendor (2:1) (W.N.4) Selling expenses (1:3) Depreciation on fixed assets (W.N.5) Capital reserve (Bal.Fig.) Net profit (Bal.Fig.) The Institute of Chartered Accountants of India Pre-incorporation period Rs. 80,000 16,000 1,600 4,000 4,000 1,200 12,600 8,000 1,400 800 4,000 1,500 2,800 6,300 3,000 12,800 - Post- incorporation period Rs. 2,40,000 32,000 3,200 12,000 8,000 3,600 25,200 18,400 2,800 11,200 2,400 12,000 4,500 3,000 1,400 18,900 6,600 74,800 Working Notes: 1. Time Ratio Pre incorporation period = 1st April, 2013 to 31st July, 2013 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 1.4.2013 to 30.09.13) be = x Then, sales for 6 months = 6x Monthly sales for next 6 months (i.e. from 1.10.13 to 31.3.2014) = 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 = Rs. 19,20,000/16 = Rs. 1,20,000 Total sales for pre-incorporation period = Rs. 1,20,000 x 4 = Rs. 4,80,000 Total sales for post incorporation period = Rs. 19,20,000 Rs. 4,80,000 = Rs. 14,40,000 Sales Ratio = 4,80,000 : 14,40,000 = 1 : 3 3. Rent Rent for pre-incorporation period (Rs. 2,000 x 4) Rent for post incorporation period August,2013 & September, 2013 (Rs. 2,000 x 2) October,2013 to March,2014 (Rs. 2,400 x 6) Rs. 8,000 (pre) 18,400 (post) Pre Rs. 4. 4,000 14,400 Post Rs. 4,000 1,200 8,000 3,600 Travelling expenses and sales promotion expenses Traveling expenses Rs. 12,000 (i.e. Rs. 16,800- Rs. 4,800) distributed in 1:2 ratio Sales promotion expenses Rs. 4,800 distributed in 1:3 ratio The Institute of Chartered Accountants of India 5. Interest paid to vendor till 30th September, 2013 Pre Rs. 2,800 ` 4,200 Interest for pre-incorporation period 4 6 Interest for post incorporation period i.e. for Post Rs. ` 4,200 August, 2013 & September, 2013 = 2 6 6. 1,400 Depreciation Pre Rs. Total depreciation 9,600 Less: Depreciation exclusively for post incorporation period 600 9,000 4 Depreciation for pre-incorporation period 9,000 12 Post Rs. 600 3,000 8 Depreciation for post incorporation period 9,000 12 6,000 3,000 4. 6,600 Revaluation Account Particulars To Provision for doubtful debts To Machinery To Outstanding repairs To Profit t/f to: A s capital A/c B s capital A/c C s capital A/c Rs. Particulars 600 By Unexpired insurance 2,400 By Land and building 3,000 Rs. 2,000 10,000 3,000 2,000 1,000 12,000 12,000 Capital Accounts of Partners Particulars A B The Institute of Chartered Accountants of India C Particulars A B C Rs. 9,000 - - 6,000 To B s loan A/c To Balance c/d 90,000 Rs. Rs. 72,000 3,000 48,000 2,000 24,000 1,000 - 9,000 - - 3,000 - 15,000 10,000 5,000 By Work Compensation Reserve To Bank A/c Rs. By Contingency Reserve To B s capital A/c (for goodwill) (W. N 2) Rs. Rs. 3,000 2,000 1,000 6,000 - 2,000 99,000 74,000 33,000 Rs. Rs. 18,000 3,000 By Balance b/d By Revaluation A/c - By A s capital 68,000 - A/c (for goodwill) - 30,000 (W .N. 2) By C s capital A/c (for goodwill) (W .N 2) By Bank (Bal. fig) 99,000 74,000 33,000 A/c Balance Sheet of A and C at 31st December 2013 Liabilities Creditors Employees Provident Fund Liability for repairs B s loan A/c A s capital A/c C s capital A/c Rs. 20,000 1,600 3,000 68,000 90,000 30,000 Assets Cash at bank (W .N 1) Debtors Less: Provision Stock Machinery (48,000 - 2,400) Land & building (1,00,000+10,000) Unexpired insurance 2,12,600 20,000 (1,000) 19,000 18,000 45,600 1,10,000 2,000 2,12,600 Working Notes: 1. Bank Account Particulars To Balance b/d To A s capital A/c To C s capital A/c Rs. Particulars 16,000 By B s capital A/c 6,000 By Balance c/d 2,000 24,000 The Institute of Chartered Accountants of India Rs. 6,000 18,000 24,000 2. Adjustment of goodwill New ratio Old ratio A 3/4 3/6 C 1/4 1/6 Gaining ratio 18 12 6 = 24 24 6 4 2 = 24 24 Therefore, gaining ratio of A & C = 3:1 B s share of goodwill of Rs. 12,000 will be shared by A & C in 3:1 = Rs.9,000: Rs. 3,000 5. Perfect Society Income and Expenditure Account for the year ended 31st March, 2013 Dr. Expenditure To Electric charges To Postage and stationary To Telephone charges To Rent Add: Outstanding To Salaries Add: Outstanding To Depreciation (W.N.1) Electrical fittings Furniture Books Rs. 88,000 4,000 66,000 3,000 15,000 5,000 46,000 Cr. Rs. 7,500 Rs. Income 7,200 By Entrance fee (25% of Rs. 30,000) 5,000 5,000 By Membership subscription 2,00,000 10,000 1,90,000 92,000 Less: Received in advance By Sale proceeds of old 1,500 papers 69,000 By Hire of lecture hall 20,000 By Interest on securities 8,000 (W.N.2) 66,000 Add: Receivable 500 8,500 16,700 By Deficit- excess of expenditure over income 2,44,200 2,44,200 The Institute of Chartered Accountants of India Liabilities Capital fund Add: Entrance fees Less: Excess of expenditure over income Outstanding expenses: Rent Salaries Membership subscription in advance Balance Sheet of Perfect Society as on 31st March, 2013 Rs. Rs. Asset 7,93,000 Electrical fittings _22,500 Less: Depreciation 8,15,500 Furniture Less: Depreciation (16,700) 7,98,800 Books Less Depreciation 4,000 Investment: 3,000 7,000 Securities Accrued interest 10,000 Cash at bank _______ Cash in hand 8,15,800 Rs. 1,50,000 (15,000) 50,000 (5,000) 4,60,000 (46,000) 1,90,000 500 Rs. 1,35,000 45,000 4,14,000 1,90,500 20,000 11,300 8,15,800 Working Notes: 1. 2. Depreciation Electrical fittings 10% of Rs. 1,50,000 Furniture 10% of Rs. 50,000 Books 10% of Rs. 4,60,000 Interest on Securities Interest @ 5% p.a. on Rs. 1,50,000 for full year Interest @ 5% p.a. on Rs. 40,000 for half year Less: Received Receivable The Institute of Chartered Accountants of India Rs. 15,000 5,000 46,000 7,500 1,000 8,500 (8,000) 500 6. (a) General Ledger Adjustment Account in Debtors Ledger Rs. 1.4.2012 To Balance b/d 480 To Debtor s ledger adjustment account: Rs. 1.4.2012 By Balance b/d 94,400 By Debtors ledger adjustment account: Bank Discount 1,16,400 1,600 Returns Sales (on credit) Bills receivable dishonoured 5,200 Bills receivable Endorsed bills receivable dishonoured 2,24,000 3,000 2,000 2,29,000 40,200 Bad debts Written off (4,400 + 600) 5,000 1,68,400 31.3.2013 By Balance c/d 760 To Debtors ledger adjustment account: Transfer from creditor s ledger debtors Transfer from debtor s ledger ledger creditor s to 2,200 31.3.2013 To Balance c/d (balancing figure) ledger to 3,800 6,000 1,49,280 _______ 3,24,160 3,24,160 Notes: No entries will be made for the following transactions in respect to debtors as they do not affect general ledger adjustment accounts in Debtor s Ledger: (i) Cash sales (ii) Bills receivable discounted (iii) Bad debts recovered and Provision for doubtful debts. The Institute of Chartered Accountants of India (b) Memorandum Trading Account for the period 1st April, 2012 to 29th August 2012 Rs. To Opening Stock 7,90,100 By Sales To Purchases 33,10,700 By Closing stock (Bal. fig.) Less: Advertisement (41,000) Drawings (2,000) 32,67,700 To Gross Profit [30% of Sales Refer Working Note] 13,60,800 54,18,600 Rs. 45,36,000 8,82,600 54,18,600 Statement of Insurance Claim Rs. 8,82,600 (1,08,000) 4,700 7,79,300 Value of stock destroyed by fire Less: Salvaged Stock Add: Fire Fighting Expenses Insurance Claim Note: Since policy amount is more than claim amount, average clause will not apply. Therefore, claim amount of Rs.7,79,300 will be admitted by the Insurance Company. Working Note: Trading Account for the year ended 31st March, 2012 To Opening Stock To Purchases To Gross Profit Rs. 7,10,500 By Sales 56,79,600 By Closing stock 24,00,000 87,90,100 Rs. 80,00,000 7,90,100 87,90,100 Rate of Gross Profit in 2011-12 24,00,000 Gross Pr ofit 100 = 30% 100 = 80,00,000 Sales 7. (a) Calculation of number of days from base date Transaction date Due date Amount Rs. 8.3.2013 16.3.2013 11.7.2013 19.6.2013 4,000 5,000 The Institute of Chartered Accountants of India No. of days from Base date (Base date 19.6.2013) Product 22 0 88,000 0 7.4.2013 10.9.2013 6,000 83 4,98,000 17.5.2013 20.8.2013 5,000 62 3,10,000 Average due date = Base date + 20,000 8,96,000 Total of Pr oduct Total of Amount = 19.6.2013 + Rs. 8,96,000 / Rs. 20,000 = 19.6.2013 + 45 days = 3.8.2013 (b) Following are the advantages of outsourcing the accounting functions: (i) Saving of Time: The organisation that outsources its accounting function is able to save time to concentrate on the core area of business activity. (ii) Expertise of the third party: The organisation is able to utilise the expertise of the third party in undertaking the accounting work. (iii) Maintenance of data: Storage and maintenance of the data is in the hand of professional people. (iv) Economical: The organisation is not bothered about people leaving the organisation in key accounting positions. The proposition often proves to be economically more sensible. (c) As per para 16 & 17 of AS 1, Disclosure of Accounting Policies , the main consideration in selection of accounting policy is the presentation of a true and fair picture of the state of affairs & performance of the enterprise. To ensure true and fair consideration, principles of prudence, substance over form and materiality should be looked into. In this case, the economic reality and substance of the transaction is that the rights and beneficial interest in the property has been transferred although legal title has not been transferred. Hence, Try Ltd. in its financial statements for the year ended 31.3.2013, should record the sale and recognize the profit of Rs. 35 lakhs in its Profit & Loss Account and building should be removed from the balance sheet of Try Ltd. Therefore, the treatment given by the company is not correct. (d) As per para 35 of AS 7 Construction Contracts , when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognised as an expense immediately. Therefore, The foreseeable loss of Rs. 3 crores (Rs. 53 crores less Rs. 50 crores) should be recognised as an expense immediately in the year ended 31st March, 2013. The amount of loss is determined irrespective of (i) Whether or not work has commenced on the contract; (ii) Stage of completion of contract activity; or The Institute of Chartered Accountants of India (iii) The amount of profits expected to arise on other contracts which are not treated as a single construction contract in accordance with para 8 of AS 7. (e) Accounting Standards deal with the issues of (i) Recognition of events and transactions in the financial statements, (ii) Measurement of these transactions and events, (iii) Presentation of these transactions and events in the financial statements in a manner that is meaningful and understandable to the reader, and (iv) Disclosure requirements which should be there to enable the public at large and the stakeholders and the potential investors in particular, to get an insight into what these financial statements are trying to reflect and thereby facilitating them to take prudent and informed business decisions. The Institute of Chartered Accountants of India

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