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

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Test Series: October, 2014 MOCK TEST PAPER 2 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) X,Y and Z are partners sharing profits an losses in the ratio of 4:3:2 respectively. On 31st March, 2014, Y retires and X and Z decide to share profits and losses in the ratio of 5:3. Then immediately, W is admitted for 3/10th shares in profits, 2/3rd of which was given by X and rest was taken by W from Z. Goodwill of the firm is valued at Rs. 2,16,000. W brings required amount of goodwill. Give necessary Journal Entries to adjust goodwill on retirement of Y and admission of W when they do not want to raise goodwill in the books of accounts. (b) HP is a leading distributor of petrol. A detail inventory of petrol in hand is taken when the books are closed at the end of each month. At the end of month, following information is available: Sales General overheads Inventory at beginning Rs. 47,25,000 Rs. 1,25,000 1,00,000 litres @ 15 per litre Purchases June 1 - two lakh litres @ Rs. 14.25 June 30 - one lakh litres @ Rs. 15.15 Closing inventory - 1.30 lakh litres Compute the following by the FIFO method as per AS 2: (i) Value of Inventory on June, 30. (ii) Amount of cost of goods sold for June. (iii) Profit/Loss for the month of June. (c) Ujju Enterprise furnishes you the following information for the period October to December, 2013. You are requested to draw up Debtors Ledger Adjustment account in the General Ledger: The Institute of Chartered Accountants of India (i) Total sales amounted to Rs. 2,20,000 including sale of old motor car for Rs. 10,000 (book value Rs. 5,000). Total credit sales were 80% higher than the cash sales. (ii) Cash collection from debtors amounted to 60% of the aggregate of the opening debtors amounting to Rs. 40,000 and credit sales for the period. Debtors were allowed discount of Rs. 10,000. (iii) Bills receivables drawn during the period totalled Rs. 20,000 of which one bill of Rs. 5,000 was dishonoured for non-payment as the party became insolvent and his estate realized 50 paise in a rupee. (iv) A sum of Rs. 3,000 was written off as bad debts, Rs. 7,000 was realized against bad debts written off in earlier years and provision of Rs. 6,000 was made for doubtful debts. (d) ABC Ltd. was making provision for non-moving inventory based on no issues for the last 12 months up to 31.3.2012. The company wants to provide during the year ending 31.3.2013 based on technical evaluation: Total value of inventory Provision required based on 12 months issue Provision required based on technical evaluation Rs. 100 lakhs Rs. 3.5 lakhs Rs. 2.5 lakhs Does this amount to change in Accounting Policy? Can the company change the method of provision? (4 x 5 = 20 Marks) 2. The books of account of Ruk Ruk Maan of Mumbai showed the following figures: Furniture & fixtures Stock Debtors Cash in hand & bank Creditors Bills payable Outstanding salaries 31.3.2013 Rs. 2,60,000 2,45,000 1,25,000 1,10,000 1,35,000 70,000 19,000 31.3.2014 Rs. 2,34,000 3,20,000 ? ? 1,90,000 80,000 20,000 An analysis of the cash book revealed the following: Cash sales Collection from debtors The Institute of Chartered Accountants of India Rs. 16,20,000 10,58,000 Discount allowed to debtors Cash purchases Payment to creditors Discount received from creditors Payment for bills payable Drawings for domestic expenses Salaries paid Rent paid Sundry trade expenses 20,000 6,15,000 9,73,000 32,000 4,30,000 1,20,000 2,36,000 1,32,000 81,000 Depreciation is provided on furniture & fixtures @10% p.a. on diminishing balance method. Ruk Ruk Maan maintains a steady gross profit rate of 25% on sales. You are required to prepare Trading and Profit and Loss account for the year ended 31st March, 2014 and Balance Sheet as on that date. (16 Marks) 3. Following is the summarized Balance Sheet of Max Ltd. as at March 31, 2013. Rs. Assets Liabilities Share capital: Equity shares of Rs. 100 each Goodwill Rs. 20,000 15,00,000 Other fixed assets 15,00,000 9% Preference shares of Rs. 100 each 5,00,000 Trade receivables 6,51,000 General reserve 1,80,000 Inventory 3,93,000 Profit and loss account - Cash at bank 12% Debentures of Rs. 100 each 6,00,000 Own debentures Trade payables 4,15,000 26,000 (Nominal value Rs. 2,00,000) Profit and loss account 31,95,000 1,92,000 4,13,000 31,95,000 On 1.4.2013, Max Ltd. adopted the following scheme of reconstruction: (i) Each equity share shall be sub-divided into 10 equity shares of Rs. 10 each fully paid up. 50% of the equity share capital would be surrendered to the Company. (ii) Preference dividends are in arrear for 3 years. Preference shareholders agreed to waive 90% of the dividend claim and accept payment for the balance. (iii) Own debentures of Rs. 80,000 were sold at Rs. 98 cum-interest and remaining own debentures were cancelled. (iv) Debentureholders of Rs. 2,80,000 agreed to accept one machinery of book value of Rs. 3,00,000 in full settlement. The Institute of Chartered Accountants of India (v) Trade payables, trade receivables and inventory were valued at Rs. 3,50,000, Rs. 5,90,000 and Rs. 3,60,000 respectively. The goodwill, discount on issue of debentures and Profit and Loss (Dr.) are to be written off. (vi) The Company paid Rs. 15,000 as penalty to avoid capital commitments of Rs. 3,00,000. You are required to give Journal entries for reconstruction in the books of Max Ltd. (16 Marks) 4. (a) On 01-05-2012, Mr. Mishra purchased 800 equity shares of 10 each in Fillco Ltd. @ Rs. 50 each from a broker who charged 5%. He incurred 20 paisa per 100 as cost of shares transfer stamps. On 31-10-2012, bonus was declared in the ratio 1 : 4. The shares were quoted at Rs. 110 and Rs. 60 per share before and after the record date of bonus shares respectively. On 30-11-2012, Mr. Mishra sold the bonus shares to a broker who charged 5%. You are required to prepare Investment Account in the books of Mr. Mishra for the year ending 31-12-2012 and closing value of lnvestment shall be made at cost or market value whichever is lower. (b) On the basis of the following informations, prepare Income and Expenditure Account for the year ended 31st March, 2014: Receipts and Payments Account for the year ended 31st March, 2014 Receipts Rs. Payments To Cash in hand (opening) 1,300 By Salaries To Cash at bank (opening) 3,850 By Rent To Subscriptions 4,94,700 By Printing & stationery To Interest on 8% Government By Conveyance bonds 4,000 To Bank interest 160 By Scooter purchased By 8% Government bonds By Cash in hand (closing) By Cash at bank (closing) 5,04,010 (i) Rs. 2,58,000 71,500 3,870 10,600 50,000 1,00,000 840 9,200 5,04,010 Salaries paid includes Rs. 6,000 paid in advance for April, 2014. Monthly salaries paid were Rs. 21,000. (ii) Outstanding rent on 31st March, 2013 and 31st March, 2014 amounted to Rs. 5,500 and Rs. 6,000 respectively. (iii) Stock of printing and stationery material on 31st March, 2013 was Rs. 340; it was Rs. 365 on 31st March, 2014. The Institute of Chartered Accountants of India (iv) Scooter was purchased on 1st October, 2013. Depreciation @ 20% per annum is to be provided on it. (v) Investments were made on 1st April, 2013. (vi) Subscriptions due but not received on 31st March, 2013 and 31st March, 2014 totalled Rs.14,000 and Rs.12,800 respectively. On 31st March, 2014, subscriptions amounting to Rs.700 had been received in advance for April, 2014. (8 + 8 = 16 Marks) 5. (a) A fire broke out in the godown of a business house on 8th July, 2014. Goods costing Rs. 2,03,000 in a small sub-godown remain unaffected by fire. The goods retrieved in a damaged condition from the main godown were valued at Rs. 1,97,000. The following particulars were available from the books of accounts: Stock on the last Balance Sheet date at 31st March, 2014 was Rs. 15,72,000. Purchases for the period from 1st April, 2014 to 8th July, 2014 were Rs. 37,10,000 and sales during the same period amounted to Rs. 52,60,000. The average gross profit margin was 30% on sales. The business house has a fire insurance policy for Rs. 10,00,000 in respect of its entire stock. Assist the Accountant of the business house in computing the amount of claim of loss by fire. (b) The partners of Shri Enterprises decided to convert the partnership firm into a Private Limited Company Shreya (P) Ltd. with effect from 1st January, 2013. However, company could be incorporated only on 1st June, 2013. The business was continued on behalf of the company and the consideration of Rs. 6,00,000 was settled on that day along with interest @ 12% per annum. The company availed loan of Rs. 9,00,000 @ 10% per annum on 1st June, 2013 to pay purchase consideration and for working capital. The company closed its accounts for the first time on 31st March, 2014 and presents you the following summarized profit and loss account: Rs. Sales Cost of goods sold Discount to dealers Directors remuneration Salaries Rent Interest Depreciation Office expenses Sales promotion expenses The Institute of Chartered Accountants of India 11,88,000 46,200 60,000 90,000 1,35,000 1,05,000 30,000 1,05,000 33,000 Rs. 19,80,000 Preliminary expenses (to be written off in first year itself) Profit 15,000 18,07,200 1,72,800 Sales from June, 2013 to December, 2013 were 2 times of the average sales, which further increased to 3 times in January to March quarter, 2014. The company recruited additional work force to expand the business. The salaries from July, 2013 doubled. The company also acquired additional showroom at monthly rent of Rs. 10,000 from July, 2013. You are required to prepare a statement showing apportionment of cost and revenue between pre-incorporation and post-incorporation periods. Also suggest how the pre-incorporation profits/losses are to be dealt with. (8+8 =16 Marks) 6. The following are the summarized Balance Sheets of Lotus Ltd. as on 31st March 2013 and 2014: Liabilities Equity share capital (Rs. 10 each) Capital reserve Profit and loss A/c Long term loan from the bank Sundry creditors Provision for taxation Assets Land and building Machinery Investment Stock Sundry debtors Cash in hand Cash at bank 31-3-2013 Rs. 10,00,000 4,00,000 5,00,000 5,00,000 50,000 24,50,000 Rs. 4,00,000 7,50,000 1,00,000 3,00,000 4,00,000 2,00,000 3,00,000 24,50,000 31-3-2014 Rs. 12,50,000 10,000 4,80,000 4,00,000 4,00,000 60,000 26,00,000 Rs. 3,80,000 9,20,000 50,000 2,80,000 4,20,000 1,40,000 4,10,000 26,00,000 Additional information: (1) Depreciation written off on land and building Rs. 20,000. (2) The company sold some investment at a profit of Rs. 10,000, which was credited to Capital Reserve. (3) Income-tax provided during the year Rs. 55,000. The Institute of Chartered Accountants of India (4) During the year, the company purchased a machinery for Rs. 2,25,000. They paid Rs. 1,25,000 in cash and issued 10,000 equity shares of Rs. 10 each at par. You are required to prepare a cash flow statement for the year ended 31 st March, 2014 as per AS 3 by using indirect method. (16 Marks) 7. Answer any four of the following: (a) Harish has the following bills due on different dates. It was agreed to settle the total amount due by a single cheque payment. Find the date of the cheque. (i) Rs. 5,000 due on 5.3.2013 (ii) Rs. 7,000 due on 7.4.2013 (iii) Rs. 6,000 due on 17.7.2013 (iv) Rs. 8,000 due on 14.9.2013 (b) What are the advantages of outsourcing the accounting functions? (c) Progressive Limited has not charged depreciation for the year ended on 31st March, 2014, in respect of a spare bus purchased during the financial year 2013-14 and kept ready by the company for use as a stand-by, on the ground that, it was not actually used during the year. State your views with reference to Accounting Standard 6 "Depreciation Accounting". (d) During the current year 2013-14, X Limited made the following expenditure relating to its plant building: Routine Repairs Repairing Partial replacement of roof tiles Substantial improvements to the electrical wiring system which will increase efficiency Rs. in lakhs 4 1 0.5 10 What amount should be capitalized? (e) A Ltd. has sold its building for Rs. 50 lakhs to B Ltd. and has also given the possession to B Ltd. The book value of the building is Rs. 30 lakhs. As on 31st March, 2014, the documentation and legal formalities are pending. The company has not recorded the sale and has shown the amount received as advance. Do you agree with this treatment? (4 x 4 =16 Marks) The Institute of Chartered Accountants of India Test Series: October, 2014 MOCK TEST PAPER - 2 INTERMEDIATE (IPC): GROUP I PAPER 1: ACCOUNTING SUGGESTED ANSWERS/HINTS 1. (a) Journal Entries Date Particulars 31.3.14 X s capital A/c L.F. Dr. (Rs.) Dr. 39,000 Z s capital A/c Dr. To Y s capital A/c (3/9 Rs. 2,16,000) Cr. (Rs.) 33,000 72,000 (Being Y s share of goodwill adjusted in the capital accounts of gaining partners in their gaining ratio 13:11 Refer Working Note.) Cash A/c Dr. 64,800 To W s capital A/c (3/10 Rs. 2,16,000) (Being the amount of goodwill brought in by W) W s capital A/c Dr. 64,800 64,800 To X s capital A/c 43,200 To Z s capital A/c 21,600 (Being the goodwill credited to sacrificing partners in their sacrificing ratio 2:1) Working Note: Calculation of gaining ratio of X and Z Gaining ratio = New ratio Old ratio For X = 5/8-4/9 = 13/72 Z = 3/8-2/9 = 11/72 Gaining ratio = 13:11 The Institute of Chartered Accountants of India (b) Rs. (i) Cost of closing inventory for 1,30,000 litres as on 30th June 1,00,000 litres @ Rs.15.15 30,000 litres @ Rs. 14.25 Total (ii) Calculation of cost of goods sold Opening inventories (1,00,000 litres @ Rs. 15) Purchases June-1 (2,00,000 litres @ Rs.14.25) June-30 (1,00,000 litres @ Rs.15.15) Less: Closing inventories Cost of goods sold (iii) Calculation of profit Sales (Given) (A) Cost of goods sold Add: General overheads Total cost (B) Profit (A-B) 15,15,000 4,27,500 19,42,500 15,00,000 28,50,000 15,15,000 58,65,000 (19,42,500) 39,22,500 47,25,000 39,22,500 1,25,000 40,47,500 6,77,500 (c) In the books of Ujju Enterprise Debtors Ledger Adjustment Account in the General Ledger 2013 Oct. 1 To Balance b/d Oct. 1 To General Ledger Adj. to A/c: Dec.31 Sales (Refer W.N.) Bills Receivables dishonoured The Institute of Chartered Accountants of India Rs. 2013 40,000 Oct. 1 to By General Ledger Dec. 31 Adj. A/c: Collection from debtors-bank [60% of 1,35,000 (Rs.40,000 + 5,000 Rs.1,35,000)] Discount allowed Bills receivables Bad debts (Rs.2,500 + Rs.3,000) By Balance c/d 1,80,000 Rs. 1,05,000 10,000 20,000 5,500 39,500 1,80,000 Note: No entries are to be made: (a) For Rs. 7,000 realised against bad debts written off in earlier years, and (b) For provision of Rs. 6,000 made for doubtful debts. Working Note: Calculation of credit sales : Total trade sales (2,20,000 10,000) 100 Less: Cash sales 2,10,000 (180 + 100 ) Credit sales Rs. 2,10,000 (75,000) 1,35,000 (d) The decision of making provision for non-moving inventories on the basis of technical evaluation does not amount to change in accounting policy. Accounting policy of a company may require that provision for non-moving inventories should be made. The method of estimating the amount of provision may be changed in case a more prudent estimate can be made. In the given case, considering the total value of inventory, the change in the amount of required provision of non-moving inventory from Rs. 3.5 lakhs to Rs. 2.5 lakhs is also not material. The disclosure can be made for such change in the following lines by way of notes to the accounts in the annual accounts of ABC Ltd. for the year 2012-13: The company has provided for non-moving inventorys on the basis of technical evaluation unlike preceding years. Had the same method been followed as in the previous year, the profit for the year and the corresponding effect on the year end net assets would have been lower by Rs. 1 lakh. 2. In the books of Ruk Ruk Maan Trading & Profit & Loss Account for the year ended 31st March, 2014 Particulars To Opening stock To Purchases: Cash Credit (W.N. 2) To Gross profit c/d Rs. Particulars 2,45,000 By Sales: Cash 6,15,000 Credit (W.N.3) 15,00,000 By Closing stock 6,80,000 30,40,000 The Institute of Chartered Accountants of India Rs. 16,20,000 11,00,000 3,20,000 30,40,000 To To To To To Salaries (W.N.5) Rent Sundry trade expenses Discount allowed Depreciation on furniture & fixtures To Net profit 2,37,000 By Gross profit b/d 1,32,000 By Discount received 81,000 20,000 26,000 2,16,000 7,12,000 6,80,000 32,000 7,12,000 Balance Sheet as at 31st March, 2014 Liabilities Rs. Assets Capital Opening balance Add: Net profit 5,16,000 2,16,000 7,32,000 Less: Drawings (1,20,000) Current liabilities & provisions: Creditors Bills payable Outstanding salaries Working Notes: 1. To Cash/Bank To Balance c/d 2. Fixed assets Furniture & fixtures Current assets: Stock 6,12,000 Debtors (W.N.4) Cash & Bank (W.N.6) 1,90,000 80,000 20,000 9,02,000 Rs. 2,34,000 3,20,000 1,47,000 2,01,000 9,02,000 Bills Payable Account Rs. 4,30,000 By 80,000 By 5,10,000 Balance b/d Trade creditors (Bal. fig.) Rs. 70,000 4,40,000 5,10,000 Creditors Account To To To To Rs. Rs. Cash/Bank 9,73,000 By Balance b/d 1,35,000 Bills payable A/c 4,40,000 By Credit purchases (Bal. 15,00,000 (W.N.1) fig.) Discount received 32,000 Balance c/d 1,90,000 16,35,000 16,35,000 The Institute of Chartered Accountants of India 3. Calculation of credit sales Rs. Opening stock Add: 2,45,000 Purchases Cash purchases Credit purchases Less: 6,15,000 15,00,000 23,60,000 (3,20,000) Closing Stock Cost of goods sold 20,40,000 Gross profit ratio on sales 25% Total sales (Rs. 20,40,000 Less: 100 ) 75 27,20,000 Cash sales (16,20,000) Credit sales 11,00,000 4. Debtors Account Rs. To Balance b/d To Credit sales (W.N.3) Rs. 1,25,000 By Cash/Bank 11,00,000 By Discount allowed By Balance c/d (Bal. fig.) 12,25,000 5. 21,15,000 10,58,000 20,000 1,47,000 12,25,000 Salaries Rs. Salaries paid during the year 2,36,000 Add: Outstanding salaries as on 31.3.2014 20,000 2,56,000 Less: Outstanding salaries as on 31.03.2015 19,000 2,37,000 6. Cash / Bank Account Rs. To Balance c/d 1,10,000 By To Cash sales 16,20,000 By The Institute of Chartered Accountants of India Rs. Cash purchases 6,15,000 Creditors 9,73,000 To Debtors 10,58,000 By Bills payable 4,30,000 By Drawings 1,20,000 By Salaries 2,36,000 By By Rent Sundry trade expenses 1,32,000 81,000 By Balance b/d 2,01,000 27,88,000 7. 27,88,000 Balance Sheet As at 31st March, 2013 Rs. Creditors Rs. 1,35,000 Furniture & fixtures Bills payable 2,60,000 70,000 Stock Outstanding slaries Capital (Bal. Fig.) 2,45,000 1,25,000 1,10,000 7,40,000 3. 19,000 Debtors 5,16,000 Cash & bank 7,40,000 Journal Entries In the Books of Max Ltd. Particulars Dr. Amount Equity share capital (` 100) A/c Dr. Amount ` 01.04.2013 Cr. ` 15,00,000 15,00,000 To Equity share capital (` 10) A/c (Being sub-division of one share of ` 100 each into 10 shares of ` 10 each by resolution in the general meeting dated ..) Equity share capital A/c To Capital reduction A/c Dr. 7,50,000 7,50,000 (Being reduction of capital by 50% as per the scheme of reconstruction) Capital reduction A/c To Bank A/c (Being payment in cash of 10% of arrear of The Institute of Chartered Accountants of India Dr. 13,500 13,500 preference dividend) Bank A/c (800 debentures x ` 98) To Own debentures A/c Dr. 78,400 76,800 To Capital reduction A/c 1,600 (Being profit on sale of own debentures transferred to capital reduction A/c) 12% Debentures A/c Dr. 1,20,000 To Own debentures A/c 1,15,200 To Capital reduction A/c 4,800 (Being profit on cancellation of own debentures transferred to capital reduction A/c) 12% Debentures A/c Capital reduction A/c Dr. Dr. 2,80,000 20,000 To Machinery A/c 3,00,000 (Being machinery taken up by debentureholders for ` 2,80,000) Trade payables A/c Capital reduction A/c Dr. Dr. 65,000 29,000 To Trade receivables A/c 61,000 To Inventory A/c (Being assets and liabilities revalued) Capital reduction A/c To Goodwill A/c 33,000 Dr. 4,33,000 20,000 To Profit and Loss A/c (Being Goodwill and Profit & loss (Dr.) balance written off) Capital reduction A/c 4,13,000 Dr. 15,000 To Bank A/c (Being penalty paid for avoidance of capital commitments) Capital reduction A/c To Capital reserve A/c (Being the balance of capital reduction account transferred to capital reserve account) The Institute of Chartered Accountants of India 15,000 Dr. 2,45,900 2,45,900 4. (a) In the books of Mr. Mishra Investment Account for the year ended 31st Dec. 2012 (Scrip: Equity Shares of Fillco Ltd.) Date Particulars Nominal Value (Rs.) 1.5.12 To Bank A/c To Bonus shares 2,000 31.12.12 To Profit & loss A/c Particulars (Rs.) 8,000 31.10.12 Cost Date 42,080 30.11.12 (Rs.) By Bank A/c 2,000 11,400 By Balance c/d 8,000 33,664 45,064 2,984 10,000 Cost 10,000 31.12.12 Nominal Value (Rs.) 45,064 Working Notes: (i) (ii) Cost of equity shares purchased on 1.5.2012 = 800 Rs. 50 + 5% of Rs. 40,000 + .002 of Rs. 40,000 = Rs. 42,080. Sale proceeds of equity shares sold on 30.11.2012 = 200 Rs. 60 5% of Rs. 12,000 = Rs. 11,400 (iii) Profit on sale of bonus shares on 30.11.2012 = Sales proceeds Average cost Sales proceeds = Rs. 11,400 Average cost = Rs. 42,080 x 2,000 10,000 = Rs. 8,416 Profit = Rs. 11,400 Rs. 8,416 = Rs. 2,984 (iv) Valuation of equity shares on 31st Dec., 2012 Cost = (Rs. 42,080/10,000 x 8,000) = Rs. 33,664 Market Value = 800 Rs. 60 = Rs. 48,000 Closing balance has been valued at Rs. 33,664 being lower than the market value (b) Income and Expenditure Account for the year ended 31st March, 2014 Expenditure To Salaries (W.N.1) To Rent (W.N.2) To Printing and stationery (W.N.3) The Institute of Chartered Accountants of India Rs. Income Rs. 2,52,000 By Subscription (W.N.6) 4,92,800 on 8% 72,000 By Interest 8,000 Government 3,845 bonds (W.N.5) To Conveyance 10,600 By Bank interest on Scooter To Depreciation 5,000 (W.N.4) To Surplus i.e. excess of income over expenditure 1,57,515 5,00,960 160 5,00,960 Working Notes: 1. 2. 3. 4. 5. 6. Salaries paid Less: Salary paid in advance for April, 2014 Salaries for the year Rent paid Add: Outstanding rent as on 31.3.2014 Less: Outstanding rent as on 31.3.2013 Rent for the year 2013-2014 Printing and stationery Add: Stock as on 31.3.2013 Less: Stock as on 31.3.2014 Printing and stationery consumed during the year 2013-2014 20 6 Depreciation on scooter = Rs. 50,000 = sRs. 5,000 100 12 Interest on Government bonds received Add: Interest due but not received Interest income for the year 2013-2014 Subscription received Add: Accrued subscription as on 31.3.2014 Less: Accrued subscription as on 31.3.2013 Unearned subscription for April, 2014 Income for the year 5. Rs. 2,58,000 (6,000) 2,52,000 71,500 6,000 77,500 (5,500) 72,000 3,870 340 4,210 (365) 3,845 4,000 4,000 8,000 4,94,700 12,800 5,07,500 14,000 700 (14,700) 4,92,800 (a) Calculation of amount of claim Value of stock as on 8th July, 2014 (Refer W.N.) Less: Value of stock remaining unaffected by fire The Institute of Chartered Accountants of India Rs. 2,03,000 Rs. 16,00,000 Agreed value of damaged goods Loss of stock 1,97,000 (4,00,000) 12,00,000 Applying average clause: Amount of claim = = Amount of policy Stock on the date of fire Loss of stock ` 10,00,000 12,00,000 ` 16,00,000 = Rs. 7,50,000 Working Note: Memorandum Trading Account for the period from 1st April, 2014 to 8th July, 2014 Rs. To Opening Stock Rs. 15,72,000 By Sales 52,60,000 To Purchases 37,10,000 By Closing Stock (Bal.Fig.) To Gross Profit (30% of sales) 15,78,000 16,00,000 68,60,000 68,60,000 (b) Shreya (P) Limited Statement of Profit and Loss for 15 months ended 31st March, 2014 Pre. inc. (5 months) (Rs.) Post inc. (10 months) (Rs.) Sales(W.N.1) 3,00,000 16,80,000 Less: Cost of sales Discount to dealers 1,80,000 7,000 10,08,000 39,200 - 60,000 Salaries (W.N.2) 18,750 71,250 Rent (W.N.3) 15,000 1,20,000 Interest (W.N.4) 30,000 75,000 Depreciation Office expenses 10,000 35,000 20,000 70,000 - 15,000 Directors remuneration Preliminary expenses The Institute of Chartered Accountants of India Sales promotion expenses 5,000 (750) Net profit/(loss) 28,000 1,73,550 Treatment of pre-incorporation loss: Pre-incorporation loss may, either be considered as a reduction from any capital reserve accruing in relation to the transaction or be treated as goodwill. Working Notes: 1. Calculation of sales ratio: Let the average sales per month in pre-incorporation period be x Average Sales (Pre-incorporation) =xX5 = 5x Sales (Post incorporation) from June to December, 2013 = 2 x X 7 = 17.5x From January to March, 2014 = 3 x X 3 = 10.5x Total Sales 28.0x Sales ratio of pre-incorporation & post incorporation is 5x : 28x or 5 : 28 2. Calculation of ratio for salaries Let the average salary be x Pre-incorporation salary = xX5 = 5x Post incorporation salary June, 2013 = July, 2013 to March, 2014 x =xX9X2 = 18x 19x Ratio is 5 : 19 3. Rs. Calculation of Rent Total rent 1,35,000 Less: Additional rent for 9 months @ Rs. 10,000 p.m. (90,000) Rent of old premises apportioned in time ratio 45,000 Apportionment Old premises rent Pre Inc. Post Inc. 15,000 30,000 Additional Rent 90,000 15,000 The Institute of Chartered Accountants of India 1,20,000 4. Calculation of interest Pre-incorporation period from January, 2013 to May, 2013 6,00,000 12 5 = 100 12 Rs. 30,000 Post incorporation period from June, 2013 to March, 2014 9,00,000 10 10 = 100 12 Rs. 75,000 Rs. 1,05,000 6. In the books of Lotus Ltd. Cash Flow Statement for the year ending 31st March, 2014 Rs. I Cash flow from Operating Activities Net Profit before tax for the year (W.N.1) Add: Depreciation on machinery (W.N.2) 1,35,000 55,000 Depreciation on land & building Operating profit before change in working capital 20,000 2,10,000 Add: Decrease in stock Less: Increase in sundry debtors Less: Decrease in sundry creditors Cash generated from Operations Less: Income tax paid (W.N.3) II 20,000 (20,000) (1,00,000) 1,10,000 (45,000) Net cash generated from operating activities Cash flow from Investing Activities Purchase of machinery (2,25,000 1,00,000) Sale of investment (W.N. 4) III Rs. 65,000 (1,25,000) 60,000 Net cash used in investing activities Cash flow from Financing Activities Issue of equity shares (2,50,000-1,00,000) Repayment of long term loan (65,000) 1,50,000 (1,00,000) Net cash generated from financing activities 50,000 Net increase in cash and cash equivalents 50,000 The Institute of Chartered Accountants of India Cash and cash equivalents at the beginning of the year (2,00,000 + 3,00,000) Cash and cash equivalents at the end of the year (1,40,000+4,10,000) 5,00,000 5,50,000 Working Notes: 1. Calculation of Net Profit before tax Rs. Increase in Profit & Loss (Cr.) balance 80,000 Add: Provision for taxation made during the year 2. Calculation of Depreciation charged during the year on Machinery account Particulars Amount Particulars (Rs.) 7,50,000 By Depreciation (Bal.fig.) 1,25,000 By Balance c/d 1,00,000 9,75,000 To Balance b/d To Bank To Equity share capital 3. 55,000 1,35,000 Amount (Rs.) 55,000 9,20,000 9,75,000 Calculation of tax paid during the year Provision for Taxation A/c Particulars Amount (Rs.) Particulars To Cash (Bal.fig.) To Balance c/d 4. 45,000 60,000 1,05,000 By Balance b/d By Profit and Loss A/c Amount (Rs.) 50,000 55,000 1,05,000 Calculation of sales value of investment sold Investment A/c Particulars To Balance b/d To Capital reserve (Profit on sale of investments) The Institute of Chartered Accountants of India (Rs.) Particulars 1,00,000 By Bank A/c (Bal.fig.) 10,000 1,10,000 By Balance c/d (Rs.) 60,000 50,000 1,10,000 7. (a) Calculation of number of days from the base date Due date Amount (Rs.) No. of days from 5.3.13 Product 5.3.2013 5,000 0 0 7.4.2013 7,000 33 2,31,000 17.7.2013 6,000 134 8,04,000 14.9.2013 8,000 193 15,44,000 26,000 Average due date = Base date + = 5.3.2013 + 25,79,000 Sum of Product Sum of Amount 25,79,000 = 99 days 26,000 The date of the cheque will be 99 days from the base date i.e.12.6.2013. So on 12th June, 2013, all bills will be settled by a single cheque payment. (b) Following are the advantages of outsourcing the accounting functions: (i) The organisation that outsources its accounting function is able to save time to concentrate on the core area of business activity. (ii) The organisation is able to utilise the expertise of the third party in undertaking the accounting work. (iii) Storage and maintenance of the data is in the hand of professional people. (iv) The organisation is not bothered about people leaving the organisation in key accounting positions. (v) The proposition is proving to be economically more sensible. (c) According to AS 6, Depreciation Accounting , depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable assets arising from use, effluxion of time or obsolescence through technology and market changes. Accordingly, depreciation may arise even when the asset is not used in the current year but was ready for use in that year. The need for using the stand by bus may not have arisen during the year but that does not imply that the useful life of the bus has not been affected. Therefore, nonprovision of depreciation on the ground that the bus was not used during the year is not tenable. Hence, depreciation should be charged on the Spare Bus also. (d) As per para 12.1 of AS 10 Accounting for Fixed Assets , expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g., an increase in capacity. The Institute of Chartered Accountants of India Hence, in the given case, Repairs amounting Rs. 5 lakhs and Partial replacement of roof tiles should be charged to profit and loss statement. Rs. 10 lakhs incurred for substantial improvement to the electrical writing system which will increase efficiency should be capitalized. (e) 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. A Ltd. should record the sale and recognize the profit of Rs. 20 lakhs in its profit and loss account. The building should be eliminated from the balance sheet. The Institute of Chartered Accountants of India

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