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CA IPCC : Sample / Mock Test Paper (with Model Answers) - ACCOUNTING Mar 2017

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Test Series: March, 2017 MOCK TEST PAPER 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) Prepare Cash Flow from Investing Activities of M/s. Creative Furnishings Limited for the year ended 31-3-2015. Particulars Rs. Plant acquired by the issue of 8% Debentures Claim received for loss of plant in fire 1,56,000 49,600 Unsecured loans given to subsidiaries 4,85,000 Interest on loan received from subsidiary companies 82,500 Pre-acquisition dividend received on investment made 62,400 Debenture interest paid 1,16,000 Term loan repaid 4,25,000 Interest received on investment 68,000 (TDS of Rs. 8,200 was deducted on the above interest) Book value of plant sold (loss incurred Rs. 9,600) 84,000 (b) Queen Ltd. sells beer to customers; some of the customers consume the beer in the bars run by Queen Limited. While leaving the bars, the consumers leave the empty bottles in the bars and the company takes possession of these empty bottles. The company has laid down a detailed internal record procedure for accounting for these empty bottles which are sol d by the company by calling for tenders. Keeping this in view: (i) Decide whether the inventory of empty bottles is an asset of the company; (ii) If so, whether the inventory of empty bottles existing as on the date of Balance Sheet is to be considered as inventories of the company and valued as per AS 2 or to be treated as scrap and shown at realizable value with corresponding credit to Other Income ? (c) Entity A purchased an asset on 1 st January 2013 for Rs. 1,00,000 and the asset had an estimated useful life of 10 years and a residual value of nil. On 1st January 2017, the directors review the estimated life and decide that the asset will probably be useful for a further 4 years. Calculate the amount of depreciation for each year, if company charges depreciation on Straight Line basis in line with AS 10 on Property, Plant and Equipment. (d) In the books of M/s Prashant Ltd., closing inventory as on 31.03.2015 amounts to Rs. 1,63,000 (on the basis of FIFO method). The company decides to change from FIFO method to weighted average method for ascertaining the cost of inventory from the year 2014-15. On the basis of weighted average 1 The Institute of Chartered Accountants of India method, closing inventory as on 31.03.2015 amounts to Rs. 1,47,000. Realisable value of the inventory as on 31.03.2015 amounts to ` 1,95,000. Discuss disclosure requirement of change in accounting policy as per AS-1. (5 x 4 = 20 Marks) 2. On 31st December 2016, the Balance Sheet of A, B, and C who were sharing profits and losses in proportion to their capital stood as follows: Liabilities Rs. Assets Rs. Rs. Creditors Employees provident fund 20,000 Cash at bank 1,600 Debtors A s capital A/c 72,000 Less: Provision B s capital A/c 48,000 Inventory 18,000 C s capital A/c 24,000 Machinery 48,000 Contingency reserve 30,000 Land & building Workmen compensation reserve 16,000 20,000 400 19,600 1,00,000 6,000 2,01,600 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. (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 AandC 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 Aand 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) 3. The shareholders of Lili Ltd. decided on a corporate restructuring exercise necessitated because of economic recession. From the given summarised balance sheet as on 31-3-2017 and the information supplied, you are required to prepare (i) Journal entries reflecting the scheme of reconstruction, (ii) Capital reduction account, (iii) Cash account in the books of Lili Ltd. Summarised Balance Sheet of LiliLtd. as on 31.3.2017 Liabilities Rs. Assets Share Capital Fixed Assets 30,000 Equity shares of Rs.10 each 3,00,000 Trademarks and Patents 40,000 8% Cumulative Preference shares Rs.10 each 4,00,000 Goodwill at cost 2 The Institute of Chartered Accountants of India Rs. 1,10,000 36,100 Freehold Land Freehold Premises 10,000 Plant and Equipment Reserves and Surplus Securities Premium Account Profit and Loss Account Secured Borrowings 9% Debentures (Rs.100) Accrued Interest (1,38,400) Investment market) 1,20,000 5,400 Current liabilities Trade payables 1,20,000 2,44,000 3,20,000 (marked to 64,000 Current Assets 1,25,400 Inventories: Raw materials and packing 1,20,000 materials 60,000 Vat payable 50,000 Finished goods Temporary bank overdraft 16,000 2,23,100 Trade receivables 10,90,100 76,000 1,20,000 10,90,100 Note: Preference dividends are in arrears for 4 years. The scheme of reconstruction that received the permission of the Court was on the following lines: (1) The authorized capital of the Company to be re-fixed at Rs.10 lakhs (preference capital ofRs.3 lakhs and equity capital ofRs.7 lakhs). Both classes of shares are of Rs.10 each. (2) The preference shares are to be reduced to Rs.5 each and equity shares reduced by Rs.3 per share. Post reduction, both classes of shares to be re-consolidated intoRs.10 shares. (3) Trade Investments are to be liquidated in open market. (4) One fresh equity shares of Rs.10 to be issued for every Rs.40 of preference dividends in arrears (ignore taxation). (5) Expenses for the scheme were Rs. 10,000. (6) The debenture holders took over freehold land at Rs.2,10,000 and settled the balance after adjusting their dues. (7) Unprovided contingent liabilities were settled at Rs. 54,000 and a pending insurance claim receivable settled at Rs. 12,500. (8) The intangible assets were all to be written off along with Rs. 10,000 worth obsolete packing material and 10% of the receivables. (9) Remaining cash available as a result of the above transactions is to be utilized to pay off the bank overdraft to that extent. (10) The Equity shareholders agree that they will bring in necessary cash to liquidate the balance outstanding on the overdraft account by subscribing the fresh shares. The equity shares will be issued at par for this purpose. (16 Marks) 4. The Income and Expenditure Account of Happy Sports Club for the year ended 31st March, 2017 was as follows: Expenditure To Salaries To Printing and Stationery Amount (Rs.) Income 1,20,000 By Subscriptions 6,000 By Entrance Fees Amount (Rs.) 1,60,000 10,000 To Rent 12,000 By Contribution for Annual dinner 20,000 To Repairs 10,000 By Profit on Annual Sports meet 20,000 3 The Institute of Chartered Accountants of India To Sundry Expenses To Annual Dinner Expenses 8,000 30,000 To Interest to Bank 6,000 To Depreciation on Sports equipment To Excess of Income over Expenditure 6,000 12,000 2,10,000 2,10,000 The above account had been prepared after the following adjustments: Rs. Subscriptions outstanding on 31.03.2016 12,000 Subscriptions received in advance on 31.03.2016 9,000 Subscriptions received in advance on 31.03.2017 Subscriptions outstanding on 31.03.2017 5,400 15,000 Salaries outstanding at the beginning and at the end of the financial year were Rs. 8,000 and Rs. 10,000 respectively. Sundry expenses included prepaid insurance expenses of Rs. 1,200. The Club owned a freehold ground valued Rs. 2,00,000. The Club has sports equipment on 01.04.2016 valued at Rs. 52,000. At the end of the year, after depreciation, the sports equipment amounted to Rs. 54,000. The Club raised a loan of Rs. 40,000 from a bank on 01.01.2016, which was unpaid till 31.03.2017. On 31.03.2017, cash in hand was Rs. 32,000. Prepare Receipts and Payments account of the Club for the year ended 31st March, 2017 and Balance Sheet as on that date. (16 Marks) 5. (a) ABC Ltd. took over a running business with effect from 1 st April, 2016. The company was incorporated on 1 st August, 2016. The following summarized Profit and Loss Account has been prepared for the year ended 31.3.2017: Rs. To Salaries 48,000 By Gross profit To Stationery To Travelling expenses 16,800 To Advertisement 16,000 To Miscellaneous trade expenses 37,800 To To Rent (office buildings) Electricity charges 26,400 4,200 To To Director s fee Bad debts 11,200 3,200 To To Commission to selling agents Tax Audit fee 16,000 6,000 To To Debenture interest Interest paid to vendor To To Selling expenses Depreciation on fixed assets 4,800 3,000 4,200 25,200 9,600 4 The Institute of Chartered Accountants of India 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 Rs.19,20,000 arose evenly upto the date of 30.9.2016. Thereafter they spurted to record an increase of two-third during the rest of the year. (b) Rent of office building was paid @ Rs. 2,000 per month upto September, 2016 and thereafter it was increased by Rs.400 per month. (c) Travelling expenses include Rs. 4,800 towards sales promotion. (d) Depreciation include Rs.600 for assets acquired in the post incorporation period. (e) Purchase consideration was discharged by the company on 30 th September, 2016 by issuing equity shares of Rs.10 each. Prepare Statement showing calculation of profits and allocation of expenses between pre and post incorporation periods. (b) In 2015, 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, 2016, 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, 2017 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, 2016 to 1st March, 2017. (10 +6= 16 Marks) 6. (a) The following information is extracted from a set of books of Mr. Laxminarayan for the year ended 31st December, 2016 Rs. 11,26,000 6,44,000 15,200 3,68,400 2,40,000 33,600 3,60,000 3,20,000 8,400 24,000 21,600 Sales Purchases Returns outward Cash received from debtors Bills payable accepted Returns inward Cash paid to creditors Bills receivable received Discounts received Bad debts written off Discount allowed The total of the sales ledger balances on 1 st Jan, 2016 was Rs. 6,41,600 and that of the purchases ledger balances on the same date was Rs. 3,72,800. Prepare Sales Ledger and Purchases Ledger Adjustment Accounts in the General Ledger from the above information. (b) The premises of Vani Ltd. caught fire on 22 nd January 2015, and the stock was damaged. The firm makes account up to 31st March each year. On 31st March, 2014 the stock at cost was Rs.13,27,200 as against Rs. 9,62,200 on 31 st March, 2013. 5 The Institute of Chartered Accountants of India Purchases from 1 st April, 2013 to the date of fire were Rs.34,82,700 as against Rs.45,25,000 for the full year 2013-14 and the corresponding sales figures were Rs.49,17,000 and Rs.52,00,000 respectively. You are given the following further information: (i) In July, 2014, goods costing Rs.1,00,000 were given away for advertising purposes, no entries being made in the books. (ii) During 2014-15, a clerk had misappropriated unrecorded cash sales. It is estimated that the defalcation averaged Rs.2,000 per week from 1 st April, 2014 until the clerk was dismissed on 18 th August, 2014. (iii) The rate of gross profit is constant. From the above information calculate the stock in hand on the date of fire. (8 + 8 = 16 Marks) 7 Answer any four of the following: (a) What are the advantages of outsourcing the accounting functions? Explain in brief. (b) M accepted the following bills drawn by S: On 8th March, 2016, Rs. 4,000 for 4 months. On 16th March, 2016, Rs.5,000 for 3 months. On 7th April, 2016, Rs. 6,000 for 5 months. On 17th May, 2016, Rs. 5,000 for 3 months. He wants to pay all the bills on a single day. Find out this date. (c) Full Ltd., has signed at 31 st Dec., 2016, the Balance Sheet date, a contract where the total revenue is estimated at Rs.15 crores and total cost is estimated at Rs.20 crores. No work began on the contract. Is contractor required to give any accounting effect f or the year ended 31st December, 2016in his accounts? (d) The Board of Directors of X Ltd. decided on 31.3.2015 to increase sale price of certain items of goods sold retrospectively from 1 st January, 2015. As a result of this decision the company has to receiveRs.5 lakhs from its customers in respect of sales made from 1.1.2015 to 31.3.2015. But the Company s Accountant was reluctant to make-up his mind. You are asked to offer your suggestion. (e) Bhavya Ltd. constructed a fixed asset and incurred the following expenses on its construction: Rs. Materials 16,00,000 Direct Expenses 3,00,000 Total Direct Labour 6,00,000 (1/15th of the total labour time was chargeable to the construction) Total Office & Administrative Expenses 9,00,000 (4% of office and administrative expenses are specifically attributable to construction of a fixed asset) Depreciation on assets used for the construction of this asset Calculate the cost of the fixed asset. (4 x 4 = 16 Marks) 6 The Institute of Chartered Accountants of India 15,000 Test Series: March, 2017 MOCK TEST PAPER INTERMEDIATE (IPC): GROUP I PAPER 1: ACCOUNTING SUGGESTED ANSWERS/HINTS 1. (a) Cash Flow Statement from Investing Activities of M/s Creative Furnishings Limited for the year ended 31-03-2015 Cash generated from investing activities Interest on loan received Pre-acquisition dividend received on investment made Unsecured loans given to subsidiaries Rs. 82,500 62,400 (4,85,000) Interest received on investments (gross value) TDS deducted on interest 76,200 (8,200) Sale of plant Cash used in investing activities (before extra ordinary item) Extraordinary claim received for loss of plant 74,400 Net cash used in investing activities (after extra ordinary item) Rs. (1,97,700) 49,600 (1,48,100) Note: 1. Debenture interest paid and Term Loan repaid are financing activities and therefore not considered for preparing cash flow from investing activities. 2. Plant acquired by issue of 8% debentures does not amount to cash outflow, hence also not considered in the above cash flow statement. (b) (i) Tangible objects or intangible rights carrying probable future benefits, owned by an enterprise are called assets. Queen Ltd. sells these empty bottles by calling tenders. It means further benefits are accrued on its sale. Therefore, empty bottles are assets for the company. (ii) As per AS 2 Valuation of Inventories , inventories are assets held for sale in the ordinary course of business. Inventory of empty bottles existing on the Balance Sheet date is the inventory and Queen Ltd. has detailed controlled recording and accounting procedure which duly signify its materiality. Hence inventory of empty bottles cannot be considered as scrap and should be valued as inventory in accordance with AS 2. (c) The entity has charged depreciation using the straight-line method at Rs. 10,000 per annum i.e. (1,00,000/10 years). On 1st January 2017, the asset's net book value is [1,00,000 (10,000 x 4)] Rs. 60,000. The remaining useful life is 4 years. The company should amend the annual provision for depreciation to charge the unamortized cost over the revised remaining life of four years. Consequently, it should charge depreciation for the next 4 years at Rs. 15,000 per annum i.e. (60,000 / 4 years). Note: Depreciation is recognised even if the Fair value of the Asset exceeds its Carrying Amount. Repair and maintenance of an asset do not negate the need to depreciate it. 1 The Institute of Chartered Accountants of India (d) As per para 22 of AS 1 Disclosure of Accounting Policies , any change in an accounting policy which has a material effect should be disclosed in the financial statements. The amount by which any item in the financial statements is affected by such change should also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact should be indicated. Thus Prashant Ltd. should disclose the change in valuation method of inventory and its effect on financial statements. The company may disclose the change in accounting policy in the following manner: The company values its inventory at lower of cost and net realisable value. Since net realisable value of all items of inventory in the current year was greater than respective costs, the company valued its inventory at cost. In the present year i.e. 2014-15, the company has changed to weighted average method, which better reflects the consumption pattern of inventory, for ascertaining inventory costs from the earlier practice of using FIFO for the purpose. The change in policy has reduced current profit and value of inventory by Rs. 16,000. 2. Revaluation Account Particulars Rs. Particulars Rs. To Provision for doubtful debts 600 By Unexpired insurance To Machinery 2,400 By Land and building To Outstanding repairs To Profit t/f to: 3,000 A s capital A/c B s capital A/c 3,000 2,000 C s capital A/c 1,000 2,000 10,000 12,000 12,000 Capital Accounts of Partners Particulars To B s capital A/c (for goodwill) (W. N 2) To Bank A/c To B s loan A/c To Balance c/d A B Rs. Rs. 9,000 - - 6,000 C Particulars A B C Rs. Rs. Rs. 72,000 3,000 48,000 2,000 24,000 1,000 - 9,000 - - 3,000 - By Contingency Reserve 15,000 10,000 5,000 By Work Compensation Reserve 3,000 2,000 1,000 6,000 - 2,000 99,000 74,000 33,000 Rs. 3,000 By Balance b/d By Revaluation A/c - By A s capital - 68,000 - A/c (for goodwill) 90,000 - 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 2 The Institute of Chartered Accountants of India A/c Balance Sheet of A and C at 31st December 2016 Liabilities Rs. Assets Creditors Rs. Rs. 20,000 Cash at bank (W.N 1) Employees Provident Fund 18,000 1,600 Debtors 20,000 Liability for repairs B s loan A/c 3,000 Less: Provision 68,000 Stock A s capital A/c C s capital A/c 90,000 Machinery 30,000 (48,000- 2,400) (1,000) 19,000 18,000 45,600 Land & building (1,00,000+10,000) 1,10,000 Unexpired insurance 2,000 2,12,600 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 2. Rs. Particulars 16,000 By B s capital A/c 6,000 By Balance c/d 2,000 24,000 Rs. 6,000 18,000 24,000 Adjustment of goodwill New ratio Old ratio Gaining ratio A 3/4 3/6 18 12 6 24 24 C 1/4 1/6 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 3. (i) In the books of Lili Ltd. Journal Entries 2017 1 March 31 Equity Share Capital A/c (Rs.10) Dr. Dr. Cr. Rs. Rs. 3,00,000 To Capital Reduction A/c 90,000 To Equity Share Capital A/c (Rs.7) 2,10,000 (Being reduction of equity shares of Rs.10 each to shares of Rs. 7 each as per Reconstruction Scheme dated...) 2. 8% Cum. Preference Share Capital A/c (Rs. 10) To Capital Reduction A/c 3 The Institute of Chartered Accountants of India Dr. 4,00,000 2,00,000 To Preference Share Capital A/c (Rs. 5) 2,00,000 (Being reduction of preference shares of Rs.10 each to shares of Rs.5 each as per reconstruction scheme) 3. 4. 5. Equity Share Capital A/c (30,000 x Rs.7) Preference Share Capital A/c (40,000 x Rs.5) To Equity Share Capital A/c (21,000 x Rs. 10) To Preference Share Capital A/c (20,000 x Rs.10) (Being post reduction, both classes of shares reconsolidated into Rs.10 each) s Dr. Dr. Cash Account To Trade Investments (Being trade investments liquidated in theopen market) Dr. Capital Reduction Account Dr. 2,10,000 2,00,000 2,10,000 2,00,000 64,000 64,000 32,000 To Equity Share Capital Account 32,000 (Being arrears of preference dividends of 4 years satisfied by the issue of 3,200 equity shares of Rs.10 each) 6. Capital Reduction Account Dr. 10,000 To Cash Account 10,000 (Being expenses of reconstruction scheme paid in cash) 7. 9% Debentures Account Dr. 1,20,000 Accrued Interest Account Dr. 5,400 To Debenture holders Account 1,25,400 (Being amount due to debenture holders) 8. Debenture holders Account Dr. 1,25,400 Cash Account (2,10,000 1,25,400) Dr. 84,600 To Freehold Land 1,20,000 To Capital Reduction Account (2,10,000 1,20,000) 90,000 (Being Debenture holders took over freehold land at Rs.2,10,000 and settled the balance) 9. Capital Reduction Account Dr. 54,000 To Cash Account 54,000 (Being contingent liability of Rs. 54,000 paid) 10. Cash Account Dr. 12,500 To Capital Reduction Account 12,500 (Being pending insurance claim received) 11. Capital Reduction Account Dr. To Trademarks and Patents 1,68,100 1,10,000 To Goodwill 36,100 To Raw materials & Packing materials To Trade receivables 10,000 12,000 4 The Institute of Chartered Accountants of India (Being intangible assets written off along with raw materials and packing materials worth Rs. 10,000 and 10% of trade receivables) 12. Cash Account Dr. 1,26,000 To Equity Share Capital Account (Being 12,600 shareholders) 13. shares issued 1,26,000 to existing Bank Overdraft Account Dr. 2,23,100 To Cash Account 2,23,100 (Being cash balance utilized to pay off bank overdraft) 14. Capital Reduction Account Dr. 1,28,400 To Capital reserve Account 1,28,400 (Being balance of capital reduction account transferred to capital reserve account) (ii) Capital Reduction Account Particulars Rs. Particulars Rs. To To Equity share capital Cash (contingent 32,000 By Preference share capital 54,000 By Equity share capital 90,000 To liability settled) Trademarks and To To Patents Goodwill Raw material and 1,10,000 36,100 By By Freehold land Cash (insurance claim) 90,000 12,500 Packing materials 10,000 To To Trade receivables Cash account 12,000 10,000 To Capital reserve account 1,28,400 3,92,500 (iii) 2,00,000 3,92,500 Cash Account Particulars Rs. Particulars Rs. Investment 9% Debenture holders 64,000 By Capital liability) (2,10,000-1,25,400) 84,600 By Expenses To Capital reduction (insurance claim) 12,500 By Temporary bank overdraft - From available cash (64,000+84,600+12,500 -54,000-10,000) 97,100 To Equity share capital 12,600 shares @ Rs.10 each To To (Contingent - From proceeds of equity share capital (2,23,100 97,100) 1,26,000 1,26,000 2,87,100 54,000 10,000 2,23,100 2,87,100 5 The Institute of Chartered Accountants of India reduction Note: Shares issued to existing equity shareholders for bringing cash for payment of balance of bank overdraft =Rs.2,23,100 Rs. 97,100 = Rs.1,26,000 4. Happy Sports Club To To To To To Receipt and Payments Account for the year ended 31 st March, 2017 Receipts Amount Payments (Rs.) Balance b/d (Bal. Fig.) 27,800 By Salaries: Subscription: for 2015-2016 for 2015-2016 12,000 for 2016-2017 for 2016-2017 (W.N.3) 1,36,000 By Printing and Stationery for 2017-2018 5,400 By Rent Entrance Fees 10,000 By Repairs Contribution for Annual 20,000 By Sundry Expenses Dinner (8,000 + 1,200) Profit on Annual Sports 20,000 By Annual Dinner Expenses Meet By Interest to Bank By Sports Equipment (W.N.2) By Balance c/d 2,31,200 Liabilities Balance Sheet as at 31st March, 2017 Amount Amount Assets (Rs.) (Rs.) Fund 2,34,800 Freehold Ground Capital (W.N.1) Add: Excess of income over expenditure Sports Equipment Add: Additions during the year (Bal. Fig.) 12,000 Bank Loan Outstanding Salaries Subscription Advance in 2,46,800 40,000 Less: Depreciation 10,000 Subscription in Arrear 5,400 Prepaid Insurance Cash in hand 3,02,200 Amount (Rs.) Amount (Rs.) 8,000 1,10,000 6,000 12,000 10,000 9,200 30,000 6,000 8,000 32,000 2,31,200 Amount (Rs.) 2,00,000 52,000 8,000 60,000 (6,000) 54,000 15,000 1,200 32,000 3,02,200 Working Notes: (1) Opening Balance of Capital Fund: Balance Sheet as at 31 st March, 2016 Rs. Capital Fund (Bal. Fig.) Bank Loan Outstanding Salaries 2,34,800 Freehold Ground 40,000 Sports Equipment 8,000 Subscription in Arrear It is assumed that the profit on annual sports meet has been realized in cash. 6 The Institute of Chartered Accountants of India Rs. 2,00,000 52,000 12,000 Subscription in Advance 9,000 Cash in hand 27,800 2,91,800 (2) 2,91,800 Sports Equipment Account Rs. To Balance b/d To Bank Account Rs. 52,000 By 8,000 By Depreciation Account Balance c/d 54,000 60,000 (3) 6,000 60,000 Subscription received during 2016-17 Rs. Rs. Subscription for 2016-17 1,60,000 Less:Subscription outstanding as on 31.3.17 15,000 Less:Subscription received in advance as on 31.3.16 9,000 24,000 1,36,000 5. (a) Statement showing calculation of profits for pre and post incorporation periods for the year ended 31.3.2017 Particulars Pre-incorpo-ration period Post- incorpo-ration period Rs. Rs. Gross profit (1:3) 80,000 2,40,000 Less: Salaries (1:2) Stationery (1:2) 16,000 1,600 32,000 3,200 Advertisement (1:3) 4,000 12,000 Travelling expenses (W.N.3) 4,000 8,000 Sales promotion expenses (W.N.3) 1,200 3,600 12,600 8,000 25,200 18,400 Electricity charges (1:2) Director s fee 1,400 - 2,800 11,200 Bad debts (1:3) Selling agents commission (1:3) 800 4,000 2,400 12,000 Audit fee (1:3) Debenture interest 1,500 - 4,500 3,000 Interest paid to vendor (2:1) (W.N.4) 2,800 1,400 Selling expenses (1:3) 6,300 18,900 3,000 12,800 6,600 - - 74,800 Misc. trade expenses (1:2) Rent (office building) (W.N.2) Depreciation on fixed assets (W.N.5) Capital reserve (Bal.Fig.) Net profit (Bal.Fig.) 7 The Institute of Chartered Accountants of India Working Notes: 1. Time Ratio Pre incorporation period = 1 st April, 2016 to 31st July, 2016 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 1.4.2016 to 30.09.16) be = x Then, sales for 6 months = 6x Monthly sales for next 6 months (i.e. from 1.10.16 to 31.3.2017) = x + Then, sales for next 6 months = 5 2 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,2016& September,2016(Rs. 2,000 x 2) October,2016 to March,2017 (Rs. 2,400 x 6) 4. Rs. 8,000 (pre) 4,000 14,400 18,400 (post) 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 5. Interest paid to vendor till 30 th September, 2016 ` 4,200 Interest for pre-incorporation period 4 6 Interest for post incorporation period i.e. for ` 4,200 August, 2016& September, 2016= 2 6 8 The Institute of Chartered Accountants of India Pre Rs. Post Rs. 4,000 1,200 8,000 3,600 Pre Rs. 2,800 Post Rs. 1,400 6. Depreciation Total depreciation 9,600 Less: Depreciation exclusively for post incorporation period 600 9,000 4 Depreciation for pre-incorporation period 9,000 12 Pre Post Rs. Rs. 600 3,000 8 Depreciation for post incorporation period 9,000 12 6,000 3,000 (b) 6,600 In the books of M/s Kumar Investment Account for the period from 1st December 2016 to 1st March, 2017 (Scrip: 12% Debentures of Royal Ltd.) Date Particular s Nominal Interest Value (Rs.) Cost (Rs.) Date Particulars 1.12.2016 To Bank A/c 10,00,000 20,000 10,00,100 1.03.2017 By Bank A/c (W.N.1) (W.N.2) 1.3.2017 To Profit & loss A/c - Nominal Interest Value (Rs.) 10,00,000 50,000 1.3.2017 By Profit & loss A/c 30,000 10,00,000 50,000 10,00,100 Cost (Rs.) 9,99,400 700 10,00,000 50,000 10,00,100 Working Notes: (i) Cost of 12% debentures purchased on 1.12.2016 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 (ii) Sale proceeds of 12% debentures sold on 1st March, 2017 Sales Price (10,000 Rs.106) 6. = Rs. 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 (a) Sales Ledger Adjustment Account 2016 Jan. 1 Rs. 2016 To Balance b/d June 30 To General ledger 6,41,600 June 30 11,26,000 adjustment A/c- By General ledger adjustment A/cCash Returns inward 9 The Institute of Chartered Accountants of India Rs. 3,68,400 33,600 Sales Bills receivable _______ June 30 3,20,000 Bad debts 24,000 Discounts allowed 21,600 By Balance c/d 10,00,000 17,67,600 17,67,600 Purchases Ledger Adjustment Account 2016 Rs. 2016 June 30 To General ledger adjustment A/c: Cash By Balance b/d June 30 By General ledger adjustment A/c: 15,200 Bills payable 3,72,800 Purchases 6,44,000 2,40,000 8,400 Discounts received To Jan. 1 3,60,000 Returns outward June 30 Rs. Balance c/d 3,93,200 10,16,800 10,16,800 (b) Ascertainment of rate of gross profit for the year 2013-14 Trading A/c for the year ended 31-3-2014 Rs. To Opening stock 9,62,200 By Sales To Purchased 45,25,000 By Closing stock To Gross profit 10,40,000 65,27,200 Rate of gross profit = = Rs. 52,00,000 13,27,200 65,27,200 GP 100 Sales 10,40,000 100 = 20% 52,00,000 Memorandum Trading A/c for the period from 1-4-2014 to 22-01-2015 Rs. To Opening stock Rs. 13,27,000 By Sales To Purchases 34,82,700 Less: Goods used for advertisement (1,00,000) To Gross profit (20% of Rs.49,57,000) Rs. Add: Unrecorded cashsales 33,82,700 By Closing stock Rs. 49,17,000 40,000 49,57,000 7,44,100 9,91,400 57,01,100 Estimated stock in hand on the date of fire= Rs.7,44,100. Working Note: Cash sales defalcated by the Accountant: Defalcation period = 1.4.2014 to 18.8.2014 = 140 days 10 The Institute of Chartered Accountants of India 57,01,100 Since, 140 days / 7 weeks = 20 weeks Therefore, amount of defalcation = 20 weeks Rs. 2,000 = Rs.40,000. 7. (a) 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. (b) Calculation of number of days from base date Transaction date 8.3.2016 16.3.2016 7.4.2016 17.5.2016 Average due date Due date Amount Rs. 4,000 5,000 6,000 5,000 20,000 11.7.2016 19.6.2016 10.9.2016 20.8.2016 = Base date No. of days from Base date (Base date 19.6.2016) 22 0 83 62 Product 88,000 0 4,98,000 3,10,000 8,96,000 Total of Pr oduct Total of Amount = 19.6.2016 + Rs.8,96,000 / Rs.20,000 = 19.6.2016 + 45 days = 3.8.2016 (c) As per para 35 of AS 7 Construction Contracts , when it is probable that total contract cost will exceed total contract revenue, the expected loss should be recognised as an expense immediately. The amount of such loss is determined irrespective of whether or not work has commenced on the contract. Thus, Full Ltd. should recognize loss amounting Rs.5 crores for the year ended 31 st December, 2016. The contract should be reviewed at the end of the each accounting period till completions for additional losses to be incurred, if any. (d) As per para 10 of AS 9 Revenue Recognition , the additional revenue on account of increase in sales price with retrospective effect, as decided by Board of Directors of X Ltd., of Rs. 5 lakhs to be recognised as income for financial year 2014-15, only if the company is able to assess the ultimate collection with reasonable certainty. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. (e) Calculation of cost of fixed asset Rs. Materials Direct expenses 16,00,000 3,00,000 Direct labour (1/15 th of Rs.6,00,000) 40,000 Office and administrative expenses (4% Rs.9,00,000) Depreciation on assets 36,000 15,000 Cost of fixed asset 19,91,000 11 The Institute of Chartered Accountants of India

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