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CA IPCC : Question Paper (with Answers) - ACCOUNTING May 2012

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DISCLAIMER The Suggested Answers hosted on the website do not constitute the basis for evaluation of the students answers in the examination. The answers are prepared by the Faculty of the Board of Studies with a view to assist the students in their education. While due care is taken in preparation of the answers, if any errors or omissions are noticed, the same may be brought to the attention of the Director of Studies. The Council of the Institute is not in any way responsible for the correctness or otherwise of the answers published herein. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Question No. 1 is compulsory Answer any five questions from the remaining six questions. Wherever appropriate, suitable assumption/s should be made and indicated in answer by the candidate. Working notes should form part of the answer. Question 1 (a) M/s Excellent Construction Company Limited under took a contract to construct a building for ` 3 crore on 1st September, 2011. On 31st March, 2012 the company found that it had already spent ` 1 crore 80 lakhs on the construction. Prudent estimate of additional cost for completion was ` 1 crore 40 lakhs. What amount should be charged, to revenue in the final accounts for the year ended on 31st March, 2012, as per the provisions of Accounting Standard 7 "Construction Contracts (Revised)" ? (b) M/s Innovative Garments Manufacturing Company Limited invested in the shares of another company on 1st October, 2011 at a cost of ` 2,50,000. It also earlier purchased Gold of ` 4,00,000 and Silver of ` 2,00,000 on 1st March, 2009. Market value as on 31st March, 2012 of above investments are as follows: ` Shares 2,25,000 Gold 6,00,000 Silver 3,50,000 How above investments will be shown in the books of accounts of M/s Innovative Garments Manufacturing Company Limited for the year ending 31st March, 2012 as per the provisions of Accounting Standard 13 "Accounting for Investments"? (c) MIs Progressive Company Limited has not charged depreciation for the year ended on 31st March, 2012, in respect of a spare bus purchased during the financial year 2011-12 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". Further during the year company made additions to its factory by using its own workforce, at a cost of ` 4,50,000 as wages and materials. The lowest estimate from an outside contractor to carry out the same work was ` 6,00,000. The directors contend that, since they are fully entitled to employ an outside contractor, it is reasonable to debit the Factory Building Account with ` 6,00,000. Comment whether the directors' contention is right in view of the provisions of Accounting Standard 10 "Accounting for Fixed Assets"? (d) Briefly explain the types of Amalgamations? The Institute of Chartered Accountants of India (4 x 5 = 20 Marks) 2 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 Answer (a) Calculation of Estimated Cost of Construction ` in crores Cost of construction incurred till date 1.80 Add: Estimated future cost 1.40 Total estimated cost of construction 3.20 Percentage of completion of contract till date to total estimated cost of construction = ` (1.80/3.20) 100 = 56.25% Proportion of total contract value recognised as revenue as per AS 7 (Revised) = Contract price x percentage of completion = ` 3 crores x 56.25% = ` 1.6875 crores (b) As per AS 13 Accounting for Investments , for investment in shares - if shares are purchased with an intention to hold for short-term period then it will be shown at the realizable value of ` 2,25,000 as on 31st March, 2012. However, if equity shares are acquired with an intention to hold for long term period then it will be shown at cost of ` 2,50,000 in the Balance Sheet of the company. However, provision for diminution shall be made to recognize a decline, if other than temporary, in the value of shares. As per the standard, investment acquired for long term period shall be shown at cost. Gold and silver are generally purchased with an intention to hold it for long term period untill and unless given otherwise. Hence, the investment in Gold and Silver (purchased on 1st March, 2009) shall continue to be shown at cost as on 31st March, 2012 i.e., ` 4,00,000 and ` 2,00,000 respectively, though their realizable values have been increased. (c) According to para no. 3.1 of AS 6, Depreciation Accounting , depreciation is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Accordingly, depreciation may arise even when asset has not been 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, non-provision of depreciation on the ground that the bus was not used during the year is not tenable. As per para no. 10.1 of AS 10, Accounting for Fixed Assets , clearly states that the gross book value of the self constructed fixed asset includes the costs of construction that relate directly to the specific asset and the costs that are attributable to the construction activity in general can be allocated to the specific asset. If any internal profit is there it The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 3 should be eliminated. Saving of ` 1,50,000 on account of using its on work force is an unrealized/ internal profit, which should not be capitalized/recorded as per the standard. Thus, only ` 4,50,000 should be debited to the factory building account and not ` 6,00,000. Hence, the contention of the directors of the company to capitalize ` 6,00,000 as cost of factory building, on the ground that the company is fully entitled to employ an outside contractor is not justifiable. (d) As per AS 14, Accounting for Amalgamations there are two types of amalgamation. In first type of amalgamation there is a genuine pooling not merely of assets and liabilities of the amalgamating companies but also of the shareholders interests and of the businesses of the companies. Such amalgamations are amalgamations which are in the nature of merger and the accounting treatment of such amalgamations should ensure that the resultant figures of assets, liabilities, capital and reserves more or less represent the sum of the relevant figures of the amalgamating companies. In the second category are those amalgamations which are in effect a mode by which one company acquires another company and, as a consequence, the share holders of the company which is acquired normally do not continue to have a proportionate share in the equity of the combined company, or the business of the company which is acquired is not intended to be continued. Such amalgamations are amalgamations in the nature of purchase . Note: It is possible to answer this question by specifying all the conditions to be satisfied for an amalgamation to be an amalgamation in the nature of merger. The amalgamation would to be an amalgamation in the nature of purchase if any one or more of the said conditions are not satisfied. Question 2 M/s Platinum Limited has decided to reconstruct the Balance Sheet since it has accumulated huge losses. The following is the Balance Sheet of the company as on 31st March, 2012 before reconstruction : Liabilities Amount (`) Assets Amount (`) Share Capital 50,000 shares of ` 50 each fully paid up Goodwill 25,00,000 Land & Building 1,00,000 shares of ` 50 each ` 40 paid up Machinery 40,00,000 Computers 22,00,000 42,70,000 8,50,000 5,20,000 Capital Reserve 5,00,000 Stock 8% Debentures of ` 100 each 4,00,000 Trade Debtors 10,90,000 12% Debentures of ` 100 each 6,00,000 Cash at Bank 2,68,000 The Institute of Chartered Accountants of India 3,20,000 4 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 Trade Creditors 12,40,000 Profit & Loss A/c Outstanding Expenses 10,60,000 Total 7,82,000 1,03,00,000 Total 1,03,00,000 Following is the interest of Mr. Shiv and Mr. Ganesh in M/s Platinum Limited: Mr. Shiv Mr. Ganesh 8% Debentures 3,00,000 1,00,000 12% Debentures 4,00,000 2,00,000 Total 7,00,000 Total 3,00,000 The following scheme of internal reconstruction was framed and implemented, as approved by the court and concerned parties : (1) Uncalled capital is to be called up in full and then all the shares to be converted into Equity Shares of ` 40 each. (2) The existing shareholders agree to subscribe in cash, fully paid up equity shares of ` 40 each for ` 12,50,000. (3) Trade Creditors are given option of either to accept fully paid equity shares of ` 40 each for the amount due to them or to accept 70% of the amount due to them in cash in full settlement of their claim. Trade Creditors for ` 7,50,000 accept equity shares and rest of them opted for cash towards full and final settlement of their claim. (4) Mr. Shiv agrees to cancel debenture amounting to ` 2,00,000 out of total debentures due to him and agree to accept 15% Debentures for the balance amount due. He also agree to subscribe further 15% Debentures in cash amounting to ` 1,00,000. (5) Mr. Ganesh agrees to cancel debenture amounting to ` 50,000 out of total debentures due to him and agree to accept 15% Debentures for the balance amount due. (6) Land & Building to be revalued at ` 51,84,000, Machinery at ` 7,20,000, Computers at ` 4,00,000, Stock at ` 3,50,000 and Trade Debtors at 10% less to as they are appearing in Balance Sheet as above. (7) Outstanding Expenses are fully paid in cash. (8) Goodwill and Profit & Loss A/c will be written off and balance, if any, of Capital Reduction A/c will be adjusted against Capital Reserve. You are required to pass necessary Journal Entries for all the above transactions and draft the company's Balance Sheet immediately after the reconstruction. (16 Marks) Answer Journal Entries Particulars The Institute of Chartered Accountants of India ` ` PAPER 1 : ACCOUNTING 1. Equity Share final call A/c 5 Dr. 10,00,000 To Equity Share Capital A/c 10,00,000 (Being final call made for `10 each on 1,00,000 shares) 2. Bank A/c Dr. 10,00,000 To Equity Share final call A/c 10,00,000 (Being money on final call received) 3. Equity share capital (` 50) A/c Dr. 75,00,000 60,00,000 To Equity Share Capital (`40) A/c To Capital Reduction A/c 15,00,000 (Being conversion of equity share capital of `50 each into `40 each as per reconstruction scheme) 4. Bank A/c To Equity Share Capital A/c Dr. 12,50,000 12,50,000 (Being new shares allotted at `40 each) 5. Trade Creditors A/c Dr. 12,40,000 To Equity Share Capital A/c To Bank A/c 7,50,000 3,43,000 To Capital Reduction A/c (Being payment made to creditors in shares or cash to the extent of 70% as per reconstruction scheme) 6. 1,47,000 8% Debentures A/c Dr. 3,00,000 12% Debentures A/c Dr. 4,00,000 To 15% Debentures A/c 5,00,000 To Capital Reduction A/c 2,00,000 (Being cancellation of 8% and 12% debentures of Shiv, & issuance of new 15% debentures and balance transferred to capital reduction account as per reconstruction scheme) 7. Bank A/c To 15% Debentures A/c (Being new debentures subscribed by Shiv) The Institute of Chartered Accountants of India Dr. 1,00,000 1,00,000 6 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 8. 8% Debentures A/c Dr. 1,00,000 12% Debentures A/c Dr. 2,00,000 To 15% Debentures A/c 2,50,000 To Capital Reduction A/c 50,000 (Being cancellation of 8% and 12% debentures of Ganesh, & issuance of new 15% debentures and balance transferred to capital reduction account as per reconstruction scheme) 9. Land and Building (51,84,000-42,70,000) Dr. 9,14,000 Stock Dr. 30,000 To Capital Reduction A/c 9,44,000 (Being value of assets appreciated) 10. Outstanding expenses A/c Dr. 10,60,000 To Bank A/c (Being outstanding expenses paid in cash) 10,60,000 11. Capital Reduction A/c To Machinery A/c Dr. 33,41,000 1,30,000 To Computers A/c To Trade Debtors A/c 1,20,000 1,09,000 To Goodwill A/c 22,00,000 To Profit and Loss A/c (Being amount of Capital Reduction utilized in writing off P & L A/c (Dr.) balance, goodwill and downfall in value of other assets) 7,82,000 12. Capital Reserve A/c Dr. 5,00,000 To Capital reduction A/c 5,00,000 (Being debit balance of capital reduction account adjusted against capital reserve) Balance Sheet (as reduced) as on 31.3.2012 Liabilities ` Share Capital: 2,00,000 Equity shares of ` 40 each 15% Debentures The Institute of Chartered Accountants of India Assets Land & Building ` 51,84,000 80,00,000 Machinery 7,20,000 8,50,000 Computers 4,00,000 PAPER 1 : ACCOUNTING 7 Trade Debtors 9,81,000 Stock 3,50,000 Cash at Bank (W.N.1) 88,50,000 12,15,000 88,50,000 Working Notes: 1. Cash at Bank Account Particulars Particulars ` To Balance b/d 2,68,000 By Trade Creditors A/c ` 3,43,000 To Equity Share final call A/c 10,00,000 By Outstanding expenses A/c 10,60,000 To Equity Share Capital A/c 12,50,000 By Balance c/d (bal. fig.) 12,15,000 To 15% Debentures A/c 1,00,000 26,18,000 26,18,000 2. Capital Reduction Account Particulars Particulars ` ` To Machinery A/c 1,30,000 By Equity Share Capital A/c To To Computers A/c Trade Debtors A/c 1,20,000 By 1,09,000 By Trade Creditors A/c 8% and 12% Debentures A/c 1,47,000 2,00,000 To To Goodwill A/c Profit and Loss A/c 22,00,000 By 7,82,000 By 8% and 12% Debentures A/c Land & Building 50,000 9,14,000 By Stock By Capital Reserve A/c 33,41,000 15,00,000 30,000 5,00,000 33,41,000 Question 3 (a) M/s Ice Limited gives you the following information to find out Total Sales and Total Purchases: Particulars Amount (`) Debtors as on 01.04.2011 70,000 Creditors as on 01.04.2011 81,000 Bills Receivables received during the year 47,000 Bills Payable issued during the year 53,000 The Institute of Chartered Accountants of India 8 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 Cash received from customers 1,56,000 Cash paid to suppliers 1,72,000 Bad Debts recovered 16,000 Bills Receivables endorsed to creditors 27,000 Bills Receivables dishonoured by customers 5,000 Discount allowed by suppliers 7,000 Discount allowed to customers 9,000 Endorsed Bills Receivables dishonoured 3,000 Sales Return 11,000 Bills Receivable discounted 8,000 Discounted Bills Receivable dishonoured 2,000 Cash Sales Cash Purchases 1,68,500 1,97,800 Debtors as on 31.03.2012 82,000 Creditors as on 31.03.2012 95,000 (8 Marks) (b) Good, Better and Best are in partnership sharing profits and losses in the ratio 3 : 2 : 4. Their capital account balances as on 31st March, 2012 are as follows: ` Good 1,70,000 (Cr) Better 1,10,000 (Cr) Best 1,22,000 (Cr) Following further information provided: (1) ` 22,240 is to be transferred to General Reserve. (2) Good, Better and Best are paid monthly salary in cash amounting ` 2,400, ` 1,600 and ` 1,800 respectively. (3) Partners are allowed interest on their closing capital balance @ 6% p.a. and are charged interest on drawings @ 8% p.a. (4) Good and Best are entitled to commission @ 8% and 10% respectively of the net profit before making any appropriation. (5) Better is entitled to commission @ 15% of the net profit before charging Interest on Drawings but after making all other appropriations. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 9 (6) During the year Good withdraw ` 2,000 at the beginning of every month, Better ` 1,750 at the end of every month and Best ` 1,250 at the middle of every month. (7) Firm's Accountant is entitled to a salary of ` 2,000 per month and a commission of 12% of net profit after charging such commission. The Net Profit of the firm for the year ended on 31st March, 2012 before providing for any of the above adjustments was ` 2,76,000. You are required to prepare Profit and Loss Appropriation Account for the year ended on 31st March, 2012 (8 Marks) Answer (a) 1. Total Sales = Cash sales + Credit sales = ` 1,68,500 + ` 2,25,000 (W.N.1) = ` 3,93,500 2. Purchases = Cash Purchases + Credit Purchases = ` 1,97,800 + ` 2,70,000 (W.N.2) = ` 4,67,800 Working Notes: 1. Debtors Account Particulars Particulars ` To Balance b/d 70,000 By Bills receivable ` 47,000 To Bills receivable dishonoured To Bills receivable dishonoured (endorsed) 5,000 By Cash 3,000 By Discount allowed To Bills receivable dishonoured (discounted) 2,000 By Sales return 11,000 2,25,000 By Balance c/d 82,000 To Credit sales (bal.fig.) 3,05,000 2. 1,56,000 9,000 3,05,000 Creditors Account Particulars ` To Bills payable ` 53,000 By Balance b/d To Cash To Discount received To Bills endorsed Particulars 81,000 1,72,000 By Bills receivable 7,000 dishonoured (endorsed) receivable The Institute of Chartered Accountants of India 27,000 By Credit (bal.fig.) 3,000 purchases 2,70,000 10 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 To Balance c/d 95,000 3,54,000 3,54,000 Note: It is assumed that sales return is out of credit sales only. (b) Profit and Loss Appropriation Account for the year ended on 31st March, 2012 Particulars To General reserve To Salaries to partners Good 28,800 Better 19,200 Best 21,600 To Interest on Capital Good 10,200 Better 6,600 Best 7,320 To Commission to partners Good 18,000 Better 10,281 (W.N.4) Best 22,500 To Partners Capital A/cs (profit) Good 20,223 Better 13,482 Best 26,964 Particulars ` 22,240 By Net Profit (See W.N.1) By Interest on drawings (W.N.3) Good 1,040 Better 770 69,600 Best 600 ` 2,25,000 2,410 24,120 50,781 60,669 2,27,410 2,27,410 Working Notes: 1. Profit and Loss Account Particulars ` To Salary (Firm s Accountant) To Commission (Firm s The Institute of Chartered Accountants of India 24,000 By Particulars Profit ` 2,76,000 PAPER 1 : ACCOUNTING Accountant) (W.N.2) To 11 27,000 Net Profit transferred to P & L Appropriation A/c 2,25,000 2,76,000 2. Commission of Firm s Accountant = Profit after salary of firm's accountant 12% (100+12 ) % = 3. 2,76,000 ( 2,76,000 - 24,000 ) 12% (100+12 ) % = ` 27,000 Interest on Drawings Good (at the beginning of every month) (` 2,000 x 6.5 x 8%) Better (at the end of every month) (` 1,750 x 5.5 x 8%) Best (at the middle of every month) (` 1,250 x 6 x 8%) 4. ` 1,040 770 600 2,410 Commission of Better Commission of Better = [Net profit for appropriation (excluding interest on drawings) - General reserve Interest on capital - Salaries to partners Commission to Good and Best] x 15% Commission to Better = ` [2,25,000 22,240 24,120 69,600 18,000 22,500] x 15% = ` 68,540 x 15% = `10,281. Question 4 From the following Income & Expenditure A/c of Premium Sports Club for the year ended 31st March, 2012, you are required to prepare Receipts & Payment A/c for the year ended 31st March, 2012 and Balance Sheet as on that date: Expenditure Amount Income Amount To Salaries (`) 1,18,800 By Subscriptions (`) 4,20,000 To Rent 2,16,000 By Entrance Fee 1,20,000 To Printing & Stationery 28,000 By Profit on sale of Sports To Postage & Telephone 41,600 Material The Institute of Chartered Accountants of India 5,500 12 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 To Membership Fee 3,200 By Interest on 8% To Electricity Charges 38,500 Government Bonds 12,000 To Garden Upkeep 19,300 By Sale of Old Newspaper 11,600 To Sports Material Utilized 62,800 To Repairs & Maintenance 18,700 To Depreciation 13,000 To Miscellaneous Expenses 5,700 To Surplus carried to Capital Fund 3,500 Total 5,69,100 Total 5,69,100 The following additional information is provided to you: (a) Balances as on 01.04.2011 Fixed Assets Balances as on 31.03.2012 2,40,000 ? 8,300 ? Stock of Sports Material 43,450 35,670 Outstanding Subscription 10,200 5,700 2,400 4,900 1,50,000 1,50,000 Outstanding Salaries 16,000 14,300 Outstanding Rent 21,000 15,000 Advance for Stationery 1,350 1,550 Outstanding Repairs & Maintenance 1,200 Nil Creditors for purchase of Sports Material 3,400 4,200 Bank Balance Subscription received in advance 8% Government Bonds (b) Some of Fixed Assets were purchased on 01.10.2011 and depreciation is to be charged @ 5% p.a. (c) Sports Material worth ` 72,000 was purchased on credit during the year. (d) The Club became member of State Table Tennis Association on 01.01.2012 when it paid fee up to 31.12.2012. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 13 (e) 50% of Entrance Fee is to be capitalized. (f) Interest on 8% Government Bonds was received for two quarters only. (g) A Fixed Deposit of ` 80,000 was made on 31st March, 2012. (16 Marks) Answer Receipts and Payments Account of Premium Sports Club for the year ended 31st March, 2012 Receipts To Cash at bank (opening) To Subscription (W.N.1) To Entrance fee (W.N.2) ` Payments To Interest on 8% Government Bond (W.N.3) To Sale of old Newspaper To Sale of Sports Material (W.N.4) ` 8,300 By Salaries (W.N.6) 4,27,000 By Rent (W.N.7) 2,40,000 By Printing and stationary (W.N.8) 6,000 By Postage and telephone 1,20,500 2,22,000 28,200 41,600 11,600 By Membership fee (W.N.9) 22,480 By Electricity charges 7,15,380 12,800 38,500 By Garden upkeep By Payment to creditors for sports material (W.N.5) By Purchase of Fixed assets (W.N.10) By Repairs and Maintenance (W.N.11) By Misc. expenses By Fixed Deposit made By Cash at bank (closing) (bal.fig.) 19,300 71,200 40,000 19,900 5,700 80,000 15,680 7,15,380 Balance Sheet of Premium Sports Club as on 31st March, 2012 Liabilities Capital fund: Opening balance (W.N.12) Add: Surplus ` ` Assets 4,09,300 3,500 4,12,800 The Institute of Chartered Accountants of India ` Fixed Assets 2,40,000 Add: Additions 40,000 (W.N.10) 2,80,000 ` 14 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 Entrance fee 1,20,000 4,900 Subscription received in advance Less: Depreciation Fixed Deposit Investments in 8% Outstanding expenses Salary Rent Creditors for purchase of sports material 13,000 80,000 Government Bonds 14,300 15,000 29,300 4,200 2,67,000 1,50,000 Stock of sports material Subscription receivable Membership fee 35,670 5,700 paid in advance 9,600 Prepaid printing and stationary charges 1,550 Outstanding interest on 8% Govt. Bond 6,000 Cash at bank 15,680 5,71,200 5,71,200 Working Notes: 1. Subscription received during the year ` 31st Subscription for the year ended March, 2012 Less: Subscription receivable on 31.3.2012 4,20,000 5,700 Less: Subscription received in advance on 1.4.2011 2,400 Add: Subscription receivable on 1.4.2011 Add: Subscription received in advance on 31.3.2012 10,200 4,900 (8,100) 4,11,900 15,100 4,27,000 2. Entrance Fee received during the year Entrance fee as per Income and Expenditure Account ` 1,20,000 Add: Capitalised entrance fee (50%) ` 1,20,000 ` 2,40,000 3. Interest on 8% Government Bond ` Interest as per Income and Expenditure Account The Institute of Chartered Accountants of India 12,000 PAPER 1 : ACCOUNTING Less: Outstanding interest for 2 quarters [12,000x (6/12)] 15 (6,000) 6,000 4. Sales price of Sports Material sold ` Stock of Sports Material on 1.4.2011 Add: Purchase of Sports Material during the year 43,450 72,000 1,15,450 Less: Stock of Sports Material on 31.3.2012 (35,670) Cost of Sports Material consumed in the club and for sale Less: Sports material consumed in the club 79,780 (62,800) Cost of Sports material sold 16,980 Sales Price of sports material sold = ` 16,980 + ` 5,500 = ` 22,480 5. Payment to creditors for Sports Material ` Purchase of Sports Material Less: Closing creditors for purchase of Sports Material on 31.3.2012 72,000 (4,200) 67,800 Add: Opening creditors for purchase of Sports Material on 1.4.2011 3,400 71,200 6. Salaries paid during the year ` Salary as per Income and Expenditure Account 1,18,800 Less: Outstanding balance as on 31.3.2012 (14,300) Add: Outstanding balance as on 1.4.2011 1,04,500 16,000 1,20,500 7. Rent paid during the year ` Rent as per Income and Expenditure Account 2,16,000 Less: Outstanding balance as on 31.3.2012 (15,000) 2,01,000 The Institute of Chartered Accountants of India 16 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 Add: Outstanding balance as on 1.4.2011 21,000 2,22,000 8. Printing and Stationary paid during the year ` Printing and stationary as per Income and Expenditure Account 28,000 Less: Prepaid balance as on 1.4.2011 (1,350) 26,650 Add: Prepaid balance as on 31.3.2012 9. 1,550 28,200 Membership fee paid during the year ` Membership fee as per Income and Expenditure Account 3,200 Add: Prepaid balance as on 31.3.2012 [(3,200/3) x 9] 9,600 12,800 10. Fixed Asset purchased during the year ` Depreciation during the year Less: Depreciation on Opening balance of fixed asset Depreciation on new purchase of fixed asset during the year Cost of asset purchased during the year (1,000 x 12 100 x ) 6 5 13,000 (12,000) 1,000 40,000 11. Repairs and Maintenance paid during the year ` Repairs and Maintenance as per Income and Expenditure Account Add: Outstanding balance as on 1.4.2011 18,700 1,200 19,900 12. Balance Sheet of Premium Sports Club as on 1st April, 2011 Liabilities ` Assets Capital fund (Bal.fig.) Subscription advance received 4,09,300 Fixed Assets in 2,400 Investments in 8% Government Bonds The Institute of Chartered Accountants of India ` 2,40,000 1,50,000 PAPER 1 : ACCOUNTING Outstanding expenses: 17 Stock of sports material 43,450 Salary 16,000 Subscription receivable 10,200 Rent 21,000 Prepaid printing and stationary charges Repairs and maintenance Creditors for purchase of sports material 1,200 Bank 1,350 8,300 3,400 4,53,300 4,53,300 Note: It is assumed that Premium Sports Club has purchased all the sports equipment on credit basis only. Question 5 (a) M/s Multistore Limited sells goods both on cash and hire purchase basis and record hirepurchase transactions on "Stock and Debtors System". It closes its books of accounts on 31st March every year. On 1st May, 2011, it sold to Manas a Scooter and a LCD TV. The other information are as follows: Particulars Cost Price Down Payment Number of Installments Payable Amount of each Installment Mode of Payment 1st Installment due on Scooter 30,000 5,000 12 2,800 Monthly 1st June, 2011 LCD TV 40,000 6,000 6 7,600 Quarterly 1st July, 2011 Manas paid all the installments due except for those due on 1st January, 2012. It was decided that M/s Multistore Limited will take back Scooter at an agreed price of ` 22,000 and excess amount, if any, will be adjusted against the installments due of LCD TV. Scooter repossessed was sold for ` 24,500 after incurring repair charges of ` 1,000. Prepare necessary ledger accounts to record the above transactions and find out the profit. (8 Marks) (b) Mr. Brown has made following transactions during the financial year 2011-12: Date Particulars 01.05.2011 Purchased 24,000 12% Bonds of ` 100 each at ` 84 cum-interest. Interest is payable on 30th September and 31st March every year. 15.06.2011 Purchased ` 1,50,000 equity shares of ` 10 each in Alpha Limited for ` 25 each through a broker, who charged brokerage @ 2%. The Institute of Chartered Accountants of India 18 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 10.07.2011 Purchased 60,000 equity shares of ` 10 each in Beeta Limited for ` 44 each through a broker, who charged brokerage @2%. 14.10.2011 Alpha Limited made a bonus issue of two shares for every three shares held. 31.10.2011 Sold 80,000 shares in Alpha Limited for ` 22 each. 01.01.2012 Received 15% interim dividend on equity shares of Alpha Limited. 15. 01.2012 Beeta Limited made a right issue of one equity share for every four shares held at ` 5 per share. Mr. Brown exercised his option for 40% of his entitlements and sold the balance rights in the market at ` 2.25 per share. 01.03.2012 Sold 15,000 12% Bonds at ` 90 ex-interest. 15.03.2012 Received 18% interim dividend on equity shares of Beeta Limited. Interest on 12% Bonds was duly received on due dates. Prepare separate investment account for 12% Bonds, Equity Shares of Alpha Limited and Equity Shares of Beeta Limited in the books of Mr. Brown for the year ended on 31st March, 2012. (8 Marks) Answer (a) In the books of M/s Multistore Limited Hire Purchase Stock Account Date Particulars 1.5.2011 To Goods Sold on Hire Purchase A/c (38,600+51,600) ` Date 90,200 1.5.2011 Particulars By Hire Purchase Debtors A/c (Down payment) (5,000+6,000) ` 11,000 1.6.2011 2,800 1.7.2011 By Hire Purchase Debtors A/c (Scooter & LCD T.V.) (` 2,800+ ` 7,600) 10,400 1.8.2011 By Hire Purchase Debtors A/c (Scooter) 2,800 1.9. 2011 By Hire Purchase Debtors A/c (Scooter) 2,800 1.10.2011 By Hire Purchase A/c (Scooter & LCD T.V.) The Institute of Chartered Accountants of India By Hire Purchase Debtors A/c (Scooter) 10,400 PAPER 1 : ACCOUNTING 19 1.11.2011 By Hire Purchase Debtors A/c (Scooter) 2,800 1.12.2011 By Hire Purchase Debtors A/c (Scooter) 2,800 1.1.2012 By Hire Purchase debtor A/c (Scooter & LCD T.V.) 1.1.2012 By Hire Purchase debtor A/c (Scooter & LCD T.V.) (4 x 34,000* 2,800)+(3 x 7,600) (W.N.3) 90,200 10,400 90,200 Hire Purchase Debtors Account Date Particulars ` Date Particulars ` 1.5.2011 To Hire Purchase Stock A/c 11,000 1.5.2011 By Cash A/c 11,000 1.6.2011 To Hire Purchase Stock A/c 2,800 1.6.2011 By Cash A/c 2,800 1.7.2011 To Hire Purchase Stock A/c 1.8.2011 To Hire Purchase Stock A/c 10,400 1.7.2011 By Cash A/c 10,400 2,800 1.8.2011 By Cash A/c 2,800 1.9. 2011 To Hire Purchase Stock A/c 2,800 1.9. 2011 By Cash A/c 2,800 1.10.2011 To Hire Purchase Stock A/c 10,400 1.10.2011 By Cash A/c 10,400 1.11.2011 To Hire Purchase Stock A/c 2,800 1.11.2011 By Cash A/c 2,800 1.12.2011 To Hire Purchase Stock A/c 2,800 1.12.2011 By Cash A/c 2,800 1.1.2012 To Hire Purchase Stock A/c 10,400 1.1.2012 1.1.2012 To Hire Purchase Stock A/c 31.03.2012 By Balance c/d (For LCD T.V. only) 34,000 22,400 90,200 90,200 The Institute of Chartered Accountants of India By Good Repossessed A/c 22,000 20 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 Hire Purchase Adjustment Account Date Particulars ` Date 31.03.2012 To Profit & Loss A/c Particulars ` 21,700 1.5.2011 By Goods sold on hire purchase A/c (profit on hire purchase) (8,600+11,600) ??? By Goods Repossessed A/c 21,700 20,200 1,500 21,700 Goods Repossessed Account Date Particulars ` Date 1.1.2012 To Hire Purchase Debtors A/c ? To Cash A/c (Expenses) ? 22,000 ? To Hire Purchase Adjustment A/c Particulars ` By Cash A/c (Sales) 24,500 1,000 1,500 24,500 24,500 Working Notes: 1. Hire purchase Price of Scooter = Down payment + Sum of Amount of all instalments = ` 5,000 + (` 2,800 x 12) = ` 38,600 LCD TV = ` 6,000 + (` 7,600 x 6) = ` 51,600 2. Profit on H.P. Sale = Hire Purchase Price - Cash Price (38,600 + 51,600) (30,000 + 40,000) = ` 20,200 3. Same customer has purchased both Scooter & LCD TV. Therefore, when there is default on 01.01.2012, all the remaining installments are to be shown as due. Note: Alternatively the monthly entries in the Hire purchase stock A/c can be consolidated by opening a Goods sold on Hire purchase stock A/c . Likewise the monthly entries in the Hire purchase Debtor A/c can also be consolidated. (b) In the books of Mr. Brown 12% Bonds for the year ended 31st March, 2012 Date Particulars 2011 To Bank A/c No. Interest Income ` Amount Date ` 24,000 24,000 19,92,000 2011 The Institute of Chartered Accountants of India Particulars By Bank- No. Interest Income ` - 1,44,000 Amount ` PAPER 1 : ACCOUNTING May, 1 21 Sept. 30 Interest - To P & L A/c (W.N.1) 2012 March 31 To P & L A/c - 1,05,000 2012 Mar. 1 2,49,000 2012 Mar. 31 By Bank A/c 2,73,000 75,000 13,50,000 54,000 By BankInterest By Balance c/d (W.N.2) 24,000 15,000 9,000 - 7,47,000 24,000 20,97,000 2,73,000 20,97,000 Investment in Equity shares of Alpha Ltd. for the year ended 31st March, 2012 Date Particulars 2011 June 15 To Bank A/c Oct. 14 To Bonus Issue (1,50,000/3 x2) No. Dividend Income ` 1,50,000 -- 1,00,000 Amount Date ` 38,25,000 2011 Oct. 31 - By Bank A/c - 2012 Jan. 1 To P & L A/c (W.N.3) 2012 Mar. 31 Particulars 5,36,000 March 31 To P & L A/c No. Dividend Income ` Amount ` 80,000 - 17,60,000 By Bank A/c -dividend 2,55,000 1,70,000 - 26,01,000 2,50,000 By Balance c/d (W.N.4) 2,55,000 43,61,000 2,55,000 2,50,000 2,55,000 43,61,000 Investment in Equity shares of Beeta Ltd. for the year ended 31st March, 2012 Date Particulars No. Dividend Income ` 2011 July 10 To Bank A/c 60,000 2012 To Bank A/c Jan. 15 (W.N. 5) To P & L A/c Particulars -- 26,92,800 2012 Jan. 15 6,000 - 30,000 Mar. 15 2012 - 1,18,800 66,000 March 31 Amount Date ` 1,18,800 March - 31, 2012 No. Dividend Income ` Amount ` By Bank A/c (W.N 6) - - 20,250 By Bank dividend - 1,18,800 By Balance c/d (bal.fig.) 27,22,800 66,000 - 27,02,550 66,000 1,18,800 27,22,800 Working Notes: 1. Profit on sale of 12% Bond Sales price Less: Cost of bond sold = ` 13,50,000 19,92,000 x 15,000 24,000 The Institute of Chartered Accountants of India ` 12,45,000 22 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 Profit on sale 2. ` 1,05,000 Closing balance as on 31.3.2012 of 12 % Bond 19,92,000 x 9,000 = ` 7,47,000 24,000 3. Profit on sale of equity shares of Alpha Ltd. Sales price (80,000 shares x `22) Less: Cost of bond sold = ` 17,60,000 38,25,000 x 80,000 2,50,000 ` 12,24,000 Profit on sale 4. ` 5,36,000 Closing balance as on 31.3.2012 of equity shares of Alpha Ltd. 38,25,000 x 1,70,000 = ` 26,01,000 2,50,000 5. Calculation of right shares subscribed by Beeta Ltd. Right Shares = 60,000 shares x 1= 15,000 shares 4 Shares subscribed by Mr. Brown = 15,000 x 40%= 6,000 shares Value of right shares subscribed = 6,000 shares @ ` 5 per share = ` 30,000 6. Calculation of sale of right entitlement by Beeta Ltd. No. of right shares sold = 15,000 - 6,000 = 9,000 shares Sale value of right = 9,000 shares x ` 2.25 per share = ` 20,250 Note: Shares are assumed to be purchased on cum right basis, therefore, amount received from sale of rights is credited to Investment A/c. Question 6 Ramda & Sons had taken out policies (without Average Clause) both against loss of stock and loss of profit, for ` 2,10,000 and ` 3,20,000 respectively. A fire occurred on 1st July, 2011 and as a result of which sales were seriously affected for a period of 3 months. Trading and Profit & Loss A/c of Ramda & Sons for the year ended on 31st March, 2011 is given below: Particulars Amount(`) To Opening Stock To Purchases 96,000 7,56,000 To Wages 1,58,000 The Institute of Chartered Accountants of India Particulars By Sales By Closing Stock Amount (`) 12,00,000 1,85,000 PAPER 1 : ACCOUNTING To Manufacturing Expenses 75,000 To Gross Profit c/d Total 23 3,00,000 Total 13,85,000 To Administrative Expenses To Selling Expenses (Fixed) 83,600 72,400 To Commission on Sales 34,200 To Carriage Outward 13,85,000 49,800 To Net Profit Total By Gross Profit b/d Total 60,000 3,00,000 3,00,000 3,00,000 Further detail provided is as below: (a) Sales, Purchases, Wages and Manufacturing Expenses for the period 1.04.2011 to 30.06.2011 were ` 3,36,000, ` 2,14,000, ` 51,000 and ` 12,000 respectively. (b) Other Sales figure were as follows ` From 01.04.2010 to 30.06.2010 From 01.07.2010 to 30.09.2010 From 01.07.2011 to 30.09.2011 3,00,000 3,20,000 48,000 (c) Due to decrease in the material cost, Gross Profit during 2011-12 was expected to increase by 5% on sales. (d) ` 1,98,000 were additionally incurred during the period after fire. The amount of policy included ` 1,56,000 for expenses leaving ` 42,000 uncovered. Compute the claim for stock, loss of profit and additional expenses (16 Marks) Answer Claim for loss of stock Memorandum Trading Account for the period 1st April to 1st July, 2011 ` To Opening Stock To Purchases To Wages To Manufacturing expenses To Gross Profit @ 30% on sales (W.N) The Institute of Chartered Accountants of India 1,85,000 By Sales 2,14,000 By Closing stock 51,000 (Bal.fig.) 12,000 1,00,800 5,62,800 ` 3,36,000 2,26,800 5,62,800 24 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 Claim for loss of stock will be limited to ` 2,10,000 only which is the amount of Insurance policy and no average clause will be applied. Loss of Profit (a) Short Sales : Sales from 1st July, 2010 to 30th Sept. 2010 Add: 12% rise observed in 2011-12 over 2010-11 ( April- June ` 3,36,000 instead of ` 3,00,000) Less: Actual Sales from 1st July, 2011 to 30th Sept. 2011 Short-Sales (b) Gross profit ratio Net Profit + Insured standing charges (2010-11) 100 Sales (2010-11) ` 60,000 + ` 1,56,000 100 = 12,00,000 Add: Expected rise due to decline in material cost Hence, Gross Profit Ratio Amount (`) 3,20,000 38,400 3,58,400 (48,000) 3,10,400 18% 5% 23% (c) Loss of Gross Profit 23% on short sales ` 3,10,400= ` 71,392 (d) Annual turnover (12 months to 1st July, 2011): Sales for April 2010 - March, 2011 Less: From 1-4-2010 to 30-6-2010 Add: 12% increasing trend Add: From 1-4-2011 to 30-6-2011 Gross Profit on annual turnover @ 23% Amount (`) 12,00,000 (3,00,000) 9,00,000 1,08,000 10,08,000 3,36,000 13,44,000 3,09,120 (e) Amount allowable in respect of additional expenses Least of the following: (i) Actual expenses (ii) Gross Profit on sales during indemnity period The Institute of Chartered Accountants of India Amount (`) 1,98,000 PAPER 1 : ACCOUNTING 23% of ` 48,000 (iii) 25 11,040 Gross profit on annual (adjusted) turnover Additional Expenses Gross profit as above + Uninsured charges 3,09,120 1,98,000 = 3,51,120 1,74,316 Least i.e. ` 11,040 is admissible. Claim Loss of Gross Profit ` 71,392 Add: Additional expenses ` 11,040 ` 82,432 Insurance claim for loss of profit will be of ` 82,432 only. Working Note: Rate of Gross Profit in 2010-11 Gross Pr ofit 100 Sales 3,00,000 100 = 25% 12,00,000 In 2011-12, Gross Profit is expected to increase by 5% as a result of decline in material cost, hence the rate of Gross Profit for loss of stock is taken at 30%. Question 7 Answer any FOUR out of the following: (a) M/s Stairs & Co. draw upon M/s Marble & Co. several bills of exchange due for payment on different dates as under : Date of Bill 12th May 10th June 1st July 19th July Amount(`) 44,000 45,000 14,000 17,000 Tenure of Bill 3 months 4 months 1 month 2 months Find out the average due date on which payment may be made in one single amount by M/s Marble & Co. to M/s Stairs & Co. 15th August, Independence Day, is national holiday and 22nd September declared emergency holiday, due to death of a national leader. (b) X, Y and Z are partners sharing profits and losses equally. On 1st December, 2011 Z retired from the partnership firm. The capitals of the partners, after all necessary The Institute of Chartered Accountants of India 26 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: MAY, 2012 adjustments stood at ` 45,000, ` 75,000 and ` 50,000 respectively. X and Y continued to carry on the business without settling the accounts of Z. Final payment to Z made on 1 st March, 2012. The partnership firm made profit amounting to ` 30,000 during the period from 1st December, 2011 to 29th February, 2012. What are the rights of Z to share subsequent profit as per the provisions of Section 37 of the Indian Partnership Act? (c) A computer costing ` 60,000 is depreciated on straight line basis, assuming 10 years working life and Nil residual value, for three years. The estimate of remaining useful life after third year was reassessed at 5 years. Calculate depreciation as per the provisions of Accounting Standard 6 "Depreciation Accounting". (d) What are the maximum limits of managerial remuneration for companies having adequate profits? (e) "ERP package is gaining popularity in big organizations." Briefly explain the advantages of using an ERP package, in the light of above statement. (4 4 = 16 Marks) Answer (a) Calculation of Average Due Date (Taking 4th August as the base date) Date of bill Term Due date Amount No. of days from the base date i.e. 4th August 44,000 45,000 14,000 10 70 0 4,40,000 31,50,000 0 17,000 1,20,000 50 8,50,000 44,40,000 ` 12th May 10th June 1st July 3 months 14th August 4 months 13th October 1 month 4th August 19th July 2 months 23th September Average due date=Base date+ Days equal to = 4th August + Product Total of products Total amount 44,40,000 1,20,000 =4th August +37 days = 10th September (b) Under Section 37 of the Partnership Act, Z can exercise any of the following two options in the absence of a contract: 1. Z is entitled at his option to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 2. 27 Z is entitled to interest at the rate of six per cent per annum on the amount of his share in the property of the firm. It may be noted that Z is not bound to make election until the share of the profit that would be payable to him has been ascertained. (c) Depreciation per year = ` 60,000 / 10 = ` 6,000 Depreciation on SLM charged for three years = ` 6,000 x 3 years = ` 18,000 Book value of the computer at the end of third year = ` 60,000 ` 18,000 = ` 42,000. Remaining useful life as per previous estimate = 7 years Remaining useful life as per revised estimate = 5 years Depreciation from the fourth year onwards = ` 42,000 / 5 = ` 8,400 per annum (d) For companies having adequate profits, maximum limits of managerial remuneration in different circumstances are as under: (i) Overall (excluding fee for attending meetings) 11% of net profit (ii) If there is one managerial person 5% of net profit (iii) If there are more than one managerial person 10% of net profit (iv) Remuneration of part-time directors: (a) If there is no managing or whole-time director 3% of net profit (b) If there is a managing or whole-time director 1% of net profit (e) The advantages of using an ERP for maintaining accounts are as follows: 1. Standardised processes and procedures : An ERP is a generalised package which covers most of the common functionalities of any specific module. 2. Standardised reporting : Majority of the desired reports are available in an ERP package. These reports are standardised across industry and are generally acceptable to the users. 3. No Redundancy : Duplication of data entry is avoided as it is an integrated package. 4. Better Information : Greater information is available through this package. The Institute of Chartered Accountants of India

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