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CA IPCC : Question Paper (with Answers) - ACCOUNTING May 2011

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PAPER 1 : ACCOUNTING Question No. 1 is compulsory Answer any five questions from the remaining six questions. Wherever necessary suitable assumptions should be made by the candidates. Working Notes should form part of the answer. Question 1 Answer the following question: (a) The abstract of the Balance Sheet of the AXE Ltd. as at 31 st March 2011, are as follows: Liabilities Equity share capital (` 100 each) ` 15,00,000 12% Preference share capital (` 100 each) 8,00,000 13% Debentures 3,00,000 st On 31 March, 2011, BXE Ltd. agreed to take over AXE Ltd. on the following terms: (1) For each preference share in AXE Ltd., ` 10 in cash and one 9% preference share of ` 100 in BXE Ltd. (2) For each equity share AXE Ltd. ` 20 in cash and one equity share in BXE Ltd. of ` 100 each. It was decided that the share in BXE Ltd. will be issued at market price ` 140 per share. (3) Liquidation expenses of AXE Ltd. are to be reimbursed by BXE Ltd. to the extent of ` 10,000. Actual expenses amounted to ` 12,500. You are required to compute the amount of purchase consideration. (b) On 30th March, 2011 fire occurred in the premises of M/s Suraj Brothers. The concern had taken an insurance policy of ` 60,000 which was subject to the average clause. From the books of accounts, the following particulars are available relating to the period 1st January to 30th March 2011. (1) Stock as per Balance Sheet at 31st December, 2010, ` 95,600. (2) Purchases (including purchase of machinery costing ` 30,000) ` 1,70,000 (3) Wages (including wages ` 3,000 for installation of machinery) ` 50,000. (4) Sales (including goods sold on approval basis amounting to ` 49,500) ` 2,75,000. No approval has been received in respect of 2/3rd of the goods sold on approval. (5) The average rate of gross profit is 20% of sales. (6) The value of the salvaged goods was ` 12,300. The Institute of Chartered Accountants of India INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 You are required to compute the amount of the claim to be lodged to the insurance company. (c) Shiv and Mohan are partners in a firm sharing profits and losses equally. On 31st March, 2011, the balances of their capital accounts were ` 3,00,000 and ` 2,00,000 respectively. The average profits of the firm are ` 1,36,000 and the rate of normal profit is 20%. On 1st April, 2011 they agreed to admit Hari as a partner for one fourth share. Hari will bring ` 1,00,000 as capital. You are required to compute the value of the goodwill of the firm on admission of Hari, if goodwill is to be calculated on the basis of: (1) 5 years purchase of super profit (2) Capitalization method (3) 3 years purchase of average profit. (d) On 1st April, 2010, Rajat has 50,000 equity shares of P Ltd. at a book value of ` 15 per share (face value ` 10 each). He provides you the further information: (1) On 20th June, 2010, he purchased another 10,000 shares of P Ltd. at ` 16 per share. (2) On 1st August, 2010, P Ltd. issued one equity bonus share for every six shares held by the shareholders. (3) On 31st October, 2010, the directors of P Ltd. announced a right issue which entitle the holders to subscribe three shares for every seven shares at ` 15 per share. Shareholders can transfer their rights in full or in part. Rajat sold 1/3rd of entitlement to Umang for a consideration of ` 2 per share and subscribe the rest on 5th November, 2010. You are required to prepare Investment A/c in the books of Rajat for the year ending 31st March, 2011. (4 5 = 20 Marks) Answer (a) Calculation of purchase consideration ` I * Payment made to shareholders of 8,000 preference shares of AXE Ltd. : Cash @ ` 10 per share (8,000 preference shares x ` 10) * 8,00,000 = 8,000 preference shares 100 2 The Institute of Chartered Accountants of India 80,000 PAPER 1 : ACCOUNTING 8,00,000 9% Preference shares in BXE Ltd. @ ` 100 each II 8,80,000 * Payment made to Equity shareholders of 15,000 equity shares of AXE Ltd. : 3,00,000 Cash @ ` 20 per share (15,000 shares x ` 20) Equity shares in BXE Ltd. issued at market price ` 140 each (15,000 shares x ` 140) 21,00,000 Total purchase consideration 24,00,000 32,80,000 Note: Re-imbursement of liquidation expenses of AXE Ltd. to the extent of ` 10,000, will not be included in the calculation of purchase consideration. (b) Computation of claim for loss of stock ` Stock on the date of fire i.e. on 30th March, 2011 (W.N.1) 62,600 Less: Value of salvaged stock (12,300) Loss of stock 50,300 Amount of claim = Insured value Total cost of stock on the date of fire x Loss of stock 48,211 (approx.) 60,000 50,300 = 62,600 A claim of ` 48,211 (approx.) should be lodged by M/s Suraj Brothers to the insurance company. Working Notes: 1. Calculation of closing stock as on 30th March, 2011 Memorandum Trading Account for (from 1st January, 2011 to 30th March, 2011) Particulars Amount Particulars (`) To To Purchases (1,70,00030,000) To * Opening stock Wages (50,000 95,600 By 2,42,000 15,00,000 = 15,000 equity shares 100 3 By Goods with customers (for approval) (W.N.2) 26,400 By 1,40,000 The Institute of Chartered Accountants of India Sales (W.N.3) Amount (`) Closing stock (Bal. fig.) 62,600 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 3,000) To 2. 47,000 Gross profit (20% on sales) 48,400 3,31,000 Calculation of goods with customers 3,31,000 Since no approval for sale has been received for the goods of ` 33,000 (i.e. 2/3 of ` 49,500) hence, these should be valued at cost i.e. ` 33,000 20% of ` 33,000 = ` 26,400. 3. Calculation of actual sales Total sales Sale of goods on approval = ` 2,75,000 ` 33,000 = ` 2,42,000. (c) Valuation of goodwill (1) 5 years purchase of super profit ` Average profit 1,36,000 (1,00,000) Less : Normal profit @ 20% of (` 3,00,000+ ` 2,00,000) Super profit Value of goodwill = 5 Super profit 36,000 = 5 ` 36,000 = ` 1,80,000 Value of goodwill of the firm will be ` 1,80,000. (2) Capitalisation method Normal value of business = = Average profit Normal rate of profit 1,36,000 = ` 6,80,000 20% ` Normal value of business 6,80,000 Less: Actual capital employed Shiv Mohan Value of goodwill of the firm will be (5,00,000) 1,80,000 (3) 3 years purchase of average profits Goodwill = 3 Average profit 4 The Institute of Chartered Accountants of India 3,00,000 2,00,000 PAPER 1 : ACCOUNTING = 3 ` 1,36,000 = ` 4,08,000 Value of goodwill of the firm will be ` 4,08,000. (d) In the books of Rajat Investment Account (Equity shares in P Ltd. ) Date Particulars 1.4.10 20.6.10 To Balance b/d To Bank A/c 1.8.10 To Bonus issue (W.N.1) To Bank A/c (right shares) (W.N.4) 5.11.10 No. of shares 50,000 10,000 Amount Date (` ) 7,50,000 5.11.10 1,60,000 10,000 - 31.3.11 Particulars By Bank A/c (sale of rights) (W.N.3) By Balance c/d (Bal. fig.) 20,000 3,00,000 90,000 12,10,000 No. of shares Amount (` ) 20,000 90,000 11,90,000 90,000 12,10,000 Working Notes: (1) Bonus shares = 50,000 + 10,000 = 10,000 shares 6 (2) Right shares 50,000 + 10,000 + 10,000 3 = 30,000 shares 7 = 1 (3) Sale of rights = 30,000 shares ` 2= ` 20,000 3 2 (4) Rights subscribed = 30,000 shares ` 15 = ` 3,00,000 3 Question 2 Amit and Sumit are partners sharing profits and losses in the ratio of 3:2. Their Balance Sheet as on 31st March 2011 is given below: Liabilities Amount Assets ` Capital Accounts: Amit Sumit Loan from Puneet ` Land & building 1,76,000 Investments (Market value ` 55,000) 2,54,000 Debtors 3,00,000 3,00,000 Less: Provision for doubtful debts 10,000 5 The Institute of Chartered Accountants of India Amount 3,20,000 50,000 2,90,000 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 General Reserve Employer s provident fund Creditors 30,000 Stock 1,10,000 10,000 Cash at bank 50,000 50,000 8,20,000 8,20,000 st They decided to admit Puneet as a new partner from 1 April, 2011 on the following terms: (1) Amit will give 1/3rd of his share and Sumit will give 1/4th of his share to Puneet. (2) Puneet s loan account will be converted into his capital. (3) The Goodwill of the firm is valued at ` 3,00,000. Puneet will bring his share of goodwill in cash and the same was immediately withdrawn by the partners. (4) Land and building was found undervalued by ` 1,00,000. (5) Stock was found overvalued by ` 60,000. (6) Provision for doubtful debts will be made equal to 5% of debtors. (7) Investments are to be valued at their market price. It was decided that the total capital of the firm after admission of new partner would be ` 10,00,000. Capital accounts of partners will be readjusted on the basis of their profit sharing ratio and excess or deficiency will be adjusted in cash. You are required to prepare: (a) Revaluation A/c (b) Partners capital A/cs (c) Balance Sheet of the firm after admission of a new partner (16 Marks) Answer Revaluation A/c Particulars To Stock To Provision for doubtful debts ` Particulars 60,000 By Land & building 5,000 By Investments ` 1,00,000 5,000 To Profit transferred to Amit s capital A/c 24,000 Sumit s capital A/c 16,000 1,05,000 1,05,000 6 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Partners Capital Accounts Particulars Amit Sumit ` ` - - - - 60,000 30,000 4,00,000 3,00,000 To Amit s capital A/c To Puneet s capital A/c To Bank A/c To Balance c/d Puneet Particulars Amit By Balance b/d 60,000 By Puneets' Loan A/c 30,000 By Puneet s capital A/c 30,000 - - - 90,000 24,000 16,000 - 18,000 12,000 - 1,82,000 By Revaluation A/c By Bank 3,30,000 ` 60,000 By General reserve 4,60,000 ` 1,76,000 2,54,000 - 3,00,000 18,000 - - By Bank A/c (W.N.2) 3,00,000 Puneet ` ` Sumit 3,90,000 4,60,000 3,30,000 3,90,000 Balance Sheet as on 1st April, 2011 (After admission of a new partner - Puneet) Liabilities Amount Assets Amount ` Capital accounts Amit Sumit Puneet ` Land and building (3,20,000 + 1,00,000) 4,00,000 Investments 4,20,000 55,000 3,00,000 Debtors 3,00,000 3,00,000 Less: Provision for doubtful debts (15,000) 2,85,000 Creditors Employers provident fund * 50,000 Stock (1,10,000 60,000) Cash at bank (W.N. 3) 10,000 50,000 2,50,000 10,60,000 10,60,000 Working Notes: (1) Calculation of incoming partner s share, new profit sharing ratio and sacrificing ratio Amit 3/5 Old profit sharing ratio * Sumit 2/5 It is assumed that Employer s Provident Fund represents employer s contribution to provident fund which is yet to be deposited. Hence, the same represents a current liability. 7 The Institute of Chartered Accountants of India INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 Surrendered by old partners 3/5 x 1/3 = 1/5 2/5 x 1/4 = 1/10 Remaining share 3/5 1/5 = 2/5 2/5 1/10 = 3/10 Puneet s total share in profits = 1/5 + 1/10 = 3/10 New profit sharing ratio of Amit : Sumit : Puneet =2/5 : 3/10 : 3/10 = 4:3:3 Sacrificing ratio of Amit : Sumit is 1/5 : 1/10 : or 2:1 (2) Calculation of share of goodwill by old partners Goodwill of the firm was ` 3,00,000 Share of Puneet in goodwill = ` 3,00,000 3 = ` 90,000 10 Goodwill will be distributed among the old partners in their sacrificing ratio of 2:1 i.e. ` 60,000 by Amit and ` 30,000 by Sumit. (3) Calculation of closing balance of bank account after admission Bank A/c Particulars Amount Particulars Amount (`) (`) To Balance b/d 50,000 By Amit s capital A/c To Puneet s capital A/c To Sumit s capital A/c 90,000 By Sumit s capital A/c 18,000 By Balance c/d To Amit s capital A/c 1,82,000 3,40,000 60,000 30,000 2,50,000 3,40,000 Question 3 The Balance Sheet of Mars Limited as on 31st March, 2011 was as follow: Liabilities Share Capital: 1,00,000 Equity shares of ` 10 each fully paid up Reserve and surplus Capital reserve Contingency reserve Profit and loss A/c ` Assets ` Fixed Assets: Land and building 10,00,000 Current Assets Stock 42,000 Sundry debtors 2,70,000 Less : Provision for 2,52,000 doubtful debts 8 The Institute of Chartered Accountants of India 7,64,000 7,75,000 1,60,000 8,000 1,52,000 PAPER 1 : ACCOUNTING Current Liabilities & Provisions Bills payable Sundry creditors Provisions for income tax Bill receivable 30,000 40,000 Cash at bank 3,29,000 2,26,000 2,20,000 20,50,000 20,50,000 On 1st April, 2011, Jupiter Limited agreed to absorb Mars Limited on the following terms and conditions: (1) Jupiter Limited will take over the assets at the following values: ` Land and building 10,80,000 Stock 7,70,000 Bills receivable 30,000 (2) Purchase consideration will be settled by Jupiter Ltd. as under: 4,100 fully paid 10% preference shares of ` 100 will be issued and the balance will be settled by issuing equity shares of `10 each at ` 8 paid up. (3) Liquidation expenses are to be reimbursed by Jupiter Ltd. to the extent of ` 5,000. (4) Sundry debtors realized ` 1,50,000. Bills payable were settled for ` 38,000. Income tax authorities fixed the taxation liability at ` 2,22,000 and the same was paid. (5) Creditors were finally settled with cash remaining after meeting liquidation expenses amounting to ` 8,000 You are required to: (i) Calculate the number of equity shares and preference shares to be allotted by Jupiter Limited in discharge of purchase consideration (ii) Prepare the Realisation account, Bank account, Equity shareholders account and Jupiter Limited s account in the books of Mars Ltd. (16 Marks) Answer (i) Calculation of number of shares to be allotted Particulars Amount (`) Land and building 10,80,000 Stock 7,70,000 Bills receivable 30,000 Total 18,80,000 9 The Institute of Chartered Accountants of India INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 Amount discharged by issue of preference shares 4,10,000 Number of preference shares to be issued (4,10,000/100) 4,100 shares 14,70,000 Amount discharged by issue of equity shares (` 18,80,000 4,10,000) Number of equity shares to be issued (` 14,70,000 / 8) (ii) 1,83,750 Shares Ledger Accounts in the books of Mars Limited Realization Account Particulars ` Particulars To Land and building 7,64,000 By Provision for doubtful debts To Stock 7,75,000 By Bills payable To Sundry debtors 1,60,000 By Sundry creditors To Bills receivable ` 8,000 40,000 2,26,000 30,000 By Provision for taxation 2,20,000 3,000 By Jupiter Ltd. (purchase consideration) 18,80,000 To Bank A/c liquidation expenses To Bank A/c- bills payable 38,000 By Bank A/c- sundry debtors To Bank A/c income tax To Bank A/c sundry creditors To Profit transferred to equity shareholders A/c 1,50,000 2,22,000 2,16,000 3,16,000 25,24,000 25,24,000 Bank Account Particulars ` Particulars To Balance b/d To Realisation A/c (payment received ` 3,000 1,50,000 By Jupiter Ltd. from debtors) 3,29,000 By Realisation A/c (liquidation expenses) 5,000 To Jupiter Ltd. (liquidation expenses) 5,000 By Bills payable 38,000 By Income tax 2,22,000 By Sundry creditors (Bal.fig.) 2,16,000 4,84,000 4,84,000 Equity Shareholders Account Particulars To 10% Preference shares ` Particulars 4,10,000 By Equity share capital A/c 10 The Institute of Chartered Accountants of India ` 10,00,000 PAPER 1 : ACCOUNTING in Jupiter Limited To Equity shares in Jupiter Limited By Capital reserve 42,000 14,70,000 By Contingency reserve By Profit and loss A/c By Realisation A/c (profit) 18,80,000 2,70,000 2,52,000 3,16,000 18,80,000 Jupiter Limited Account Particulars To Realisation A/c ` Particulars ` 18,80,000 To 10% Preference shares in Jupiter Limited To Equity shares in Jupiter Limited 4,10,000 14,70,000 18,80,000 18,80,000 Question 4 The following are the summarized Balance Sheets of Lotus Ltd. as on 31 st March 2010 and 2011: Liabilities 31-3-2010 ` 4,00,000 5,00,000 5,00,000 50,000 24,50,000 The Institute of Chartered Accountants of India ` 4,00,000 7,50,000 1,00,000 3,00,000 4,00,000 2,00,000 3,00,000 24,50,000 11 12,50,000 10,000 4,80,000 4,00,000 4,00,000 60,000 26,00,000 ` Assets Land and building Machinery Investment Stock Sundry debtors Cash in hand Cash at bank ` 10,00,000 Equity share capital (` 10 each) Capital reserve Profit and loss A/c Long term loan from the bank Sundry creditors Provision for taxation 31-3-2011 3,80,000 9,20,000 50,000 2,80,000 4,20,000 1,40,000 4,10,000 26,00,000 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 Additional information: (1) Depreciation written off on land and building ` 20,000. (2) The company sold some investment at a profit of ` 10,000, which was credited to Capital Reserve. (3) Income-tax provided during the year ` 55,000. (4) During the year, the company purchased a machinery for ` 2,25,000. They paid ` 1,25,000 in cash and issued 10,000 equity shares of ` 10 each at par. You are required to prepare a cash flow statement for the year ended 31st March 2011 as per AS 3 by using indirect method. (16 Marks) Answer In the books of Lotus Ltd. Cash Flow Statement for the year ending 31st March, 2011 ` I Cash flow from Operating Activities Net Profit before tax for the year (W.N.1) 1,35,000 Add: Depreciation on machinery (W.N.2) 55,000 Depreciation on land & building 20,000 Operating profit before change in working capital Add: Decrease in stock Less: Increase in sundry debtors Less: Decrease in sundry creditors 2,10,000 20,000 (20,000) (1,00,000) Cash generated from Operations Less: Income tax paid (W.N.3) 1,10,000 (45,000) Net cash generated from operating activities II 65,000 Cash flow from Investing activities Purchase of machinery (2,25,000 1,00,000) Sale of investment (W.N. 4) Net cash used in investing activities III ` 60,000 (65,000) Cash flow from financing activities Issue of equity shares (2,50,000-1,00,000) Repayment of long term loan Net cash generated from financing activities Net increase in cash and cash equivalents 1,50,000 (1,00,000) 50,000 50,000 12 The Institute of Chartered Accountants of India (1,25,000) PAPER 1 : ACCOUNTING Cash and cash equivalents at the beginning of the year (2,00,000 + 3,00,000) 5,00,000 Cash and cash equivalents at the end of the year (1,40,000+4,10,000) 5,50,000 Working Notes: 1. Calculation of Net Profit before tax ` Increase in Profit & Loss (Cr.) balance 80,000 Add: Provision for taxation made during the year 55,000 1,35,000 2. Calculation of Depreciation charged during the year on Machinery account Particulars To Balance b/d To Bank To Equity share capital 3. Amount (`) Particulars 7,50,000 By Depreciation (Bal.fig.) 1,25,000 By Balance c/d 1,00,000 9,75,000 Amount (`) 55,000 9,20,000 9,75,000 Calculation of tax paid during the year Provision for Taxation A/c Particulars To Cash (Bal.fig.) To Balance c/d Amount (`) Particulars 45,000 By Balance b/d 60,000 By Profit and Loss A/c 1,05,000 4. Amount (`) 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) Amount (`) Particulars 1,00,000 By Bank A/c (Bal.fig.) 10,000 1,10,000 13 The Institute of Chartered Accountants of India By Balance c/d Amount (`) 60,000 50,000 1,10,000 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 Question 5 The following is the Receipt and Payment Account of Park View Club in respect of the year ended 31st March, 2011. Receipt To Balance b/d To Subscriptions Payments Amount (`) 1,02,500 By Salaries By Stationery * 2009-10 4,500 2010-11 2,11,000 Amount (`) 2,08,000 40,000 By Rent 60,000 By Telephone expenses 10,000 2011-12 7,500 To Profit on sports meet 2,23,000 By Investment 1,55,000 By Sundry expenses To Income from investments 1,00,000 By Balance c/d 5,80,500 1,25,000 92,500 45,000 5,80,500 Additional information: (1) There are 450 members each paying an annual subscription of ` 500. On 1st April, 2010 outstanding subscription was ` 5,000. (2) There was an outstanding telephone bill for ` 3,500 on 31st March, 2011. (3) Outstanding sundry expenses as on 31st March, 2010 totalled ` 7,000. (4) Stock of stationery: On 31st March, 2010 On 31st March, 2011 ` 5,000 ` 9,000 (5) On 31st March, 2010 building stood in the books at ` 10,00,000 and it was subject to depreciation @ 5% per annum. (6) Investment on 31st March, 2010 stood at ` 20,00,000. (7) On 31st march, 2011, income accrued on the investments purchased during the year amounted to ` 3,750. Prepare an Income and Expenditure Account for the year ended 31 st March, 2011 and the Balance Sheet as at that date. (16 Marks) * In the questions paper, the years have been wrongly printed as 2008-09 (instead of 2009-10), 2009-10 (instead of 2010-11) and 2010-11 (instead of 2011-12). However, in the question given above, these corrections have been incorporated. 14 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Answer Park View Club Income and Expenditure Account for the year ending on 31st March 2011 Expenditure Amount (` ) To Salaries 2,08,000 Income Amount (` ) By Subscriptions (W.N. 2) 2,25,000 To Stationery consumed (W.N.3) 36,000 By Profit on sports meet 1,55,000 To Rent 60,000 By Income on investments 1,00,000 To Telephone expenses 10,000 Add: Outstanding on 31.3.11 3,500 To Sundry expenses 13,500 Add: Income accrued 3,750 1,03,750 92,500 Less: Outstanding on 31.3.10 (7,000) 85,500 To Depreciation of building 50,000 To Surplus (excess of income over expenditure) 30,750 4,83,750 4,83,750 Balance Sheet as at 31st March 2011 Liabilities Amount (` ) Capital fund (W.N.1) 31,05,500 Add: Surplus 30,750 Subscriptions received in advance Outstanding telephone bills Assets Amount (`) Outstanding subscriptions 31,36,250 7,500 3,500 Investment (20,00,000+1,25,000) 21,25,000 Add: Interest accrued on investments 3,750 Building 10,00,000 Less: Depreciation Stock of stationery Cash balance 31,47,250 (50,000) 14,500 21,28,750 9,50,000 9,000 45,000 31,47,250 Working Notes: (1) Balance Sheet as at 31st March 2010 Liabilities Amount (`) Assets Outstanding sundry expenses 7,000 Building 15 The Institute of Chartered Accountants of India Amount (`) 10,00,000 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 Capital fund (Bal.fig.) 31,05,500 Investments Stock of stationery Cash balance Outstanding subscriptions 31,12,500 20,00,000 5,000 1,02,500 5,000 31,12,500 (2) Calculation of subscriptions accrued during the year Subscription A/c Particulars To Outstanding Subscriptions (as on 1.4.10) To Income & Expenditure A/c To Subscriptions received in advance for 2011-12 Amount Particulars (`) 5,000 By Cash A/c By Outstanding subscriptions 2,25,000 (as on 31.3.11) (Bal.fig.) Amount (`) 2,23,000 14,500 7,500 2,37,500 (3) Calculation of stationery consumed during the year 2,37,500 ` Stock of stationery as on 31 March, 2010 5,000 Add: Purchased during the year 2010-11 40,000 45,000 Less: Stock of stationery as on 31st March, 2011 (9,000) Stationery consumed 36,000 Question 6 Mr A runs a business of readymade garments. He closes the books of accounts on 31st March, 2010. The Balance Sheet as on 31st March, 2010 was as follows: Liabilities A s capital a/c Creditors ` Assets 4,04,000 Furniture 82,000 Stock Debtors ` 40,000 2,80,000 1,00,000 Cash in hand 28,000 Cash at bank 38,000 4,86,000 4,86,000 16 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING You are furnished with the following information: (1) His sales, for the year ended 31st March, 2011 were 20% higher than the sales of previous year, out of which 20% sales was cash sales. Total sales during the year 2009-10 were ` 5,00,000. (2) Payments for all the purchases were made by cheques only. (3) Goods were sold for cash and credit both. Credit customers pay be cheques only. (4) Deprecition on furniture is to be charged 10% p.a. (5) Mr A sent to the bank the collection of the month at the last date of the each month after paying salary of ` 2,000 to the clerk, office expenses `1,200 and personal expenses ` 500. Analysis of bank pass book for the year ending 31st March 2011 disclosed the following: ` Payment to creditors 3,00,000 31st Payment of rent up to March, 2011 Cash deposited into the bank during the year The following are the balances on 31st March, 2011: 16,000 80,000 ` Stock Debtors 1,60,000 1,20,000 Creditors for goods 1,46,000 On the evening of 31st March 2011, the cashier absconded with the available cash in the cash book. You are required to prepare Trading and Profit and Loss A/c for the year ended 31 st March, 2011 and Balance Sheet as on that date. All the workings should form part of the answer. (16 Marks) Answer Trading and Profit and Loss Account for the year ending 31st March 2011 Particulars ` Particulars ` To Opening stock 2,80,000 By Sales (W.N. 3) To Purchases (W.N. 1) 3,64,000 Credit 4,80,000 To Gross profit 1,16,000 Cash 1,20,000 By Closing stock 7,60,000 1,60,000 7,60,000 17 The Institute of Chartered Accountants of India 6,00,000 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 To Salary 24,000 By Gross profit To Rent 16,000 To Office expenses 14,400 To Loss of cash (W.N. 6) To Depreciation on furniture 23,600 4,000 To Net Profit 1,16,000 34,000 1,16,000 1,16,000 Balance Sheet as on 31st March, 2011 Liabilities A s Capital ` Assets 4,04,000 Add: Net Profit Less: Drawings 34,000 (6,000) Creditors Working Notes: Furniture Less: Depreciation 4,32,000 Stock ` 40,000 (4,000) 36,000 1,60,000 Debtors 1,46,000 Cash at bank 1,20,000 2,62,000 5,78,000 5,78,000 (1) Calculation of purchases Creditors Account Particulars ` Particulars ` To Bank A/c 3,00,000 By Balance b/d 82,000 To Balance c/d 1,46,000 By Purchases (Bal.fig.) 3,64,000 4,46,000 4,46,000 (2) Calculation of total sales ` Sales for the year 2009-10 5,00,000 Add: 20% increase 1,00,000 Total sales for the year 2010-11 6,00,000 (3) Calculation of credit sales ` Total sales 6,00,000 18 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING Less: Cash sales (20% of total sales) (1,20,000) 4,80,000 (4) Calculation of cash collected from debtors Debtors Account Particulars ` Particulars ` To Balance b/d 1,00,000 By Bank A/c (Bal. fig.) 4,60,000 To Sales A/c 4,80,000 By Balance c/d 1,20,000 5,80,000 5,80,000 (5) Calculation of closing balance of cash at bank Bank Account Particulars ` Particulars To Balance b/d ` 38,000 By Creditors A/c To Debtors A/c 3,00,000 4,60,000 By Rent A/c To Cash A/c 16,000 80,000 By Balance c/d 2,62,000 5,78,000 5,78,000 (6) Calculation of the amount of cash defalcated by the cashier ` 1st Cash balance as on April 2010 Add: Cash sales during the year 28,000 1,20,000 1,48,000 24,000 Less:Salary (` 2,000x12) 14,400 Office expenses (` 1,200 x 12) 6,000 Drawings of A (` 500x12) Cash deposited into bank during the year Cash balance as on 31st March 2011 (defalcated by the cashier) 80,000 1,24,400 23,600 Question 7 Answer any four of the following: (a) A and B are partners in a firm and share profits and losses equally. A has withdrawn the following sum during the half year ending 30 th June 2010: 19 The Institute of Chartered Accountants of India INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 Date Amount ` January 15 5,000 February 10 4,000 April 5 8,000 May 20 10,000 June 18 9,000 Interest on drawings is charged @ 10% per annum. Find out the average due date and calculate the interest on drawings to be charged on 30 th June 2010. (b) Best Ltd. deals in five products, P, Q, R, S, and T which are neither similar nor interchangeable. At the time of closing of its accounts for the year ending 31 st March 2011, the historical cost and net realizable value of the items of the closing stock are determined as follows: Items Historical cost Net realizable value ` ` P 5,70,000 4,75,000 Q R 9,80,000 3,16,000 10,32,000 2,89,000 S 4,25,000 4,25,000 T 1,60,000 2,15,000 What will be the value of closing stock for the year ending 31st March, 2011 as per AS 2 Valuation of Inventories ? (c) X,Y and Z are partners sharing profits an losses in the ratio of 4:3:2 respectively. On 31st March, 2011 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 ` 2,16,000 W brings required amount of goodwill. Give necessary Journal Entries to adjust goodwill on retirement of Y and admission of W if they do not want to raise goodwill in the books of accounts. (d) In business today, the accounts which were earlier maintained in a manual form, are replaced with computerized accounts . Explain the significance of computerized accounting system in modern time. (e) On 1st October, 2010, the debit balances of debtors account is ` 77,500 in the books of M/s Zee Ltd. Transactions during the 6 months ended on 31st March 2011 were as follows: 20 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING ` Total sales (including cash sales ` 14,000) 84,000 Payment received from debtors in cash 38,000 Bills receivable received 26,000 Discount allowed to customers for prompt payment 1,000 Goods rejected and returned back by the customer 2,550 Bad debts recovered (written off in 2009) 900 Interest debited for delay in payment 1,250 You are required to prepare a Debtors Account for the period ending 31st March in the General of M/s Zee Ltd. (4 4 = 16 Marks) Answer (a) Calculation of Average due date (Base Date 15th Jan, 2010) Date Amount No. of days ` Product ` January 15 5,000 0 0 February 10 4,000 26 1,04,000 April 5 8,000 80 6,40,000 May 20 10,000 125 12,50,000 June 18 9,000 154 13,86,000 36,000 Average due date = Base date + = 15th Jan + 33,80,000 Total product days Total amount 33,80,000 days 36,000 = 15th Jan + 94 days (approx.) = 19th April, 2010 Number of days from 19th April, 2010 to 30th June, 2010 = 72 days Interest on drawings from 19th April to 30th June @10%: 21 The Institute of Chartered Accountants of India INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 = ` 36,000 72 10 365 100 = ` 710 Hence, interest on drawings ` 710 will be charged from A on 30th June, 2010. (b) As per para 5 of AS 2 Valuation of Inventories, inventories should be valued at the lower of cost and net relizable value. Inventories should be written down to net realizable value on an item-by-item basis. Valuation of inventory (item wise) for the year ending 31st March 2011 Historical Cost Net realizable value Valuation of closing stock ` ` ` 5,70,000 9,80,000 3,16,000 4,25,000 1,60,000 Item 4,75,000 10,32,000 2,89,000 4,25,000 2,15,000 4,75,000 9,80,000 2,89,000 4,25,000 1,60,000 23,29,000 P Q R S T The value of inventory for the year ending 31st March 2011 = ` 23,29,000. (c) Journal Entries Date Particulars L.F. 31.3.11 X s capital A/c Dr. 39,000 Z s capital A/c Dr. 33,000 Dr. (`) Cr.(`) 72,000 To Y s capital A/c (3/9 ` 2,16,000) (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 64,800 To W s capital A/c (3/10 ` 2,16,000) (Being the amount of goodwill brought in by W) W s capital A/c Dr. To X s capital A/c To Z s capital A/c 43,200 21,600 (Being the goodwill credited to sacrificing partners in their sacrificing ratio 2:1) 22 The Institute of Chartered Accountants of India 64,800 PAPER 1 : ACCOUNTING 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 (d) In modern time, computerized accounting systems are used in various areas. The significance of the computerized accounting system is as follows: (1) Increase speed, accuracy and security - In computerized accounting system, the speed with which accounts can be maintained is several fold higher. Besides speed, level of accuracy is also high in computerized accounting system. (2) Reduce errors - In computerized accounting, the possibilities of errors are also very less unless some mistake is made while recording the data. (3) Immediate information - In this system, with an entry of a transaction, corresponding ledger posting is done automatically. Hence, trial balance will also be automatically tallied and the user will get the information immediately. (4) Avoid duplication of work - Computerized accounting systems also remove the duplication of the work. (e) Total Debtors account in the General Ledger of M/s Zee Ltd. Date Particulars Amount Date Particulars ` 1.10.10 To Balance c/d 1.10.10 to 31.3.11 To General Ledger Adjustment A/c: Sales (84,000-14,000) 77,500 1.10.10 31.3.11 ` to By General Ledger Adjustment A/c: Cash collected 70,000 Amount 38,000 (Bill dishonored) 8,500 Bank (Noting charges) 250 31.3.11 Interest 26,000 Discount allowed Bills receivable Bills Receivable A/c 1,000 Sales return 2,550 By Balance c/d 89,950 1,250 1,57,500 23 The Institute of Chartered Accountants of India 1,57,500 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011 Working Note: 1. Bad debts of the year 2008-09 recovered in 2010-11 will not appear in the Total Debtors account. It will be credited to profit & loss account. 2. Bills receivables of ` 5,000 endorsed to the supplier will not be shown in the Total Debtors account because at the time of endorsement Supplier s account will be debited and Bills receivable account will be credited. 24 The Institute of Chartered Accountants of India

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