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CA IPCC : Question Paper (with Answers) - ACCOUNTING Nov 2013

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DISCLAIMER The Suggested Answers hosted in 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 anyway 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 necessary suitable assumptions should be made by the candidates. Working Notes should form part of the answer. Question 1 (a) Amna Ltd. contracted with a supplier to purchase a specific machinery to be installed in Department A in two months time. Special foundations were required for the plant, which were to be prepared within this supply lead time. The cost of site preparation and laying foundations were ` 47,290. These activities were supervised by a technician during the entire period, who is employed for this purpose of ` 15,000 per month. The Technician's services were given to Department A by Department B, which billed the services at ` 16,500 per month after adding 10% profit margin. The machine was purchased at ` 52,78,000. Sales Tax was charged at 4% on the invoice ` 18,590 transportation charges were incurred to bring the machine to the factory. An Architect was engaged at a fee of ` 10,000 to supervise machinery installation at the factory premises. Also, payment under the invoice was due in 3 months. However, the Company made the payment in 2nd month. The company operates on Bank Overdraft@ 11%. Ascertain the amount at which the asset should be capitalized under AS 10. (b) Narmada Ltd. purchased an existing bottling unit from Kaveri Ltd. Kaveri Ltd. followed straight line method of charging depreciation on machinery of the sold unit whereas Narmada Ltd. followed written down value method in its other units. The directors of Narmada Ltd. want to continue to charge depreciation for the acquired unit in Straight Line Method which is not consistent with the WDV method followed in other units. Discuss the contention of the directors with reference to the Accounting Standard. Further during the year, Narmada Ltd. set up a new plant on coastal land. In view of the corrosive climate, the Company felt that its machine life is reducing faster. Can the Company charge a higher rate of depreciation? (c) A Ltd. entered into a contract with B Ltd. to despatch goods valuing ` 25,000 every month for 4 months upon receipt of entire payment. B Ltd. accordingly made the payment of ` 1,00,000 and A Ltd. started despatching the goods. In third month, due to a natural calamity, B Ltd. requested A Ltd. not to despatch goods until further notice though A Ltd. is holding the remaining goods worth ` 50,000 ready for despatch. A Ltd. accounted ` 50,000 as sales and transferred the balance to Advance Received against Sales. Comment upon the treatment of balance amount with reference to the provisions of Accounting Standard 9. The Institute of Chartered Accountants of India 2 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 (d) A Ltd. is amalgamating with B Ltd. They are undecided on the method of accounting to be followed. You are required to advice the management of B Ltd. on the method of accounting that can be adopted under AS-14. (4 x 5 = 20 Marks) Answer (a) Calculation of Cost of Fixed Asset (i.e. Machine) Particulars Purchase Price ` Given 52,78,000 Sales Tax at 4% ` 52,78,000 x 4% Site Preparation Cost Given 47,290 Technician s Salary Add: Specific/Attributable overheads for 2 months (See Note) 30,000 Initial Delivery Cost Transportation Professional Fees for Installation Architect s Fees Total Cost of Asset 2,11,120 18,590 10,000 55,95,000 Note: (i) Interest on Bank Overdraft for earlier payment of invoice is not relevant under AS 10. It may be noted that overdraft facility is generally used for working capital purpose. (ii) Internally booked profits should be eliminated in arriving at the cost of Fixed Assets. (iii) In the absence of information about excise, CENVAT credit has been ignored. (iv) It has been assumed that the purchase price of ` 52,78,000 excludes amount of sales tax. (b) According to para 12 of AS 6 Deprecation Accounting , there are several methods of allocating depreciation over the useful life of the assets. The management of a business selects the most appropriate method(s) based on various important factors e.g., (i) type of asset, (ii) the nature of the use of such asset and (iii) circumstances prevailing in the business. A combination of more than one method is sometimes used. A company may adopt different methods of depreciation for different types of assets, provided the same methods are followed consistently. Thus Narmada Ltd. can continue to charge depreciation for the acquired unit as per straight line method. The statute governing an enterprise may provide the basis for computation of the depreciation. For example, the Companies Act lays down the rates of depreciation in respect of various assets. Where the management s estimate of the useful life of an asset of the enterprise is shorter than that envisaged under the provisions of the relevant statute, the depreciation provision is appropriately computed by applying a higher rate. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 3 Therefore, in the given case, the Company can charge higher rates of depreciation based on its estimate of the useful life of machinery, provided that such estimate is not less than the rate prescribed by the Companies Act, for that class of assets. However, such higher depreciation rates and/or the reduced useful lives of the assets should be disclosed by way of notes to the accounts in the Financial Statements. (c) As per para 11 of AS 9 Revenue Recognition , in a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions are fulfilled: (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. In the given case, transfer of property in goods results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. Also, the sale price has been recovered by the seller. Hence, the sale is complete but delivery has been postponed at buyer s request. A Ltd. should recognize the entire sale of ` 1,00,000 (` 25,000 x 4) and no part of the same is to be treated as Advance Receipt against Sales. (d) An amalgamation may be either an amalgamation in the nature of merger, or an amalgamation in the nature of purchase. The selection of method of accounting for amalgamation (pooling of interests or purchase method) is to be judged after considering the intentions of the both the companies. If genuine pooling of all assets, liabilities, shareholders interest is intended; separate businesses of both the companies are continued and their amalgamation scheme satisfies all the conditions necessary for merger as specified in AS 14 Accounting for Amalgamations, pooling of interests method is adopted. However, if B Ltd. or A Ltd. wants to acquire the other company, then purchase method needs to be adopted. In that case, the shareholders of the acquired company don t continue to have proportional share in equity of the combined company and the business of the acquired company is not intended to be continued. The object of the purchase method is to account for the amalgamation by applying the same principles as are applied in the normal purchase of assets. Thus choice of accounting method depends on the fact whether B Ltd. wants to continue its business or not. The Institute of Chartered Accountants of India 4 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Question 2 Pathak, Quereshi and Ranjeet were partners sharing profits in the ratio of 7 : 5 : 3 respectively. On 31st March, 2013 Quereshi retired when the firm's Balance Sheet was as follows : Liabilities Capital Accounts : ` Assets ` Land and Building 10,00,000 Pathak 8,50,000 Plant and Machinery 4,65,000 Quereshi 6,20,000 Furniture, Fixture and Fittings 2,30,100 Ranjeet 3,70,000 Stock 1,82,200 General Reserve 2,25,000 Trade Debtors Trade Creditors 1,13,000 Less : Provision for Bad Debts 2,00,000 6,000 1,94,000 Cash at Bank Total 21,78,000 Total 1,06,700 21,78,000 It was agreed that : (i) Land & Building be appreciated by 20%. (ii) Plant & Machinery be depreciated by 10%. (iii) Provision for Bad Debts be made equal to 4% of Trade Debtors. (iv) Outstanding repairs bill amounting to ` 1500 be recorded in the books of account. (v) Goodwill of the firm be valued at ` 3,00,000 and Quereshi's capital account be credited with his share of goodwill without raising goodwill account. (vi) Half of the amount due to Quereshi be immediately paid to him by means of a cheque and the balance be treated as a loan bearing interest @ 12% per annum. After Quereshi's retirement, Pathak and Ranjeet admitted Swamy as a new partner with effect from 1st April, 2013. Pathak, Ranjeet and Swamy agreed to share profits in the ratio of 2 : 1 : 1 respectively. Swamy brought patents valued at ` 20,000 and ` 3,80,000 in cash including payment for his share of goodwill as valued by the old firm. The entire amount of ` 4,00,000 was credited to Swamy's Capital Account. Adjustments were made in the capital account for Swamy's share of goodwill. You are required to : (a) Pass journal entries for all the above transactions without any narration, and (b) Prepare the capital account of all the partners. The Institute of Chartered Accountants of India (16 Marks) PAPER 1 : ACCOUNTING 5 Answer (a) Journal Entries 31st March, 2013 1 2. 3 4 5 6 7 8 9 Land and Building To Revaluation A/c Revaluation A/c To Plants and Machinery Revaluation A/c To Provision for bad debts [(` 2,00,000 x 4%) - ` 6000] To Provision for Outstanding repair bills Pathak s Capital A/c Ranjeet s Capital A/c To Quereshi s Capital A/c Revaluation A/c To Pathak s Capital A/c To Quereshi s Capital A/c To Ranjeet s Capital A/c General reserve A/c To Pathak s Capital A/c To Quereshi s Capital A/c To Ranjeet s Capital A/c Quereshi s Capital A/c To Bank A/c To Quereshi s Loan A/c Patents Cash A/c To Swamy s Capital A/c Swamy s Capital A/c (` 3,00,000/4) To Pathak s Capital A/c To Ranjeet s Capital A/c The Institute of Chartered Accountants of India Dr. ` 2,00,000 Dr. 46,500 Dr 3,500 ` 2,00,000 46,500 2,000 1,500 Dr. Dr. 70,000 30,000 Dr. 1,50,000 Dr. 2,25,000 Dr. 8,45,000 Dr. Dr. 20,000 3,80,000 Dr. 75,000 1,00,000 70,000 50,000 30,000 1,05,000 75,000 45,000 4,22,500 4,22,500 4,00,000 60,000 15,000 6 INTERMEDIATE (IPC): NOVEMBER, 2013 (b) Capital Accounts of partners Amount Pathak Quereshi Amount Ranjeet Swamy 31.3.13 To Quereshi Pathak Quereshi Ranjeet 31.3.13 70,000 To Bank A/c By Bal. b/d 30,000 4,22,500 To Loan A/c 10,25,000 6,20,000 3,70,000 1,05,000 75,000 45,000 By Pathak Ranjeet 4,22,500 9,55,000 8,50,000 By general reserve To Bal. c/d 1,00,000 & By Revaluation A/c 70,000 50,000 30,000 10,25,000 8,45,000 4,45,000 4,15,000 8,45,000 4,45,000 1.4.13 1.4.13 To Pathak 60,000 By Bal. b/d To Ranjeet 15,000 By Patents To Bal. c/d Swamy 10,15,000 4,30,000 3,25,000 The Institute of Chartered Accountants of India 4,30,000 4,00,000 4,15,000 20,000 By Cash By Swamy 10,15,000 9,55,000 3,80,000 60,000 15,000 10,15,000 4,30,000 4,00,000 PAPER 1 : ACCOUNTING 7 Working Notes: 1. Calculation of Gaining ratio after retirement of Quereshi on 31st March, 2013 Pathak : Old Ratio Quereshi : Ranjeet 5/15 3/15 7/15 : Gain of Pathak : Pathak : Ranjeet New Ratio 7/10 : 3/10 New Ratio - Old Ratio 7/10 - 7 / 15 (105 70) / 150 35 / 150 Gain of Ranjeet 3/10 3/15 = (45 30)/150 = 15/150 Gaining Ratio = 35 : 15 2. =7:3 Calculation of Sacrificing ratio of Pathak and Ranjeet at time of admission of Swamy 1st April, 2013 New ratio 2:1:1 Sacrificing ratio 7:3 (ratio between old partners) 2 7 4 10 10 - 14 20 4 = 20 1 3 4 10 5-6 20 1 20 4:1 Question 3 (a) The details of Assets and Liabilities of Mr. 'A' as on 31-3-2012 and 31-3-2013 are as follows: 31.3.2012 31.3.2013 ` ` Assets: Furniture 50,000 Building 1,00,000 Stock 1,00,000 2,50,000 Sundry Debtors 60,000 1,10,000 Cash in hand 11,200 13,200 The Institute of Chartered Accountants of India 8 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Cash at Bank 60,000 75,000 Loans 90,000 70,000 Sundry Creditors 50,000 80,000 Liabilities : Mr. 'A' decided to provide depreciation on building by 2.5% and furniture by 10% for the period ended on 31-3-2013. Mr. A purchased jewellery for ` 24,000 for his daughter in December 2012. He sold his car on 30-3-2013 and the amount of ` 40,000 is retained in the business. You are required to : (i) Prepare statement of affairs as on 31-3-2012 and 31-3-2013. (ii) Calculate the profit received by 'A' during the year ended 31-3-2013. (b) Surya Ltd. has provided you the following particulars. Prepare Cash Flow from Operating Activities by Indirect Method in accordance with AS 3 : Profit & Loss Account of Surya Ltd. for the year ended 31st March, 2013 Particulars ` Particulars ` To Depreciation 86,700 By Operating Profit before depreciation To Patents written off 35,000 By Profit on Sale on Investments To Provision for Tax 11,01,600 10,000 1,25,000 By Refund of Tax 3,000 To Proposed dividend 72,000 By Insurance Claim-Major Fire Settlement To Transfer to Reserve 87,000 To Net Profit 1,00,000 8,08,900 12,14,600 12,14,600 Additional information : Stock Trade Debtors Trade Creditors Provision for Tax Prepaid Expenses Marketable Securities Cash Balance The Institute of Chartered Accountants of India 31.3.2012 1,20,000 7,500 23,735 1,18,775 15,325 11,775 25,325 in ` 31.3.2013 1,60,000 75,000 87,525 1,25,000 12,475 29,325 35,340 PAPER 1 : ACCOUNTING 9 Answer (a) (i) Statement of Affairs Liablilities 31.3.12 31.3.13 Assets 31.3.13 ` ` 50,000 45,000 1,00,000 97,500 1,00,000 2,50,000 Debtors 60,000 1,10,000 Cash in hand 11,200 13,200 Cash at Bank ` 31.3.12 60,000 75,000 3,81,200 5,90,700 ` Loans 90,000 70,000 Furniture Creditors 50,000 80,000 Building Capital A/c 2,41,200 4,40,700 Stock 3,81,200 5,90,700 Working Note: Dep. on Building ` 2,500 (2.5% of ` 1,00,000) Dep. on Furniture ` 5,000 (10% of ` 50,000) (ii) Calculation of Profit earned by A during the year ended 31st March, 2013. Capital Account ` ` By bal. b/d To Drawings To bal. c/d 2,41,200 24,000 By Additional Capital (Car sale proceeds) 40,000 4,40,700 By P&L A/c. (Bal. figure) 1,83,500 4,64,700 4,64,700 Note: Interest on drawings and capital has been ignored in the absence of information. (b) Indirect Method Cash flow from Operating activities for the year ended 31st March, 2013 ` Net Profit as per Profit & Loss A/c 8,08,900 Add: Proposed dividend 72,000 Add: Transfer to reserve 87,000 Add: Provision for Tax made during the Current Year The Institute of Chartered Accountants of India 1,25,000 10 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Less: Refund of tax (3,000) Less: Extraordinary items (i.e. Insurance Claim Major Fire Settlement) (1,00,000) Net Profit before taxation, and extraordinary items 9,89,900 Add: Depreciation Add: Patents written off 86,700 35,000 Less: Profit on sale of investments (10,000) Operating profit before working capital changes Increase in stock 11,01,600 (40,000) Increase in trade debtors (67,500) Increase in trade creditors 63,790 Decrease in prepaid expenses 2,850 (40,860) Cash generated from operations 10,60,740 Income taxes paid (net of refund) 1,15,775 Cash flow before extraordinary item Insurance claim recovery (major fire settlement) 9,44,965 1,00,000 Net cash from operating activities 10,44,965 Question 4 Highend Club appointed a new accountant for maintaining books of account. He prepared following Receipts and Payments A/c for the year ended as on 31st March, 2013. Receipts and Payments Account Receipts Amount Payments (`) To Balance b/d To Annual subscription for current year Add : Outstanding of last year received this year 9,000 21,000 45,000 Expenses (including payment for sports material ` 54,000) By Garden Upkeep 36,000 9,54,000 18,000 By Printing & Stationery By Telephone Expenses By Repair & Maintenance 9,18,000 Less Subscription recd. in Advance as on 31-03-2012 9,36,000 1,26,000 55,000 By Electricity Charged 36,000 36,000 To Sale of Old Newspaper 36,000 By Loss on sale of furniture To 5% Interest on Investments 27,000 (Cost as per books ` 90,000) By Balance c/d The Institute of Chartered Accountants of India Amount (`) 25,57,000 PAPER 1 : ACCOUNTING To Entrance Fees 11 68,000 18,00,000 To Donation for building 28,76,000 28,76,000 Additional information : Highend Club had following balances: 01-04-2012 01-04-2013 ` ` Furniture Stock of Sports material Subscription receivable Subscription received in advance Outstanding Printing & Stationery Exp. Outstanding Electricity Charges 50% Entrance Fees is to be capitalized. 3,60,000 1,33,200 1,500 36,000 54,000 18,000 2,500 3,200 Do you agree with above Receipts and Payments Account ? If not, prepare correct Receipts and Payments Account and Income and Expenditure Account for the year ended 31st March, (16 Marks) 2013 and Balance Sheet as on that date. Answer Corrected Receipts and Payments Account of Highend Club for the year ended 31st March, 2013 Receipts Amount Payments ` To bal. b/d Amount ` 9,000 By Printing & Stationery 21,000 To annual subscription 9,18,000 By Telephone expenses 45,000 Less: Receivable on 31.3.2013 (54,000) By Garden upkeep 55,000 By Electricity charges 36,000 By Repairs and maintenance 72,000 Add: Advance received for year 2013-14 Add: Receivable as on 31.3.2012 Less: Advance received on 31.3.2012 18,000 36,000 (18,000) 9,00,000 (1,26,000 - 54,000) To sale of furniture (90,000 - 36,000) 54,000 By Sports material To Sale of old newspaper 36,000 By bal. c/d To Entrance fee 68,000 To Donation for building To Interest on investments 26,11,000 18,00,000 27,000 28,94,000 The Institute of Chartered Accountants of India 54,000 28,94,000 12 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Income & Expenditure Account of Highend Club for the year ended 31st March, 2013 Expenditure Amount Income Amount ` To Printing and Stationery expenses (W.N.1) ` 22,000 By subscription To Repairs and Maintenance 9,18,000 By Entrance fee (1,26,000 -54,000) 72,000 To Telephone expenses (50% of 68,000) 34,000 45,000 By Sale of old newspapers 1,51,200 By Interest on investments To Sports material (W.N. 2) 36,000 27,000 To Garden upkeep 55,000 To Electricity charges (W.N. 3) 39,200 To Loss on sale of furniture 36,000 To Excess of surplus over expenditure 5,94,600 10,15,000 10,15,000 Balance sheet of Highed Club as on 31st March, 2013 Liabilities Amount Assets Amount ` Capital Fund (W.N. 4) 10,58,700 Add: Entrance fee capitalized ` Furniture Less: sale 34,000 3,60,000 90,000 2,70,000 Add: Surplus 5,94,600 16,87,300 Sports material 36,000 Building fund 18,00,000 5% investments 5,40,000 Outstanding Electricity charges 3,200 Cash in hand Outstanding printing and stationary exp. 2,500 Subscription receivable Subscription received in advance 18,000 35,11,000 26,11,000 54,000 35,11,000 Alternatively, Entrance fees may be shown separately as liability without being added to Capital Fund. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 13 Working Notes: 1. Printing and Stationary expenses for the year ` 21,000 2,500 23,500 (1,500) 22,000 Amount paid Add: Outstanding as on 31.3.2013 Less: Outstanding as on 31.3.2012 2. Depreciation on Sports material Stock as on 1.4.2012 1,33,200 Add: Purchases 54,000 1,87,200 36,000 1,51,200 Less: Stock as on 31.3.2013 3. Electricity charges for the year Amount paid Add: Outstanding as on 31.3.2013 4. Calculation of value of investments Interest on 5% investments = ` 27,000 Value of Investment = ` 27,000 x 100 /5 = ` 5,40,000 36,000 3,200 39,200 Balance Sheet as on 1st April, 2012 5. Liabilities ` Assets Furniture Capital fund (balancing fig.) 10,58,700 Sports material Subscription received in advance 18,000 Subscription receivables Outstanding printing and stationary 1,500 Investments charges Cash in hand 10,78,200 ` 3,60,000 1,33,200 36,000 5,40,000 9,000 10,78,200 Note: The above solution is prepared on the basis of the assumption that club is not registered under the Companies Act, 1956. The Institute of Chartered Accountants of India 14 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Question 5 On 31st March, 2013 Bose and Sen Ltd. provides to you the following ledger balances after preparing its Profit and Loss Account for the year ended 31st March, 2013: Credit Balances : ` Equity shares capital, fully paid shares of ` 10 each General Reserve Loan from State Finance Corporation Secured by hypothecation of Plant & Machinery (Repayable within one year ` 2,00,000) Loans: Unsecured (Long term) Sundry Creditors for goods & expenses (Payable within 6 months) Profit & Loss Account Provision for Taxation Proposed Dividend Provision for Dividend Distribution Tax 70,00,000 15,49,100 10,50,000 8,47,000 14,00,000 7,00,000 3,25,500 4,20,000 71,400 1,33,63,000 Debit Balances : ` Calls in arrear 7,000 Land Buildings 14,00,000 20,50,000 Plant and Machinery Furniture & Fixture 36,75,000 3,50,000 Stocks : Finished goods 14,00,000 Raw Materials Sundry Debtors 3,50,000 14,00,000 Advances: Short-term 2,98,900 Cash in hand 2,10,000 Balances with banks Preliminary Expenses Patents & Trade marks 17,29,000 93,100 4,00,000 1,33,63,000 The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 15 The following additional information is also provided : (i) 4,20,000 fully paid equity shares were allotted as consideration for land & buildings. (ii) Cost of Building ` 28,00,000 Cost of Plant & Machinery ` 49,00,000 Cost of Furniture & Fixture ` 4,37,500 (iii) Sundry Debtors for ` 3,80,000 are due for more than 6 months. (iv) The amount of Balances with Bank includes ` 18,000 with a bank which is not a scheduled Bank and the deposits of ` 5 lakhs are for a period of 9 months. (v) Unsecured loan includes ` 2,00,000 from a Bank and ` 1,00,000 from related parties. You are not required to give previous year figures. You are required to prepare the Balance Sheet of the Company as on 31st March, 2013 as required under Revised Schedule VI of the Companies Act, 1956. (16 Marks) Answer Particulars Bose and Sen Ltd. Balance Sheet as on 31st March, 2013 Notes Equity and Liabilities 1 Shareholders' funds a Share capital b Reserves and Surplus 2 Non-current liabilities a Long-term borrowings 3 Current liabilities a Trade Payables b Other current liabilities c Short-term provisions Figures at the end of current reporting period ` 1 2 69,93,000 21,56,000 3 16,97,000 4 5 14,00,000 2,00,000 8,16,900 Total 1,32,62,900 Assets 1 Non-current assets a Fixed assets Tangible assets The Institute of Chartered Accountants of India 6 74,75,000 16 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Intangible assets ( Patents & Trade Marks) 2 4,00,000 a Current assets Inventories 7 17,50,000 b c Trade receivables Cash and cash equivalents 8 9 14,00,000 19,39,000 d Short-term loans and advances 2,98,900 Total 1,32,62,900 Notes to accounts `. 1 Share Capital Equity share capital Issued, subscribed and called up 7,00,000 Equity Shares of ` 10 each (Out of the above 4,20,000 shares have been issued for consideration other than cash) 70,00,000 Less: Calls in arrears 7,000 Total 69,93,000 69,93,000 2 Reserves and Surplus General Reserve Surplus (Profit & Loss A/c) 15,49,100 7,00,000 Less: Preliminary expenses (93,100) 6,06,900 Total 21,56,000 Corporation 8,50,000 3 Long-term borrowings Secured Term Loans Loan from State Finance (` 10,50,000 - ` 2,00,000) (Secured by hypothecation of Machinery) Plant and Unsecured Bank Loan 2,00,000 Preliminary expenses have been written off in line with Accounting Standards. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 17 Loan from related parties 1,00,000 Others 5,47,000 Total 8,47,000 16,97,000 4 Other current liabilities Loan Instalment repayable within one year 2,00,000 5 Short-term provisions Provision for taxation 3,25,500 Proposed Dividend Provision for Dividend Distribution Tax 4,20,000 71,400 Total 8,16,900 6 Tangible assets Land 14,00,000 Buildings 28,00,000 Less: Depreciation 7,50,000 20,50,000 Plant & Machinery Less: Depreciation 49,00,000 12,25,000 36,75,000 Furniture & Fittings Less: Depreciation 4,37,500 87,500 3,50,000 Total 7 74,75,000 Inventories Raw Material 3,50,000 Finished goods 14,00,000 17,50,000 8 Trade receivables Debts outstanding for a period exceeding six months Other Debts 10,20,000 Total The Institute of Chartered Accountants of India 3,80,000 14,00,000 18 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 9 Cash and cash equivalents Cash at bank with Scheduled Banks including Bank deposits for period of 9 months amounting ` 5,00,000 17,11,000 with others 18,000 17,29,000 Cash in hand 2,10,000 Total 19,39,000 Question 6 Monalisa & Co. runs plastic goods shop. Following details are available from quarterly sales tax return filed. Sales 2009 2010 2011 2012 ` ` ` ` 1,80,000 1,70,000 2,05,950 1,62,000 1,28,000 1,86,000 1,93,000 2,21,000 From 1st July to 30th September From 1st October to 31st December 1,53,000 1,59,000 2,10,000 1,47,000 2,31,000 1,90,000 1,75,000 1,48,000 Total 6,20,000 7,13,000 8,19,950 7,06,000 From 1st January to From 1st 30th April to 31st March June Period ` Sales from 16-09-2011 to 30-09-2011 34,000 Sales from 16-09-2012 to 30-09-2012 Nil Sales from 16-12-2011 to 31-12-2011 60,000 Sales from 16-12-2012 to 31-12-2012 20,000 A loss of profit policy was taken for ` 1,00,000. Fire occurred on 15th September, 2012. Indemnity period was for 3 months. Net Profit was ` 1,20,000 and standing charges (all insured) amounted to ` 43,990 for year ending 2011. (16 Marks) Determine the Insurance Claim. Answer (1) Gross profit ratio Net profit in year 2011 Insured standing charges Gross profit The Institute of Chartered Accountants of India ` 1,20,000 43,990 1,63,990 PAPER 1 : ACCOUNTING Ratio of gross profit = 1,63,990 8,19,950 19 = 20% (2) Calculation of Short sales Indemnity period: 16.9.2012 to 15.12.12 Standard sales to be calculated on basis of corresponding period of year 2011 ` Sales for period 16.9.2011 to 30.9.11 34,000 Sales for period 1.10.2011 to 15.12.2011 (Note 1) 1,30,000 Sales for period 16.9.2011 to 15.12.2011 1,64,000 Add: upward trend in sales (15%) (Note 2) 24,600 Standard Sales (adjusted) 1,88,600 Actual sales of disorganized period Calculation of sales from 16.9.12 to 15.12.12 Sales for period 16.9.12 to 30.9.12 Nil Sales for 1.10.12 to 15.12.12 (` 1,48,000 ` 20,000) 1,28,000 Actual Sales 1,28,000 Short Sales (` 1,88,600 - ` 1,28,000) 60,600 (3) Loss of gross profit Short sales x gross profit ratio = 60,600 x 20% 12,120 (4) Application of average clause Net claim = Gross claim x policy value gross profit on annual turnover = 12,120 x Amount of claim 1,00,000 1,79,860 (Note 3) = 6,738.57 (approx.) i.e. `. 6,739 (round off) Working Notes: 1. Sales for period 1.10.11 to 15.12.11 Sales for 1.10.11 to 31.12.11 (given) Sales for 16.12.11 to 31.12.11 (given) Sales for period 1.10.11 to 15.12.11 The Institute of Chartered Accountants of India 1,90,000 60,000 1,30,000 20 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 2. Calculation of upward trend in sales Total sales in year 2009 Increase in sales in year 2010 as compared to 2009 % increase = 93,000 (7,13,000 - 6,20,000) 6,20,000 = = 6,20,000 93,000 = 15% Increase in sales in year 2011 as compared to year 2010 % increase = 3. 1,06,950 (8,19,950 - 7,13,000) 7,13,000 = 15% Thus annual percentage increase trend is of 15%. Gross profit on annual turnover Sales from 16.9.11 to 30.9.11 1.10.11 to 31.12.11 1.1.12 to 31.3.12 1.4.12 to 30.6.12 1.7.2012 to 15.9.2012 (1,75,000 Nil) Sales for 12 months just before date of fire Add: 15% upward trend Adjusted sales of 12 months just before the date of fire Gross profit on adjusted annual sales @ 20% 34,000 1,90,000 1,62,000 2,21,000 1,75,000 7,82,000 1,17,300 8,99,300 1,79,860 Question 7 Answer any four out of the following: (a) On 01-05-2012, Mr. Mishra purchased 800 equity shares of 10 each in Fillco Ltd. @ ` 50 each from a broker who charged 5%. He incurred 20 paisa per 100 as cost of shares transfer stamps. On 31-10-2012, bonus was declared in the ratio 1 : 4. The shares were quoted at ` 110 and ` 60 per share before and after the record date of bonus shares respectively. On 30-11-2012, Mr. Mishra sold the bonus shares to a broker who charged 5%. You are required to prepare Investment Account in the books of Mr. Mishra for the year ending 31-12-2012 and closing value of lnvestment shall be made at cost or market value whichever is lower. (b) Pass journal entries for the following transactions : (i) Conversion of 2 lakh fully paid equity shares of ` 10 each into stock of ` 1,00,000 and balance has 12% fully convertible Debenture. (ii) Consolidation of 40 lakh fully paid equity shares of ` 2.50 each into 10 lakh fully paid equity share of ` 10 each. The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING 21 (iii) Sub-division of 10 lakh fully paid 11% preference shares of ` 50 each into 50 lakh fully paid 11% preference shares of ` 10 each. (iv) Conversion of 12% preference shares of ` 5,00,000 into 14% preference shares ` 3,00,000 and remaining balance as 12% Non-cumulative preference shares. (c) Roshan has a current account with partnership firm. It has debit balance of ` 75,000 as on 01-07-2012. He has further deposited the following amounts: Date Amount (`) 14-07-2012 1,38,000 18-08-2012 22,000 He withdrew the following amounts : Date Amount (`) 29-07-2012 97,000 09-09-2012 11,000 Show Roshan's A/c in the ledger of the firm. Interest is to be calculated at 10% on debit balance and 8% on credit balance. You are required to prepare current account as on 30th September, 2012. (d) The following transactions took place between Thick and Thin. They desire to settle their account on average due date. Purchases by Thick from Thin 9th July, 2013 (` ) 7,200 14th August, 2013 12,200 Sales by Thick to Thin 15th July, 2013 (` ) 18,000 31st August, 2013 16,500 Calculate Average Due Date and the amount to be paid or received by Thick. (e) Explain the reasons due to which the manual accounting system was replaced by the computerized accounting system in modem time. (4 x 4 = 16 Marks) The Institute of Chartered Accountants of India 22 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Answer (a) In the books of Mr. Mishra Investment Account for the year ended 31st Dec. 2012 (Scrip: Equity Shares of Fillco Ltd.) Date 1.5.2012 Particulars Nominal Value (` ) To Cost Date Particulars (` ) Nominal Cost Value (` ) (` ) Bank A/c 8,000 42,080 30.11.12 By Bank A/c 2,000 11,400 31.10.2012 To Bonus shares 2,000 By Balance c/d 8,000 33,664 31.12.2012 To Profit & loss A/c 10,000 45,064 31.12.12 2,984 10,000 45,064 Working Notes: (i) Cost of equity shares purchased on 1.5.2012 = 800 ` 50 + 5% of ` 40,000 + .002 of ` 40,000 = ` 42,080. (ii) Sale proceeds of equity shares sold on 30.11.2012 = 200 ` 60 5% of ` 12,000 = ` 11,400 (iii) Profit on sale of bonus shares on 30.11.12 = Sales proceeds Average cost Sales proceeds = ` 11,400 Average cost =` 42,080 x 2,000 10,000 = ` 8,416 Profit = ` 11,400 ` 8,416 = ` 2,984 (iv) Valuation of equity shares on 31st Dec., 2012 Cost = (` 42,080/10,000 x 8,000) = ` 33,664 Market Value = 800 ` 60 = 48,000 Closing balance has been valued at ` 33,664 being lower than the market value The Institute of Chartered Accountants of India PAPER 1 : ACCOUNTING (b) 23 Journal Entries ` (i) Equity share Capital A/c. ` Dr. 20,00,000 To Equity Stock 1,00,000 To 12% Fully Convertible Debentures 19,00,000 (Being conversion of 2 lakh equity shares of ` 10 each into stock of ` 1,00,000 and balance as fully convertible debentures as per resolution) Dr. 100,00,000 (ii) Equity Share Capital A/c (` 2.50) 100,00,000 To Equity Share Capital A/c (` 10) (Being consolidation of 40 lakh shares of ` 2.50 each into 10 lakh shares of ` 10 each as per resolution) Dr. 500,00,000 (iii) 11% Preference Shares Capital A/c (` 50) 500,00,000 To 11% Preference Share Capital A/c (` 10) (Being subdivision of 10 lakh preference shares of ` 50 each into 50 lakh shares of ` 10 each as per resolution) (iv) 12% Preference Share Capital A/c Dr. 5,00,000 To 14% Preference Share Capital 3,00,000 To 12% Non-cumulative Preference Share Capital (Being conversion of preference shares as per resolution) (c) Date 2,00,000 Roshan s Current Account with Partnership firm (as on 30.9.2012) Particulars Dr Cr Days (`) Dr. or Cr. Dr Product (`) 75,000 Dr. 13 9,75,000 63,000 Cr. 15 34,000 Dr. 20 6,80,000 12,000 Dr. 22 2,64,000 11,000 23,000 Dr. 22 5,06,000 457 23,457 Dr. (`) 01.07.12 To Bal b/d 14.07.12 By Cash A/c 29.07.12 To Self 18.08.12 By Cash A/c 09.09.12 To Self 30.09.12 To Interest A/c 30.09.12 By Bal. c/d Balance (`) 75,000 1,38,000 97,000 22,000 Cr Product (`) 9,45,000 23,457 1,83,457 1,83,457 24,25,000 Interest Calculation: On ` 24,25,000x 10% x 1/365 = The Institute of Chartered Accountants of India ` 664 9,45,000 24 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 On ` 9,45,000 x 8% x 1/365 = ` 207 Net interest to be debited = ` 457 Note:The above current account has been prepared by means of product of balances method. (d) Due Date Calculation of Average Due Date Computation of products for Thick s payments (Taking 9.7.13 as base date) Amount No. of days from base date to due date Product ` 9.7.13 14.8.13 7,200 12,200 19,400 ` 0 36 0 4,39,200 4,39,200 Computation of products for Thin s payments (Base date = 9.7.13) Due Date Amount No. of days from base date to due date ` 15.7.13 31.8.13 18,000 16,500 34,500 Product ` 6 53 Excess of Thin s products over Thick [9,82,500-4,39,200] Excess of Thin s amounts over Thick [34,500-19,400] Number of days from base date to date of settlement is = 1,08,000 8,74,500 9,82,500 5,43,300 15,100 5,43,300 = 36 days (approx.) 15,100 Hence, the date of settlement of the balance amount is 36 days after 9th July, i.e. 14th August. Thus, on 14th August, 2013, Thin has to pay ` 15,100 to Thick. (e) In modern time, computerized accounting system has replaced the manual accounting system due to the following reasons: (1) Speed, accuracy and security - In computerized accounting system, the speed with which accounts can be maintained is several folds higher. Besides speed, level of accuracy is also high in computerized accounting system. (2) Reduced 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) Avoidance of duplication of work - Computerized accounting systems also remove the chances for duplication of the work. The Institute of Chartered Accountants of India

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