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

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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 Candidates are also required to answer any five questions from the remaining six questions. Wherever necessary suitable assumptions may be made and disclosed by way of a note. Working Notes should form part of the answer. Question 1 (a) A business concern maintains self-balancing ledgers. On the basis of following information, prepare General Ledger Adjustment Account in Debtors Ledger for the month of April, 2012: (` ) Debit balances in Debtors Ledger on 01-04-2012 3,58,200 Credit balances in Debtors Ledger on 01-04-2012 9,400 Transactions during the month of April, 2012 are: Total Sales (including Cash Sales, ` 1,00,000) Sales Returns Cash received from credit customers Bills Receivable received from customers 20,95,400 33,100 17,25,700 95,000 Bills Receivable dishonoured 7,500 Cash paid to customers for returns 6,000 Transfers to Creditors Ledger Credit balances in Debtors Ledger on 30-04-2012 16,000 9,800 (b) Arun and Varun were partners sharing profits in the ratio of 13 : 11 respectively. On 1st April, 2012 they admitted Tarun as a new partner on the following conditions: (i) All partners would share profits equally in the new firm. (ii) Tarun would bring in ` 52,000 as his capital and ` 36,000 as his share of goodwill. No goodwill account appeared in the books of the firm at the time of Tarun's admission and it was decided not to open any goodwill account. Adjustment for Tarun's goodwill being made through capital accounts. Pass journal entries to record all the transactions on Tarun's admission. Clearly show the calculation of ratio of sacrifice. (c) On 1st April, 2012, Fastrack Motors Co. sells a truck on hire purchase basis to Teja Transport Co. for a total hire purchase price of ` 9,00,000 payable as to ` 2,40,000 as The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 2 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 down payment and the balance in three equal annual instalments of ` 2,20,000 each payable on 31st March 2013, 2014 and 2015. The hire vendor charges interest @ 10% per annum. You are required to ascertain the cash price of the truck for Teja Transport Co. Calculations may be made to the nearest rupee. (d) During the year ended 31st March, 2012, Sachin Cricket Club received subscriptions as follows : ` 31st For year ending March, 2011 12,000 For year ending 31st March, 2012 6,15,000 For year ending 31st March, 2013 18,000 Total 6,45,000 There are 500 members and annual subscription is ` 1,500 per member. On 31st March, 2012, a sum of ` 15,000 was still in arrears for subscriptions for the year ended 31st March, 2011. Ascertain the amount of subscriptions that will appear on the credit side of Income and Expenditure Account for the year ended 31 st March, 2012. Also show how the items would appear in the Balance Sheet as on 31st March, 2011 and the Balance Sheet as on 31st March, 2012. (4 x 5 = 20 Marks) Answer (a) General Ledger Adjustment Account in Debtors Ledger Date Particulars 01.04.2012 To Balance b/d ` Date 9,400 1.4.2012 01.04.2012 To Debtors ledger to 30.4.2012 Sales Returns Bills receivable received Transfer to creditors ledger 30.04.2012 To Balance c/d (bal.fig) By Balance b/d ` 3,58,200 01.04.2012 By Debtors ledger adjustment A/c : Cash received Particulars to 17,25,700 30.4.2012 adjustment A/c : Credit sales 19,95,400 33,100 Cash paid for returns 6,000 95,000 Bills receivable dishonoured 7,500 16,000 30.04.2012 By Balance c/d 9,800 4,97,700 23,76,900 The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 23,76,900 PAPER 1 : ACCOUNTING (b) 3 Journal Entries on Tarun s admission Year 2012 1st April Bank A/c Dr. To Tarun s Capital A/c (52,000 + 36,000) (Being amount brought by Tarun towards his capital and share of goodwill) Tarun s Capital A/c Dr. To Arun s Capital A/c To Varun s Capital A/c (Being Tarun s share of goodwill in the firm ` 36,000, has been credited to the old partners in the sacrificing ratio 5:3) Dr. Cr. ` ` 88,000 36,000 88,000 22,500 13,500 Note: In place of above entries, Premium on goodwill or Goodwill A/c may also be opened instead of Tarun s capital A/c , for share of goodwill brought by him in cash. Working Note: Calculation of Sacrificing Ratio Arun Varun Tarun Old Ratio 13/24 11/24 -- New Ratio 1/3 1/3 1/3 Sacrificing Ratio (Old new) (13/24 1/3) = 5/24 (11/24 1/3) = 3/24 -- Therefore, sacrificing ratio is 5:3. (c) Ratio of interest and amount due = Rate of int erest 10 = = 1 11 100 + Rate of int erest 110 There is no interest element in the down payment as it is paid on the date of the transaction. Instalments paid after certain period includes interest portion also. Therefore, to ascertain cash price, interest will be calculated from last instalment to first instalment as follows: Calculation of Interest and Cash Price No. of instalments [1] 3rd 2nd Amount due at the time of instalment [2] 2,20,000 4,20,000 [W.N.1] [3] 1/11 of ` 2,20,000 =` 20,000 1/11 of ` 4,20,000= ` 38,182 Cumulative Cash price (2-3) = [4] 2,00,000 3,81,818 1st 6,01,818 [W.N.2] 1/11of ` 6,01,818= ` 54,711 5,47,107 The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India Interest 4 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 Total cash price = ` 5,47,107+ 2,40,000 (down payment) =` 7,87,107. Working Notes: 1. ` 2,00,000+ 2nd instalment of ` 2,20,000= ` 4,20,000. 2. ` 3,81,818+ 1st instalment of ` 2,20,000= ` 6,01,818. (d) Amount of subscription for the year 2011-12 Income & Expenditure Account (An extract) of Sachin Cricket Club For the year ended 31st March, 2012 ` ` 7,50,000 By Subscription (500 members ` 1,500 per member) Balance Sheet of Sachin Cricket Club as on 31st March 2011 (An extract) Liabilities Rs` Assets Rs` Subscription Receivable (15,000 + 12,000) 27,000 Balance Sheet of Sachin Cricket Club as on 31st March 2012 (An extract) Liabilities Unearned Subscription Rs` Assets ` 18,000 Outstanding Subscription of 2010-11 Rs` 15,000 of 2011-12 ` (7,50,000 6,15,000) 1,35,000 1,50,000 Question 2 The following was the Balance Sheet of V Ltd. as on 31st March, 2012: Particulars Note No. Equity and Liabilities (1) Shareholders' Funds (a) Share Capital (b) Reserves and Surplus (2) Non-current Liabilities (a) Long-term Borrowings (3) Current Liabilities Trade Parables 1 2 1,150 (87) 3 Total The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India Amount (` in lakhs) 630 170 1,863 PAPER 1 : ACCOUNTING Assets (1) Non-current Assets Tangible Assets (2) Current Assets Inventories Trade Receivables Cash and Cash equivalents 5 4 5 Total 1,152 380 256 75 1,863 Notes: (1) Share Capital Authorised : Issued, Subscribed and Paid up : ? 80 lakhs Equity Shares of ` 10 each, fully paid up 800 35 lakhs 12% Cumulative Preference Shares of ` 10 each, fully paid 350 Total 1,150 (2) Reserves and Surplus Profit & Loss Account (87) Total (87) (3) Long-term Borrowings 10% Secured Cumulative Debentures of ` 100 each, fully paid up Outstanding Debenture Interest 600 30 Total 630 (4) Tangible Assets Land and Buildings 445 Plant and Machinery 593 Furniture, Fixtures and Fittings 114 Total 1,152 (5) Cash and Cash Equivalents Balance at Bank 69 Cash in hand 6 Total The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 75 6 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 On 1st April, 2012, P Ltd. took over the entire business of V Ltd. on the following terms: V Ltd.'s equity shareholders would receive 4 fully paid equity shares of P Ltd. of ` 10 each issued at a premium of ` 2.50 each for every five shares held by them in V Ltd. Preference shareholders of V Ltd. would get 35 lakh 13% Cumulative Preference Shares of ` 10 each fully paid up in P Ltd., in lieu of their present holding. All the debentures of V Ltd. would be converted into equal number of 10.5% Secured Cumulative Debentures of ` 100 each, fully paid up after the take over by P Ltd., which would also pay outstanding debenture interest in cash. Expenses of amalgamation would be borne by P Ltd. Expenses came to be ` 2 lakhs. P Ltd. discovered that its creditors included ` 7 lakhs due to V Ltd. for goods purchased. Also P Ltd.'s stock included goods of the invoice price of ` 5 lakhs earlier purchased from V Ltd., which had charged profit @ 20% of the invoice price. You are required to : (i) Prepare Realisation A/c in the books of V Ltd. (ii) Pass journal entries in the books of P Ltd. assuming it to be an amalgamation in the nature of merger. (16 Marks) Answer (i) In the books of V Ltd. Realisation Account ` in lakhs ` in lakhs To Land and Buildings A/c 445 By 10% Secured Debentures A/c Cumulative 600 To Plant and Machinery A/c 593 By Outstanding Debenture interest A/c 30 To Furniture, Fixtures & Fittings A/c 114 By Trade payables A/c To Inventories A/c 380 By P Ltd. A/c To Trade Receivables A/c 256 To Bank A/c 170 1,150 (purchase consideration - Refer working note) 69 To Cash in Hand A/c 6 To Equity Shareholders A/c 87 (Profit on Realisation) 1,950 The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 1,950 PAPER 1 : ACCOUNTING (ii) 7 In the books of P Ltd. Journal Entries Dr. ` in lakhs 1. Business Purchase A/c Dr. Cr. ` in lakhs 1,150 To Liquidator of V Ltd. A/c 1,150 (Being purchase consideration due) 2. Land and Buildings A/c Dr. 445 Plant and Machinery A/c Furniture, Fixtures & Fittings A/c Dr. Dr. 593 114 Inventories A/c Trade Receivables A/c Dr. Dr. 380 256 Bank A/c Cash in Hand A/c Dr. Dr. 69 6 Profit and Loss A/c To 10% Debentures A/c Dr. 87 600 To Outstanding Debenture interest A/c To Trade payables A/c 30 170 To Business Purchase A/c 1,150 (Being assets and liabilities taken over from V Ltd. under the scheme of amalgamation in the nature of merger) 3. Liquidators of V Ltd. A/c Dr. 1,150 To Equity Share Capital A/c 640 To 13% Cumulative Preference Shares A/c 350 To Securities Premium A/c 160 (Being discharge of consideration, by allotment of 64 lakhs equity shares of ` 10 each at a premium of ` 2.50 per share and 35 lakhs 13% cumulative preference shares of ` 10 each at par) 4. 10% Secured Cumulative Debentures A/c To 10.5% Secured Cumulative Debentures A/c (Being 10% Secured Cumulative Debentures of V Ltd. converted into 10.5% Secured Cumulative Debentures of P Ltd.) The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India Dr. 600 600 8 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 5. Outstanding Debenture interest A/c Dr. 30 To Bank A/c 30 (Being outstanding debenture interest paid in cash by P Ltd.) 6. Dr. Goodwill A/c To Bank A/c 2 2 (Being amalgamation expenses met by P Ltd.) 7. Trade Payables A/c Dr. 7 To Trade Receivables A/c 7 (Being settlement of mutual liability) 8. Profit and Loss A/c Dr. 1 To Inventories A/c (5 x 20%) (Being unrealized profit on stock eliminated from the inventories of P Ltd.) 1 Working Note: Calculation of Purchase Consideration payable by P Ltd. ` in lakhs Payment to preference shareholders: 13% Cumulative Preference Shares of ` 10 each (35 lakhs shares ` 10) Payment to equity shareholders: 350 (80 lakhs shares x 4/5)= 64 lakhs equity shares @ ` 10 640 Securities Premium (64 lakhs equity shares @ ` 2.5) Total purchase consideration 160 1,150 Question 3 (a) A Trader sold out goods on hire purchase at a profit of 25% on cost price. Prepare (i) Hire Purchase Stock A/c (ii) Shop Stock A/c (iii) Hire Purchase Debtors' A/c and (iv) Hire Purchase Adjustment A/c in the books of the trader from the following details : (` ) Stock in Godown on 01-04-2011 6,00,000 on 31-03-2012 5,00,000 However, amalgamation expenses should be recognized as expenses when they are incurred because no asset is acquired from the expenditure incurred. The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India PAPER 1 : ACCOUNTING 9 Overdue Instalments : on 01-04-2011 on 31-03-2012 40,000 60,000 Goods with Customer on Hire Purchase on 01-04-2011 7,20,000 Purchases 12,92,000 Instalments received 12,00,000 (8 Marks) (b) The following notes pertain to Brite Ltd.'s Balance Sheet as on 31st March, 2012: Notes ` in Lakhs (1) Share Capital Authorised : 20 crore shares of ` 10 each Issued and Subscribed : 10 crore Equity Shares of ` 10 each 20,000 10,000 2 crore 11% Cumulative Preference Shares of ` 10 each Total 2,000 12,000 Called and paid up: 10 crore Equity Shares of ` 10 each, ` 8 per share called and paid up 8,000 2 crore 11% Cumulative Preference Shares of ` 10 each, fully called and paid up 2,000 Total 10,000 (2) Reserves and Surplus : Capital Reserve 485 Capital Redemption Reserve 1,000 Securities Premium General Reserve Surplus i.e. credit balance of Profit & Loss (Appropriation) Account Total 2,000 1,040 273 4,798 On 2nd April 2012, the company made the final call on equity shares @ ` 2 per share. The entire money was received in the month of April, 2012. The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 10 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 On 1st June 2012, the company decided to issue to equity shareholders bonus shares at the rate of 2 shares for every 5 shares held and for this purpose, it decided to utilize the capital reserves to the maximum possible extent. Pass journal entries for all the above mentioned transactions. Also prepare the notes on Share Capital and Reserves and Surplus relevant to the Balance Sheet of the company immediately after the issue of bonus shares. (8 Marks) Answer (a) (i) Hire Purchase Stock Account ` 1.4. 11 To Balance b/d ` 7,20,000 1.4.11 to 31.3.12 1.4.11 to To Shop stock A/c 31.3.12 To H.P Adjustment A/c 13,92,000 31.3.12 3,48,000 By H.P. Debtors 12,20,000 A/c By Balance c/d 12,40,000 (bal.fig.) 25 17, 40,000 125 24,60,000 (ii) 24,60,000 Shop Stock Account ` 1.4.11 To 1.4.11 to To 31.3.12 Balance b/d Purchases ` 6,00,000 1.4.11 By Hire Purchase 13,92,000 to Stock Account (Cost of Goods 31.3.12 sold) (bal.fig.) 12,92,000 31.3.12 By Balance c/d 18,92,000 (iii) 5,00,000 18,92,000 Hire Purchase Debtors Account ` 1.4.11 To Balance b/d 1.4.11 to 31.3.12 To Hire Purchase Stock Account (bal.fig.) 40,000 1.4.11 to 31.3.12 31.3.12 By Bank A/c By Balance c/d 12,00,000 60,000 12,20,000 12,60,000 The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India ` 12,60,000 PAPER 1 : ACCOUNTING (iv) 11 Hire Purchase Adjustment Account ` 31.3.12 To 31.3.12 To Stock reserve on closing H.P.Stock A/c 25 12,40,000 125 Profit and Loss Account (bal.fig.) ` 1.4.11 2,48,000 By Stock reserve on opening H.P. Stock A/c 25 7,20,000 1,44,000 125 1.4.11 By 2,44,000 to 31.3.12 3,48,000 H.P. Stock 4,92,000 (b) 4,92,000 In the books of Brite Ltd. Journal Entries Dr. ` in lakhs 2012 April 2 Equity Share Final Call A/c Dr. Cr. ` in lakhs 2,000 To Equity Share Capital A/c 2,000 (Final call of ` 2 per share on 10 crore equity shares made due) Bank A/c Dr. 2,000 To Equity Share Final Call A/c (Final call money on 10 crore equity shares received) 2,000 June 1 Capital Reserve A/c Capital Redemption Reserve A/c Dr. Dr. 485 1,000 Securities Premium A/c General Reserve A/c Dr. Dr. 2,000 515 To Bonus to Shareholders A/c (Bonus issue of two shares for every five shares held, by utilising various reserves as per Board s resolution dated .) Bonus to Shareholders A/c To Equity Share Capital A/c (Capitalisation of profit) The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 4,000 Dr. 4,000 4,000 12 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 Notes to Accounts ` in lakhs 1. Share Capital Authorised share capital 20 crore shares of ` 10 each Issued, subscribed and fully paid up share capital 14 crore Equity shares of ` 10 each, fully paid up (Out of the above, 4 crore equity shares @ ` 10 each were issued by way of bonus) 2 crore, 11% Cumulative Preference share capital of ` 10 each, fully paid up 2. Reserves and Surplus Capital Reserves Less: Utilized for bonus issue Capital Redemption reserve Less: Utilized for bonus issue Securities Premium Less: Utilized for bonus issue General Reserve Less: Utilized for bonus issue Surplus (Profit and Loss Account) 20,000 14,000 2,000 16,000 485 (485) 1,000 (1,000) 2,000 (2,000) 1,040 (515) Total 525 273 798 Notes: As per SEBI Guidelines, Capital reserve and Securities premium have been assumed as realized in cash and hence can be used for issue of fully paid bonus shares. Question 4 Following information of the Final Accounts of Kumaran Ltd. are missing as shown below: Trading and Profit & Loss A/c for the year ended 31-03-2012 (` 000) To Opening Stock To Purchases 7,000 By Sales ? By Closing Stock To Manufacturing Expenses (` 000) 1,750 To Gross Profit c/d ? ? ? Total The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India ? Total ? PAPER 1 : ACCOUNTING To Office and Administration 13 By Gross Profit b/d Expenses ? 7,400 By Commission Received To Interest on Debentures 1,000 600 To Provision for Taxation To Net Profit for the year c/d ? ? Total ? Total To Proposed Dividends ? By Balance b/d To Transfer to General Reserves ? By Net Profit for the year b/d To Balance Transfer to Balance Sheet ? ? Total 1,400 ? Total ? ? Balance Sheet as on 31-03-2012 Liabilities (` 000) Assets (` 000) Paid up Capital General Reserves: 10,000 Fixed Assets: Plant and Machinery 14,000 Balance at the beginning of the year Other Fixed Assets ? Current Assets: Proposed addition Profit and Loss Appropriation A/c ? ? Stock in Trade Sundry Debtors 10% Debentures Current Liabilities ? ? Bank Balance Total ? Total You are required to provide the missing figures with the help of following information: (i) ? Current ratio 2 :1. (ii) Closing stock is 25% of sales. (iii) Proposed dividends are 40% of the paid up capital. (iv) Gross profit ratio is 60%. (v) Ratio of Current Liabilities to Debentures is 2 : 1. (vi) Transfer to General Reserves is equal to proposed dividends. (vii) Profit carried forward are 10% of the proposed dividends. (viii) Provision for taxation is 50% of profits. The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India ? ? 1,250 ? 14 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 (ix) Balance to the credit of General Reserves at the beginning of the year is twice the amount transferred to that account from the current profits. (16 Marks) Answer ` 000 1. Amount of debentures Interest on debentures = 100 Rate of interest 600 = 100 = 6,000 10 2. Amount of proposed dividend = Paid up share capital x 40%= 10,000 x 40% = 4,000 3. Transfer to general reserves = Amount of proposed dividend i.e. 4,000 4. Profit carried forward = 10% of proposed dividend = 10% of 4,000 = 400 5. Net profit for the year = Proposed dividend + Transfer to general reserve + Profit carried forward Net profit carried forward = (4,000 + 4,000 + 400) 1,400 = 7,000 6. Provision for taxation Provision for taxation = 50% of profit (i.e. before net profit) It means that net profit is 50% and provision for tax is 50%. Therefore, if net profit is 7,000 then, Provision for taxation is also 7,000 7. Gross profit = Net profit + All expenses Commission received = (7,000 + 7,000 + 600 + 7,400) 1,000 = 21,000 8. Sales Gross profit = 100 Rate of profit 21,000 = 100 = 35,000 60 The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India PAPER 1 : ACCOUNTING 9. 15 Closing stock = 25% of sales = 25% x 35,000 = 8,750 10. Purchases = (Sales + Closing stock) (Opening stock + Manufacturing expenses + Gross profit) = (35,000 + 8,750) (7,000 + 1,750 + 21,000) = 43,750 - 29,750 = 14,000 11. Balance of General Reserve as on 1.4.2011 = Twice the amount transferred to general reserve during the year = 2 x 4,000 = 8,000 12. Current Liabilities = Current liabilities is twice of amount of debentures = 2 x 6,000 = 12,000 13. Current Assets Current Assets = Current ratio x Current liabilities = 2 x 12,000 = 24,000 14. Sundry Debtors Sundry Debtors = Current assets Stock in trade Bank balance = 24,000 8,750 1,250 = 14,000 15. Total of Liabilities part of the balance sheet = Shareholders capital + Non-current liabilities + Current liabilities = (10,000 + 12,000 + 400) + 6,000+ 12,000 = 40,400 16. Other Fixed Assets = Total of Liabilities part of the balance sheet (Current assets + Plant and Machinery) = 40,400 (24,000 + 14,000) = 2,400. Question 5 (a) On 01-04-2011, Mr. T. Shekharan purchased 5,000 equity shares of ` 100 each in V Ltd. @ ` 120 each from a broker, who charged 2% brokerage. He incurred 50 paisa per ` 100 as cost of shares transfer stamps. On 31-01-2012 bonus was declared in the ratio of 1 : 2. Before and after the record date of bonus shares, the shares were quoted at ` 175 per share and ` 90 per share respectively. On 31-03-2012, Mr. T. Shekharan sold bonus shares to a broker, who charged 2% brokerage. The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 16 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 Show the Investment Account in the books of T. Shekharan, who held the shares as Current Assets and closing value of investments shall be made at cost or market value whichever is lower. (8 Marks) (b) On 29th August, 2012, the godown of a trader caught fire and a large part of the stock of goods was destroyed. However, goods costing ` 1,08,000 could be salvaged incurring fire fighting expenses amounting to ` 4,700. The trader provides you the following additional information: ` Cost of stock on 1st April, 2011 Cost of stock on 31st 7,10,500 March, 2012 7,90,100 31st Purchases during the year ended March, 2012 st Purchases from 1 April, 2012 to the date of fire 56,79,600 33,10,700 Cost of goods distributed as samples for advertising from 1st April, 2012 to the date of fire 41,000 Cost of goods withdrawn by trader for personal use from 1st April, 2012 to the date of fire Sales for the year ended 31st March, 2012 2,000 80,00,000 Sales from 1st April, 2012 to the date of fire 45,36,000 The insurance company also admitted firefighting expenses. The trader had taken the fire insurance policy for ` 9,00,000 with an average clause. Calculate the amount of the claim that will be admitted by the insurance company. (8 Marks) Answer (a) In the books of T. Shekharan Investment Account for the year ended 31st March, 2012 (Script: Equity Shares of V Ltd.) Date Particulars Cost Date Nominal Value (` ) 1.4.2011 To Bank (W.N.1) A/c 5,00,000 31.1.2012 31.3.2012 Particulars (` ) 6,15,000 31.3.2012 By Bank A/c (W.N.2) To Bonus shares 2,50,000 To Profit and The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 31.3.2012 By Balance c/d Nominal Value (` ) Cost (` ) 2,50,000 2,20,500 5,00,000 4,10,000 PAPER 1 : ACCOUNTING Loss (W.N.3) A/c (W.N.4) 15,500 7,50,000 17 6,30,500 7,50,000 6,30,500 Working Notes: 1. Cost of equity shares purchased on 1st April, 2011 2. = Cost + Brokerage + Cost of transfer stamps = 5,000 ` 120 + 2% of ` 6,00,000 + % of ` 6,00,000 = ` 6,15,000 Sale proceeds of equity shares sold on 31st March, 2012 3. = Sale price Brokerage = 2,500 ` 90 2% of ` 2,25,000 = ` 2,20,500. Profit on sale of bonus shares on 31st March, 2012 = Sales proceeds Average cost Sales proceeds = Average cost ` 2,20,500 4. ` [6,15,000 2,50,000/7,50,000] = Profit = ` 2,05,000 = ` 2,20,500 ` 2,05,000= ` 15,500. Valuation of equity shares on 31st March, 2012 Cost = ` [6,15,000 5,00,000/7,50,000]= ` 4,10,000 i.e ` 82 per share Market Value = 5,000 shares ` 90 = ` 4,50,000 Closing stock of equity shares has been valued at ` 4,10,000 i.e. cost being lower than the market value. (b) Memorandum Trading Account for the period 1st April, 2012 to 29th August 2012 ` To Opening Stock To Purchases Less: Advertisement Drawings ` 7,90,100 By Sales 33,10,700 By Closing stock (Bal. fig.) 45,36,000 8,82,600 (41,000) (2,000) 32,67,700 To Gross Profit [30% of Sales Refer Working Note] 13,60,800 54,18,600 The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 54,18,600 18 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 Statement of Insurance Claim ` Value of stock destroyed by fire 8,82,600 Less: Salvaged Stock (1,08,000) Add: Fire Fighting Expenses 4,700 Insurance Claim 7,79,300 Note: Since policy amount is more than claim amount, average clause will not apply. Therefore, claim amount of ` 7,79,300 will be admitted by the Insurance Company. Working Note: Trading Account for the year ended 31st March, 2012 ` To Opening Stock ` 7,10,500 By Sales To Purchases 56,79,600 By Closing stock To Gross Profit 80,00,000 7,90,100 24,00,000 87,90,100 87,90,100 Rate of Gross Profit in 2011-12 24,00,000 Gross Pr ofit 100 = 30% 100 = 80,00,000 Sales Question 6 Atul, Balbir and Chatur were carrying on a business in partnership sharing profits in the ratio of 5 : 3 : 2 respectively. On 31st March, 2012 their Balance Sheet stood as follows: Liabilities ` Assets ` ` Atul's Capital 6,25,000 Goodwill Balbir's Capital 3,75,000 Land and Buildings 7,00,000 Chatur's Capital 2,50,000 Furniture 1,65,000 General Reserve 1,00,000 Stock 2,86,000 Trade Creditors 2,10,000 Trade Debtors Less: Provision for Doubtful Debts Cash at Bank Total 15,60,000 The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 80,000 1,80,000 3,600 1,76,400 1,52,600 15,60,000 PAPER 1 : ACCOUNTING 19 Atul retired on the above mentioned date and partners agreed that : (i) The current value of goodwill be taken to be equal to the book value of the asset. (ii) Land and Buildings be considered worth ` 9,00,000. (iii) The provision for bad debts on trade debtors be raised to 5%. (iv) Provision be made for compensation of ` 5,000 to an ex-employee. (v) Half of the amount due to Atul be paid immediately in cash and the balance be treated as 10% loan, repayable within 3 years. In order to facilitate cash payment to Atul, Balbir and Chatur brought in ` 3,00,000 in the ratio of 3 : 2 respectively. Prepare Revaluation Account, the Capital Accounts of all the partners and Bank Account. Also draw the Initial Balance Sheet of Balbir and Chatur, immediately after Atul's retirement. (16 Marks) Answer Revaluation Account ` ` To Provision for doubtful debts [(5% of 1,80,000) 3,600] 5,400 By Land and Buildings To Provision for compensation 2,00,000 5,000 To Partners Capital Accounts (Profit) Atul Balbir 94,800 56,880 Chatur 37,920 1,89,600 2,00,000 2,00,000 Partners Capital Accounts Particulars Atul Balbir Chatur ` ` ` To Goodwill (5:3:2) 40,000 24,000 16,000 To Cash A/c 3,84,900 By General Reserve To 10% Loan 3,84,900 By Revaluation A/c The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India Particulars Atul Balbir Chatur ` ` ` By Balance b/d 6,25,000 3,75,000 2,50,000 50,000 30,000 20,000 94,800 56,880 37,920 20 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 To Atul s Capital A/c - To Balance c/d 24,000 By Balbir s & Chatur s Capital Accounts 16,000 40,000 By Cash A/c 5,93,880 3,95,920 8,09,800 6,41,880 4,27,920 1,80,000 1,20,000 8,09,800 6,41,880 4,27,920 Bank Account ` ` To Balance b/d 1,52,600 By Atul s Capital A/c To Balbir s capital A/c To Chatur s capital A/c 1,80,000 By Balance c/d 1,20,000 3,84,900 67,700 4,52,600 4,52,600 Balance Sheet of Balbir and Chatur as at 31.03.2012 (after Atul s retirement) Liabilities ` Assets ` Capital Accounts: Balbir Land and Buildings 5,93,880 Furniture 9,00,000 1,65,000 Chatur 10% Loan from Atul 3,95,920 Stock 3,84,900 Trade Debtors 2,86,000 Trade Creditors Provision for 2,10,000 Less: Provision doubtful debts Compensation 5,000 Cash at Bank 15,89,700 1,80,000 for (9,000) 1,71,000 67,700 15,89,700 Note: Goodwill appearing in the given balance sheet as on 31st March, 2012 has been written off in line with the provisions of Accounting Standard 10. Alternatively, it may not be written off since no information in this regard has been given in the question. Question 7 Answer any four out of the following: (a) T owes to K the following amounts: ` 7,000 due on 15th March, 2012 ` 12,000 due on 5th April, 2012 The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India PAPER 1 : ACCOUNTING 21 ` 30,000 due on 25th April, 2012 ` 20,000 due on 11th June, 2012 He desires to make the full payment on 30th June, 2012 along with interest @ 10% per annum from the average due date. Find out the average due date and the amount of interest. Amount of interest may be rounded off to the nearest rupee. (b) From the following information, ascertain the value of stock as on 31st March, 2012: ` Stock as on 01-04-2011 Purchases 28,500 1,52,500 Manufacturing Expenses Selling Expenses 30,000 12,100 Administration Expenses Financial Expenses 6,000 4,300 Sales 2,49,000 At the time of valuing stock as on 31st March, 2011, a sum of ` 3,500 was written off on a particular item, which was originally purchased for ` 10,000 and was sold during the year for ` 9,000. Barring the transaction relating to this item, the gross profit earned during the year was 20% on sales. (c) PQR Ltd. constructed a fixed asset and incurred the following expenses on its construction: ` Materials Direct Expenses Total Direct Labour 16,00,000 3,00,000 6,00,000 (1/15th of the total labour time was chargeable to the construction) Total Office & Administrative Expenses (4% is chargeable to the construction) Depreciation on assets used for the construction of this asset 9,00,000 15,000 Calculate the cost of the fixed asset. (d) "In determining the cost of inventories, it is appropriate to exclude certain costs and recognize them as expenses in the period in which they are incurred . Provide examples of such costs as per AS 2 Valuation of Inventories . (e) Write any four disadvantages of Pre-packaged Accounting Software. The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India (4 4 = 16 Marks) 22 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 Answer (a) Calculation of Average Due Date taking 15th March, 2012 as the base date Due date Amount No. of days from the base date i.e. 15th March, 2012 Product ` 15th March, 2012 7,000 0 0 5th April, 2012 12,000 21 2,52,000 25th April, 2012 30,000 41 12,30,000 11th June 2012 20,000 88 17,60,000 69,000 Average due date 32,42,000 = Base date + Days equal to = 15th March, 2012 + Total of products Total amount 32,42,000 69,000 = 15th March, 2012 + 47 days (approx.) =1st May, 2012 Interest amount: Interest can be calculated on ` 69,000 from 1st May, 2012 to 30th June, 2012 at 10% p.a. i.e. interest on ` 69,000 for 60 days at 10% p.a. =` 69,000 x 10/100 x 60/366 = ` 1,131 (approx.) Note: Alternatively, interest can be calculated on the basis of 365 days instead of 366 days. In such a case, interest amount will be Rs. 1,134 (approx.) instead of Rs.1,131. (b) Statement showing valuation of stock as on 31.3.2012 ` Stock as on 01.04.2011 Less: Book value of abnormal stock (` 10,000 ` 3,500) ` 28,500 6,500 Add: Purchases 22,000 1,52,500 Manufacturing Expenses 30,000 2,04,500 Less: Cost of Sales: Sales as per Books Less: Sales of Abnormal item The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 2,49,000 (9,000) PAPER 1 : ACCOUNTING 23 2,40,000 Less: Gross Profit @ 20% (48,000) (1,92,000) Value of Stock as on 31st March, 2012 12,500 (c) Calculation of cost of fixed assets ` Materials Direct expenses 16,00,000 3,00,000 Direct labour (1/15th of ` 6,00,000) 40,000 Office and administrative expenses (4% ` 9,00,000) 36,000 Depreciation on assets 15,000 Cost of fixed asset 19,91,000 Note: It is assumed that 4% of office and administrative expenses are specifically attributable to construction of a fixed asset. Alternatively, it may be assumed that 4% of office and administrative expenses are only allocated to construction project and is not specifically attributable to it. In such a case, the cost of fixed assets will be ` 19,55,000. (d) As per AS 2 Valuation of Inventories , certain costs are excluded from the cost of the inventories and are recognised as expenses in the period in which incurred. Examples of such costs are: (a) abnormal amount of wasted materials, labour, or other production costs; (b) storage costs, unless those costs are necessary in the production process prior to a further production stage; (c) administrative overheads that do not contribute to bringing the inventories to their present location and condition; and (d) selling and distribution costs. (e) Disadvantage of Pre-packaged Accounting Software: 1. Lesser Flexibility: Business today is becoming more and more complex. A standard package may not be able to take care of these complexities i.e. it does not cover peculiarities of specific business. Therefore, customization may not be possible in such softwares. 2. Covers only few functional areas and only main reports are covered: Many prepackaged accounting softwares do not cover all functional areas. For example, production process may not be covered by most pre-packaged accounting softwares. The demands for modern day business may make the management The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India 24 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 desire for several other reports for exercising management control. These reports may not be available in a standard package. 3. Lack of security: Any person can view data of all companies with common access password. Levels of access control as we find in many customised accounting software packages are generally missing in a pre-packaged accounting package. 4. Bugs in the software: Certain bugs may remain in the software which takes long time to be rectified by the vendor and is common in the initial years of the software. The The Institute Institute of of Chartered Chartered Accountants Accountants of of India India

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