Suggested Answer_Syll2008_Dec2014_Paper_5

INTERMEDIATE EXAMINATION
GROUP I
(SYLLABUS 2008)

SUGGESTED ANSWERS TO QUESTIONS

DECEMBER 2014

Paper- 5 : FINANCIAL ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
Answer Question No. 1, which is compulsory and any five questions from the rest.

1. (a) From the four alternative answers given against each of the following cases, indicate the
correct answer (just state A, B, C or D): 1×6=6

(i) Excess of hire purchase price over cash price is known as

(A) Installment
(B) Cash down payment
(C) Interest
(D) Capital value of asset

(ii) For the year ended 31.03.2014 accounting income of DNP Ltd. is ` 30 lakhs. However
its Taxable income was ` 20 lakhs only due to timing difference. Tax rate is 30%. The
Deferred tax liability will be
(A) ` 10 Lakhs
(B) ` 3 Lakhs
(C) ` 9 Lakhs
(D) ` 6 Lakhs

(iii) Accounting Standards in India are issued by

(A) Comptroller and Auditor General of India
(B) Reserve Bank of India
(C) The Institute of Accounting Standards of India
(D) The Institute of Chartered Accountants of India

(iv) An amount spent for replacement of worn out part of machine is

(A) Capital Expenditure
(B) Revenue Expenditure
(C) Deferred Revenue
(D) Capital Loss

(v) Receipts and Payments Account records

(A) Only revenue nature receipts
(B) Only capital nature receipts and payment

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 Suggested Answer_Syll2008_Dec2014_Paper_5
(C) Only revenue nature receipts and payments
(D) Both the revenue and capital nature receipts and payments

(vi) A distinguishable component of an enterprise that is engaged in providing an

individual product or service or a group of products or services which is subject to risk
and return as distinctly different from those of other business components are
reportable under
(A) Related Party Disclosure
(B) Contingency Approach
(C) Segment Reporting
(D) Intangible Asset Classification

(b) State whether the following statements are True (T) or False (F) 1x5=5
(i) Inventory valuation affects only the income statement.
(ii) Preference shares are redeemed out of the proceeds of a fresh issue of debentures
made for the purpose of redemption.
(iii) At the time of preparation of departmental profit and loss account discount received
is allocated among various departments on the basis of departmental sales.
(iv) In the case of marine insurance the provision for unexpired risk should be 100% of the
net premium.
(v) Securities Premium Account is shown in the liability side of Balance Sheet under head
Reserves and Surplus.

(c) Fill in the blanks in the following sentences using appropriate word from the alternatives
indicated: 1x5=5
(i) At the preliminary project stage the internally generated software should __________
recognized as an asset. (be / not be)
(ii) Life membership fee is a _____________ nature receipt. (Revenue/Capital)
(iii) Goods in transit is recorded in the books of __________. (H.O./Both H.O. & Branch)
(iv) The profit prior to incorporation can be transferred to _________. (General reserve/
Capital reserve)
(v) If the proposed dividend on paid up equity share capital is more than 12.5% but not
more than 15% then ____________ of current year’s profit should be transferred to
general reserve. (5% / 7.5%)

(d) Match the following in Column I with the appropriate item in Column II: 1x5=5
Column I Column II
(i) Excess workings (A) Branch Accounts
(ii) Report of Board of Directors (B) Intangible Assets
(iii) Debtors Method of Accounting (C) Balance Sheet of Company
(iv) Suspense Account (D) Royalty Accounts
(v) AS 26 (E) Trial Balance
(F) No matching statement found

(e) In the following cases, one out of four answers given is correct. Indicate the correct
answer (=1 mark) and give brief workings in support of your answer (= 1 mark): 2x2=4
(i) Sukku Limited purchased a machine on 1st July, 2013 for ` 8,90,000 and freight and
transit insurance premium paid ` 25,000 and ` 15,000 respectively. Installation
expenses were ` 40,000 and salvage value after 5 year will be ` 50,000. Under straight
line method for the year ended 31st March, 2014 the amount of depreciation will be
(A) ` 1,35,750
(B) ` 1,81,000

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 Suggested Answer_Syll2008_Dec2014_Paper_5
(C) ` 1,84,000
(D) ` 1,38,000

(ii) The Income and expenditure Account and the Receipts and Payments Account of a
Local Club at the end of a particular year show the following amounts:
As per Income Expenditure As per Receipts and Payments
A/c (`) A/c (`)
Printing Charges 7,500 6,900
Rent Paid 12,000 11,000

When there were no outstanding of Rent and Printing charges at the beginning of that
year, the difference of ` 1,600 will be shown in the Balance Sheet at the end of the
year as:
(A) Asset
(B) Liabilities
(C) Ignored
(D) Capital Fund

Answer:

1. (a) (i) C
(ii) B
(iii) D
(iv) B
(v) D
(vi) C

(b) (i) False

(ii) False
(iii) False
(iv) True
(v) True

(c) (i) Not be;

(ii) Capital;
(iii) H.O.;
(iv) Capital Reserve;
(v) 5%.

(d) (i) (D) Royalty Accounts

(ii) (C) Balance Sheet
(iii) (A) Branch Accounts
(iv) (E) Trial Balance
(v) (B) Intangible Assets

(e) (i) (D) ` 1,38,000

Annual Depreciation = (8,90,000+25,000+15,000+40,000 – 50,000)/5 = 184000
Depreciation from 1.7.13 to 31.03.14 = 1,84,000 x (9/12) = ` 1,38,000.

(ii) (B) There being no outstanding at the beginning of the year, the amount paid
as reflected in Income and Expenditure A/c is the amount actually paid as
against what is payable for the year as reflected in Income and Expenditure

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 Suggested Answer_Syll2008_Dec2014_Paper_5
A/c.
Hence, the difference of ` 1,600 to be treated as Liability.

2. (a) The following details are given by Babu Limited for the year ended 31st March, 2014:
Gross Profit Ratio 30%
Debtors Collection Period 43.8 days
Creditors Turnover Ratio 7 times
Inventory Turnover Ratio 9 times
Total Purchases ` 63 Lakhs
Cash Purchases ` 7 Lakhs
Cash Sales ` 15 Lakhs
Cash and bank balance ` 5 Lakhs
Current Liabilities other than Creditors ` 2 Lakhs

The company is in the business of retail sales and only purchase articles and resell them.
You are required to calculate:
(i) Creditors
(ii) Debtors
(iii) Inventory
(iv) Current Ratio
(v) Quick Ratio 1+2+1+2+2=8

(b) A firm has two departments, Cloth and Readymade Garments. The Readymade
Garments were generally made by the firm itself out of cloth supplied by the cloth
department at its usual selling price. The stock in the Readymade Garments Department
may be considered as consisting of 65% cloth and 35% of other expenses. The opening
rate of gross profit of the Cloth Department is 25% and the closing Rate of gross profit is
30%. The opening stock was `2,40,000 and the closing stock was `2,85,000 in the
Readymade Garments Department.

You are required to ascertain the amount of provision to be made for unrealized profit. 3

(c) A and B were partners sharing profit or loss in the ratio of 5:4. C entered as partner for
1/4th shares in profits and he brought ` 2,50,000 for goodwill. C acquired 1/6th share from
B and remaining from A. You are required to:
(i) Calculate sacrifice ratio and new profit sharing ratio.
(ii) Pass journal entries in the books of the firm for the distribution of goodwill. 2+2=4

Answer:

`63 Lakhs - `7 Lakhs

2. (a) (i) Creditors = Credit Purchases/Creditors Turnovers Ratio= = ` 8 lakhs
7
Credit Sales x Debtors Collection Period `75 Lakhs - 43.8
(ii) Debtors = = = ` 9 Lakhs
365 days 365
Total Sales = [Cost of Goods Sold or Total Purchases / (100 – 30)] x 100
(`63 Lakhs x 100) 6300
= = = ` 90 Lakhs
(100 - 30) 70
Credit Sales = Total Sales – Cash Sales = ` 90 Lakhs – ` 15 Lakhs = ` 75 Lakhs

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Cost of Goods Sold `63 Lakhs
(iii) Inventory = = = ` 7 Lakhs
Inventory Turnover 9

Current Assets ` 21Lakhs

(iv) Current Ratio = = = 2.1 : 1
Current Liabilities `10 Lakhs

Current Assets = Inventory + Debtors + Cash & Bank Balance

= ` 7 Lakhs + ` 9 Lakhs + ` 5 Lakhs = ` 21 Lakhs

Current Liabilities = Creditors + Other = ` 8 Lakhs + ` 2 Lakhs = ` 10 Lakhs

Quick Assets Current Assets - Inventory

(vi) Quick Ratio = or
Current Liabilities Current Liabilities - Bank Overdraft

= ` (21 Lakhs – 7 Lakhs) / 10 Lakhs = ` 14 Lakhs / 10 Lakhs = 1.4 : 1.

(b) Amount of provision for unrealized profit already made on opening stock of Readymade
Garments = ` 240000 x 65% x 25% = `39000.

Amount of provision required for closing stock of Readymade Garments = ` 285000 x 65%
x 30% = ` 55575.

Additional provision for unrealized profit to be made at the end of the year = ` 55575 –
39000 = ` 16575.

(c) (i) B’s Sacrifice = 1/6 and A’s sacrifice = ¼ - 1/6 = (3 – 2)/12 = 1/12
Hence, Sacrifice ratio of A & B = 1/12 : 1/6 or 1 : 2
New Profit Sharing Ratio :
New share of A = 5/9 – 1/12 = (20 – 3)/36 = 17/36
New shares of B = 4/9 – 1/6 = (8 – 3)/18 = 5/18 = 10/36
Share of C = ¼ or 9/36
Share of C = ¼ or 9/36
Hence, New Ratio of A, B & C = 17 : 10 : 9

(ii)
Journal Entries
Particulars Dr. (`) Cr.(`)
Bank A/c 250000
To Goodwill A/c 250000
(Amount of goodwill brought by C)
Goodwill A/c 250000
To A’s Capital A/c 83333
To B’s Capital A/c 166667
(Amount of goodwill shared by A&B in sacrifice ratio 1 : 2)

3. (a) The Income and Expenditure Account of the Bhartia Club for the year ended 31st march,
2014 is as follows:
Dr. Cr.
Expenditure ` Income `
To Salaries 95,000 By Subscription 1,50,000

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 Suggested Answer_Syll2008_Dec2014_Paper_5
To General Exp. 20,000 By Entrance Fee 5,000
To Audit Fee 5,000 By Collection for Annual Sports Meet 65,000
To Stationery and Printing 9,000
To Secretary’s Honorarium 20,000
To Interest 2,000
To Bank Charges 1,000
To Depreciation 6,000
To Expenditure on Annual 50,000
Sports Meet
To surplus 12,000
2,20,000 2,20,000

Other Information:
`
Subscription outstanding on 31.03.2013 12,000
Subscription received in advance on 31.03.2013 9,000
Subscription outstanding on 31.03.2014 15,000
Subscription received in advance on 31.03.2014 5,400
Salaries outstanding on 31.03.2013 8,000
Salaries outstanding on 31.03.2014 9,000
Audit fee outstanding on 31.03.2013 4,000
Audit fee outstanding on 31.03.2014 5,000
General expenses prepaid on 31.03.2014 1,200
Sports equipments as on 31.03.2013 52,000
Sport equipments after depreciation on 31.03.2014 54,000
Other balances as on 31.03.2014:
Freehold Ground 2,00,000
Bank loan 40,000
Cash & Bank 32,000
You are required to prepare the Receipts and Payments Account for the year ended 31st
March, 2014 and Balance sheet as at 31st March, 2014. 6+4=10

(b) From the following Cash Account find out Cash from operating activities in accordance
with AS-3 (revised) using direct method: 5

Summary of Cash account for the year ended 31.03.2014

` `
Balance as on 1-4-2013 50,000 Payment of supplier 75,000
Issue of Equity Share 1,50,000 Purchase of Fixed Assets 2,25,000
Receipt from customer 2,00,000 Selling and Distribution exps. paid 25,000
Sale of Fixed Asset 1,50,000 Rent paid 20,000
Dividend paid 45,000
Repayment of Bank loan 1,20,000
Income tax paid 15,000
Balance as on 31.03.2014 25,000
5,50,000 5,50,000

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 Suggested Answer_Syll2008_Dec2014_Paper_5
Answer:

3. (a)
The Bhartia Club
Receipts & Payments A/c for the year ended 31st March, 2014
Particulars ` Particulars `
To Balance b/d (B/f) 27,800 By Salaries 94,000
To Subscription 1,43,400 By General Expense 21,200
(20000 + Prepaid 1200)
To Entrance fee 5,000 By Audit fee (5000 – 5000 + 4000) 4,000
To Collection for Annual Sports Meet 65,000 By Stationery & Printing 9,000
By Secretary’s Honorarium 20,000
By Interest 2,000
By Bank Charges 1,000
By Expenditure on Annual Sports 50,000
Meet
By Sports Equipments 8,000
By Balance c/d 32,000
2,41,200 2,41,200
Working Note:-
1. Subscription received during 2013 – 14:
`
Subscription as per Income & Expenditure A/c 1,50,000
Add: Outstanding on 31-03-2013 12,000
Received in advance on 31-03-2014 5,400
1,67,400
Less: Received in advance on 31-03-2013 ` 9,000
Outstanding on 31-03-2014 ` 15,000 24,000
1,43,400

2. Salaries paid during the year 2013-14:

` 95,000 + ` 8,000 – ` 9,000 = ` 94,000

3. Purchase of Sports Equipments:

`
Closing balance of equipments on 31.03.2014 54,000
Less: Equipments on 31.03.2013 (` 52,000 – Dep. ` 6,000) 46,000
Purchase of equipments 8,000

Balance Sheet as at 31st March, 2014

Liabilities ` Assets `
Salaries Outstanding 9,000 Cash & Bank 32,000
Subscription received in advance 5,400 Prepaid Gen. Expenses 1.200
Audit fee Outstanding 5,000 Subscription Outstanding 15,000
Bank Loan 40,000 Sports Equipments 54,000
Capital Fun as on 1-4-2013(B/F) 2,30,800 Freehold Ground 2,00,000
Add: Surplus 12,000 2,42,800
3,02,200 3,02,200

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(b) Statement of Cash Flow from Operating activities
Receipt from Customers 2,00,000
Less: Payment to suppliers 75,000
Selling and Distribution expenses 25,000
Rent paid 20,000
Income Tax paid 15,000 1,35,000
Cash flow from Operating activities 65,000

4. (a) On 1st April, 2012 Gauru & Co. purchased a machinery on hire purchases system from
Machinery Mart for a cash price of ` 7,50,000 to be paid as ` 1,18,050 cash down and the
balance by three equal annual installments of ` 3,00,000 each. Interest is charged @
20% per annum. Gauru & Co. has decided to write off depreciation on machinery @ 15%
per annum on diminishing balance method. Gauru & Co. paid the installment due at the
end of the first year but could not pay the next installments. On 31 st March, 2014 the
Machinery Mart took the possession of the machinery. On 15th April, 2014 the Machinery
Mart spent ` 30,000 on the repairs of the machinery and sold it for ` 1,80,000 on 20th April,
2014. Installment due on 31.03.2014 was paid by Gauru & Co. on 10 th April.
You are required to prepare:
(i) Gauru & Co.’s Account and Returned Stock Account in the books of Machinery Mart.
(ii) Machinery Account and Machinery Mart’s Account in the books of Gauru & Co. 4+4=8

(b) Jaggu & Co., (Delhi) operates a branch at Jaipur to which goods are invoiced at
wholesale price which is cost plus 25%. The branch sell the goods at the retail price
which is wholesale price plus 20%.

The following information provided for the year ended 31.03.2014:

`
Stock at the branch on 01.04.2013 1,65,000
Goods invoiced to the branch during the year 17,82,000
Expenses of the branch for the year 1,10,000
Gross profit made by the branch 3,30,000
Stock at the branch on 31.03.2014 1,98,000

Some goods were destroyed by the fire during the year.

You are required to prepare, Branch Stock Account, Branch Profit & Loss Account and
Branch Stock Reserve Account in the books of Head Office for the year ended 31 st
March, 2014. 7

Answer:

4. (a) Calculation of Interest included in each installment.

Installment Opening Amount of Interest Payment of Closing Cash
Cash Price Installment (`) Cash Price (`) Price (`)
(`) (`)
1 2 3 4 (3-4)=5 (2-5)=6
Cash down 7,50,000 1,18,050 --- 1,18,050 6,31,950
on 1-4-2012
(i) 31-3-13 6,31,950 3,00,000 6,31,950 x (20/100) = 1,73,610 4,58,340
1,26,390
(ii) 31-3-14 4,58,340 3,00,000 4,58,340 x (20/100) 2,08,332 2,50,008

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 Suggested Answer_Syll2008_Dec2014_Paper_5
= 91,668
(iii) 31-3-15 2,50,008 3,00,000 49,992 2,50,008

(i) Books of Machinery Mart

Gauru & Co’s Account
Date Particulars ` Date Particulars `
1-4-12 To Hire Sales A/c 7,50,000 1-4-12 By Bank A/c 1,18,050
31-3-13 To Interest A/c 1,26,390 31-3-13 By Bank A/c 3,00,000
`` By Balance A/c 4,58,340
8,76,390 8,76,390
1-4-13 To Balance b/d 4,58,340 31-3-14 By Returned Stock A/c 2,50,008
31-3-14 To Interest A/c 91,668 `` By Balance c/d 3,00,000
5,50,008 5,50,008
1-4-14 To Balance b/d 3,00,000 10-4-14 By Bank A/c 3,00,000

Returned Stock A/c

Date Particulars ` Date Particulars `
31-3-14 To Gauru & Co. 2,50,008 31-3-14 By Balance c/d 2,50,008
1-4-14 To Balance b/d 2,50,008 20-4-14 By Bank A/c 1,80,000
15-4-14 To Bank A/c 30,000 31-3-15 By P&L A/c 1,00,008
2,80,008 2,80,008

(ii)
Books of Gauru & Co.
Machinery Account
Date Particulars ` Date Particulars `
1-4-12 To machinery mart 7,50,000 31.3.13 By Depreciation A/c 1,12,500
31.3.13 By Balance c/d 6,37,500
7,50,000 7,50,000
1,4.13 To Balance b/d 6,37,500 31.3.14 By Depreciation A/c 95,625
31.3.14 By Machinery Mart A/c 2,50,008
31.3.14 By Profit & Loss A/c 2,91,867
6,37,500 6,37,500

Machinery Mart Account

Date Particulars ` Date Particulars `
1.4.12 To Bank A/c 1,18,050 1.4.12 By Machinery A/c 7,50,000
31.3.13 To Bank A/c 3,00,000 31.3.13 By Interest A/c 1,26,390
31.3.13 To Balance c/d 4,58,340
8,76,390 8,76,390
31.3.14 To Machinery A/c 2,50,008 1.4.13 To Balance b/d 4,58,340
31.3.14 To Balance c/d 3,00,000 31.3.14 By Interest A/c 91,668
5,50,008 5,50,008
10.4.14 To Bank A/c 3,00,000 1.4.14 To Balance b/d 3,00,000

(b)
Books of Jaggu & Co. (H.O.)
Branch Stock Account
Particulars ` Particulars `
To balance b/d 1,65,000 By Sales (Working Note 1) 19,80,000
To Goods sent to Branch 17,82,000 By Goods lost by fire 99,000

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To Gross Profit c/d 3,30,000 By balance c/d 1,98,000
22,77,000 22,77,000

Branch Profit & Loss Account

Particulars ` Particulars `
To Expenses 1,10,000 By Gross Profit b/d 3,30,000
To Goods lost by fire (W.N. 2) 99,000
To Profit transferred 1,21,000
3,30,000 3,30,000

Branch Stock Reserve A/c

Particulars ` Particulars `
To H.O. P & L A/c – Transfer 33,000 By Balance b/d 33,000
To Balance c/d (Stock Res. Required) 39,600 By H.O. P & L A/c (W.N. 3) 39,600
72,600 72,600
Working Notes:
1. Wholesale Price 100 + 25 = 125
Retail price 125 + 20% = 150
Gross Profit at the Branch
Wholesale Price – Retail Price (150 – 125) 25
Retail Sales Value = 3,30,000 x (150/25) = ` 19,80,000

2. Goods Lost by fire

Opening Stock + Goods Sent + Gross profit - Sales – Closing Stock
1,65,000 + 17,82,000 + 3,30,000 – 19,80,000 – 1,98,000 = 99,000.

3. Stock Reserve
Opening Stock = 1,65,000 x 25/125 = 33,000
Closing Stock = 1,98,000 x 25/125 = 39,600

5. (a) Shyama Limited purchased a second-hand plant for ` 7,50,000 on 1st July, 2011 and
immediately spent ` 2,50,000 in overhauling. On 1st January, 2012 an additional
machinery at a cost of ` 6,50,000 was purchased. On 1st October, 2013 the plant
purchased on 1st July, 2011 became obsolete and it was sold for ` 2,50,000. On that date
a new machinery was purchased at a cost of ` 15,00,000. Depreciation was provided @
15% per annum on diminishing balance method. Books are closed on 31st March in
every year.

You are required to prepare Plant and Machinery Account upto 31st March, 2014. 6

(b) A, B and C were carrying on business as equal partners. On 01.04.2012, A retires from
partnership and his capital account showed a credit balance of ` 2,25,000 after all the
adjustments. Show the relevant Ledger accounts in the books of the firm after A’s
retirement, if:
(i) Full payment to A is made in cash immediately after retirement.
(ii) The payment is made to A in two equal yearly installments plus interest @ 15% per
annum.
(iii) The life annuity of ` 50,000 per annum with 12% interest per annum is payable
assuming that the annuitant passes away immediately after payment of the second
annuity. 5

(c) State which of the following items are (i) Capital Expenditure; (ii) Revenue expenditure;

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 Suggested Answer_Syll2008_Dec2014_Paper_5
(iii) Deferred Revenue Expenditure: 4
(i) Legal charges of ` 15,000 incurred for raising loan.
(ii) An amount of ` 7,500 spent as legal charges for abuse of Trade-Mark.
(iii) Carriage paid on a new machine purchased for ` 18,000.
(iv) ` 25,000 spent on construction of animal-huts.

Answer:

5. (a)
Books of Shyama Limited
Plant & Machinery Account
Date Particulars ` Date Particulars `
1.7.11 To Bank A/c 10,00,000 31.3.12 By Depreciation A/c 1,36,875
(7,50,000 + 2,50,000)
1.1.12 To Bank A/c 6,50,000 31.3.12 By Balance c/d 15,13,125
16,50,000 16,50,000
1.4.12 To Balance b/d 15,13,125 31.3.13 By Depreciation @ 15% 2,26,969
on ` 15,13,125
By Balance c/d 12,86,156
15,13,125 15,13,125
1.4.13 To Balance b/d 12,86,156 1.10.13 By Bank A/c (Sale) 2,50,000
1.10.13 To Bank A/c 15,00,000 31.3.14 By P&L A/c (Loss on Sale) 4,47,797
31.3.14 By Depreciation A/c 2,48,845
31.3.14 By Balance c/d 18,39,514
27,86,156 27,86,156

Working Notes:
Written down value of Machinery which is purchased on 01.07.2011.

On 01.07.2011 10,00,000
Less: Depreciation for 2011-12 of 9 months (10,00,000 x 15% x 9/12) 1,12,500
W.D.V. for 2012-13 8,87,500
Less: Depreciation for 2012-13 1,33,125
W.D.V. for 2013-14 7,54,375
Less: Depreciation for 6 months on (7,54,375 x 15% x 6/12) 56,578
W.D.V. 6,97,797
Less: Selling Price 2,50,000
Less on Sale of Machinery 4,47,797

Total Depreciation
(a) Machinery Purchased on 01.01.2012
On 01.01.2012 6,50,000
Less: Depreciation for 3 months of 2011-12 24,375
W.D.V. 6,25,625
Less: Depreciation for 2012-13 (6,25,625 x 15%) 93,844
W.D.V. 5,31,781
Less: Depreciation for 2013-14 79,767
W.D.V. 4,52,014

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(b)
Machinery Purchased on 01.10.2013 15,00,000
Less: Depreciation for 6 months (15,00,000 x 15% x 6/12) 1,12,500
13,87,500

Total Depreciation ` (1,12,500 + 79,767 + 56,578)

= ` 2,48,845

(b) (i)
A’s Capital A/c
Date Particulars ` Date Particulars `
1.4.12 To Bank A/c 2,25,000 1.4.12 By Balance b/d 2,25,000

(ii)
A’s Loan A/c
Date Particulars ` Date Particulars `
31.3.13 To Bank A/c (1,12,500+33,750) 1,46,250 1.4.12 By A’s Capital A/c 2,25,000
31.3.13 To Balance c/d 1,12,500 31.3.13 By Interest A/c 33,750
2,58,750 2,58,750
31.3.14 To Bank A/c (1,12,500+16,875) 1,29,375 1.4.13 By Balance b/d 1,12,500
31.3.14 By Interest A/c 16,875
1,29,375 1,29,375

(iii)
A’s Annuity Suspense A/c
Date Particulars ` Date Particulars `
31.3.13 To Bank A/c 50,000 1.4.12 By A’s Capital A/c 2,25,000
31.3.13 To Balance c/d 2,02,000 31.3.13 By Interest A/c 27,000
2,52,000 2,52,000
31.3.14 To Bank A/c 50,000 1.4.13 By Balance b/d 2,02,000
To Balance c/d 1,76,240 31.3.14 By Interest A/c 24,240
2,26,240 2,26,240
To Profit & Loss A/c 1,76,240 1.4.14 By Balance b/d 1,76,240

(c) (i) Capital Expenditure

(ii) Revenue Expenditure
(iii) Capital Expenditure
(iv) Capital Expenditure

6. (a) The following is the Profit and Loss Account of Guddu Limited, for the year ended 31st
March, 2014:
` `
To Administrative, Selling & 10,15,600 By Balance b/d 9,80,000
Distribution Expenses
To Directors fees 1,25,000 By G. P. from Trading A/c 55,63,500
To Managerial Remuneration 3,32,000 By Subsidies received 3,50,000
from State Govt.
To Depreciation 7,65,380
To Interest on Debentures 3,34,620
To Provision for taxation 13,45,000

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 Suggested Answer_Syll2008_Dec2014_Paper_5
To General reserve 8,00,000
To Dividend Equalisation Reserve 5,50,000
To Balance c/d 16,25,900
68,93,500 68,93,500

Depreciation as per Schedule II of the Companies Act, 2013 was ` 8,32,600.

You are required to calculate the maximum limit of the managerial remuneration as per
Companies Act, 2013. 5

(b) Patta Limited forfeited 720 equity shares of ` 100 each, which were issued at a discount
of 5% for non-payment of allotment money of ` 40 per share. First and final call on these
shares @ ` 20 per share was not made. 500 out of forfeited shares were re-issued at ` 90
per share as fully paid. Pass necessary journal entries in the books of the company.
5

(c) The following balances were shown in the Balance Sheet of Priya Limited as at 31st
March, 2014:
`
2,00,000 12% Preference shares of ` 10 each fully paid 20,00,000
15,00,000 Equity shares of ` 10 each fully paid 1,50,00,000
5,00,000 Equity shares of ` 10 each, ` 7 paid up 35,00,000
General Reserve 18,50,000
Securities Premium 40,00,000
Profit and Loss Account 72,00,000
10% Debentures of ` 100 each 45,00,000

On 1st April, 2014 the company has made final call @ ` 3 per share on partly paid up
equity shares. The call money was received by 20th April, 2014. Thereafter the company
decided to capitalize its reserves by way of bonus at the rate of two shares for every five
equity shares held.
You are required to show necessary journal entries in the books of the company and
prepare the extract of the Balance Sheet immediately after bonus issue assuming that
the Company has passed necessary resolution at its general body meeting for
increasing the share capital (Notes/Schedules are not required). 5

Answer:

6. (a) Calculation of Net Profit A/s 198 of the companies Act, 2013
Particulars ` `
Gross Profit from Trading A/c 55,63,500
Add: Subsidies received from the state govt. 3,50,000
59,13,500
Less: Administrative, Selling & Dist. Exp. 10,15,600
Directors Fees. 1,25,000
Interest on Debentures 3,34,620
Depreciation as per Schedule II 8,32,600 23,07,820
Net Profit U/s 198 36,05,680
Maximum Managerial remuneration under companies Act, 2013 = 11% of ` 36,05,680 =
3,96,625.

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 Suggested Answer_Syll2008_Dec2014_Paper_5
(b)
Journal o Patta Limited
Date Particulars L.F. Dr. (`) Cr. (`)
Date of Equity Share Capital A/c Dr. 57,600
Forfeiture To Discount on issue of Shares A/c 3,600
To Equity share allotments A/c 28,800
To Share Forfeiture A/c 25,200
(720 Equity shares forfeited due to non-payments of
allotment)
Date of Bank A/c Dr. 45,000
Reissue Discount on issue of Shares A/c Dr. 2,500
Share Forfeiture A/c Dr. 2,500
To Equity Share Capital A/c 50,000
(Forfeited 500 shares were re-issued at ` 90 shares
credited as fully paid up)
Date of Share Forfeiture A/c Dr. 15,000
Transfer To Capital Reserve A/c 15,000
(Balance of forfeiture amount on 500 re-issued, shares
credited to capital reserve Account)

Working Note:
Calculation of amount transferred to capital reserve:
`
Amount forfeited on 500 shares [(25,200 x 500) / 720] 17,500
Less: Forfeited A/c debited on re-issue 2,500
Transferred to capital reserve A/c 15,000

(c)
Priya Limited
Journal Entries
Date Particulars L.F. Dr. (`) Cr. (`)
2014 Equity Share Final Call A/c Dr. 15,00,000
April To Equity Share Capital A/c 15,00,000
1 (Final call of ` 3 per share on 5,00,000 equity share due
as per boards resolution dated……..)
April Bank A/c Dr. 15,00,000
20 To Equity Share Final Call A/c 15,00,000
(Final call money on 90,000 equity shares received)
Security Premium A/c Dr. 40,00,000
General Reserve A/c Dr. 18,50,000
Profit and Loss A/c Dr. 21,50,000
To Bonus to shareholders A/c 80,00,000
(Bonus issue @ two shares for every five shares held by
utilizing various reserve as per board’s Resolution dated
...)
April Bonus to Shareholders A/c Dr. 80,00,000
20 To Equity Share Capital A/c 80,00,000
(Capitalisation of Profits)

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 Suggested Answer_Syll2008_Dec2014_Paper_5
Balance Sheet (Extract) as on 20 th April, 2014 (after bonus issue)
Particulars (`)
Equity Liabilities
1. Shareholder’s Fund
(a) Share Capital (20,00,000 + 1,50,00,000 + 50,00,000 + 80,00,000) 3,00,00,000
(b) Reserves and Surplus (72,00,000 – 21,50,000) 50,50,000

2. Non-Current Liabilities
(a) Long-term borrowings (10% Debentures) 45,00,000

7. (a) Toli Limited has 9% Redeemable Preference Share Capital of ` 15,00,000 consisting of ` 10
shares fully paid up. The company wants to redeem these shares at 20% premium. The
ledger accounts show the following balances:
`
General Reserve 3,50,000
Securities Premium 1,00,000
Capital Reserve 6,50,000
Profit & Loss A/c (Cr.) 6,00,000

The directors desire to make a minimum fresh issue of equity shares of ` 10 each at 25%
premium for redemption of the preference shares. You are required to ascertain the
requisite amount of equity shares of new issue necessarily to be made by the directors of
the company and pass the necessary journal entries to record new issue of equity shares
and redemption of preference shares. 7

(b) On 1st April, 2010 Rukmani Limited leased a coal mine at a minimum rent of ` 36,000 for
the first year, ` 60,000 for second year and there after ` 1,20,000 per annum merging into
a royalty of ` 3 per tonne with right to recoup short workings over two years after
occurring short workings. The output for first year years are as follows:

Year 1 2 3 4
Coal output (in tones) 6000 17200 44000 100000

You are required to prepare Royalty Account, Short workings Account and Landlord’s
Account in the books of Rukmani Ltd.
(c) Chandu Udyog borrowed ` 2 crores for purchase of machinery on 1st July, 2013. Interest
payable on loan is 15% per annum. The machinery was put to use from 1 st January, 2014.
Pass journal entries for the year ended 31st March, 2014 to record the borrowing cost of
Loan, as per AS – 16. 3

Answer:

7. (a) Calculation of Minimum amount of New Issue of Equity Shares

Arrangement of Required Amount = Preference share Capital to be redeemed +

Premium on Redemption = ` 15,00,000 + ` 3,00,000 = 18,00,000
Let the new issue be of ` x, therefore, arrangement of required amount = General
Reserve + Securities Premium (Balance) + Profit and Loss Account (Cr. Balance) +
Proceeds by way of capital from New issue + Securities Premium Proceeds on New Issue.
Or ` 18,00,000 = 3,50,000 + 1,00,000 + 6,00,000 + ` x + 25% of ` x
Or ` 18,00,000 = 10,50,000 + ` 5/4x

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 Suggested Answer_Syll2008_Dec2014_Paper_5
Or ` 7,50,000 = 5/4x
Or x = 7,50,000 x 4/5 = ` 6,00,000
Thus Amount of New Equity Share Capital = ` 6,00,000; and Amount of Securities Premium
on New Issue = 25% on ` 6,00,000 = ` 1,50,000.

No. of New Equity Shares to be issued = 60,000 of ` 10 each @ 12.50 per share

Journal of Toli Limited

Date Particulars L.F. Dr. (`) Cr. (`)
Date of Bank A/c Dr. 7,50,000
receipt To Equity Share Application & allotment A/c 7,50,000
(Share application money received)
Date of Equity Share Application & Allotment A/c Dr. 7,50,000
Allotment To Equity Share Capital A/c 6,00,000
To Securities Premium A/c 1,50,000
(Application money transferred to E.S. capital A/c
and Securities Premium A/c)
Date of Securities Premium A/c Dr. 2,50,000
Transfer Profit & Loss A/c Dr. 50,000
To Premium on Red. Of Pre. Shares A/c 3,00,000
(Premium on redemption provided)
Date of General Reserve A/c Dr. 3,50,000
Transfer Profit & Loss A/c Dr. 5,50,000
To Capital Redemption Reserve A/c 9,00,000
(Necessary amount credited to Capital Redemption
Reserve because of not covered by fresh issue of
Shares)
Date of 9% Redeemable Preference Shares Capital A/c Dr. 15,00,000
Redemp- Premium on Red. Of Preference shares A/c Dr. 3,00,000
tion To Bank A/c 18,00,000
(Preference Shares Redeemed at 20% Premium)

(b)
Analytical Table
Year Minimum Actual Shortworkings Shortworkings Actual Closing
Rent Royalty (-) or Excess Recou- Transferred Payment Balance
workings (+) pied to P&L A/c of Short-
workings
` ` ` ` ` ` `
2010-11 36,000 18,000 -18,000 36,000 18,000
2011-12 60,000 51,600 -8,400 60,000 26,400
2012-13 1,20,000 1,32,000 +12,000 12,000 6,000 1,20,000 8,400
2013-14 1,20,000 3,00,000 +1,80,000 8,400 2,91,600 Nil

Royalty A/c
Date Particulars ` Date Particulars `
31.3.11 To Landlord 18,000 31.3.11 By P&L A/c 18,000
31.3.12 To Landlord 51,600 31.3.12 By P&L A/c 51,600
31.3.13 To Landlord 1,32,000 31.3.13 By P&L A/c 1,32,000
31.3.14 To Landlord 3,00,000 31.3.14 By P&L A/c 3,00,000

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 Suggested Answer_Syll2008_Dec2014_Paper_5
Shortworkings A/c
Date Particulars ` Date Particulars `
31.3.11 To Landlord 18,000 31.3.11 By Balance c/d 18,000
1.4.11 To Balance b/d 18,000
31.3.12 To Landlord 8,400 31.3.12 By Balance c/d 26,400
26,400 26,400
1.4.12 To Balance b/d 26,400 31.3.13 By Landlord 12,000
By P&L A/c 6,000
By Balance c/d 8,400
26,400 26,400
1.4.13 To Balance b/d 8,400 31.3.14 By Landlord 8,400

Landlord’s A/c
Date Particulars ` Date Particulars `
31.3.11 To Bank A/c 36,000 31.3.11 By Royalty A/c 18,000
By Short Workings A/c 18,000
36,000 36,000
31.3.12 To Bank A/c 60,000 31.3.12 By Royalty A/c 51,600
By Short Workings A/c 8,400
60,000 60,000
31.3.13 To Short Workings A/c 12,000 31.3.13 By Royalty A/c 1,32,000
To Bank A/c 1,20,000
1,32,000 1,32,000
31.3.14 To Short workings A/c 8,400 31.3.14 By Royalty A/c 3,00,000
To Bank A/c 2,91,600
3,00,000 3,00,000

(c)
Particulars `
Interest upto 31.3.2014 [2,00,00,000 x (15/100) x (9/12)] 22,50,000
Less: Interest relating to pre-operative period (22,50,000 x 6/9) (15,00,000)
Amount to be charged to P&L A/c 7,50,000
Pre-operative interest to be capitalized 15,00,000

Journal Entries
Particulars L.F. Dr. (`) Cr. (`)
Machinery A/c Dr. 15,00,000
To Loan A/c 15,00,000
(Being interest on loan for pre-operative period capitalized)
Interest on Loan A/c Dr. 7,50,000
To Loan A/c 7,50,000
(Being the interest on loan for the post-operative period)
Profit & Loss A/c Dr. 7,50,000
To Interest on Loan A/c 7,50,000
(Being interest on loan transferred to P&L A/c)

8. Answer any three from the following: 5x3=15

(a) Guidelines followed in the absence of partnership deed.
(b) Commission on re-insurance ceded/accepted.
(c) Rebate on Bills discounted.

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 Suggested Answer_Syll2008_Dec2014_Paper_5
(d) The disclosure requirements under AS-7 (Revised).
(e) Limitations of Financial Ratios.

Answer:

8. (a) In the absence of partnership deed the following guidelines should be followed:

(i) Every Partner should share profit equally [Section 13 (b)].

(ii) No interest is to be allowed on Partners’ capitals [Section 13(C)].
(iii)No interest is to be charged on the drawings of the Partners.
(iv) No salary is to be allowed to any partner.
(v) Interest on advances made by partners should be provided @ 6% per annum.
[Section 13 (d)].
(vi) Every partner should be to have equal share in the property of the Partnership as per
Section 14.

(b) Commission on re-insurance ceded / accepted.

The business of the company is fetched through its agents who are paid commission
according to the amount of business they are getting for the company. When company
gets re-insurance business it has to pay commission to some other company. This
commission is called ‘Commission on re-insurance accepted’ and is shown as an
expense in the revenue account.
When a company passes on a part of business to some other company then this
company (which gives business) gets commission from the company to whom such
business is given. This commission is called ‘Commission on re-insurance ceded’ and is a
gain to the company surrendering the business. It appears on the credit side of revenue
account.

(c) Rebate on Bills Discounted:

When a bank discount a bill, Bills Discounted and Purchased Account is debited with the
full value of the bill and current account (customer’s) is credited with the net proceeds
and interest and discount account is credited with the total discount of the bill. Discount
represent the interest on the interest on bill value for the unexpired period of the bill
(differences between the date of maturity and date of discounting). It sometimes
happen that on the closing day of the accounting year, the bill in question has not
matured. At the time of preparing Final Accounts, the interest relating to next
accounting period must be carried forward by means of the following entry:

Interest and Discount Account Dr.

To Rebate on Bills Discounted Account.

Rebate on Bill Discounted appears in the Balance Sheet under Equities and Liabilities and
is shown under the head ‘Other Liabilities and Provisions (Schedule 5).

At the commencement of the next accounting year, it is transferred to Interest and

Discount Account by means of a reverse entry.

(d) According to paragraphs 38, 39 and 41 of AS – 7, an enterprise should disclose:

(i) The amount of contract revenue recognized as revenue in the period;
(ii) The methods used to determine the contract revenue recognized in the period; and
(iii) The methods used to determine the stage of completion of contracts in progress.

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 Suggested Answer_Syll2008_Dec2014_Paper_5
In case of contract still in progress the following disclosures are required at the reporting
date:
(i) The aggregate amount of costs incurred and recognized profits (less recognized
losses) upto the reporting date;
(ii) The amount of advances received; and
(iii) The amount of retentions.

An enterprise should also present:

(i) The gross amount due from customers for contract work as an asset; and
(ii) The gross amount due to customers for contract work as a liability.

(e) Limitations of Financial Ratios:

The limitation of financial ratios are listed below:
(i) Diversified product lines: Many businesses operate a large number of division in quite
different industries. In such cases, ratios calculated on the basis of aggregate data
cannot be used for inter-firm comparisons.
(ii) Financial data are badly distorted by inflation: Historical cost values may be
substantially different from true values. Such distortions of financial data are also
carried in the financial ratios.
(iii) Seasonal factors may be also influence financial data.
(iv) To five a good shape to the popularly used financial ratios (like current ratio, debt-
equity ratio, etc.): The business may make some year-end adjustments. Such window
dressing can change the character of financial ratios which would be different had
there been no such change.
(v) Differences in accounting policies and accounting period: It can make the
accounting data of two firms non-comparable as also the accounting ratios.
(vi) There is no standard set of ratios against which a firm’s ratio can be compared:
Sometimes a firm’s ratios are compared with the industry average. But if a firm desires
to be above the average, then industry average becomes a low standard. On the
other hand, for a below average firm, industry averages become too high a
standard to achieve.

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