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CA Foundation
Accounts
ODR Batch
Important Questions

Bank Reconciliation Statement

1. On 31st December 20X0, the bank column of A. Philip’s cash book showed a debit balance of ₹
4,610. On examination of the cash book and bank statement, you find that:
i) Cheques amounting to ₹ 6,30,000 which were issued to trade payables and entered in the
cash book before 31st December 20X0 were not presented for payment until that date.
ii) Cheques amounting to ₹ 2,50,000 had been recorded in the cash book as having been paid
into the bank on 31st December 20X0 but were entered in the bank statement on 1st January
20X1.
iii) A cheque for ₹ 73,000 had been dishonoured prior to 31st December 20X0, but no record of
this fact appeared in the cash book.
iv) A dividend of ₹ 3,80,000, paid directly to the bank had not been recorded in the cash book.
v) Bank interest and charges amounting to ₹ 4,200 had been charged in the bank statement but
not entered in the cash book.
vi) No entry had been made in the cash book for a trade subscription of ₹ 10,000 paid to vide
banker’s order in November 20X0.
vii) A cheque for ₹27,000 drawn by B. Philip had been charged to A. Philip’s bank account by
mistake in December 20X0.

You are required:

a) To make appropriate adjustments in the cash book bringing down the correct balance, and
b) To prepare a statement reconciling the adjusted balance in the cash book with the balance
shown in the bank statement.
(ICAI SM)
Sol. A. Philip
Dr. Cash Book (Bank column) Cr.
Date Particulars Amount Date Particulars Amount
20X0 20X0
Dec. 31 To Balance b/d 4,610 Dec. 31 By Trade receivables- 73,000
Cheque dishonoured
To Dividend 3,80,000 By Bank interest and 4,200
received charges
By Trade Subscription 10,000

By Balance c/d 2,97,410

3,84,610 3,84,610
20X1
Jan. 1 To Balance b/d 2,97,410

Bank Reconciliation Statement

as at 31.12.20X0
Particulars Plus Item Minus Item

Balance per cash book (Dr.) 2,97,410

Cheques not yet presented 6,30,000
Lodgement not yet recorded by the Bank 2,50,000
Cheque wrongly charged 27,000
Balance as per the bank statement (Cr.) 6,50,410
9,27,410 9,27,410

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2. When Nikki & Co. received a Bank Statement showing a favourable balance of ₹ 10,39,200 for
the period ended on 30th June, 20X0, this did not agree with the balance in the cash book.
An examination of the Cash Book and Bank Statement disclosed the following:
1) A deposit of ₹ 3,09,200 paid on 29th June, 20X0 had not been credited by the Bank until
1st July, 20X0.
2) On 30th March, 20X0 the company had entered into hire purchase agreement to pay by
bank order a sum of ₹ 3,00,000 on the 10th of each month, commencing from April, 20X0.
No entries had been made in Cash Book.
3) A customer of the firm, who received a cash discount of 4% on his account of ₹ 4,00,000
paid the firm a cheque on 12th June. The cashier erroneously entered the gross amount
in the bank column of the Cash Book.
4) Bank charges amounting to ₹ 3,000 had not been entered in Cash-Book.
5) On 28th June, a customer of the company directly deposited the amount in the bank ₹
4,00,000, but no entry had been made in the Cash Book.
6) ₹ 11,200 paid into the bank had been entered twice in the Cash Book.
7) A debit of ₹ 11,00,000 appeared in the Bank Statement for an unpaid cheque, which had
been returned marked ‘out of date’. The cheque had been re-dated by the customer and
paid into Bank again on 5th July, 20X0.
Prepare Bank Reconciliation Statement on 30 June, 20X0. (ICAI SM)
Sol. Bank Reconciliation Statement as on 30.06.20X0
Particulars Plus Items (₹) Minus
Items (₹)
Balance as per Pass Book (Cr.) 10,39,200
Deposited with bank but not credited 3,09,200
Payment of Hire Purchase instalments not entered in the 9,00,000
Cash Book (₹ 3,00,000×3)
Discount allowed wrongly entered in bank column (₹ 16,000
4,00,000 × 4%)
Bank charges not entered in the Cash Book 3,000
Direct deposit by customer not entered in the Cash Book 4,00,000
Deposit entered in the Cash Book twice 11,200
Cheque returned ‘out of date’ entered in the Cash Book 11,00,000
Balance as per the Pass Book (Cr.) 29,78,600
33,78,600 33,78,600

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Bill of Exchange
1. Journalise the following transactions in K. Katrak’s books.
i) Katrak’s acceptance to Basu for ₹ 2,500 discharged by a cash payment of ₹ 1,000 and a new
bill for the balance plus ₹ 50 for interest.
ii) G. Gupta’s acceptance for ₹ 4,000 which was endorsed by Katrak to M. Mehta was dishonoured.
Mehta paid ₹ 20 noting charges. Bill withdrawn against cheque.
iii) D. Dalal retires a bill for ₹ 2,000 drawn on him by Katrak for ₹ 10 discount.
iv) Katrak’s acceptance to Patel for ₹ 5,000 discharged by Patel. Mody’s acceptance to Katrak for
a similar amount.
(ICAI SM/ Nov. 2018 RTP/Oct. 2019 MTP/May 2021 RTP/Nov. 2021 RTP)
Sol. In the books of K. Katrak
Journal Entries
S.NO. Particulars Dr. (₹) Cr. (₹)
i) Bills Payable Account Dr. 2,500
Interest Account Dr. 50
To Cash A/c 1,000
To Bills Payable Account 1,550
(3 months acceptance given to Vijay for the amount.)
ii) G. Gupta Dr. 4,020
To M. Mehta 4,020
(G. Gupta’s acceptance for ₹ 4,000 endorsed to M. Mehta
dishonoured ₹ 20 paid by M. Mehta as noting charges.)
M. Mehta Dr. 4,020
To Bank Account 4,020
(Payment to M. Mehta on withdrawal of bill earlier
received from Mr. G. Gupta.)
iii) Bank Account Dr. 1,990
Discount Account Dr. 10
To Bills Receivable Account 2,000
(Payment received from D. Dalal against his acceptance
for ₹ 2,000. Allowed him a discount of ₹10.)
iv) Bills Payable Account Dr. 5,000
To Bills Receivable Account 5,000
(Bills Receivable from Mody endorsed to Patel in
settlement of bills payable issued to him earlier.)
2. Rita owed ₹ 1,00,000 to Siriman. On 1st October, 20X0, Rita accepted a bill drawn by Siriman for
the amount at 3 months. Siriman got the bill discounted with his bank for ₹ 99,000 on 4 th October,
20X0. On the due date, Rita approached Siriman for renewal of the bill. Siriman agreed on the
conditions that ₹ 50,000 be paid immediately together with interest on the remaining amount at
12% per annum for 3 months and for the balance, Rita should accept a new bill at three months.
These arrangements were carried out. But afterwards, Rita became insolvent and 40% of the
amount could be recovered from his estate.
Pass journal entries (with narration) in the books of Siriman.
[ICAI SM/ May 2018 RTP (Modified)/Nov. 2006(M)/ May 2019 RTP/ Nov 2019 RTP/Nov.
2020 RTP]
Sol. In the books of Siriman
Journal Entries
Date Particulars Dr. (₹) Cr. (₹)
20X0
Oct. 1 Bills receivable A/c Dr. 1,00,000
To Rita 1,00,000
(Being a 3 month’s bill drawn on Rita for the amount

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due.)
Oct. 4 Bank A/c Dr. 99,000
Discount A/c Dr. 1,000
To Bills Receivable A/c 1,00,000
20X1 (Being the bill discounted.)
Jan. 4 Rita Dr. 1,00,000
To Bank A/c 1,00,000
(Being the bill cancelled up due to Rita’s inability to
pay it.)
Jan. 4 Rita Dr. 1,500
To Interest A/c 1,500
(Being the interest due on ₹ 50,000 @ 12% for 3
months.)
Jan. 4 Bank A/c Dr. 51,500
To Rita 51,500
(Being the receipt of a portion of the amount due on
the bill together with interest.)
Jan. 4 Bills Receivable A/c Dr. 50,000
To Rita 50,000
(Being the new bill drawn for the balance.)
Rita Dr. 50,000
To Bills Receivable A/c 50,000
(Being the dishonour of the bill due to Rita’s
insolvency.)
Bank A/c Dr. 20,000
Bad Debts A/c Dr. 30,000
To Rita 50,000
(Being the receipt of 40% of the amount due on the
bill from Rita’s estate.)
3. For the mutual accommodation of ‘X’ and ‘Y’ on 1st April, 20X0, ‘X’ drew a 4 month’ bill on ‘Y’ for
₹ 4,000. ‘Y’ returned the bill after acceptance on the same date. ‘X’ discounts the bill from his
bankers @ 6% per annum and remits 50% of the proceeds to ‘Y’. On due date ‘X’ is unable to send
the amount due and therefore ‘Y’ draws a bill for ₹ 7,000, which is duly accepted by ‘X’. ‘Y’
discounts the bill for ₹ 6,600 and sends ₹ 1,300 to ‘X’. Before the bill is due for payment ‘X’
becomes insolvent. Later 25 paise in a rupee received from his estate.
Record Journal entries in the books of ‘X’. (ICAI SM)
Sol. In the books of ‘X’
Journal Entries
Date Particulars Dr. (₹) Cr. (₹)
20X0 Bills receivable Account Dr. 4,000
Apr. 1 To Y’s account 4,000
(Acceptance received from Y for mutual accommodation.)
Apr. 1 Bank Account Dr. 3,920
Discount account Dr. 80
To Bills Receivable A/c 4,000
(Bill discounted for ₹ 3,920.)
Y’s account Dr. 2,000
To Cash Account 1,960
To Discount Account 40
(Half of proceeds remitted to Y.)
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Aug. 4 Y’s Account Dr. 7,000

To Bills payable account 7,000
(Acceptance given to Y, being unable to remit the due
amount.)

Bank Account Dr. 1300

2,000+1,300 Dr. 200
Discount Account [ 6,600
× 400]
To Y’s Account 1,500
(Amount received from Y and discount amount credited
to him.)
Bills payable Account Dr. 7,000
To Y’s Account 7,000
(Acceptance to Y dishonoured because of insolvency.)
Y Account Dr. 3,500
To Bank Account 875
To Deficiency Account 2,625
(Being the receipt of 40% of the amount due on the bill
from Rita’s estate.)

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Rectification of Errors
1. Correct the following errors found in the books of Mr. Dutt. The Trial Balance was out by ₹
493 excess credit. The difference thus has been posted to a Suspense Account.
a) An amount of ₹ 100 was received from D. Das on 31st December, 20X0 but has been
omitted to enter in the Cash Book.
b) The total of Returns Inward Book for December has been cast ₹ 100 short.
c) The purchase of an office table costing ₹ 300 has been passed through the
Purchases Day Book.
d) ₹ 375 paid for Wages to workmen for making show-cases had been charged to
“Wages Account”.
e) A purchase of ₹ 67 had been posted to the trade payables’ account as ₹ 60.
f) A cheque for ₹ 200 received from P. C. Joshi had been dishonoured and was passed
to the debit of “Allowances Account”.
g) ₹ 1,000 paid for the purchase of a motor cycle for Mr. Dutt had been charged to
“Miscellaneous Expenses Account”.
h) Goods amounting to ₹ 100 had been returned by customer and were taken into
inventory, but no entry in respect thereof, was made into the books.
i) A sale of ₹ 200 to Singh & Co. was wrongly credited to their account. Entry was
made correctly made in sales book.
[ICAI SM]
Sol. Journal Entries
S.No. Particulars L.F. Debit (₹) Credit
(₹)
1) Cash Account Dr. 100
To D. Das 100
(Being the amount received.)
2) Returns Inward Account Dr. 100
To Suspense Account 100
(Being the mistake in totalling the Returns
Inward Book corrected.)
3) Furniture Account Dr. 300
To Purchases Account 300
(Being the rectification of mistake by
which purchase of furniture was entered in
Purchases book and hence debited to
Purchases Account.)
4) Furniture Account Dr. 375
To Wages Account 375
(Being the wages paid to workmen for
making show-cases which should be
capitalized and not to be charged to Wages
Account.)
5) Suspense Account Dr. 7
To Creditors (personal) Account 7
(Being the mistake in crediting the Trade
payables Account less by ₹ 7, now
corrected.)
6) P.C. Joshi Dr. 200
To Allowances Account 200
(Being the cheque of P.C. Joshi
dishonoured, previously debited to
Allowances Account.)
7) Drawings Account Dr. 1,000
To Miscellaneous Expenses 1,000
(Being the motor cycle purchased for Mr.
Dutt debited to his Drawings Account
instead of Miscellaneous Expenses Account

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as previously done by mistake.)

8) Returns Inward Account Dr. 100
To Debtors (Personal) Account 100
(Correction of the omission to record
return of goods by customers.)
9) Singh & Co. Dr. 400
To Suspense Account 400
(Being the correction of mistake by which
the account of Singh & Co. was credited by
₹ 200 instead of being debited.)

Dr. Suspense A/c Cr.

Date Particulars ₹ Date Particulars ₹
20X0 To Difference in Trial 493 20X0 By Returns Inwards A/c 100
Balance
To Trade payables 7 By Singh & Co. 400

500 500
2. Mr. Roy was unable to agree the Trial Balance last year and wrote out the difference to the
Profit and Loss Account of that year. Next Year, he appointed a Chartered Accountant who
examined the old books and found the following mistakes:
1) Purchase of a scooter was debited to conveyance account ₹ 3,000.
2) Purchase account was over-cast by ₹ 10,000.
3) A credit purchase of goods from Mr. P for ₹ 2,000 entered as a sale.
4) Receipt of cash from Mr. A was posted to the account of Mr. B ₹ 1,000.
5) Receipt of cash from Mr. C was posted to the debit of his account, ₹ 500.
6) ₹ 500 due by Mr. Q was omitted to be taken to the trial balance.
7) Sale of goods to Mr. R for ₹ 2,000 was omitted to be recorded.
8) Amount of ₹ 2,395 of purchase was wrongly posted as ₹ 2,593.
Mr. Roy used 10% depreciation on vehicles. Suggest the necessary rectification entries.
[ICAI SM/ July 2021]
Sol In the Books of Mr. Roy
. Journal Entries
S.No. Particulars L.F. Debit (₹) Credit
(₹)
1) Motor Vehicles Account Dr. 2,700
To Profit and Loss Adjustment A/c 2,700
(Purchase of scooter wrongly debited to
conveyance account now rectified
capitalization of ₹ 2,700, i.e., ₹ 3,000 less
10% depreciation.)
2) Suspense Account Dr. 10,000
To Profit & Loss Adjustment A/c 10,000
(Purchase Account overcast in the
previous year; error now rectified.)
3) Profit & Loss Adjustment A/c Dr. 4,000
To P’s Account 4,000
(Credit purchase from P ₹ 2,000, entered
as sales last year; now rectified.)
4) B’s Account Dr. 1,000
To A’s Account 1,000
(Amount received from A wrongly posted
to the account of B; now rectified.)
5) Suspense Account Dr. 1,000
To C’s Account 1,000
(₹ 500 received from C wrongly debited
to his account; now rectified.)

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6) Trade receivables Dr. 500

To Suspense Account 500
(₹ 500 due by Q not taken into trial
balance; now rectified.)
7) R’s Account Dr. 2,000
To Profit & Loss Adjustment A/c 2,000
(Sales to R omitted last year; now
adjusted.)
8) Suspense Account Dr. 198
To Profit & Loss Adjustment A/c 198
(Excess posting to purchase account last
year, ₹ 2,593, instead of ₹ 2,395, now
adjusted.)
9) Profit & Loss Adjustment A/c Dr. 10,898
To Roy’s Capital Account 10,898
(Balance of Profit & Loss Adjustment A/c
transferred to Capital Account.)
10) Roy’s Capital Account Dr. 10,698
To Suspense Account 10,698
(Balance of Suspense Account transferred
to the Capital Account.)

Profit and Loss Adjustment Account

Dr. (Prior Period Items) Cr.
Particulars ₹ Particulars ₹
To P 4,000 By Motor Vehicles A/c 2,700
To Roy’s Capital (transfer) 10,898 By Suspense A/c 10,000
By R 2,000
By Suspense Account 198
14,898 14,898

Dr. Suspense Account Cr.

Particulars ₹ Particulars ₹
To Profit & Loss Adjustment 10,000 By Trade Receivables (Q) 500
Account
To C 1,000 By Roy’s Capital Account 10,698
(Transfer)
To Profit & Loss Adjustment 198
Account
11,198 11,198

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3. A merchant’s trial balance as on June 30, 20X0 did not agree. The difference was put to a
Suspense Account. During the next trading period, the following errors were discovered:
i) The total of the Purchases Book of one page, ₹ 4,539 was carried forward to the next
page as ₹ 4,593.
ii) A sale of ₹ 573 was entered in the Sales Book as ₹ 753 and posted to the credit of the
customer.
iii) A return to a creditor, ₹ 510 was entered in the Returns Inward Book; however, the
creditor’s account was correctly posted.
iv) Cash received from C. Das, ₹ 620 was posted to the debit of G. Das.
v) Goods worth ₹ 840 were despatched to a customer before the close of the year but
no invoice was made out.
vi) Goods worth ₹ 1,000 were sent on sale or return basis to a customer and entered in
the Sales Book. At the close of the year, the customer still had the option to return
the goods. The sale price was 25% above cost.
You are required to give journal entries to rectify the errors in a way so as to show the
current year’s profit or loss correctly. [ICAI SM/January 2021
(modified)]
Sol. Journal Entries
S.No. Particulars L.F. Debit (₹) Credit
(₹)
1) Suspense A/c Dr. 54
To Profit and Loss Adjustment A/c 54
(Correction of error by which Purchase
Account was over debited last year- ₹ 4,593
carried forward instead of ₹ 4,539.)
2) Profit & Loss Adjustment A/c Dr. 180
Customer’s A/c Dr. 1,326
To Suspense Account 1,506
(Correction of the entry by which (a) Sales
A/c was over credited by ₹ 180 (b)
customer was credited by ₹ 753 instead of
being debited by ₹ 573.)
3) Suspense A/c Dr. 1,020
To Profit & Loss Adjustment A/c 1,020
(Correction of error by which Returns
Inward Account was debited by ₹ 510
instead of Returns Outwards Account
being credited by ₹ 510.)
4) Suspense A/c Dr. 1,240
To C. Das 620
To G. Das 620
(Removal or wrong debit to G. Das and
giving credit to C. Das from whom cash was
received.)
5) Customer’s Account Dr. 840
To Profit & Loss Adjustment A/c 840
(Rectification of the error arising from
non- preparation of invoice for goods
delivered.)
6) Profit & Loss Adjustment A/c Dr. 200
Inventory A/c Dr. 800
To Customer’s A/c 1,000
(The Customer’s A/c credited with ₹ 1,000
for goods not yet purchased by him; cost of
the goods debited to inventory and “Profit”
debited to Profit & Loss Adjustment
Account.)

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7) Profit & Loss Adjustment A/c Dr. 1,534

To Capital A/c 1,534
(Transfer of Profit & Loss Adjustment A/c
balance to the Capital Account.)

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Depreciation
1. A machine was purchased for ₹ 30,00,000 having an estimated total working of 24,000 hours. The scrap
value is expected to be ₹ 2,00,000 and anticipated pattern of distribution of effective hours is as follows:
Year
1–3 3,000 hours per year
4-6 2,600 hours per year
7 - 10 1,800 hours per year
Required:
Determine Annual Depreciation under Machine Hour Rate Method. (ICAI SM)
Sol.
Statement of Annual Depreciation under Machine Hours Rate Method

Year Annual Depreciation

1-3 3,000
(₹ 30,00,000 - ₹ 2,00,000) × 24,000 = ₹ 3,50,000

4-6 2,600
(₹ 30,00,000 - ₹ 2,00,000) × 24,000 = ₹ 3,03,333

7-10 1,800
(₹ 30,00,000 - ₹ 2,00,000) × 24,000 = ₹ 2,10,000
2. The Machinery Account of a Factory showed a balance of ₹ 19,00,000 on 1st January, 20X2. Its accounts
were made up on 31st December each year and depreciation is written off at 10% p.a. under the
Diminishing Balance Method.
On 1st June 20X2, a new machinery was acquired at a cost of ₹ 2,80,000 and installation charges
incurred in erecting the machine works out to ₹ 8,920 on the same date. On 1st June, 20X2 a machine
which had cost ₹ 4,37,400 on 1st January 20X0 was sold for ₹ 75,000. Another machine which had cost
₹ 4,37,000 on 1st January, 20X1 was scrapped on the same date and it realised nothing.
Write a plant and machinery account for the year 20X2, allowing the same rate of depreciation as in the
past calculating depreciation to the nearest multiple of a Rupee.
(ICAI SM/June 2022)
Sol. Dr. Plant and Machinery Account Cr.
Date Particulars ₹ Date Particulars ₹
20X2 20X2
Jan.1 To Balance b/d 19,00,000 June 1 By Bank (Sales) 75,000
June 1 To Bank (2,80,000 + 2,88,920 By Depreciation (on sold 14,762
8,920) machine)
By Loss on sale (Note i) 2,64,532
By Loss on scrapping the 3,76,912
machine (Note ii)
By Depreciation (on 16,388
scrapped machinery)
By Depreciation (Note iii) 1,32,094
By Balance c/d 13,09,232
21,88,920 21,88,920

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Working Note:
i) Calculation of loss on sale of machine on 1-6-20X2
Particulars ₹
4,37,400
Cost on 1-1-20X0
Less: Depreciation @ 10% on ₹ 4,37,400 (43,740)
W.D.V. on 31-12-20X0 3,93,660
Less: Depreciation @ 10% on ₹ 3,93,660 (39,366)
W.D.V. on 31-12-20X1 3,54,294
Less: Depreciation @ 10% on ₹ 3,54,294 for 5 months (14,762)
3,39,532
(75,000)
Less: Sale proceeds on 1-6-20X2
Loss 2,64,532
ii) Calculation of loss on scrapped machine
Particulars ₹
4,37,000
Cost on 1-1-20X1
(43,700)
Less: Depreciation @ 10% on ₹ 4,37,000
3,93,300
W.D.V. on 1-1-20X2
(16,388)
Less: Depreciation @ 10% on ₹ 3,93,300 for 5 months
3,76,912
Loss

iii) Depreciation
Particulars ₹
19,00,000
Balance of machinery account on 1-1-20X2
Less: W.D.V of machinery sold 3,54,294
(7,47,594)
W.D.V. of machinery scrapped 3,93,300
11,52,406
W.D.V. of other machinery on 1-1-20X2
1,15,240
Depreciation @ 10% on ` 11,52,406 for 12 months
16,854
Depreciation @ 10% on ` 2,88,920 for 7 months
1,32,094
3. M/s. Green Channel purchased a second-hand machine on 1st January, 20X0 for ₹ 1,60,000.
Overhauling and erection charges amounted to ₹ 40,000. Another machine was purchased for ₹ 80,000
on 1st July, 20X0.

On 1st July, 20X2, the machine installed on 1st January, 20X0 was sold for ₹ 1,00,000. Another machine
amounted to ₹ 30,000 was purchased and was installed on 30th September, 20X2.

Under the existing practice the company provides depreciation @ 10% p.a. on original cost. However,
from the year 20X3 it decided to adopt WDV method and to charge depreciation @ 15% p.a. You are
required to prepare Machinery account for the years 20X0 to 20X3.
(Nov. 2018 RTP/Nov. 2019 RTP/Nov. 2020 RTP/ Nov. 2004 (M))
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Sol. In the books of M/s. Green Channel Co.

Dr. Machinery Account Cr.
Date Particulars ₹ Date Particulars ₹
1.1.20X0 To Bank A/c 1,60,000 31.12.20X0 By Depreciation A/c 24,000
(₹ 20,000 + ₹ 4,000)
To Bank A/c 40,000
(Erection charges)
31.12.20X0 By Balance c/d 2,56,000
(₹ 1,80,000 + ₹ 76,000)
1.7.20X0 To Bank A/c 80,000

2,80,000 2,80,000
1.1.20X1 To Balance b/d 2,56,000 31.12.20X1 By Depreciation A/c 28,000
(₹ 20,000 + ₹ 8,000)
31.12.20X1 By Balance c/d 2,28,000
(₹ 1,60,000 + ₹ 68,000)
2,56,000 2,56,000
1.1.20X2 To Balance b/d 2,28,000 1.7.20X2 By Bank A/c 1,00,000
30.9.20X2 To Bank A/c 30,000 By Profit and Loss A/c 50,000
(Loss on Sale – W.N. 1)
31.12.20X2 By Depreciation A/c 18,750
(₹ 10,000 + ₹ 8,000 + ₹
750)
Balance c/d (₹ 60,000 + 89,250
₹ 29,250)
2,58,000 2,58,000
1.1.20X3 To Balance b/d 89,250 31.12.20X3 By Depreciation A/c 13,387.5
(₹ 9,000 + ₹ 4,387.5)
By Balance c/d 75,862.5
(₹ 51,000 + ₹ 24,862.5)
89,250 89,250

Working Notes:
Book Value of machines (Straight line method)
Particulars Machine Machine Machine
I II III
₹ ₹ ₹
Cost 2,00,000 80,000 30,000
Less: Depreciation for 20X0 20,000 4,000
Written down value as on 31.12.20X0 1,80,000 76,000
Less: Depreciation for 20X1 20,000 8,000
Written down value as on 31.12.20X1 1,60,000 68,000
Less: Depreciation for 20X2 10,000 8,000 750
Written down value as on 31.12.20X2 1,50,000 60,000 29,250
Less: Sale proceeds 1,00,000
Loss on sale 50,000
4. A Machinery costing ₹ 20,00,000 is depreciated on straight line assuming 10 years working life and nil
salvage value for four years. At the end of the fourth year, the machinery was revalued upwards by ₹
80,000. The remaining useful life of the machinery was also reassessed as 8 years at the end of the
fourth year. Calculate the depreciation for 5th Year. (ICAI SM/November 2018/Oct. 2021 MTP)

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Sol. Depreciation per year for first 4 years = ₹ 20,00,000/10 = ₹ 2,00,000

Thus, WDV of the Machinery at end of the 4th year = ₹ 20,00,000 −(₹ 2,00,000 × 4) = ₹ 12,00,000
Revalued Amount i.e., New Depreciable Amount shall be = ₹ 12,00,000 + 80,000 = ₹ 12,80,000
Original remaining useful life is (10 − 4) = 6 Years whereas it is reassessed as 8 Years.
Hence, depreciation for 5th Year = ₹ 12,80,000/8 = ₹ 1,60,000

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Account Current
1. From the following particulars make up an Account Current to be rendered by S. Dasgupta to A.
Halder at 31st Dec. reckoning interest at 5% p.a. (assume 1 year = 365 days)
20X0 Particulars ₹
June 30 Balance owing by A. Halder 520
July 17 Goods sold to A. Halder 40
Aug. 1 Cash received from A. Halder 500
Aug. 19 Goods sold to A. Halder 720
Aug. 30 Goods sold to A. Halder 50
Sept. 1 Cash received from A. Halder 400
Sept. 1 A. Halder accepted Dasgupta’s Bill at 3-month date for 300
Oct. 22 Goods bought from A. Halder 20
Nov. 12 Goods sold to A. Halder 14
Dec. 14 Cash received from A. Halder 50
(ICAI SM)
Sol. Halder in Current Account with Mr. S. Dasgupta
(Interest to 31st December, 20X0 @ 5% p.a.)
Date Particulars Due Amount Days Product Date Particulars Due Amount Days Product
20X0 Date ₹ 20X0 Date ₹
June 30 To Balance b/d 520 185 96,200 Aug.1 By Cash A/c Aug. 500 152 76,000
1
July 17 To Sales A/c July 40 167 6,680 Sep.1 By Cash A/c Sep.1 400 121 48,400
To Sales A/c 17 By Bills
Aug.19 Aug.1 720 134 96,480 Sep.1 Dec.4 300 27 8,100
Receivable A/c
9
To Sales A/c (Note:1)
By Purchases
To Sales A/c A/c

By Cash A/c
To Interest A/c
Aug. 30 71,446 × 5% Aug.3 50 123 6,150 Oct.22 By Balance Oct.2 20 70 1,400
( ) 0 2
365
of product
Nov.12 Nov.1 14 49 686 Dec.14 Dec.1 50 17 850
2 By Balance b/d 4
Dec.31 71,446

31 Dec. 9.79 Dec.31

83.79 -------

1,353.79 2,06,196 1,353.79 2,06,196

Note: It is assumed that the bill was honoured on due date. The due date of the bill should be
treated as date of payment and days to be calculated from the due date of account.
2. From the following particulars prepare an account current, as sent by Mr. AB to Mr. XY as on
31st October, 20X0 by means of product method charging interest @ 5% p.a.
Date Particulars ₹
1st July Balance due from XY 1,500
20th August Sold goods to XY 2,500
28th August Goods returned by XY 400
25th September XY paid by cheque 1,600
20th October Received cash form XY 1,000
(Nov 2018/Jan. 2021 (M))

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Sol.
XY in Account Current with AB as on 31st Oct, 20X0
Date Particulars ₹ Days Product Date Particulars ₹ Days Product
20X0 (₹) 20X0 (₹)
July.1 To Balance 1,500 123 1,84,500 Aug.28 By Sales Returns 400 64 25,600
b/d
Aug.20 To Sales 2,500 72 1,80,000 Sept.25 By Bank 1,600 36 57,600
Oct.31 To Interest 37 Oct.20 By Cash 1,000 11 11,000
Oct.20 By Balance of 2,70,300
Products
Oct.31 By Balance c/d 1,037
4,037 3,64,500 4,037 3,64,500
Note:
Interest = ₹2,70,300 × 5/100 × 1/365 = ₹ 37 (approx.)

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Average Due Date

1. Two traders X and Y buy goods from one another, each allowing the other one month’s credit.
At the end of 3 months the accounts rendered are as follows:
Date Goods sold by X to Y Date Goods sold by Y to X
(₹) (₹)
April 18 60.00 April 23 52.00
May 15 70.00 May 24 50.00
June 17 80.00
Calculate the date upon which the balance should be paid so that no interest is due either to
X or Y. (ICAI SM)
Sol. Taking May 18th as the zero or base date (April 18 + One-month credit=18 May).
For Y’s payments:
Date of Due Amount No. of days from the Products
Transactions Date (3) base date (5)
(1) (4)
(2)
April 18 May 18 60 0 0
May 15 June 15 70 28 1,960
June 17 July 17 80 60 4,800

Amount Due to X 210 Sum of products 6,760

For X’s payments:

The students should note that the same base date should be taken. Therefore, the base date
will be May 18th in this case also.
Date of Due Date Amount No. of days Products
Transactions (2) (3) from the (5)
(1) base date
(4)
April 23
May 24 May 23 52 5 260
Amount Due to Y June 24 50 37 1,850
102 Total 2,110
products

Excess of Y’s products over X’s = ₹ 6,760 – ₹ 2,110

= ₹ 4,650
Excess amount due to X (₹ 210 – ₹ 102) = ₹ 108
₹4,650
Number of days from the base date to the date of settlement = ₹ 108
= 43 days

Hence the date of settlement of the balance is 43 days after May 18 i.e., on June 30. On June
30, Y has to pay X, ₹ 108 to clear the account.
2. Mr. Yash and Mr. Harsh are partners in a firm. They had drawn the following amounts from
the firm during the year ended 31.03.20X1:
Date Amount Drawn by
₹ ₹
01.05.20X0 75,000 Mr. Yash
02.07.20X0 20,000 Mr. Yash
15.08.20X0 60,000 Mr. Harsh
31.12.20X0 50,000 Mr. Harsh
04.03.20X1 75,000 Mr. Harsh

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31.03.20X1 15,000 Mr. Yash

Interest is charged @ 10% p.a. on all drawings. Calculate interest chargeable from each
partner by using average due date system. (Consider 1st May as base date)
(ICAI SM)
Sol. Calculation of Interest chargeable from Partners
Taking 1st May as the base date
Partner Date ₹ Days from 1st May Product (₹)
Yash 1.5.20X0 75,000 0 0
2.7.20X0 20,000 62 12,40,000
31.3.20X1 15,000 334 50,10,000
1,10,000 62,50,000

62,50,000
Average Due Date = 01.05.20X0 +
1,10,000
= 01.05.20X0 + 57 days
= 27.06.20X0
Interest is chargeable for Yash from 27th June to March 31 i.e. 277 days
= ₹ 1,10,000 × 10% × 277/365 = ₹ 8,348

Partner Date ₹ Days from 1st May Product (₹)

Harsh 15.8.20X0 60,000 106 63,60,000
31.12.20X0 50,000 244 1,22,00,000
04.03.20X1 75,000 307 2,30,25,000
1,85,000 4,15,85,000

4,15,85,000
Average Due Date = 01.05.20X0 +
1,85,000
= 01.05.20X0 + 225 days
= 12.12.20X0
Interest is chargeable for Harsh from 12th December to 31st March i.e., 109 days
= ₹ 1,85,000 × 10% × 109/365 = ₹ 5,525
Thus, interest amounting ₹ 8,348 will be charged from Yash and amount of ₹ 5,525 will be
charged from Harsh.
3. Mehraaz accepted the following bills drawn by Shehnaaz.
On 8th March, 20X0 ₹ 4,000 for 4 months.
On 16th March, 20X0 ₹ 5,000 for 3 months.
On 7th April, 20X0 ₹ 6,000 for 5 months.
On 17th May, 20X0 ₹ 5,000 for 3 months.
He wants to pay all the bills on a single day. Find out this date. Interest is charged @ 18%
per annum and Mehraaz wants to save ₹ 157 by way of interest. Calculate the date on which
he has to effect the payment to save interest of ₹ 157.
(Nov 2018 RTP/Nov 2019 RTP/Nov. 2012 (M)/Nov. 2014/Nov. 2021 MTP)
Sol. Taking 19.06.20X0 as a Base date
Transaction Due Date Amount No. of days from the Product
Date base date i.e. (₹)
19.06.20X0
8.3.20X0 11.7.20X0 4,000 22 88,000
16.3.20X0 19.6.20X0 5,000 0 0
7.4.20X0 10.9.20X0 6,000 83 4,98,000
17.5.20X0 20.8.20X0 5,000 62 3,10,000
20,000 8,96,000

𝑆𝑢𝑚 𝑜𝑓 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑠
Average due date = 𝐵𝑎𝑠𝑒 𝐷𝑎𝑡𝑒 + 𝐷𝑎𝑦𝑠 𝑒𝑞𝑢𝑎𝑙 𝑡𝑜 𝑆𝑢𝑚 𝑜𝑓 𝑎𝑚𝑜𝑢𝑛𝑡𝑠
= 19.06.20X0 + ₹ 8,96,000/₹20,000
= 19.06.20X0 + 44.8 days (or 45 days approximately) = 3.8.20X0
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Mehraaz wants to save interest of ₹ 157. The yearly interest is ₹ 20,000×18%= ₹ 3,600.
Assume that days corresponding to interest of ₹ 157 are Y. Then,
= 3,600×Y/365 = ₹ 157
⇨ Y = (₹ 157 × 365) ÷ ₹ 3,600 = 15.92 days (or 16 days approximately).

So, Mehraaz should pay the amount 16 days earlier from the average due date, i.e., he
should pay on 18.07.20X0.

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Final Account
1. The following are the balances as at 31st March, 20X0 extracted from the books of Mr.
XYZ.
Particulars ₹ Particulars ₹
Plant and Machinery 19,550 Bad debts recovered 450
Furniture and Fittings 10,250 Salaries 22,550
Bank Overdraft 80,000 Salaries payable 2,450
Capital Account 65,000 Prepaid rent 300
Drawings 8,000 Rent 4,300
Purchases 1,60,000 Carriage inward 1,125
Opening Stock 32,250 Carriage outward 1,350
Wages 12,165 Sales 2,15,300
Provision for doubtful debts 3,200 Advertisement Expenses 3,350
Provision for Discount on Printing and Stationery 1,250
debtors 1,375 Cash in hand 1,450
Sundry Debtors 1,20,000 Cash at bank 3,125
Sundry Creditors 47,500 Office Expenses 10,160
Bad debts 1,100 Interest paid on loan 3,000
Additional Information:
1) Purchases include sales return of ₹ 2,575 and sales include purchases return of ₹ 1,725.
2) Goods withdrawn by Mr. XYZ for own consumption ₹ 3,500 included in purchases.
3) Wages paid in the month of April for installation of plant and machinery amounting to
₹ 450 were included in wages account.
4) Free samples distributed for publicity costing ₹ 825.
5) Create a provision for doubtful debts @ 5% and provision for discount on debtors @
2.5%.
6) Depreciation is to be provided on plant and machinery @ 15% per annum and on
furniture and fittings @ 10% per annum.
7) Bank overdraft is secured against hypothecation of stock. Bank overdraft outstanding
as on 31.3.20X0 has been considered as 80% of real value of stock (deducting 20% as
margin) and after adjusting the marginal value 80% of the same has been allowed to
draw as an overdraft.
Prepare a Trading and Profit and Loss Account for the year ended 31st March, 20X0, and a
Balance Sheet as on that date. Also show the rectification entries.
(May 2005/May 2018 RTP/Nov. 2019 RTP/Nov. 2021 RTP)
Sol. Rectification Entries
S. No. Particulars Dr. Cr.
Amount Amount
₹ ₹
i) Returns inward A/c Dr. 2,575
Sales A/c Dr. 1,725
To Purchases A/c 2,575
To Returns outward A/c 1,725
(Being sales return and purchases return wrongly
included in purchases and sales respectively, now
rectified.)
ii) Drawings A/c Dr. 3,500

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To Purchases A/c 3,500

(Being goods withdrawn for own consumption
included in purchases, now rectified.)
iii) Plant and machinery v Dr. 450
To Wages A/c 450
(Being wages paid for installation of plant and
machinery wrongly debited to wages, now
rectified.)
iv) 825
Advertisement expenses A/c Dr.
To Purchases A/c 825
(Being free samples distributed for publicity out
of purchases, now rectified.)

Trading and Profit and Loss Account of Mr. XYZ

Dr. for the year ended 31st March, 20X0 Cr.
Particulars Amount Particulars Amount
₹ ₹
To Opening stock 32,250 By Sales 2,13,57
5
To Purchases 1,53,100 Less: Sales return 2,11,000
(2,575)
1,25,000
Less: Purchases (1,725) 1,51,375 By Closing stock
(₹80,000×100/80×1
return 00/80)
To Carriage inward 1,125
To Wages 11,715
To Gross profit c/d 1,39,535
3,36,000 3,36,000

To Salaries 22,550 By Gross profit b/d 1,39,535

To Rent 4,300 By Bad debts 450
recovered
To Advertisement expenses 4,175
To Printing and stationery 1,250

To Bad debts 1,100

To Carriage outward 1,350
To Provision for doubtful debts
5% of ₹ 1,20,000 6,000
Less: Existing provision
2,800
(3,200)
To Provision for discount on
debtors
2.5% of ₹ 1,14,000
2,850
Less: Existing provision
1,475
(1,375)
To Depreciation:
Plant and machinery

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3,000
Furniture and fittings
4,025
1,025
To Office expenses 10,160
To Interest on loan 3,000
To Net profit
(Transferred to capital
account) 83,800
1,39,985 1,39,985

Balance Sheet of Mr. XYZ as on 31st March, 20X0

Liabilities Amount Assets Amount
(₹) (₹)

Capital account 65,000 Plant and machinery 20,000

Add: Net profit 83,800 Less: Depreciation 17,000

(3,000)
1,48,800 Furniture and fittings 10,250
Less: Drawings (11,500) 1,37,300 Less: Depreciation 9,225
(1,025)
Bank overdraft 80,000 Closing stock 1,25,000
Sundry creditors 47,500 Sundry debtors 1,20,000

Payable salaries 2,450 (-) Provision for (6,000)

doubtful debts
(-) Provision for bad (2,850)
debts 1,11,150
Prepaid rent 300
Cash in hand 1,450
Cash at bank 3,125
2,67,250 2,67,250
2. The balance sheet of Thapar on 1st January, 20X0 was as follows:
Liabilities Amount Assets Amount
₹ ₹
Trade payables 15,00,000 Plant & Machinery 30,00,000
Expenses Payable 1,50,000 Furniture & Fixture 3,00,000
Capital 50,00,000 Trade receivables 14,00,000
Cash at Bank 6,50,000
Inventories 13,000,000
66,50,000 66,50,000
During 20X0, his Profit and Loss Account revealed a net profit of ₹ 15,30,000. This was after
allowing for the following:
a) Interest on capital @ 6% p.a.
b) Depreciation on Plant and Machinery @ 10% and on Furniture and Fixtures @ 5%.
c) A provision for Doubtful Debts @ 5% of the trade receivables as at 31st December,
20X0.

But while preparing the Profit and Loss Account he had forgotten to provide for:
1) outstanding expenses totalling ₹ 1,80,000 and

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2) prepaid insurance to the extent of ₹ 20,000.

His current assets and liabilities on 31st December, 20X0 were: Inventories ₹ 14,50,000;
Trade receivables ₹ 20,00,000; Cash at Bank ₹ 10,35,000 and Trade payables ₹ 11,40,000.
During the year he withdrew ₹ 6,00,000 for domestic use.
Required: Draw up his Balance Sheet at the end of the year. (ICAI SM)
Sol.
Profit and Loss Account (Revised)
Particulars ₹ Particulars ₹
To Outstanding 1,80,000 By Balance b/d 15,30,000
expenses To Net 13,70,000 By Prepaid insurance 20,000
profit 15,50,000 15,50,000

Balance Sheet of Thapar as on 31st December, 20X0

Liabilities ₹ Assets ₹
Capital 50,00,000 Cash at Bank 10,35,000
Add: Net Profit 13,70,000 Trade receivables 20,00,000
63,70,000 Less: Provision for
doubtful debts (1,00,000) 19,00,000
Less: Drawings (6,00,000)
57,70,000 Plant and Machinery 30,00,000
27,00,000
Add: Interest on 3,00,000 60,70,000 Less: Depreciation (3,00,000)
capital
Outstanding 1,80,000 Furniture & Fixtures 3,00,000
expenses Trade 11,40,000 Less: Depreciation (15,000)
Inventories 2,85,000
payables
14,50,000
Prepaid insurance
20,000

73,90 000 73,90,000

3. The following is the schedule of balances as on 31.3.X1 extracted from the books of Shri
Gavaskar, who carries on business under the same name and style of M/s Gavaskar
Viswanath & Co., at Bombay:
Particulars Dr. Cr.
₹ ₹
Cash in hand 14,000
Cash at bank 26,000
Sundry Debtors 8,60,000
Stock on 1.4.20X0 6,20,000
Furniture & fixtures 2,14,000
Office equipment 1,60,000
Buildings 6,00,000
Motor Car 2,00,000
Sundry Creditors 4,30,000
Loan from Viswanath 3,00,000
Provision for bad debts 30,000
Purchases 14,00,000
Purchase Returns 26,000
Sales 23,00,000
Sales Returns 42,000
Salaries 1,10,000
Rent for Go down 55,000
Interest on loan from Viswanath 27,000
Rates & Taxes 21,000
Discount allowed to Debtors 24,000
Discount received from Creditors 16,000
Freight on purchases 12,000

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Carriage Outwards 20,000

Drawings 1,20,000
Printing and Stationery 18,000
Electricity Charges 22,000
Insurance Premium 55,000
General office expenses 30,000
Bad Debts 20,000
Bank charges 16,000
Motor car expenses 36,000
Capital A/c 16,20,000
Total 47,22,000 47,22,000
Prepare Trading and Profit and Loss Account for the year ended 31st March 20X1 and the
Balance Sheet as at that date after making provision for the following:
1) Depreciate: (a) Building used for business by 5 percent; (b) Furniture and fixtures
by 10 percent; One steel table purchased during the year for ₹ 14,000 was sold for
same price but the sale proceeds were wrongly credited to Sales Account; (c) Office
equipment by 15 percent; Purchase of a typewriter during the year for ₹ 40,000 has
been wrongly debited to purchase; and (d) Motor car by 20%.
2) Value of stock at the close of the year was ₹ 4,40,000.
3) Two month’s rent for go-down is outstanding.
4) Interest on loan from Viswanath is payable at 12 percent per annum, this loan was
taken on 1.5.20X0.
5) Reserve for bad debts is to be maintained at 5 percent of Sundry Debtors.
6) Insurance premium includes ₹ 40,000 paid towards proprietor’s life insurance policy
and the balance of the insurance charges cover the period from 1.4.20X0 to 30.6.X1
(ICAI SM/ May 2018)
Sol. M/s Gavaskar Viswanath & Co.
Trading for the year ended 31st March 20X1
Particulars Details Amount Particulars Details Amount
₹ ₹
To opening Stock 6,20,000 By Sales 23,00,000
To Purchases 14,00,000 Less: Sale of 14,000
furniture included in
sale
Less: Typewriter 40,000 Less: Sales Returns 42,000 22,44,000
included in purchases
Less: Purchase Returns 26,000 13,34,000 By Closing Stock 4,40,000
To Freight on purchase 12,000
To Gross Profit c/d 7,18,000
26,84,000 26,84,000

M/s Gavaskar Viswanath & Co.

Profit/Loss Account for the year ended 31st March 20X1
Particulars Details Amount Particulars Details Amount
₹ ₹
To Salaries 1,10,000 By Gross profit b/d 7,18,000
To Rent for Go-down 55,000 By Discount 16,000
Add: Outstanding 11,000 66,000 received
To provision for doubtful debts 33,000
(4) To Rent and Taxes 21,000
To Discount Allowed 24,000
To Carriage outwards 20,000
To printing and stationery 18,000
To Electricity charges 22,000
To Insurance premium (1) 12,000

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To Depreciation (2) 1,20,000

To general office expenses 30,000
To Bank Charges 16,000
To interest on loan
Add: Outstanding (3) 27,000
To Motor car expenses 6,000 33,000
To Net Profit 36,000
1,73,000
7,34,000 7,34,000

Balance Sheet of M/s Gavaskar Vishwanath & Co. as at 31st March 20X1
Liabilities Details Amount Assets Details Amount
₹ ₹
Capital 16,20,000 Building 6,00,000
Add: Net Profit 1,73,000 Less: Dep. (30,000) 5,70,000
Less: Drawings (1,20,000)
Less: Insurance Premium (40,000) Motor Car 2,00,000
16,33,000 Less: Dep. (40,000) 1,60,000
Loan from Vishwanath 3,00,000
Add: Outstanding 6,000 3,06,000 Office equipment 2,00,000
Less: Dep. (30,000)
1,70,000
Sundry Creditors 4,30,000
Outstanding rent 11,000 Furniture & 2,00,000
Fixture
Less: Dep. (20,000) 1,80,000

Stock in Trade
4,40,000
Sundry Debtors 8,60,000
Less: Provision (43,000) 8,17,000
for
doubtful debts
Cash at hand 26,000
Cash in bank 14,000
Prepaid insurance 3,000
(1)
23,80,000 23,80,000

Working Notes:
1) Insurance premium
Insurance premium as given in trial balance 55,000
Less: Personal premium (40,000)
Less: Prepaid for 3 months (15,000/15× 3) (3,000)
Transfer to Profit and loss A/c 12,000

2) Depreciation
Building @ 5% on ₹ 6,00,000 30,000
Motor Car @ 20% on ₹ 2,00,000 40,000
Furniture & Fittings @ 10% on ₹ 2,00,000(₹ 2,14,000- ₹ 14,000) 20,000
Office Equipment @ 15% on ₹ 2,00,000 (₹ 1,60,000 + ₹ 40,000) 30,000
Total 1,20,000

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3) Interest on Loan
Interest on Loan (3,00,000 × 12% × 11/12) 33,000
Less: Interest as per Trial Balance P/L Account (Outstanding) (27,000)
6,000

4)
Provision for bad debts A/c
Particulars Amount Particulars Amount
₹ ₹
To bad debts A/c 20,000 By balance b/d 30,000
To balance c/d 43,000 By P&L A/c 33,000
63,000 63,000

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Final Account of Manufacturing Entities

1. Mr. Vimal runs a factory which produces soaps. Following details were available in
respect of his manufacturing activities for the year ended on 31.3.2020:
Particulars ₹
Opening Work-in-Process (10,000 units) 16,000
Closing Work-in-Process (12,000 units) 20,000
Opening inventory of Raw Materials 1,70,000
Closing inventory of Raw Materials 1,90,000
Purchases 8,20,000
Hire charges of machine @ ₹ 0.60 per unit manufactured
Hire charges of factory 2,20,000
Direct wages-contracted @ ₹ 0.80 per unit manufactured and @ ₹ 0.40
per unit of
Closing W.I.P.
Repairs and Maintenance 1,80,000
Units produced – 5,00,000 units

Required
Prepare a Manufacturing Account of Mr. Vimal for the year ended 31.3.2020.
[Study Material/ Past Exam Nov 2019(Modified)]
Ans In the Books of Mr. Vimal
. Manufacturing Account for the Year ended 30.6.2020
Particulars Units Amount Particular Units Amount
(₹) s (₹)
To Opening 10,00 16,000 By Closing 12,000 20,000
Work- in 0 Work- in-
Process Process
To Raw By Trading 5,00,000 19,00,800
Materials A/c Cost of
Consumed: finished
goods
transferred
Opening 1,70,000
inventory
Add: 8,20,000
Purchases
9,90,000
Closing (1,90,000) 8,00,000
Inventory
To Direct 4,04,800
Wages
– WN (1)
To Direct
expenses:
Hire
charges on
Machinery
– W.N. (3) 3,00,000
To Indirect
expenses:
Hire
charges of
Factory 2,20,000
Shed
Repairs 1,80,000
Maintenanc
e

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19,20,800 19,20,800

Working Notes:
1) Direct Wages – 5,00,000 units @ ₹ 0.80 = ₹ 4,00,000
12,000 units @ ₹ 0.40 = ₹ 4,800
₹ 4,04,800

2) Hire charges on Machinery – 5,00,000 units @ ₹ 0.60 = ₹ 3,00,000

2. Following are the Manufacturing A/c, Creditors A/c and Trading A/c provided by Ms.
Shiv related to 2019–20. There are certain figures missing from these accounts.
Dr. Raw Material A/c
Cr.
Date Particulars ₹ Date Particulars ₹
To Opening Stock A/c 1,00,000 By Raw Material ----
Consumed
To Creditors A/c ---- By Closing Stock ----
A/c

Dr. Creditors A/c

Cr.
Date Particulars ₹ Date Particulars ₹
To Bank A/c 22,00,000 By Balance b/d 15,00,000
To Balance c/d 6,00,000

Manufacturing A/c
Particulars ₹ Particulars ₹
To Raw Material Consumed ---- By Trading A/c 17,94,000
To Wages 3,50,000
To Depreciation 2,00,000
To Direct Expenses

Additional information:
1) Purchase of machinery worth ₹10,00,000 has been omitted. Machinery are
chargeable at a depreciation rate of 10%.
2) Wages include the following:
Paid to Factory Workers – ₹3,00,000
Paid to labour at office – ₹50,000
3) Direct Expenses include following:
Electricity charges of ₹80,000 of which 30% pertained to office.
Fuel Charges of ₹20,000
Freight Inwards of ₹35,000
Delivery charges to customers – ₹20,000.
You are required to prepare revised Manufacturing A/c, and Raw Material A/c.
(Study Material)
Ans. Manufacturing A/c
Particulars ₹ Particulars ₹
To Raw Material Consumed 10,00,000 By Trading A/c (W.N.4) 18,00,000
(Balancing Figure)
To Wages (W.N.2) 3,00,000
To Depreciation (W.N.1) 3,00,000
To Direct Expenses (W.N.3) 2,00,000
18,00,000 18,00,000

Raw Material A/c

Date Particulars ₹ Date Particulars ₹
To Opening Stock 1,00,000 By Raw Material 10,00,000
A/c

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Consumed
(from Trading A/c
above)
To Creditors A/c 13,00,000 By Closing Stock 4,00,000
A/c
(W.N.5)
(Balancing Figure)
14,00,000 14,00,000

Working Notes:
1) Since purchase of Machinery worth ₹10,00,000 has been omitted. So, depreciation
omitted from being charged = ₹10,00,000 × 10% = ₹1,00,000
Correct total depreciation expense = ₹(2,00,000+1,00,000) = ₹3,00,000
2) Wages worth ₹50,000 will be excluded from manufacturing account as they pertain
to office and hence will be charged P&L A/c.
3) Expenses to be excluded from direct expenses:
Office Electricity Charges (80,000×30%) 24,000
Delivery Charges to Customers 20,000
Total expenses not part of Direct Expenses 44,000
 Revised Direct Expenses = ₹(2,44,000–44,0000) = ₹2,00,000
Fuel charges are related to factory expenses and also freight inwards are incurred
for bringing goods to factory/go down so they are part of direct expenses.

4) Revised Balance to be transferred to Trading A/c:

Particulars Amount (₹)
Current Balance transferred 17,94,000
Add: Depreciation charges not recorded earlier 1,00,000
Less: Wages related to Office (50,000)
Less: Office Expenses (44,000)
Revised balance to be transferred 18,00,000

5) Creditors A/c
Date Particulars ₹ Date Particulars ₹
To Bank A/c 22,00,000 By Balance b/d 15,00,000
To Balance c/d 6,00,000 By Raw Materials 13,00,000
A/c
28,00,000 28,00,000

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Not for Profit Organisation

1. Smith Library Society showed the following position on 31st March, 20X0:
Balance Sheet as on 31st March, 20X0
Liabilities ₹ Assets ₹
Capital fund 7,93,000 Electrical fittings 1,50,000
Expenses payable 7,000 Furniture 0,000
Books 4,00,000
Investment in securities 1,50,000
Cash at bank 25,000
Cash in hand 25,000
8,00,000 8,00,000
The receipts and payment account for the year ended on 31st March, 20X1 is given below:
Dr. Cr.
Receipt ₹ Payment ₹
To Balance b/d By Electric charges 7,200
- Cash at bank 25,000 By Postage and 5,000
stationery
- Cash in hand 25,000 50,000 By Telephone charges 5,000
To Entrance fee 30,000 By Books purchased 60,000
To Membership subscription 2,00,000 By Outstanding expenses 7,000
paid

To Sale proceeds of old papers 1,500 By Rent 88,000

To Hire of lecture hall 20,000 By Investment in 40,000

securities
To Interest on securities 8,000 By Salaries 66,000
By Balance c/d
- Cash at bank 20,000
- Cash in hand 11,300
3,09,500 3,09,500
You are required to prepare income and expenditure account for the year ended 31st March,
20X1 and a balance sheet as at 31st, March, 20X1 after making the following adjustments:-
a) Membership subscription included ₹ 10,000 received in advance.
b) Provide for outstanding rent ₹ 4,000 and salaries ₹ 3,000.
c) Books to be depreciated @ 10% including additions. Electrical fittings and furniture
are also to be depreciated at the same rate.
d) 75% of the entrance fees is to be capitalized.
e) Interest on securities is to be calculated @ 5% per annum including purchases made on
1.10.20X0 for ₹ 40,000. [May, 2018 RTP/Nov., 2018 MTP/May 2002]

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Sol. Smith Library Society

Income and Expenditure A/c
Dr. for the year ended 31 st March, 20X1 Cr.
Expenditure ₹ Income ₹
To Electric charges 7,200 By Entrance fee (25% of ₹ 30,000) 7,500

To Postage and 5,000 By Membership subscription

stationery 2,00,000
To Telephone 5,000 Less: Received in (10,000) 1,90,000
charges advance

To Rent 88,000 By Sale proceeds of 1500

Add: Outstanding 4,000 92,000 old papers
By Hire of lecture hall 20,000
To Salaries 66,000
Add: Outstanding 3,000 69,000 By Interest on 8,000
securities
Add: Accrued interest 500 8,500
(WN1)
To Depreciation
Electrical fittings 15,000
(1,50,000×0.10)
Furniture 5,000 By Deficit - excess of expenditure
(50,000×0.10) over income (Balancing figure)
Books 46,000 16,700
(4,60,000×0.10) 66,000

2,44,200 2,44,200
Balance Sheet of Smith Library Society
as on 31 st March, 20X1
Liabilities ₹ Assets ₹
Capital fund 7,93,000 Electrical fittings 1,50,000
Add: Entrance fees 22,500 Less: Depreciation (15,000) 1,35,000
(₹ 30,000 × 0.75)
8,15,500
Less: Deficit (16,700) 7,98,800 Furniture 50,000
Less: Depreciation (5,000) 45,000
Outstanding expenses:
- Rent 4,000 Books 4,60,000
(4,00,000+60,00)
- Salaries 3,000 7,000 Less: Depreciation (46000) 4,14,000
Membership subscription in advance 10,000 Securities 1,90,000
(1,50,000+40,00)
Add: Accrued 500 1,90,500
interest
Cash at bank 20,000
Cash in hand 11,300
8,15,800 8,15,800

Working Note: (1) Interest on securities

Particulars ₹
Interest @ 5% per annum on ₹ 1,50,000 for full year (₹ 1,50,000×5/100) 7,500
Interest @ 5% per annum on ₹ 40,000 for half year (₹ 1,000 8,500
40,000×5/100×1/2)
Less: Interest received during the year (8,000)
Accrued interest 500

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2. From the following data, prepare an income and expenditure account for the year ended 31st
December 20X1, and balance sheet as at that date of the Jeevan Hospital:
Receipts and Payments Account
Dr. for the year ended 31 st December,20X1 Cr.
Receipts ₹ Payments ₹
To Balance b/d By Salaries (₹ 7,200 for 31,200
20X0)
- Cash in hand 800 By Hospital equipment 17,000
- Cash at bank 5,200 6,000 By Furniture purchased 6,000
To Subscriptions: By Additions to building 50,000
- For 20X0 5,100 By Printing and stationery 2,400
- For 20X1 24,500 By Diet expenses 15,600
- For 20X2 2,400 By Rent and rates (₹ 300 for 2,000
To Fees from sundry patients 20X2)
4,800
To Government grant: By Electricity and water 2,400
- For building charges
80,000
- For maintenance 20,000
To Donations (not to be 8,000 By Office expenses 2,000
capitalized)
To Net collections from benefit 6,000 By Investments 20,000
shows
By Balance c/d
- Cash in hand 1,400
- Cash at bank 6,800
1,56,800 1,56,800
Additional information:
Particulars ₹
Value of building under construction as on 31.12.20X1 1,40,000
Value of hospital equipment on 31.12.20X1 51,000
Building fund as on 1.1. 20X1 80,000
Subscriptions in arrears as on 31.12.20X0 6,500
Investments in 8% Govt. securities were made on 1st July, 20X1
[Nov.,2019 RTP/ MTP Oct. 2021]
Sol. Income and Expenditure A/c
Dr. for the year ended 31 st December, 20X1 Cr.
Expenditure ₹ Income ₹
To Salaries (31,200-7,200) 24,000 By Subscriptions 24,500
To Diet expenses 15,600 By Government grants 20,000
(Maintenance)
To Rent and rates (2,000-300) 1,700 By fees from sundry patients 4,800
To Printing and stationery 2,400 By Donations 8,000
To Electricity and water charges 2,400 By Benefit shows (Net collections) 6,000
To Office expenses 2,000 By Interest on investments 800
To Surplus (Balancing figure) 16,000
64,100 64,100

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Balance Sheet
as on 31 st December, 20X1
Liabilities ₹ Assets ₹
Capital fund 49,300 Building (Balancing 90,000
figure)
Add: Surplus 16,000 65,300 Add: Addition 50,000 1,40,000
(₹ 30,000 × 0.75)

Building fund 80,000 Hospital equipment 34,000

(Balancing figure)
Add: Government grant 80,000 1 60,000 Add: Addition 17,000 51,000

Advance subscriptions 2,400 Furniture 6,000

Investment – 8% Government 20,000
securities
Accrued interest 800
(20,000×8%×6/12)

Outstanding subscriptions 1,400

(6,500-5,100)

Prepaid rent 300

Cash at bank 6,800

Cash in hand 1,400

2,27,700 2,27,700

Working notes:
1) Balance Sheet as on 31st December, 20X0
Liabilities ₹ Assets ₹
Building fund 80,000 Building 90,000
Outstanding salaries 7,200 Equipment 34,000
Capital fund (Balancing figure) 49,300 Outstanding subscriptions 6,500
Cash at bank 5,200
Cash in hand 800
1,36,500 1,36,500
3. The income and expenditure account of the Youth Club for the Year 20X1 is as follows:
Dr. Cr.
Expenditure ₹ Income ₹
To Salaries 4,750 By Subscriptions 7,500
To General expenses 500 By Entrance fees 250
To Audit Fee 250 By Contribution for annual dinner 1,000
To Secretary’s Honorarium 1,000 By Annual Sport meet receipts 750
To Stationery & Printing 450
To Annual Dinner Expenses 1,500
To Interest & Bank Charges 150
To Depreciation 300
To Surplus 600
9,500 9,500
This account had been prepared after the following adjustments:

Particulars ₹
Subscription outstanding at the end of 20X0 600
Subscription received in advance on 31st December, 20X0 450
Subscription received in advance on 31st December, 20X1 270

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Subscription outstanding on 31st December, 20X1 750

Salaries outstanding at the beginning and the end of 20X1 were respectively ₹ 400 and ₹ 450.
General expenses include insurance prepaid to the extent of ₹ 60. Audit fee for 20X1 is as yet
unpaid. During 20X1 audit fee for 20X0 was paid amounting to ₹ 200.
The Club owned a freehold lease of ground valued at ₹ 10,000. The club had sports equipment
on 1st January, 20X1 valued at ₹ 2,600. At the end of the year, after depreciation, this equipment
amounted to ₹ 2,700. In 20X0, the Club has raised a bank loan of ₹ 2,000. This was outstanding
throughout 2019. On 31st December, 20X1 cash in hand amounted to ₹ 1,600.
Prepare the receipts and payments account for 20X1 and balance sheet as at the end of the year.
(ICAI SM/ December 2021)
Sol. Receipts and Payments Account
Dr. for the year ended 31 st December,20X1 Cr.
Receipts ₹ Payments ₹
To Balance b/d 1,390 By Salaries 4,750
(Balancing figure)
To Subscription (WN2) 7,170 Add: Paid for 20X0 400
To Entrance fees 250 Less: Outstanding for 20X1 (450) 4,700
To Contribution for annual dinner 1,000 By General expenses 500
To Annual Sport meet receipts 750 Add: Prepaid insurance for 60 560
20X2
By Audit fee (20X0) 200
By Secretary honorarium 1,000
By Stationery and printing 450
By Annual dinner expenses 1,500
By Interest and bank charges 150
By Sports equipment 400
[2,700-(2,600-300)]
By Balance c/d 1,600
10,560 10,560
Balance Sheet
as on 31 st December, 20X1
Liabilities ₹ Assets ₹
Capital fund 11,540 Freehold ground 10,000
Add: Surplus 600 12,140 Sport equipment 2,600
Add: Purchase 400
Outstanding expenses: 3,000
Audit fee 250 Less: Depreciation (300) 2,700
Salary 450
Subscription 750
outstanding
Bank loan 2,000 Prepaid insurance 60
Cash in hand 1,600
Subscription received in advance 270
15,110 15,110
Working Notes:
1)
Balance Sheet
as on 31 st December, 20X0
Liabilities ₹ Assets ₹
Subscriptions received in advance 450 Freehold ground 10,000
Salaries outstanding 400 Sports equipment 2,600
Audit fees unpaid 200 Subscriptions outstanding 600
Bank loan 2,000 Cash in hand 1,390

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Capital fund (Balancing figure) 11,540

14,590 14,590
2)
Subscription A/c
Dr. for the year ended 31 st December, 20X1 Cr.
Particulars ₹ Particulars ₹
To Outstanding subscription 600 By Advance subscription 450
To Income and expenditure A/c 7,500 By Bank A/c (Balancing 7,170
figure)
To Advance subscription 270 By Outstanding subscription 750
8,370 8,370

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Issue of Shares
1. JHP Limited is a company with an authorized share capital of ₹ 10,00,000 in equity shares
of ₹ 10 each, of which 6,00,000 shares had been issued and fully paid on 30th June, 20X0.
The company proposed to make a further issue of 1,00,000 of these ₹ 10 shares at a price of
₹ 14 each, the arrangements for payment being:
a) ₹ 2 per share payable on application, to be received by 1st July, 20X0;
b) Allotment to be made on 10th July, 20X0 and a further ₹ 5 per share (including the
premium) to be payable;
c) The final call for the balance to be made, and the money received by 30th April, 20X1.
Applications were received for 3,55,000 shares and were dealt with as follows:
i) Applicants for 5,000 shares received allotment in full;
ii) Applicants for 30,000 shares received an allotment of one share for every two
applied for; no money was returned to these applicants, the surplus on application
being used to reduce the amount due on allotment;
iii) Applicants for 3,20,000 shares received an allotment of one share for every four
applied for; the money due on allotment was retained by the company, the excess
being returned to the applicants; and
iv) the money due on final call was received on the due date.
You are required to record these transactions (including cash items) in the Journal of JHP
Limited. (ICAI SM)
Sol.
Journal of JHP Limited
Date Particulars ₹ ₹
20X0
Bank A/c (Note 1 – Column 3) Dr. 7,10,000
July 1 To Equity Share Application A/c 7,10,000
(Being application money received on 3,55,000 shares @ ₹
2 per share.)
July 10 Equity Share Application A/c Dr. 7,10,000
To Equity Share Capital A/c 2,00,000
To Equity Share Allotment A/c (Note 1 4,30,000
Column 5) 80,000
To Bank A/c (Note 1 – Column 6)
(Being application money on 1,00,000 shares transferred to
Equity Share Capital Account; on 2,15,000 shares adjusted
with allotment and on 40,000 shares refunded as per
Board’s Resolution No… dated…)
Equity Share Allotment A/c Dr. 5,00,000
To Equity Share Capital A/c 1,00,000
To Securities Premium A/c 4,00,000
(Being allotment money due on 1,00,000 shares @ ₹ 5 each
including premium at ₹ 4 each as per Board’s Resolution
No… dated…)
Bank A/c (Note 1 – Column 8) Dr. 70,000
To Equity Share Allotment A/c 70,000
(Being balance allotment money received.)
20X1 Equity Share Final Call Dr. 7,00,000
To Equity Share Capital A/c 7,00,000
(Being final call money due on 1,00,000 shares @ ₹ 7 per
share as per Board’s Resolution No… dated…)
April 30 Bank A/c Dr. 7,00,000
To Equity Share Final Call A/c 7,00,000
(Being final call money on 1,00,000 shares @ ₹ 7 each
received.)

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Working Notes: Calculation for Adjustment and Refund

Category No. of No. of Amount Amount Amount Refund Amount Amount
Shares Shares Received Required on adjusted [3 - 4 + due on received
Applied Allotted on Application on 5] Allotment on
for (2) Application Allotment Allotment
(4)
(1) (3) (5) (7) (8)
(6)
i) 5,000 5,000 10,000 10,000 Nil Nil 25,000 25,000
ii) 30,000 15,000 60,000 30,000 30,000 Nil 75,000 45,000
iii) 3,20,000 80,000 6,40,000 1,60,000 4,00,000 80,000 4,00,000 Nil
TOTAL 3,55,000 1,00,000 7,10,000 2,00,000 4,30,000 80,000 5,00,000 70,000

Also,
i) Amount Received on Application (3) = No. of shares applied for (1) × ₹ 2
Amount Required on Application (4) = No. of shares allotted (2) × ₹ 2
2. Beautiful Co. Ltd issued 30,000 equity shares of ₹ 10 each payable as ₹ 3 per share on
Application, ₹ 5 per share (including ₹ 2 as premium) on Allotment and ₹ 4 per share on Call.
All the shares were subscribed. Money due on all shares was fully received except from Ram,
holding 500 shares, who failed to pay the Allotment and Call money and Shyam, holding
1,000 shares, who failed to pay the Call Money. All those 1,500 shares were forfeited. Of the
shares forfeited, 1,250 shares (including whole of Ram’s shares) were subsequently re-
issued to Jaadu as fully paid up at a discount of ₹ 2 per share.
Pass the necessary entries in the Journal of the company to record the forfeiture and re-issue
of the share. Also prepare the Balance Sheet of the company.
(ICAI SM/July 2021/Nov.2019/ Dec. 2022 (M))
Sol. In the books of Beautiful Co. Ltd.
Journal
Date Particulars ₹ ₹
Equity Share Capital A/c (1,500 × ₹ 10) Dr. 15,000
Securities Premium A/c (500 × ₹ 2) Dr. 1,000
To Equity Share Allotment A/c (500 × ₹ 5)
2,500
To Equity Share Call A/c (1,500 × ₹ 4) 6,000
To Forfeited Shares A/c 7,500
(Being forfeiture of 1,500 equity shares for non-payment
of allotment and call money on 500 shares and for non-
payment of call money on 1,000 shares as per Board’s
Resolution No… dated …)
Bank A/c Dr. 10,000
Forfeited Shares A/c Dr. 2,500
To Equity Share Capital A/c 12,500
(Being re-issue of 1250 shares @ ₹ 8 each as per Board’s
Resolution No… dated…)
Forfeited shares A/c Dr.
To Capital Reserve A/c 3,500
(Being profit on re-issue transferred to Capital Reserve) 3,500
Balance Sheet of Beautiful Limited as at……
Particulars Notes No. ₹
EQUITY AND LIABILITIES
Shareholders’ funds
Share capital 1 2,99,000
Reserves and Surplus 2 62,500
Total ASSETS 3,61,500
Current assets
Cash and cash equivalents (Bank)
Total 3,61,500
3,61,500

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Notes to accounts:
S.NO. Particulars ₹ ₹
1. Share Capital
Equity share capital
Issued share capital
30,000 Equity shares of ₹ 10 each 3,00,000
Subscribed, called up and paid up share capital
29,750 Equity shares of ₹ 10 each 2,97,500
Add: Forfeited shares 1,500
2,99,000
2. Reserves and Surplus
Securities Premium 59,000
Capital Reserve 3,500
62,500

Working Note:
1) Calculation of amount to be transferred to Capital Reserve
Amount forfeited per share of ₹3 Amount forfeited per share of Shyam ₹6
Ram
Less: Loss on re-issue per share (₹ 2) Less: Loss on re-issue per share (₹ 2)
Surplus ₹1 Surplus ₹4

₹ 500
Transferred to Capital Reserve:
₹ 3,000
Ram share (500 × ₹ 1)
Shyam’s share (750 × ₹ 4)
Total ₹ 3,500

2) Balance of Security Premium

Total Premium amount receivable on allotment ₹ 60,000
Less: Amount reversed on forfeiture ₹ (1,000)
Balance remaining ₹ 59,000
3. Give necessary journal entries for the forfeiture and re-issue of shares:
i) X Ltd. forfeited 300 shares of ₹10 each fully called up, held by Ramesh for non-
payment of allotment money of ₹ 3 per share and final call of ₹ 4 per share. He paid
the application money of ₹ 3 per share. These shares were re-issued to Suresh for ₹
8 per share.
ii) X Ltd. forfeited 200 shares of ₹ 10 each (₹ 7 called up) on which Naresh had paid
application and allotment money of ₹ 5 per share. Out of these, 150 shares were re-
issued to Mahesh as fully paid up for ₹ 6 per share.
iii) X Ltd. forfeited 100 shares of ₹ 10 each (₹ 6 called up) issued at a discount of 10%
to Dimple on which she paid ₹ 2 per share. Out of these, 80 shares were re-issued to
Simple at ₹ 8 per share and called up for ₹ 6 share.
(Nov. 2018/MTP Oct. 2021/ March 2022 MTP)
Sol. i)
Journal Entries in the books of X Ltd.
Date Particulars Dr. Cr.
₹ ₹
a) Equity Share Capital A/c Dr. 3,000
To Equity Share Allotment A/c (300 × ₹ 3) 900
To Equity Share Final Call A/c (300 × ₹ 4) 1,200
To Forfeited Shares A/c (300 × ₹ 3) 900

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(Being the forfeiture of 300 equity shares of ₹ 10

each for non-payment of allotment money and
final call, held by Ramesh as per Board’s resolution
No… dated…)
b) Bank Account (300 × ₹ 8) Dr. 2,400
Forfeited Shares Account (300 × ₹ 2) Dr. 600
To Equity Share Capital Account 3,000
(Being the re-issue of 300 forfeited shares @ ₹ 8
each as fully paid up to Suresh as per Board’s
resolution No… dated…)
c) Forfeited Shares Account Dr. 300
To Capital Reserve Account 300
(Being the profit on re-issue, transferred to
capital reserve)

ii) Journal Entries in the books of X Ltd.

Date Particulars Dr. Cr.
₹ ₹
a) Equity Share Capital A/c (200 × ₹ 7) Dr. 1,400
To Equity Share First Call A/c (200 × ₹ 2) 400
To Forfeited Shares A/c (200 × ₹ 5) 1,000
(Being the forfeiture of 200 equity shares of ₹ 10/-
(₹ 7 called up) for non-payment of first call @ ₹ 2/-
per share as per Board Resolution No… dated… )
b) Bank Account Dr. 900
Forfeited Shares Account Dr. 600
To Equity Share Capital Account 1,500
(Being the re-issue of 150 forfeited shares as fully
paid up as per Board’s resolution No… dated…)
c) Forfeited Shares Account Dr. 150
To Capital Reserve Account 150
(Being the profit on re-issue, transferred to capital
reserve.)
Working Note:
Balance in forfeited shares account on forfeiture of 150 shares (150 × ₹ 5) ₹ 750
Less: Forfeiture of 150 shares (₹ 600)
Profit on re-issue of shares ₹ 150

iii) Journal Entries in the books of X Ltd.

Date Particulars Dr. Cr.
₹ ₹
a) Equity Share Capital A/c (100 × ₹ 6) Dr. 600
To Equity Share Final Call A/c (100 × ₹ 3) 300
To Discount on issue of shares (100 × ₹ 1) 100
To Forfeited Shares A/c (100 × ₹ 2) 200
(Being the forfeiture of 100 equity shares issued at
a discount as per Board’s resolution No… dated…)
b) Bank Account (80 × ₹ 6) Dr. 480
Discount on issue of shares (80 × ₹ 1) Dr. 80
Forfeited Shares A/c (80 × ₹ 1) Dr. 80
To Equity Share Capital Account (80 × ₹ 8) 640
(Being the re-issue of 80 shares fully paid up as per
Board’s Resolution No… dated…)
c) Forfeited Shares Account 80
To Capital Reserve Account 80
(Being the profit on re-issue, transferred to capital
reserve.)

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Working Note:
Balance in forfeited shares account on forfeiture of 100 shares (100 × 2) ₹ 200
Forfeited shares balance for 80 shares ₹ 160
Less: Forfeiture of 80 shares (₹ 80)
Profit on re-issue of shares ₹ 80

Note: It may be noted that the facts given in the question are not in compliance with
Companies Act, 2013. As per Section 53 of Companies Act, 2013 a company cannot issue
shares at discount except for in case of sweat equity shares and therefore any issue on
discount by the company is void. However, the above answer has been given strictly based
on the information provided in the question.
4. Fashion Garments Ltd. Invited applications for issuing 10,000 Equity Share of ₹10 each. The
amount was payable as follows:-

1) On Application - ₹1 per share

2) On Allotment - ₹2 per share
3) On First Call - ₹3 per share
4) On Second and - ₹4 per share
Final Call

The issue was fully subscribed. Ram to whom 100 shares were allotted, failed to pay the
allotment money and his shares were forfeited immediately after the allotment. Shyam to
whom 150 shares were allotted, failed to pay the first call. His shares were also forfeited
after the first call. Afterwards the second and final call was made. Mohan to whom 50 Shares
were allotted failed to pay the second and final call. His shares were also forfeited. All the
forfeited shares were re-issued at ₹9 share fully paid – up.
Pass necessary journal entries in the book of Fashion Garments Ltd.
(ICAI SM/ Dec. 2021)
Sol. In the books of Fashion Garments Ltd.
Journal Entries
Particulars Dr. (₹) Cr. (₹)
Bank A/c Dr. 10,000
To Equity Share Application A/c 10,000
(Money received on applications for 10,000
shares @ ₹1 per share)
Equity Shares Application A/c Dr. 10,000
To Equity Share Capital A/c 10,000
(Transfer of application money on 10,000
Shares to share capital)
Equity Share Allotment A/c Dr. 20,000
To Equity Share Capital A/c 20,000
(Amount due on the allotment of 10,000 shares
@₹2 per share)
Bank A/c Dr. 19,800
To Equity Share Allotment A/c 19,800
(Allotment money received on 9,900 shares)
Equity Share Capital A/c Dr. 300
To Share Forfeiture A/c 100
To Equity Shares Allotment A/c 200
(100 Shares of Ram forfeited)
Equity Share First Call A/c Dr. 29,700
To Equity Share Capital A/c 29,700
(First call made due on 9,900 shares at ₹3 per
share)
Bank A/c Dr. 29,250
To Equity Share First Call A/c 29,250

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(First call money received on 9,750 shares at ₹3

per share)
Equity Share Capital A/c Dr. 900
To Share Forfeiture A/c 450
To Equity Share First Call A/c 450
(150 Shares of Shyam forfeited)
Equity Share Second and Final Call A/c Dr. 39,000
To Equity Share Capital A/c 39,000
(Second and final call made due on 9,750 shares
at ₹4 per share)
Bank A/c Dr. 38,800
To Equity Share Second and Final Call A/c 38,800
(Second and Final call money received on 9,700
shares at ₹4 per share)
Equity Share Capital A/c Dr. 500
To Share Forfeiture A/c 300
To Equity Share Second and Final Call A/c 200
(50 Shares of Mohan forfeited)
Bank A/c Dr. 2,700
Share forfeiture A/c Dr. 300
To Equity Share Capital A/c 3,000
(300 Shares reissued at ₹9 per share)
Share Forfeiture A/c Dr. 300
To Equity Share Capital A/c 300
(300 shares reissued at ₹9 per share)
Share Forfeiture A/c Dr. 550
To Capital Reserve A/c (W.N.1) 550
(Profit on re-issue transferred to capital
reserve)

Working Note: 1
Calculation of amount to be transferred to capital reserve:
Surplus out of 100 shares of Ram forfeited ₹100
Surplus out of 150 shares of Shyam forfeited ₹450
Surplus out of 50 shares of Mohan forfeited ₹ 300
₹ 850
Less: Loss on re-issue of shares ₹300
Transferred to Capital Reserve ₹550

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Issue of Debentures
Q. Question and Solutions
No.
1. X Ltd. obtains a loan from IDBI of ₹ 1,00,00,000, giving as collateral security of ₹
1,50,00,000 (of ₹ 10 each), 14%, First Mortgage Debentures. Show the treatment of the
above in the books of X Ltd. when:
a) No entry is made by the company for collateral security.
b) Entry is made by the company for collateral security.
(ICAI SM)
Ans. a) In the Notes to Accounts of Balance Sheet of X Ltd., it is shown as follows:
Notes to Accounts of X Limited as
at…(includes)
Long Term Borrowings
Secured Loan
IDBI Loan
1,00,00,000
(Collaterally secured by issue of ₹ 1,50,00,000 14% First Mortgage Debentures.)

b) In the Books of X Ltd.

Journal
Date Particulars ₹ ₹
Debentures Suspense A/c 1,50,00,000
1,50,00,000
Dr.
To 14% First Mortgage Debentures A/c
(Being the issue of ₹ 15,00,000 debentures @ ₹
10 collaterally as per Board’s Resolution No…
dated…)

Balance Sheet of X Limited as at…

(Extracts)
S. Particulars Notes ₹
No. No.
1. EQUITY AND LIABILITIES
Non–Current Liabilities
Long Term Borrowings 1 2,50,00,000
Total 2,50,00,000
2. ASSETS
Non–current Assets
Other non–current asset 2 1,50,00,000
3. Current Assets
Cash and cash equivalent 1,00,00,000
Total 2,50,00,000

Notes to Accounts
Particulars ₹
1. Long Term Borrowings
Secured
Loan IDBI 1,00,00,000
Loan 1,50,00,000

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14% First Mortgage Debentures

2. Other Non–current asset

Debenture Suspense Account 1,50,00,000
(Issue of ₹15,00,000 14% First Debentures as collateral security
as per contra.)
2. X Company Limited issued 10,000 14% Debentures of the nominal value of ₹
50,00,000 as follows:
a) To sundry persons for cash at 90% of nominal value of ₹ 25,00,000.
b) To a vendor for purchase of fixed assets worth ₹ 10,00,000 – ₹ 12,50,000 nominal
value.
c) To the banker as collateral security for a loan of ₹ 10,00,000 – ₹ 12,50,000
nominal value.
Pass necessary journal entries.
(ICAI SM)
Ans. In the books of X Company Ltd.
Journal Entries
Date Particulars ₹ ₹
a) Bank A/c Dr. 22,50,000
To Debentures Application A/c 22,50,000
(Being the application money received on 5,000
debentures @ ₹450 each.
Debentures Application A./c Dr. 22,50,000
Discount on issue of Debentures A/c Dr.
To 14% Debentures A/c 2,50,000
(Being the issue of 5,000 14% Debentures @ 90% as 25,00,000
per Board’s Resolution No… dated…)
b) Fixed Assets A/c Dr. 10,00,000
To Vendor A/c 10,00,000
(Being the purchase of fixed assets from vendor.)
Vendor A/c Dr. 10,00,000
Discount on Issue of Debentures A/c 2,50,000
Dr.
To 14% Debentures A/c 12,50,000
(Being the issue of debentures of ₹12,50,000 to
vendor to satisfy his claim.)
c) Bank A/c Dr. 10,00,000
To Bank Loan A/c (See Note) 10,00,000
(Being a loan of ₹10,00,000 taken from bank by
issuing debentures of ₹12,50,000 as collateral
security.)

Note: No entry is made in the books of account of the company at the time of making
issue of such debentures. In the Balance Sheet the fact that the debentures being issued
as collateral security and outstanding are shown under the respective liability.
3. On 1st April 20X0 Sheru Ltd. issued 1,00,000 12% debentures of ₹ 100 each at a discount
of 5%, redeemable on 31 March 20X5. Issue was oversubscribed by 20,000 debentures,
who were refunded their money. Interest is paid annually on 31st March. You are
required to prepare:
i) Journal entries at the time of issue of debentures.

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ii) Discount on issue of Debenture Account.

iii) Interest account and Debenture holder Account assuming TDS is deducted @ 10%.
(ICAI SM)
Ans. i)
Journal in the Books of Sheru Ltd.
Date Particulars Dr. Cr.
(₹ in `00) (₹ in `00)
20X0
Apr 1 Bank A/c Dr. 1,14,000
To Debenture Application A/c 1,14,000
(Being debenture application money received for
1,20,000 debentures.)
Debenture Application A/c Dr. 1,14,000
Discount on Issue of Debenture A/c Dr. 5,000
To 12% Debenture A/c 1,00,000
To Bank A/c 19,000
(Being application money transferred to debenture
account and excess redunded.)

ii)
Discount on Issue of Debenture A/c
Date Particulars ₹ Date Particulars ₹
(in `00) (in `00)
1.4.XO To 12% Debentures 5,000 31.3.X1 By Profit & Loss 1,000
A/c A/c
31.3.X1 By Balance c/d 4,000
5,000 5,000
1.4.X1 To Balance b/d 4,000 31.3.X2 By Profit & Loss 1,000
A/c
31.3.X2 By Balance c/d 3,000
4,000 4,000
1.4.X2 To Balance b/d 3,000 31.3.X3 By Profit & Loss 1,000
A/c
31.3.X3 By Balance c/d 2,000
3,000 3,000
1.4.X3 To Balance b/d 2,000 31.3.X4 By Profit & Loss 1,000
A/c
31.3.X4 By Balance c/d 1,000
2,000 2,000
1.4.X4 To Balance b/d 1,000 31.3.X5 By Profit & Loss 1,000
A/c

1,000 1,000

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iii)
Interest A/c
Date Particulars ₹ (in `00) Date Particulars ₹ (in
`00)
31.3.X1 To Debenture 12,000 31.3.X1 By Profit & Loss 12,000
holder A/c A/c
12,000 12,000
31.3.X2 To Debenture 12,000 31.3.X2 By Profit & Loss 12,000
holder A/c A/c
12,000 12,000
31.3.X3 To Debenture 12,000 31.3.X3 By Profit & Loss 12,000
holder A/c A/c
12,000 12,000
31.3.X4 To Debenture 12,000 31.3.X4 By Profit & Loss 12,000
holder A/c A/c
12,000 12,000

iv)
Debenture holder A/c
Date Particulars ₹ (in Date Particulars ₹ (in `00)
`00)
31.3.X1 To Bank A/c 10,800 31.3.X1 By Interest A/c 12,000
31.3.X1 To TDS A/c 1,200
12,000 12,000
31.3.X2 To Bank A/c 10,800 31.3.X2 By Interest A/c 12,000
31.3.X2 To TDS A/c 1,200
12,000 12,000
31.3.X3 To Bank A/c 10,800 31.3.X3 By Interest A/c 12,000
31.3.X3 To TDS A/c 1,200
12,000 12,000
31.3.X4 To Bank A/c 10,800 31.3.X4 By Interest A/c 12,000
31.3.X4 To TDS A/c 1,200
12,000 12,000
31.3.X5 To Bank A/c 10,800 31.3.X5 By Interest A/c 12,000
31.3.X5 To TDS A/c 1,200
12,000 12,000
Ans. v)
Journal in the Books of Sheru Ltd.
Date Particulars Dr. Cr.
(₹ in `00) (₹ in `00)
20X0
Apr 1 Bank A/c Dr. 1,14,000
To Debenture Application A/c 1,14,000
(Being debenture application money received for
1,20,000 debentures.)
Debenture Application A/c Dr. 1,14,000
Discount on Issue of Debenture A/c Dr. 5,000
To 12% Debenture A/c 1,00,000
To Bank A/c 19,000
(Being application money transferred to debenture
account and excess redunded.)

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vi)
Discount on Issue of Debenture A/c
Date Particulars ₹ Date Particulars ₹
(in `00) (in `00)
1.4.XO To 12% Debentures 5,000 31.3.X1 By Profit & Loss 1,000
A/c A/c
31.3.X1 By Balance c/d 4,000
5,000 5,000
1.4.X1 To Balance b/d 4,000 31.3.X2 By Profit & Loss 1,000
A/c
31.3.X2 By Balance c/d 3,000
4,000 4,000
1.4.X2 To Balance b/d 3,000 31.3.X3 By Profit & Loss 1,000
A/c
31.3.X3 By Balance c/d 2,000
3,000 3,000
1.4.X3 To Balance b/d 2,000 31.3.X4 By Profit & Loss 1,000
A/c
31.3.X4 By Balance c/d 1,000
2,000 2,000
1.4.X4 To Balance b/d 1,000 31.3.X5 By Profit & Loss 1,000
A/c

1,000 1,000

vii)
Interest A/c
Date Particulars ₹ (in `00) Date Particulars ₹ (in
`00)
31.3.X1 To Debenture 12,000 31.3.X1 By Profit & Loss 12,000
holder A/c A/c
12,000 12,000
31.3.X2 To Debenture 12,000 31.3.X2 By Profit & Loss 12,000
holder A/c A/c
12,000 12,000
31.3.X3 To Debenture 12,000 31.3.X3 By Profit & Loss 12,000
holder A/c A/c
12,000 12,000
31.3.X4 To Debenture 12,000 31.3.X4 By Profit & Loss 12,000
holder A/c A/c
12,000 12,000

viii)
Debenture holder A/c
Date Particulars ₹ (in Date Particulars ₹ (in `00)
`00)
31.3.X1 To Bank A/c 10,800 31.3.X1 By Interest A/c 12,000
31.3.X1 To TDS A/c 1,200
12,000 12,000
31.3.X2 To Bank A/c 10,800 31.3.X2 By Interest A/c 12,000

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31.3.X2 To TDS A/c 1,200

12,000 12,000
31.3.X3 To Bank A/c 10,800 31.3.X3 By Interest A/c 12,000
31.3.X3 To TDS A/c 1,200
12,000 12,000
31.3.X4 To Bank A/c 10,800 31.3.X4 By Interest A/c 12,000
31.3.X4 To TDS A/c 1,200
12,000 12,000
31.3.X5 To Bank A/c 10,800 31.3.X5 By Interest A/c 12,000
31.3.X5 To TDS A/c 1,200
12,000 12,000

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Admission of Partner
1. Dalal, Banerji and Mallick are partners in a firm sharing profits and losses in the ratio 2:2:1.
Their Balance Sheet as on 31st March, 20X0 is as below:
Liabilities ₹ Assets ₹
Trade payables 12,850 Land and Buildings 25,000
Outstanding Liabilities 1,500 Furniture 6,500
General Reserve 6,500 Inventory of goods 11,750
Capital Account: Trade receivables 5,500
Mr. Dalal 12,000 Cash in hand 140
Mr. Banerji 12,000 Cash at Bank 960
Mr. Mallick 5,000 29,000
49,850 49,850
The partners have agreed to take Mr. Mistri as a partner with effect from 1st April, 20X0 on
the following terms:
1) Mr. Mistri shall bring ₹5,000 towards his capital.
2) The value of Inventory should be increased by ₹2,500 and Furniture should be
depreciated by 10%.
3) Reserve for bad and doubtful debts should be provided at 10% of the Trade receivables.
4) The value of land and buildings should be enhanced by 20% and the value of the
goodwill be fixed at ₹15,000.
5) The value of the goodwill be fixed at ₹15,000.
6) General Reserve will be transferred to the Partners’ Capital Accounts.
7) The new profit-sharing ratio shall be: Mr. Dalal 5/15, Mr. Banerji 5/15, Mr. Mallick 3/15
and Mr. Mistri 2/15.
8) The outstanding liabilities include ₹1,000 due to Mr. Sen which has been paid by Mr. Dalal.
Necessary entries were not made in the books.
Prepare (i) Revaluation Account, (ii) The Capital Accounts of the partners, (iii) Balance
Sheet of the firm after admission of Mr. Mistri.
(ICAI SM)
Sol Revaluation Accounts
20X0 Particulars ₹ 20X0 Particulars ₹
April 1 To Provision for bad and 550 April 1 By Inventory in trade 2,500
doubtful debts
To Furniture and fittings 650 By Land and Building 5,000
To Capital A/cs:
(Profit on revaluation
transferred)
Dalal 2,520
Banerji 2,520
Mallick 1,260 6,300

7,500 7,500

Partners’ Capital Accounts

Particulars Dalal Banerj Mallic Mistri Particulars Dalal Banerji Mallick Mistri
i k
To Dalal 1,000 By Balance b/d 12,000 12,000 5,000 –

To Banerji 1,000 By General 2,600 2,600 1,300

Reserve
To Balance 19,120 18,120 7,560 3,000 By Cash – – – 5,000
c/d
By Mistri 1,000 1,000 – –
By Outstanding 1,000 – – –
Liabilities

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By Revaluation 2,520 2,520 1,260 –

A/c

19,120 18,120 7,560 5,000 19,120 18,120 7,560 5,000

Working Note:
Calculation of sacrificing ratio
Partners New share Old share Sacrifice Gain
2 1
Dalal 5
−
15 5 15
Banerji 5 2
−
1
15 5 15
Mallick 3 1 No gain no loss —
15 5
Mistri 2 2
15 15
1
Sacrifice by Mr. Dalal and Mr. Banerji = ₹ 15,000 × = ₹ 1,000 each.
15
Balance Sheet of M/s. Dalal, Banerji, Mallick and Mistri as on 1-4-20X0
Liabilities ₹ ₹ Assets ₹ ₹
Trade payables 12,850 Land and Buildings 30,000
Outstanding Liabilities 500 Furniture 5,850
Capital Accounts of Partners : Inventory of goods 14,250
Mr. Dalal 19,120 Trade receivables 5,500
Mr. Banerji 18,120 Less : Provisions (550) 4,950
Mr. Mallick 7,560 Cash in hand 140
Mr. Mistri 3,000 47,800 Cash at Bank 5,960
61,150 61,150
2. Gopal and Govind are partners sharing profits and losses in the ratio 60:40. The firms’ balance sheet as
on 31.03.20X2 was as follows:
Liabilities ₹ Liabilities ₹
Capital accounts: Fixed assets 3,00,000
Gopal 1,20,000 Investments 50,000
Govind 80,000 Current assets 2,00,000
Long term loan 2,00,000 Loans and advances 1,00,000
Current liabilities 2,50,000
6,50,000 6,50,000
Due to financial difficulties, they have decided to admit Guru as partner in the firm from 01.04.20X2 on
the following terms:
Guru will be paid 40% of the profits.
Guru will bring in cash ₹ 1,00,000 as capital It is agreed that goodwill of the firm will be valued at 2
years purchase of 3 years’ normal average profits of the firm and Guru will bring in cash his share of
goodwill. It was also decided that the partners will neither withdraw their share of goodwill nor will
the goodwill appear in the books of account.

The profits of the previous three years were as follows:

For the year ended 31.3.20X0: profit ₹20,000 (includes insurance claim received of ₹40,000).
For the year ended 31.3.20X1: loss ₹ 80,000 (includes voluntary retirement compensation paid
₹1,10,000).
For the year ended 31.3.20X2: profit of ₹1,00,000 (includes a profit of ₹ 25,000 on the sale of assets).
It was decided to revalue the assets on 31.03.20X2 as follows:

Particulars ₹
Fixed assets (net) 4,00,000
Investments Nil
Current assets 1,80,000
Loans and advances 1,00,000

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The new profit-sharing ratio after the admission of Guru was 35:25:40.
Pass journal entries on admission, show goodwill calculation and prepare revaluation account,
partners’ capital accounts and balance sheet as on 01.04.20X2 after the admission of Guru.
(ICAI SM)
Sol i) Calculation of Profit/ Loss for the year ended
Particulars 31.3.20X0 31.3.20X1 31.3.20X2
Profit/(loss) for the year 20,000 (80,000) 1,05,000
Add/(less): Abnormal items (40,000) 1,10,000 (25,000)
Net Profit/(loss) (20,000) 30,000 80,000

(20,000)+30,000+80,000
Average profit = = ₹ 30,000
3
Two years’ purchase of average profits = 30,000 × 2 = 60,000
Goodwill to be brought in by Guru = 60,000 × 40% = 24,000

Goodwill brought in by Guru shared (at the profit sacrificing ratio) by:
Particulars ₹
Gopal (₹24,000 x 5/8) 15,000
Govind (₹24,000 x 3/8) 9,000
24,000

ii)
Journal Entries
Date Particulars Dr. (₹) Cr. (₹)
1.4.20X2 Bank A/c Dr. 1,24,000

To Guru’s capital A/c 1,24,000

(Amount of capital and goodwill brought in by Guru)

1.4.20X2 Guru’s capital A/c 24,000

To Gopal’s capital A/c Dr. 15,000
To Govind’s capital A/c 9,000
(Amount of goodwill brought in by Guru credited to
capital accounts of the old partners in the profit
sacrificing ratio 5:3)
1.4.20X2 Revaluation A/c Dr. 70,000

To Investment A/c 50,000

To Current assets A/c 20,000
(Writing down the value of investments to nil and current
assets from ₹ 2,00,000 to ₹ 1,80,000 on the occasion of
admission of Guru)
1.4.20X2 Fixed assets A/c Dr. 1,00,000

To Revaluation A/c 1,00,000

(Writing up the value of fixed assets from ₹ 3,00,000 to ₹
4,00,000 on the occasion of admission of Guru)
1.4.20X2 Revaluation A/c Dr. 30,000

To Guru’s capital A/c 18,000

To Govind’s capital A/c 12,000
(Net revaluation profit credited to the capital accounts of
the old partner in the old profit-sharing ratio of 60:40)

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iii)
Revaluation Account
Particulars ₹ Particulars ₹
To Investments A/c 50,000 By Fixed assets A/c 1,00,000
To Current assets A/c 20,000
To Partner’s capital A/c:
(Profit on revaluation)
Gopal (60%) 18,000
Govind (40%) 12,000
1,00,000 1,00,000
iv) Partner’s Capital Accounts
Gopal’s Capital Account

Particulars ₹ Particulars ₹
To Balance c/d 1,53,000 By Balance b/d 1,20,000
By Bank A/c 15,000
By Revaluation A/c 18,000
1,53,000 1,53,000
Govind’s Capital Account
Particulars ₹ Particulars ₹
To Balance c/d 1,01,000 By Balance b/d 80,000
By Bank A/c 9,000
By Revaluation A/c 12,000
1,01,000 1,01,000

Guru’s Capital Account

Particulars ₹ Particulars ₹
To Balance c/d 1,00,000 By Bank b/d 1,00,000
1,00,000 1,00,000
Balance Sheet (after admission of Guru)
as on 1.4.20X2
Liabilities ₹ ₹ Assets ₹
Capital accounts: Fixed assets 4,00,000
1,53,000
Gopal Current assets 3,04,000
1,01,000
Govind Guru 3,54,000 (including bank balance of
1,00,000
Long term loan Current 2,00,000 ₹1,24,000) 1,00,000
liabilities 2,50,000 Loans & advances

8,04,000 8,04,000
Working Notes:
1) Calculation of profit sacrificing ratio:
Profit sacrificed by Gopal=60%-35%=25%
Profit sacrificed by Govind =40%-25%=15%
Sacrificing ratio =25%: 15% or 5:3

2) Bank balance after admission of Guru:

Bank A/c
Particulars ₹ Particulars ₹
To Guru’s capital A/c 1,24,000 By Balance c/d 1,24,000
1,24,000 1,24,000

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3. Ramu and Mamu were partners in a firm sharing profits and losses in the ratio 3:2 Their Balance
Sheet as on 31st March, 20X0 was as follows: -
Liabilities (₹) Assets (₹)
Capital: - Land & Building 1,50,000
Ramu 2,10,000 Machinery 1,80,000
Mamu 1,90,000 Furniture 44,000
General Reserve 60,000 Trade Receivables 42,800
Loan from LFC bank 25,000 Inventory 65,200
Trade Payables 21,000 Bank 24,000
5,06,000 5,06,000

Damu was admitted as partner from 1st April, 20X0 on the following terms: -
1) He shall bring ₹ 1,50,000 as capital and goodwill.
2) He shall get 1/5th share in future profits, to be acquired equally from Ramu and Mamu.
3) Goodwill of the firm to be valued at ₹ 2,50,000. It was agreed that goodwill shall not appear in
the books of accounts.
4) Land & Building is to be appreciated by 50% and inventory is revalued at ₹ 60,000
5) Machinery to be depreciated by 20%. Debtors of ₹ 2,800 are to be written off as bad debts and
a Reserve for doubtful debts should be created @ 5% of debtors.
6) Furniture to be reduced to ₹ 40,000.
7) After admission of Damu, Capitals of the partners’ to be adjusted in their new profit-sharing
ratio, taking Damu’s Capital as base.
You are required to prepare: -
1) Revaluation Account
2) Partners’ Capital Accounts
3) Cash and bank Accounts
4) Balance Sheet after admission
(May 2021 RTP/May 2004)
Sol. In the books of Ramu, Mamu and Damu
Revaluation A/c
Particulars (₹) Particulars (₹)
To Machinery 36,000 By Building 75,000
To Bad debts 2,800
To Reserve for Bad debts 2,000
To Furniture 4,000
To Inventory 5,200
To Profit on revaluation
Ramu 15,000
Mamu 10,000 25,000
75,000 75,000

Partner’s Capital A/c s

Particulars Ramu Mamu Damu Particulars Ramu Mamu Damu
To Ramu, Mamu 50,000 By Balance b/d 2,10,000 1,90,000
To Bank (b/f) 36,000 99,000 By Bank 1,50,000
To balance c/d 2,50,000 1,50,000 1,00,000 By Damu 25,000 25,000
(Working note) By General reserve 36,000 24,000
By revaluation 15,000 10,000
2,86,000 2,49,000 80,000 2,86,000 2,49,000 1,50,000

Bank A/c
Particulars (₹) Particulars (₹)
To balance c/d 24,000 By Ramu’s Capital 36,000
To Damu’s Capital 1,50,000 By Mamu’s Capital 99,000
By balance c/d 39,000
1,74,000 1,74,000

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Balance Sheet as on 1st April, 20X0 (after admission)

Liabilities (₹) Assets (₹)
Capital Accounts Land & Building 2,25,000
Ramu 2,50,000 Machinery 1,44,000
Mamu 1,50,000 Furniture 40,000
Damu 1,00,000 Trade Receivables 40,000
Loan from HDFC bank 25,000 Reserve for Bad debts 2,000 38,000
Trade Payables 21,000 Inventory 60,000
Bank 39,000
5,46,000 5,46,000

Working Notes : -

Partner Old Share Sacrificed Share New Share

Ramu 3/5 1/10 = 5/10
Mamu 2/5 1/10 = 3/10
Damu 2/10 (gain) = 2/10

Since the capitals of the old partners are adjusted on the basis of the incoming partners share: - The
Closing balances will be fixed first as follows: -
Capital and goodwill brought in by Damu ₹ 1,50,000
His share of goodwill – 2,50,000 × 1/5 ₹ (50,000)
Amount brought in as capital ₹ 1,00,000
− Total capital of the firm based on his share 1,00,000 × 5 = ₹ 5,00,000
− Remaining capital to be borne by Ramu and Mamu in their new profit sharing ratio
− Closing capital of Ramu (5/10th Share) = 5,00,000 Closing capital of Ramu (5/10th Share) =
5,00,000 × 5/10 = 2,50,000
− Closing capital of Mamu (3/10th Share) = 5,00,000 × 3/10 = 1,50,000
Based on the above closing balances – the cash will be either brought in or excess cash will be
withdrawn from the books.

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Retirement of Partner
1. Dowell & Co. is a partnership firm with partners Mr. A, Mr. B and Mr., C, sharing profits and
losses in the ratio of 10:6:4. The balance sheet of the firm as at 31st March, 20X0 is as under:
Liabilities ₹ Assets ₹
Capitals: Land 10,000
Mr. A 80,000 Buildings 2,00,000
Mr. B 20,000 Plant and Machinery 1,30,000

Mr. C 30,000 1,30,000 Furniture 43,000

Reserves 20,000 Investments 12,000
(un-appropriated profit)
Long Term Debt 3,00,000 Inventories 1,30,000
Bank Overdraft 44,000 Trade receivables 1,39,000
Trade payables 1,70,000
6,64,000 6,64,000
It was mutually agreed that Mr. B will retire from partnership and in his place Mr. D will be
admitted as a partner with effect from 1st April, 20X0. For this purpose, the following
adjustments are to be made:

a) Goodwill is to be valued at ₹1 lakh but the same will not appear as an asset in the books
of the reconstituted firm.
b) Buildings and plant and machinery are to be depreciated by 5% and 20% respectively.
Investments are to be taken over by the retiring partner at ₹15,000. Provision of 20%
is to be made on Trade receivables to cover doubtful debts.
c) In the reconstituted firm, the total capital will be ₹2 lakhs which will be contributed by
Mr. A, Mr. C and Mr. D in their new profit-sharing ratio, which is 2:2:1.
i) The surplus funds, if any, will be used for repaying bank overdraft.
ii) The amount due to retiring partner shall be transferred to his loan account.
Required:
Prepare
a) Revaluation account;
b) Partners’ capital accounts;
c) Bank account; and
d) Balance sheet of the reconstituted firm as on 1st April, 20X0.

(ICAI SM/Nov. 2018 RTP/Nov. 2020/May. 2002/ Oct. 2021 RTP)

Sol. Revaluation Account
Particulars ₹ Particulars ₹
To Buildings A/c 10,000 By Investments A/c 3,000
To Plant and Machinery A/c 26,000 By Loss to Partners:

To Provision for Doubtful Debts A/c 27,800

A 30,400
B 18,240
C 12,160 60,800
63,800 63,800

A’s Capital Account

Particulars ₹ Particulars ₹
To Revaluation A/c 30,400 By Balance b/d 80,000
To Balance c/d 80,000 By Reserves A/c 10,000
By C and D’s Capital A/c 10,000
By Bank A/c(Balancing 10,400
figure)
1,10,400 1,10,400

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B’s Capital Account

Particulars ₹ Particulars ₹
To Revaluation A/c 18,240 By Balance b/d 20,000
To Investments A/c 15,000 By Reserves A/c 6,000
To B’s Loan A/c 22,760 By C and D’s Capital A/c 30,000

56,000 56,000

C’s Capital Account

Particulars ₹ Particulars ₹
To Revaluation A/c 12,160 By Balance b/d 30,000
To A and B’s Capital A/c 20,000 By Reserves A/c 4,000
To Balance c/d 80,000 By Bank A/c (balancing 78,160
figure)

1,12,160 1,12,160

D’s Capital Account

Particulars ₹ Particulars ₹
To A and B’s Capital A/cs 20,000 By Bank A/c 60,000
To Balance c/d 40,000
60,000 60,000

Bank Account
Particulars ₹ Particulars ₹
To A’s Capital A/c 10,400 By Bank Overdraft A/c 44,000
To C’s Capital A/c 78,160 By Balance c/d 1,04,560
To D’s Capital A/c 60,000

1,48,560 1,48,560

Balance Sheet of Dowell Co.

as at 1st April, 20X0
Liabilities ₹ Assets ₹
Capital Accounts: Land 10,000
A 80,000 Buildings 1,90,000
C 80,000 Plant and 1,04,000
Machinery
D 40,000 2,00,000 Furniture 43,000
Long Term Debts 3,00,000 Inventories 1,30,000

Trade payables 1,70,000 Trade receivables

1,39,000
B’s Loan Account 22,760 Less: Provision for
Doubtful Debts)
(27,800) 1,11,200
Balance at Bank 1,04,560
6,92,760 6,92,760

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2. A, B and C are in partnership sharing profits and losses at the ratio of 5:3: 2. The balance
sheet of the firm on 31.12.20X5 was as follows:
Balance Sheet
Liabilities ₹ Assets ₹
Capital A/cs: Sundry Fixed Assets 80,000
A 50,000 Inventories 50,000
B 40,000 Trade receivables 30,000
C 30,000 Joint Life Policy 20,000
Bank Loan 40,000 Bank 10,000
Trade payables 30,000
1,90,000 1,90,000
On 1.1.20X6, A wants to retire, B and C agreed to continue at 2:1. Joint Life Policy was taken
on 1.1.20X0 for ₹ 1,00,000 and its surrender value as on 31.12.20X5 was ₹ 25,000. For the
purpose of A’s retirement goodwill was raised for ₹ 1,00,000. Sundry Fixed Assets was
revalued for ₹ 1,10,000. But B and C did not prefer to show such increase in assets in the
Balance Sheet. Also, they agreed to bring necessary cash to discharge 50% of the A’s claim, to
make the bank balance ₹25,000 and to make their capital proportionate.
Required:
Prepare necessary journal entries.
(ICAI SM)

Sol. Journal Entries

S.No. Particulars Dr. (₹) Cr. (₹)
1. B’s Capital A/c Dr. 49,500
C’s Capital A/c Dr. 18,000
To A’s Capital A/c 67,500
(Share of revaluation profit ₹ 67,500 including good
will due to A borne by B and C at the gaining ratio 11: 4)
2. A’s Capital A/c Dr. 1,17,500
To A’s Loan A/c 58,750
To Bank A/c 58,750
(Settlement of A’s claim on his retirement by payment
of 50% in case and transferring the balance to his Loan
A/c).
3. Bank A/c Dr. 73,750
To B’s Capital A/c 60,333
To C’s Capital A/c 13,417
(Cash brought in by the continuing partners).

Working Notes:
1) Revaluation Profit ₹
Goodwill 1,00,000
Sundry Fixed Assets 30,000
Joint Life Policy 5,000
1,35,000
A’s Share ₹1,35,000 × 5/10 = ₹67,500

2) Gaining Ratio
B: 2/3 – 3/10 = 11/30
C: 1/3 – 2/10 = 4/30
Gaining Ratio: B: C
11: 4

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3) Total Capital ₹
Assets as per Balance Sheet 1,90,000
Additional Bank Balance 15,000
2,05,000
Less: Bank Loan 40,000
Sundry Creditors 30,000
A’s Loan 58,750 (1,28,750)
76,250
B’s Share 80,833
C’s Share 25,417

3. On 31st March, 20X0, the balance sheet of M/s Ram, Rahul and Rohit sharing profits and
losses in proportion to their capital, stood as follows:
Liabilities ₹ ₹ Assets ₹
Capital accounts: Land & building 2,00,000
Ram 3,00,000 Machinery 2,00,000
Rahul 2,00,000 Closing stock 1,00,000
Rohit 1,00,000 6,00,000 Sundry debtors 2,00,000
Sundry creditors 2,00,000 Cash and bank balances 1,00,000
8,00,000 8,00,000
On 31st March, 20X0, Ram desired to retire from the firm and the remaining partners
decided to carry on. It was agreed to revalue the assets and liabilities on that date on the
following basis: -
1) Land and buildings be appreciated by 30%.
2) Machinery be depreciated by 20%.
3) Closing stock to be valued at ₹80,000.
4) Provision for bad debts be made at 5%.
5) Old credit balances of sundry creditors ₹10,000 be written back.
6) Joint life policy of the partners surrendered and cash obtained ₹60,000.
7) Goodwill of the entire firm be valued at ₹1,80,000 and Ram’s share of the goodwill be
adjusted in the accounts of Rahul and Rohit who share the future profits equally. No
goodwill account being raised.
8) The total capital of the firm is to be the same as before retirement. Individual capital
be in their profit-sharing ratio.
9) Amount due to Ram is to be settled on the following basis: - 50% on retirement and
the balance 50% within one year.
Prepare revaluation account, capital account of partners: Rahul & Rohit, loan account of
Ram, cash account and balance sheet as on 1.4.20X0 of M/s Rahul and Rohit.

[ICAI SM/ May 2018 RTP / Nov. 2020(M)/Nov. 2020 RTP/May 1995/May 1997/Nov.
2006]

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Sol Revaluation Account

Particulars ₹ Particulars ₹
To Machinery A/c 40,000 By Land and 60,000
Building A/c
To Closing Stock A/c 20,000
By Sundry Creditors 10,000
A/c
To Provision for Bad Debts 10,000
A/c By Cash and bank A/c 60,000
– joint life policy
surrendered

To Partners’ Capital A/cs:

Ram 30,000
Rahul 20,000
Rohit 10,000 60,000
1,30,000 1,30,000

Partners’ Capital Accounts

Date Particulars Rahul Rohit Date Particulars Rahul Rohit
₹ ₹ ₹ ₹
31.3.20X0 To Ram’s Capital 30,000 60,000 31.3.20X0 By Balance b/d 2,00,000 1,00,000
A/c
To Balance c/d 3,00,000 3,00,000 By Revaluation A/c 20,000 10,000

By Cash & bank A/c 1,10,000 2,50,000

–cash brought in by
Rahul and Rohit

3,30,000 3,60,000 3,30,000 3,60,000

1.4.2020 By Balance b/d 3,00,000 3,00,000

Ram’s Loan Account

Date Particulars ₹ Date Particulars ₹
31.3.20X0 To Balance c/d 2,10,000 31.3.20X0 By Ram’s Capital A/c 2,10,000

2,10,000 2,10,000
By Balance b/d 2,10,000
1.4.20X0

Cash and Bank Account

Date Particulars ₹ Date Particulars ₹
31.3. 20X0 To Balance b/d 1,00,000 31.3.20X0 By Ram’s capital 2,10,000
A/c
To Revaluation A/c- 60,000 By Balance c/d 3,10,000
joint life policy
surrendered
To Rahul’s Capital A/c 1,10,000
To Rohit’s Capital A/c 2,50,000
5,20,000 5,20,000
1.4.20X0 To Balance b/d 3,10,000

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M/s Rahul & Rohit

Balance Sheet as on 1-4-20X0
Liabilities ₹ ₹ Assets ₹ ₹
Capital accounts: Land and buildings 2,60,000
Rahul 3,00,000 Machinery 1,60,000
Rohit 3,00,000 6,00,000 Closing stock 80,000
Ram’s loan account 2,10,000 Sundry debtors 2,00,000
Sundry creditors 1,90,000 Less: Provision for bad debts (10,000) 1,90,000
Cash and bank balances 3,10,000
10,00,000 10,00,000

Working Notes:
1. Gaining ratio of existing partners:
Rahul 1/2-1/3=1/6
Rohit 1/2-1/6=2/6
2. Total goodwill of firm is ₹1,80,000
Ram’s share (1/2 × ₹1,80,000) =₹90,000
Ram’s share of goodwill is to be borne by Rahul and Rohit in their gaining ratios i.e.
Rahul=1/3 × ₹90,000= ₹30,000
Rohit = 2/3 × ₹90,000=₹60,000
3. Ram’s Capital Account
Date Particulars ₹ Date Particulars ₹
31.3.20X0 To Cash and Bank A/c 2,10,000 31.3.20X0 By Balance b/d 3,00,000
To Ram’s Loan A/c
-Transfer 2,10,000 By Revaluation A/c 30,000
By Rahul’s Capital A/c - 30,000
Goodwill
By Rohit’s Capital 60,000
A/c - Goodwill

4,20,000 4,20,000

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Death of Partner
1. Monika, Yedhant and Zoya are in partnership, sharing profits and losses equally. Zoya died on 30th
June 20X4. The Balance Sheet of Firm as at 31st March 20X4 stood as:
Liabilities Amount Assets Amount
Creditors 20,000 Land and Building 1,50,000
General Reserve 12,000 Investments 65,000
Capital Accounts: Stock in trade 15,000
Monika 1,00,000 Trade receivables 35,000
Yedhant 75,000 Less: Provision for (2,000) 33,000
doubtful debt
Zoya 75,000 Cash in hand 7,000
Cash at bank 12,000
2,82,000 2,82,000
In order to arrive at the balance due to Zoya, it was mutually agreed that:
i) Land and Building be valued at ₹ 1,75,000
ii) Debtors were all good, no provision is required
iii) Stock is valued at ₹ 13,500
iv) Goodwill will be valued at one Year's purchase of the average profit of the past five
years. Zoya's share of goodwill be adjusted in the account of Monika and Yedhant.
v) Zoya's share of profit from 1st April 20X4, to the date of death be calculated on the
basis of average profit of preceding three years.
vi) The profit of the preceding five years ended 1st March were:

20X4 20X3 20X2 20X1 20X0

25,000 20,000 22,500 35,000 28,750
You are required to prepare:
1) Revaluation account
2) Capital accounts of the partners and
3) Balance sheet of the firm as at 1st July 20X4.
(May 2019)

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Sol Revaluation Account

Particulars ₹ Particulars ₹
To Stock 1,500 By Land & Building 25,000
To Partners: (Revaluation By Provision for doubtful debt 2,000
Profit)
Monika 8,500
Yedhant 8,500
Zoya 8,500
27,000 27,000
Partners’ Capital Accounts
Particulars Monika Yedhant Zoya Particulars Monika Yedhant Zoya
To Zoya 4,375 4,375 - By Balance b/d. 1,00,000 75,000 75,000
To Zoya’s - - 98,125 By General reserve 4,000 4,000 4,000
Executor By Monika & Yedhant - - 8,750
To Bal. c/d 1,08,125 83,125 By Profit and Loss - - 1,875
Adjustment*
(suspense) A/c
By Revaluation 8,500 8,500 8,500
1,12,500 87,500 98,125 1,12,500 87,500 98,125

*Profit and Loss Adjustment = [(25,000 + 20,000 + 22,500)/3] x 3/12 x 1/3 = 1,875
Balance Sheet of Firm as on 1.7.20X4
Particulars ₹ Particulars ₹
Monika 1,08,125 Land & Building 1,75,000
Yedhant 83,125 Investment 65,000
Zoya Executor 98,125 Stock 13,500
Creditors 20,000 Trade receivable 35,000
Profit & Loss Adjustment 1,875
Cash in hand 7,000
Cash at bank 12,000
3,09,375 3,09,375
Calculation of goodwill and Zoya’s share
Average of last five year’s profits and losses for the year ended on 31st March
31.3.20X0 28,750
31.3.20X1 35,000
31.3.20X2 22,500
31.3.20X3 20,000
31.3.20X4 25,000
Total 1,31,250
Average profit (₹1,31,250/5) 26,250
Goodwill at 1 year purchase = ₹ 26,250 x 1 = ₹ 26,250
Zoya’s Share of Goodwill = ₹ 26,250 × 1/3 = ₹ 8,750 which is contributed by Monika and Yedhant in
their gaining ratio.
Monika = ₹ 8750 × 1/2 = ₹ 4375

Yedhant= ₹ 8750 × 1/2 = ₹ 4375

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2. The Balance Sheet of Amitabh, Abhishek and Amrish as at 31.12.20X4 stood as follows:

Liabilities Amount Assets Amount

₹ ₹
Capital: Land & Building 74,000
Amitabh 60,000 Investments 10,000
Abhishek 40,000 Advertisement 37,800
suspense
Amrish 40,000 1,40,000 Life Policy (at
surrender value):
Creditors 25,800 Amitabh 2,500
General Reserve 8,000 Abhishek 2,500
Investment Amrish 1,000
Fluctuation Reserve 2,400 Stock 20,000
Debtors 20,000

Less: Provision for

doubtful debts (1,600) 18,400

Cash & bank 10,000

balance
1,76,200 1,76,200

Amrish died on 31st March 20X5, due to this reason the following adjustments were agreed
upon:
i) Land and Buildings be appreciated by 50%.
ii) Investment is valued at 6% less than the cost.
iii) All debtors (except 20% which are considered as doubtful) were good.
iv) Stock to be reduced to 94%.
v) Goodwill to be valued at one year’s purchase of the average profits of the past
five years.
vi) Amrish’s share of profit to the date of death be calculated on the basis of
average profits of the three completed years immediately preceding the year
of death.
The profits for the last five years are as follows:

Year ₹
20X0 23,000
20X1 28,000
20X2 18,000
20X3 16,000
20X4 20,000
1,05,000
The life policies have been shown at their surrender values representing 10% of the sum
assured in each case. The annual premium of Rs.1,000 is payable every year on 1st August.
You are required to pass necessary journal entries in the books of account of the
reconstituted firm.
(Oct 2018 MTP)

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Sol
Journal Entries
Particulars Amount Amount
1. Insurance Company’s A/c Dr. 10,000
To Life Policy A/c (₹ 1,000÷10%) 10,000
(Being the policy on the life of Amrish matured on his
death)
2. Life Policy A/c Dr. 9,000
To Amitabh’s Capital A/c 3,000
To Abhishek’s Capital A/c 3,000
To Amrish’s Capital A/c 3,000
(Being the transfer of balance in life policy account to
all partners’ capital accounts)
3. Amitabh’s Capital A/c Dr. 12,600
Abhishek’s Capital A/c Dr. 12,600
Amrish’s Capital A/c Dr. 12,600
To Advertisement suspense A/c 37,800
(Being Advertisement suspense standing in the books
written off fully)
4. Land & Buildings A/c Dr. 37,000
To Revaluation A/c 37,000
(Being an increase in the value of assets recorded)
5. Investment Fluctuation Reserve A/c Dr. 600
To Investment A/c 600
(Being reduction in the cost of investment adjusted through
Investment Fluctuation Reserve)
6. Revaluation A/c Dr. 3,600
To Stock A/c 1,200
To Provision for Doubtful Debts A/c 2,400
(Being the fall in value of assets recorded)

7. Amitabh’s Capital A/c Dr. 3,500

Abhishek’s Capital A/c Dr. 3,500
To Amrish’s Capital A/c 7,000
(Being the share of Amrish’s revalued goodwill adjusted
through capital accounts of the remaining partners)
8. Profit & Loss Suspense Account Dr. 1,500
To Amrish’s Capital A/c 1,500
(Being Amrish’s Share of profit to date of death credited to his
account)
9. Revaluation A/c Dr. 33,400
To Amitabh’s Capital A/c 11,133
To Abhishek’s Capital A/c 11,133
To Amrish’s Capital A/c 11,134
(Being the transfer of profit on revaluation)
10. General Reserve A/c Dr. 8,000
Investment Fluctuation Reserve A/c Dr. 1,800
(₹ 2,400 - ₹ 600)
To Amitabh’s Capital A/c 3,267
To Abhishek’s Capital A/c 3,267
To Amrish’s Capital A/c 3,266
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(Being the transfer of accumulated profits to capital accounts)

11. Amrish’s Capital A/c Dr. 53,300
To Amrish’s Executor’s A/c 53,300
(Being the transfer of Amrish’s Capital A/c to his Executor’s
A/c)
Working Notes:

i) Calculation of Amrish’s Share of Amount (₹)

Profit
Total profit for last three years = 18,000+16,000+20,000 = 54,000
Average profit = 54,000/3 = 18,000
Profit for 3 months = 18,000×3/12 = 4,500
Amrish’s share of Profit = 4,500×1/3 = 1,500

ii) Calculation of Goodwill Amount (₹)

Total Profits for last 5 years 1,05,000
Average profit = 1,05,000/3 = 21,000
Goodwill at one year’s purchase = 21,000×1 = 21,000

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Inventories
1. Closing stock is valued by XYZ Stores on generally accepted accounting principles. Stock
taking for the year ended 31st March, 20X0 was completed by 10th April, 20X0, the valuation
of which showed a stock figure of ₹ 1,67,500 at cost as on the completion date.
After the end of the accounting year and till the date of completion of stock taking: -
✓ Sales for the next year were made for ₹ 6,875, profit margin being 33.33 percent on
cost.
✓ Purchases for the next year included in the stock amounted to ₹ 9,000 at cost less trade
discount @ 10 percent.
✓ During this period, goods were added to stock of the mark-up price of ₹ 300 in respect
of sales returns.
After stock taking it was found that there were certain very old slow-moving items costing ₹
1,125 which should be taken at ₹ 525 to ensure disposal to an interested customer. Due to
heavy floods, certain goods costing ₹ 1,550 were received from the supplier beyond the
delivery date of customer. As a result, the customer refused to take delivery and net realizable
value of the goods was estimated to be 1,250 on 31st March, 20X0.
You are required to calculate the value of stock for inclusion in the final accounts for the year
ended 31st March, 20X0.
[May,2018 RTP/Nov. 2019 RTP/May 2021 RTP (M)/ICAI SM/May 1996(M)]
Sol. Statement showing the valuation of stock as on 31st March, 20X0
Particulars ₹
Value of stock as on 10th April, 20X0 1,67,500
Add: Cost of sales after 31st March till stock taking (₹ 6,875 – (₹ 6,875 × 5,156
25%)[WN])
Less: Purchases net of trade discount (₹ 9,000 – (₹ 9,000 × 10%)) (8,100)
Less: Cost of sales returns (₹ 300 – (₹ 300 × 25%)) (225)
Less: Loss on revaluation of slow-moving inventories (₹ 1,125 - ₹ 525) (600)
Less: Reduction in value on account of default (₹ 1,550 - ₹ 1,250) (300)
Value of Stock as on 31st March 20X0 1,63,431

Working Note: Profit margin of 33.33 percent on cost means 25 percent on sale price.
2. M/s X, Y and Z are in retail business, following information are obtained from their records
for the year ended 31st March, 20X0:
Goods received from suppliers (₹)
(subject to trade discount and taxes) 15,75,000
Trade discount 3% and sales tax 11%
Packaging and transportation charges 87,500
Sales during the year 22,45,500
Sales price of closing inventories 2,35,000
Find out the historical cost of inventories using adjusted selling price method.
(ICAI SM/July 2021(M))
Sol. Inventory valuation
Particulars ₹
Selling price of closing inventories 2,35,000
Less: Gross Profit Margin (₹ 2,35,000×28.09%[WN2]) (66,012)
Value of Inventory at Cost 1,68,988

Working notes:
1) Determination of cost of purchase
Goods received from supplier 15,75,500
Less: Trade discount @ 3% (47,265)
15,28,235
Add: Sales Tax @ 11% 1,68,106

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16,96,341
Add: Packing and transportation charges 87,500
Cost of purchase 17,83,841

2) Determination of estimated gross profit margin

Sales during the year 22,45,500
Closing inventory at selling price 2,35,000
Total goods at sale price available for sale 24,80,500
Less: Cost of purchases (WN1) (17,83,841)
Gross Profit 6,96,659
Gross Profit Margin (6,96,659/24,80,500 ×100) 28.09
3. (Imp.) The profit and loss account of Hanuman showed a net profit of ₹ 6,00,000, after
considering the closing stock of ₹ 3,75,000 on 31st March, 20X0. Subsequently the following
information was obtained from scrutiny of the books:
i) Purchases for the year included ₹ 15,000 paid for new electric fittings for the shop.
ii) Hanuman gave away goods valued at ₹ 40,000 as free samples for which no entry was
made in the books of accounts.
iii) Invoices for goods amounting to ₹ 2,50,000 have been entered on 27th March, 20X0, but
the goods were not included in stock.
iv) In March, 20X0 goods of ₹ 2,00,000 sold and delivered were taken in the sales for April,
20X0.
v) Goods costing ₹ 75,000 were sent on sale or return basis in March, 20X0 at a margin of
profit of 33-1/3% on cost. Though approval was given in April, 20X0 these were taken
as sales for March, 20X0.
Calculate the value of stock on 31st March, 20X0 and the adjusted net profit for the year ended
on that date. (ICAI SM/May 2000)
Sol. 1)
Profit and loss Adjustment A/c
for the year ended 31st March, 20X0
Particulars ₹ Particulars ₹
To Advertisement (samples) 40,000 By Net profit 6,00,000
By Electric fittings 15,000
By Samples 40,000
To Sales (goods approved in 1,00,000 By Stock (purchases of March 2,50,000
April to be taken as April not included in stock)
sales: 75,000 + 75,000×1/3)
By Sales (goods sold in March 2,00,000
wrongly taken as April sales)
To Adjusted net profit 10,40,000 By Stock (goods sent on 75,000
(Balancing figure) approval basis not included
in stock)
11,80,000 11,80,000

2) Calculation of value of inventory on 31st March, 20X0

Particulars ₹
Stock on 31st March, 20X0 (Given) 3,75,000
Add: Purchases of March, 20X0 not included in the stock 2,50,000
Goods lying with customers on approval basis 75,000
7,00,000
4. (Imp.) Physical verification of stock in a business was done on 23rd June, 20X0. The value of
the stock was ₹ 48,00,000. The following transactions took place between 23 rd June to 30th
June, 20X0:
i) Out of the goods sent on consignment, goods at cost worth ₹ 2,40,000 were unsold.
ii) Purchases of ₹ 4,00,000 were made out of which goods worth ₹ 1,60,000 were delivered
on 5th July, 20X0.
iii) Sales were ₹13,60,000, which include goods worth ₹3,20,000 sent on approval. Half of
these goods were returned before 30th June, 20X0, but no information is available
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regarding the remaining goods.

iv) Goods are sold at cost plus 25%. However, goods costing ₹ 2,40,000 had been sold for ₹
1,20,000.
You are required to determine the value of stock on 30th June, 20X0.
[ICAI SM/Nov. 2018 MTP/Oct 2020 MTP (M)/Nov. 2020]
Sol. Statement of valuation of stock
on 30th June, 20X0
Particulars ₹ ₹
Value of stock as on 23rd June, 20X0 48,00,000
Add: Unsold stock out of the goods sent on consignment 2,40,000
Purchases during the period from 23rd June, 20X0 to 2,40,000
30th June, 20X0 (₹ 4,00,000 – ₹ 1,60,000)
Goods in transit on 30th June, 20X0 1,60,000
Cost of goods sent on approval basis (80% of ₹1,60,000) 1,28,000 7,68,000
55,68,000
Less: Cost of sales during the period from 23rd June, 20X0
to 30th June, 20X0
Sales (₹ 13,60,000 - ₹ 1,60,000) 12,00,000
Less: Gross profit (WN2) 96,000
11,04,000
Value of stock as on 30th June, 20X0 44,64,000

Working Notes:
1. Calculation of normal sales: ₹ ₹
Actual sales 13,60,000
Less: Abnormal sales (given) 1,20,000
Return of goods sent on approval 1,60,000 (2,80,000)
10,80,000
2. Calculation of gross profit:
Gross profit on normal sales 2,16,000
(₹ 10,80,000×20/100)
Less: Loss on sale of particular (abnormal) goods (1,20,000)
(₹ 2,40,000 - ₹ 1,20,000)
Gross profit 96,000

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Consignment
1. Ganpath of Nagpur consigns 500 cases of goods costing ₹ 1,500 each to Rawat of Jaipur.
Ganpath pays the following expenses in connection with the consignment:
Particulars ₹
Carriage 15,000
Freight 45,000
Loading charges 15,000
Rawat sells 350 cases at ₹ 2,100 per case and incurs the following expenses:
Particulars ₹
Clearing charges 18,000
Warehousing and Storage charges 25,000
Packing and selling expenses 7,000
It is found that 50 cases were lost in transit (which is an abnormal loss) and another 50 cases
were in transit. Rawat is entitled to a commission of 10% on gross sales. Draw up the
consignment account and Rawat's account in the books of Ganpath.
[May, 2018/ Nov.,2018 & 2019 MTP (M)/May, 2020 RTP/ICAI SM/ MTP Nov. 2021]
Sol. In the books of Ganpath
Dr. Consignment A/c Cr.
Particulars ₹ Particulars ₹
To Goods sent on consignment 7,50,000 By Rawat’s A/c 7,35,000
A/c (Sales) [350 × ₹
(500 × ₹ 1,500) 2,100]
To Bank A/c 75,000
(15,000+45,000+15,000) By Abnormal loss (WN2) 82,500
To Rawat’s A/c [Expenses] 50,000
(18,000+25,000+7,000) By Stock in transit A/c 82,500
(WN2)
To Rawat’s A/c [Commission] 73,500
(₹7,35,000×10%) By Stock with consignee A/c 84,750
To General profit and loss A/c 36,250 (WN3)
(Balancing figure)
9,84,750 9,84,750

Dr. Rawat’s A/c Cr.

Particulars ₹ Particulars ₹
To Consignment A/c 7,35,000 By Consignment A/c 50,000
(Sales) (Expenses)
By Consignment A/c 73,500
(Commission)
By Balance c/d (Balancing 6,11,500
figure)
7,35,000 7,35,000

Working Notes:
1) Statement showing details of consignment
Particulars No. of Cases

Goods sent on consignment 500

Less: Lost in transit (Abnormal loss) (50)

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Goods in transit (50)

Goods received by the Consignee 400
Less: Goods sold (350)
Closing stock 50

2) Valuation of Abnormal loss/Stock-in-transit (50 Cases)

Particulars ₹
Abnormal loss at cost (50 × 1,500) 75,000
Add: Proportionate expenses of consignor (₹ 75,000 × 50/500) 7,500
Proportionate expenses of consignee Nil
82,500

3) Valuation of closing stock (50 Cases)

Particulars ₹
Closing stock at cost (50 × 1,500) 75,000
Add: Proportionate expenses of consignor (₹ 75,000 × 50/500) 7,500
Proportionate expenses of consignee (₹ 18,000 × 50/400) 2,250
84,750
It has been assumed that balance of ₹ 6,11,500 is not yet paid.
2. Vikram Milk Foods Co. Ltd. of Vikrampur sent to Sunder Stores, Sonepuri 5,000 kgs of
baby food packed in 2,000 tins of net weight 1 kg and 6,000 packets of net weight 1/2kg
for sale on consignment basis. The consignee’s commission was fixed at 5% of sale
proceeds. The cost price and selling price of the product were as under:
1 kg. tin 1/2 kg. packet
Cost Price 10 6
Selling Price 15 7
The consignment was booked on freight “To Pay” basis, and freight charges came to 2%
of selling value. One case containing 50 (1kg. tins) was lost in transit and the transport
carrier admitted a claim of ₹ 450.
At the end of the first half-year, the following information is gathered from the
“Account Sales” sent by the consignee:
i) Sale proceeds: 1,500 1 kg. tins; 4,000 1/2 kg. packets
ii) Store rent and insurance charges ₹ 600.
Find out the value of closing inventory on consignment.
Show the consignment A/c and the consignee’s A/c in the books of Vikram Milk Food Co.
Ltd. assuming that the consignee had paid the amount due from him. (ICAI SM)
Sol. Dr. Consignment A/c Cr.
Particulars ₹ Particulars ₹
To Goods sent on consignment By Sunder
A/c Stores’ A/c
(Sales) 22,500
2,000 1 Kg tins × ₹ 10 20,000 1,500 1 Kg tins × ₹ 28,000
6,000 ½ Kg packets × 36000 56,000 15 50,500
₹6 4,000 ½ Kg packets ×
₹7
To Sunder Stores’ A/c
Freight (WN1) Rent 1,440 By Abnormal loss 450
and insurance 600 [WN2] (Insurance
Commission 2,525 4,565 claim) 65
(50,500×5%) By Abnormal loss [WN2]
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(Net)

To General profit and 7,365 By Stock with 16,915

loss A/c consignee
(Balancing figure) A/c[WN3]
67,930 67,930
Dr. Sunder Stores’ A/c Cr.
Particulars ₹ Particulars ₹
To Consignment A/c 50,500 By Consignment A/c
-Freight 1,440
-Rent and insurance 600
-Commission 2,525
By Bank A/c (Balancing figure) 45,93
5
50,500 50,50
0
Working Notes:
1) Calculation of freight to be paid by the consignee
Particulars ₹
Sale vale of total consignment
2,000 1 Kg tins × ₹ 15 30,000
6,000 ½ Kg packets × ₹ 7 42,000
72,000
Freight (2% of Selling value, i.e., ₹ 72,000) 1,440

2) Valuation of Abnormal loss (50 1 Kg tins)

Particulars ₹
Abnormal loss at cost (50 1Kg tins × ₹ 10) 500
Add: Proportionate expenses of consignor Nil
Proportionate expenses of consignee [Freight: 2% of (50 1Kg tins × ₹15)] 15

Gross amount of abnormal loss 515

Less: Insurance claim (450)
Net abnormal loss 65

3) Valuation of closing stock (450 1 Kg tins ; 2,000 ½ Kg packets)

. ₹
Closing stock at cost
450 1 Kg tins × ₹ 10 2,000 ½ Kg packets × ₹ 6 4,500
12,000 16,500
Add: Proportionate expenses of consignee
Freight: 2% of (450 1 Kg tins × ₹ 15) = 2% of ₹ 6,750 135
2% of (2,000 ½ Kg packets × ₹ 7) = 2% of ₹ 14,000 280 415
16,915

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