Gurukripa s Guideline Answers to May 2015 Exam Questions CA Inter (IPC) Group I Accounting

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1 Gurukripa s Guideline Answers to May 2015 Exam Questions CA Inter (IPC) Group I Accounting Question No.1 is compulsory (4 X 5 = 20 Marks). Answer any five questions from the remaining six questions (16 X 5 = 80 Marks). [Answer any 4 out of 5 in Q.7] Working Notes should form part of the answer. Wherever necessary, suitable assumptions should be made and indicated in answer by the Candidates. Note: All Page References given are from Padhuka s Ready Referencer on Accounting For CA Inter (IPC) Question 1(a): AS 3 Cash Flow Statement 5 Marks Prepare Cash Flow from Investing Activities of M/s Creative Furnishings Limited for the year ended ` Plant acquired by the issue of 8% Debentures 1,56,000 Claim received for Loss of Plant in Fire 49,600 Unsecured Loans given to Subsidiaries 4,85,000 Interest on Loan received from Subsidiary Companies 82,500 Pre Acquisition Dividend received on Investment made 62,400 Debenture Interest Paid 1,16,000 Term Loan repaid 4,25,000 Interest received on Investment (TDS of ` 8,200 was deducted on the above Interest) 68,000 Book Value of Plant sold (Loss incurred ` 9,600) 84,000 Solution: Similar to Illustrations in AS 3 Cash Flow Statement ` CASH FLOW FROM INVESTING ACTIVITIES Unsecured Loans given to subsidiary (4,85,000) Interest on Loan received from Subsidiary Companies 82,500 Pre Acquisition Dividend received on Investment 62,400 Interest Received on Investment (68,000 TDS 8,200) 59,800 Proceeds on Sale of Plant (84,000 9,600) 74,400 NET CASH USED IN INVESTING ACTIVITIES (2,05,900) Note: 1. Plant acquired by Issue of 8% Debentures will not be considered in CFS, as Cash is not involved. They are disclosed in Notes to Accounts. 2. Claims received for Loss of Plant in Fire is an Extraordinary Item, shown under Operating Activities. 3. Debenture Interest paid will be shown under Financing Activities 4. Term Loan Repaid will be shown under Financing Activities. Question 1(b): AS 7 Construction Contract 5 Marks A Construction Contractor has a Fixed Price Contract for ` 9,000 Lakhs to build a bridge in 3 years timeframe. A summary of some of the financial data is as under: Amount ` in Lakhs Year 1 Year 2 Year 3 Initial Amount for Revenue agreed in Contract 9,000 9,000 9,000 Variation in Revenue (+) Contracts Costs incurred up to the reporting date 2,093 (Note 1) 6,168 (Note 2) 8,100 Estimated Profit for the whole Contract 950 1,000 1,000 Note: 1. Includes ` 100 Lakhs for Standard Materials stored at the Site to be used in Year 3 to complete the work. 2. Excludes ` 100 Lakhs for Standard Material brought forward from Year 2. May

2 The variation in Cost and Revenue in Year 2 has been approved by the customer. Compute year wise amount of Revenue, Expenses, Contract Cost to complete and Profit or Loss to be recognised in the Statement of Profit or Loss as per AS 7. Solution: Similar to Page No.B.5.17, Q.No.49 Basic Calculations: (in ` Lakhs) As at Year 1 As at Year 2 As at Year 3 Contract Price 9,000 9,000 9,000 Variations (Increase) Nil (a) Total Contract Revenue 9,000 9,200 9,200 (b) Estimated Profit for whole Contract (given) 950 1,000 1,000 (c) Total Contract Costs = (a) (b) 8,050 8,200 8,200 (d) Costs till date 2,093 6, = 6,068 8, = 8,200 Cost Till Date `2,093 ` 6,068 `8,200 (e) % of Completion = = 26% = 74% =100% Total Contract Costs `8,050 ` 8,200 `8,200 The Contract Revenues, Costs & Profits recognised in each of the 3 years are given below (in ` Lakhs) Year Upto reporting date Already recognised Recognised during in previous years current year 1 Contract Revenue 9,000 26% = 2,340 Nil 2,340 Contract Costs 2,093 Nil 2,093 Contract Profits 247 Nil Contract Revenue 9,200 74% = 6,808 2,340 4,468 Contract Costs 6,068 2,093 3,975 Contract Profits Contract Revenue 9, % = 9,200 6,808 2,392 Contract Costs 8,200 6,068 2,132 Contract Profits 1, Question 1(c): AS 2 Inventory Valuation 5 Marks Mr. Mehul gives the following information relating to items forming part of Inventory as on His Factory produces Product X using Raw Material A units of Raw Material A (purchased at ` 120). Replacement Cost of Raw Material A as on is ` 90 per unit units of Partly Finished Goods in the process of producing X and Cost incurred till date ` 260 per unit. These units can be finished next year by incurring Additional Cost of ` 60 per unit. 3. 1,500 units of Finished Product X and Total Cost incurred ` 320 per unit. Expected Selling Price of Product X is ` 300 per unit. Determine how each item of inventory will be valued on Calculate the Value of Total Inventory as on Solution: Similar to Page No.B.2.16, Q.No.51 [P (A/c) RTP] Item Valuation Principle Result Raw Material WIP Finished Goods Since the Finished Product using this Raw Material is expectable be sold below cost, Raw Material may be valued of NRV, i.e. Replacement Cost of ` 90. Cost ` 260 Estimated NRV = Sale Price ` 300 Cost to complete ` 60 = ` 240. Hence, valued at least of the above, i.e. ` 240 p.u. Cost ` 320 or Net Realisable Value ` 300, whichever is lower. Hence valued at ` 300 p.u. 600 ` 90 = ` 54, ` 240 = ` 1,20,000 1,500 ` 300= ` 4,50,000 Total ` 6,24,000 May

3 Question 1(d): AS 6 Depreciation 5 Marks M/s. Laghu Udyog Limited has been charging depreciation on an item of Plant and Machinery on Straight line basis. The Machine was purchased on at ` 3,25,000. It is expected to have a total useful life of 5 years from the date of purchase and Residual Value of ` 25,000. Calculate the Book Value of the Machine as on and the Total Depreciation charged till under SLM. The Company wants to change the method of depreciation and charge depreciation at 20% on WDV from Is it valid to change the method of depreciation? Explain the treatment required to be done in the books of accounts in the context of AS 6. Ascertain the amount of Depreciation to be charged for and the Net Book Value of Machine as on after giving effect of the above change. Solution: Similar to Page No.B.4.6, Q.No.22,23 [P (A/c) M 03, N 03, N 05, N 10, M 10, N 11, N 12] Under Existing Method (SLM) Under New Method (WDV) Cost on ,25,000 3,25,000 ( ) Depreciation for /5 th (3,25,000 25,000) = 60,000 20% 3,25,000 = 65,000 WDV on ,65,000 2,60,000 ( ) Depreciation for ,000 20% 2,60,000= 52,000 WDV on ,05,000 2,08, Book Value of Plant & Machinery on (using SLM Depreciation) = ` 2,05, Total Depreciation charged till under SLM = 60,000 2 = ` 1,20, Change in Method of Depreciation is permissible only for (a) Compliance with Statutory Requirement, or (b) Compliance with an Accounting Standard, or (c) Consideration that the change would result in a more appropriate preparation or presentation of the Financilal Statements of the enterprise. 4. Disclosure: A change in the method of charging depreciation is treated as a change in accounting policy and its effect is quantified and disclosed. 5. Treatment in : (a) Debit Asset & Credit P & L, by ` 3,000 (` 2,08,000 2,05,000) [Excess Depreciation to be reversed] (b) Charge Depreciation at 20% on ` 2,08,000 = ` 41,600 (WDV basis) (c) Net Book Value of Machine on after the above = ` 2,08,000 ` 41,600 = ` 1,66,400 (d) The Company has to disclose that due to change in method of depreciation, there is a reversal of excess depreciation of ` 3,000 and the Asset Value increased by ` 3,000 and Profits increased by ` 3,000. Such change will have effect in future years also. Question 2: Amalgamation The financial position of two Companies Abhay Ltd and Asha Ltd as on is as follows 16 Marks Balance Sheet as on Abhay Ltd Asha Ltd Sources of Funds Share Capital Issued and Subscribed: 15,000 Equity Shares at ` 100, fully paid 15,00,000 10,000 Equity Shares at ` 100, fully paid 10,00,000 General Reserve 2,75,000 1,25,000 Profit & Loss 75,000 25,000 Securities Premium 1,50,000 50,000 Contingency Reserve 45,000 30,000 12% Debentures, at ` 100 fully paid 2,50,000 Sundry Creditors 55,000 35,000 Total 21,00,000 15,15,000 May

4 Abhay Ltd Asha Ltd Application of Funds Land and Buildings 8,50,000 5,75,000 Plant and Machinery 3,45,000 2,25,000 Goodwill 1,45,000 Inventory 4,20,000 2,40,000 Sundry Debtors 3,05,000 2,85,000 Bank 1,80,000 45,000 Total 21,00,000 15,15,000 They decided to merge and form a New Company Abhilasha Ltd. as on on the following terms: 1. Goodwill to be valued at 2 years purchase of the Super Profits. The Normal Rate of Return is 10% of the Combined Share Capital and General Reserve. All Other Reserves are to be ignored for the purpose of Goodwill. Average Profits of Abhay Ltd is ` 2,75,000 and Asha Ltd is ` 1,75, Land and Buildings, Plant and Machinery and Inventory of both Companies to be valued at 10% above Book Value and a Provision of 10% to be provided on Sundry Debtors % Debentures to be redeemed by the issue of 12% Preference Shares of Abhilasha Ltd (Face Value of ` 100) at a Premium of 10% 4. Sundry Creditors to be taken over at Book Value. There is an Unrecorded Liability of ` 15,500 of Asha Ltd as on The Bank Balance of both Companies to be taken over by Abhilasha Ltd after deducting Liquidation Expenses of ` 60,000 to be borne by Abhay Ltd and Asha Ltd in the ratio of 2:1. You are required to: 1. Compute the basis on which Shares of Abhilasha Ltd. are to be issued to the Shareholders of the Existing Company assuming that the Nominal Value per Share of Abhilasha Ltd is ` Draw the Balance Sheet of Abhilasha Ltd as on after the amalgamation. Solution: Similar to Page No.A.11.19, Q.No.9, N 97 The given question is an Amalgamation in the nature of Purchase. 1. Computation of Goodwill and Purchase Consideration Abhay Ltd Asha Ltd (a) Average Net Profits (Given) 2,75,000 1,75,000 Less: Normal Profits (10% on Combined Share Capital & General Reserve) 10% of (15,00, ,75,000) = (1,77,500) 10% of (10,00, ,25,000) = (1,12,500) (b) Super Profits 97,500 62,500 (c) Goodwill at 2 years Purchase of Super Profits 1,95,000 1,25,000 Add: Other Assets: Land and Building 8,50, % = 9,35,000 5,75, % = 6,32,500 Plant and Machinery 3,45, % = 3,79,500 2,25, % = 2,47,500 Inventories 4,20, % = 4,62,000 2,40, % = 2,64,000 Debtors 3,05,000 2,85,000 Bank 1,80,000 40,000 = 1,40,000 45,000 20,000 = 25,000 Total Assets including Goodwill (A) 24,16,500 15,79,000 Less: Creditors & other Current Liabilities Given = (55,000) 35, ,500 = (50,500) Provision for Doubtful Debts 3,05,000 10% = (30,500) 2,85,000 10% = (28,500) Debentures (See Note) 2,50, % = (2,75,000) Total Liabilities (B) (85,500) (3,54,000) (d) Net Assets taken over=purchase Consideration (A) (B) 23,31,000 12,25,000 (e) Number of Shares in Selling Company 15,000 10,000 (f) Intrinsic Value per Share (i.e. Book Value) ` ` 125 (g) No. of Shares to be issued by Abhilasha Ltd (FV=` 100) 15, = 23,310 10,000 = 12, May

5 Note: Computation of Preference Shares to be issued on Redemption of 12% Debentures Amount Due to Debenture Holders = ` 2,50, % = ` 2,75,000 Preference Shares to be issued on Redemption =2,75, = 2,750 Preference Shares at ` 100 each. It is assumed that the Debentures are redeemed at a Premium of 10%. Alternatively, it can be assumed that Preference Shares are issued at a Premium of 10%, i.e. ` 110 per Share for settling ` 2,50, Balance Sheet of Abhilasha Limited as at 31 st March (after Takeover) as at 31 st March Note This Year Prev. Yr I EQUITY AND LIABILITIES: (1) Shareholders Funds: Share Capital 1 38,31,000 (2) Current Liabilities: Trade Payables Creditors (55,000+50,500) 1,05,500 Total 39,36,500 II ASSETS (1) Non Current Assets (a) Fixed Assets:(i) Tangible Assets Land (9,35, ,32,500) 15,67,500 Plant (3,79, ,47,500) 6,27,000 (ii) Intangible Assets (Goodwill) (1,95, ,25,000) 3,20,000 (2) Current Assets: (a) Inventories (4,62, ,64,000) 7,26,000 (b) Trade Receivables (Net of Provision) (2,74, ,56,500) 5,31,000 (c) Cash and Cash Equivalents (1,40, ,000) 1,65,000 Note 1: Share Capital Authorised: Total 39,36,500 This Year Prev. Yr. Equity Shares of `. Each. Preference Shares of `.. Each Issued, Subscribed & Paid up: (23, ,250) Equity Shares of ` 100 each 35,56,000 2,750 Preference Shares at ` 100 each 2,75,000 Note: Above 35,560 Equity Shares of ` 100 each and 2,750 Preference Shares of `100 each are issued for non cash consideration, in the scheme of takeover of Abhay Ltd & Asha Ltd. Total 38,31,000 Question 3(a): Profits Prior to Incorporation 10 Marks The Partners Kamal and Vimal decided to convert their existing Partnership Business into a Private Limited Company called KV Trading Private Ltd with effect from The same books of accounts were continued by the Company which closed its account for the first term on The summarized Profit and Loss Account for the year ended is below: ` in Lakhs ` in Lakhs Turnover Interest on Investments 6.00 Total Income Less: Cost of Goods Sold Advertisement 3.00 Sales Commission 6.00 Salary Managing Directors Remuneration 6.00 Interest on Debentures 2.00 Rent 5.50 Bad Debts 1.00 Underwriting Commission 2.00 May

6 ` in Lakhs ` in Lakhs Audit Fees 2.00 Loss on Sale of Investment 1.00 Depreciation Net Profit The following additional information was provided: 1. The Average Monthly Sales doubled from GP Ratio was constant. 2. All Investments were sold on Average Monthly Salary doubled from The Company occupied additional space from for which rent of ` 20,000 per month was incurred. 5. Bad Debts Recovered amounting to ` 50,000 for a sale made in 2012, has been deducted from Bad Debts mentioned above. 6. Audit Fees pertains to the Company. Prepare a Statement apportioning the Expenses between Pre and Post Incorporation Periods and calculate the Profit/ Loss for such periods. Also suggest how the Pre Incorporation Profits are to be dealt with. Solution: Similar to Page No.A.9.12, Q.No.10 [N 11] 1. Computation of Time Ratio and Sales Ratio Pre Inc. Period Post Inc. Period Total (a) No. of Months = Time Ratio to to = 3 months = 9 months 3 : 9 = 1 : 3 (b) Sales per Month Ratio (given) Say ` 1 3 Months ` 2 9 Overall Sales Ratio = 3 = 18 3 : 18= 1 : 6 (c) Rent for Addnl Premises (from 1 st July) 20,000 9 Months=` 1,80,000 (d) Balance Rent (` 5,50,000 ` 1,80,000) distributed in 1 : 3 (Time Ratio) ` 92,500 ` 2,77,500 Total Rent Expense (c) + (d) ` 92,500 ` 4,57,500 (e) Salary Ratio Say ` 1 3 Months = 3 (` 1 3 Months + ` 2 6) = 15 3: 15 = 1: 5 Add: 2. Statement showing calculation of Profit / Losses for Pre and Post Incorporation Periods Total Ratio Pre Incorpn. Post Incorpn. Turnover (Apportioned in Sales Ratio) 2,40,00,000 1:6 34,28,571 2,05,71,429 Apportionment of Other Income Interest on Investments 6,00,000 6,00,000 Bad Debts Recovered 50,000 50,000 A. Total Income 2,46,50,000 40,78,571 2,05,71,429 B. Apportionment of Expenses Cost of Goods Sold 102,00,000 1:6 14,57,143 87,42,857 Advertisement Expenses 3,00,000 1:6 42,857 2,57,143 Sales Commission 6,00,000 1:6 85,714 5,14,286 Salary 18,00,000 1:5 3,00,000 15,00,000 Managing Directors Remuneration 6,00,000 Post 6,00,000 Interest on Debentures 2,00,000 Post 2,00,000 Rent (Note 1d) 5,50,000 92,500 4,57,500 Bad Debts 1,50,000 1:6 21,429 1,28,571 Underwriting Commission 2,00,000 Post 2,00,000 Audit Fees 2,00,000 Post 2,00,000 Loss on Sale of Investment 1,00,000 Pre 1,00,000 Depreciation 4,00,000 1:3 1,00,000 3,00,000 Total Expenses 1,53,00,000 21,99,643 1,31,00,357 C. Profit (A B) 93,50,000 18,78,928 74,71,072 May

7 3. Accounting Treatment: Pre Incorporation Profit is transferred to Capital Reserve A/c. Alternatively, the amount may be set off against the Goodwill, if any, arising on acquisition of business. Question 3(b): Insurance Claims Loss of Profits Computation of Policy Amount 6 Marks M/s. Platinum Jewellers wants to take up a Loss of Profit Policy for the Year The Extract of the Profit and Loss Account of the previous year ended is provided below: Variable Expenses: Cost of Materials 18,60,000 Fixed Expenses: Wages for Skilled Craftsmen 1,60,000 Salaries 2,80,000 Audit Fees 40,000 Rent 64,000 Bank Charges 18,000 Interest Income 44,000 Net Profit 6,72,000 Turnover is expected to grow by 25% next year. To meet the growing Working Capital needs, the Partners have decided to avail Overdraft Facilities from their 12% p.a. interest. The Average Daily Overdraft Balance will be around ` 2 Lakhs. The Wages for the Skilled Craftsmen will increase by 20% and Salaries by 10% in the current year. All other expenses will remain the same. Determine the amount of policy to be taken up for the current year by M/s. Platinum Jewellers. Solution: Similar to Page No.A.5.16, Q.No.22 [N 01] 1. Trading and Profit and Loss Account for Previous Year To Variable Expenses 18,60,000 By Sales (balancing figure) 30,50,000 To Fixed Expenses 5,62,000 By Miscellaneous Income 44,000 To Net Profit 6,72,000 Total 30,94,000 Total 30,94,000 Note: Total Fixed Expenses = `1,60,000 + `2,80,000 + `40,000 + `64,000 + `18,000 = ` 5,62, Computation of Insurance Policy to be taken ` Gross Profit (Sales ` 30,50,000 Less Variable Expenses ` 18,60,000) 11,90,000 Add: Additional GP at 25% of above 2,97,500 Add: Increasing Standing Charges 20% of 1,60,000 32,000 10% of 2,80,000 28,000 Interest on 12% of 2,00,000 24,000 84,000 Policy to be taken for Current Year 15,71,500 Question 4: Financial Statements from Incomplete Records 16 Marks The following is the Balance Sheet of M/s Care Traders as on : Sources of Funds Amt in ` Application of Funds Amt in ` Share Capital 10,00,000 Machinery 8,25,500 Profit and Loss 1,47,800 Furniture 1,28,700 Unsecured Loan at 10% 1,75,000 Inventory 1, Trade Payables 45,800 Trade receivables 2,29,600 Bank balance 12,800 Total 13,68,600 13,68,600 A fire broke out in the premises on and destroyed the Books of Account. The Accountant could however provide the following information: May

8 1. Sales for the year ended was ` 18,60,000. Sales for the current year was 20% higher than the last year % Sales were made in cash and the balance was on credit. 3. Gross Profit on Sales is 30% 4. Terms of Credit: Debtors 2 Months, Creditors 1 month. All Creditors are paid by Cheque and all Sales are collected in Cheque. 5. The Bank Pass Book has the following details (other than payment to Creditors and collection from Debtors) Machinery purchased 1,14,000 Repairs 36,500 Rent paid 1,32,000 Sales of Furniture 9,500 Advertisement Expenses 80,000 Cash withdrawn for Petty Expenses 28,300 Travelling Expenses 78,400 Interest paid on Unsecured Loan 8, Machinery was purchased on Rent was paid for 11 months only and 25% of the Advertisement Expenses relates to the next year. 8. Travelling Expenses of ` 7,800 for which Cheques were issued but not presented in bank. 9. Furniture was sold on at a loss of ` 2,900 on Book Value. 10. Physical Verification as on ascertained the Stock Position at ` 1,81,000 and Petty Cash Balance at Nil. 11. There was no change in Unsecured Loans during the year. 12. Depreciation is to be provided at 10% on Machinery and 20% on Furniture. Prepare Bank A/c, Trading and Profit & Loss A/c for the year ended , in the books of M/s. Care Traders and a Balance Sheet as on that date. Make necessary assumptions wherever necessary. Solution: Similar to Page No.A.3.59 Q.No.36, [N 02] and other Illustrations in this Chapter 1. Computation of Gross Profit Computation ` (a) Sales for Current Year 18,60, % 22,32,000 (b) Cash Sales 22,32,000 25% 5,58,000 (c) Hence, Credit Sales = Total Sales ( ) Cash Sales 22,32,000 5,58,000 16,74,000 (d) Gross Profit = Sales 30% 22,32,000 30% 6,69, Trading Account for the year ended 31 st March To Opening Stock 1,72,000 By Sales (WN 1) 22,32,000 To Purchases (balancing figure) 15,71,400 By Closing Stock 1,81,000 To Gross Profit (30%) 6,69,600 Total 24,13,000 Total 24,13,000 Closing Debtors = Credit Sales 3. Computation of Debtors Closing Balance No. of Months O/S 2 = ` 16,74,000 = ` 2,79, Sundry Debtors Account (To find out Collections from Debtors) To balance b/d 2,29,600 By Bank Collection (balancing figure) 16,24,600 To Credit Sales (WN 1) 16,74,000 By balance c/d (WN 3) 2,79,000 Total 19,03,600 Total 19,03, Computation of Creditors Closing Balance No. of Months O/S 1 Closing Creditors = Credit Purchases = ` 15,71,400 = ` 1,30, (Assumed that the entire Purchases is on Credit) May

9 6. Sundry Creditors Account (To find out Payments to Creditors) To Bank Payment (balancing figure) 14,86,250 By balance b/d 45,800 To balance c/d (WN 5) 1,30,950 By Purchases Credit (WN 2) 15,71,400 Total 16,17,200 Total 16,17, Machinery Account To balance b/d 8,25,500 By Depreciation (8,25,500 10%)+(1,14,000 10% 6/12) 88,250 To Bank 1,14,000 By balance c/d 8,51,250 Total 9,39,500 Total 9,39,500 Note: Alternatively, Depreciation can be assumed at 10% on Book Value irrespective of date of addition. 8. Furniture Account To balance b/d 1,28,700 By Bank (Sale Proceeds) 9,500 By Loss on Sale 2,900 By Depreciation (1,16,300 20%) (Note) 23,260 By balance c/d 93,040 Total 1,28,700 Total 1,28,700 Note: Depreciation = 20% on (1,28,700 9,500 2,900) = 23, Bank Account To Balance b/d 12,800 By Creditors (WN 6) 14,86,250 To Debtors Collections received (WN 4) 16,24,600 By Machinery 1,14,000 To Cash Sales (WN 1) 5,58,000 By Rent 1,32,000 To Furniture 9,500 By Advertisement 80,000 By Repairs 36,500 By Travelling (78, ,800) (Cheque issued) 86,200 By Petty Expenses 28,300 By Interest 8,750 By balance c/d (balancing figure) 2,32,900 Total 22,04,900 Total 22,04, Profit & Loss Account for the year ended ,32,000 To Rent ( 12) 1,44,000 By Gross Profit 6,69, To Advertisement (80,000 75%) 60,000 To Travelling Expenses 86,200 To Loss on Sale of Furniture 2,900 To Depreciation (88, ,260) 1,11,510 To Repairs 36,500 To Petty Expenses 28,300 To Interest (1,75,000 10%) 17,500 To Net Profit (balancing figure) 1,82,690 Total 6,69,600 Total 6,69,600 By Opening Balance b/d 1,47,800 To Closing Balance c/d 3,30,490 By Net Profits for the year as above 1,82,690 Total 3,30,490 Total 3,30,490 May

10 11. Balance Sheet as at 31 st March Capital and Liabilities ` Properties and Assets ` Capital 10,00,000 Non Current Assets: Profit & Loss Account 3,30,490 Machinery (WN 7) 8,51,250 Non Current Liabilities: Unsecured Loan 1,75,000 Furniture (WN 8) 93,040 Current Liabilities: Current Assets: Sundry Creditors (WN 5) 1,30,950 Inventory 1,81,000 Rent Payable 12,000 Sundry Debtors (WN 3) 2,79,000 Interest Payable (17,500 8,750) 8,750 Bank 2,32,900 Advertisement Exp. paid in advance 20,000 Total 16,57,190 Total 16,57,190 Question 5(a): Hire Purchase Accounting Cash Price, Repossession, Ledger A/cs Lucky bought 2 tractors from Happy on on the following terms: Description ` Down Payment 5,00,000 1 st Installment at the end of First Year 2,65,000 2 nd Installment at the end of Second Year 2,45,000 3 rd Installment at the end of Third Year 2,75,000 May Marks Interest is charged at 10% p.a Lucky provides 20% on the Diminishing Balances. On , Lucky failed to pay the 3 rd Installment upon which Happy repossessed 1 Tractor. Happy agreed to leave one tractor with Lucky and adjusted the value of the Tractor against the amount due. The Tractor taken over was valued on the basis of 30% depreciation annually on written down basis. The balance amount remaining in the Vendor s Account after the above adjustment was paid by Lucky after 3 Months with 18% p.a. You are required to: 1. Calculate the Cash Price of the Tractors and the Interest paid with each installment. 2. Prepare Tractor Account and Happy Account in the books of Lucky assuming that books are closed on 30 th September every year. Figures may be rounded off to the nearest Rupee. Solution: Similar to Page A.5.73 Q.No.2 [N 12], and Page A.5.80 Q.No.14 [M 90] End of Instalment 1. Statement of Cash Price of the Asset acquired on HP Balance due after Instalment Cumulative Interest at 10% Instalment Amount Amount p.a (1) (2) (3) (4) = (2) + (3) 10 (5) = (4) 110 Paid for Principal (6) = (3) (5) 3 Nil 2,75,000 2,75,000 25,000 2,50, ,50,000 2,45,000 4,95,000 45,000 2,00, ,50,000 2,65,000 7,15,000 65,000 2,00, ,50,000 5,00,000 11,50,000 NIL (Down Payment) 5,00,000 12,85,000 1,35,000 11,50,000 Thus, Cash Price of the Asset = ` 11,50, Tractor A/c Date ` Date ` To Bank A/c(Down Payment) 5,00, By Depreciation (11,50,000 20%) 2,30, To Happy A/c 6,50, By balance c/d 9,20,000 Total 11,50,000 Total 11,50, To balance b/d 9,20, By Depreciation (9,20,000 20%) 1,84, By balance c/d 7,36,000 Total 9,20,000 Total 9,20,000

11 Date ` Date ` To balance b/d 7,36, By Depreciation (7,36,000 20%) 1,47, ,50,000 By Happy ( 70% 70% 70%) 1,97, By Loss on takeover (bal. figure) or [(½ 97,175 of 5,88,800) 2,94,400 1,97,225] By balance c/d (½ of 5,88,800) 2,94,400 Total 5,88,800 Total 5,88, To balance b/d 2,94, By Depreciation (2,94,400 20%) 58, By balance c/d 2,35,520 Total 2,94,400 Total 2,94,400 Note: Computation of Takeover Value of Tractor ` Cost of the Tractor (1 Tractor) 11,50, ,75,000 Depreciation for Year 1 5,75,000 30% (1,72,500) Depreciation for Year 2 (5,75,000 1,72,500) = 4,02,500 30% (1,20,750) Depreciation for Year 3 (4,02,500 1,20,750) = 2,81,750 30% (84,525) Takeover Value of Tractor 1,97,225 3.Happy A/c Date ` Date ` To Bank A/c 2,65, By Tractor A/c 6,50, To Balance c/d (bal.fig) 4,50, By Interest (6,50,000 10%) 65,000 Total 7,15,000 Total 7,15, To Bank 2,45, By Balance b/d 4,50, To Balance c/d 2,50, By Interest 45,000 Total 4,95,000 Total 4,95, To Tractor A/c (take over) 1,97, By Balance b/d 2,50, To Balance c/d 77, By Interest 25,000 Total 2,75,000 Total 2,75, To Bank A/c 81, By balance b/d 77, By Interest (77,775 18% 3/12) 3,500 Total 81,275 Total 81,275 Question 5(b): Accounting for Investments Ex Interest & Cum Interest Transactions Mr. Chatur had 12% Debentures of Face Value ` 100 of M/s. Unnati Ltd as Current Investments. He provides the following details relating to the Investments Opening Balance 4,000 Debentures costing `98 each Purchased 2,000 `120 cum Interest Sold 3,000 ` 110 cum interest Sold 2,000 ` 105 ex interest Purchased 3,000 ` 100 ex interest Market Value of the Investments ` 105 each 8 Marks Interest due dates are 30 th June and 31 st December. Mr. Chatur closes his books on He incurred 2% Brokerage for all his transactions. Show Investment Account in the Books of Mr. Chatur, assuming FIFO Method is followed. Solution: Similar to Page No.A.5.49, Q.No.2 [N 95] May

12 Investment in 12% Debentures of M/s Unnati Ltd A/c (in Chatur s Books) Date ` FV ` Int. ` Cost Date ` FV ` Int. ` Cost To bal. b/d 4,00,000 (4,000 98) 3,92, To Bank (WN 2) To P&L Profit tfr To Bank ( %) To P&L Interest tfr Int recd By Bank (WN 1b) 2,00,000 10,000 2,34, By Bank (WN 3) 23, By Bank (WN 3) 3,00,000 3,000 3,06, By P&L Loss transfer 45, Int recd By Bank (WN 1e) By P&L (WN 4) 36,000 3,00,000 6,000 3,17,400 2,00,000 10,000 2,05,800 9,600 6,000 3, By bal.c/d 4,00,000 4,20,000 Total 9,00,000 58,000 9,56,200 Total 9,00,000 58,000 9,56,200 Working Notes: 1.Computation of 12% on various dates Period Interest Amount Date FV (`) 12% p.a. (`) (a) Interest on Cum Interest Purchase (2, ) 2,00, ,000 (b) Interest received on Holding (4,00, ,00,000) 6,00, ,000 (c) Interest on Cum Interest Sale (3, ) 3,00, ,000 (d) Interest on Ex Interest Sale (2, ) 2,00, ,000 (e) Interest received on Holding (6,00,000 5,00,000) 1,00, ,000 (f) Interest on Ex Interest Purchase (3, ) 3,00, , Computation of Cost of Purchase ` Purchase Value (2, % of 2,40,000 ) 2,44,800 Less: Interest (WN 1a) (2, % 5/12 ) 10,000 Cost of Debentures 2,34,800 Cost per Debenture (2,34,800 2,000) Computation of Profit or (Loss) on Sale Cum Interest Sale Ex Interest Sale Sale Proceeds (3, ) 2% Brokerage = 3,23,400 (2, ) 2% Brokerage = 2,05,800 Less: Interest (for Cum Int Sale) (WN 1c) = 6,000 N.A Net Sale Proceeds 3,17,400 2,05,800 Less: Cost of Debentures Out of OB, i.e. (3,000 ` 98) = 2,94,000 (On FIFO Basis) (1,000 ` 98)+ (1,000 ` 117.4) = 2,15,400 Profit / (Loss) on Sale Profit = 23,400 Loss = (9,600) 4. Valuation of Current Investments: As on , Cost = ` 4,23,400, computed by balancing the A/c or [(1,000 ` ) + (3,000 ` 102)]. However, Market Value = 4,000 ` 105 = 4,20,000, which is lower than cost. Hence, Market Value is considered for Inventory Valuation. Loss on Valuation (being Current Investments) is transferred to P&L. Question 6: Partnership Accounts Admission cum Retirement Final Accounts, Time Proportion Analysis 16 Marks A and B who carry on Partnership Business in the name of M/s. AB Ltd, closes their Firm s account as on 31 st March each year. Their Partnership agreement provides: May

13 (i) Profit & Loss sharing A: 2/3 and B: 1/3. (ii) On Retirement or Admission of Partner: (a) If the change takes place during any accounting year, such Partner s Share of Profits or Losses for the period up to retirement or from admission, is to be arrived at, by apportionment on a time basis except otherwise stated for specific item(s). (b) No account for Goodwill is to be maintained in the Firm s books. (c) Any balance due to an Outgoing Partner is to carry 9% p.a. from the date of his retirement to the date of payment. The Trial Balance of the Firm as on was as follows: (Dr.) Amount ` (Cr.) Amount ` Capital Account A 24,000 B 12,000 C Cash brought in on ,000 Plant and Machinery at cost 22,000 Depreciation Provision up to ,400 Motor Car at Cost 30,000 Depreciation Provision up to ,000 Purchases 84,000 Stock as on ,500 Salaries 18,000 Debtors 5,400 Sales 1,20,000 Travelling expenses 800 Office Maintenance 1,200 Conveyance 500 Trade Expenses 1,000 Creditors 10,100 Rent and Rates 3,000 Bad Debts 900 Cash in Hand and at Bank 3,200 Total 1,85,500 1,85,500 A retired from the Firm on 30 th September 2014 and on the same day C an Employee of the Firm was admitted as Partner. Further, Profits or Losses shall be shared B: 3/5 and C: 2/5. Necessary Accounting Entries adjustments were pending up to You are given the following further information: (i) The value of Firm s Goodwill as on 30 th September 2014 was agreed to `15,000. (ii) The Stock as on 31 st March 2015 was valued at ` 18,550. (iii) Partner s Drawings which are included in Salaries: A ` 2,000, B ` 3,000 and C ` 1,000. (iv) Salaries also includes ` 1,500 paid to C prior to his being admitted as a Partner. (v) Bad Debts of ` 500 related to the period upto 30 th September (vi) As on 31 st March 2015, Rent paid in Advance amounted to ` 600 and Trade Expenses accrued amounted to ` 250. (vii) Provision is to be made for Depreciation on Plant and Machinery and on Motor Car at the rate of 10% p.a. on cost. (viii) A Bad Debts provision, specially attributable to the second half of the year, is to be 5% on Debtors as on 31 st March (ix) Amount payable to A on retirement remained unpaid till 31 st March You are required to prepare: (a) Trading and Profit & Loss Account for the year ended 31 st March (b) Partners Capital Account for the year ended 31 st March (c) Balance Sheet as on that date. May

14 Solution: Gurukripa s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting Similar to Page No.A.6.46, Q.No.34 [RTP] 1. Trading Account for the year ended 31 st March 2015 To Opening Stock 15,500 By Sales 1,20,000 To Purchases 84,000 By Closing Stock 18,550 To Gross Profit c/d (balancing figure) 39,050 Total 1,38,550 Total 1,38, Profit and Loss Account for the year ended 31 st March 2015 Upto to Upto to To Salaries [Note (a)] 6,750 5,250 By Gross Profit b/d 19,525 19,525 To Trade Expenses (1, ) (Time Basis 6 Months each) To Rent and Rates (3, ) 1,200 1,200 To Bad Debts(given) To Provision for Doubtful Debts (5% on 5,400) 270 To Depreciation [Note (b)] 2,600 2,600 To Office Maintenance To Conveyance To Travelling Expenses To Interest on A s Loan 1,638 To Net Profit (balancing figure) 6,600 6,292 Total 19,525 19,525 Total 19,525 19,525 Allocation of Expenses Note (a) Salary Note (b) Depreciation P&M Car ` (a) Cost 22,000 30,000 As per Trial Balance 18,000 (b) Accum. Deprn upto ,400 6,000 Less: Partners Drawings (2, , ,000) (6,000) (c) Deprn for (on SLM) 2,200 3,000 Less: C s Salary included in above (1,500) (d) Accum.Depreciation at year end 6,600 9,000 Total 10,500 (e) Net Book Value at year end 15,400 21,000 Hence, I Half II Half Total Depreciation 5,200 Time Basis 50% 5,250 5,250 (a) I Half 2,600 Add: C s Salary (Direct) 1,500 (b) II Half 2,600 Total 6,750 5, Partners Capital Account A B C A B C To Drawings 2,000 3,000 1,000 By balance b/d 24,000 12,000 To A s Capital (Gw adjt) 4,000 6,000 By Cash 9,000 To A s Loan A/c transfer 32,000 By B s Capital (Gw adjt) 4,000 To balance c/d 5,000 2,000 By C s Capital (Gw adjt) 6,000 Total 34,000 12,000 9,000 Total 34,000 12,000 9,000 By balance b/d 5,000 2,000 To A s Loan A/c transfer 4,400 By P & L A/c (2:1) 4,400 2,200 (I Half Year) To balance c/d 10,975 4,517 By P & L A/c (3:2) (II Half Year) 3,775 2,517 Total 4,400 10,975 4,517 Total 4,400 10,975 4,517 May

15 Note: Adjustment for Goodwill is as under A B C (a) On Creation (2:1 Ratio) 10,000 (Cr.) 5,000 (Cr.) (b) On Reversal (3:2 Ratio) 9,000 (Dr.) 6,000 (Dr.) Net 10,000 (Cr.) 4,000 (Dr.) 6,000 (Dr.) 7. A s Loan A/c To balance c/d 38,038 By Transfer from Capital A/c (32, ,400) 36,400 By Profit and Loss A/c (36,400 9% 6/12) 1,638 Total 38,038 Total 38, Balance Sheet as at 31 st March 2015 Capital and Liabilities ` Properties and Assets ` Capital Accounts: Non Current Assets: B 10,975 Plant and Machinery (Cost) 22,000 C 4,517 15,492 Less: Accumulated Depreciation (6,600) 15,400 Non Current Liabilities: Car (Cost) 30,000 Less: Accumulated Depreciation (9,000) 21,000 Current Assets: A s Loan A/c 38,038 Stock 18,550 Debtors 5,400 Current Liabilities: Less: Provn for Doubtful Debts (270) 5,130 Creditors 10,100 Cash and Bank 3,200 Trade Expenses Payable 250 Prepaid Rent 600 Total 63,880 Total 63,880 Question 7 (a): Accounting for Not for Profit Organisations From the following information of M/s. Officers Sports Club, (a Non Profit Organization) calculate (i) Total Cost of Sports Material Consumed in the Club, and (ii) Sale Value of Sports Material during the year Marks ` Opening Balance of Sports Material as on ,800 Closing Balance of Sports Material as on ,900 Sports Material purchased in Cash 23,500 Payment made to Creditors of Sports Material 64,300 Creditors for Sports Material Opening 23,200 Closing 29,400 Out of the Total Sports Material used during the year, 40% was consumed by the Club and the remaining was sold at a Profit of 20% on Cost. Solution: Similar to Page No. A.4.64 Q.No.39 (Working Notes 4,6) and Other Illustrations 1. Creditors for Sports Materials A/C To Bank Payment 64,300 By balance b/d (Opening Balance) 23,200 To balance c/d (Closing Balance) 29,400 By Sports Materials Purchased (b/f) 70,500 Total 93,700 Total 93,700 May

16 2. Sports Material Stock A/c To balance b/d (Opening Stock) 56,800 By Sports Materials Consumed (1,17,900 40%) 47,160 To Purchases By Bank (Sale Proceeds of Sports Materials) Cash / Bank 23,500 Cost (1,17,900 60%) = 70, % Profit 84,888 Credit (as above) 70,500 By balance c/d (Closing Stock) 32,900 To Profit on Sale of Sports Materials, 14,148 transferred to Income & Expenditure A/c Total 1,64,948 Total 1,64,948 Note: Cost of Sports Materials Consumed & Sold = Opening Stock + Purchases ( ) Closing Stock = (56, , ,500 32,900) = ` 1,17,900 Question 7 (b): Average Due Date 4 Marks Form the following details, find out the Average Due Date: Date of Bill Amount (`) Usance of Bill 29 th January ,000 1 Months 20 th March ,000 2 Months 12 th July ,000 1 Months 10 th August ,000 2 Months Solution: Similar to Page No.A.2.6, Q.No.8 [N 10] Computation of Average Due Date (Note: Base Date = 03 rd March) Bill Date Term Due Date No. of Days from Base Date Amt Product Col. (1) Col. (2) Col. (3) Col. (4) Col. (5) (6) = (4) (5) 29 th January 1 month 3 rd Mar 0 10, th March 2 months 23 rd May = 81 8,000 6,48, nd July 1 month 14 th Aug (15 th Aug = Public Holiday) = ,000 22,96, th August 2 months 13 th Oct = ,000 26,88,000 Total 44,000 56,32,000 Total of Products Average Due Date = Base Date ± = 3 rd 56,32,000 March + = 3 rd March days = 9 th July 2014 Total of Amounts 44,000 Question 7 (c): AS 9 Revenue Recognition Treatment in Special Cases Sale of Goods 4 Marks Given the following information of M/s. Paper Products Ltd. (i) Goods of ` 60,000 were sold on but at the request of the Buyer these were delivered on (ii) On goods of ` 1,50,000 were sent on consignment basis of which 20% of the goods unsold are lying with the consignee as on (iii) ` 1,20,000 worth of goods were sold on approval basis on The period of approval was 3 months after which they were considered sold. Buyer sent approval for 75% goods up to and no approval or disapproval received for the remaining goods till (iv) Apart from the above, the Company has made Cash Sales of ` 7,80,000 (Gross). Trade Discount of 5% was allowed on the Cash Sales. You are required to advise the Accountant of M/s. Paper Products Ltd, with valid reasons, the amount to be recognized as Revenue in above cases under AS 9 and also determine the total revenue to be recognized for the year ending Solution: Refer Page No. B.6.7 Para 3 Situation Treatment Revenue recognised Goods Sold, delivery delayed at Buyer s request Revenue should be recognised notwithstanding that physical delivery has not been completed so long as there is every expectation that delivery will be made. May ` 60,000

17 Situation Treatment Revenue recognised Consignment Sales Goods sold on approval basis Trade Discounts Revenue on Consignment Sales is recognised only when goods are sold by the agent to a third party. Note: Cost of Stock with Consignee should be taken into account Revenue should not be recognised until the time period for rejection has elapsed or where no time has been fixed, a reasonable time has elapsed. 3 Months period has elapsed for all goods. Hence, entire revenue should be recognised. Trade Discounts and Volume Rebates received do not fall within the definition of Revenue, since they represent a reduction of cost. Hence, these Discounts and Volume Rebates given should be deducted to determine revenue. 80% ` 1,50,000 = ` 1,20,000 `1,20,000 7,80,000 5% = ` 7,41,000 Total ` 10,41,000 Question 7 (d): Accounting Basics and E Environment What factors are to be considered at the time of choosing an appropriate Accounting Software for an organization? 4 Marks Solution: Similar to Page No.A.1.8. Q.No. 7 M 08, N 09, N 11, M Business Requirements: The Enterprise should identify its business requirements and try to match its requirement with functionalities offered by different software providers. 2. Reports: Software which is able to provide all the requisite reports (both routine and exception reporting) in a format understandable to the User, should be preferred. 3. Ease of Use: Software which is easier to use (both interface and performance wise), should be considered. Software which are very high on GUI may fall short on performance (speed) while handling high volume data. 4. Cost: Packages having more features cannot be opted because of the prohibitive high costs. 5. Support: Vendor Support is essential for any software. A Stable Vendor with reputation and good track record will always be preferred. 6. Regular Updates: Software which is constantly updated should be preferred against those Software where Vendors do not update their Software regularly. Question 7 (e): AS 10 Accounting for Fixed Assed Determination of Cost 4 Marks M/s. Versatile Limited purchased Machinery for ` 4,80,000 (inclusive of excise duty of ` 40,000). CENVAT Credit is available for 50% of the duty paid. The Company incurred the following other expenses for installation. ` Cost of Preparation of Site for Installation 21,000 Total Labour Charges (200 out of the total of 600 men hours worked, were spent for installation of the machinery) 66,000 Spare Parts and Tools consumed in Installation 6,000 Total Salary of Supervisor (time spent for installation was 25% of the total time worked) 24,000 Total Administrative Expenses (1/10 relates to the Plant Installation) 32,000 Test Run and Experimental Production Expenses 23,000 Consultancy Charges to Architect for Plant Setup 9,000 Depreciation on Assets used for the installation 12,000 The Machine was ready for use on but was used from Due to this delay further expenses of ` 19,000 were incurred. Calculate the value at which the Plant should be capitalized in the books of M/s. Versatile Limited. Solution: Similar to Page No. B.7.5,Illus.No.17,18 [N 13] Also see Principles in Qn.16, 22, 23 of AS 10 Cost of Fixed Asset (i.e. Machine) is calculated as under May

18 Purchase Price (` 4,80,000 less Excise Duty 40,000) 4,40,000 Add: Non Refundable Duties 50% of Excise Duty where CENVAT credit not available = 50% of ` 40,000 20,000 Site Preparation Cost 21, Labour Charges ` 66, ,000 Spares and Tools in Installation 6,000 Salary of Supervisor (24,000 25%) 6,000 Admin Expense attributable to Installation (apportioned costs are excluded) Nil Test Run & Experimental production (Indirect Element) 23,000 Consultancy Charges to Architect for Plant setup 9,000 Depreciation on Asset used for Installation 12,000 Expenses due to delay in use (Excluded as it is abnormal) Nil Total Capitalized Cost of Asset 5,59,000 ` May

19 Additional Questions for Practice CA Inter (IPC) Group I Accounting Question 1: Chapter 3: Accounts from Incomplete Records RTP Mr. H had ` 1,65,000 in the Bank Account on when he started his business. He closed his accounts on 31 st March His single entry books (in which he did not maintain any account for the bank) showed his position as follows: (Amt in `) Cash in Hand 1,100 1,650 Stock in Trade 10,450 15,950 Debtors 550 1,100 Creditors 2,750 1,650 On and from , he began drawings ` 385 per month for his Personal Expenses from the Cash Box of the business. His account with the bank had the following entries: Deposits Withdrawals ,65, to ,22, to ,26,500 1,48,500 The above withdrawals included payment by cheque of ` 1,10,000 and ` 33,000 respectively during the period from to and from to respectively for the purchase of Machineries for the business. The deposits after consisted wholly of sale price received from the customers by cheques. Draw up Mr. H s Statement of Affairs as at and respectively and work out his Profit or Loss for the year ended Solution: 1. Statement of Affairs as on 31 st March 2014 Liabilities ` Assets ` Capital (balancing figure) 1,61,700 Machinery 1,10,000 Sundry Creditors 2,750 Stock 10,450 Debtors 550 Cash at bank (1,65,000 1,22,650) 42,350 Cash in hand 1,100 Total 1,64,450 Total 1,64, Statement of Affairs as on 31 st March 2015 Liabilities ` Assets ` Capital (Balancing figure) 1,80,400 Machinery (1,10, ,000) 1,43,000 Sundry Creditors 2,750 Stock 15,950 Debtors 1,100 Cash at Bank (OB. 42, ,26,500 1,48,500) 20,350 Cash in hand 1,650 Total 1,82,050 Total 1,82,050 3.Profit and Loss for the Period to (3 Months) to (12 Months) Closing Capital as per Statement of Affairs above 1,61,700 1,80,400 Add: Drawings (From Feb 2014) = = 4,620 1,62,470 1,85,020 Less: Opening Capital At Bank = 1,65,000 1,61,700 Profit / (Loss) Loss (2,530) Profit 23,320 May

20 Question 2: Chapter 4: Financial Statements of Not For Profit Organizations RTP From the following information, prepare Opening and Closing Balance Sheet of a Club: 31 st March st March 2016 Building (subject to 10% Depreciation for the current year) 60,000? Furniture (subject to 10% Depreciation for the current year) 20,000 Stock of Sports Materials 5,000 2,000 Prepaid Insurance 3,000 6,000 Outstanding Subscription 12,000 8,000 Advance Subscription 6,000 4,000 Outstanding Locker Rent 6,000 Advance Locker Rent received 2,000 Outstanding Rent for Godown 6,000 3,000 12% General Fund Investments 2,00,000 2,00,000 Accrued Interest on above 4,000 Cash Balance 1,000 64,000 Bank Balance 2,000 Bank Overdraft 2,000 Entrance Fees received ` 20,000, Life Membership Fees received ` 20,000, Surplus from Income & Expenditure A/c ` 60,000. It is the policy of the club to treat 60% of Entrance Fees and 40% of Life Membership Fees as of revenue nature. The Furniture was purchased on 1 st April Solution: Balance Sheet as at 31 st March 2015 Liabilities ` Assets ` Capital Fund (Balancing Figure) 2,71,000 Non Current Assets: Building 60,000 Current Liabilities: O/s Rent for Godown 6,000 Current Assets: Stock of Sports Materials 5,000 Advance Subscription 6,000 Prepaid Insurance 3,000 Outstanding Subscription 12,000 Bank Balance 2,000 Cash Balance 1,000 Total 2,83,000 Total 2,83,000 Balance Sheet as at 31 st March 2016 Liabilities ` Assets ` Capital Fund: Non Current Assets : Opening Balance 2,71,000 Building: Cost 60,000 less Deprn (6,000) 54,000 Add: Entrance Fees [` 20,000 x 40%] 8,000 Furniture: Cost 20,000 less Deprn (2,000) 18,000 Add: Life Membership Fees [` 20,000x60%] 12,000 12% General Fund Invts (assumed LT) 2,00,000 Add: Surplus 60,000 Current Assets: Closing Balance of Capital Fund 3,51,000 Stock of Sports Materials 2,000 Current Liabilities: Prepaid Insurance 6,000 Outstanding Rent 3,000 Outstanding Subscription 8,000 Advance Subscription 4,000 Outstanding Locker Rent 6,000 Advance Locker Rent 2,000 Accrued Interest on 12% GF Invts 4,000 Bank Overdraft 2,000 Cash Balance 64,000 Total 3,62,000 Total 3,62,000 Question 3: Chapter 5: Accounting for Hire Purchase Transactions RTP (a) On Shaan Ltd purchased a Machine on hire purchase basis. The terms of agreement provided for 40% as cash down payment and the balance in three instalments of ` 1,63,000 on , ` 1,20,000 on and ` 1,10,000 on The rate of interest charged by the Vendor is 10% p.a. compound annually. You are required to calculate the Cash Price and Periodic Interest charged by the Hire Vendor. May

21 (b) On , Beeta Ltd purchased a Machine from Yama Ltd on hire purchase basis. The terms of agreement provided for 40% as cash down payment and the balance in three instalment of ` 1,30,000 on , ` 1,42,000 on and `1,10,000 on The rate of interest charged by the vendor is 10% p.a. compounded annually. You are required to calculate the Cash Price when 2 nd instalment is payable after two years. Solution: Case (a) Statement Showing the Computation of Cash Price and Periodic Interest End of Instalment No. Balance due after Instalment Instalment Amount Cumulative Instalment Interest at 10% p.a Paid for Principal (1) (2) (3) (4) = (2) + (3) 10 (5) = (4) 110 (6) = (3) (5) 3 NIL 1,10,000 1,10,000 10,000 1,00, ,00,000 1,20,000 2,20,000 20,000 2,00, ,00,000 1,63,000 3,63,000 33,000 3,30, ,30,000 3,30,000 30,000 3,00,000 Let Cash Price be X. So, X = ` 3,00, % of X 0.6 X = ` 3,00,000 So, X = 3,00,000 = ` 5,00,000 Cash Price = ` 5,00, Case (b): Statement Showing the Computation of Cash Price and Periodic Interest End of Instalment No. Balance due after Instalment Instalment Amount Cumulative Instalment Interest at 10% p.a (1) (2) (3) (4) = (2) + (3) 10 (5) = (4) 110 Paid for Principal (6) = (3) (5) 3 Nil 1,10,000 1,10,000 10,000 1,00, ,00,000 1,42,000 2,42,000 22,000 2,20,000 2,20,000 2,20,000 20,000 2,00, ,00,000 1,30,000 3,30,000 30,000 3,00,000 Let Cash Price be X. So, X = ` 3,00, % of X 0.6 X = ` 3,00,000 So, X = May ,00,000 = ` 5,00,000 Cash Price = ` 5,00, Question 4: Chapter 6: Partnership Accounts Basics RTP R and G are Partners sharing Profits and Losses in the ratio of 3:2 after allowing ` 1,000 p.m. Salary for each Partner. However, the accounts have not been prepared for the last three years. From the following details, you are required to calculate the distribution of profits between the Partners in total for the three years. Assets as at the end of 3 rd year 1,60,000 Capital on commencement: Liabilities as at the end of 3 rd year 40,000 R 50,000 Drawings for three years in addition to Salaries: G 40,000 R 30,000 Introduction of fresh capital during three years G 22,000 R 10,000 Solution: 1. Computation of Profits for 3 years ` ` Assets at the end of the 3 rd year 1,60,000 Less: Liabilities at the end of the 3 rd year (40,000) 1,20,000 Add: Drawings including Partnership Salary: R [30,000 + (1,000 x 12 x 3)] 66,000 G [22,000 + (1,000 x 12 x 3)] 58,000 1,24,000 2,44,000 Less: Opening Capital: R 50,000 G 40,000 (90,000) 1,54,000 Less: Introduction of Capital by R (10,000) Net Profit 1,44,000