ADVANCED ACCOUNTING b.com part II

ADVANCED ACCOUNTING b.com part II 2015 Regular Solved Paper Compiled & Solved by: Sameer Hussain

Instructions: (1) Attempt any FIVE questions. (2) All questions carry equal marks. (3) Use of calculator is allowed. Do not use abbreviations. (4) Answers without necessary computations will not be accepted. (5) All journal entries should be properly dated, intended and narrated. Q.No.1 Company Absorption: Balance sheet data of Ashar Ltd. are given below: Paid up capital (Rs.10 par) Rs.200,000 Goodwill Rs.20,000 Retained earnings Rs.70,000 Preliminary expenses Rs.10,000 Accounts payable Rs.40,000 Cash Rs.40,000 Notes payable Rs.32,000 Accounts receivable Rs.20,000 Plant assets Rs.240,000 Allowance for bad debts Rs.2,000 Allowance for depreciation 28,000 Merchandise inventory Rs.42,000 Nasr Ltd. took over assets (except cash) of Ashar Ltd. at the following values: Accounts receivable at realizable value Rs.16,000; plant assets Rs.210,000 and inventories Rs.25,000. Nasr Ltd. assumed accounts payable and issued 5 shares of Rs.10 each against 4 shares to the shareholders of Ashar Ltd. Liquidation expenses of Rs.10,000 were paid by Nasr Ltd. Ashar Ltd. paid Rs.40,000 in settlement of notes payable. (a) Purchase consideration. (b) General journal entries in the books of Ashar Ltd. and Nasr Ltd. SOLUTION 1 (a) Computation of Purchase Consideration: 20,000 x 5/4 = 25,000 Ordinary shares @ Rs.10 each 250,000 Add: Liquidation expense (Cash) 10,000 Purchase consideration Rs.260,000 SOLUTION 1 (b) ASHAR LTD. 1 Realization 302,000 Accounts receivable 20,000 Merchandise inventory 42,000 Plant assets 240,000 (To record the transfer of assets to Nasr Ltd.) 2 Accounts payable 40,000 Allowance for depreciation 28,000 Allowance for bad debts 2,000 Realization 70,000 (To record the transfer of liabilities to Nasr Ltd.) Advanced Accounting B.Com Part II 2015 Regular Solution 1

3 Receivable from Nasr Ltd. 260,000 Realization 260,000 (To record the purchase consideration) 4 Shares in 250,000 Cash 10,000 Receivable from Nasr Ltd. 260,000 (To record the cash and shares received from Nasr Ltd.) 5 Realization 10,000 Cash 10,000 (To record the payment of liquidation expense) 6 Notes payable 32,000 Realization 8,000 Cash 40,000 (To record the payment of notes payable) 7 Ordinary share capital 200,000 Retained earnings 70,000 Goodwill 20,000 Preliminary expenses 10,000 Shareholders account 240,000 (To close the shareholders equity accounts) 8 Realization 10,000 Shareholders account 10,000 (To record the closing of realization account) 9 Shareholders account 250,000 Shares in 250,000 (To record the shares issued to the shareholders) Realization Account 1 Assets 302,000 2 Liabilities 70,000 5 Liquidation expense 10,000 3 Receivable from Nasr Ltd. 260,000 6 Cash 8,000 8 Shareholders account 10,000 330,000 330,000 NASR LTD. 1 Accounts receivable 20,000 Plant assets 210,000 Merchandise inventory 25,000 Goodwill 49,000 Allowance for bad debts 4,000 Accounts payable 40,000 Payable to Ashar Ltd. 260,000 (To record the assets and liabilities taken over from Ashar Ltd.) Advanced Accounting B.Com Part II 2015 Regular Solution 2

2 Payable to Ashar Ltd. 260,000 Ordinary shares capital (25,000 x 10) 250,000 Cash 10,000 (To record the cash and shares issued to Ashar Ltd.) Q.No.2 Cash Flow Statement: The balance sheet of Farooqi Ltd. at December 31, 2015 and 2014 are as follows: EQUITIES: 2015 2014 Share capital Rs.800,000 Rs.700,000 Retained earnings Rs.20,000 Rs.170,000 10% Debentures payable Rs.100,000 Rs.122,000 Accounts payable Rs.20,000 Rs.18,000 ASSETS: Machinery Rs.350,000 Rs.250,000 Allowance for depreciation (Machinery) (Rs.75,000) (Rs.50,000) Furniture Rs.350,000 Rs.300,000 Allowance for depreciation (Furniture) (Rs.90,000) (Rs.70,000) Merchandise inventory Rs.125,000 Rs.150,000 Accounts receivable Rs.120,000 Rs.160,000 Marketable securities Rs.200,000 Rs.220,000 Bank (Rs.40,000) Rs.50,000 Additional Information: The company sold marketable securities of Rs.40,000 for Rs.50,000. It also sold furniture costing Rs.10,000 for Rs.7,000. At the time of sale book value of furniture was Rs.9,000. Cash flow statement showing cash flow from operating, investing and financing activities. SOLUTION 2 Computation of Net Income: Retained earnings (2015) 20,000 Less: Retained earnings (2014) (170,000) Net loss (Rs.150,000) FAROOQI LTD. CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2015 Cash Flow from Operating Activities: Net loss (150,000) Adjustments: Add: Depreciation expense Machinery 25,000 Add: Depreciation expense Furniture 21,000 Less: Gain on sale of marketable securities (10,000) Add: Loss on sales of furniture 2,000 Income before changes in working capital (112,000) Advanced Accounting B.Com Part II 2015 Regular Solution 3

Add: Decrease in accounts receivable 40,000 Add: Decrease in merchandise inventory 25,000 Add: Increase in accounts payable 2,000 Net cash flow from operating activities (45,000) Cash Flow from Investing Activities: Purchase of machinery (100,000) Purchase of furniture (50,000 + 10,000) (60,000) Sale of furniture 7,000 Sale of marketable securities 50,000 Purchase of marketable securities (20,000) Net cash flow from investing activities (123,000) Cash Flow from Financing Activities: Issue of shares capital 100,000 Payment of debentures (22,000) Net cash flow from financing activities 78,000 Net decrease in cash and cash equivalents (90,000) Add: Opening cash and cash equivalents balance 50,000 Closing cash and cash equivalents balance (Rs.40,000) Q.No.3 (a) Financial Ratio Analysis: F. Qazi Company uses perpetual inventory system to record inventories. Its selected beginning balances are as follows: Cash Rs.150,000; Accounts receivable Rs.70,000; Office equipment Rs.80,000; Inventory Rs.70,000; Accounts payable Rs.110,000; Ordinary share capital Rs.360,000. During the period following transactions were completed: (a) Purchased merchandise Rs.180,000 on account. (b) Sold merchandise costing Rs.150,000 for Rs.200,000 on account. (c) Returned some defective merchandise to suppliers Rs.5,000. (d) Collected cash from customers Rs.140,000. Computation of the following at the end of the period: (i) Quick ratio. (ii) Current ration. (iii) Receivable turnover. (iv) Inventory turnover. SOLUTION 3 (a) Computation of Total Current Assets: Cash 290,000 Accounts receivable 130,000 Total quick assets 420,000 Merchandise inventory 95,000 Total current assets Rs.515,000 Computation of Total Current Liabilities: Accounts payable 285,000 Total current liabilities Rs.285,000 Advanced Accounting B.Com Part II 2015 Regular Solution 4

1. Computation of Quick Ratio: Quick ratio = Quick ratio = 420,000 285,000 Quick ratio = 1.47 : 1 2. Computation of Current Ratio: Current ratio = Current ratio = 515,000 285,000 Current ratio = 1.81 : 1 3. of Receivable Turnover: Receivable turnover in times = Total quick assets Total current liabilities Total current assets Total current liabilities Net credit sales Average receivable Receivable turnover in times = 200,000 (70,000 + 130,000) / 2 Receivable turnover in times = 2 times Receivable turnover in days = 365 Receivable turnover in times Receivable turnover in days = 365 2 Receivable turnover in days = 182.5 days 4. Computation of Inventory Turnover: Inventory turnover in times = Cost of goods sold Average inventory Inventory turnover in times = 150,000 (70,000 + 95,000) / 2 Inventory turnover in times = 1.82 times Inventory turnover in days = 365 Inventory turnover in times Inventory turnover in days = 365 1.82 Inventory turnover in days = 201 days Additional Working: F. Qazi Company 1 Merchandise 180,000 Accounts payable 180,000 (To record the purchase of merchandise on account) Advanced Accounting B.Com Part II 2015 Regular Solution 5

2 (a) Accounts receivable 200,000 Sales 200,000 (To record sale of goods on account) 2 (b) Cost of goods sold 150,000 Merchandise 150,000 (To record the cost of goods sold) 3 Accounts payable 5,000 Merchandise 5,000 (To record the goods return to suppliers) 4 Cash 140,000 Accounts receivable 140,000 (To record the cash collected from customer) Cash Balance 150,000 Balance c/d 290,000 4 Accounts receivable 140,000 290,000 290,000 Accounts Receivable Balance 70,000 4 Cash 140,000 2 (a) Sales 200,000 Balance c/d 130,000 270,000 270,000 Merchandise Inventory Balance 70,000 2 Cost of goods sold 150,000 1 Accounts payable 180,000 3 Accounts payable 5,000 Balance c/d 95,000 250,000 250,000 Accounts Payable 3 Merchandise 5,000 Balance 110,000 Balance c/d 285,000 1 Merchandise 180,000 290,000 290,000 Q.No.3 (b) Financial Statement Retained Earnings: Babar Company Ltd. is registered with a capital of Rs.5,000,000 divided into ordinary shares of Rs.10 each. The following are its selected balances as of June 30, 2015: Accounts payable Rs.600,000; 5% Debentures payable Rs.400,000; Ordinary share capital Rs.1,000,000; Retained earnings Rs.1,300,000 (before transfer of loss of Rs.500,000 for the year). On June 30, 2015 company declared cash dividend Rs.5 per share and stock dividend @ 10%. It also appropriated Rs.50,000 for debenture redemption. Statement of retained earnings. Advanced Accounting B.Com Part II 2015 Regular Solution 6

SOLUTION 3 (b) BABAR COMPANY LTD. STATEMENT OF RETAINED EARNINGS FOR THE PERIOD ENDED JUNE 30, 2015 Retained earnings balance 1,300,000 Less: Net loss for the period (500,000) 800,000 Less: Dividends and Reserves: Cash divided (100,000 x 5) 500,000 Stock dividend (1,000,000 x 10%) 100,000 Reserve for debenture redemption 50,000 Total reserves and dividends (650,000) Retained earnings ending balance Rs.150,000 Q.No.4 Installment Sales: Samsam Co. started installment sales business on January 1, 2014. Following information is obtained from its records: 2014 2015 Purchased merchandise on account Rs.500,000 Rs.680,000 Sold merchandise on installment basis Rs.1,000,000 Rs.1,200,000 Collected installments of 2014 sales Rs.300,000 Rs.200,000 Collected installments of 2015 sales --- Rs.400,000 Paid accounts payable Rs.400,000 Rs.600,000 Paid operating expenses Rs.75,000 Rs.100,000 Installment contract (2014) cancelled but --- Rs.50,000 Merchandise could not be repossessed --- --- Merchandise inventory ending Rs.100,000 Rs.240,000 The company used perpetual inventory system and closes its accounts on December 31 each year. Entries for the year 2015 including adjusting and closing entries. SOLUTION 4 Computation of Cost of Installment Sales: 2014 2015 Merchandise inventory beginning --- 100,000 Add: Purchases 500,000 680,000 Merchandise available for sale 500,000 780,000 less: Merchandise inventory ending (100,000) (240,000) Cost of installment sales Rs.400,000 Rs.540,000 Computation of Unrealized Gross Profit: 2014 2015 Installment sales 1,000,000 1,200,000 Less: Cost of installment sales (400,000) (540,000) Unrealized gross profit Rs.600,000 Rs.660,000 Advanced Accounting B.Com Part II 2015 Regular Solution 7

Computation of Unrealized Gross Profit Rate: Unrealized gross profit rate = Unrealized gross profit x 100 Installment sales Unrealized gross profit rate (2014) = 600,000 x 100 1,000,000 Unrealized gross profit rate (2014) = 60% Unrealized gross profit rate (2015) = 660,000 x 100 1,200,000 Unrealized gross profit rate (2015) = 55% Computation of Realized Gross Profit: 2014 2015 Realized gross profit 300,000 x 60% = 180,000 200,000 x 60% = 120,000 Realized gross profit --- 400,000 x 55% = 220,000 Total realized gross profit Rs.180,000 Rs.340,000 Computation of Gain or Loss on Default: Installment accounts receivable cancelled 50,000 Less: Unrealized gross profit fore go (50,000 x 60%) (30,000) Loss on default Rs.20,000 SAMSAM CO. FOR THE YEAR 2015 1 Merchandise 680,000 Accounts payable 680,000 (To record the purchase of merchandise on account) 2 Installment accounts receivable (2015) 1,200,000 Installment sales 1,200,000 (To record the good sold on installment basis) 3 Cost of installment sales 540,000 Merchandise 540,000 (To record the cost of installment sales) 4 Cash 600,000 Installment accounts receivable (2014) 200,000 Installment accounts receivable (2015) 400,000 (To record the cash collected on installment basis) 5 Accounts payable 600,000 Cash 600,000 (To record the cash paid to supplier) 6 Operating expenses 100,000 Cash 100,000 (To record the payment of operating expenses) Advanced Accounting B.Com Part II 2015 Regular Solution 8

7 Unrealized gross profit (2014) 30,000 Loss on default 20,000 Installment accounts receivable (2014) 50,000 (To record the loss on default) SAMSAM CO. ADJUSTING ENTRIES FOR THE YEAR 2015 1 Installment sales 1,200,000 Cost of installment sales 540,000 Unrealized gross profit (2015) 660,000 (To adjust the unrealized gross profit) 2 Unrealized gross profit (2014) 120,000 Unrealized gross profit (2015) 220,000 Realized gross profit 340,000 (To adjust the realized gross profit) SAMSAM CO. CLOSING ENTRIES FOR THE YEAR 2015 1 Expense and revenue summary 120,000 Operating expenses 100,000 Loss on default 20,000 (To close the expenses) 2 Realized gross profit 340,000 Expense and revenue summary 340,000 (To close the income) 3 Expense and revenue summary 220,000 Retained earnings 220,000 (To close the expense and revenue summary) Q.No.5 Branch Income Statement: Given below are partial financial data of N. Khalid Co. for 2015. The company uses FIFO method of inventory valuation: Head Office Branch Sales Rs.63,000 --- Inventory, January 1 Rs.25,400 Rs.3,600 Purchases Rs.120,000 --- Shipment to branch / from head office Rs.45,400 Rs.59,020 Inventory, December 31 Rs.55,000 Rs.5,200 Operating expenses Rs.8,000 --- The head office bills the branch for merchandise shipments in 2014, 20% above cost and 2015, 30% above cost. Advanced Accounting B.Com Part II 2015 Regular Solution 9

(a) Head office income statement showing on it the branch net loss of Rs.6,020 and the profit from overvaluation for 2015. Computations are necessary. (b) Entries in head office books to: (i) Record net loss reported by branch. (ii) Adjust allowance for overvaluation account. (iii) Close branch income summary account. SOLUTION 5 (a) Computation of Allowance for Overvaluation: Particulars Billed Cost Allowance for over valuation Merchandise inventory opening (3,600 x 20/120) 3,600 3,000 600 Add: Merchandise supplied 59,020 45,400 13,620 Unadjusted allowance for overvaluation 62,620 48,400 14,220 Less: Merchandise inventory ending (5,200 x30/130) (5,200) (4,000) (1,200) Adjusted allowance for overvaluation 57,420 44,400 13,020 N. KHALID CO. INCOME STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2015 Sales 63,000 less: Cost of Goods Sold: Merchandise inventory beginning 25,400 Add: Purchases 120,000 Less: Shipments to branch (45,400) Merchandise available for sale 100,000 Less: Merchandise inventory ending (55,000) Cost of goods sold (45,000) Gross profit 18,000 Less: Operating expenses (8,000) Profit from head office operation 10,000 Add: Branch Account: Branch net loss (6,020) Allowance for overvaluation 13,020 Total branch account 7,000 Total net income Rs.17,000 SOLUTION 5 (b) N. KHALID CO. HEAD OFFICE BOOK 1 Income summary Branch 6,020 Branch 6,020 (To record the net loss reported by branch) Advanced Accounting B.Com Part II 2015 Regular Solution 10

2 Allowance for overvaluation 13,020 Profit and loss account 13,020 (To adjust the allowance for overvaluation) 3 Profit and loss account 6,020 Income summary Branch 6,020 (To close the branch income summary account) Q.No.6 Share and Debentures: (a) Give at least three differences between shares and debentures. (b) On January 1, 2015, Yasir Company Ltd. issued 4,000 shares of Rs.10 each for cash. (i) Par. (ii) 10% premium. (iii) 5% discount. (c) A. Khursheed Company Ltd. acquires land Rs.400,000; building Rs.500,000 and machinery Rs.100,000; paying cash Rs.250,000 and issuing suitable number of shares of Rs.10 each at a premium of Rs.2.50. General journal entries in the books of A. Khursheed Company Ltd. (d) Shehzad Company Ltd. issued the following debentures having par value of Rs.100 each: No. of Debentures Issued @ Maturity Period Redeemable @ 6% Debentures 7,000 98% 5 years 100% 5% Debentures 5,000 96% 4 years 105% SOLUTION 6 (a) Difference between Shares and Debentures: Share Debenture Share is a part of shareholders equity. Debenture is a part of long term liability. Shareholders have voting rights in matters Debenture holders have no voting rights. pertaining to the company. Dividend is paid to shareholders. Interest in paid to debenture holders. Dividends are generally paid only when company earns profit. Interest on debentures has to be paid whether company makes profit or loss. SOLUTION 6 (b) YASIR COMPANY LTD. 1 Cash (4,000 x 10) 40,000 Ordinary share capital (4,000 x 10) 40,000 (To record the issue of shares at par) Advanced Accounting B.Com Part II 2015 Regular Solution 11

2 Cash (4,000 x 11) 44,000 Ordinary share capital (4,000 x 10) 40,000 Ordinary share premium (4,000 x 1) 4,000 (To record the issue of shares at premium) 3 Cash (4,000 x 9.5) 38,000 Ordinary shares discount (4,000 x 0.5) 2,000 Ordinary share capital (4,000 x 10) 40,000 (To record the issue of shares at discount) SOLUTION 6 (c) A. KHURSHEED COMPANY LTD. 1 Land 400,000 Building 500,000 Machinery 100,000 Cash 250,000 Ordinary share capital (60,000 x 10) 600,000 Ordinary share premium (60,000 x 2.50) 150,000 (To record the purchase of asset by issuing shares) SOLUTION 6 (d) SHEHZAD COMPANY LTD. 1 Cash (7,000 x 98) 686,000 Discount on debentures (7,000 x 2) 14,000 6% Debentures payable (7,000 x 100) 700,000 (To record the issue of debentures at discount and redeemable at par) 2 Cash (5,000 x 96) 480,000 Discount on debentures (5,000 x 4) 20,000 Loss on redemption (5,000 x 5) 25,000 5% Debentures payable (5,000 x 100) 500,000 Premium on redemption (5,000 x 5) 25,000 (To record the issue of debentures at discount and redeemable at premium) Q.No.7 Branch Reciprocal Entries: Nadeem & Co. Karachi opened two branches A and B. Head office bills goods to its branches at 25% above cost. Following transactions were completed during December 2015: (1) Remitted cash to branch A Rs.40,000 and to branch B Rs.50,000. (2) Sent goods to branch A costing Rs.60,000. (3) Sent goods to branch B at billed price Rs.50,000. (4) Head office instructed branch B to transfer furniture worth Rs.20,000 to branch A. Branch B duly executed the instruction. Advanced Accounting B.Com Part II 2015 Regular Solution 12

(5) Branch A returned goods to head office at billed price Rs.10,000. (6) Branch A sold goods for Rs.70,000 and branch B for Rs.20,000. (7) Branch A reported net income of Rs.12,000 and branch B reported net loss of Rs.6,000. On December 31, 2015 merchandise inventory reported by branch B Rs.28,000 and branch A Rs.32,000. Head office general journal entries including entries to adjust allowance for overvaluation accounts. SOLUTION 7 Computation of Allowance for Overvaluation (Branch A): Particulars Billed Cost Allowance for over valuation Add: Merchandise shipment (60,000 x 25/100) 75,000 60,000 15,000 Add: Merchandise shipment return (10,000 x25/125) (10,000) (8,000) (2,000) Unadjusted allowance for overvaluation 65,000 52,000 13,000 Less: Merchandise inventory ending (32,000x25/125) (32,000) (25,600) (6,400) Adjusted allowance for overvaluation 33,000 26,400 6,600 Computation of Allowance for Overvaluation (Branch B): Particulars Billed Cost Allowance for over valuation Add: Merchandise shipment (50,000 x 25/125) 50,000 40,000 10,000 Less: Merchandise inventory ending (28,000x25/125) (28,000) (22,400) (5,600) Adjusted allowance for overvaluation 22,000 17,600 4,400 NADEEM & CO. HEAD OFFICE BOOK 1 Branch A 40,000 Branch B 50,000 Cash 90,000 (To record the cash remitted to branches) 2 Branch A 75,000 Merchandise shipment to branch A 60,000 Allowance for overvaluation 15,000 (To record the goods send to branch A) 3 Branch B 50,000 Merchandise shipment to branch A 40,000 Allowance for overvaluation 10,000 (To record the goods send to branch B) 4 Branch A 20,000 Branch B 20,000 (To record the furniture transferred from branch B to branch A) Advanced Accounting B.Com Part II 2015 Regular Solution 13

5 Merchandise shipment return from branch A 8,000 Allowance for overvaluation 2,000 Branch A 10,000 (To record the goods returned by branch A) 6 No entry 7 (a) Branch A 12,000 Income summary Branch A 12,000 (To record the net profit reported by branch A) 7 (b) Income summary Branch B 6,000 Branch B 6,000 (To record the net loss reported by branch B) 8 Allowance for overvaluation (6,600 + 4,400) 11,000 Profit and loss account 11,000 (To adjust the profit and loss account) 9 Income summary Branch A 12,000 Profit and loss account 6,000 Income summary Branch B 6,000 (To close the branch income summary account) Q.No.8 Company Amalgamation: The balance sheet data of Zulfiqar Co. and Khan Co. are as follows: Zulfiqar Co. Khan Co. Net assets Rs.500,000 Rs.400,000 Liabilities Rs.100,000 Rs.150,000 Zulfiqar Co. and Khan Co. were amalgamated into ZK Company Ltd. which issued 55,000 ordinary shares of Rs.10 each to Zulfiqar Co. and 38,000 ordinary shares of Rs.10 each to Khan Co. as purchase consideration. (1) General journal entries in the books of Zulfiqar Co., Khan Co. and ZK Co. Ltd. (2) Balance sheet of ZK Co. Ltd. (Authorized capital is one million). SOLUTION 8 (a) Computation of Purchase Consideration: Zulfiqar Co.: 55,000 Ordinary shares @ Rs.10 each Rs.550,000 Purchase consideration Rs.550,000 Khan Co.: 38,000 Ordinary shares @ Rs.10 each Rs.380,000 Purchase consideration Rs.380,000 Advanced Accounting B.Com Part II 2015 Regular Solution 14

ZULFIQAR CO. 1 Realization 600,000 Assets 600,000 (To record the transfer for assets to ZK Co. Ltd.) 2 Liabilities 100,000 Realization 100,000 (To record the transfer of liabilities to ZK Co. Ltd.) 3 Receivable from ZK Co. Ltd. 550,000 Realization 550,000 (To record the purchase consideration) 4 Shares in 550,000 Receivable from ZK Co. Ltd. 550,000 (To record the shares received from ZK Co. Ltd.) 5 Ordinary share capital 500,000 Shareholders account 500,000 (To close the shareholders equity account) 6 Realization 50,000 Shareholders account 50,000 (To close the realization account) 7 Shareholders account 550,000 Share in 550,000 (To record the issue of share to shareholders) Realization Account 1 Assets 600,000 2 Liabilities 100,000 6 Shareholders account 50,000 3 Receivable from ZK Co. Ltd. 550,000 650,000 650,000 KHAN CO. 1 Realization 550,000 Assets 550,000 (To record the transfer for assets to ZK Co. Ltd.) 2 Liabilities 150,000 Realization 150,000 (To record the transfer of liabilities to ZK Co. Ltd.) 3 Receivable from ZK Co. Ltd. 380,000 Realization 380,000 (To record the purchase consideration) 4 Shares in 380,000 Receivable from ZK Co. Ltd. 380,000 (To record the shares received from ZK Co. Ltd.) Advanced Accounting B.Com Part II 2015 Regular Solution 15

5 Ordinary share capital 400,000 Shareholders account 400,000 (To close the shareholders equity account) 6 Shareholders account 20,000 Realization 20,000 (To close the realization account) 7 Shareholders account 380,000 Share in 380,000 (To record the issue of share to shareholders) Realization Account 1 Assets 550,000 2 Liabilities 150,000 3 Receivable from ZK Co. Ltd. 380,000 6 Shareholders account 20,000 550,000 550,000 ZK COMPANY LTD. 1 Assets 600,000 Goodwill 50,000 Liabilities 100,000 Payable to Zulfiqar Co. 550,000 (To record the assets and liabilities taken over from Zulfiqar Ltd.) 2 Payable to Zulfiqar Co. 550,000 Ordinary shares capital (55,000 x 10) 550,000 (To record the shares issued to Zulfiqar Ltd.) 3 Assets 550,000 Capital reserve 20,000 Liabilities 150,000 Payable to Khan Co. 380,000 (To record the assets and liabilities taken over from Khan Ltd.) 4 Payable to Khan Co. 380,000 Ordinary shares capital (38,000 x 10) 380,000 (To record the shares issued to Khan Ltd.) Advanced Accounting B.Com Part II 2015 Regular Solution 16

SOLUTION 8 (b) ZK COMPANY LTD. BALANCE SHEET AS ON Equities Assets Shareholder s Equity: Goodwill 50,000 Authorized Capital: Assets 1,150,000 100,000 ordinary shares @Rs.10 each 1,000,000 Issued & Paid-up Capital: 93,000 ordinary shares @ Rs.10 each 930,000 Capital reserve 20,000 Total shareholder s equity 950,000 Liabilities: Accounts payable 250,000 Total liabilities 250,000 Total equities 1,200,000 Total assets 1,200,000 Advanced Accounting B.Com Part II 2015 Regular Solution 17