The workings under the heading of Additional Working are not required according to the requirement of the examiner. These are only for understanding the solutions. For more help, visit www.a4accounting.net 1993 XII ACCOUNTING REGULAR / PRIVATE Compiled and Solved by: S.Hussain
Q.No.1 ACCOUNTING 1993 REGULAR / PRIVATE SINGLE ENTRY GIVEN Mr. Farooqui maintains single entry records. The assets and liabilities of his business were as follows:- 1-1-92 31-12-92 Cash Rs.8,000 Rs.1,500 Accounts receivable 20,000 30,000 Furniture --- 25,000 Machinery 110,000 150,000 Accounts payable 30,000 40,000 Bank overdraft --- 15,000 Adjustment data on 31-12-92: (i) Mr. Farooqui made additional investment for Rs.5,000 during 1992. (ii) Estimated allowance for bad debts Rs.1,250. (iii) Depreciation on fixed assets estimated at 10% of the year-end balances. (iv) Accrued interest on bank overdraft Rs.300. (a) Compute amount of capitals on 1-1-92 and 31-12-92. (b) Prepare Statement of Profit or Loss for the year ended December 31, 1992. (c) Prepare Statement of Affairs (Balance Sheet) as of December 31 1992 in classified account form. SOLUTION 1 (a) Computation of Capital at Start and Capital at End: 1-1-92 31-12-92 Cash 8,000 1,500 Accounts receivable 20,000 30,000 Furniture --- 25,000 Machinery 110,000 150,000 Total assets 138,000 206,500 Less: Total Liabilities: Accounts payable (30,000) (40,000) Bank overdraft --- (15,000) Capital balances 108,000 151,500 X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 2
SOLUTION 1 (b) MR. FAROOQUI STATEMENT OF PROFIT OR LOSS FOR THE PERIOD ENDED 31 DECEMBER 1992 Capital at end 151,500 Less: Capital at start (108,000) 43,500 Less: Additional investment (5,000) Unadjusted profit 38,500 Less: Operating Expenses: Bad debts expense 1,250 Depreciation expenses Furniture (25,000 x 10%) 2,500 Depreciation expenses Machinery (150,000 x 10%) 15,000 Interest expense 300 Total operating expenses (19,050) Adjusted net profit 19,450 SOLUTION 1 (C) MR. FAROOQUI STATEMENT OF AFFAIRS AS ON 31 DECEMBER 1992 ASSETS EQUITIES Current Assets: Liabilities: Cash 1,500 Accounts payable 40,000 Accounts receivable 30,000 Bank overdraft 15,000 Less: All for bad debts (1,250) 28,750 Interest payable 300 Total current assets 30,250 Total liabilities 55,300 Fixed Assets: Owner s Equity: Furniture 25,000 Capital 108,000 Less: All for dep. (2,500) 22,500 Add: Additional investment 5,000 Machinery 150,000 113,000 Less: All for dep. (15,000) 135,000 Add: Net profit 19,450 Total fixed assets 157,500 Total owner s equity 132,450 Total assets 187,750 Total equities 187,750 Additional Working: MR. FAROOQUI ADJUSTING ENTRIES FOR THE PERIOD ENDED 31 DECEMBER 1992 1 Bad debts expense 1,250 Allowance for bad debts 1,250 (To adjust the bad debts expense) 2 Depreciation expense 17,500 Allowance for depreciation Furniture 2,500 Allowance for depreciation Machinery 15,000 (To adjust the depreciation expense for the period) 3 Interest expense 300 Interest payable 300 (To adjust the accrued interest on bank overdraft) X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 3
Q.No.2 PARTNERSHIP DISTRIBUTION OF PROFIT: WITHDRAWAL OF FUNDS GIVEN Faisal, Hasan and Salman are partners with capital balances of Rs.45,000, Rs.30,000 and Rs.15,000 respectively. Capitals are fixed. The partnership deed provides that: (i) Annual salary of Rs.36,000 to Hasan and Rs.24,000 to Salman is to be allowed. (ii) Remaining income to be distributed in the ratio of 2:2:1. During the year partners drawings were: Faisal Rs.40,00; Hasan Rs.30,000; and Salman Rs.26,000. Net income for the year was Rs.150,000. Prepare: (a) Income Distribution Summary. (b) General Journal entries to record the partner s drawings and distribution of net income. SOLUTION 2 (a) PARTNERSHIP INCOME DISTRIBUTION SUMMARY FOR THE PERIOD ENDED Faisal Hasan Salman Total Capital balances 45,000 30,000 15,000 90,000 Net profit 150,000 Salaries - 36,000 24,000 60,000 Distribution of remaining profit (2:2:1) 36,000 36,000 18,000 90,000 Total 36,000 72,000 42,000 150,000 Remaining profit = 150,000 60,000 = 90,000 profit Faisal = 90,000 x 2/5 = 36,000 Hasan = 90,000 x 2/5 = 36,000 Salman = 90,000 x 1/5 = 18,000 SOLUTION 2 (b) PARTNERSHIP 1 Expense and revenue summary 150,000 Faisal current account 36,000 Hasan current account 72,000 Salman current account 42,000 (To record the distribution of net income) 2 Faisal capital 40,000 Hasan capital 30,000 Salman capital 26,000 Faisal drawing 40,000 Hasan drawing 30,000 Salman drawing 26,000 (To close the drawing accounts of partners) X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 4
Q.No.3 PARTNERSHIP ADMISSION GIVEN A and B, partners, with capital balances of Rs.60,000 and Rs.40,000, respectively, sharing profits and losses in the ratio of 2:1, agree to admit C as a partner. Give General Journal entries to record the admission of C in each of the following cases separately:- (Show also necessary computations.) Case (i): C invests sufficient cash to acquire 1/3 interest in the total capital and profits of the firm Case (ii): C invests Rs.68,000 cash for 1/3 interest. (The total capital of the firm is to be increased only by the amount of C s investment). Case (iii): C invests Rs.40,000 cash for 1/3 interest. (The old partners do not agree to reduce their capitals). SOLUTION 3 Case (i): Computation: For 2/3 interest, old partners capital (60,000 + 40,000) 100,000 Therefore total capital of firm (100,000 x 3/2) 150,000 For 1/3 interest C s capital (150,000 x 1/3) 50,000 PARTNERSHIP 1 Cash 50,000 C Capital 50,000 (To record the investment of C) Case (ii): Computation (Bonus Method): Old partners capital (60,000 + 40,000) 100,000 Add: C s investment 68,000 Total capital of firm 168,000 For 1/3 C s capital (168,000 x 1/3) 56,000 Less: Cr s investment (68,000) Bonus to old partners 12,000 PARTNERSHIP 1 Cash 68,000 A Capital (12,000 x 2/3) 8,000 B Capital (12,000 x 1/3) 4,000 C Capital 56,000 (To record the investment of C) X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 5
Case (iii): Computation (Goodwill to New Partner): (Indicated by the sentence that old partners are not ready to reduce their capital. It means goodwill goes to new partner). For 2/3 interest, old partners capital (60,000 + 40,000) 100,000 Therefore total capital of firm (100,000 x 3/2) 150,000 For 1/3 interest, C s capital (150,000 x 1/3) 50,000 Less: C s investment (40,000) Goodwill to C 10,000 PARTNERSHIP 1 Cash 40,000 Goodwill 10,000 C Capital 50,000 (To record the investment of C) Q.No.4 PARTNERSHIP DISSOLUTION GIVEN L, M and N were partners, sharing profits and losses on the ratio of 3:2:1 respectively. They decided to dissolve the firm effective December 31, 1992. Just before liquidation, the firm s position was as follows:- Assets Equities Cash Rs.70,000 A/c Payable 60,000 Other assets 350,000 L Capital 180,000 M Capital 120,000 N Capital 60,000 The other assets realized Rs.150,000 cash. Liabilities were paid in full. The remaining cash was distributed among the partners. (a) Give necessary entries in the General Journal of the firm to record the liquidation. (b) Prepare partner s capital account and cash account. SOLUTION 4 (a) PARTNERSHIP FOR THE PERIOD 31 DECEMBER 1992 1 Cash 150,000 Realization 200,000 Other assets 350,000 (To record the sale of other assets for cash). 2 Accounts payable 60,000 Cash 60,000 (To record the payment of accounts payable) X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 6
3 L capital (200,000 x 3/6) 100,000 M capital (200,000 x 2/6) 66,667 N capital (200,000 x 1/6) 33,333 Realization 200,000 (To record the distribution of loss among partners) 4 L capital (180,000 100,000) 80,000 M capital (120,000 66,667) 53,333 N capital (60,000 33,333) 26,667 Cash 160,000 (To record the distribution of remaining cash) SOLUTION 4 (b) GENERAL LEDGER L Capital 3 Realization 100,000 Balance 180,000 4 Cash 80,000 180,000 180,000 M Capital 3 Realization 66,667 Balance 120,000 4 Cash 53,333 120,000 120,000 N Capital 3 Realization 33,333 Balance 60,000 4 Cash 26,667 60,000 60,000 Cash Balance 70,000 2 Accounts payable 60,000 1 Other assets 150,000 4 Partners Capital 160,000 220,000 220,000 Q.No.5 CORPORATIONS ISSUE OF SHARES GIVEN Shuja & Co. Ltd. issued ordinary shares (Rs.10/- par) during 1992, as noted below:- (i) 10,000 shares of Rs.14/- each for cash. (ii) 4,000 shares of Rs.9/- each for cash. (iii) 5,000 shares for the purchase of machine (market price of share being Rs.13/- each). (iv) 4,000 shares at par to the promoters, for services rendered. (v) 3,000 shares for purchase of equipment having list price of Rs.32,000. (vi) 6,000 shares at par as stock dividend. Give entries in General Journal of the company to record the above transactions (Show computations, where necessary). X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 7
SOLUTION 5 SHUJA & CO. LTD. 1 Bank (10,000 x 14) 140,000 Ordinary share capital (10,000 x 10) 100,000 Share premium (10,000 x 4) 40,000 (To record the issue of shares at premium) 2 Bank (4,000 x 9) 36,000 Shares discount (4,000 x 1) 4,000 Ordinary share capital (4,000 x 10) 40,000 (To record the issue of shares at discount) 3 Machine (5,000 x 13) 65,000 Ordinary share capital (5,000 x 10) 50,000 Share premium (5,000 x 3) 15,000 (To record the purchase of machine by issuing shares at premium) 4 Preliminary expenses (4,000 x 10) 40,000 Ordinary share capital (4,000 x 10) 40,000 (To record the issue of shares at par to the promoters) 5 Equipment 32,000 Ordinary share capital (3,000 x 10) 30,000 Share premium 2,000 (To record the purchase of equipment by issuing shares at premium) 6 Retained earnings 60,000 Ordinary share capital (6,000 x 10) 60,000 (To record the issue of shares at par for stock dividend). Q.No.6 CORPORATIONS RETAINED EARNINGS AND BALANCE SHEET (a) GIVEN The net income of Moazzam & Co. Ltd. for the year 1992 was Rs.320,000. The company declared a stock dividend of Rs.100,000 (at par) and appropriated Rs.75,000 for plant expansion. Give entries in the General Journal of the company to close the income summary, and to record the stock dividend and the appropriation. (b) GIVEN Selected data as of December 31, 1992 relating to Moon Ltd. follow:- Share capital (ordinary shares of Rs.10/- each par value). Rs.500,000 General reserves 250,000 10% Debentures payable 100,000 Accounts payable 50,000 Retained earnings 100,000 Machinery 500,000 Advances to suppliers 160,000 Accounts receivable 90,000 Cash at bank 50,000 Merchandise inventory 200,000 Prepare classified balance sheet as of December 31, 1992. X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 8
SOLUTION 6 (a) MOAZZAM & CO. LTD FOR THE PERIOD ENDED 31 DECEMBER 1992 1 Expense and revenue summary 320,000 Retained earnings 320,000 (To record the transfer of net income to retained earnings account) 2 Retained earnings 100,000 Stock dividend payable 100,000 (To record the declaration of stock dividend) 3 Retained earnings 75,000 Reserve for plant expansion 75,000 (To record the reserve for plant expansion) SOLUTION 6 (b) MOON LTD. BALANCE SHEET AS ON 31 DECEMBER 1992 Equities Assets Issued & Paid-up Capital: Fixed Assets: 50,000 ordinary share Machinery 500,000 @ Rs.10/- each 500,000 Total fixed assets 500,000 Add: Retained earnings 100,000 Add: General reserves 250,000 Current Assets: Total shareholder s equity 850,000 Advances to suppliers 160,000 Merchandise inventory 200,000 Liabilities: Accounts receivable 90,000 Long-Term Liabilities: Cash at bank 50,000 10% Debentures payable 100,000 Total current assets 500,000 Total long-term liabilities 100,000 Current Liabilities: Accounts payable 50,000 Total current liabilities 50,000 Total liabilities 150,000 Total equities 1,000,000 Total assets 1,000,000 Q.No.7 DEPRECIATION ACCOUNTING GIVEN Mehran & Co. Ltd. purchased a machine on 1-9-1990, the list price being Rs.400,000, subject to a trade discount of 10%. The company paid Rs.140,000 as import duty and Rs.30,000 for installation. A certain of the machine was damaged during installation, which was replaced at a cost of Rs.16,000. It was estimated that the machine will have a useful life of 10 years, with a salvage value of Rs.50,000. The company s fiscal year ends on December 31. Straight line method is used for computing depreciation, and allowance method for recording it. X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 9
(a) Compute the cost of machine. (b) Give General Journal entries to record depreciation for 1990 and 1991. (c) Prepare T-accounts for machine cost and machine allowance for depreciation. (d) Prepare partial balance sheet as of December 31, 1991. SOLUTION 7 (a) Computation of Cost of Machine: List price of fixed asset 400,000 Less: Trade discount (400,000 x 10%) (40,000) Invoice price 360,000 Add: Additional Cost Incurred: Import duty 140,000 Installation charges 30,000 Total additional cost incurred 170,000 Total cost of machine 530,000 SOLUTION 7 (b) Computation of Depreciation Expense by Straight Line Method: Annual depreciation = Cost Salvage value Estimated life in years Annual depreciation = 530,000 50,000 10 Annual depreciation = 48,000 Depreciation expense for the period 31 December 1990 = 48,000 x 4/12 = 16,000 Depreciation expense for the period 31 December 1991 = 48,000 MEHRAN & CO. LTD. 31.Dec Depreciation expense 16,000 1990 Allowance for depreciation 16,000 (To record the depreciation expense) 31.Dec Expense and revenue summary 16,000 1990 Depreciation expense 16,000 (To close the depreciation expense) 31.Dec Depreciation expense 48,000 1991 Allowance for depreciation 48,000 (To record the depreciation expense) 31.Dec Expense and revenue summary 48,000 1991 Depreciation expense 48,000 (To close the depreciation expense) X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 10
SOLUTION 7 (c) GENERAL LEDGER Machine 1.Sep.90 Cash 360,000 1.Sep.90 Additional cost 170,000 31 Dec 90 c/d balance 530,000 530,000 530,000 1 Jan 91 b/d balance 530,000 31 Dec 91 c/d balance 530,000 530,000 530,000 1 Jan 92 b/d balance 530,000 Allowance for Depreciation 31 Dec 90 c/d balance 16,000 31 Dec 90 Depreciation exp. 16,000 16,000 16,000 1 Jan 91 b/d balance 16,000 31 Dec 91 c/d balance 64,000 31 Dec 91 Depreciation exp. 48,000 64,000 64,000 1 Jan 92 b/d balance 64,000 SOLUTION 7 (d) MEHRAN & CO. LTD. BALANCE SHEET AS ON 31 DECEMBER 1991 Assets Machine 530,000 Less: Allowance for depreciation (64,000) 466,000 Equities Q.No.8 RESERVES AND FUNDS (a) Distinguish between RESERVES and FUNDS from the viewpoint of accounting. (b) GIVEN Khan & Co. Ltd. decide to appropriate Rs.40,000 for replacement of machinery. For this purpose, the company sets aside Rs.40,000 cash, and the amount is invested in government securities. At the end of the year, interest accrued was Rs.4,000. Prepare General Journal entries to record the above transactions, giving explanation below each entry. X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 11
SOLUTION 8 (a) RESERVE FUND 1. It is created out of retained earnings. 1. It is created out of cash. 2. Reserve is a voluntary provision made out of net income. 2. A provision is a change expense and revenue. 3. Reserve is part of owner s equity. 3. Fund is an asset. 4. It is shown on the credit side of the balance sheet under owner s equity. 4. It is shown on the debit side of the balance sheet among assets. 5. It represents a portion of profits or 5. It represents on assets. liability. 6. Reserve has normally credit balance. 6. Fund has normally debit balance. 7. It is part of retained earnings. 7. It is not part of retained earnings. SOLUTION 8 (b) KHAN & CO. LTD 1 Retained earnings 40,000 Reserve for machine replacement 40,000 (To record the reserve for machine replacement) 2 Government securities 40,000 Cash 40,000 (To record the cash invested in government securities) 3 Interest receivable 4,000 Interest income 4,000 (To record the accrued interest on government securities) X I I A c c o u n t i n g 1 9 9 3 ( R e g u l a r / P r i v a t e ) Page 12