Accounts Homework Solution

J. K.
SHAH CLASSES INTER CA - ACCOUNTING

SOLUTION
APPLICABILITY OF ACCOUNTING STANDARDS
Ans.1
Accounting Standards deal with the issues of
(i) Recognition of events and transactions in the financial statements,
(ii) Measurement of these transactions and events,
(iii) Presentation of these transactions and events in the financial statements in a manner
that is meaningful and understandable to the reader, and
(iv) Disclosure requirements which should be there to enable the public at large and the
stakeholders and the potential investors in particular, to get an insight into what these
financial statements are trying to reflect and thereby facilitating them to take prudent and
informed business decisions.
Ans.2
Non-corporate entities which fall in any one or more of the following categories, at the end of
the relevant accounting period, are classified as Level I entities:
(i) Entities whose equity or debt securities are listed or are in the process of listing on any
stock exchange, whether in India or outside India.
(ii) Banks (including co-operative banks), financial institutions or entities carrying on
insurance business.
(iii) All commercial, industrial and business reporting entities, whose turnover (excluding
other income) exceeds rupees fifty crore in the immediately preceding accounting year.
(iv) All commercial, industrial and business reporting entities having borrowings (including
public deposits) in excess of rupees ten crore at any time during the immediately
preceding accounting year.
(v) Holding and subsidiary entities of any one of the above.
Ans.3
Non-corporate entities which are not level I entities but fall in any one or more of the following
categories are classified as level II entities:
(i) All commercial, industrial and business reporting entities, whose turnover (excluding
other income) exceeds rupees one crore but does not exceed rupees fifty crore in the
immediately preceding accounting year.
(ii) All commercial, industrial and business reporting entities having borrowings (including
public deposits) in excess of rupees one crore but not in excess of rupees ten crore at
any time during the immediately preceding accounting year.
(iii) Holding and subsidiary entities of any one of the above.
AS 1 “DISCLOSURE OF ACCOUNTING POLICIES

Ans.4
Accounting Standard (AS) 1 recognizes three fundamental accounting assumptions. These are
as follows:
(i) Going Concern: The financial statements are normally prepared on the assumption that
an enterprise will continue its operations in the foreseeable future and neither there is
intention, nor there is need to materially curtail the scale of operations.
(ii) Consistency: The principle of consistency refers to the practice of using same accounting
policies for similar transactions in all accounting periods unless the change is required (i)
by a statute, (ii) by an accounting standard or (iii) for more appropriate presentation of
financial statements.
(iii) Accrual basis of accounting: Under this basis of accounting, transactions are recognised
as soon as they occur, whether or not cash or cash equivalent is actually received or
paid.
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J. K. SHAH CLASSES INTER CA - ACCOUNTING
Ans.5
Following are the examples of the areas in which different accounting policies may be adopted
by different enterprises:
(i) Methods of depreciation, depletion and amortisation.
(ii) Valuation of inventories.
(iii) Methods of valuing goodwill.
(iv) Valuation of investments.
AS 2 “VALUATION OF INVENTORIES
Ans.6
As per para 5 of AS 2 on „Valuation of Inventories‟, inventories should be valued at the lower
of cost and net realizable value. Inventories should be written down to net realizable value on
an item-by-item basis in the given case.
Items Historical Cost Net Realisable Value Valuation of closing
` in lakhs)
(` ` in lakhs)
(` ` in lakhs)
stock (`
A 40 28 28
B 32 32 32
C 16 24 16
88 84 76
Hence, closing stock will be valued at ` 76 lakhs.
Ans.7
As per para 13 of AS 2 (Revised) „Valuation of Inventories‟, abnormal amounts of wasted
materials, labour and other production costs are excluded from cost of inventories and such
costs are recognized as expenses in the period in which they are incurred. The normal loss will
be included in determining the cost of inventories (finished goods) at the year end.
Amount of Abnormal Loss:
Material used 12,000 MT @ ` 150 = ` 18, 00, 000
Normal Loss (4% of 12,000 MT) 480 MT
Net quantity of material 11,520 MT
Abnormal Loss in quantity 150 MT
Abnormal Loss ` 23,437.50
[150 units @ ` 156.25 (` 18, 00, 000 / 11,520)]
Amount ` 23,437.50 will be charged to the Profit and Loss statement.
Ans.8
As per AS 2 “Valuation of Inventories”, materials and other supplies held for use in the
production of inventories are not written down below cost if the finished products in which they
will be incorporated are expected to be sold at cost or above cost. However, when there has
been a decline in the price of materials and it is estimated that the cost of the finished products
will exceed net realizable value, the materials are written down to net realizable value. In such
circumstances, the replacement cost of the materials may be the best available measure of
their net realizable value. In the given case, selling price of product X is ` 300 and total cost
per unit for production is ` 320.
Hence the valuation will be done as under:
(i) 600 units of raw material will be written down to replacement cost as market value of
finished product is less than its cost, hence valued at ` 90 per unit.
(ii) 500 units of partly finished goods will be valued at 240 per unit i.e. lower of cost ` 320 (`
260 + additional cost ` 60) or Net estimated selling price ` 240 (Estimated selling price `
300 per unit less additional cost of ` 60).
(iii) 1,500 units of finished product X will be valued at NRV of ` 300 per unit since it is lower
than cost ` 320 of product X.
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Valuation of Total Inventory as on 31.03.2015:
Units Cost (` `) NRV/Replacement Value – units x cost
cost or NRV whichever
`)
is less (`
Raw material A 600 120 90 54,000
Partly finished goods 500 260 240 1,20,000
Finished goods X 1,500 320 300 4,50,000
Value of Inventory 6,24,000
Ans.9
As per para 8 of AS 4 ‘Contingencies and Events Occurring After the Balance Sheet Date’,
adjustment to assets and liabilities are required for events occurring after the balance sheet
date that provide additional information materially affecting the determination of the amounts
relating to conditions existing at the Balance Sheet date.
A debtor for ` 3,00,000 suffered heavy loss due to earthquake in the first week of March, 2010
which was not covered by insurance. This information with its implications was already known
to the company. The fact that he became bankrupt in April, 2010 (after the balance sheet date)
is only an additional information related to the existing condition on the balance sheet date.
Accordingly, full provision for bad debts amounting ` 3,00,000 should be made, to cover the
loss arising due to the insolvency of a debtor, in the final accounts for the year ended 31st
March 2010.
Ans.10
As per AS 4 “Contingencies and Events Occurring after the Balance Sheet Date”, events
occurring after the balance sheet date which do not affect the figures stated in the financial
statements would not normally require disclosure in the financial statements although they
may be of such significance that they may require a disclosure in the report of the approving
authority to enable users of financial statements to make proper evaluations and decisions.
The investment of ` 50 lakhs in April 2010 for acquisition of another company is under
negotiation stage, and has not been finalized yet. On the other hand it is also not affecting the
figures stated in the financial statements of 2009-10, hence the details regarding such
negotiation and investment planning of ` 50 lakhs in April, 2010 in the acquisition of another
company should be disclosed in the Directors’ Report* to enable users of financial statements
to make proper evaluations and decision.
Ans.11
As per para 13 of AS 4, assets and liabilities should be adjusted for events occurring after the
balance sheet date that provide additional evidence to assist the estimation of amounts
relating to conditions existing at the balance sheet date.
Though the theft, by the cashier ` 6,00,000, was detected after the balance sheet date (before
approval of financial statements) but it is an additional information materially affecting the
determination of the cash amount relating to conditions existing at the balance sheet date.
Therefore, it is necessary to make the necessary adjustments in the financial statements of the
company for the year ended 31st March, 2012 for recognition of the loss amounting
` 6,00,000. If embezzlement of cash comes to the notice of company management only after
approval of financial statements by board of directors of the company, then the treatment will
be done as per the provisions of AS 5. This being extra-ordinary item should be disclosed in
the statement of profit and loss as a part of loss for the year ending March, 2013. The nature
and the amount of prior period items should be separately disclosed on the statement of profit
and loss in a manner that its impact on current profit or loss can be perceived.
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Ans.12 (i) Cheques collected by the marketing personnel of the company is an adjusting
event as the marketing personnels are employees of the company and therefore,
are representatives of the company. Handing over of cheques by the stockist to
the marketing employees discharges the liability of the stockist. Therefore,
cheques collected by the marketing personnel of the company on or before 31st
March, 2013 require adjustment from the stockists’ accounts i.e. from ‘Trade
Receivables A/c’ even though these cheques (dated on or before 31st March,
2013) are presented in the bank in the month of April, 2013 in the normal course.
Hence, collection of cheques by the marketing personnel is an adjusting event as
per AS 4 ‘Contingencies and Events Occurring after the Balance Sheet Date’.
Such ‘cheques in hand’ will be shown in the Balance Sheet as ‘Cash and Cash
equivalents’ with a disclosure in the Notes to accounts about the accounting
policy followed by the company for such cheques.
(ii) Even if the cheques bear the date 31st March or before and are sent by the
stockists through courier on or before 31st March, 2013, it is presumed that the
cheques will be received after 31st March. Collection of cheques after 31st
March, 2013 does not represent any condition existing on the balance sheet date
i.e. 31st March. Thus, the collection of cheques after balance sheet date is not an
adjusting event. Cheques that are received after the balance sheet date should
be accounted for in the period in which they are received even though the same
may be dated 31st March or before as per AS 4.
Moreover, the collection of cheques after balance sheet date does not represent
any material change affecting financial position of the enterprise, so no disclosure
in the Director’s Report is necessary.
Ans.13 (i) According to AS 4 “Contingencies and Events Occurring after the Balance Sheet
Date”, assets and liabilities should be adjusted for events occurring after the
balance sheet ate that provide additional evidence to assist the estimation of
amounts relating to conditions existing at the balance sheet date.
In the given case, sale of immovable property was carried out before the closure
of the books of accounts. This is clearly an event occurring after the balance
sheet date but agreement to sell was effected on 1st March, 2013 i.e. before the
balance sheet date.
Registration of the sale deed on 15th April, 2013, simply provides additional
information relating to the conditions existing at the balance sheet date.
Therefore, adjustment to assets for sale of land is necessary in the financial
statements of Pradeep Ltd. for the year ended 31st March, 2013.
(ii) AS 4 (Revised) defines "Events occurring after the balance sheet date" as those
significant events, both favorable and unfavorable, that occur between the
balance sheet date and the date on which the financial statements are approved
by the Board of Directors in the case of a company. Accordingly, the acquisition
of another company is an event occurring after the balance sheet date. However,
no adjustment to assets and liabilities is required as the event does not affect the
determination and the condition of the amounts stated in the financial statements
for the year ended 31st March, 2013.
Applying provisions of the standard which clearly state that/disclosure should be
made in the report of the approving authority of those events occurring after the
balance sheet date that represent material changes and commitments affecting
the financial position of the enterprise, the investment of `40 lakhs in April, 2013
in the acquisition of another company should be disclosed in the report of the
Board of Directors to enable users of financial statements to make proper
evaluations and decisions.
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Ans.14
According to para 8.2 of Accounting Standard 4 “Contingencies and Events Occurring after the
Balance Sheet Date”, adjustments to assets and liabilities are required for events occurring
after the balance sheet date that provide additional information materially affecting the
determination of the amounts relating to conditions existing at the balance sheet date. In the
given case, though the debtor became insolvent after balance sheet date, yet he had suffered
heavy loss (not covered by the insurance), before the balance sheet date and this loss was the
cause of the insolvency of the debtor. Therefore the company must make full provision for bad
debts amounting ` 5 lakhs in its final accounts for the year ended 31st March, 2014.
AS 5 “NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES
IN ACCOUNTING POLICIES”
Ans.15
A change in accounting policy should be made in the following conditions:
(i) If the change is required by some statute or for compliance with an Accounting Standard.
(ii) Change would result in more appropriate presentation of the financial statement.
Change in accounting policy may have a material effect on the items of financial statements.
For example, if depreciation method is changed from straight-line method to written-down
value method, or if cost formula used for inventory valuation is changed from weighted
average to FIFO, or if interest is capitalized which was earlier not in practice, or if proportionate
amount of interest is changed to inventory which was earlier not the practice, all these may
increase or decrease the net profit. Unless the effect of such change in accounting policy is
quantified, the financial statements may not help the users of accounts. Therefore, it is
necessary to quantify and disclose the effect of change on financial statement items like
assets, liabilities, profit / loss.
Ans.16
(a) As per Para 30 of AS 10 “Accounting for Fixed Assets”, an increase in net book value
arising on revaluation of fixed assets should be credited to owner’s interests under the
head of „revaluation reserve, except that, to the extent that such increase is related to
and not greater than a decrease arising on revaluation previously recorded as a charge
to the profit and loss statement, it may be credited to the profit and loss statement. A
decrease in net book value arising on revaluation of fixed assets is charged directly to
profit and loss statement except that to the extent such a decrease is related to an
increase which was previously recorded as a credit to revaluation reserve and which has
not been subsequently reversed or utilized , it may be charged directly to that account.
(b) As per para 39 of AS 10 “Accounting for Fixed Assets”, following information should be
disclosed in the financial statements:
1. Gross and net book values of fixed assets at the beginning and at the end of an
accounting period showing additions, disposals, acquisitions and other movements.
2. Expenditure incurred on account of fixed assets in the course of construction or
acquisition; and
3. Revalued amounts substituted for historical costs of fixed assets, the method
adopted to compute the revalued amounts, the nature of indices used, the year of
any appraisal made, and whether an external valuer was involved, in case where
fixed assets are stated at revalued amounts.
Ans.17
As per para 11 of AS 10 “Accounting for Fixed Assets”, fixed asset acquired in exchange for
shares or other securities in the enterprise should be recorded at its fair market value, or the
fair market value of the securities issued, whichever is more clearly evident. Since, in the given
situation, the market value of the shares exchanged for the asset is more clearly evident, the
company should record the value of machinery at ` 7,12,500 (i.e., 7,500 shares x ` 95 per
share) being the market price of the shares issued in exchange.
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Ans.18
Calculation of cost of fixed asset
`
Materials 16,00,000
Direct expenses 3,00,000
Direct labour (1/15th of ` 6,00,000) 40,000
Office and administrative expenses (4% ` 9,00,000) 36,000
Depreciation on assets 15,000
Cost of fixed asset 19,91,000
AS 11 “THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES”

Ans.19
As per para 39 of AS 11 ‘Changes in Foreign Exchange Rates”, in recording a forward
exchange contract intended for trading or speculation purpose, the premium or discount on the
contract is ignored and at each balance sheet date, the value of contract is marked to its
current market value and the gain or loss on the contract is recognised. Since the forward
contract was for speculation purposes the premium on forward contract i.e. the difference
between the spot rate and the forward contract rate will not be recorded in the books. Only
when the forward contract is sold the difference between the forward contract rate and sale
rate will be recorded in the Profit & Loss Account.
`
Sale rate 44.30
Less: Contract rate (44.10)
Profit on sale of contract per US$ 00.20
Contract Amount US $ 2,00,000
Total profit (2,00,000 x 0.20) ` 40,000
Ans.20
Calculation of Profit or Loss on forward contract to be recognised in the book of Stem Ltd.
Forward contract rate ` 62.15 per dollar
Less: Spot Rate ` 60.75 per dollar
Loss ` 1.40 per dollar
Forward Contract Amount US$ 30000
Total Loss on entering into forward contract = US$ 30,000 x ` 1.40
= ` 42,000
Contract Period 6 Months
Out of total contract period of 6 months, 4 months are falling in the financial year 2013-14.
Loss for the period from 1st Dec.2013 to 31st March, 2014= (` 42,000/6) x 4 = ` 28,000.
Thus the loss amounting to ` 28,000 for the period is to be recognised in the year ended 31st
March, 2014.
Ans.21
As per AS 11 “The Effects of Changes in Foreign Exchange Rates”, exchange differences
arising on the settlement of monetary items or on reporting an enterprise’s monetary items at
rates different from those at which they were initially recorded during the period, or reported in
previous financial statements, should be recognized as income or as expenses in the period in
which they arise.
However, at the option of an entity, exchange differences arising on reporting of long-term
foreign currency monetary items at rates different from those at which they were initially
recorded during the period, or reported in previous financial statements, in so far as they relate
to the acquisition of a non-depreciable capital asset can be accumulated in a “Foreign
Currency Monetary Item Translation Difference Account” in the enterprise’s financial
statements and amortized over the balance period of such long-term asset/ liability, by
recognition as income or expense in each of such periods.
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Debtors Foreign Currency `

Rate
Initial recognition US $8,547 (5,00,000/58.50) 1 US $ = ` 58.50 5,00,000
Rate on Balance sheet date 1 US $ = ` 61.20 23,077
Exchange Difference Gain US $ 8,547 X (61.20-58.50)
Treatment: Credit Profit and Loss A/c by ` 23,077
Long term Loan
Initial recognition US $ 1,07,913.67 (60,00,000/55.60) 1 US $ = ` 55.60 60,00,000
Rate on Balance sheet date 1 US $ = ` 61.20
Exchange Difference Loss US $ 1,07,913.67 X (61.20 6,04,317
– 55.60)
Treatment: Credit Loan A/c
And Debit FCMITD A/C or Profit and Loss A/c by `
6,04,317
Thus Exchange Difference on Long term loan amounting ` 6,04,317 may either be charged to
Profit and Loss A/c or to Foreign Currency Monetary Item Translation Difference Account but
exchange difference on debtors amounting ` 23,077 is required to be transferred to Profit and
Loss A/c.
AS 12 “ACCOUNTING FOR GOVERNMENT GRANTS”
Ans.22
As per para 21 of AS-12, ‘Accounting for Government Grants’, “the amount refundable in
respect of a grant related to specific fixed asset should be recorded by reducing the deferred
income balance. To the extent the amount refundable exceeds any such deferred credit, the
amount should be charged to profit and loss statement.
(i) In this case the grant refunded is ` 30 lakhs and balance in deferred income is ` 21
lakhs, ` 9 lakhs shall be charged to the profit and loss account for the year 2010-11.
There will be no effect on the cost of the fixed asset and depreciation charged will be on
the same basis as charged in the earlier years.
(ii) If the grant was deducted from the cost of the plant in the year 2007-08 then, para 21 of
AS-12 states that the amount refundable in respect of grant which relates to specific fixed
assets should be recorded by increasing the book value of the assets, by the amount
refundable. Where the book value of the asset is increased, depreciation on the revised
book value should be provided prospectively over the residual useful life of the asset.
Therefore, in this case, the book value of the plant shall be increased by ` 30 lakhs. The
increased cost of ` 30 lakhs of the plant should be amortized over 7 years (residual life).
Depreciation charged during the year 2010-11 shall be (84 + 30)/7 years = ` 16.286
lakhs presuming the depreciation is charged on SLM.
Ans. 23
As per para 10 of AS 12 “Accounting for Govt. Grants”, Where the government grants are of
the nature of promoters’ contribution, i.e., they are given with reference to the total investment
in an undertaking or by way of contribution towards its total capital outlay (for example, central
investment subsidy scheme) and no repayment is ordinarily expected in respect thereof, the
grants are treated as capital reserve.
Subsidy received by A Ltd. is in the nature of promoter’s contribution, since this grant is given
with reference to the total investment in an undertaking and by way of contribution towards its
total capital outlay and no repayment is ordinarily expected in respect thereof. Therefore, this
grant should be treated as capital reserve which can be neither distributed as dividend nor
considered as deferred income.
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AS 13 “Accounting for Investments”
Ans.24
The disclosure requirements as per para 35 of AS 13 are as follows:
(i) Accounting policies followed for valuation of investments.
(ii) Classification of investment into current and long term in addition to classification as per
Schedule VI of Companies Act in case of company.
(iii) The amount included in profit and loss statements for
(a) Interest, dividends and rentals for long term and current investments, disclosing
therein gross income and tax deducted at source thereon;
(b) Profits and losses on disposal of current investment and changes in carrying
amount of such investments;
(c) Profits and losses and disposal of long term investments and changes in carrying
amount of investments.
(iv) Aggregate amount of quoted and unquoted investments, giving the aggregate market
value of quoted investments;
(v) Any significant restrictions on investments like minimum holding period for sale/disposal,
utilisation of sale proceeds or non-remittance of sale proceeds of investment held outside
India.
(vi) Other disclosures required by the relevant statute governing the enterprises.
Ans.25
As per AS 13 „Accounting for Investments‟, where long-term investments are reclassified as
current investments, transfers are made at the lower of cost and carrying amount at the date of
transfer.
And where investments are reclassified from current to long term, transfers are made at lower
of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer is less than the cost;
hence this re-classified current investment should be carried at ` 6.5 lakhs in the books.
(ii) The carrying / book value of the long term investment is same as cost i.e. ` 7 lakhs.
Hence this long term investment will be reclassified as current investment at book value
of ` 7 lakhs only.
(iii) In this case, reclassification of current investment into long-term investments will be
made at ` 10 lakhs as cost is less than its market value of ` 12 lakhs.
(iv) In this case, market value is ` 14 lakhs which is lower than the cost of ` 15 lakhs. The
reclassification of current investment as long-term investments will be made at ` 14
lakhs.
AS 16 “BORROWING COSTS”
Ans.26
According to para 6 of AS 16 “Borrowing Costs”, borrowing costs that are directly attributable
to the acquisition, construction or production of a qualifying asset should be capitalised as part
of the cost of that asset. The amount of borrowing costs eligible for capitalisation should be
determined in accordance with this Standard. Other borrowing costs should be recognised as
an expense in the period in which they are incurred.
Also para 10 of AS 16 “Borrowing Costs” states that to the extent that funds are borrowed
specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs
eligible for capitalisation on that asset should be determined as the actual borrowing costs
incurred on that borrowing during the period less any income on the temporary investment of
those borrowings.
Thus, eligible borrowing cost
= ` 11,00,000 – ` 2,00,000
= ` 9,00,000
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Sr. Particulars Nature of assets Interest to be Interest to be
No. Capitalized (``) charged to Profit
Loss Account (` `)
(i) Construction of factory Qualifying Asset* 9,00,000x40/100 NIL
building = ` 3,60,000
(ii) Purchase of Machinery Not a Qualifying NIL 9,00,000x35/100
Asset = ` 3,15,000
(iii) Working Capital Not a Qualifying NIL 9,00,000x25/100
Asset __________ = ` 2,25,000
Total ` 3,60,000 ` 5,40,000
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready
for its intended use or sale.
Ans.27
(i) Computation of average accumulated expenses
`
` 3,00,000 x 12 / 12 = 3,00,000
` 3,50,000 x 9 / 12 = 2,62,500
` 5,50,000 x 6 / 12 = 2,75,000
` 1,50,000 x 1 / 12 = 12,500
13,50,000 8,50,000
(ii) Calculation of average interest rate other than for specific borrowings
`) Rate of Interest
Amount of loan (` `)
Amount of Interest (`
6,00,000 11% = 66,000
11,00,000 13% = 1,43,000
17,00,000 2,09,000
Weighted average rate of interest = 12.29%
,,
,, 100
(iii) Interest amount to be capitalized

`
Specific borrowings (` 3,00,000 x 12%) = 36,000
Non-specific borrowings
[` 5,50,000(` 8,50,000 – ` 3,00,000) x 12.29%] = 67,595
Amount of interest to be capitalized = 1,03,595
(iv) Journal Entry

Date Particulars `)
Dr. (` `)
Cr. (`
31.12.2014 Building account (13,50,000+1,03,595) Dr. 14,53,595
To Bank account 14,53,595
(Being amount of cost of building and
borrowing cost thereon capitalized)
Ans.28
(i) Interest for the period 2014-15
= US $ 10 lakhs x 4% × ` 62 per US $ = ` 24.80 lakhs
(ii) Increase in the liability towards the principal amount
= US $ 10 lakhs × ` (62 - 56) = ` 60 lakhs
(iii) Interest that would have resulted if the loan was taken in Indian currency
= US $ 10 lakhs × ` 56 x 10.5% = ` 58.80 lakhs
(iv) Difference between interest on local currency borrowing and foreign currency borrowing
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= ` 58.80 lakhs - ` 24.80 lakhs = ` 34 lakhs.
Therefore, out of ` 60 lakhs increase in the liability towards principal amount, only ` 34 lakhs
will be considered as the borrowing cost. Thus, total borrowing cost would be ` 58.80 lakhs
being the aggregate of interest of ` 24.80 lakhs on foreign currency borrowings plus the
exchange difference to the extent of difference between interest on local currency borrowing
and interest on foreign currency borrowing of ` 34 lakhs.
Hence, ` 58.80 lakhs would be considered as the borrowing cost to be accounted for as per
AS 16 “Borrowing Costs” and the remaining ` 26 lakhs (60 - 34) would be considered as the
exchange difference to be accounted for as per AS 11 “The Effects of Changes in Foreign
Exchange Rates”.
AS 17 “SEGMENT REPORTING”
Ans.29
AS 17 ‘Segment Reporting’ requires that inter-segment transfers should be measured on the
basis that the enterprise actually used to price these transfers. The basis of pricing inter-
segment transfers and any change therein should be disclosed in the financial statements.
Hence, the enterprise can have its own policy for pricing inter-segment transfers and hence,
inter-segment transfers may be based on cost, below cost or market price. However,
whichever policy is followed, the same should be disclosed and applied consistently.
Therefore, in the given case inter-segment transfer pricing policy adopted by the company is
correct if, followed consistently.
Ans.30
According to AS 17 “Segment Reporting”, segment assets do not include income tax assets.
Therefore, the revised total assets are ` 8.8 crores [` 10 crores – (` 0.5 + ` 0.4 + ` 0.3)].
Segment X holds total assets of ` 1.5 crores (` 2 crores – ` 0.5 crores); Segment Y holds ` 2.6
crores (` 3 crores – ` 0.4 crores); and Segment Z holds ` 4.7 crores (` 5 crores – ` 0.3
crores). Thus all the three segments hold more than 10% of the total assets, all segments are
reportable segments.
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REDEMPTION OF DEBENTURES
Question 1
Books of Rama Ltd.
6% Debentures a/c
1.1 To Bank a/c 4850 1.1 By Balance b/d 50000
1.1 To profit on cancellation (5000–4850) 150
1.8 To Bank a/c 9975
1.8 To Profit on cancellation (10000–9975) 25
15.12 To Bank a/c (25 × 98.50) 2463
15.12 To profit on cancellation (2500–2463) 37
31.12 To Balance c/d 32500
50000 50000
Interest on Debentures a/c
1.1 To Bank a/c 50
30.6 To Bank (on 45000) 1350
1.8 To Bank a/c 50
15.12 To Bank (on 2500 for 5½ months) 69
31.12 To Bank (on 32500) 975 3.12 By POL a/c 2494
2494 2494
Profit on cancellation a/c
1.1 By 6% Debentures a/c 150
1.8 By 6% Debentures a/c 25
31.12 To capital reserves 212 15.12 By 6% Debentures a/c 37
212 212
1. Cum int price (50 × 98) 4900
(–) Int on 5000 for 1 mts 50
–––––
cost 4850
====
2. Cum int price (100 × 100.25) 10025
(–) int on 10,000 for 1 mth 50
–––––
cost 9975
=====
2
Books of Sencom Ltd.
Question 2
5% Debentures a/c
2011
31.12 To Balance c/d 150000 1.1 By Balance b/d 150000
150000 150000
2012
31.3 To int. in own deb 44433 1.1 By Balance b/d 150000
31.3 To capital (resources) (45000–44433) 567
31.3 To Balance c/d 105000
150000 150000
Interest on Debentures a/c
2011
31.3 To Bank (on 125000) 3125 1.1 By Balance b/d (o/s int. of LY) 1875
31.3 To Int. on own Deb (on 25000) 625
30.9 To Bank (on 105000) 2625
30.9 To Int. on own Deb. (on 45000) 1125
31.12 To o/s Interest (on 105000) 1313
31.12 To Int. on own Deb (on 45000) outstanding 562 31.12 By P & L a/c 7500
9375 9375
2012
31.3 To Bank (on 105000) 2625 1.1 By Balance b/d (1313+562) 1875
(o/s Int. of LY)
31.3 To int. on own deb (on 45000) 1125 31.3 By P & L a/c 1875
3750 3750
Investment in own Debentures
2011
1.3 To Bank a/c 25000 521 24725 31.3 By Int. on Deb – 625 –
1.9 To Bank a/c 20000 417 19708 30.9 By Int. on Deb – 1125 –
31.12 By Int. on Deb – 562 –
31.12 To P & L a/c 1374 31.12 By Balance c/d 45000 – 44433
45000 2312 44433 45000 2312 44433
2012
1.1 To Bal b/d 45000 562 44433 31.3 By Int. on Deb – 1125 –
31.3 To P & L a/c 563 31.3 By 5% Deb a/c 45000 – 44433
45000 1125 44433 45000 1125 44433
3
Question 3
Journal of Libra Ltd.
2011-12
1.5 Bank a/c 1,50,000
To Deb. Application a/c 1,50,000
(1,500,000 × 100)
1.6 Deb. Application a/c 1,50,000
To 15% Debentures a/c 1,50,000
1.6 Underwriters a/c 50,00,000
To 15% Debentures a/c 50,00,000
(50,000 × 100)
1.6 u/w commission a/c 4,00,000
To underwriters a/c 4,00,000
(2,00,00,000 × 2%)
1.6 Bank a/c 46,00,000
To underwrites a/c 46,00,000
(50,00,000 – 4,00,000)
3.9 Interest on Deb a/c 10,00,000
To Bank a/c 10,00,000
(2,00,00,000 × 15% × 4/12)
3.11 Interest on Deb a/c 3,00,000
To Bank a/c 3,00,000
(2,00,00,000 × 60% × 15% × 2/12)
3.11 15% Deb.a/c 1,20,00,000
To Eq. Share capital a/c 20,00,000
To securities premium a/c 1,00,00,000
31.3 Interest on Deb. a/c 6,00,000
To Bank a/c 6,00,000
(2,00,00,000 × 40% × 15% × 6/12)
31.3 P & L a/c 19,00,000
To Interest on Debentures a/c 19,00,000
4
Question 4
Books of Progressive Ltd.
6% Debentures a/c
2010
30.9 To Deb. Redemption 115800 1.1 By Bal b/d 1000000
30.9 To Capital Reserve 4200
31.12 To Bal c/d 880000
1000000 1000000
2011
31.12 To Deb holders 25000
31.12 To Bal c/d 780000
880000 880000
2012
31.12 To Bal c/d 665000
780000 780000
Debenture Redemption a/c
2010
30.9 To Bank 115800 30.9 By 6% Deb. a/c 115800
2011
31.5 To Bank (750 × 45) 71250 31.5 By 6% Deb. a/c 71250
2012
31.7 To Bank 105225 31.7 By 6% Deb a/c 105225
Debenture Redemption a/c
2010
30.6 To Bank (on 10,00,000) 30000
30.9 To Bank 1800
31.12 To Bank (on 880000) 26400 31.12 By P & L a/c 58200
58200 58200
2011
5
31.5 To Bank 1875

30.6 To Bank (on 805000) 24150
31.12 To Bank (on 805000) 24150 31.12 By P & L a/c 50175
50175 50175
2012
30.6 To Bank (on 780000) 23400
31.7 To Bank 575
31.12 To Bank (on 665000) 19950 31.12 By P & L a/c 43925
43925 43925
WN1 Buyback on 30.9.2010
cum int. price (1200 × 98) 117600
(–) int. on 120000 for 3 mths 1800
–––––––
cost 115800
======
WN2. Int. on 75000 for 5 mths 1875
======
WN3 Cum Int. price (1150 × 92) 105800
(–) Int. on 115000 for 1 mth. 575
––––––-
cost 105225
======
6
Question 5
Books of Paradise Ltd.
12% Debentures a/c
2011-12
31.3 To Deb. holders 750000 1.4 By Balance b/d 750000
750000 750000
DRR a/c
2011-12
31.3 To DRR Investment (loss) 600000 1.4 By Balance b/d 600000
31.3 To Pem. on Redemption 750000 31.3 By P & L appro. 120000
31.3 To General Reserve 650000 31.3 By Int. on DRR Inv. (650000 × 10%) 65000
785000 785000
DRR Investments a/c
2011-12
1.4 To Balance b/d 600000 31.3 By Bank (6,00,000 × 90%) 540000
(FV = 6,50,000) 31.3 By DRR a/c (loss) 60000
60000 60000
Bank a/c
2011-12
31.3 To Balance b/d 300000 31.3 By Delta holders 825000
31.3 To Int. on own deb. 65000 (750000 + 10% Prem)
31.3 To DRR inv. (sold) 540000 31.3 By Balance c/d 80000
905000 905000
Debenture holders a/c
2011-12
31.3 By 12% Deb. 750000
31.3 To Bank a/c 825000 31.3 By Prem. on Redemption 75000
825000 825000
7
Question 6
Journal of Himalya Ltd.
2012-13
1.7 Deb. Redemption a/c (cost) 95000
Int. on Deb. a/c (3 months) 2000
To Bank a/c (1000 × 97) 97000
1.7 8% Deb. a/c (FV) 100000
To Deb. Redemption a/c (cost) 95000
To Capital Reserve (Profit) 5000
30.9 Int. on Deb. a/c 36000
To Bank a/c 36000
(½ yearly Int. on 900000)
29.2 Deb. Redemption a/c (1800 × 99) 178200
Interest on Deb. a/c (5 months) 6000
To Bank a/c (Total) 184200
29.2 8% Deb a/c (FV) 180000
To Deb. Redemption (Cost) 178200
To Capital Reserves (Profit) 1800
31.3 Int. on Deb. a/c 28800
To Bank a/c 28800
(½ Yearly interest on 720000)
31.3 P & L a/c 72800
To Interest on Deb a/c 72800
(2000 + 36000 + 6000 + 28800)
COMPANY FINAL ACCOUNTS
Solution to Q.1 page no. 75
Journal Entries
` `
Profit and Loss A/c Dr. 1,50,000
To Debenture Interest A/c 1,50,000
(Being transfer of debenture interest to profit and loss account)
To Provision for Taxation A/c 3,00,000
(Being provision for tax made @30% on `10,00,000 i.e. `1,50,000)
Profit and Loss A/c Dr. 35,000
To General Reserve A/c 35,000
(Being creation of general reserve @5% of net profit (i.e. `7,00,000))
To preference share dividend A/c 1,50,000
(Being preference share dividend payable @15% on `10,00,000)
Profit and Loss A/c Dr. 41,530
To provision for corporate dividend tax A/c 41,530
(Being provision made for corporate dividend tax @17.304% on total dividend of
`2,40,000 (W.N.))
Balance Sheet (Extracts) as on 31st March, 2014
`
Equity and Liability
Share holders’ funds
(a) Share capital 1 14,00,000
(b) Reserves and Surplus 2 11,61,330
Non-current liabilities
(a) Long term borrowings 3 10,00,000
Current liabilities
Short term provisions 4 5,45,530
Notes to accounts
`
1. Share Capital
Equity share capital
Issued, subscribed and called up 10,00,000
13½% Preference share capital 4,00,000 14,00,000
2. Reserves and Surplus
Securities Premium 7,00,000
General Reserve 35,000
Surplus (Profit & Loss A/c) 4,26,330 11,61,330
3. Long-term borrowings
Secured
15% Debentures 10,00,000
2
4. Short term provisions

Corporate Income-tax 3,00,000
Dividend payable
Preference (4L × 13.5%) 54,000
Equity (10L × 15%) 1,50,000 2,04,000
Corporate Dividend Tax {[36K + 12% surcharge] + 3% cess} 41,530 5,45,530
Working Note :
204K → 85
? 15
? 100
DDT = 15% of gross dividend + 12% surcharge + 3% cess
= [36,000 + 12% of 36,000] + 3% cess
= 40320 + 3% of 40320 = `41530
Calculation of grossing-up of dividend
Particular `
Dividend distribute by Xansa Ltd. 2,04,000
 15  36,000
Add : Increase for the purpose of grossing-up of dividend  × 2, 04, 000 
 100 − 15 
Gross dividend 2,40,000
Solution to Q.2 page no. 75
Ring Ltd.
Profit and Loss statement for the year ended 31st March, 20X2
Particulars Note No. (` in lacs)
I Revenue from operations 10,40,000
II Other income (interest on investment) 24,000
III Total Revenue [I + II] 10,64,000
IV Expenses :
Cost of purchase [4,20,000 + 1,60,000] Adjusted from Total per 5,80,000
Hence, added back
Changes in inventories [20,000 – 1,80,000] (1,60,000)
Employee Benefits Expense 1,20,000
Finance Costs (debenture interest) 56,000
Depreciation and Amortisation Expenses 40,000
Other Expenses 8 1,24,000
Total Expenses 7,60,000
V Profit before Tax (III–IV) 3,04,000
VI Tax Expenses @30% (91,200)
VII Profit for the period 2,12,800
3
Balance sheet of Ring Ltd. as at 31st March, 20X2
Particulars Note No. `
I Equity and liabilities
(1) Shareholder’s Funds 1 4,00,000
(a) Share Capital 2 2,22,442
(b) Reserves and Surplus
(2) Non-Current Liabilities
(a) Long-term Borrowings (14% debentures) 4,00,000
(3) Current Liabilities
(a) Trade Payable (Sundry Creditors) 1,84,000
(b) Other Current Liabilities 3 1,62,358
(c) Short-Term Provisions 4 91,200
Total 14,60,000
II Assets
(1) Non-current Assets
(a) Fixed Assets
(i) Tangible Assets 5 5,70,000
(b) Non-current Investments 2,40,000
(2) Current Assets
(a) Inventories 6 2,26,000
(b) Trade Receivables 7 2,40,000
(c) Cash and bank balances 60,000
(d) Short Term Loans and Advances (Advance Payment of Tax) 1,20,000
(e) Other Current Assets 4,000
(Interest accrued on investments)
Total 14,60,000
Contingent Liability
Note : There is a Contingent Liability forbills discounted but not yet matured amounting `20,000.
Notes to Accounts :
1. Share Capital
Authorised Capital 10,00,000
10,000 Equity Shares of `100 each
Issued Capital 4,00,000
4,000 Equity Shares of `100 each
Subscribed Capital and fully paid 4,00,000
4,000 Equity Shares of `100 each 4,00,000
4
2. Reserve and Surplus
General Reserve [`80,000 + `21,280] 1,01,280
Balance of statement of profit & loss account
Opening Balance 50,000
Add : Profit for the period 2,12,800
2,62,800
Appropriations
Transfer to General Reserve @10% (21,280)
Equity Divided payable[25% of `4,00,000] (1,00,000)
Dividend Distribution Tax (W.N.1) (20,358) 1,21,162
2,22,442
3. Other Current Liabilities
Unclaimed Dividend 10,000
Outstanding Expenses 4,000
Interest accrued on Debentures 28,000
Equity Dividend payable 1,00,000
Divided Distribution Tax 20358 1,20,358
1,62,358
4. Short-Term Provision
Provision for Tax 91,200
5. Tangible Assets
Buildings 5,80,000
Less : Provision for Depreciation 1,00,000 4,80,000
Plant and Equipment 2,00,000
Less : Provision for Depreciation 1,10,000 90,000
5,70,000
6. Inventories
Closing Stock of Finished Goods 1,80,000
Loose Tools 46,000 2,26,000
7. Trade Receivables
Sundry Debtors 2,50,000
Less : Provision for Doubtful Debts 2nd Effect of PFDD (10,000) 2,40,000
8. Other Expenses
Rent 52,000
Director’s Fees 20,000
Alternative Treatment 12,000
Bad Debts – can be first adjusted to op. Bal of provision 6,000 [12K 4,000
– 6K] 10,000 [4% of 250K]
Provision for Doubtful Debts (4% of `2,50,000 less `6,000)
Additional provision will be 10,000 36,000
Sundry Expenses 1,24,000
5
Working Note.
Calculation of Dividend distribution tax
Particulars `
(i) Grossing-up of dividend
Dividend distributed by Ring Ltd. 25% of 4,00,000 1,00,000
Add : Increase for the purpose of grossing up of dividend [1,00,000 17,647
× (15/(100 – 15)]
Gross dividend 1,17,647
(ii) Dividend distribution tax @17.304% of `1,17,647 20,358
or
DDT = 15% of gross dividend + 12% surcharge + 3% cess
= 15% of 117647 + 12% + 3%
= (17647 + 12% of 17647) + 3%
= 19,765 + 3% of 19,765
= `20,358
Solution to Q.3 page 76

Calculation of effective capital and maximum amount of monthly remuneration
(` in lakhs)
Paid up equity share capital 120
Paid up Preference share capital 20
Reserve excluding Revaluation reserve (150–10) 140
Securities premium 40
Long term loans 40
Deposits repayable after one year 20
380
Less : Accumulated loses not written off investments (20)
(180)
Effective capital for the purpose of managerial remuneration 180
Since Kumar Ltd. is incurring losses and no special resolution has been passed by the company for payment of
remuneration, managerial remuneration will be calculated on the basis of effective capital of the company, therefore
maximum remuneration payable to the Managing Director should be @`60,00,000 per annum.
Note : Revaluation reserve, and application money pending allotment are not included while computing effective capital
of Kumar Ltd.
6
Solution to Q.4 pg 76
Haria Chemicals Ltd.
Balance Sheet as at 31st March, 20X1
Schedule Rupees as at the No. end of 31st March 20X1
(1) (2)
Equity and Liabilities
1. Shareholder’s funds :
(b) Reserves and Surplus 2 7,40,000
2. Non Current Liabilities
3. Current Liabilities
(a) Trade payables 2,81,000
Total 46,66,000
Assets
1. Non current assets
Fixed Assets :
(a) Tangible assets 4 30,05,000
(b) Intangible assets (goodwill) 2,65,000
2. Current assets
(a) Inventories 8,23,000
(b) Trade receivables 4,40,000
(c) Cash and bank balances 5 53,000
(d) Short term loans and advances 6 80,000
Total 46,66,000
Haria Chemicals Ltd.
Statement of Profit and Loss for the year ended 31st March 20X1
Schedule Figures
Revenue from operations 42,68,000
Other Income (A) 7 56,000
43,24,000
Expenses
Cost of materials consumed 8 23,19,000
Change in inventory of finished goods 9 (1,43,000)
Employee benefit expenses 10 9,00,000
Finance cost 11 1,71,000
Other expenses (B) 12 4,76,000
37,23,000
Profit before tax (A – B) 6,01,000
Provision for tax –
Profit for the period 6,01,000
7
Notes to Accounts
1. Share Capital `
Authorised :
Equity share capital of `10 each issued and subscribed : 25,00,000
Issued and Subscribed : Equity share capital of `10 each 25,00,000
2. Reserves and surplus

Balance as per last balance sheet 1,39,000
Balance in profit and loss account 6,01,000
7,40,000
3. Long term Borrowings
Bank loans (assumed long–term)* 6,45,000
4. Tangible Assets
Gross block Depreciation Net Block
Freehold land 15,46,000 15,46,000
Furniture 2,00,000 2,00,000
Fixtures 3,00,000 3,00,000
Plant & Machinery 8,60,000 1,46,000 7,14,000
Tools & Equipment 2,45,000 2,45,000
Total 31,51,000 1,46,000 30,05,000
5. Cash and bank balances

Cash and cash equivalences
Current account balance 45,000
Cash 8,000
Other bank balances Nil
53,000
6. Short–term loans and advances
Loan to directors 80,000
7. Other Income
Rent received 46,000
Transfer fees 10,000
56,000
8. Cost of materials consumed
Purchases 23,19,000
8
9. Changes in inventory of finished goods, WIP & Stock in trade
Opening inventory 6,80,000
Closing inventory 8,23,000 (1,43,000)
10. Employee benefit expense

Wages 9,00,000
11. Finance cost

Interest on bank loans 1,16,000
Debenture interest 55,000
1,71,000
12. Other expenses
Consumables 84,000
Preliminary expenses 10,000
Bad debts 35,000
Discount 40,000
Rentals 25,000
Commission 1,20,000
Advertisement 20,000
Dealer’s aids** 21,000
Transit insurance 30,000
Trade expenses 37,000
Distribution freight 54,000
4,76,000
CASH FLOW STATEMENT
Q. 1 Cash how statement of MNT ltd for year ended 31.03.2015
Particulars Rs. Rs.
Cash flow from operating activities
Cash sales 382500 × 100/30 12,75,000
Less paid to creditors (4,60,000)
Less operating expenses (492500 + 75000) (5,67,500)
Cash generated from Operations 2,47,500
Taxes paid (65,000)
Net cash generated from operating activities (A) 1,82,500
Cash flow from investing activities
Sale of investments 7,20,000
Purchase of plant & machinery (2,50,000)
Net cash generated from investing activities (B) 4,70,000
Cash flow from financing activities
Bank loan repaid – principal (2,00,000)
Interest (15,000)
Dividend paid (30,000)
Net cash used in financing activities (C) (2,45,000)
Net increase in cash & cash equivalents during the year A + B + C 4,07,500
Cash & Cash equivalents at beginning of year end of year 2,00,000
6,07,500
Q. 2 Direct Method
Calculation of cash from operating activities of ABC Ltd. for year ended 31.03.11
Particulars Rs. Rs.
Cash- sales NIL
Collection from Debtors 4,000
Cash purchase NIL
Payment to creditors (2,380)
Payment for operating expenses (978) 642
Taxes paid (195)
447
W.N.1 Debtors a/c
To bal b/d 250 By cash/bank a/c 4,000
To sales 4150 By balance c/d 400
4400 4400
2
W.N.2 Creditors a/c
To cash bank a/c 2380 By bal. b/d 230
To bal. c/d 250 By purchases a/c 2400
2630 2630
W.N.3
Operating expenses as per P & L a/c 1000
(+) o/s at beginning 50
(–) o/s at end (72)
978
Indirect Method
Calculation of cash from operating activities of ABC ltd fro year ended 31.03.11
N.P.B.T. 710
Adjustments for
Depreciation 100
Interest expenses 60
Interest & dividend income (100)
Operating profit before WC changes 770
Less : Increase in Trade records (150)
Less : Increase in inventory (20)
Add : Increase in Trade payable 20
Add : Increases in o/s wages 12
Add : Increase in o/s expenses 10
Cash generated from operations 642
Tax paid (195)
447
Q.3 Direct Method

Cash flow statement of gamma ltd for year ended 31.03.2017
Particulars ` `
Cash flow from operating activities
Cash sales 81
Coll from Debtors 49
Cash purchases (11)
Cash paid to creditors (42)
Cash paid for operating expenses (40)
Cash generated from operations 37
Tax paid (8)
3
Net cash generated from operating activities (A) 29
Cash flow from investing activities
Sale of investment 14.40
Purchase of new plant (11)
Net cash generated from investing activities (B) 3.40
Cash flow from Financing Activities
Redemption of Debentures (7)
Interest paid (1.5)
Dividend paid (11.7)
Net cash used in financing activities (C) (20.2)
Net increase in cash & cash equivalents during the year A + B + C 12.20
Cash & cash equivalents at the beginning of year end of year 6.00
18.20
W.N.1 Debtors a/c
To bal b/d 45 By cash/bank a/c 49
To cr. sales 54 By balance c/d 50
99 99
W.N.2 Creditors a/c
To cash bank a/c 42 By bal. b/d 21
To bal. c/d 23 By cr. purchases a/c 44
65 65
W.N.3
Administrative expenses 18
Salary 22
40
Q.4 Soln. from S.M.
Q.5 Cash from operating activities

Particulars ` `
N.P.B.T. 22,200
Adjustment for
Depreciation 7,450
Patent amortization 900
Interest expense 10,650
Other income (6000)
Operating profit before WC changes 35,200
Add : Decrease in Trade receivable 7,150
4
Less : Decrease in allowance B.D. (1900)
Less : Increase in Inventory (2700)
Less : Increase in P.P. Insurance (700)
Add : Increase in Trade payable 5650
Less : Decrease in salaries payable (2050)
Cash generated from operations 40,650
Taxes paid (6600)
Cash generated from operating activities 34,050
Q.6 Cash flow from investing activities particulars.
Particulars `
Unsecured loan given to subsidiaries (4,85,000)
Interest received on loan 82,500
Pre-acquisition dividend received 62,400
Interest received on investment 68,000
Sale of plant 74,400
Claim received for loss of plant 49,600
(1,48,100)
It is assumed that the interest received on investment figure is net of TDS.
Profit Prior to Incorporation
Q.1 Fellow Travellers Ltd.
Statement showing calculation of profit / losses for pre & post incorporation periods.
Particulars Ratio Pre Post
Gross Profit (Sales Ratio) 1:2 20,000 40,000
Less : Expenses
→ Salaries & Wages (Time Ratio) 5:7 4,167 5,833
→ Debenture Interest (1,50,000 × 7% × 6/12) Post 5,250
→ Depreciation (Time Ratio) 5:7 417 583
→ Interest on purchase consideration (WN3) 5:1 1,500
→ Selling comm. (Sales Ratio) 1:2 7,500 6,000
→ Director’s fee Post 3,000 600
→ Preliminary Expenses Post – 6,000
→ Provision for taxes Post 900
Capital reserve Net p/f 4,917 13,333
WN1 Calculation of time ratio :

DOA DOI DOFA
1/1/11 31/5/11 31/12/11
(5) (7)
∴ TR = 5 : 7
WN2 Calculation of sales ratio :

Sales from Jan to May = 60,000 & June to Dec = 1,20,000
∴ SR = 1 : 2
WN3 Bifurcation of Int on purchase consideration

DOA DOI Dare of Settlement
1/1/11 31/5/11 30/06/11
(5) (1)
∴ Int = 9,000
Pre 5:1 Post

7,5001,500
2
Fellow Travellers Ltd.
Extract of Balance Sheet as on 31st December 11
Particulars Notes Amount (`)
I. Equity & Liabilities
1. Share holders funds
(b) Reserves & surplus 2 33,250
2. Non-current liabilities
3. Current liability
(a) Short term provisions 4 900
Total 3,84,150
Notes to Accounts
1. Share capital
Authorised share capital ?
Issued subscribed & paid up
20,000 equity shares of `10 each. 2,00,000
(All of the above shares are issued for consideration other than cash)
2. Reserves & surplus
Capital Reserve 4,917
Securities premium 20,000
Profit & Loss 13,333
(–) Dividend (5,000) 8,333
33,250
3. Long term borrowings
4. Short term provisions
Provision for taxes 900
3
Q.2 In the books of SALE Ltd., Statement showing calculation of profits for pre-incorporation & post incorporation
periods.
Particulars Ratio PRE Post Total
Gross profit (WN3) 1:3 1,50,000 4,50,000 6,00,000
Less : Expenses
→ Salaries (Time Ratio) 1:2 40,000 80,000 1,20,000
→ Rent, Rate & Taxes (TR) 1:2 26,667 53,333 80,000
→ Common sales (sales ratio) 2:5 6,000 15,000 21,000
→ Depreciation (Time ratio) 1:2 8,333 16,667 25,000
→ Directors fees Post – 12,000 12,000
→ Advertisement Post – 36,000 36,000
→ Interest on debenture Post – 32,000 32,000
Capital Reserve P/L a/c 69,000 2,05,000 2,74,000
WN1 Calculation of Time Ratio

DOA DOI DOFA
01/04/11 01/08/11 31/03/12
∴ TR = 1 : 2
WN2 Calculation of sales ratio

Let PRE period per month sales be `x
∴ Post period per month sales = `1.25x
PRE POST
4 months 8 months
×x × 1.25 x
4x 10x
∴ Sales Ratio = 4 : 10
i.e. 2 : 5
WN3 Bifurcation of gross profit :

PRE POST
Sales 4x 10x
GP % 25% 30%
∴ Gross p/f ratio 1x 3x = 1 : 3
Total gross profit = 6,00,000
PRE 1:3 POST

1,50,000 4,50,000
4
Q.3 In the books of Rama Udyog Ltd. Statement showing calculation of pre & post incorporation profit.
Gross profit (WN3) 2:7 1,20,000 4,20,000 5,40,0000
Less : Expenses
→ Depreciation (TR) 1:2 41,000 82,000 1,23,000
→ Director’s fees Post – 50,000 50,000
→ Preliminary expenses Post – 12,000 12,000
→ Office expenses (TR) 1:2 26,000 52,000 78,000
→ Selling expenses (SR) 2:7 16,000 56,000 72,000
→ Interest to venders (WN4) Actual 4,000 1,000 5,000
Capital Reserve P/L a/c 33,000 1,67,000 2,00,000

DOA DOI DOFA
01/04/11 01/08/11 31/03/12
(4) (8)
∴ Time Ratio = 1 : 2

Let sales in first half be x
∴ Sales in second half = `2x
PRE POST
May x Aug x
June x Sep x
July x Oct 2x
Nov 2x
Dec 2x
Jan 2x
Feb 2x
Mar 2x
________ __________
4x 14x
i.e. 2 : 7
5
WN3 Calculation & bifurcation of gross profit
Gross profit = Net profit + All expenses
= 2,00,000 + (1,23,000 = 50,000 + 12,000 + 78,000 + 72,000 + 5,000)
= 2,00,000 + 3,40,000
∴ GP = 5,40,000
GP to be bifurcated in sales ratio.
WN4 Bifurcation of Int. to vendors

DOA DOI DOS
01/04/11 01/08/11 31/08/11
(4) (1)
∴ Int = 5,000
PRE 4:1 POST

4,000 1,000
Q.4 In the books of Glorious Ltd. Statement showing calculation of pre & post incorporation period profits.
(` in lakhs)
Gross profit (WN3) 1:3 100 300 400
Less : Expenses
→ Salaries (TR) 1:2 23 46 69
→ Rent, Rates & Insurance (TR) 1:2 8 16 24
→ Sundry off. exps (TR) 1:2 22 44 66
→ Traveller’s comm.. (SR) 1:3 4 12 16
→ Discount Allowed (SR) 1:3 3 9 12
→ Bad debts (SR) 1:3 1 3 4
→ Director’s Fee Post – 25 25
→ Tax Audit Fee (SR) 1:3 2.25 6.75 9
→ Depreciation (TR) 1:2 4 8 12
→ Debenture Int. Post – 11 11
Capital Reserve P/L a/c 32.75 119.25 152
DOA DOI DOFA
01/04/11 01/08/11 31/03/12
(4) (8)
6
DOA DOI DOFA
01/04/11 01/08/11 31/03/12
`400 `12,000
∴ Sales = 400 : 1200
WN3 Calculation of gross profit

GP = 25% × 1,600 lakhs
= `400 laks
Q.5 In the books of ABC Ltd. Statement showing calculation of PRE & POST incorporate period profits.
Particulars Ratio PRE POST Total
Gross profit (SR) 1:3 80,000 2,40,000 3,20,000
Less : Expenses
→ Salaries (TR) 1:2 16,000 32,000 48,000
→ Stationary (TR) 1:2 1,600 3,200 4,800
→ Travelling expenses WN4 5,200 11,600 16,800
→ Advertisement (SR) 1:3 4,000 12,000 16,000
→ Misc. Trade exps. (TR) 1:2 12,600 25,200 37,800
→ Rent WN3 8,000 18,400 26,400
→ Electricity charges (TR) 1:2 1,400 2,800 4,200
→ Directors Fee POST – 11,200 11,200
→ Bad debts (SR) 1:3 800 2,400 3,200
→ Commission to selling agents (SR) 1:3 4,000 12,000 16,000
→ Tax audit fee (SR) 1:3 1,500 4,500 6,000
→ Debenture Interest POST – 3,000 3,000
→ Interest paid to vendors WN6 2,800 1,400 4,200
→ Selling expenses (SR) 1:3 6,300 18,900 25,200
→ Depreciation WN5 3,000 6,600 9,600
Capital Reserve P/L a/c 12,800 74,800 87,600

DOA DOI DOFA
01/04/11 01/08/11 31/03/12
(4) (8)
7
Total sales = 19,20,000
Let sales from 1/4/11 to 30/9/11 be `x per months
 2x 
∴ Sales from 1/10/11 to 31/3/12 = `  x +  per month.
 3 
5
x
3
PRE POST
April x Aug x
May x Sept x
June x Oct 5/3 x
July x Nov 5/3 x
Dec 5/3 x
Jan 5/3 x
Feb 5/3 x
Mar 5/3 x
___ _____
4x 12x
___ _____
∴ Sales ratio = 1 : 3
WN3 Bifurcation of Rent of office building

PRE POST
April 2,000 Aug 2,000
May 2,000 Sept 2,000
June 2,000 Oct (2,000 + 400) × 6 months
July 2,000 Nov = 2,400 × 6 months
Dec
Jan
Feb
Mar
_____ _____
8,000 18,400
––––- –––––
8
WN4 Bifurcation of Travelling Expenses
Total expenses = 16,800
Towards sales promotion Balance

(SR) (TR)
4,800 12,000
PRE 1:3 POST PRE 1 :2 POST

1,200 3,600 4,000 8,000
∴ Total PRE = 1,200 + 4,000 = 5,200
∴ Total POST = 3,600 + 8,000 = 11,600
WN5 Bifurcation of Depreciation :

Depreciation = 9,600
Depreciation on Balance (TR)

asset in post period = 9,000
= 600
POST PRE POST

3,000 6,000
Total PRE = 3,000
Total POST = 6,600
WN6 Bifurcation of Interest paid to vendors

DOA DOI DOFA
01/04/11 01/08/11 30/09/11
(4) (2)
∴ Ratio = 2 : 1
Total interest paid to vendor = 4,200
2:1
PRE POST
2,800 1,400
9
INVESTMENT ACCOUNTS
Q.1 In the books of Mr. Rajat.

Investment in Equity Shares of P Ltd. for the year ending 31st March
Date Particulars No. of shares Dividend Cost
01.04.2011 To Bal b/d 50,000 – 7,50,000
20.06.2011 To Bank a/c 10,000 – 1,60,000
01.08.2011 To Bonus Shares (WN1) 10,000 – –
31.10.2011 To Bank a/c (WN2) 20,000 – 3,00,000
90,000 – 12,10,000
31.03.2012 By balance c/d (Bal fig.) 90,000 – 12,10,000
90,000 – 12,10,000
WN1 Calculation of no. of bonus shares

Bonus ratio = 1 shr : 6 shs held
10,000 shs : 60,000 shs
WN2 Calculation of no. of right shares & cost of right shares

Ratio = 3 shs : 7 shs field
30,000 = 70,000 shs
Company offered = 30,000 shs
shs subscribed shs renounced

(2/3) (1/3)
= 20,000 shs = 10,000 shs
cost = 20,000 × 15 10,000 × 2 = 20,000
= `3,00,000 To be Cr. to P/L A/c.
Q.2 In the book of A Limited.

Investment in Equity Shares for the year ending 31st March 12
Date Particulars No. of shares Dividend Cost
01.04.2011 To Bank b/d 5,000 – 5,35,000
30.06.2011 To Bonus shs (WN3) 1,000 – –
01.10.2011 To Bank A/c (WN4) 250 – 11,250
31.10.2011 To Profit / Loss A/c (WN6) – – 21,660
31.03.2012 To Profit / Loss A/c (Bal fig.) – 6,000 –
6,250 6,000 5,68,410
10
15.05.2011 By Bank A/c (WN2) – – 10,000

30.11.2011 By Bank A/c (WN5) – 6,000 –
31.12.2011 By Bank A/c (WN6) 3,000 – 2,79,300
31.03.2012 By balance c/d (Bal. fig.) 3,250 – 2,79,116
6,250 6,000
WN1 Calculation of cost of purchase on 1st April, 2011

cost = 5,000 shs × ` 105 = 5,25,000
(+) Brokerage (2%) = 10,500
∴ Total cost = 5,35,500
WN2 Calculation of dividend received on 15th May 2011

Dividend = 5,000 shs × ` 100 × 2% = ` 10,000
WN3 Calculation of No. of Bonus shares

Bonus Ratio = 1 sh : 5 held
1,000 shs : 5,000 shs
WN4 Calculation of no. of right shs & cost of right shs

Right ratio = 1 sh : 12 shs field
500 shs : 6,000 shs
Company offered = 500 shs
Subscribed Renounced
(1/2) (1/2)
= 250 shs = 250 shs
Cost = 250 × 45 = ` 11,250 = 250 × 50 = 12,500
Trf to P/L
WN5 Calculation of Interim dividend

Interim dividend = 1% (Purchase + Bonus) × FV
= 1% (5000 hrs + 1000 hrs) × 100
= ` 6,000
11
WN6 Calculation of profit/loss on sale of shs on 31/12/
Selling price = 3000 shs × ` 95 = 2,85,000
(–) Brokerage (2%) = (5,700)
Net selling price = 2,79,300
Weighted average cost of invst.

FV cost
5,000 5,35,500
1,000 –
250 11,250
– (10,000)
6,250 5,36,750
3,000 2,57,640
SP 2,79,300
– cost = (2,57,640)
Profit/(Loss) 21,660
Q.3 In the book of Mr. Purohit.

Investment in 8% Debentures of P Ltd. for the year ending 31st March 2012
Date Particulars FV Int. Cost
01.04.2011 To Balance b/d 1,20,000 1,18,000
01.07.2011 To Bank A/c (WN1) 10,000 200 9,898
01.10.2011 To Profit / Loss A/c (WN6) – – 133
01.01.2012 To Bank A/c (WN4) 5,000 100 4,849
31.03.2012 To Profit / Loss A/c (Bal fig.) 9,233
30.09.2011 By Bank A/c (WN2) – 5,200 –
01.10.2011 By Bank A/c (WN3) 20,000 – 19,800
01.02.2012 By Bank A/c (WN5) 20,000 533 19,602
01.02.2012 By Profit / Loss a/c (WN5) – – 64
31.03.2012 By Bank A/c (WN6) – 3,800 –
31.03.2012 By balance c/d (Bal. fig.) 95,000 93,414
WN1 Calculation of cost & interest on 1.7.11
cost = 100 × 98 = 9,800
(+) Brokerage (1%) = 98
∴ Total cost = 9,898
8 3
Interest = 100 × 100 × × = ` 200
100 12
12
WN2 Calculation of Interest to be received on 30.09.11
8 6
Interest = 1,30,000 × × = 5,200
100 12
WN3 Calculation of Profit / Loss on sale on 1.10.11

Selling price = 200 × 100 = 20,000
(–) Brokerage (1%) = (200)
19,800
Cost : FV Cost
1,20,000 1,18,000
20,000 19,667
SP = 19,800
– cost = (19,667)
Profit = 133
WN4 Calculation of cost & Interest on 1.1.2012

Cash outflow = 50 × 98 = 4,900
(+) Brokerage = 49
= 4,949
cost (bal fig) Int.

8 3
( ` 4,849) = 50 × 100 × ×
100 12
= ` 100
WN5 Calculation of profit or loss on 1.2.2012

Selling price = 200 × 99 = 19,800
(–) Brokerage (1%) = (198)
∴ Net selling price = 19,602
8 4
Interest = 200 × 100 × × = ` 533
100 12
Cost = FV Cost
1,20,000 1,18,000
20,000 19,667
∴ Net selling price = 19,602
(–) cost = (19,666)
Profit / (Loss) (64)
13
WN6 Calculation of interest to be received on 31.3.12
8 6
Interest = 950 × 100 × ×
100 12
= ` 3,800
Q.4 In the books of Mr. Krisha Murty

Investment in Equity shs of TELCO Ltd. for the year 11–12
Date Particulars FV Int. Cost Date Particulars FV Int Cost
01.04.11 To Bank A/c (WN1) 1,000 – 1,23,000 31.3.12 By Bank a/c (WN2) 500 – 44,100
31.01.12 To Ban shs 500 – – 31.3.12 By bal c/d (WN3) 1,000 – 82,000
31.03.12 To P/L A/c (WN2) – – 3,100
1,500 1,26,100 1,500 1,26,100
Working Notes :
WN1 Calculation of cost of shares purchased on 1.4.2011
Cost = (1,000 × `120) + Brokerage (2% × 1,20,000) +
Stamp chg (1/2% × 1,20,000) = ` 1,23,000
WN2 Calculation of profit or loss on 31.03.12

Selling price = 500 × 90 = 45,000
– Brokerage (2%) = (800)
44,100
Weighted avg. cost = FV Cost SP = 44,100
1,500 1,23,000 (–) cost = (41,000)
∴ 500 41,000 Profit = 3,100
WN3 Valuation of equity shs on 31.03.2012 [cost o mv, whichever is lower]

cost (1,23,000 + 3,100 – 44,100) = 82,000
mv (1,000 shs × ` 90) = 90,000
∴ valuation will be on cost of ` 82,000
Q.5 In the books of Nidhi

Investment in 8% bonds for the year ending 31st March 2012
01.04.11 To Bank A/c (WN1) 12,00,000 40,000 9,26,000 01.05.11 By Bank A/c (WN2) – 48,000 –
01.10.11 To P/L A/c (WN5) – – 11,500 01.10.11 By Bank A/d (WN5) 3,00,000 – 2,43,000
11.03.12 To P/L A/c (Bal fig.) 84,000 01.11.11 By Bank A/c (WN6) – 36,000 –
31.03.12 By Bal c/d (Bal fig) 9,00,000 6,94,500
12,00,000 1,24,000 9,37,500 12,00,000 1,24,000 9,37,500

14
Investment in equity shares of X Ltd. for the year ending 31st March 2012
12.04.11 To Bank A/c 1,00,000 – 40,00,000 15.05.11 By Bank A/c (WN4) 1,25,000 – 25,00,000
15.05.11 To Bon Issue (WN3) 1,50,000 – – 01.12.11 By Bank A/d (WN7) – 2,25,000 –
15.05.11 To P/L A/c (WN4) – – 5,00,000 31.03.12 By Bal c/d 1,25,000 – 20,00,000
31.03.12 To P/L A/c (Bal fig.) 2,25,000
2,50,000 2,25,000 45,00,000 2,50,000 2,25,000 45,00,000
WN1 Calculation of cost of purchase of bonds on 1.4.11

Total cash outflow = 12,000 × 80.5 = 9,66,000
Cost (Bal. fig.) Interest (Nov’10 – Mar’ 11)

8 5
9,26,000 = 12,00,000 × ×
100 12
= 40,000
WN2 Calculation of int. to be received on 1.5.11 on bonds

8 6
= 12,00,000 × × = 48,000
100 12
WN3 Calculation of bonds shs to be received

Bonus ratio = 3 hs : 2 held
1,50,000 1,00,000 shs
WN4 Calculation of profit on sale of bonus shs

Selling price = 1,25,000 × 20 = 25,00,000
Weighted avg cost = No. of shs cost
2,50,000 4,00,000
∴ 1,25,000 2,00,000
∴ SP = 25,00,000
Cost = (20,00,000)
Profit = 5,00,000
15
WN5 Calculation of profit or loss on sale of bonds.
Selling price = 3,000 × 81 = 2,43,000
Weighted avg cost = FV cost
12,00,000 9,26,000
∴ 3,00,000 2,31,500
∴ SP = 2,43,000
Cost = (2,31,500)
∴ Profit = 11,500
WN6 Calculation of int. to be recd on 1.11.11
8 6
Interest = 9,00,000 × ×
100 12
= ` 36,000
WN7 Calculation of 18% dividend recd from X Ltd.

Total shs as on 1/12/11 = 1,25,000 shs
Dividend = 1,25,000 shs × ` 10 × 18%
= ` 2,25,000
DEPARTMENTAL ACCOUNTS
Q.1. Departmental a/c’s
M/s ….
Departmental trading and profit and loss account for the year ended 31.03.2011
To opening stock 5400 4900 By sales (5:4) 16900 135200
To purchases (4:3) 9800 7350 By closing stock 2478 2401
To wages 1340 240 By transfer A to B 1200 –
To Rent (WN1) 600 300
To Lighting and Heating (WN2) 240 120
To arriage inwards (4:3) 268 201
To transfer A to B 1200
To cross profit c/d 2930 1610
20578 15921 20578 15921
To rent (WN1) 400 200 By cross profit b/d 2430 1610
To salaries (2:1) 880 440 By discount received (4:3) 76 57
Lighting and heating 160 80
To discount allowed (5:4) 245 196
To advertising (5:4) 410 328
To depreciation (2:1) 40 20
Net profit ltd. 871 403
3006 1667 3006 1667
General profit and loss account
To net profit c/d (overall) 1274 By department profit b/d
dept A 871
dept B 403 1274
1274 1274
M/s ….
Balance sheet as on 31.03.2011
Capital 9530 Prepaid rent 370
(–) drawings 900 Furniture and fittings (600–10%) 540
8630 Plant and Machinery 4200
(+) net profit 1274 9904 Sundry debtors 1820
Sundry creditors 3737 Cash in hand 32
Outstanding Cash at bank 1980
Lighting and Heating 180 Closing stock
Dept A 2478
Dept B 2401 4879
13821 13821
2
WN1 Rent = 1870 – 370 = 1500 WN2 Heating = 420 + 180 = 600
Factory Office Factory Office

900 600 360 240
A B A B 240 120 160 80

600 300 400 200
Q.2. Departmental trading a/c of X ltd for the year ended 31.12.2011
A B A B
To opening (cost) stock 20000 12000 By sales 140000 112000
To purchases 92000 68000 By closing stock
To wages 12000 8000 Purchased goods 4500 6000
To carriage 2000 2000 Finished goods 24000 14000
To transfer of purchased goods By transfer of purchased goods
B to A 10000 – B to A – 10000
A to B – 8000 A to B 8000 –
To net transfer of finished goods By net transfer of finished goods
B to A (40 K – 10 K) 30000 – B to A (40K – 10K) – 30000
A to B (35 K – 7 K) – 28000 A to B (35K – 7K) 28000 –
To gross profit c/d 38500 46000
204500 172000 204500 172000
Consolidated trading a/c

To opening stock 320000 By sales 252000
To purchase 160000 By closing stock
To wages 20000 Purchased goods 10500
To carriage 4000 Finished goods (38000 – 2196) 35804 46304
To cross profit c/d 82304
298304 298304
dept B (14000) dept A (24000)
2800 11200 4800 19200

2800 × 22.91% = 641 4800 × 32.39% = 1555
38500 × 100 = 22.91% 46000 × 100 = 32.39
140000 + 28000 112000 + 30000
∴ Total stock = 641 + 1555 = 2146
3
Q.3
P S Q
Net profit (after commission) 90000 60000 45000
(+) wrong commission add back 10000 6667 5000
Net profit before commission 100000 66667 50000
(–) Unrealised profit (stock reserve)
(1) In using stock of dept. P
profits of S(48000 × 1/5) – (9600) –
profits of Q(12000 × 1/6) – – (2000)
(2) In closing stock of dept. S
profits of P(18000 × 1/5) (3600) – –
profits of Q(8000 × 1/11) – – (727)
(3) In closing stock of dept Q
profits of P(14000 × 13.04%) (1826) – –
profits of S(38000 × 30%) – (11400) –
Net profit after unrealized profits 94574 45667 47273
(–) 10% commission 9457 4567 4727
Correct net profit after commission 85117 41100 42546
Q.4 M/s. Suman Enterprises

Department trading and profit and loss a/c for the year end 31.03.13
F S F S
To opening stock 3020000 430000 By sales 18000000 4520000
To purchases 15000000 260000 By transfer to S 3000000 –
To transfer from F – 3000000 By closing stock 1220000 500000
To manufacturing exp. – 500000
To gross profit c/d 4200000 830000
22220000 5020000 22220000 5020000
To selling expenses 150000 60000 By cross profit b/d 4200000 830000
To rent and warehousing 500000 300000
To net profit c/d 3550000 470000
4200000 830000 4200000 830000
4
General Profit an Loss a/c
To general expenses 850000 By opening stock reserve 48375
To closing stock reserve 75000 By net profit b/d
To net profit c/d F 3550000
(overall) S 470000 4020000
4068375 4068375
WN1 Closing stock of shoes dept.

500000
25% (others) 75% (dep F)

125000 375000
↓
4200000
G.P. Ratio of F = × 100 = 20%
2100000
WN2 Opening stock reserve

Opening stock of shoes dept.
430000
25% (others) 75% (dep F)

107500 322500
↓
Includes profit of dept F = 322500 × 15% = 483875
Departmental Accounts FGH Ltd.

5
Q.5 Departmental Trading and profit and loss account.
I J K I J K
To opening stock 5000 8000 19000 By using stock 5000 20000 5000
To mat consumed 16000 20000 – By sales – – 80000
To direct labour 9000 10000 – By transfer
To transfer I to J 30000 – –
I to J – 30000 – J to K – 60000 –
J to K – – 60000
To GP c/d 5000 12000 6000
35000 80000 85000 35000 80000 35000
To salaries 9000 6000 3000 By GP b/d 5000 12000 6000
To Rent 3000 1800 1200
To Net profit c/d – 4200 1800 By net loss c/d 7000
12000 12000 6000 12000 12000 6000
General Profit and Loss Account

To closing stock reserve 8000 By opening stock reserve 5000
To net profit (overall) 1000 By net profit b/d
I 4200
J 1800
K 7000 (1000)
4000 4000
WN1 (1) Transfer from I to J 25000

(9000 + 16000 + 5000 – 5000)
(+) profit (20% on cost) 5000
Transfer 30000
(2) Transfer from J to K
(8000 + 20000 + 10000 + 30000 – 20000) 43000
(+) profit (25% on cost) 12000
Transfer 60000
6
WN2 Closing stock reserve
(1) In the stock of dept (J) – Profit of dep I
20000
dept I Goods others

60000 → 30000 10000
20000 → ?
10000 includes profit of I = 10000 × 1/6 = 1667
(2) In closing stock of dept K
(a) Profit of dept J.
5000 ∴ Total using stock reserve = 3000
dept I Goods others

60000 → 60000 10000
5000 → ?
5000 includes profit of J = 5000 × 1/5 = 1000
(b) Profit of dept I
Stock = 5000 – 1000 = 4000
dept I goods others

(60000 → 30K
4K → ?
2000 2000
Profit = 2000 × 1/6 = 333
Q.6 Sona Ltd.

Department trading and profit and loss a/c for the year end 31.12.14
P Q R P Q R
To opening stock 30000 45000 15000 By sales 188000 166000 93000
To purchases 160000 130000 60000 By closing stock 46000 63000 18000
To cross profit (WN1) 44000 54000 36000
234000 234000 111000 234000 234000 111000
net profit c/d 44000 54000 36000 By crossing 44000 54000 36000
profit b/d
44000 54000 36000 44000 54000 36000
7
General Profit and Loss Account
To net profit overall 34000 By net profit b/d
P 44000
Q 54000
R 36000 134000
134000 134000
Gross profit
Dept P
Sales at normal price (18800 + 4000) 192000
∴ Normal GP @ 25% 48000
∴ Actual GP (48000 – 4000) 44000
Dept Q
Sales at normal price (166000 + 2000) 168000
∴ Normal GP @ 33 1/3 % 56000
∴ Actual GP (56000 – 2000) 54000
Dept R
Sales at Normal price (93000 + 2000) 95000
∴ Normal GP @ 40% 38000
∴ Actual GP (38000 – 2000) 36000
Q.3 (pg. 12.9) – pg. 55
Q.7 Department trading a/c for the year ended 31.03.2011 of Brahma Ltd.
Particulars Dept A Dept B Dept C Particulars Dept A Dept B Dept C
Qty Amt. Qty Amt. Qty Amt. Qty Amt. Qty Amt. Qty Amt.
To opening stock 600 14400 400 10800 100 30000 By sales 5200 208000 9800 441000 15300 765000
To purchases 5000 120000 10000 270000 50000 150000 By closing stock 400 9600 600 16200 700 21000
(Total = 840000)
To gross profit c/d 83200 176400 306000
5600 217600 10400 457200 16K 786000 5600 217600 10400 457200 16K 786000
WN1 Qty purchased = Qty sold → Assumption → CUP each dept → opening stock purchases using stock × CPU → then tally to find GP
A (5000 × 40) 200000 Tally to find units
B (10000 × 45) 450000
C (150000 × 50) 6750000
1400000
(–) purchase price 840000
60000
60000
Overall GPR = × 100 = 40%
1400000
A = 40 – 40% = 24
B = 45 – 40% = 27
C = 50 – 40% = 30
BRANCH ACCOUNTS
Q.1
Books of Bunkingham Bros. (HO)
Branch a/c
To Balance b/d By cash b/c (Remettance)
Imprest cash 2000 Cash sales 45000
Debtors 25000 Collection from Debtors 125000 170000
Stock (HO goods) 24000 (incl. transit)
Stock (Others) 16000 67000 By Balance c/d
To GSTB a/c (sent) 60000 Stock (HO goods) 15000
To cash / bank (sent) Stock (others) 10000
Direct purchases 45000 Debtors (WN2) 24000
Expendses 30000 Petty cash (WN1) 2000 51000
Sent for petty cash 4000 79000
To P & L a/c (profit) 15000
221000 221000
WN1 Petty cash

Branch petty cash a/c
Op. bal 2000 Spent 4000
sent 4000 c/b 2000
6000 6000
WN2 Debtors
Branch debtors a/c
Op. bal 25000 Sales ret 3000
Cr. sales 130000 Discount 2000
Bad debts 1000
Collection 125000
Cl. Bal 24000
155000 155000
2
Ans. 2 :
Books of Harrison Branch Stock Account
` `
To Balance b/d 30000 By branch debtors 165000
To Goods sent to branch a/c 240000 By branch bank 59000
To Branch Adjustment a/c 2000 By balance c/d
(Excess of sale over invoice price) Goods in Transit
(`240000–`220000) 20000
Stock at branch 28000
272000 272000
Branch Debtors Account
` `
To balance b/d 35750 By bad debts written off 750
To balance stock 165000 By branch cash–collection (bal.fig) 174000
By balance c/f 26000
197750 197750
Branch Cash Account
` `
To balance b/d 50000 By bank remit to HO 222500
To branch stock 59000 By branch profit & loss a/c (exp. 12000
To branch debtors 174000 paid by HO)
By branch profit & loss a/c [Bal. 13000
fig.(exp. paid by branch)]
By balance c/d
2500
250000 250000
Branch Adjustment Account
` `
To stock reserve (closure) 8000 By stock reserve opening (25000 × 20%) 5000
To gross profit c/d 39000 By goods sent to Branch a/c 40000
By branch stock a/c 2000
47000 47000
Branch Profit and Loss Account
` `
To Branch Expenses By Gross profit b/d 39000
(paid by H.O.: `12,000 and
paid by Branch `13000) 25000
To Branch Debtors – Bad debts 750
To Net Profit 13250
39000 39000
3
Ans. 3 :
Books of Hindustan Industries, Mumbai
Cochin Branch Stock Account
` `
To Balance b/d 60000 By Bank A/c (Cash sales) 200000
To Goods sent to Branch a/c 600000 By Branch Debtors (Cr. sales) 360000
To Branch Debtors a/c By Goods sent to Branch
(sales return) 8000 (Return to H.O) 12000
To Abnormal Gain By Balance c/d (closing stock) 120000
(Excess of SP over IP) 24000
692000 692000
Cochin Branch Stock Adjustment Account
` `
To Goods sent to Branch A/c By Balance b/d 12000
(1/5 of `12,000) (no returns) 2400 (1/5 of `60,000)
To Branch P & L a/c 129600 By Goods sent to Branch a/c 120000
(Profit on sale at invoice price) (1/5 of `600000)
To Balance c/d (1/5 of `120000) 24000 By Abnormal Gain 24000
156000 156000
Goods Sent to Branch Account
` `
To Cochin Branch By Cochin Branch stock a/c 600000
Stock Adjustment a/c 120000 By Cochin Branch stock adj. a/c 2400
To Cochin Branch Stock a/c (Ret.) 12000
To Trading a/c 470400
602400 602400
Branch Debtors Account
` `
To Balance b/d 72000 By Bank (collection) 320000
To Branch stock a/c 360000 By Branch P & L a/c
Discount 6000
Bad Debts 4000 10000
By Branch Stock (Sales Returns) 8000
By Balance c/d 94000
432000 432000
4
Branch Profit & Loss Account for the year ending 31st December 20X1
` `
To Branch Expenses a/c 84000 By Branch Stock adj. a/c (GP) 129600
(60000 + 6000 + 18000)
To Discount 6000
To Bad Debts 4000
To Gen P & L a/c (NP) 35600
129600 129600
Ans. 4
(a) Journal Entry in the Books of Head Office
Date Particulars Dr. Cr.
2011
30th April Mumbai Branch Account 3000
Chennai Branch Account 70000
To Delhi Branch Account 15000
To Kolkata Branch Account 58000
(Being adjustment entry passed by head office in respect of inter
branch transactions for the month of April, 20X1)
Working Note :
Inter – Branch Transactions
Delhi Mumbai Chennai Kolkata
` ` ` `
(A) Delhi Branch
(1) Received goods 50000 (Dr.) 35000 (Cr) 15000 (Cr)
(2) Sent goods 45000 (Cr.) 25000 (Dr) 20000 (Dr)
(3) Received Bills receivable 20000 (Dr.) 20000 (Cr)
(4) Sent acceptance 35000 (Cr.) 25000 (Dr) 10000 (Dr)
(B) Mumbai Branch
(5) Received goods 20000 (Cr.) 35000 (Dr) 15000 (Cr)
(6) Sent cash 15000 (Dr.) 22000 (Cr) 7000 (Dr)
(C) Chennai Branch
(7) Received goods 30000 (Dr) 30000 (Cr)
(8) Sent cash and acceptances 30000 (Cr) 30000 (Dr)
(D) Kolkata Branch
(9) Sent goods 35000 (Dr) 35000 (Cr)
(10) Sent cash 15000 (Dr) 15000 (Cr)
(11) Sent acceptances 15000 (Dr) 15000 (Cr)
15000 (Cr) 3000 (Dr) 70000 (Dr) 58000 (Cr)
5
Ans. 5
Sydney Branch Trial Balancee (in Rupees) As on 31st March 2012
Conversion Rate per A$ Dr. Cr.
Plant & Machinery (cost) `18 36,00
Plant & Machinery Dep. Reserve `18 23,40
Debtors / Creditors `24 14,00 7,20
Stock (1.4.20 × 1) `20 4,00
Cash & Bank Balances `24 2,40
Purchase / Sales `22 4,40 27,60
Goods received from H.O. – 1,00
Wages & Salaries `22 9,90 22,00
Rent `22 2,64 1,20
Office expenses `22 3,96 80,86
Commission Receipts `22
H.O. Current A/c
78,70 80,86
2,18
Exchange loss (balancing figure) 80,86 80,86
Ans. 6
(i) Calculation of profit earned by the branch in the books of Jammu Branch
Trading Account and Profit and Loss Account
Particulars Amount Particulars Amount
` `
To Opening stock 220000 By Sales 1200000
To Goods received by Head Office 1100000 By Closing stock (Refer W.N.) 360000
To Expenses 45000
To Net Profit 195000
1560000 1560000
(ii) Stock reserve in respect of unrealized profit = `360000 × (20/120) = `60000
Working Note :
`
Calculation of closing stock at invoice price
Opening stock at invoice price 220000
Goods received during the year at invoice price 1100000
1320000
Less : IP of goods sold (960000) [1200000 × (120 / 150)]
{150 → 1200000}
{120 → 0}
Closing stock 360000

6
Ans. 7
(a) Debtors Method
Delhi Branch Account
20X1 ` ` 20X1 ` `
Jan 1 To Balance b/d Dec 31 By Bank
Stock 7000 Cash sales 17600
Debtors 12600 Cash from Debtors 28500 46000
Petty cash 200 19800
Dec 31 To Goods sent to By Goods sent to
Branch a/c Branch a/c
To Bank Returns to HO 1000
Salaries & Wages 6200 By Balance c/d stock 6500
Rent & Rates 1200 Debtors 9800
Sundry Exp. 800 8200 Petty cash 100 16400
To Balance being . 9400 63400
Profit carried to
(HO) P & L a/c
63400 63400
(b) Stock and Debtors Method

Branch Stock Account
` `
To Bal b/d 7000 By Sales
To Goods Sent to Branch a/c 26000 Cash 17500
To Branch Debts 500 Credit 28400 45900
To Branch P & L (GP) 19900 By Goods sent to Branch a/c return 1000
By balance c/d (stock) 6500
53400 53400
Delhi Branch Debtors Account
` `
To Balance b/d 12600 By Cash 28500
To Sales 28400 By Returns 500
By Allowance 200
By Discounts 1400
By Bad Debts 600
By Balance c/d 9800
41000 41000
7
Delhi Branch Expenses Account
` `
To Salaries & Wages 6200 By Brach P &L L a/c 10500
To Rent & Rates 1200
To Sundry Expenses 800
To Petty Cash Expenses (200–100) 100
To Allowance to customers 200
To Discounts 1400
To Bad Debts 600
10500 10500
Delhi Branch Profit & Loss Account
` `
To Branch exp. a/c 10500 By Cross profit b/d 19900
To Net profit to General P & L a/c 9400
19900 19900
(c) Branch Trading and Profit and Loss Account
` ` `
To stock 7000 By Sales :
To Goods sent from HO 26000 Cash 17500
Less : Returns to HO (1000) 25000 Credit 28400
To Gross profit c/d 19900 Less : Returns (500) 27900 45400
51900 By Closing stock 6500
To Salaries & Wages 6200 51900
To Rent & Rates 1200 By Gross Profit b/d 19900
To Sundry Exp. 800
To Petty Cash exp. 100
To Allowance to Customers 200
To Discounts 1400
To Bad Debts 600
To Net Profit 9400
19900 19900
8
Ans. 8
In the books of Head Office – XYZ
Kolkata Branch Account (at invoice)
` `
To Balance b/d By Stock reserve (opening) 6000
Stock 30000 By Remittances :
Debtors 18000 Cash sales 100000
Cash in Hand 800 Cash from Debtors 60000 160000
Furniture 3000 By Goods send to branch 32000
To Goods sent to branch (loading)
To Goods returned by branch 160000 By goods returned by 2000
(loading) 400 branch (Return to HO)
To Bank (expenses paid by HO) By Balance c/d
Rent 1800 Stock 28000
Salary 3200 Debtors (WN1) 16880
Stationary & printing 800 5800 Cash (800–600) 200
To Stock reserve (closing) 5600 Furniture 3000 – 300) 2700
To Profit transferred to General 24180
Profit & Loss a/c
247780 247780
Working Note :
Debtors Account
` `
To Balance b/d 18000 By Cash account 60000
To Sales account (credit) 60000 By Sales return account 960
By Discount allowed account 160
By Balance c/d 16880
78000 78000
Note : It is assumed that goods returned by branch are at invoice price.
9
Ans. 9
Trading and Profit and Loss a/c
For the year ended 31st March 2014
Head Branch Head Branch
Office ` Office `
` `
To opening stock 125000 By Sales 2379600 730000
To purchases 2150000 By Goods sent to branch 738000
To goods received from head 738000 By Closing stock 543300 81000
office 1385600 73000 3660600 811000
To Gross profit c/d (WN1) 3660600 811000 By Gross profit b/d 1385600 73000
To Office expenses 50000 4500

To Selling expenses 32000 3300
To Staff salaries 45000 8000
To Net Profit 1258600 57200
1385600 73000 1385600 73000
General P & L a/c
` `
To cl.st. res. (81000 × 80/180) 36000 By NP 1315800
To net profit 1279800
1315800 1315800
WN1 Gross profit
GP at HO
(1) In sales {180 → 2379600, 80 → (?)} = 1057600
(2) In GSTB {180 → 738000, 80 → (?)} = 328000 = 1385600
GP at Branch
In sales {200 → 730000, 20 → (1)} = 7300

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SHAH CLASSES INTER CA - ACCOUNTING

AS 1 “DISCLOSURE OF ACCOUNTING POLICIES

AS 11 “THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES”

Debtors Foreign Currency `

AS 12 “ACCOUNTING FOR GOVERNMENT GRANTS”

(iii) Interest amount to be capitalized

(iv) Journal Entry

31.5 To Bank 1875

4. Short term provisions

Solution to Q.3 page 76

2. Reserves and surplus

5. Cash and bank balances

10. Employee benefit expense

11. Finance cost

Q.3 Direct Method

Q.5 Cash from operating activities

WN1 Calculation of time ratio :

1/1/11 31/5/11 31/12/11

WN2 Calculation of sales ratio :

WN3 Bifurcation of Int on purchase consideration

1/1/11 31/5/11 30/06/11

Pre 5:1 Post

WN1 Calculation of Time Ratio

01/04/11 01/08/11 31/03/12

WN2 Calculation of sales ratio

WN3 Bifurcation of gross profit :

PRE 1:3 POST

WN1 Calculation of time ratio :

01/04/11 01/08/11 31/03/12

WN2 Calculation of sales ratio

WN4 Bifurcation of Int. to vendors

01/04/11 01/08/11 31/08/11

PRE 4:1 POST

01/04/11 01/08/11 31/03/12

01/04/11 01/08/11 31/03/12

WN3 Calculation of gross profit

WN1 Calculation of time ratio :

01/04/11 01/08/11 31/03/12

WN3 Bifurcation of Rent of office building

Towards sales promotion Balance

PRE 1:3 POST PRE 1 :2 POST

WN5 Bifurcation of Depreciation :

Depreciation on Balance (TR)

POST PRE POST

WN6 Bifurcation of Interest paid to vendors

01/04/11 01/08/11 30/09/11

Q.1 In the books of Mr. Rajat.

WN1 Calculation of no. of bonus shares

WN2 Calculation of no. of right shares & cost of right shares

shs subscribed shs renounced

Q.2 In the book of A Limited.

15.05.2011 By Bank A/c (WN2) – – 10,000

WN1 Calculation of cost of purchase on 1st April, 2011

WN2 Calculation of dividend received on 15th May 2011

WN3 Calculation of No. of Bonus shares

WN4 Calculation of no. of right shs & cost of right shs

Company offered = 500 shs

WN5 Calculation of Interim dividend

Weighted average cost of invst.