Accounts Ques Nov06

PAPER - 1 : ACCOUNTING QUESTIONS 1.

On 31st March, 2006 Kanpur Branch submits the following Trial Balance to its Head Offic Lucknow : Debit Balances Furniture and Equipment Depreciation on furniture Salaries Rent Advertising Telephone, Postage and Stationery Sundry Office Expenses Stock on 1st April, 2005 Goods Received from Head Office Debtors Cash at bank and in hand Carriage Inwards

Rs. in lacs 18 2 25 10 6 3 1 60 288 20 8 7 448

Credit Balances Outstanding Expenses Goods Returned to Head Office Sales Head Office

3 5 360 80 448

Additional Information : Stock on 31st March, 2006 was valued at Rs. 62 lacs. On 29th March, 2006 the Head Office despatched goods costing Rs. 10 lacs to its branch. Branch did not receive these goods before 1st April, 2006. Hence, the figure of goods received from Head Office does not include these goods. Also the head office has charged the branch Rs. 1 lac for centralised services for which the branch has not passed the entry. You are required to : (i)

Pass Journal Entries in the books of the Branch to make the necessary adjustments

(ii)

Prepare Final Accounts of the Branch including Balance Sheet, and

(iii) Pass Journal Entries in the books of the Head Office to incorporate the whole of the Bra Trial Balance. 2.

Khushi Udyog operates a general business and the firm\u2019s Trial Balance prepared at 3 was as follows: Particulars

Dr. (Rs.) Cr. (Rs.) Particulars

Dr. (Rs.) Cr. (Rs.)

Purchases : Cars

83,500

Debtors and Creditors

: Petrol

27,500

Bank

4,700

4,000

Cash

2,000

: Spare parts Capital

14,000

10,800

62,000 Freehold Garage Premises 42,000

Stock on 1.1.2005: Cars 9,000 : Petrol : Spare parts

2,800 400

Rates and insurance Sales

: Cars : Petrol

1,900 1,20,000 32,000

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2

Workshop wages Plant and Equipment

10,200

: Spare parts

7,000

4,700

: Repairs

Car salesmen\u2019s salaries 7,700

Petrol wages

pump

General expenses

6,300

Goodwill

Office wages

5,500

14,700

attendant\u2019s 3,100

Other information is as follows:

12,600 ______ 2,44,200

_______ 2,44,200

Cars Rs. 7,400; petrol Rs. 1,600; Spare parts Rs. 700. (3) No entries have been made for the following:

(4) Expenses which cannot be specifically allocated to one activity are to be apportioned: 60% to Cars; 10% to Petrol; 10% to Spare parts; 20% to Repairs.

(5) General expenses accrued amount to Rs. 300, and a provision is to be made of Rs. 500 f car salesmen\u2019s commission.

Prepare Trading and Profit and Loss Account, preferably in columnar form, to show clearly profit or loss in each of the four main areas of business activity for the year ended 31.12.2005 Also prepare the Balance Sheet at that date. 3.

ABC Ltd. sells goods on Hire-purchase by adding 50% above cost. From the following particu prepare Hire-purchase Trading account to reveal the profit for the year ended 31.3.2006: Rs. 1.4.2005

Instalments due but not collected

10,000

1.4.2005

Stock at shop (at cost)

36,000

1.4.2005

Instalment not yet due

18,000

31.3.2006

Stock at shop

40,000

31.3.2006

Instalments due but not collected

18,000 1,32,000

Goods purchased

1,20,000

Cash received from customers

1,21,000

Goods on which due instalments could not be collected were repossessed and valued at 30%

4.

(a) On 1 st April, Madan Ltd. purchased 12% Debentures in Mohan Ltd. for Rs.7,50,000. The

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3

5.

6.

An equipment is leased for 3 years and its useful life is 5 years. Both the cost and the fair value

(i)

State with reason whether the lease constitutes finance lease.

(ii)

Calculate unearned finance income.

The following is the Balance Sheet of Sanjay, a small trader as on 31.3.2005: Liabilities Capital Creditors

Rs. Assets 200 Fixed Assets 50 Stock Debtors Cash in Hand Cash at Bank 250

(Figures in Rs. \u2018000) Rs. 145 40 50 5 10 250

A fire destroyed the accounting records as well as the closing cash of the trader on 31.3.20 However, the following information was available :

Debtors \u2013 1 month Creditors \u2013 2 months

(i)

Bank and cash transactions :

For your exercise, assume cash destroyed by fire is written off in the Profit and Loss Account.

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4

7.

Following is the Balance Sheet of Mr. Brown as at 31st March, 2005. He has filed a petition in court for being declared as insolvent: Liabilities

Rs.

Capital

Assets

18,000

Bank loan (secured by first

Rs.

Goodwill

5,000

Machinery

20,000

Building

1,15,000

charge on building)

80,000

Loan from Finance Co.,

30,000 Investment in shares

5,000

(secured by second charge

Furniture

7,000

on building)

Stock

9,000

Sundry creditors

59,000

Sales tax payable

8,000

Good

Loan from wife

5,000

Doubtful

8,000

Bad

2,000

_______

Debtors:

Cash and bank

2,00,000

14,000 24,000 15,000 2,00,000

Mr. Brown estimated that except the following, all tangible assets are realisable:

(iii) Non-moving stock Rs. 3,000. (iv) Useless furniture Rs. 4,000.

(v) Mr. Brown started his business on 1.4.2001. His household expenses upto 31.3.2005 is R 48,000. His private Life Insurance Policy matured for Rs. 30,000 on 31.3.2005.

Based on the above information, prepare Statement of Affairs of Mr. Brown as on 31.3.2005 Deficiency Account. 8.

(a) On 1st December, 2005, Vishwakarma Construction Co. Ltd. undertook a contract to

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5

covered by any insurance policy. In April, 2006 the debtor became a bankrupt. Can the

9.

M/s X and Co. is a partnership firm with the partners A, B and C sharing profits and losses in ratio of 3:2:5. The balance sheet of the firm as on 30 th June 2006 was as under:

Liabilities

Balance Sheet of X and Co. as on 30.06.2006 Rs. Assets

A’s capital A/c

1,04,000

B’s capital A/c

76,000

Land

1,00,000

Building

2,00,000

C’s capital A/c

1,40,000 Plant and machinery

Long term loan

4,00,000

Bank overdraft

44,000

Trade creditors

Rs.

Investments

3,80,000 22,000

Stock

1,16,000

1,93,000 Sundry debtors

1,39,000

9,57,000 9,57,000 It was mutually agreed that B will retire from partnership and in his place D will be admitted partner with effect from 1st July, 2006. For this purpose, the following adjustments are to be m (a) Goodwill of the firm is to be valued at Rs. 2 lakh due to the firm’s locational advantage the same will not appear as an asset in the books of the reconstituted firm. (b) Buildings and plant and machinery are to be valued at 90% and 85% of the respective

(c) In the reconstituted firm, the total capital will be Rs. 3 lakh, which will be contributed by and D in their new profit sharing ratio, which is 3:4:3. (d) The surplus funds, if any, will be used for repaying bank overdraft.

(e) The amount due to retiring partner shall be transferred to his loan account. You are required

10. On 1st January, 2005, Shiwalik Breweries Limited had Rs. 8,00,000 5% Debentures, outstand in its books, redeemable on 31st December, 2005.

The interest on debentures was paid by the company every year on 31 st December and inter on War Loan was received also on 31 st December annually.

On 31st December, 2005, the outside investments were realised at 98 per cent and all outstand Debentures were redeemed on that date. You are required to write up the necessary Ledger Accounts for the year 2005 in the books o

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6

11. The following information has been extracted from the books of account of Jay Ltd. as at March, 2006: Dr. (Rs.’000) Administration Expenses

240

Cash at Bank and on Hand

114

Cr. (Rs.’000)

Cash Received on Sale of Fittings

5

Long Term Loan

35

Investments

100

Depreciation on Fixtures, Fittings, Tools and Equipment (1st April, 2005)

130

Distribution Costs

51

Factory Closure Costs

30

Fixtures, Fittings, Tools and Equipment at Cost

340

Profit & Loss Account (at 1st April, 2005) Purchase of Equipment Purchases of Goods for Resale

40 60 855

Sales (net of Excise Duty)

1,500

Share Capital (50,000 shares of Rs. 10 each fully paid) Stock (at 1st April, 2005)

500 70

Trade Creditors Trade Debtors

40 390 2,250

_____ 2,250

Additional Information:

(1) The stock at 31st March, 2006 (valued at the lower of cost or net realizable value) w estimated to be worth Rs. 1,00,000.

(2) Fixtures, fittings, tools and equipment all related to administration. Depreciation is charged

(3) During the year to 31st March, 2006, the Company purchased equipment of Rs. 60,000. It

(4) The average Income tax for the Company is 50%. Factory closure cost is to be pesumed an allowable expenditure for Income tax purpose. (5) The company proposes to pay a dividend of 20% per Equity Share.

Prepare Jay Ltd.’s Profit and Loss Account for the year to 31st March, 2006 and balance Sheet as

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7

12. The following are the Balance Sheets of A Ltd. and B Ltd. as on 31st December, 2005 : Liabilities

A Ltd.

B Ltd.

Rs.

Rs.

Share Capital

Assets Fixed Assets

A Ltd.

B Ltd.

Rs.

Rs.

7,00,000 2,50,000

Equity Shares of Investment: Rs. 10 each 6,00,000 3,00,0006,000 Shares of B Ltd.80,000

−

10% Pref. Shares 5,000 Shares of A Ltd. − 80,000 of Rs. 100 each 2,00,000 1,00,000Current Assets: Reserves and 3,00,000 2,00,000Stock 2,40,000 3,20,000 Surplus Secured Loans:

Debtors

12% Debentures 2,00,000 1,50,000 Bills Receivable Current Liabilities:

Cash at Bank

3,60,000 1,90,000 60,000

20,000

1,10,000

40,000

Sundry Creditors 2,20,000 1,25,000 Bills Payable

30,000

25,000

15,50,000 9,00,000

15,50,000 9,00,000

Fixed Assets of both the companies are to be revalued at 15% above book value. Stock in Trade

After the above transactions are given effect to, A Ltd. will absorb B Ltd. on the following term (i) (ii)

8 Equity Shares of Rs. 10 each will be issued by A Ltd. at par against 6 shares of B Ltd.

10% Preference Shareholders of B Ltd. will be paid at 10% discount by issue of 10% Preference Shares of Rs. 100 each at par in A Ltd.

(iii) 12% Debentureholders of B Ltd. are to be paid at 8% premium by 12% Debentures in A L issued at a discount of 10%.

(iv) Rs. 30,000 is to be paid by A Ltd. to B Ltd. for liquidation expenses. Sundry Creditors o Ltd. include Rs. 10,000 due to A Ltd. Prepare : (a) Absorption entries in the books of A Ltd.

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8

To Underwriting Commission

26,000

To Preliminary Expenses

28,000

To Audit Fees

45,000

To

Loss on Sale of Investments 11,200

To Net Profit

3,90,000

_______

11,00,000

11,00,000

Prepare a Statement showing allocation of pre-incorporation and post-incorporation profits considering the following informations: (i) (ii)

G.P. ratio was constant throughout the year.

Sales for January and October were 1½ times the average monthly sales while sales f December were twice the average monthly sales.

(iii) Bad Debts are shown after adjusting a recovery of Rs. 7,000 of Bad Debt for a sale made July, 2002.

14. A company made a public issue of 1,25,000 equity shares of Rs. 100 each. Rs. 50 is payable on

A, B, C and D had also agreed on “firm” underwriting of 4,000, 6,000, Nil and 15,000 sha respectively.

The total subscriptions, excluding firm underwriting, including marked applications were fo 90,000 shares. Marked applications received were as under : A:

24,000

B:

12,000

C:

20,000

D:

24,000

Ascertain the liability of the individual underwriters and also show the journal entries that would make in the books of the company. All workings should form part of your answer. 15. The following is the Balance Sheet of Confidence Builders Ltd., as on 30th September, 2006: Liabilities

Rs.

Assets

Rs.

Share Capital :

Land and Buildings

1,20,000

Issued : 11% Preference

Sundry Current Assets

3,95,000

Shares of Rs. 10 each

1,00,000

Profit & Loss Account

38,500

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9

Mortgage loan was secured against Land and Buildings. Debentures were secured by a floating

Prepare the Accounts to be submitted by the Receiver and the Liquidator. 16. (a) From the following information calculate the amount of Provisions and Contingencies prepare Profit and Loss Account of Zed Bank Ltd. for the year ended 31.3.2006: Interest and Discount (Includes interest accrued on investments) Other Income Interest expended Operating expenses Interest accrued on Investments Additional Information: (a) Rebate on bills discounted to be provided for (b) Classification of Advances: (i) Standard assets (ii) Sub-standard assets (iii) Doubtful assets−(fully unsecured)

(iv) Doubtful assets – covered fully by security Less than 1 year More than 1 year, but less than 3 years More than 3 years (v) Loss assets

(Rs. in ’000) 8,860 220 2,720 2,830 10 30 4,000 2,240 390 100 600 600 376

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10

17. From the following information as on 31st March, 2006, prepare the Revenue Accounts of S Bhima Co. Ltd. engaged in Marine Insurance Business: Particulars

Direct Business (Rs.)

I.

24,00,000

3,60,000

Receivable – 1st April, 2005

1,20,000

21,000

– 31st March, 2006

1,80,000

28,000

Premium paid

2,40,000

Payable – 1st April, 2005 – 31st March, 2006

–

–

20,000

–

42,000

Claims : Paid

16,50,000

Payable – 1st April, 2005 – 31st March, 2006

1,25,000

95,000

13,000

1,75,000

22,000

Received

–

Receivable – 1st April, 2005

–

9,000

–

12,000

On Insurance accepted

1,50,000

11,000

On Insurance ceded

–

14,000

– 31st March, 2006 III.

(Rs.)

Premium : Received

II.

Re-insurance

1,00,000

Commission :

Other expenses and income: Salaries – Rs. 2,60,000; Rent, Rates and Taxes – Rs. 18,000; Printing and Stationery – Rs.

Balance of Fund on 1st April, 2005 was Rs. 26,50,000 including Additional Reserve of R 3,25,000. Additional Reserve has to be maintained at 5% of the net premium of the year.

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11

(iv) Consolidated fund in context of government accounting.

(ix) Computation of ‘premium income’; ‘claim expenses’ and ‘commission expenses’ in case an insurance company. (x)

Characteristics of ‘Double accounts system of presentation of financial information’.

21. Theory questions based on Accounting Standards

22. Questions based on practical application of Accounting Standards: (i)

A Limited company charged depreciation on its assets on the basis of W.D.V. method from

Discuss as per AS 6, when such changes in method of can be adopted by the company an what would be the accounting treatment and disclosure requirement. (ii)

X Limited has recognized Rs. 10 lakhs, on accrual basis, income from dividend on units of

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12

(iv) A limited company created a provision for bad and doubtful debts at 2.5% on debtors preparing the financial statements for the year 2005-2006. Subsequently on a review of the credit period allowed and financial capacity of the

(v) How would you deal with the following in the annual accounts of a company for the y ended 31st March, 2006 ? The company has to pay delayed cotton clearing charges over and above the negotiated

(vi) How would you deal with the following in the annual accounts of a company for the y ended 31st March, 2006 ? The company has obtained Institutional Term Loan of Rs. 580 lakhs for modernisation and

(vii) A Ltd. purchased fixed assets costing Rs. 3,000 lakhs on 1.1.2005 and the same was fully

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13

Probability In respect of five cases (Win) Next ten cases (Win)

100% 60%

Loss (Rs.)

− −

Lose (Low damages)

30%

1,20,000

Lose (High damages)

10%

2,00,000

Remaining five cases

−

Win

50%

Lose (Low damages)

30%

1,00,000

Lose (High damages)

20%

2,10,000

Outcome of each case is to be taken as a separate entity. Ascertain the amount of contingent loss and the accounting treatment in respect thereof. (x) Bottom Ltd. entered into a sale deed for its immovable property before the end of the year.

SUGGESTED ANSWERS/HINTS 1.

(i)

Books of Branch Journal Entries Dr.

(Rs. in lacs) Cr.

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14

To Head Office Expenses To Net Profit Transferred to Head Office A/c

1 24 72

72

Balance Sheet as on 31st March, 2000 Liabilities Rs. in lacs Assets Rs. in lacs Head Office 80 Furniture & Equipment 20 Add :Goods in transit 10 Less : Depreciation 2 18 Head Office Stock in hand 62 Expenses 1 Goods in Transit 10 115 Debtors Net Profit 24 20 Outstanding Expenses 3 Cash at bank and in hand 8 118 118 (iii)

Books of Head Office Journal Entries

Branch Trading Account To Branch Account (The total of the following items in branch trial balance debited to branch trading account Rs. in lacs Opening Stock 60

Dr.

Rs. Dr. 355

Rs. Dr. 355

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15

Sundry Office Expenses Head Office Expenses

1 1 2

2. Dr.

Branch Profit & Loss Account To Profit and Loss Account (Net profit at branch credited to (general) Profit & Loss A/c)

Dr.

24

Branch Furniture & Equipment Branch Stock Branch Debtors Branch Cash at Bank and in Hand Goods in Transit To Branch

Dr. Dr. Dr. Dr. Dr.

18 62 20 8 10

Branch To Branch Outstanding Expenses

Dr.

3

Khushi Udyog Departmental Trading and Profit and Loss Account for the year ended 31st December, 2005

24

118

3

Cr.

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16

Balance Sheet of Khushi Udyog as at 31st December, 2005 Liabilities

Rs.

Assets

Rs.

Capital (Opening)

62,000

Goodwill

12,600

Add: Profit from cars

15,700

Freehold Garage Premises

42,000

Add: Profit from spare parts

350

Add: Profit from repairs

Plant and Equipment

2,650

Less: Loss from petrol

Less: Depreciation

(1,000) 79,700

Creditors

10,800

7,000 700

6,300

Stock (Rs. 7,400 + 1,600 + 700) 9,700 Debtors

14,000

Outstanding: General expenses

300

Bank

4,700

Car salesmen’s commission

500

Cash

2,000

91,300

91,300

Working Notes: (1) Petrol used for demonstration run will be treated as selling expenses of Car department sales of Petrol department.

(2) Spare parts used in repairs Rs. 750 will be treated as direct expenses of Repairs departm and sales of Spare parts department.

(3) Repairs on car subsequently sold Rs. 2,400 will be treated as direct expenses of Ca department and sales of Repairs department. (4)

Apportionment of Common Expenses Expenses (i)

Basis

Total Cars (Rs.) (Rs.)

General Expenses6 1 : 1 : 2 6,600*

Petrol Spare partsRepairs (Rs.) (Rs.) (Rs.)

3,960 660

660

1,320

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17

Alternatively, Hire Purchase Trading Account can be prepared in the following manner:

Dr.

Hire Purchase Trading Account for the year ended 31st March, 2006

Cr. Rs. Rs. 1.1.2005 To Hire purchase stock 18,000 1.1.2005 By Stock reserve (1/3 of Rs.6,000 1.1.2005 To Hire purchase debtors 10,000 18,000) to To Goods sold on hire 1,74,000 1.1.2005 By Cash (Rs. 1,21,000 +Rs. 2,800) 1,23,800 31.3.2006 purchase to To 500 31.3.2006By Goods sold on hire Cash (Overhauling purchase 58,000 charges) 31.3.2006 To Stock reserve 20,000 (1/3 of Rs. 1,74,000) To Profit and loss account 43,300 31.3.2006 By Hire purchase stock 60,000 (Transfer of profit) By Hire purchase debtors 18,000 _______ 2,65,800 2,65,800

Working Notes:

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18

4.

Goods Repossessed account

Dr.

Cr.

Rs. To Hire purchase debtors 3,000 _____

Rs. By Hire purchase trading account (W.N. 5) 1,600 Balance c/d (W.N. 5)

By

3,000 To Balance b/d

1,400

To Cash account (expenses)

500

To

900

5.

Profit on sale

1,400 3,000

By Cash account

2,800

_____

2,800

Rs.



100 

2,800

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19

(ii) Calculation of unearned finance income Rs.

Gross investment in the lease [(Rs.1,08,552∗ × 3) + Rs. 40,000] 3,65,656 Less: Cost of the equipment Unearned finance income

3,00,000 65,656

Note: - In the above solution, annual lease payment has been determined on the basis that the present value of lease payments plus residual value is equal to the fair value (cost) the asset. 6.

Books of Sanjay Trading and Profit & Loss A/c for the year ended 31.3.2006 (Rs. ‘000)

(Rs. ‘000)

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20

By Assets

* balancing figures

305

720

–

By Cash Destroyed

10*

By Balance c/d

– 305

225 20 720

Other computations (1) Debtors Opening balance

= Rs. 50,000

Closing balance

= Rs. 50,000 + 20%= Rs. 60,000

Credit Sales

= Rs. 60,000 × 12 = Rs. 7,20,000

Total Sales

= 7,20,000/80%

Cash Sales

= Rs. 9,00,000 × 20% = Rs. 1,80,000

= Rs. 9,00,000

= Rs. 1,20,000

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21

30,000 Creditors partly secured as per List

Book debts as per List F

C

30,000

Good

Less: Surplus carried from List B

30,000

Balance

−

−

8,000 Preferential creditors payable

14,000

14,000

Doubtful

8,000

2,400

Bad

2,000

−

85,000

55,400

Surplus from securities in

in full as per List D

the hands of fully secured

Sales tax payable

8,000

Less: Deducted as per contra

8,000

−

Creditors (as per contra)

10,000 65,400

Less: Preferential creditors as per contra

8,000 57,400

Add: Deficiency as

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22

Rs.64,99,000 × 100= 67% Contract work in progress = 97,00,000

Proportion of total contract value recognized as turnover as per para 21 of AS 7 (Revised) Construction Contracts. = 67% of Rs.85,00,000 = Rs.56,95,000.

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23

Balance Sheet of M/s X and Co. as at 1st July,2006 Liabilities

Rs.

Capital accounts: A

90,000

Assets

Rs.

Land Building

Rs. 1,00,000

2,00,000

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24

Dr.

2005 Dec. 31

Sinking Fund Account Rs.

2005 To Sinking Fund Jan. 1 By Balance b/d Investment (3% war loan)3,200 Dec. 31

Cr. Rs. 7,49,000 19,800

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25

(2) (3)

Investments Current assets, loans and advances: (a) Inventories (b) Sundry debtors (c) Cash and bank balances

181 100 100 390 114

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26

NOTES ON ACCOUNTS FOR THE YEAR ENDED 31ST MARCH, 2006 Significant Accounting Policies:

(a) Basis for preparation of financial statements: The financial statements have been prepared

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10,000 fully paid shares at 33 paise Directors of Bank each Overdraft paid

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Committee prescribed the new formats for the financial Insurance Companies i.e. = 35% of Rs. [(9,050statements – (2,720 +of 2,830 + 1,506)] preparation of Financial Statements and Auditor’s Report of Insurance Companies Regulations, = account 35% of Rs. 2000. Therefore, the above revenue can1.994 be prepared as: = Rs. 697.90

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Change in–provision Schedule 4 paid for unexpired risk Commission (Rs. 26,93,250 Operating expenses – Rs. 26,50,000) related to insurance business Direct Employees’ remuneration and welfare benefits

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acquires fulland knowledge and becomes efficient in than handling work. Accounting work is replacement enterprises cost of old interests work written in5joint off ventures the (other balance payments for instruments Cash (b) Cost Royalities, of reconstruction fees, commission = Rs. crores and other –and Rs. revenue; 10 lakhs = Rs. 4.9the crores done efficiently. capitalised) considered to cash equivalents and those for dealing or trading purposes); Amount (c) of Refunds New work of income-tax. to be capitalized = 4.9 crores – 3.75 crores = Rs. 1.15 crores.

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certain capital receipts by for way of deposits, advances and expenditure therefrom areat consolidated has been facilitated otherwise fund by the of agreed, India existence the the of underwriter’s Central separate books. liability Similarly is and determined aaudit separate of the without consolidated various taking books fund into of for events transactions, are also not the supported information by vouchers relatingGovernment or to other each class documents of transaction in most of is the available cases. So one it is classified and accounted under “Consolidated fund”. account each prime state the entry and number Union can of be Territory. conducted taken The simultaneously two up happenings ‘firm’ main by sub-divisions him, byi.e. a team the under underwriter of audit the consolidated staff. is obligedthe fund to take are desirable place. to maintain ashares Diary to record of the day. This Diary becomes up : Revenue A/c and Capital A/c.keeping. source document for record

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stock are in accordance with the regulations by the Securities the is account equity to credited issue Companies any, necessary shares shares and isexchange, termed with the issued amount at Act, the class aas discount, original 1956). by his or (not aissued ‘capital classes company There exceeding amount a company of account’. is directors to no ofits the double capital may employees amount Allor issue entries entry introduced employees of sweat or involved uncalled relating directors equity by to the whom in to capital) the shares at introduction partners amade preparation such discount ifof creditors’ equity into a class or of business. shares of fresh for of shares capital are It is t and Board India in behalf. But in case ofpresented company whose equity be credited drawings, consideration already liquidator’s to beExchange claims/claims issued, issued. interest, subsequently statement other if the of profit than preference following of of account. cash etc. with are for extra shareholders conditions made providing Itthis capital is only in this aare introduced know-how statement can’t account. fulfilled, bethe satisfied or by The though namely:making the balance partners with available in the this or available debited in capital rights the form in with amount. account, the ofthe an shares are not listed on any recognised stock exchange, the sweat equity are amount therefore, nature account. Preference of ofintellectual capital goes shareholders onpermanently fluctuating. property would The withdrawn rights system beor called value by is, the upon therefore, additions partners. to contribute called by No whatever other as (not ‘fluctuating adjustments exceeding name shares called. capital the areamount made system in issued in The accordance the guidelines as may be prescribed. this as account. yet uncalled partner’s on thewith shares) current for account paying is maintained of creditors. for making all entries relating to interest, share of profit, drawings, etc. The balance in this account will go on fluctuating but the balance of the capital account will remain fixed. That is why the system is termed as ‘fixed capital system’.

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from the commencement of winding up towhere the close ofhas winding up. written IfSuch winding up of period not exceeding 18 months. In the case of term loans, those where instalments ofnot external which 18 months. does auditors In notthe carry or case the more ofRBI term than inspectors loans, normal those but risk the attached amount instalments to the not business. of been principal have an off, asset remained wholly is or a company is a not concluded within one yearshould after its commencement, Liquidator’s principal are overdue for period exceeding one year as sub-standard. In NPA overdue partly. as discussed for period earlier. exceeding 18 months beshould treatedbe astreated doubtful. A loan classified statement of account pursuant to section 551 of the Companies Act, 1956 (Form No. other words, such will have inherent well-defined credit weaknesses that jeopardise the as doubtful has all an theasset weaknessses in that classified as sub-standard with added 153) is to be filed by a Liquidator within a period of two months of the conclusion of liquidation of the debt are characterised by the distinct possibility that characteristic that theand weaknesses make collection or liquidation in full, onthe thebank basiswill ofone year and thereafter the winding up is concluded at intervals of notimprobable. more than one sustain some loss,facts, if until deficiencies are corrected. currently known conditions andnot values, highly questionable and year or at such shorter intervals, if any, as may be prescribed.

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the specified term years. In thenot case general insurance business, claim arises only made in respect of of advances and forofthe purpose of presentation ofaadvances in the when thesheet. loss occurs or the liability arises. balance

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disposal proceeds and the net book value should be charged or credited to profit undertakings exceptions. submitted an entire toThe State class (for Net example of Governments Revenue assets Electricity orAccount the by selection electricity Companies). resembles should companies be The done appropriation double generally on aprofit accounts systematic follow portion the basis. ofthe principle the is The not Profit a of & not recur in future frequently. These would also include material adjustments necessitated (iii) to (c) The Capital accumulated Account (Receipts depreciation and should Expenditure not bewith on credited capital to account) andsystem loss account. and loss except that to the extent toiswhich such in aaccounts loss is related to increase special Loss double basis Account accounts method of account selection ofof asystem. company. keeping should It accounts, may The bebe Balance disclosed. noted rather Sheet that a for special presenting presented method of two presenting parts to namely theaccounts shareholders, Capital which by circumstances, which though related to previous periods are determined inan the current (iv) and (d) The General net increase Balance in Sheet. book value should be credited to a revaluation reserve account. which has not been subsequently reversed or utilised may be charged directly to are Account electricity kept and under companies General the normal Balance normally double Sheet. follow entry The Schedule system. Capital Under Account VI of the this shows Companies system, the separate total Act, amount 1956. accounts of capital in period. Some examples of extraordinary items may be the sale of a signficant part of the that account. respect raised and of capital its sale sources and and also are the prepared manner and in order extent toshow which clearly thisof capital the capital has been receipts and business, the of anrevenue investment not acquired withto the intention resale etc. The applied nature the in the manner acquisition in of extraordinary fixed the amounts assets for thereof the are purpose have been of carrying invested. onThe the final General prepared and amount of which each item separately disclosed sobusiness. that accounts usersThe of financial under the balance sheet double includes accounts the other system items. normally consist of : statements can evaluate the relative significance of such items and their effect on the current operating results. It may be noted that income or expenses arising from the ordinary

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total enterprise at an the balance additional sheet date segments and provisions should bedoubtful identified debts as reportable due from such segments, equity paragraph necessary shares for 27, (as may understanding per betransacting paragraphs designated of15 as the a and reportable financial 22 of AS statements’. segment 20)for and the despite An weighted example its size average of at such the discretion number a of (i) parties the name ofrevenue, the related party; even parties ifmanagement theywould at dowhich that notbe meet date; the 10issued percent thresholds specified in paragraph 27 ofplace the equity standard, of the disclosure equity shares of an would the indication enterprise. be that on Ifthe that the transfer conversion segment of is a major not of all designated the asset dilutive hadas taken potential a reportable at an (ii) aatdescription of theofrelationship betweenrevenue the parties; until least 75 percent the total enterprise is included in reportable segment, amount shares into materially it equity should shares. different be included Dilutive from as that an potential unallocated obtainable equityreconciling on shares normal should commercial item. be deemed terms. to segments. have been (iii) a description of the nature of transactions; (iv) volume of the transactions either as an amount or as an appropriate proportion;

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presentation of financial so that they may give athe true and fair The equity by applied in be situations showing available shares to determine the against where ofgrant thean enterprise. which accounting as enterprise astatements deduction such deferred income. The is incurring from assumed tax the This asset gross losses. proceeds results can value Deferred be infrom aof realized. difference these assets tax assets issues This between concerned isview. should a matter the in be taxable arriving of ostensible purpose of the standard setting bodies is to there promote the dissemination of timely considered at and recognized judgement their the book accounting and tovalue. have carried the been income. conclusion Where forward received the Such would grant only from differences to related depend the the issue extent toon are aof specific facts that classified shares and fixed atcircumstances is fair into reasonable asset value. Permanent equals The certainty ofthe and difference each whole, Timing case. that or and useful financial information to investors and certain other parties having an interest in between virtually differences. sufficient the future whole, number The taxable tax of of effect the shares income cost of the of issuable will the timing be asset, available and differences the the asset number against should is known ofwhich shares beas shown such Deferred thatdeferred in would theTax balance have tax and asset been issheet can companies’ economic performance. The setting of has therealistic following issued at included be arealized. nominal at as fair tax value. Reasonable value expense Alternatively, should incertainty the be statement treated government can as beof an demonstrated profit issue grants and ofaccounting equity loss related by and providing shares to asstandards depreciable deferred forrobust no tax consideration. fixed and assets assets or asmay advantages: be treatedtax deferred estimates of asprofits liabilities, deferred for income the in the future. balance whichAshould company sheet. be recognised with a trackin record the profit of losses and loss withstatement no on a systematic immediate visibility and rational of a turnaround basis over should the useful not recognise life of the a deferred asset, i.e., tax such asset grants as a matter should of be allocated prudence. Intothe income case of over an unabsorbed the periods and depreciation in proportion and in carry which forward depreciation losses under on those the tax assetsthe laws, is charged. recognition Grants principles relatedare to more non-depreciable stricter, i.e.assets deferred should tax asset be credited shouldto becapital reserve under recognized only this to method. the extentHowever, that thereifis a grant virtualrelated certainty to asupported non-depreciable by convincing asset requires evidence the fulfillment that sufficient future of certain taxable obligations, income will the grant be available shouldagainst be credited which tosuch income deferred over the taxsame asset period can be realized. over which The theexistence cost of meeting of unabsorbed such obligations depreciation is charged or carry toforward income.ofThe losses deferred under income tax lawsbalance is strong should evidence be separately that futuredisclosed taxable income in the financial may not be statements. available.

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of disclosed, financial if statements an enterprise of companies has unabsorbed situated depreciation in to different orparts carry offorward the of should losses and also of representing current tax for the period. Deferred tax assets and liabilities risks and returns them. that are Therefore, different the from choice those between of components different operating alternative other accounting economic change from one method of providing depreciation another should beinworld made only if be the (e) recommend exchange control regulations; and different under companies laws. situated inbe the same country. However, it enterprise, should in this disclosed under amethod separate heading in balance sheet of the separately environments. treatments may Factors that should difficult. considered inor identifying geographical segments adoption oftax the newbecome is required bythe statute for compliance withbe annoted accounting (f) respect the underlying currency risks. that differences the institutions, from current assets andin current liabilities.traditions and legal systems from one include: country to another give rise to differences in accounting standards practised in different countries.

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material method performance necessary effect depreciation to revise is in included the ancurrent estimate isinmade the gross in byright aan subsequent book should enterprise. value, be disclosed period e.g., Asestimates per an if increase there the and quantified. is aparagraph, in change capacity. Any inchanged the depreciation Hence, change in the the 2005-2005. 15thof June, Subsequently 2006. Hence, inperiod, the 2005 they torevised receive the payment is said established based on the on 15th June,in should given accounting case, be recalculated Repairs estimate on which amounting which inthe accordance estimate expected Rs. 58% lakhs was with to have based. and the new Partial a material Revision method replacement effect from offrom an in the estimate, later ofdate roof periods of tiles by the its should asset should nature, be also circumstances 2006. As per and the wants above toiscreate mentioned provision. paragraphs, As income per AS-5 (Revised), dividend this on change units ofcoming in to use. charged does be disclosed. not The to bring difference theand adjustment in the statement. amount, within being the Rs. definitions 10 lakhs ofor afinancial prior surplus forperiod substantial fromitem retrospective or improvement an extraordinar estimate mutual is profit funds neither should a loss prior be period recognised item by nor Xdeficiency an Ltd. extraordinary inincurred the item. year ended 31st March, to recomputation the item electrical [para 21 of writing should AS 5 (Revised) system be adjusted which on Net in will the Profit profit increase or and Loss efficiency loss for account the Period, should in the Prior beyear capitalized. Period suchItems change and is 2007. effected. in Changes Since Accounting such a change Policies]. amounts to a change in the accounting policy, it should be properly quantified and disclosed. In the question given, the surplus arising out of retrospective recomputation of depreciation as per the straight line method is Rs. 12.23 lakhs (Rs. 32.23 lakhs – Rs. 20 lakhs). This should be written back to Profit and Loss Account and should be disclosed accordingly.

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period time’. Ain substantial period of time primarily depends onor the facts statements charges the renovation adoption costofof which that is ofof affected plant are asset. a different the by Other nature such accounting borrowing change of interest policy is costs necessary have isshould required been as be excluded per recognized by AS statute 1,twelve from AS 2as and the for an valuation compliance AS expense 5.and Therefore, in of the with closing an machinery will take substantial period of time (i.e. more than months). Regarding circumstances of each case. ordinarily, aannual period of months is considered accounting the stock period andunder machinery unlike in which mentioned standard preceding they are or note years. ifincurred. it should is However, considered Had the be Borrowing given company that the costs the continued change should would accounts. the betwelve accounting expensed result in except a practice more where appropriate followed they purchase of additional assets, the nature of in additional assets has also been considered as as substantial of time unless shorter or longer period justified basis of presentation earlier, are directly the value attributable ofperiod the of financial closing tostock acquisition, statements as awell of as construction an profit enterprise. before or tax production Therefore forcan thebe year the of qualifying change wouldon have inthe the asset. been the facts circumstances of the case. method higher by ofand Rs. stock 7.60 valuation lakhs."is justified in view of the fact that the change is in line with the recommendations of AS 2 (Revised) ‘Valuation of Inventories’ and would result in more appropriate preparation of the financial statements. As per AS 2, this accounting policy adopted for valuation of inventories including the cost formulae used should be disclosed in the financial statements.

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enterprise’s assumed to be monetary non-qualifying items at assts rates ondifferent the basisfrom thatthose the renovation at which they and were installation initially ofrecorde additional during the assets period,will or reported not take substantial in previous period financial of time. statements, In thatshould case, the be recognized entire amount as of interest,orRs. income expenses 52.20 lakhs in the will period be recognized in which they as expense arise. Thus in theexchange profit and differences loss account arising for on year endedof repayment 31st liabilities March,incurred 2006. for the purpose of acquiring fixed assets are recognized as income or expense.

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It is clear that significant risk and rewards of hadexpected passed before the sheet providing for loss does not arise. The probability of winning ofof next ten cases is Therefore, thecontingent better approach will be to overall loss Rs.balance 9,20,000 = Rs. = 36,000 Rs. 30,000 +disclose Rs. +ownership 20,000 Rs. the 42,000 date. Further the+ registration post the confirms the conditionifofthe sale at the 60% 56,000 and for × remaining cases As persheet ASliability. 29, we make a provision loss is (Rs. 10 Rs.five 72,000 ×is5)50%. as balance contingent Rs. = 56,000 Rs. 72,000 balance sheet date asdoes per=AS probable. As the loss not4. appear to be probable and the possibility of an outflow of resources embodying economic benefits is not remote rather there is reasonable possibility of loss, therefore disclosure by way of note should be made. For the purpose of the disclosure of contingent liability by way of note, amount may be calculated as under: