Financial-Accounting-II.pdf

ACADEMIC YEAR: 2016 –  2016 – 2 2017

REGULATION CBCS - 2012

UCP 21 –  FINANCIAL  FINANCIAL ACCOUNTING UNIT-1 –  BRANCH  BRANCH ACCOUNTS Type: 80% Theory  – 20% Problem Question & Answers PART –  A ANSWERS 1. Wha What is is br branch anch?? (Nov –  ov – 2014, 2014, April-20 April-2010) 10) The word   ‘branch’ is any subordinate division of a business, subsidiary shop, offi office ce etc. etc. Busi Busine ness ss is carr carrie ied d out out in diff differ eren entt area areass scat scatte tere red d over over a larg largee terr territ itor ory. y.

2. What What is mean meantt by Invoi Invoice ce price price method method?? (Apri (April-2 l-2011) 011) When th the goods are sent by the head office to the branch at at invoice price means cost plus some percen centage age of profit, the branch manager required to sell the good goodss at invo invoic icee pric pricee only only.. 3. What What are are the the type typess of of branc branch? h? (Nov (Nov –   – 20 2011 11,, Nov Nov – 2012,  – 2012, April-201 April-2011, 1, April-20 April-2014) 14) •

Home Home branch branch

•

Foreig Foreign n branch branch

4. What What is mean meantt by Indep ndepen ende dent nt bra branch nch ? (Ap (Aprril-2 l-2014) 014) Branch which maintains its own set of books and has freedom to operate inde indepe pend nden entl tly y. If a bran branch ch is big big and and carr carrie iess on manu manuffactu acturring ing oper operat atiions ons also also,, it is allo allowe wed d to oper operat atee free freely ly with within in the the fram framew ewor ork k of head head offi office ce poli polici cies es.. 5. What What are are the the types types of home home branch branch??

6.

•

Depende Dependent nt branch branch

•

Independent Independent branch

 – 2013, April-20 What What is mean meantt by Depend penden entt bran branch ch?? (Nov –  ov – 20 2011, 11, Nov Nov – 2013, April-2010) 10) These branches are inland branches wholly dependent on the head office for thei theirr requi equirremen ements ts.. Thes Thesee bran branch ches es do not not main mainta tain in thei heir own own set of book bookss, and and all all the the reco record rdss of the the bran branch ch are are main mainta tain ined ed by the the head head off offic ice. e.

7. What What is mean meantt by by Debt Debtor orss syst system em?? ( NovNov-20 2010 10)) This system is adopted in case of branches of small size. Under this sys system tem a bran branch ch acco accoun untt is open opened ed sepa separa rattely ely for for eac each bran branch ch in the the book bookss of head head office. 8. What What is mean meantt by Stock tock and Debt Debtor orss syst system em?? Profit or loss of a branch can be found out by preparing branch account , but ther theree is anot anothe herr meth method od for the the same same pur purpose pose is know known n as stock tock and and debt debtor orss meth method od..

RAAK/B.COM(CA)/PUSHPARAJ/I RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit –  Unit – 1 1 Ans Answe wers rs Page Page 1 of 18

ACADEMIC YEAR: 2016 –  2016 – 2 2017

REGULATION CBCS - 2012

 – 2012) 9. What What is mean meantt by Whol Wholes esal alee Bran Branch ch Syst System em?( ?( Nov Nov – 2012) Manufacturers may sell goods to the consumers either through the whol wholes esal aler erss and and appr approv oved ed stoc stocki kies estt or thro throug ugh h thei theirr bran branch ches es.. The The perso person/c n/cor orpo pora rate te buy buy the the good goodss at bulk bulk for for the the purp purpos osee of sell sell.. 10. What What is is mean meantt by Fina Finall accou account nt syst system? em? The The head head off office ice can can als also asce ascert rtai ain n the prof profit it or loss oss of a depe depend nden entt bran branch ch by preparing bra branch nch tradin ding and prof profiit and loss of a dep dependent bra branch nch by prepar paring bran branch ch trad tradin ing g and and prof profit it and and loss loss acco accoun untt at cost cost.. 11. What What is mea meant nt by Fore Foreig ign n Branc Branch? h? The The head head offi office ce in inla inland nd and and its bran brancch in forei oreig gn coun countr try y, thes thesee bran branch ches es is called foreign branch. The foreign branch keeps their accounts not in the home currency the values will be expressed in foreign currency, cy, now the same has to be conver converted ted into into home home currency currency.. 12. Give journal journal entries entries for good good sent to branch(Apr branch(April-2 il-2013) 013) Branch a/c Dr. To goods sent to Branch A/c 13. Give journal journal entries entries for good sent sent to branch branch transfer transferred red to trading trading accoun account. t. Goods sent to Branch A/ A/c Dr. To Trad rading A/c 14. Give journal entries for for profit arises at the branch(April-2013) Bra nch A/c

Dr.

To Profit and Loss A/c 15. Give journal entries entries for cash sent to bank for expenses Branch A/c Dr. To Bank A/c 16. Give the journal entry for closing stock in the branch Branch stock A/c Dr. To Branch 17. Give the the journal journal entry for for closing closing debtors debtors in the branch branch Branch Debtors A/c Dr. To Branch A/c

RAAK/B.COM(CA)/PUSHPARAJ/I RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit –  Unit – 1 1 Ans Answe wers rs Page Page 2 of 18

ACADEMIC YEAR: 2016 –  2016 – 2 2017 18. Give the the journal entry for shortage of stock  Branch ad adjustment A/ A/c To Bran ranch Stock A/c

REGULATION CBCS - 2012

Dr.

19. What is is meant by Inter-br Inter-branch anch transactio transactions ns ? The The head head off office ice has has man many bran branch ches es and and ther theree is a pos possibi sibillity that that some ome bran branch ch may supply goods or send cash to the other branch are called inter-branch transactions. 20.

What

is meant meant by goods goods in transit transit ? When goods are dispa spatch tched by the the head offi ffice to branch nch and the the branch does not recei ceive it even ven upto the the end of the the year, it is kno known as goods in transit.

21. What is meant meant by cash cash in transit transit ? The cash sent by branch to H.O. or the cash sent by H.O. to branch has not been receiv ed by the other part y upto the end of the year, it is known as cash in transit. 22. What is meant by branch adjustm adjustment ent account? account? This accoun ount is pre prepared for ascert ertaining the amoun ount of gross pro profit earned  ‘loading’’ included included by the bran branch ch.. This This is don done by eli elimina minati ting ng the the prof profiit ele element ment or the the ‘loading in the the val value of open openin ing g and and clos closin ing g stock tock at bran branch ch,, goods oods sent sent to bran brancch, les less retur eturns ns made made by bran branch ch to head head off office ice and and in surpl urplus us or shor hortage tage in bran branch ch stoc tock etc. etc. 23. Write down the objectives for goods goods sent on invoice price. (a) In order to keep secret from the branch manager the cost price of the goods and profit made,so that the branch manager may not start a rival and comp compet etit itiv ivee busi busine ness ss with with the the conc concer ern n ;and ;and (b) In order to have effective control on stock i.e., stock at any time must be equal to opening stoc stock k plus plus good goodss recei eceive ved d from rom head head offi office ce minu minuss sale saless made made at the branch. 24. What are the accounts accounts that should be maintained maintained in Stock and debtors system? system?  Bran Branch ch Stock Stock Acco Accoun unt. t.  Bran Branch ch Debt Debtor orss Accou Account nt  Bran Branch ch Expe Expens nses es Acco Accoun unt. t.  Bran Branch ch Adju Adjust stme ment nt acco accoun untt  Bran Branch ch prof profit it and and loss loss acco accoun untt and and  Good Goodss sent sent to the the bran branch ch accou account nt

RAAK/B.COM(CA)/PUSHPARAJ/I RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit –  Unit – 1 1 Ans Answe wers rs Page Page 3 of 18

ACADEMIC YEAR: 2016 –  2016 – 2 2017

REGULATION CBCS - 2012

PART –  B  B ANSWERS 1. Write Write down down the the objec objectiv tives es of branch branch acco account unting. ing.(( NOV –  NOV – 20 2010 10,, Nov Nov – 2014,  – 2014, April-20 April-2010, 10, April-20 April-2013, 13, April-201 April-2014) 4)  To Asce Ascert rtai ain n the the prof profit it or loss loss of the the bran branch ches es  To have have a bett better er cont contro roll over over the the bran branch ches es by the the head head offi office ce  To know know the the fina financ ncia iall posit positio ion n of the the bran branch ches es  To enable the head office to know the requirements of goods and cas cash of each each bran branch ch  To provide provide sugges suggestio tions ns for improv improveme ements nts  To formul formulate ate furthe furtherr progra programme mmess and polici policies es relati relating ng to the branch branches. es.

2. Dist Distin inct ctio ion n betw betwee een n whol wholes esal alee and and reta retail il prof profit it at bran branch ch.. Somet ometiimes mes head head off office als also sell sellss goods oods at retai etaill or list ist pric pricee bes besides ides sendi ending ng the the good goodss to bran branch ches es at whol holesale sale pric prices es.. The The dif differen erence ce betw betweeen the the reta etail pric pricee and and whol holesal esalee pric pricee wil will be the the prof profit it made made by the the bran branch ch.. Suppo uppose se if  an artic rticle le cos costs to head head off office Rs. Rs. 100 and and it is sup supplie plied d to the bran branch ches es at Rs. Rs. 160 at whol holesal esalee pric pricee but but both both head ead off office ice and and bran branch ches es sell ell goods oods at Rs. Rs. 200, 200, then, hen, profit made by the branch will be Rs. 40 (i.e., Rs. 200 – Rs. 160) and not Rs. 100 (Rs. 200-Rs.100) 200-Rs.100).. The The good goodss are are sent ent by the the head head offi office ce to the the bran branch chees at Whol Wholes esal alee pric pricee and if all the good oods are sold ther here is no problem but if some ome goods ods remain unsold at the end of the accounting year, these unsold goods at the branches must be reduced to cost price by making a stock reserve for unrealized profit for the dif differen erence ce betw etween een eh whol wholeesale sale and and cost cost pric pricee and will will be debi debite ted d to the head head office ice profit and loss account, as previously the head office must have earned profit profit while while sendin sending g goods goods to the branche branches. s. 3. Write Write down down the featur features es of indepe independe ndent nt bran branch. ch. ()  They They nee need not depend pend on the the Head ead offi office ce for for the their requir quireemen ments of supp suppli liees of  goods oods.. They They can can make make pur purcha chases ses the themse mselve lves. Of cour course se,, they they can can also also obta btain sup supplie pliess of goods ods fro from the the head ead offi office ce as and when hen they they want. ant.  

They can can only sel sell goods for for cash cash and cre credit at any price ice they they con consid sider profitable. They need not remit mit the the money recei ceived ved by the them fro from cash cash sal sales and debtor tors to the the Head offi ffice per periodi iodica call lly. y. They They can can reta retain in the the fund fundss and mee meet the their dayaytoto-day expe xpenses ses out of tho those fun funds. Finally, ly, if they they have sur surplus cash cash in the their han hands, they they can can remit mit the the same same to the the Head offic fficee.

RAAK/B.COM(CA)/PUSHPARAJ/I RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit –  Unit – 1 1 Ans Answe wers rs Page Page 4 of 18

ACADEMIC YEAR: 2016 –  2016 – 2 2017 



REGULATION CBCS - 2012

They They kee keep a comp comple lete te set set of boo books for for recor cording ing the their tran transa sact ctio ions ns.. So, So, they they can can prep prepar aree thei theirr own own Tria Triall Bala Balanc nce, e, Trad Tradin ing g and and Prof Profit it and and Loss Loss Accou Account nt and and Bala Balance nce Shee Sheet. t. However ver, as they they are ultim timately tely respo sponsib sible to the the Head offi ffice, ce, at the the end of  every financial period, they are required to submit a copy of their Trial Bala Balanc ncee to the the Head ead offic fficee

4. Write Write down down the featur features es of depend dependent ent branch branch.. (Nov (Nov – 2013)  – 2013) •

It do not not main mainta tain in its its books books of acc accou ount ntss

•

Good Goodss are are supp suppli lied ed by head head offi office ce to the the bra branc nch. h.

•

Branch receives the goods and sells them as per the direction of the head office.

•

All All the expe xpenses nses of bran branch ches es are are paid paid dir directl ectly y by the the head head off office. ice.

•

The head office provides petty cash to the branch to meet some petty expe expens nses es,, so only only simp simple le petty petty cash cash book book is main mainta tain ined ed at the the bran branch ch

•

The branch remits cash to the head office whic hich are from the sale proceeds eds and and coll collec ecti tion on from from debt debtor orss in case case of cre credi ditt sale sales. s.

5. Journal Journal entries entries passed passed in the books books of head head office office (i) Branch a/c Dr. Invoice va value of of go goods se s ent. To goods sent to Branch A/c (ii) Branch A/ A/c Dr. Cash se sent for expenses. To Bank A/c (iii) Bank A/c Dr Cash remitted by the branch to the H.O. To Branch A/c (Cash consists of sales and receipts from Drs.) (iv) Branch Stock A/c

Dr. Branch stock (at invoice Price) and branch

Branch Debtors A/c Dr. debtors at the end of year. To Branch A/c (v) Goods Sen Sent to Branc anch A/c Dr. Dr. Invoice pric rice on goods sent to bran ranch adj adjust usted. To Branch A/ A/ c (Loading on on th the go goods se s ent) (vi) Branch A/c Dr. Invoice value of closing stock adjusted. To Branch Stock Reserve A/c (vii) Bra nch A/ A/c Dr. Profit at branch To Profit and Loss A/c (viii) Goods sent to Branch A/c Dr. Goods sent to Branch Transferred. To Tradi rading ng A/c

RAAK/B.COM(CA)/PUSHPARAJ/I RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit –  Unit – 1 1 Ans Answe wers rs Page Page 5 of 18

ACADEMIC YEAR: 2016 – 2017

REGULATION CBCS - 2012

6.Layal company opened a branch at madras on 1.1.89. From the following particulars the madras branch account for the year 1989 and 1990. (Nov – 2011, Nov – 2013) 1989 Rs. 1990 Rs. Goods sent to branch 15000 45000 Cash sent to branch for : Rent 1800 1800 Salaries 3000 5000 Other expenses 1200 1600 Cash received from the branch 24000 60000 Stock on 31st December 2300 5800 Petty cash on 31st December 40 30

Particulars To balance b/d TO Goods sent to branch To Cash: Rent Salaries Other expenses

IN THE BOOKS OF HEAD OFFICE Madras branch A/c for 1989 Rs. Rs. Particulars NIL By cash 15000 By Balance C/d Stock 1800 Petty cash 3000 1200 6000

To General P&L A/c

Rs.

Rs. 24000 2300 40

5340 26340

Particulars To balance b/d Stock Petty cash TO Goods sent to branch To Cash: Rent Salaries Other expenses To General P&L A/c

2340

26340

Madras branch A/c for 1989 Rs. Rs. Particulars By cash 2300 By Balance C/d 40 2340 Stock 45000 Petty cash 1800 5000 1600

Rs.

Rs. 60000 5800 30

8400 10090 65830

5830

65830

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 6 of 18

ACADEMIC YEAR: 2016 – 2017

REGULATION CBCS - 2012

7. Prepare branch accounts for the year 1994. From the following particulars the Madurai branch account for the year 1994 (Nov – 2011, Nov – 2012, Nov – 2014, April-2010, April2011, April-2013, April-2014) Stock on 1.1.94 11200 Debtors on 1.1.94 6300 Goods sent to branch 51000 Cash sent to branch for : Rent 1500 Salaries 3000 Petty cash 500 5000 Sales at branch Cash 25000 Credit 39000 64000 Cash received from debtors 41200 Stock on 31.12.94 13600

Particulars To balance b/d Stock Debtors TO Goods sent to branch To Bank: Rent Salaries Petty cash

To General P&L A/c

Madurai branch A/c for 1994 Rs. Rs. Particulars By Bank : 11200 Cash sales 6300 17500 Cash from debtors 51000 1500 3000 500

By Balance C/d Stock 5000 Debtors

10400 83900

Rs.

Rs.

25000 41200 66200

13600 4100 17700

83900

8.From the following particulars prepare a branch account showing the profit or loss at the branch Rs. Opening stock at the branch 15000 Goods sent to branch 45000 Sales 60000 Salaries 5000 Other expenses 2000 Closing stock could not be ascertained but it is known that the branch usually sells at cost plus 20%. The branch manager is entitled to a commission of 5% of the profit of the branch before charging such commission.

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 7 of 18

ACADEMIC YEAR: 2016 – 2017

Particulars To Opening stock at branch To Goods sent to branch

the

REGULATION CBCS - 2012 Branch A/c Rs 15000 By Sales

5000

To Other expenses

2000

To Net profit – transfer to P & L A/c

Rs 60000

45000 By Closing stock 

To Salaries

To Manager’s commission

Particulars

10000

150 2850

70000

70000

9. A Madras head office has a branch at Salem to which goods are invoiced cost plus 20%. From the following particulars prepare branch a/c in the books of head office. (Nov – 2012, April-2011, April-2013) Stock on 1.1.96 7680 Debtors on 1.1.96 24000 Stock on 31.12.96 13440 Goods sent to branch 211872 Total sales 206400 Cash sales 110400 Cash received from debtors 88000 Salem branch A/c for 1996 Particulars Rs. Rs. Particulars To balance b/d By Bank : Stock 7680 Cash sales Debtors 24000 31680 Cash from debtors To Goods sent to branch 211872 By Stock Reserve By Goods sent to branch - Loading By Balance C/d Stock To Stock Reserve 2240 Debtors

To General P&L A/c

Rs. 110400 88000

Rs.

198400 1280 35312

13440 32000

34640 280432

45440

280432

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 8 of 18

ACADEMIC YEAR: 2016 – 2017

REGULATION CBCS - 2012

10. A head office sends goods to its branch at 20% less than the list price. Good are sold to customers at cost plus 100%. From the following particulars ascertain the profit made at the head office and the branch on whole sale basis. Head Particulars Head office office Branch Purchases 200000 Goods sent to branch 80000 Sales 170000 80000 Trading , Profit & Loss A/c Head Head office Branch Particular office

Particular To Purchases

200000

To Goods received from H.O

-

To Gross Profit

To Stock  reserve To Net Profit

Branch

170000

80000

80000

-

115000

- By Sales By Goods sent to 80000 branch By Closing 16000 stock

65000

16000

315000

96000

315000

96000

115000

16000

115000

16000

By Gross Profit

6000

109000

16000

115000

16000

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 9 of 18

ACADEMIC YEAR: 2016 – 2017

REGULATION CBCS - 2012

PART –  C ANSWERS 1. Difference Between Independent & Dependent Branch. (NOV – 2010)

Sr.

Basis

Independent Branch

Dependent Branch

1.

Accounting System

Independent branch keeps The accounts of branches are full system of accounting at maintained at the Head Office level. their place. At branch only Cash Register. Debtors Register are maintained.

2.

Sale of Goods

These branches sell goods received from head office as well as from the purchases made by them.

These branches sell only those goods which are supplied by the Head office. They are normally not allowed to make own purchases.

3.

Point of Payment Branch keep the required of Expenses cash to meet the expenses of regular nature with themselves.

All branch expenses of regular nature like salary, Rent normally paid directly by head office. Branch managers are allowed to incur petty expenses only.

4.

Remittance of Cash

5.

Trial Balance

6.

Reconciliation

7.

Methods Preparing Account

Independent Branches are All the daily cash sale and not required to remit all the collection from debtors will be cash daily to head office. deposited at local bank or remitted to H.O. A trial balance has been Trial Balance is not required to be extracted from the ledger extracted as accounts are maintained at branch level. maintained at Head Office.

Reconciliation between branch Account in books of   head office and head office Account in the books of   Branch is to be made before finalising the Accounts. of  Accounting is done on the Final double entry system basis, so Trading/P&L A/c has been prepared in normal way.

There is no need of reconciliation as accounts are maintained at head office level itself.

Accounting under Dependent branches can be made by three different methods are Debtors system, Final Account system and Stock and Debtors system.

2. A Limited opened a branch at Shimla in 2002. Goods were invoiced at cost plus 25%. From the following prepare ledger accounts in the books of A Limited.( April-2010)

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ACADEMIC YEAR: 2016 – 2017

REGULATION CBCS - 2012 Rs.

Goods sent to Shimla (Invoice Price)

40,000

Sales at Shimla : Cash Sales

21,000

Credit Sales

16,000

Cash collected from debtors

14,500

Discount allowed

200

Cash sent to Branch for expenses

4,000

Stock at Branch, 31st Dec.2002 (Invoice Price)

3,200

Date

Particulars

2002

To Goods sent to Branch A/c To Bank  (Expenses)

Dec.31

Branch A/c Date Rs .

By Bank (Remittance) 21,000 Dec.31 Cash sales Cash Form Drs. 14,500

4,000

35,500 3,200

By Branch Stock A/c By Branch Debtors A/c By Goods sent to Branch A/c (loading)

To Bank stock  640

A/c transfer

Rs .

2002

40,000

Reserve A/c To P & L

Particulars

1,300 8,000

3,360 48,000 Goods sent to branch A/c Date Rs .

Date

Particulars

2002 Dec.31

To Shimla Branch A/c (Loading) To Trading A/c (transfer)

48,000

8,000 32,000

40,000

2002 Dec.31

Particulars By Shimla Brach A/c

Rs .

40,000

40,000

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 11 of 18

ACADEMIC YEAR: 2016 – 2017

Date

Particulars

2002 Dec.31

REGULATION CBCS - 2012 Branch Debtors A/c Date Rs . 16,000

To Sales A/c

2002 Dec.31

Particulars By Cash By Discount By Balance c/d

16,000

Date

Particulars

2002 Dec.31

3,200

2002

Particulars By Balance c/d

Particulars

2002 Dec.31

640

3,200

3200

Branch Stock Reserve A/c Date Rs .

To Balance c/d

Rs .

Dec.31

3,200

Date

14,500 200 1,300 16,000

Branch Stock A/c Date Rs .

To Shimla Branch A/c

Rs .

2002 Dec.31

Particulars By Shimla Branch A/c

Rs .

640

640 640 3. A Ltd. has a branch in Calcutta. Goods are invoiced at cost plus 25%. (Nov – 2011, Nov – 2012, Nov – 2013, April-2014) Opening Balance

Stock

3,200

Debtors Goods sent to Branch (Invoice price) 75,000

1,300

Sales at Calcutta Cash Sales

32,000

Credit Sales

38,000

Cash collected from Debtors

33,400

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ACADEMIC YEAR: 2016 – 2017

REGULATION CBCS - 2012

Discount allowed

400

Bad Debts written off

250

Cash sent to Branch for expenses

5,500

Stock at end

7,900

Date

2002

Dec.3 1

Branch Adjustment A/c Date Rs .

Particulars

1,580

To Stock Reserve

Particulars

2002

By Stock Reserve

Dec.3 1

(closing stock) A/c

(openi ng stock)

300

To br. Stock A/c (shorta ge)

640

15,000

By Goods sent to br. A/c

7,150 6,610

To Br. Exp. A/c

R s.

To P & L A/c 15,640

Date 2002 Dec.31

Particulars

Goods sent to branch A/c Date Rs .

To br. Adjustment

15,000

A/c (loading) To

15,640

2002 Dec.31

Particulars By Br. Stock A/c

Rs .

75,000

60,000

Trading A/c (Transfer) 75,000

75,000

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ACADEMIC YEAR: 2016 – 2017

Date 2002 Jan.

Particulars To Balance b/d To Branch Stock 

REGULATION CBCS - 2012 Branch Debtors A/c Date Rs .

Particulars

Rs .

2002 1,300

33,400

By Cash

Dec.31

By Branch Exp. A/c

38,000

(cr. sales)

Discount

400

Bad Debts

250

By Bal. c/d

650 5,250

39,300

Date 2002 Jan.1

Particulars To Balance b /d To goods sent t o Branch A/c

39,300

Branch Stock A/c Date Rs . 3,200

Particulars

2002 Jan.1

To Cash Sales By Branch Debtors

75,000

By Branch Adjustment A/c By Balance c/d

Particulars

2002

To Br. Adjustment A/c

Dec. 31

To balance c/d

Branch Stock Reserve A/c Date Rs . 640 1580

32,000 38,000 300 7,900 78,200

78,200

Date

Rs .

Particulars

Rs .

2002

By Balance b/d

640

Dec.31

By Branch Adj. A/c

1580

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit – 1 Answers Page 14 of 18

ACADEMIC YEAR: 2016 – 2017

Date

REGULATION CBCS - 2012

Branch Expenses A/c Date Rs .

Particulars

2002

To Cash

6,500

Dec.31

To branch Dr.s A/c Discount

400

Bad Debts

250

2002 Dec.31

Particulars

Rs .

By Branch Adjustment A/c

7,150

650 7,150

7,150

4. Agra head office supplies goods to its branch at Alwar at invoice price which is cost plus 50%. All Cash received by the branch is remitted to Agra and all branch expenses are paid by the head office. From the following particulars related to Alwar Branch for the year 2006, prepare Branch debtors account Branch stock account and Branch Adjustment Account in the books of the head office so as to find out the gross profit and net profit made by the branch. Rs. Stock with Branch on 1.1.2006 (at invoice price) 66,000 Branch Debtors on 1.1.2006 22,000 Petty cash balance on 1.1.2996 500 Goods received from head office (at invoice price) 2,04,000 Goods returned to Head Office 6,000 Credit Sales 87,000 Sales Returns 3,000 (already adjusted while invoicing) 2,000 Cash received from debtors 93,000 Discount allowed to debtors 2,400 Expenses (cash paid by Head Office) Rs. Rent 2,400 Salaries 24,000 Petty Cash Cash Sales Stock with Branch on 31.12.2006 (at invoice price) Petty Cash balance on 31.12.2006

2,000

28,400 1,06,000 69,000 100

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Branch Adjustment Account

Date

Particulars

Rs .

To Stock reserve A/c

23,000 2,000

To Goods sent to Branch A/c To Branch stock A/c

2,000

Date

Particulars By stock reserve A/c

1,000

To Gross profit

62,000

22,000

(66,000 × 50/150) By Goods sent to Branch A/c

To Shortage (Load)

Rs .

68,000

(2,04,000 × 50/150)

c/d By Gross profit b/d To Branch expenses A/c Rent Salaries Petty exp.

90,000 2,400

62,000

24,000 2,400

(500 + 2000 - 100) To Branch debtors A/c discount To Shortage

90,000

28,800 2,400 2,000

(cost) To Net profit

28,800

62,000

62,000

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Date

Particulars

REGULATION CBCS - 2012 Branch Debtors A/c Date Rs .

To Balance b/d

22,000

To Branch stock  A/c

87,000

Particulars By Branch Cash A/c

Rs .

93,000 2,400

By Branch Expenses A/c

(credit sales)

(Discount allowed to Debtors)

3,000 10,600

By Sales Returns By Balance c/d

Date

Particulars

1,09,000 Branch stock A/c Date Rs .

To balance b/d

66,000

To Goods sent to Branch A/c

2,04,000

To Branches Debtors A/c

1,09,000 Particulars

By branch A/c-cash sales By Branch Debtors A/ccredit sales

Rs .

1,06,000 87,000

By Branch 3,000

Adjustment A/c

2,000

Allowance to

Sales Return

customer On selling price (already Adjusted while invoicing) By Goods sent to branch A/c Returns to H.O. By Shortage-in-stock A/c By Balance c/d 2,73,000

6,000

3,000 69,000 2,73,000

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REGULATION CBCS - 2012

5. . A head office sends goods to its branch at 25% less than the list price. Good are sold to customers at cost plus 60%. From the following particulars ascertain the profit made at the head office and the branch on whole sale basis. Particulars Opening stock  (at invoice price in case of branch) Purchases Goods sent to branch Sales Expenses

Particulars To opening stock  To Purchases

To Goods received from H.O To Gross Profit

To Expenses To Stock  reserve

To Net Profit

Head office Rs. 50000

Branch Rs. 30000

150000 108000 160000 10000

80000 6000

Trading , Profit & Loss A/c Head office Branch Particulars

Head office

50000

160000

80000

108000

-

10000

78000

315000

96000

78000

20000

30000 By Sales

Branch

150000 By Goods sent to branch 108000 780000

By Closing 20000 stock

278000 158000 10000 6000 By Gross Profit By Stock  reserve

13000

60000

14000

83000

20000

5000

83000

20000

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UCP 21 –  FINANCIAL ACCOUNTING UNIT-2 –  DEPARTMENTAL ACCOUNTS Type: 20% Theory  – 80% Problem Question & Answers PART –  A ANSWERS

1. What is meant by department accounts? (Nov -2010, April -2011, April -2014) An organization may produce or buy and sell several products or perform different services under the same roof or from the same premises. The modern practice is to divide the organization into independent departments, each of which may deal in a particular class or goods or render a specialized type of service 2. What is meant by interdepartmental transfer? (Nov -2012, April -2010, April -2014) Whenever goods or services are provided by one department to another their cost should be separately recorded and charged to that department benefiting thereby and credited to that providing it. 3. What is stock reserve? (Nov -2011, April -2011) Unrealized profit included in unsold inventory at the ending of accounting period eliminated by creating an appropriate stock reserve by debiting the amount profit and loss account. 4. Write the basis of allocation of expenses – any two. (Nov -2013, Nov -2014, April 2013, April -2014) •

Rent, rates and taxes

- Floor area occupied.

•

Salaries

- Time allocated to each department.

•

Selling expenses, Bad debts- Sales of each department

•

Carriage inwards

- Purchases of each department

5. What are direct expenses? Give some examples. (Nov -2014) Expenses which are directly identified with or incurred for particular departments are called as direct expenses. Example: Wages, insurance of stock etc. 6. What is indirect expenses? (April -2014) Expenses which cannot be identified with a particular department, but incurred for their common benefit. 7. What is cost price?

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When the good are sold at the price of which incurred for the production of  goods that means the cost of goods sold is called as cost price. 8. What is selling price? When the goods are sold at cost price plus profit is known as selling price. 9. Write two advantages of departmental accounts. (Nov -2010, Nov -2012, Nov -2013, April -2010) •

Evaluation of performance

•

Growth potential of each department

•

Judgement of efficiency

•

Planning and control

10. Write two needs of departmental accounts. •

To have comparative results of departments

•

To assesses the stock position of each department

•

To analyze the result of each department and to draw up a trend for the future.

11. What are the methods and techniques of departmental accounts? 1. Preparation of trading and profit and loss account, 2. Maintenance of Records, 3. Departmentalization of expenses 12. What is meant by elimination of unrealized profit? When profit added in the inter-department transfers the loading included in the unsold stock at the end of the year is to be excluded before final accounts are prepared so as to eliminates any anticipatory profit included therein. 13. What are the two types of departments? •

Independent department

•

Dependent department

14. What is independent department? Departments which work independently of each other and have negligible inter department transfer are called Independent Departments .

15. What is dependent department?

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Departments which transfer from one department to another department for further processing are called dependent departments. 16. What are the two sub-divisions of indirect expenses? •

Expenses which can be apportioned

•

Expenses which cannot be apportioned

17. What are expenses which cannot be apportioned? (Nov -2011) Expenses which have no connection with the departments or those which have no reasonable basis for apportionment must be shown in the general profit & loss a/c. 18. What are expenses which can be apportioned? All indirect expenses which are amenable for division on some logical or appropriate basis among the departments should be charged to the departments after dividing them on suitable basis. 19. What are the three basis of interdepartmental transfer? •

Cost

•

Ruling market price

•

Cost plus agreed percentage of profit.

20. What is meant by common expenses? Common expenses, the benefit of which is shared by all the departments and which are capable of precise allocation are distributed among the departments concerned on some equitable basis considered suitable in the circumstances.

PART –  B ANSWERS 1. Explain the advantages of departmental accounting. (Nov -2010, Nov -2013, Nov 2014, April -2011) •

Evaluation of performance: The performance of each department can be evaluated separately on the basis of trading results. An endeavor may be made to push up the sales of that department which is earning maximum profit.

•

Growth potential of each department: The growth potential as compared to others can be evaluated.

of a department

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REGULATION CBCS - 2012

•

Judgement of efficiency: It helps to calculate stock turnover ratio of each department separately, and thus the efficiency of each department can be calculated.

•

Planning and control: Availability of separate cost and profit figures each department facilitates better control. Thus effective planning and control can be achieved on the basis of departmental accounting information.

•

Justification of capital outlay: It helps the management  justification of capital outlay in each department.

to determine

for

the

2. Write down the needs of departmental accounting.( April -2013)  To compare the results of each department with the results of previous years and ascertain the trend.  To know the comparative results of different departments in the same year.  To assess the position of stock in each department.  To identify areas weakness for cost control and improvement of efficiency.  To decide upon expansion, discontinuation and investment policies. 3. Explain the ways of recording transactions in departmental accounts. a) Unitary method: Under this method, the accounts of each department are kept separately. The results of the various departments are finally combined together in one general P & L account. b)

Tabular or columnar method: Under this method, the accounts of each

department are kept in columnar form with a separate column for each department and also with a separate column for the total. The tabular method is more popular and is adopted by almost all the departmental undertaking, Under this method, at the end of the accounting year, Trading and P & L account is prepared with separate amount column for each of the department and also for the total. The trading and P

&

L of a departmental organization kept in the

columnar basis is called Departmental Trading and P & L account. In trading account, opening stock, purchases, direct expenses and Gross profit are debited and sales and closing stock credited. Indirect expenses have to be apportioned between the departments and debited to the P&L account. 4. Difference between branch and departmental accounts. (Nov -2011, April -2010) BRANCH: Branches are separated from the main organization. DEPARTMENTS: Departments are attached with the main organization under a

single roof.

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BRANCH: Branches are the outcome of tough competition and expansion of 

business. DEPARTMENTS: Departments are the result of fast human life. BRANCH: Branches are geographically separated. DEPARTMENTS: Departments are not separated rather existed under a same

roof. BRANCH: Branches are of different types like dependent, independent and

foreign. DEPARTMENTS: There is no such classification in department because all are

common under the same roof. BRANCH: Allocation of branch common expenses does not arise. DEPARTMENTS: Allocation of departmental common expenses is a tough job. BRANCH: To find out the net result of the organization, the reconciliation of 

different branch account is a main job. DEPARTMENTS: In departmental accounting, no reconciliation is necessary

because there is a central account division. 5. The proprietor of large retail store department wished to ascertain approximately the st

net profit of the X, Y, Z departments separately for the three mon ths ended 31 March 1996. It is found impracticable actually to take stock on the date , but an adequate system of departmental accounting is in use, and n ormal rates of gross profit for the three departments concerned are respectively by 40 %, 30% and 20% on turnover before charging the direct expenses. The indirect e xpenses are charged in proportion to departmental turnover. The following are the figures for the department: X (Rs.)

Y (Rs.)

Opening stock

10000

14000

7000

Purchases

12000

13500

9700

Sales

20000

18000

16000

2000

1500

700

Direct expenses

Z(Rs.)

The total direct expenses for the period(including those relating to other dep artments) were Rs.5400 on total turnover of Rs. 108000. Prepare a statement showing the approximate net profit, making a stock reserve of  10% for each department on the estimated value on 31-3-96.(April -2010)

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REGULATION CBCS - 2012

6.Trading , profit and loss account of Janaki radio and gramophone equipment vo., for the six months ended 31-3-93 is presented to you in the following form.( Nov 2014) Purchases

Rs.

Sales

140700 Radios(A)

Radios(A)

Rs. 150000

Gramophones(B)

90600 Gramophones(B)

Spare parts(C)

64400 Spare parts(C)

Salaries and wages

48000 Stock as on 31-3-93

Rent

10800 Radios(A)

60100

Sundry expenses

11000 Gramophones(B)

20300

Profit

34500 Spare parts(C)

44600

400000

100000 25000

400000

Prepare departmental accounts for each of the three departments A,B and C mentioned above after taking into the account of the following: 1.Radios and gramophones are sold at the show room and spares parts at work shop. 2. Salaries and wages are comprises as follows: th

th

Showroom 3/4 and workshop 1/4 . It was decided to allocate the show room salaries an d wages in the ratio of 1.:2 between the departments A and B. 3. The workshop rent is Rs.500 per month. The rent of show room is to be allocated equally between departments A and B. 4. Sundry expenses are allocated on the basis of turnover of each department.

7. Mixed goods were purchased for Rs.100000 and later they were assorted into three categories X, Y and Z as follows: X

1000

-

Selling price Rs.20 each

X

2000

-

Selling price Rs.22.50 each

X

2400

-

Selling price Rs.25 each

All categories yield the same rate of profit. Calculate the purchases price of each department. 8.A company has two departments A and B. Dept.A supplies good to Dept.B at its usual selling price. From the following figures prepare departmental trading a/c for the year 1982.( Nov -2012, Nov -2014, April -2014)

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Particulars

A (Rs.)

Opening stock  Purchases Transfer to B Sales Closing Stock 

B (Rs.) 30000

-

210000

-

50000

50000

200000

60000

40000

10000

9. There are two departments X and Y. Good are transferred from Dept.X to Dept.Y at usual selling price . You are required to compute the stock reserves on stock of  Dept.Y from the following data(April -2013) G.P. Ratio of the Dept.X

:25% on cost

Opening stock of Dept.y

: Rs.50000

Closing stock of Dept.y

: Rs.75000

10. From the following particulars , prepare departmental trading account.( Nov -2013, April -2013, April -2014) Particulars

A (Rs.)

B (Rs.)

Opening stock 

9000

8400

Total Purchases

27000

21600

Total Sales

42000

36000

Closing Stock 

10800

4800

Credit Purchases

17000

10600

5000

6000

Credit Sales

PART –  C ANSWERS

1. What are the bases of apportionment of expenses.( April -2014) SI.NO 1

EXPENSES Sales

expenses

BASIS OF APPORTIONMENT

as traveling Sales of each department

salesman, salary and commission, selling service,

expenses discount

after

sales

allowed,

bad

debts, freight outwards, provision for discount

on debtors,

sales

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salary

REGULATION CBCS - 2012 and

other

benefits etc.

2

All expenses relating to building as rent, rates, taxes, air conditioning expenses, heating, insurance building etc.

Area or value of floor space

3

Lighting

Lighting points in the department

4

Workmen’s amenities and welfare expenses

Number of workers in each department

5

Workmen’s compensation insurance, ESI, PF etc. payable at employer

Wages of each department

6

Premium for loss of profits insurance

Profit of each department in the previous year

7

Power

Consumption as per meter, horse power, time and hours.

8

Depreciation of assets, fire insurance, repairs on such assets.

Value of each assets possessed by each departments

9 10

Factory manager’s salary Carriage inwards

Time devoted to each department Purchase value

2. From the following information , prepare trading , profit and loss account in a columnar from the three departments of Sharma dry cleaners ltd. (Nov -2010, April 2010, April -2011) Particulars Dry cleaning (Rs.) Darning (Rs.) Dyeing (Rs.) Opening stock  400000 340000 940000 Closing stock  330000 438000 817000 Purchases 1959000 697000 1373000 Sales 4000000 2000000 4000000 Wages 728000 300000 246000 Goods were transferred from one dept. to another dept. at cost price as follows: i) Darning to dry cleaning Rs.2400 and to dyeing Rs.40200 ii) Dyeing to dry cleaning Rs.25800 and to darning Rs.18000 iii) Dry cleaning to darning Rs.3000 and to dyeing Rs.24000 Apportion equally: Rs. Stationery 5418

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REGULATION CBCS - 2012

Postage 4050 General expenses 237618 Insurance 10080 Depreciation 32598 Rent & taxes Rs.180000 is to be split in proportion to space occupied, i.e., dry cleaning 4, darning 2 , dyeing 2 and other space 2. 3. A firm had two departments cloth and readymade garments . The garments were made the firm itself out of cloth supplied by the cloth department at its usual selling price. From the following particulars , prepare departmental trading and profit and loss account for the year ended 31-3-94. (Nov -2012, Nov -2013, April -2014) Particulars Opening stock  Closing stock  Purchases Sales Transfer to readymade dept. Manufacturing expenses Selling expenses

Cloth dept. (Rs.) 300000 200000 2000000 2200000

Readymade dept.(Rs.) 50000 60000 15000 450000

300000 --200000

--60000 6000

The stock in the readymade garments department may be considered as consisting of  75% of cloth and 25% other expenses. The cloth department earned gross profit @ 15% in 1992-93. General expenses of business as a whole came to Rs.110000. 4. Modern company has two departments X and Y. Department X sells goods to Y departments at normal market price. From the following particulars, prepare departmental trading and profit & loss account for the year ended 31-12-1996. (Nov 2011) Particulars Stock on 1-1-96 Purchases Good from dept. X Wages Salaries (departmental) Closing stock at cost Sales Printing & stationery Machinery Advertisement Salaries (general)

Dept X (Rs.) 15000 250000 15000 7000 80000 260000 2500 -

Dept Y (Rs.) 40000 40000 20000 5000 20000 145000 1500 15000 -

General total (Rs.) 12000 18000

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REGULATION CBCS - 2012

Depreciate machinery by 10%. The general unallocated expenses are to be apportioned in the ratio of 2:1 to the departments X and Y. Half of the closing stock  of department Y represents goods received from the department X. 5. The following purchases were made by a business house having three departments. (Nov -2011, Nov -2012, April -2011, April -2013, April -2014) Dept. A 1000 units Dept. B 2000 units Dept. C 2400 units Total cost of purchases for above Rs.100000 st Stocks on 1 January were: Dept. A 120 units Dept. B 80 units Dept. C 152 units Sales were: Dept. A 1020 units at Rs.20 each Dept. B 1920 units at Rs.22.50 each Dept. C 2496 units at Rs.25 each The rate of gross profit is same each case. Prepare departmental trading account.

-----

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REGULATION CBCS - 2012

UCP 21 – FINANCIAL ACCOUNTING UNIT-3 – HIRE PURCHASE AND INSTALLMENT SYSTEM Type: 20% Theory  – 80% Problem Question & Answers PART – A ANSWERS 1. What is Hire purchase system?(NOV-2011, NOV-2012, NOV-2013,APRIL2011, APRIL-2014) Hire purchase is the system under which the property is acquired by payment made installments, during the period of which the title in the property remains with the hire vendor. 2. What is Installment system?( NOV-2012, APRIL-2010, APRIL-2014) Installment payment system (also called the deferred installments) is a system where the buyer is given the ownership as well as the possession of the goods at the time of signing the contract. The buyer has the facility to pay the price in installments. 3. Define Installment system.( APRIL-2010) According to J.B. Batliboi, “a system under there is an agreement to purchase and pay by installments, the goods which become the property of the Purchaser immediately when he receives the delivery of the same. 4. What is meant by lump sum method? The whole amount of the goods paid immediately at the time of purchase goods and the ownership also transfer immediately to the buyer. 5. What are the methods to maintain the accounts in the books of hire purchaser? A. Outright property method B. Asset accrual method C. Interest suspense method 6. Who is Hire purchaser?(NOV-2010,APRIL-2014) A hire purchaser is a person who possesses the goods under hire purchase agreement for use within an option to either purchase it or return after use.

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REGULATION CBCS - 2012

7. Who is Hire vendor?( NOV-2010, APRIL-2010,APRIL-2014) A hire vendor is a person who sells the goods under hire purchase agreement. 8. What is meant by Hire purchase price?(NOV-2014,APRIL-2010,APRIL2014) It is the price at which the goods are sold under ‘hire purchase system’ it includes cash price of the goods and interest. 9. What is meant by Hire purchase agreement? It is an agreement between hire purchaser and hire vendor according to section 2(c) of the hire purchase act, 1972 for purchasing of goods according to agreement. 10. What is Net hire purchase price? It is the net amount after deducting the delivery charges, registration charges, insurance charges from hire purchase price. 11. What is meant by termination of hire purchase agreement? The hirer can terminate the agreement at any time by giving the 14 days notice to the owner. However whatever the amount is already paid by the hirer is considered as a hire charges. 12. What is Cash Price?(APRIL-2010, APRIL-2013) This is the retail price of the articles at which they can be purchased immediately for cash. 13. What is Hire or Installment? This is the amount payable by the buyer periodically. The installments may be equal or different depending on agreement. 14. What is meant by rebate? It is an amount which is claimed by the hire purchaser from the hire vendor in case if he decides to remit the balance of the purchase price (future installments) in lump sum without continuing the hire purchasing agreement. 15. What is meant by down payment?( NOV-2011, NOV-2010, APRIL-2010, APRIL-2011) This is the advance payable by buyer while signing the hire purchase agreement. It is also a part of the hire purchase price.

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REGULATION CBCS - 2012

16. What is meant by interest in hire purchase?(APRIL-2010) This is the additional amount apart from the cash price payable by the buyer as compensation for postponed payments. 17. What is meant by repossession of goods or repossessed stock?( APRIL-2014, APRIL-2011) Repossession of goods means the hirer did not pay installment amount the goods will be taken up by the hire vendor. 18. What is meant by partial repossession?(NOV-2014, APRIL-2014) The hirer did not pay installment amount the part of the goods only took by the hire vendor and left the remaining goods with the hirer equal to the value of  amount paid by the hirer. 19. Write any two contents of Hire purchase agreement. •

The hire purchase price of the goods for which the agreement is made

•

The number of installments in which the hire purchase price has to be paid

20. Give journal entry for down (APRIL-2013) Hire vendor A/c To Bank A/c 21. Give journal entry for down (NOV-2013, APRIL-2014) Interest A/c To Hire vendor A/c

payment in the books of Hire  –  purchaser.

Dr. payment in the books of Hire  –  purchaser.

Dr.

PART – B ANSWERS 1. Write the features of Hire-Purchase System.(NOV-2010, NOV-2014,APRIL2013) •

Hire-purchase is a credit purchase.

•

The price under hire-purchase system is paid in installments.

•

The goods are delivered in the possession of the purchaser at the time of  commencement of the agreement.

•

Hire vendor continues to be the owner of the goods till the payment of last installment.

•

The hire-purchaser has a right to use the goods as a bailer.

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REGULATION CBCS - 2012

•

The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer.

•

The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement.

•

If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.

2. Write the features of Installment Payment System.(NOV-2013) •

Under this system, there will be an outright sale of goods/assets.

•

The possession as well as the ownership is passed to the buyer right at the time of  signing the contract.

•

The buyer can make the payment in installments.

•

In case of default in payment, the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid price.

•

The buyer cannot exercise the option of returning the goods and terminate the contract, unless the same becomes void or voidable under the contract act.

3. Write the advantages and disadvantages of hire purchase. Advantages: •

Costly items can easily be purchased by the consumers which he cannot otherwise purchase by making entire payment in lump sum.

•

It increase turnover and enhances the profitability of the enterprise.

•

It enables the consumer's family to enjoy the possession of the goods before payment is required.

•

Hirer has a right to terminate the agreement at any time before the goods is transferred.

Disadvantages: •

Cost of items purchased by hire purchase system is more than the normal price as the customer has to pay interest on the balance amount.

•

Hirer does not become the owner of goods hired, until payment of last installment is made.

•

Hirer cannot sell or pledge goods hired until he becomes owner of such goods.

4. On 1.1.86, X purchased machinery on hire purchase system. The payment is to be made Rs.4000 down (on signing of the contract) and Rs.4000 annually for three years. The cash price of the machinery is Rs.14900 and the rate of interest is 5%. Calculate the interest in each year’s installment. (APRIL-2010, APRIL-2014)

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5. Mr.X purchased a machine on hire purchase system Rs.3000 being paid on delivery st and the balance in five installments of Rs.6000 each , payable annually on 31 December. The cash price of the machine was Rs.30000. Calculate the amount of  interest for each year.(NOV-2013, NOV-2014) 6. X purchased a typewriter on hire purchase system. As per terms, he is required to pay Rs.800 down, Rs.400 at the end of the first year, Rs.300 at the end of the second year and Rs.700 at the end of the third year. Interest is charged at 5% p.a. Calculate the total cash price of the typewriter and the amount of interest payable in the each installment.( NOV-2012, APRIL-2014) 7. X purchased a machine on hire purchase system. According to the terms of the agreement Rs.40000 was to be paid on signing of the contract. The balance was to be paid in four annual installments of Rs.25000 each plus interest. The cash price was Rs.140000. Interest is chargeable on outstanding balance at 20% per annum. Calculate the interest for each year and the installment amount.(NOV-2014) 8. On 1.1.90 X bought some trucks under hire purchase system for Rs.51000 payable by three equal installments combining principal and interest, the later being a normal rate of 5% p.a. Calculate the cash price .( The present value of annuity of one rupee for the three years at 5% is Rs.2.72325)(NOV-2010) 9. From the following details of a businessman who sells goods of plus 50%. Prepare hire purchase trading account. 1.1.90 Stock out with the customer at H.P price Stock at the shop at cost price Installments due but not received 31.12.90 Goods worth Rs.500 repossessed (Inst. Not due Rs.2000) Cash received from customers Purchase made during the year Stock out with the customer at H.P price Stock at the shop at cost (excluding goods repossessed) Installments due but not received

small value at cost Rs. 9000 18000 5000

60000 60000 30000 20000 9000

10. Raman purchased a motor car from bharathan whose cash price is Rs.56000 on 1.1.93. Rs.15000 is paid on signing the contract and the balance is to be paid in three equal annual installments of Rs.15000 each. The rate of interest is 5% p.a. Calculate the amount of interest included in the each installments.( NOV-2012)

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11. Mohan purchased a car on hire purchase system the cash price of the car was Rs.15980, payableRs.4000 being paid down and the three installments of Rs.6000 Rs.5000, Rs.2000 at the end of the first, second and third year respectively. Interest is charged at 5% p.a. Calculate the amount of interest for each year.(NOV-2011, APRIL-2014) 12. Mr.X purchased a cycle on hire purchase system for Rs.1000 to be paid as follows: Rs.800 on signing of contract, Rs.400 at the end of the first year, Rs.300 at the end of  the second year and Rs.700 at the end of the third year. Interest is charged at 5% p.a. Calculate the total cash price of the cycle and the amount of interest payable in the each installment. 13. Calculate the cash price of the machine from the following information. (APRIL2013) Down payment Rs.10000 Four annual installments at the end of each year Rs.10000 Rate of interest 5% per annum PART – C ANSWERS 1. Differences Between Hire Purchase System and Installment Purchase System. (NOV-2010, NOV-2011, APRIL-2010, APRIL-2013, APRIL-2014) Hire-Purchase System Installment Purchase It is a contract of hiring. It is a contract of sale. It is transferred by seller to buyer only It is transferred by seller to after payment of all installments. immediately on signing the contract.

In this case, the buyer is like a bailee. Such risk is on the seller.

buyer,

In this case, the buyer is not in the position of  a bailee. Such risk is on the buyer.

On default of payment of any installment On default of payment of any installment by by the buyer, the seller can repossess the the buyer, seller cannot repossess the goods, goods. but can file a suit in the court of law against the buyer for the recovery of unpaid price. The buyer can exercise the option of  The buyer cannot exercise the option of  return of goods. return of goods. The buyer cannot dispose the goods, The buyer has the right to dispose the goods, until the payment of last installment. If  even if all installments are not yet paid. disposed, the third party buyer does not get a better title.

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2. Mr.P purchased 4 cars for Rs.14000 each on 1.1.92 under the hire purchase system. The hire purchase price for all the 4 cars was Rs.60000 to be paid as Rs.15000down payment and 3 equal installments of Rs.15000each at the end of each year. Interest is charged at 5% p.a. The buyer depreciates the car at 10% on straight line method. From the above particulars give journal entries and relevant A/c’s in the books of Mr.P and in the hire vendor.(NOV-2011, NOV-2012, APRIL-2011) 3. Knight purchased a truck for Rs.160000 from S.Waugh on 1.1.93 payment to be made Rs.40000 down and Rs.46000 at the end of the first year, Rs.44000 at the end of  the second year and Rs.42000 at the end of the third year. Interest was charged at 5% p.a. Knight depreciates truck at 10% p.a on written down value method. Knight after having paid down payment and first installment at the end of the first year, could not pay the second installment. The seller took repossession of truck  after spending Rs.4000 on the repairs , sold it awa y Rs.91500. Prepare ledger accounts. 4. On 1.1.90 National transport company purchased from Metro motors five trucks costing Rs.40000 each on the hire purchase system. It was agreed that Rs.50000should be paid immediately and the balance in three equal installments of  Rs.60000 each at the end of the each year. The Metro motors charges interest at 10%p.a. The buyer depreciates trucks at 10%p.a. on the diminishing balance method. The buyer paid the down and two installments and failed to last installment. Consequently the Metro motors repossessed three trucks leaving two trucks with the buyer and adjusting the value of three trucks against the amount due. The trucks repossessed were valued on the basis of 30% on the written down value method. The trucks repossessed were sold by Metro motors for Rs.60000 after necessary repairs amounting to Rs.10000. Open the necessary ledger accounts in the books of both the parties.

5. From the following details, set out the hire purchase trading account in the books of a trader who sells a number of articles of comparatively small value daily on the hire purchase system, showing his profit on this department of the business for the year ended 31.12.88. For the purpose of charging his hire purchase customers, he adds 60% to the cost of the goods. Rs. 1.1.88 Stock in customers hands at the selling price 1620 31.12.88 Sale of goods on H.P. at selling price 6534 Cash received from H.P customer at selling price 2100 Cost in customer’s hand at selling price 4474 Good repossessed (Installments dueRs.1000) valued at 250

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6. Krishna sells products on H.P terms, the price being cost plus 33 1/3 % . From the following particulars for the year ended 31.12.95, prepare the necessary accounts on stock and debtor system to reveal the profit earned. Rs. 1.1.95 Stock out on hire at H.P price 1600000 Stock in hand at shop 200000 Installments due (customers still paying) 120000 31.12.95 Stock out on hire at H.P price 1840000 Stock in hand at shop 280000 Installments due (customers still paying) 200000 Cash received during the year 3200000. -----

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UCP 21 –  FINANCIAL ACCOUNTING UNIT-4  –  PARTNERSHIP – BASIC ADMISSION,RETIREMENT AND DEATH Type: 20% Theory  – 80% Problem Question & Answers PART –  A ANSWERS 1. Define partnership.(NOV-2010,NOV-2014) According to Partnership act 1932 define “as the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” 2. What is the treatment of goodwill at the time of retirement of partner?(APRIL2014) At the time of retirement of a partner, adjustment for goodwill of the firm, if any, has to be made as in admission. In retirement too, we confine to the Revaluation Method only. 3. Who is called as partner?(APRIL-2014) The persons who have entered into partnership are individually known as ‘Partners’ and collectively as ‘Firm’. 4. What is partnership deed?(APRIL-2010) It is an outcome of an agreement created orally or in writing between two or more persons. It is not essential that agreement must be in writing, but to avoid any disputes between the parties in future. 5. What is profit sharing ratio?(APRIL-2011) The ratio which is profit or loss shared by the partners in the partnership firm is called as profit sharing ratio. 6. What is Sacrificing ratio?(NOV-2011, APRIL-2010,NOV-2013) At the time of admitting the new partner the old partners are giving their ratio of  profit to the new partner it is called sacrificing ratio.

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7. How do we calculate Sacrificing ratio and Gaining ratio? (APRIL-2010,NOV2010) Sacrificing Ratio = Old ratio – New ratio Gaining ratio = New ratio – Old ratio 8. What is Revaluation account? (APRIL-2013) At the time of admission of a partner, the assets and liabilities are revalued so that the profit and loss arising on revaluation account . The profit or loss may be adjusted in the old partners’ capital accounts. 9. What is Goodwill?( APRIL-2011,NOV-2011) A well-established business develops an advantage of good name, reputation and wide business connections. This helps the business to earn more profits as compared to a newly set up business. In accounting, the monetary value of such advantage is known as 'goodwill'.

10. Define admission of partner. According to Section 31 (1) of the Indian Partnership Act 1932, a person can be admitted only with the consent of all the existing partners. A person who is admitted is known as new partner or incoming partner. 11. Define retirement of partner. According to section 32 (1) of the Indian partnership act 1932, a partner may retire from the firm. i. With the consent of all the partners ii. Where the partnership is at will by giving notice in writing to all other partners of  his intention to retire. iii. In accordance with an express agreement by the partners. 12. What is death of partner? Death of a partner dissolves the partnership but the surviving partners usually carry on the business by purchasing the deceased partners share. But the difference is retirement may be planned one, death is a permanent retirement. 13. What is gaining ratio? At the time of retirement of the old partner the remaining partners are sharing the profit ratio of the retired partner is called gaining ratio.

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14. What are the Methods of calculating interest on drawings. Simple method Interest on drawings = Amount of drawings X Rate of Interest X Months 100 12 Product Method: Interest on drawings = Total of products X Rate of Interest X 1 100 12 Average Method: Interest on drawings = Amount of drawings X Rate of Interest X Average period 100 2 15. What are the methods of capital? •

Fixed capital

•

Fluctuating capital

16. What is Fluctuating Capital method? Under the fluctuating capital method, only one account, viz., the capital account for each partner, is maintained. The capital of the partners changed from year to year. 17. What is Fixed capital method? Under this method, two accounts are maintained for each partner viz., (i) Capital account and (ii) Current account. The capital account will continue to show the same balance from year to year. In the current account, the transactions relating to drawings, interest on capital, interest on drawings, salary, share of profit or loss etc., are recorded. 18. What is adjusted profit and loss account? In a partnership firm, the net profit as shown by the Profit and Loss Account need certain adjustments with regard to interest on capitals, interest on drawings, salary and commission to the partners. For this purpose, Profit and Loss Appropriation Account may be prepared. 19. What are the methods of calculating interest on capital? •

Simple method

•

Product method

•

Average period method

20. What is product method? The amount of drawings for each period is multiplied by the period for which the amount is going to be used. Then, the product is summed up.

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21. What is average period method? Interest on drawings is to be calculated with reference to the average of the periods for which the money is withdrawn. 22. What is average period ? The average period is calculated to take the period for the average of the periods applicable to the first installment and the last installment. 23. Write down the three methods of valuation of goodwill? 1) Average Profit method 2) Super Profit method 3) Capitalisation method 24. What is meant by average profit method? In this method, past profits of a number of years are taken into account. Such profits are added and the average profit is found out. The average profit is multiplied by a certain number of years to arrive at the value of goodwill. 25. What is meant by super profit method? The excess of average profit over normal profit is called super profit. The goodwill under the Super profits method is calculated by multiplying the super profits by certain number of years purchase. 26. What is meant by transfer of undistributed profit or loss? The balance sheet of the partnership firm may show undistributed profits in the liabilities side and undistributed loss in the assets side of the old Balance Sheet. That undistributed profit or loss should be transferred to the old partners capital accounts in the old profit sharing ratio. 27. What is the accounting treatment of undistributed reserves and surplus? Partners of the firm, may set aside a portion or percentage of the profit earned to meet the unexpected or unforeseen losses arise in future in the name of Reserve, General Reserve, Reserve Fund, Contingency Reserve etc. At the time of admission of new partner, if there is any reserve, it should be transferred to the Capital accounts of the old partners in the old profit sharing ratio. 28. What are the three methods of goodwill adjusted ? 1. Revaluation Method 2. Memorandum Revaluation Method 3. Premium Method

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29. What is meant by Settlement of claim of the retiring partner? The amount due to the retiring partner is ascertained by preparing his capital account incorporating all the adjustments. The amount due is either paid off immediately or is paid in installments. When it is not paid immediately, it will be transferred to his loan account. 30. Write any two adjustments made at the time of admission of partner.(APRIL2014) • •

Adjustment in the profit sharing ratio Adjustment for goodwill

31. P and Q are partners sharing profits in the ratio of 3:2. They admit R for 1/5

th

share as

new partner. Calculate new profit sharing ratio.( APRIL-2010,APRIL-2011,APRIL2013, APRIL-2014,NOV-2014) 32. A and B are partners sharing profits in the ratio of 5:3. They admit C for 1/5 future profits which she acquires 4/20

th

from A and 2/20

th

th

share of 

from Bi. Calculate new Profit

sharing ratio.(NOV-2012, APRIL-2014) th

33. A and B are partners sharing profits in the ratio of 3:2. They admit R for 1/5 Share which acquires equally from P and C. Calculate new profit sharing ratio.(NOV2013) 34. Calculate goodwill under average profit method for 2 years purchases of three years profit which have been Rs.25000, Rs.35000, Rs.30000.(NOV-2014)

PART –  B ANSWERS 1. Write down the essentials of partnership.(NOV-2012) •

There must be an agreement entered into between two or more persons.

•

The agreement must be to share the profits of a business.

•

The business must be carried on by all or any of the persons concerned acting for all.

•

It is formed to carry on a lawful business and

•

It is an association of two or more persons.

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2. Write down the items debited and credited in Revaluation account

Revaluation Account is credited with the following profit items: 1)

Increase in the value of assets,

2)

decrease in the amount of liabilities and

3)

unrecorded assets now recorded.

Revaluation account is debited with the following loss items: 1)

Decrease in the value of assets,

2)

increase in the amount of liabilities,

3)

unrecorded liabilities now recorded and

4)

creation of a new liability.

3. What are the rules applicable in the absence of partnership deed? 1. Profit sharing ratio: Profits and losses are to be shared equally among the partners. 2. Interest on Loan: On any loan advanced by a partner he is entitled to interest on the at 6% p.a. 3. Interest on Capital: No interest is to be allowed on capitals. 4. Salary to partners: Partners are not entitled for any salary or other remuneration. 5. Interest on Drawings: No interest is to charged on drawings. 4. Difference between fluctuating capital and fixed capital. Basis

Fixed capital

The capital normally remains Change in capital unchanged except under special circumstances. Each partner has two accounts, Number of  accounts namely, Capital Account and Current Account.

Balance

Adjustments

Fluctuating capital The capital is changing from period to period. Each partner has only One account i.e., Capital Account.

Capital Account shows always a

Capital Account shows

credit balance. Current account may sometimes show debit or credit balance.

always a credit balance.

All adjustments relating to partners are recorded in the Current Accounts.

All adjustments relating to partners are recorded directly in the Capital Accounts itself.

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5. Give journal entries for unrecorded assets and liabilities(Nov-2010) * For recording an unrecorded asset Unrecorded Asset A/c Dr ...... To Revaluation A/c ...... * For recording an unrecorded liability Revaluation A/c Dr To Unrecorded Liability A/c

...... ......

6.Draw the specimen for Profit and loss appropriation account.( APRIL-2013) Profit and loss appropriation account Particulars Rs. Particulars Rs. To Interest on capital XXX To net profit b/d XXX To Partner’s salary XXX To Interest on To Commission XXX drawings XXX To Profit transferred to capital account XXX XXX XXX

7. Show how the following items will appear in the capital accounts of the partners, Babu and Gopu When their capitals are fluctuating. (NOV 2010, NOV-2013, NOV-2014)

Babu

 

Gopu

Capital on 1.4.2004

800000

700000

Drawings during 2004 - 2005

160000

140000

4000

2000

Share of profit for 2004-05

84000

66000

Interest on capital

48000

42000

Partner’s salary

72000

NIL

Interest on drawings

8. A and B are partners sharing profit and losses in the ratio of 3:2. They admit C and th he paying a premium of Rs.1000 for 1/4 of share of profit. No goodwill account appears in the books of the firm. They withdraw th e amount of goodwill. Journalise.(NOV-2011,APRIL -2011)

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9. A and B are partners in a firm with capital of Rs.36000 and Rs.32000 respectively. th They decide to admit G into the firm with a capital of Rs.30000. G is given 1/5 share in the future profits and losses. Give journal entry for goodwill.(NOV-2011,APRIL2011 ) 10. A, B and C are the partners sharing profit and losses in the ratio of 5:5:4. D is admitted as a partner. Goodwill of the firm is valued at 2 years purchases of 3 years profits which have been Rs.15000, Rs.26000 and Rs.22000. Give journal entries if: a) There is no goodwill in the books of the firm. b) The goodwill account appears at Rs.14000 and c) The goodwill is already standing in the books is Rs.56000. (APRIL-2013) 11. A partner makes a drawings of Rs.2000 p.m. under the partnership deed. Interest is to be charged 12% p.a. What is the interest that should be charged to the partner if  the amount was drawn (a) in the beginning of the month , (b) in the middle of the month and (c) at the end of the month.(NOV-2013) st

12. X and Y are the partners in the firm sharing profits and losses equally. On 1 , January 1995, their capital were Rs.20000 and Rs.10000 respectively. Interest on capital is to be allowed at 5% p.a. from the profits prior to the division thereof. st The net profit for the year ending 31 December 1995, before allowing interest on capital amounted to Rs.9500. st Give the journal entries and prepare profit & loss appropriation account as on 31 December 1995, showing the division of profit between X and Y.(NOV-2013) 13. Prepare revaluation account from the following information given by the partners A and B sharing profit and losses in the ratio of 3:2.(NOV-2012, APRIL-2013, APRIL-2014) * Increase the value of building Rs.10000 * Provision for doubtful debts be increased by Rs.2000 * Depreciate the value of furniture Rs.3000 * Investment of Rs.10000 was brought into the ac count. * Decrease the value of stock Rs.5000. PART –  C ANSWERS 1. Write down the contents of partnership deed. •

The name of the firm

•

Name and address of the partners

•

Nature of the partnership business

•

The period of the business if any

•

The commencement of business

•

Capital contributed by each partner

•

Nature of the capital i.e., Fixed or Fluctuating

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•

The proportion of sharing the profits or losses

•

Amount and period of drawings

•

Interest rate on capital, drawings

•

Commission salary, allowance etc., payable to partners, if any

•

Valuation method of goodwill and its treatments on admission, retirement or death or partners.

•

Procedure by which a partner’s account has to be settled and mode of   payment.

•

Rights and duties of partners.

•

Under what situation the firm stands dissolved

•

The ways of keeping accounts, their audit etc.

2. Write the adjustments at the time of admission and accounting treatment for death of partner. At the time of admission 1. Adjustment in the profit sharing ratio 2. Adjustment for goodwill 3. Adjustment for revaluation of assets and liabilities 4. Adjustment of reserves and other accumulated profits 5. Adjustment for capital At the time of retirement

1. Revaluation of Assets and Liabilities 2. Transfer all the reserves, profit and loss and accumulated losses to all the partners capital account. 3. Share of goodwill 4. Capital to his credit 5. Disposal of a deceased partners share. 3. A and B are partners sharing profit in the ratio of 3:1. Their balance sheet stood as under on31.12.95(Nov-2011,Nov-2014,APRIL-2010,APRIL-2011,APRIL2013,APRIL-2014) Liabilities Rs. Assets Rs. Capital : A Stock  10000 B 30000 50000 Prepaid Insurance 1000 Salary due 5000 Debtors Creditors 20000 40000 Less: Provision 8000 7500 Cash 18500 Machinery 500 22000 Buildings 30000 Furniture 6000 95000 95000

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th

C is admitted as a new partner introducing capital of Rs.20000 for his 1/4 share in future profit. Following revaluations are made: Stock be depreciated by 5% • •

Furniture be depreciated by 10%

•

Building be revalued at Rs.45000

•

Provision for bad and doubtful debts be increased to Rs.1000 Pass Journal entries , prepare revaluation A/c and balance sheet after admission.

4. A and B are partners sharing profit in the ratio of 3:1. Their balance sheet is as follows(NOV-2010,NOV-2012) Liabilities Capital : A B 80000 Reserves Creditors 40000 Bills payable

Rs. 120000 40000 60000 20000 240000

Assets

Rs. 100000 25000 40000 70000 5000 240000

Buildings Plant Stock  Debtors Cash

th

•

C is admitted into partnership for 1/5 share of the business on the following terms: Buildings is revalued at Rs.120000

•

Plant is depreciated to 80%

•

Provision for bad debts is made at 5%

•

Stock is revalued at Rs.30000

•

C should introduced 50% of the adjusted capitals of both A and B . Open various accounts and the new balance sheet after the admission of C.

5. A ,B and C are partners in the firm sharing profit and losses in the ratio of 1/3, ½, 1/6 respectively. Their balance sheet as on 31-12-90 was as follows Liabilities Capital : A B 30000 C Reserves 40000 Creditors Bills payable 25000

Rs. 120000 40000 16000 25000 15000

Assets Buildings Machinery Furniture Stock  Debtors Less: Provision Cash

Rs. 50000 40000 10000 25000 18000

17500 8500

500 151000

151000

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•

C retires on 31-12-90 subject to the following conditions: A goodwill account is created in the books for Rs.24000

•

Machinery is depreciated to 10%

•

Furniture is depreciated to 5%

•

Stock to be depreciated by 15% and buildings to be appreciated by 10%.

•

Reserve for doubtful debts to be raised to Rs.2000. Prepare necessary ledger accounts and balance sheet of the new firm.

6. X, Y and Z were partners sharing profits equally. Z died on 31.3.91. The balance sheet of the firm as at 31.12.90 was as under: Liabilities Rs. Assets Rs. Capital : X 90000 Goodwill 40500 Y 75000 Buildings 90000 Z 63000 Investments 24000 Reserve Fund 18000 Debtors Investment Less: Provision 54000 48600 fluctuation fund 6300 Stock  84000 Creditors 46800 Cash at bank  5400 12000 299100

299100

•

On the date of death it was found that; Debtors were all good

•

Investments were valued at Rs.22500 and taken by X at the value

•

Stocks were valued at Rs.75000

•

Building was valued at Rs.171000

•

A liability of workmen’s compensation for Rs.9000 was to be provided for.

•

Goodwill was to be valued at one year’s purchase of average profits of last 5 years

•

Z’ share of the profit upto the date of death was to be calculated on the basis of last three year’s profit. The profit of the last 5 years were as under: 1986  –  Rs.34500; 1987  –  Rs.37500; 1988  –  Rs.24000; 1989  –  Rs.30000; 1990  –  Rs.36000. Prepare Revaluation A/c, Capital A/c and balance sheet of the remaining partners.

-----

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UCP 21 – FINANCIAL ACCOUNTING UNIT-5 – DISSOLUTION OF PARTNERSHIP Type: 20% Theory  – 80% Problem Question & Answers PART – A ANSWERS 1. What is dissolution of partnership?(APRIL-2011) The relation of partnership among different partners is changed without changing the partnership firm. 2. What is meant by dissolution of firm? (NOV-2013,APRIL-2010) It means to close the firms activities permanently. It means closing down the undertaking or suspending permanently the activities of a partnership business. 3. What are the modes of dissolution?(NOV-2014,APRIL-2013) •

Compulsory dissolution

•

Dissolution by agreement

•

Dissolution by notice

•

Dissolution by court

•

Dissolution on happening of certain events.

4. What is meant by dissolution by agreement?( NOV -2010,APRIL-2010) A Partnership firm can be dissolved at any time by mutual consent of all the partners. 5. Write some circumstances firm dissolved by court.(APRIL-2010) •

When a partner becomes of unsound mind

•

When a partner gets disabled permanently

6. What is meant by piecemeal distribution?(NOV-2014) It has been assumed that all the assets are realized immediately on the date of  dissolution and all liabilities are paid off on the same date. But in actual practice, it seldom happens, the assets are sold gradually to realize the best price for term. 7. What is meant by realization?(APRIL-2014)

The Realization Account is prepared to record the transactions relating to sale and realization of assets and settlement of creditors. Any profit or loss arising out of  this process is shared by the partners in their profit sharing ratio.

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8. What is meant by insolvency of a partner?(or)Who is an insolvent partner? (NOV-2010, NOV-2012,NOV-2014,APRIL-2011,APRIL-2014) In partnership firm when the partners liabilities are more than his assets then the partners becomes insolvent partner. 9. What is Garner vs Murray rule? (NOV-2011) The loss arising by default of an insolvent partner is to be borne by the solvent partners in proportion to their respective capitals instead of their Profit sharing ratio. 10. Journal entry for closing of assets account in dissolution.(NOV-2013)

Realization a/c

Dr.

To Assets a/c(individually) Partners’ capital a/c

Dr.

To Fictitious assets a/c 11. Journal entry for closing of liabilities account in dissolution.(APRIL-2013)

External liabilities a/c(Individually)

Dr.

To Realization a/c Realization a/c

Dr.

To Bank a/c 12. What is fixed capital in dissolution?(APRIL-2010) The original capitals form the ratio to distribute the loss caused by the default of  an insolvent partner. 13. What is dissolution?

Dissolution means discontinuance. It means closing down the undertaking or suspending permanently the activities of a partnership business. 14. Write down the expansion of dissolution.

D – Stands for Death of a partner I – Stands for Incapacity S – Stands for Shares (transfer) S – Stands for Serious misconduct of partnership O – Stands for object of the firm (Completion) L – Stands for Lunacy of a partner U – Stands for Unexpected losses of a firm T – Stands for Term of the expiry of a Partnership

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I – stands for Insolvency of all the partners O – Stands for unlawful Object N – Stands for Notice given by partners . 15. What is meant by dissolution by notice? Any partner can dissolve the partnership by giving notice in writing to all other partners if the partnership is at will. 16. Write down the events happening that the partnership firm is dissolved. •

On the expiry of the period for which it was formed.

•

On the death of a partner.

•

On the completion of the venture agreed upon.

17. What is the order of payment is adopted, when assets are realized? * Payment to creditors and other external liabilities * Payment of partners’ loan rate ably. * If any amount remains after making above payments, this is utilized in payment of capitals to the partners. 18. What are the two methods making payment to partners in dissolution? * Proportionate capital/surplus capital method * Maximum loss method. 19. What are the accounts settled in dissolution? (a) Payment of losses, (b) Distribution of assets, (c) payment of firm’s debts and personal debts and (d) in settling the accounts of a firm after its dissolution. 20. What is meant by payment of liabilities through surrender of assets to creditors? If any asset has been taken over or accepted by any creditor in full or part payment of the amount due to him, then the agreed value of the asset will be deducted from the amount due to the creditor and the payment will be nil, in case of full settlement or payment will be restricted to the balance amounts. 21. Give journal entry for dissolution expenses.(APRIL-2014) (a) When realization expenses are paid by the firm

Realization a/c

Dr.

To Bank a/c (b)

When firm has agreed to pay partner a fixed amount towards realization expenses irrespective of the actual realization expenses

Realization a/c

Dr.

To Partners’ capital a/c

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PART – B ANSWERS 1. Journal entries for Undisclosed or unrecorded assets and liabilities. (NOV2010,NOV2014,APRIL-2013,APRIL-2014)

Such asset would never be transferred to realization account, but the entries would be as under •

When sold for cash:

Bank A/c

Dr. To Realisation A/c

•

When taken over by a partner: Partner’s Capital A/c

Dr.

To Realisation A/c •

No entry if taken over by a creditor

Similarly unrecorded liability will not be recorded in realisation A/c only the payment made will be shown as : •

when paid in cash

:

Realisation a/c

Dr.

To Bank A/c •

When taken over or paid by partner: Realisation A/c

Dr.

To Partner’s capital A/c 2 . Explain Fixed and Fluctuating Capitals under dissolution.(APRIL-2011) In Garner vs. Murray the ratio of capital prior to dissolution formed the basis for writing off the deficiencies of insolvent partner. In this connection it is important to note when the capital accounts are fixed; the original capitals form the ratio to distribute the loss caused by the default of an insolvent partner. But if the capitals are fluctuating, first of all relevant adjustment regarding Reserve and business profit and losses are made; capitals, thus but without any adjustment for realisation loss or profit or taken over of an assets or liability by a partner form the basis for distribution of loss due to the insolvency of a partners.

3. Discuss Garner vs. Murray Decision - Insolvency of a Partner. Before the decision in Garner vs. Murray, any loss, arising from insolvency of  any partner, was borne by the solvent partners in the same proportion as they had shared profits and losses of the business. But after the decision of justice Juice in the case of Garner vs. Murray, the loss arising by default of an insolvent partner is to be borne by the solvent partners in proportion to their respective capitals instead of  their Profit sharing ratio. It should be noted that this rule is applied only where there is no agreement on this point.

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REGULATION CBCS - 2012

The Realisation account is prepared as usual whether this rule is to be applied or not. The insolvent partner asked to pay whether he can, towards his debit balance. The final balance in the solvent partners in the ratio of their capital as they stood before dissolution. The application of ruling of Garner vs. Murray may be the excluded by the expressed agreement among the partners. 4. Difference between Revaluation account and Realisation Account. Revaluation account It is prepared on the admission , retirement or death of a partner. To record necessary adjustments in the value of assets and liabilities .

The firm continues to function though with a changed relationship among the partners. Difference between the book value and revised values of assets and liabilities is recorded is this account. It is prepared many times during the life time of a firm.

Realisation account it is prepared on the Dissolution of  partnership firm. It is prepared to find out profit or loss on the sale of assets and repayment of  liabilities. The firm comes to an end after preparation of this account.

The realized value of assets and the actual payment of liabilities is recorded in this account. It is prepared only once during the life time of a firm.

5. Difference between Dissolution of Partnership and Dissolution of firm. Dissolution of partnership Change in the exiting agreement between the partners.

Dissolution of firm Dissolution of partnership between all the partners of the firm.

The firm continues its business.

The firm does not continue its business.

Books of accounts may not be closed.

Books of accounts have to be closed.

Dissolution of partnership does not mean the dissolution of firm. It is voluntary nature.

Dissolution of firm means the dissolution of partnership also. It is voluntary and compulsory nature.

6. Pass journal entries assuming the assets and liabilities already transferred to realisation account: (APRIL-2014) a) Unrecorded assets realized Rs.5000 b) Unrecorded liability paid Rs.3000 c) A liability taken over by partner ‘X’ Rs.8000

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REGULATION CBCS - 2012

Journal entries: a) Cash A/c To Realisation A/c b) Realisation A/c To Cash A/c c) Realisation A/c To X’s capital

Dr.

50005000-

Dr.

30003000-

Dr.

80008000-

7. Pass journal entries after various assets and third party liabilities transferred to realisation A/c.(APRIL-2013) a) Bank loan Rs.12000 is paid. b) Stock worth Rs.6000 is taken over by partner B c) Expenses on dissolution amounted to Rs.1500 and were paid by the partner A. d) A typewriter completely written off in the books of account was sold for Rs.200.

Journal entries: a) Realisation A/c To Cash A/c b) B’s capital A/c To Realisation A/c c) Realisation A/c To A’s capital d) Cash A/c To Realisation A/c

Dr.

1200012000-

Dr.

60006000-

Dr.

15001500-

Dr.

200200-

8. P, Q, R share the profits and losses in proportion of ½, ¼ and ¼ . On the date of  dissolution their balance sheet was as follows: (APRIL-2010, APRIL-2011, APRIL2013) Liabilities Creditors P’s capital Q’s capital R’s capital

Rs. 14000 10000 10000 6000 40000

Assets Sundry assets

Rs. 40000

40000

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REGULATION CBCS - 2012

The assets realized Rs.35500. Creditors were paid in full. Realisation expenses amounted to Rs.1500. Close the books of the firm. 9. The following is the balance sheet of X, Y and Z on 31-3-94 Liabilities Creditors X’s capital Y’s capital General reserve

Rs.

Assets

40000 50000 30000 30000

Furniture Plant & machinery Stock  Sundry debtors Cash at bank  Z’s capital

150000

Rs. 40000 20000 40000 20000 12000 18000 150000

Z is insolvent but his estate pays Rs.4000. It is decided to dissolve the partnership. The assets realized as follows: Sundry debtors: Rs.15000, Furniture: Rs.28000, Stock: Rs.32000, Plant & Machinery: Rs.14000. The dissolution expenses amounted to Rs.5000. Give accounts to close the books of the firm if the capitals are fluctuating. 10. A and B are in equal partnership. Their balance sheet stood as follows: Liabilities Creditors A’s capital

Rs.

Assets 3900 600

4500

Plant & machinery Furniture Sundry debtors Stock  Cash at bank  B’s capital

Rs. 1475 400 500 625 300 1200 4500

The assets were realized as follows: Sundry debtors: Rs.500, Furniture: Rs.200, Stock: Rs.350, Plant & Machinery: Rs.700.The cost of collecting and distributing the estate amounted to Rs.150. A’s private estate is not sufficient even to pay his private liabilities, where as in B’s private estate, there is a surplus of Rs.50. Prepare Realisation A/c, Cash A/c, Creditors A/c, Capital A/c’s and the Deficiency A/c of the partners.

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PART – C ANSWERS 1. Explain the various modes of dissolution.(NOV-2010,NOV -201, NOV-2013,APRIL2011,APRIL-2014) 1. Compulsory Dissolution: In certain cases in which a firm becomes illegal and stands dissolved. The following are such cases (i) If all the partners except one or all of them are declared insolvent. (ii) When the number of partners exceeds 20 (iii) When a citizen of an enemy country becomes a partner (iv) When the business of the firm is opposed to public interest (v) If the business of the firm is opposed to public interest. 2. Dissolution by Agreement: A Partnership firm can be dissolved at any time by mutual consent of all the partners. 3. Dissolution by notice: Any partner can dissolve the partnership by giving notice in writing to all other partners if the partnership is at will. 4. Dissolution by court: A court can order the dissolution of the partnership firm in the following cases: (i) When a partner transfers/sells his share to a third party without the consent of  other partners (ii) When a partner becomes of unsound mind (iii) When a partner gets disabled permanently (iv) When a partner is found guilty of misconduct (v) When the firm cannot be carried on except with losses. 5. Dissolution on happening of certain events: A firm may also get dissolved in the following cases. (i) On the expiry of the period for which it was formed (ii) On the death of a partner (iii) On the completion of the venture agreed upon.

2. Journal Entries for dissolution of partnership firm .(NOV-2011,NOV-2013)

1.

For transferring the assets Realization a/c

Dr.

To Assets a/c(individually) Partners’ capital a/c

Dr.

To Fictitious assets a/c 2.

For transferring the liabilities External liabilities a/c(Individually)

Dr.

To Realization a/c

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3.

REGULATION CBCS - 2012

For sale of assets Bank a/c(realized price)

Dr.

To Realization a/c 4.

For an asset taken over by a partner Partner’s capital a/c

Dr.

To Realization a/c(Agreed price) 5.

For payment to creditors Realization a/c

Dr.

To Bank a/c 6.

Settlement with the creditors through transfer of asset Realization a/c

Dr.

To Bank a/c Whenever a creditor takes over an asset, there may be two situations : (a) When a creditor accepts an asset whose value is more than the amount due to him, he will pay cash. It is recorded as : Bank a/c

Dr.

To Realization a/c (b) When a creditor accepts an asset as full and final settlement, no journal entry is recorded. 7.

Expenses of realization (a) When realization expenses are paid by the firm Realization a/c

Dr.

To Bank a/c (b) When firm has agreed to pay partner a fixed amount towards realization expenses irrespective of the actual realization expenses Realization a/c

Dr.

To Partners’ capital a/c (c) When the actual expenses are paid by the firm on behalf of a partner, the following entry will be recorded : Partners’ capital a/c

Dr.

To Bank a/c (d) However, if a partner himself pays and agreed not to get them reimbursed, no

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 journal entry is recorded. (e) When the partner agrees to pay the expenses on behalf of the firm, the entry to be recorded : Realization a/c To Partners’ capital a/c 8.

Dr.

When liabilities are paid off  Realization a/c

Dr.

To Bank a/c 9.

When partner discharges a liability The liability account is transferred from realization account to partner’s capital account by recording the following entry : Realization a/c

Dr.

To Partners’ capital a/c 10. For realization of any unrecorded assets Bank a/c

Dr.

To Realization a/c 11. Unrecorded asset taken over by a partner Partners’ capital a/c

Dr.

To Realization a/c 12. For settlement of any unrecorded liability Realization a/c To Bank a/c

Dr .

13. Unrecorded liability taken over by a partner Dr Realization a/c . To Partners’ Capital a/c 14. When the profit (loss) on realization is transferred to partners’ capital account in their  respective profit sharing ratio : (a) In case of profit on realization Realization a/c

Dr.

To Partners’ Capitals a/c(individually) (b) In case of loss on realization Partners’ Capitals a/c (individually)

Dr.

To Realization a/c

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REGULATION CBCS - 2012

15. For transferring accumulated profits and reserve All accumulated profits and reserves are transferred to the partners’ capital account in their respective profit sharing ratio : Accumulated profit/reserves

Dr.

To Partners’ capitals a/c (Individually) 16. Transfer of fictitious assets All accumulated losses and fictitious assets are debited to the partners’ capital accounts in their profit sharing ratio : Partners’ capitals a/c (Individually)

Dr.

To Accumulated losses/Fictitious Assets a/c 17. Payment of loans Any loans due to partners are paid off : Partner’s loan a/c

Dr.

To Bank a/c 18. Settlement of capital accounts (a) If the partner’s capital account shows debit balance, he is to bring in the necessary cash Bank a/c

Dr.

To Partners’ capital a/c (b) In case of partners whose accounts show credit balance, the same is paid off : Partners’ capitals a/c Dr. To Bank a/c 3. R, S and M are partners sharing profits and losses as 2:2:1. Their balance sheet as at 30.6.91 was as follows: (NOV-2012) Liabilities Creditors R’s capital S’s capital M’s capital Reserve Fund

Rs.

Assets

4000 10000 4000 2000 5000 25000

Cash at bank  Sundry debtors Stock  Furniture Plant & machinery

Rs. 5000 4000 5000 2000 9000 25000

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