Financial Accounting
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INTERMEDIATE EXAMINATION GROUP I (SYLLABUS 2008) SUGGESTED ANSWERS TO QUESTIONS
DECEMBER 2011
Pape Pa per-5 r-5 : FINA FINANC NCIA IAL L AC ACCO COUN UNTI TING NG Time Allowed : 3 Hours
Fu l l M a r ks ks : 1 0 0
The figures in the m argin on t he right side indicate indicate full m arks. Answer Ques Answer Question tion No. 1, 1 , w hich is compulsory and any and any five questions questions from the rest.
Q. 1. (a) (a) From the fou r alternative answers given given agains againstt each each indicate the correct correct answer : [1×10=10] (i) From the four alternative answers answers gi given ven agains againstt each indica indicate te the correct answer answer : (A) Periodic inventory sys system tem (B)) Pe (B Perpetual rpetual inventory inventory sys system tem ( C) C) B o t h o f ( A) A) a nd n d ( B) B) ( D) D) N o n e o f (A (A ) a n d (B (B ) (ii) The cost cost of a Fixe Fixedd Assets Assets of a busines businesss has to be w ritt en off over its ( A) A) N a t u r al al Li f e ( B) B) A cc cc o u n t in in g Li Li f e (C)) Phys (C Physica icall Life Life (D) Estim ated Economic Economic Life Life ( i i i ) Sh o r t w o r k i n gs gs ca ca n b e r e co co u p e d o u t o f ( A ) M i n im im u m r e nt nt (B)) Exc (B xces esss of actual actual Royal Royalty ty over m inimum rent (C)) Exc (C xces esss of minim um rent o ver actual actual Royal Royalty ty (D)) Profit and Los (D Losss Acc Account ount
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2
Suggested Answers to Question — FAC
(iv) In Hire Purchas Purchasee sys system tem cas cashh price plus interest is know n as (A) Capital value value of ass asset (B)) Book value (B value of ass asset (C)) Hire purchase (C purchase price of ass asset (D) Hire purchas purchasee charge chargess (v) In partnership partnership when a new Partner brings brings his his share of Goodwill in in cash, cash, then the am ount of suchh Goodw ill will be ccredited suc redited to Partner s’ capitals capitals as per t he follow ing ratio : (A) Old Profit Profit sharing sharing ratio (B)) Sac (B acrific rificee ratio ( C) C) G ai ai n r at at i o ( D) D) N o n e o f t h e ab ab o ve ve (vi) The Receipts Receipts and Paym Paym ents Account Account general generally ly begins w ith (A) Credit Ba Balanc lancee ( B) B) D eb eb i t B al al an an c e (C)) Both Debit and Credit (C Credit Balanc Balancee ( D) D) N o n e o f t h e ab ab o ve ve (vii)) W hich of the follow ing is (vii is a category category of Share Share Capital Capital of a comp any? ( A) A) A u t h o r i se se d C ap ap i t al al (B)) Is (B Isssued Capita Capitall (C)) Call (C alled ed up Capita apitall ( D) D) A llll o f t h e a b o ve ve (viii) (vii i) In case case of a Banking Banking Com Com pany, entries in the Personal Personal Ledger Ledger are made fro m ( A) A) D ay ay B o o k ( B) B) Vo u ch ch e rs rs (C)) Rough Regis (C Register ter ( D) D) N o n e o f t h e ab ab o ve ve ( i x) x) W h e n Sa Sa le le s = 1,80,000, Purchase = 1,60,000, Opening Stock = Gross Profit is 20% on cost, t he Closing Closing Sto Sto ck wo uld b e `
(A ) (B ) (C)
`
`
`
50,000 44,000 46,000
( D) D) N o n e o f t h e ab ab o ve ve
`
`
34,000 34,0 00 and rate of t he
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Suggested Answers to Question — FAC
3
(x)) Goods are transferred (x transferred from Depa Departm rtm ent X to Departm ent Y at at a price so so as to include a profit of 33.33% on cost. If the value of closing closing stock of Departm ent Y is 18,0 18,000, 00, then the am ount of stock reserve on closing stock stock w ill be `
(A ) (B)) (B (C)
`
`
`
6,000 4,500 9,000
( D) D) N o n e o f t h e ab ab o ve ve (b ) St a t e w h e t h e r t h e f o l l o w in in g st a t e m en en t s a r e TRU E ( T) o r FA LSE ( F) : [ 1 ×5 =5 ] (i) Original cos costt m inus scrap scrap value value is the d epreciable value of asset. asset. (ii) Royalty is a Revenue Revenue Expenditu Expenditu re to Lessor Lessor.. (ii i) Acc According ording to AS-2 AS-2 Inventories are are held for sale sale in norm al course course of business. business. (iv) Inc Incom om e and Expenditure Expenditure Account is prepared by adopting accrual accrual principle principle of acc accounting. ounting. (v) Advance paym paym ent o f Tax Tax is is shown in th e Liabili Liabilities ties side side of Balance Balance Sheet. Sheet. (c) Fill in the blanks in the following sentences using the appropriate word from the alternatives i n d i ca t e d : [ 1 ×5 = 5 ] (i)) Deprec (i Deprecia iation tion is an item of
. (g (gros rosss profit/expenditure)
( i i ) Co m pe p e n sa sa t io io n p ai ai d t o e m p lo lo ye ye e s w h o a r e r et et re r e n ch ch ed ed i s Revenue) (iii) (ii i) Receipts and Payment Acc Account ount is a
e x p en en di d i t ur u r e ( Ca p itit al al /
Account Acc ount is nature. (R (Real/No eal/No m inal)
( i v ) U n cl cl a i m ed e d Di Di v i d en en d a p pe p e a r s u nd n d er er th t h e h ea ea d of of (Deferred Expenditu re/ Liabilities iabilities))
i n th t h e B a l a n ce ce Sh ee ee t of o f a Co m pa pan y
(v) According According to Insurance Act, the provision provision requ ired to be m ade agains againstt unexpired risk in fire insurance bu sines sinesss is per cent. (30/50) ( d) d ) M a tc t ch t h e fo fo l lo lo w i n g :
[1×5=5]
( i ) A S— 6
( I ) B o r r o w i n g co st s
( i i ) A S— 1 3
( I I ) Co n so l i d a t e d F i n a n c i a l St a t e m e n t s
( i i i ) A S— 1 6
( I I I ) D e p r e c i a t i o n A c co u n t i n g
( i v ) A S— 1 9
( IV ) A c c o u n t i n g f o r I n v e st m e n t
( v ) AS AS— 2 1
( V ) Le a s e s ( VI VI ) N o m a t ch c h i n g st a t em em e n t s f o u n d
Answer 1. (a) ( i ) — ( A ) Perio dic invento ry system system ( i i ) — ( D ) Estim ated Econo Econo m ic Life Life ( i i i ) — ( B ) Exc xces esss of actual Royalty Royalty over m inimu m rent ( i v ) — ( C) Hire pu rchase price of asset
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4
Suggested Answers to Question — FAC
( v ) — ( B ) Sacrifice ratio ( v i ) — ( B ) Debit Balance ( v i i ) — ( D ) All of the above ( v iii i i ) — ( B ) Voucher ( i x ) — ( B) (x) — (B)
`
`
44,000 4,500
Answer 1. (b) ( i ) — ( T) ( i i ) — ( F) ( i i i ) — ( T) ( i v ) — ( T) ( v ) — (F) Answ er 1. (c) (c) ( i ) — Ex p en e n d itit u re re ( i i ) — Re ve ve nu nu e ( i i i ) — Re al al ( iv iv ) — Li ab ab ili l itit i es es (v ) — 5 0 Answer 1. (d) ( i ) A S- 6
— ( III)
( i i ) A S- 1 3
— ( IV )
( i i i ) A S- 1 6
— ( I)
( i v ) A S- 1 9
— (V )
( v ) A S- 2 1
— (II)
Q . 2 . (a) For t he year e nd ing 31st Decem ber, 2011, t he Sales, Sales, Purchases Purchases,, Openin g Sto Sto ck and Closing Closing Sto Sto ck of a Trader Trader w as 5,00,000, 3,80,000, 65,000 and 52,000 respectively. Some goods were destroyed by fire (w itho ut reali realizzation o f any value) during th e year. year. If the Trader Trader earned Gros Grosss Pr of o f itit @ 25 2 5 % o n Sa Sa l e s f o r th t h e y e a r, ca l c u la la t e t h e v a l u e o f go go od o d s d es est ro r o ye ye d b y f irir e. e. [ 3] 3] `
`
`
`
(b ) On 1st Apr il, 2009, Nath Ltd. purchased purchased a second second -hand M achine for 1,20,000 and spent 30,000 on it s renewal. On 1st October, 2010, 3,000 was spent spent on repairs. On 30t h Septem Septem ber, 2011 the M achine was sold for 75,000. Depreciation Depreciation is to b e provided @ 20 p er cent per ann um acc according ording t o w r i t t e n d o w n v a lu lu e m e t h o d . `
`
`
`
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Suggested Answers to Question — FAC
5
Prepare M achinery Accoun Accoun t reflecting all these transactions ass assum ing Books are closed closed o n 31st M a r c h e a c h y e a r. [5] (c) A and B are curren curren tly partn ers in in a firm sharing Profit/ Loss in the rat io of 4 : 3. A new p artner C is adm itted and after h is adm is issi sion on new pro fit sharing ratio betw een A, B and C becom es 5 : 3 : 2 . W h a t w i l l b e t h e sa c r i f i c e r a t i o o f A a n d B a f t e r a d m i ssi o n o f C? [2] (d ) W hat do you un derstand by gradual realisation realisation of as asssets and piecemeal distribu distribu tion ? S State tate t he p r i o r i t y t h a t sh o u l d b e f o l l o w e d i n p i e c e m e a l d i st r i b u t i o n . [5] Answer 2. (a) Calculation alculation of value of goods destro destro yed by fire : M emorundum Trading rading A/c
Dr. Particulars
Goods destroyed by Fire =
Particulars
`
To Op Op e n i n g st o c k To P u r c h a s e s To G r o ss Pr o f i t ( 2 5 % o f Sa l e s)
`
6 5 ,0 0 0 3 , 8 0 ,0 0 0 1 , 2 5 ,0 0 0 5 , 7 0 ,0 0 0
Cr. Cr.
By Sa l e s By G o o d s d e st r o y e d b y f i r e ( b a l . f i g . ) By Cl o si n g st o c k
`
5 ,0 0 , 0 0 0 1 8 ,0 0 0 5 2 ,0 0 0 5 ,7 0 ,0 0 0
18,000
Answer 2. (b) Ledger of Nath Limit ed Machinery A/c
Dr. Particulars 1 . 4 . 0 9 To B a n k A / c B a n k A / c ( Ex p . )
`
1 . 4 . 1 0 To B a l a n c e b / d
1 , 2 0 ,0 0 0 3 0 ,0 0 0 1 , 5 0 ,0 0 0 1 , 2 0 ,0 0 0
1 . 4 . 1 1 To B a l a n c e b / d
1 , 2 0 ,0 0 0 9 6 ,0 0 0
Cr. Cr. Particulars
3 1 . 3 . 1 0 By D e p r e c i a t i o n By Ba Ba l a n c e c / d 3 1 . 3 . 1 1 By D e p r e c i a t i o n By Ba Ba l a n c e c / d 3 0 . 9 . 1 1 By D e p r e c i a t i o n ( @ 2 0 % o n 96,000 for ½ year) B a n k A / c ( Sa l e ) P & L A / c ( Lo ss)
`
3 0 ,0 0 0 1 ,2 0 , 0 0 0 1 ,5 0 ,0 0 0 2 4 ,0 0 0 9 6 ,0 0 0 1 ,2 0 ,0 0 0 9 ,6 0 0
`
9 6 ,0 0 0 Answ er 2. (c) (c) Sacrifice of A = 4/7 – 5/10 5/10 = 40 – (35/70) (35/70) = 5/70 5/70 Sacrific acrificee of B = 3/7 3/7 – 3/10 = 30 – (21/70) (21/70) = 9/70 H e nc nc e t h e sa sa cr cr i f ic ic e ra ra t io io = 5/ 5/ 7 0 : 9 / 70 70 o r 5 : 9
7 5 ,0 0 0 1 1 ,4 0 0 9 6 ,0 0 0
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6
Suggested Answers to Question — FAC
Answer 2. (d) W hen a partn ership is in in p roces rocesss of being d is issolv solved, ed, ass assets are sold gradually gradually one after ano ther to fetch m axi axim m um price. Ass Assets are realiz realized ed individually and it m ay need a tim e period to reali realizze from all the assets. assets. The partners in such a case may not wish to wait till all the assets are realized. It is universally accepted practice that an interim distribut ion is m ade to t he partn ers for t heir claim claim (after p ayi aying ng off all creditors) creditors) as as and w hen cas cashh is available. available. Priority of distribution distribution w ill be as under : (i)) to m eet the realiz (i realization ation expens expenses es (ii) (i i) to pay off preferential preferential cre creditors ditors ( iiii i)i) t o p a y o ffff o t h e r c re r e d itit o r s ( iv iv ) t o p a y o f f p ar ar t n e r ’s ’ s lo lo a n s (v)) to pay off partner’s ca (v capital pital Q . 3 . ( a) a) From the follow ing inform ation relating to Evergreen Sport Sport s Club, Club, prepare Balance Balance Sheet Sheet of t he Cl u b a s o n 1 - 1 - 2 0 1 0 a n d o n 3 1 - 1 2 - 2 0 1 0 : [10] (i)) Ass (i Assets as as on 1-1-2010 1-1-2010 Cl u b G r o u n d Sp o r t s Eq u i p m e n t Fu r n i t u r e
`
8 0 ,0 0 0 5 0 ,0 0 0 1 0 ,0 0 0
(ii) Acc Accrued rued Subsc Subscription ription as on 1-1-2010 1-1-2010 was
`
(iii) Creditor for stationery stationery as as on 1-1-2010 1-1-2010 was
2,000.
`
1,800.
(iv) Rece eceipts ipts and and Paym Paym ents Account Account for the year ended 31-12-2010 31-12-2010 Dr.
Cr. Pa y m en t s
Receip t s `
To B a l a n c e b r o u g h t d o w n Su b sc r i p t i o n r e c e i v e d ( 2 0 0 9 ) -d o (2 0 1 0 ) -d o (2 0 1 1 ) Sa l e s o f o l d N e w sp a p e r Re n t Re ce i v e d En t r a n c e Fe e s
8 ,0 0 0 1 ,8 0 0 2 2 ,0 0 0 600 500 5 ,8 0 0 1 8 ,0 0 0 5 6 ,7 0 0
`
By Sa l a r i e s Pr i n t i n g a n d St a t i o n e r y F i r e I n su r a n c e A d v e r t i se m e n t Fu r n i t u r e I n v e st m e n t s Ba l a n ce c/ d
1 4 ,0 0 0 3 ,5 0 0 2 ,2 0 0 3 ,0 0 0 4 ,0 0 0 2 1 ,0 0 0 9 ,0 0 0 5 6 ,7 0 0
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Suggested Answers to Question — FAC
7
Income and Expendit Expendit ure Account for t he year ended 31-12-2010. Dr.
Cr. In co m e
Exp en d i t u r e `
To Sa l a r i e s Pr i n t i n g & St a t i o n e r y A d v e r t i se m e n t A u d i t Fe e s F i r e I n su r a n c e Depreciation: Eq u i p m e n t Fu r n i t u r e Exces xcesss of Incom e over Ex p e n d i t u r e
1 6 ,0 0 0 2 ,0 0 0 3 ,0 0 0 800 2 ,0 0 0
`
By S Suu b s c r i p t i o n En t r a n c e Fe e s Re n t Sa l e o f o l d N e w sp a p e r s
2 4 ,0 0 0 9 ,0 0 0 6 ,0 0 0 500
7 ,0 0 0 1 ,0 0 0 7 ,7 0 0 3 9 ,5 0 0
3 9 ,5 0 0
(b ) A and B are Partners sharing sharing profit s in in t he ratio of 5 : 3. Follow Follow ing is the Bal Balance ance Sheet Sheet of t he Firm o n 3 1 -3 -2 0 1 1 : [5] Balance Sheet as at 31-3-2011 `
Ca p i t a l : A B
8 0 ,0 0 0 2 0 ,0 0 0 1 , 0 0 ,0 0 0
`
Dr aw in gs A B O t h e r A sse t s
5 ,0 0 0 3 ,0 0 0 9 2 ,0 0 0 1 , 0 0 ,0 0 0
Profit for the year 2010-11 was 16,000 and was divided betw een th e Partner Partner s as per agreed ratio, but interest on capital @ 5% p.a. and on drawings @ 6% was inadvertently omitted. Interest on d raw ing may calculated calculated on an average basis basis for 6 m ont hs. You are required t o pass Journ al Entr Entr y(ie y(ies) s) to m ake the adjustm ents in t he Capital acc accoun oun ts of A and B. `
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8
Suggested Answers to Question — FAC
Balance Sheet Sheet as at 31.12.2010 Liabilities Ca p i t a l Fu n d En t r a n c e Fe e s Su r p l u s A d v a n c e Su b sc r i p t i o n
`
1 ,4 8 ,2 0 0 9 ,0 0 0 7 ,7 0 0
Assets
`
1 ,6 4 ,9 0 0 600
`
Cl u b G r o u n d Sp o r t s Eq u i p m e n t ( 5 0 ,0 ,0 00 0 0 – 7,000) Fu r n i t u r e
8 0 ,0 0 0 4 3 ,0 0 0
( 1 0, 0 , 0 0 0 + 4 ,0 ,0 0 0 Less : D e p n. n. 1 ,0 0 0 ) I n v e st m e n t s A c c r u e d Su b sc r i p t i o n - 2009 200 - 2010 2 ,0 0 0 A cc r u e d Re n t Pr e p a i d I n s u r a n c e Ca s h
1 3, 3, 0 0 0 2 1 ,0 0 0
`
`
`
Li a b i l i t i e s f o r e x p e n s e s Pr i n t i n g Sa l a r i e s A u d it f e e s
300 2 ,0 0 0 800
`
3 ,1 0 0
`
1 ,6 8 , 6 0 0
2 ,2 0 0 200 200 9 ,0 0 0 1 ,6 8 , 6 0 0
Answer 3. (b) Pa r t n e r A
Pa r t n e r B
`
Ca p i t a l a s a t 3 1 - 3 - 1 1 Less :: Pr o f i t c r e d i t e d Less
`
8 0 ,0 0 0 1 0 ,0 0 0 7 0 ,0 0 0
2 0 ,0 0 0 6 ,0 0 0 1 4 ,0 0 0 (Figur (F igur es in ) `
A d j u st m e n t s f o r :
Pa r t n e r A Dr.
I n t e r e st o n c a p i t a l @ 5 % I n t e r e st o n d r a w i n g s @ 6 % Pr o f i t w r i t t e n b a c k D i v i si b l e P r o f i t
Cr. 3 ,5 0 0
150 1 0 ,0 0 0
Pa r t n e r B Dr.
Cr. 700
90 6 ,0 0 0 7 525
4 515
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Suggested Answers to Question — FAC
9
Q . 4 . (a) M r. X, X, a cloth cloth trader o f Kolkata Kolkata op ened a Branch at Kanpur on 1-4-2010. The The goods w ere sent by Head Office to t he Branch and invoiced at selling selling price to t he Branch, which is 25% of the cost p r i ce o f H e a d O f f i c e . [ 10] The following are t he part icula iculars rs relating relating to the t ransa ransactions ctions of the Kanpur Branch: `
G o o d s se n t t o B r a n c h ( a t c o st t o H . O . ) Sa l e s — Ca sh — Cr Cree d it Ca sh c o l l e c t e d f r o m D e b t o r s Re t u r n f r o m D e b t o r s D i sc o u n t A l l o w e d Ca sh se n t t o B r a n c h f o r Fr e i g h t f o r Sa l a r i e s f o r o t h e r e x p e n se s Sp o i l e d c l o t h e s w r i t t e n o f f a t i n v o i c e p r i c e N o r m a l l o ss e st i m a t e d a t
`
4 , 5 0 ,0 0 0 2 , 1 0 ,0 0 0 3 ,2 0 ,0 0 0 2 , 8 5 ,0 0 0 1 0 ,0 0 0 8 ,5 0 0 3 0 ,0 0 0 8 ,0 0 0 1 2 ,0 0 0
5 0 ,0 0 0 1 0 ,0 0 0 1 5 ,0 0 0
Prepare Branch Branch Stock Stock Account, Branch Debtors Accoun Accoun t and Branch Adjustm Adjustm ent Acc Account ount showing the net p rofit of t he Branch. Branch.
(b ) The following infor m ation for the year ended 31st M arch, 2011 is ava available ilable for Seva Seva Bank Bank Ltd.: [5] `
St a n d a r d A sse t s Su b - st a n d a r d A sse t s Doubt ful Assets Assets but sec secured— ured— U p t o o n e year On e t o t h r ee year s M o r e t h an t h r e e y e ar s
`
5 ,5 0 ,0 0 ,0 0 0 3 1 ,5 0 ,0 0 0 2 9 ,0 0 ,0 0 0 1 7 ,0 0 ,0 0 0 7 00 000
53 00 000
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10
Suggested Answers to Question — FAC
Answer 4. (d) Branch Sto Sto ck Accou Accou nt
Dr. Particulars
`
Particulars
`
To G o o d s se n t t o B r a n c h ( 4,50,000 + 25% of 4 , 5 0 , 0 0 0 ) Br a n ch d e b t o r s A cco u n t
5 , 6 2 ,5 0 0
`
1 0 ,0 0 0
Cr.
By Ca sh sa l e s B r a n c h D e b t o r s ( Cr. Sa l e s) B r a n c h a d j u st m e n t a / c ( N o r m a l Lo ss) Branch Branch adjustm adjustm ent a/ c ( Sp o i l e d ) Pr o f i t & Lo Lo ss A / c ( Sp o i l e d ) St o c k sh o r t a g e
5 , 7 2 ,5 0 0
2 ,1 0 , 0 0 0 3 ,2 0 , 0 0 0 1 5 ,0 0 0 2 ,0 0 0 8 ,0 0 0 1 7 ,5 0 0 5 ,7 2 , 5 0 0
Branch Debtor s Account Account
Dr. Particulars
3 , 2 0 ,0 0 0
Cr. Particulars
`
To G o o d s se n t t o B r a n c h
B y Ca s h D i sc o u n t B r a n c h St o c k ( r e t u r n ) Ba l a n c e c / d
3 , 2 0 ,0 0 0
`
2 ,8 5 , 0 0 0 8 ,5 0 0 1 0 ,0 0 0 1 6 ,5 0 0 3 ,2 0 , 0 0 0
Branch Branch Adjustm ent Account Account
Dr. Particulars Stock shortage ( N o r m a l Lo s s G r o ss Pr o f i t c / d
25 12 5
of
`
1 7 ,5 0 0 )
2 ,0 0 0
Cr. Particulars
`
To B r a n c h St o c k A / c ( sp o i l a g e )
Dr.
`
By 2 5 % m a r k u p o n g o o d s se n t
3 ,5 0 0 1 5 ,0 0 0 9 2 ,0 0 0 1 , 1 2 ,5 0 0 Branch Profit Profit Accoun Accoun t
`
1 ,1 2 , 5 0 0
1 ,1 2 , 5 0 0 Cr.
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Suggested Answers to Question — FAC
11
Answer 4. (b) Seva Bank Ltd Ltd Statem ent showing the am ount of provision provision for t he year ending 31s 31stt M arc archh 2011 A sse t s
Am ou nt ( )
Ra t e o f Pr o v i si o n ( %)
`
1. 2. 3.
St a n d a r d A sse t s 5 , 5 0 ,0 0 , 0 0 0 0 .4 0 Su b - st a n d a r d 3 1 ,5 0 ,0 0 0 10 D o u b t fu fu l A sse t s : U p t o o n ye ar 2 9 ,0 0 ,0 0 0 20 On e t o t h r e e y e ar s 1 7 ,0 0 ,0 0 0 30 M o r e t h an t h r e e ye ar s 7 ,0 0 , 0 0 0 100 Lo ss A sse t s 2 1 ,0 0 ,0 0 0 100 To t a l a m o u n t o f r e q u i r e d f o r p r o v i si o n
A m o u n t o f Pr o v i si o n ( ) `
2 ,2 0 , 0 0 0 3 ,1 5 ,0 0 0 5 , 8 0 ,0 0 0 5 , 1 0 ,0 0 0 7 , 0 0 ,0 0 0 2 1 ,0 0 ,0 0 0 4 4 ,2 5 , 0 0 0
(Rates (Rates of pro vision vision as per M aster Circular issued issued by RBI ‘DBOD No. BP. BP. BC. BC. 11/21.04 , 048/2005-0 048/2005-0 6 dat ed November 4, 2005’)
Q . 5 . (a) Th e f ol o l l o w in in g b al al a n ce ce s a r e a p pe p e a r in in g i n t h e B o ok o k s o f Al Al l Xe Xe ro ro x Lt d . o n 11 - 4 -2 -2 01 01 1: 1:
[ 10 10 ] `
Redee m able Prefer ence Share Share Capital (Share (Share s of Ca l l s - i n - A r r e a r G e n e r a l Re se r v e Sh a r e Pr e m i u m
`
1 0 e a ch )
2 ,0 0 ,0 0 0 2 ,0 0 0 1 ,0 0 ,0 0 0 5 ,0 0 0
The preference shares are fully called called up and du e for r edem ption at a prem ium of 10%. Calls Calls-in-inArrear are in respect respect of final call call at the rate o f 4 per share and these shares shares are are held b y M r. Rahul whose wh ereabouts are are not know n. `
The Board of Directors decided th at 50% of t he General Res Reserve erve is to be ut iliz ilized ed for the purp ose of redem ption of redeem able preference share capital capital and to m eet the furt her requirement o f
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12
Suggested Answers to Question — FAC
Answer 5. (a) Book of All Xerox Ltd. Jour nal Entries Dat e
Dr.
Pa r t i cu l a r s
Cr.
Am ou n t ( ) `
Re d e e m a b l e Pr e f r e n c e Sh a r e Ca p i t a l A / c D r. Pr e m i u m o n Re d e m p t i o n A / c D r. To Re d e e m a b l e Pr e f e r e n c e Sh a r h o l d e r s A / c (Being 19,500 fully paid Red. Pref. Shares along with premium Payable Payable on redemp tion as per Board resolution no. dt. ) G e n e r a l Re s e r v e A / c To Ca p i t a l Re d e m p t i o n Re se r v e A / c (Being General Reserve transferred)
D r.
Ba n k A / c To Eq u i t y Sh a r e s c a p i t a l A / c To Eq u i t y Sh a r e Pr e m i u m A / c (Being (Being issue issue o f 14,500 Equity shares at a prem ium )
D r.
Sh a r e Pr e m i u m A / c To Pr e m i u m o n Re d e m p t i o n A / c (Being premium payable adjusted)
D r.
Pr e f r e n c e Sh a r e h o l d e r s A / c
D r.
Amount ( ) `
1 , 9 5 ,0 0 0 1 9 ,5 0 0 2 ,1 4 ,5 0 0
5 0 ,0 0 0 5 0 ,0 0 0 1 ,7 4 ,0 0 0 1 ,4 5 , 0 0 0 2 9 ,0 0 0 1 9 ,5 0 0 1 9 ,5 0 0 2 ,1 4 , 5 0 0
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Suggested Answers to Question — FAC
13
Answer 5. (b) Not w ithstanding anyth ing contained in Section Section 6 w hich specifies specifies the various form s of business business in in w hich a Banking Banking com pany m ay engage engage in addition to th e business business of Banking, Banking, no Banking com com pany shall hold any imm ovable proper ty ho w soever acquired, acquired, except except such as is required for its ow n use, for any period exceeding exceeding seven seven years years from the acquisition acquisition t hereof or from comm encemen t of t he Act, whichever is later, later, or any extension of such period as in Section provided; and such property shall be disposed of within such period o r extend ed period , as the t he case case m ay be. Provided Provided t hat t he Banking com com pany m ay, ay, wit hin th e period of seven years years as as aforesa aforesaid; id; deal or trade in any such such prop erty fo r t he pu rpose of facilitating facilitating t he disposal disposal thereo f. Provided furth er t hat Res Reserve Bank m ay in any particular case case extend t he aforesaid period o f seven years by such period no t exceeding five years, years, wher e it is satisfied satisfied that such extension extension w ould be in t he inter est of th e depositors of th e Banking company. Q . 6 . (a) On April 1, 2008 Chandra Transport Transport Comp any purchased purchased a m ini tru ck from S. K. K. M oto rs on hire purchasee sys purchas system . The The term s were that they w ould pay 1,0 1,00,00 0,0000 dow n on same date and the balance was payable in three annual instalments. First instalment amounted to 74,000 was payable on 31-3-2009, second second 93,000 on 31-3-2010 and third 84,000 on 3 1-3-2011. Inter Inter es estt is charged @ 12% per annum . Rate Rate of dep reciation is 20% on w ritt en dow n value. `
`
`
`
You are required to calculate calculate th e to tal cash cash p rice and pr epare, (i) S. S. K. Mo tors Account; and (ii) M in in i - Tr u c k A c co u n t i n t h e B o o k s o f Ch a n d r a Tr a n sp o r t Co m p a n y. [6] (b ) D i st in in g u i sh be b e t w e e n Hi Hi r e Pu r c h a se Sy st em em an a n d In In st al al m en e n t Pa Pa y m en e n t Sy Sy st em em .
[4]
(c) G iv iv e t h e jo j o u r n a l e n t r ie ie s t o r e c t ifif y o r ad a d j u st st t h e f o l lo l o w i n g in i n t h e b o o k s o f t h e H e ad ad O f f ic ic e: e:
[5]
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14
Suggested Answers to Question — FAC
Answer 6. (a) Calculat ion of Cash Price Price Dat e
Pa r t i cu l a r s
In st a l m e n t ( ) `
3 1 -3 -1 1
3 1 -3 -1 0
3 r d I n st a l m e n t ⎛ 1 2 ⎞ (–) Int Int erest ⎜ 1 1 2 × 8 4 ,0 0 0 ⎟ ⎝ ⎠ Balance o f Cash Price + 2 n d I n st a l m e n t
3 1 -3 -0 9
⎛ 1 2 ⎞ (–) Int Int erest ⎜ 1 1 2 × 1 ,6 8 ,0 0 0 ⎟ ⎝ ⎠ Balance o f Cash Price + 1 st I n st a l m e n t
8 4 ,0 0 0
`
Ca sh Pr i ce ( ) `
9 ,0 0 0
7 5 ,0 0 0
1 8 ,0 0 0
7 5 ,0 0 0
2 4 ,0 0 0
5 0 ,0 0 0
9,000 75,000 9 3 ,0 0 0 1,68,000 18,000 1,50,000 7 4 ,0 0 0 2,24,000
⎛ 1 2 ⎞ (–) Int Int erest ⎜ 1 1 2 × 2 ,2 4 ,0 0 0 ⎟ ⎝ ⎠ Balance o f Cash Price + D o w n Pa y m e n t Total Tot al Cash Price =
I n t e r e st ( )
24,000 2,00,000 1 ,0 0 ,0 0 0 3 ,0 0 ,0 0 0 `
3,00,000
1 , 0 0 ,0 0 0 3 , 0 0 ,0 0 0
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Suggested Answers to Question — FAC
M ini Truck Truck Account Account
Dr. Particulars 1 .4 .0 8
1 . 4 .0 9
1 . 4 .1 0
`
To S. K. M o t o r s A / c
3 ,0 0 ,0 0 0
To B a l a n c e b / d
3 , 0 0 ,0 0 0 2 ,4 0 ,0 0 0
To B a l a n c e b / d
2 , 4 0 ,0 0 0 1 ,9 2 ,0 0 0
15
Cr. Cr. Particulars
3 1 . 3 . 0 9 By D e p r e c i a t i o n A / c By B a l a n c e c / d 3 1 . 3 . 1 0 By D e p r e c i a t i o n A / c By B a l a n c e c / d 3 1 . 3 . 1 1 By D e p r e c i a t i o n A / c By B a l a n c e c / d
1 ,9 2 ,0 0 0
`
6 0 ,0 0 0 2 , 4 0 ,0 0 0 3 ,0 0 ,0 0 0 4 8 ,0 0 0 1 , 9 2 ,0 0 0 2 ,4 0 ,0 0 0 3 8 ,4 0 0 1 , 5 3 ,6 0 0 1 , 9 2 ,0 0 0
Answer 6. (b) Difference bet w een Hire Purchase Purchase Sys System tem and Instam m ent Purchase Purchase Sys System tem H i r e Pu r ch a se Sy st e m ( i ) I t is is a n ag ag r ee ee m en e n t o f h irir in in g o f g o od od s ( i i ) Th e t i t l e o f t h e g o o d s i s t r a n sf sf e r r ed ed t o t h e buyer after paym ent o f last last instalm instalm ent ( i i i ) I f t h e b u y er er f a ilil s t o p a y a n y o f t h e i n st st a lm lm e n t
I n st a l m e n t Pu r ch a se Sy st e m I t is is a n ag ag r ee ee m en e n t o f sa l e o f g o od o d s. s. The title of goods is passed passed on t o th e buyer at t he signing signing of agreement . The seller can not repossess the goods.
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16
Suggested Answers to Question — FAC
Answ er 6. (c) (c) Ent ries in Books of Head Off ice Dr.
Cr.
Amount ( ) `
( i ) B r a n ch A / c To Pu r c h a se A / c (H.O.. purchase a/ (H.O a/ c was wro ngly debited instead of Branch a/c, now rectified) ( i i ) Sa l a r i e s A / c To B r a n c h a / c (Being Salaries was paid by Branch to H.O. official)
D r.
D r.
7 ,5 0 0
6 ,5 0 0 6 ,5 0 0
D r.
( i v ) B r a n ch A / c To Ex p e n se s A / c (Being expenses charged to Branch)
D r.
To B r a n c h A / c (Being (Bei ng goods sent t o Branch still in tr ansi ansit) t)
`
7 ,5 0 0
( i i i ) B r a n ch A / c To B r a n c h Sh o p A / c (Being (Bei ng Depreciation Depreciation o n Branch Shop Shop w ritt en off)
( v ) G o o d s i n Tr a n si t A / c
Amount ( )
1 1 ,2 5 0 1 1 ,2 5 0 5 ,6 0 0 5 ,6 0 0
D r.
2 5 ,0 0 0 2 5 ,0 0 0
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Suggested Answers to Question — FAC
17
Turno ver ratios are based based on cos costt o f good s sold sold except Debto rs rs’’ t urno ver Balance Bal ance Sheet Sheet as on 31st M arch, 2011 Li a b i l i t i e s
Am o u nt
A ss e t s
Am m o u n t
`
Eq u i t y ( n e t w o r t h ) Lo n g t e r m D e b t Cu r r e n t l i a b i l i t i e s
`
F i xe d A sse t s Cu r r e n t A sse t s In v e n t o r i e s Debtors Cas ashh in hand & bank
(c) Cl as assi f y t h e f o lll l o w i n g e xp xp e n d itit u r e s i n t o Ca Ca p itit a l Ex Ex p en en d i t u r e an an d Re Re v en en u e Ex Ex p en en d i t u r e: e: (i) E on a foreig cha e a machi
[3]
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18
Suggested Answers to Question — FAC
analysis does not become effective. For example it can be said that if the policies relating to inventory valuation, valuation, depreciation, depreciation, treatm ent of contingent lia liabili bilities ties,, etc. of tw o firms under the same industry are different th e trend indic indicated ated by an inter-firm comparis comparison on t hrough ratios does not carry any any effective meaning. (v ) Pe r so so n a l i n f lu lu e n ce ce : The utility of ratio analysis depends a lot on the skill and judgment of the interp reter. If the personal sense sense of judgmen t and analytical power o f different int erpreter s vary a particular ratio may indicate different trends. So presence of personal aptitude reduces the effectivenes effec tivenesss of ratio analysis analysis.. M oreover oreover,, the interpreters m ay exert exert undue influence on t heir analysis with unfair motives. (v i)i) O n ly ly q u a n t i t at at i v e a n al al y si si s : Ratios are are oft en called called quant itative too ls becaus becausee their com put ations are based on only quantitative or numerical figures. The qualitative aspects of the concerned num erals are to tally ignored in the process of r atio analysis analysis.. Ignoring Ignoring q ualitative aspect aspect m ay m is islead lead the u se sers rs of ratios. For For exam ple, a high current ratio ind ica icates tes a satis satisfactory factory loan r epaymen t capacity of a firm. But if its current assets consist of a large quantity of obsolete stock or its
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Suggested Answers to Question — FAC
19
Shekh ar Ltd. Balance Sheet Sheet as at 31.12.2010 Liabilities Eq u i t y / N e t w o r t h Lo n g Te r m D e b t Cu r r e n t Li a b i l i t i e s
4 ,0 0 ,0 0 0 3 ,0 0 , 0 0 0 2 , 0 0 ,0 0 0
9 ,0 0 , 0 0 0 Answ er 7. (c) (c) ( i ) Ca p itit a l Ex Ex p en en d i t u r e
Assets
`
F i x e d A s se t s Cu r r e n t A sse t s In v e n t o r ie s Deb t o r s Ca sh & B a n k
`
5 ,4 0 ,0 0 0 1 ,3 5 , 0 0 0 2 ,0 0 ,0 0 0 2 5 ,0 0 0
3 ,6 0 ,0 0 0 9 ,0 0 , 0 0 0
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20
Suggested Answers to Question — FAC
(vi) In addition addition to above, following are are als also discl disclos osed ed : 1. the amoun t used used as the num erator and a reconc reconcili iliation ation of those amoun ts to the net profit/ los losss for t he accounting accounting period. 2. the w eig eighted hted average average num ber of equity shares us used ed as the denominator and a reconcil reconciliation iation of those denom inator to eac eachh ot her her.. 3. the no m inal value of shares shares along with EPS EPS figure. (vii) Dis Discl closure osure may als also be m ade of term s and and conditions of contracts contracts generating generating potential equity equi ty w hich affect the basic basic and and dilut ed EPS EPS bot h on t he w eighted average num ber of shares out standing and any consequent consequent adjustments to net pr ofit attr ibutable to equity shareholders, shareholders, follow follow ing the comput ation of t he denom inator in accordance accordance with AS-20. AS-20. Basic Bas ic EPS EPS is w orked o ut by dividing the n et p rofit / loss for t he accoun accoun ting period by th e equity share using w eighted average num ber of equit y shares shares out standin g during the same same period . Dilut ed EPS EPS indicates indicates the po tent ial variability variability or ris riskk att ached to the basi basicc EPS EPS as a consequence consequence of
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Suggested Answers to Question — FAC
21
A spec special ial resolut resolut ion should be pass passed ed in t he general m eeting auth orizing the buy-back; (i) The buy-back buy-back should be less less than 25% of t he tot al paid-up paid-up capital capital and free reserves reserves of the com pany; (ii) The buy-back buy-back of equity shares shares in in any financial financial year year should not exceed 25% of its total paid-up paid- up equity capital in that financial year; (iii) The Com Com panie paniess (Amendm (Amendm ent) Act, 2001 2001 has authoriz authorized ed the buy-ba buy-back ck by means of a resolution resolution at t he comp any’s Board provided t he buy-back does not exc exceed eed 10% of th e tot al paid-up paid-up equ ity capital and free reserves of t he com pany. But, there cannot be m ore th an one such buy-back in in a period o f 365 days. (iv) Debt-equity ratio shall shall not exceed exceed 2:1 after after such buy-back. buy-back. The Central Central Governm ent m ay how ever ever,, prescribe a higher ratio for a class or classes of companies; (v) All the shares shares or ot her specified specified securities securities are fully paid paid up; (vi) The buy-back of the shares or other securities lis listed ted on any recognized stock stock exchange is is in in accordance acc ordance w ith t he regulations m ade by t he Securities Securities and and Exchange Exchange Board of India in this behalf; (vii) The buy-back of shares or ot her securities securities not listed on any recognized stock stock exchange is is i
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