Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Paper 5- Financial Accounting

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Paper 5- Financial Accounting

Full Marks : 100 Time allowed: 3 hours

Section - A

1. Answer the following questions

(a) Multiple choice questions: [10x1=10]

(i) Which of the following is not part of financial statements?

(A) Fund Flow Statement
(B) Balance Sheet
(C) Trial Balance
(D) Both (A) and (C)

(ii) All credit sale of goods are recorded in

(A) Cash Book
(B) Purchase Book
(C) Sales Day Book
(D) Bills Receivable Book

(iii) Which of the following is/are a part of inventory cost as per AS – 2?

(A) Cost of purchase
(B) Cost of conversion
(C) Selling and distribution cost;
(D) Both (A) and (B)

(iv) AS-9 is related to

(A) Revenue Recognition
(B) Cash Flow Statement
(C) Construction Contract
(D) Disclosure of Accounting policies

(v) Which of the following is/are the advantage/s of Computerised Accounting

System?
(A) Requirement specifications are incomplete or ambiguous resulting in a
defective or incomplete system
(B) Bugs may remain in the software because of Inadequate testing
(C) It provides many MIS reports as per the specification of the organisation
(D) None of the above

(vi) When a new partner is admitted, unless otherwise agreed, the profit sharing ratio
between the existing partners will
(A) Reduce
(B) Increase
(C) Remain same
(D) None of the above

(vii) Bad debts are apportioned among departments in the proportion of

(A) Sales of each department
(B) Number of units sold each department
(C) Cost of sales of each department
(D) None of the above

(viii) Which of the following is an example of Capital Expenditure?

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

(A) Inventory of raw materials, work-in-progress and finished goods;

(B) Insurance premium;
(C) Taxes and legal expenses;
(D) None of the above.

(ix) Expense Account will always have

(A) Debit balance
(B) Credit balance
(C) Nil
(E) None of the above

(x) Which of the following is a function of journal:

(A) Analytical Function
(B) Recording Function
(C) Historical Function
(D) All of the above

Answer:

(i) (D)
(ii) (C)
(iii) (C)
(iv) (A)
(v) (C)
(vi) (C)
(vii) (B)
(viii) (D)
(ix) (A)
(x) (D)

(b) Match the following: [5x1=5]

Column-I Column-II
(i) Revenue Receipts (A) AS - 7
(ii) Dissolution of Firm (B) Agent
(iii) Consignee (C) Abnormal Losses
(iv) Stock destroyed by fire (D) Realisation A/c
(v) Construction Contract (E) Recurring in Nature

Answer:

Column-I Column-II
(i) Revenue Receipts (E) Recurring in Nature
(ii) Dissolution of Firm (D) Realisation A/c
(iii) Consignee (B) Agent
(iv) Stock destroyed by fire (C) Abnormal Losses
(v) Construction Contract (A) AS - 7

(c) Fill in the blanks: [5x1=5]

(i) Transaction means exchange of money or money’s worth for __________.

(ii) Unexpired insurance premium means ____________ .
(iii) Income & Expenditure Account is similar to _________ _________ A/c.

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 3
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

(iv) Annual subscriptions are credited to Income & Expenditure Account on

______________ basis.
(v) Under__________ _________, preparation of trial balance is possible whereas it is not
possible to prepare a trial balance in___________ _________.

Answer:

(i) Value;
(ii)Prepaid insurance;
(iii)
Profit and Loss;
(iv)Accrual.
(v) double entry system, single entry system.

(d) State whether the following statements are true or false: [5x1=5]

(i) When complete sequence of accounting procedure happens frequently and

repeated in same directions during an accounting period that is called an
accounting cycle.
(ii) Liability is a resource owned by the business with the purpose of using it for
generating future profits.
(iii) Assets like brand value, copy rights, goodwill are intangible assets.
(iv) Event is a transaction or change recognized on the financial statements of an
accounting entity.
(v) Depreciation on any particular asset is restricted to the working life of the asset.

Answer:

(i) True;
(ii) False;
(iii) True;
(iv) True;
(v) True.

Section - B

Answer any five from the following. Each question carries 15 marks (5x15=75)

2. (a) Rectify the following errors by passing necessary journal entries:

(i) Goods taken by the proprietor `3,000 for gift to his daughter were not recorded at
all.
(ii) `3,000 received from Niraj against debts previously written off as bad debts have
been credited to his personal account.
(iii) Received interest `300, posted to loan account.
(iv) A cheque received from Vishal, a debtor, for `4,000 was directly received by the
proprietor who deposited it into his personal bank account. [5]

Answer:
Books of ………….
Journal
Dr. Cr.
Date Particulars L. F. Amount Amount
` `
Drawings A/c Dr. 3,000
To Purchase A/c 3,000
[Goods taken by proprietor previously not
recorded, now rectified]

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 4
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Niraj’s A/c Dr. 3,000

To Trading A/c 3,000
[Niraj’s A/c wrongly credited for amount received
against bad debts written of, now rectified]
Loan A/c Dr. 300
To Interest Received A/c 300
[Interest received wrongly credited to Loan A/c,
now rectified]
Drawings A/c Dr. 4,000
To Vishal’s A/c [Debtors] 4,000
[Cheque from a Debtor directly received and
deposited into personal bank a/c by proprietor,
now adjusted]

(b) B of Bombay consigned 400 packages of coffee to K of Kanpur. The cost of each
package was `300. A sum of `2,000 was paid towards freight and insurance by B. In the
transit 60 packages were damaged. However, the consignor received `400 for the
damaged packages from the Insurance Company.
The consignee accepted a Bill of Exchange for 60,000 for 60 days as an advance to B of
Bombay. The operating statement from the consignee disclosed the following information
:
(a) 280 packages were sold @ `360 per package; (b) The damaged packages were sold
@ `100 per package; (c) K also paid `1,400 towards godown rent, `1,000 for carriage
outward and `3,400 towards clearing charges.
The consignee is entitled to a commission of 10% on the sale proceeds. At the end of the
consignment
period, K of Kanpur sent a Bank draft to B of Bombay. You are required to prepare the
necessary accounts in the books of consignor B of Bombay. [10]

Answer:

Books of B of Bombay (Consignor)

Dr. Consignment to Kanpur Account Cr.
Particulars Amount Particulars Amount

To Goods sent on Consignment A/c 1,20,000 By Damage in Transit A/c 18,300

[400 × `300] [Note 1]
To Cash/Bank : Freight & Insurance 2,000 By K A/c : Sales [280 × 360] 1,00,800
To K A/c : By Stock on Consignment A/c 18,900
Godown Rent 1,400 [Note 2]
Carriage Outward 1,000 Profit & Loss A/c (Loss on *480
Clearing Charges 3,400 5,800 Consignment)
To, K A/c : Commission [10% of 1,06,800] 10,680

1,38,480 1,38,480

Dr. Damage in Transit Account Cr.

Particulars Amount Particulars Amount
` `
To Consignment to Kanpur A/c 18,300 By Cash A/c 400
[400 × `300] (Ins. Claim Received)
By K A/c [60 × `100] 6,000
" Profit & Loss A/c (Loss) 11,900
18,300 18,300

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 5
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Dr. K Account Cr.

Particulars Amount Particulars Amount
` `
To Consignment to Kanpur A/c 1,00,800 By Bills Receivable A/c 60,000
To Damage in Transit A/c 6,000 By Consignment to Kanpur A/c
(Sale of Damaged Goods) Expenses 5,800 16,480
Commission 10,680
Bank (Balance) 30,320
1,06,800 1,06,800

1. Damage in Transit
No. of Amount (`)
Packages
Goods Sent 400 1,20,000
Add: Consignor’s Expenses 2,000
400 1,22,000
60 60
1,22,000× =18,300
400
2. Stock on Consignment [Qty = 400 – (60+280) = 60]

Particulars `
Value excluding Consignee’s Expenses 18,300
Add: Non-recurring Expenses of Consignee
[Consignee paid `3,400 as clearing charge for 340 packages.
So for 60 packages it should be 60 × `10] 600
18,900
*Actual Loss on Consignment
Loss as per Consignment A/c `480
Abnormal loss to be written off `11,900
`12,380

3. The following is the Income and Expenditure Account of Gama Club for the year
ended 31st March, 2017:
Income and Expenditure Account for the year ended 31st March, 2017
` `
To Salaries 19,500 By Subscription 68,000
To Rent 4,500 By Donation 5,000
To Printing 750
To Insurance 500
To Audit Fees 750
To Games & Sports 3,500
To Subscriptions written off 350
To Miscellaneous Expenses 14,500
To Loss on sale of Furniture 2,500
To Depreciation:
Sports Equipment 6,000
Furniture 3,100
To Excess of income over expenditure 17,050

73,000 73,000

Additional information:
31-03-2016 31-03-2017
` `

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 6
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Subscription in arrears 2,600 3,700

Advance Subscriptions 1,000 1,500
Outstanding expenses:
Rent 500 800
Salaries 1,200 350
Audit Fee 500 750
Sports Equipment less depreciation 25,000 24,000
Furniture less depreciation 30,000 27,900
Prepaid Insurance — 150

Book value of furniture sold is ` 7,000. Entrance fees capitalized ` 4,000. On 1st April, 2016
there was no cash in hand but Bank Overdraft was for ` 15,000. On 31st March, 2017 cash
in hand amounted to ` 850 and the rest was Bank balance.

Prepare the Receipts and Payments Account of the Club for the year ended 31st March,
2017. [15]

Answer:
Receipts and Payments Account
for the year ended 31.3.2017
Dr. Cr.
Particulars ` Particulars ` `
To Subscription A/c 67,050 By Balance b/d 15,000
(W.N.1) (Bank overdraft)
To Donation A/c 5,000 By Salary 19,500
To Entrance Fees A/c 4,000 Add: Outstanding of last year 1,200
To Furniture A/c (Sale of 4,500 Less: Outstanding of this year (350) 20,350
furniture)(7,000 -2,500)
By Rent 4,500
Add: Outstanding of last year 500
Less: Outstanding of this year (800) 4,200
By Printing 750
By Insurance 500
Add: Prepaid in this year 150 650
By Audit Fees 750
Add: Outstanding of last year 500
Less: Outstanding of this year (750) 500
By Games & Sports 3,500
By Miscellaneous Expenses 14,500
By Sports Equipment(Purchased)(W.N. 5,000
2)
By Furniture (Purchased)(W.N.3) 8,000
By Balance c/d
Cash 850
Bank (bal. fig.) 7,250
80,550 80,550

Working Notes:

1. Calculation of subscription received during the year 2016-2017

Particulars ` `
Subscription as per Income & Expenditure A/c 68,000
Less: Arrears of 2016-2017 3,700
Advance in 2015-2016 1,000 (4,700)
63,300

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 7
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Add: Arrears of 2015-2016 2,600

Advance for 2017-2018 1,500 4,100
67,400
Less: Written off during 2016-2017 (350)
67,050

2. Calculation of Sports Equipment purchased during 2016-2017

Sports Equipment Account
Dr. Cr.
Particulars ` Particulars `
To Balance b/d 25,000 By Income & Expenditure A/c 6,000
(Depreciation)
To Receipts & Payments A/c 5,000 By Balance c/d 24,000
(Purchases) (bal. fig.)
30,000 30,000

3. Calculation of Furniture purchased during 2016-2017

Furniture Account
Dr. Cr.
Particulars ` Particulars `
To Balance b/d 30,000 By Receipts & Payments A/c 4,500
To Receipts & Payments A/c 8,000 By Income & Expenditure A/c 2,500
(Purchases) (bal. fig.) (Loss on sale)
By Income & Expenditure A/c 3,100
(Depreciation)
By Balance c/d 27,900
38,000 38,000

4. Sakshee, Prachi and Vara who are presently sharing profits & losses in the ratio of 5:3:2,
decide to admit Sushmita for 1/6th share with effect from 1st April, 2012. An extract of their
Balance Sheet as at 31st March, 2012 is as follows:
Laibilities ` Assets `
Sundry Creditors 3,00,000 Land & Building 2,50,000
Outstanding Rent 10,000 Plant & Machinery 1,00,000
Stock 80,000
Debtors 3,00,000
Less: Provision 10,000 2,90,000

it is decided that:
1. Land & Building be valued at ` 2,85,000.
2. Plant & Machinery be depreciated by 15%.
3. Stock is found overvalued by ` 38,000.
4. Provision for doubtful debts is to be made equal to 5% of the debtors.
5. An item of ` 30,000 included in Sundry Creditors is not likely to be claimed.
6. Rent of ` 4,000 still Outstanding.
7. Out of the amount of insurance which was debited entirely to P&L A/c, ` 5,000 be
carried forward as an unexpired insurance.
8. Out of total commission received ` 3,000 is to be treated as advance commission. This
amount was earlier credited to Profit & Loss Account.
9. An unaccounted accrued income of ` 1,000 be provided for.
10. A debtor whose dues of ` 5,000 were written off as bad debts paid ` 4,000 in full
settlement.

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 8
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Required: Pass the necessary Journal Entries and prepare Revaluation Account. [15]

Answer::
JOURNAL
Date Particulars L.F Dr. (`) Cr. (`)

1. Land & Building A/c Dr. 35,000

To Revaluation A/c 35,000
(Being the increase in value of Land & Building recorded)
2. Revaluation A/c Dr. 15,000
To Plant & Machinery A/c 15,000
(Being the decrease in value of Plant & Machinery
recorded)
3. Revaluation A/c Dr. 38,000
To Stock A/c 38,000
(Being the decrease in value of Stock recorded)
4. Revaluation A/c [`15,000 - `10,000] Dr. 5,000
To Provision for Doubtful Debts A/c 5,000
(Being the short provision now created)
5. Creditors Dr. 30,000
To Revaluation A/c 30,000
(Being the decrease in the amount of Creditors recorded)
6. Revaluation A/c Dr. 4,000
To Outstanding Rent A/c 4,000
(Being the Outstanding Rent recorded)
7. Prepaid Insurance Dr. 5,000
To Revaluation A/c 5,000
(Being the prepaid insurance recorded)
8. Revaluation A/c Dr. 3,000
To Commission received in advance A/c 3,000
(Being the commission received in advance recorded)
9. Accrued Income A/c Dr. 1,000
To Revaluation A/c 1,000
(Being the Accrued Income recorded)
10. Bad Debts Recovered A/c Dr. 4,000
To Revaluation A/c 4,000
(Being the Bad Debts recovered, recorded)
11. Revaluation A/c Dr. 10,000
To X’s Capital A/c 5,000
To Y’s Capital A/c 3,000
To Z’s Capital A/c 2,000
(Being the transfer of profit on revaluation to old partners’
capital accounts in their old profit sharing ratio)

Dr. REVALUATION ACCOUNT Cr.

Particulars ` Particulars `
To Stock 38,000 By Land & Building 35,000
To Provision for Doubtful Debts 5,000 By Sundry Creditors 30,000
To Plant & Machinery A/c 15,000 By Prepaid Insurance 5,000

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 9
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

To Outstanding Rent A/c 4,000 By Accured Income 1,000

To Commission received in adv. A/c 3,000 By Bad Debts Recovered 4,000
To Profit on Revaluation t/f to:
Sakshee’s Capital A/c 5,000
Prachi’s Capital A/c 3,000
Vara’s Capital A/c 2,000

75,000 75,000

5. (a) The proprietors of Virat Departmental store wish to ascertain approximately

separate net profits of their two particular departments P and Q for the year ended 31st
March, 2017. It is not possible to take stock on that date. However, normal rates of Gross
Profit (before charging direct expenses) for the department concerned were 40% and
30% on sales respectively. There are six departments in the stores. The following figures
were extracted from the books for the year ending 31st March, 2017:

Department P Department Q
(`) (`)
Stock (April 1, 2016) 3,00,000 2,80,000
Sales 14,00,000 12,00,000
Purchases 9,00,000 7,20,000
Direct Expenses 1,83,000 2,84,000

The total indirect expenses of all the six departments for the period were `3,60,000. These
expenses (except one-third which is to be divided equally) are to be charged in
proportion to departmental sales. The total sales of the other departments were
`14,00,000. The Manager of each department is also entitled to a commission of 2 % on
the turnover of his department. Prepare Departmental Trading and Profit& Loss Account in
columnar form for the year ending 31st March,2017 making a stock reserve of 5% for
each department on the estimated value of stock on 31st March,2017. [9]

Answer:
Departmental Trading and Profit & Loss Account
For the year ending 31st March, 2017
(` in ‘000)
Particulars Dept. P Dept. Q Total Particulars Dept. P Dept. Q Total
(`) (`) (`) (`) (`) (`)
To Opening Stock 300 280 580 By Sales 1,400 1,200 2,600
To Purchases 900 720 1,620 By Closing Stock 360 160 520
To Direct Exp. 183 284 467 (Balancing Figure)
To G.P. C/d 377 76 453
1,760 1,360 3,120 1,760 1,360 3,120
To Indirect Exp. By G.P. b/d 377 76 453
-Equal Allocation: 20 20 40 By Net Loss -- 48 48
-Sales basis Allocation 84 72 156
To Manager’s 28 24 52
commission @ 2% on
Sales
To Stock Reserve @ 5% 18 8 26
on Closing Stock
To Net Profit 227 -- 227

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 10
 Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

377 124 501 377 124 501

Working Notes:

A. Gross profit before direct expenses:

Dept. P (`) Dept. Q (`)
P – 40% of `14,00,000 5,60,000 ---
Q – 30% of `12,00,000 --- 3,60,000
Less: Direct Expenses 1,83,000 2,84,000
Net Gross Profit 3,77,000 76,000

B. Allocation of Indirect Expenses:

Equal Allocation – 3,60,000 × 1/3 = 1,20,000 × 1/6 = ` 20,000 for each department.
Sales Basis – Sales Ratio for P, Q and other 4 departments = 14,00,000 : 12,00,000 :
14,00,000 or 7 : 6 : 7.
Indirect expenses for this basis = 3,60,000 × 2/3 = ` 2,40,000.
Share of Dept. P = 2,40,000 × 7/20 = ` 84,000
Share of Dept. Q = 2,40,000 × 6/20 = ` 72,000.

(b) Prepare the Sales Ledger Control Account from the following particulars:

Sales Ledger Purchase Ledger

Debit balance as on 1.1.2017 1,50,000 1,000
Credit balance as on 1.1.2017 200 1,25,000
Credit sales and purchases 4,00,000 3,80,000
Cheques received and paid 4,50,000 3,50,000
Advance paid to creditors - 20,000
B/R received and B/P Accepted 50,000 50,000
Discounts allowed and received 5,000 3,000
Returns 10,000 5,000
Transfer from Purchases to Sales Ledger 10,000 10,000
Bad Debts 2,000 -
Reserves for Discounts 10,000 5,000
B/R BP Dishonoured 5,000 5,000
Debit Balance as on 30.06.2017 30,000 1,000
Credit Balance as on 30.06.2017 ? 72,000
[6]
Answer:

In General Ledger
Dr. Sales Ledger Control Account Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
1.1.2017 To Balance b/d 1,50,000 1.1.2017 By Balance b/f 200
30.06.2017 To General Ledger 4,00,000 30.06.2017 By General Ledger 4,50,000
Adjustment A/c: Adjustment A/c:
Sales Bank (Cheque
Received)
To Bills Receivable 5,000 By Bills Receivable 50,000
(Dishonoured) (received)
30.06.2017 To Balance c/f 2,200 30.06.2017 Discount Allowed 5,000
Returns Inward 10,000
Transfer 10,000

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 11
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Bad Debts 2,000

By Balance c/f 30,000
5,57,200 5,57,200

6. (a) On 01.01.2017 the balance of Provision for doubtful debts was ` 48,000. The Bad Debts
during the year were ` 9,000. The Sundry Debtors as on 31.12.2017 stood at `4,04,000
out of these debtors of `4,000 are bad and cannot be realized. The Provision for
Doubtful Debts is to be raised to 5% on Sundry Debtors. Show the necessary ledger
accounts and the balance sheet. [7]

Answer:

Dr. Bad Debts Account Cr.

In the Books of …………

Date Particulars Amount Date Particulars Amount

(`) (`)
2017 To, Balance b/d 2017 By, Provision for Bad 13,000
Dec 31 9,000 Dec 31 debts A/c
To, Sundry Debtors
” 4,000
A/c
13,000 13,000

Dr. Provision for Bad Debts Account Cr.

Date Particulars Amount (`) Date Particulars Amount (`)

2017 To, Bad Debts A/c 13,000 2017 By, Balance b/d 48,000
Dec 31 Jan 1
To, Proft and Loss A/c 15,000
”
To, Balance c/d [5% on 20,000
”
(404000-4000)]
48,000 48,000

Dr. Sundry Debtors Account Cr.

Date Particulars Amount Date Particulars Amount
(`) (`)
2017 To, Balance b/d 4,04,000 2017
Dec 31 Dec 31 By, Bad debts A/c 4,000

” By Balance c/d 4,00,000

4,04,000 4,04,000

Balance Sheet (Extract) As at 31st December, 2017

Liabilities (`) (`) Assets (`) (`)

Debtors 4,04,000
Less : Bad debts 4,000
4,00,000
Less: Provision for Bad 20,000 3,80,000
debts

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 12
 Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

(b) On 1.1.2015, P purchased 5 Machines from Q. Payment was to be made—20% down and
the balance in four annual instalments of ` 2,80,000, ` 2,60,000, ` 2,40,000 and ` 2,20,000
commencing from 31.12.2015. The vendor charged interest @ 10% p.a. P, writes off
depreciation @ 20% p.a. on the original cost.
On P's failure to pay the instalment due on 31.12.2016, Q repossessed all the machines on
01.01.2017 and valued them on the basis of 40% p.a. depreciation on W.D.V. basis. Q after
incurring ` 6,000 on repairs sold the machines for ` 2,66,000 on 30th June 2017. Prepare the
relevant accounts in the books of P. [8]

Answer:

COMPUTATION OF CASH PRICE AND PERIODIC INTEREST

A B C D=B+C E = D×R/(100 + F=D-E

Installment Closing Installment Closing R) Opening
Number Balance after Amount Balance before Interest Balance
the payment the payment of D*10/110
of installment installment
IV — 2,20,000 2,20,000 20,000 2,00,000
III 2,00,000 2,40,000 4,40,000 40,000 4,00,000
II 4,00,000 2,60,000 6,60,000 60,000 6,00,000
I 6,00,000 2,80,000 8,80,000 80,000 8,00,000
Let the cash price by 'X'
X = ` 8,00,000 + 20% of X (i.e. down payment)
0.8X = ` 8,00,000

X = ` 8,00,000/0.8 = ` 10,00,000.

LEDGER ACCOUNTS IN THE BOOK OF P

Machinery Account
Dr.Dr. Cr.

Date Particulars ` Date Particulars `

01.01.15 To Q 10,00,000 31.12.15 By Depreciation A/c 2,00,000
By balance c/d 8,00,000
10,00,000 10,00,000
01.01.16 To Balance b/d 8,00,000 31.12.16 By Depreciation A/c 2,00,000
By Balance c/d 6,00,000
8,00,000 8,00,000
01.01.17 To Balance b/d 6,00,000 01.01.17 By Q's A/c 6,60,000
To P&L A/c 60,000
(Profit)
6,60,000 6,60,000

Dr. Q’s Account Cr.

Date Particulars ` Date Particulars `

01.01.15 To Bank A/c 2,00,000 01.01.15 By Machinery A/c 10,00,000
(Down Payment) 31.12.15 By Interest A/c 80,000
31.12.15 To Bank A/c 2,80,000 [(`10,00,000- `2,00,000)
[`2,00,000 + `80,000] ×10/100
To Balance c/d 6,00,000
10,80,000 10,80,000

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 13
 Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

31.12.16 To Balance c/d 6,60,000 01.01.15 By Balance b/d 6,00,000

31.12.16 By Interest A/c 60,000
[(`6,00,000× 10/100)]
6,60,000 6,60,000
01.01.17 To Machinery A/c 6,60,000 01.01.17 By Balance b/d 6,60,000

7. (a) The Company's plant and machinery was ` 6,000 lakhs as on 1.4.2017. It provided
depreciation at 15% per annum under WDV method. However it noticed that about
` 1,000 lakhs worth of imported asset, which is component of above plant and machinery
acquired on 1.4.2017, would be obsolete in 2 years. Company wants to write-off this asset
over 2 years. Can Company do so? Give comments. [4]
Answer:

As per AS-10, each part of an item of Property Plant and Equipment that has a cost that is
significant when compared to the total cost of the item should be depreciated
separately. As it appears that imported asset of ` 1,000 lakhs, which is component of plant
and machinery, has significant cost as compared to the total cost. Therefore, it should be
depreciated separately. The company's policy to write off over two years is correct.

(b) (i) Discuss the disadvantages of a customised accounting package. [8]

(ii) Write a note on “Threat to Computerised Accounting System “. [3]

Answer:

(i) Following are the disadvantages of a customised accounting package:

1. Requirement specifications are incomplete or ambiguous resulting in a defective or

incomplete system.
2. Bugs may remain in the software because of Inadequate testing.
3. Documentation may not complete.
4. Frequent changes made to the system with inadequate change management
procedure may result in system compromise.
5. Vendor may not be unwilling to give support of the software due to other
commitments.
6. Vendor may not be willing to part with the source code or enter into an escrow
agreement.
7. Control measures may be inadequate.
8. There may be delay in completion of the software due to problems with the vendor or
inadequate project management.

(ii) Threat to Computerised Accounting System:

The only concerns that has increased today are concerns for controls, security and
integrity of the computer system as more and more information is stored not in the
hard print but as soft copies inside the computer. Issue like unauthorised access to the
data either through the local area network or through the internet by hacking into
the company server are becoming potential threat to the computer usage.

8. Write short notes on any three of the following: [3x5=15]

(a) Differences between revenue receipts and capital receipts;
(b) Calculation of the amount of claim under “loss of Profit” Policy;
(c) Debts;
(d) Items not included within the definition of “revenue” as per AS 9.

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 14
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

Answer:

(a) Differences between revenue receipts and capital receipts

Sl. Revenue Receipt Sl. Capital Receipt

No No
1 It has short-term effect. The benefit is 1 It has long-term effect. The benefit is
enjoyed within one accounting period. enjoyed for many years in future.
2 It occurs repeatedly. It is recurring and 2 It does not occur again and again. It is
regular. nonrecurring and irregular
3 It is shown in Profit and Loss Account 3 It is shown in the Balance Sheet on the
on the credit side, as an income for liability side.
the year
4 It does not produce capital receipt. 4 Capital receipt, when invested,
produces revenue receipt e.g. when
capital is invested by the owner,
business gets revenue receipt (i.e. sale
proceeds of goods etc.)
5 This does not increase or decrease the 5 The capital receipt decreases the
value of asset or liability. value of asset or increases the value of
liability e.g. sale of a fixed asset, loan
from bank etc.
6 Sometimes, expenses of capital nature Sometimes expenses of revenue nature
are to be incurred for revenue receipt, are to be incurred for such receipt e.g.
e.g. purchase of shares of a company on obtaining loan (a capital receipt)
is capital expenditure but dividend interest is paid until its repayment.
received on shares is a revenue
receipt.

(b) Calculation of the amount of claim under “loss of Profit” Policy:

1. Find out the rate of Gross Profit [after considering trend of business etc.]
2. Find out the short sales [Standard turnover – Actual turnover of the period of
dislocation]
3. Find out Gross Profit on short sales.
4. Find out the Amount Admissible for Additional Expenses
It should be the minimum of: (a) Actual expenses (b) Gross profit on additional
sales generated by additional expenditure

Net Profit + Insured Standing Charges

and  c Additional expenses× or
Net Profit + All Standing Charges

Gross Profit on Annual Turnover

Additional Expenses×
Gross Profit on Annual Turnover + Uninsured Standing Charges

5. Add (3) and (4). From the total deduct saving in any insured standing charge
during the period of indemnity. The result is gross claim.
6. Under average clause : Net Claim =

Policy Value
Gross Claim×
Gross Profit on Aannual Turnover

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 15
Answer to MTP_Intermediate_Syllabus2016_Dec2019_Set 2

(c) Debts:

The amount which is receivable from a person or a concern for supplying goods or
services is called Debt. Debts may be classified into :
(i) Bad debts;
(ii) Doubtful debts and
(iii) Good debts

(i) Bad Debts: Bad debts are uncollectable or irrecoverable debt or debts which are
impossible to collect. If it is definitely known that amount recoverable from a
customer cannot be realized at all, it should be treated as a business loss and
should be adjusted against profit. In short, the amount of bad debt should be
transferred to Profit and Loss Account for the current year to confirm the principles
of matching.

(ii) Doubtful Debts: The debts which will be receivable or cannot be ascertainable at
the date of preparing the final accounts (i.e., the debts which are doubtful to
realise) is known as doubtful debts. Practically it cannot be treated as a loss on
that particular date, as such, it cannot be written off. But, it should be charged
against Profit and Loss Account on the basis of past experience of the firm.

(iii) Good Debts: The debts which are not bad i.e., there is neither any possibility of
bad debts nor any doubts about its realization, is called good debts. As such, no
provision is necessary for it.

(d) Items not included within the definition of “revenue” as per AS 9:

(i) Realised gains resulting from the disposal of, and unrealised gains resulting from the
holding of, non-current assets e.g. appreciation in the value of fixed assets;
(ii) Unrealised holding gains resulting from the change in value of current assets, and
the natural increases in herds and agricultural and forest products;
(iii) Realised or unrealised gains resulting from changes in foreign exchange rates and
adjustments arising on the translation of foreign currency financial statements;
(iv) Realised gains resulting from the discharge of an obligation at less than its carrying
amount;
(v) Unrealised gains resulting from the restatement of the carrying amount of an
obligation.

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 16