Cai Acc. Imp Questions (Part 1)

CA INTER ACCOUNTS (IMP QUESTIONS FOR EXAM)
TOPIC 1
FINANCIAL STATEMENT OF COMPANIES
Question 1 (ICAI Module)

The following extract of Balance Sheet of Star Ltd. (non- investment) company was obtained:
Balance Sheet (Extract) as on 31stMarch, 20X1
Liabilities Rs
Authorised capital:
60,000, 14% preference shares of Rs 100 60,00,000
6,00,000 Equity shares of Rs 100 each 6,00,00,000
6,60,00,000
Issued and subscribed capital:
45,000, 14% preference shares of Rs 100 each fully paid 45,00,000
3,60,000 Equity shares of Rs 100 each, Rs 80 paid-up 2,88,00,000
Share suspense account 60,00,000
Reserves and surplus:
Capital reserves (Rs 4,50,000 is revaluation reserve) 5,85,000
Securities premium 1,50,000
Secured loans:
15% Debentures 1,95,00,000
Unsecured loans:
Public deposits 11,10,000
Cash credit loan from SBI (short term) 3,95,000
Current Liabilities:
Trade Payables 10,35,000
Assets:
Investment in shares, debentures, etc. 2,25,00,000
Profit and Loss account (Dr. balance) 45,75,000
Share suspense account represents application money received on shares, the allotment of which is not yet made.
You are required to compute effective capital as per the provisions of Schedule V. Would your answer differ if Star
Ltd. is an investment company?
SOLUTION
Computation of effective capital:
Where Star Ltd. Is Where Star Ltd.
a non-investment is an investment
company Rs company Rs
Paid-up share capital —
V’Smart Academy (CA. JAI CHAWLA) Page 1

45,000, 14% Preference shares 45,00,000 45,00,000

3,60,000 Equity shares 2,88,00,000 2,88,00,000
Capital reserves 1,35,000 1,35,000
(5,85,000 – 4,50,000)
Securities premium 1,50,000 1,50,000
15% Debentures 1,95,00,000 1,95,00,000
Public Deposits 11,10,000 11,10,000
(A) 5,41,95,000 5,41,95,000
Investments 2,25,00,000 —
Profit and Loss account (Dr. balance) 45,75,000 45,75,000
(B) 2,70,75,000 45,75,000
Effective capital (A–B) 2,71,20,000 4,96,20,000

Ring Ltd. was registered with a nominal capital of Rs. 10,00,000 divided into shares of Rs 100 each. The following
Trial Balance is extracted from the books on 31stMarch, 20X2:
Particulars Rs Particulars Rs
Buildings 5,80,000 Sales 10,40,000
Machinery 2,00,000 Outstanding Expenses 4,000
Closing Stock 1,80,000 Provision for Doubtful 6,000
Loose Tools 46,000 Debts (1-4-20X1)
Purchases (Adjusted) 4,20,000 Equity Share Capital 4,00,000
Salaries 1,20,000 General Reserve 80,000
Directors‖ Fees 20,000 Profit and Loss A/c 50,000
Rent 52,000 (1-4-20X1)
Depreciation 40,000 Creditors 1,84,000
Bad Debts 12,000 Provision for depreciation:
Investment 2,40,000 On Building 1,00,000
Interest accrued on investment 4,000 On Machinery 1,10,000 2,10,000
Debenture Interest 56,000 14% Debentures 4,00,000
Advance Tax 1,20,000 Interest on Debentures 28,000
Sundry expenses 36,000 accrued but not due
Debtors 2,50,000 Interest on Investments 24,000
Bank 60,000 Unclaimed dividend 10,000
24,36,000 24,36,000
You are required to prepare statement of Profit and Loss for the year ending 31stMarch, 20X2 and Balance sheet
as at that date after taking into consideration the following information:
(a) Closing stock is more than opening stock by Rs 1,60,000;

(b) Provide to doubtful debts @ 4% on Debtors

(c) Make a provision for income tax @30%.
(d) Depreciation expense included depreciation of Rs 16,000 on Building and that of Rs 24,000 on Machinery.
(e) The directors declared a dividend @ 25% and transfer to General Reserve @ 10%.
Bills Discounted but not yet matured Rs 20,000.
SOLUTION
Ring Ltd.
Profit and Loss Statement for the year ended 31st March, 20X2
Particulars Note No. (Rs in lacs)
I Revenue from operations 10,40,000
II Other income (interest on investment) 24,000
III Total Revenue [I + II] 10,64,000
IV Expenses:
Cost of purchase [4,20,000+ 1,60,000] 5,80,000
Changes in inventories [20,000-1,80,000] (1,60,000)
Employee Benefits Expense 1,20,000
Depreciation and Amortisation Expenses 40,000
Other Expenses 8 1,24,000
Total Expenses 7,60,000
V Profit before Tax (III-IV) 3,04,000
VI Tax Expenses @ 30% (91,200)
VII Profit for the period 2,12,800
Balance Sheet of Ring Ltd. as at 31stMarch, 20X2
Particulars Note No. Rs
I EQUITY AND LIABILITIES
(1) Shareholders‖ Funds
(a) Share Capital 1 4,00,000
(b) Reserves and Surplus 2 2,22,442
(2) Non-Current Liabilities
(a) Long-term Borrowings (14% debentures) 4,00,000
(3) Current Liabilities
(a) Trade Receivable (Sundry Creditors) 1,84,000
(b) Other Current Liabilities 3 1,62,358
(c) Short-Term Provisions 4 91,200
Total 14,60,000
II ASSETS
(1) Non-Current Assets
(a) PPE

(i) Tangible Assets 5 5,70,000

(b) Non-current Investments 2,40,000
(2) Current Assets
(a) Inventories 6 2,26,000
(b) Trade Receivables 7 2,40,000
(c) Cash and bank balances 60,000
(d) Short Term Loans and Advances (Advance 1,20,000
Payment of Tax)
(e) Other Current Assets 4,000
(Interest accrued on investments)
Total 14,60,000
Note: There is a Contingent Liability for bills discounted but not yet matured amounting Rs20,000.
Notes to Accounts:
1 Share Capital
Authorised Capital
10,000 Equity Shares of Rs 100 each 10,00,000
Issued Capital
Subscribed Capital and fully paid
4,000 Equity Shares of RS 100 each 4,00,000
4,00,000
2. Reserve and Surplus
General Reserve [Rs 80,000 + RS 21,280] 1,01,280
Balance of Statement of Profit & Loss Account 50,000
Opening Balance 2,12,800
Add: Profit for the period 2,62,800
Appropriations
Transfer to General Reserve@10%(21,280)
Equity Divided Receivable [25% of Rs 4,00,000] (1,00,000)
Dividend Distribution Tax (W. N.1) (20,358) 1,21,162
2,22,442
3. Other Current Liabilities
Unclaimed Dividend 10,000
Outstanding Expenses 4,000
Interest accrued on Debentures 28,000
Equity Dividend Receivable 1,00,000
Dividend Distribution Tax 20,358 1,20,358

1,62,358
4. Short-Term Provision
Provision for Tax 91,200
5 Tangible Assets
Buildings 5,80,000
Less: Provision for Depreciation 1,00,000 4,80,000
Plant and Equipment 2,00,000
Less: Provision for Depreciation 1,10,000 90,000
5,70,000
6 Inventories
Closing Stock of Finished Goods 1,80,000
Loose Tools 46,000 2,26,000
7 Trade Receivables
Sundry Debtors 2,50,000
Less: Provision for Doubtful Debts (10,000) 2,40,000
8. Other Expenses
Rent 52,000
Directors‖ Fees 20,000
Bad Debts 12,000
Provision for Doubtful Debts (4% of Rs 2,50,000 less Rs 6,000) 4,000
Sundry Expenses 36,000
1,24,000
Working Note
Calculation of Dividend distribution tax
Particulars Rs
(i) Grossing-up of dividend
Dividend distributed by Ring Ltd. 25% of 4,00,000 1,00,000
Add: Increase for the purpose of grossing up of dividend 17,647
[1,00,000 x (15/(100-15)]
Gross dividend 1,17,647
(ii) Dividend distribution tax @ 17.304% of Rs 1,17,647 20,358

You are required to prepare a Statement of Profit and Loss and Balance Sheet from the following Trial Balance
extracted from the books of the International Hotels Ltd., on 31stMarch, 20X2:
Dr. Cr.
Rs Rs
Authorised Capital-divided into 5,000 6% Preference Shares 15,00,000

of Rs 100 each and 10,000 equity Shares of Rs 100 each

Subscribed Capital -
5,000 6% Preference Shares of Rs 100 each 5,00,000
Equity Capital 8,05,000
Purchases - Wines, Cigarettes, Cigars, etc. 45,800
- Foodstuffs 36,200
Wages and Salaries 28,300
Rent, Rates and Taxes 8,900
Laundry 750
Sales - Wines, Cigarettes, Cigars, etc. 68,400
- Food 57,600
Coal and Firewood 3,290
Carriage and Cooliage 810
Advertising 8,360
Repairs 4,250
Rent of Rooms 48,000
Billiard 5,700
Miscellaneous Receipts 2,800
Discount received 3,300
Transfer fees 700
Freehold Land and Building 8,50,000
Furniture and Fittings 86,300
Inventory on hand, 1st April, 20X1
Wines, Cigarettes. Cigars, etc. 12,800
Foodstuffs 5,260
Cash in hand 2,200
Cash with Bankers 76,380
Preliminary and formation expenses 8,000
2,000 Debentures of Rs 100 each (6%) 2,00,000
Profit and Loss Account 41,500
Trade payables 42,000
Trade receivables 19,260
Investments 2,72,300
Goodwill at cost 5,00,000
General Reserve 2,00,000
19,75,000 19,75,000
Wages and Salaries Outstanding 1,280

Inventory on 31st March, 20X2

Wines, Cigarettes and Cigars, etc. 22,500
Foodstuffs 16,400
Depreciation: Furniture and Fittings @ 5% p.a.: Land and Building @ 2% p.a.
The Equity capital on 1stApril, 20X1 stood at Rs 7,20,000, that is 6,000 shares fully paid and 2,000 shares Rs 60
paid. The directors made a call of Rs 40 per share on 1stOctober 20X1. A shareholder could not pay the call on
100 shares and his shares were then forfeited and reissued @ Rs 90 per share as fully paid. The Directors declare
a dividend of 8% on equity shares, transferring any amount that may be required from General Reserve. Ignore
Taxation.
SOLUTION
Statement of Profit and Loss of International Hotels Ltd.
for the year ended 31stMarch, 20X2
Particulars Notes Amount
I. Revenue from operations 10 1,83,200
II. Other income (Discount received) 3,300
III. Total Revenue (I + II) 1,86,500
IV. Expenses:
Cost of materials consumed 11 25,060
Purchases of Inventory-in-Trade 12 45,800
Changes in inventories of finished goodswork-in- 13 (9,700)
progress and Inventory-in-Trade
Employee benefits expense 14 29,580
Other operating expenses 15 18,000
Selling and administrative expenses 16 14,200
Finance costs 17 12,000
Depreciation and amortisation expense 18 21,315
Other expenses 9 8,000
Total expenses 1,64,255
V. Profit (Loss) for the period (III - IV) 22,245
Balance Sheet of International Hotels Ltd. as on 31st March, 20X2

Particulars Note No Rs
EQUITY AND LIABILITIES
1 Shareholders' funds
a Share capital 1 13,00,000
b Reserves and Surplus 2 1,74,745
2 Non-current liabilities

a Long-term borrowings 3 2,00,000

3 Current liabilities
a Trade Receivables 4 42,000
b Other current liabilities 5 1,07,280
Total 18,24,025
ASSETS
1 Non-current assets
a PPE
I Tangible assets 6 9,14,985
II Intangible assets (Goodwill) 5,00,000
B Non-current investments 2,72,300
2 Current assets
A Inventories 7 38,900
B Trade receivables 19,260
C Cash and bank balances 8 78,580
Total 18,24,025
Notes to accounts
Rs
1 Share Capital
Equity share capital
Authorised
10,000 Equity shares of Rs 100 each 10,00,000
Issued & subscribed
Preference share capital
Authorised
5,000 6% Preference shares of Rs 100 each 5,00,000
Issued & subscribed
5,000 6% Preference shares of Rs 100 each 5,00,000
Total 13,00,000
2 Reserves and Surplus
Capital reserve [100 x (90 – 40)] 5,000
General reserve 2,00,000
Less: Amount used to pay dividend (30,255) 1,69,745
Surplus (Profit & Loss A/c) 22,245
Add: Balance from previous year 41,500
Transfer from General Reserve (94,000 –41,500) 30,255
Appropriations (94,000)

Dividend declared -
Profit (Loss) carried forward to Balance Sheet 0 0
Total 1,74,745
3 Long-term borrowings
Secured
6% Debentures 2,00,000
Total 2,00,000
4 Trade Receivables 42,000
5 Other current liabilities
Wages and Salaries Outstanding 1,280
Interest on debentures dividend Receivable 12,000 13,280
Preference Dividend (5,00,000 x 6%) 30,000
Equity Dividend (8,00,000 x 8%) 64,000
Total 1,07,280
6 Tangible assets
Freehold land & Buildings 8,50,000
Less: Depreciation (17,000) 8,33,000
Furniture and Fittings 86,300
Less: Depreciation (4,315) 81,985
Total 9,14,985
7 Inventories
Wines, Cigarettes & Cigars, etc. 22,500
Foodstuffs 16,400
Total 38,900
8 Cash and cash equivalents
Cash at bank 76,380
Cash in hand 2,200
Other bank balances Nil
Total 78,580
9 Other expenses
Preliminary Expenses 8,000
Total 8,000
10 Revenue from operations
Sale of products
Wines, Cigarettes, Cigars etc. 68,400
Food 57,600 1,26,000
Sale of services
Room Rent 48,000

Billiards 5,700
Transfer fees 700
Miscellaneous Receipts 2,800
57,200
Total 1,83,200
11 Cost of materials consumed
Opening Inventory 5,260
Add: Purchases during the year 36,200
Less: Closing Inventory (16,400) 25,060
Total 25,060
12 Purchases of Inventory-in-Trade
Wines, Cigarettes etc. 45,800
Total 45,800
13 Changes in inventories of finished goods work-
in-progress and Inventory-in-Trade
Wines, Cigarettes etc.
Opening Inventory 12,800
Less: Closing Inventory (22,500) (9,700)
Total (9,700)
14 Employee benefits expense 29,580
Wages and Salaries 28,300
Add: Wages and Salaries Outstanding 1,280
Total 29,580
15 Other operating expenses
Rent, Rates and Taxes 8,900
Coal and Firewood 3,290
Laundry 750
Carriage and Cooliage 810
Repairs 4,250
Total 18,000
16 Selling and administrative expenses
Advertising 8,360
Total 14,200
17 Finance costs 12,000
Interest on Debentures (2,00,000 x 6%)
Total 12,000
18 Depreciation and amortisation expense 21,315

Land and Buildings (8,50,000 x 2%) 17,000

Furniture & Fittings (86,300 x 5%) 4,315
Total 21,315
Question 4 (RTP May 19)

Shweta Ltd. has the Authorised Capital of Rs. 15,00,000 consisting of 6,000 6% Preference shares of Rs. 100 each
and 90,000 equity Shares of Rs. 10 each. The following was the Trial Balance of the Company as on 31st March,
2018:
Particulars Dr. Cr.
Investment in Shares at cost 1,50,000
Purchases 14,71,500
Selling Expenses 2,37,300
Inventory as at the beginning of the year 4,35,600
Salaries and Wages 1,56,000
Cash on Hand 36,000
Interim Preference dividend for the half year to 30th
September 18,000
Bills Receivable 1,24,500
Interest on Bank overdraft 29,400
Interest on Debentures up to 30th Sep (1st half year) 11,250
Debtors
Trade payables 1,50,300
Freehold property at cost 2,63,550
Furniture at cost less depreciation of Rs 45,000 10,50,000
6% Preference share capital 1,05,000
Equity share capital fully paid up 6,00,000
5% mortgage debentures secured on Freehold properties 6,00,000
Income tax paid in advance for the current year
Dividends 4,50,000
Profit and Loss A/c (opening balance) 30,000
Sales (Net) 12,750
Bank overdraft secured by hypothecation of stocks and 85,500
receivables 20,11,050
Technical knowhow fees at cost paid during the year
4,50,000 4,50,000
Audit fees 18,000
Total 44,72,850 44,72,850

You are required to prepare the Profit and Loss Statement for the year ended 31st March, 2018 and the Balance
Sheet as on 31st March, 2018 as per Schedule III of the Companies Act, 2013 after taking into account the
following –
1. Closing Stock was valued at Rs. 4,27,500.
2. Purchases include Rs. 15,000 worth of goods and articles distributed among valued customers.
3. Salaries and Wages include Rs. 6,000 being Wages incurred for installation of Electrical Fittings which
were recorded under "Furniture".
4. Bills Receivable includes. 4.500 being dishonoured bills. 50% of which had been considered irrecoverable.
5. Bills Receivable of Rs. 6,000 maturing after 31st March were discounted.
6. Depreciation on Furniture to be charged at 10% on Written Down Value.
7. Investment in shares is to be treated as non-current investments.
8. Interest on Debentures for the half year ending on 31st March was due on that date.
9. Provide Provision for taxation Rs. 12,000.
10. Technical Knowhow Fees is to be written off over a period of 10 years.
11. Salaries and Wages include Rs. 30,000 being Director's Remuneration.
Trade receivables include Rs. 18,000 due for more than six months.
SOLUTION
Statement of Profit and Loss of Shweta Ltd.
for the year ended 31st March, 2018
Particulars Note Rs
I Revenue from Operations 20,11,050
II Other income (Divided income) 12,750
III Total Revenue (I &+ II) 20,23,800
IV Expenses:
(a) Purchases (14,71,500 – Advertisement Expenses 14,56,500
15,000)
(b) Changes in Inventories of finished Goods / Work 8,100
in progress (4,35,600 – 4,27,500)
(c) Employee Benefits expense 9 1,20,000
(d) Finance costs 10 51,900
(e) Depreciation & Amortization Expenses [10% of 11,100
(1,05,000 + 6,000)]
(f) Other Expenses 11 3,47,550
Total Expenses 19,95,150
V Profit before exceptional, extraordinary items and tax 28,650
(III-IV)
VI Exceptional items -
VII Profit before extra ordinary items and tax (V-IV) 28,650
VIII Extraordinary items -

IX Profit before tax (VII-VIII) 28,650

X Tax expense: 12,000
Current Tax
XI Profit/Loss for the period (after tax) 16,650
Balance sheet of Shweta Ltd. as on 31st March, 2018

Particulars as on 31st March Note
I
(1) Shareholders‖ funds:
(a) Share capital 1 12,00,000
(b) Reserves and surplus 2 66,150
(2) Non current liabilities:
Long term borrowings 3 4,50,000
(3) Current liabilities:
(a) Short term borrowings 4 4,50,000
(b) Trade payables 2,63,550
(c) Other current liabilities 5 29,250
Total 24,58,950
II
ASSETS
(1) Non-current Assets
(a) Property, Plant & Equipment
(i) Tangible assets 6 11,49,900
(ii) Intangible assets 7 4,05,000
(b) Non current investments (Shares at cost) 1,50,000
Current Assets:
(a) Inventories 4,27,500
(b) Trade receivables 2,72,550
(c) Cash and Cash equivalents – Cash on hand 8 36,000
(d) Short term loans and advances –Income tax (paid
30,000-Provision 12,000) 18,000
Total 24,58,950
Note: There is a Contingent liability for Bills receivable discounted with Bank Rs6,000.
Notes to accounts
(Rs )
1. Share Capital
Authorized
90,000 Equity Shares of Rs10 each 9,00,000

6,000 6% Preference shares of Rs100 each 6,00,000 15,00,000

Issued, subscribed & called up
60,000, Equity Shares of Rs10 each 6,00,000
6,000 6% Redeemable Preference Shares of 100 6,00,000 12,00,000
each
2. Reserves and Surplus
Balance as on 1st April, 2017 85,500
Add: Surplus for current year 16,650 1,02,150
Less: Preference Dividend 36,000
Balance as on 31st March, 2018 66,150
3. Long Term Borrowings
5% Mortgage Debentures (Secured against 4,50,000
Freehold Properties)
4. Short Term Borrowings
Secured Borrowings: Loans Repayable on Demand 4,50,000
Overdraft from Banks (Secured by Hypothecation
of Stocks & Receivables)
5. Other Current liabilities
Interest Accrued and due on Borrowings (5% 11,250
Debentures)
Unpaid Preference Dividends 18,000 29,250
6. Tangible Fixed assets
Furniture
Furniture at Cost Less depreciation Rs45,000 (as 1,05,000
given in Trial Balance
Add: Depreciation 45,000
Cost of Furniture 1,50,000
Add: Installation charge of Electrical Fittings 6,000
wrongly included under the heading Salaries and
Wages
Total Gross block of Furniture A/c 1,56,000
Accumulated Depreciation Account: Opening
Balance-given in Trial Balance 45,000
Depreciation for the year:
On Opening WDV at 10% i.e. (10% x 1,05,000)
10,500
On additional purchase during the year at 10%
i.e. (10% x 6,000) 600
Less: Accumulated Depreciation 56,100 99,900

Freehold property (at cost) 10,50,000

11,49,900
7. Intangible Fixed Assets
Technical knowhow 4,50,000
Less: Written off 45,000 4,05,000
8. Trade Receivables
Sundry Debtors (a) Debt outstanding for more 18,000
than six months
(b) Other Debts (refer Working Note) 1,34,550
Bills Receivable (1,24,500 -4,500) 1,20,000 2,72,550
9. Employee benefit expenses
Amount as per Trial Balance 1,56,000
Less: Wages incurred for installation of electrical 6,000
fittings to be capitalised
Less: Directors‖ Remuneration shown separately 30,000
Balance amount 1,20,000
10. Finance Costs
Interest on bank overdraft 29,400
Interest on debentures 22,500 51,900
11. Other Expenses
Payment to the auditors 18,000
Director‖s remuneration 30,000
Selling expenses 2,37,300
Technical knowhow written of (4,50,000/10) 45,000
Advertisement (Goods and Articles Distributed) 15,000
Bad Debts (4,500 x50%) 2,250 3,47,550
Working Note Calculation of Sundry Debtors-Other Debts

Sundry Debtors as given in Trial Balance 1,50,300
Add Back: Bills Receivables Dishonoured 4,500
1,54,800
Less: Bad Debts written off – 50% Rs4,500 (2,250)

Adjusted Sundry Debtors 1,52,550
Less: Debts due for more than 6 months (as per information given) (18,000)
Total of other Debtors i.e. Debtors outstanding for less than 6 months 1,34,550

Question 5 (MTP May 20)

On 31st March, 2020, SR Ltd. provides the following ledger balances after preparing its Profit &Loss Account for
the year ended 31st March, 2020.
Particulars Amount (Rs.)
Debit Credit
Equity Share Capital, fully paid shares of Rs. 50 each 80,00,000
Calls in arrear 15,000
Land 25,00,000
Buildings 30,00,000
Plant & Machinery 24,00,000
Furniture &Fixture 13,00,000
Securities Premium 15,00,000
Profit & Loss Account 5,80,000
Loan from Public Finance Corporation (Secured by 26,30,000
Hypothecation of Land)
Other Long Term Loans 22,50,000
Short Term Borrowings 4,60,000
Inventories: Finished goods 45,00,000
Raw materials 13,00,000
Trade Receivables 17,50,000
Advances: Short Term 3,75,000
Trade Payables 8,13,000
Provision for Taxation 3,80,000
Dividend payable 70,000
Cash in Hand 70,000
Balances with Banks 4,14,000
Total 1,76,24,000 1,76,24,000
The following additional information was also provided in respect of the above balances:
(1) 50,000 fully paid equity shares were allotted as consideration for land.
The cost of assets were:
Building Rs. 32,00,000
Plant and Machinery Rs. 30,00,000
Furniture and Fixture Rs. 16,50,000
(1) Trade Receivables for Rs. 4,86,000 due for more than 6 months.
(2) Balances with banks include Rs. 56,000, the Naya bank, which is not a scheduled bank.
(3) Loan from Public Finance Corporation repayable after 3 years.

(4) The balance of Rs. 26,30,000 in the loan account with Public Finance Corporation is inclusive of Rs.
1,34,000 for interest accrued but not due. The loan is secured by hypothecation of land.
(5) Other long-term loans (unsecured) include:
Loan taken from Nixes Bank Rs 13,80,000
(amount repayable within one year) Rs 4,80,000
Loan taken from Directors Rs 8,50,000
(6) Bills Receivable for Rs. 1,60,000 maturing on 15th June, 2020 has been discounted.
(7) Short term borrowings include:
Loan from Naya Bank Rs1,16,000 (Secured)
Laon from directors Rs 48,000
(8) Transfer of Rs. 35,000 to general reserve has been proposed by the Board of directors out of the profits
for the year.
(9) Inventory of finished goods includes loose tools costing Rs. 5 lakhs (which do not meet definition of
property, plant & equipment as per AS 10)
You are required to prepare the Balance Sheet of the Company as on March 31st 2020 as required under Part – I
of Schedule III of the Companies Act, 2013. Ignore previous year figures.

SOLUTION
SR Ltd.
Balance Sheet as on 31st March, 2020
Particulars Notes Figures at the end of
current reporting
period (Rs.)
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 79,85,000
b Reserves and Surplus 2 30,21,000
2 Non-current liabilities
a Long-term borrowings 3 42,66,000
3 Current liabilities
a Short-term borrowings 4 4,60,000
b Trade Payables 5 8,13,000
c Other current liabilities 6 6,84,000
d Short-term provisions 3,80,000
Total 1,76,09,000
Assets
1 Non-current assets
A PPE 7
2 Current assets 8 92,00,000
A Inventories 9 58,00,000
B Trade receivables 10 17,50,000
C Cash and cash equivalents 4,84,000
D Short-term loans and advances 3,75,000
Total 1,76,09,000
Notes to accounts
Rs.
1. Share Capital
Equity share capital
Issued, subscribed and called up
1,60,000 Equity Shares of Rs. 50 each (Out of the above 50,000
Shares have been issued for consideration other than cash) 80,00,000
Less: Calls in arrears (15,000) 79,85,000
2. Reserves and Surplus
Add: Transferred from Profit and loss account 35,000 9,76,000

Securities premium 15,00,000

Surplus (Profit & Loss A/c) 5,80,000
Less: Appropriation to General Reserve (proposed) (35,000) 5,45,000
30,21,000
3. Long-term borrowings
Secured: Term Loans 24,96,000
Loan from Public Finance Corporation [repayable
after 3 years (Rs.26,30,000- Rs. 1,34,000 for
interest accrued but not due)]
Secured by hypothecation of land
Unsecured
Bank Loan (Nixes bank) 9,00,000
(Rs. 13,80,000 - Rs.4,80,000repayable within 1 year)
Loan from Directors 8,50,000
Others 20,000 17,70,000
Total 42,66,000
4. Short-term borrowings
Loan from Naya bank (Secured) 1,16,000
Loan from Directors 48,000
Others 2,96,000 4,60,000
5. Other current liabilities
Loan from Nixes bank repayable within one year 4,80,000
Interest accrued but not due on borrowings 1,34,000 6,84,000
6. Short-term provisions
Provision for taxation 3,80,000
PPE
7.
Land
25,00,000
Buildings 32,00,000
30,00,000
Less: Depreciation (2,00,000)
Plant & Machinery 30,00,000
24,00,000
Furniture &Fittings 16,50,000
13,00,000
92,00,000
Total
Inventories
8.
Raw Material 13,00,000
Finished goods Loose tools 40,00,000

5,00,000 58,00,000
9. Trade receivables
Outstanding for a period exceeding six months
Others 4,86,000
12,64,000
Total 17,50,000
10. Cash and cash equivalents
Balances with banks
with Scheduled Banks 3,58,000
with others banks 56,000 4,14,000
Cash in hand 70,000
Total 4,84,000
Note: There is a Contingent Liability amounting Rs. 1,60,000

TOPIC 2
REDEMPTION OF DEBENTURES
Sencom Limited issued Rs. 1,50,000 5% Debentures on 30th September 20X0 on which interest is payable half
yearly on 31stMarch and 30th September. The company has power to purchase debentures in the open market for
cancellation thereof. The following purchases were made during the year ended 31stDecember, 20X2 and the
cancellation were made on the same date. On 31stDecember 20X0, balance in the DRR of the company was
Rs25,000 and investments made for the purpose of redemption were Rs20,000.
1stMarch 20X2 –Rs25,000 nominal value purchased for Rs24,725 ex-interest.
1stSeptember 20X2 –Rs20,000 nominal value purchased for Rs20,125 cum-interest.
You are required to draw up the following accounts up to the date of cancellation:
(i) Debentures Account; and
(ii) Own Debenture (Investment) Account.
Ignore taxation.
SOLUTION
Sencom Limited Debenture Account
20X2 Particulars Rs 20X2 Particulars Rs
Mar 1 To Own Debentures 24,725 Jan 1 By Balance b/d 1,50,000
Mar 1 To Profit on cancellation 275
(25,000-24,725)
Sep 1 To Own Debentures (Note 3) 19,708
Sep 1 To Profit on cancellation 292
(20,000-19,708)
Dec 31 Balance c/d 1,05,000
1,50,000 1,50,000
Own Debenture (Investment) Account
Date Particulars Nominal Interest Cost Rs Date Particulars Nominal Interest Cost Rs
Cost Rs Cost Rs
Rs Rs
20X2 20X2
Mar 1 To Bank 25,000 521 24,725 Mar 1 By Debentures 25,000 - 24,725
(W.N. 1) A/c
Sep 1 To Bank (W.N. 20,000 417 19,708 Sep 1 By Debentures 20,000 - 19,708
2 & 3) A/c
Dec. 31 By P&L A/c 938
45,000 938 44,433 45,000 938 44,433

Working notes:

1. 25,000 x 5% x 5/12 =521

2. 20,000 x 5% x 5/12 =417
3. 20,125 – 417 = 19,708

The following balances appeared in the books of Paradise Ltd as on 1-4-20X1:
 12 % Debentures Rs7,50,000
 Balance of DRR Rs25,000
 DRR Investment 1,12,500 represented by 10%, 1,125 Secured Bonds of the Government of India of Rs100 each.
Annual contribution to the DRR was made on 31stMarch every year. On 31-3-20X2, balance at bank was
Rs7,50,000 before receipt of interest. The investment were realised at par for redemption of debentures at a
premium of 10% on the above date.
You are required to prepare the following accounts for the year ended 31st March, 20X2:
(1) Debentures Account
(2) DRR Account
(3) DRR Investment Account
(4) Bank Account
Debenture Holders Account.
SOLUTION
1. 12% Debentures Account
Date Particulars Rs Date Particulars Rs
31stMarch, To Debenture 7,50,000 1stApril, By Balance b/d 7,50,000
20X2 holder‖s A/c 20X1
7,50,000 7,50,000
2. DRR Account
1st April, By Balance b/d 25,000
20X1
31st March, To General reserve 75,000 1st April, By Profit and loss 50,000
20X2 A/c note 1 20X1 A/c (Refer Note1)
1,87,500 1,87,500
3. 10% Secured Bonds of Govt. (DRR Investment)A/c

1st April, To Balance b/d 1,12,500 31st March, By Bank A/c 1,12,500
20X1 20X2
1,12,500 1,12,500

4. Bank A/c
31st To Balance b/d 7,50,000 31st By 12% 8,25,000
March, March Debenture
20X2 To Interest on DRR 11,250
Investment
20X2 To DRR Investment A/c 1,12,500 By Balance c/d 48,750
8,73,750 8,73,750
5. Debenture holder‖s A/c

31st To Bank A/c 8,25,000 31st By 12% Debentures 7,50,000
March, March, By Premium on redemption of 75,000
20X2 20X2 debentures @ 10%
8,25,000 8,25,000
Note 1 –
Calculation of DRR before redemption = 10% of Rs. 7,50,000 = 75,000
Available balance = Rs. 25,000
DRR required = 75,000 – 25,000 = Rs. 50,000.

On 1stApril, 20X1, in MK Ltd.‖s ledger 9% debentures appeared with a opening balance of Rs50,00,000 divided into
50,000 fully paid debentures of Rs100 each issued at par.
Interest on debentures was paid half-yearly on 30th of September and 31st March every year.
On 31.5.20X1, the company purchased 8,000 debentures of its own @ Rs98 (ex-interest) per debenture.
On same day it cancelled the debentures acquired.
You are required to prepare necessary ledger accounts (excluding bank A/c).
SOLUTION
MK Ltd.‖s Ledger
(i) Debentures Account
31.5.X1 To Own Debentures 7,84,000 1.4.X1 By balance b/d 50,00,000
(8,000 X 98)
31.5.X1 To Profit on 16,000
cancellation
31.3.X2 To balance c/d 42,00,000

50,00,000 50,00,000
(ii) Interest on Debentures Account
31.5.X1 To Bank (Interest for2 12,000 31.3.X2 By Profit and 3,90,000
months on 8,000 Loss A/c(b.f.)
debentures)
30.9.X1 To Bank (Interest for6 1,89,000
months on 42,000
debentures)
31.3.X2 To Bank (Interest for6 1,89,000
months on 42,000
debentures)
3,90,000 3,90,000
(iii) Debentures Redemption Reserve A/c

Date Particulars Amount Date Particulars Amount
31 may 20X1 By General Reserve 80,000 1 April To Profit & 5,00,000
(8,000 × 100 × 25%) 20X1 Loss A/c
31 March 20X2 By Balanced c/d 4,20,000
5,00,000 5,00,000
(iv) Debentures Redemption Investments A/c
Date Particulars Amount Date Particulars Amount
1 April To Bank A/c 7,50,000 30 May By Bank A/c (8000 × 1,20,000
20X1 20X1 100 × 15%
31 March To Balance C/d 6,30,000
20X2
7,50,000 7,50,000
Working Note:
31.5. X1 Acquired 8,000 Debentures @ 98 per debenture (ex-interest)
Purchase price of debenture (8,000 × Rs98) = 7,84,000
31.5.X1 Interest for 2 months [Rs8,00,000 × 9% × 2/12] = 12,000
30.9. X1 Interest on other debentures
Rs42,00,000 × 9% × ½ = 1,89,000

Question 9 (Nov 18)

The summarized Balance Sheet of Spices Ltd. As on 31st March, 2018 read as under:
Rs
Liabilities:
Share Capital: 9,000 equity shares of Rs 10 each, fully paid up 90,000
General Reserve 38,000
Debenture Redemption Reserve 35,000
12% Convertible Debentures : 1,200 Debentures of Rs 50 each 60,000
Unsecured Loans 28,000
Short term borrowings 19,000
2,70,000
Assets:
Fixed Assets (at cost less depreciation) 72,000
Debenture Redemption Reserve Investments 34,000
Cash and Bank Balances 86,000
Other Current Assets 78,000
2,70,000
The debentures are due for redemption on 1stApril, 2018. The terms of issue of debentures provided that they
were redeemable at a premium 10% and also conferred option to the debenture holders to convert 40% of their
holding into equity shares at a predetermined price of Rs 11 per share and the balance payment in cash.
Assuming that:
(i) Except for debenture holders holding 200 debentures in aggregate, rest of them exercised the option for
maximum conversion,
(ii) The investments realized Rs56,000 on sale,
(iii) All the transactions were taken place on 1st April,2018
(iv) Premium on redemption of debentures is to be adjusted against General Reserve.
You are required to
(a) Redraft the Balance Sheet of Spices Ltd. as on 01.04.2018 after giving effect to the redemption.
Show your calculations in respect of the number of equity shares to be allotted and the cash payment necessary.
SOLUTION
Spices Ltd.
Balance Sheet as on 01.04.2018
Particulars Note Figures as at the end of
No. current reporting period
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 1,10,000
(b) Reserves and Surplus 2 91,000


(a) Long-term borrowings – 28,000
Unsecured Loans
(a) Short-term borrowings 19,000
Total 2,48,000
II. Assets
(1) Non-current assets
(a) Fixed assets
(i) Tangible assets 72,000
(2) Current assets
(a) Cash and cash equivalents 98,000
(b) Other current assets 78,000
Total 2,48,000
Notes to Accounts
Rs
1 Share Capital
(Out of above, 2000 shares issued to debentures holders who
opted for conversion into shares)
2 Reserve and Surplus
General Reserve 38,000
Add: Debenture Redemption Reserve transfer 35,000
73,000
Add: Profit on sale of investments 22,000
95,000
Less: Premium on redemption of debentures (1,200 x Rs5) 89,000
Securities Premium Account (2,000 x Rs 1) (6,000) 2,000
91,000

Working Notes:
(i) Calculation of number of shares to be allotted Rs

Total number of debentures 1,200
Less: Number of debentures not opting for conversion (200)
1,000
40% of 1,000 400
Redemption value of 400 debentures (400 x Rs 55) Rs 22,000
Number of Equity Shares to be allotted 22,000/11 = 2,000 shares of Rs 10each
(ii) Calculation of cash to be paid Rs
Number of debentures 1,200
Less: Number of debentures to be converted into equity shares (400)
800
Redemption value of 800 debentures (800 × Rs 55) Rs 44,000

(iii) Cash and Bank Balance Rs
Balance before redemption 86,000
Add: Proceeds of investments sold 56,000
1,42,000
Less: Cash paid to debenture holders (44,000)
98,000
Question 10 (EXAM May 18 – 5 MARKS)

A Company had issued 1,000 12% debentures of Rs. 100 each redeemable at the company's option at the end of
10 years at par or prior to that by purchase in open market or at Rs. 102 after giving 6 months notice. On 31st
December, 2016, the accounts of the company showed the following balances:
Debenture redemption fund Rs. 53,500 represented by 10% Govt. Loan of a nominal value of Rs. 42,800 purchased
at an average price of Rs. 101 and Rs. 10,272 un-invested cash in hand.
On 1st January 2017, the company purchased Rs. 11,000 of its own debentures at a cost of Rs. 10,272.
On 30th June, 2017, the company gave a six months notice to the holders of Rs. 40,000 debentures and on 31st
December, 2017 carried out the redemption by sale of Rs. 40,800 worth of Govt. Loan at par and also cancelled
the own debentures held by it.
Prepare ledger account of Debenture Redemption Fund Account and Debenture Redemption Fund
Investment Account for the year ended 31.12.2017, assuming that, interest on company debentures &
Govt. loan was payable on 31st December every year.

SOLUTION
(1) Since this chapter has been amended twice in the past, the below solution is not as per amendment, so
where ever required we have to change the solution:
(2) Debenture Redemption Fund Account
31.12.17 To Debenture 408 1.1.17 By Balance b/d 53,500
Redemption Fund
Investment A/c
To Premium on 800 31.12.17 By interest on 4,280
redemption of DRFI (10% of
debentures Rs42,800)
To Balance c/d 57,892 By interest on own 1,320
debentures (i.e.
12% on Rs11,000)
59,100 59,100
1.1.18 To Balance b/d 57,892
(3) Debenture Redemption Fund Investment Account
Rs Rs
1.1.17 To Balance b/d 43,228 31.12.17 By Bank A/c 40,800
(428 x Rs 101)
By Debenture 408
redemption
Fund (1% of
Rs40,800) By
12%
Debentures
11,000
1.1.17 To Bank 10,272 728 By Balance 2,020
31.12.17 To capital Reserve c/d
(Profit on
cancellation of
Debentures)
54,228 54,228
1.1.18 To Balance b/d 2, 020

TOPIC 3
CASH FLOW STATEMENT
Classify the following activities as
(a) Operating Activities,
(b) Investing Activities,
(c) Financing Activities
(d) Cash Equivalents.
(a) Purchase of Machinery.
(b) Proceeds from issuance of equity share capital
(c) Cash Sales.
(d) Proceeds from long-term borrowings.
(e) Proceeds from Trade receivables.
(f) Cash receipts from Trade receivables.
(g) Trading Commission received.
(h) Purchase of investment.
(i) Redemption of Preference Shares.
(j) Cash Purchases.
(k) Proceeds from sale of investment
(l) Purchase of goodwill.
(m) Cash paid to suppliers.
(n) Interim Dividend paid on equity shares.
(o) Wages and salaries paid.
(p) Proceed from sale of patents.
(q) Interest received on debentures held as investment.
(r) Interest paid on Long-term borrowings.
(s) Office and Administration Expenses paid
(t) Manufacturing Overheads paid.
(u) Dividend received on shares held as investments.
(v) Rent Received on property held as investment.
(w) Selling and distribution expense paid.
(x) Income tax paid
(y) Dividend paid on Preference shares.
(z) Underwritings Commission paid.
(aa) Rent paid.
(bb) Brokerage paid on purchase of investments.
(cc) Bank Overdraft
(dd) Cash Credit

(ee) Short-term Deposits

(ff) Marketable Securities
(gg) Refund of Income Tax received.
SOLUTION
(a) Operating Activities: c, e, f, g, j, m, o, s, t, w, x, aa & gg.
(b) Investing Activities: a, h, k, l, p, q, u, v, bb & ee.
(c) Financing Activities: b, d, i, n, r, y, z, cc & dd.
(d) Cash Equivalent: ff.

Classify the following activities as per AS 3 Cash Flow Statement:
(i) Interest paid by financial enterprise
(ii) Tax deducted at source on interest received from subsidiary company
(iii) Deposit with Bank for a term of two years
(iv) Insurance claim received towards loss of machinery by fire
(v) Bad debts written off
SOLUTION
(i) Interest paid by financial enterprise
Cash flows from operating activities
(ii) TDS on interest received from subsidiary company
Cash flows from investing activities
(iii) Deposit with bank for a term of two years
(iv) Insurance claim received against loss of fixed asset by fire
Extraordinary item to be shown as a separate heading under ―Cash flow from investing activities‖
(v) Bad debts written off
It is a non-cash item which is adjusted from net profit/loss under indirect method, to arrive at net cash flow
from operating activity.


The balance sheets of Sun Ltd. for the years ended 31stMarch 20X1and 20X0 were summarised as:
20X1 20X0
Rs Rs
Equity Share Capital 60,000 50,000
Reserves:
Profit and Loss Account 5,000 4,000
Current Liabilities:
Trade payables 4,000 2,500
Other Current Liabilities - 1,000
Taxation 1,500 1,000
Total 70,500 58,500
Fixed Assets (at W.D.V.)
Premises 10,000 10,000
Fixtures 17,000 11,000
Vehicles 12,500 8,000
Short-term investments 2,000 1,000
Current Assets
Inventory 17,000 14,000
Trade receivables 8,000 6,000
Bank and Cash 4,000 8,500
Total 70,500 58,500
Notes to accounts
20X1 (Rs.) 20X0 (Rs.)
1 Share Capital
Equity Shares of Rs.10 each 60,000 50,000
2 Reserve & surplus
3 Other current liabilities
Dividend Payable - 1,000
4 Property, plant and equipment (at WDV)
Building 10,000 10,000
Fixtures 17,000 11,000
Vehicles 12,500 8,000
Total 39,500 29,000
5 Cash and cash equivalents
Cash and Bank 4,000 8,500

The profit and loss account for the year ended 31stMarch, 20X1disclosed
Profit before tax 4,500
Taxation (1,500)
Profit after tax 3,000
Declared dividends (2,000)
Retained profit 1,000
Further information is available

Fixtures Vehicles
Rs Rs
Depreciation for year 1,000 2,500
Disposals:
Proceeds on disposal — 1,700
Written down value — (1,000)
Profit on disposal 700
Prepare a Cash Flow Statement for the year ended 31stMarch, 20X1.
Solution
Sun Ltd.
Cash Flow Statement
for the year ended 31st March, 20X1
Particulars Rs Rs
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit before taxation 4,500
Adjustments for:
Depreciation 3,500
Profit on sale of vehicles (1,700 – 1,000) (700)
Operating profit before working capital changes 7,300
Increase in Trade receivables (2,000)
Increase in inventories (3,000)
Increase in Trade payables 1,500
Cash generated from operations 3,800
Income taxes paid (W.N.1) (1,000)
Net cash generated from operating activities 2,800
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of vehicles 1,700
Purchase of vehicles (W.N.3) (8,000)
Purchase of fixtures (W.N.3) (7,000)
Net cash used in investing activities (14,300)

CASH FLOWS FROM FINANCING ACTIVITIES

Issue of shares for cash 10,000
Dividends paid (W.N.2) (3,000)
Net cash from financing activities 7,000
Net decrease in cash and cash equivalents (4,500)
Cash and cash equivalents at beginning of period (See Note) 8,500
Cash and cash equivalents at end of period (See Note) 4,000
Note to the Cash Flow Statement
Cash and Cash Equivalents 31.3.20X1 31.3.20X0
Bank and Cash 4,000 8,500
Cash and cash equivalents 4,000 8,500
Working Notes:
Particulars Rs Rs
1. Income taxes paid
Income tax expense for the year 1,500
Add: Income tax liability at the beginning of the year 1,000
2,500
Less: Income tax liability at the end of the year (1,500)
1,000
2. Dividend paid
Declared dividend for the year 2,000
Add: Amount payable at the beginning of the year 1,000
3,000
Less: Amount payable at the end of the year -
3,000
3. Fixed assets acquisitions
Fixtures Vehicles
Rs Rs
W.D.V. at 31.3.20X1 17,000 12,500
Add back:
Depreciation for the year 1,000 2,500
Disposals — 1,000
18,000 16,000
Less: W.D.V. at 31.12.20X0 (11,000) (8,000)
Acquisitions during20X0-20X1 7,000 8,000
Note: Current investments may not be readily convertible to a known amount of cash and may not be subject to

an insignificant risk of changes in value as per the requirements of AS 3 and hence those have been considered
as investing activities.

Given below is the Statement of Profit and Loss of ABC Ltd. and relevant Balance Sheet information:
Statement of Profit and Loss of ABC Ltd.
for the year ended 31stMarch, 20X1
Particulars Rs in lakhs
Revenue:
Sales 4,150
Interest and dividend 100
Stock adjustment 20
Total (A) 4,270
Expenditure:
Purchases 2,400
Wages and salaries 800
Other expenses 200
Interest 60
Depreciation 100
Total (B) 3,560
Profit before tax (A – B) 710
Tax provision 200
Profit after tax 510
Balance of Profit and Loss account brought forward 50
Profit available for distribution (C) 560
Appropriations:
Transfer to general reserve 200
Declared dividend (including CDT) 330
Total (D) 530
Balance (C – D) 30
Relevant Balance Sheet information 31.3.20X1 31.3.20X0

Rs in lakhs Rs in lakhs
Trade receivables 400 250
Inventories 200 180
Trade payables 250 230
Outstanding wages 50 40
Outstanding expenses 20 10

Advance tax 195 180

Tax provision 200 180
Compute cash flow from operating activities using both direct and indirect method.
SOLUTION
By direct method
Computation of Cash Flow from Operating Activities
Particulars Rs in lakhs Rs in lakhs
Cash Receipts:
Cash sales and collection from Trade receivables
Sales + Opening Trade receivables – Closing Trade receivables 4,150+250-400
(A) 4,000
Cash payments:
Cash purchases & payment to Trade payables Purchases + 2,400+230-250 2,380
Opening Trade payables – Closing Trade payables
Wages and salaries paid 800+40-50 790
Cash expenses 200+10–20 190
Taxes paid – Advance tax 195
(B) 3,555
Cash flow from operating activities (A – B) 445
By Indirect Method
Computation of Cash Flow from Operating Activities
Rs in lakhs Rs in lakhs
By Indirect method
Profit before tax 710
Add: Non-cash items: Depreciation 100
Add: Interest: Financing cash outflow 60
Less: Interest and Dividend: Investment cash inflow (100)
Less: Tax paid (195)
Working capital adjustments
Trade receivables 250-400=(150)
Inventories 180-200= (20)
Trade payables 250-230 =20
Outstanding wages 50-40=10
Outstanding expenses 20-10 =10 (130)
Cash flow from operating activities 445


From the following Balance Sheet &information, prepare Cash Flow Statement of Ryan Ltd. by Indirect method
for the year ended 31stMarch, 20X1:
Balance Sheet
31stMarch, 20X1 31stMarch, 20X0
Liabilities
Equity Share Capital 6,00,000 5,00,000
10% Redeemable Preference Share – 2,00,000
Capital
Capital Redemption Reserve 1,00,000 –
Capital Reserve 1,00,000 –
General Reserve 1,00,000 2,50,000
9% Debentures 2,00,000 –
Trade payables 1,15,000 1,10,000
Liabilities for Expenses 30,000 20,000
Provision for Taxation 95,000 60,000
Dividend payable 90,000 60,000
15,00,000 12,50,000
31st March,20X1 31st March,20X0
Assets
Land and Building 1,50,000 2,00,000
Plant and Machinery 7,65,000 5,00,000
Investments 50,000 80,000
Inventory 95,000 90,000
Trade receivables 2,50,000 2,25,000
Cash and Bank 65,000 90,000
Voluntary Separation Payments 1,25,000 65,000
15,00,000 12,50,000
Additional Information:
(i) A piece of land has been sold out for Rs 1,50,000 (Cost – Rs 1,20,000) and the balance land was
revalued. Capital Reserve consisted of profit on sale and profit on revaluation.
(ii) On 1stApril, 20X0 a plant was sold for Rs 90,000 (Original Cost – Rs 70,000 and W.D.V. – Rs 50,000)
and Debentures worth Rs1 lakh was issued at par as part consideration for plant of Rs4.5 lakhs
acquired.
(iii) Part of the investments (Cost – Rs 50,000) was sold for Rs 70,000.
(iv) Pre-acquisition dividend received Rs 5,000 was adjusted against cost of investment.
(v) Directors have declared 15% dividend for the current year.

(vi) Voluntary separation cost of Rs 50,000 was adjusted against General Reserve.
(vii) Income-tax liability for the current year was estimated at Rs 1,35,000.
Depreciation @ 15% has been written off from Plant account but no depreciation has been charged on Land and
Building.
SOLUTION
Cash Flow Statement of Ryan Limited
For the year ended 31st March,20X1
Particulars Rs
CASH FLOW FROM OPERATING ACTIVITIES
Net Profit before taxation (W.N.1) 2,45,000
Adjustment for
Depreciation (W.N.3) 1,35,000
Profit on sale of plant (W.N.3) (40,000)
Profit on sale of investments (W.N.3) (20,000)
Interest on debentures (W.N.4) 18,000
Operating profit before working capital changes 3,38,000
Increase in inventory (5,000)
Increase in trade receivables (25,000)
Increase in Trade payables 5,000
Increase in accrued liabilities 10,000
Cash generated from operations 3,23,000
Income taxes paid (W.N.8) (1,00,000)
2,23,000
Voluntary separation payments (W.N.9) (1,10,000)
Net cash generated from operating activities 1,13,000
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of land (W.N.2) 1,50,000
Proceeds from sale of plant (W.N.3) 90,000
Proceeds from sale of investments (W.N.4) 70,000
Purchase of plant (W.N.3) (3,50,000)
Purchase of investments (W.N.4) (25,000)
Pre-acquisition dividend received (W.N.4) 5,000
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of equity shares 1,00,000
(6,00,000 – 5,00,000)
Proceeds from issue of debentures 1,00,000
(2,00,000 – 1,00,000)

Redemption of preference shares (2,00,000)

Dividends paid (60,000)
Interest paid on debentures (18,000)
Net cash used in financing activities (78,000)
Net decrease in cash and cash equivalents (25,000)
Cash and cash equivalents at the beginning of the year 90,000
Cash and Cash equivalents at the end of the year 65,000
Working Notes:
1. Net Profit before taxation
Particulars Rs
Net profit before taxation
Retained profit 70,000
Less: Balance as on 31.3.20X0 (50,000)
20,000
Provision for taxation 1,35,000
Net Profit before taxation 2,45,000
2. Land and Building Account

To Balance b/d 2,00,000 By Cash (Sale) 1,50,000
To Capital reserve (Profit on sale) 30,000 By Balance c/d 1,50,000
To Capital reserve (Revaluation
profit) 70,000
3,00,000 3,00,000
3. Plant and Machinery Account

To Balance b/d 5,00,000 By Cash (Sale) 90,000
To Profit and loss account 40,000 By Depreciation 1,35,000
To Debentures 1,00,000 By Balance c/d 7,65,000
To Bank 3,50,000
9,90,000 9,90,000
4. Investments Account
To Balance b/d 80,000 By Cash (Sale) 70,000

To Profit and loss account 20,000 By Dividend(Pre acquisition) 5,000
To Bank (Balancing figure) 25,000

To Balance C/d 50000
125000 125000
5. Capital Reserve Account

To Balance c/d 1,00,000 By Profit on sale of land 30,000
By Profit on revaluation of 70,000
land
1,00,000 1,00,000
6. General Reserve Account

To Voluntary separation cost 50,000 By Balance b/d 2,50,000
To Capital redemption 1,00,000
Reserve
To Balance c/d 1000000
2,50,000 2,50,000
7. Dividend payable Account

To Bank (Balancing figure) 60,000 By Balance b/d 60,000
To Balance c/d 90,000 By Profit & loss account 90,000
1,50,000 1,50,000
8. Provision for Taxation Account

To Bank 1,00,000 By balance b/d 60,000
(Balancing figure)
To Balance c/d 95,000 By Profit & loss account 1,35,000
1,95,000 1,95,000
9. Voluntary Separation Payments Account

To Balance b/d 65,000 By General reserve 50,000

To Bank (Balancing figure) 1,10,000 By Balance c/d 1,25,000

1,75,000 1,75,000
QUESTION 16 (RTP May 18)

A company provides you the following information:
(i) Total sales for the year were Rs. 398 crores out of which cash sales amounted to Rs. 262 crores.
(ii) Receipts from credit customers during the year, aggregated Rs. 134 crores.
(iii) Purchases for the year amounted to Rs. 220 crores out of which credit purchase was 80%.
Balance in creditors as on
1.4.2016 Rs. 84 crores
31.3.2017 Rs. 92 crores
(iv) Suppliers of other consumables and services were paid Rs. 19 crores in cash.
(v) Employees of the enterprises were paid 20 crores in cash.
(vi) Fully paid preference shares of the face value of Rs. 32 crores were redeemed. Equity shares of the face
value of Rs. 20 crores were allotted as fully paid up at premium of 20%.
(vii) Debentures of Rs. 20 crores at a premium of 10% were redeemed. Debenture holders were issued equity
shares in lieu of their debentures.
(viii) Rs26 crores were paid by way of income tax.
(ix) A new machinery costing Rs. 25 crores was purchased in part exchange of old machinery. The book value
of the old machinery was Rs. 13 crores. Through the negotiations, the vendor agreed to take over the old
machinery at a higher value of Rs. 15 crores. The balance was paid in cash to the vendor.
(x) Investment costing Rs. 18 cores were sold at a loss of Rs. 2 crores.
(xi) Dividends amounting Rs. 15 crores (including dividend distribution tax of Rs. 2.7 crores) was also paid.
(xii) Debenture interest amounting Rs. 2 crore was paid.
(xiii) On 31st March 2016, Balance with Bank and Cash on hand was Rs. 2 crores.
On the basis of the above information, you are required to prepare a Cash Flow Statement for the year ended
31st March, 2017 (Using direct method).

SOLUTION
Cash flow statement (using direct method) for the year ended 31st March, 2017
(Rs. in (Rs. in
crores) crores)
Cash flow from operating activities
Cash sales 262
Cash collected from credit customers 134
Less: Cash paid to suppliers for goods & services and to employees
(Refer Working Note) (251)
Cash from operations 145
Less: Income tax paid (26)
Net cash generated from operating activities 119
Cash flow from investing activities

Net Payment for purchase of Machine (25 – 15) (10)
Proceeds from sale of investments 16
Net cash used in investing activities 6
Cash flow from financing activities

Redemption of Preference shares (32)
Proceeds from issue of Equity shares 24
Debenture interest paid (2)
Dividend Paid (15)
Net cash used in financing activities (25)
Net increase in cash and cash equivalents 100

Add: Cash and cash equivalents as on 1.04.2016 2
Cash and cash equivalents as on 31.3.2017 102
Working Note:
Calculation of cash paid to suppliers of goods and services and to employees
(Rs. in crores)
Opening Balance in creditors Account 84
Add: Purchases (220x .8) 176
Total 260
Less: Closing balance in Creditors Account 92
Cash paid to suppliers of goods 168
Add: Cash purchases (220x .2) 44
Total cash paid for purchases to suppliers (a) 212

Add: Cash paid to suppliers of other consumables and services (b) 19

Add: Payment to employees (c) 20
Total cash paid to suppliers of goods & services and to employees 251
[(a)+ (b) + (c)]
QUESTION 17 (RTP Nov 19)

From the following information, prepare a Cash Flow Statement for the year ended 31st March, 2019.
Balance Sheets
Particulars Note 31.03.2019 31.03.2018
(Rs.) (Rs.)
I EQUITY AND LIABILITIES
(1) Shareholder‖s Funds
(a) Share Capital 1 3,50,000 3,00,000
(b) Reserves and Surplus 2 82,000 38,000
(a) Trade Payables 65,000 44,000
(b) Other Current Liabilities 3 37,000 27,000
(c) Short term Provisions (provision for tax) 4 32,000 28,000
Total 5,66,000 4,37,000
ASSETS
(1) Non-current Assets
(a) Tangible Assets 2,66,000 1,90,000
(b) Intangible Assets (Goodwill) 47,000 60,000
II
Non-Current Investments 35,000 10,000
(2) Current Assets
(a) Inventories 78,000 85,000
(b) Trade Receivables 1,08,000 75,000
(c) Cash & Cash Equivalents 32,000 17,000
Total 5,66,000 4,37,000
Note 1: Share Capital

Particulars 31.03.2019 (Rs.) 31.03.2018 (Rs.)
Equity Share Capital 2,50,000 1,50,000
8% Preference Share Capital 1,00,000 1,50,000
Total 3,50,000 3,00,000

Note 2: Reserves and Surplus

General Reserve 30,000 20,000
Profit and Loss A/c 27,000 18,000
Capital Reserve 25,000
Total 82,000 38,000
Note 3: Current Liabilities
Particulars 31.03.2019(Rs.) 31.03.2018 (Rs.)
Dividend declared 37,000 27,000
Note 4: Tangible Assets
Land & Building 75,000 1,00,000
Machinery 1,91,000 90,000
Total 2,66,000 1,90,000
Additional Information:
(i) Rs.18,000 depreciation for the year has been written off on plant and machinery and no depreciation has
been charged on Land and Building.
(ii) A piece of land has been sold out for Rs. 50,000 and the balance has been revalued, profit on such sale and
revaluation being transferred to capital reserve. There is no other entry in Capital Reserve Account.
(iii) A plant was sold for Rs. 12,000 WDV being Rs. 15,000 on the date of sale (after charging depreciation).
(iv) Dividend received amounted to Rs. 2,100 which included pre-acquisition dividend of Rs. 600.
(v) An interim dividend of Rs. 10,000 including Dividend Distribution Tax has been paid.
(vi) Non-current investments given in the balance sheet represents investment in shares of other companies.
Amount of provision for tax existing on 31.3.2018 was paid during the year 2018-19.
SOLUTION
Cash flow Statement for the year ending 31st March, 2019
Particulars Rs. Rs.
1 Cash Flow from Operating Activities
A. Closing balance as per Profit and Loss Account 27,000
Less: Opening balance as per Profit and Loss Account (18,000)
Add: Dividend declared during the year 37,000
Add: Interim dividend paid during the year 10,000
Add: Transfer to reserve 10,000
Add: Provision for Tax 32,000
B. Net profit before taxation and extra-ordinary item 98,000
C. Add: Items to be added
Depreciation
Loss on sale of Plant

Goodwill written off 34,000

D. Less: Dividend Income 18,000 (1,500)
E. Operating profit before working capital changes 3,000
[B + C - D] 13,000 1,30,500
F. Add: Decrease in Current Assets and Increase in
Current Liabilities
Decrease in Inventories
Increase in Trade Payables 28,000
G. Less: Increase in Trade Receivables (33,000)
H Cash generated from operations (E+F-G) 1,25,500
I Less: Income taxes paid (28,000)
J Net Cash from (used in) operating activities 7,000 97,500
II. Cash Flows from investing activities: 21,000
Purchase of Plant (1,34,000)

Sale of Land 50,000
Sale of plant 12,000
Purchase of investments (25,600)
Dividend Received 2,100
III. Cash Flows from Financing Activities:
Proceeds from issue of equity share capital 1,00,000
Redemption of preference shares (50,000)
Interim Dividend (inclusive of DDT) paid (10,000)
Final dividend (inclusive of DDT) paid (27,000)
Net cash from financing activities 13,000
IV. Net increase in cash and cash equivalents (I+II+III) 15,000
V. Cash and cash equivalents at beginning of period 17,000
VI. Cash and cash equivalents at end of period (IV+V) 32,000
Land and Building Account

Particulars Rs. Particulars Rs.
To Balance b/d 1,00,000 By Bank A/c (Sale) 50,000
To Capital Reserve A/c 25,000 By Balance c/d 75,000
(Profit on sale / revaluation)
1,25,000 1,25,000

Plant and Machinery Account

To Balance b/d 90,000 By Depreciation A/c 18,000
To Bank A/c (Purchase) 1,34,000 By Bank A/c (sale) 12,000
By Profit and Loss A/c (Loss 3,000
on sale)
By Balance c/d 1,91,000
2,24,000 2,24,000
Investments Account
To Balance b/d 10,000 By Bank A/c (Div. received) 600
To bank A/c (Purchase 25,600 By Balance c/d 35,000
35,600 35,600
QUESTION 18 (EXAM May 19 – 10 MARKS)

The following information was extracted from the books of S Ltd. for the year ended 31.03.2020.
(1) Net profit before taking into account income tax and after taking into account the following items was Rs.
30 Lakhs
(a) Depreciation on Property, Plant and Equipment Rs. 7,00,000
(b) Discount on issue of debentures written off Rs. 45,000
(c) Interest on debentures paid Rs. 4,35,000
(d) Investment of Book value Rs. 3,50,000 sold for 3,75,000
(e) Interest received on investments Rs.70,000
(2)Income tax paid during the year Rs.12,80,000
(3) The company issued 60,000 equity shares of Rs. 10 each at a premium of 20% on 10.04.2019
(4) 20,000 9% Preference Shares of Rs. 100 were redeemed on 31st March 2020 at a premium of 5%
(5) Dividend paid during the year amounted to Rs. 11,00,000 (Including dividend distribution tax)
(6) A new plant costing 7 Lakhs was purchased in part exchange of an old plant on 1st January 2020. The
book value of the old plant was Rs. 8 Lakhs but the vendor took over the old plant at a value of Rs. 6
Lakhs only. The balance amount was paid to vendor through cheque on 30th March 2020.
(7) Company decided to value inventory at cost, whereas previously the practice was to value inventory at cost
less 10%. The inventory according to books on 31.03.2020 was 14,76,000.
The Inventory on 31.03.2019 was correctly valued at Rs. 13,50,000

(8)Current assets and current liabilities in the beginning and at the end of the years 2019-2020 were as:
As on As on
01.04.2019 31.03.2020
Rs. Rs.
Inventory 13,50,000 14,76,000
Trade Receivables 3,27,000 3,13,200
Cash in Hand 2,40,700 3,70,500
Trade payables 2,84,700 2,87,300
Outstanding expenses 97,000 1,01,400
You are required to prepare a Cash Flow Statement for the year ended 31st March 2020 as per AS 3
(revised) using the indirect method.
SOLUTION
S Ltd.
Cash Flow Statement for the year ended 31st March, 2020
Cash flows from operating activities

Net profit before taxation* 30,00,000
Adjustments for:
Depreciation on PPE 7,00,000
Discount on debentures 45,000
Profit on sale of investments (25,000)
Interest income on investments (70,000)
Interest on debentures 4,35,000
Stock adjustment 1,64,000
{14,76,000 less 16,40,000(14,76,000/90X100)}
Operating profit before working capital change 12,49,000
Changes in working capital 42,49,000
(Excluding cash and bank balance):
Less: Increase in inventory (2,90,000)
{16,40,000(14,76,000/90X100) less 13,50,000}
Add: Decrease in Trade receivables 13,800
Increase in trade payables 2,600
Increase in o/s expenses 4,400 (2,69,200)
Cash generated from operations 39,79,800
Less: Income taxes paid (12,80,000)
Net cash generated from operating activities 26,99,800
Sale of investments 3,75,000
Interest received 70,000

Payments for purchase of fixed assets (1,00,000)

(7,00,000 – 6,00,000)
Net cash used in investing activities 3,45,000
Cash flows from financing activities
Redemption of Preference shares (21,00,000
Issue of shares 7,20,000
Interest paid (4,35,000)
Dividend paid (11,00,000)
Net cash used in financing activities (29,15,000)
Net increase in cash 1,29,800
Cash at beginning of the period 2,40,700
Cash at end of the period 3,70,500
*Net profit given in the question is after considering only the items listed as information point (1) of the
question; hence amount of loss on plant not added back

TOPIC 4
INVESTMENT ACCOUNTS
RULES TO SOLVE QUESTIONS OF INVESTMENT ACCOUNTS
RULE – 1:
When same Shares or Debentures are purchased on different dates at different prices then we shall calculate
average cost per share/debenture to calculate gain/loss on sale.
RULE – 2:
When investor gets bonus equity shares at free of cost, the quantity of shares would get increased. However, the
carrying value of investments (Book Value) will not be Increased.
While selling the shares after getting bonus, the gain/loss shall be difference between Selling Price of Share and
Average cost per Share.
RULE – 3:
When Investor is Eligible for Right Issue shares:
Then there are two possibilities.
1) If Investor Subscribes the Right Issue:
a) Carrying Amount of Investment would get Increased by cost of acquisition.
b) Quantity of Shares would also be Increased.
c) Therefore, we need to calculate Weighted Average Cost per share after Right Issue.
OR
2) If Investors are not subscribing the Right Issue and Selling the Right:
A) GENERAL RULE: Sale Proceeds are Transferred to Profit & Loss Account
Bank A/c Dr.

To Profit & Loss Account

B) If Original shares were acquired at Cum Right Price & after the Right Issue, Market Price is Lower
than above Cum Right Price (i.e., Cost) then treat the sale proceeds as recovery towards Cost and it
will be Credited to Investment Account.
Bank A/c Dr.
To Investment A/c
Note: Two Conditions must be fulfilled:
1) Original Shares must have been Purchased @ Cum Right Basis.
2) Market Price per Share after the Right Issue must be lower than above Cum Right Price, (i.e.,
Cost of Original Shares).
RULE – 4:
Interest Income Shall always be Calculated on Time Proportion Basis (i.e., Month Wise)
But Dividend Income shall always be calculated on Annual Basis only unless it is Interim Dividend.

RULE – 5:
If Annual Dividend is Declared and Paid then it must be calculated on the total no. of shares held on the date of
receipt of Dividend (Except Bonus Issue and Right Issue Received in Current Year).
If Interim Dividend is Declared in current year in which Bonus & Right issue made and Dividend is Declared after
Bonus and Right Issue then it shall be calculated on total share Held on the date of Dividend Including Bonus &
Right.
RULE – 6:
Dividend received on Investment in Equity Shares
1) Pre-Acquisition dividend (It is of Pre-Acquisition Period)
Reduce Investment because it is treated as recovery of cost
Bank A/c Dr.
To Investment A/c
2) Post-Acquisition dividend (It is of Post-Acquisition Period)
Transfer to Profit and Loss Account
Bank A/c Dr.
To Profit & Loss A/c

RULE – 7:
Interest and Dividend shall always be calculated on Nominal value (Face Value) and Not on Cost Price.
RULE – 8:
If in any question Cum Interest price and Ex Interest price is given, we shall always record investment at Ex
Interest Price. Because Ex Interest Price is real Market Price. We should record the Interest paid separately
through Profit & Loss Account.
RULE – 9:
Brokerage paid at the time of Purchase shall be added to cost of Investment. Brokerage paid at the time of sale
shall be deducted from sale proceeds.
RULE – 10:
We should always record the Investment (at the time of purchase) at Acquisition cost and Not at Face value.

RULE – 11:
Whenever the Pre-Acquisition dividend is received and credited to Investment account and then the shares are
sold then to calculate Gain/Loss on sale, the average cost per share will be calculated after deducting the pre-
acquisition dividend from cost.
RULE – 12:
To calculate Brokerage, we have to make calculation on Actual Cost always (Not on Face Value) if nothing is
mentioned in Question.
RULE – 13:
In case of Debentures/Bonds, while sale of these securities to calculate Gain/Loss on sale Always compare Ex
Interest Purchase with Ex Interest Sale after adjusting Brokerage if any.
Gain/Loss – [(Ex-interest sale value) – (Brokerage)] – [(Ex-interest purchase value) + (Brokerage)]


On 1.1.20X1, Sundar had 25,000 equity shares of ―X‖ Ltd. at a book value of Rs. 15 per share (Nominal value Rs.
10). On 20.6.20X1, he purchased another 5,000 shares of the company at Rs.16 per share. The directors of ―X‖
Ltd. announced a bonus and rights issue. No dividend was payable on these issues. The terms of the issue are as
follows:
Bonus basis 1:6 (Date16.8.20X1)
Rights basis 3:7 (Date 31.8.20X1) Price Rs. 15 per share
Due date for payment30.9.20X1
Shareholders were entitled to transfer their rights in full or in part. Accordingly, Sundar sold 33.33% of his
entitlement to Sekhar for a consideration of Rs.2 per share.
Dividends: Dividends for the year ended 31.3.20X1 at the rate of 20% were declared by X Ltd. and received by
Sundar on 31.10.20X1. Dividends for shares acquired by him on 20.6.20X1 are to be adjusted against the cost of
purchase.
On 15.11.20X1, Sundar sold 25,000 equity shares at a premium of Rs. 5 per share. You are required to prepare in
the books of Sundar.
(1) Investment Account
(2) Profit & Loss Account.
For your exercise, assume that the books are closed on 31.12.20X1and shares are valued at average cost.
SOLUTION
Books of Sundar
Investment Account
(Scrip: Equity Shares in X Ltd.)
Date Particulars No. Amount Date Particulars No. Amount
1.4.20X1 To Bal b/d 25,000 3,75,000 31.10.20X1 By Bank — 10,000
(dividend on
shares acquired
on 20/6/20X1)
(W.N.4)
20.6.20X1 To Bank 5,000 80,000 15.11.20X1 By Bank A/c 25,000 3,75,000
(Sale of
shares)
16.8.20X1 To Bonus 5,000 — By Bal. 20,000 2,64,444
(W.N.1) c/d(W.N.6)
30.9.20X1 To Bank 10,000 1,50,000
(Rights Shares)
(W.N.3)
45,000 6,49,444 45,000 6,49,444
Profit and Loss Account (An extract)

Particulars Amount Particulars Amount

To Balance c/d 1,04,444 By Profit transferred 44,444
By Sale of rights (W.N.3) 10,000
By Dividend (W.N.4) 50,000
1,04,444 1,04,444
Working Notes:
(1) Bonus Shares = 25,000 + 5,000 / 6= 5,000 shares
(2) Right Shares =25,000 + 5,000 + 5,000 X 3 / 7 = 15,000shares.
(3) Right shares renounced = 15,000×1/3 = 5,000 shares
Sale of right shares = 5,000 x 2 = Rs.10,000
Right shares subscribed = 15,000 – 5,000 = 10,000 shares
Amount paid for subscription of right shares = 10,000 x 15 = Rs.1,50,000
(4) Dividend received =25,000(sharesason1stApril20X1)×10×20%=Rs.50,000
Dividend on shares purchased on 20.6.20X1 = 5,000×10×20% = Rs. 10,000 is adjusted to Investment A/c
(5) Profit on sale of 25,000 shares = Sales proceeds – Average cost
Sales proceeds = Rs.3,75,000
Average cost =(75,000 + 80,000 + 1,50,000 -10,000) X 25,000 /45,000 =3,30,556
Profit =Rs.3,75,000– Rs.3,30,556= Rs.44,444.
(6) Cost of shares on31.12.20X1 = (75,000 + 80,000 + 1,50,000 -10,000) X 25,000 / 20,000
= 2, 64,444

On 1stJanuary 20X1, Singh had 20,000 equity shares in X Ltd. Nominal value of the shares was Rs.10 each but
their book value was Rs. 16 per share. On 1st June 20X1, Singh purchased 5,000 more equity shares in the
company at a premium of Rs. 4 per share.
On 30thJune, 20X1, the directors of X Ltd. announced a bonus and rights issue. Bonus was declared at the rate
of one equity share for every five shares held and these shares were received on 2ndAugust, 20X1.
The terms of the rights issue were:
(a) Rights shares to be issued to the existing holders on 10thAugust ,20X1.
(b) Rights issue would entitle the holders to subscribe to additional equity shares in the Company at the rate
of one share per every three held at Rs. 15 per share-the whole sum being payable by 30thSeptember,20X1.
(c) Existing shareholders were entitled to transfer their rights to outsiders, either wholly or in part.
(d) Singh exercised his option under the issue for 50% of his entitlements and the balance of rights he sold to
Ananth for a consideration of Rs. 1.50 per share.
(e) Dividends for the year ended 31stMarch, 20X1, at the rate of 15% were declared by the Company and
received by Singh on 20th October, 20X1.
(f) On 1stNovember, 20X1, Singh sold 20,000 equity shares at a premium of Rs. 3 per share.

The market price of share on 31-12-20X1 was Rs. 14. Show the Investment Account as it would appear in Singh‖s
books on 31-12-20X1 and the value of shares held on that date.
SOLUTION
Investment Account-Equity Shares in X Ltd.
Date No. of Dividend Amount Date No. of Dividend Amount
20X1 shares 20X1 shares
1 jan To Bal 20,000 - 3,20,000 Oct. 20 By Bank 30,000 7,500
b/d (dividend)
[20,000 x
10 x 15%]
[5,000 x 10
x 15%]
June 1 To Bank 5,000 - 70,000 Nov. 1 By Bank 20,000 2,60,000
Aug. 2 To Bonus 5,000 — Nov. 1 By P &L 1,429
Issue A/c
(W.N.2)
Sep. 30 To Bank 5,000 - 75,000 Dec. 31 By Balance 15,000 1,96,071
(Right) c/d (W.N.3)
(W.N.1)
Nov. 1 To Profit 30,000
& Loss
A/c
(Dividend
income)
35,000 30,000 4,65,000 35,000 30,000 4,65,000
Jan. 1, To Balance 15,000 1,96,071
20X2 b/d
Working Notes:
1. Right shares
No. of right shares issued = (20,000 + 5,000 + 5,000)/ 3 = 10,000 shares
No. of right shares subscribed = 10,000 x 50% = 5,000 shares
Amount of right shares issued = 5,000 x 15 = Rs. 75,000
No. of right shares sold = 10,000 – 5,000 = 5,000 shares
Sale of right shares = 5,000 x 1.5 = Rs.7,500 to be credited to statement of profit and loss
2. Cost of shares sold — Amount paid for 35,000shares

Rs.
(Rs.3,20,000 + Rs.70,000 + Rs.75,000) 4,65,000

Less: Dividend on shares purchased on June 1 (since the dividend (7,500)

pertains to the year ended 31st March, 20x1, i.e., the pre-acquisition
period)
Cost of 35,000 shares 4,57,500
Cost of 20,000 shares (Average cost basis) 2,61,429
Sale proceeds 2,60,000
Loss on sale 1,429
3. Value of investment at the end of theyear
Assuming investment as current investment, closing balance will be valued based on lower of cost or net
realisable value.
Here, Net realisable value is Rs.14 per share i.e., 15,000 shares x Rs. 13= Rs. 2,10,000
and cost = 4,57,500 X 15,000 / 35,000 =1,96,071. Therefore, value of investment at
the end of the year will be Rs.1,96,071.

Mr. Brown has made following transactions during the financial year 20X1-X2:
Date Particulars
01.05.20X1 Purchased 24,000 12% Bonds of Rs. 100 each at Rs.84cum-interest.
Interest is payable on 30th September and 31st March every year.
15.06.20X1 Purchased 1,50,000 equity shares of Rs. 10 each in Alpha Limited for Rs. 25 each
through a broker, who charged brokerage @ 2%.
10.07.20X1 Purchased 60,000 equity shares of Rs. 10 each in Beeta Limited for Rs. 44 each
through a broker, who charged brokerage@2%.
14.10.20X1 Alpha Limited made a bonus issue of two shares for every three shares held
31.10.20X1 Sold 80,000 shares in Alpha Limited for Rs. 22each.
01.01.20X2 Received 15% interim dividend on equity shares of Alpha Limited.
15.01.20X2 Beeta Limited made a right issue of one equity share for every four shares held at
Rs. 5 per share. Mr. Brown exercised his option for 40% of his entitlements and
sold the balance rights in the market at Rs. 2.25 per share.
01.03.20X2 Sold 15,000 12% Bonds at Rs. 90 ex-interest
15.03.20X2 Received 18% interim dividend on equity shares of Beeta Limited. Interest on 12%
Bonds was duly received on due dates.
Prepare separate investment account for 12% Bonds, Equity Shares of Alpha Limited and Equity Shares of Beeta
Limited in the books of Mr. Brown for the year ended on 31stMarch,20X2.
SOLUTION
In the books of Mr. Brown
12% Bonds for the year ended 31st March 20X2
Date Particulars No. Income Amount Date Particulars No. Income Amount

Rs. Rs. Rs. Rs.
20X1 To Bank A/c 24,000 24,000 19,92,000 20X1 By Bank- - 1,44,000

May, 1 (W.N.7) Sept. 30 Interest
(24,000 x
100 x 12%
x 6/12)
20X2 To P & L - - 1,05,000 20X2 By Bank 15,000 75,000 13,50,000
March 1 A/c (W.N.1) Mar. 1 A/c
(W.N.8)
20X2 To P & L 2,49,000 20X2 By Bank- 54,000
March 31 A/c (b.f.) Mar. 31 Interest
(9,000 x
100 x 12%
x 6/12)
By Balance
c/d
(W.N.2) 9,000 - 7,47,000
24,000 2,73,000 20,97,000 24,000 2,73,000 20,97,000
Investment in Equity shares of Alpha Ltd. for the year ended 31stMarch, 20X2
Rs. Rs. Rs. Rs.
20X1 To Bank A/c 1,50,000 -- 38,25,000 20X1 By Bank A/c 80,000 - 17,60,000
June ([1,50,000 x Oct. 31
15 25] + [2% x
(1,50,000 x
25)])
Oct. 14 To Bonus 1,00,000 - - 20X2 By Bank A/c 2,55,000
Issue Jan.1 –dividend
(1,50,000/3 (1,70,000 x10
x2) x 15%)
20X1Oct. To P & L A/c 5,36,000 By Balance
31 (W.N.3) March c/d(W.N.4) 1,70,000 - 26,01,000
20X2 To P & L A/c 2,55,000
Mar. 31
2,50,000 2,55,000 43,61,000 2,50,000 2,55,000 43,61,000

Investment in Equity shares of Beeta Ltd. for the year ended 31stMarch, 20X2
Rs. Rs. Rs. Rs.
20X1 To Bank A/c 60,000 -- 26,92,800 20X2 By Bank – - 1,18,800
July ([60,000 x Mar. 15 dividend
10 44] [(60,000+
+ [2% x 6,000) x10
(60,000 x x 18%]
44)])
20X2To Bank A/c 6,000 - 30,000 March 31 By Balance
Jan. (W.N. 5) c/d
15 (bal. fig.) 66,000 - 27,22,800
March To P & L A/c
31 - 1,18,800 -
66,000 1,18,800 27,22,800 66,000 1,18,800 27,22,800
Working Notes:
1. Profit on sale of 12%Bond
Sales price Rs.13,50,000
Less: Cost of bond sold =19,92,000X 15,000/ 24,000 (Rs.12,45,000)
Profit on sale Rs.1,05,000
2. Closing balance as on 31.3.20X2 of 12 %Bond

19,92,000X 9,000/ 24,000=Rs.7,47,000
3. Profit on sale of equity shares of Alpha Ltd.

Sales price Rs.17,60,000
Less: Cost of bond sold = 38,25,000 X 80,000 / 2,50,000 (Rs.12,24,000)
Profit on sale Rs.5,36,000
4. Closing balance as on 31.3.20X2 of equity shares of Alpha Ltd.

38,25,000 x 1,70,000 = Rs. 26,01,000
2,50,000
5. Calculation of right shares subscribed by Beeta Ltd.

Shares subscribed by Mr. Brown = 15,000 x 40%= 6,000 shares

Value of right shares subscribed = 6,000 shares @ Rs.5 per share = Rs.30,000
6. Calculation of sale of right entitlement by Beeta Ltd.
No. of right shares sold = 15,000 - 6,000 = 9,000 shares
Sale value of right = 9,000 shares x Rs.2.25 per share = Rs.20,250
Note: As per para 13 of AS 13, sale proceeds of rights are to be credited to P & L A/c.
7. Purchase of bonds on01.05.20X1
Interest element in purchase of bonds = 24,000 x 100 x 12% x 1/12 = Rs. 24,000 Investment elements in
purchase of bonds = (24,000 x 84) – 24,000 = Rs.19,92,000
8. Sale of bonds on01.03.20X2
Interest element in purchase of bonds = 15,000 x 100 x 12% x 5/12 = Rs.75,000 Investment elements in purchase
of bonds = 15,000 x 90 = Rs.13,50,000
Question 22 (RTP Nov 18, MTP Nov 19)

Akash Ltd. had 4,000 equity share of X Limited, at a book value of Rs. 15 per share (face value of Rs. 10 each)
on 1st April 2017. On 1st September 2017, Akash Ltd. Acquired 1,000 equity shares of X Limited at a premium of
Rs. 4 per share. X Limited announced a bonus and right issue for existing shareholders.
The terms of bonus and right issue were -
(1) Bonus was declared, at the rate of two equity shares for every five equity shares held on 30th September,
2017.
(2) Right shares are to be issued to the existing shareholders on 1st December, 2017. The company issued two
right shares for every seven shares held at 25% premium. No dividend was payable on these shares. The
whole sum being payable by 31st December, 2017.
(3) Existing shareholders were entitled to transfer their rights to outsiders, either wholly or in part.
(4) Akash Ltd. exercised its option under the issue for 50% of its entitlements and sold the remaining rights for
Rs 8 per share.
(5) Dividend for the year ended 31stMarch 2017, at the rate of 20% was declared by the company and received
by Akash Ltd., on 20th January2018.
(6) On 1st February 2018, Akash Ltd., sold half of its shareholdings at a premium of Rs 4 per share.
(7) The market price of share on 31.03.2018 was Rs. 13 pershare.
You are required to prepare the Investment Account of Akash Ltd. for the year ended 31stMarch, 2018 and
determine the value of share held on that date assuming the investment as current investment. Consider average
cost basis for ascertainment of cost for equity share sold.

SOLUTION
Investment Account-Equity Shares in X Ltd.
Date No. of Dividend Amount Date No. of Dividend Amount
shares shares
Rs Rs Rs Rs
2017 2018
April 1 To Balance b/d 4,000 - 60,000 Jan. 20 By Bank 8,000 2,000
(dividend)
Sept 1 To Bank 1,000 - 14,000 Feb. 1 By Bank 4,000 56,000
Sept.30 To Bonus Issue 2,000 — Mar. 31 By Balance 4,000 42,250
c/d
Dec.1 To Bank (Right) 1,000 - 12,500
2018
Feb. 1 Profit &Loss A/c 13,750
Mar.31 To Profit & Loss 8,000
A/c (Dividend
income)
8,000 8,000 1,00,250 8,000 8,000 1,00,250
April. 1 To Balance b/d 4,000 42,250
Working Notes:
1. Cost of shares sold — Amount paid for 8,000shares
Rs
(Rs 60,000 + Rs 14,000 + Rs 12,500) 86,500
Less: Dividend on shares purchased on 1stSept, 2017 (2,000)
Cost of 8,000 shares 84,500
Cost of 4,000 shares (Average cost basis*) 42,250
Sale proceeds (4,000 shares @ 14/-) 56,000
Profit on sale 13,750
* For ascertainment of cost for equity shares sold, average cost basis has been applied.
2. Value of investment at the end of the year

Closing balance will be valued based on lower of cost (Rs 42,250) or net realizable value (Rs 13 x 4,000). Thus
investment will be valued at Rs 42,250.
3. Calculation of sale of right entitlement

1,000 shares x Rs 8 per share = Rs 8,000
Amount received from sale of rights will be credited to P & L A/c as per AS 13
―Accounting for Investments‖.

4. Dividend received on investment held as on 1stApril,2017

= 4,000 shares x Rs 10 x 20%
= Rs 8,000 will be transferred to Profit and Loss A/c
5. Dividend received on shares purchased on 1stSep. 2017
= 1,000 shares x Rs 10 x 20% = Rs 2,000 will be adjusted to Investment A/c
Note: It is presumed that no dividend is received on bonus shares as bonus shares are declared on 30thSept., 2017
and dividend pertains to the year ended31.3.2017.
QUESTION 23 (RTP May 19)

A Ltd. purchased on 1st April, 2018 8% convertible debenture in C Ltd. of face value of Rs. 2,00,000 @ Rs. 108.
On 1st July, 2018 A Ltd. purchased another Rs. 1,00,000 debenture @ Rs112 cum interest.
On 1st October, 2018 Rs. 80,000 debenture was sold @ Rs. 108. On 1st December, 2018, C Ltd. give option for
conversion of 8% convertible debentures into equity share of Rs. 10 each. A Ltd. receive 5,000 equity share in C
Ltd. in conversion of 25% debenture held on that date. The market price of debenture and equity share in C Ltd.
at the end of year 2018 is Rs. 110 and Rs. 15 respectively.
Interest on debenture is payable each year on 31st March, and 30th September.
The accounting year of A Ltd. is calendar year.
Prepare investment account in the books of A Ltd. on average cost basis.
SOLUTION
Investment Account for the year ending on 31st December, 2018
Scrip: 8% Convertible Debentures in C Ltd.
[Interest Payable on 31st March and 30th September]
Date Particulars Nominal Interest Cost Date Particulars Nominal interest Cost
value (Rs) (Rs) Value (Rs) (Rs)
(Rs) (Rs)
1.4.18 To bank A/c 2,00,000 2,000 2,16,000 30.09.18 By Bank A/c 12,000
[Rs.3,00,000 x
8% x (6/12]
)
1.7.18 To bank A/c 1,00,000 14,033 1,10,000 1.10.18 By Bank A/c 80,000 84,000
(W.N.1)
31.12.18 To P & L 3,00,000 16,033 3,26,000 1.10.18 By P&L A/c 2,933
A/c (loss) (W.N.1)
[Interest]
1.12.18 By Bank A/c 733
(Accrued

interest)
(Rs. 55,000 x
0.08x 2/12)
1.12.18 By Equity 55,000 59,767
shares in C
Ltd. (W.N. 3
and 4
1.12.18 By Balance 1,65,000 3,300 1,79,300
c/d (W.N.5)
3,00,000 16,033 3,26,000 3,00,000 16,033 3,26,000
SCRIP: Equity Shares in C LTD.

Date Particulars Cost (Rs) Date Particulars Cost (Rs)
1.12.18 To 8 % debentures 59,767 31.12.18 By balance c/d 59,767
Working Notes:
(i) Cost of Debenture purchased on 1st July = Rs1,12,000 – Rs2,000 (Interest)
= Rs 1,10,000
(ii) Cost of Debentures sold on 1st Oct.
= (Rs2,16,000 + Rs1,10,000) x 80,000/3,00,000 = Rs86,933
(iii) Loss on sale of Debentures = Rs86,933– Rs84,000 = Rs2,933

Nominal value of debentures converted into equity shares = Rs55,000
[(Rs3,00,000 – 80,000) x.25]
Interest received before the conversion of debentures
Interest on 25% of total debentures = 55,000 x 8% x 2/12 = 733
(iv) Cost of Debentures converted

= (Rs2,16,000 + Rs1,10,000) x 55,000/3,00,000
= Rs 59,767
(v) Cost of closing balance of Debentures

= (Rs2,16,000 + Rs1,10,000) x 1,65,000 / 3,00,000
= Rs 1,79,300
(vii) Closing balance of Debentures has been valued at cost being lower than the market value i.e. Rs1,81,500
(Rs1,65,000 @ Rs110)

(viii) 5,000 equity Shares in C Ltd. will be valued at cost of Rs59,767 being lower than the market value
Rs75,000 (Rs15 x5,000)
Note: It is assumed that interest on debentures, which are converted into cash, has been received at the time of
conversion.
QUESTION 24 (RTP – May 20) (MTP – May 18, Nov 18)

Meera carried out the following transactions in the shares of Kumar Ltd.:
(1) On 1st April, 2019 she purchased 40,000 equity shares of Rs1 each fully paid up for Rs60,000.
(2) On 15th May 2019, Meera sold 8,000 shares for Rs15,200.
(3) At a meeting on 15th June 2019, the company decided:
(i) To make a bonus issue of one fully paid up share for every four shares held on 1st June 2019, and
(ii) To give its members the right to apply for one share for every five shares held on 1st June 2019 at a
price of Rs1.50 per share of which 75 paise is payable on or before 15th July 2019 and the balance, 75
paise per share, on or before 15th September, 2019.
The shares issued under (i) and (ii) were not to rank for dividend for the year ending 31st December 2019.
(a) Meera received her bonus shares and took up 4,000 shares under the right issue, paying the sum thereon
when due and selling the rights of the remaining shares at 40 paise per share; the proceeds were received on
30th September 2019.
(b) On 15th March 2020, she received a dividend from Kumar Ltd. of 15 per cent in respect of the year ended
31st Dec 2019.
(c) On 30th March 2020, she received Rs28,000 from the sale of 20,000 shares.
You are required to record these transactions in the Investment Account in Meera‖s books for the year ended 31st
March 2020 transferring any profits or losses on these transactions to Profit and Loss account. Apply average
cost basis. Expenses and tax to be ignored
SOLUTION
Investment Account (Shares in Kumar Limited) in the books of Meera
Date Particulars No. of Income Amount Date Particulars No. of Income Amount
Shares Shares
2019 Rs Rs 2019 Rs Rs
April 1 To Bank (Purchases) 40,000 - 60,000 May 15 By Bank (Sale) 8,000 - 15,200
May 15 To Profit & Loss A/c - - 3,200 2020 By Bank 4,800 -

(W.N.1) Mar. 15 (Dividend @
15% on Rs
32,000)
June15 To Bonus Issue 8,000 - Nil Mar.30 By Bank (Sale) 20,000 - 28,000
July 15 To Bank (@ 75 p. 4,000 - 3,000 Mar.31 By Balance c/d* 24,000 - 29,455
paid on 4,000

shares)
Sept. To Bank (@ 75 p. - - 3,000
paid on 4,000
shares)
2020 To Profit & Loss A/c 3,455
Mar.31 (W.N.2)
To Profit & Loss A/c - 4,800
52,000 4,800 72,655 52,000 4,800 72,655
*( )
Working Notes:
(1) Profit on Sale on 15-5-2019:
Cost of 8,000 shares @ Rs.1.50 Rs 12,000
Less: Sales price Rs 15,200
Profit Rs 3,200
(2) Cost of 20,000 shares sold:
Cost of 44,000 shares (48,000 + 6,000) Rs 54,000
Cost of 20,000shares ( Rs 24,545
Profit on sale of 20,000 shares (Rs 28,000 – Rs 24,545) Rs 3,455
Question 25 (MTP May 20)

The Investment portfolio of XYZ Ltd. As on 31.03.2020 consisted of the following:
(Rs. in lacs)
Current Investments Cost Fair Value as on
31.03.2020
(1) 1000 Equity Shares of A Ltd. 500 5 7
(2) Equity Shares of B Ltd. 1000 10 15
(3) Equity Shares of C Ltd. 15 12
Total 30 34
Give your comments on the following:
(i) The company wants to value the above portfolio at Rs. 30 lakhs being lower of cost or fair market value.
Company wants to transfer 1000 Equity Shares of C Ltd. From current investments to long term investments on
31.03.2020 at cost of Rs. 15 lakhs.
SOLUTION
As per AS 13 “Accounting for Investments”, Valuation of current investments on overall (or global) basis is not
considered appropriate. Sometimes, the concern of an enterprise may be with the value of a category of related
current investments and not with each individual investment, and accordingly the investments may be carried at

the lower of cost and fair value computed category-wise (i.e. equity shares, preference shares, convertible
debentures, etc.). However, the more prudent and appropriate method is to carry individually at the lower of cost
and fair value.
(i) Hence the company has to value the current investment at Rs. 27 Lacs (A Ltd. shares at Rs. 5 lacs; B Ltd.
shares at Rs. 10 lacs and C Ltd. shares at Rs. 12 lacs). The company‖s decision to value the portfolio at Rs.
30 lacs is not appropriate.
(ii) Moreover, where investments are reclassified from current to long-term, transfers are made at the lower of
cost and fair value at the date of transfer.
Hence, the company has to make transfer of 1,000 equity shares of C Ltd. at Rs. 12 lacs (fair value) and not Rs.
15 lacs (cost) as the fair value is less than cost.
Question 26 (EXAM May 18) (MTP – Nov 20)

Mr. Vijay entered into the following transactions of purchase and sale of equity shares of JP Power Ltd. The
shares have paid up value of Rs 10 per share.
Date No. of Shares Terms
01.01.2019 600 Buy @ Rs. 20 per share
15.03.2019 900 Buy @ Rs. 25 per share
20.05.2019 1000 Buy @ Rs. 23 per share
25.07.2019 2500 Bonus Shares received
20.12.2019 1500 Sale @ Rs. 22 per share
01.02.2020 1000 Sale @ Rs. 24 per share
Addition information:
(1) On 15.09.2016 dividend @ Rs 3 per share was received for the year ended 31.03.2016.
(2) On 12.11.2016 company made a right issue of equity shares in the ratio of one share for five shares held on
payment of Rs 20 per share. He subscribed to 60% of the shares and renounced the remaining shares on
receipt of the premium of Rs 3 per share.
(3) Shares are to be valued on weighted average cost basis.
You are required to prepare Investment Account for the year ended 31.03.2016 and 31.03.2017.
SOLUTION
Investment in Equity shares of JP Power Ltd.
Date Particulars No. Dividend Amount Date Particulars No. Dividend Amount Rs.
Rs. Rs. Rs.
1.1.19 To Bank A/c 600 12,000 31.3.19 By Balance 1,500 34,500
c/d
15.3.19 To Bank A/c 900 22,500 ____ ______
1,500 34,500 1,500 34,500
1.4.19 To Balance b/d 1,500 34,500 15.9.19 By Bank - 3,000
dividend 4,500
20.5.19 To Bank A/c 1,000 23,000 20.12.19 By Bank 1,500 33,000

25.7.19 To Bonus 2,500 _ 1.2.20 By Bank 1,000 24,000

shares
12.11.19 To Bank A/c 600 12,000 31.3.20 By Balance 3,100 36,812.50
c/d
20.12.19 To P& L A/c
(profit on 15,187.50
sale)
1.2.20 To P& L A/c 12,125
(profit on 4,500
sale)
31.3.20 To P & L A/c
(dividend)
5,600 4,500 96,812.50 5,600 4,500 96,812.50
Working Notes:
1. Calculation of Weighted average cost of equity shares
600 shares purchased at Rs.12,000
900 shares purchased at Rs.22,500
1,000 shares purchased at Rs.23,000 2,500 shares at nil cost
600 right shares purchased at Rs.12,000
Total cost of 5,600 shares is Rs.66,500 [Rs.69,500 less Rs.3,000 (pre-acquisition dividend received on 1,000
shares purchased on20.5.19].
Hence, weighted average cost per share will be considered as Rs.11.875 per share (66,500/5,600).
2. It has been considered that no dividend was received on bonus shares as the dividend pertains to the year
ended 31stMarch, 2019.
3. Calculation of right shares subscribed by Vijay
Right Shares (considering that right shares have been granted on Bonus shares also) = 5,000/5 x 1= 1,000
shares
Shares subscribed = 1,000 x 60%= 600 shares
Value of right shares subscribed = 600 shares @ Rs.20 per share = Rs.12,000 Calculation of sale of right
renouncement
No. of right shares sold = 1,000 x 40% = 400 shares
Sale value of right = 400 shares x Rs.3 per share = Rs.1,200
Note: As per para 13 of AS 13, sale proceeds of rights is to be credited to P & L A/c.
4. Profit on sale of equity shares
As on 20.12.19
Sales price (1,500 shares atRs.22) 33,000.00
Less: Cost of shares sold (1,500 x Rs.11.875) (17,812.50)
Profit on sale 15,187.50
As on 1.2.20

Sales price (1,000 shares atRs.24) 24,000

Less: Cost of shares sold (1,000 x Rs.11.875) (11,875)
Profit on sale 12,125
Balance of 3,100 shares as on 31.3.20 will be valued at Rs.36,812.50 (at rate of Rs.11.875 per share)
Question 27 (EXAM May 2019)

On 15th June, 2018, Y limited wants to re-classify its investments in accordance with AS 13 (revised). Decide
and state the amount of transfer, based on the following information:
1. A portion of long term investments purchased on 1st March, 2017 are to be re-classified as current
investments. The original cost of these investments was Rs.14 lakhs but had been written down by Rs.2 lakhs
(to recognise 'other than temporary decline in value). The market value of these investments on 15th June,
2018 was Rs.11 lakhs.
2. Another portion of long term investments purchased on 15th January, 2017 are to be re-classified as current
investments. The original cost of these investments wasRs.7 lakhs but had been written down to Rs.5 lakhs
(to recognize 'other than temporary' decline in value). The fair value of these investments on 15th June, 2018
was Rs.4.5 lakhs.
3. A portion of current investments purchased on 15th March, 2018 for Rs.7 lakhs are to be re-classified as long
term investments, as the company has decided to retain them. The market value of these investments on
31st March, 2018 wasRs.6 lakhs and fair value on 15th June 2018 was Rs. 8.5 lakhs,
4. Another portion of current investments purchased on 7th December, 2017 for Rs.4 lakhs are to be re-classified
as long term investments. The market value of these investments was:
on 31st March, 2018 Rs.3.5 lakhs
on 15th June, 2018 Rs.3.8 lakhs
SOLUTION
As per AS 13 (Revised) ―Accounting for Investments‖, where long-term investments are reclassified as current
investments, transfers are made at the lower of cost and carrying amount at the date of transfer; and where
investments are reclassified from current to long term, transfers are made at lower of cost and fair value on the
date of transfer.
Accordingly, the re-classification will be done on the following basis:
1. In this case, carrying amount of investment on the date of transfer is less than the cost; hence this re-
classified current investment should be carried at Rs. 12 lakhs in the books.
2. In this case also, carrying amount of investment on the date of transfer is less than the cost; hence this re-
classified current investment should be carried at Rs. 5 lakhs in the books.
3. In this case, reclassification of current investment into long-term investments will be made at Rs. 7 lakhs as
cost is less than its fair value of Rs. 8.5 lakhs on the date of transfer.
(Rs.8,56,667 – Rs.2,00,000)
Considering that Rs.13,00,000 was debited to Building WIP A/c earlier.
In this case, market value (considered as fair value) is Rs.3.8 lakhs on the date of transfer which is lower than
the cost of Rs.4 lakhs. The reclassification of current investment into long-term investments will be made at Rs.

3.8 lakhs.
TOPIC 5
ACCOUNTING FOR BRANCHES INCLUDING FOREIGN BRANCH
ACCOUNTING FOR DEPENDENT BRANCHES
Concept – 1:
Normal Loss/wastage = Loss of stock which is already anticipated
Abnormal Loss/wastage = Loss of stock which was not anticipated earlier and which is over and above normal.
Treatment:
1) Normal loss:Credit side of trading account, only to find out correct gross profit.
2) Abnormal loss: Credit side of trading account, only to find out correct gross profit. And Debit side of
Profit and loss account (actual cost) (Recognise the loss).
Note:
If nothing is mentioned in the question, we shall always assume that loss is of abnormal nature.
Concept – 2:
If any item like opening stock, closing stock, goods sent are given in question but price is not mentioned (i.e.,
which price is this Cost or Invoice Price) then always assume INVOICE PRICE
1. STOCK AND DEBTOR SYSTEM

Under this system, the HO maintains for every branch, Branch stock account, Branch debtor account, other
Branch assets/liabilities accounts (individually), Branch expenses accounts (individually), Branch adjustment
account and Branch profit & loss account.
Branch Stock Account:This account records the physical flow of goods between HO and branch at INVOICE
PRICE. However, sales are recorded at selling price. The invoice price is the amount at which goods are transferred
from HO to branch. The goods can also be transferred by HO to branch at cost to the HO.The basic relationship
between the various components is as follows:
Cost to HO + Mark-up (Loading) = Invoice Price (Cost to branch)
Or Invoice Price - Mark-up (Loading) = Cost.
Branch Adjustment Account: This account is a nominal account and calculates the gross profit/loss by branch but
is made in a different manner from the trading account. It basically records loading (i.e. difference of invoice
price and cost) on opening stock, goods supplied, goods returned, closing stock etc.
Branch Profit & Loss Account: This account is a nominal account and calculates the net profit/loss earned by
branch and is made in the same manner as usual profit and loss account.

Branch Assets/Liabilities Account: These accounts are made in the usual manner according to the double entry
system.
The various journal entries made under this system are as follows:
(1) For goods supplied to branch by the HO.

Branch Stock A/c Dr.
To Goods sent to branch A/c (with invoice price of goods sent)
(2) For goods returned by branch to HO.

Goods sent to branch A/c Dr.
To Branch stock A/c
(3) For goods returned by debtors to branch.

Branch stock A/c Dr.
To Branch debtors A/c
(4) For goods returned by credit customers (debtors) or cash customers direct to HO
To Branch debtors A/c/Cash A/c
(5) For cash sales made by branch.

Branch Cash/Bank A/c Dr. (With selling price)
To Branch stock A/c
(6) For credit sales made by branch.

Branch debtors A/c Dr. (With selling price)
To Branch stock A/c
To determine gross profit, the excess of invoice price of goods over cost of goods sent to branch is recorded at
the time of goods sent. If goods remain unsold at the end of the year stock reserve is created. At the time of
sale, the difference of sales price and invoice price of goods sold is recorded. Following six entries are passed for
these purposes:
(7) For mark-up (or loading) on opening stock

Stock reserve A/c Dr.
To Branch adjustment A/c
(8) For mark-up (or loading) on closing stock.

Branch adjustment A/c Dr.
To Stock reserve A/c

(9) For mark up on goods sent to branch

To Branch Adjustment A/c
(10) For mark up on goods received back (returned) by HO

Branch Adjustment A/c Dr.
To Goods sent to Branch A/c
(11) For goods sold at a price higher than Invoice Price

Branch Stock A/c Dr. (with excess of SP over IP)
To Branch Adjustment A/c
(12) For goods sold at a price lower than Invoice Price

Branch Adjustment A/c Dr. (with excess of IP over SP)
To Branch Stock A/c
(13) For Cash/Bank received from branch debtors by branch

Brach Cash/Bank A/c Dr.
To Branch Debtors A/c
(14) For remittance from HO to branch

Branch Cash/Bank A/c Dr.
To Cash/Bank A/c
(15) For remittance from branch to HO

Cash/Bank A/c Dr.
To Branch Cash/Bank A/c
(16) For shortage in branch stock which is considered normal

Branch Adjustment A/c Dr.
To Branch Stock A/c
(17) For shortage in branch stock which is considered abnormal

Branch Adjustment A/c Dr.(with loading on abnormal loss)
Branch P&L A/c Dr.(with cost of abnormal loss)
To Branch Stock A/c
(18) For closing goods sent to branch account

To Trading/Purchase A/c

Golden Rules under Stock and Debtors Method:

1) Goods sent to branch accounts – shall always be shown at cost price.
If it is not at cost (but any amount is at Invoice Price/Cost Price), then in the opposite side show the
margin/markup which is over and above cost to make it at cost price. Such margin is known as “Branch
Adjustment Account”.
2) Branch stock account: shall always be shown at Invoice Price. If it is not at Invoice price (i.e., shown at
other than Invoice Price) then on opposite side show the margin/markup to make it at Invoice price.
3) Under Branch Stock account, if closing stock is already recorded then while closing this account, if balancing
figure appears on credit side then such balancing figure will be treated as shortage.
Following Journal Entry is passed:
Branch Profit & Loss A/c Dr. Cost
Branch Adjustment A/c Dr. Margin
To Branch Stock A/c Invoice Price
4) Opening stock and closing stock under branch stock account are shown at Invoice Price, therefore stock
reserve (margin) shall be calculated shown under Branch Adjustment A/c
Under Branch Stock Account, if balancing figure appears on the debit side then it is to be treated as surplus (i.e.,
Goods sold to customer at above Issue Price) hence fully transferred to branch adjustment account.

RA-One Industries, invoices goods to its Noida branch with instruction to make credit sales at catalogue price
which is + 50% and cash sales at invoice price which is cost + 20%. The following information is made available:
Opening balances:
Branch Stock . 18,000
Branch Debtor 7,000
Transactions during the year:
Goods Received by Branch 2,30,000
Goods Returned by Branch 8,000
Credit Sales 2,00,000
Cash Sales 27,000
Goods Returned by Credit Customers to Branch 1,050
Goods Returned by Credit Customers Direct to HO 3,000
Goods Returned by Cash Customers Direct to HO 7,200
Closing balances:
Branch Stock 10,450
Branch Debtor 2,950
Branch Cash 25,000

Goods invoiced worth Rs. 10,000 were still in transit. Cash customers who returned goods direct to HO settled
accounts to the extent of Rs. 6,000 only at accounting date. Prepare the necessary accounts in the books of RA-
One Industries according to ―stock and debtor system‖.
(Answer: Gross Profit- Rs. 68,617/- and Net Profit- Rs. 32,459/-)
2. DEBTORS SYSTEM
 Under this system, only one account known as ―Branch A/c‖ is maintained for every branch in the books of
HO.
 Branch account is nominal account which calculates the profit/loss made by the branch.
 Under this system, entries are recorded assuming the Branch is the Debtor of HO.
 Here, only the transactions between HO and Branch are to be recorded (except one special transaction), i.e.
any transaction between branch and outside party is to be ignored while preparing branch account.
 While preparing Branch A/c under this method, balances of various accounts such as stock a/c, debtor‖s a/c,
cash a/c etc. may be missing and it is not possible to complete the Branch A/c without knowing such
required missing figures.
 Such missing figures/balances can be found out with the help of ―Stock and Debtors‖ method and hence
Stock and Debtors method is also prepared to complete the Branch A/c under Memorandum basis and only
account prepared under double entry basis is the ―Branch A/c‖.
The various journal entries made under this system are as follows:
(1) For goods supplied to branch from HO
Branch A/c Dr.
To Goods sent to branch A/c (with invoice price, if any)
(2) For goods returned by branch to HO

To Branch A/c (with invoice price, if any)
(3) For goods returned direct to HO (Special Transaction)

Credit Customers (Debtors):
To Branch A/c
Cash Customers:
Goods sent to branch A/c Dr. and Branch A/c Dr.
To Branch A/c To Cash A/c
(4) For remittance from HO to branch for expenses or for any purpose

Branch A/c Dr.

To Cash/Bank A/c
(5) For cash received by HO from branch

Cash/Bank A/c Dr.
To Branch A/c
(6) For recording opening assets and liabilities of Branch

Assets:
Branch A/c Dr.
To Branch Cash/Bank A/c
To Branch Debtors A/c
To Branch Stock A/c (at invoice price, if any)
To Branch Furniture A/c
Liabilities:
Outstanding Salary A/c Dr.
Provision for BD A/c Dr.
To Branch A/c
(7) For recording closing assets and liabilities of Branch

(Reverse of above entries)
(8) To remove loading on opening stock and closing stock

Opening Stock:
Stock Reserve A/c Dr.
To Branch A/c
Closing Stock:
Branch A/c Dr.
To Stock Reserve A/c


Sell Well who carried on a retail business opened a branch X on January 1st, 20X1 where all sales were on credit
basis. All goods required by the branch were supplied from the Head Office and were invoiced to the branch at
10% above cost.
The following were the transactions:

Jan. 20X1 Feb. 20X1 March 20X1
Rs. Rs. Rs.
Goods sent to Branch (Purchase Price) 40,000 50,000 60,000
Sales as shown by the branch monthly report 38,000 42,000 55,000
Cash received from Debtors and remitted to 20,000 51,000 35,000
H.O.
Returns to H.O.(Invoice price to Branch) 1,200 600 2,400
The stock of goods held by the branch on March 31, 20X1 amounted to Rs. 53,400 at invoice to branch.
Record these transactions in the Head Office books, showing balances as on 31st March, 20X1 and the branch
gross profit for the three months ended on that date.
All workings should form part of your solution.
SOLUTION
Books of Sell Well Branch Account
Rs. Rs.
To Goods sent to Branch A/c By Cash-collected from 1,06,000
debtors
[ 110×1,50,000]/ 100 By Goods sent to 4,200
1,65,000 Branch-returns
To Stock Reserve (W.N.2) 4,855 By Goods sent to 14,618
Branch (W.N.1)
To Profit (bal.) transferred to 37,363 By Balance c/d
General Profit & Loss A/c Stock 53,400
Debtors 29,000 82,400
2,07,218 2,07,218
Memorandum Branch Debtors Account

Rs. Rs.
To Balance b/d — By Cash/Bank 1,06,000
To Sales 1,35,000 By Balance c/d 29,000
1,35,000 1,35,000

Goods Sent to Branch Account

Rs. Rs.
To Branch A/c (Returns) 4,200 By Branch A/c 1,65,000
To Branch A/c (Loading) (W.N.1) 14,618
To Purchases A/c 1,46,182
1,65,000 1,65,000
Working Notes:
1. Loading on Goods sent to Branch = 1/11 of (Rs.1,65,000 – Rs.4,200) = Rs.14,618
Stock Reserve = 1/11 of 53,400 = Rs.4,855
3. FINAL ACCOUNT SYSTEM (COST BASIS)

Under this system, the Profit/Loss of the branch is calculated by preparing the ―Trading and Profit & Loss
account‖ in the usual manner. This account is prepared on the basis of cost to HO. If the figures are given at
loaded price (cost + Markup), they need to be converted to the cost to HO. This account is prepared on
Memorandum basis. Hence, this a/c is not a part of books of HO, it only helps to ascertain results of the branch.
The main advantage in this method is that, it is easy to prepare and understand.
Dr. Memorandum Trading and Profit & Loss A/c Cr.

Particulars Amount Particulars Amount
To Opening Stock A/c Cost By Sales A/c Sales Value
To Goods sent to Branch A/c Cost Less Sales Return
Less goods returned to HO
To Direct Purchases A/c Cost By Closing Stock Cost
To Direct Expenses A/c
To Gross Profit

Kashi Cloth Mills opened a branch at Delhi on 1st April 2008. Goods invoiced to branch at selling price which was
125% of cost to HO.
The following are the particulars of the transactions relating to the branch during the year ended, 31st March,
2009:
Particulars Amount (in Rs.)
Goods sent to branch at cost to HO 2808400/-
Sales:
Cash Sales 1250700/-
Credit Sales 1774300/-
Cash collected from debtors 1570000/-
Discount allowed to debtors 15700/-

Return from debtors 10000/-

Spoiled clothes in bales w/off at IP 5000/-
Cheques sent to branch for following expenses:
Rent 72000/-
Salaries 180000/-
Other expenses 35000/-
Prepare the necessary accounts as per Stock and ―Debtors Method‖ and ―Debtors Method‖.
(Answer: Net profit – Rs. 296300/-)
4. FINAL ACCOUNT SYSTEM (WHOLESALE PRICE BASIS)

Under this system, the profit/loss made by branch is calculated by preparing the Trading and Profit & Loss
account on Wholesale Price basis. This account is not made as a part of main accounting system and is prepared
on Memorandum basis. Since the account is made on Wholesale price basis, following points are needed to be
note as under:
(1) HO sends the goods to Branch at Wholesale price (known as Invoice price in earlier methods)
(2) The cost to branch is assumed to be Wholesale price while preparing the Trading a/c of branch.
(3) While preparing Trading a/c of branch on Wholesale price, all the amounts are shown at WP except sales
figure and hence GP of branch will arise which is the difference between selling price and wholesale price
(i.e., cost to branch).
As said in above point that Trading a/c of branch is prepared on WP, the opening as well closing stock of branch
also shown at WP and hence from HO point of view Stock reserve i.e. unrealized profit (difference between WP
and Cost) on both opening and closing stocks are to be calculated and shown in Profit & Loss a/c of HO.

HO sends goods to branch at cost + 80%. Goods are sold to customers at cost + 100%. However, sales at HO are
made at WP. From the following particulars, ascertain the profits made by the HO and Branch on wholesale price
method:
Head Office Branch
Opening Stock 20,000 -
Purchases 2,00,000 -
Goods sent to branch (WP/IP) 90,000 -
Sales 2,70,000 90,000
Expenses 10,000 4,000
(Answer: Net profit of HO and Branch is 1,46,000/- and 5,000/- respectively and Stock reserve is 4,000/-)

ACCOUNTING FOR INDEPENDENT BRANCHES

(1) In case of independent branches both branch as well as HO maintain their books.
(2) Since branch maintains their own books, it can independently calculate its result by preparing its own Trail
balance, Trading a/c and P&L a/c, also it can make its own Balance Sheet.
(3) The accounts are prepared in usual manner and both HO and Branch maintain an account for each other in
their own books. (i.e., branch a/c in HO books and HO a/c in branch books)
(4) There are certain transactions which need to be focused. These are as under:
(a) Inter-branch transactions
(b) Accounting for Fixed Assets of the branch
(c) Common expenses incurred by HO to be charged to the branch.
INTER-BRANCH TRANSACTIONS:
For accounting point of view, whenever transactions between branches occur, they are recorded in the books of
HO/Branches as if they have been done through the HO. The following journal entries shall be made in the books
of HO and branches:
ACCOUNTING FOR FIXED ASSETS OF THE BRANCH:

There may be two possibilities as follows:
(i) Account of FA maintained by Branch:

Transactions HO Books Branch Books
Payment of FA made by branch No Entry FA a/c Dr.
To Cash/Bank a/c
Payment of FA made by HO Branch a/c Dr. FA a/c Dr.
To Cash/Bank a/c To HO a/c
Payment for FA to be made by No Entry FA a/c Dr.
branch To Creditor for FA a/c
Depreciation on FA No Entry Depreciation a/c Dr.
To FA a/c
(ii) Account of FA maintained by HO:

Transactions HO Books Branch Books
Payment of FA made by branch Branch FA a/c Dr. HO a/c Dr.
To Branch a/c To Cash/Bank a/c
Payment of FA made by HO Branch FA a/c Dr. No Entry

To Cash/Bank a/c
Payment for FA to be made by Branch FA a/c Dr. HO a/c Dr.
branch To Branch a/c To Creditor for FA a/c
Depreciation on FA Branch a/c Dr. Depreciation a/c Dr.
To Branch FA a/c To HO a/c
COMMON HO EXPENSES CHARGED TO BRANCH:

(1) The expenses which are incurred for the sole benefit of the HO are to be fully charged to HO Trading/P&L
a/c.
(2) The expenses which are incurred for the sole benefit of Branch are to be fully charged to Branch Trading/P&L
a/c.
(3) The expenses which are incurred for the benefit of both are needed to be allocated between HO and Branch
in the ratio of benefit derived by both of them. Following accounting entries are made:
HO BOOKS BRANCH BOOKS
(1) Expenses A/c Dr.
Expenses a/c Dr. To HO A/c
To Cash/Bank a/c (Proportionate Expenses of Branch)
And
If the expenses a/c is not closed
Branch a/c Dr.
To Expenses a/c
(Proportionate share of branch)
(Or)
If expenses a/c is closed
Branch a/c Dr.
To Trading/P&L a/c
(Proportionate share of branch)
RECONCILIATION OF HO AND BRANCH BALANCE:

1. In case of independent branches, branch prepares its own Trail balance.
2. Hence, we need to incorporate the branch trail balance in the books of HO in order to ascertain the
position of the group as a whole.
3. But before incorporation of branch TB in the books of HO, it is to be ensured that branch a/c in the
books of HO and HO a/c in the books of branch should have equal and reciprocal balance.
4. If the both accounts in either books are not matched then they need to be reconciled before incorporating
the branch Trail balance in HO books. Following are some CASES by which we can understand the
reconciliation process:
CASE 1

When disagreement in the two accounts is because of the transit items, it would mean that record of transaction
in one set of books only. It can be corrected by recording the aspect in the set of books where it is still not
recorded.
CASE 2
Disagreement in two accounts is because of items other than transit items.
INCORPORTATION OF BRANCH TRAIL BALANCE IN HO BOOKS

For incorporation of Branch Trial balance in the books of HO, following entries are needed to be made in the
books of HO:
1. For incorporating branch profit/loss:
Branch a/c Dr. (with the amount of Branch Profit)
To Profit and Loss a/c
Profit and Loss a/c Dr. (with the amount of Branch Loss)
To Branch a/c
2. For incorporating the Assets of the branch:

Branch Assets a/c Dr.
To Branch a/c
(all assets individually including transit items recorded by branch)
3. For incorporating the Liabilities of the branch:

Branch a/c Dr.
To Branch Liabilities a/c (all liabilities individually excluding HO a/c )

KP manufactures a range of goods which it sells to wholesale customers only from its head office. In addition,
the H.O. transfers goods to a newly opened branch at factory cost plus 15%. The branch then sells these goods
to the general public on only cash basis.
The selling price to wholesale customers is designed to give a factory profit which amounts to 30% of the
sales value. The selling price to the general public is designed to give a gross margin (i.e., selling price less cost
of goods from H.O.) of 30% of the sales value.
KP operates from rented premises and leases all other types of fixed assets. The rent and hire charges for
these are included in the overhead costs shown in the trial balances.
From the information given below, you are required to prepare for the year ended 31stDec., 20X1 in columnar
form.
(a) A Profit &Loss account for (i) H.O. (ii) the branch (iii) the entire business.
(b) Balance Sheet as on 31st Dec., 20X1 for the entire business.

H.O. Branch
Rs. Rs. Rs. Rs.
Raw materials purchased 35,000
Direct wages 1,08,500
Factory overheads 39,000
Stock on 1-1-20X1
Raw materials 1,800
Finished goods 13,000 9,200
Debtors 37,000
Cash 22,000 1,000
Administrative Salaries 13,900 4,000
Salesmen Salaries 22,500 6,200
Other administrative &
selling overheads 12,500 2,300
Inter-unit accounts 5,000 2,000
Capital 50,000
Sundry Creditors 13,000
Provision for unrealized profit in 1,200
stock
Sales 2,00,000 65,200
Goods sent to Branch 46,000
Goods received from H.O. 44,500
3,10,200 3,10,200 67,200 67,200
Notes:
(1) On 28thDec., 20X1 the branch remitted Rs.1,500 to the H.O. and this has not yet been recorded in the H.O.
books. Also, on the same date, the H.O. dispatched goods to the branch invoiced at Rs.1,500 and these too
have not yet been entered into the branch books. It is the company‖s policy to adjust items in transit in
the books of the recipient.
(2) ThestockofrawmaterialsheldattheH.O.on31stDec.,20X1 was valued at Rs.2,300.
(3) You are advised that:
• There were no stock losses incurred at the H.O. or at the branch.
• It is KP‖s practice to value finished goods stock at the H.O. at factory cost.
• There were no opening or closing stock of work-in-progress.
Branch employees are entitled to a bonus of Rs. 156 under a bilateral agreement.

SOLUTION
In the books of KP
Trading and Profit & Loss Account for the year ended 31stDec., 20X1
H.O. Branch Total H.O. Branch Total
Rs. Rs. Rs. Rs. Rs. Rs.
To Material 34,500 - 34,500 By Sales 2,00,000 65,200 2,65,200
consumed
(W.N.1)
To Wages 1,08,500 - 1,08,500 By Goods Sent 46,000 - -
To Factory to Branch
Overheads 39,000 - 39,000
To Opening stock of By Closing stock 15,000 9,560 24,560
finished goods 13,000 9,200 22,200 including transit
(W.N.2)
To Goods from H.O. 46,000
To Gross Profit c/d 66,000 19,560 85,560
(W.N.3)
2,61,000 74,760 2,89,760 2,61,000 74,760 2,89,760
To Admn. Salaries 13,900 4,000 17,900 By Gross Profit 66,000 19,560 85,560
b/d
To Salesmen 22,500 6,200 28,700
Salaries
To Other Admn. & 12,500 2,300 14,800
selling Overheads
To Stock Reserve
(W.N.4) 47 - 47
To Bonus to Staff - 156 156
To Net Profit 17,053 6,904 23,957
66,000 19,560 85,560 66,000 19,560 85,560

Balance Sheet as on 31st Dec., 20X1

Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Capital 50,000 - 50,000 Fixed Assets - - -
Profit: H.O. 17,053 Current Assets:
Branch 6,904 23,957 23,957 Raw material 2,300 2,300
Trade Creditors Finished Goods
13,000 13,000 15,000 9,560 23,313*
Bonus Payable 156 156 (Less Stock
Res.)
H.O. Account* 10,404 Debtors 37,000 - 37,000
Stock Reserve Cash (including 23,500 1,000 24,500
(W.N.4) 1,247 transit item)
Branch A/c 10,404*
88,204 10,560 87,113 88,204 10,560 87,113
*9,560 × 100/115 i.e., (8,313 + 15,000) = Rs.23,313

** (5,000 + 6,904) – 1500 = Rs. 10,404.
Working Notes:
(1) Material Consumed
Opening raw material + Raw Material Purchased – Closing raw material
= 1,800 + 35,000 - 2,300 = 34,500
(2) Closing stock at head office
(a) Calculation of total factor cost = Material consumed + Wages + Factory overhead
= 34,500 + 1,08,500 + 39,000 = 1,95,000
(b) Cost (factory cost) of goods sold = Sales – Gross profit
= 2,00,000 – 2,00,000 x 70% = 1,40,000
(c) Stock transferred to branch = 46,000 x 100/115 = 40,000
(d) Closing stock=1,95,000–1,40,000–40,000=15,000
(3) Gross profit of Branch= Sales x Gross profitratio
= 65,200 x 30% =19,560
(4) Closing stock reserve= 9,560 x 15/115 = 1,246
Charge to profit and loss=1,247–1,200=47

QUESTIONS ON FOREIGN BRANCH

Please refer AS 11 for understanding the Accounting of Foreign Branch.
Important points for Foreign branch:

If question does not mention the nature of branch (i.e, Integral or Non-integral) then: -
Check whether separate conversion rate of Fixed assets is given or not?
i) If it is given separately: - Assume Integral
If it is not given separately: - Assume Non-integral

M/s Carlin has head office at New York (U.S.A.) and branch at Mumbai (India). Mumbai branch is an integral
foreign operation of Carlin & Co.
Mumbai branch furnishes you with its trial balance as on 31stMarch, 20X2 and the additional information given
thereafter:
Dr. Cr.
Rupees in thousands
Stock on 1st April, 20X1 300 –
Purchases and sales 800 1,200
Sundry Debtors and creditors 400 300
Bills of exchange 120 240
Wages and salaries 560 –
Rent, rates and taxes 360 –
Sundry charges 160 –
Computers 240
Bank balance 420 –
New York office a/c – 1,620
3,360 3,360
Additional information:
(a) Computers were acquired from a remittance of US $ 6,000 received from New York head office and paid to
the suppliers. Depreciate computers at 60% for the year.
(b) Unsold stock of Mumbai branch was worth Rs.4,20,000 on 31stMarch, 20X2.
(c) The rates of exchange may be taken as follows:
 on 1.4.20X1 @ Rs. 40 per US$
 on 31.3.20X2 @ Rs. 42 per US$
 average exchange rate for the year @Rs. 41 per US$
 conversion in $ shall be made upto two decimal accuracy.
You are asked to prepare in US dollars the revenue statement for the year ended 31stMarch, 20X2 and the
balance sheet as on that date of Mumbai branch as would appear in the books of New York head office of Carlin
&Co. You are informed that Mumbai branch account showed a debit balance of US $ 39609.18 on 31.3.20X2 in

NewYork books and there were no items pending reconciliation.

SOLUTION
M/s Carlin
Mumbai Branch Trial Balance in (US $) as on 31stMarch, 20X2
Conversion Dr. Cr.
rate per US $ US $ US $
(Rs.)
Stock on 1.4.X1 40 7,500.00 –
Purchases and sales 41 19,512.20 29,268.29
Sundry debtors and creditors 42 9,523.81 7,142.86
Bills of exchange 42 2,857.14 5,714.29
Wages and salaries 41 13,658.54 –
Rent, rates and taxes 41 8,780.49 –
Sundry charges 41 3,902.44 –
Computers – 6,000.00 –
Bank balance 42 10,000.00 –
New York office A/c – – 39,609.18
81,734.62 81,734.62
Trading and Profit & Loss Account for

the year ended 31st March, 20X2
US $ US $
To Opening Stock 7,500.00 By Sales 29,268.29
To Purchases 19,512.20 By Closing stock 10,000.00
(4,20,000/42)
To Wages and salaries 13,658.54 By Gross Loss c/d 1,402.45
40,670.74 40,670.74
To Gross Loss b/d 1,402.45 By Net Loss 17,685.38
To Rent, rates and taxes 8,780.49
To Sundry charges 3,902.44
To Depreciation on computers 3,600.00
(US $ 6,000 × 0.6)
17,685.38 17,685.38

Balance Sheet of Mumbai Branch

as on 31stMarch, 20X2
Liabilities US $ Assets US $ US $
New York Office 39,609.18 Computers 6,000.00
A/c
Less: Less:
Net Loss (17,685.38) 21,923.80 Depreciation (3,600.00) 2,400.00
Sundry creditors 7,142.86 Closing stock 10,000.00
Bills payable 5,714.29 Sundry debtors 9,523.81
Bank balance 10,000.00
Bills receivable 2,857.14
34,780.95 34,780.95

Alpha having head office in Mumbai has a branch in Nagpur. The branch at Nagpur is an independent branch
maintaining separate books of account. On 31.3.20X1, it was found that the goods dispatched by head office for
Rs. 2,00,000 was received by the branch only to the extent of Rs. 1,50,000. The balance goods are in transit.
What is the accounting entry to be passed by the branch for recording the goods in transit, in its books?
SOLUTION
Nagpur branch must include the inventory in its books as goods in transit.
The following journal entry must be made by the branch:
Goods in transit A/c Dr. 50,000
To Head office A/c 50,000
[Being Goods sent by Head office is still in transit on the closing date]
Question 35 (RTP Nov 19) (Dependent Branch – Debtors Method)

From the following particulars relating to Pune branch for the year ending December 31, 2018, prepare Branch
Account in the books of Head office.
Rs.
Stock at Branch on January 1, 2018 10,000
Branch Debtors on January 1, 2018 4,000
Branch Debtors on Dec. 31, 2018 4,900
Petty cash at branch on January 1, 2018 500
Furniture at branch on January 1, 2018 2,000
Prepaid fire insurance premium on January 1, 2018 150
Salaries outstanding at branch on January 1, 2018 100
Good sent to Branch during the year 80,000
Cash Sales during the year 1,30,000

Credit Sales during the year 40,000

Cash received from debtors 35,000
Cash paid by the branch debtors directly to the Head Office 2,000
Discount allowed to debtors 100
Cash sent to branch for Expenses:
Rent 2,000
Salaries 2,400
Petty Cash 1,000
Annual Insurance up to March 31, 2019 600 6,000
Goods returned by the Branch 1,000
Goods returned by the debtors 2,000
Stock on December 31,2018 5000
Petty Cash spent by branch 850
Provide depreciation on furniture 10% p.a.
Goods costing Rs.1,200 were destroyed due to fire and a sum of Rs.1,000 was received from the Insurance
Company.
SOLUTION
Pune Branch Account
Particulars Rs. Particulars Rs. Rs.
To Opening Balance By Opening Balance:
Stock 10,000 Salaries outstanding 100
Debtors 4,000 By Remittances:
Petty Cash 500 Cash sales 1,30,000
Furniture 2,000 Cash received from debtors 35,000
Prepaid Insurance 150 Cash paid by 2,000
Debtors directly to
H.O
To Goods sent to 80,000 Received from Insurance 1,000 1,68,000
Branch Account Company
To Bank (expenses) By Goods sent to branch 1,000

Rent 2,000 (return of goods by
Salaries 2,400 the branch to H.O.)
Petty Cash 1,000 By Closing Balances:
Insurance 600 6,000 Stock 5,000
To Net Profit 78,950 Petty Cash 650
Debtors 4,900
Furniture (2,000 – 10% 1,800
depreciation)

Prepaid insurance (1/4 x Rs. 150

600)
1,81,600 1,81,600
Working Note:
Calculation of petty cash balance at the end: Rs.
Opening balance 500
Add: Cash received from the Head Office 1,000
Total Cash with branch 1,500
Less: Spent by the branch 850
Closing balance 650
Question 36 (MTP - Nov 19) (RTP - Nov 20) – (Foreign Branch)

M & S Co. of Lucknow has a Branch in Canberra, Australia (as an integral foreign operation of M & S Co.). At
the end of 31st March 2019, the following ledger balances have been extracted from the books of the Lucknow
office and the Canberra.
Lucknow office (Rs. In Canberra Branch (Aust.
thousands) Dollars in thousands)
Dr. Cr. Dr. Cr.
Capital 2,000
Reserves & Surplus 1,000
Land 500
Buildings (Cost) 1,000
Buildings Dep. Reserves 200
Plant and Machinery (Cost) 2,500 200
Plant and Machinery Dep.
Reserves 600 130
Debtors/Creditors 280 200 60 30
Stock as on 1- 4-2018 100 20
Branch Stock Reserve 4
Cash & Bank Balances 10 10
Purchases/Sales 240 520 20 123
Goods sent to Branch 100 5
Managing Partner's Salary 30
Wages and Salary 75 45
Rent 12
Office Expenses 25 18
Commission Receipts 256 100

Branch/HO Current Account 120 7

4,880 4,880 390 390
The following information is also available:
(i) Stock as at 31stMarch, 2019
Lucknow Rs. 1,50,000
Canberra A$ 3125 (all stock are out of purchases made at Abroad)
(ii) Head Office always sent goods to the Branch at cost plus 25%
(iii) Provision is to be made for doubtful debts at5%
(iv) Depreciation is to be provided on Buildings at 10% and on Plant and Machinery at 20% on written down
value.
You are required to:
(1) Convert the Branch Trial Balance into rupees by using the following exchange rates:
Opening rate 1 A $ = Rs. 50
Closing rate 1 A $ = Rs. 53
Average rate 1 A $ = Rs. 51.00
For Fixed Assets 1 A $ = Rs. 46.00
Prepare Trading and Profit and Loss Account for the year ended 31st March 2019 showing to the extent possible
H.O. results and Branch results separately.
SOLUTION
M & S Co. Ltd.
Canberra, Australia Branch Trial Balance As on 31st March 2019
($ ―thousands) (Rs.‖ thousands)
Dr. Cr. Conversion Dr. Cr.
rate per $
Plant & Machinery (cost) 200 Rs. 46 9,200
Plant & Machinery Dep. Reserve 130 Rs. 46 5,980
Trade receivable/payable 60 30 Rs. 53 3,180 1,590
Stock (1.4.2018) 20 Rs. 50 1,000
Cash & Bank Balances 10 Rs. 53 530
Purchase / Sales 20 123 Rs. 51 1,020 6,273
Goods received from H.O. 5 Actual 100
Wages & Salaries 45 Rs. 51 2,295
Rent 12 Rs. 51 612
Office expenses 18 Rs. 51 918
Commission Receipts 100 Rs. 51 5,100
H.O. Current A/c 7 Actual 120
18,855 19,063
Foreign Exchange Loss (bal. fig.) 208

390 390 19,063 19,063

Closing stock 3.125 53 165.625
Trading and Profit & Loss Account for the year ended 31st March, 2019
(Rs.‖000)
To Opening Stock 100 1,000.000 1,100.000 By Sales 520 6,273.000 6,793.000
To Purchases 240 1,020.000 1,260.000 By Goods sent 100 – 100.000
To Goods received to Branch
from Head Office – 100.000 100.000 By Closing 150 165.625 315.625
Stock
To Wages & Salaries 75 2,295.000 2,370.000
To Gross profit c/d 355 2,023.625 2,378.625
770 6,438.625 7,208.625 770 6,438.625 7,208.625
To Rent – 612.000 612.000 By Gross profit 355 2,023.625 2,378.625
b/d
To Office expenses 25 918.000 943.000 By Commission 256 5,100.000 5,356.000
To Provision for receipts
doubtful debts @ 14 159.000 173.000
5%
To Depreciation (W. 460 644.000 1,104.000
N.)
To Balance c/d 112 4,790.625 4,902.625
611 7,123.625 7,734.625 611 7,123.625 7,734.625
To Managing Partner 30.000 By Balance b/d 4,902.625
‖s Salary
To Exchange Loss 208.000 By Branch 4.000
To Balance c/d 4,668.625 stock
reserve
4,906.625 4,906.625
Working Note:
Calculation of Depreciation
H.O Rs. ―000 Branch
Rs. ―000
Building – Cost 1,000
Less: Dep. Reserve (200)
800
Depreciation @ 10% (A) 80

Plant & Machinery Cost 2,500 9,200

Less: Dep. Reserve (600) (5,980)
1,900 3,220
Depreciation @ 20% (B) 380 644
Total Depreciation (A+B) 460 644
Note: As the closing stock of Branch does not consist any stock transferred from M&S Co., there is no need to
create closing stock reserve. But the opening branch stock reserve has to be reversed in the P&LA/c.

TOPIC 6
DEPARTMENTAL ACCOUNTS
ALLOCATION AND APPORTIONMENT OF EXPENSES

 Irrespective of the fact whether the departments are related or unrelated, the department-wise figures of
sales, purchases, expenses incurred exclusively for a particular department are readily ascertained and allocated
to those departments.
 However, common expenses incurred for the benefit of many departments are also to be taken into account
to ascertain the overall profitability of the various departments.
 These common expenses need to be apportioned to the various departments on some equitable basis.
 The common expenses which cannot be conveniently apportioned to many departments should preferably be
shown in the general profit and loss account e.g., debenture interest payable by the company, interest on
loan, salary of general manager, managing director's salary etc.
Some of the common bases used for apportioning the common expense/incomes are summarized in the following
table:
S.No. Item of income/expense Commonly used basis for apportionment
1. Depreciation of assets, fire insurance, Asset value of each department
repair and maintenance expenses of
assets etc.
2. Canteen expenses, common room Number of Employees in each department
expenses, medical expenses and other
welfare expenses
3. Rent, rates, taxes, repairs and Area of each department
maintenance of
'building
4. Discount received, carriage inward etc. Purchases of each department
5. Discount allowed, bad debts, carriage Sales (turnover) of each department

outward, salesmen salary and
commission
Packing and delivery expenses etc.
6. P.F. and E.S.I, contributions Salaries of Each department
7. Lighting Number of light points in each
department or by separate meter (if
installed)
8. Advertising Turnover of Each department

IMPORTANT NOTES TO SOLVE THE QUESTIONS

1) Closing stock and Opening stock of transferee department may come from transferor department at COST or
COST plus Profit Margin.
2) If goods are transferred at Original Cost only then no need to calculate unrealised profit (Stock Reserve).
3) If goods are transferred at Cost plus Margin by transferor department then SR (Unrealised profit) must be
included in the Closing stock of Transferee department if some of the transferred goods are unsolved.
4) To find out the percentage of Margin earned by transferor on Stock Transfer: - Either question will provide
percentage of profit or if percentage of profit is not given then we will assume that stock transfer is made
at Normal Selling Price i.e., Gross Profit Percentage is to be calculated for transferor department.
On opening stock, if gross profit percentage of last year is not given then, current year gross profit
percentage is applied on opening stock also.
5) How much percentage of stock is included in opening and closing stock of transferee department which came
from transferor department?
a) Either Given in Question
OR
b) If not given, we will assume that stock of transferee contains Own Expense and Transferred goods in
proportion of: -
i) Total Own Expense during the year
&
ii) Total Transferred Goods during the year
If separate transfer values are not given in the question then we will assume that “Transfer to” is included in
sales and “Transfer from” is included in purchase.


Z Ltd. has three departments and submits the following information for the year ending on 31st March, 20X1:
A B C Total (Rs.)
Purchases (units) 6,000 12,000 14,400
Purchases (Amount) 6,00,000
Sales (Units) 6,120 11,520 14,976
Selling Price (per unit) Rs. 40 45 50
Closing Stock (Units) 600 960 36
You are required to prepare departmental trading account of Z Ltd., assuming that the rate of profit on sales is
uniform in each case.
SOLUTION
Departmental Trading Account for the year ended on 31stMarch, 20X1
Particulars A B C Particulars A B C
Rs. Rs. Rs. Rs. Rs. Rs.
To Opening 11,520 8,640 12,240 By Sales 2,44,800 5,18,400 7,48,800
Stock A- 6120 x 40
(W.N.4) B- 11,520 x 45
C- 4,976 x 50
Closing Stock
(W.N.4)
To Purchases 96,000 2,16,000 2,88,000 By 9,600 17,280 720

(W.N.2)
To Gross Profit 1,46,880 3,11,040 4,49,280
(b.f.)
2,54,400 5,35,680 7,49,520 2,54,400 5,35,680 7,49,520
Working Notes:
(1) Profit Margin Ratio
Selling price of unit purchased: Rs.
Department A 6,000 x40 2,40,000
Department B 12,000 x45 5,40,000
Department C 14,400 x50 7,20,000
Total Selling Price 15,00,000
Less: Purchase (Cost)Value (6,00,000)
Gross Profit 9,00,000
Profit Margin Ratio = 9,00,000 x100 = 60% 15,00,000

(2) Statement showing department-wise per unit Cost and PurchaseCost

A B C
Rs. Rs. Rs.
Selling Price (Per unit) (Rs.) 40 45 50
Less: Profit Margin @ 60% (Rs.) Profit (24) (27) (30)
Margin is uniform for all depts at 60%
Purchase price per unit (Rs.) 16 18 20
Number of units purchased 6,000 12,000 14,400
(Purchase cost per unit x Units 96,000 2,16,000 2,88,000
purchased)
(3) Statement showing calculation of department-wise Opening Stock (in Units)

A B C
Sales (Units) 6,120 11,520 14,976
Add: Closing Stock (Units) 600 960 36
6,720 12,480 15,012
Less: Purchases (units) (6,000) (12,000) (14,400)
Opening Stock (Units) 720 480 612
(4) Statement showing department-wise cost of Opening Stock and Closing Stock
A B C
Cost of Opening Stock (Rs.) 720 x 16 480 x 18 612 x 20
Rs. 11,520 8,640 12,240
Cost of Closing Stock 600 x 16 960 x 18 36 x 20
Rs. 9,600 17,280 720

Department P sells goods to Department S at a profit of 25% on cost and to Department Q at a profit of 15%
on cost. Department S sells goods to P and Q at a profit of 20% and 30% on sales respectively. Department Q
sells goods to P and S at 20% and 10% profit on cost respectively.
Departmental Managers are entitled to 10% commission on net profit subject to unrealised profit on departmental
sales being eliminated. Departmental profits after charging Manager's commission, but before adjustment of
unrealised profits are as below:
Rs.
Department P 90,000
Department S 60,000
Department Q 45,000

Stock lying at different Departments at the end of the year are as below:
Figures in Rs.
DEPARTMENTS
P S Q
Transfer from P - 18,000 14,000
Transfer from S 48,000 - 38,000
Transfer from Q 12,000 8,000 -
Find out correct Departmental Profits after charging Managers' Commission.
SOLUTION
Calculation of correct Departmental Profits
Department Department Department
P(Rs.) S(Rs.) Q(Rs.)
Profit after charging Manager‖s 90,000 60,000 45,000
Commission
Add: Manager‖s Commission (1/9) 10,000 6,667 5,000
1,00,000 66,667 50,000
Less: Unrealised profit on Stock (WN) (5,426) (21,000) (2,727)
Profit Before Manager‖s Commission 94,574 45,667 47,273
Less: Manager‖s Commission 10% (9,457) (4,567) (4,727)
Correct Profit after Manager‖s 85,117 41,100 42,546
Commission
Working Notes:
Department P Department S Department Q Total
(Rs.) (Rs.) (Rs.) (Rs.)
Unrealised Profit of:
Department P - 25/125X18,000 15/115X14,000 5,426
=3,600 =1,826
Department S 20/100X48,000 - 30/100X38,000 21,000
=9,600 =11,400
Department Q 20/120X12,000 10/110X8,000 2,727
=2,000 =727

Gram Udyog, a retail store, has two departments, ―Khadi and Silks‖ for each of which stock account and
memorandum ―mark-up‖ accounts are kept. All the goods supplied to each department are debited to the stock
account at cost plus a ―mark-up‖, which together make-up the selling-price of the goods and in the account of
the sale proceeds of the goods are credited. The amount of ―mark-up‖ is credited to the Departmental Mark-up
Account. If the selling price of any goods is reduced below its normal selling price, the reduction ―marked down‖ is

adjusted both in the Stock Account and the Departmental ―Mark-up‖ Account. The rate of ―Mark-up‖ for Khadi
Department is 33- 1/3% of the cost and for Silks Department it is 50% of the cost.
The following figures have been taken from the books for the year ended December 31,20X1:
Khadi Deptt. Silks Deptt.
Rs. Rs.
Stock as on January 1stat cost 10,500 18,600
Purchases 75,900 93,400
Sales 95,600 1,25,000
(1) The stock of Khadi on January 1, 20X1 included goods the selling price of which had been marked down
by Rs.1,260. These goods were sold during the year at the reduced prices.
(2) Certain stock of the value of Rs.6,900 purchased for the Khadi Department were later in the year
transferred to the Silks department and sold for Rs.10,350. As a result, though cost of the goods is
included in the Khadi Department the sale proceeds have been credited to the Silks Department.
(3) During the year 20X1 to promote sales the goods were marked down as follows:
Cost (Rs.) Marked Down (Rs.)
Khadi 5,600 360
Silk 10,000 2,000
All the goods marked down, were sold except Silks of the value of Rs.5,000 marked down by Rs.1,000.
(4) At the time of stock-taking on December 31, 20X1 it was discovered that Khadi cloth of the cost of
Rs.390 was missing and it was decided that the amount be written off.
You are required to prepare for both the departments for the year 20X1.
(a) The Memorandum Stock Account; and
(b) The Memorandum Mark-up Account.
SOLUTION
Silk Stock Account
20X1 Rs. 20X1 Rs.
To Balance b/d By Sales A/c 1,25,000
To Cost 18,600 By Mark-up A/c 2,000
Mark-up @50% 9,300 27,900 By Balance c/d (b.f.) 51,350
To Purchases 93,400
Mark-up @50% 46,700 1,40,100
To Khadi A/c 6,900
Mark-up@50% 3,450 10,350
1,78,350 1,78,350

Silk Mark-up Account

20X1 Rs. 20X1 Rs.
To Stock A/c 2,000 By Balance b/d 9,300
To Profit & Loss A/c (b.f.) 41,000 By Stock A/c 46,700
To Balance c/d 16,450 By Stock A/c 3,450
[(1/3* of {51,350 + 1,000})– 1,000]
59,450 59,450
* 1/2 on cost is equal to 1/3 on sales
Working Notes:
Verification of Profit
Rs.
Sales 1,25,000
Add: Mark down in goods sold 1,000
1,26,000
Gross Profit 1/3 42,000
Less: Mark down (1,000)
Gross profit as per books 41,000
Khadi Stock Account
20X1 20X1
To Balance 12,740 By Sales
b/d (10,500 +
2,2400)
75,900 Mark-up A/c @33- 2,300 9,200
1/3%
Mark-up @ 25,300 1,01,200 By Loss of Stock A/c 390
33- 1/3%
Mark-up A/c @ 33- 130 520
1/3%
By Mark-up A/c 360
By Balance 8,260
1,13,940 1,13,940
# [(10,500 x 33-1/3%) – 1,260] = Rs.2,240

Khadi Mark-up Account

20X1 Rs. 20X1 Rs.
To Stock A/c (transfer) 2,300 By Balance b/d
To Stock A/c (re-sale) 130 (3,500 – 2,240
1,260)
To Stock A/c (mark down) 360 By Stock A/c 25,300
To Profit & Loss A/c 22,685
To Balance (1/4 of 2,065
Rs.
8,260)
27,540 27,540
Working Note: Rs.
Verification of Profit 95,600
Sales as per books
Add: Mark-down (1,260+360) 1,620
97,220
Gross Profit on fixed selling price @ 25% on Rs.97,220 24,305
Less: Mark down (1,620)
22,685

A firm has two departments--Sawmill and Furniture. Furniture is made with wood supplied by the Sawmill
department at its usual selling price. From the following figures prepare Departmental Trading and Profit and
Loss Account for the year 20X2:
Sawmill Furniture
Rs. Rs.
Opening Stock on1st January, 20X2 1,50,000 25,000
Sales 12,00,000 2,00,000
Purchases 10,00,000 7,500
Supply to Furniture Department 1,50,000 --
Selling expenses 10,000 3,000
Wages 30,000 10,000
Stock on 31stDecember, 20X2 1,00,000 30,000

The value of stocks in the furniture department consists of 75 per cent wood and 25 per cent other expenses.
The Sawmill Department earned Gross Profit at 15 percent in 20X1. General expenses of the business as a whole
came to Rs. 55,000.
SOLUTION
Department Trading and Profit and Loss Account
Particulars Saw mill Furniture Particulars Saw mill Furniture
Rs. Rs. Rs. Rs.
To opening stock 1,50,000 25,000 By sales 12,00,000 2,00,000
To purchase 10,00,000 7,500 By transfer to 1,50,000
furniture dept.
To wages 30,000 10,000 By Closing stock 1,00,000 30,000
To transfer from - 1,50,000
saw mill
To gross profit 2,70,000 37,500
14,50,000 2,30,000 14,50,000 2,30,000
To selling expenses 10,000 3,000 By Gross Profit 2,70,000 37,500
To Net Profit 2,60,000 34,500
2,70,000 37,500 2,70,000 37,500
General Profit & Loss Account

Particulars Amount Rs. Particulars Amount Rs.
To general Expenses 55,000 By Net Profit from Saw 2,60,000
Mill
Furniture 34,500
To stock reserve (WN2) 4,500 By stock reserve (opening 2,813
WN-1)
To Net Profit 2,37,813
2,97,313 2,97,313
Working Notes:
Calculation of Stock Reserve (opening), assuming FIFO
Rs. 25,000 X 75% wood X 15% = Rs. 2,813
Calculation of closing stock reserve
Gross Profit Rate of Saw Mill of 20X2:
Rs. 2,70,000 / (12,00,000 + 1,50,000) X 100 = 20%
Rs. 30,000 X 75% X 20% = Rs. 4,500


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CA INTER ACCOUNTS (IMP QUESTIONS FOR EXAM)

Question 1 (ICAI Module)

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45,000, 14% Preference shares 45,00,000 45,00,000

Question 2 (ICAI Module)

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(b) Provide to doubtful debts @ 4% on Debtors

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(i) Tangible Assets 5 5,70,000

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Question 3 (ICAI Module)

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of Rs 100 each and 10,000 equity Shares of Rs 100 each

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Inventory on 31st March, 20X2

Balance Sheet of International Hotels Ltd. as on 31st March, 20X2

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a Long-term borrowings 3 2,00,000

V’Smart Academy (CA. JAI CHAWLA) Page 8

V’Smart Academy (CA. JAI CHAWLA) Page 9

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Land and Buildings (8,50,000 x 2%) 17,000

Question 4 (RTP May 19)

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IX Profit before tax (VII-VIII) 28,650

Balance sheet of Shweta Ltd. as on 31st March, 2018

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6,000 6% Preference shares of Rs100 each 6,00,000 15,00,000

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Freehold property (at cost) 10,50,000

Working Note Calculation of Sundry Debtors-Other Debts

Less: Bad Debts written off – 50% Rs4,500 (2,250)

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Question 5 (MTP May 20)

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V’Smart Academy (CA. JAI CHAWLA) Page 17

V’Smart Academy (CA. JAI CHAWLA) Page 18

Securities premium 15,00,000

V’Smart Academy (CA. JAI CHAWLA) Page 19

V’Smart Academy (CA. JAI CHAWLA) Page 20

45,000 938 44,433 45,000 938 44,433

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1. 25,000 x 5% x 5/12 =521

Question 7 (ICAI Module)

3. 10% Secured Bonds of Govt. (DRR Investment)A/c

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5. Debenture holder‖s A/c

Question 8 (ICAI Module)

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(iii) Debentures Redemption Reserve A/c

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Question 9 (Nov 18)

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(2) Non-Current Liabilities

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(i) Calculation of number of shares to be allotted Rs

Redemption value of 800 debentures (800 × Rs 55) Rs 44,000

Question 10 (EXAM May 18 – 5 MARKS)

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