Answer to MTP_Intermediate_Syllabus 2012_June2016_Set 1

Paper 5- Financial Accounting

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 Answer to MTP_Intermediate_Syllabus 2012_June2016_Set 1

Paper 5- Financial Accounting

Full Marks:100 Time allowed: 3 hours

[This paper contains 9 questions. All questions are compulsory, subject to instruction provided
against each question. All workings must form part of your answer.]

1. Answer the following questions [5 ×1 = 5]

(a) Multiple choice questions:

(i) (c)
(ii) (c)
(iii) (a)
(iv) (a)
(v) (c)

(b) Match the following: [5 × 1 = 5]

1. —E
2. —D
3. —B
4. —A
5. —C

(c) State whether the following statements are true or false [5 × 1 = 5]

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

(d) Answer the following: [5 × 2 = 10]

(i)
Particulars Amount (`)
Bank balance as per Pass Book 15,375
Add: Bank service changes 100
Less: Cheques issued but not presented 1,725
Balance as per Cash Book 13,750

(ii) Journal of Golden Ltd.

Particulars Debit (`) Credit (`)
Creditors Ledger Adjustment A/c Dr. 4,500
To Debtors Ledger Adjustment A/c 4,500
(Being transfer entry to set-off balance)

(iii) Computation of cash price

Amount of Installment Present Value
`1 2.7232
` 30,000 2.7232 × 30,000
1
Cash price is ` 81,696

(iv) Computation of cost of goods sold

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Cost of goods sold = Sales – Gross Profit

= 3,00,000 – 60,000 [3,00,000 × 20%] = ` 2,40,000.
(v)
Particulars `
9 3,00,000
(a) Interest up to 31-03-2013 (40,00,000 × 9% × )
12
(b) Less: Interest relating to pre-operative period to be capitalized 2,10,000
9
(3,00,000 × )
12
3 90,000
Amount to be charged to P&L A/c (3,00,000 × )
10

Section B
Answer any five from the following.
Each question carries 15 marks [5 × 15 = 75]

2. (a)
Bank Reconciliation Statement as on 31st December 2013
Particulars Amount (`) Amount (`)
Bank balance as per pass book (Cr.) 924
Add: (i) Payment of contribution by the bank not 200
entered in the cash book
(ii) Cheques deposited but not cleared 65 265
1,189
Less : (i) Interest and dividend collected by the bank
not entered in the cash book
- Interest 28
- dividend 230
(ii) Cheques deposited and cleared but not 150
entered in the cash book
(iii) Cheques issued but not presented (73+119+46) 238 646
Balance as per Cash Book 543

(b) We are to compute the anticipated loss and current loss which are computed as -

(a)
Anticipated (or) Foresceable Loss
Particulars `( in lakhs)
Cost of total contract:
Work certified 500
(+) Works not certified 105
(+) Estimated further cost to completion 495
1100
(-) Contract price 1000
Anticipated Loss 100

(b) Work-in-progress / stage of completion:

Work certified + work not certified = 500 + 105 = 605.
605
% of work certified = × 100 = 55%
1100
(c) Recognisation of contract Revenue :
Total contract price × 55% = 1000 × 55% = ` 550 lakhs. .

3. (a) (i)
Revaluation Account

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 Answer to MTP_Intermediate_Syllabus 2012_June2016_Set 1

Dr. Cr.
Particulars Amount Particulars Amount
To R.B.D. 550 By Stock 2500
To Furniture 650 By Land & Building 5000
To Profit : 6300
2 2520
Dalal = 6300 ×
5
2 2520
Bbanerjee = 6300 ×
5
1 1260
Malick = 6300 ×
5
7500 7500

(ii)
Capital Account
Dr. Cr.
Particulars Dalal Banerjee Malick Mistri Particulars Dalal Banerjee Malick Mistri
To Goodwill A/c 5,000 5,000 3,000 2,000 By Balance b/d 12,000 12,000 5,000 ---
(Written off)
To Balance c/d 19,120 18,120 7,560 3,000 By General
Reserve A/c
By Revaluation A/c 2,520 2,520 1,260 ---
By Bank (G.W) 6,000 6,000 3,000 ---
By Bank --- --- --- 5,000
By Outstanding 1,000 --- --- ---
Liability
24,120 23,120 10,560 5,000 24,120 23,120 10,560 5,000
By Balance b/d 19,120 18,120 7,560 3,000

(iii)
Balance Sheet
Liabilities Amount (`) Assets Amount (`)
Sundry Creditors 12,850 Land & Buildings 30,000
Outstanding Liabilities 500 Furniture 5,850
Capital Account: Stock of goods 14,250
Dalal 19,120 Sundry debtors 5500
Banerjee 18,120 (-) Provision 550 4,950
Malick 7,560 Cash in Hand 140
Mistri 3,000 Cash at Bank 5,960
61,150 61,150

4. (a)
In the General Ledger
Creditors Ledger Adjustment Account
Dr. Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
2012 To Balance b/d 1,000 2012 By Balance b/d 10,000
April 1 April 1
2013 To General Ledger 2013 By General Ledger
March Adjustment Account: March Adjustment Account:
31 Returns Outward 2,000 31 Purchases 40,000
Cash and Cheques 20,000 Bills Payable dishonoured 2,000
Discount Received 3,000 Interest 100
Bills Receivable 2,000 Sundry charges 100
Bills Payable 4,000 By Balance c/d 4,000
Bills Payable (Renewed) 1,000
Transfer 3,000
To Balance c/d 20,200
56,200 56,200

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2013 To Balance b/d 4,000 2013 By Balance b/d 20,200

April 1 April 1

In the Creditors Ledger

General Ledger Adjustment Account
Dr. Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
2012 To Balance b/d 10,000 2012 By Balance b/d 1,000
April 1 April 1
2013 To Creditors Ledger 2013 By Creditors Ledger
March Adjustment Account: March Adjustment Account:
31 Purchases 40,000 31 Returns outward 2,000
Bills payable dishonored 2,000 Cash 20,000
Interest 100 Discount received 3,000
Sundry charges 100 Bills receivable 2,000
To Balance c/d 4,000 Bills payable 4,000
Bills payable (Renewed) 1,000
Transfers 3,000
By Balance c/d 20,200
56,200 56,200
2013 20,200 2013 By Balance b/d 4,000
April 1 April 1

(b)
Machinery Account (under written down value method)
Dr. Cr.
Date Particulars J.F. Amount (`) Date Particulars J.F. Amount (`)
1-1-12 To Bank (I) 3,00,000 31-12-12 By Depreciation (I) 30,000
1-10-12 To Bank (II) 1,00,000 31-12-12 By Depreciation (II) 2,500
10 3
(1,00,000 × × )
100 12
31-12-12 By balance c/d 3,67,500
4,00,000 4,00,000
1-1-13 To Balance b/d 3,67,500 1-10-13 By Depreciation (I) 20,250
By Bank (Sale) 2,20,000
By P&L A/c (Loss) 29,750
By Depreciation (II) 9,750
By balance c/d 87,750
3,67,500 3,67,500
1-1-14 To Balance b/d 87,750

Working Notes relating to First Machine

Particulars `
Purchased on 1-1-2012 3,00,000
(-) Depreciation on 31-12-12 (3,00,000 × 10%) 30,000
Written down value on 1-1-2013 2,70,000
10 9 20,250
(-) depreciation up to 1-10-2013 (2,70,000 × × )
100 12
Written down value on 1-10-2013 2,49,750
Loss on sale 29,750
Sale value on 1-10-2013 2,20,000

5. (a)
Income & Expenditure Account of Nethajee Sports Club for the year ending 31-03-
2012.

Dr. Cr.
Expenditure Amount Amount Income Amount Amount

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(`) (`) (`) (`)

To Salaries 16,000 By Subscriptions 13,000
To Rent 3,000 (-) Last year Outstanding 1,000 12,000
(-) Last year outstanding 600 2,400 By Interest 1,000
To Stationery 1,000 By Entrance fees 8,000
To loss on sale of old 400
furniture (2,000 – 1,600)
To Surplus (Excess of 1,200
Income over
Expenditure)
21,000 21,000

Note: Entrance fees has been treated as a revenue receipt.

(b)
Trading Account for the year ended 31-12-2012
Dr. Cr.
Particulars Amount Particulars Amount
To Opening Stock 90,000 By Sales 6,00,000
To Purchases 4,00,000 By Closing Stock 70,000
To Gross profit 1,80,000
6,70,000 6,70,000

Gross Profit
G.P. Ratio = × 100
Net Sales
180000
= × 100
600000
= 30%

Memorandum Trading Account from 1-1-2013 to 30-06-2013

Particulars 2012 2013 Particulars 2012 2013
To Opening Stock 70,000 70,000 By Sales 8,00,000 8,80,000
(110% – 800000) (100 - ?)
To Purchases 5,00,000 6,00,000 By Closing Stock 10,000 12,000
(120% – 600000)(100 - ?)
To Gross profit 2,40,000 2,20,000
8,10,000 8,92,000 8,10,000 8,92,000

Statement of Claim =
Particulars Amount (`)
Closing stock on the date of fire 12,000
(-) Salvaged stock 5,000
Amount of claim 7,000

6.
Form – B
Form of Profit and Loss Account for the year ended 31.03.2013.
Name of the Bank : Swastik Mercantile Bank Ltd.
Particulars Schedule (‘000) (‘000)
No. 2012-13 (CY) 2011-12 (PY)
I. Income
Interest & Discount earned 13 2729 1554
Other income 14 921 681
Total 3650 2235
II. Expenditure
Interest expended 15 1094 625
Operating expenses 16 2043 1605

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Provisions & Contingencies --- 237 ---

Total 3374 2230
III. Profit or Loss
Current year profit (I – II) 276 05
Last year profit b/d 05
281
IV. Appropriations
1. Transfer to Statutory reserve @ 25% 69
2. Transfer to Revenue Reserve @ 5% 13.8
3. Balance C/F to Balance Sheet 198.2
281

Working Note:
(`000)
Particulars 2012-13 (CY) 2011 – 12) (PY)
Interest and discount Earned (Schedule No. 13)
Interest earned (2184 + 84 + 153 + 9 + 49) 2479
(-) Closing Rebate on Bills 49 2430 1286
Interest on Balance with RBI 186 152
Income from investments 113 116
Total 2729 1554
Other Income (Schedule No. 14)
Commission, Exchange, Brokerage 843 667
Profit on sale of investments = 87
(-) Loss on sale of investments = (09) 78 14
Total 921 681
Interest expended (Schedule No. 15)
Interest on Deposits 981 523
Interest on R.B.I. Borrowings 113 102
Total 1094 625
Operating Expenses (Schedule No. 16)
Payments to & Provisions for employees 916 651
Rent & Taxes 103 91
Lighting 46 32
Printing & Stationery 219 183
Advertisement 82 67
Depreciation on Bank property 95 95
Directors fees, allowances 200 186
Auditors fees 105 105
Law charges 143 86
Postage & Telegrams 53 43
Telephone 08 05
Repairs & Maintenance 73 61
2043 1605
Provisions & Contingencies
Reserve for Bad & Doubtful debts 84
Provision for tax 153
237

7. (a)
Computation of Return on Equity
Particulars 1st Year 2nd Year 3rd Year 4th Year
A. Opening Equity (30% on Opening Capital) 4,50,000 4,80,000 4,89,000 4,95,000
B Additional Equity (30% on Additional 30,000 9,000 6,000 3,000
capital expenditure)

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C. Closing Equity (A+B) 4,80,000 4,89,000 4,95,000 4,98,000

D. Average Equity ( A+C ) 4,65,000 4,84,500 4,92,000 4,96,500
2
E. Return on Equity (D × 14 ) 65,100 67,830 68,880 69,510
100

(b) In case of accommodation bills, the proceeds of discounting are shared by parties as
agreed. The discounting charges are also shared in agreed proportion. Here, the ratio
between Khan and Sumit is given as two-thirds and one-third. The first of ` 1,20,000 is
discounted at ` 1,12,800 which means the discounting charges are ` 7,200.
The share of each one is:

Particulars Proceeds 1st Bill discount Proceeds 2nd Bill discount

2 75,200 4,800 1,08,800 3,200
Khan ( rd)
3
1 37,600 2,400 54,400 1,600
Sumit ( rd)
3
Total 1,12,800 7,200 1,63,200 4,800

Further, as Khan has become insolvent, the amount due to Sumit is settled at 50% of
total to calculate this amount, it is necessary to post all transactions to Sumit’s
account and arrive at balance.

Journal Entries in the books of Khan

Date Particulars L.F. Debit (`) Credit (`)
Bills receivable A/c Dr. 1,20,000
To Sumit A/c 1,20,000
(Being the bill drawn on Sumit for mutual
accommodation)
Bank A/c Dr. 1,12,800
Discount A/c Dr. 7,200
To Bills Receivable A/c 1,20,000
(Being bill discounted with bank)
Sumit A/c Dr. 40,000
To Bank A/c 37,600
To Discount A/c 2,400
1
(Being rd proceeds of the discounted bill paid
3
to Sumit)
Sumit A/c Dr. 1,68,000
To Bills Payable A/c 1,68,000
(Being acceptance sent to Sumit for mutual
accommodation)
Bank A/c Dr. 28,800
Discount A/c Dr. 3,200
To Sumit A/c 32,000
(Being proceeds received from Sumit including
discount charges)
Bills Payable A/c Dr. 1,68,000
To Sumit A/c 1,68,000
(Being accepted bill drawn by Sumit dishonoured
due to insolvency)
Sumit A/c Dr. 1,12,000
To Bank A/c 56,000
To Deficiency A/c 56,000

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(Being payment of 50% of the amount due and

balance proved to be bad)

Sumit Account
Dr. Cr.
Date Particulars J.F. Amount (`) Date Particulars J.F. Amount (`)
To Bank A/c 37,600 By Bills Receivable A/c 1,20,000
To Discount A/c 2,400 By Bank A/c 28,800
To Bill Payable A/c 1,68,000 By Discount A/c 3,200
To Bank A/c 56,000 By Bills payable A/c 1,68,000
To deficiency A/c 56,000
3,20,000 3,20,000

8. (a)
In the books of Bombay Traders
Branch Stock Account
Particulars Amount Particulars Amount
To Balance b/d 2,000 By Sales A/c 1,22,000
To Goods sent to branch A/c 80,000 By Loss in Transit A/c 10,000
To Branch adjustment A/c 62,000 By Pilferage A/c 4,000
(apparent G.P)
By Branch Adjustment A/c 2,000
(Normal Loss)
By Balance c/d 24,000
1,62,000 1,62,000

Goods sent to Branch Account

Particulars Amount Particulars Amount
To Branch adjustment Account 16,000 By Branch Stock A/c 80,000
1
(80,000 × )
5
To Trading A/c 64,000
80,000 80,000

Branch Adjustment Account

Particulars Amount Particulars Amount
To Branch Stock A/c (Normal 2,000 By Stock Revenue (Load on 4,000
Loss) opening stock)
To Loss-in-transit (Load) 2,000 By Goods sent to branch A/c 16,000
(Load)
To Pilferage A/c (Load) 800 By Branch Stock A/c 62,000
(Apparent G.P.)
To Stock Reserve (Load) on 4,800
closing Stock)
To Branch P/L A/c (B/F) 72,400
82,000 82,000

Loss-in-transit Account
Dr. Cr.
Particulars Amount Particulars Amount
To Branch Stock A/c 10,000 By Branch Adjustment A/c 2,000
(Load)
By Bank (Insurance Claim) 6,000
By Branch P/L A/c 2,000
10,000 10,000

Pilferage Account
Dr. Cr.

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Particulars Amount Particulars Amount

To Branch Stock A/c 4,000 By Branch Adjustment A/c (Load) 800
By Branch P/L A/c 3,200
4,000 4,000

Branch P/L Account

Dr. Cr.
Particulars Amount Particulars Amount
To Expenses A/c 32,000 By Branch Adjustment A/c 72,400
To Loss-in-transit 2,000
To Pilferage A/c 3,200
To General P/L A/c 35,200
72,400 72,400

(b) Short Sales

“Excess of standard turnover over actual turnover” to ascertain the amount of claim
under loss of profit policy, first ascertain the short sales during the period of
dislocation.
Apply the rate of Gross Profit (adjusted) on the short sales. while calculating short
sales we have to make adjustment to the budgeted sales.

Short sales during the period of dislocation:

Turnover in the same period of the last year xxxx
Add: % of expected increase xxxx
xxxx
Less: Actual sales (turnover in the period of dislocation) xxxx
Short sales xxxx

9. Write short notes on any three of the following [3 × 5 = 15]

(a) Contingent liabilities

A contingent liability is one which is not an actual liability but which will become an
actual one on the happening of some event which is uncertain. Thus such liabilities
have two characteristics:
(a) Uncertainity as to whether the amount will be payable at all, and
(b) Uncertainitiy about the amount involved. It is sufficient if the amount of such
liability is stated on the face of the balance sheet by way of a note unless there is
a probability that a loss will materialize. In that event it is no more a contingent
liability and a specific provision should be made therefore, examples of such
liabilities are
(i) Claims against the companies not acknowledged as debts
(ii) Uncalled liability on partly paid up shares
(iii) Arrears of fixed cumulative dividend
(iv) Estimated amount of contracts remaining to be executed on capital account
and not provided for
(v) Liability of a case pending in the court
(vi) Liabilities in respect of bills discounted
(vii) Guarantee given against a particulars person or firm.

(b) Garner V Murray Rule

If a particular Capital A/c shows a debt balance on the dissolution of the firm; he is to
pay, the debit balance to the firm to settle the account. But if such partner is insolvent
i.e., unable to satisfy his debt to the firm, then his deficiency which he is not able to

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bring will be borne by the other solvent partners. In accordance with the decision in
“Garner Vs Murray”.
In this case it was ruled that, in the absence of any agreement to the contrary, the
deficiency of the insolvent partner capital account must be borne by other solvent
partners in proportion to their capitals which stood before the dissolution of the firm.
Another ruling in “Garner Vs. Murray” case is that the solvent partners should bring in
cash equal to their share of loss on realization. A large majority of the accountants
are of the view that the ruling given is a useless ruling. It is unreasonable to ask solvent
partner to bring in cash his share of loss on realization.

Applicability of the decision in Garner Vs. Murray in India”.

In the absence of any specific provision decision of a court in India: It is common

practice to seek guidance from English law. Therefore, it has become a practice. In
India to follow the decision in the Garner Vs. Murray case in the absence of any
specific agreement between the partners with regard to sharing the deficiency of an
insolvent partner.

(c) Accounting Concepts

1. Business Entity Concept: A business unit is separate and distinct from the persons
who supplies capital to it. All the transactions relating to business are recorded in
the books of business.
2. Money Measurement Concept: Money is the only practical unit of measurement
that can be employed to achieve homogeneity of financial data. So accounting
records only those transactions which can be expressed in terms of money.
3. Going concern concept: A business unit is deemed to be a going concern and
not a gone concern. It will continue to operate in future.
4. Cost concept: An asset is recorded in the books at the price paid to acquire it
and this cost is the basis for all subsequent accounting for the asset.
5. Dual aspect concept: Every financial transaction involves a two-fold aspect
(a) Yield of a benefit
(b) The giving of that benefit receiving aspect is to be debited and giving aspect
is to be credited.
6. Accounting Period concept: The life of the business is split into accounting periods
so as to able to know the profit or loss of each period and financial position at the
end of such a period.
7. Matching concept: The determination of profit of a particular accounting period
is essentially a process of matching revenue recognized during the period with
the related expenses to determine profit or loss.
8. Realization concept: According to this concept revenue is considered as being
earned on the date at which it is realized i.e., on the date which the property in
goods passes to the buyer and he becomes legally liable to pay.
9. Accrual concept: To ascertain correct profit or loss for an accounting period. We
make record of all expenses and income relating to the accounting period,
whether actual cash has been paid or received or not.

(d) Differences between Hire Purchase System and Installment System

1. Nature of contract: Hire purchase is an agreement of hiring, whereas installment

purchase system is an agreement of sale.
2. Ownership: Under hire purchase system, ownership remains with seller until the
payment of the last installment, but under installment purchase system ownership
passes from seller to the buyer immediately on entering the agreement.
3. Right to Disposal: Under hire purchase system; the buyer cannot sell, destroy,
transfer, damage or pledge the goods; but under Installment purchase system the
buyer can do all these things.

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4. Return of goods: Under hire purchase agreement, goods can be returned if the
buyer does not wait to pay rest of the installments; but under installment
purchase, goods cannot be returned by buyer to the seller unless there is some
default on the part of the seller.
5. Rights of seller: Under hire purchase system, the seller can repossess the goods if
the buyer makes default in the payment of any installment but under installment
purchase system, the seller can sue in the court of law for price if the buyer makes
default in payment of any installment.

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