PAPER - 6 : FINANCIAL ACCOUNTING

SUGGESTED ANSWERS
SECTION – A
1.
(i) (B)
(ii) (A)
(iii) (A)
(iv) (A)
(v) (B)
(vi) (C)
(vii) (C)
(viii) (A)
(ix) (D)
(x) (A)
(xi) (B)
(xii) (A)
(xiii) (B)
(xiv) (C)
(xv) (C)

SECTION - B
2. (a)
(i) Total depreciation to be charged in the Profit and Loss Account = D 2,92,000
(ii) Profit or loss on exchange of machine = D 55,000
(iii) Book value of machinery in Balance Sheet as on 31.03.2023 = D 16,33,000

2. (b)
JOURNAL OF RAJESH BROTHERS
Dr. Cr.
(D) (D)
25.04.23 P & L Adjustment A/c Dr 4,500
To Suspense A/c 4,500
25.04.23 Customer’s A/c Dr 12,200
To Suspense A/c 12,200
25.04.23 Machinery A/c Dr 46,250
To P & L Adjustment A/c 46,250
25.04.23 P & L Adjustment A/c Dr 10,000
To Suspense A/c 10,000
25.04.23 P & L Adjustment A/c Dr 31,750
To Capital A/c 31,750
(All Journal entries to be supported by appropriate narration)
Suspense A/c
Date Particulars Amount Date Particulars Amount
(D) (D)
01.04.23 To Balance b/d 26,700 25.04.23 By P & L Adjustment A/c 4,500
25.04.23 By Customer’s A/c 12,200
25.04.23 By P & L Adjustment A/c 10,000
26,700 26,700

1
3. (a)
Books of Kush
Consignment Account
Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Goods Sent on Consignment A/c 96,00,000 By Jatin 1,12,70,000
To Bank A/c (Freight & Insurance) 96,000 By Loss in Transit A/c 2,42,400
To Jatin – Clearance Exp. 31,200 By Consignment Stock a/c 12,16,000
To Jatin – Selling Exp 5,10,000
To Jatin – (Commission) 6,90,125
To Profit & Loss A/c 18,01,075
1,27,28,400 1,27,28,400

Jatin’s Account
Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Consignment A/c 1,12,70,000 By Consignment A/c - Clearance 31,200
By Consignment A/c – Selling Exp 5,10,000
By Consignment A/c – Commission 6,90,125
By Bank A/c 1,00,38,675
1,12,70,000 1,12,70,000

Loss In Transit Account

Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Consignment A/c 2,42,400 By Bank – Insurance Claim 1,85,000
By Profit & Loss A/c 57,400
2,42,400 2,42,400

Alternatively:
In the Book of Kush
Consignment Account
Dr Cr
Particulars (D) Particulars (D)
To, Goods Sent on Consignment A/c 1,20,00,000 By, Goods sent on Consignment A/c 24,00,000
To, Bank A/c
- Freight and Insurance 96,000
To, Jatin A/c By, Jatin A/c 1,12,70,000
- Clearing Exp. 31,200 By, Loss in Transit A/c ( 10
To, Jatin A/c Machines)
- Selling Exp. 5,10,000 2,42,400
To, Jatin A/c 6,90,125 By, Consignment Stock A/c 15,16,000
To, Stock Reserve A/c 3,00,000
To, P /L A /c 18,01,075
1,54,28,400 1,54,28,400

2
3. (b)
Interest paid with each instalment
Opening Payment Payment Closing
Year Balance of Instalment towards towards Balance of
Cash Price Cash Price Interest Cash Price
D D D D D
01.01.21 4,50,000 90,000 90,000 0 3,60,000
31.12.21 3,60,000 1,70,000 1,34,000 36,000 2,26,000
31.12.22 2,26,000 1,50,000 1,27,400 22,600 98,600
31.12.23 98,600 1,08,460 98,600 9,860 0

4.
Statement Showing Profit or Loss for the year ended 31st March 2023
Amount
Particulars
(D)
Capital at the end of the year as per Statement of Affairs 11,89,600
Add: Drawings During the year 2022-23 3,00,000
Less: Fresh Capital introduced on 01.10.2022 (65,000)
Adjusted Capital 14,24,600
Less: Capital At the beginning of the year as per Statement of Affairs (8,10,000)
Profit before charging interest and capital and Manager’s Commission 6,14,600
Less: Interest on Capital (81,000)
Profit before charging manager’s commission 5,33,600
Less: Manager’s Commission (48,509)
Net Profit 4,85,091

5.
(a) Value of goodwill = D 9,36,000

Treatment of Goodwill
Dr. Cr.
D D
X’s Capital A/c Dr 1,17,000
Z’s Capital A/c Dr 1,95,000
To Y’s Capital A/c 3,12,000

(b) Profit on revaluation of asset and liability = D 1,65,000

Adjustment of Profit on Revaluation among the Partners:

Total X Y Z
(D) (D) (D) (D)
Profit credited to all partners (3:2:1) 1,65,000 82,500 55,000 27,500
Reverse debited to X and Z (5:3) (1,65,000) (1,03,125) 0 (61,875)
Net adjustment 20,625 55,000 34,375
(Dr) (Cr) (Dr)

(c) Balance of partners’ capital accounts after Y’s retirement

X (D) Z (D)
Partners’ capital after Y’s retirement 11,18,625 7,64,375

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 (d) Firm’s Balance Sheet after retirement of Y
Amount Amount
Liabilities Assets
(D) (D)
Capital A/cs Land & Building 7,80,000
X 11,18,625 Furniture 4,20,000
Z 7,64,375 Stock in trade. 3,15,000
General Reserve 5,10,000 Investments 3,75,000
Creditors 4,25,000 Debtors 8,70,000
Bills Payable 1,35,000 Less: Prov for Bad debt 30,000 8,40,000
Bills Receivable 1,65,000
Cash at Bank 41,000
Cash in Hand 17,000
29,53,000 29,53,000

6. (a)
Books of Ranu Stores (Head Office)
Branch Stock Account
Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Balance b/d 1,20,000 By Goods Sent to Branch (Returns) 24,000
To Goods Sent to Branch A/c 18,00,000 By Bank/ Cash A/c 72,000
To Branch Debtors A/c (Returns) 12,000 By Branch Debtors A/c 16,32,000
By Branch Adjustment A/c (Short) 4,800
By Balance c/d 1,99,200
19,32,000 19,32,000

Branch Debtors Account

Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Balance b/d 43,200 By Branch Stock A/c 12,000
To Branch Stock A/c 16,32,000 By Bank/ Cash A/c 15,60,000
By Branch Expenses A/c - discount 12,000
By Branch Expenses A/c - bad debt 2,400
By Balance c/d 88,800
16,75,200 16,75,200

Goods Sent to Branch Account

Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Branch Stock A/c 24,000 By Branch Stock A/c 18,00,000
To Branch Adjustment A/c 5,92,000
To Trading A/c 11,84,000
18,00,000 18,00,000

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 Branch Expenses Account
Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Branch Debtors A/c (Discount) 12,000 By Branch Adjustment A/c 1,40,600
To Branch Debtors A/c (Bad debts) 2,400
To Bank / Cash A/c 1,26,200
1,40,600 1,40,600

Branch Adjustment Account

Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Branch Expenses A/c 1,40,600 By Stock Reserve A/c (open) 40,000
To Branch Stock A/c (Shortage) 4,800 By Goods Sent to Branch A/c 5,92,000
To Stock Reserve A/c (Closing) 66,400
To Profit and Loss A/c 4,20,200
6,32,000 6,32,000

Branch Stock Reserve Account

Dr Cr
Amount Amount
Particulars Particulars
(D) (D)
To Branch Adjustment A/c 40,000 By Balance b/d 40,000
To Balance c/d 66,400 By Branch Adjustment A/c 66,400

1,06,400 1,06,400

6. (b)
Total Loss = D 1,73,500
Amount of Net Claim = D 1,38,800

7. (a)
As per AS 1 any change in the accounting policies which has a material effect in the current period or which is
reasonable expected to have a material effect in later periods should be disclosed. In the case of a change in
accounting policies which has a material effect in the current period, the amount by which any item in the financial
statement is affected by such change should also be disclosed to the extent ascertainable. Where such amount is
ascertainable, wholly or in part the fact should be indicated. Accordingly, the note of accounting should properly
disclose in the change and its effect.

Notes to accounts
(i) During the year inventory has been valued at factory cost against the practise of valuing it at prime cost as
was the practise till last year. This has been done to take cognizance of the more capital-intensive method
of production because of heavy capital expenditure during the year. As a result the year-end inventory has
been valued at D 75 Crores, in place of D 45 crores, thereby the profit for the year is increased by D 30
crores i.e. D 75 crores – D 45 crores

5
 (ii) So far, the company has been providing 2% of sales for meeting after selling expenditure during the
warranty period. The improved method of production the probability of defect occurring in the product
has been reduced considerably. Hence the company has decided not to make provision for such expenses
but to account for the same as and when expenses are incurred. Due to this change the profit for the year
is increased by rupees 18 crores i.e. 2% of rupees 900 crore then would have been the case if the old
policy were to be continue.
(iii) The company has decided to provide D 15 crore for the permanent fall in the value of investment which
has taken place over the period of past five years the provision so made has reduced the profit disclosed in
the accounts by D 15 crore.

7. (b)
Objective of Accounting Standard (AS) 10
The objective of the standard is to prescribe the accounting treatment for property, plant and equipment. So that
user of the financial statements can discern information about investment made by an enterprise in its property,
plant and equipment and the change in such investment the principal issue in the accounting for property, plant
and equipment are the recognition of the assets the determination of their carrying amount and the depreciation
charges and impairment losses to be recognised in relation to them.
Bearer Plant is a plant that.
(a) Is used in the production or supply of agricultural produce:
(b) Is expected to be a produce for more than a period of 12 months; and
(c) Has a remote likelihood of being sold as agricultural produce except for incidental scrap sale?
The following are not bearer plants:
(i) Plant cultivated to be harvested as a agricultural produce;
(ii) Plant cultivated to produce agricultural produce when there is more than a remote likelihood that the
entity will also harvest and sell the plant as agricultural produce other than a incidental scrap sale;
(iii) Annual crops: When bearer plant are no longer used to bear produce they might be cut down and sold as a
scrap. Once an item of property, plant and equipment qualifies for recognition as an asset it will be
initially measured at cost.

8. (a)
As per AS 12 Provisions relating to presentation of Government Grants in Financial Statements’ are as
under:
1. Presentation of Grant Related to Specific Fixed Assets:
The primary condition of government grants related to specific fixed asset is that an enterprise qualifying
for them should purchase construct or otherwise acquire such assets. Other condition may also be
attached restricting the type or location of the assets or the period during which they are to be acquired or
held.

2. Two methods of presentation of Grants (or the appropriate portions of grants) related to specific fixed
assets are regarded as acceptable alternatives:
i. First method: The grant is shown as deduction from the gross value of the asset concerned in arriving at
its book value. The grant is thus recognised in the profit and loss statement over the useful life of a
depreciable asset by way of a reduced depreciation. Where the whole or virtually the whole of the cost of
the assets the asset is shown in the balance sheet at a nominal value.
ii. Second method: Grants related to depreciable assets are credited as deferred income which is recognised
in the profit and loss statement on systematic and rational basis over the useful life of asset. Such
allocation to income is usually made over the period and in the proportions in which depreciation on
related asset is charged.
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 3. Grants related to non-depreciable assets are credited to capital reserve as there is usually no charge to
income in respect of such assets, however if a grant related to a non-depreciable asset requires the
fulfilment of certain obligations, the grant is credited to income over the same period over which the cost
of meeting such obligations is charged to income. The deferred income is suitably disclosed in the
balance sheet pending its apportionment to profit and loss account.

4. Presentation of Grants related to Revenue: Grants related to revenue are sometimes presented as a credit
in the profit and loss statement, either separately or under a general heading such as Other Income.
Alternatively, they are deducted in reporting the related expenses.

5. Presentation of Grants of the nature of Promoters’ contribution: Where the Government grants are of the
nature of promoter’s contribution, and no payment is ordinarily expected in respect thereof, the grants are
treated as capital reserve which can be neither distributed as dividend nor consider as deferred income

8. (b)
In the Book of __________
Bad Debt Account
Amount Amount
Date Particulars Date Particulars
(D) (D)
30.09.23 To Sundry Debtors 3,000 31.12.23 By Provision for Doubtful 3,800
Debt A/c
31.12.23 To X’s A/c 800
3,800 3,800

Provision for Doubtful Debts A/c

Amount Amount
Date Particulars Date Particulars
(D) (D)
31.12.23 To Bad Debts 3,800 01.01.23 By Balance b/d 5,000
31.12.23 To Balance c/d 3,920 31.12.23 By Profit & Loss A/c 2,720
7,720 7,720

Profit & Loss A/c (Extract)

For the year ended 31-12-2023
Amount Amount
Particulars Particulars
(D) (D)
To Bad Debts 3,800 By Bad Debts Recovery A/c 400
By Provision for Bad Debts – Existing 5,000
Less Provision required 3,920 1,080

Balance Sheet (Extract)

As at 31-12-2023
Amount Amount Amount
Liabilities Assets
(D) (D) (D)
Sundry Debtors 40,000
Less Bad Debts 800
39,200
Less Provision for bad Debts 3,920 35,280

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8. (c)
Piecemeal distribution
Till now, the decision was based on the implicit assumption that all assets were realised, and settlement was done
on the same date. In fact, on the dissolution of partnership assets are sometimes realised gradually over a period. In
such a case, it may be agreeing that the different parties are to be paid in order of preference as and when assets
are realised without unnecessary waiting for the final realisation of all the assets.
The Order of payment will be as follows:
1. Realisation expenses
2. For provision for expenses that are to be made
3. Preferential Creditor say Income Tax, or any payment made to the government
4. Secured creditor up to the amount realised from the disposal of assets by which they are secured and for
the balance, if any, to be paid to unsecured creditor.
5. Unsecured creditor- In proportion to the amount of debts, if more than one creditor
6. Partners’ Loan – if there is more than one partner – in that case, in proportion to the amount of loan.
7. Partners’ Capital – the order of payment may be made by any one of the following two methods.
a) Surplus Capital Method / Proportionate Capital Method / Highest relative Capital Method
b) Maximum possible loss method.

________________________

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 PAPER-6 : FINANCIAL ACCOUNTING

SUGGESTED ANSWERS

SECTION – A

1.

(i) (B)
(ii) (D)
(iii) (C)
(iv) (B)
(v) (C)
(vi) (C)
(vii) (D)
(viii) (D)
(ix) (B)
(x) (A)
(xi) (B)
(xii) (B)
(xiii) (C)
(xiv) (D)
(xv) (B)

SECTION – B

2. (a)

(I) In the books of Sachin Chatterjee

Cash Book (Bank Column)
Dr. Cash Book(Bank Column) Cr.

Date Particulars D Date Particulars D

30.9.23 To Dividend A/c 150 30.9.23 By Balance b/d 400

To Bank Interest A/c 170 By Bank charges 50
To Error A/c 80 By Over casting error 20
110
To Balance c/d By Party A/c 40

510 510

(II) Bank Reconciliation Statement as on 30.9.23

Particulars D D

Overdraft balance as per Amended Cash Book 110

Less: Cheque issued but not presented 500
Less: Cancelled cheque issued 50 550
Balance as per Pass Book 440

1
2. (b)

Trial Balance as at 31.3.23

Dr. Cr.
Particulars D D
Purchases 43500
Carriage inward 1000
Wages 7000
Salaries 12000
Rent Rates and taxes 1800
Insurance 1200
Interest Paid 1000
Sales 94500
Cash and Bank 21500
Bills Payable 5800
Sundry creditors 35000
Plant and machinery 9000
Buildings 4750
Furniture 2700
Bills receivable 10000
Sundry Debtors 39000
Capital 66000
Sundry expenses 3000
Opening stock 21000
Outstanding salaries 2000
Outstanding wages 1000
Drawings 3500
Prepaid Insurance 300
Bad-Debts 2450
Provision for bad debts 1950
Depreciation 1550
Closing stock 20000
Total 206250 206250

3. (a)
In the books of H
Journal
Dr. Cr.
Date Particulars D D
1.7.2023 G’s A/c Dr. 80000
To Bills payable A/c 80000
1.9.2023 J’s A/c Dr. 90000
To sales A/c (Sales made to J) 90000
Bills receivable A/c Dr. 80000
Bank A/c Dr. 9000
Discount A/c Dr. 1000
To J’s A/c 90000
Bills payable A/c Dr. 80000
To Bills receivable A/c 80000
Purchased A/c Dr. 100000
10.1.2023
To G’s A/c 100000
G’s A/c Dr. 20000
To bank A/c 20000
2
3. (b)

(I) The annual lease payment = D 577074

(II) The Unearned Finance Income = D 558296

4.
Trading and Profit and Loss Account For The Year ended 31st March 2023
Dr. Cr.
Particulars D Particulars D
To Opening Stock 49,000 By Sales 3,49,000
To Purchase 2,41,000 By Closing Stock 66,000
To Gross Profit c/d 1,25,000
4,15,000 4,15,000
To Salaries 60,000 By Gross Profit b/d 1,25,000
To Rent 7,500 By Discount received 3,500
To Office Expenses 9,000
To Discount allowed 1,500
To Bad Debts 1,000
To Net Profit 49,500
1,28,500 1,28,500

Balance Sheet As at 31st March 2023

Liabilities D Assets D
Capital 183,500 Cash 10,000
Creditors 25,000 Debtors 1,25,000
Stock 66,000
Furniture 7,500
208,500 208,500

5. (a)
(I) Net Asset as on 30th June, 2023 = D 9,70,000
(II) Net Profit earned during the period from 1/1/2023 to 30/6/2023 = D 13,60,000
(III)
Realisation Account
Dr. Cr.
To Plant and Machinery 1,71,000 By Bank Loan 20,000
To Leasehold Building 76,000 By Sundry Creditors 55,000
To Furniture 19,000 By Bills Payables 7,500
To Stock 7,09, 000 By …..Ltd. Company 4,00,000
To Sundry debtors 75,000 By Loss on Realisation
To Cash at Bank 2,500 A”s Capital 2,85,000
B”s Capital 2,85,000 5,70,000
10,52,500 10,52,500

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(IV) Partner's Capital Account
Dr. Cr.
A(D) B(D) A(D) B(D)
To Loss on Realisation 2,85,000 2,85,000 By Balance C/d 1,38,000 1,52,000
To Drawings 3,40,000 3,40,000 By Add/Less (+) 7,000 (-) 7,000
To Equity Shares in Cash brought in by B to
Ltd.Co. 2,00,000 2,00,000 Pay to A to settle the difference

By Net Profit for the Period 6,80,000 6,80,000

8,25,000 8,25,000 8,25,000 8,25,000

6. (a)
Profit made at H.O. = D 21,44,000
Profit made at Branch = D 1,40,000

6. (b)
Amount of the claim of loss by fire = D 90,008.60 or 90,009

7. (a)
Paragraph 7 of AS 10 states that the cost of an item of property, plant and equipment shall be recognised as an
asset if, and only if:
(a) it is probable that future economic benefits associated with the item will flow to the entity; and
(b) the cost of the item can be measured reliably.
measure for recognition, i.e., what constitutes an item of property, plant and Further, paragraph 9
provides that the standard does not prescribe the unit of equipment. Thus, judgment is required in
applying the recognition criteria to an entity's specific circumstances.
Paragraph 17, inter alia, states that the cost of an item of property, plant and equipment comprise any
costs directly attributable to bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
In the given case, railway siding, road and bridge are required to facilitate the construction of the
refinery and for its operations. Expenditure on these items is required to be incurred in order to get
future economic benefits from the project as a whole which can be considered as the unit of measure for
the purpose of capitalisation of the said expenditure even though the company cannot restrict the access
of others for using the assets individually. It is apparent that the aforesaid expenditure is directly
attributable to bringing the asset to the location and condition necessary for it to be capable of operating
in the manner intended by management.
In view of this, even though ABC Ltd. may not be able to recognize expenditure incurred on these assets
as an individual item of property, plant and equipment in many cases (where it cannot restrict others
from using the asset), expenditure incurred may be capitalized as a part of overall cost of the project.
From this, it can be concluded that, in the extant case the expenditure incurred on these assets, i.e.,
railway siding, road and bridge, should be considered as the cost of constructing the refinery and
accordingly, expenditure incurred on these items should be allocated and capitalized as part of the items
of property, plant and equipment of the refinery.

Depreciation
As per paragraph 45 and 47 of AS 10, if these assets have a useful life which is different from the useful life of
the item of property, plant and equipment to which they relate, it should be depreciated separately. However, if

4
these assets have a useful life and the depreciation method that are the same as the useful life and the
depreciation method of the item of property, plant and equipment to which they relate, these assets may be
grouped in determining the depreciation charge. Nevertheless, if it has been included in the cost of property,
plant and equipment as a directly attributable cost, it will be depreciated over the useful lives of the said
property, plant and equipment.
The useful lives of these assets should not exceed that of the asset to which it relates.
Presentation
These assets should be presented within the class of asset to which they relate.

7. (b)
ABC Ltd. should recognise the grants in the following manner:
● As per para 6.4 of AS 12, in certain circumstances, a government grant is awarded for the purpose of
giving immediate financial support to an enterprise rather than as an incentive to undertake specific
expenditure. Such grants may be confined to an individual enterprise and may not be available to a
whole class of enterprises. These circumstances may warrant taking the grant

To income in the period in which the enterprise qualifies to receive it, as an Prior Period Items and
Changes in Accounting Policies). Therefore, 20 lakhs has been received for immediate start-up of
business. This should be recognised in the statement of Profit and Loss immediately as there are no
conditions attached to the grant.

● As per para 9.1, grants related to revenue are sometimes presented as a credit in the profit and loss
statement, either separately or under a general heading such as 'Other Income'. Alternatively, they are
deducted in reporting the related expense. 50 lakhs should be recognised in profit or loss on a systematic
basis over the periods which the entity recognises as expense the related costs for which the grants are
intended to compensate provided that there is reasonable assurance that ABC Ltd. will comply with the
conditions attached to the grant.

● As per para 7.1, government grants may take the form of non-monetary assets, such as land or other
resources, given at concessional rates. In these circumstances, it is usual to account for such assets at
their acquisition cost. Non-monetary assets given free of cost are recorded at a nominal value.
Accordingly, land should be recognised at nominal value in the balance sheet.

● The standard provides the option to treat the grant either as a deduction from the gross value of the asset
or to treat it as deferred income as per para 8.3 and 8.4 of the standard. Under the first method, the grant
is shown as a deduction from the gross value of the asset concerned in arriving at its book value. The
grant is thus recognised in the profit and loss statement over the useful life of a depreciable asset by way
of a reduced depreciation charge. Accordingly, the grant of 2 lakhs is deducted from the cost of the
machinery. Machinery will be recognised in the books at Rs.10 lakhs - Rs.2 lakhs = 8 lakhs and
depreciation will be charged on it as follows:
Rs. 8 lakhs/5 years = 1.60 lakhs per year.

Under the second method, grants related to depreciable assets are treated as deferred income which is
recognised in the profit and loss statement on a systematic and rational basis over the useful life of the asset.
Such allocation depreciation on related assets is charged. Income is usually made over the periods and in the
proportions in which depreciation on related assets is charged.

Rs.2 lakhs should be recognised as deferred income and will be transferred to profit and loss over the useful life
of the asset. In this cases, 40,000 [2 lakhs / 5 years] should be credited to profit and loss each year over the
period of 5 years.
5
8. (a)
(i) Interest = D 3000
It is treated as a charge against profits and is debited to a profit and loss account
(ii) Net profit = D 137700
(iii) Divisible profit = D 97700
(iv) Each partner’s share of profit = D 48850

8. (b)

(i) According to the Convention of Full Disclosure, all significant information relating to the economic
affairs of the entity should be reported in the financial statements in an understandable manner.
(ii) According to the Convention of Consistency, accounting practices once selected and adopted should
be consistently applied year after year.
(iii) According to the Convention of Materiality, a transaction should be reported in the financial
statements on the basis of its materiality. An item is material if it can influence the decision of the
user.
(iv) According to the Convention of Conservatism, anticipated losses should be accounted for while
anticipated incomes should not be accounted.

8. (c)
Factors governing the selection and application of accounting policies are:
Prudence: Generally maker of financial statement has to face uncertainties at the time of preparation of
financial statement. These uncertainties may be regarding collectability of receivables, number of warranty
claims that may occur. Prudence means making of estimates, which is required under conditions of uncertainty.

Substance over form: it means that transaction should be accounted for in accordance with actual happening
and economic reality of the transactions not by its legal form. Like in hire purchaser if the assets are purchased
on hire purchase by the hire purchaser the assets are shown in the books of hire purchaser in spite of the fact
that the hire purchaser is not the legal owner of the assets purchased. Under the purchase the purchaser,
becomes the owner only on the payment of last instalment. Therefore the legal form the transaction is ignored
and the transaction is accounted as per as substance.

Materiality: Financial Statement should disclose all the items and facts which are sufficient enough to
influence the decisions of reader or/user of financial statement.
(a) As to the disclosure of all material items, individually or in aggregate in the context of fair presentation of
financial statements as a whole if its omission or misstatement could influence the economic or financial
decision of the user relying upon the financial statements.
(b) Depends on the size of the items or errors judged in the particular circumstances of its omissions or
misstatements.
(c) Is a cut-off point rather than being a primary qualitative characteristic which information must have.
(d) This is a matter of judgment, varies from one entity to another and over one period to another.

____________________

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

I. Choose the correct option: [15 x 2 = 30]

(i) At the end of the accounting year the capital expenditures are shown in the:
a. assets side of the Balance Sheet.
b. liabilities side of the Balance Sheet
c. debit side of the Profit and Loss A/c.
d. credit side of the Profit and Loss A/c

(ii) Memorandum Joint Venture Account is prepared when

a. the separate set of books is maintained for Joint Venture
b. each Co-venture keeps records of all transactions.
c. each Co-venture keeps records of their own transactions only.
d. All of the above cases

(iii) On 1.1.2024 Mr. X took delivery from Mr. Y of 5 machines on a hire purchase system.
₹ 4,000 being paid on delivery and the balance in five instalments of ₹ 6,000 each, payable
annually on 31st December. The vendor company charges 5% interest p.a. on yearly
balances. The cash price of 5 machines was ₹ 30,000. Calculate the interest per annum
_____________.
a. ₹ 4000
b. ₹. 3000
c. ₹. 2000
d. None of Above

(iv) In Hire Purchase system cash price plus interest is known as _________________.
a. Capital value of asset
b. Book value of asset
c. Hire purchase price of asset
d. Hire purchase charges

(v) Which of the following is true in respect of the pro-forma invoice?

a. It is a document sent by the consignor to the consignee
b. Only the details of the goods returned are recorded in this document.
c. It acts as an evidence of the remittance of money on consignment basis.
d. None of the above

(vi) Income & Expenditure A/c shows subscriptions ₹ 8,20,000; Subscriptions accrued in the
beginning of the year and at the end of the year were ₹ 74,000 and subscription received
in advance at the end of the year was ₹ 96,000. The figure of subscription received that
would appear in Receipts & Payments A/c will be:

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
a. ₹ 798,000
b. ₹ 6,50,000
c. ₹ 9,50,000
d. ₹ 8,42,000

(vii) The Sacrifice ratio is used at the time of?

a. Admission of a partner
b. Retirement of a partner
c. Death of a partner
d. Dissolution of a partner

(viii) A and B are partners sharing profit an d losses in the ratio of 3: 2. C is coming as a new
partner for 1/5th share of future profit. Calculate sacrificing ratio.
a. 3:2
b. 8:5
c. 2:3
d. 5:3

(ix) The Full form of GAAP?

a. Generally Accepted Accounting Principles
b. Generally Accepted Accountancy Principles
c. Globally Accepted Accounting Principle
d. Global Accounting Accepted Principles

(x) From the following details estimate the capital as on 31.03.2024, Capital as on 01.04.2023₹
4,10,000. Drawings ₹ 40,000, Profit during the year ₹ 50,000
a. ₹ 4,10,000
b. ₹ 4,50,000
c. ₹ 4,20,000
d. ₹ 4,00,000

(xi) As on 31st March, 2024 debtors and additional bad debts are ₹ 8,00,000 and ₹ 10,000
respectively. If the provision for bad debts is made at 5% on debtors, then amount of such
provision will be________________.
a. ₹ 40,000
b. ₹ 50,000
c. ₹ 39,500
d. ₹ 40,500

(xii) Which of the following is not a feature of Trial Balance?

a. It is a list of debit and credit balances which are extracted from various ledger
accounts.
b. It does not prove arithmetical accuracy which can be determined by audit;
c. It is not an account. It is only a statement of account;
d. All the transactions are primarily recorded in this book; hence it is the primary
book of entry.

(xiii) In a Cash Book Debit balance of ₹112 brought forward as credit balance of ₹121, while
preparing a Bank Reconciliation Statement taking the balance as per Cash Book as the
starting point:
a. ₹112 to be added

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
b. ₹121 to be added
c. ₹ 233 to be added
d. ₹112 to be subtracted

(xiv) Purchase of a laptop for office use wrongly debited to Purchase Account. It is an error of.
a. Omission
b. Commission
c. Principle
d. Misposting

(xv) Shiva draws a bill on Sanat on 25th October, 2023 for 90 days, the maturity date of the
bill will be.
a. 27th January, 2024
b. 26th January, 2024
c. 25th January, 2024
d. 28th January, 2024

Answer:
1.

i ii iii iv v vi vii viii ix x

a c a c a a a a a c
xi xii xiii xiv xv
c b c c c

Section – B

(Answer any five questions out of seven questions given. Each question carries 14 Marks)

[5 x 14 = 70]

2. (a) On 1st April, 2021, Som Ltd. purchased a machine for ₹66,000 and spent ₹5,000 on
shipping and forwarding charges, ₹7,000 as import duty, ₹1,000 for carriage and
installation, ₹500 as brokerage and ₹500 for an iron pad. It was estimated that the
machine will have a scrap value of ₹ 5,000 at the end of its useful life which is 15
years. On 1st January, 2022 repairs and renewals of ₹3,000 were carried out. On 1st
October, 2023 this machine was sold for ₹50,000. Prepare Machinery Account for
the 3 years. [7]

(b) The Trial Balance of a concern has agreed but the following mistakes were
discovered after the preparation of final Accounts.
(i) No adjustment entry was passed for an amount of ₹2,000 relating to outstanding
rent.
(ii) Purchase book was overcast by ₹1,000.
(iii) ₹ 4,000 depreciation of Machinery has been omitted to be recorded in the book.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
(iv)₹600 paid for purchase of stationary has been debited to Purchase A/c.
(v) Sales books was overcast by₹ 1,000.
(vi)₹ 5,000 received in respect of Book Debt had been credited to Sales A/c.
Show the effect of the above errors in Profit and Loss Account & Balance Sheet.
[7]
Answer:
2.(a)

In the books of Som Ltd.

Machinery Account
Dr. Cr.

Date Particulars Amount (₹) Date Particulars Amount (₹)

01.04.2021 To, Bank A/c 66,000 31.03.2022 By, Depreciation A/c 5,000
To, Bank A/c 14,000 By, Balance c/d 75,000
80,000 80,000

01.04.2022 To, Balance b/d 75,000 31.03.2023 By, Depreciation A/c 5,000
By, Balance c/d 70,000
75,000 75,000

By, Depreciation A/c 2,500

01.04.2023 To, Balance b/d 70,000 01.10.2023 By, Bank A/c (sale) 50,000
By, Profit & Loss A/c (Loss) 17,500
70,000 70,000

Working Note:
1.Total Cost = ₹66,000 + ₹ 5,000 + ₹ 7,000 + ₹ 1,000 + ₹ 500 + ₹500 = ₹80,000

2. Depreciation = Total Cost - Scrap Value / Expected life ==₹80,000 - ₹5,000 / 15=₹5,000

The amount spent on repairs and renewals on 1st January, 2022 is of revenue nature and hence,
does not form part of the cost of asset.

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
2.(b)
Effects of the errors in profit and loss A/c and Balance Sheet

Profit & Loss A/c Balance Sheet

(a) Profit was overstated by ₹2,000 (a) Capital was also overstated by ₹2,000&
(b) Gross profit was under stated by ₹1,000 & outstanding Liability was understated by
also the Net Profit. ₹2,000.
(c) Net Profit was overstated by ₹4,000. (b) Capital was understated by ₹1,000.
(d) No effect on Net Profit. (c) Machinery was overstated by ` 4,000 & so
the Capital A/c was also overstated by
(e) Gross Profit and Net Profit were overstated by
₹4,000.
₹1,000.
(d) No effect in Balance Sheet.
(f) Gross Profit & Net Profit were overstated by
₹5,000. (e) Capital was overstated by ₹1,000.
(f) Capital & Sundry Debtors were overstated by
₹5,000.
Adjusting Entry: Adjusting Entries are passed in the journal to bring into the books of accounts certain
unrecorded items like closing stock, depreciation on fixed assets, etc. These are needed at the time of
preparing the final accounts.
E.g. Depreciation A/c Dr.
To, Fixed Assets A/c

3.(a) X draws a bill for ₹ 1,200 and Y accepts the same for mutual accommodation in
the ratio of 4:2. X discounts the bill for ₹ 1,110 and remits 1/3rd of the proceeds to
B.
Before the due date, Y draws another bill for ₹ 1,800 on X in order to provide funds
to meet the first bill. The second bill is discounted for ₹ 1,740 by Y and a sum of
₹ 360 is remitted to X after meeting the first bill. The second bill is duly met. Show
journal entries in the books of both X and Y.
[7]

3.(b) ER Logistics acquired a delivery van on hire purchase on 01.04.2023 from Mahavir
Enterprises. The terms were as follows:
Particulars Amount (₹)
Hire Purchase Price 180,000
Down Payment 30,000
1st instalment payable after 1 year 50,000
2nd instalment after 2 years 50,000
3rd instalment after 3 years 30,000
4th instalment after 4 years 20,000
Cash price of van ₹1,50,000. You are required to calculate Total Interest and Interest
included in each instalment. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Answer:

3.(a)
In the books of X
Journal
Date Particulars L.F. Dr. (₹) Cr. (₹)

Bills Receivable A/c Dr. 1,200

To, Y A/c 1,200
(Being on 1st bill drawn on Y for mutual accommodation)

Bank A/c Dr. 1,110

Discount on Bills A/c Dr. 90
To, Bills Receivable A/c
(Being the bill discounted with the banker for ₹1,110) 1,200
1 400
Y A/c ₹ 1,200 × Dr.
3 370
To, Bank A/c
1 30
To, Discount on Bills A/c ₹ 90 ×
3
(Being 1/3rd of the proceeds remitted to Y – the loss
on discount shared proportionately)
Y A/c Dr. 1,800
To, Bills Payable A/c 1,800
(Being the bill drawn on X by Y)

Bank A/c Dr. 360

Discount on Bills A/c Dr. 40
1
To, Y A/c ₹ 1,200 ×
3
(Being the net amount remitted to X by Y) 400
Bank A/c Dr. 600
To, Y A/c
600
(Being the balance amount of the 2nd bill remitted by Y)

Bills Payable A/c Dr. 1,800

To, Bank A/c 1,800
(Being the 2nd bill honoured at maturity)
In the books of Y
Journal
Date Particulars L.F. Dr. (₹ ) Cr. (₹ )

X A/c 1,200
1,200
To, Bills Payable A/c

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

(Being a bill drawn on Y by X for mutual

accommodation)

Bank A/c Dr. 370

Discount on Bills A/c 30
To, X A/c 400
(Being 1/3rd of the proceed received and the loss on disco
shared proportionately)

Bills Receivable A/c Dr. 1,800

To, X A/c 1,800
(Being the bill drawn on X)

Bank A/c Dr. 1,740

Discount on Bills A/c (Bal. fig.) Dr. 60
To, Bills Receivable A/c
(Being the bill discounted with the banker for ₹ 1,740) 1,800
X A/c Dr. 400
To, Bank A/c 360
To, Discount on Bills A/c 40
(Being 1/3rd of the proceeds remitted to X – the loss on
discount shared proportionately)
Bills Payable A/c Dr. 1,200
To, Bank A/c 1,200
(Being the 1st bill honoured at maturity)

X A/c Dr. 600

To, Bank A/c 600
(Being the balance amount of the 2nd bill remitted to X)

Note: Before the due date of the 1st bill, X was to remit ₹ 800 to Y to enable him to honour
the bill. But X was not in a position to remit the required amount. He accepted a bill of ₹ 1800
drawn by Y. Y discounted the bill for ₹ 1,740 and remitted to X ₹ 360 after adjusting ₹ 800
in respect of the 1st bill. Therefore, X enjoyed (360+800) ₹ 1,160 out of ₹ 1,740. X’s share
of discount will be: ₹ 60/1,740 × ₹ 1,160 = ₹ 40

3. (b)

Calculation of total Interest and Interest included in each instalment

Hire Purchase Price (HPP) = Down Payment + instalments
= 30,000 + 50,000 + 50,000 + 30,000 + 20,000
= 1,80,000
Total Interest = 1,80,000 – 1,50,000 = 30,000
Computation of IRR (considering two guessed rates of 6% and 12%)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Year Cash Flow DF@ 6% PV DF@ 12% PV
0 30,000 1.00 30,000 1.00 30,000
1 50,000 0.94 47,000 0.89 44,500

2 50,000 0.89 44,500 0.80 40,000

3 30,000 0.84 25,200 0.71 21,300
4 20,000 0.79 15,800 0.64 12,800

Interest rate implicit on lease is computed below by interpolation:

1,62,500  1,50,000
Interest rate implicit on lease = 6% +  12  6 = 11.39%.
1,62500  1,48,600
Thus, repayment schedule and interest would be as under:

Installment Principal at Interest Gross Installment Principal at

no beginning included amount end
In each
installment
Cash down 1,50,000 1,50,000 30,000 1,20,000
1 1,20,000 13,668 1,33,668 50,000 83,668
2 83,668 9,530 93,198 50,000 43,198
3 43,198 4920 48,118 30,000 18,118.25
4 18,118.25 2063 20,182 20,000 182*
1. * the difference is on account of approximations.

4. X, a sole trader furnishes you with the following bank summary for the year ended
December 31, 2023

Particulars ₹ ₹
Balance on December 31, 2022 11,000
Add: Deposits: 1,25,000
Cash [out of cash sales] 3,50,000
Collection from Credit Customers 36,000
Income from Personal Investment
5,11,000
5,22,000
Deduct: Cash Withdrawn from:
Personal Drawings 20,000
Shop Expenses 40,000 60,000
4,62,000
Cheques issued to Suppliers of
Goods 3,50,000
Services 40,000
Cheques issued for Personal Purposes 55,000
Bank Charges 500 4,45,500

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Balance on December 31, 2023 16,500

X informs you that he had the following Assets and Liabilities in addition to the
Bank Balance described on December 31, the extracts of which are as under:

Asset & Liabilities 2023 2022

(₹) (₹)
Assets:
Cash Balance 7,000 4,000
Amounts due from Customers 37,000 27,500
Unsold Inventory at Cost 13,000 10,000
Prepaid Expenses 3,000 2,000

60,000 43,500
Liabilities:
Creditors for Goods 23,000 28,000
Creditors for Services 2,500 1,500

25,500 29,500

He also informs you that:

A. He uses 75% of cash sale proceeds for making cash purchases; the remaining
balance being deposited in Bank.

B. He had allowed cash discount of 5,000 to his credit customers for prompt
payment; he was allowed cash discount 7,000 by his suppliers of goods for
prompt payment.

C. Collections from credit customers and payments to suppliers of goods are

invariable by crossed cheques.
X ask you to show his capital account and prepare:
(i) Receipt and payment account for the year ended December 31, 2023
(ii) Trading and Profit & Loss account for the year ended December 31, 2023
(iii) Balance Sheet as on December 31, 2023 [14]

Answer:
Books of X
Receipt and Payment Accounts for the year ended Dec. 31, 2023
Receipts Amount Payments Amount
(₹) (₹)
To Opening Balance By Cash Purchases [WN:6] 3,75,000
Cash 4,000 By Payment to Suppliers 3,50,000
Bank 11,000 By Payments for Services:

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
To Cash Sales 5,00,000 Cash 37,000
To Collection from 3,50,000 Cheques 40,000
customers By Bank Charges 500
Capital Introduces: By Drawings [20,000 + 75,000
Income from Personal 36,000 55,000]
Investment By Closing Balance:
Cash 7,000
Bank 16,500

9,01,000 9,01,000

Dr Trading and Profit & Loss Accounts for the year ended Dec. 31, 2023 Cr.
Particulars Amount Amount Particulars Amount Amount
(₹) (₹) (₹) (₹)
To Opening 10,000 By Sales:
Stock Cash [WN:6] 5,00,000
To Purchases: Credit [WN:3] 3,64,500
3,75,000 8,64,500
Cash [WN:6]
3,52,000 7,27,000 By Closing Stock at Cost 13,000
Credit [WN:4]
To Gross Profit c/d
1,40,500
To Expenses [WN:5] 8,77,500 8,77,500
To Bank Charges 77,000 By Gross Profit b/d 1,40,500
To Discount 500 7,000
Allowed By Discount Received
5,000
To Capital A/c
[Net Profit 65,000
transferred]
1,47,500 1,47,500

Balance Sheet as on Dec. 31, 2023

Liabilities Amount Amount Liabilities Amount Amount

(₹) (₹) (₹) (₹)
Capital: 25,000 Inventory 13,000
Opening Capital [WN:1] 65,000 Customers 37,000
Add: Net Profit 36,000 Prepaid Expenses 3,000
Further Capital Bank 16,500
1,26,000 7,000
75,000 51,000 Cash

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

[income from personal 23,000

investment] 2,500
Less: Drawings [ 20,000 +
76,500 76,500
55,000]
Creditors for: Goods
:Services

Working Notes:
1. Capital balance on 1.1.2023
Balance Sheet as on 1.1.2023
Liabilities Amount Amount Liabilities Amount Amount
(₹) (₹) (₹) (₹)
Capital [Opening Capital: 25,000 Inventory 10,000
B/Fig.] Customers Prepaid 27,500
Creditors for: Expenses 2,000
Goods 28,000 Bank 11,000
Services 1,500 Cash 4,000
54,500 54,500

2.Expenses Paid during 2023

Dr. Cash Accounts Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
To Balance b/f 4,000 By Purchases A/c [WN:6] 3,75,000
To Sales A/c [WN:6] 5,00,000 By Bank A/c [Amount deposited] 1,25,000
To Bank A/c 40,000 By Expenses A/c [Expenses paid:
[Withdrawn from bank B/Fig.] 37,000
for shop expenses] By Balance c/f 7,000
5,44,000 5,44,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
3.Credit Sales during 2023
Dr. Customers’ Accounts Cr.

Date Particulars Amount Date Particulars Amount

₹ ₹
To Balance b/f 27,500 By Bank A/c 3,50,000
To Sales A/c [Credit Sales: 3,64,500 By Discount Allowed A/c 5,000
B/Fig.] By Balance c/f 37,000
3,92,000 3,92,000

4.Credit Purchases during 2023

Dr. Creditors Accounts Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
To Bank A/c 3,50,000 By Balance b/f 28,000
To Discount Received A/c 7,000 By Purchases A/c [Credit 3,52,000
To Balance c/f 23,000 purchases: B/Fig.]
3,80,000 3,80,000

5.Expenses to be transferred to Profit & Loss Accounts

Particulars Amount
₹
Expenses Paid: Cash [WN:2] 37,000
Cheque 40,000
77,000
Add: Prepaid Expenses on 31.12.2022 2,000
Outstanding Expenses on 31.12.2023 2,500
81,500
Less: Prepaid Expenses on 31.12.2023 3,000
78,500
.
Less: Outstanding Expenses on 31.12.2022 1,500
Expenses to be debited to Profit & Loss A/c 77,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
6. Cash Sales & Cash Purchases during 2023
75% of Cash Sale proceeds are used for Cash Purchases
25% Amount of Cash Sale proceeds deposited into Bank
Cash Sales = Cash deposited X 100/25 = 1,25,000 X 100/25 = 5,00,000
Cash Purchases = 75% of Cash Sale proceeds = 5,00,000 X 75% = 3,75,000

5. A partnership firm was dissolved on 30th June, 2024. Its Balance Sheet on the date of
dissolution was as follows:

Liabilities (₹) Assets (₹)

Capitals : Cash 5,400

Atrik 38,000 Sundry Assets 94,600
Mohit 24,000
Rupa 18,000
Loan A/c — Mohit 5,000
Sundry Creditors 15,000
1,00,000 1,00,000
The assets were realised in instalments and the payments were made on the proportionate
capital basis. Creditors were paid ₹ 14,500 in full settlement of their account. Expenses
of realisation were estimated to be ₹ 2,700 but actual amount spent on this account was
₹ 2,000. This amount was paid on 15th September. Draw up a Memorandum of
distribution of Cash, which was realised as follows:
On 5th July ₹ 12,600
On 30th August ₹ 30,000
On 15th September ₹ 40,000
The partners shared profits and losses in the ratio of 2: 2: 1. Give working notes. [14]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Answer:
Statement Showing the Distribution of Cash
(According to Proportionate Capital Method)
Creditors Mohit’s Atrik Mohit Rupa
Particulars Loan
(₹) (₹) (₹) (₹) (₹)
A Balance Due 15,000 5,000 38,000 24,000 18,000
B Cash Paid (₹5,400 – ₹ 2,700) 2,700 — — — —

C Balance Unpaid (A – B) 12,300 5,000 38,000 24,000 18,000

D 1st Instalment of ₹ 12,600 11,800 800 — — —

E Balance Unpaid (C – D) 500 4,200 38,000 24,000 18,000

F Less: Written-off 500
G 2nd Installment of ₹ 30,000 4,200 16,320 2,320 7,160
H Balance Unpaid (E – F -G) 21,680 21,680 10,840
I 3rd Installment (₹40,000 + ₹ 16,280 16,280 8,140
700)
J Unpaid Balance 5,400 5,400 2,700
(H – I) = Loss on Realisation

Working Notes:
(i) Statement showing the Calculation of Highest Relative Capitals
Atrik Mohit Rupa
Particulars
(₹) (₹) (₹)
A Actual Capitals 38,000 24,000 18,000
B Profit-Sharing Ratio 2 2 1
C Actual Capitals ÷ Profit Sharing Ratio 19,000 12,000 18,000
D Proportionate Capitals Taking Mohit’s Capital as Base 24,000 24,000 12,000
Capital
E Surplus Capital [A–D] 14,000 Nil 6,000
F Surplus Capital ÷ Profit Sharing Ratio 7,000 — 6,000
G Revised Proportionate Capitals Taking Rupa’s Capital 12,000 — 6,000
as the Basis
H Revised Surplus Capital (E – G) 2,000 — —

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

(ii) Distribution of Second Instalment of ₹ 30,000

Particulars Mohit’s
Atrik (₹) Mohit (₹) Rupa (₹)
Loan (₹)
First ₹ 4,200 4,200 — — —
Next ₹ 2,000 (Absolute Surplus) 2,000 — —
Next ₹ 18,000 (Balance of Surplus) 12,000 — 6,000
Balance ₹ 5,800 (2 : 2 : 1) 2,320 2,320 1,160

Total ₹ 30,000 4,200 16,320 2,320 7,160

6. (a) SS Textiles Ltd. have a branch in Auckland, New Zealand. The trail balance of the branch
as on 31.03.2023 was as given below:
Particulars Dr. (NZ $) Cr. (NZ $)
Head Office Account 18,000
Sales 1,20,000
Goods from the Head Office Account 90,000
Opening Stock 15,000
Office furniture 20,000
Cash 100
Bank 1,900
Expenses outstanding 2,000
Salaries 6,000
Taxes & Insurance 500
Rent 2,000
Debtors 4,500
1,40,000 1,40,000

The Branch Account in the head office showed a debit balance of ₹13,20,000 and ‘Goods
sent to Branch Accounts’ a credit balance of ₹80,00,000. Office furniture were acquired
in 2007 when NZ $1 = ₹80. The exchange rates were (NZ $1): January 1, 2023 - ₹ 88;
December 31, 2023 - ₹ 92; Average – ₹ 90. The stock at branch on December 31, 2023 was
valued at NZ $9,000. Convert the Branch Trial Balance into rupees and prepare the

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Branch Trading and Profit and Loss Account for 2023, and the Branch Account in Head
Office books. Depreciation is to be written off the office furniture @ 10%. [7]

Answer:

Auckland Branch Trial Balance as at December 31, 2023

Item Rate Dr. Cr. Dr. (₹) Cr. (₹)
(₹) (NZ $) (NZ $)
H.O. Account - 18,000 13,20,000

Sales 90 1,20,000 108,00,000

Goods from H.O. A/c - 90,000 80,00,000

Stock on Jan. 1, 2021 88 15,000 13,20,000

Office Furniture 80 20,000 16,00,000

Cash 92 100 9,200

Bank 92 1,900 1,74,800

Expenses outstanding 92 2,000 1,84,000

Salaries 90 6,000 5,40,000

Taxes & Insurance 90 500 45,000

Rent 90 2,000 1,80,000

Debtors 92 4,500 4,14,000

1,40,000 1,40,000 1,22,83,000 1,23,04,000

Difference in exchange 21,000

123,04,000 123,04,000

Closing stock 92 9,000 8,28,000

Auckland Branch Trading and Profit & Loss Account

Dr. for the year ended December 31, 2023 Cr.
Particulars (₹) Particulars (₹)
To, Opening Stock 13,20,000 By, Sales 108,00,000

To, Goods from H.O. 80,00,000 By, Closing Stock 8,28,000

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MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

To, Gross Profit c/d 23,08,000

116,28,000 116,28,000
To, Salaries 5,40,000 By, Gross Profit b/d 23,08,000

To, Taxes & Insurance 45,000

To, Rent 1,80,000

To, Difference in exchange 21,000

To, Depreciation 1,60,000
To, Net Profit 13,62,000
23,08,000 23,08,000

Dr. Auckland Branch Account Cr.

Particulars (₹) Particulars (₹)

To, Balance b/d 13,20,000 By, Branch Trading A/c (₹)

To, Branch Trading A/c (₹) Opening stock 13,20,000

Sales 108,00,000 Goods from H.O. 80,00,000 93,20,000

Stock 8,28,000 116,28,000

By, Branch P & L A/c 9,46,000
(Sundry expenses)
By, Balance c/d 26,82,000
1,29,48,000 1,29,48,000

6.(b) A fire occurred on Mar. 15, 2024 in the premises of Omega Ltd. A Loss of Profit policy
was taken by Omega Ltd. for ₹ 80,000. The indemnity period was for 3 months. Net Profit
for the year ending Dec. 31, 2023 was ₹56,000 and standing charges (all insured)
amounted to ₹49,600. Determine insurance claim from the following details available
from quarterly sales tax returns:
Sales 2021 2022 2023 2024
(₹) (₹) (₹) (₹)
From Jan.1 to Mar.31 1,20,000 1,30,000 1,42,000 1,30,000
From Apr.1 to June 30 80,000 90,000 1,00,000 40,000
From July 1 to Sept.30 1,00,000 1,10,000 1,20,000 1,00,000
From Oct.1 to Dec.31 1,36,000 1,50,000 1,66,000 1,60,000

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

Sales from 16.3.2023 to 31.3.2023 28,000

Sales from 16.3.2024 to 31.3.2024 Nil
Sales from 16.6.2023 to 30.6.2023 24,000
Sales from 16.6.2024 to 30.6.2024 6,000 [7]

Answer:
Statement of Claim for Loss of Profit

Particulars (₹)

GP lost on Short Sales [WN: 4] 16,080

Less: Savings in Standing Charges Nil

∴ Gross Claim 16,080

∴ Net Claim (under “Average clause”) = Gross Claim ×

80,000
= ₹ 16,080 
1,19,000

= ₹ 10,749 (Approx.)
Working Notes:
WN: 1 Trend of Turnover of last few years
Sales of: 2021 = ₹ (1,20,000 + 80,000 + 1,00,000 + 1,36,400) = ₹ 4,36,400
Sales of: 2022 = ₹ (1,30,000 + 90,000 + 1,10,000 + 1,50,000) = ₹ 4,80,000
Sales of: 2023 = ₹ (1,42,000 + 1,00,000 + 1,20,000 + 1,66,000) = ₹ 5,28,000

Rate of turn over change

–
= × 100

5,28,000 - 4,80,000
For 2023 = × 100 = 10%
4,80,000

4,80,000 - 4,36,400
For 2022 = × 100 = 10% (approx.)
4,36,400
Thus, we observe a 10% upward trend in turnover over the last few years.

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
2. Calculation of GP Rate
Particulars (₹)

Net Profit of 2023 56,000

Add: Insured Standing Charges 49,600
∴ Insured Gross
Profit 1,05,600
Sales of 2023 = ₹ 5,28,000 (as computed above)
Gross Pr ofit
∴ Rate of Gross Profit in 2023 = × 100
Sales
1,05,600
=  100
5,28,000

= 20 %

3. Calculation of Short Sales

Particulars (₹) (₹)
Standard Turnover (from March 15, 2024 to June 15,
2024):
Turnover from April 1, 2023 to June 30, 2023 1,00,000
Add: Turnover from March 16, 2023 to March 31, 2023 28,000
1,28,000
Less: Turnover from June 16, 2023 to June 30, 2023 24,000 1,04,000

Add: Upward trend @ 10% [WN: 1] 10,400

1,14,400
Less: Actual Turnover (from March 15, 2024 to June 15,
2024)
Turnover from April 1, 2024 to June 30, 2024 40,000
Add: Turnover from March 16, 2024 to March 31, 2024 Nil
40,000
Less: Turnover from June 16, 2024 to June 30, 2024 6,000 34,000
∴ Short Sales 80,400

4. GP lost on Short Sales

Short sales × Rate of GP = ₹ 80,400 × 20%
= ₹ 16,080
5. Annual Turnover I.e. Sale for the year ending March 15, 2024

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
(₹)
From March 16, 2023 to March 30, 2023 28,000
From April 1, 2023 to June 30,2023 1,00,000
From July 1, 2023 to September 31,2023 1,20,000
From October 1, 2023 to December 31,2023 1,66,000
From January 1, 2024 to March 31, 2024 1,30,000

5,44,000
Less: March 16, 2024 to March 31, 2024 Nil
5,44,000
6. Applicability of Average Clause
Insurable Value = Adjusted Annual Turnover × GP Rate
= (₹ 5,44,000 × 110%) × 20%
= ₹ 1,19,680
Policy Value = ₹ 80,000 (Given)
In this case, as Policy Value < Insurable Value, there is ‘under insurance’ and so Average
Clause is applicable.

7. (a) Describe the disclosure requirements under AS-11 for exchange differences
recognised in the profit & loss account. [7]

(b) On 14.08.2023, Pushkar Ltd. obtained a loan from RBC Bank of ₹ 65 lakhs to be
utilised as under:
Purchase of equipment: ₹ 19,50,000;
Construction of factory shed: ₹ 26,00,000;
Advance for purchase of delivery vehicle: ₹6,50,000;
Working capital: ₹13,00,000.
In March, 2024 installation of the machinery was completed and also
construction of factory shed was completed and the machinery installed.
However, the truck was not delivered within 31.03.2024. Total interest charged
by the bank for the year ending 31.3.2024 was ₹11.70 lakhs. Discuss how the
interest amount would be treated in the financial statements of the company as
per AS 16.
[7]
Answer:

(a)
An enterprise should disclose—
• Amount of exchange difference included in the net profit or loss.

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
• Amount accumulated in foreign exchange translation reserve.
• Reconciliation of opening and closing balance of foreign exchange translation reserve.
• If the reporting currency is different from the currency of the country in which entity is
domiciled, the reason for such difference.
• A change in classification of significant foreign operation needs following disclosures—
- Nature of change in classification
- The reason for the change
- Effect of such change on shareholders fund
- Impact of change on net profit or loss for each prior period presented
- The disclosure is also encouraged of an enterprise’s foreign currency risk
management policy.

(b)
In this case, only the factory shed is a Qualifying Asset (QA) as per AS 16. The amount of
interest on borrowings and its treatment is presented below:
Nature of Interest Interest
asset capitalised charged to
Particulars
Income
Statement
Purchase of equipment Not a QA 3,51,000
[11.7 × 19.5/65]
Construction of factory shed QA 4,68,000
[11.7 × 26/65]
Advance for purchase of delivery vehicle Not a QA 1,17,000
[11.7 × 6.5/65]
Working capital Not a QA 2,34,000
[11.7 × 13/65]
Total (₹ ) 4,68,000 7,02,000

8. Answer the following questions:

(a) Which factors are governing the selection the application of accounting policies.
[5]
(b) On 31st March 2023, a club had subscription in arrears of ₹28,000 and in advance
₹4,000. During the year ended 31st March 2024, the club received subscription of
₹2,08,000 of which ₹12,500 was related to 2024-25. On 31st March, 2023, there were 5
members who had not paid subscription for 2024 @ ₹1,600 per person. Prepare the
Subscription Account for the year 2023-24. [5]

(c) Examine the applicability of Section 37 of the partnership Act. [4]

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

Answer:

(a) The primary consideration in the selection of accounting policies by an enterprise is that the financial
statements prepared and presented on the basis of such accounting policies should represent a true and
fair view of the state of affairs of the enterprise as at the balance sheet date and of the profit or loss for
the period ended on that date.
The major considerations governing the selection and application of accounting policies are:

a. Prudence
In view of the uncertainty attached to future events, profits are not anticipated but recognised only
when realised though not necessarily in cash. Provision is made for all known liabilities and losses
even though the amount cannot be determined with certainty and represents only a best estimate in the
light of available information.
b. Substance over Form
The accounting treatment and presentation in financial statements of transactions and events should
be
governed by their substance and not merely by the legal form.
c. Materiality
Financial statements should disclose all “material” items, i.e. items the knowledge of which might
influence the decisions of the user of the financial statements.

(b)
Dr. Subscription Account Cr.
Particulars (₹ ) Particulars (₹ )

To, Balance b/d (arrears) 28,000 By, Balance b/d (advance) 4,000
To, I & E A/c (income for 2023-24) 1,79,500 By, R & P A/c (received) 2,08,000
[B/fig] By, Balance c/d (arrears- ₹1600 ×
To, Balance c/d (advance) 12,500 5) 8,000

2,20,000 2,20,000

(c) In case of retirement, the retiring partner or in case of death, the executor of the deceased
partner, if the dues are not settled, then such retired partner or the executor is entitled to the following:
Maximum of:
Interest @ 6% p.a. on the amount due to them (i.e. if the amount is unsettled, like, rate of interest on
loan to be allowed to the retired partner or the executor is not mentioned)
Or
The share of profit earned for the amount due to the partner
Conditions:
(a) The surviving partners/continuing partners continue to carry on the business of the firm.
(b) The business is carried on without any final settlement of accounts between the continuing
partners and the outgoing partners or his estate.

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – DECEMBER 2024
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FINANCIAL ACCOUNTING
(c) There is no contract to the contrary of the options contained in Section 37 i.e. share in the profits
or interest @ 6% p.a. on the unsettled capital.
Example: Unsettled capital of C ₹52,000 (Date of retirement: 30.09.23, financial year 2023-2024).
Net Profit earned by the firm after C’s retirement ₹ 25,000. Capitals of A: ₹57,000 and B: ₹76,000)
C is entitled to the maximum of the following:
(i) Interest on unsettled capital = ₹52,000 × 6% × 6 months = ₹1,560
(ii) Profit earned out of unsettled capital = Profit × Retired or Deceased Partner’s unsettled
Dues/ Total Capital of the firm (including the amount due to the retired or deceased partner)
= ₹ (25,000 × 52,000)/ (₹52,000 +₹57,000 +₹76,000) = ₹7,027.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

I. Choose the correct option: [15 x 2 = 30]

(i) The accounts related to expenses or losses and incomes or gains are called __________.
a. Personal Account
b. Representative Personal Account
c. Nominal Account
d. Real Account

(ii) Which of the following will not appear in the Profit and Loss A/c?
a. Capital
b. Bad Debts
c. Provision for Doubtful Debts
d. Rent paid

(iii) Which of the following is not a method of Branch Accounting?

a. Debtors Method or Synthetic Method
b. Stock Debtors method or Analytical Method
c. Final Accounts Method (Cost Basis)
d. Creditors Method or Synthetic Method

(iv) Down payment plus instalments including interest is termed as Outstanding

_________________.
a. cash price
b. trade price
c. Hire-purchase price
d. Book value

(v) Original cost of a machine is ₹1,50,000, residual value ₹10,000, if depreciation is charged @
10% per annum under WDV method then depreciation for 3rd year will be ______________.
a. ₹12,240
b. ₹11,340
c. ₹12,150
d. ₹14,000

(vi) If average inventory is ₹ 1,25,000 and closing inventory is ₹ 10,000 less than opening inventory
then the value of closing inventory will be:
a. ₹ 1,35,000
b. ₹ 1,15,000
c. ₹ 1,30,000
d. ₹ 1,20,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
(vii) P and Q enter into a joint venture sharing profit and losses in the ratio of 3:2. P purchased
goods costing ₹ 2,00,000. Q sold 95% goods for ₹ 2,50,000. P is entitled to get 1% commission
on purchase and Q is entitled to get 5% commission on sales. P drew a bill on Q for an amount
equivalent to 80% of original cost of goods. P got it discounted at ₹ 1,50,000. What is P’s share
of profit?
a. ₹ 15,300
b. ₹ 21,300
c. ₹ 18,900
d. None of the above

(viii) From the following details ascertain the adjusted bank balance as per cash book –
overdraft as per cash book ₹80,000; cheque received entered twice in the cash book ₹5,000;
credit side of bank column cast short by ₹500; bank charges amounting to ₹200 entered
twice; cheque issued but dishonoured ₹2,000.
a. ₹80,500
b. ₹85,500
c. ₹85,000
d. ₹83,300

(ix) Goods of the invoice value of ₹ 2,40,000 sent out to consignee at 20% profit on cost the loading
amount will be ____________________.
a. ₹ 40,000
b. ₹ 48,000
c. ₹ 50,000
d. none

(x) Shiva purchased a laptop on hire-purchase system. As per terms, he is required to pay ₹
7,500 down, ₹ 10,000 at the end of first year, ₹ 7,500 at the end of second year, and ₹ 12,500
at the end of third year. Interest is charged at 12% per annum. The interest payable with the
installment at the end of second year will be
a. ₹ 900
b. ₹ 1,999
c. ₹ 804
d. ₹ 1,760

(xi) KCS purchased a machine from JPS on hire purchase system, whose cash price was ₹
8,64,000. ₹ 2,16,000 being paid on delivery and balance in three annual instalments of
₹2,88,000 each. The amount of interest included in first Installment would be
________________.
a. ₹ 72,000
b. ₹ 57,600
c. ₹ 1,08,000
d. ₹ 36,000

(xii) Provision for Doubtful Debt on 1st April, 2021 was ₹21,500. During the year 2021 – 22 the
Bad-debt and Recovery of Bad-debt were ₹10,500 and ₹2,100 respectively. The Sundry
Debtors on 31st March, 2022 were ₹2,25,000. Provision is to be made @ 5% on Debtors. If
on 31st March, 2022, there was additional Bad-debt of ₹2,500 then Provision for doubtful-
debt will be ___________________.
a. Debited to Profit & Loss Account by ₹11,250.

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
b. Debited to Profit & Loss Account by ₹2,625.
c. Debited to Profit & Loss Account by ₹3,000.
d. Debited to Profit & Loss Account by ₹900.

(xiii) AS -10 Deals with ___________________.

a. Disclosure of Accounting Policies
b. Accounting for Government Grants
c. Property Plant and Equipment
d. Borrowing Costs

(xiv) The Foreign Currency receivables as per books of accounts 10,000$ USD= ₹80, ₹8,00,000
accounted on 09-Feb-2023.On 31-Mar-2023, The USD= INR 82 then what is the amount of
Foreign Currency Receivables to be reported on 31-Mar-2023 balance sheet as Assets
__________.
a. ₹2,000
b. (₹2,000)
c. ₹82,000
d. ₹80,000

(xv) The main objective of average clause contained in a fire insurance policy is to
______________.
a. Encourage full Insurance
b. Discourage full Insurance
c. Encourage under Insurance
d. Encourage full Insurance and Discourage under Insurance

Answer:
1.

i ii iii iv v vi vii viii ix x

c a d c c d b d a b
xi xii xiii xiv xv
c b c c d

Section – B

(Answer any five questions out of seven questions given. Each question carries 14 Marks)
[5 x 14 = 70]

2. (a) On 1.1.2021 machinery was purchased for ₹ 80,000. On 01.07.2022 additions were made to
the amount of ₹ 40,000. On 31.3.2023, machinery purchased on 1.7.2022, costing ₹ 12,000
was sold for ₹ 11,000 and on 30.06.2023 machinery purchased on 01.01.2021 costing ₹
32,000 was sold for ₹ 26,700. On 1.10.2023, additions were made to the amount of ₹ 20,000.
Depreciation was provided at 10% p.a. on the Diminishing Balance Method.
Prepare the Machinery Accounts for three years from 2021-2023. (year ended 31st
December) [7]

(b) On 1st April, 2021 the balance of provision for bad and doubtful debts was ₹13,000. The

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
bad debts during the year 2021-22 were ₹9,500. The sundry debtors as on 31st March,
2022 stood at ₹3,25,000 out of these debtors of ₹2,500 are bad and cannot be realized.
The provision for bad and doubtful debts is to be raised to 5% on sundry debtors. You
are required to:
(i) Pass necessary adjustment entries for bad debts and its provision on 31st March,
2022.
(ii) Prepare the necessary ledger accounts.
(iii) Show the relevant items in the Profit & Loss Account and Balance Sheet. [7]

Answer:
2.(a)

Statement of Depreciation.
Machines – I Machines – II Machines – Total
Date Particulars Cost = ₹ Cost = ₹ III Cost = ₹ Depreciation
80,000 40,000 20,000
(₹) (₹) (₹) (₹) (₹) (₹)
01.01.2021 Book Value 48,000 32,000
31.12.2021 Depreciation 4,800 3,200 8,000
01.01.2022 W.D.V. 43,200 28,800
01.07.2022 Purchase 28,000 12,000
31.12.2022 Depreciation 4,320 2,880 1,400 600 9,200
01.01.2023 W.D.V. 38,880 25,920 26,600 11,400
31.03.2023 Depreciation 285 285
W.D.V. 11,115
Sold For 11,000
Loss on sale 115
30.06.2023 Depreciation 1,296 1,296
W.D.V. 24,624
Sold For 26,700
Profit on Sale 2,076
01.10.2023 Purchase 20,000
31.12.2023 Depreciation 3,888 2,660 500 7,048
01.01.2024 W.D.V. 34,992 23,940 19,500

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 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Dr. Machinery Account Cr.

Date Particulars (₹) Date Particulars (₹)

01.01.21 To, Bank A/c 80,000 31.12.21 By, Depreciation A/c 8,000
,, Balance c/d 72,000
80,000 80,000
01.01.22 To, Balance b/d 72,000 31.12.22 By, Depreciation A/c 9,200
01.07.22 “ Bank A/c 40,000 ,, Balance c/d 1,02,800
1,12,000 1,12,000
01.01.23 To, Balance b/d 1,02,800 31.3.23 By, Bank (Sale) A/c 11,000
30.06.23 “ P & L A/c (Profit on 2,076 ,, Depreciation A/c 285
Sale)
“ Bank A/c 20,000 30.6.23 ,, P & L A/c (Loss on 115
Sale)
,, Bank A/c (Sale) 26,700
31.12.2 ,, Depreciation A/c 1,296
3
,, Depreciation A/c 7,048
,, Balance c/d 78,432
1,24,876 1,24,876

2.(b)
(i)
In the books of ……………….
Journal

Date Particulars Debit (₹) Credit (₹)

31.03.22 Bad Debts A/c Dr. 2,500

To, Sundry Debtors A/c 2,500
(Being Bad Debts)
31.03.22 Provision for Bad & Doubtful Debts Dr. 12,000
A/c To, Bad Debts A/c 12,000
(Being Bad Debts during the year)
31.03.22 Profit and Loss A/c Dr. 15,125
To, Provision for Bad & Doubtful 15,125
Debts A/c
(Being Provision for Bad Debts
transferred to Profit & Loss A/c)

(ii)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Dr. Bad Debts Account Cr.
Date Particulars (₹) Date Particulars (₹)
31.03.22 To Balance b/d 9,500 31.03.22 By Provision for Bad & 12,000
31.03.22 To Sundry Debtors A/c 2,500 Doubtful Debts A/c
12,000 12,000

Dr. Provision for Bad & Doubtful Debts Account Cr.

Date Particulars (₹) Date Particulars (₹)

31.03.22 To Bad Debts A/c 12,000 01.04.21 By Balance b/d 13,000
31.03.22 To Balance c/d 16,125 31.03.22 By Profit and Loss A/c 15,125
[5% on (b/fig)
(3,25,000 - 2,500)]
28,125 28,125

Dr. Sundry Debtors Account (includes) Cr.

Date Particulars (₹) Date Particulars (₹)

31.03.22 To Balance b/d 3,25,000 31.03.22 By Bad Debts 2,500
31.03.22 A/c By 3,22,500
3,25,000 Balance c/d 3,25,000

(iii) Profit and Loss Account for the year ended 31st March, 2022 (includes)

Particulars (₹) (₹)

To Provision for Bad & Doubtful Debts:
Provision as on 31.3.2022 16,125
Add: Bad Debts (9,500 + 2,500) 12,000
28,125
Less: Provision as on 1.4.2021 13,000 15,125

Balance Sheet as on 31st March, 2022 (includes)

Liabilities (₹) Assets (₹)

Sundry Debtors 3,25,000
Less: Further Bad Debts 2,500
3,22,500
Provision for Bad Debts 16,125
3,06,375

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 INTERMEDIATE EXAMINATION SET 1
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FINANCIAL ACCOUNTING

3.(a) Hari and Om agreed for purchasing and selling furniture in a joint venture, their profit
sharing ratio being 3:2 respectively. Hari purchased 10 sofas at ₹ 10,000 per sofa. He sent
those sofas to Om for sale after spending ₹ 1,000 per sofa on insurance and transportation.
He drew a bill of ₹ 50,000 on Om and this bill was discounted at a discount of ₹ 5,000
after acceptance. Om incurred further expenses of ₹ 2,000 on these sofas before sale. He
sold all the sofas @ ₹ 15,000 per sofa, giving 5% commission to the dealer.
Prepare Joint Venture with Om Account in the books of Hari. Also show the
Memorandum Joint Venture Account. [7]

(b) A Transport purchased from Kolkata Motors 3 Tempos costing ₹ 50,000 each on the hire
purchase system on 1.1.2021. Payment was to be made ₹ 30,000 down and the remainder
in 3 equal annual instalments payable on 31.12.2021, 31.12.2022 and 31.12.2023 together
with interest @ 9%. p.a. A Transport writes off depreciation at the rate of 20% p.a. on the
diminishing balance. It paid the Installment due at the end of the first year i.e. 31.12.2021
but could not pay the next on 31.12.2022. Kolkata Motors agreed to leave one Tempo with
the purchaser on 31.12.2022 adjusting the value of the other 2 Tempos against the amount
due on 31.12.2022. The Tempos were valued on the basis of 30% depreciation annually on
W.D.V. basis.
Prepare necessary accounts in the books of A Transport for the year 2021, 2022, 2023. [7]

Answer:

3.(a)
In the Books of Hari
Memorandum Joint Venture Account

Particulars (₹) Particulars (₹)

To, Bank A/c [Purchase] (10,000 × 10) 1,00,000 By, Om A/c 1,50,000
[Sales]
To, Bank A/c [Expense] (1,000 × 10) 10,000
(₹15,000 ×
To, Discount A/c (Bill discounted) 5,000 10)
To, Om A/c [Expenses] 2,000
To, Om A/c [Commission] (1,50,000 × 7,500
5%)
To, P/L A/c:
Hari 15,300
Om 10,200 25,500

1,50,000 1,50,000

Dr. Joint Venture with Om Account Cr.

Particulars ( ₹) Particulars (₹)
To, Bank A/c [Purchase] 1,00,000 By, Bills Receivable A/c 50,000

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FINANCIAL ACCOUNTING

To, Bank A/c [Expense] 10,000 By, Balance c/d 80,300

To, Discount on Bill A/c 5,000
To, P/L A/c [Share of profit] 15,300
1,30,300 1,30,300

3.(b)
In the Books of…..
Dr. Tempos Account Cr.
Date Particulars (₹) Date Particulars ( ₹)
01.01.21 To, Kolkata Motors’ 1,50,000 31.12.21 By, Depreciation 30,000
A/c (₹ 50,000 × 3) A/c (20% on ₹
1,50,000)
By, Balance c/d 1,20,000
1,50,000 1,50,000
01.01.22 To, Balance b/d 1,20,000 31.12.22 By, Depreciation A/c 24,000
31.12.22 By, Kolkata Motors’ 49,000
A/c
(Value of 2 tempos
taken away)
31.12.22 By, P&L A/c (Loss on 15,000
Default)
31.12.22 By, Balance c/d (value 32,000
of one tempo left)
1,20,000 1,20,000
01.01.22 To, Balance b/d 32,000 31.12.23 By, Depreciation A/c 6,400
31.12.23 By, Balance c/d 25,600
32,000 32,000

Dr. Kolkata Motor’s Account Cr.

Date Particulars (₹) Date Particulars (₹)

01.01.21 To, Bank A/c (Down 30,000 01.01.21 By, Tempos 1,50,000
Payment) A/c (₹
50,000
×3)
31.12.21 To, Bank A/c 50,800 31.12.21 By, Interest 10,800
A/c (9% on ₹
1,20,000)
31.12.21 To, Balance c/d 80,000

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 INTERMEDIATE EXAMINATION SET 1
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FINANCIAL ACCOUNTING

1,60,800 1,60,800

31.12.22 To, Tempos A/c 49,000 01.01.22 By, Balance 80,000

b/d
31.12.22 To, Balance c/d 38,200 31.12.22 By, Interest 7,200
A/c (9% on ₹
80,000)
87,200 87,200

31.12.23 To, Bank A/c 41,638 01.01.23 By, Balance 38,200

b/d
31.12.23 By, Interest 3,438
A/c (9% on ₹
38,200)
41,638 41,638

Working Notes:
1. Value of a tempo left with the buyer = ₹ 50,000 × 80/100 × 80/100
= ₹ 32,000
2. Value of Tempos taken away by the seller = ₹ 50,000 × 2 × 70/100 × 70/100
= ₹ 49,000
3. Loss on Tempos taken away = Book Value – Agreed Value
= [2 × ₹ 50,000 × 80/100 × 80/100] - ₹ 49,000
= ₹ 15,000.

4. The following Trial Balance has been prepared from the books of Mrs. Sexena as on 31st
March, 2024 after making necessary adjustments for depreciation on Fixed Assets,
outstanding and accrued items and difference under Suspense Account.

Trial Balance as at 31st March, 2024

Debit Credit (₹)
Particulars (₹) Particulars

Machineries 1,70,000 Sundry Creditors 82,000

Furniture 49,500 Capital Account 2,45,750
Sundry Debtors 38,000 Outstanding Expenses:
Drawings 28,000 Salaries 1,500
Travelling Expenses 6,500 Printing 600
Insurance 1,500 Audit Fees 1,000

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MODEL ANSWERS TERM – JUNE 2024
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FINANCIAL ACCOUNTING

Audit Fees 1,000 Bank Interest 1,200

Salaries 49,000 Discounts 1,800
Rent 5,000 Sales (Less Return) 6,80,000
Cash in Hand 7,800
Cash at Bank 18,500
Stock-in-Trade (01.04.2023) 80,000
Prepaid Insurance 250
Miscellaneous Expenses 21,200
Discounts 1,200
Printing & Stationery 1,500
Purchase (Less Returns) 4,60,000
Depreciation:
Machineries 30,000
Furniture 5,500
Suspense Account 39,400
10,13,850 10,13,850

On the subsequent scrutiny following mistakes were noticed:

(i) A new machinery was purchase for ₹ 50,000 but the amount was wrongly posted to
Furniture Account as ₹ 5,000.
(ii) Cash received from Debtors ₹ 5,600 was omitted to be posted in the ledger.
(iii) Goods withdrawn by the proprietor for personal use but no entry was passed ₹ 5,000.
(iv) Sales included ₹ 30,000 as goods sold cash on behalf of Mr. Thakurlal who allowed
15% commission on such sales for which effect is to be given.
You are further told that:
(a) Closing stock on physical verification amounted to ₹ 47,500.
(b) Depreciation on Machineries and Furniture has been provided @ 15% and 10%,
respectively, on reducing balancing system.
Full year’s depreciation is provided on addition.
You are requested to prepare a Trading and Profit & Loss Account for the year ended 31st
March 2024 and a Balance Sheet as on that date so as to represent a True and Correct picture.
[14]
Answer: Mrs. Sexena
Trading and Profit and Loss Account
Dr. for the year ended 31st March, 2024 Cr.

Particulars (₹) (₹) Particulars (₹) (₹)

80,000 By, Sales
To, Opening Stock 6,50,000
(₹ 6,80,000 - ₹ 30,000)
To, Purchases 4,60,000 By, Closing Stock 47,500
Less: Drawings 5,000 4,55,000
To, Profit & Loss A/c.

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 INTERMEDIATE EXAMINATION SET 1
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FINANCIAL ACCOUNTING

Gross Profit transferred 1,62,500

6,97,500 6,97,500
To, Salaries: 49,000 By, Trading 1,62,500
A/c. (Gross
Profit)
To, Rent 5,000 By, Bank Interest 1,200
To, Insurance 1,500 By, Selling Commission
To, Audit Fees 1,000 (15% on ₹ 30,000) 4,500
To, Printing & Stationery 1,500 By, Discount Received 1,800
To, Miscellaneous 21,200
Expenses
To, Discount Allowed 1,200
To, Travelling Expenses 6,500
To, Depreciation:
Machinery 37,500
Furniture 5,000 42,500
To, Capital Account
(Net Profit 40,600
transferred)
15,65,000 15,65,000

Balance Sheet
as at 31st March, 2024

Liabilities (₹) (₹) Assets (₹) (₹)

Capital Account 2,45,750 Machinery 2,50,0001
Add: Net Profit 40,600 Less: Depreciation 37,500 2,12,500
2,86,350
Less: Drawings
Furniture 50,0002
(28,000+5,000)
33,000 2,53,350
Less: Depreciation 5,000 45,000

Sundry Creditors 82,000 Stock 47,500

Outstanding Liabilities: Debtors (₹38,000 - 32,400
₹5,600)
Salaries 1,500 Cash 7,800
Audit Fees 1,000 Bank 18,500
Printing 600 3,100 Prepaid Insurance 250

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
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FINANCIAL ACCOUNTING

Thakurlal’s A/c.
(₹30,000 – ₹4,500) 25,500

3,63,950 3,63,950

Notes:
(₹)
1. Machinery as per Trial Balance 1,70,000
Add: Depreciation 30,000
2,00,000
Additions 50,000
2,50,000
2. Furniture 49,500
Add: Depreciation 5,500
55,000
Less: Wrong Debit 5,000
3. Suspense A/c is eliminated by item 50,000
(i) ₹ 45,000 (₹50,000 – ₹5,000) and item
(ii) by ₹5,600 (debited), respectively.

5. A, B and C are in partnership sharing Profits and Losses in the ratio 3:2:1 respectively. The
Balance Sheet of the partnership firm as on 31st March, 2024 is as under:
Capital & Liabilities (₹) (₹) Assets (₹) (₹)
Capital Accounts Premises 1 80,000

A 1,70,000 Plant 74,000

B 1,30,000 Vehicles 30,000

C 70,000 3,70,000 Fixtures 4,000

Current Accounts Current Account

A 7,428 B 5,018

C 9,356 16,784 Stock 1,24,758

Loan-C 56,000 Debtors 69,960

Creditors 38,072 Cash in hand 1,520

Bank Overdraft 8,400

4,89,256 4,89,256

C decides to retire from the business as on the above date and D is admitted as a partner on

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
that date. The following matters agreed:
(i) Assets revalued as : Premises - ₹ 2,40,000, Plant- ₹ 70,000 Stock - ₹ 1,08,358.
(ii) A provision of ₹ 6,000 is created against debtors.
(iii) Goodwill is to be recorded in the books on the day C retires at ₹ 84,000. The partners in
the new firm do not wish to maintain a Goodwill Account so that amount is to be written-
off against the New Partners’ Capital Accounts.
(iv) A and B are to share profit in the same ratio as before, and D is to have the same share
of profits as C.
(v) C is to take a car at its book value of ₹ 7,800 in part payment, and the balance of all he
is owed by the firm
in cash except ₹ 40,000 which he is willing to leave as a Loan Account.
(vi) The partners in the new firm are to start on an equal footing so far as Capital and
Current Account are concerned. D is to contribute cash to bring his Capital and Current
Account to the same amount as the original partner from the old firm who has the lower
investment in the business. The original partner in the old firm who has the higher
investment will draw out cash so that his capital and current account balances equal
those of his new partners. -
(vii) Revaluation profit or loss is to be adjusted in the Partners’ Current Account.
You are required to prepare Revaluation Account, Partners’ Capital Accounts, Partners’
Current Accounts, C’s Loan Account, Bank Account and Balance Sheet of the newly
constituted firm as at April 1, 2024.
[14]
Answer:
(a)
In the books of the firm
Revaluation Account
Dr. Cr.
Particulars (₹) Particulars (₹)
To, Plant A/c 4,000 By, Premises A/c 60,000
To, Stock A/c 16,400
To, Provision for doubtful debts 6,000
A/c
To, Partner’s Current A/c s 33,600
A 16,800
B 11,200
C 5,600

60,000 60,000

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 INTERMEDIATE EXAMINATION SET 1
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PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

(b)
Dr. Partners’ Capital Account Cr.
Particulars A (₹) B (₹) C (₹) D (₹) Particulars A (₹) B (₹) C (₹) D(₹)
To, Goodwill A/c 36,000 24,000 —
24,000 By, Balance 1,70,000 1,30,000 70,000 —
b/d
(3:2:2) — — 84,000 — By, 42,000 28,000 14,000 —
Goodwill
To, Loan A/c 42,000 — — — A/c (3:2:1)
To, Bank A/c By, Bank — — — 1,58,000
A/c
To, Balance c/d 1,34,000 1,34,000 — 1,34,000
2,12,000
2,12,000 1,58,000 84,000 1,58,000 2,12,000 1,58,000 84,000 1,58,000

(c)
Dr. Partners’ Current Account Cr.
Particulars A (₹) B (₹) C (₹) D (₹) Particulars A (₹) B (₹) C (₹) D(₹)
To, Balance b/d — 5,018 — — By, Balance 7,428 — 9,356 —
b/d
To, C’s Loan A/c — — 14,956 — By, 16,800 11,200 5,600 —
Revaluation
To, Bank A/c 18,046 — — — A/c
To, Balance c/d 6,182 6,182 — 6,182 By, Bank — — — 6,182
A/c
24,228 11,200 14,956 6,182 24,228 11,200 14,956 6,182

(d)
Dr. C’s Loan Account Cr.
Date Particulars (₹) Date Particulars (₹)
31.03.24 To, Vehicles A/c 7,800 31.03.24 By, Balance b/d 56,000
To, Bank A/c (Bal. fig.) 1,07,156 By, C’s Capital A/c 84,000
To, Balance c/d 40,000 By, C’s Current A/c 14,956
1,54,956 1,54,956

(e)
Dr. Bank Account Cr.
Date Particulars (₹) Date Particulars (₹)
31.03.24 To, D Capital A/c 1,58,000 31.03.24 By, Balance b/d 8,400
To, D Current A/c 6,182 By, C’s Loan A/c 1,07,156
To, Balance c/d 11,420 By, A’s Capital A/c 42,000
By, A’s Current A/c 18,046
1,75,602 1,75,602

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 INTERMEDIATE EXAMINATION SET 1
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PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

(f) Balance Sheet of as on 01 .04.2022

Liabilities (₹) (₹) Asset (₹) (₹)

s
Capital Accounts: Premises 2,40,000
A 1,34,000 Plant 70,000
B 1,34,000 Vehicles 22,200
D 1,34,000 4,02,000 Fixtures 4,000
Current Accounts: Stock 1,08,358
A 6,182 Debtors 69,960
B 6,182 Less: Provision for bad 6.000 63,960
debts
D 6,182 18,546 Cash 1,520
C’s Loan Account: 40,000
Creditors 38,072
Bank Overdraft 11,420
5,10,038 5,10,038

Working Notes:
Calculation of New P.S.R.
D’s share = B’s share = 2/6
A’s share = 3/6;
B’s share = 2/6
⸫ A: B: D = 3/6: 2/6: 2/6 = 3:2:2

6. (a) Mithil Mukherjee sells two products manufactured in her own factory. The goods are made
in two departments, X and Y, for which separate sets of accounts are maintained. Some of
the manufactured goods of department X are used as raw materials by department Y, and
vice versa.
From the following particulars, you are required to ascertain the total cost of goods
manufactured in department X and Y:
Particulars Department X Department Y
Total units manufactured 10,00,000 5,00,000
Total cost of manufactured ₹10,000 ₹5,000

Department X transferred 2,50,000 units to Department Y and the latter transferred 1,00,000
units to the former. [7]

(b) On 20th July, 2023 the godown and the business premises of a merchant were affected by
fire. From the accounting records salvaged, the following information is made available to
you:
Stock of Goods on 1st April, 2022 ₹1,00,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
Stock of Goods at 10% lower than cost on 31st March, 2023 ₹1,08,000
Purchases of Goods for the year 1st April, 2022 to 31st March, 2023 ₹4,20,000
Sales for the same period ₹6,00,000
Purchases less returns from 1st April, 23 to 20th July, 2023 ₹1,40,000
Sales Returns for the above period ₹3,10,000
Sales up to 20th July, 2023 included ₹40,000 for which goods had not been despatched.
Purchases up to 20th July, 2023 did not include ₹20,000 for which purchase invoices had
not been received from suppliers, though goods had been received at the godown.
Goods salvaged from the accident were worth ₹12,000 and these were handed over to the
insured. Ascertain the value of the claim for the loss of goods/stock which could be preferred
to the insurer.
[7]
Answer:
6.(a)
Suppose, a is the total cost of Department X, and
b is the total cost of Department Y
1
a = ₹10,000  b
5
1
b = ₹5,000  a
4
1 1
or, a = ₹ 10,000  (5,000  a)
5 4
1
= ₹ 10,000  1,000  a
20
1
= ₹ 11,000  a
20

Or, 20 a = ₹2,20,000 + a
Or, 19a = ₹2,20,000

2,20,000
=₹
19

= ₹11,579

1
Now, b = ₹5,000  a
4

1
= ₹ 5,000  `11,579
4

=₹5,000 + ₹2,895

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
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FINANCIAL ACCOUNTING
=₹7,895
Total Cost goods manufactured

Particulars Amount (₹) Amount(₹)

Department Department
X Y
Cost (already given) 10,000 5,000
Add: Cost of goods transferred 1,579 2,895
11,579 7,895
Less: Transfer to department 2,895 1,579
Net Cost of Goods manufactured 8,684 6,316

6.(b)
Trading Account for the year ended 31.03.2023
Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
(₹) (₹) (₹) (₹)
To Opening Stock 1,00,000 By Sales 6,00,000
To Purchases 4,20,000 By Closing Stock 1,08,000
To Gross Profit 2,00,000 Add: Under Valuation 12,000
 10  1,20,000
 90 of 1,08,000 
7,20,000 7,20,000

Rate of Gross Profit in 2022 -23 = on sales.

` 2,00,000 1
x 100 = 33 %
`6,00,000 3
The net purchases in current year should be ₹ 1,40,000 + ₹ 20,000
Similarly, Sales = ₹ 3,10,000 – ₹ 40,00.0 = ₹ 2,70,000

Memorandum Trading Account for the from 01.04.23 to 20.07.23

Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
(₹) (₹) (₹) (₹)
To Opening Stock 1,20,000 By Sales 2,70,000
To Purchases 1,60,000 By Closing Stock (Bal. 1,00,000
fig.)
To Gross Profit 90,000
1 
 3 of ` 2,70, 000
3,70,000 3,70,000

Statement of Claim for Loss of Stock ₹

Estimated Value of Stock on 20.7.23 1,00,000
Less: Value of Salvaged Stock 12,000
Stock Lost by Fire 88,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING
7.(a) B B Ltd., a start-up purchased on April 1, 2020, a machine worth ₹ 44,85,000 in relation to
which it received ₹ 7,35,000 as grant from Government of India. The company decided to
treat this grant as a capital receipt. It is estimated that the realizable value of the machine
at the end of its useful life of 4 years will be ₹ 15,36,000. During the financial year 2022-23,
the grant became refundable as the start-up company failed to comply with the necessary
terms and conditions of the grant.
You are required to calculate the amount of depreciation that is to be charged to the
statement of profit and loss for the years 2022-23 and 2023-24 given that the company
follows straight line method of charging depreciation.
[7]

(b) During the financial year 2022-23, Zeds Ltd., an e-commerce firm entered into a foreign
currency transaction relating to fees for technical services paid to a Lucas Ltd., an Atlanta
based organisation in the USA. The transaction was for $24,000, which was entered into on
07.12.2022. The payment for the same was made on 20.05.2023. Given that the exchange
rates are: on 07.12.2022: $1 = ₹ 78.80; on 01.01.2022: $1 = ₹ 78.95; on 31.03.2023: $1 = ₹80.45;
on 20.05.2023: $1 = ₹ 81.50.
You are required to:
(i) ascertain the amount at which the transaction would get recognised in the books; and
(ii) calculate amount of foreign exchange gain/ loss to be recorded in the financial
statement for the years 2022-23 and 2023-24.
[7]

Answer:
7.(a)
Calculation of Depreciation for the years 2022-23 and 2023-24 ₹ ’000
Cost of machine on 01.01.2020 4,485
Less: Grant from Government of India 735
Net cost of machine 3,750
Estimated useful life 4 years
553.5
Depreciation p.a. under straight line method

Depreciation charged during 2020-21 and 2021-22 [553.5 × 2] 1,107

Book value of machine on 01.04.2022 [3,750 – 1,107] 2,643
Add: Refund of government grant during 2022-23 735
Revised Book value of machine 3,378
Remaining useful life of machine 2 years
921
Revised depreciation p.a.

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Directorate of Studies, The Institute of Cost Accountants of India
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MODEL ANSWERS TERM – JUNE 2024
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

7.(b)
In this case, only the factory shed is a Qualifying Asset (QA) as per AS 16. The amount of interest
on borrowings and its treatment is presented below:
Nature of Interest Interest charged to
Particulars
asset capitalised Income Statement
Purchase of equipment Not a QA 3,51,000
[11.7 × 19.5/65]
Construction of factory shed QA 4,68,000
[11.7 × 26/65]
Advance for purchase of delivery vehicle Not a QA 1,17,000
[11.7 × 6.5/65]
Working capital Not a QA 2,34,000
[11.7 × 13/65]
Total 4,68,000 7,02,000

8. Answer the following questions:

(a) Write a note on – scope of AS 11 (The Effects of Changes in Foreign Exchange Rate) [5]
(b) Demonstrate the features of a Non-profit Organisations. [5]
(c) S and N are partners sharing Profit /(Loss) in the ratio of 5:3. They admit J into
partnership for 3/10th in the Profit/(Loss) in which J acquired 1/5th share from S and
1/10th share from N respectively. Calculate the new profit and loss sharing ratios of the
partners. [4]

Answer:
8. (a)
This accounting standard deals with the reporting of foreign exchange transactions in the
financial statements of an organisation.
AS 11 deals with :
Accounting for transactions in foreign currencies;
Translating financial statements of foreign operations to reporting currency; and
Accounting for foreign currency transactions in the nature of forward exchange contracts.
The standard however does not cover the following issues:
It does not specify the currency in which an enterprise should presents its financial statements;
Restatement of an enterprise’s financial statements from its reporting currency into another
currency;
Presentation in cash flow statements, of cash flows arising from transactions in foreign currency
and translation of cash flows of a foreign operation (AS 3 Cash Flow Statements); and
Exchange differences arising from foreign currency borrowings to the extent they are regarded
as adjustment to interest costs (AS 16 Borrowing costs).

8.(b)
The organizations which are primarily formed with the objective of offering some specific

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services to the society and not with profit motive only are referred to as Non-profit Organisations.
Such organisations include educational institutions, public medical organisations, social clubs,
charitable trusts, trade unions, Cultural clubs like Rotary or Lions Club Religious institutions etc.
Their main objective is to operate for adding value to different sections of the society.

Features of Non-profit Organisations:

The salient features of such non-trading entities are:
● This organization is governed by elected body or trustee board.
● Its operation is not driven by any profit motive unlike trading concerns.
● Main purpose of the organization is to provide social service.
● Main source of their income comes from donation and membership subscription.
● The funds are utilized maximum for the benefits of the society.
● The membership process for this concern is non-transferable.
● The method of accounting that is followed here is entity concept.

8.(c)
S’s new share =[ − ]= =

N’s new share = [ − ]= =

J’s new share = −

Hence New profit/loss sharing ratios of the partners = 17:11:12

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Time Allowed: 3 Hours Full Marks: 100

The figures in the margin on the right side indicate full marks.

SECTION – A

1. Multiple Choice Questions: [15 x 2 = 30]

(i) The concept that business is assumed to exist for an indefinite period and is not
established with the objective of closing down is referred to as ____________________.
a. Money Measurement concept
b. Going Concern concept
c. Full Disclosure concept
d. Dual Aspect concept

(ii) Income Statement of a charitable institution is known as ____________________.

a. Profit and Loss A/c
b. Receipts and payments A/c
c. Income and Expenditure A/c
d. Statement of Affairs

(iii) Goods are transferred from Department A to Department B at a price so as to include a

profit of 33.33% on cost. If the value of closing stock of Department Y is ₹36,000, then
the amount of stock reserve on closing stock will be ________________.
a. ₹12,000
b. ₹9,000
c. ₹18,000
d. None of the above

(iv) In the hire purchase system interest charged by vendor is calculated on the basis of
__________.
a. Outstanding cash Price
b. Hire purchase Price
c. Installment amount
d. None of the above

(v) Bad debts Recovered ₹750. It will be _____________.

a. Credited to Bad debts A/c
b. Credited to debtor‘s personal A/c
c. Debited to creditor‘s personal A/c
d. Credited to bad debts recovered A/c

(vi) A Charitable Institution has 250 members with a annual subscription of ₹5,000 each.
The subscription received during 2020-21 were ₹11,25,000, which include ₹65,000 and
₹25,000 for the years of 2019-20 and 2021-22 respectively. The amount of outstanding
subscription for the 2020-21 will be _____________.

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a. ₹90,000
b. ₹1,25,000
c. ₹2,15,000
d. ₹1,90,000

(vii) Shiva draws a bill on Sanat on 25th October, 2021 for 90 days, the maturity date of the
bill will be _______________.
a. 25thFebruary, 2022
b. 30th January, 2022
c. 25th January, 2022
d. 28th Feb, 2022

(viii) In a Cash Book Debit balance of ₹112 brought forward as credit balance of ₹121, while
preparing a Bank Reconciliation Statement taking the balance as per Cash Book as the
starting point ____________________.
a. ₹112 to be added
b. ₹ 121 to be added
c. ₹ 233 to be added
d. ₹ 112 to be subtracted

(ix) Del credere commission is allowed to consignee _____________.

a. For making cash sales
b. for making credit sales
c. For making extra sales
d. For undertaking risk of bad debts

(x) KCS purchased a machine from JPS on hire purchase system, whose cash price was
₹ 8,64,000. ₹ 2,16,000 being paid on delivery and balance in three annual installments of
₹2,88,000 each. The amount of interest included in first installment would be
_____________.
a. ₹ 72,000
b. ₹ 57,600
c. ₹ 1,08,000
d. ₹ 36,000

(xi) Provision for Doubtful Debt on 1st April, 2021 was ₹21,500. During the year 2021 – 22
the Bad-debt and Recovery of Bad-debt were ₹10,500 and ₹2,100 respectively. The
Sundry Debtors on 31st March, 2022 were ₹2,25,000. Provision is to be made @ 5% on
Debtors. If on 31st March, 2022, there was additional Bad-debt of ₹2,500 then Provision
for doubtful-debt will be___________________.
a. Debited to Profit & Loss Account by ₹11,250.
b. Debited to Profit & Loss Account by ₹2,625.
c. Debited to Profit & Loss Account by ₹3,000.
d. Debited to Profit & Loss Account by ₹900.

(xii) AS -16 Deals with ___________________.

a. Accounting of Inventory Cost
b. Accounting for transactions in Foreign Currencies
c. Accounting for Depreciation

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d. Accounting for Borrowing Costs

(xiii) The Foreign Currency receivables as per books of accounts 10,000$ USD= ₹80, ₹8,00,000
accounted on 09-Feb-2023.On 31-Mar-2023, The USD= INR 82 then what is the amount
of Foreign Currency Receivables to be reported on 31-Mar-2023 balance sheet as Assets
______.
a. ₹2,000
b. (₹2,000)
c. ₹82,000
d. ₹80,000

(xiv) The main objective of average clause contained in a fire insurance policy is to
____________.
a. Encourage full Insurance
b. Discourage full Insurance
c. Encourage under Insurance
d. Encourage full Insurance and Discourage under Insurance

(xv) Discount given in the Sales - Invoice itself is ________________.

a. Cash discount
b. Trade discount
c. Rebate
d. Allowance

Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
b c d a d c c c d c b d c d b

Section – B

(Answer any five questions out of seven questions given. Each question carries 14 Marks)

2. (a) On comparing the Cash Book of Saksham with the Bank Pass Book for the year
ended 31st March, 2022, following discrepancies were noticed:
i. Out of ₹82,000 paid in by cheques into the bank on 25th March, cheques
amounting to ₹30,000 were collected on 5th April.
ii. Out of cheques drawn amounting to ₹31,200 on 28th March a cheque for
₹ 10,000 was presented on 3rdApril.
iii. A cheque for ₹4,000 entered in Cash Book but omitted to be banked on 31st
March.
iv. A cheque for ₹2,400 deposited into bank but omitted to be recorded in Cash
Book and was collected by the bank on 29th March.
v. A bill receivable for ₹2,080 previously discounted (discount ₹80) with the
bank had been dishonoured but advice was received on 3rd April.

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vi. A bill for ₹40,000 was retired/paid by the bank under a rebate of ₹600 but
the full amount of the bill was credited in the bank column of the Cash Book.
vii. A cheque of ₹10,000 wrongly credited in the Pass Book on 29th March was
reversed on 2nd April.
viii. Bank had wrongly debited ₹20,000 in the account on 31st March and
reversed it on 10th April, 2022.
ix. A cheque of ₹800 drawn on the Savings Account has been shown as drawn
on Current Account in Cash Book.

Prepare a Bank Reconciliation Statement as on 31st March, 2022, if the Balance as

per Cash Book on 31st March was ₹1,58,280. [7]
(b) Rectify the following errors:
i. A credit sale of goods to X ₹ 3,000 posted as ₹ 30,000.
ii. A cash sale of goods to Y ₹ 3,000 posted as ₹ 30,000.
iii. A credit sale of furniture to Z ₹ 3,000 posted as ₹ 30,000
iv. A credit sale of goods of ₹ 3,000 to Krishan entered in the purchases book as
₹ 30,000 and posted therefrom to the credit of Kishan as ₹3,000.
v. A cash sale of goods of ₹ 3,000 to Krishan posted to the credit of Kishan as
₹ 30,000.
vi. A credit purchase of old machinery from Sohan for ₹17,000 was entered in
the purchases book as purchase from Mohan for ₹71,000. ₹3,000 paid as
Repair Charges of this Machinery debited to General Expenses Account.
vii. A bill drawn on Meenu for ₹ 30,000 was passed through bills payable book
with ₹ 3,000 and posted therefrom to the credit of Meena as ₹300.
viii. Sales included a sale of furniture having a book value of ₹900 for ₹850 on 31st
March, 2022. [7]

Answer:

2. (a)
Bank Reconciliation Statement as on 31st March, 2022
Particulars ₹ ₹
Balance as per Cash Book (Dr.) 1,58,280
Add:
(b) Cheques issued on 28th March but not yet presented for payment. 10,000
(d) A cheque deposited into bank but not recorded in Cash Book. 2,400
(f) Rebate on bill not entered in Cash Book 600
(g) Cheque wrongly credited by bank 10,000
(i) Cheque drawn on Savings Bank a/c but wrongly recorded in 800 23,800
current A/c
1,82,080
Less:
(a) Cheques deposited on 25th March but not yet collected till 31st 30,000
March 4,000
(c) A cheque entered in Cash Book but not yet banked 2,080

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(d) Discounted Bills Receivable dishonoured but not recorded in 20,000 56,080
Cash Book
(h) Amount wrongly debited by the Bank
Balance as per Bank Pass Book (Cr.) 1,26,000

(b) Rectification of Errors

Date Particulars Debit Credit
₹ ₹
(i) Suspense A/c Dr. 27,000
To X A/c 27,000
(Being wrong posting now rectified)
(or)
Sales A/c Dr. 27,000
To X A/c 27,000
(Being credit sale of ₹3,000 wrongly posted as ₹ 30,000
now rectified)
(ii) Sales A/c Dr. 27,000
To Suspense A/c 27,000
(Being wrong posting now rectified)
(or)
Sales A/c Dr. 27,000
To Cash A/c 27,000
(Being cash sales of ₹ 3,000 wrongly posted as ₹30,000
now rectified)
(iii) Furniture A/c Dr. 27,000
To Z A/c 27,000
(Being wrong posting now rectified)
(iv) Krishan A/c Dr. 3,000
Kishan A/c Dr. 3,000
Suspense A/c Dr. 27,000
To Sales A/c 3,000
To Purchases A/c 30,000
(Being sale recorded as purchase with wrong among and
wrong posting therefrom, now rectified)
(v) Kishan A/c Dr. 30,000
To Sales A/c 3,000
To Suspense A/c 27,000
(Being wrong posting, now rectified)
(vi) Mohan A/c Dr. 71,000
Machinery A/c Dr. 20,000
To Sohan A/c 17,000
To Purchaes A/c 71,000
To General Expenses A/c 3,000
(Being purchase of old machinery recorded the Purchases
Book and repairing charges debited to General Expenses
A/c, now rectified).
(vii) Bills Receivable A/c Dr. 30,000
Bills Payable A/c Dr. 3,000

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Meena A/c Dr. 300

To Meenu A/c 30,000
To Suspense A/c 3,300
(Beign Bills Receivable drawn recorded in Bills Payable
book now rectified)
(viii) Sales A/c Dr. 850
Loss on Sale of Furniture A/c Dr. 50
To Furniture A/c 900
(Being the sale of furniture recorded as sales, now
rectified)

3.(a) On 1st July, 2022 B. Dutta of Kolkata consigned 250 computers costing ₹28,000 each
to T. Ramasami, Chennai. Expenses of ₹17,000 were met by the consignor.
T. Ramasami spent ₹14,500 for clearance on 31st July, 2022 and selling expenses
were ₹1,500 per computer as and when the sale made by consignee. T. Ramasami
sold on 4th September, 2022, 150 computers at ₹40,000 per computer and again on
21st September, 75 computers at ₹42,500.
Mr. Ramasami was entitled to a commission of ₹1,500 per computer sold plus one-
fourth of the amount by which the gross sale proceeds less total commission there
on exceeded a sum calculated at the rate of ₹35,000 per computer sold.
T. Ramasami sent the account sale and the amount due to B. Dutta on 30 th
September, 2022 by bank demand draft.
You are required to prepare the Consignment Account and T. Ramasami’s Account
in the books of B. Dutta. [7]

(b) Chinu sells goods on hire purchase at cost plus 60 percent. Prepare Hire Purchase
Trading Account from the following information for the year ending 31 st March,
2021.
₹
01-4-2020 Stock with customers at hire purchase price 96,000
31-3-2021 Sale of hire purchase goods during the year at hire purchase price 5,68,000
31-3-2021 Cash received from hire purchase customers 2,65,000
31-3-2021 Stock with customers at hire purchase price 3,64,000
[7]
Answer:

3.(a) Books of B. Dutta of Kolkata

Consignment to Chennai Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
01-7-22 To GSC A/c 70,00,000 04-8-22 By T. Ramasami (Sales) 80,00,000
01-7-22 To Bank A/c (Expenses) 17,000 21-9-22 By T. Ramasami (Sales) 31,87,500
31-7-22 To T. Ramasami A/c (Cl. Exp) 14,500 30-9-22 By Stock on 7,03,150
04-9-22 To T. Ramasami A/c (Selling 2,25,000 Consignment A/c
21-9-22 Exp)
30-9-22 1,12,500

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30-9-22 To T. Ramasami A/c (Selling

Exp) 5,32,500
To T. Ramasami A/c (Comn) 19,89,150
To Profit & Loss A/c
98,90,650 98,90,650

T. Ramasami Chennai Account

Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
04-9-22 To Consignment A/c 60,00,000 31-7-22 By Consignment A/c (Cl. Exp) 14,500
21-9-22 To Consignment A/c 31,87,500 04-9-22 By Consignment A/c (Selling Exp) 2,25,000
21-9-22 By Consignment A/c (Selling Exp) 1,12,500
30-9-22 By Consignment A/c (Comn) 5,32,500
30-9-22 By Bank A/c 83,03,000
91,87,500 91,87,500

Working Notes:
(i) Calculation of Commission
Let ‘X’ be total commission
X = (225 x 1,500) + 1/4 [60,00,000 + 31,87,500 – X – 1 (35,000 x 225)]
X = 3,37,500 + 1/4 (91,87,500 – X – 78,75,000)
X = 3,37,500 + 3,28,125 – X / 4
5 / 4 X = 6,65,625
X = 5,32,500

(ii) Valuation of Stock on Consignment:

Particulars Amount (₹)
Valuation of stock on consignment:
250 – 150 – 75 = 25 computers @ Rs. 28,000 7,00,000
Add: Consignor’s Expenses = 17,000 x 25 / 250 1,700
Add: Share of Consignee’s Clearing Exp. 14,500 x 25/250 1,450
Value of unsold stock 7,03,150

(b)
H.P. Trading Account of Chinnu
for the year ending on 31.3.2021
Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
01-4-20 To Balance b/d 60,000 31-3-21 By Cash A/c 2,65,000
Opening Inst. not due at
Cost (96,000 x 100/160) 31-3-21 By balance c/d 2,27,500
Opening Inst. due but not NIL (Stock with customer)
received Closing Inst. not due at cost
31-3-21 To Cost of goods sold on 3,55,000 (3.64.000 x 100/160)
H.P (5,68,000 x 100/160)
31-3-21 To Profit & Loss A/c (b/f) 1,12,500 31-3-21 By Closing Inst due but not 35,000
received
5,27,500 5,27,500

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Working Note (1):

Mem. H.P. Debtors Account
Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To balance b/d NIL By Cash A/c 2,65,000
To H.P. Stock W.N. (2) 3,00,000 By balance c/d (b/f) 35,000

3,00,000 3,00,000

Working Note (2):

Mem. H.P. Stock Account
Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To balance b/d 96,000 By H.P. Debtors a/c 3,00,000
To Goods Sold on H.P. 5,68,000 By balance c/d 3,64,000

6,64,000 6,64,000

4. Jodhpur Club furnishes you the Receipts and Payments Account for the year ended
31.3.2022:
Receipts ₹ Payments ₹
Cash in hand (1.4.2021) 40,000 Salary 20,000
Cash at bank (1.4.2021) 1,00,000 Repair expenses 5,000
Donations 50,000 Furniture 60,000
Subscriptions 1,20,000 Investments 60,000
Entrance Fees 10,000 Misc. expenses 5,000
Interest on investments 1,000 Insurance Premium 2,000
Interest from banks 4,000 Billiards table and other 80,000
Sale of old newspapers 1,500 sports items
Sale of drama tickets 10,500 Stationery expenses 1,500
Drama expenses 5,000
Cash in hand (31.3.2022) 26,500
Cash at bank (31.3.2022) 72,000
3,37,000 3,37,000

Additional Information:
(a) Subscriptions in arrear for 2021-22 ₹9,000 and subscription in advance for the
year 2022-23 ₹3,500.
(b) ₹400 was the insurance premium outstanding as on 31.3,2022.
(c) Miscellaneous expenses prepaid ₹900.
(d) 50% of donation is to be capitalised.
(e) Entrance fees to be treated as revenue income.
(f) 8% interest has accrued on investments for five months.

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(g) Billiards table and other sports equipments costing ₹3,00,000 were purchased
in the financial year 2020-21 and of which ₹80,000 was not paid 31.3.2021.
There is no charge for depreciation to be considered.
You are required to prepare Income and Expenditure Account for the year ended
31.3.2022 and balance sheet of the Club as at 31.3.2022. [14]

Answer:

Jodhpur Club
Income and Expenditure Account for the year ended 31.3.2022
Dr. Cr.
Expenditure Amount Income Amount
₹ ₹
To Salary 20,000 By Subscription 1,25,500
To Repair Expenses 5,000 (1,20,000 + 9,000 – 3,500)
To Misc. Expenses (5,000 – 900) 4,100 By Donation @ 50% 25,000
Less Prepaid By Entrance Fee 10,000
To Insurance premium 2,400 By Sale of Old Newspaper 1,500
(Incl. Outstanding) By Bank Interest 4,000
To Stationery expenses 1,500 By Interest on Investments 3,000
To Drama Expenses 5,000 (60,000 x 8% x 5/12) +
To Excess of Income over 1,000 10,500
Expenditure 1,41,500 By Sale of Drama tickets
1,79,500 1,79,500

Balance Sheet as on 01.04.2021

Liabilities Amount Assets Amount

₹ ₹
Capital Fund (Bal. fig) 3,60,000 Cash in hand 40,000
Billiards table outstanding 80,000 Cash at bank 1,00,000
Billiards table and other 3,00,000
sports equipments
4,40,000 4,40,000

Balance Sheet as on 31.03.2022

Liabilities Amount Assets Amount
₹ ₹
Capital Fund 3,60,000 Cash in hand 26,500
Add: Donations 25,000 Cash at Bank 72,000
Excess of Income over Investments 60,000
Expenditure 1,41,500 5,26,500 Accrued Interest 2,000 62,000
Subscriptions in advance 3,500 Furniture 60,000
Insurance Premium outstanding 400 Prepaid Misc. Exp. 900
Subscription Arrears 9,000
Billiards table and other
sports equipment. 3,00,000
5,30,400 5,30,400

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5. P, Q, R and T have been carrying on business in partnership sharing profits and

losses in the ratio of 4:1:2:3.
The following is their Balance Sheet as on 31st March, 2022:
Liabilities ₹ Assets ₹
Capital Accounts: Premises 2,80,000
P ₹7,00,000 Furniture 30,000
T ₹3,00,000 10,00,000 Stock-in-Trade 2,00,000
Trade Creditors 3,00,000 Trade Debtors ₹3,50,000
Less: Provision for
Bad debts ₹50,000 3,00,000
Cash at Bank 1,40,000
Capital Accounts:
Q ₹2,00,000
R ₹1,50,000 3,50,000
13,00,000 13,00,000

It has been agreed to dissolve the partnership on 1st April, 2022 on the basis of the
following points agreed upon:
i. P is to take over Trade Debtors at 80% of Book Value (₹ 3,50,000)
ii. T is to take over the Stock in Trade at 95% of the value; and
iii. R is to discharge Trade Creditors
iv. The realisation is : Premises ₹ 2,75,000 and Furniture ₹ 25,000.
v. The expenses of realisation come to ₹ 30,000.
vi. Q is found insolvent and ₹ 21,900 is realised from his estate.
Note: The loss arising out of capital deficiency may be distributed following
decision in Garner V Murray.
You are required to prepare:
I. Realisation Account
II. Bank/Cash Account
III. Capital Accounts of the Partners [14]

Answer:

In the Books of P, Q, R & T

Realisation Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
2022 To Trade debtors A/c 3,50,000 2022 By Provision for Bad debts A/c 50,000
April April 1 By Trade Creditors A/c 3,00,000
1 To Stock in Trade A/c 2,00,000 By P’s Capital A/c 2,80,000
To Premises A/c 2,80,000 (Trade Debtors taken over)
To Furniture A/c 30,000 By T’s Capital A/c 1,90,000
To R’s Capital A/c 3,00,000 (Stock-in-trade taken over)
(Trade credit discharged) By Bank A/c (Assets realised) 3,00,000
To Bank/Cash (Expenses) 30,000 By Partners Capital A/c
(P: ₹ 28,000

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Q: ₹7,000
R: ₹14,000
T: ₹21,000) 70,000
11,90,000 11,90,000

Bank/Cash Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
2022 To balance b/d 1,40,000 2022 By Realisation A/c (expenses) 30,000
April 1 April 1
To Realization A/c 3,00,000 By Partners Capital A/c
P: 2,90,430
To Partners Capital A/c R: 1,50,000
P: 28,000 T: 54,470
Q: 21,900
R: 14,000
T: 21,000

5,24,900 5,24,900

Partners Capital Accounts (Amount in ₹)

Dr. Cr.
Particulars P Q R T Particulars P Q R T
To balance b/d -- 2,00,000 1,50,000 -- By balance b/d 7,00,000 -- -- 3,00,000
To Realisation A/c 2,80,000 -- -- 1,90,000 By Realisation A/c -- -- 3,00,000 --
To Realisation A/c 28,000 7,000 14,000 21,000 By Bank/Cash A/c 28,000 -- 14,000 21,000
(Loss) By Bank/Cash A/c -- 21,900 -- --
To Capital A/c 1,29,570 -- -- 55,530 (W.No. 1)
(W.No. 2) By P’s Capital A/c -- 1,29,570 -- --
To Bank/Cash A/c 2,90,430 -- 1,50,000 54,470 By T’s Capital A/c -- 55,530 -- --
7,28,000 2,07,000 3,14,000 3,21,000 7,28,000 2,07,000 3,14,000 3,21,000

Working Notes:
(1) Solvent partners should bring in cash to make good the loss on realization.
(2) Q’s deficiency of ₹ 1,85,100 (₹ 2,07,000 – ₹ 21,900) should be shared by P and T in the ratio
of their capital i.e. 7 : 3. R will not bear any locc on deficiency, because at the time of
dissolution he had a debit balance in his Capital Account.
(3) The amount realised from the estate of Q is ₹ 21,900.

6.(a) Prepare Branch Account in the books of the Head Office and also debtors account
from the following information given below for the year 2022:

The Unique Shoe Stores has an old branch at Kanpur. Goods are invoiced at the
branch at 25% profit on cost price. The branch has been instructed to send all cash
daily to the Head Office. All expenses are paid by the Head Office except petty
expenses which are met by the Branch Manager:
₹
Stock on 1.1.2022 (Invoice Price) 15,000
Sundry debtors on 1.1.2022 9,000
Cash in hand on 1.1.2022 400

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FINANCIAL ACCOUNTING

Office furniture on 1.1.2022 1,200

Goods supplied by the Head Office (invoice price) for the year 80,000
Goods returned to Head Office for year 1,000
Goods returned by debtors at the end of year 480
Debtors at the end of year 8,220
Cash sales for year 50,000
Credit sales for year 30,000
Discount allowed for year 300
Expenses paid by Head Office: for year ₹
Rent 1,200
Salary 2,400
Stationery 300 3,900
Petty expenses paid by Branch Manager during year 280
Stock on 31.12.2022 14,000
Provide depreciation on furniture at 10% per year. [7]

(b) Due to flood, business of Mr. Singh was dislocated from 1.4.2021 to 31.8.2021 (5
months). From the following details, suggest the amount of claim to be lodged in
respect of loss of profit policy.
Particulars ₹
Policy amount 1,25,000
Turnover from 1.4.2021 to 31.8.2021 2,40,000
Standing charges from 1.4.2021 to 31.8.2021 60,000
Turnover during 1.4.2020 to 31.3.2021 12,00,000
Gross profit ratio 10% on sales
Standing charges for the year 2020-21 84,000
The turnover for the year 2021-22 was anticipated to increase by 10% over the
turnover of the preceding year. [7]

Answer:

6. (a)
In the books of Unique Shoe Stores
Branch Account
Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To Branch Stock A/c 15,000 By Cash (Remittances)
To Branch debtors A/c 9,000 Cash Sales 50,000
To Branch Cash in hand 400 Cash from debtors 30,000 80,000
To Branch office furniture 1,200 By Branch Stock 14,000
To Goods sent to branch A/c 80,000 By Branch debtors 8,220
Less: Return to H.O 1,000 79,000 By Branch furniture 1,080
To Bank: By Stock Reserve 3,000
Rent 1,200 By Goods sent to Branch A/c 15,800
Salary 2,400 By Branch cash in hand 120

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FINANCIAL ACCOUNTING

Salary 300 3,900 (400 – 280)

To Stock Reserve A/c 2,800
To General P & L A/c 10,920
1,22,220 1,22,220

Debtors Account
Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To balance b/d 9,000 By Sales Return A/c 480
To Credit sales A/c 30,000 By Cash A/c (B/f) 30,000
By Discount A/c 300
By balance c/d 8,220
39,000 39,000
(b)
Particulars ₹
Standard turnover per month (2020 – 21) 1,00,000
Add: Increase anticipated plus 10% 10,000
Expected turnover per month 1,10,000
Standard turnover for the period of dislocation (1,10,000 x 5) 5,50,000
Less: Actual turnover for the period of dislocation 2,40,000
Short sales 3,10,000
Gross Profit on Short Sales @ 10% 31,000
Add: Increased cost of working actual
Standard charges for the period of dislocation (7,000 x 5 = 35,000)
Actual standing charges incurred during the period of dislocation = ₹60,000
Increase in cost of working during period of dislocation ₹60,000 – ₹35,000 25,000
Claim to be lodged 56,000
Note:
1) In absence of any information regarding insured standing charges, uninsured standing charges,
Net Profit etc. increase in cost of working during the period of dislocation is determined in this
manner.
2) Since the Annual Turnover is not mentioned the Average Clause is not applied.

7.(a) On 14.08.2022, Pushkar Ltd. obtained a loan from RBC Bank of ₹65 lakhs to be
utilised as under:
Purchase of equipment: ₹ 19,50,000;
Construction of factory shed: ₹ 26,00,000;
Advance for purchase of delivery vehicle: ₹ 6,50,000;
Working capital: ₹ 13,00,000.
In March, 2023 installation of the machinery was completed and also construction
of factory shed was completed and the machinery installed. However, the truck was
not delivered within 31.03.2023. Total interest charged by the bank for the year
ending 31.3.2023 was ₹11.70 lakhs. Discuss how the interest amount would be
treated in the financial statements of the company as per AS-6. [7]

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FINANCIAL ACCOUNTING

(b) Big Box Ltd., a start-up purchased on April 1, 2019, a machine worth ₹ 44,85,000
in relation to which it received ₹7,35,000 as grant from Government of India. The
company decided to treat this grant as a capital receipt. Itis estimated that the
realizable value of the machine at the end of its useful life of 4 years will be
₹15,36,000.

During the financial year 2021-22, the grant became refundable as the start-up
company failed to comply with the necessary terms and conditions of the grant.

You are required to examine the amount of depreciation that is to be charged to the
Statement of Profit and Loss for the years 2021-22 and 2022-23 given that the
company follows straight line method of charging depreciation. [7]

Answer:

7.(a) In this case, only the factory shed is a Qualifying Asset (QA) as per AS 16. The amount of
interest on borrowings and its treatment is presented below:

Particulars Nature of Interest Interest charged

Asset Capitalised to Income
Statement
₹
Purchase of equipment Not a QA 3,51,000
[11.7 x 19.5/65]
Construction of factory shed QA 4,68,000
[11.7 x 26/65]
Advance for purchase of delivery vehicle Not a QA 1,17,000
[11.7 x 6.5/65]
Working capital Not a QA 2,34,000
[11.7 x 13/65]
Total 4,68,000 7,02,000

(b) As per AS 12, the amount refundable in respect of government grant is related to specific fixed
asset is recorded by increasing the book value of the asset or by reducing the capital reserve or the
deferred income balance, as appropriate, by the amount refundable. In case the book value of the
asset is increased, depreciation is provided on the revised book value.

Calculation of Depreciation for the years 2021-22 and 2022-23

Particulars ₹ (‘000)
Cost of machine on 1.1.2019 4,485
Less: Grant from Government of India 735
Net cost of machine 3,750
Estimated useful life 4 years
Depreciation p.a under straight line method
, , 553.5
Depreciation charged during 2019-20 and 2020-21 [553.5 x 2] 1,107
Book value of machine on 1.4.2021 [3,750 – 1,107] 2,643
Add: Refund of Government Grant during 2021-22 735

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FINANCIAL ACCOUNTING

Revised Book Value of machine 3,378

Remaining useful life of machine 2 years
Revised depreciation p.a.
, , 921

8. Answer the following questions:

(a) Infer with reason how the following will be classified as Timing Difference and
Permanent Difference and also state whether they would result in Deferred Tax
Asset or Deferred Tax Liability:
(i) Unabsorbed depreciation
(ii) Income tax penalty
(iii) Interest on loan taken from scheduled bank accounted in the books, but not
paid till the date of filing Return of Income. [5]

(b) A company maintains its reserve for bad debts @ 5% and a reserve for discount
on debtors @ 2%. You are given the following details:
Particulars 2021 2022
Bad debts ₹800 ₹1,500
Discount allowed ₹1,200 ₹500
Sundry Debtors (before providing all bad debts and ₹60,000 ₹42,000
discounts)
On 1-1-2021, Reserve for bad debts and Reserve for discount on debtors had
balance of ₹ 4,550 and ₹ 800 respectively.
Prepare Reserve for Bad Debts Account for the year 2021 and 2022. [5]

(c) Write a note on - Applicability of Garner V Murray Rule. [4]

Answer:

8.(a)
Particulars Nature of Asset Interest Capitalised
Unabsorbed depreciation Timing Difference DTA
Income Tax Penalty Permanent Difference Neither DTA nor DTL
to be created
Interest on loan taken from schedule bank Permanent Difference Neither DTA nor DTL
accounted in the books, but not paid till to be created
the date of filing Return of Income.

(b)
In the Books of …….
Dr. Provision for Bad Debts Account Cr.
(₹in ‘000s)
Date Particulars Amount Date Particulars Amount
31.12.21 To Bad Debts A/c 800 1.1.21 By Balance b/d 4,550
31.12.21 To Profit & Loss A/c 850

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31.12.21 To Balance c/d 2,900

5% of (Rs 58,000)
4,550 4,550
31.12.22 To Bad Debts A/c 1,500 1.1.22 By Balance b/d 2,900
31.12.22 To Balance c/d 2,000 31.12.22 By Profit & Loss A/c 600
5% of (₹ 40,000)
3,500 3,500

(c) Applicability of Garner V Murray in India:

According to sub section (ii) of Sec 48(b) of the Indian Partnership Act, if a partner becomes
insolvent or otherwise incapable of paying his share of the contribution, the solvent partners must
share ratably the available assets (including their own contribution to the capital deficiency). That
is to say, the available assets will be distributed in proportion to their capitals.

Thus, under the Indian Partnership Act also the solvent partners are required to make good their
share of the realization loss (i.e., capital deficiency). The total cash available after making good
the solvent partners’ share of capital deficiency shall be shared by the solvent partners in proportion
to their capitals. As a result of this the ultimate debit balance of the insolvent partner’s Capital A/c.
is borne by the solvent partners in capital ratio.

The provision of the Indian Partnership Act in this respect are, thus, similar to the rules laid down
by the decision in Garner vs. Murray.

When there is a specific provision in the Partnership Deed as to how the deficiency of an insolvent
partner is to be borne by the solvent partners, such provision must be followed, because the
provision of the Act will apply only when there is no specific agreement.

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PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

Time Allowed: 3 Hours Full Marks: 100

The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct alternative: [15 x 2 = 30]

(i) The concept that business is assumed to exist for an indefinite period and is not
established with the objective of closing down is referred to as ____________________.
a. Money Measurement concept
b. Going Concern concept
c. Full Disclosure concept
d. Dual Aspect concept

(ii) Income Statement of a charitable institution is known as ____________________.

a. Profit and Loss A/c
b. Receipts and payments A/c
c. Income and Expenditure A/c
d. Statement of Affairs

(iii) Goods are transferred from Department A to Department B at a price so as to include a

profit of 33.33% on cost. If the value of closing stock of Department Y is ₹36,000, then
the amount of stock reserve on closing stock will be ________________.
a. ₹12,000
b. ₹9,000
c. ₹18,000
d. None of the above

(iv) In the hire purchase system interest charged by vendor is calculated on the basis of
__________.
a. Outstanding cash Price
b. Hire purchase Price
c. Installment amount
d. None of the above

(v) Bad debts Recovered ₹750. It will be _____________.

a. Credited to Bad debts A/c
b. Credited to debtor‘s personal A/c
c. Debited to creditor‘s personal A/c
d. Credited to bad debts recovered A/c

(vi) A Charitable Institution has 250 members with a annual subscription of ₹5,000 each.
The subscription received during 2020-21 were ₹11,25,000, which include ₹65,000 and
₹25,000 for the years of 2019-20 and 2021-22 respectively. The amount of outstanding
subscription for the 2020-21 will be _____________.

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a. ₹90,000
b. ₹1,25,000
c. ₹2,15,000
d. ₹1,90,000

(vii) Shiva draws a bill on Sanat on 25th October, 2021 for 90 days, the maturity date of the
bill will be _______________.
a. 25thFebruary, 2022
b. 30th January, 2022
c. 25th January, 2022
d. 28th Feb, 2022

(viii) In a Cash Book Debit balance of ₹112 brought forward as credit balance of ₹121, while
preparing a Bank Reconciliation Statement taking the balance as per Cash Book as the
starting point ____________________.
a. ₹112 to be added
b. ₹ 121 to be added
c. ₹ 233 to be added
d. ₹ 112 to be subtracted

(ix) Del credere commission is allowed to consignee _____________.

a. For making cash sales
b. for making credit sales
c. For making extra sales
d. For undertaking risk of bad debts

(x) KCS purchased a machine from JPS on hire purchase system, whose cash price was
₹ 8,64,000. ₹ 2,16,000 being paid on delivery and balance in three annual installments of
₹2,88,000 each. The amount of interest included in first installment would be
_____________.
a. ₹ 72,000
b. ₹ 57,600
c. ₹ 1,08,000
d. ₹ 36,000

(xi) Provision for Doubtful Debt on 1st April, 2021 was ₹21,500. During the year 2021 – 22
the Bad-debt and Recovery of Bad-debt were ₹10,500 and ₹2,100 respectively. The
Sundry Debtors on 31st March, 2022 were ₹2,25,000. Provision is to be made @ 5% on
Debtors. If on 31st March, 2022, there was additional Bad-debt of ₹2,500 then Provision
for doubtful-debt will be___________________.
a. Debited to Profit & Loss Account by ₹11,250.
b. Debited to Profit & Loss Account by ₹2,625.
c. Debited to Profit & Loss Account by ₹3,000.
d. Debited to Profit & Loss Account by ₹900.

(xii) AS -16 Deals with ___________________.

a. Accounting of Inventory Cost
b. Accounting for transactions in Foreign Currencies
c. Accounting for Depreciation

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d. Accounting for Borrowing Costs

(xiii) The Foreign Currency receivables as per books of accounts 10,000$ USD= ₹80, ₹8,00,000
accounted on 09-Feb-2023.On 31-Mar-2023, The USD= INR 82 then what is the amount
of Foreign Currency Receivables to be reported on 31-Mar-2023 balance sheet as Assets
______.
a. ₹2,000
b. (₹2,000)
c. ₹82,000
d. ₹80,000

(xiv) The main objective of average clause contained in a fire insurance policy is to
____________.
a. Encourage full Insurance
b. Discourage full Insurance
c. Encourage under Insurance
d. Encourage full Insurance and Discourage under Insurance

(xv) Discount given in the Sales - Invoice itself is ________________.

a. Cash discount
b. Trade discount
c. Rebate
d. Allowance

Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
b c d a d c c c d c b d c d b

Section – B

(Answer any five questions out of seven questions given. Each question carries 14 Marks)

2. (a) On comparing the Cash Book of Saksham with the Bank Pass Book for the year
ended 31st March, 2022, following discrepancies were noticed:
i. Out of ₹82,000 paid in by cheques into the bank on 25th March, cheques
amounting to ₹30,000 were collected on 5th April.
ii. Out of cheques drawn amounting to ₹31,200 on 28th March a cheque for
₹ 10,000 was presented on 3rdApril.
iii. A cheque for ₹4,000 entered in Cash Book but omitted to be banked on 31st
March.
iv. A cheque for ₹2,400 deposited into bank but omitted to be recorded in Cash
Book and was collected by the bank on 29th March.
v. A bill receivable for ₹2,080 previously discounted (discount ₹80) with the
bank had been dishonoured but advice was received on 3rd April.

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vi. A bill for ₹40,000 was retired/paid by the bank under a rebate of ₹600 but
the full amount of the bill was credited in the bank column of the Cash Book.
vii. A cheque of ₹10,000 wrongly credited in the Pass Book on 29th March was
reversed on 2nd April.
viii. Bank had wrongly debited ₹20,000 in the account on 31st March and
reversed it on 10th April, 2022.
ix. A cheque of ₹800 drawn on the Savings Account has been shown as drawn
on Current Account in Cash Book.

Prepare a Bank Reconciliation Statement as on 31st March, 2022, if the Balance as

per Cash Book on 31st March was ₹1,58,280. [7]
(b) Rectify the following errors:
i. A credit sale of goods to X ₹ 3,000 posted as ₹ 30,000.
ii. A cash sale of goods to Y ₹ 3,000 posted as ₹ 30,000.
iii. A credit sale of furniture to Z ₹ 3,000 posted as ₹ 30,000
iv. A credit sale of goods of ₹ 3,000 to Krishan entered in the purchases book as
₹ 30,000 and posted therefrom to the credit of Kishan as ₹3,000.
v. A cash sale of goods of ₹ 3,000 to Krishan posted to the credit of Kishan as
₹ 30,000.
vi. A credit purchase of old machinery from Sohan for ₹17,000 was entered in
the purchases book as purchase from Mohan for ₹71,000. ₹3,000 paid as
Repair Charges of this Machinery debited to General Expenses Account.
vii. A bill drawn on Meenu for ₹ 30,000 was passed through bills payable book
with ₹ 3,000 and posted therefrom to the credit of Meena as ₹300.
viii. Sales included a sale of furniture having a book value of ₹900 for ₹850 on 31st
March, 2022. [7]

Answer:

2. (a)
Bank Reconciliation Statement as on 31st March, 2022
Particulars ₹ ₹
Balance as per Cash Book (Dr.) 1,58,280
Add:
(b) Cheques issued on 28th March but not yet presented for payment. 10,000
(d) A cheque deposited into bank but not recorded in Cash Book. 2,400
(f) Rebate on bill not entered in Cash Book 600
(g) Cheque wrongly credited by bank 10,000
(i) Cheque drawn on Savings Bank a/c but wrongly recorded in 800 23,800
current A/c
1,82,080
Less:
(a) Cheques deposited on 25th March but not yet collected till 31st 30,000
March 4,000
(c) A cheque entered in Cash Book but not yet banked 2,080

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(d) Discounted Bills Receivable dishonoured but not recorded in 20,000 56,080
Cash Book
(h) Amount wrongly debited by the Bank
Balance as per Bank Pass Book (Cr.) 1,26,000

(b) Rectification of Errors

Date Particulars Debit Credit
₹ ₹
(i) Suspense A/c Dr. 27,000
To X A/c 27,000
(Being wrong posting now rectified)
(or)
Sales A/c Dr. 27,000
To X A/c 27,000
(Being credit sale of ₹3,000 wrongly posted as ₹ 30,000
now rectified)
(ii) Sales A/c Dr. 27,000
To Suspense A/c 27,000
(Being wrong posting now rectified)
(or)
Sales A/c Dr. 27,000
To Cash A/c 27,000
(Being cash sales of ₹ 3,000 wrongly posted as ₹30,000
now rectified)
(iii) Furniture A/c Dr. 27,000
To Z A/c 27,000
(Being wrong posting now rectified)
(iv) Krishan A/c Dr. 3,000
Kishan A/c Dr. 3,000
Suspense A/c Dr. 27,000
To Sales A/c 3,000
To Purchases A/c 30,000
(Being sale recorded as purchase with wrong among and
wrong posting therefrom, now rectified)
(v) Kishan A/c Dr. 30,000
To Sales A/c 3,000
To Suspense A/c 27,000
(Being wrong posting, now rectified)
(vi) Mohan A/c Dr. 71,000
Machinery A/c Dr. 20,000
To Sohan A/c 17,000
To Purchaes A/c 71,000
To General Expenses A/c 3,000
(Being purchase of old machinery recorded the Purchases
Book and repairing charges debited to General Expenses
A/c, now rectified).
(vii) Bills Receivable A/c Dr. 30,000
Bills Payable A/c Dr. 3,000

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Meena A/c Dr. 300

To Meenu A/c 30,000
To Suspense A/c 3,300
(Beign Bills Receivable drawn recorded in Bills Payable
book now rectified)
(viii) Sales A/c Dr. 850
Loss on Sale of Furniture A/c Dr. 50
To Furniture A/c 900
(Being the sale of furniture recorded as sales, now
rectified)

3.(a) On 1st July, 2022 B. Dutta of Kolkata consigned 250 computers costing ₹28,000 each
to T. Ramasami, Chennai. Expenses of ₹17,000 were met by the consignor.
T. Ramasami spent ₹14,500 for clearance on 31st July, 2022 and selling expenses
were ₹1,500 per computer as and when the sale made by consignee. T. Ramasami
sold on 4th September, 2022, 150 computers at ₹40,000 per computer and again on
21st September, 75 computers at ₹42,500.
Mr. Ramasami was entitled to a commission of ₹1,500 per computer sold plus one-
fourth of the amount by which the gross sale proceeds less total commission there
on exceeded a sum calculated at the rate of ₹35,000 per computer sold.
T. Ramasami sent the account sale and the amount due to B. Dutta on 30 th
September, 2022 by bank demand draft.
You are required to prepare the Consignment Account and T. Ramasami’s Account
in the books of B. Dutta. [7]

(b) Chinu sells goods on hire purchase at cost plus 60 percent. Prepare Hire Purchase
Trading Account from the following information for the year ending 31 st March,
2021.
₹
01-4-2020 Stock with customers at hire purchase price 96,000
31-3-2021 Sale of hire purchase goods during the year at hire purchase price 5,68,000
31-3-2021 Cash received from hire purchase customers 2,65,000
31-3-2021 Stock with customers at hire purchase price 3,64,000
[7]
Answer:

3.(a) Books of B. Dutta of Kolkata

Consignment to Chennai Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
01-7-22 To GSC A/c 70,00,000 04-8-22 By T. Ramasami (Sales) 80,00,000
01-7-22 To Bank A/c (Expenses) 17,000 21-9-22 By T. Ramasami (Sales) 31,87,500
31-7-22 To T. Ramasami A/c (Cl. Exp) 14,500 30-9-22 By Stock on 7,03,150
04-9-22 To T. Ramasami A/c (Selling 2,25,000 Consignment A/c
21-9-22 Exp)
30-9-22 1,12,500

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30-9-22 To T. Ramasami A/c (Selling

Exp) 5,32,500
To T. Ramasami A/c (Comn) 19,89,150
To Profit & Loss A/c
98,90,650 98,90,650

T. Ramasami Chennai Account

Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
04-9-22 To Consignment A/c 60,00,000 31-7-22 By Consignment A/c (Cl. Exp) 14,500
21-9-22 To Consignment A/c 31,87,500 04-9-22 By Consignment A/c (Selling Exp) 2,25,000
21-9-22 By Consignment A/c (Selling Exp) 1,12,500
30-9-22 By Consignment A/c (Comn) 5,32,500
30-9-22 By Bank A/c 83,03,000
91,87,500 91,87,500

Working Notes:
(i) Calculation of Commission
Let ‘X’ be total commission
X = (225 x 1,500) + 1/4 [60,00,000 + 31,87,500 – X – 1 (35,000 x 225)]
X = 3,37,500 + 1/4 (91,87,500 – X – 78,75,000)
X = 3,37,500 + 3,28,125 – X / 4
5 / 4 X = 6,65,625
X = 5,32,500

(ii) Valuation of Stock on Consignment:

Particulars Amount (₹)
Valuation of stock on consignment:
250 – 150 – 75 = 25 computers @ Rs. 28,000 7,00,000
Add: Consignor’s Expenses = 17,000 x 25 / 250 1,700
Add: Share of Consignee’s Clearing Exp. 14,500 x 25/250 1,450
Value of unsold stock 7,03,150

(b)
H.P. Trading Account of Chinnu
for the year ending on 31.3.2021
Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
01-4-20 To Balance b/d 60,000 31-3-21 By Cash A/c 2,65,000
Opening Inst. not due at
Cost (96,000 x 100/160) 31-3-21 By balance c/d 2,27,500
Opening Inst. due but not NIL (Stock with customer)
received Closing Inst. not due at cost
31-3-21 To Cost of goods sold on 3,55,000 (3.64.000 x 100/160)
H.P (5,68,000 x 100/160)
31-3-21 To Profit & Loss A/c (b/f) 1,12,500 31-3-21 By Closing Inst due but not 35,000
received
5,27,500 5,27,500

7
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

Working Note (1):

Mem. H.P. Debtors Account
Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To balance b/d NIL By Cash A/c 2,65,000
To H.P. Stock W.N. (2) 3,00,000 By balance c/d (b/f) 35,000

3,00,000 3,00,000

Working Note (2):

Mem. H.P. Stock Account
Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To balance b/d 96,000 By H.P. Debtors a/c 3,00,000
To Goods Sold on H.P. 5,68,000 By balance c/d 3,64,000

6,64,000 6,64,000

4. Jodhpur Club furnishes you the Receipts and Payments Account for the year ended
31.3.2022:
Receipts ₹ Payments ₹
Cash in hand (1.4.2021) 40,000 Salary 20,000
Cash at bank (1.4.2021) 1,00,000 Repair expenses 5,000
Donations 50,000 Furniture 60,000
Subscriptions 1,20,000 Investments 60,000
Entrance Fees 10,000 Misc. expenses 5,000
Interest on investments 1,000 Insurance Premium 2,000
Interest from banks 4,000 Billiards table and other 80,000
Sale of old newspapers 1,500 sports items
Sale of drama tickets 10,500 Stationery expenses 1,500
Drama expenses 5,000
Cash in hand (31.3.2022) 26,500
Cash at bank (31.3.2022) 72,000
3,37,000 3,37,000

Additional Information:
(a) Subscriptions in arrear for 2021-22 ₹9,000 and subscription in advance for the
year 2022-23 ₹3,500.
(b) ₹400 was the insurance premium outstanding as on 31.3,2022.
(c) Miscellaneous expenses prepaid ₹900.
(d) 50% of donation is to be capitalised.
(e) Entrance fees to be treated as revenue income.
(f) 8% interest has accrued on investments for five months.

8
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

(g) Billiards table and other sports equipments costing ₹3,00,000 were purchased
in the financial year 2020-21 and of which ₹80,000 was not paid 31.3.2021.
There is no charge for depreciation to be considered.
You are required to prepare Income and Expenditure Account for the year ended
31.3.2022 and balance sheet of the Club as at 31.3.2022. [14]

Answer:

Jodhpur Club
Income and Expenditure Account for the year ended 31.3.2022
Dr. Cr.
Expenditure Amount Income Amount
₹ ₹
To Salary 20,000 By Subscription 1,25,500
To Repair Expenses 5,000 (1,20,000 + 9,000 – 3,500)
To Misc. Expenses (5,000 – 900) 4,100 By Donation @ 50% 25,000
Less Prepaid By Entrance Fee 10,000
To Insurance premium 2,400 By Sale of Old Newspaper 1,500
(Incl. Outstanding) By Bank Interest 4,000
To Stationery expenses 1,500 By Interest on Investments 3,000
To Drama Expenses 5,000 (60,000 x 8% x 5/12) +
To Excess of Income over 1,000 10,500
Expenditure 1,41,500 By Sale of Drama tickets
1,79,500 1,79,500

Balance Sheet as on 01.04.2021

Liabilities Amount Assets Amount

₹ ₹
Capital Fund (Bal. fig) 3,60,000 Cash in hand 40,000
Billiards table outstanding 80,000 Cash at bank 1,00,000
Billiards table and other 3,00,000
sports equipments
4,40,000 4,40,000

Balance Sheet as on 31.03.2022

Liabilities Amount Assets Amount
₹ ₹
Capital Fund 3,60,000 Cash in hand 26,500
Add: Donations 25,000 Cash at Bank 72,000
Excess of Income over Investments 60,000
Expenditure 1,41,500 5,26,500 Accrued Interest 2,000 62,000
Subscriptions in advance 3,500 Furniture 60,000
Insurance Premium outstanding 400 Prepaid Misc. Exp. 900
Subscription Arrears 9,000
Billiards table and other
sports equipment. 3,00,000
5,30,400 5,30,400

9
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

5. P, Q, R and T have been carrying on business in partnership sharing profits and

losses in the ratio of 4:1:2:3.
The following is their Balance Sheet as on 31st March, 2022:
Liabilities ₹ Assets ₹
Capital Accounts: Premises 2,80,000
P ₹7,00,000 Furniture 30,000
T ₹3,00,000 10,00,000 Stock-in-Trade 2,00,000
Trade Creditors 3,00,000 Trade Debtors ₹3,50,000
Less: Provision for
Bad debts ₹50,000 3,00,000
Cash at Bank 1,40,000
Capital Accounts:
Q ₹2,00,000
R ₹1,50,000 3,50,000
13,00,000 13,00,000

It has been agreed to dissolve the partnership on 1st April, 2022 on the basis of the
following points agreed upon:
i. P is to take over Trade Debtors at 80% of Book Value (₹ 3,50,000)
ii. T is to take over the Stock in Trade at 95% of the value; and
iii. R is to discharge Trade Creditors
iv. The realisation is : Premises ₹ 2,75,000 and Furniture ₹ 25,000.
v. The expenses of realisation come to ₹ 30,000.
vi. Q is found insolvent and ₹ 21,900 is realised from his estate.
Note: The loss arising out of capital deficiency may be distributed following
decision in Garner V Murray.
You are required to prepare:
I. Realisation Account
II. Bank/Cash Account
III. Capital Accounts of the Partners [14]

Answer:

In the Books of P, Q, R & T

Realisation Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
2022 To Trade debtors A/c 3,50,000 2022 By Provision for Bad debts A/c 50,000
April April 1 By Trade Creditors A/c 3,00,000
1 To Stock in Trade A/c 2,00,000 By P’s Capital A/c 2,80,000
To Premises A/c 2,80,000 (Trade Debtors taken over)
To Furniture A/c 30,000 By T’s Capital A/c 1,90,000
To R’s Capital A/c 3,00,000 (Stock-in-trade taken over)
(Trade credit discharged) By Bank A/c (Assets realised) 3,00,000
To Bank/Cash (Expenses) 30,000 By Partners Capital A/c
(P: ₹ 28,000

10
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

Q: ₹7,000
R: ₹14,000
T: ₹21,000) 70,000
11,90,000 11,90,000

Bank/Cash Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
₹ ₹
2022 To balance b/d 1,40,000 2022 By Realisation A/c (expenses) 30,000
April 1 April 1
To Realization A/c 3,00,000 By Partners Capital A/c
P: 2,90,430
To Partners Capital A/c R: 1,50,000
P: 28,000 T: 54,470
Q: 21,900
R: 14,000
T: 21,000

5,24,900 5,24,900

Partners Capital Accounts (Amount in ₹)

Dr. Cr.
Particulars P Q R T Particulars P Q R T
To balance b/d -- 2,00,000 1,50,000 -- By balance b/d 7,00,000 -- -- 3,00,000
To Realisation A/c 2,80,000 -- -- 1,90,000 By Realisation A/c -- -- 3,00,000 --
To Realisation A/c 28,000 7,000 14,000 21,000 By Bank/Cash A/c 28,000 -- 14,000 21,000
(Loss) By Bank/Cash A/c -- 21,900 -- --
To Capital A/c 1,29,570 -- -- 55,530 (W.No. 1)
(W.No. 2) By P’s Capital A/c -- 1,29,570 -- --
To Bank/Cash A/c 2,90,430 -- 1,50,000 54,470 By T’s Capital A/c -- 55,530 -- --
7,28,000 2,07,000 3,14,000 3,21,000 7,28,000 2,07,000 3,14,000 3,21,000

Working Notes:
(1) Solvent partners should bring in cash to make good the loss on realization.
(2) Q’s deficiency of ₹ 1,85,100 (₹ 2,07,000 – ₹ 21,900) should be shared by P and T in the ratio
of their capital i.e. 7 : 3. R will not bear any locc on deficiency, because at the time of
dissolution he had a debit balance in his Capital Account.
(3) The amount realised from the estate of Q is ₹ 21,900.

6.(a) Prepare Branch Account in the books of the Head Office and also debtors account
from the following information given below for the year 2022:

The Unique Shoe Stores has an old branch at Kanpur. Goods are invoiced at the
branch at 25% profit on cost price. The branch has been instructed to send all cash
daily to the Head Office. All expenses are paid by the Head Office except petty
expenses which are met by the Branch Manager:
₹
Stock on 1.1.2022 (Invoice Price) 15,000
Sundry debtors on 1.1.2022 9,000
Cash in hand on 1.1.2022 400

11
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

Office furniture on 1.1.2022 1,200

Goods supplied by the Head Office (invoice price) for the year 80,000
Goods returned to Head Office for year 1,000
Goods returned by debtors at the end of year 480
Debtors at the end of year 8,220
Cash sales for year 50,000
Credit sales for year 30,000
Discount allowed for year 300
Expenses paid by Head Office: for year ₹
Rent 1,200
Salary 2,400
Stationery 300 3,900
Petty expenses paid by Branch Manager during year 280
Stock on 31.12.2022 14,000
Provide depreciation on furniture at 10% per year. [7]

(b) Due to flood, business of Mr. Singh was dislocated from 1.4.2021 to 31.8.2021 (5
months). From the following details, suggest the amount of claim to be lodged in
respect of loss of profit policy.
Particulars ₹
Policy amount 1,25,000
Turnover from 1.4.2021 to 31.8.2021 2,40,000
Standing charges from 1.4.2021 to 31.8.2021 60,000
Turnover during 1.4.2020 to 31.3.2021 12,00,000
Gross profit ratio 10% on sales
Standing charges for the year 2020-21 84,000
The turnover for the year 2021-22 was anticipated to increase by 10% over the
turnover of the preceding year. [7]

Answer:

6. (a)
In the books of Unique Shoe Stores
Branch Account
Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To Branch Stock A/c 15,000 By Cash (Remittances)
To Branch debtors A/c 9,000 Cash Sales 50,000
To Branch Cash in hand 400 Cash from debtors 30,000 80,000
To Branch office furniture 1,200 By Branch Stock 14,000
To Goods sent to branch A/c 80,000 By Branch debtors 8,220
Less: Return to H.O 1,000 79,000 By Branch furniture 1,080
To Bank: By Stock Reserve 3,000
Rent 1,200 By Goods sent to Branch A/c 15,800
Salary 2,400 By Branch cash in hand 120

12
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

Salary 300 3,900 (400 – 280)

To Stock Reserve A/c 2,800
To General P & L A/c 10,920
1,22,220 1,22,220

Debtors Account
Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To balance b/d 9,000 By Sales Return A/c 480
To Credit sales A/c 30,000 By Cash A/c (B/f) 30,000
By Discount A/c 300
By balance c/d 8,220
39,000 39,000
(b)
Particulars ₹
Standard turnover per month (2020 – 21) 1,00,000
Add: Increase anticipated plus 10% 10,000
Expected turnover per month 1,10,000
Standard turnover for the period of dislocation (1,10,000 x 5) 5,50,000
Less: Actual turnover for the period of dislocation 2,40,000
Short sales 3,10,000
Gross Profit on Short Sales @ 10% 31,000
Add: Increased cost of working actual
Standard charges for the period of dislocation (7,000 x 5 = 35,000)
Actual standing charges incurred during the period of dislocation = ₹60,000
Increase in cost of working during period of dislocation ₹60,000 – ₹35,000 25,000
Claim to be lodged 56,000
Note:
1) In absence of any information regarding insured standing charges, uninsured standing charges,
Net Profit etc. increase in cost of working during the period of dislocation is determined in this
manner.
2) Since the Annual Turnover is not mentioned the Average Clause is not applied.

7.(a) On 14.08.2022, Pushkar Ltd. obtained a loan from RBC Bank of ₹65 lakhs to be
utilised as under:
Purchase of equipment: ₹ 19,50,000;
Construction of factory shed: ₹ 26,00,000;
Advance for purchase of delivery vehicle: ₹ 6,50,000;
Working capital: ₹ 13,00,000.
In March, 2023 installation of the machinery was completed and also construction
of factory shed was completed and the machinery installed. However, the truck was
not delivered within 31.03.2023. Total interest charged by the bank for the year
ending 31.3.2023 was ₹11.70 lakhs. Discuss how the interest amount would be
treated in the financial statements of the company as per AS-6. [7]

13
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

(b) Big Box Ltd., a start-up purchased on April 1, 2019, a machine worth ₹ 44,85,000
in relation to which it received ₹7,35,000 as grant from Government of India. The
company decided to treat this grant as a capital receipt. Itis estimated that the
realizable value of the machine at the end of its useful life of 4 years will be
₹15,36,000.

During the financial year 2021-22, the grant became refundable as the start-up
company failed to comply with the necessary terms and conditions of the grant.

You are required to examine the amount of depreciation that is to be charged to the
Statement of Profit and Loss for the years 2021-22 and 2022-23 given that the
company follows straight line method of charging depreciation. [7]

Answer:

7.(a) In this case, only the factory shed is a Qualifying Asset (QA) as per AS 16. The amount of
interest on borrowings and its treatment is presented below:

Particulars Nature of Interest Interest charged

Asset Capitalised to Income
Statement
₹
Purchase of equipment Not a QA 3,51,000
[11.7 x 19.5/65]
Construction of factory shed QA 4,68,000
[11.7 x 26/65]
Advance for purchase of delivery vehicle Not a QA 1,17,000
[11.7 x 6.5/65]
Working capital Not a QA 2,34,000
[11.7 x 13/65]
Total 4,68,000 7,02,000

(b) As per AS 12, the amount refundable in respect of government grant is related to specific fixed
asset is recorded by increasing the book value of the asset or by reducing the capital reserve or the
deferred income balance, as appropriate, by the amount refundable. In case the book value of the
asset is increased, depreciation is provided on the revised book value.

Calculation of Depreciation for the years 2021-22 and 2022-23

Particulars ₹ (‘000)
Cost of machine on 1.1.2019 4,485
Less: Grant from Government of India 735
Net cost of machine 3,750
Estimated useful life 4 years
Depreciation p.a under straight line method
, , 553.5
Depreciation charged during 2019-20 and 2020-21 [553.5 x 2] 1,107
Book value of machine on 1.4.2021 [3,750 – 1,107] 2,643
Add: Refund of Government Grant during 2021-22 735

14
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

Revised Book Value of machine 3,378

Remaining useful life of machine 2 years
Revised depreciation p.a.
, , 921

8. Answer the following questions:

(a) Infer with reason how the following will be classified as Timing Difference and
Permanent Difference and also state whether they would result in Deferred Tax
Asset or Deferred Tax Liability:
(i) Unabsorbed depreciation
(ii) Income tax penalty
(iii) Interest on loan taken from scheduled bank accounted in the books, but not
paid till the date of filing Return of Income. [5]

(b) A company maintains its reserve for bad debts @ 5% and a reserve for discount
on debtors @ 2%. You are given the following details:
Particulars 2021 2022
Bad debts ₹800 ₹1,500
Discount allowed ₹1,200 ₹500
Sundry Debtors (before providing all bad debts and ₹60,000 ₹42,000
discounts)
On 1-1-2021, Reserve for bad debts and Reserve for discount on debtors had
balance of ₹ 4,550 and ₹ 800 respectively.
Prepare Reserve for Bad Debts Account for the year 2021 and 2022. [5]

(c) Write a note on - Applicability of Garner V Murray Rule. [4]

Answer:

8.(a)
Particulars Nature of Asset Interest Capitalised
Unabsorbed depreciation Timing Difference DTA
Income Tax Penalty Permanent Difference Neither DTA nor DTL
to be created
Interest on loan taken from schedule bank Permanent Difference Neither DTA nor DTL
accounted in the books, but not paid till to be created
the date of filing Return of Income.

(b)
In the Books of …….
Dr. Provision for Bad Debts Account Cr.
(₹in ‘000s)
Date Particulars Amount Date Particulars Amount
31.12.21 To Bad Debts A/c 800 1.1.21 By Balance b/d 4,550
31.12.21 To Profit & Loss A/c 850

15
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIAE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 6 SYLLABUS 2022
FINANCIAL ACCOUNTING

31.12.21 To Balance c/d 2,900

5% of (Rs 58,000)
4,550 4,550
31.12.22 To Bad Debts A/c 1,500 1.1.22 By Balance b/d 2,900
31.12.22 To Balance c/d 2,000 31.12.22 By Profit & Loss A/c 600
5% of (₹ 40,000)
3,500 3,500

(c) Applicability of Garner V Murray in India:

According to sub section (ii) of Sec 48(b) of the Indian Partnership Act, if a partner becomes
insolvent or otherwise incapable of paying his share of the contribution, the solvent partners must
share ratably the available assets (including their own contribution to the capital deficiency). That
is to say, the available assets will be distributed in proportion to their capitals.

Thus, under the Indian Partnership Act also the solvent partners are required to make good their
share of the realization loss (i.e., capital deficiency). The total cash available after making good
the solvent partners’ share of capital deficiency shall be shared by the solvent partners in proportion
to their capitals. As a result of this the ultimate debit balance of the insolvent partner’s Capital A/c.
is borne by the solvent partners in capital ratio.

The provision of the Indian Partnership Act in this respect are, thus, similar to the rules laid down
by the decision in Garner vs. Murray.

When there is a specific provision in the Partnership Deed as to how the deficiency of an insolvent
partner is to be borne by the solvent partners, such provision must be followed, because the
provision of the Act will apply only when there is no specific agreement.

16
Directorate of Studies, The Institute of Cost Accountants of India
 SUGGESTED ANSWERS TO QUESTIONS
Section – A

Answer to Question No. 1(a) 1X10=10

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

Answer to Question No. 1(b) 1X5=5

(i) – (B)
(ii) – (A)
(iii) – (E)
(iv) – (C )
(v) – (D)

Answer to Question No. 1(c ) 1X5=5

(i) Cash
(ii) Rs. 7,200
(iii) Rs. 7,20,000
(iv) Rs. 1,05,000
(v) Information

Answer to Question No. 1(d) 1X5=5

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

1
 Section-B
[Answer any FIVE from Question No. 2 to 8]
(15X5=75 Marks)

Answer to Question No. 2 15 Marks

Pune Branch Account Total - Rs. 1,81,600

Answer to Question No. 3 15 Marks

Trading Account Total- Rs. 13,15,000 (Gross Profit Rs. 2,50,000)
Profit and Loss Account Total of Rs. 2,54,500 (Net Profit after tax Rs. 64,800)
Balance sheet Total- Rs. 11,80,800

Answer to Question No. 4 15 Marks

Realization Account Total- Rs. 5,53,700
Cash Account Total- Rs. 4,62,700
Partner‟s Capital Accounts Total-
P- Rs. 1,67,516
Q- Rs. 1,67,516
R- Rs. 58,000
S- Rs. 65,840
Answer to Question No. 5(a) 10 Marks

(i) False; As per AS 1 „Disclosure of Accounting Policies”, certain fundamental accounting

assumptions underlie the preparation and presentation of financial statements. They are usually
not specifically stated because their acceptance and use are assumed. Disclosure is necessary if
they are not followed.
(ii) False; As per AS 1, if the fundamental accounting assumptions, viz. Going concern,
Consistency and Accrual are followed in financial statements, specific disclosure is not
required. If a fundamental accounting assumption is not followed, the fact should be disclosed.
(iii) True; To ensure proper understanding of financial statements, it is necessary that all significant
accounting policies adopted in the preparation and presentation of financial statements should
be disclosed. The disclosure of the significant accounting policies as such should form part of
the financial statements and they should be disclosed at one place.
(iv) False; Any change in the accounting policies which has a material effect in the current period or
which is reasonably expected to have a material effect in later periods should be disclosed.
Where such amount is not ascertainable, wholly or in part, the fact should be indicated.
(v) True; As per AS 1, there is no single list of accounting policies which are applicable to all
circumstances. The differing circumstances in which enterprises operate in a situation of diverse
and complex economic activity make alternative accounting principles and methods of applying
those principles acceptable.

2
Answer to Question No. 5(b) 2+3=5 Marks
(i) Entity A should account for a loss in the Statement of Profit and Loss on de-recognition of the
carrying value of plant and machinery in accordance with AS 10 on Property, Plant and
Equipment. Entity A should separately recognize a receivable and a gain in the income
statement resulting from the insurance proceeds once receipt is virtually certain. The receivable
should be measured at the fair value of assets provided by the insurer.
(ii) The expenditure in remodeling the store will create future economic benefits (in the form of
15% of increase in sales). Moreover, the cost of remodeling can be measured reliably, therefore,
it should be capitalized in line with AS 10.

Answer to Question No. 6 15 Marks

Receipts and Payments Account Total - Rs. 80,550

Answer to Question No. 7(a) 10 Marks

Cash Value of the Machine- Rs. 25,977

Answer to Question No. 7(b) 5 Marks

ABC Ltd. should charge the amount of Rs. 4,00,000 to Profit and loss statement and record the
corresponding liability (amount payable to XYZ Ltd.) for the same amount in the books for the year ended
31st March, 2021.

Write short notes on any three

(5X3=15 marks)

Answer to Question No. 8(a) 5 Marks

 It helps the trade know about his debtors and creditors from to time
 It helps the trader to prepare the final accounts to reflect the true trading results at the end of
period
 It provides a Balance Sheet on a particular date to know the true value of assets, liabilities and
capital
 It helps the trader who can have a comparative study of working results and financial position
over a number of years
 It helps to find out and prevent errors and frauds
 It provides ready-made information to be sent to Sales tax and Income Tax Authorities
 It provides good guidance on which management take new decisions to increase the profit and
correct losses into profit

Answer to Question No. 8(b) 5 Marks

The main objectives of depreciation policy are given below.
 Description is the allocation of the cost of the asset over its effective life and being „tax
shield‟ is deductible expense while calculating taxable income of the concern. Diminishing
balance method of calculating depreciation results in greater tax saving in a balanced firm is
compared to straight line method.

3
  To keep intact the capital invested in depreciable assets and to make provision for the
replacement, modernization and expansion on most favourable terms. It is process of
allocation and helps the management to retain this amount of profit in business for replacing
asset. Otherwise this profit would have gone to the Government in the form of tax.
 To match the cost with revenue, depreciation is necessary to measure the cost incurred during
a given period. Thus, know correct net income and financial condition for external reporting.
 Depreciation helps to measure managerial performance. But, charging it on historical cost or
replacement cost basis is again a controversial issue and will affect the managerial decisions
to be taken by the top management. Differences in costs because of charge of depreciation
under different methods, tend to mislead management in selecting their operational alternative
for more profitable for the firm as a whole.
 Withdraw of asset before the end of its useful life is not up to standard to cope with the
increasing competition in the market but due to the external factor of technological
improvements in the existing asset is refereed to obsolescence. In such atmosphere the asset is
depreciated quickly otherwise profit and loss account will be over burdened with the amount
of loss on account of obsolescence in the year in which the asset obsoletes.
 Serving consistently to follow a particular method of depreciation otherwise would make the
financial statements unreliable to the stakeholders. It means convention of consistency.
 Depreciation makes to retain funds for replacement asset at the end of its working life
 Apportioning total cost of the asset over its useful life is achieved by charging depreciation;
and investing such amount of depreciation the public may not misled and correct investment
decision may be made.

Answer to Question No. 8(c) 5 Marks

Distinguish between Hire Purchase and Instalment Purchase

Factor Hire Purchase System Installment Purchase System

Ownership in the goods sold passes Ownership in the goods passes to
Transfer of Ownership to the buyer only on payment of the the buyer immediately at the time
last installment of sale
If the buyer fails to pay any The seller cannot recover the
Recovery of Goods installment, the seller can recover goods but he can sue for recovery
the goods back from buyer of price and damages
Forfeiture of installments If the buyer default in payment, the Money paid by the buyer will be
paid seller can forfeit money paid by the taken as a payment towards part
buyer so far of selling price and the seller can
sue only for the balance
In the books of purchaser, vendor is In the books of vendor, the
debited with full purchase price purchaser is credited with full
once contract signed. Amount due, price. Purchased goods become
Accounting Entries if any, is shown separately as a property of the buyer and shown
liability of the purchaser and not a in his Balance Sheet at cost less
deduction from the asset depreciation

Answer to Question No. 8(d) 5 Marks

As per Section 5 of the Negotiable Instruments Act, a bill of exchange is an instrument in writing
containing an unconditional order, signed by the maker, directing a certain person, to pay a certain sum of
money only to, or to the order of a certain person or to the bearer of the instrument. The essential of bill of
exchange are as:

4
 There are three parties the “Maker‟ is termed as the „Drawer‟ in Bill of Exchange. He is the
creditor. The person liable to pay the money is called the „Drawee‟. The person entitled to get
the money is termed as the „Payee‟. It should be noted that drawer himself can also be the
payee. It must be drawn on a specific person
 The bill drawer being the creditor, orders the drawee to pay a certain of sum money.
 A Time Bill of Exchange can be made payable to the bearer.
 It is an instrument in writing and unconditional
 It must be in writing, dated, stamped and signed by Drawer
 It must be payable in demand or after a definite period of time, and for a certain amount of
money

__________________

5
 SUGGESTED ANSWERS TO QUESTIONS
INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)
DECEMBER - 2021
Paper - 5 : FINANCIAL ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

20X1=20 Marks
Section : A MCQ
Q.1 In hire purchase System, cash price plus interest is known as __________
Ans 1. Hire purchase charges.
2. Capital value of asset.

3. Hire purchase price of assets.

4. Book value of asset

Q.2 Depreciation is calculated from the date of .

Ans 1. Assets put to use.
2. Purchase of assets.

3. Assets installed.

4. Receipts of assets at business premises

Q.3 Debit balance in the cash book is equivalent to.

Ans 1. Overdraft as per cash book.
2. None of these.

3. Credit balance as per Passbook.

4. Overdraft as per passbook

Q.4 Main elements of the accounting equation are:

Ans 1. Cash, stock and debtors.
2. Bank balance,Investments and bills receivable.

3. Assets, liabilities and capital.

4. Capital, creditors and bills payable.

Q.5 A Bill of Exchange cannot be

Ans 1. Endorsed.
2. Crossed.

3. None of these.

4. Accepted.

Q.6 Spent amount on unsuccessful promotion policy is

Ans 1. Capital expenditure

2. Expenses.

3. Revenue expenditure

4. Deferred revenue expenditure.

Q.7 Convention of Conservatism takes into account:
Ans 1. All future profits and not losses.
2. Neither profits nor losses of the future.

3. All future losses and not profits.

4. All future profits and losses.

Q.8 Balance Sheet is prepared with the balances of which of the following?
Ans 1. All balances in the Ledger.
2. Balances of real accounts.

3. Balances of personal accounts.

4. Balances of personal and real accounts.

Q.9 Which of these terms/concepts are not relevant to a joint venture?

Ans 1. Co venturers.
2. Temporary partnership.

3. Principal and agent relationship.

4. Sharing profit and loss of joint ventures.

Q.10 Excess of minimum rent over royalty payable is known as .

Ans 1. Minimum royalty payable.
2. Deficiency of actual royalty.

3. Excess working.

4. Short working.

Q.11 Sold goods worth list price of rupees 8000 at 10% trade discount and 2% cash discount.
25% received at the time of transaction only.The amount posted to the discount account will be:
Ans 1. Rupees 144 on credit side.

2. Rupees 36 on debit side

3. Rupees 144 on debit side.

4. Rupees 40 on credit side

Q.12 Revenue from is recognised as per AS-9

Ans 1. Construction contract.
2. Lease agreement

3. Insurance contract.

4. Rendering the services.

Q.13 Bills payable honoured during the year, will be debited to.
Ans 1. None of these.
2. Creditors account

3. Bills payable account.

4. Cash account
Q.14 Which of the following is not an essential feature of a partnership firm?
Ans 1. Mutual agency.
2. Existence of business.

3. Association of two or more people.

4. Compulsory registration

Q.15 Sacrificing ratio is.

Ans 1. New Profit sharing ratio - old profit sharing ratio.

2. Equal to old profit sharing ratio

3. Equal

4. Old profit sharing ratio - new profit sharing ratio.

Q.16 Which of the following statements is not correct?

Ans 1. Bad debts can be less than the amount of provision for doubtful debts.

2. Bad debts can be more than the amount of provision for doubtful debts.

3. Provision for doubtful debts account is the amount payable to debtors.

4. Provision for doubtful debts is shown in the balance sheet.

Q.17 Errors are:

Ans 1. Frauds

2. Undetected mistake.

3. Intentional mistake.

4. Unintentional mistake.

Q.18 Choose the correct statement.

Ans 1. Financial statements need not take into consideration any statutoryrequirement.
2. Only credit transactions are recorded in books of accounts.

3. Financial statements prepared by two different accountants will always show identical results.
4. Financial accounts, of an enterprise, are treated as evidence in the Court of Law.

Q.19 Which of the following are not the advantages of pre packaged accounting software?
Ans 1. Report generated.
2. Simple backup procedure.

3. Easy to use.

4. Easy to install.

Q.20 Which of these is/are one of the methods of stock taking?

Ans 1. Periodic inventory
2. Perpetual inventory.

3. Both.

4. None
 Section : B SAQ
20X1= 20 Marks

Q.1 State when the title of goods are transferred to the hirer.

Answer : Title of goods are transferred only when the agreed sum (Higher purchase price) is paid by the hirer)

Q.2 What is a depreciable cost?

Answer : Depreciable cost= cost of asset- Scrap value.

Q.3 „T‟ Form presentation of financial statements is known as “Horizontal” form

or „Vertical‟ form.

Answer : Horizontal form.

Q.4 Name the side on which increase in capital is recorded.

Answer : Credit side

Q.5 Under which accounting concept provision is made for doubtful debts.

Answer : Prudent concept.

Q.6 Define ground rent.

Answer : Fixed rent payable in addition to minimum rent.

Q.7 In the single entry system, which two methods are used to ascertain profit
or loss?

Answer : I) Statement of affairs method.

II) Conversion method.

Q.8 Why is the capital of the owner shown on the liability side of the balance sheet?

Answer : Due to separate entity concept.

Q.9 Define branch as per section 2(14) of the Companies Act 2013.

Answer : Any establishment described as a branch by the company.

Q.10 X and Y were Partners sharing profit/losses as 3:2. They admit Z as a new
partner, giving him 1/5th share of future profits. What should be the new
profit sharing ratio?

Answer : 12:8:5
Q.11 Decline in the value of coal mines due to extraction is termed as .

Answer : Depletion

Q.12 X draws a bill on Y. Y accepts the same. Can Y endorse the bill to Z?

Answer : No, Y cannot endorse the bill to Z because Y is drawee only. X, the drawer can do so.

Q.13 What is a biological asset as per (AS-10)

Answer : Biological assets is a living animal or plant.

Q.14 What type of account is a revaluation account?

Answer : Nominal account.

Q.15 What is the traditional function of accounting?

Answer : Recording of financial transactions.

Q.16 Under loss of profit insurance, what is meant by gross profit?

Answer : Gross profit means net profit plus insured standing charges.

Q.17 Should a transaction be first recorded in a journal or Ledger. Why?

Answer : Transactions are first recorded in a journal because it is a book of original entry.

Q.18 On which basis of accounting outstanding expenses are not recorded?

Answer : Cash basis of accounting.

Q.19 Name the error committed by violating the rules of accounting.

Answer : Error of principle.

Q.20 Define merchandise.

Answer : Merchandise means goods for resale.

 Section : C
(12X4= 48 Marks)
One LAQ

Q.1 Which transactions will: (4 Marks)

i) Decrease the assets and decrease the capital.
ii) Increase the assets and increase the liabilities.
iii)Increase the assets and decrease another asset.
iv) Decrease the assets and decrease the liabilities.
Answer :
I) Drawing or expenses.
II) Purchase of an asset on credit.
III) Purchase or sale of an asset in cash.
IV) Payment of liability.

Q.2 When you proceed to reconcile the bank account starting with „credit‟ cash book Balance, how is the following
dealt with and why?
i) Cheque issued but not presented for payment. (4 Marks)
ii) Cheque deposited but not yet credited.
iii) Bank charges charged by the bank not recorded in the cash book.
iv) Interest allowed by the bank is not recorded in the cash book
Answer :
I) Cheques issued but not yet presented for payment are deducted because the bank shows lower
overdrawn balance.
II) Cheques deposited but not cleared are added because the bank shows a higher overdrawn balance.
III) Bank charges are added because the bank shows a higher overdrawn balance.
IV) Interest allowed is deducted because the bank shows lower overdrawn blance.

Q.3 What journal entry will be passed in the books of a drawer and drawee at the time of dishonour of Bill of
exchange in the following cases?
i) If Bill of Rupees 10,000 was discounted from the bank and the noting (4 Marks)
charges paid
by the bank was rupees 100.
ii) If B/R of Rupees 10,000 was endorsed in favour of C.Noting charges paid by
C Rupees 100.
iii) If B/R is retained with a drawer and noting charges was Rupees 100
Answer :
In the books drawer.
Date Particulars DR CR
Rs. Rs.
i) Drawee A/c DR 10100
To bank A/c 10100
(Bill dishonoured and noting charges paid by bank)
ii) Drawee A/c DR 10100
To C A/c 10100
(Bill dishonoured and noting charges paid by C)
iii) Drawee A/c DR 10100
To B/R A/c 10000
To cash A/c 100
(Bill dishonoured and noting charges paid)

In the books of drawee

In case of (i), (ii) and (iii)
B/P A/c DR 10000
Noting charges A/c DR 100
To drawer 10100
(Bill dishonoured and noting charges payable)
 Two LAQ

Q.1
(4 Marks)

Answer: Gross Profit = Rs. 25,000

Cost of Goods sold = Rs. 75,000
Closing Stock = Rs. 15,000

Q.2 From the following particulars calculate operating profit.

Net profit. Rs.1,00,000 (2 Marks)
Rent received. Rs.10,000
Gain on the sale of machines. Rs.15,000
Interest on loan paid. Rs.18,000 Donation
paid. Rs.4000

Answer:
Operating Profit = Rs. 97,000

Q.3 The partners of a firm distributed the profits for the year ended 31/3/2021.Rs.90,000 in the ratio (6 Marks)
of 3:2:1 without providing for the following adjustments.
i) A and B were entitled to a salary of Rs.1500 each per annum.
ii) B was entitled to a Commission of Rs.4500.
iii)B&C had guaranteed a minimum profit of rupees 35,000 P.a to A.
iv)Profits were to be shared in the ratio of 3:3:2
Pass the necessary journal entries for the above adjustments in the Books of the Firm.

Answer

Journal Entry

Dr Cr
A’s Capital a/c Dr Rs.8,500
To B’s Capital a/c Rs. 4,500
To C’s Capital a/c Rs. 4,000
(being adjustments made for omissions)
 Three LAQ

Q.1 A acquired on 1st January 2020 a machine under hire purchase agreement,
which provides for 5 half yearly instalments of rupees 6000 each. The first (6 Marks)
instalment is due
on 1st July 2020.Assuming that the applicable rate of interest is 10% per
annum,Calculate the cash price of the machine.All working should form part of
the answer.

Answer:
Cash Purchase price of Machine – Rs. 25,977

Q.2
(6 Marks)

Answer:
Gross Profit – Rs. 2,77,500
Closing Stock – Rs. 2,80,000
Stock destroyed by Fire - Rs. 2,80,000
Statement of claim
Stock - Rs. 2,60,000
Building - Rs. 2,36,625
Equipments - Rs. 44,375 = Rs. 5,41,000
 Four LAQ

Q.1 Ruma Ltd purchased a plant on 1st April 2015 for rupees 240,000.It bought another plant on 1st July 2016
for rupees 160,000. On 1st January 2018 Plant bought on 1st April 2015 was sold for Rupees 160,000 and
a fresh plant was purchased on the same date. Payment of this plant will be made as under.
1st January 2018 rupees 40,000. (6 Marks)
1st January 2019 rupees 48,000.
1st January 2020 rupees 44,000.
Payments made in 2019 and 2020 include interest of rupees 8000 and Rupees
4000, respectively. Depreciation is charged at 10% P.a on the diminishing
balance method.
From the above particulars, Find out.
i) Cost of plant bought on January 1st, 2018.
ii) Loss on sale of plants.
iii) Closing balance of plant 2 and plant 3 as on 31-3-2018
Answer:

(i) Cost of Plant- Rs. 1,20,000

(ii) Loss on sale of Plant- Rs. 19,820
(iii) Closing balance of Plant:
Plant 2- Rs. 1,33,200
Plant 3- Rs. 1,17,000

Q.2
(6 Marks)

Answer:
Calculation of Departmental Result Deptt. A B C
Gross Profit Rs. 32,500 39,400 24,600
V a l u e o f S t o c k (3 1/1 2/2 0 2 0) Rs. 2,500 600 400
 Five LAQ

Q.1 Why is goodwill considered an „Intangible asset‟ but not a „fictitious asset‟ ?
(2 Marks)
Answer:

Goodwill cannot be seen or touched. It can only be felt. Hence it is treated an intangible asset.
But it is not a fictitious asset because fictitious do not have a value. Whereas Goodwill has value

and it can be purchased or sold with any other asset.

Q.2 X&Y are partners. They decided to dissolve their firm. Pass necessary entries assuming that various
assets and external liabilities have been transferred to the Realisation account.
i) X‟s loan(partner) was appearing on the liability side of the balance sheet at (5 Marks)
rupees 30,000.He accepted an unrecorded asset of rupees 50,000 in full
settlement of his account.
ii) Runa, a creditor, to whom rupees 30,000 were due to be paid, accepted an
unrecorded computer of rupees 20,000 at a discount of 10%, and the balance
was paid to him in cash.
iii) Suman, an unrecorded creditor of rupees 45,000, accepted an unrecorded
motor car of rupees 30,000 at 35,000, and the balance was paid to him in cash.
iv) There was a contingent liability in respect of bills discounted but not
matured rupees 30,000.
v) Furniture of rupees 15,000 and goodwill of rupees 20,000 were appearing in
the balance sheet but no other information was provided regarding these two
items.

Answer:
i) Debit X's loan account and credit realisation account by rupees 30,000
ii) Debit realisation account and credit bank account by rupees 12,000
iii) Debit realisation account and credit bank account by rupees 10, 000
iv) No entry.
v) No entry.
Q.3 State your views in line with provision of AS-1 and give reasons for your answer
(5 Marks)
in respect of the following:
i) Certain fundamental accounting assumptions underline the preparation and
presentation of financial statements. They are usually specifically stated
because their acceptance and use are not assumed.
ii) If fundamental accounting assumptions are not followed in presentation
and preparation of financial statements, a specific disclosure is not required.
iii) All significant accounting policies adopted in the preparation and
presentation of
financial statements should form part of the financial statements.
iv) Any change in accounting policy which has a material effect should be
disclosed. Where the amount by which any item in the financial statements
is affected
by such change is not ascertainable, wholly or in part, the fact need not to
be indicated.
v) There is no single list of accounting policies which are applicable to
all circumstances.

Answer:

i) False, As per AS1 “disclosure of accounting policies”, Certain fundamental accounting

assumptions underlie the preparation and presentation of financial statements. They are usually
not specifically stated because their acceptance and use are assumed Disclosure is necessary
if they are not followed.
ii) False, As per AS1 if the fundamental accounting assumptions, VIZ going concern, consistency
and accrual are followed in financial statements, specific disclosure is not required. If a
fundamental accounting assumption is not followed, the fact should be disclosed.
iii) True, to ensure proper understanding of financial statements, it is necessary that all significant
accounting policies adopted in the preparation and presentation of financial statements should
be disclosed. The disclosure of the significant accounting policies as such should form part of a
financial statement and they should be disclosed at one place.
iv) False, Any change in the accounting policies which has a material effect in the current period or
which is reasonably expected to have a material effect in later periods should be disclosed.
Where such amount is not ascertainable, wholly or in part, the fact should be indicated.
v) True, As per AS1,There is no single list of accounting policies which are applicable to all
circumstances. The differing circumstances in which enterprises operate in a situation of
diverse and complex economic activity make alternative accounting principles and methods of
applying those principles acceptable.
 Six LAQ
(4X3=12 Marks)

Q.1 Write short notes on Source documents

(3 Marks)

Answer:

Source documents:
Vouchers are the documentary evidence of the transactions so happened. Source
documents at the basis on which transactions are recorded in subsidiary books, i.e
source documents are the evidence and proof of transactions.

Q.2 Write short notes on Error of principle. (3 Marks)

Answer:

Error of principle: Entering revenue expenses as capital expense or vice versa or

entering revenue receipt as capital receipt or vice versa.

Q.3 Write short notes on Overriding Commission. (3 Marks)

Answer:

Overriding Commission: it is an extra commission allowed over and above, the normal
Commission is generally offered for the following reasons:
i) When, the agent is required to put in hard work in introducing a new
product in the market.
ii) Where he is entrusted with the work of supervising the performance of
other agents in a particular area.
iii) For effecting sales at prices higher than the price fixed by the consignor.

Q.4 Write short notes on Transfer entries in the context of self balancing Ledger. (3 Marks)

Answer:

Transfer entries: Sometimes a person may be treated both as debtor as well as a

creditor to the firm. Under the circumstances, the lower of the amount payable to
and receivable from such person is to be set off. The so called set off amount is to
be deducted both from the debtors as well as from the creditors. This is known as
transfer entry.

Q.5 Write short notes on Components of computer systems.

(3 Marks)

Answer:
Components of computer system: A computer system is made up of a number of electronic
components. These components are known as hardware. The names of the components are as follows:
i) Keyboard.
ii) Monitor.
iii) CPU.
iv) Magnetic recorder
Keyboard and monitor put together are known as terminals.
 Section D - Case Study Question

Q.1 1+2+2+1+4+1+1=12 Marks

i) Amount of credit sales.

ii) Amount of credit purchase.
iii) Amount of closing balance of creditors as on 31-3-19
iv) Amount of gross profit for the year ended 31-3-19
v) Amount of Sundry expenses to be charged to the profit and loss account for the year ended 31-3-19.
vi) Amount of net profit for the year ended 31-3-19.
vii) Amount of closing capital as on 31-03-19.
Answer:

i) Credit Sale - Rs. 28,60,000

ii) Credit Purchase - Rs. 1,25,97,000

iii) Closing balance of Creditors - Rs. 8,29,000

iv) Gross Profit - Rs. 13,93,000

v) Sundry Expenses - Rs. 9,18,750

vi) Net Profit - Rs. 4,40,250

vii) Closing Capital (31-3-19) - Rs. 755,250

 Suggested Answers_Syl2016_December 2019_Paper 5

INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

DECEMBER - 2019

Paper - 5 : FINANCIAL ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
Both the sections are to be answered subject to instructions given against each.
[All workings must form part of your answer.]

SECTION - A

1. Answer the following questions:

(a) Choose the most appropriate one from the given following alternatives: 1×10=10

(i) When stock is valued at cost in one accounting period and at lower of cost and
Net realizable value in another accounting period
(A) Prudence Principle conflicts with Consistency Principle.
(B) Matching Principle conflicts with Consistency principle.
(C) Consistency Principle conflicts with Accounting Period Assumption.
(D) None of the above

(ii) Materiality Principle is an exception to the

(A) Consistency principle
(B) Full disclosure Principle
(C) Accounting Period Assumption
(D) Prudence Principle

(iii) In a Cash Book Debit balance of ` 112 brought forward as credit balance of ` 121,
while preparing a Bank Reconciliation Statement taking the balance as per Cash
Book as the starting point:
(A) ` 112 to be added
(B) ` 121 to be added
(C) ` 233 to be added
(D) ` 112 to be subtracted

(iv) ______________ represents a potential obligation that could be created depending

on the outcome of an event.
(A) Internal Liability
(B) Current Liability
(C) Contingent Liability
(D) Non-current Liability

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
 Suggested Answers_Syl2016_December 2019_Paper 5

(v) Opening Debtors, Collection from Debtors and Discount Allowed were ` 3,15,000;
` 18,30,000 and ` 35,000 respectively. If the closing debtors were 20% of credit
sales of the period then closing debtors and credit sales would be
(A) ` 3,51,667 and ` 17,58,333
(B) ` 3,63,333 and ` 18,16,667
(C) ` 3,87,500 and ` 19,37,500
(D) ` 3,10,000 and ` 15,50,000

(vi) Following information is given:

`
Opening Stock 2,13,000
Purchase 16,55,000
Sales 21,32,000
Carriage Inwards 32,500
Carriage Outwards 38,600
Return Inwards 38,000
If the rate of gross profit is 25% on cost then value of closing stock will be
(A) ` 2,57,800
(B) ` 1,94,900
(C) ` 2,25,300
(D) ` 3,30,000

(vii) Provision for Doubtful Debt on 1st April, 2018 was ` 21,500. During the year 2018 –
19 the Bad-debt and Recovery of Bad-debt were ` 10,500 and ` 2,100
respectively. The Sundry Debtors on 31st March, 2019 were ` 2,25,000. Provision is
to be made @ 5% on Debtors. If on 31st March, 2019, there was additional Bad-
debt of ` 2,500 then Provision for doubtful-debt will be
(A) debited to Profit & Loss Account by ` 11,250.
(B) debited to Profit & Loss Account by ` 2,625.
(C) debited to Profit & Loss Account by ` 3,000.
(D) debited to Profit & Loss Account by ` 900.

(viii) A and B enter into a joint venture sharing profit and losses in the ratio of 3:2. A
purchased goods costing ` 2,00,000. B sold 95% goods for ` 2,50,000. A is
entitled to get 1% commission on purchase and B is entitled to get 5%
commission on sales. A drew a bill on B for an amount equivalent to 80% of
original cost of goods. A got it discounted at ` 1,50,000. What is A's share of
profit?

(A) ` 15,300

(B) ` 21,300
(C) ` 18,900

(D) None of the above

(ix) Subscription of ` 6,25,000 had been shown in the Income and Expenditure
Account prepared for the year ending 31st March, 2019. Additional information is
as below:

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2
 Suggested Answers_Syl2016_December 2019_Paper 5

On 31st March, On 31st March,

2018 (`) 2019 (`)
Subscription Outstanding 55,000 72,000
Subscription Received in Advance 31,000 37,000
The amount of subscription received during the year 2018-19 would be
(A) ` 6,36,000
(B) ` 6,02,000
(C) ` 6,14,000
(D) ` 6,48,000

(x) X and Y are partners with the capital of ` 50,000 and ` 30,000 respectively. Interest
Payable on Capital is 10% p.a. If the profits earned by the firm is ` 4,800, what will
be the Interest on Capital for X and Y?
(A) ` 5,000 and ` 3,000
(B) ` 3,000 and ` 1,800
(C) No interest will be paid to the partners
(D) None of the above

(b) Match the following: 1x5=5

Column A Column B
(i) Endorsement (A) AS 7
(ii) Amortisation (B) AS 10
(iii) Average Clause (C) Depreciation
(iv) Percentage of Completion (D) Bills Receivable
(v) Recoverable Amount (E) Insurance Claim

(c) State with reason whether the following statements are 'True' or 'False' (No Marks shall
be awarded without valid reason): 1x5=5
(i) Prudence is a concept to recognise all losses and not profits.
(ii) Revenues are matched with expenses in accordance with the matching
principle.
(iii) Depreciation is non-cash and non-operating expense which is to be provided for
if there are profits.
(iv) Net Profit is reflected in higher cash balances and net loss is reflected in lower net
worth.
(v) If Partnership Deed is silent, Rate of Interest on loan by firm to a Partner shall be
6% p.a.

(d) Fill in the blanks: 1x5=5

(i) ____________ method for depreciation is followed to have a uniform charge

for depreciation and repairs and maintenance together.
(ii) Reserve for Discount on Creditors has a _____________ balance.
(iii) _____________ can be made payable to the bearer.
(iv) The gain from sale of capital assets need not be added to revenue to ascertain
the _______________ of a business.
(v) _______________ property may be the subject matter of consignment.

DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 3
 Suggested Answers_Syl2016_December 2019_Paper 5

Answer:

1. (a) (i) (A)

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

(b)
Column - A Column - B
(i) Endorsement (D) Bills Receivable
(ii) Amortisation (C) Depreciation
(iii) Average Clause (E) Insurance Claim
(iv) Percentage of Completion (A) AS 7
(v) Recoverable Amount (B) AS 10

(c) (i) False : Prudence is a concept to recognise all unrealised losses and not
profits.
(ii) False : Expenses are matched with revenues in accordance with the
matching principle. Concept of matching requires accrual and
periodicity concepts as accrued revenues are matched with
accrued expenses of a definite accounting period.
(iii) False : Depreciation is non-cash but operating expense which is to be
provided for whether there are profits/losses.
(iv) False : Net profit may not be reflected in higher cash balance because of
credit transactions. On the other hand, cash may increase because
of fresh loan or fresh capital. Net Worth may also be reduced by
withdrawal by the proprietor/partners. So lower net worth may not
necessarily reflect net loss.
(v) False : The Partnership Act has not prescribed any Rate of Interest on Loan
by firm to Partner.

(d) (i) Reducing balance

(ii) Debit
(iii) Bills Receivable
(iv) Operating Profit or Loss
(v) Movable

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SECTION – B

Answer any five questions from question numbers 2 to 8.

Each question carries 15 marks. 15×5=75

2. (a) A retail trader had not kept proper books of account. From the details given below
you are required to prepare the Profit or Loss Account for the year ended 31st March,
2018. 8
1st April, 2017 (`) 31st March, 2018 (`)
Stock-in-Trade 16,700 18,100
Sundry Creditors 15,400 19,200
Sundry Debtors 11,200 10,600
Cash in Hand 250 1,400
Bank Overdraft 19,200 Nil
Bills Receivable 16,000 5,000
Fixtures and Fittings 1,500 1,500
Motor Van 1,900 Nil
Bank Balance Nil 2,900
Drawings during the year amounted to `2,400. Depreciate Fixtures and Fittings by
10%. `600 is irrecoverable from Debtors. Provide 5% for Doubtful Debts and `200 in
respect of Bills Receivable.

(b) Calculate the amount of sports material to be transferred to Income and Expenditure
Account of Kanan Bala Sports Club, Ludhiana, for the year ended 31st March, 2018: 7
Particulars (`)
(i) Sports Material sold during the year (Book value ` 50,000) 56,000
(ii) Amount paid to creditors for sports material 91,000
(iii) Cash purchase of sports material 40,000
(iv) Stock of sports material as on 31.03.2017 50,000
(v) Stock of sports material as on 31.03.2018 55,000
(vi) Creditors for sports material as on 31.03.2017 37,000
(vii) Creditors for sports material as on 31.03.2018 45,000

Answer:

2. (a)
Statement of Affairs as at 1st April 2017
Liabilities Amount Assets Amount
(`) (`)
Sundry Creditors 15,400 Cash in Hand 250
Bank Overdraft 19,200 Sundry Debtors 11,200
Capital (Balancing Figure) 12,950 Bills Receivable 16,000
Stock-in-trade 16,700
Fixtures & Fittings 1,500
Motor Van 1,900
47,550 47,550

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Statement of Affairs (Before Adjustments) as at 31st March 2018

Liabilities Amount Assets Amount
(`) (`)
Sundry Creditors 19,200 Cash in Hand 1,400
Capital (Balancing Figure) 20,300 Cash at Bank 2,900
Sundry Debtors 10,600
Bills Receivable 5,000
Stock-in-trade 18,100
Fixtures & Fittings 1,500
39,500 39,500

Statement of Profit or Loss for the year ended 31st March 2018
Particulars Amount (`)
Capital on 31st March 2018 20,300
Add: Drawings during the year 2,400
22,700
Less : Capital on 1st April 2017 -12,950
Gross Profit made during the year 9,750

Profit & Loss Account for the year ended 31st March 2018
Dr. Cr.
Particulars Amount Particulars Amount
(`) (`)
To Depreciation on Fixture & Fittings 150 By Gross Profit 9,750
To Bad Debts 600
To Provision for Doubtful Debts 500
To Provision for Bills Receivable 200
To Net Profit transferred to Capital A/c. 8,300
9,750 9,750

(b) Calculation of Sports Materials to be Debited to Income & Expenditure Account

Particulars Amount (`)
Payment made for Sports Materials 91,000
Less: Creditors in the Beginning -37,000
Add: Creditors at the end 45,000
99,000
Add: Cash Purchases of Sports Materials 40,000
Total Purchase 1,39,000
Less: Sports Materials sold during the year (Book Value) -50,000
89,000
Add: Stock of Sports Materials in the beginning 50,000
Less: Stock of Sports Materials at the end -55,000
Amount to be debited to Income & Expenditure A/c. 84,000
Amount to be credited to Income & Expenditure A/c.
Profit on Sale of Sports Material 6,000

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3. From the following Trial Balance of Bharat Tushar as on 31st March, 2019, you are
required to prepare a Trading and Profit & Loss Account for the year ended 31st
March, 2019 and Balance Sheet as on that date, after making the necessary
adjustment as mentioned hereunder: 15

Particulars Debit Balance (`) Credit Balance (`)

Capital and Drawings 24,000 1,60,000
Furniture and Fixtures 8,000 -
Plant and Machinery 60,000 -
Patents (ten years from 01.04.2018) 40,000 -
Opening Stock 40,000 -
Purchases and Sales 1,70,000 2,64,000
Salaries 14,800 -
Wages 30,000 -
Sundry Debtors and Creditors 20,400 24,000
Land 28,350 -
Loan from Shyam (at 6% from 01.10.2018) - 20,000
Postage and Fax 3,000 -
Rent, Rates and Taxes 7,200 -
Bad Debts 800 -
Discount - 1,200
Carriage Inward 400 -
Interest on loan 300 -
Insurance 1,600 -
Travelling expenses 1,000 -
Sundry expenses 600 -
Cash and Bank 33,750 -
Bank Overdraft - 15,000
Total 4,84,200 4,84,200

Adjustments:
(a) Closing Stock is valued at ` 30,000.
(b) A new machine was installed on 1st April, 2018 for ` 3,000. No entry in this respect
was passed in the books. Wages of ` 1,000 paid for installing the machine were
debited to Wages Account.
(c) Of the Sundry Debtors, ` 200 are bad and are to be written off. You are required
to maintain a Provision for Doubtful Debts @ 5% on Debtors and Provision for
Discount on Debtors @ 2%.
(d) Goods costing ` 2,000 were given away as free samples for publicity.
(e) Depreciate Plant and Machinery at 20% per annum and Furniture and Fixture at
10% per annum.
(f) On 01.04.2018 Machinery of the value of ` 10,000 was destroyed by fire and the
insurance claim settled at ` 8,000 was credited to Machinery Account.
(g) Goods for ` 1,200 were sent to a customer at a profit of 20% on cost on 30th March,
2018 on sale or return basis. This was recorded as actual sales.

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Answer:
3.
Trading and Profit and Loss Account
For the year ended 31st March, 2019
Dr. Cr.
Particulars ` ` Particulars ` `

To Opening Stock 40,000 By Sales 2,64,000

To Purchases 1,70,000 Less: Sent for approval. 1,200 2,62,800
Less: Free samples 2,000 1,68,000 By Closing stock 30,000
To Carriage Inward 400 Add: Sent for approval 1,000 31,000
To Wages 30,000
Less: Installation 1,000 29,000
To Gross Profit c/d 56,400
2,93,800 2,93,800
To Rent, rates and taxes 7,200 By Gross profit b/d 56,400
To Salaries 14,800 By Discount received 1,200
To Postage and fax 3,000
To Sundry expenses 600
To Travelling expenses 1,000
To Interest on loan 300
Add: Accrued interest 300 600
To Sales Promotion Exp. 2,000
To Insurance 1,600
To Loss of machinery by 2,000
fire
To Bad debts 800
Add: Written off 200
Add: Provision 950 1,950
To Provision for Discount 361
on debtors
To Depreciation:
Plant and machinery 12,400
Furniture and fixtures 800
Patents 4,000 17,200
To Net Profit t/f to 5,289
Capital a/c
57,600 57,600

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Balance Sheet as at 31st March, 2019

Liabilities Amount Amount Assets Amount Amount
(`) (`) (`) (`)
Capital Account: Land 28,350
Opening Balance 1,60,000 Plant and machinery 60,000
Add: Net Profit 5,289 Add: Purchased 3,000
Less: Drawings 24,000 1,41,289 Add: installation charges 1,000
Loans from Shyam @6% 20,000 Less: Loss by fire 2,000
Add: Accrued interest 300 20,300 62,000
Sundry Creditors 24,000 Less: Depreciation 12,400 49,600
Creditor for machinery 3,000 Patents 40,000
Bank Overdraft 15,000 Less: Depreciation 4,000 36,000
Furniture & Fixtures 8,000
Less: Depreciation 800 7,200
Closing Stock 30,000
Add: with Customers 1,000 31,000
Debtors 20,400
Less: Sent on approval 1,200
Less: Bad debts w/o 200
19,000
Less: Provision doubtful 950
debts @ 5%
18,050
Less: Provision for discount 361 17,689
@ 2%
Cash & bank 33,750
2,03,589 2,03,589

4. The Balance Sheet of X and Y who shares profits and losses in the ratio of 3 : 2, at 31st
March, 2019 was as follows:
Liabilities ` Assets `
Creditors 36,000 Cash at Bank 20,000
Workmen's Compensation Fund 24,000 Debtors 1,30,000
Employees' Provident Fund 20,000 Less: Provision 10,000 1,20,000
General Reserve 40,000 Stock 60,000
X's Capital 1,68,000 Investments 1,00,000
Y's Capital 1,12,000 Patents 20,000
Goodwill 80,000
4,00,000 4,00,000

They decided to admit Z on that date for 1/4th share on the following terms:
(a) New Profit sharing ratio will be 6 : 9 : 5. Z is to bring in capital equal to 1/4th of
the total capital of the new firm.
(b) Goodwill of the firm is to be valued at 4 years' purchase of the average super
profits of the last three years. Average profits of the last three years are ` 70,000,

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while the normal profits that can be earned with the capital employed are ` 30,000.
No Goodwill is to appear in the books. Z brings in ` 24,000 cash out of his share of
Goodwill.
(c) Patents to be written down to ` 3,000 and Stock is undervalued by ` 2,000. 20%
of General Reserve to be transferred to Provision for Doubtful Debts. ` 9,000
included in Sundry Creditors be written back as no longer payable.
(d) Out of the amount of insurance which was debited entirely to P&L A / c, ` 10,000
be carried forward as an Unexpired Insurance. Unaccounted Accrued Income of
` 2,000 to be provided for. A debtor whose dues of ` 10,000 were written off as
Bad Debts paid 80% in full settlement. A claim of ` 6,000 on account of workmen's
compensation to be provided for.
(e) The market value of investments was ` 90,000. Half of the investments were to be
taken over by old partners in their old profit sharing ratio.
Prepare Revaluation Account, Capital Accounts of the Partners and the Balance
Sheet of new firm. 15

Answer:
4.
Revaluation Account
Dr. Cr.
Particulars Amount Particulars Amount
(`) (`)
To Patents 17,000 By Sundry Creditors 9,000
To Investments 10,000 By Prepaid Insurance 10,000
To Profit on Revaluation t/f to: By Bad Debts Recovered 8,000
X's Capital A/c 2,400 By Stock 2,000
Y's Capital A/c 1,600 4,000 By Accrued Income 2,000
31,000 31,000

Partners Capital Accounts

Dr. Cr.
Particulars X (`) Y (`) Z (`) Particulars X (`) Y (`) Z (`)
To Goodwill A/c 48,000 32,000 — By Balance b/d 1,68,000 1,12,000 —
To Investments 27,000 18,000 '— By General 19,200 12,800 —
A/c Reserve A/c
To X's Capital — 8,000 40,000 By Revaluation A/c 2,400 1,600 —
A/c
To Balance c/d 1,73,400 75,600 83,000 By Workmen's 10,800 7,200
Com.
By,Bank A/c ---- --- 24,000
(Premium for
Goodwill)
By Z's Current A/c 16,000
By Y's Capital A/c 8,000 — —
By,Z’s Capital A/c 40,000
By Bank A/c — — 83,000
2,48,400 1,33,600 1,23,000 2,48,400 1,33,600 1,23,000

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Balance Sheet of New Firm as at 31st March, 2019

Dr. Cr.
Liabilities Amounts Assets Amounts
(`) (`)
Creditors 27,000 Cash at Bank 1,35,000
Employees' Provident Fund 20,000 Debtors 1,30,000
Workmen's Compensation Claim 6,000 Less: Provision 18,000 1,12,000
X's Capital A/c 1,73,400 Stock 62,000
Y's Capital A/c 75,600 Investments 45,000
Z's Capital A/c 83,000 Patents 3,000
Prepaid Insurance 10,000
Accrued Income 2,000
Z's Current A/c 16,000
3,85,000 3,85,000

Working Notes:
1. X's sacrifice = 3/5 - 6/20 = 6/20, Y's gain = 2/5 - 9/20 = (1/20)
2. Firm's Goodwill = Super Profits x 4 = (` 70,000 - ` 30,000) x 4 = ` 1,60,000
3. Z's Share of Goodwill = ` 1,60,000 x 1/4 = ` 40,000
4. Y's Share of Goodwill = ` 1,60,000 x 1/20 = ` 8,000
5. Z's New Capital = (` 1,73,400 + ` 75,600) x 1/3 = ` 83,000

Cash at Bank Account

Dr. Cr.
Particulars Amounts Particulars Amounts
(`) (`)
To Balance b/d 20,000 By Balance c/d 1,35,000
To Z's Capital A/c 83,000
To Bad Debts Recovered 8,000
To Premium for Goodwill 24,000
1,35,000 1,35,000

5. (a) 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
2018: 8
Sawmill Furniture
(`) (`)
Opening Stock on 1st January, 2018 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
Closing Stock on 31st December, 2018 1,00,000 30,000

The value of stocks in the Furniture Department consist of 75% wood and 25%
other expenses. The Sawmill Department earned Gross Profit at 15% on sales

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in 2017. General expenses of the business as a whole came to ` 55,000. The firm
adopts FIFO method for assigning costs to inventories.

(b) On 02.06.2019 the stock of Mr. Black was destroyed by fire. However, following
particulars were furnished from the record saved:

`
Stock at cost on 01.04.2018 1,35,000
Stock at 90% of cost on 31.03.2019 1,62,000
Purchases for the year ended 31.03.2019 6,45,000
Sales for the year ended 31.03.2019 9,00,000
Purchases from 01.04.2019 to 02.06.2019 2,25,000
Sales from 01.04.2019 to 02.06.2019 4,80,000

Sales up to 02.06.2019 includes ` 75,000 (invoice price) being the goods not
dispatched to the customers.

Purchases up to 02.06.2019 includes a machinery acquired for ` 15,000.

Purchases up to 02.06.2019 does not include goods worth ` 30,000 received from
suppliers, as invoice not received up to the date of fire. These goods have
remained in the godown at the time of fire. The insurance policy is for ` 1,20,000
and it is subject to average clause.

Ascertain the amount of claim for loss of stock. 7

Answer:

5. (a)
Departmental Trading and Profit and Loss Account
Dr. Cr.
Particulars Sawmill Furniture Particulars Sawmill Furniture
(`) (`) (`) (`)
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 department
To Wages 30,000 10,000 By Closing stock 1,00,000 30,000
To Transfer from saw 1,50,000
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

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General Profit & Loss Account

Dr. Cr.
Particulars Amounts (`) Particulars Amounts
(`)
To General Expenses 55,000 By Net Profit from
To Stock reserve (WN – 2) 4,500 Saw Mill 2,60,000
To Net Profit 2,37,813 Furniture 34,500
By Stock reserve (opening 2,813
WN-1)
2,97,313 2,97,313

Working Notes:

1. Calculation of Stock Reserve (opening)

25,000 x 75% wood x 15% = ` 2,813

2. Calculation of closing stock reserve

Gross profit Rate of Saw Mill of 2018
2,70,000 / (12,00,000 + 1,50,000) x 100 = 20%
30,000 x 75% x 20% = ` 4,500

(b)
In the Books of Mr. Black
Trading Account for the year ended 31.03.2019
Dr. Cr.
Particulars Amount (`) Particulars Amount (`)
To Opening Stock 1,35,000 By Sales 9,00,000
To Purchase 6,45,000 By Closing Stock at Cost 1,80,000
To Gross Profit 3,00,000 100
(1,62,000 × 90 )
10,80,000 10,80,000

Memorandum Trading Account

for the period from 01.04.2019 to 02.06.2019
Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
(`) (`) (`) (`)
To Opening Stock (at cost) 1,80,000 By Sales 4,80,000
To Purchase 2,25,000 Less: goods not 75,000 4,05,000
dispatched
Add: Goods received but 30,000 By Closing Stock 1,50,000
invoice not received (Balancing Figure)
2,55,000

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Less: Machinery 15,000 2,40,000

To Gross Profit (Refer W.N.) 1,35,000
5,55,000 5,55,000

Calculation of Insurance Claim:

Actual Loss of Stock
Claim subject to average clause = ( Value of Stock on the date of fire ×Amount of policy)
1, 50, 000

= 1,20,000 × ( 1, 50, 000 ) = ` 1,20,000

Working Notes:
3, 00, 000 1
G. P. Ratio = 9, 00, 000 × 100 = 33 3 %
1
Amount of Gross Profit = ` 4,05,000 × 33 3 % = ` 1,35,000

6. (a) Bharat Enterprise furnishes you the following information for the quarter January
to March. You are requested to draw up Debtors Ledger Adjustment account in the
General Ledger:

(i) Total sales amounted to ` 2,20,000 including sale of old motor car for ` 10,000
(book value ` 5,000). Total credit sales were 80% higher than the cash sales.

(ii) Cash collection from debtors amounted to 60% of the aggregate of the opening
debtors amounting to ` 40,000 and credit sales for the period. Debtors were
allowed discount of ` 10,000.

(iii) Bills Receivables drawn during the period totaled ` 20,000 of which one bill of
` 5,000 was dishonoured for non-payment as the party became insolvent and his
estate realized 50 paise in a rupee.

(iv) A sum of ` 3,000 was written off as Bad Debts, ` 7,000 was realized against
Bad Debts written off in earlier years and provision of ` 6,000 was made for
doubtful debts. 5

(b) On 1st January, 2015, KC Limited obtained a piece of land on lease from Juggu
Limited. The terms were as follows:
(i) Royalty at ` 60 per tonne produced.
(ii) Minimum Rent ` 3,00,000 per annum up to 31st December, 2016, and after that it
will be ` 4,00,000 per annum.
(iii) Short workings can be recouped in the next two years only but subject to a
maximum of ` 60,000 per year.
(iv) In the event of strike, the minimum rent would be taken pro-rata on the basis of
actual working days but in the event of lockout, the lease would enjoy
concession in respect of minimum rent for 50% of the period of lockout.

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In addition to the above, KC Limited has been granted a right to receive cash
subsidy equal to 50% of the unrecoupable short workings by the Government of
India up to the first five years of the lease.

The sales and closing stock up to 2018-19 were as follows:

2014-15 2015-16 2016-17 2017-18 2018-19
Sales (in Tonnes) 600 3100 5550 4300 7400
Closing Stock (in Tonnes) 150 460 630 150 650

During the year 2017-18, a period of strike was for three months and during 2018-19,
KC Limited was being locked out for 73 days.

Show the necessary Ledger Accounts in the books of KC Limited, when the books
are closed on 31st March in every year. 10

Answer:

6. (a)
Debtors Ledger Adjustment Account in the General ledger
Dr. Cr.
Date Particular ` Date Particulars `
Jan. 1 To Balance b/d 40,000 Jan - Mar By General Ledger Adj. A/c:
Jan - Mar To General. Collection from Debtors-bank 1,05,000
Ledger Adj A/c: [60% of (40,000 + 1,35,000)]
Sales 1,35,000 Discount allowed 10,000
Bills Receivables 5,000 Bills Receivables 20,000
dishonoured
Bad debts (` 2,500 + 3,000) 5,500
31st March By Balance c/d 39,500
1,80,000 1,80,000

Note: No entries are to be made:

(a) For ` 7,000 realised against bad debts written off in earlier years, and
(b) For provision of ` 6,000 made for doubtful debts.
Working Notes: Credit Sales = (2,20,000 – 10,000) - (2,10,000 x 100/280) = ` 1,35,000

(b)
Analytical Table
Year Minimum Actual S.W.(-) or S.W. S.W. Subsidy Actual Closing
Rent Royalty E.W.(+) Recoup Transferre Payment Bal. Of
ed d to P/L S.W.
A/c
` ` ` ` ` ` ` `
2014-15 75,000 45,000 (-) 30,000 --- --- --- 75,000 30,000
2015-16 3,00,000 2,04,600 (-) 95,400 --- --- --- 3,00,000 1,25,400
2016-17 3,25,000 3,43,200 (+)18,200 18,200 5,900 5,900 3,25,000 95,400
2017-18 3,00,000 2,29,200 (-) 70,800 --- 47,700 47,700 3,00,000 70,800

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2018-19 3,60,000 4,74,000 (+)1,14,000 60,000 --- --- 4,14,000 10,800

Working Notes:

(ii) Minimum Rent:

for 2014-15 = 3,00,000 × 3/12 = ` 75,000 ; for 2015 -16 = 3,00,000 ;
for 2016-17= (3,00,000 × 9/12) + (4,00,000 × 3/12) = 3,25,000;
for 2017-18 (Strike) = 4,00,000 × 9/12 = ` 3,00,000;
for 2018-19 (Lockout) = 4,00,000 - (4,00,000 × 50% × 73/365)
= 4,00,000 – 40,000 = ` 3,60,000.
(ii)
Production and Actual Royalty:
2014-15 2015-16 2016-17 2017-18 2018-19
Sales(in Tonnes) 600 3100 5550 4300 7400
Add: Closing Stock (tonnes) 150 460 630 150 650
750 3560 6180 4450 8050
Less: Opening Stock(tonnes) --- 150 460 630 150
Production in tonnes 750 3410 5720 3820 7900
Actual Royalty (`) @ `60 45,000 2,04,600 3,43,200 2,29,200 4,74,000

Ledger of KC Limited
Royalty Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
31.3.15 To Juggu Limited 45,000 31.3.15 By Statement of P/L 45,000
31.3.16 To Juggu Limited 2,04,600 31.3.16 By Statement of P/L 2,04,600
31.3.17 To Juggu Limited 3,43,200 31.3.17 By Statement of P/L 3,43,200
31.3.18 To Juggu Limited 2,29,200 31.3.18 By Statement of P/L 2,29,200
31.3.19 To Juggu Limited 4,74,000 31.3.19 By Statement of P/L 4,74,000

Short-workings Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
31.3.15 To Juggu Limited 30,000 31.3.15 By Balance c/d 30,000
1.4.15 To Balance b/d 30,000 31.3.16 By Balance c/d 1,25,400
31.3.16 To Juggu Limited 95,400
1,25,400 1,25,400
1.4.16 To Balance b/d 1,25,400 31.3.17 By Juggu Limited 18,200
31.3.17 By Bank A/c (Subsidy) 5,900
31.3.17 By Statement of P/L 5,900

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31.3.17 By Balance c/d 95,400

1,25,400 1,25,400
1.4.17 To Balance b/d 95,400 31.3.18 By Bank A/c (Subsidy) 47,700
31.3.18 To Juggu Limited 70,800 31.3.18 By Statement of P/L 47,700
31.3.18 By Balance c/d 70,800
1,66,200 1,66,200
1.4.18 To Balance b/d 70,800 31.3.19 By Juggu Limited 60,000
31.3.19 By Balance c/d 10,800
70,800 70,800

Juggu Limited Account

Dr. Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
31.3.15 To Bank A/c 75,000 31.3.15 By Royalty A/c 45,000
31.3.15 By Short-workings A/c 30,000
75,000 75,000
31.3.16 To Bank A/c 3,00,000 31.3.16 By Royalty A/c 2,04,600
31.3.16 By Short-workings A/c 95,400
3,00,000 3,00,000
31.3.17 To Short-workings A/c 18,200 31.3.17 By Royalty A/c 3,43,200
To Bank A/c 3,25,000
3,43,200 3,43,200
31.3.18 To Bank A/c 3,00,000 31.3.18 By Royalty A/c 2,29,200
31.3.18 By Short-workings A/c 70,800
3,00,000 3,00,000
31.3.19 To Short-workings 60,000 31.3.19 By Royalty A/c 4,74,000
To Bank A/c 4,14,000
4,74,000 4,74,000

7. (a) Briefly explain the objectives and applicability of Accounting Standard for
Construction Contracts (AS-7). Describe the basic principles of recognition of
revenue and expenses as per AS-7. 8

(b) What do you mean by 'Customised Accounting Software'? Discuss its advantages. 7

Answer:

7. (a) Objective of AS-7 :

Accounting for long-term construction contracts involves question as to when
revenue should be recognized and how to measure the revenue in the books of
contractor. The primary objective of this AS is the allocation of 'contract revenue' and
'contract cost' to the accounting period in which construction work is performed.

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Applicability of AS-7:
This Standard is applicable in accounting for construction contracts in contractor's
financial statements. In other words the AS does not apply to customer (Contractee).
This would not be applicable for the construction projects undertaken by the
enterprise on its own account as a commercial venture in the nature of production
activities.

Basic principles of recognition of revenue and expenses:

 Revenue recognized in the period in which work is performed;
 Expenses recognized in the period in which the work to which expenses relate is
performed.
Conditions for recognizing the contract revenue:

- Following conditions must be fulfilled for recognizing the contract revenue:

(i) Total contract revenue can be measured reliably
(ii) It is probable that economic benefits associated with contract will flow to
the enterprise / contractor
(iii) Total contract cost and cost upto the stage of completion is measured
reliably
(iv) Contract cost attributable to contract can be clearly identified.

Uncertainty in collection amounts to expenses - When an uncertainty arises about

the collectability of an amount already included in contract revenue and already
recognized in profit and loss statement, it amounts to expense. This uncollectable
amount of which recovery has ceased to be probable is recognized as an
expense rather than as an adjustments to contract revenue.

(b) Customised Accounting Software:

A customised accounting software is one which is developed on the basis of specific
requirements of the organisation. A feasibility study is first made before the decision to
develop a software is made. The life cycle of a customized accounting software
begins with the organisation providing the user requirements. Based on the these user
requirement the system analyst prepares a requirement specification which is given
for approval by the user management. Once the requirement specification is
approved, the designing process begins. Development, testing and implementation
are the other components of the system development life cycle.

Advantages of a Customised Accounting Package:

1. The functional areas which are not covered in pre-packaged software gets
computerised.
2. The input screens can be tailor made to match the input documents for ease of
data entry.
3. It provides many MIS reports as per the specification of the organisation.
4. It facilitates the use of Bar-code scanners as input devices suitable for the specific
needs of an individual organisation.
5. It can suitably match with the organisational structure of the company.

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8. Write short notes on any three of the following: 5×3=15

(a) Users of Accounting information
(b) Objective and necessity for providing Depreciation
(c) Applicability of Section 37 of the Indian Partnership Act, 1932
(d) Difference between Sale and Consignment

Answer:

8. (a) Users of Accounting Information

Accounting provides information both to internal users and the external users. The
internal users are all the organizational participants, at all levels of management (i.e.
top, middle and lower). Generally top: level management requires information for
planning, middle level management which requires information for controlling the
operations. For internal use, the information is usually provided in the form of reports,
for instance Cash Budget Reports, Production Reports, Idle Time Reports, Feedback
Reports, whether to retain or replace an equipment decision reports, project
appraisal report, and the like.
There are also the external users (e.g. Banks, Creditors). They do not have direct
access to all the record 'of an enterprise, they have to rely on financial statements as
the source of information. External users are basically, interested in the solvency and
profitability of an enterprise.

(b) Objective and Necessity for Providing Depreciation

Eric Kohler defined depreciation as "the lost usefulness, expired utility, the diminution
in service yield." Its measurement and charging are necessary for cost recovery. It is
treated as a part of the expired cost for an asset. For determination of revenue, that
part or cost should be matched against revenue. The objects or necessities of
charging depreciation are:
(i) Correct calculation of cost of production: Depreciation is an allocated cost of a
fixed asset. It is to be calculated and charged correctly against the revenue of an
accounting period. It must be correctly included within the cost of production.
(ii) Correct calculation of profits: Costs incurred for earning revenues must be
charged properly for correct calculation of profits. The consumed cost of assets
(depreciation) has to be provided for correct matching of revenues with
expenses.
(iii) Correct disclosure of fixed assets at reasonable value: Unless depreciation is
charged, the depreciable asset cannot be correctly valued and presented in the
Balance Sheet. Depreciation is charged so that the Balance Sheet exhibits a true
and fair view of the affairs of the business.
(iv) Provision of replacement cost: Depreciation is a non-cash expense. But net profit,
is calculated after charging it. Through annual' depreciation cash resources are
saved and accumulated to provide replacement cost at the end of the useful life
of an asset.
(v) Maintenance of capital: A significant portion of capital has to be invested for

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purchasing fixed assets. The values of such assets are gradually reduced due to
their regular use and passage of time. Depreciation on the assets is treated as an
expired cost and it is matched against revenue. It is charged against profits. If it is
not charged the profits will remain inflated. This will cause capital erosion.
(vi) Compliance with technical and legal requirements: Depreciation has to be
charged to comply with the relevant provisions of the Companies Act and
Income Tax Act.

(c) Applicability of Section 37 of the Indian Partnership Act 1932:

In case of retirement, the retiring partner or in case of death, the executor of the
deceased partner, if the dues are not settled, then such retired partner or the
executor is entitled to the following:

Maximum of : Interest @ 6% p.a. on the amount due to them (i.e. if the amount is
unsettled, like, rate of interest on loan to be allowed to the retired partner or the
executor is not mentioned)
Or
The share of profit earned for the amount due to the partner

Conditions:
(a) The surviving partners/continuing partners continue to carry on the business of the
firm.
(b) The business is carried on without any final settlement of accounts between the
continuing partners and the outgoing partners or his estate.
(c) There is no contract to the contrary of the options contained in Section 37 i.e.
share in the profits or interest @ 6% p.a. on the unsettled capital.

(d) Difference between Sale and Consignment

1. In sale the property in goods is transferred to the buyer immediately whereas in
consignment the property is transferred to the buyer only when goods are sold by
the consignee. The ownership of goods remains with the consignor when goods
are transferred to the consignee by the consignor.
2. In sale, the risk attaching to the goods passes with ownership to the buyer. In case
of a consignment, the risk attaching to the goods does not pass to the consignee
who acts as a mere agent. If there is any damage or loss to the goods it is borne
by the consignor provided the consignee has taken reasonable care of the
goods and the damage or loss is not due to his negligence.
3. The relationship of consignor and consignee is that of a principal, and an agent
as in a contract of agency whereas the relationship of buyer and seller is
governed by the Sale of Goods Act.
4. Unsold goods on consignment are the property of the consignor and may be
returned if not saleable in the market whereas goods sold on sale basis are
normally not returnable unless there is some defect in them.

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INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

JUNE - 2019

Paper - 5 : FINANCIAL ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
Both the sections are to be answered subject to instructions given against each.
[All workings must form part of your answer.]

SECTION - A

1. Answer the following questions: 1×10=10

(a) Choose the most appropriate one from the given following alternatives:

(i) Which of the following is a resource owned by the business with the purpose of
using it for generating future profits?
(A) Loan from Bank
(B) Owner's Capital
(C) Trade Mark
(D) All of the above

(ii) Chandu & Co.'s Account is a

(A) Real Account
(B) Nominal Account
(C) Representative Personal Account
(D) Artificial Personal Accounts

(iii) Purchase of a laptop for office use wrongly debited to Purchase Account. It is an
error of
(A) Omission
(B) Commission
(C) Principle
(D) Misposting

(iv) Which of the following term is most suitable for writing off Patent?
(A) Depletion
(B) Amortization
(C) Depreciation
(D) All of the above

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(v) Memorandum Joint Venture Account is prepared when

(A) the separate set of books is maintained for Joint Venture.
(B) the each Co-venturer keeps records of all transactions.
(C) the each Co-venturer keeps records of their own transactions only.
(D) All of the above cases

(vi) Which of the following commission is allowed by the consignor to the consignee
to encourage the consignee for putting-up hard work in introducing new product
in the market?
(A) Del-credere Commission
(B) Over-riding Commission
(C) Hard work Commission
(D) Ordinary Commission

(vii)If Ram's acceptance which was endorsed by us in favour of Saleem is

dishonoured, then the amount will be debited in our books to
(A) Saleem
(B) Ram
(C) Bills Receivable Account
(D) None of the above

(viii) In case of a Club, the excess of expenditure over income is called as

(A) Surplus
(B) Deficit
(C) Capital Fund
(D) Investment in Fixed Assets

(ix) A Charitable Institution has 250 members with a annual subscription of ` 5,000
each. The subscription received during 2018-19 were ` 11,25,000, which include
` 65,000 and ` 25,000 for the years of 2017-18 and 2019-20 respectively. Amount
of outstanding subscription for the 2018-19 will be
(A) ` 90,000
(B) ` 1,25,000
(C) ` 2,15,000
(D) ` 1,90,000

(x) The following are details of closing stock items in Aarvi Limited:
Items Historical Cost (` in Lakh) Net Realisable Value (` in Lakh)
A 30 27
B 15 18
C 35 35
D 40 45

The value of Closing Stock will be

(A) ` 120 Lakh
(B) ` 125 Lakh
(C) ` 117 Lakh
(D) ` 128 Lakh

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(b) Match the following in Column-I with the appropriate in Column-II: 1x5=5

Column-I Column-II
(1) Highest Relative Capital Method (A) Departmental Accounts
(2) Basis of Apportionment of Expenses (B) Insurance Claim
(3) Partial Repossession (C) AS-9
(4) Indemnity Period (D) Piecemeal Distribution
(5) Revenue Recognition (E) Hire Purchase

(c) State whether the following statements are True or False. 1x5=5

(i) All these items of revenue nature which received during the period of accounts,
are only shown in the Income and Expenditure Account.
(ii) When the capitalization of profits method is used then the value of goodwill on
the basis of future maintainable profits is more than that of on the basis of super
profits.
(iii) In case of transfer from Creditors Ledger to Debtors Ledger, the Debtors Ledger
Adjustment Account should be debited.
(iv) Unrecoupable short-workings should be charged to Profit and Loss Account.
(v) In the Stock and Debtors Method of accounting, balance of Branch Stock
Account shows either Gross Profit or Gross Loss.

(d) Fill in the blanks: 1x5=5

(i) Net Worth is excess of __________________ over ______________ .

(ii) The Sales ` 180 Lakh, Purchases ` 129 Lakh and Opening Stock ` 33 Lakh.
If the rate of Gross Profit is 50% on cost, then the value of closing stock will
be ________________ .
(iii) In case of Loss of Profit Policy, Gross Profit is the sum of Net Profit plus
________________ Standing Charges.
(iv) Interest to be allowed @ 0.75 per cent per month on Partners Capital of ` 60 Lakh;
Manager's Commission @ 5 per cent of Net Profit before charging
such commission. If the Net Profit before charging interest on capital and
manager's commission amounted to ` 14.85 Lakh, then manager's commission
will be_____________.
(v) A machinery was purchased on Hire Purchase System. Its cash price was
` 5,20,000 which was payable in annual instalments of ` 1,80,000 each including
interest @ 15 per cent per annum. The amount of interest included in 2nd
instalment would be _______________.

Answer:

1. (a) (i) (C)

(ii) (D)
(iii) (C)
(iv) (B)

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(v) (C)
(vi) (B)
(vii) (B)
(viii) (B)
(ix) (C)
(x) (C)

(b)
Column-I Column-II
(i) Highest Relative Capital Method (D) Piecemeal Distribution
(ii) Basis of Apportionment of Expenses (A) Departmental Accounts
(iii) Partial Repossession (E) Hire Purchase
(iv) Indemnity Period (B) Insurance Claim
(v) Revenue Recognition (C) AS – 9

(c) (i) False

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

(d) (i) Total assets, total liabilities

(ii) ` 42 Lakh
(iii) Insured
(iv) ` 47,250
(v) ` 62,700

SECTION – B

Answer any five questions from the remaining seven questions. Each question carries 15
marks. 15×5=75

2. (a) Rectify the following errors: 8

(i) A Credit Sale of goods to X ` 3,000 posted as ` 30,000.

(ii) A Cash Sale of goods to Y ` 3,000 posted as ` 30,000.
(iii) A Credit Sale of Furniture to Z ` 3,000 posted as ` 30,000.
(iv) A Credit Sale of goods of ` 3,000 to Krishan entered in the purchases book, as
` 30,000 and posted therefrom to the credit of Kishan as ` 3,000.
(v) A Cash Sale of goods of ` 3,000 to Krishan posted to the credited of Kishan as
` 30,000.
(vi) A Credit Purchase of old machinery from Sohan for ` 17,000 was entered in the
Purchases Book as purchase from Mohan for ` 71,000. ` 3,000 paid as Repair
Charges of this Machinery debited to General Expenses Account.
(vii) A Bill drawn on Meenu for ` 30,000 was passed through bills payable book with
` 3,000 and posted therefrom to the credit of Meena as ` 300.
(viii) Sales included a sale of furniture having a book of value of ` 900 for ` 850 on
31st March, 2018.

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(b) Mr. Kanan is running a business of readymade garments. He does not maintain his
books of accounts under double entry system. While assessing the income of
Mr. Kanan for the financial year 2018-19, Income Tax Officer feels that he has not
disclosed the full income earned by him from his business. He provides you the
following information:

On 31st March, 2018

Sundry Assets ` 16,65,000
Liabilities ` 4,13,000
On 31st March, 2019
Sundry Assets ` 28,40,000
Liabilities ` 5,80,000
Mr. Kanan's drawings for the year 2018-19 ` 32,000 per month
Income declared to the Income Tax Officer ` 9,12,000

During the year 2018-19, one life insurance policy of Mr. Kanan was matured and
amount received ` 50,000 was retained in the business.

State whether the Income Tax Officer's contention is correct. Explain by giving your
working. 7

Answer:

2. (a)
JOURNAL
Date Particulars Dr. (`) Cr. (`)
(i) Suspense A/c Dr. 27,000
To X A/c 27,000
(Being wrong posting now rectified)
Or,
Sales A/c Dr. 27,000
To, X A/c 27,000
(being credit sale of `3,000 wrongly posted as `30,000, now
rectified)
(ii) Sales A/c Dr. 27,000
To Suspense A/c 27,000
(Being wrong posting now rectified)
Or,
Sales A/c Dr. 27,000
To, Cash A/c 27,000
(Being, cash sale of `3,000 wrongly posted as `30,000, now
rectified)
(iii) Furniture A/c Dr. 27,000
To Z A/c 27,000
(Being wrong posting, now rectified)
(iv) Krishan A/c Dr. 3,000
Kishan A/c Dr. 3,000
Suspense A/c Dr. 27,000

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To Sales A/c 3,000

To Purchases A/c 30,000
(Being sale recorded as purchase with wrong amount and
wrong posting therefrom, now rectified)
(v) Kishan A/c Dr. 30,000
To Sales A/c 3,000
To Suspense A/c 27,000
(Being wrong posting, now rectified)
(vi) Mohan A/c Dr. 71,000
Machinery A/c Dr. 20,000
To Sohan A/c 17,000
To Purchases A/c 71,000
To General Expenses A/c 3,000
(Being purchase of old machinery recorded the Purchases
Book and repairing charges debited to General Expenses
A/c, now rectified)
(vii) Bills Receivable A/c Dr. 30,000
Bills Payable A/c Dr. 3,000
Meena A/c Dr. 300
To Meenu A/c 30,000
To Suspense A/c 3,300
(Being B/R drawn recorded in B/P Book, now rectified)
(viii) Sales A/c Dr. 850
Loss on Sale of Furniture A/c Dr. 50
To Furniture A/c 900
(Being the sale of furniture recorded as sales, now rectified)

(b) Determination of Capital balance of Mr. Kanan on 31.3.2018 and on31.3.2019

31.3.2018 31.3.2019
` `
Assets 16,65,000 28,40,000
Less: Liabilities 4,13,000 5,80,000
Capital 12,52,000 22,60,000

Determination of Profit by applying the method of the capital comparison.

`
Capital Balance as on 31.3.2019 22,60,000
Less :Fresh capital introduces(matured life insurance policy amount) (50,000)
22,10,000
Add: Drawings (`32,000 X12) 3,84,000
25,94,000
Less: Capital Balance as on 1.4.2018 (12,52,000)
Profit 13,42,000
Income declared 9,12,000
Suppressed Income 4,30,000

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The Income Tax Officer's contention that Mr. Kanan has not declared his true income
is correct. Mr. Kanan's true income is in excess of the disclosed income by ` 4,30,000.

Note:
 Closing capital is increased due to fresh capital introduction, so it is deducted.
 Closing capital was reduced due to withdrawal by proprietor; so it is added back.

3. Following is the Trial Balance as on 31st March, 2019 of Bajrang Traders:

Particulars Debit (`) Credit (`)

Stock on 01.04.2018 1,35,000
Purchases and Sales 28,50,000 46,25,000
Returns 35,000 22,500
Carriage Inwards 24,000
Carriage Outwards 33,000
Wages 1,25,000
Salaries 3,52,000
Printing and Stationery 6,500
Insurance Premium 15,000
Repairs 11,000
Discounts Allowed 30,500
Discounts Received 15,500
Bad Debts 28,000
Provision for Bad Debts 35,000
Advertisement 38,000
Interest on Investment 42,000
Drawings 2,10,000
Investment 8,00,000
Furniture and Fixtures 3,50,000
Office Equipments 2,45,000
Land and Building 15,00,000
Sundry Debtors and Creditors 6,90,000 4,55,000
Establishment Expenses 35,000
Capital 31,05,000
Cash at Bank 7,24,000
Cash in Hand 63,000
Total 83,00,000 83,00,000

Additional Information:
(i) Closing Stock of goods amounted to ` 1,85,000 and of stationery amounted to
` 1,500.
(ii) Depreciation to be charged on Land and Building @ 10%; On Office Equipments
@ 15%; and On Furniture and Fixtures @ 10%.
(iii) Insurance Premium paid on 1st July, 2018 for one year.
(iv) Write off further as bad debts ` 5,000 and maintain a provision for bad debts of 5% on

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debtors.
(v) Provision made for discount on debtors @ 2%.
(vi) Goods costing ` 12,500 used for given free samples to customers.
(vii) Goods costing ` 25,000 were sent on approval basis to a customer for ` 40,000 on
26th March, 2019. This was recorded as actual sales but approval did not receive till
31st March, 2019.
(viii) Outstanding salaries were for one month.
(ix) Investment made at 7.50% per annum on 1st May, 2018.

You are required to prepare Trading Account and Profit & Loss Account for the year
ended 31st March, 2019 and a Balance Sheet as on that date. 15

Answer:

3.
Books of Bajrang Traders
Trading and Profit and Loss Account
For the year ending 31st March, 2019
Dr. Cr.
Particulars Amount Amount Particulars Amount
(`) (`) (`)
To Opening Stock 1,35,000 By Sales 46,25,000
Less: Returns 35,000
Less: Sent on Approval 40,000 45,50,000
To Purchases 28,50,000 By Closing Stock 1,85,000
Less: Returns 22,500 Add: Sent on Approval 25,000 2,10,000
Less: Free Samples 12,500 28,15,000
To Wages 1,25,000
To Carriage Inwards 24,000
To Gross Profit c/d 16,61,000
47,60,000 47,60,000
By Gross Profit b/d 16,61,000
To Carriage Outwards 33,000 By Discount Received 15,500
To Salaries 3,52,000 By Interest 42,000 55,000
Add: Outstanding 32,000 3,84,000 Add: Outstanding 13,000
To Printing & Stationery 6,500
Less: Closing Stock 1,500 5,000
To Insurance Premium 15,000
Less: Prepaid 3,750 11,250
To Repairs 11,000
To Discount Allowed 30,500
To Prov. for Discount on 12,255
Debtors

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To Bad Debts 28,000

Add: Further B.D 5,000
Add: New Provision 32,250
Less: Old Provision (35,000) 30,250
To Advertisement 38,000
To Establishment Exp. 35,000
To Free Samples 12,500
To Depreciation on
-Land & Building 1,50,000
-Office Equipments 36,750
- Furniture & Fixtures 35,000 2,21,750
To Net Profit 9,06,995
17,31,500 17,31,500

Balance Sheet as on 31st March, 2019

Liabilities Amount Assets Amount
(`) (`)
Capital on 1.4.18: 31,05,000 Land & Building 15,00,000
Add: Net Profit 9,06,995 Less: Dep. 1,50,000 13,50,000
Less: Drawings (2,10,000)
Capital on 31.3.19 38,01,995
Sundry Creditors 4,55,000 Furniture & Fixtures 3,50,000
Less: Dep. 35,000 3,15,000
Outstanding Salaries 32,000 Office Equipments 2,45,000
Less: Dep. 36,750 2,08,250
Investment 8,00,000
Stock: Goods(1,85,000+25,000) 2,10,000
Stationery 1,500 2,11,500
Sundry Debtors(Trial Balance) 6,90,000
Less: Goods on Approval 40,000
Sundry Debtors 6,50,000
Less: Further B. D. 5,000
Net Sundry Debtors 6,45,000
Less: Prov. for B.D.@ 5% 32,250
6,12,750
Less: Prov. for Disc.@ 2%. 12,255 6,00,495
Earned Interest 13,000
Prepaid Insurance Prem. 3,750
Cash at Bank 7,24,000
Cash in Hand 63,000
42,88,995 42,88,995

Working Notes:
(i) Prepaid Insurance Premium from 1.4.19 to 30.6.19 = ` 15,000 x 3/12 = ` 3,750.
(ii) Outstanding Interest on Investment:

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Total Interest (1.5.18 to 31.3.19) = ` 8,00,000 x 7.50% x 11/12 = ` 55,000

Outstanding = ` 55,000 – ` 42,000 = `13,000.

4. A, B and C were partners in a firm sharing profits & losses in the ratio of 3 : 1 : 1 agreed
upon dissolution of there partnership. They each decide to take over certain assets and
liabilities and continue business separately.

Balance Sheet
as on date of dissolution
Liabilities Amount Assets Amount
(`) (`)
Creditors 6,000 Cash at Bank 3,200
Loan 1,500 Sundry Assets 17,000
Capitals: Debtors 24,200
A 27,500 Less: Bad Debts Provision 1,200 23,000
B 10,000 Stock 7,800
C 7,000 44,500 Furniture 1,000
52,000 52,000

It is agreed as follows:
(i) Goodwill is to be ignored.
(ii) A is to take over all the Fixtures at ` 800; Debtors amounting to ` 20,000 at ` 17,200.
The creditors of ` 6,000 to be assumed by A at that figure.
(iii) B is to take over all the stocks at ` 7,000 and certain of the sundry assets at ` 7,200
(being book value less 10%).
(iv) C takes over the remaining sundry assets at 90% of book values less ` 100
allowances and assumes responsibility for the discharge of the loan, together with
accruing interest of ` 30 which has not been recorded in the books of the firm.
(v) The expenses of dissolution were ` 270. The remaining debtors were sold to a debt
collecting agency for 50% of book values.

Prepare Realisation Account, partners' Capital Accounts and Bank Account. 15

Answer:
4. In the books of A, B and C
Realisation Account
Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
(`) (`) (`) (`)
To Sundry Assets: By Provision for bad 1,200
debts
Sundry Assets 17,000 Capital Account A:
Debtors 24,200 Fixtures 800
Stock 7,800 Debtors 17,200 18,000
Fixtures 1,000 50,000 B: Stock 7,000
To Bank – Expenses 270 Sundry Assets 7,200 14,200

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To Capital Account C: Sundry Assets 8,000

C – Interest on loan 30 By Bank: Collection 2,100
from Debtors
By Loss on realization:
A (3/5) 4,080
B (1/5) 1,360
C (1/5) 1,360 6,800
50,300 50,300

Capital Account
Dr. Cr.
Particulars A B C Particulars A B C
(`) (`) (`) (`) (`) (`)
To Dissolution 18,000 14,200 8,000 By Balance b/d 27,500 10,000 7,000
Assets taken By Creditors 6,000 --- ---
To Dissolution A/c 4,080 1,360 1,360 By Loan (with --- --- 1,530
Loss interest)
To Bank – 11,420 --- --- By Bank
Final payment
By Final Receipts --- 5,560 830
33,500 15,560 9,360 33,500 15,560 9,360

Bank Account
Dr. Cr.
Particulars Amounts Particulars Amounts
(`) (`)
To Balance b/d 3,200 By Dissolution A/c
To Dissolution A/c Expenses 270
Collection from Debtors 2,100 By Capital A/c
To Capital A/c A 11,420
B 5,560
C 830 6,390
11,690 11,690

Working Notes:
1. Realization of Sundry Assets:
`
Sundry Assets (Book Value) 17,000
Less: Taken by B [7,200 × (100/90)] 8,000
Remaining at book value 9,000

Taken by C: 90% of Book Value

i.e., (9,000 × (90/100) = 8,100 – 100 for allowance = 8,000

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 Suggested Answers_Syl2016_June 2019_Paper 5

2. Collection from Debtors:

`
Debtors (Book Value) 24,200
Less: Taken by (Book Value) 20,000
Remaining at 50% i.e., ` 2,100 4,200

5. (a) Rukmani Stores, Delhi invoiced goods to its Jaipur Branch @ 20% less than the
Catalogue price which is cost plus 50% with instructions that cash sales were to be
made at invoice price and credit sales at catalogue price and allow discount on
prompt payment. The following details related to branch are provided by Rukmani
Stores for the year ended 31st March, 2019:

`
Invoiced Stock: On 01.04.2018 4,50,000
On 31.03.2019 5,10,000
Branch Debtors: On 01.04.2018 3,60,000
Branch Furniture: On 01.04.2018 1,20,000
Cash Sales 13,60,000
Credit Sales 21,50,000
Goods Invoiced to Branch 32,10,000
Goods returned by Branch (Invoice Price) 84,000
Expenses Paid by H.O.: Rent 1,25,000
Salaries 1,80,000
Petty Expenses paid by Branch 11,000
Cash received from Branch Debtors 18,65,000
Remittances by Branch to H.O. 32,00,000
Discount allowed to Branch Debtors 1,85,000
Branch Bad debts 15,800
Goods Returned by Branch Debtors 12,600

It was decided to make provision for discount of ` 42,500 on closing debtors for
prompt payment. Depreciate the furniture @ 10% per annum.
You are required to prepare Jaipur Branch Account and Goods Sent to Branch
Account in the books of Rukmani Stores. 8

(b) The following information related to various debtors for the year ended 31st March,
2019, are supplied by Nakul Limited:
Particulars A(`) B(`) C(`) D(`) E(`)
Balance on 01.04.2018 25,000 18,000 4,500 39,000 22,000
(Dr.) (Dr.) (Cr.) (Dr.) (Dr.)
Goods Sold 2,85,000 1,98,000 2,60,000 38,000 2,16,000
Sales Return 5,400 7,200 15,000 7,500
Cash & Cheques Collected 1,86,000 1,52,000 1,95,000 42,000 2,25,000
B/R Received 48,000 41,000 38,000 32,000 —
Discount Allowed 9,000 7,000 8,500 900 11,200

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 Suggested Answers_Syl2016_June 2019_Paper 5

Bad Debts — — — 16,000 —

B/R Dishonoured 11,000 — 8,500 13,000 —
Interest & Other Charges 600 200 300 900 —
On 31st March, 2019, A and C also stood in Purchase Ledger having credit balances
of ` 3,600 and ` 5,100 respectively.
You are required to prepare Debtors Ledger Adjustment Account in General Ledger. 7

Answer:

5. (a) Books of Rukmani Stores (H.O.)

Jaipur Branch Stock Account
Dr. Cr.
Date Particulars ` Date Particulars `
1.4.18 To Balance b/d 1.4.18 By Balance b/d
Branch Stock A/c 4,50,000 Stock Reserve 75,000
Branch Debtors A/c 3,60,000 (Loading on Opening
Branch Furniture A/c 1,20,000 Stock)
1.4.18 To Good Sent to 1.4.18 By Good Sent to
Branch A/c 32,10,000 Branch A/c (Loading on 5,35,000
Goods Sent)
31.3.19 To Good Sent to
Branch A/c (Loading 14,000 31.3.19 By Good Sent to
on Goods Returned) Branch A/c (Goods 84,000
Returned)
31.3.19 To Bank A/c
Rent 1,25,000 31.3.19 By Bank A/c 32,00,000
Salary 1,80,000 3,05,000 (Remittance from
Branch)
31.3.19 To P& L A/c 3,71,100 31.3.19 By Balance c/d
(balancing figure) Branch Stock A/c 5,10,000
31.3.19 To balance c/d Branch Debtors A/c 4,31,600
Stock Reserve 85,000 Branch Furniture A/c 1,08,000
(Loading on Closing Branch Cash A/c 14,000
Stock)
Provision for Discount 42,500
49,57,600 49,57,600

Notes on Jaipur Branch A/c:

(1) Since in Question, Invoice Price is given therefore Jaipur Branch Stock A/c should be
prepared at Invoice Price.

(2) In this case Debtor method of Branch Accounting is used therefore petty expenses of
` 11,000 incurred by Branch itself would not be shown at the debit of Jaipur Branch
A/c. These petty expenses are already adjusted in closing balance of Branch cash of
` 14,000.

(3) On similar logic we have correctly not shown Bad Debts and Discount relating to

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Jaipur Branch A/c to the debit of Jaipur Branch A/c since these Bad Debts and
Discount are already adjusted in closing balance of Branch Debtors.

Good Sent to Branch Account

Dr. Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
1.4.18 To Jaipur Branch 5,35,000 1.4.18 By Jaipur Branch A/c 32,10,000
(Loading on Goods (Goods Sent)
Sent)

31.3.19 To Jaipur Branch 84,000 31.3.19 By Jaipur Branch A/c 14,000

A/c (Goods (Loading on Goods
Returned) Returned)

31.3.19 To Trading A/c 26,05,000

32,24,000 32,24,000

Note on Good Sent to Branch A/c: Since in Question, Invoice Price is given therefore

Good Sent to Branch A/c should be prepared at Invoice Price.

Notes :
(i) Furniture at on 31.03.2019 = ` 1,20,000 × 90% = ` 1,08,000.

(ii) Cash Balance at Branch on 31.03.2019 = ` 13,60,000 (Cash Sales) + ` 18,65,000

(Collection from Debtors) – ` 32,00,000 (Remittances from Branch) – ` 11,000
(Petty Exp. Paid by Branch) = ` 14,000.

(iii) Closing Branch Debtors:

Memorandum Branch Debtors Account
Dr. Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
1.4.18 To Balance b/d 3,60,000 31.3.19 By Return to Branch A/c 12,600
31.3.19 To Sales (Credit) 21,50,000 31.3.19 By Bank A/c (Collection) 18,65,000
31.3.19 By Discount Allowed A/c 1,85,000
31.3.19 By Bad Debts A/c 15,800
31.3.19 By Balance c/d 4,31,600
25,10,000 25,10,000

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(b)
In General Ledger
Debtors Ledger Adjustment Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
1.4.18 To Balance b/d 1,04,000 1.4.18 By Balance b/d 4,500
31.3.19 To G. L. Adj. A/c in D. 31.3.19 By G. L. Adj. A/c in D. L.
L.
Sales 9,97,000 31.3.19 Sales Return 35,100
B/R Dishonoured 32,500 Cash & Cheques 8,00,000
Collected
Interest & Other 2,000 B/R Received 1,59,000
Charges
31.3.19 To Balance c/d (E’s 5,700 Discount Allowed 36,600
A/c
Bad Debts 16,000
Transfer from P. L. (3,600 8,700
+ 5,100)
By Balance c/d 81,300
11,41,200 11,41,200

Working Notes:
(i) Total Balance on 1.4.18 : 25,000+18,000+39,000+22,000 = ` 1,04,000(Dr.) and
` 4,500(Cr.)
(ii) Total Credit Sales =2,85,000+ 1,98,000+2,60,000+38,000+2,16,000 = ` 9,97,000
(iii) Total Sales Return = 5,400 + 7,200 + 15,000 + 7,500 = `35,100
(iv) Total Collection = 1,86,000 + 1,52,000 + 1,95,000 + 42,000 + 2,25,000 = ` 8,00,000
(v) Total B/R Received = 48,000 + 41,000 + 38,000 + 32,000 = `1,59,000
(vi) Total Discount Allowed = 9,000 + 7,000 + 8,500 + 900 + 11,200 = ` 36,600
(vii) Total B/R Dishonoured = 11,000 + 8,500 + 13,000 = ` 32,500
(viii) Total Interest & Other Charges = 600 + 200 + 300 + 900 = ` 2,000
(ix) On 31.3.2019, E has Cr. Balance of ` 5,700 (22,000 + 2,16,000 -7,500 – 2,25,000 –
11,200)

6. (a) On 31st January, 2019 the premises of Toli Textiles Limited were destroyed by fire. The
records of the company revealed the following particulars:
`
Stock on 01.04.2017 11,35,000
Stock on 31.03.2018 12,64,100
Purchase Less returns, during the year ended 31st March, 2018 65,45,000
Sales Less returns, during the year ended 31st March, 2018 91,00,000
Purchase Less return, from 01.04.2018 to 31.01.2019 56,64,000
Sales Less returns, from 01.04.2018 to 31.01.2019 78,24,000

In valuing stock on 31st March, 2018 ` 45,900 had been written off out of certain stock

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which was of a poor selling line, having cost ` 1,37,700. A portion of these goods were
sold in October, 2018 at a loss ` 11,080 on the original cost of ` 55,080. The remaining
stock of this goods on the date of fire was to be valued at 80% of its original cost.
Subject to the above exception, gross profit had remained at a uniform rate
throughout. The stock salvaged from fire was ` 1,23,800.

You are required to compute the amount of claim to be lodged for loss of stock. The
stock was insured for ` 12,50,000. 7

(b) The following particulars relate to hire purchase transactions:

(i) X purchased three cars from Y on hire purchase basis, the cash price of each car
being ` 2,00,000.
(ii) The hire purchaser charged depreciation @ 20% on diminishing balance method.
(iii) Two cars were seized by on hire vendor when second instalment was not paid at
the end of the second year. The hire vendor valued the two cars at cash price less
30% depreciation charged under it diminishing balance method.
(iv) The hire vendor spent ` 10,000 on repairs of the cars and then sold them for a total
amount of ` 1,70,000.

You are required to compute:

(I) Agreed value of two cars taken back by the hire vendor.
(II) Book value of car left with the hire purchaser.
(III) Profit or loss to hire purchaser on two cars taken back by their hire vendor.
(IV) Profit or loss of cars repossessed, when sold by the hire vendor. 8

Answer:

6. (a)
Trading Account
for the year ending 31st March, 2018
Dr. Cr.
Particular ` Particulars ` `
To Opening Stock 11,35,000 By Sales Less Returns 91,00,000
To Purchases Less 65,45,000 By Closing Stock as 12,64,100
Returns valued
To Gross Profit 27,30,000 Add: Amount Written off 45,900 13,10,000
1,04,10,000 1,04,10,000

Rate of Gross Profit = ` 27,30,000/ ` 91,00,000 = 30%

Memorandum Trading Account

From 1st April, 2018 to 31st January, 2019
Dr. Cr.
Particulars Normal Abnormal Total (`) Particulars Normal Abnormal Total (`)
Items (`) Items (`) Items (`) Items (`)
To Opening 11,72,300 1,37,700 13,10,000 By Sales 77,80,000 44,000 78,24,000
Stock
To 56,64,000 --- 56,64,000 By Loss --- 11,080 11,080

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Purchases on Sales
to Gross 23,34,000 --- 23,34,000 By Est. 13,90,300 82,620 14,72,920
Profit (30% Stock
(b/f)
on Normal
Sales)
91,70,300 1,37,700 93,08,000 91,70,300 1,37,700 93,08,000

Working Notes:
(i) Stock on 1.4.18.
Abnormal Items ` 1,37,700; and Normal Items = ` 13,10,000 - `1,37,700 = ` 11,72,300
(ii) Sale of Abnormal Items = ` 55,080 - ` 11,080 = ` 44,000
(iii) Sale of Normal Items = ` 78,24,000 - ` 44,000 = ` 77,80,000

Loss of Stock
`
Stock on the date of fire : Normal Items 13,90,300
Value of Abnormal Items (82,620 × 80%) 66,096
Value of Stock 14,56,396
Less: Stock Salvaged 1,23,800
Loss of Stock 13,32,596

Amount of Claim applying Average Clause:

Amount of Claim = (Insured Amount/ Value of Stock at the date of Fire) x Loss of
Stock = (` 12,50,000/`14,56,396) x ` 13,32,596 = ` 11,43,745.
(b)
Particulars `
(i) Price of two cars = ` 2,00,000 x 2 4,00,000
Less: Depreciation for the first year @ 30% 1,20,000
2,80,000
Less: Depreciation for the second year = ` 2, 80,000 x (30/100) 84,000
Agreed value of two cars taken back by the hire vendor 1,96,000
(ii) Cash purchase price of one car 2,00,000
Less: Depreciation on ` 2,00,000 @ 20% for the first year 40,000
Written drown value at the end of first year 1,60,000
Less: Depreciation on ` 1,60,000 @ 20% for the second year 32,000
Book value of car left with the hire purchaser 128,000
(iii) Book value of one car as calculated in working note (ii) above 128,000
Book value of Two cars = ` 1,28,000 x 2 2,56,000
Value at which the two cars were taken back, calculated in 1,96,000
working note (i) above
Hence, loss on cars taken back = ` 2,56,000 – ` 1,96,000 = ` 60,000
(iv) Sale proceeds of cars repossessed 1,70,000
Less: Value at which cars were taken back ` 1,96,000
Repair ` 10,000 2,06,000
Loss on resale 36,000

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7. (a) An infrastructure company has constructed a mall and entered into agreement with
tenants towards license fee (monthly rental) and variable license fee, a percentage
on the turnover of the tenant (on an annual basis). Chief Finance Officer wants to
account / recognize license fee as income for 12 months during current year under
audit and variable license fee as income during next year, since invoice is raised in
the subsequent year. Comment whether the treatment desired by the CFO is correct
or not. 6

(b) State briefly the factors to be considered while selecting pre-packaged accounting
software. 6

(c) From the following particulars ascertain the value of unsold stock on Consignment. 3
Goods sent (1000 kgs.) ` 20,000
Consignor's expenses ` 4,000
Consignees non-recurring expenses ` 3,000
Sold (800 kgs.) ` 40,000
Loss due to natural wastage (100 kgs.)

Answer:

7. (a) AS 9 on Revenue Recognition, is mainly concerned with the timing of recognition

of revenue in the Statement of Profit and Loss of an enterprise. The amount of
revenue arising on a transaction is usually determined by agreement between the
parties involved in the transaction. However, when uncertainties exist regarding the
determination of the amount, or its associated costs, these uncertainties may
influence the timing of revenue recognition.

Further, as per accrual concept of fundamental accounting assumptions given in AS

1 "Disclosure of Accounting Policies", revenue should be recognised as and when it is
accrued i.e. recorded in the financial statements of the periods to which they relate.

In the present case, monthly rental towards licence fee and variable licence fee as a
percentage on the turnover of the tenant though on annual basis is the income
related to common financial year. Therefore, recognising the fee as revenue cannot
be deferred simply because the invoice is raised in subsequent period. Hence it
should be recognised in the financial year of accrual.

Therefore, the contention of the Chief Financial Officer is not in accordance with AS
9.

(b) Factors to be considered while selecting pre-packaged accounting software

1. Fulfillment of Business Requirements: The purchaser should ensure whether the
available software meets all the business requirements.
2. Completeness of Reports: The purchaser should ensure whether the available
software can provide all the reports required by business.
3. Ease of Use: The purchaser should ensure whether the available software is easy
to operate.
4. Cost: The software should not involve very high installation and running cost.
5. Reputation of the vendor: It should be ensured whether the vendor has good

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 Suggested Answers_Syl2016_June 2019_Paper 5

reputation and good track records or not.

6. Regular updates: It should be ensured whether the vendor is prepared to give
updates.

(c) Value of Unsold Stocks

`
Total cost of goods sent 20,000
Add: Consignor’s expenses 4,000
Add: Non-recurring expenses 3,000
Cost of (1,000 Kgs – 100 Kgs) = 900 Kgs 27,000

 Value of unsold stock (1,000 – 800 – 100) = 100 Kgs. will be = 27,000 × (100 Kgs. /
900 Kgs.) = ` 3,000.

8. Write short notes on any three of the following: 5×3=15

(a) The Accrual concept.
(b) Provision for Discount on Debtors
(c) Features of Income and Expenditure Account
(d) Maximum Possible Loss Method

Answer:

8. (a) The Accrual Concept:

The accrual concept is based on recognition of both cash and credit transactions. In
case of a cash transaction, owner's equity is instantly affected as cash either is
received or paid. In a credit transaction, however, a mere obligation towards or by
the business is created. When credit transactions exist (which is generally the case),
revenues are not the same as cash receipts and expenses are not same as cash paid
during the period. When goods are sold on credit as per normally accepted trade
practices, the business gets the legal right to claim the money from the customer.
Acquiring such right to claim the consideration for sale of goods or services is called
accrual of revenue. The actual collection of money from customer could be at a
later date. Similarly, when the business procures goods or services with the agreement
that the payment will be made at a future date, it does not mean that the effect of
expense should not be recognized. Because an obligation to pay for goods or
services is created upon the procurement thereof, the expense effect also must be
recognized. Today's accounting systems based on accrual concept are called as
Accrual System or Mercantile System of Accounting.

(b) Provision for Discount On Debtors:

We know that Cash discount is allowed by the suppliers to customer for prompt
settlement of cash. Naturally a provision is created for this purpose. Thus, the provision
which is created on Sundry Debtors for allowing discount on receipt of Cash in that
accounting period is called Provision for Discount on Debtors. It is needless to say that

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 Suggested Answers_Syl2016_June 2019_Paper 5

if the customer pays their debts before the due dates, they may claim discounts and
that is why discount is allowed to debtors for prompt settlement is an usual practice.
Where goods are sold on credit, debtors accounts are debited but the amount may
not be realized in this same accounting periods. Naturally, a possible aim is to allow
discount whether cash is received. The same will happen in the next accounting
period. Due to this reason a provision for discount on debtors is made on the basis of
past experience at an estimate rate on Sundry Debtors. Care should be taken while
calculating discount. Discount should be calculated at a specified rate on of debtors
(i.e. after discounting bad debts and provision for bad debts).

(c) Features of Income and Expenditure Account:

1. It follows Nominal Account.

2. All expenses of revenue nature for the particular period are debited to this
Account on accrual basis.
3. Similarly all revenue incomes related to the particular period are credited to this
account on accrual basis.
4. All Capital Incomes and Expenditures are excluded.
5. Only current year's incomes and expenses are recorded. Amounts related to
other periods are deducted. Amounts outstanding for the current year are
added.
6. Profit on Sale of Asset is credited. Loss on Sale of Asset is debited. Annual
Depreciation on Assets is also debited.
7. If income is more than expenditure, it is called a Surplus, and is added with
Capital or General Fund etc. in the Balance Sheet.
8. If expenditure is more than income, it is a deficit, and is deducted from Capital or
General Fund etc. in the Balance Sheet.

(d) Maximum Possible Loss Method:

Steps:
(1) Prepare a statement showing distribution of cash
(2) Pay off the external Liabilities
(3) After all the payment is made for the external liabilities, the partners will be paid
off.
Total Due of Partners xxx
Less : Net/Balance of Realisation (x)
Maximum Loss xxx
(4) The maximum loss shall be shared amongst the partners in their profit sharing ratio,
as if, there will be no further realisation.
(5) If any of the partner capitals, after step (4) is negative, that partner shall be
treated like an insolvent partner.
(6) The deficiency of the insolvent partner as per step (5) shall be shared by the other
solvent partners (i.e. those partners who has positive capital balances) in their
capital contribution ratio as per Garner vs. Murray Rule.
(7) Repeat the steps (3) to (6) till final realisation.

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 Suggested Answer_Syl16_Dec2018_Paper_5

INTERMEDIATE EXAMINATION
GROUP I
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

DECEMBER 2018

Paper-5: FINANCIAL ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
Both the sections are to be answered subject to instructions given against each.
[All workings must form part of your answer.]
Section – A

1. Answer the following questions:

(a) Choose the most appropriate one from the given following alternatives: 1×10=10
(i) Both cash and credit transactions are recorded, on the basis of
(A) Accounting Period Concept
(B) Going Concern Concept
(C) Business Entity Concept
(D) Accrual Concept
(ii) Which of the following book is both a journal and a ledger?
(A) Cash Book
(B) Sales Day Book
(C) Bills Receivable Book
(D) Journal Proper
(iii) Interest received in advance account is a
(A) Nominal Account
(B) Real Account
(C) Artificial Personal Account
(D) Representative Personal Account
(iv) Shiva draws a bill on Sanat on 25th October, 2018 for 90 days, the maturity date of
the bill will be
(A) 27th January, 2019
(B) 26th January, 2019
(C) 25th January, 2019
(D) 28th January, 2019

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 Suggested Answer_Syl16_Dec2018_Paper_5
(v) Peeru and Simu are entered in the business of buy and sale of food grain for a
period of one year and sharing the profit in the ratio of 3 : 2, this agreement is a
(A) Partnership
(B) Consignment
(C) Joint-venture
(D) Lease
(vi) At the end of the year 2017-18, Prepaid Insurance Premium Rs. 7,500 appeared in
the Trial Balance, it will be shown
(A) only in Profit & Loss Account.
(B) only in Balance Sheet.
(C) both in Profit & Loss Account and in Balance Sheet.
(D) not in Both in Profit & Loss Account and in Balance Sheet.
(vii) Contingent Liability would appear
(A) on the liabilities side of the Balance Sheet.
(B) on the assets side of the Balance Sheet.
(C) as a note in the Balance Sheet.
(D) None of the above
(viii) Debtors Ledger Adjustment Account is opened in the
(A) Debtors Ledger
(B) Creditors Ledger
(C) General Ledger
(D) Both Creditors Ledger and General Ledger
(ix) Generally sacrifice ratio is concerned with the situation of
(A) Admission of a new partner
(B) Retirement of a partner
(C) Dissolution of firm
(D) Conversion of firm into company
(x) KCS purchased a machine from JPS on hire purchase system, whose cash price was
Rs.8,64,000. Rs.2,16,000 being paid on delivery and balance in three annual
instalments of Rs.2,88,000 each. The amount of interest included in first installment
would be
(A) Rs. 72,000
(B) Rs. 57,600
(C) Rs. 1,08,000
(D) Rs. 36,000

(b) Match the following: 1×5=5

Column-I Column-II
(1) Dead Rent (A) Bills Receivable
(2) Marshalling (B) Consignment
(3) Protesting (C) Liquidity Order
(4) Account Sales (D) Accounting Policies
(5) Substance over form (E) Royalty

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 Suggested Answer_Syl16_Dec2018_Paper_5
(c) Fill in the blanks: 1×5=5
(i) While posting an opening entry in the ledger, in case of an Account having debit
balance, in ‘Particulars’ column the words …………… are written on debit side.
(ii) Depreciation Accounting is the process of ……………. and not …………..
(iii) Finished goods are normally valued at cost or …………… whichever is lower.
(iv) The relation between Consignee and Consignor is that of ……………..
(v) The relationship between Co- venturers is that of ………………

(d) State with reason whether the following statements are true or false (No marks shall be
awarded without valid reason): 1×5=5
(i) Bank reconciliation statement is prepared to arrive at the bank balance.
(ii) Deferred revenue expenditure is current year's revenue expenditure to be paid
in the later years.
(iii) Reducing balance method for depreciation is followed to have a uniform
charge for depreciation and repairs and maintenance together.
(iv) Reserve for Discount on Creditors has a credit balance.
(v) A promissory note can be made payable to the bearer.

Answer: 1 (a)
(i) D

(ii) A

(iii) D

(iv) C

(v) C

(vi) B

(vii) C

(viii) C

(ix) A

(x) C

Answer: 1 (b)
Column-I Column-II
(1) Dead Rent (E) Royalty
(2) Marshalling (C) Liquidity Order
(3) Protesting (A) Bills Receivable
(4) Account Sales (B) Consignment
(5) Substance over form (D) Accounting Policies

Answer: 1 (c)
(i) To Balance b/f
(ii) allocation .valuation

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 Suggested Answer_Syl16_Dec2018_Paper_5
(iii) Net Realisable Value
(iv) Agent and Principal
(v) Co-owners

Answer: 1 (d)
(i) False
(ii) False
(iii) True
(iv) False
(v) False

Section – B
Answer any five from the following.
Each Question carries 15 marks. 15 ×5=75

2. (a) A bookkeeper extracted the following Trial Balance as on 31st March, 2018:

Heads of Accounts Dr. Balance Cr. Balance

(Rs.) (Rs.)
Furniture 20,000 --------
Capital -------- 2,00,000
Debtors 2,00,000 --------
Stock (1st April, 2017) 1,04,000 --------
Creditors --------- 80,000
Trade Expenses 50,000 ------
Sales --------- 8,58,000
Wages 30,000 --------
Stock (31st March, 2018) 98,000 --------
Machinery --------- 50,000
Purchases 6,25,000 --------
Wife's loan to the business 50,000 --------
Discount Allowed -------- 4,000
Drawings made by the Proprietor -------- 45,000
Motor Van 60,000 -------
Total 12,37,000 12,37,000

You are required to:

(i) State the errors giving reasons,
(ii) Redraft the Trial Balance correctly. 7

(b) Ram Prakash keeps his books on Single Entry System. From the following information
provided by him, prepare Trading and Profit & Loss Account for the year ended 31st
March, 2018 and Balance Sheet as at that date:

Particulars 31st March, 2017 31st March, 2018

(Rs.) (Rs.)
Furniture 1,00,000 1,20,000
Stock of Goods-in-Trade 60,000 20,000
Sundry Debtors 1,20,000 1,40,000
Prepaid Expenses ------ 4,000

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 Suggested Answer_Syl16_Dec2018_Paper_5
Sundry Creditors 40,000 ?
Unpaid Expenses 12,000 20,000
Cash 22,000 6,000

Receipts and payment during the year were as follows:

Particulars Rs.
Receipts from Debtors 4,20,000
Paid to Creditors 2,00,000
Transportation 40,000
Drawings 1,20,000
Sundry Expenses 1,40,000
Furniture Purchased 20,000

Other Information: There were considerable amount of Cash Sales. Credit Purchases
during the year amounted Rs. 2,30,000. Provide a provision for Doubtful Debts to the
extent of 10% on Debtors. 8

Answer: 2(a) (i)

(I) Stock on 31st march, 2018, will not appear in the Trial balance because it represents
a part of the goods purchased but not yet sold. As the total purchases have been
included in the Trial balance, there is no need of including the Closing Stock again.
(II) Machinery is an asset and thus will appear in the debit column.
(III) Wife's loan to the business is a liability. It will appear in the credit column.
(IV) Discount allowed, being an expense, will appear in the debit column.
(V) Drawings made by the proprietor is a decrease of capital (i.e., decrease of
proprietor's claim from the business). It will appear in the debit column.

(ii) Trial balance as on 31st March, 2018

Heads of Accounts Dr. Balance Cr. Balance
(Rs.) (Rs.)
Furniture 20,000 --------
Capital ---------- 2,00,000
Debtors 2,00,000 --------
Stock (1st April, 2017) 1,04,000 ---------
Creditors --------- 80,000
Trade Expenses 50,000 ------
Sales ---------- 8,58,000
Wages 30,000 --------
Machinery 50,000 --------
Purchases 6,25,000 --------
Wife's loan to the business -------- 50,000
Discount Allowed 4,000 --------
Drawings made by the Proprietor 45,000 --------
Motor Van 60,000 ---------
Total 11,88,000 11,88,000

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 Suggested Answer_Syl16_Dec2018_Paper_5
Answer: 2(b)
Ram Prakash
Trading and Profit and Loss Account for the year ended 31st march, 2018
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening Stock 60,000 By Sales:
To Purchases 2,30,000 Credit (WN 1) 4,40,000
To Transportation 40,000 Cash (WN 3) 84,000 5,24,000
To Gross Profit c/d 2,14,000 By Closing Stock 20,000
5,44,000 5,44,000
To Sundry Exp. 1,40,000
Less: Unpaid exp. For 2017 12,000 By Gross Profit b/d 2,14,000
1,28,000
Less: Prepaid Exp. 2019 4,000
1,24,000
Add: Unpaid Exp. For 2018 20,000 1,44,000
To Provision for Doubtful debts. 14,000
To Net Profit transferred to
Capital A/c 56,000
2,14,000 2,14,000

Balance Sheet as at 31st March, 2018

Liabilities Rs. Rs. Assets Rs. Rs.
Creditors (WN 2) 70,000 Cash and balance 6,000
Unpaid Expenses 20,000 Debtors 1,40,000
Capital (WN 4) 2,50,000 Less: Provision for Doubtful
Debts 14,000 1,26,000
Add: Net Profit 56,000 Closing Stock 20,000
3,06,000 Prepaid Expenses 4,000
Less: Drawing 1,20,000 1,86,000 Furniture 1,00,000
Add: Additions 20,000 1,20,000
2,76,000 2,76,000

Working Notes:
1. Calculation of Credit Sales:
Total Debtors Account
Particulars Rs. Particulars Rs.
To balance b/d 1,20,000 By Cash/Bank A/c 4,20,000
To Sales A/c – credit (b/f) 4,40,000 By Balance c/d 1,40,000
5,60,000 5,60,000

2. Calculation of Closing balance of Creditors:

Total Creditors Account
Particulars Rs. Particulars Rs.
To Cash/Bank A/c 2,00,000 By Balance c/d 40,000
To Balance c/d (b/f) 70,000 By purchase A/c (Credit Purchases) 2,30,000
2,70,000 2,70,000

3. Calculation of Cash Sales:

Cash Book
Particulars Rs. Particulars Rs.
To Balance b/d 22,000 By Total creditors A/c 2,00,000
To Total Debtors A/c 4,20,000 By Drawings A/c 1,20,000
To Sales A/c (b/f) 84,000 By Sundry Exp. A/c 1,40,000

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By Transportation A/c 40,000
By Furniture A/c 20,000
By balance c/d 6,000
5,26,000 5,26,000

4. Calculation of Capital in the Beginning:

Statement of Affairs as at 31st march, 2017

Particulars Rs. Particulars Rs.
Creditors 40,000 Furniture A/c 1,00,000
Unpaid Expenses 12,000 Stock 60,000
Capital (B/F) 2,50,000 Debtors 1,20,000
Cash in hand 22,000
3,02,000 3,02,000

3. The following information provided by the Nav Yuvak Mandal, Delhi for the first year
ended 31st March, 2018:
(i) Donations received for building Rs.25 Lakh.
(ii) Other incomes and receipts were:
(Rs. in ‘000)

Particulars Capital Income Revenue Income Actual Receipt

(Rs.) (Rs.)
Entrance fees ------ 251 251
Life Membership fees 105 ----- 105
Subscription ------ 1160 1151
Play Ground rent ------ 120 110
Refreshment account ------ 115 115
Sundry incomes ------- 62 49

(iii) Expenditures and actual payment were:

(Rs. in ‘000)

Particulars Capital Revenue Actual

Expenditure (Rs.) Expenditure (Rs.) Payment (Rs.)
Land 800 ... 800
Books 236 ... 202
Furniture 345 ... 315
Honorarium and salaries ... 165 131
Maintenance of play ground ... 52 50
Refreshment account ... 79 79
Insurance Premium ... 12 15
Sundry expenses ... 70 65
Others: Donation were utilized to the extent of Rs.13 Lakh in construction of building,
balance were unutilized. In order to keep in safe, 8% Government Securities were
purchased on 31st December, 2017 for Rs.10.50 Lakh. Remaining amount was put in
bank as term deposit on 31st March, 2018. During the year 2017-18, Subscription
received in advance Rs.52,000 for the year 2018-19. Depreciation to be charged on
Building and Furniture @ 10% and on Books @ 15%.
You are required to prepare the Receipts & Payments Account, Income & Expenditure
Account and Balance Sheet as on 31st March, 2018. 15

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Answer: 3
Receipts & payments Account for the year ending 31st march, 2018
(Rs. in 000)
Receipts Amount Payments Amount
(Rs.) (Rs.)
To Donations 2,500 By Land 800
To Entrance fees 251 By Building 1,300
To Life Membership fees 105 By Books 202
To Subscription 1,151 By Furniture 315
To Play Ground rent 110 By Honorarium and salaries 131
To Refreshment account 115 By Maintenance of play ground 50
To Sundry incomes 49 By Refreshment account 79
By Insurance Premium 15
By Sundry expenses 65
By Govt. Securities 1,050
By Term Deposits 150
By Balance c/d 124
4,281 4,281

(Income & Expenditure Account For the year ending 31st march, 2018 (Rs. in 000)
Expenditures Rs. Amount Incomes Rs. Amount
(Rs.) (Rs.)
To Honorarium and salaries 131 By Subscription 1,151
Add: Outstanding 34 Less: Received in Advance 52
To Maintnc. of play ground 165
50 1,099
Add: Outstanding 2 61
52 Add: Outstanding
To Insurance Premium 15 1,160
Less: Prepaid By Entrance fees 251
3 110
To Sundry expenses 65 12 By Play Ground rent
Add: Outstanding 10
Add: Outstanding 5 120
To Depreciation 70 By Profit on Refreshment 36
On Building-10% on Rs.13 Lakh
130 By Sundry incomes 49
On Furniture-10% on Rs.3,45,000 34.50 Add: Outstanding 13 62
On Books- 15% on Rs.236000 35.40
By Interest on Govt.
To Surplus 1151.10
Securities( Accrued) 21
1,650 1,650

Balance Sheet as at 31st march, 2018

(Rs. in 000)
Liabilities Amount Assets Amount
(Rs.) (Rs.)

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Capital Fund Land 800
Add: Life Membership fees 105 Building (Rs.13Lakh- 1.3 Lakh) 1170
Add: Surplus 1151.10 1256.10 Books(Rs.236000 - 35400) 200.6
Donations for Building 2500 Furniture(Rs.345000 - 34500) 310.5
Creditors for Books 34 8% Govt. Securities 1050
Creditors for Furniture 30 Out. Int. on Govt. Securities 21
Outstanding Hon. and salaries 34 Outstanding Subscription 61
Outs. Maintenance of play ground 2 Prepaid Insurance Premium 3
Outstanding Sundry expenses 5 Play Ground rent- Outstanding 10
Subscription Received in Advance 52 Sundry incomes-Outstanding 13
Term Deposits 150
Cash and Bank 124
3,913.1 3,913.1

Working Notes:
(1) Donation received for building is treated as capital item.
(2) Amount of Term Deposit = Donations Received-(Cost of Building + 8% Govt. Securities)
Rs.25 Lakh -(13 Lakh + 10.50 Lakh) = Rs.1,50,000
(3) Profit on Refreshment = Rs.1,15,000- 79,000 = Rs.36,,000
(4) Outstanding Subscription = Rs. 1160000 - (11,51,000-52,000) = Rs. 61,000
(5) Accrued Interest on Govt. Securities: Rs.10,50,000 × 8% × 3/12 = Rs.21,000

4. (a) A, B and C are partners in a firm sharing profits and losses as 3 : 2 : 1. Their Balance
Sheet as on 31st March, 2018 was as follows:
(Rs. in Lakh)
Liabilities Amount Assets Amount (Rs.)
(Rs.)
Partners' Capital A/c: Land and Building 210
A 145 Plant and Machinery 255
B 110 Stock 125
C 75 Debtors 95
General Reserve 165 Bills Receivable 25
Partners' Loan: Cash in Hand 3
A 30 Cash at Bank 37
B 20
Sundry Creditors 205
750 750

B died on 1st August, 2018. His account is to be settled under the following terms:
(i) Goodwill will be valued at 3 years purchase of last four accounting years
average profit. Profits were : 2014-15 Rs. 135 Lakh, 2015-16 Rs. 145 Lakh, 2016-17
Rs. 131 Lakh and 2017-18 Rs. 165 Lakh.
(ii) Land and Building will be valued at Rs. 250 Lakh and Plant and Machinery will
be valued at Rs. 240 Lakh.
(iii) For the purpose of calculating B's share in the profits of 01.04.2018 to 31.07.2018,
the profits for the year 2017-18 will be taken as base.
(iv) Interest on Partners' Loan will be calculated @ 6% per annum.

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(v) A sum of Rs.50 Lakh to be paid immediately to B's Executor and the balance to
be paid on 1st December, 2018 together with interest @ 10% per annum.
You are required to pass necessary journal entries to record the above transactions
and amount payable to B' s Executor's Account. 15
Answer: 4
Journal
(Rs. in lakh)
Date Particulars L. Debit Credit
F. (Rs.) (Rs.)
1.08.18 Land& Building A/c Dr. 40
To Revaluation A/c 40
( For increase in the value of land and building)
1.08.18 Revaluation A/c Dr. 15
To Plant & Machinery A/c 15
( For decrease in the value of Plant & Machinery)
1.08.18 Revaluation A/c Dr. 25
To A's Capital A/c 12.5
To B's Capital A/c 8.333
To C's Capital A/c 4.167
( For profit on revaluation)
1.08.18 General Reserve A/c Dr. 165
To A's Capital A/c 82.5
To B's Capital A/c 55
To C's Capital A/c 27.5
( For transfer of reserve)
1.08.18 A's Capital A/c Dr. 108
C's Capital A/c Dr. 36
To B's Capital A/c 144
( For the adjustment of goodwill)
1.08.18 Profit & Loss Suspense A/c Dr. 18.333
To B's Capital A/c 18.333
( For the adjustment of profit from 1.4.18 to 1.8.18)
1.08.18 B's Loan A/c Dr. 20
To B's Capital A/c 20
(Balance transferred)
1.0818 Interest on B's Loan A/c Dr. 0.40
To B's Capital A/c 0.40
(Interest on B's Loan from 1.04.18 to 1.08.18 credited
to B's Capital A/c)
1.08.18 B's Capital A/c Dr. 356.066
To B's Executor's A/c 356.066
(Being balance of B's Capital A/c transferred to his
Executor's A/c = Rs.110 +8.333+ 55 + 144+ 18.333 + 20
+ 0.40)
1.08.18 B's Executor's A/c Dr. 50
To Bank A/c 50
(Amount paid)
1.12.18 Interest A/c Dr. 10.202
To B's Executor's A/c 10.202
( For interest due)
1.12.18 B's Executor's A/c Dr. 316.268
To Bank A/c 316.268
( Amount due to B's Executor including interest, paid)
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Ledger
B’s Executor’s Account
(Rs. in lakh)
Date Particulars Amount Date Particulars Amount
(Rs.) (Rs.)
1.08.18 To Bank A/c 50 1.08.18 By Capital A/c 356.066
1.12.18 To Bank A/c 316.268 1.12.18 By Interest A/c 10.202
366.268 366.268

Working Notes:
(1) Calculation of B's share in Goodwill:
Average of past four years profits = (Rs.135 Lakh + Rs.145 Lakh + Rs.131 Lakh + Rs.165
Lakh)/4 = Rs. 144 Lakh
Value of Firm's Goodwill = Rs.144 Lakh × 3 = Rs.432 Lakh
B's Share in Goodwill = Rs.432 Lakh × 2/6 = Rs. 144 Lakh, which will be credited to B's
Capital A/c and Debited to A's Capital A/c & C's Capital A/c in the ratio of 3:1
(2) B's Share in profit from 01.04.18 to 1.8.18 =( Rs.165 × 4/12)× 2/6 = Rs.18.333 Lakh
(3) Interest on B's Loan from 01.04.18 to 1.8.18 = Rs.20 Lakh × 6% × 4/12 = Rs.40000
(4) Interest to B's Executor from 1.08.18 to 1.12.18 = Rs.356.066 Lakh – Rs.50 Lakh = Rs.
306.066 × 10% × 4/12 = Rs.10.2022 Lakh
5. (a) The following information provided by the Shobha Departmental Store for the year
ended 31st March, 2018:
Department Purchase(units) Sales Closing Stock(units)

X 2500 2550 units @ Rs. 160 per unit 250

Y 5000 4800 units @ Rs.180 per unit 400
Z 6000 6240 units @ Rs. 200 per unit 140
The total value of purchases is Rs. 15 Lakh. It is observed that the rate of gross profit
is the same in each department.
You are required to prepare the Departmental Trading Account for the year ended
31 st March, 2018. 9
(b) Following information is available from the books of Simu & Co. for the year ended
31st March, 2018:
(i) Total Sales amounted to Rs. 560 Lakh including the sale of old Machinery for Rs.
8 Lakh (Book Value Rs. 15 Lakh). The total Cash Sales were 80% less than the
total Credit Sales.
(ii) Cash collection from debtors amounted to 75% of the aggregate of the
opening debtors and the Credit Sales for the period. Debtors were allowed
Cash discounts for Rs. 15.60 Lakh.
(iii) Bills Receivable drawn during the year totaled Rs.45 Lakh of which bills
amounting to Rs. 28 Lakh were endorsed in favour of Creditors. Out of these
endorsed B/R, some bills for Rs. 4.60 Lakh were dishonoured for non-payment
as the parties became insolvent, their estate realizing nothing.

(iv) Cheques received from Sundry Customers for Rs.41 Lakh were dishonoured; a
sum of Rs. 5 Lakh is irrecoverable.
(v) Bad Debts written off in the earlier years was recovered of Rs. 7.50 Lakh.
(vi) Transfers from Creditors Ledger to Debtors Ledger were of Rs. 38 Lakh.
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(vii) Sundry Debtors, as on 1st April, 2017, stood at Rs. 128 Lakh.
You are required to show the General Ledger Adjustments Accounts in the Debtors
Ledger. 6

Answer: 5(a)
(i) Computation of Opening Stock Quantity (units):
Particulars Dept. X Dept. Y Dept. Z
Sales- units 2550 4800 6240
Add: Closing Stock- units 250 400 140
2800 5200 6380
Less: Purchases-units 2500 5000 6000
Opening Stock- units 300 200 380

(ii) Computation of Gross Profit Ratio:

Rs.
Sales value of Total purchase Quantity:
Department – X = Rs.160 × 2,500 4,00,000
Department – Y = Rs. 180 × 5,000
Department – Z = Rs.200 × 6,000 9,00,000
12,00,000
Sale value of total purchase Quantity 25,00,000
Less: total purchase price 15,00,000
Gross profit 10,00,000
Rate of gross profit = (Rs.10 lakh/25 lakh) × 100 = 40%

(iii) Computation of Cost per unit for each Department

Particulars Dept. X (Rs.) Dept. Y (Rs.) Dept. Z (Rs.)
Selling Price per unit 160 180 200
Less: G. P. @ 40% 64 72 80
Cost per unit 96 108 120

(iv) Departmental Trading Account for the year ended 31st march, 2018
Particulars Dept. X Dept. Y Dept. Z Particulars Dept. X Dept. Y Dept. Z
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
To op. Stock 28,800 21,600 45,600 By Sales 4,08,000 8,64,000 12,48,000
To purchases 2,40,000 5,40,000 7,20,000 By Clo. Stock 24,000 43,200 16,800
To G. P. 1,63,200 3,45,600 4,99,200
4,32,000 9,07,200 12,64,800 4,32,000 9,07,200 12,64,800

Answer: 5(b)
In the Debtors Ledger
General Ledger Adjustment Account

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(Rs. in Lakhs)
Date Particulars Amount Date Particulars Amount
(Rs.) (Rs.)
31.03.18 To Debtors Led. Adj. A/c in 1.4.17 By Balance b/d 128
G.L: 31.3.18 By Debtors Led. Adj.A/c in
Bank 441 G.L:
B/R 45 Sales (Credit) 460
Discount Allowed 15.6 B/R Dishonored 4.60
Bad Debts (4.6 + 5) 9.6 Cheque Dishonored 41
Transfer 38
To Balance c/d 84.4
633.6 633.6

Note: Cash Sales, B/R endorsed and Bad Debts recovered are not shown in Gen. Led.
Adj. A/c.
Workings: Computation Credit Sales and Collection from Debtors:
Net Total Sales = Rs.560 Lakh – Rs.8 Lakh( Sale of Machinery) = Rs.552 Lakh
Cash Sales 80% less than Total Credit Sales, Hence, Cash Sales and Total Credit Sales ratio
= 1:5,then Credit Sales = Rs.552 Lakh × 5/6 = Rs.460 Lakh.
Collection from Debtors = (128 +460)× 75% = Rs.441 Lakh.
6. (a) CCL wants to take up a loss of profit policy. Turnover during the current year is
expected to increase by 20%. The company will avail overdraft facilities from its
bank @ 15% interest to boost up the sales. The average daily overdraft balance will
be around Rs. 3 Lakh. All other fixed expenses will remain same. The following further
details are also available from the previous year's account:
Particulars Rs.
Total variable expenses 24,00,000
Fixed expenses:
Salaries 3,30,000
Rent, Rates and Taxes 30,000
Travelling expenses 50,000
Postage, Telegram, Telephone 60,000
Director's fees 10,000
Audit fees 20,000
Miscellaneous income 70,000
Net Profit 4,20,000
Determine the amount of policy to be taken for the current year. 7
(b) Mansi Ltd. acquires the lease of a mine from Nanu Ltd. on the following terms:
(i) Minimum Rent of Rs.40 Lakh per annum merging into a royalty of Rs.50 per
tonne.
(ii) Shortworkings are recoverable out of future earnings subject to:
(I) Only half of the excess earnings over minimum rent may be used for this
purpose.
(II) No Shortworkings may be carried forward for recoupment if output falls below
40000 Tonnes, in any year.
Output for the first four years was : 32000 Tonnes; 48000 Tonnes; 64000 Tonnes and

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112000 Tonnes respectively.
Prepare the necessary accounts for above four years in the books of the Lessee. 8

Answer: 6(a)
Particulars Rs.
Gross profit on the basis of last year's sales 8,50,000
Add: 20% for increase of turnover 1,70,000
10,20,000
Add: Increased standing charges (interest on overdraft) 45,000
Policy to be taken for current year 10,65,000

Working Notes:
1. Profit and Loss Account for the previous year
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To variable expenses 24,00,000 By Sales 32,50,000
To Fixed expenses 5,00,000 By Misc. income 70,000
To Net profit 4,20,000
33,20,000 33,20,000

2.Gross profit of the previous year

Particulars (Rs.)
Sales 32,50,000
Less: Variable 24,00,000
8,50,000

Answer: 6(b)
Analysis table for calculation of Different values
(Rs. in Lakh)
Year Minimum Actual Short workings Short workings Actual Closing
Rent Royalty (-) or Excess Recouped Transferred Payment Balance of
Workings(+) To P/L A/c S.W.A/c
Rs. Rs. Rs. Rs. Rs. Rs. Rs.
1 40 16 (-)24 ----- 24 40 -----
2 40 24 (-)16 ----- ----- 40 16
3 40 32 (-)8 ----- ----- 40 24
4 40 56 (+)16 8 ----- 48 16
Books of Lessee (Mansi Ltd.)
Royalty Account
(Rs. in Lakh)
Date Particulars Amount Date Particulars Amount
(Rs.) (Rs.)
I Year To Nanu Ltd. 16 I Year By Profit & Loss A/c 16
II Year To Nanu Ltd. 24 II Year By Profit & Loss A/c 24
III Year To Nanu Ltd. 32 III Year By Profit & Loss A/c 32
IV Year To Nanu Ltd. 56 IV Year By Profit & Loss A/c 56
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Short Working Account

(Rs. in Lakh)
Date Particulars Amount Date Particulars Amount
(Rs.) (Rs.)
I Year To Nanu Ltd. 24 I Year By Profit & Loss A/c 24
II Year To Nanu Ltd. 16 II Year By Balance c/d 16
III Year To Balance b/d 16 III Year By Balance c/d 24
To Nanu Ltd. 8
24 24
IV Year To Balance b/d 24 IV Year By Nanu Ltd. 8
By Balance c/d 16
24 24

Nanu Limited Account

(Rs. in Lakh)
Date Particulars Amount Date Particulars Amount
(Rs.) (Rs.)
I Year To Bank A/c 40 I Year By Royalty A/c 16
By Short workings A/c 24
40 40
II Year To Bank A/c 40 II Year By Royalty A/c 24
By Short workings A/c 16
40 40
III Year To Bank A/c 40 III Year By Royalty A/c 32
By Short workings A/c 8
40 40
IV Year To Short workings A/c 8 IV Year By Royalty A/c 56
To Bank A/c 48
56 56

7. (a) In a production process, normal waste is 5% of input. 5000 MT of input were put in
process resulting in a wastage of 300 MT. Cost per MT of input is Rs. 1,900. The entire
quantity of waste is on stock at the year end. State with reference to Accounting
standard, the treatment of normal loss and abnormal loss and also find out the
amount of abnormal loss, if any and the value of closing inventories. 8

(b) Enumerate the advantages of computerized Accounting. 7

Answer: 7(a)

1. Normal Loss Qty = 5% of 5,000 MT = 250 MT

Treatment: No entry is passed for normal loss. However, normal loss increases the

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cost per good unit
2. Cost of Good units = Total Cost/(Total Qty - Normal Loss Qty) = (5000 × Rs.1,900
)/(5000 - 250) = Rs. 2,000
3. Abnormal Loss Qty = Total Loss - Normal Loss = 300 MT - 5% of 5,000 MT = 50 MT
4. Cost of Abnormal Loss = 50MT × Rs.2,000 = Rs. 1,00,000
5. Treatment: As per AS 2, abnormal amounts of waste materials, labour and other
production costs are excluded from cost of inventories and such costs are
recognized as expenses in the period in which they are incurred.. Hence, the Cost
of Abnormal Loss of Rs. 1,00,000 should be charged to Profit & Loss A/c.
6. Closing Inventory Qty = 5,000 MT - 250 MT - 50 MT = 4,700 MT
Cost of Closing Inventory =4,700 MT × Rs. 2,000 = Rs.94,00,000

Answer: 7(b)

1. Computers are able to perform all the tasks at high speed. It can process a millions
of instructions (MIS) per second.
2. Computer results are accurate. Once the right instructions have been given to it,
the chances of the committing errors are almost zero.
3. The computer never tires. It can give a consistently good performance hour after
hour.
4. It can store a large amount of data in its memory. Storage of data and
information on the computer allows reduction of paper filing and other
mundane tasks.
5. Due to some advanced features, duplication of records is not possible.
6. Modification can be easily done. Data can be easily updated, deleted or
deleted in a computer system.
7. Sharing of data is possible through networking
8. It performs the same task again and again without getting bored.
9. A computer's efficiency does not decrease by age.

8. Write short notes on any three of the following: 5×3=15

(i) Applicability and Non-Applicability of Garner vs. Murray Rule
(ii) Consequential Loss Policy
(iii) Distinction between Hire Purchase Agreement and Instalment Purchase Agreement
(iv) Distinction between Fundamental accounting assumptions and Accounting
policies

Answer: 8 (a)
In the case of dissolution of a partnership firm due to insolvency, Garner vs Murray rule is
applicable at the time of any partner becoming insolvent. It requires—
1. That the solvent partners should bear the loss arising due to insolvency of a partner in
their capital ratio after making adjustments for past accumulated reserves, profits or
losses, drawings, interest on drawings/capitals, remuneration to partners etc., to the
date of dissolution but before making adjustment for profit or loss on realization in case
of fluctuating capital. In case of fixed capital no such adjustments are required.
2. That the solvent partners should bring in cash equal to their respective shares of the
loss on realization.
Non-Applicability: This rule is not applicable when:
1. the solvent partner has a debit balance in the capital account.
2. only one partner is solvent.
3. all partners are insolvent.
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 Suggested Answer_Syl16_Dec2018_Paper_5
4. the partnership deed provides for a specific method to be followed in case of
insolvency of a partner, then the conditions given in the deed would prevail.
Answer: 8 (b)
Business enterprises get insured against the loss of stock on the happening of certain
events such as fire, flood, theft, earthquake etc. Insurance being a contract of
indemnity, the claim for loss is restricted to the actual loss of assets. Sometimes an
enterprise also gets itself insured against consequential loss of profit due to decreased
turnover, increased expenses etc.
If loss of profits consequent to the event or mis-happening (Fire, flood, theft etc.) is also
insured, the policy is known as loss of profit or consequential loss policy.
The Loss of Profit Policy normally covers the following items:
(i) Loss of net profit
(ii) Standing charges.
(iii) Any increased cost of working e.g., renting of temporary premises.

Answer: 8 (c)
Hire Purchase Agreement differs from Installment purchase Agreement in the following
respects:
Basis of Distinction Hire Purchase Agreement Installment Purchase
Agreement
1. Act governing It is governed by Hire Purchase It is governed by the Sale of
Act 1972. Goods Act 1930.
2. Nature of Contract It is an agreement of hiring. It is an agreement of sale.
3. Passing of Title The title to goods passes on The title to goods passes
(ownership) last payment. immediately as in the case
of usual sale.
4. Right to Return The hirer may return goods Unless seller defaults, goods
goods without further payment, are not returnable.
except for accrued
installment.
5. Seller's right to The seller may take The seller can sue for price if
repossess possession of the goods if the buyer is in default. He
hirer is in default. cannot take possession of
the goods.
6. Right to Dispose off Hirer cannot hire out, sell, The buyer may dispose of the
pledge or assign entitling goods and give good title to
transferee to retain possession the bonafide purchaser.
as against the hire vendor.
7. Responsibility for The hirer is not responsible The buyer is responsible for
Risk of Loss for risk of loss of goods if he has risk of loss of goods because
taken reasonable precaution of the ownership has
because the ownership has transferred.
not yet transferred.
8. Name of The parties involved are called The parties involved are
Parties involved Hirer and Hire vendor. called buyer and seller.
9. Relationship The relationship between hirer The relationship between the
between parties and hire vendor is that of buyer and seller is that of a
involved Bailee and Bailor. debtor and creditor till last
installment is paid.
10. Component other Component other than Cash Component other than Cash
tharn Cash Price Price included in Installment is price included in Installment
called Hire charges. is called Interest.

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 Suggested Answer_Syl16_Dec2018_Paper_5
11. Method of 1. Sales Method for goods of Interest Suspense Method.
Accounting substantial sales values
2. Stock Methods for Goods
of small sales values

Answer: 8 (d)

Basis of Discount ion Fundamental Accounting Accounting Policies

Assumptions
1. Number There are only three There is no single list of
fundamental accounting accounting policies which are
assumptions viz. Going applied in all circumstances.
Concern, Consistency and As a result, there may be
Accrual. different accounting policies
adopted by different
enterprises.
2. Disclosure if No disclosure is required if all Disclosure is required if a
followed the fundamental assumptions particular accounting policy
have been followed. has been followed
3. Disclosure if not In case the fundamental In case, the policy is changed
followed assumptions are not followed; in subsequent year, the
the fact has to be disclosed in reasons for such change and
the financial statements the resulting financial
together with the reasons. consequences have to be
disclosed.
4. Choice There is no choice. The firm has a choice to select
a particular policy

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 Suggested Answers_Syl2016_June2018_Paper 5

INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)
SUGGESTED ANSWERS TO QUESTIONS
JUNE - 2018
Paper - 5 : FINANCIAL ACCOUNTING
Time Allowed : 3 Hours Full Marks : 100

The figures in the margin on the right side indicate full marks.
Both the sections are to be answered subject
to instructions given against each.
All workings must form part of your answer.

Section - A
1. Answer the following questions:

(a) Choose the most appropriate one from the given following alternatives: 1×10=10

(i) Which of the following is not a Qualitative Characteristics of Financial Statement?

(A) Cost Principle
(B) Understandability
(C) Relevance
(D) Reliability
(ii) Name the book in which, entries are recorded on the basis of credit notes issued.
(A) Sales Book
(B) Purchase Book
(C) Sales Return Book
(D) Purchase Return Book
(iii) Exception to consistency principle is
(A) Cost Principle
(B) Going Concern Principle
(C) Matching Principle
(D) Prudence Principle
(iv) Interest charged by vendor in Hire Purchase System, is calculated on the basis of
(A) Outstanding hire purchase price
(B) Outstanding cash price
(C) Instalment amount
(D) Cost price of the asset
(v) The balance in consignment account shows
(A) Amount receivable from consignee
(B) Amount payable to consignee
(C) Profit/ loss on consignment
(D) Closing stock with consignee
(vi) Provision for bad debts is
(A) Real Account
(B) Nominal account
(C) Personal account
(D) None of the above

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(vii) The business is treated as distinct and separate from its owners on the basis of the
(A) Going concern concept
(B) Conservatism concept
(C) Matching concept
(D) Business entity concept
(viii) Due to retrospective effect on revision of salary of employees, the arrears of
salary relating to past years, payable in current year is
(A) Prior - period item
(B) Extra - ordinary item
(C) Ordinary item requiring separate disclosure
(D) Contingent item
(ix) Discount given in the Sales - Invoice itself is
(A) Cash discount
(B) Trade discount
(C) Rebate
(D) Allowance
(x) Canteen expenses are apportioned among departments in the proportion of
(A) Departmental floor space
(B) Departmental direct wages
(C) Departmental sales
(D) Departmental No. of employees
(b) Match the following in Column-I with the appropriate in Column-II: 1×5=5
Column-I Column-II
(i) Receipt & Payment A/c (a) AS-10
(ii) Revaluation model of Asset (b) Consignment
(iii) Proforma Invoice (c) Not-for-Profit Organization
(iv) Stage of Completion Method (d) Hire Purchase
(v) Partial Repossession (e) AS-7
(f) AS-6

(c) State whether the following statements given below are True or False: 1×5=5
(i) Receipt & Payment Account only records the revenue nature of receipts and
expenses.
(ii) Sales Book records both cash and credit sales.
(iii) Normal loss of goods sent on consignment is shown in Consignment Account.
(iv) In case of trading concern, cost of goods sold and cost of sales are same.
(v) In Proprietorship business, Income-tax payable is shown as a liability in Balance
Sheet.
(d) Fill in the blanks: 1x5=5
(i) The Bank A/c is a ____________________ Account.
(ii) Assets are classified as non-current asset and current assets as per ______
Principle.
(iii) __________ Amount is the higher of asset's net selling price and its value in use.
(iv) The ______________ Loss is included in the valuation of inventories.
(v) _________________ is the amount by which minimum rent exceeds the actual royalty.

Answer:

1. (a) (i) (A)

(ii) (C)
(iii) (D)
(iv) (B)
(v) (C)
(vi) (C)

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(vii) (D)
(viii) (C)
(ix) (B)
(x) (D)

(b)
Column-I Column-II
(i) Receipt & Payment A/c (c) Not-for-Profit Organization
(ii) Revaluation model of Asset (a) AS-10
(iii) Proforma Invoice (b) Consignment
(iv) Stage of Completion Method (e) AS-7
(v) Partial Repossession (d) Hire Purchase

(c) (i) False

(ii) False
(iii) False
(iv) False
(v) False

(d) (i) Personal

(ii) Going - Concern
(iii) Recoverable/ Fair Value
(iv) Normal
(v) Short - workings

Section - B
Answer any five from the following.
Each question carries 15 marks.

2. (a) The Trial Balance of S Ltd. as on 31/03/2018 showed the credit in excess by ` 415
which was been carried to Suspense Account. On a closed scrutiny of the books, the
following errors were revealed:
(i) A cheque of ` 3,456 received from AB Ltd. after allowing it a discount of ` 46 was
endorsed to CD Ltd. in full settlement for ` 3,500. The cheque was finally
dishonoured but no entries are passed in the books of account.
(ii) Goods of the value of ` 230 returned by PQ Ltd. were entered in Purchase Day
book and posted there from to MN Ltd. as ` 320.
(iii) Bad debts aggregating ` 505 written off during the year in Sales Ledger but were
not recorded in General Ledger.
(iv) Bill for ` 750 received from Z Ltd. for repairs to Machinery was entered in the
Inward Invoice Book as ` 650.
(v) Goods worth ` 1,234 purchased from Y Ltd. on 28/03/2018 had not been entered in
Day book and credited to Y Ltd. but Goods were not delivered till 5th April, 2018.
The title of Goods was however passed on 28/03/2018 and was taken into stock on
31-03-2018.
(vi) ` 79 paid for Freight on Machinery was debited to Freight account as ` 97.

Pass the necessary Journal Entries to rectify the above mentioned errors. 8

(b) A company maintains its reserve for bad debts @ 5% and a reserve for discount on
debtors @ 2%. You are given the following details:
Particulars 2016 2017
Bad debts 800 1,500
Discount allowed 1,200 500
Sundry debtors (before providing all bad debts and discounts) 60,000 42,000

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On 01/01/2016, Reserve for bad debts and Reserve of discount on debtors had
balance of ` 4,550 and ` 800 respectively.
Show Reserve for Bad Debts and Reserve for Discount on Debtors Account for the year
2016 and 2017. 7

Answer:
2. (a)
Date Particulars L.F. Dr. Cr.
` `
AB Ltd. A/c Dr. 3,502
Discount Received A/c Dr. 44
To CD Ltd. A/c 3,500
To Discount Given A/c 46
(Being Cheque received from AB Ltd. was endorsed to CD
Ltd. However, the cheque was later dishonoured)
Sales Return A/c Dr. 230
MN Ltd. A/c Dr. 320
To Purchase A/c 230
To PQ Ltd. A/c 230
To Suspense A/c 90
(Being goods returned by PQ Ltd. were wrongly recorded
in purchase book and from thereon wrongly posted to MN
Ltd.)
Bad debts A/c Dr. 505
To Suspense A/c 505
(Being Bad debts written off in Sales Ledger but not yet
recorded in General Ledger, now recorded)
Repairs A/c Dr. 750
To Purchase A/c 650
To Z Ltd. 100
(Being repair of machinery amounting to `750 wrongly
entered in Inward book as `650)
Goods - in - Transit A/c Dr. 1,234
To Trading A/c 1,234
(Being goods - in - transit were recorded in books)
Machinery A/c Dr. 79
Suspense A/c Dr. 18
To Freight A/c 97
(Being amount paid on Freight on Machinery amounting
to ` 79 was wrongly debited to Freight A/c as ` 97)
(b)
Reserve for Bad Debts Account
Dr. Cr.
Date Particulars ` Date Particulars `
31.12.2016 To Bad Debts A/c 800 01.01.2016 By Balance b/d 4,550
31.12.2016 To Profit & Loss A/c 850
31.12.2016 To Balance c/d (5% on ` 58,000) 2,900
4,550 4,550
31.12.2017 To Bad Debts A/c 1,500 01.01.2017 By Balance b/d 2,900
31.12.2017 To Balance c/d (5% on ` 40,000) 2,000 31.12.2017 By Profit & Loss A/c 600
3,500 3,500
Reserve for discount on Debtors Account
Dr. Cr.
Date Particulars ` Date Particulars `
31.12.2016 To Discount A/c 1,200 01.01.2016 By Balance b/d 800

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31.12.2016 To Balance c/d 1,102 31.12.2016 By Profit & Loss A/c 1,502
(2% on ` 58,000 - `2,900)
2,302 2,302
31.12.2017 To Discount 500 01.01.2017 By Balance b/d 1,102
31.12.2017 To Balance c/d 760 31.12.2017 By Profit & Loss A/c 158
(2% on ` 40,000 - `2,000)
1,260 1,260

3. Following is the summary of Receipts and Payments of Radix Clinic for the year ended
31st March, 2017:
`
Opening Cash Balance 56,000
Donation Received (including ` 50,000 for Building Fund.) 1,55,000
Payment to creditors for Medicines Supply 2,10,000
Salaries 70,000
Purchase of Medical Equipments 1,05,000
Medical Camp Collections 87,500
Subscription Received 3,50,000
Interest on Investments @ 9% p.a. 63,000
Honorarium to Doctors 1,90,000
Telephone Expenses 6,000
Medical Camp Expenses 10,500
Miscellaneous Expenses 7,000
Additional Information:
SI. No 01.04.2016 31.03.2017
` `
1. Subscription Due 10,500 15,400
2. Subscription Received in Advance 8,400 4,900
3. Stock of Medicine 70,000 1,05,000
4. Medical Equipments 1,47,000 2,14,200
5. Building 3,50,000 3,15,000
6. Creditor for Medicine Supply 63,000 91,000
7. Investments 7,00,000 7,00,000

You are required to prepare Receipts and Payments Account and Income and
Expenditure Account for the year ended 31st March, 2017 and the Balance Sheet as on
31st March, 2017. 15
Answer:
3.
Receipts and Payments Account of Radix Clinic for the year ended 31.03.2017
Dr. Cr.
Receipts ` Payments `
To Cash in Hand (Opening) 56,000 By Medical Supply 2,10,000
To Subscription 3,50,000 By Honorarium to doctors 1,90,000
To Donation 1,55,000 By Salaries 70,000
To Interest on Investment 63,000 By Misc. expenses 7,000
To Medical Camp collections 87,500 By Purchase of equipment 1,05,000
By Telephone expenses 6,000
By Medical camp expenses 10,500
By Cash in Hand (Closing) 1,13,000
7,11,500 7,11,500

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Income and Expenditure Account of Radix Clinic

for the year ended 31.03.2017
Dr. Cr.
Expenditure ` Income `
To Medicine consumed 2,03,000 By Subscription 3,58,400
To Honorarium to doctors 1,90,000 By Donation 1,05,000
To Salaries 70,000 By Interest on investments 63,000
To Telephone expenses 6,000 By Profit on Medical
camp:
To Misc. expenses 7,000 Collections 87,500
To Depreciation on: Less: Expenses (10,500) 77,000
Medical equipment 37,800
Building (3,50,000 – 3,15,000) 35,000 72,800
To Surplus-excess of Income over 54,600
expenditure
6,03,400 6,03,400

Balance Sheet of Radix Clinic

as on 31st March, 2017
Liability ` ` Assets ` `
Capital Fund: Building 3,50,000
Opening Balance 12,62,100 Less: Depreciation (35,000) 3,15,000
Add: Surplus 54,600 13,16,700 Medical Equipment 1,47,000
Building Fund 50,000 Add: Purchase 1,05,000
Subscription received in advance 4,900 2,52,000
Creditors for medicine supply 91,000 Less: Depreciation (37,800) 2,14,200
Stock of Medicine 1,05,000
Investments 7,00,000
Subscription receivable 15,400
Cash in hand 1,13,000
14,62,600 14,62,600

Working Notes:

` `
1. Subscription for the year ended 31.03.2017
Subscription received during the year 3,50,000
Less: Subscription receivable on 01.04.2016 10,500
Less: Subscription received in advance on 31.03.2017 4,900 (15,400)
3,34,600
Add: Subscription receivable on 31.03.2017 15,400
Add: Subscription received in advance on 01.04.2016 8,400 23,800
3,58,400
2. Purchase of medicine
Payment of medicine supply 2,10,000
Less: Amount due for medicine supply 01.04.2016 (63,000)
1,47,000
Add: Amounts due for medicine supply on 31.03.2017 91,000
2,38,000
3. Medicine Consumed
Stock of medicine on 01.04.2016 70,000
Add: Purchase of medicine during the year 2,38,000
3,08,000
Less: Stock of medicine on 31.03.2017 (1,05,000)
2,03,000
4. Depreciation on equipment
Value of equipment on 01.04.2016 1,47,000
Add: Purchase of equipment during the year 1,05,000

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 Suggested Answers_Syl2016_June2018_Paper 5

2,52,000
Less: Value of equipment on 31.03.2017 (2,14,200)
Depreciation on equipment for the year 37,800

Balance Sheet of Radix Clinic

as on 31st March, 2016
Liability ` Assets `
Capital Fund: (balancing Figure) 12,62,100 Building 3,50,000
Subscription received in advance 8,400 Medical Equipment 1,47,000
Creditors for medicine supply 63,000 Stock of Medicine 70,000
Investments 7,00,000
Subscription receivable 10,500
Cash in hand 56,000
13,33,500 13,33,500

4. The following information relates to the business of ABC Enterprises, who requests you to
prepare a Trading and profit & loss A/c for the year ended 31st March, 2017 and a
Balance Sheet as on that date:
(a) Assets and Liabilities as on:
01.04.2016 31.03.2017
(`) (`)
Furniture 60,000 63,500
Stock 80,000 70,000
Sundry Debtors 1,60,000 ?
Sundry Creditors 1,10,000 1,50,000
Prepaid Expenses 6,000 7,000
Outstanding Expenses 20,000 18,000
Cash in Hand & Bank Balance 12,000 26,250

(b) Cash transaction during the year:

(i) Collection from Debtors, after allowing discount of `15,000 amounted to
`5,85,000.
(ii) Collection on discounting of Bills of Exchange, after deduction of discount of
`1,250 by bank, totalled to `61,250.
(iii) Creditors of `4,00,000 were paid `3,92,000 in full settlement of their dues.
(iv) Payment of Freight inward of `30,000.
(v) Amount withdrawn for personal use `70,000.
(vi) Payment for office furniture `10,000.
(vii) Investment carrying annual interest of 6% were purchased at ` 95 (200 shares,
face value ` 100 each) on 1st October, 2016 and payment made thereof.
(viii) Expenses including salaries paid ` 95,000.
(ix) Miscellaneous receipts of ` 5,000.

(c) Bills of exchange drawn on and accepted by customers during the year amounted to
`1,00,000. Of these, bills of exchange of `20,000 were endorsed in favour of creditors.
An endorsed bill of exchange of ` 4,000 was dishonoured.
(d) Goods costing ` 9,000 were used as advertising material.
(e) Goods are invariably sold to show a gross profit of 20% on sales.
(f) Difference in cash book, if any, is to be treated as further drawing or introduction of
capital by proprietor of ABC enterprises.
(g) Provide at 2% for doubtful debts on closing debtor. 15

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Answer:
4.
Trading and Profit and Loss Account of ABC enterprise
for the year ended 31st March, 2017
Dr. Cr.
Particulars ` ` Particulars `
To Opening Inventory 80,000 By Sales 6,08,750
To Purchases 4,56,000 By Closing inventory 70,000
Less: For advertising (9,000) 4,47,000
To Freight Inwards 30,000
To Gross Profit c/d 1,21,750
6,78,750 6,78,750
To Sundry expenses 92,000 By Gross Profit b/d 1,21,750
To Advertisement 9,000 By Interest on Investment 600
To Discount Allowed - (20,000 × 6/100 × ½)
Debtors 15,000 By Discount received 8,000
Bills Receivable 1,250 16,250 By Miscellaneous income 5,000
To Depreciation on furniture 6,500
To Provision for doubtful debts 1,455
To Net Profit 10,145
1,35,350 1,35,350

Balance Sheet as on 31st March, 2017

Liability ` ` Assets ` `
Capital as on 01.04.2016 1,88,000 Furniture (w.d.v.) 60,000
Less: Drawings (91,000) Additions during the year 10,000
97,000 Less: Depreciation (6,500) 63,500
Add: Net Profit 10,145 1,07,145 Investment 19,000
Sundry creditors 1,50,000 Interest accrued 600
Outstanding expenses 18,000 Closing Inventory 70,000
Sundry debtors 72,750
Less: Provision for doubtful 1,455 71,295
debts
Bills receivable 17,500
Cash in hand and at Bank 26,250
Prepaid expenses 7,000
2,75,145 2,75,145

Working Notes:

(1) Capital on 1st April, 2016

Balance Sheet as on 1st April, 2016
Liability ` Assets `
Capital (Bal. Fig.) 1,88,000 Furniture (w.d.v.) 60,000
Creditors 1,10,000 Closing Inventory 80,000
Outstanding expenses 20,000 Sundry debtors 1,60,000
Cash in hand and at Bank 12,000
Prepaid expenses 6,000
3,18,000 3,18,000

(2) Purchases made during the year

Sundry Creditors Account

Dr. Cr.
Particulars ` Particulars `
To, Cash & bank A/c 3,92,000 By Balance b/d 1,10,000
To Discount Received A/c 8,000 By Sundry Debtors 4,000

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To Bills Receivable A/c 20,000 By Purchases A/c 4,56,000

(Balancing figure)
To Balance C/d 1,50,000
5,70,000 5,70,000

(3) Sales made during the year

Particulars ` `
Opening Inventory 80,000
Purchases 4,56,000
Less: For advertising (9,000) 4,47,000
Freight Inwards 30,000
5,57,000
Less: Closing Inventory (70,000)
Cost of Goods sold 4,87,000
Add: Gross profit (25% on cost) 1,21,750
6,08,750

(4) Debtors on 31st March, 2017

Sundry Debtors Account
Dr. Cr.
Particulars ` Particulars `
To Balance b/d 1,60,000 By Cash and Bank A/c 5,85,000
To Sales A/c 6,08,750 By Discount allowed A/c 15,000
To Sundry creditors A/c By Bills receivable A/c 1,00,000
(Bill Dishonoured) 4,000 By Balance c/d (Bal. Fig.) 72,750
7,72,750 7,72,750

(5) Additional drawings by proprietors of ABC Enterprises

Cash and Bank Account
Dr. Cr.
Particulars ` Particulars `
To Balance A/c 12,000 By Freight Inwards A/c 30,000
To Sundry Debtors A/c 5,85,000 By Furniture A/c 10,000
To Bills Receivable A/c 61,250 By Investment A/c 19,000
To Miscellaneous Income A/c 5,000 By Expenses A/c 95,000
By Creditors A/c 3,92,000
By Drawings [` 70,000+` 21,000] 91,000
[Additional Drawings]
By Balance c/d 26,250
6,63,250 6,63,250

(6) Amount of expenses debited to Profit and Loss Account

Sundry Expenses Account
Dr. Cr.
Particulars ` Particulars `
To Prepaid Expenses A/c 6,000 By Outstanding Expenses A/c 20,000
(on 01.04.16) (on 01.04.16)
To Bank A/c 95,000 By Profit and Loss A/c 92,000
(Bal. Figure)
To Outstanding Expenses/c 18,000 By Prepaid Expenses A/c 7,000
(on 31.03.17) (On 31.03.17)
1,19,000 1,19,000

(7) Bills Receivable on 31st March, 2017

Bills Receivable Account
Dr. Cr.
Particulars ` Particulars `
To Debtors A/c 1,00,000 By Creditors A/c 20,000

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 Suggested Answers_Syl2016_June2018_Paper 5

By Bank A/c 61,250

By Discount on Bills Receivable A/c 1,250
By Balance c/d (Balancing Figure) 17,500
1,00,000 1,00,000

Note: All sales and purchases are assumed to be on credit basis.

5. (a) (i) M/s. Zed Laptop Co. has a hire-purchase department and goods are sold on hire-
purchase adding 25% to cost. From the following information (all figures are at hire-
purchase price), Prepare Hire-Purchase Trading Account for the year ending,
March 31, 2017:
`
April 01, 2016 goods with customers (Instalments not yet due) 80,000
Goods sold on Hire-purchase during the year 4,00,000
Cash received during the year from customers 3,00,000
Instalments due but not yet received at the end of the year, customers 10,000
paying
5
(ii) M/s. Big Systematic Ltd. maintains self-balancing ledgers preparing control
accounts at the end of each calendar month.
On 3rd January, 2018 the accountant of the company located the following errors
in the books of account:
(A) An amount of ` 8,700 received from customer Mehra was credited to Mehta,
another customer.
(B) The sales book for December, 2017 was under cast by ` 1,000.
(C) Goods invoiced at ` 15,600 were returned to supplier, M/s Mega Ltd. but no
entry was made in the books for this return made on 28th December, 2017.
Pass the necessary Journal Entries to rectify the above mentioned errors. 5

(b) On 15th December, 2017, a fire occurred in the premises of M/s. OM Exports. Most of
the stocks were destroyed. Cost of Stock salvaged being ` 1,40,000. From the books
of account, the following particulars were available:
(i) Stock at the close of account on 31st March, 2017 was valued at ` 9,40,000.
(ii) Purchases from 01.04.2017 to 15-12-2017 amounted to ` 13,20,000 and the sales
during that period amounted to ` 20,25,000.
On the basis of his accounts for the past three years, it appears that average gross
profit ratio is 20% on sales.
Compute the amount of the claim, if the stock were insured for ` 4,00,000. 5

Answer:

5. (a) (i)
Hire-purchase Trading Account
(On the basis of Hire-Purchase Price)
for the year ending 31st March, 2017
Dr. Cr.
Particulars ` Particulars `
To Balance b/d 80,000 By Bank A/c 3,00,000
H.P. Stock as on 01.04.2016 By Goods sold on hire purchase A/c 80,000
(Loading)(1/5th of 4,00,000)
To Goods sold on hire purchase 4,00,000 By Stock Reserve (Opening) 16,000
A/c (1/5th of 80,000)
To Stock reserve (Closing) 34,000 By Balance c/d: 10,000
(1/5th of 1,70,000) H.P. Debtors (Installment due)
To Profit & Loss A/c 62,000 H.P. Stock as on 31.03.2017 1,70,000
(Working Note)
5,76,000 5,76,000

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 Suggested Answers_Syl2016_June2018_Paper 5

Working Note:
H.P. Stock on 31.03.2017
Particulars ` `
Stock with customers (Installment not due) on 01.04.2016 80,000
Goods sold on hire purchase during the year 4,00,000
4,80,000
Less: Cash received during the year 3,00,000
Installments due but not received 10,000 (3,10,000)
H.P. Stock on 31.03.2017 1,70,000
(ii)
Journal Entries
In the books of M/s Big Systematic Ltd.
Particulars Dr. (`) Cr. (`)
(i) Mehta (In Sales/Debtors Ledger) A/c Dr. 8,700
To Mehra (In Sales/Debtors Ledger) A/c 8,700
(Being amount received from Mehra was wrongly credited to
Mehta, now rectified)
(ii) (a)Suspense Account (In Sales/Debtors Ledger) Dr. 1,000
To Sales A/c (In General Ledger) 1,000
(b)Sales/Debtors Ledger Adjustment A/c (In General Ledger) Dr. 1,000
To General Ledger Adjustment A/c (In Sales/Debtors Ledger) 1,000
(Being rectification of the error resulting from under casting of the
Sales Books)
(iii) (a)M/s. Mega Ltd. Account (In Creditors/Bought Ledger) Dr. 15,600
To Purchase Returns A/c (In General Ledger) 15,600
(b)Creditors/Bought Ledger Adjustment A/c (In General Ledger)Dr. 15,600
To General Ledger Adjustment A/c (In Creditors/Bought Ledger) 15,600
(Being goods returned to supplier not recorded earlier, now
recorded)

(b)
Memorandum Trading Account
for the period 01.04.2017 – 15.12.2017
Dr. Cr.
Particulars ` Particulars `
To Opening Stock 9,40,000 By Sales 20,25,000
To Purchases 13,20,000 By Closing stock (Balancing Figure) 6,40,000
To Gross Profit @ 20% 4,05,000
26,65,000 26,65,000

Statement of Claim
Particulars `
Estimated value of Stock as at date of fire 6,40,000
Less: Value of Salvaged Stock 1,40,000
Estimated Value of Stock lost by Fire 5,00,000

As the value of stock is more than insured value, amount of claim would be subject to
average clause.
Amount of Policy
Amount of Claim = × Actual Loss of Stock
Value of Stock
4, 00, 000
Amount of Claim = × 5,00,000 = ` 3,12,500.
6, 40, 000

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 Suggested Answers_Syl2016_June2018_Paper 5

6. A and B were partners of a firm sharing profits and losses in the ratio 2:1. The Balance
Sheet of the firm as at 31st March, 2017 was as under:

Liabilities Amount (`) Assets Amount (`)

Capital Accounts: Plant and Machinery 5,00,000
A 8,00,000 Building 9,00,000
B 4,00,000 Sundry Debtors 2,50,000
Reserves 5,25,000 Stock 3,00,000
Sundry Creditors 2,75,000 Cash 1,50,000
Bills Payable 1,00,000
21,00,000 21,00,000

They agreed to admit P and Q into the partnership on the following terms:
(i) The firm's goodwill to be valued at 2 years' purchase of the weighted average of the
profits' of the last 3 years. The relevant figures are:
Year ended 31.03.2014 - Profit ` 37,000
Year ended 31.03.2015 - Profit ` 40,000
Year ended 31.03.2016 - Profit ` 45,000
(ii) The value of the stock and Plant & Machinery were to be reduced by 10%.
(iii) Building was to be valued at ` 10,11,000.
(iv) There was an unrecorded liability of ` 10,000.
(v) A, B, P & Q agreed to share profits and losses in the ratio 3 : 2 : 1 : 1 .
(vi) The value of reserve, the values of liabilities and the values of assets other than cash
were not to be altered.
(vii) P and Q were to bring capitals equal to their shares of Profit considering B's capital as
base after all adjustments.

You are required to prepare:

(1) Memorandum Revaluation Account,
(2) Partner's Capital Accounts and
(3) The Balance Sheet of the newly constructed firm. 15

Answer:

6.
Memorandum Revaluation Account
Dr. Cr.
Particulars ` Particulars `
To Stock 30,000 By Building 1,11,000
To Plant & machinery 50,000
To Unrecorded liability 10,000
To Profit transferred to Partners’
Capital A/cs (in old ratio)
A = 14,000
B = 7,000 21,000
1,11,000 1,11,000
To Building 1,11,000 By Stock 30,000
By Plant & Machinery 50,000
By Unrecorded liability 10,000
By Loss transferred to Partners’
Capital A/cs (in new ratio)
A = 9,000
B = 6,000
P = 3,000
Q = 3,000 21,000
1,11,000 1,11,000

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 Suggested Answers_Syl2016_June2018_Paper 5

Partner’s Capital Accounts

Dr. Cr.
Particulars A B P Q Particulars A B P Q
To 9,000 6,000 3,000 3,000 By Balance b/d 8,00,000 4,00,000 --- ---
Memorandum
Revaluation A/c
To Reserves A/c 2,25,000 1,50,000 75,000 75,000 By Memorandum 14,000 7,000 --- ---
Revaluation A/c
To A&B (W.N.2) --- --- 12,000 12,000 By Reserves A/c 3,50,000 1,75,000 --- ---
To Balance c/d 9,50,000 4,30,000 2,15,000 2,15,000 By P&Q (W.N.2) 20,000 4,000 --- ---
(Refer W.N.3)
By Cash (Bal. Fig.) --- --- 3,05,000 3,05,000
11,84,000 5,86,000 3,05,000 3,05,000 11,84,000 5,86,000 3,05,000 3,05,000

Balance Sheet of newly reconstituted firm as on 31.03.2017

Liabilities Amount (`) Assets Amount (`)
Capital Accounts: Plant and Machinery 5,00,000
A – 9,50,000 Building 9,00,000
B – 4,30,000 Sundry Debtors 2,50,000
P – 2,15,000 Stock 3,00,000
Q – 2,15,000 18,10,000 Cash (1,50,000+3,05,000+3,05,000) 7,60,000
Reserves 5,25,000
Sundry Creditors 2,75,000
Bills Payable 1,00,000
27,10,000 27,10,000

Working Notes:
1. Calculation of Goodwill
Weighted Average Profit:
Year Profit (`)Weight Weighted Profit (`)
2014 37,000 1 37,000
2015 40,000 2 80,000
2016 45,000 3 1,35,000
6 2,52,000
Weighted Average Profit = ` 2,52,000/6 = ` 1,42,000
Goodwill is valued at 2 year's purchase
Value of Goodwill: ` 42,000 × 2 = ` 84,000

2. (a) Profit sacrificing Ratio

Particulars Old Shares New Shares Share sacrificed Share gained
A 2/3 3/7 5/21 -
B 1/3 2/7 1/21 -
P - 1/7 - 1/7
Q - 1/7 - 1/7

(b) Adjustment for goodwill

Partners Goodwill as per old ratio Goodwill as per new ratio Effect
A 56,000 36,000 + 20,000 ---
B 28,000 24,000 + 4,000 ---
P --- 12,000 --- 12,000
Q --- 12,000 --- 12,000
84,000 84,000 24,000 24,000

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Journal Entry
Particulars Amount (`) Amount (`)
P's Capital A/c Dr. 12,000
Q's Capital A/c Dr. 12,000
To A's Capital A/c 20,000
To B's Capital A/c 4,000

3. Calculation of closing capitals of P and Q

B's capital is taken as base. Closing capital of B after all adjustments is 4,30,000.
Total capital of firm will be = 4,30,000 × 7/2 = 15,05,000
Hence, P's and Q's closing capital should be ` 2,15,000 (15,05,000 x 1/7) each i.e. at
par with B (as per new profit and loss sharing ratio)

7. (a) (i) (A) X sells goods to Y for ` 2,00,000. Instead of one bill of ` 2,00,000, X draws three
bills of exchange on Y for ` 40,000; ` 60,000 and ` 1,00,000. What is the value
involved in drawing three bills instead of one?
(B) Sunny draws a bill on Vivek for three months. On the due date, Vivek finds
himself in financial difficulties and requests Sunny to renew the bill for a further
period of one month. Sunny agrees to his request. What is the virtue involved in
renewing the bill?
(C) What is the value involved in accepting an accommodation bill?
(D) What is the reason that a drawer cannot file a suit against drawee in case of
dishonour of an accommodation bill? 1x4=4

(ii) Raj Ltd. entered into an agreement with Heena Ltd. to dispatch goods valuing
` 5,00,000 every month for next 6 months on receipt of entire payment. Heena Ltd.
accordingly made the entire payment of ` 30,00,000 and Raj Ltd. started
dispatching the goods. In fourth month, due to fire in premises of Heena Ltd.,
Heena Ltd. requested to Raj Ltd. not to dispatch goods worth ` 15,00,000 ready for
dispatch. Raj Ltd. accounted ` 15,00,000 as sales and transferred the balance to
Advance received against Sales account.
Comment upon the above treatment by Raj Ltd. with reference to the provision of
AS-9. 5

(b) X Ltd. has its H.O. in Delhi and a branch in Mumbai. H.O. supplied goods to its branch at
1
cost plus 33 %. From the particulars given below prepare a Branch Trading Account
3
for the year ended 31st March 2018 in the books of H.O.:

Particulars Amount (`) Particulars Amount (`)

Opening Stock (I.P.) 40,000 Sales:
Goods sent to Branch (I.P.) 2,50,000 Cash 1,00,000
Return to H.O. (I.P.) 10,000 Credit 3,00,000
Discount allowed to customers 10,000
Closing Stock (I.P.) 60,000

It is estimated that 2% of the goods received are lost through natural wastage. 6
Answer:
7. (a) (i) (A) Any of three bills may be put to different uses i.e., any of the bill may either be
discounted, endorsed or kept till the date of maturity. For example, if X is in
need of ` 30,000 he may get only the first bill discounted from the bank.
(B) Virtue involved is the expression of morality and humanism towards a fellow
businessman by helping him in case of need.
(C) Value involved in accepting an accommodation bill is helping a friend who is
temporarily in need of money.

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(D) Because accommodation bills are drawn without consideration.

(ii) As per AS 9 "Revenue Recognition", in a transaction involving the sale of goods,
performance should be regarded as being achieved when the following
conditions are fulfilled:
(i) the seller of goods has transferred to the buyer the property in the goods for a
price or all significant risks and rewards of ownership have been transferred to
the buyer and the seller retains no effective control of the goods transferred
to a degree usually associated with ownership; and
(ii) no significant uncertainty exists regarding the amount of the consideration
that will be derived from the sale of the goods.
In the given case, transfer of property in goods results in or coincides with the
transfer of significant risks and rewards of ownership to the buyer. Also, the sale
price has been recovered by the seller. Hence, the sale is complete but delivery
has been postponed at buyer's request. Raj Ltd. should recognize the entire sale
of ` 30,00,000 (` 5,00,000 × 6) and no part of the same is to be treated as
Advance Received against Sales.
(b)
In the books of H.O.
Trading Account
for the year ended 31st March, 2018
Dr. Cr.
Particulars ` ` Particulars ` `
To Opening Stock 40,000 By Sales:
Less: Loading 10,000 30,000 Cash 1,00,000
To Goods Sent to Branch 2,50,000 Credit 3,00,000 4,00,000
Less: Returns to H.O. 10,000 By Closing Stock 60,000
2,40,000 Less: Loading 15,000 45,000
Less: Loading ( 1 ) 60,000 (1 )
×2,40,000 ×60,000
4 4
[1 1 ]
on CP = on SP 1,80,000
3 4
To Gross Profit c/d 2,35,000
4,45,000 4,45,000

Note:
1. Discount allowed to customer will appear in Branch Profit & Loss Account.
2. Loss through natural wastage is a normal loss and as such, the same should be
charged against branch gross profit. So, no adjustment is required.

8. Write short notes on any three of the following: 5×3=15

(a) Operating cycle of Consignment Arrangement.
(b) Disadvantages of a Computerized Accounting Package.
(c) Features of Single Entry System.
(d) Bearer Plant.
Answer:

8. (a) Operating Cycle of Consignment Arrangement:

(i) Goods are sent by consignor to the consignee.
(ii) Consignee may pay some advance or accept a bill of exchange.
(iii) Consignee will incur expenses for selling the goods.
(iv) Consignee maintains records of all cash and credit sale.
(v) Consignee prepares a summary of results called as Account sales.
(vi) Consignor pays commission to the consignee.
Sometimes, the consignor may send the goods at a price higher than cost so that the
consignee gets no knowledge of the real cost of goods which is confidential for the
consignor.

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 Suggested Answers_Syl2016_June2018_Paper 5

(b) Disadvantages of a Computerized Accounting Package:

1. A standard package may not be able to take care of complexities of a specific
business.
2. The reports required for existing management control may not be available in
such package.
3. Lack of security.
4. Requirement specifications are incomplete or ambiguous resulting in a defective
or incomplete system.
5. Bugs may remain in the software because of inadequate testing.
6. Documentation may not be completed.
7. Frequent changes made to the system with inadequate change management
procedure may result in system compromise.
8. Vendor may not be unwilling to give support of the software due to other
commitments.
9. Vendor may not be willing to part with the source code or enter into an escrow
agreement.
10. Control measures may be inadequate.
11. There may be delay in completion of the software due to problems with the vendor
or inadequate project management.

(c) Single Entry System has the following features:

(a) Maintenance of books by a sole trader or partnership firm: The books which are
maintained according to this system can be kept only by a sole trader or by a
partnership firm.
(b) Maintenance of cash book: In this system it is very often to keep one cash book
which mixes up business as well as private transactions.
(c) Only personal accounts are kept: In this system, it is very common to keep only
personal accounts and to avoid real and nominal accounts. Therefore, sometimes,
this is precisely defined as a system where only personal accounts are kept.
(d) Collection of information from original documents: For information one has to
depend on original vouchers, example, in the case of credit sales, the proprietor
may keep the invoice without recording it anywhere and at the end of the year
the total of the invoices gives an idea of total credit sales of the business.
(e) Lack of uniformity: It lacks uniformity as it is a mere adjustment of double entry
system according to the convenience of the person.
(f) Difficulty in preparation of final accounts: It is much difficult to prepare trading,
profit and loss account and balance sheet due to the absence of nominal and
real accounts in the ledger.

(d) Bearer plant is a plant that

(a) is used in the production or supply of agricultural produce;
(b) is expected to bear produce for more than a period of twelve months; and
(c) has a remote likelihood of being sold as agricultural produce, except for incidental
scrap sales.
The following are not bearer plants:
(i) plants cultivated to be harvested as agricultural produce;
(ii) plants cultivated to produce agricultural produce when there is more than a
remote likelihood that the entity will also harvest and sell the plant as agricultural
produce, other than as incidental scrap sales;
(iii) annual crops.

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 Suggested Answer_Syl16_Dec2017_Paper 5

INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

DECEMBER - 2017
Paper - 5 : FINANCIAL ACCOUNTING
Time Allowed : 3 Hours Full Marks : 100
Both the sections are to be answered subject to instructions given against each.
[All workings must form part of your answer.]

Section - A
1. Answer the following questions:

(a) Choose the most appropriate one from given four alternatives: 1×10=10

(i) If an employee of the business files a legal suit on business, it is considered in the
books as a
(A) Legal Expense
(B) Liability
(C) Contingent Asset
(D) Contingent Liability

(ii) At the end of the accounting year the capital expenditures are shown in the
(A) assets side of the Balance Sheet.
(B) liabilities side of the Balance Sheet.
(C) debit side of the Profit and Loss A/c.
(D) credit side of the Profit and Loss A/c.

(iii) Which of the following is not a method of charging depreciation?

(A) Sinking Fund Method
(B) Sum of years Digit Method
(C) Working hours Method
(D) Asset's Life-cycle Method

(iv) If average inventory is `1,25,000 and closing inventory is `10,000 less than opening
inventory then the value of closing inventory will be
(A) ` 1,35,000
(B) ` 1,15,000
(C) ` 1,30,000
(D) ` 1,20,000

(v) The Accommodation bill is drawn

(A) to finance actual purchase or sale of goods.
(B) to facilitate trade transmission.
(C) when both parties are in need of funds.
(D) None of the above

(vi) Balance of X's account in creditors ledger is transferred to X's account in debtors
ledger, in this case
(A) X's account in debtors ledger will be debited.

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 Suggested Answer_Syl16_Dec2017_Paper 5

(B) X's account in creditors ledger will be debited.

(C) Suspense account will be debited.
(D) None of the above

(vii)Ground rent or surface rent means

(A) Minimum rent
(B) Maximum royalty payable
(C) Minimum royalty payable
(D) Fixed rent payable in addition to minimum rent

(viii)Accounting standard in India are issued by

(A) Government of India
(B) Reserve Bank of India
(C) The Institute of Chartered Accountants of India
(D) The Institute of Accounting Standard of India

(ix) As on 31st March, 2017 debtors; and additional bad debts are ` 8,00,000 and
` 10,000 respectively. If the provision for bad debts is made at 5% on debtors then
amount of such provision will be
(A) ` 40,000
(B) ` 50,000
(C) ` 39,500
(D) ` 40,500

(x) Income and Expenditure Account is a

(A) Nominal Account
(B) Real Account
(C) Personal Account
(D) Artificial Personal Account

(b) Match the following in Column-I with the appropriate in Column-II: 1×5=5

Column-I Column-II
(i) Noting Charges (A) Branch Accounts
(ii) Stock and debtors Method ' (B) Piecemeal Distribution
(iii) Work certified (C) Not-for Profit Organization
(iv) Average clause (D) Royalty Accounts
(v) Maximum Loss Method (E) Bill of Exchange
(F) Construction Contract
(G) Insurance Claims

(c) State whether the following statements given below are ‘True’ or ‘False’: 1×5=5

(i) Memorandum joint venture account is prepared to find out amount due from co-
venture.
(ii) Receipts and Payments Account is prepared by adopting cash principle of
accounting.
(iii) As per AS-9 revenue from interest should be recognized on the time proportion
basis.
(iv) Bad debts recovered is credited to debtor's personal account.
(v) New-partner pays premium for goodwill, which will be shared by old partners in
their new profit sharing ratio.

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 Suggested Answer_Syl16_Dec2017_Paper 5

(d) Fill in the blanks: 1x5=5

(i) The ____________ discount is not recorded in the books of accounts.

(ii) Profit or Loss on revaluation is shared among the partners in _________ Ratio.
(iii) At the time of goods sent to consignee, the proforma invoice is prepared
by_____________.
(iv) Memorandum revaluation account is prepared when the _________ of assets and
liabilities are not altered.
(v) Realisation account is opened at the time of __________ of firm.

Answer:

1. (a) (i) (D)

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

(b) (i) (E)

(ii) (A)
(iii) (F)
(iv) (G)
(v) (B)

(c) (i) False

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

(d) (i) Trade

(ii) Old profit sharing
(iii) Consignor
(iv) Book value
(v) Dissolution of the firm

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 Suggested Answer_Syl16_Dec2017_Paper 5

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

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

73,000 73,000

Additional information:
31-03-2016 31-03-2017
` `
Subscription in arrears 2,600 3,700
Advance Subscriptions 1,000 1,500
Outstanding expenses:
Rent 500 800
Salaries 1,200 350
Audit Fee 500 750
Sports Equipment less depreciation 25,000 24,000
Furniture less depreciation 30,000 27,900
Prepaid Insurance — 150

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

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

Answer:
Receipts and Payments Account
for the year ended 31.3.2017
Dr. Cr.
Particulars ` Particulars ` `
To Subscription A/c 67,050 By Balance b/d 15,000
(W.N.1) (Bank overdraft)
To Donation A/c 5,000 By Salary 19,500
To Entrance Fees A/c 4,000 Add: Outstanding of last year 1,200
To Furniture A/c (Sale of 4,500 Less: Outstanding of this year (350) 20,350
furniture)(7,000 -2,500)

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By Rent 4,500
Add: Outstanding of last year 500
Less: Outstanding of this year (800) 4,200
By Printing 750
By Insurance 500
Add: Prepaid in this year 150 650
By Audit Fees 750
Add: Outstanding of last year 500
Less: Outstanding of this year (750) 500
By Games & Sports 3,500
By Miscellaneous Expenses 14,500
By Sports Equipment(Purchased)(W.N. 2) 5,000
By Furniture (Purchased)(W.N.3) 8,000
By Balance c/d
Cash 850
Bank (bal. fig.) 7,250
80,550 80,550

Working Notes:

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

Particulars ` `
Subscription as per Income & Expenditure A/c 68,000
Less: Arrears of 2016-2017 3,700
Advance in 2015-2016 1,000 (4,700)
63,300
Add: Arrears of 2015-2016 2,600
Advance for 2017-2018 1,500 4,100
67,400
Less: Written off during 2016-2017 (350)
67,050

2. Calculation of Sports Equipment purchased during 2016-2017

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

3. Calculation of Furniture purchased during 2016-2017

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

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 Suggested Answer_Syl16_Dec2017_Paper 5

(Depreciation)
By Balance c/d 27,900
38,000 38,000

3. The following is the Balance Sheet of Chirag as on 31st March, 2015:

Liabilities ` Assets `
Capital Account 48,000 Building 32,500
Loan 15,000 Furniture 5,000
Credilor 31,000 Motor Car 9,000
Stock 20,000
Debtors 17,000
Cash in hand 2,000
Cash at Bank 8,500
94,000 94,000

A riot occurred on the night of 31st March, 2016 in which all books and records were lost.
The cashier had absconded with the available cash. He gives you the following
information:
(a) His sales for the year ended 31st March, 2016 were 20% higher than the previous
year's. He always sells his goods at cost plus 25%; 20% of the total sales for the year
ended 31st March, 2016 were for cash. There were no cash purchases.
(b) On 1st April, 2015 the stock level was raised to ` 30,000 and stock was maintained at
this new level all throughout the year.
(c) Collection from debtors amounted to ` 1,40,000 of which ` 35,000 was received in
cash, Business expenses amounted to ` 20,000 of which ` 5,000 was outstanding on
31st March, 2016 and ` 6,000 was paid by cheques.
(d) Analysis of the Pass Book revealed the Payment to Creditors ` 1,37,500, Personal
Drawing ` 7,500, Cash deposited in Bank ` 71,500 and Cash withdrawn from Bank
` 12,000.
(e) Gross Profit as per last year's audited accounts was ` 30,000.
(f) Provide depreciation on Building and Furniture at 5% and Motor Car at 20%.
(g) The amount defalcated by the cashier may be treated as recoverable from him.

You are required to prepare the Trading and Profit and Loss Account for the year ended
31st March, 2016 and Balance Sheet as on that date. 15

Answer:
Trading and Profit and Loss Account
For the year ending on 31st March, 2016
Dr. Cr.
Particulars ` ` Particulars `
To Opening Stock 20,000 By Sales 1,80,000
To Purchase (bal. fig.) 1,54,000 By Closing stock 30,000
ToGross Profit c/d (@ 20% on sales) 36,000
2,10,000 2,10,000
To Sundry Business Expenses 20,000 By Gross Profit b/d 36,000
To Depreciation on Building 1,625
Furniture 250
Motor 1,800 3,675
To Net Profit transferred to Capital 12,325
A/c
36,000 36,000

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Balance Sheet as at 31st March, 2016

Liability ` ` Assets ` `
Capital Account: Building 32,500
Opening Balance 48,000 Less: Depreciation (1,625) 30,875
Add: Net Profit 12,325 Furniture 5,000
60,325 Less: Depreciation (250) 4,750
Less: Drawings (7,500) 52,825 Motor Car 9,000
Loan 15,000 Less: Depreciation (1,800) 7,200
Sundry Creditors 47,500 Stock in Trade 30,000
Outstanding 5,000 Sundry Debtors 21,000
expenses
Cash at bank 22,000
Sundry Advances (Amount 4,500
recoverable from cashier)
1,20,325 1,20,325

Working Notes:
(i)
Total Debtors Account
Dr. Cr.
Particulars ` Particulars `
To Balance b/d 17,000 By Bank (` 1,40,000 – ` 35,000) 1,05,000
To Sales (80% of ` 1,80,000) 1,44,000 By Cash A/c 35,000
To Gross Profit c/d (@ 20% on sales) By Balance c/d 21,000
1,61,000 1,61,000

(ii)
Total Creditors Account
Dr. Cr.
Particulars ` Particulars `
To Bank 1,37,500 By Balance b/d 31,000
To Balance c/d 47,500 By Purchases 1,54,000
1,85,000 1,85,000

(iii)
Cash Book
Dr. Cr.
Particulars Cash (`) Bank (`) Particulars Cash (`) Bank (`)
To Balance b/d 2,000 8,500 By Business Expenses 9,000 6,000
To Sales 36,000 --- By Drawings --- 7,500
To Sundry Debtors 35,000 1,05,000 By Sundry Creditors --- 1,37,500
To Cash (Contra) --- 71,500 By Bank (Contra) 71,500 ---
To Bank (Contra) 12,000 --- By Cash (Contra) --- 12,000
By Defalcation (Bal. 4,500 ---
Fig.)
By Balance c/d (Bal. --- 22,000
Fig.)
85,000 1,85,000 85,000 1,85,000

(iv) Last year's Total Sales = Gross Profit x 100/20 = ` 30,000 x 100/20 = ` 1,50,000

(v) Current year's Total Sales = ` 1,50,000+ 20% of `1,50,000= ` 1,80,000

(vi) Current year's Credit Sales = ` 1,80,000 x 80%= ` 1,44,000

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(v) Cost of Goods Sold = Sales - G.P. = ` 1,80,000 - `36,000 = ` 1,44,000

(vi) Purchases = Cost of Goods Sold + Closing Stock – Opening Stock

= ` 1,44,000 + ` 30,000 - ` 20,000
= ` 1,54,000.

4. (a) (i) A limited has sold its building for ` 50 lakhs and the purchaser has paid the full
price. The Company has given possession to the purchaser. The book value of the
building is ` 35 lakhs. As at 31st March, 2017 documentation and legal formalities
are pending. The Company has not recorded the sale. It has shown the amount
received as advance. Do you agree with this treatment?

What accounting treatment should the buyer give in its financial statements? 3

(ii) Hello Ltd. purchased goods at the cost of ` 20 lakhs in October. Till the end of the
financial year, 75% of the stocks were sold. The Company wants to disclose
closing stock at ` 5 lakhs. The expected sale value is ` 5.5 lakhs and a
commission at 10% on sale is payable to the agent. What is the correct value of
closing stock? 2

(b) The Trial Balance of a concern has agreed but the following mistakes were
discovered after the preparation of final Accounts.
(i) No adjustment entry was passed for an amount of ` 2,000 relating to outstanding
rent.
(ii) Purchase book was overcast by ` 1,000.
(iii) ` 4,000 depreciation of Machinery has been omitted to be recorded in the book.
(iv) ` 600 paid for purchase of stationary has been debited to Purchase A/c.
(v) Sales books was overcast by ` 1,000.
(vi) ` 5,000 received in respect of Book Debt had been credited to Sales A/c.

Show the effect of the above errors in Profit and Loss Account & Balance Sheet. 6

(c) (i) Why is goodwill considered to be an intangible asset and not a fictitious asset?
(ii) The Balance Sheet of a Partnership Firm had an Investment Fluctuation Reserve of
` 10,000. A new partner is admitted. Value of Investment is ` 60,000 against its
book value of ` 70,000. What amount of the Investment Fluctuation Reserve will be
distributed among partners?
(iii) When does the Capital Account of a partner not show a debit balance in spite of
regular losses incurred by the firm?
(iv) At the time of dissolution of Partnership Firm realisation expenses amounted to
` 3,000 paid by Nisha, a partner who was to bear these expenses. What entry is
required in the Books of the firm? 4

Answer:

(a) (i) Although legal title has not been transferred, the economic reality and substance
is that the rights and beneficial interest in the immovable property have been
transferred. Therefore, recording of acquisition/disposal (by the transferee transferor
respectively) would, in substance, represent the purchase/sale. In view of this A Ltd.,
should record the sales and recognize the profit of `15 lakhs in its Profit and Loss
Account. It should eliminate building from its balance sheet. In notes to accounts, it
should disclose that building has been sold, full consideration has been received,
possession has been handed over to the buyer and documentation and legal
formalities are pending.

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The buyer should recognize the building as an asset in his balance sheet and charge
depreciation on it. The buyer should disclose in his notes to account that possession
has been received however documentation and legal formalities are pending.

(ii) As per para 5 of AS 2 “Valuation of Inventories”, the inventories are to be valued at

lower of cost or net realizable value.

In this case, the cost of inventory is ` 5 lakhs. The net realizable value is ` 4.95 lakhs (`
5.5 lakhs less cost to make the sale @ 10% of ` 5.5 lakhs). So, the closing stock should
be valued at ` 4.95 lakhs.

(b)
Profit & Loss A/c Balance Sheet
(i) Profit was overstated by ` 2,000. (i) Capital was also overstated by
` 2,000 & outstanding Liability was
understated by 2,000.
(ii) Gross profit was under stated by (ii) Capital was understated by ` 1,000
` 1,000 & also the Net Profit.
(iii) Net Profit was overstated by (iii) Machinery was overstated by ` 4,000
` 4,000. & so the Capital A/c was also
overstated by ` 4,000.
(iv) No effect on Net Profit. (iv) No effect in Balance Sheet.
(v) Gross Profit and Net Profit were (v) Capital Was overstated by ` 1,000.
overstated by ` 1,000.
(vi) Gross Profit & Net Profit were (vi) Capital & Sundry Debtors were
overstated by, ` 5,000. overstated by ` 5,000.

(c) (i) Goodwill is not a fictitious asset because it has a realisable value. It is an
intangible asset because it cannot be seen and touched.
(ii) Nil. There is no excess amount in the Investment Fluctuation Reserve Account as
the fall in the value of the investment is equal to the reserve.
(iii) When partners maintain Fixed Capital Account, all adjustments including share of
profit or loss is shown in their Current Account. Hence, the Capital Account of the
partners will not be disturbed and this will not show a debit balance in spite of
regular losses.
(iv) No entry is required as the expenses are to be borne by the partners.

5. (a) Snehal, Suchita and Sindhu were partners sharing profits and losses in the ratio of 3 : 2
: 1. The firm was dissolved on 31.03.2015. After transfer of assets and liabilities to
Realisation A/c, the following transactions took place.
Give journal entries in the books on dissolution of the firm.
(i) Suchita's Loan to the firm ` 30,000 was settled at ` 28,500.
(ii) A creditor for ` 50,000, took over Machinery of Book value ` 40,000 at ` 35,000. The
balance was settled in Cash.
(iii) Workmen Compensation Reserve - ` 40,000. A liability equal to 60% of the Reserve
was settled.
(iv) Sindhu was to receive 5% of the value of assets realised as remuneration for
completing the dissolution work and was to bear realization expenses. Realisation
expenses were ` 5,500 that was paid by Sindhu. Assets realised ` 60,000.
(v) The Balance Sheet disclosed a footnote, contingent liability for ` 5,000 in respect
of a bill discounted. The bill was received from Megha. On the date of dissolution
Megha was declared insolvent and was not able to pay the amount due. The bill
had to be met by the firm.
(vi) Loss on realization amounted to ` 24,000. 7

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(b) The following details are available in respect of a business for a year.
Department Opening Stock Purchase Sales
X 120 units 1,000 units 1,020 units at ` 20.00 each
Y 80 units 2,000 units 1,920 units at ` 22.50 each
Z 152 units 2,400 units 2,496 units at ` 25.00 each

The total value of purchases is ` 1,00,000. It is observed that the rate of Gross Profit is
the same in each department. Prepare Departmental Trading Account for the above
year. 8

Answer:

(a)
In the books of Snehal, Suchita and Sindhu
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
(a) Suchita's Loan A/c Dr. 30,000
To Bank A/c 28,500
To Realisation A/c 1,500
(Being settlement of partner's loan)
(b) Realisation A/c Dr. 15,000
To Bank A/c 15,000
(Being settlement of creditor's liability)
(c) Workmen Compensation Reserve A/c Dr. 40,000
To Realisation A/c 24,000
To Snehal's Capital A/c 8,000
To Suchita's Capital A/c 5,333
To Sindhu's Capital A/c 2,667
(Being WCR transferred)
Realisation A/c Dr. 24,000
To Bank A/c 24,000
(Being liability against Workmen Compensation paid)
(d) Realisation A/c Dr. 3,000
To Sindhu's Capital A/c 3,000
(Being remuneration payable to Sindhu)
(e) Realisation A/c Dr. 5,000
To Bank A/c 5,000
(Being amount paid for the bill)
(f) Snehal's Capital A/c Dr. 12,000
Suchita's Capital A/c Dr. 8,000
Sindhu's Capital A/c Dr. 4,000
To Realisation A/c 24,000
(Being loss on realisation transferred)

(b)
1. Computation of Closing Stock Quantity (in units)
Particulars X Y Z
Opening Stock 120 80 152
Add: Purchase 1,000 2,000 2,400
Less: Units Sold (1,020) (1,920) (2,496)
Closing Stock 100 160 56

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2. Computation of Gross Profit Ratio

We are informed that the GP Ratio is the same for all departments. Selling Price is
given for each department's products but the Sale Quantity is different from that
of Purchase Quantity. To find the Uniform GP Rate, the sale value of Purchase
Quantity should be compared with the Total Cost of Purchase, as under.
Assuming all purchases are sold, the sale proceeds would be
Department X 1,000 Units @ ` 20.00 20,000
Department Y 2,000 Units @ ` 22.50 45,000
Department Z 2,400 Units @ ` 25.00 60,000
Total Sale Value of Purchase 125,000
Quantity
Less : Cost of Purchase 1,00,000
Gross Profit Amount 25,000

Gross profit Ratio 25,000 ÷ 1,25,000 20% of Selling Price

3. Computation of Profit and Cost for each article

Department Selling Price Profit at 1/5 of SP Cost = Sales - Profit
Department x ` 20.00 1/5 of ` 20.00 = 4.00 ` 16.00
Department Y ` 22.50 1/5 of ` 22.50 = 4.50 `18.00
Department 2 ` 25.00 1/5 of ` 25.00 = 5.00 ` 20.00

4. Departmental Trading Account for the year ended…………….

Dr. Cr.
Particulars X (`) Y (`) Z (`) Total (`) Particulars X (`) Y (`) Z (`) Total (`)
To Op. stock 1,920 1,440 3 040 6,400 By Sales 20,400 43,200 62,400 1,26,000
To Purchase 16,000 36,000 48,000 100,000 By CI. stock 1,600 2,880 1,120 5,600
To Gross Profit 4,080 8,640 12,480 25,200
22,000 46,080 63,520 1,31,600 22,000 46,080 63,520 131,600

Opening and Closing Stocks are valued at Cost as indicated in WN 3 above. Sale
Amount in the Trading Account is computed for the Sale Quantity only. Gross
Profit is calculated at 20% of Sale Value.

6. (a) On 1st April, 2012, X Ltd. sells a Truck on hire purchase basis to X Transporters & Co. for
a total purchase price of ` 18,00,000 payable as to ` 4,80,000 as down payment and
the balance in three equal annual installments of ` 4,40,000 each payable on 31st
March, 2013, 2014, and 2015.
The hire vendor charges interest @10% per annum.
You are required to ascertain the cash price of the truck for X Transporters & Co.
Calculations may be made to the nearest rupee. 8

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(b) How will you show the following items in General Ledger Adjustment Account in
Debtors Ledger and General Ledger Adjustment Account in Creditors Ledger? 7

`
Opening Balance of Debtors' Ledger 40,000
Opening Balance of Creditors' Ledger 20,000
Credit Sales 92,000
Credit Purchases 59,600
Transfer from Debtors' Ledger to Creditors' Ledger 6,000
Bill receivable endorsed to Creditors 8,000
Endorsed Bills dishonoured 2,000
Bad Debts written off (after deducting bad debts recovered ` 600) 4,400
Provision for Doubtful Debts 1,100
Provision for Discount on Debtors 2,000
Reserve for Discount on Creditors 4,000
Cash Sales 6,000
Cash Purchases 8,000
Bill Receivable Collected on maturity 10,000
Bills Receivable discounted 12,000
Bills Payable matured 14,000
Discount allowed 3,000
Discount received 1,200
Allowances from Creditors 6,400
Discount allowed to Debtors ` 1,000 was recorded as discount
received, from Creditors
Closing Debtors Balance (As per General Ledger Adjustment Account) 1,20,000 (Cr.)
Closing Creditors Balance (As per General Ledger Adjustment Account) 60,000 (Dr.)

Answer:
Rate of Interest 10 1
(a) Ratio of interest and amount due = 100 +Rate of Interest = 110 = 11

There is no interest element in the down payment as it is paid on the date of the
transaction. Installments paid after certain period includes interest portion also.
Therefore, to ascertain cash price, interest will be calculated from last installment to
first installment as follows:

Calculation of Interest and Cash Price

No. of Amount due at the Interest Cumulative
installments time of installment cash price
` `
[1] [2] [3] [2 - 3] = [4]
3rd 4,40,000 1/11 of ` 4,40,000 = ` 40,000 4,00,000
2nd 8,40,000 1/11 of ` 8,40,000 = ` 76,364 7,63,636
1st 12,03,636 1/11of `12,03,636 = ` 1,09,421 10,94,215

Total cash price = ` 10,94,215 + 4,80,000 (down payment) = ` 15,74,215.

(b)
In Debtors Ledger
General Ledger Adjustment Account
Dr. Cr.
Particulars ` Particulars `
To Debtors Ledger Adjustment A/c: By Balance b/d 40,000
Discount Allowed 4,000 By Debtors Ledger

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(` 3,000 + ` 1,000) Adjustment A/c:

Bad Debts (4,400 + 600) 5,000 Sales 92,000
Transfer to creditor ledger 6,000 Endorsed Bills receivable 2,000
dishonoured
To Balance c/d (1,20,000 – 1,000) 1,19,000
1,34,000 1,34,000

In Creditors Ledger
General Ledger Adjustment Account
Dr. Cr.
Particulars ` Particulars `
To Balance b/d 20,000 By Creditors Ledger Adjustment A/c
To Creditors Ledger Adjustment A/c Transfer from Debtors’ ledger 6,000
Purchases 59,600 Bills Receivable endorsed to creditors 8,000
Endorsed Bills receivable dishonoured 2,000 Discount received (` 1,200 - ` 1,000) 200
Allowances 6,400
By Balance c/d (60,000 + 1,000) 61,000
81,600 81,600

(i) The following items do not appear in GLA Account in Debtors’ Ledger:
(1) Cash sales
(2) Provision for Doubtful Debts
(3) Provision for Discount on Debtors
(4) Bad Debts Recovered
(5) Bills Receivable matured/collected on maturity
(6) Bills Receivable discounted

(ii) The following items do not appear in GLA Account in Creditors’ Ledger:
(1) Cash Purchases
(2) Reserve for Discount on Creditors
(3) Bills Payable Matured

7. (a) The premises of X Ltd. caught fire on 22nd January, 2015 and the stock was damaged.
The value of goods salvaged was negligible. The firm made up accounts to 31st
March each year. On 31st March, 2014 the stock at cost was `13,27,200 as against
`9,62,200 on 31st March, 2013.

Purchases from 1st April, 2014 to the date of fire were ` 34,82,700 as against `45,25,000
for the full year 2013-2014 and the corresponding sales figures were `49,17,000 and
`52,00,000 respectively.

You are given the following further information:

(i) In July, 2014, goods costing `1,00,000 were given away for advertising purposes, no
entries being made in the books.
(ii) The rate of gross profit is constant.

X Ltd. had taken an insurance policy of `5,50,000 which was subject to the average
clause. From the above information, you are required to make an estimate of the
stock in hand on the date of fire and compute the amount of the claim to be lodged
to the insurance company. 10

(b) List the significances of computerised accounting system. 5

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Answer:
(a) Memorandum Trading Account from 1st April, 2014 to 22nd January, 2015
Dr. Cr.
Particulars Amount Amount Particulars Amount (`)
(`) (`)
To Opening Stock 13,27,200 By Sales 49,17,000
To Purchases 34,82,700 By Stock on 22nd January, 7,76,300
2015 – Balancing figure
Less: Cost of goods used (1,00,000) 33,82,700
for advertising
To Gross Profit
20% of sales (Working Note) 9,83,400
56,93,300 56,93,300
Stock in hand on date of fire = ` 7,76,300.

Computation of claim for loss of stock

Particulars Amount (`)
Stock on the date of fire i.e. on 22nd January, 2015 7,76,300
As the value of goods salvaged was negligible, therefore Loss of stock 7,76,300

Since policy amount is less than claim amount, claim will be restricted to policy
amount only. Therefore, claim of `5,50,000 should be lodged by X Ltd. to the
insurance company.
Working Note:
Trading Account for the year ended on 31st March, 2014
Particulars ` Particulars `
To Opening Stock 9,62,200 By Sales 52,00,000
To Purchases 45,25,000 By Closing Stock 13,27,200
To Gross Profit 10,40,000
65,27,200 65,27,200
Rate of gross profit to sales = 10,40,000/52,00,000 x 100 = 20%.
(b) Significance of computerised accounting system
• The speed with which accounts can be maintained is several fold higher;
• Automatic Correct Balancing of Ledger Accounts;
• Automatic Tallied Trial balance unless some mistake is made while recording the
opening balance;
• Automatic Income Statement;
• Automatic Balance Sheet.

8. Write short notes on any three of the following: 5×3=15

(a) Objectives of Accounting
(b) Methods/Criteria to the selection and application of Accounting policies
(c) Difference between sale and consignment
(d) Criticism of the decision of Garner vs. Murray
Answer:
(a) Objectives of Accounting
The main objective of Accounting is to provide financial information to stakeholders.
This financial information is normally given via financial statements, which are
prepared on the basis of Generally Accepted Accounting Principles (GAAP). There
are various accounting standards developed by professional accounting bodies all
over the world. In India, these are governed by The Institute of Chartered Accountants

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of India, (ICAI). In the US, the American Institute of Certified Public Accountants
(AICPA) is responsible to lay down the standards. The Financial Accounting Standards
Board (FASB) is the body that sets up the International Accounting Standards. These
standards basically deal with accounting treatment of business transactions and
disclosing the same in financial statement:
The following objectives of accounting will explain the width of the application of this
knowledge stream:
(a) To ascertain the amount of profit or loss made by the business i.e. to compare the
income earned versus the expenses incurred and the net result thereof.
(b) To know the financial position of the business i.e. to assess what the business owns
and what it owes.
(c) To provide a record for compliance with statutes and laws applicable.
(d) To enable the readers to assess progress made by the business over a period of
time.
(e) To disclose information needed by different stakeholders.

(b) The major considerations governing the selection and application of accounting
policies are:
Prudence - Generally maker of financial statement has to face uncertainties at the
time of preparation of financial statement, these uncertainties may be regarding
collectability of recoverable, number of warranty claims that may occur. Prudence
means making of estimates that are required under conditions of uncertainty.
Substance over form - It means that transaction should be accounted for in
accordance with actual happening and economic reality of the transactions not by
its legal form.
Materiality - Financial Statement should disclose all the items and facts which are
sufficient enough to influence the decisions of reader or/user of financial statement.

(c) Difference between Sale and Consignment

1. In sale the property in goods is transferred to The buyer immediately whereas in
consignment the property transferred to the buyer only when goods are sold by
the consignee. The ownership of goods remains with the consignor when goods
are transferred to the consignee by the consignor.
2. In sale, the risk attaching to the goods passes with ownership to the buyer, in case
of a consignment, the risk attaching to the goods does not pass to the consignee
who acts as a mere agent. If there is any damage or loss to the goods it is borne
by the consignor provided the consignee has taken reasonable care of the
goods and the damage or loss is not due to his negligence.
3. The relationship of consignor and consignee is that of a principal and an agent as
in a contract of agency whereas the relationship of buyer and seller is governed
by the Sale of Goods Act.
4. Unsold goods on consignment are the property of the consignor and may be
returned if not saleable in the market whereas goods sold on sale basis are
normally not returnable unless there is some defect in them.

(d) Criticism of the decision of Garner vs. Murray

The following criticism may be advocated against the decisions laid down in Garner
vs. Murray principle:
(i) If any solvent partner has a debit balance in capital account, he must not bear
the deficiency of the insolvent partner;
(ii) This principle does not apply if there are only two partners;

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(iii) In spite of having a credit balance in capital account the solvent partner must
bring cash equal to the amount of loss on reasilation which is immaterial and
useless; and
(iv) If any solvent partner who possess more private asset but contributes less capital,
he will naturally, as per Garner vs. Murray decision, bear less amount of deficiency
of the insolvent partner than the other solvent partner who possess less private
assets but contributes more capital to the firm. This is not justified.

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 Suggested Answers_Syllabus 2016_Jun2017_Paper 5

INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)

SUGGESTED ANSWERS TO QUESTIONS

JUNE - 2017
Paper - 5 : FINANCIAL ACCOUNTING
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks.
Both the sections are to be answered subject to instructions given against each.
All workings must form part of your answer.

Section - A
1. Answer the following questions: 1×10=10

(a) Choose the most appropriate one from given four alternatives:
(i) Creditors ledger adjustment account is opened in
(A) General Ledger
(B) Debtors Ledger
(C) Creditors Ledger
(D) Either (B) or (C)

(ii) Receipts and Payments account is a

(A) Nominal Account
(B) Real Account
(C) Personal Account
(D) Artificial Personal Account

(iii) A resource owned by the business with purpose of using it for generating future
profit, is known as
(A) Capital
(B) Asset
(C) Liability
(D) Surplus

(iv) Outward Invoice issued is a source document of

(A) Purchase Book
(B) Sales Book
(C) Return Inward Book
(D) Return Outward Book

(v) Which of the following is of capital nature?

(A) Commission on purchases
(B) Cost of repairs
(C) Rent of factory
(D) Wages paid for installation of machinery

(vi) If any stock is taken by a co-venturer, it will be treated as

(A) an income of the joint venture.
(B) an expense of the joint venture.
(C) to be ignored from joint venture.
(D) it will be treated in the personal books of the co-venturer.

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 Suggested Answers_Syllabus 2016_Jun2017_Paper 5
(vii) Contingent liability would appear
(A) on the liability side of the Balance Sheet.
(B) on the assets side of the Balance Sheet.
(C) do not shown in the books of accounts.
(D) as a note in Balance Sheet.

(viii)Income statement of a Charitable Institution is known as

(A) Statement of profit and loss
(B) Receipts and Payments Account
(C) Income and Expenditure Account
(D) Profit and Loss Account

(ix) Which of the following account is mainly prepared at the time of dissolution of the
firm
(A) Revaluation A/c
(B) Goodwill A/c
(C) Realization A/c
(D) Memorandum Revaluation A/c

(x) Advertisement expenses are apportioned among departments in the proportion

of
(A) sales of each department
(B) purchases of each department
(C) no. of units sold by each department
(D) cost of sales of each department

(b) Match the following in Column-I with the appropriate in Column-II: 1×5=5

Column-I Column-II
(i) Garner Vs. Murray case (A) AS-10
(ii) Repossession of goods (B) Computerized Accounting System
(iii) Provision for unrealized profit (C) Insolvency of a partner
(iv) Property, Plant and Equipment (D) Royalty Accounts
(v) Automatic Financial Statements (E) Hire Vendor
(F) Inter-departmental transfer at invoice price
(G) Retirement of a Partner

(c) State whether the following statements given below are true or false: 1×5=5

(i) One of the objectives achieved by providing depreciation is saving cash

resources for future replacement of assets.
(ii) Royalty account is a real account in nature.
(iii) As per AS-7 expenses recognized in the period in which the work to which
expenses relate is performed.
(iv) Expenses incurred by branch out of petty cash balance are debited to branch
account by the head office.
(v) In absence of partnership deed the profit or loss should be distributed among
partners in their capital ratio.

(d) Fill in the blanks: 1x5=5

(i) The ___________ discount is never entered in the books of accounts.

(ii) A bill of exchange drown on 12th April, 2017 for four months, the date of maturity
will be ___________.
(iii) The parties of joint venture is called _________.
(iv) Outstanding subscription is shown in the ___________ side of Balance Sheet.

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(v) According to AS-2 inventories should be valued at lower of cost and ______ value.

Answer:

1. (a) (i) —(a)

(ii) —(b)
(iii) —(b)
(iv) —(b)
(v) —(d)
(vi) —(a)
(vii) —(d)
(viii) —(c)
(ix) —(c)
(x) —(a)

(b) (i) — (C)

(ii) — (E)
(iii) — (F)
(iv) — (A)
(v) — (B)

(c) (i) True

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

(d) (i) Trade

(ii) 14th August, 2017
(iii) Co-venturers
(iv) Assets
(v) Net realizable
Section - B
Answer any five from the following. 15×5=75
Each question carries 15 marks.

2. (a) Sunil owed Anil ` 80,000. Anil draws a bill on Sunil for that amount for 3 months on 1st
April.
Sunil accepts it and returns it to Anil. On 15th April, Anil discounts it with Citi Bank at a
discount of 12% p.a. On the due date the bill was dishonoured, the bank paid noting
charges ` 100. Anil settles the bank's claim along with noting charges in cash. Sunil
accepted another bill for 3 months for the amount due plus interest of ` 3,000 on 1st July.
Before the new bill become due, Sunil retires the bill with a rebate of ` 500. Show journal
entries in books of Anil. 9

(b) The Trial Balance of a concern has agreed but the following mistakes were
discovered after the preparation of Final Accounts. 6
(i) No adjustment entry was passed for an amount of ` 2,000 relating to outstanding
rent.
(ii) Purchase book was overcast by ` 1,000.
(iii) ` 4,000 depreciation of Machinery has been omitted to be recorded in the book.
(iv) ` 600 paid for purchase of stationary has been debited to Purchase A/c.
(v) Sales books was overcast by ` 1,000.
(vi) ` 5,000 received in respect of Book Debt had been credited to Sales A/c.

Show the effect of the above errors in Profit and Loss Account & Balance Sheet.

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Answer:

2. (a)
Journal entries in the books of Anil
Date Particulars L.F. Dr.(`) Cr. (`)
April, Bills Receivables A/c Dr. 80,000
1 To, Sunil's A/c 80,000
(Being acceptance by Sunil)
April, Bank A/c Dr. 78,000
15 Discount A/c Dr. 2,000
To, Bills Receivables A/c 80,000
(Being discounting of the bill @ 12% p.a. & discounting
charges for 2.5 months)
June, Sunil's A/c Dr. 80,100
30 To, Bank A/c 80,100
(Being dishonour of the bill & noting charges paid by bank)
June, Bank A/c Dr. 80,100
30 To, Cash A/c 80,100
(Being cash paid to bank)
July, Sunil's A/c Dr. 3,000
1 To, Interest A/c 3,000
(Being interest due from Sunil)
July, Bills Receivables A/c Dr. 83,100
1 To, Sunil's A/c 83,100
(Being new acceptance by Sunil for ` 80,100 & interest of
` 3,000)
July, Bank A/c Dr. 82,600
1 Rebate A/c Dr. 500
To, Bills Receivables A/c 83,100
(Being the amount received on retirement of the bill)

(b) Effects of the errors in Profit and Loss A/c and Balance Sheet
Profit & Loss A/c. Balance Sheet
a Profit was overstated by ` 2,000 a Capital was also overstated by ` 2,000 &
outstanding liability was understated by
2,000.
b Gross profit was under stated by b Capital was understated by ` 1,000.
` 1,000 & also the Net Profit.
c Net Profit was overstated by ` c Machinery was overstated by ` 4,000 &
4,000. so the Capital A/c was also overstated
by ` 4,000.
d No effect on Net Profit. d No effect in Balance Sheet.
e Gross Profit and Net Profit were e Capital was overstated by ` 1,000.
overstated by ` 1,000.
f Gross Profit & Net Profit were f Capital & Sundry Debtors were
overstated by ` 5,000. overstated by ` 5,000.

3. (a) Khetan Ltd. has received two lakh subscriptions during the current year under its new
scheme whereby customers are required to pay a sum of ` 4,500 for which they will
be entitled to receive a magazine for a period of 3 years. Khetan wants to treat the
entire amount as revenue for current year. Comment. 3

(b) Alex. Ltd. intends to set up a solar plant. Alex Ltd. has acquired a dilapidated factory,
having an area of 7500 acres at a cost of ` 70,000 per acre. Alex Ltd. has incurred
` 50,00,000 on demolishing the old factory building thereon. A sum of ` 43,57,500
(including 5% Sales Tax) was realized from sale of material salvaged from the site.

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Alex Ltd. also incurred Stamp Duty and Registration Charges of 5% of Land Value,
paid Legal and Consultancy Charges ` 5,00,000 for land acquisition and incurred
` 2,00,000 on Title Guarantee Insurance. Compute the value of land acquired. 6

(c) State briefly the factors which should be considered while selecting pre-packaged
accounting software. 6

Answer:

3. (a) As illustrated in AS 9 'Revenue Recognition', revenue received or billed should be

deferred and recognised either on a straight line basis over time or, where the items
delivered vary in value from period to period, revenue should be based on the sales
value of the item delivered in relation to the total sales value of all items covered by
the subscription. Accordingly, in the given case the accounting treatment adopted
by Khetan Ltd. to treat the entire amount as revenue for the current year is not in
accordance with AS 9. The revenue should be recognized on a straight line basis over
the period of 3 years.

(b)
Computation of value of land acquired
Particulars ` in lakhs
Purchase price @ ` 70,000 per acre for 7,500 acres 5,250.00
Stamp duty & registration charges @ 5% 262.50
Legal fees 5.00
Title guarantee insurance 2.00
Demolition expenses 50.00
Less: Sale of salvaged materials (net of tax) (43,57,500×100/105) 41.50 8.5
Value of land 5,528

(c) The following factors should be considered while selecting pre-packaged accounting
software:
1. Fulfillment of The purchaser should ensure whether the available software
Business Requirements meets all the business requirements.
2. Completeness of The purchaser should ensure whether the available software
Reports: can provide all the reports required by business.
3. Ease of Use The purchaser should ensure whether the available software
is easy to operate.
4. Cost The software should not involve very high installation and
running cost.
5. Reputation of the It should be ensured whether the vendor has good
vendor reputation and good track records or not.
4. Regular updates It should be ensured whether the vendor is prepared to give
updates.

4. The statement of Affairs of Mr. M on Saturday, the 31st December 2015 was as follows:
` `
Capital 50,000 Fixed Assets 30,000
Sundry Creditors 10,000 Stock 10,000
Liability for Expenses 1,000 Debtors 15,000
Bank 5,000
Cash 1,000
61,000 61,000
Mr. M did not maintain his books on the Double Entry System. But he carefully follows the
following system:
(a) Every week he draws ` 200.
(b) After meeting his weekly sundry expenses (` 100 on average) and his drawings, the

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 Suggested Answers_Syllabus 2016_Jun2017_Paper 5
balance of weekly collection is banked at the commencement of the next week.
(c) No cash purchase is made and creditors are paid by cheques.
(d) Sales are at fixed price which include 20% profit on sales.
(e) Credit sales are few and are noted in a diary. Payments are received in cheques
only from such parties.
(f) Expenses other than sundries and other special drawings are made in cheques.
(g) All unpaid bills are kept in a file carefully.
The following are his bank transactions for 13 weeks:
` `
Balance on Jan. 1 5,000 Creditors paid 40,000
Cheques deposited 2,000 Rent paid 600
Cash deposited 42,000 Expenses (other than Sundry Expenses) 3,000
Balance on April 1 5,400
49,000 49,000
After 13 weeks on 1st April (Monday) the entire cash was missing when it was to be
deposited in the bank. The following further facts are ascertained:
(a) Stock on that day was valued at ` 4,000;
(b) Sundry Debtors amounted to ` 20,000 as per diary;
(c) Sundry Creditors were ` 8,000 as per unpaid bills file. Find out the amount of cash
missing. 15
Answer:

4. (a)
Sundry Debtors Account
Dr. Cr.
Particulars ` Particulars `
To Balance b/f 15,000 By Bank 2,000
To Credit Sales (balancing figure) 7,000 " Balance c/f 20,000
22,000 22,000
Sundry Creditors Account
Dr. Cr.
Particulars ` Particulars `
To Bank 40,000 By Balance b/f 10,000
To Balance c/f 8,000 By Credit Purchases [balancing figure] 38,000
48,000 48,000
Cash Account
Dr. Cr.
Particulars ` Particulars `
To Balance b/f 1,000 By Drawings: (13 × ` 200) 2,600
" Cash Sales 48,000 Sundry Expenses: (13 × ` 100) 1,300
" Bank 42.000
Balance being cash missing 3,100
49,000 49,000
Note: Calculation of Cash Sales
Particulars `
Opening Stock 10,000
Add: Purchases 38,000
48,000
Less: Closing Stock Cost of goods sold 4,000
44,000
Add : Gross Profit @ 20% on Sales i.e., 25% on cost 11,000
Total Sales 55,000

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Less: Credit Sales 7,000
Cash Sales 48,000
5. (a) Moon purchased a machine on Hire Purchase System. The total cost price of the
machine was ` 15,00,000 payable 20% down and four annual installments of
` 4,20,000, ` 3,90,000, ` 3,60,000 and ` 3,30,000 at the end of the 1st year, 2nd year,
3rd year and 4th year respectively. Calculate the interest included in each year's
installment assuming that the sales were made at the beginning of the year. 8
(b) Ram trader's godown caught fire on 29th August, 2016, and a large part of the stock of
goods was destroyed. However, goods costing ` 54,000 could be salvaged incurring
fire fighting expenses amounting to ` 2,350.

The trader provides you the following additional information:

`
Cost of stock on 1st April, 2015 3,55,250
Cost of stock on 31st March, 2016 3,95,050
Purchases during the year ended 31st March, 2016 28,39,800
Purchases from 1st April, 2016 to the date of fire 16,55,350
Cost of goods distributed as samples for advertising from 1st April, 2016 to 20,500
the date of fire
Cost of goods withdrawn by trader for personal use form 1st April, 2016 to 1,000
the date of fire
Sales for the year ended 31st March, 2016 40,00,000
Sales from 1st April, 2016 to the date of fire 22,68,000

The insurance company also admitted fire fighting expenses. The trader had taken
the fire insurance policy for ` 4,50,000 with an average clause.
Calculate the amount of the claim that will be admitted by the insurance company. 7

Answer:

5. (a) Calculation of Interest for each year:

Interest for 1st year ` 3,00,000 x 150/360 = ` 1,25,000
Interest for 2 year
nd ` 3,00,000 x 108/360 = ` 90,000
Interest for 3rd year ` 3,00,000 x 69/360 = ` 57,500
Interest for 4th year ` 3,00,000 x 33/360 = ` 27,500
` 3,00,000

Working Notes:
1. Hire Purchase Price = Down Payment + Installments
= ` 3,00,000+(` 4,20,000 + ` 3,9,0,000 + ` 3,60,000 + ` 3,30,000) = 18,00,000
2. Total Interest = H.P. Price - Cash Price
= 18,00,000 - ` 15,00,000 = ` 3,00,000
3. Calculation of ratio of hire purchase price outstanding in the beginning of each
year
A B C D = B-C
Year Outstanding Hire Purchase Price Installment Outstanding Hire Purchase Price
in the beginning of each year Paid at the end of each year
1 15,00,000 4,20,000 10,80,000
II 10,80,000 3,90,000 6,90,000
III 6,90,000 3,60,000 3,30,000
IV 3,30,000 3,30,000 Nil
Ratio of Outstanding Hire Purchase Price at the beginning of year = 150:108:69:33

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 Suggested Answers_Syllabus 2016_Jun2017_Paper 5
(b)
Memorandum Trading Account for the period 1st April, 2016 to 29th August 2016
Particulars ` ` Particulars `
To Opening Stock 3,95,050 By Sales 22,68,000
To Purchases 16,55,350 By Closing stock (Bal. fig.) 4,41,300
Less: Advertisement (20,500)
Drawings (1,000) 16,33,850
To Gross Profit [30% of Sales][WN] 6,80,400
27,09,300 27,09,300

Statement of Insurance Claim

Particulars `
Value of stock destroyed by fire 4,41,300
Less: Salvaged Stock (54,000)
Add: Fire Fighting Expenses 2,350
Insurance Claim 3,89,650

Note: Since policy amount is more than claim amount, average clause will not apply
Therefore, claim amount of ` 3,89,650 will be admitted by the Insurance Company.

Working Note:
Trading Account for the year ended 31st March, 2016
` `
To Opening Stock 3,55,250 By Sales 40,00,000
To Purchases 28,39,800 By Closing stock 3,95,050
To Gross Profit 12,00,000
43,95,050 43,95,050
Gross Profit
Rate of Gross Profit in 2015-16 = ×100 = 12,00,000/40,00,000 × 100 = 30%.
Sales

6. P, Q and R sharing profits and losses equally, had been trading for many years. R decided
to retire on 31.3.2017 on which date Balance Sheet of the firm is as follows.

` `
Capital accounts: P 1,20,000 Cash 36,000
Q 85,000 Debtors 74,000
R 75,000 Stock 60,000
Creditors 85,000 Plant and Machinery 1,20,000
Land and Building 75,000
3,65,000 3,65,000

Value of goodwill was agreed as `93,000. Land and building increased in value, it being
agreed at `1,05,600, plant and machinery was revalued at `1,00,500 and it was agreed to
provide 6% in respect of debtors. Prepare revaluation account, capital accounts and
balance sheet. 5+5+5=15

Answer:

6.
Revaluation Account
Dr. Cr.
Particulars ` Particulars `
To Depreciation on plant & machinery 19,500 By Land & building 30,600
To Provision for bad and doubtful debts 4,440
To Profit-P 2,220

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Profit-Q 2,220
Profit-R 2,220
30,600 30,600

Capital Accounts
Dr. Cr.
Particulars P (`) Q (`) R (`) Particulars P (`) Q (`) R (`)
To R's loan 1,08,220 By Balance b/d 1,20,000 85,000 75,000
Balance c/d 1,53,220 1,18,220 By Revaluation a/c 2,220 2,220 2,220
By Goodwill 31,000 31,000 31,000
1,53,220 1,18,220 1,08,220 1,53,220 1,18,220 1,08,220

Balance Sheet
Liabilities ` Assets `
Creditors 85,000 Cash 36,000
R’s Loan 1,08,220 Debtors [74,000 -4,440] 69,560
Capital : P 1,53,220 Stock 60,000
Q 1,18,220 Plant and machinery 1,00,500
Land and building 1,05,600
Goodwill 93,000
4,64,660 4,64,660

7. (a) Prepare a Branch account in the books of Head Office from the following particulars
for the year ended 31st March, 2017 assuming that H.O. supplied goods at cost plus
25%.
Particulars Amount Particulars Amount
(`) (`)
Stock on 1.4.2016 (LP.) 12,500 Bad Debts 2,000
Debtors „ 5,000 Allowances to customers 1,000
Petty Cash „ 1,000 Returns Inwards 1,000
Goods sent to branch (LP.) 40,000 Cheques sent to Branch for expenses:
Goods return to H.O. (LP.) 5,000 Rates & Taxes 3,000
Cash Sales 12,000 Salaries 8,000
Cash received from debtors 30,000 Misc. Exps. 1,000
Stock on 31.03.2017 (LP.) 15,000
Debtors „ 4,000
Petty Cash „ 1,000
9

(b) The following information is available in the books of N.R. & Sons, for the year ending
31st March 2017:
(i) Total Sales amounted to ` 24,43,000 including the sale of old machinery for `
25,000 (book value is ` 43,000). The total cash sales were 70% less than total credit
sales.
(ii) Cash collection from Debtors amounted to 70% of the aggregated of the opening
Debtors and Credit sales for the period. Discount allowed to them amounted to `
15,700.
(iii) Bills receivable drawn during the period totaled ` 84,000 of which bills amounting
to ` 45,000 were endorsed in favour of suppliers. Out of these endorsed bills, a Bill
receivable for ` 17,600 was dishonoured for non-payment, as the party became
insolvent and his estate realized nothing.
(iv) Cheques received from customers ` 50,000 were dishonoured; a sum of ` 4,500 is
irrecoverable.
(v) Bad Debts written-off in the earlier year realized ` 2,500.

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(vi) Interest charged to customers ` 9,800.
(vii)Sundry debtors on 1st April, 2016 stood at ` 2,45,000.
You are required to show the General Ledger Adjustment Account in the Debtors
Ledger. 6

Answer:

7. (a)
In the books of H.O.
Branch Account
Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
(`) (`) (`) (`)
By Balance b/d By Stock Reserve (Loading) 2,500
Stock 12,500 ― Bank A/c:
Debtors 5,000 ― Cash Sales 12,000
Petty Cash 1,000 18,500 ― Cash Received from 30,000 42,000
Debtors
Goods sent to branch 40,000 ― Goods sent to branch 5,000
A/c (Return to H.O.)
Bank A/c ― Goods sent to branch 8,000
(Loading)
Rates & taxes 3,000 By Balance c/d
Salaries 8,000 Stock 15,000
Misc. Expenses 1,000 12,000 Debtors 4,000
Goods sent to Branch 1,000 Petty Cash 1,000 20,000
(Loading on returns)
Closing Stock Reserve 3,000
1
(` 15,000 × )
5
General P & L A/c 3,000
77,500 77,500
25 1
Note: Here loading is = of invoice price. Hence, loading on opening stock will
125 5
1
be ` 12.500 × = ` 2,500 and so on.
5
(b)
In the Debtors Ledger
General Ledger Adjustment Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
31.3.17 To Sales Ledger Adj. A/c 1.4.16 By Balance b/d 2,45,000
in General Ledger
Cash 14,73,500 31.317 By Sales Ledger Adj.
A/c in General Ledger
Discount Allowed 15,700 Sales 18,60,000
B/R 84,000 B/R Disohnoured 17,600
Bad Debts (17,600+4,500) 22,100 Cheque Dishonoured 50,000
31.3.17 To Balance c/d 5,87,100 Interest Charged 9,800
21,82,400 21,82,400

Workings:
1. Calculation of Credit Sales
Cash Sales were 70% less than Credit Sales. So, if credit sales are ` 100 Cash Sales

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will be ` 30;
Total Sales (Cash + Credit) will be ` 130. Total Sales (`24,43,000 – ` 25,000) =
`24,18,000
Amount of Credit sales will be = 24,18,000 × (100/130) = 18,60,000.
2. Cash received
Cash received is 70% of opening Debtors plus Credit sales i.e. `2,45,000 +
`18,60,000 = ` 21,05,000, Cash Received ` 21,05,000 × (70/100) = ` 14,73,500.

8. Write short notes on any three of the following: 5×3=15

(a) The Accrual Concept
(b) Weaknesses of Single Entry System
(c) Advantages of Accounting Standard
(d) Treatment of Abnormal Loss in case of Consignment Account.

Answer:

8. (a) The Accrual Concept

The accrual concept is based on recognition of both cash and credit transactions. In
case of a cash transaction, owner's equity is instantly affected as cash either is
received or paid. In a credit transaction, however, a mere obligation towards or by
the business is created. When credit transactions exist (which is generally the case),
revenues are not the same as cash receipts and expenses are not same as cash paid
during the period.
When goods are sold on credit as per normally accepted trade practices, the
business gets the legal right to claim the money from the customer. Acquiring such
right to claim the consideration for sale of goods or services is called accrual of
revenue. The actual collection of money from customer could be at a later date.

Similarly, when the business procures goods or services with the agreement that the
payment will be made at a future date, it does not mean that the expense effect
should not be recognized. Because an obligation to pay for goods or services is
created upon the procurement thereof, the expense effect also must be recognized.

Today's accounting systems based on accrual concept are called as Accrual System
or Mercantile System of Accounting.

(b) Weakness of single entry system

(i) As principle of double entry is not followed, the trial balance cannot be prepared.
As such, arithmetical accuracy cannot be guaranteed.
(ii) Profit or loss can be found out only by estimates as nominal accounts are not
maintained.
(iii) It is not possible to make a balance sheet in absence of real accounts, d] It is very
difficult to detect frauds or errors.
(iv) Valuation of assets and liabilities is not proper.
(v) The external agencies like banks cannot use financial information. A bank cannot
decide whether to lend money or not.
(vi) It is quite likely that the business and personal transactions of the proprietor get
mixed.

(c) Advantages of Accounting Standard

(i) If provides the accountancy profession with useful working rules.
(ii) It assists in improving quality of work performed by accountant.
(iii) It strengthens the accountant's resistance against the pressure from directors to
use accounting policy which may be suspected in that situation in which they
perform their work.
(iv) It ensures the various users of financial statements to get complete crystal
information on more consistent basis from period to period.

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(v) It helps the users compare the financial statements of two or more organisaitons
engaged in same type of business operation.

(d) Abnormal Losses- Abnormal Losses arises as a result of negligence/accident etc.,

e.g., theft, fire etc. Before ascertaining the result of the consignment, value of
abnormal loss should be adjusted. The method of calculation is similar to the method
of calculating unsold stock. Sometimes insurance company admits the claim in part
or in full. The same should also be adjusted against such abnormal loss.
While valuing the abnormal loss the proportionate expenses are taken only upto the
stage of the loss. For example, if goods are lost in the transit on way to the
consignee's place, the value of abnormal loss will include the basic cost of the goods
plus proportionate expenses of the consignor only and not the proportionate
expenses of consignee because consignee has spent nothing on account of these
goods.
Treatment of Abnormal Loss

(i) For abnormal Loss -

Abnormal Loss A/c Dr
To Consignment A/c

(ii) For the insurance claim due / received by the consignor -

Insurance Co./Bank A/c Dr
To Abnormal Loss A/c

(iii) If goods are not insured -

Profit & Loss A/c Dr
To Abnormal Loss A/c

(iv) For transferring the net loss -

Profit & Loss A/c Dr
To Abnormal Loss A/c

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