PAPER – 1:

ACCOUNTING

QUESTIONS

True and False

1. State with reasons, whether the following statements are true or false:
(i) The debit notes issued are used to prepare sales return book.
(ii) Sale of office furniture should be credited to Profit and Loss
Account.
(iii) Outstanding salaries for the previous year shall be shown as
liability in the current year balance sheet.
(iv) When closing inventory is overstated, net income for the
accounting period will be understated.
(v) The results and position disclosed by final accounts are not exact.
(vi) In case of a public holiday, the due date of the bill falls on the next
working day.
(vii) Goodwill is intangible asset therefore it cannot be valued
(viii) Where a Non-Profit organization is a separate trading activity, the
profit / loss from the trading account shall be transferred to
Income Expenditure Account at the time of consolidation.
(ix) The firm will receive surrender value of the joint life policy on the
death of the partner.
(x) Company X Ltd. is incurring huge losses; the Board of Directors are
of the opinion that in case of losses, there is no need to pay
interest to debenture holders.

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Theoretical Framework
2. (a) Distinguish between fundamental accounting assumption and
accounting policies.
(b) Change in accounting policy may have a material effect on the
items of financial statements.” Explain the statement with the help
of an example.
Journal Entries
3. (a) Pass a journal entry in each of the following cases:
(i) A running business was purchased by Mohan with following
assets and liabilities:
Cash ` 20,000, Land ` 40,000, Furniture ` 10,000, Stock
` 20,000, Creditors ` 10,000, Bank Overdraft ` 20,000.
(ii) Sold goods to Gagandeep for ` 1,00,000 at trade discount of
20% and charged IGST @12%
(iii) Goods distributed by way of free samples, ` 10,000.
(iv) goods of list price ` 40,000 returned by Gagandeep.
(v) Kuldeep became an insolvent and could pay only 50 paise in
a rupee. Amount due from him ` 6,000.
Capital or Revenue Expenditure
(b) Classify the following expenditures as capital or revenue
expenditure/receipt:
(i) An extension of railway tracks in the factory area.
(ii) Amount spent on painting the factory.
(iii) Payment of wages for building a new office extension
(iv) Premium received on issue of shares
(v) Rings and Pistons of an engine were changed to get full
efficiency.
(vi) Legal fees paid to acquire a property

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Subsidiary Books
4. (a) Prepare Sales Book of M/s. Alpha of Kanpur for March, 2024
Mar. 5 Sold to M/s. ABC 10 pieces of Chairs @ `5,000/- each
less Trade Discount 5%.
Mar.12 Sold to M/s. PQR 25 pieces of Tables @`2,000/- each
less Trade Discount 10%.
Mar.18 Sold to M/s. MTB 5 pieces of Recliner Chairs @ `11000/-
each less Trade Discount 10%. Payment received through cash.
Mar.28 Sold to M/s. LMS 50 pieces of cupboards @ `10,000/-
each less Trade Discount 20%.
Rectification of Errors
(b) Mr. Satvik was unable to agree the Trial Balance last year and
wrote off the difference to the Profit and Loss Account of that
year. Next year, he appointed a Chartered Accountant who
examined the old books and found the following mistakes:
(i) Purchase of a scooter was debited to conveyance account
` 30,000. Mr. Ratan charges 10% depreciation on scooter.
(ii) The total of return inward book for July, 2024 ` 12,400 was
not posted to the ledger.
(iii) A credit purchase of goods from Mr. X for ` 20,000 was
entered as sale.
(iv) Receipt of cash from Mr. Preetish was posted to the account
of Mr. Ravish ` 10,000.
(v) Receipt of cash from Mr. Chandu was posted to the debit of
his account, ` 5,000.
(vi) While carrying forward the total in the Purchases Account to
the next Page ` 65,950 was written instead of ` 55,950.
(vii) Sale of goods to Mr. Rohan for ` 20,000 was omitted to be
recorded.

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(viii) Freight paid on a machine ` 5,600 was posted to the freight

Account as ` 6,500.
Pass the necessary rectification entries.
Bank Reconciliation Statement
5. From the following particulars of M/s Iqbal enterprises, prepare a Bank
reconciliation statement:
(1) Bank overdraft as per Pass Book as on 31st March, 2024 was
` 8,800
(2) Cheques deposited in Bank for ` 5,800 but only ` 2,000 were
cleared till 31st March.
(3) Cheques issued were ` 2,500, ` 3,800 and ` 2,000 during the
month. The cheque of ` 5,800 is still with supplier.
(4) Dividend collected by Bank ` 1,250 was wrongly entered as ` 1,520
in Cash Book.
(5) Corporation tax ` 1,200 paid by Bank as per standing instruction
appears in Pass Book only.
(6) Interest on overdraft ` 930 was debited by Bank in Pass Book and
the information was received only on 3rd April 2024.
(7) Direct deposit by M/s Rajesh Trader ` 400 not entered in Cash
Book.
(8) Amount transferred from fixed deposit A/c into the current A/c
` 2,000 appeared only in Pass Book.
Valuation of Inventories
6. (a) The following are the details of material inventory bought and
used by manufacturing company:

Date Particulars Unit and Rate

1.10.24 Balance opening inventory NIL

1.10.24 Material bought 200 unit, `60 per unit

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2.10.24 Issued for use 100 unit

3.10.24 Material bought 400 unit, `80 per unit

4.10.24 Issued for use 200 unit

7.10.24 Issued for use 200 unit

You are required to calculate the value of inventory material as on

7.10.24 by applying weighted average method.
(b) From the following information, calculate the historical cost of
closing inventories using adjusted selling price method:
Purchase during the year - ` 10,00,000
Sales during the year - ` 15,00,000
Opening Inventory Nil
Closing Inventory at selling price ` 2,00,000
Depreciation and Amortisation
7. M/s. Deep lakshmi purchased a second-hand machine on 1st April, 2020
for ` 1,60,000. Overhauling and erection charges amounted to ` 40,000.
Another machine was purchased for ` 80,000 on 1 st Oct, 2020.
On 1st Oct, 2022, the machine installed on 1st April, 2020 was sold for
` 1,00,000. Another machine for `30,000 was purchased and was
installed on 31 st December, 2022.
Under the existing practice the company provides depreciation @ 10%
p.a. on original cost. However, from 1 st April,2023 it decided to adopt
WDV method and to charge depreciation @ 15% p.a. You are required
to prepare Machinery account for the years 2020 to 2024.
Bills of Exchange
8. On 1st April,2024, X sells goods to Y for `25,000 plus IGST@ 18% and
draws two bills of exchange on him; the first bill for `15,000 for 2
months and second bill for the balance for 3 months. Y accepts and
returns these bills to X. Both the bills are sent to the bank for collection

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on 1st April,2024. In due course, X receives the information from the

bank on the due date of the respective bill that the bill for `15,000 has
been duly met and the other bill has been dishonored. Noting charges
paid on the dishonour of second bill are `500. Pass the journal entries
along with narrations in the books of X.
Final accounts and Rectification of entries
9. On 31st March, 2024 the trial balance of Mr. Robin was as follows:

Particulars Debit Particulars Credit

(`) (`)
Stock on 1/4/2023 Sundry Creditors 4,50,000
Raw Materials 6,30,000 Bills Payables 2,25,000
Work-in-Progress 2,85,000 Sale of scrap 75,000
Finished Goods 4,65,000 Commission received 13,500
Sundry Debtors 7,20,000 Provision for doubtful 49,500
debts
Carriages on Purchase 45,000 Capital account 30,00,000
Bills Receivables 4,50,000 Sales 50,16,000
Wages 3,90,000 Bank overdraft 2,55,000
Salaries 3,00,000
Telephone and Internet 30,000
Charges
Repairs to office 10,500
furniture
Cash at Bank 5,10,000
Office Furniture 3,00,000
Repairs to Plant 33,000
Purchases 25,50,000
Plant and Machinery 21,00,000
Rent 1,80,000
Lighting 40,500
General Expenses 45,000
90,84,000 90,84,000

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The following additional information is available:

Stocks on 31st March,2024 were:

Raw material ` 4,86,000

Finished goods ` 5,43,000

Work-in-progress ` 2,34,000

Salaries and wages unpaid for the year ended 31 st March,2024 were
respectively, ` 27,000 and ` 60,000. Machinery is to be depreciated by
10% and office furniture by 7½%. A provision for doubtful debts is to be
maintained @1% of sales. Rent is to be charged as to 3/4 to factory and
1/4 to office. Lighting is to be charged as to 2/3 to factory and 1/3 to
office.
Prepare the Manufacturing Account, Trading Account and Profit and
Loss Account for the year ended on 31 st March,2024.
Financial Statements of Not for Profit Organizations
10. The following is the Receipts and payments account of Masters Club for
the year ended on 31st March, 2024
Receipts and payments A/c for the year ended on 31st march 2024

Receipts Amount Payments Amount

(`) (`)
To balance b/d 8,450 By Salaries and wages 12,250
To Subscription 23,000 By Supply of 18,250
To Sale of refreshments 22,000 refreshment 27,500
To Entrance fees 26,000 By Sports equipment 2,800
By Telephone Charges
To interest on 4,550 By Electricity charges 15,600
investments @ 7%
By Honorarium charges 6,500
By balance c/d 1,100
84,000 84,000

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Additional information:
1. Following are the assets and liabilities on 31 st March, 2023:
Assets- Sports equipment- ` 32,000; Subscription in arrears-
` 7,600; furniture- ` 12,480
Liabilities- Outstanding Electricity charges- ` 5,400; Subscription in
advance- ` 6,250
2. Following are the assets and liabilities on 31 st March, 2024-
Assets- Sports equipment- ` 50,500; Subscription in arrears-
` 5,200; furniture- ` 11,180
Liabilities- Outstanding Electricity charges- ` 3,800; Subscription in
advance- ` 4,850
3. 50% of the entrance fees to be capitalized.
4. Interest on the investments is being received in full, and the
investments have been made on 1.4.2022
You are required to prepare Income and Expenditure account and the
Closing balance sheet as of 31st March 2024 in the books of Masters
Club.
Accounts from Incomplete Records
11. Following is the incomplete information of Moonlight Traders:
The following balances are available as on 31.03.2023 and 31.03.2024.

Balances 31.03.2023 31.03.2024

Land 5,00,000 5,00,000
Plant and Machinery 2,20,000 3,30,000
Office equipment 1,05,000 85,000
Debtors ? 2,25,000
Creditors for purchases 95,000 ?
Creditors for office expenses 20,000 15,000
Stock ? 65,000

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Long term loan from FBI @ 12%. 1,60,000 100,000

Bank 25,000 ?

Other Information In `
Collection from debtors 9,25,000
Payment to creditors for purchases 5,25,000
Payment of office expenses (excluding interest on loan) 42,000
Salary paid 32,000
Selling expenses 15,000
Cash sales 2,50,000
Credit sales (80% of total sales)
Credit purchases 5,40,000
Cash purchases (40% of total purchases)
GP Margin at cost plus 25%
Discount Allowed 5,500
Discount Received 4,500
Depreciation to be provided as follows:
Plant and Machinery 10%
Office Equipment 15%

Other adjustments:
(i) On 01.10.23 they sold machine having Book Value ` 40,000 (as on
31.03.2023) at a loss of ` 15,000. New machine was purchased on
01.01.2024.
(ii) Office equipment was sold at its book value on 01.04.2023.
(iii) Loan was partly repaid on 31.03.24 together with interest for the
year.
You are required to prepare Trading, Profit & Loss Account and Balance
Sheet as on 31.03.2024.

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Partnership Accounts
Profit and Loss Appropriation Account
12. (a) Akbar and Bali are partners in a firm sharing profits and losses
equally. On 1st April, 2023 the balance of their Capital Accounts
were : Akbar ` 50,000 and Bali ` 40,000. On that date the balances
of their Current Accounts were: Akbar ` 10,000 (credit) and Bali
` 3,000 (debit). Interest @ 5% p.a. is to be allowed on the balance
of Capital Accounts as on 1.4.2023. Bali is to get annual salary of
` 3,000 which had not been withdrawn. Drawings of Akbar and Bali
during the year were ` 1,000 and ` 2,000 respectively. The profit
for the year ended 31st March, 2024 before charging interest on
capital but after charging Bali salary was ` 70,000. It is decided to
transfer 10% of divisible profit to a Reserve Account. Prepare Profit
& Loss Appropriation Account for the year ended 31st March, 2024
and show Capital and Current Accounts of the Partners for the
year.
Calculation of goodwill
(b) The following information given below:
(i) Total Assets `10,00,000
(ii) External Liabilities `1,80,000
(iii) Normal Rate of Return 10%
(iv) Average Net Profit of last five years `1,00,000
You are required to calculate goodwill by applying:
(i) Capitalization Method and
(ii) 3 year’s purchase of super profits.
Admission and Retirement of Partner
13. Acme & Co. is a partnership firm with partners Mr. X, Mr. Y and Mr. Z,
sharing profits and losses in the ratio of 10:6:4. The balance sheet of the
firm as at 31st March, 2024 is as under:

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Liabilities ` Assets `
Capitals: Land 30,000
Mr. X 2,40,000 Buildings 6,00,000
Mr. Y 60,000 Plant and 3,90,000
machinery
Mr. Z 90,000 3,90,000 Furniture 1,29,000
Reserves Investments 36,000
(un-appropriated 60,000 Inventories 3,90,000
profit)
Long Term Debt 9,00,000 Trade receivables 4,17,000
Bank Overdraft 1,32,000
Trade payables 5,10,000
19,92,000 19,92,000

It was mutually agreed that Mr. Y will retire from partnership and in his
place Mr. P will be admitted as a partner with effect from 1 st April, 2024.
For this purpose, the following adjustments are to be made:
(a) Goodwill is to be valued at `3 lakh but the same will not appear as
an asset in the books of the reconstituted firm.
(b) Buildings and plant and machinery are to be depreciated by 5%
and 20% respectively. Investments are to be taken over by the
retiring partner at ` 45,000. Provision of 20% is to be made on
Trade receivables to cover doubtful debts.
(c) In the reconstituted firm, the total capital will be ` 6 lakhs which
will be contributed by Mr. X, Mr. Z and Mr. P in their new profit
sharing ratio, which is 2:2:1.
(i) The surplus funds, if any, will be used for repaying bank
overdraft.
(ii) The amount due to retiring partner shall be transferred to his
loan account.

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You are required to prepare

(a) Revaluation account;
(b) Partners capital accounts;
(c) Bank account; and
(d) Balance sheet of the reconstituted firm as on 1st April, 2024.
Dissolution of Partnership
14. Neptune, Jupiter, Venus and Pluto had been carrying on business in
partnership sharing profits and losses in the ratio of 3 : 2 : 1 : 1. They
decide to dissolve the partnership on the basis of the following Balance
Sheet as on 30th April, 2024:

Liabilities ` ` Assets ` `
Capital Account: Premises 1,20,000
Neptune 1,00,000 Furniture 40,000
Jupiter 60,000 1,60,000 Stock 1,00,000
General Reserve 56,000 Debtors 40,000
Capital Reserve 14,000 Bank 8,000
Sundry 20,000 Capital
Creditors Overdrawn:
Mortgage Loan 80,000 Venus 10,000
Pluto 12,000 22,000
3,30,000 3,30,000

(i) The assets were realised as under:

`
Debtors 24,000
Stock 60,000
Furniture 16,000
Premises 90,000
(ii) Expenses of dissolution amounted to ` 4,000.
(iii) Further creditors of ` 12,000 had to be met.

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(iv) General Reserve unlike Capital Reserve was built up by

appropriation of profits.
You are required to draw up the Realisation Account, Partners’ Capital
Accounts and the Bank Account assuming that Venus became insolvent
and nothing was realised from his private estate. Apply the principles
laid down in Garner vs Murray.
Issue and Forfeiture of Shares
15. Kunal Fortune Ltd invited applications for issuing 30,000 Equity Shares of
` 10 each. The amount was payable as follows:
(i) On Application ` 1 per share
(ii) On Allotment ` 2 per share
(iii) On First call ` 3 per share
(iv) On Second and final Call ` 4 per share
The issue was fully subscribed. Arun to whom 300 shares were allotted,
failed to pay the allotment money and his shares were forfeited
immediately after the allotment. Ajeet to whom 450 shares were
allotted, failed to pay the first call. His shares were also forfeited after
the first call. Afterwards the second and final call was made. Mohan to
whom 150 shares were allotted failed to pay the second and final call.
His shares were also forfeited. All the forfeited shares were re-issued at
` 9 per share fully paid-up.
Pass necessary Journal entries in the books of Kunal Fortune Ltd.
Bonus Issue and Redemption of Preference Shares
16. The following is the summarized Balance Sheet of Trinity Ltd. as at
31.3. 2023:

Liabilities ` Assets `
Share Capital Fixed Assets 3,00,000
Authorised Less:Dep 1,00,000 2,00,000
10,000 10% Redeemable Investments 1,00,000
Preference

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Shares of ` 10 each 1,00,000

90,000 Equity Shares of 9,00,000
`10 each
10,00,000
Issued, Subscribed and Current Assets and
Paid-up Capital Loans and Advances
10,000 10% Redeemable Inventory 45,000
Preference
Shares of ` 10 each 1,00,000 Trade receivables 25,000
10,000 Equity Shares of 1,00,000 Cash and Bank 50,000
` 10 each Balances
(A) 2,00,000
Reserves and Surplus
General Reserve 1,20,000
Securities Premium 70,000
Profit and Loss A/c 18,500
(B) 2,08,500
Current Liabilities and 11,500
Provisions (C)
Total (A + B + C) 4,20,000 Total 4,20,000

For the year ended 31.3. 2024, the company made a net profit of `
35,000 after providing ` 20,000 depreciation.
The following additional information is available with regard to
company’s operation :
1. The preference dividend for the year ended 31.3. 2024 was paid.
2. Except cash and bank balances other current assets and current
liabilities as on 31.3. 2024, was the same as on 31.3.2023.
3. The company redeemed the preference shares at a premium of
10%.

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4. The company issued bonus shares in the ratio of two share for
every equity share held as on 31.3.2024.
5. To meet the cash requirements of redemption, the company sold
investments.
6. Investments were sold at 90% of cost on 31.3.2024.
You are required to prepare necessary journal entries to record
redemption and issue of bonus shares.
Issue of Debentures
17. On 1st April 2023, Globex Ltd. took over assets of `9,00,000 and
liabilities of 1,20,000 of Himalayan Ltd. for the purchase consideration of
` 8,80,000. It paid the purchase consideration by issuing 8% debenture
of ` 100 each at 10% premium on same date. XY Ltd. issued another
6000, 8% debenture of ` 100 at discount of 10% redeemable at premium
of 5% after 5 years. According to the terms of the issue ` 30 is payable
on application and the balance on the allotment on debentures. It has
been decided to write off the entire loss on issue of discount in the
current year itself.
You are required to pass the journal entries in the books of XY Ltd. for
the financial year 2023-24
18. Write short notes on:
(i) Going Concern concept.
(ii) Objective of Accounting Standards.
(iii) Retirement of bills of exchange.
(iv) Importance of bank reconciliation to an industrial unit.

SUGGESTED ANSWERS/HINTS

1. (i) False: The debit notes issued are used to prepare purchases return
book.

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(ii) False: Sale of office furniture should be credited to Furniture

account since it is a capital receipt.
(iii) False: It shall be disclosed as a current liability in the opening
balance sheet.
(iv) False: When closing inventory is overstated, net income for the
accounting period will be overstated.
(v) True: They are prepared on the basis of assumptions, conventions,
concepts and personal judgements of the person who prepare
them.
(vi) False: In case of a public holiday, the due date of the bill falls on
the preceding working day.
(vii) False: Even though Goodwill is intangible asset it can be valued in
terms of money. It can be measured in terms of physical units.
(viii) True: Where in case of the trading activities for Non-Profit
organization, the profit/loss from such activity is to be
transferred to the Income and Expenditure Account at the time
of consolidation.
(ix) False: the firm will receive full value of sum assured of the joint
life policy on the death of the partner
(x) False: Even if the company incurs losses, it has to pay interest
on debentures. Debenture being debts on the company &
debenture holders are not concerned with the profit or loss of
the company, the interest is to be paid at the rate fixed on it at
the time of issue of debenture.
2. (a)

Fundamental Accounting Accounting Policies

Assumption
There are three fundamental There is no single list of
accounting assumptions viz. accounting policies which
Going Concern, Consistency and are applied in all
Accrual. circumstances. As a result,
there may be different

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accounting policies adopted

by different enterprises.
No disclosures is required if all Disclosure is required if a
the fundamental assumptions particular accounting policy
have been followed. has been followed.
If fundamental accounting If the policy is changed in
assumption is not followed, it is to subsequent year, the effect
be disclosed in the financial of such change should be
statements together with the disclosed in the financial
reasons. statements.
There is no option to choose The firm has an option to
fundamental accounting select a particular policy.
assumptions.

(b) Change in accounting policy may have a material effect on the

items of financial statements. For example, cost formula used for
inventory valuation is changed from weighted average to FIFO.
Unless the effect of such change in accounting policy is quantified,
the financial statements may not help the users of accounts.
3. (a)
` `
(i) Cash A/c Dr. 20,000
Land A/c Dr. 40,000
Furniture A/c Dr. 10,000
Stock A/c Dr. 20,000
To Creditors 10,000
To Bank overdraft 20,000
To Capital A/c 60,000
(Being commencement of business by
Mohan by taking over a running
business).

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(ii) Gagandeep’s A/c Dr. 89,600

To Sales A/c 80,000
To Output GST A/c 9,600
(being goods sold to Gagandeep at
trade discount of 20% and charged
IGST @12%)
(iii) Advertisement Expenses A/c Dr. 10,000
To Purchases A/c 10,000
(Being goods distributed as free
sample)
(iv) Sales Return A/c Dr. 32,000
Output IGST A/c Dr. 3,840
To Gagandeep A/c 35,840
(Being goods returned by Gagandeep
and output IGST charged at the time
of sales now reversed)
(v) Cash A/c Dr. 3,000
Bad Debts A/c Dr. 3,000
To Kuldeep 6,000
(Being Kuldeep become insolvent)

(b) (i) Expenses incurred for extension of railway tracks in the

factory area should be treated as a Capital Expenditure
because it will yield benefit for more than one accounting
period.
(ii) Painting of the factory should be treated as a Revenue
Expenditure because it has been incurred to maintain the
factory building.
(iii) Payment of wages for building a new office extension should
be treated as a Capital Expenditure.
(iv) Premium received on issue of shares is an example of capital
receipt.

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(v) Expenditure incurred for changing Rings and Pistons of an

engine is a Revenue Expenditure because, the change of
rings and piston will restore the efficiency of the engine only
and it will not add anything to the capacity of the engine.
(vi) Legal fees paid to acquire a property is a part of the cost of
that property. Hence, it is taken as capital expenditure.
4. (a) Sales book of M/s. Alpha for March ’24

Date Particulars Gross Trade Net

Amount Discount Amount
(`) (`) (`)
2024
March
5 M/s. ABC 10 pieces of 50,000 2,500 47,500
Chairs @ ` 5,000/- each
less Trade Discount 5%
12 M/s. PQR 25 pieces of 50,000 5,000 45,000
Tables @ ` 2,000/- each
less Trade Discount
10%
28 M/s. LMS 50 pieces of 5,00,000 1,00,000 4,00,000
cupboards @` 10,000/-
each less Trade
Discount 20%.
Total 6,00,000 1,07,500 4,92,500

Note : Transaction dated : 18 March will not be recorded in sales

book being cash transaction

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(b)

Date Particulars Dr. Cr.

` `
(1) Scooter A/c Dr. 27,000
To Profit and Loss 27,000
Adjustment A/c
(Purchase of scooter wrongly
debited to conveyance account
now rectified-capitalization of
` 27,000, i.e., `30,000 less 10%
depreciation)
(2) Profit & Loss adjustment A/c Dr. 12,400
To suspense A/c 12,400
(Total of return inward book for
July, 2024 omitted to be
recorded now rectified).
(3) Profit & Loss Adjustment A/c Dr. 40,000
To X’s A/c 40,000
(Credit purchase from X
`20,000, entered as sales last
year, now rectified)
(4) Ravish’s A/c Dr. 10,000
To Preetish’s A/c 10,000
(Amount received from
Mr. Preetish wrongly posted to
the account of Mr. Ravish; now
rectified)
(5) Suspense A/c Dr. 10,000
To Chandu’s A/c 10,000
(` 5,000 received from Chandu
wrongly debited to his account;
now rectified)

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(6) Suspense A/c Dr. 10,000

To Profit & Loss 10,000
Adjustment A/c
(Carry forward of total of
purchase a/c to next page
65,950 instead of 55,950 now
rectified)
(7) Rohan’s A/c Dr. 20,000
To Profit & Loss 20,000
Adjustment A/c
(Sales to Rohan omitted last
year; now adjusted)
(8) Machinery A/c Dr. 5,600
Suspense A/c Dr. 900
To Profit & Loss 6,500
Adjustment A/c
(Freight paid for machine 5,600
was posted to freight A/c at
6,500 now rectified)
(9) Profit & Loss Adjustment A/c Dr. 11,100
To Satvik’s Capital A/c 11,100
(Balance of Profit & Loss
Adjustment A/c transferred to
Capital Account)
(10) Satvik’s Capital A/c Dr. 8,500
To Suspense A/c 8,500
(Balance of Suspense Account
transferred to Capital Account)

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5. Bank Reconciliation Statement as on 31 st March, 2024

Particulars Amount
`
Overdraft as per Pass Book 8,800
Add:
(i) Cheques issued but not presented till 31st March 5,800
(ii) Transfer from fixed deposit 2,000
(iii) Direct deposit by M/s Rajesh Trader 400 8,200
17,000
Less:
(i) Cheques deposited but not cleared
(5,800 - 2,000) 3,800
(ii) Dividend collected excess recorded
in Cash Book (1,520-1,250) 270
(iii) Interest on overdraft debited
in Pass Book only 930
(iv) Corporation tax paid appeared
in Pass Book only 1,200 6,200
Overdraft as per Cash Book 10,800
6. (a) Calculation of value of inventory as on 7.1.2024 of manufacturing
company.
Date Receipts Rate Amount Issue Rate Amount Balance Rate Amount
(`) Units (`)
1.10.24 Balance Nil
1.10.24 200 60 12,000 200 60 12,000
2.10.24 100 60 6000 100 60 6,000
3.10.24 400 80 32,000 500 76 38,000
4.10.24 200 76 15200 300 76 22,800
7.10.24 200 76 15200 100 76 7,600

The value of 100 units of inventory as on 7.10.24 ` 7,600

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(b) Sales 15,00,000

Add: Closing inventory (at selling price) 2,00,000
Selling price of goods available for sale: 17,00,000
Less: Cost of goods available for sale 10,00,000
Gross margin 7,00,000
7,00,000
Rate of gross margin = × 100 = 41.18%
17,00,000
Cost of closing inventory = 2,00,000 less 41.18% of ` 2,00,000
= ` 1,17,640
*This rate may also be considered as 41.176% in that case, the
closing inventory will be valued at ` 1,17,640
OR as 41.17% in that case, the closing inventory will be valued at
` 1,17,640
7. Machinery Account in the books of M/s. Deep Lakshmi
Date Particulars Amount Date Particulars Amount
` `
1.4.2020 To Bank A/c 1,60,000 31.03.2021 By Depreciation 24,000
A/c
To Bank A/c 40,000 (` 20,000 +
` 4,000)
(Erection charges) 31.03.2021 By Balance c/d 2,56,000
1.10.2020 To Bank A/c 80,000 (` 1,80,000 +
` 76,000)
2,80,000 2,80,000
1.4.2021 To Balance b/d 2,56,000 31.03.2022 By Depreciation 28,000
A/c
(` 20,000 +
` 8,000)
31.03.2022 By Balance c/d 2,28,000
(` 1,60,000 +
` 68,000)
2,56,000 2,56,000

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1.4.2022 To Balance b/d 2,28,000 1.10.2022 By Bank A/c 1,00,000

31.12.2022 To Bank A/c 30,000 1.10.2022 By Profit and Loss 50,000
A/c
(Loss on Sale –
W.N. 1)
31.03.2023 By Depreciation 18,750
A/c
(` 10,000 +
` 8,000 +
` 750)
31.03.2023 By Balance c/d 89,250
(` 60,000 +
` 29,250)
2,58,000 2,58,000
1.4.2023 To Balance b/d 89,250 31.3.2024 By Depreciation 13,387.5
A/c
(` 9,000 +
` 4,387.5)
31.3.2024 By Balance c/d 75,862.5
(` 51,000 +
` 24,862.5)
89,250 89,250

Working Notes:
Book Value of machines (Straight line method)

Machine Machine Machine

I II III
` ` `
Cost 2,00,000 80,000 30,000
Depreciation for 2020-21 20,000 4,000
Written down value as on 1,80,000 76,000
31.03.2021
Depreciation for 2021-22 20,000 8,000
Written down value as on 1,60,000 68,000
31.03.2022
Depreciation for 2022-23 (Mach I- 6 10,000 8,000 750

24 JANUARY 2025 EXAMINATION

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months)
Written down value as on 1,50,000
01.10.2022
Written down value as on 60,000 29,250
31.03.2023
Sale proceeds 1,00,000
Loss on sale 50,000

8.

Date Particulars L.F Dr. Cr.

2024 ` `
Apr.1 Y Dr. 29,500
To Sales A/c 25,000
To Output IGST A/c 4,500
(Being the inter-state sale of goods to Y,
charged to IGST@ 18%)
Apr 1 Bills Receivable (No. 1) A/c Dr. 15,000
Bills Receivable (No. 2) A/c Dr. 14,500
To Y 29,500
(Being the two bills acceptance-one for
` 15,000 and the other for ` 14,500
received)
Apr.1 Bills sent for collection A/c Dr. 29,500
To Bills Receivable (No. 1) A/c 15,000
To Bills Receivable (No.2) A/c 14,500
(Being the Bills sent to bank for
collection)
July.4 Bank A/c Dr. 15,000
To Bills sent for collection A/c 15,000
(Being the amount duly collected by
bank on first bill)

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Aug.4 Y Dr. 15,000

To Bills sent for collection A/c 14,500
To Bank A/c 500
(Being the second bill dishonored and
bank paid ` 500 as noting charges)

9. In the books of Mr. Robin

Manufacturing Account for the year ended 31 st March, 2024

Particulars ` Particulars `

Raw material By Closing Stock of 2,34,000

consumed: Work in Progress
To Opening Stock of 6,30,000 By Sale of Scrap 75,000
Raw Materials By Cost of goods 35,70,000
Manufactured
Add: Purchases 25,50,000 (Transferred to
Trading Account)
Less: Closing Stock 4,86,000 26,94,000
To Opening Stock of 2,85,000
WIP
To Wages 3,90,000
Add: Outstanding 60,000 4,50,000
Wages
To Carriage on 45,000
Purchases
To Repairs to Plant 33,000
To Rent (3/4) 1,35,000
To Lighting (2/3) 27,000
To Depreciation of 2,10,000
Plant
38,79,000 38,79,000

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Trading Account for the year ended 31 st March, 2024

Particulars ` Particulars `
To Opening Stock of 4,65,000 By Sales 50,16,000
finished goods
To Cost of goods 35,70,000 By Closing Stock 5,43,000
transferred from
Manufacturing A/c
To Gross Profit c/d 15,24,000
55,59,000 55,59,000

Profit and Loss Account for the year ended 31 st March, 2024

Particulars ` Particulars `
To Salaries 3,00,000 By Gross Profit 15,24,000
b/d
Add: Outstanding 27,000 3,27,000 By Commission 13,500
To Telephone & 30,000
Internet Charges
To Repairs to 10,500
Furniture
To Depreciation of 22,500
furniture
To Rent (1/4) 45,000
To Lighting (1/3) 13,500
To General Expenses 45,000
To Provision for
doubtful Debts: 50,160
Required (1% of
`50,16,00)
Less: Existing Provision 49,500 660
To Net Profit 10,43,340
15,37,500 15,37,500

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10. In the books of Masters Club

Income and expenditure Account for the year ended on
31st March, 2024
Expenditure Amount Income Amount
(`) (`)
To Salaries and 12,250 By Subscriptions 22,000
wages (W.N. 4)
To Depreciation 10,300 By Net proceeds from 3,750
(W.N. 3) refreshments
(22,000-18,250)
To Telephone 2,800 By Entrance fees 13,000
Charges (50% x 26,000)
To Electricity charges 14,000 By Interest on 4,550
(W.N. 5) investments
To Honorarium 6,500 By Excess of 2,550
charges expenditure over
income
45,850 45,850

Balance sheet as at 31st March, 2024

Liabilities Amount Assets Amount

(`) (`)
Opening capital 1,13,880 Sports Equipment 50,500
Less: Deficit (2,550) 1,11,330 Furniture 11,180
Entrance fees 13,000 7% Investments 65,000
Outstanding electricity 3,800 Subscription in arrears 5,200
charges
Subscription in advance 4,850 Cash 1,100
1,32,980 1,32,980

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Working notes
Income earned during the year 4,550
1. Investments made = = 65,000
Rate of interest 7%
2. Balance sheet as at 31st March, 2023

Liabilities Amount Assets Amount

(`) (`)
Opening capital fund 1,13,880 Sports Equipment 32,000
(B/f)
Accrued electricity 5,400 Furniture 12,480
charges
Subscription in 6,250 7% Investments 65,000
advance
Subscription 7,600
Outstanding
Cash 8,450
Total 1,25,530 1,25,530

3. Calculation of depreciation of Sports equipment

Particulars Amount
(`)
Sports equipment as on 31st, March 2023 32,000
Add: Purchases during the year 27,500
Less: Closing balance of equipment as on (50,500)
31st, March 2024
Depreciation on sports equipment for the year 9,000
ended 31st, March 2024

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Calculation of depreciation of Furniture

Particulars Amount
(`)
Furniture as on 31 st, March 2023 12,480
Add: Purchases during the year -
Less: Closing balance of equipment as on 31 st, March (11,180)
2024
Depreciation on furniture for the year ended 31st, 1,300
March 2024

Total Depreciation = ` 10,300 (9,000+1,300)

4. Subscription to be credited to income and expenditure
account for the year 2024
Dr. Subscription A/c (year ended on 31st March, 2024) Cr.

Particulars Amount Particulars Amount

(`) (`)
To Outstanding at 7,600 By Advance at the 6,250
the beginning beginning (2023)
(2023)
To Income and 22,000 By Receipts and 23,000
Expenditure A/c payments A/c
To Advance at the 4,850 By Outstanding at 5,200
end (2025) the end (2024)
34,450 34,450
5. Electricity charges to be debited to Income and expenditure
Account-

Electricity charges paid for year 2024 15,600

Add: Outstanding charges for year 2024 3,800
Less: Outstanding charges for year 2023 (5,400)
Electricity charges to be debited to Income and 14,000
Expenditure A/c

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11. In the Books of Moonlight Traders

Trading Account for the year ended 31.03.2024

Particulars ` Particulars `
To Opening Stock A/c 1,65,000 By Sales (W.N.1) 12,50,000
(Bal. fig.)
To Purchases (W.N.2) 9,00,000 By Closing Stock 65,000
To Gross profit
(12,50,000x25/125) 2,50,000
13,15,000 13,15,000

Profit and Loss Account for the year ended 31.03.2024

Particulars ` Particulars `
To Discount 5,500 By Gross profit 2,50,000
To Salaries Expenses 32,000 By Discount 4,500
To Office expenses (W.N.3) 37,000
To Selling expenses 15,000 84,000
To Interest on loan (12% on `1,60,000) 19,200
To Loss on sale of Machinery (WN4(c) 15,000
To Depreciation:
Plant & Machinery (W.N 4b) 23,750
Office Equipment (W.N. 5) 12,750 36,500
To Net profit after tax 94,300
2,54,500 2,54,500

Balance sheet as at 31.3.2024

Liabilities ` ` Assets `

Capital (W.N. 6) 8,95,500 Land 5,00,000

Add: Net Profit 94,300 9,89,800 Plant and Machinery 3,08,250
(W.N.4a)
(3,30,000-21,750)
Creditors for 1,05,500 Office Equipment 72,250
Purchases (W.N. 8) (85,000-12,750)

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Outstanding Debtors 2,25,000

expenses 15,000 (W.N. 7)
Loan from FBI 1,00,000 Stock 65,000
Bank Balance (W.N. 9) 39,800
12,10,300 12,10,300

Working Notes:
1. Calculation of Total Sales
`
Cash Sales 2,50,000
Credit Sales (80% of total sales)
Cash Sales (20% of total sales)
Thus, total Sales (2,50,000 x 100/20) 12,50,000
Credit Sales (12,50,000 x 80/100) 10,00,000

2. Calculation of Total Purchases

`
Credit Purchases 5,40,000
Cash Purchases (40% of total purchases)
Credit Purchases (60% of total purchases)
Thus total Purchases (5,40,000 x 100/60) 9,00,000
Cash Purchases (9,00,000 x 40/100) 3,60,000

3. Office Expenses Account

` `
To Bank A/c 42,000 By Balance b/d 20,000
To Balance c/d 15,000 By Profit & loss A/c 37,000
(bal fig)
57,000 57,000

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4. (a) Plant and Machinery Account

` `
To Bal b/d 2,20,000 By Sale 40,000
To Purchases (bal 1,50,000 By Bal c/d 3,30,000
fig)
3,70,000 3,70,000

(b) Depreciation calculations on Plant & Machinery

`
Depreciation on 1,80,000 x 10% (for full year) 18,000
1,50,000 x 10% x 3/12 (for 3 months) 3,750
40,000 x 10% x 6/12 (for 6 months) 2,000
23,750

(c) Sale of Machinery Account

Amount Amount
(`) (`)
To Plant & 40,000 By Depreciation 2,000
Machinery
By Profit and Loss A/c 15,000
By Bank 23,000
40,000 40,000

5. Depreciation calculations on Office Equipments

`
Opening Balance 1,05,000
Less: Closing Balance (85,000)
Sale of Office Equipments 20,000
Balance of Office Equipments after sale 85,000
Depreciation @15% 12,750

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6. Balance Sheet as on 31.03.2023

` `
Creditors 95,000 Land 5,00,000
Creditor for Exp. 20,000 Plant & Machinery 2,20,000
Loan 1,60,000 Office Equipment 1,05,000
Capital (Bal. fig.) 8,95,500 Debtors 1,55,500
Stock 1,65,000
Bank 25,000
11,70,500 11,70,500
7. Sundry Debtors A/c
` `
To Balance b/d 1,55,500 By Bank 9,25,000
To Sales 10,00,000 By Discount 5,500
By Bal. c/d 2,25,000
11,55,500 11,55,500

8. Sundry Creditors A/c

` `
To Bank 5,25,000 By Balance b/d 95,000
To Discount 4,500 By Purchases 5,40,000
To Balance c/d 1,05,500
6,35,000 6,35,000
9. Bank Account
` `
To Balance b/d 25,000 By Creditors 5,25,000
To Debtors 9,25,000 By Office Expenses 42,000
To Cash Sales 2,50,000 By Salary Expense 32,000
To Sale of 23,000 By Selling Expenses 15,000
Machinery
(W.N. 4c)

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To Sale of 20,000 By Purchases (cash) 3,60,000

equipment
By Purchase of 1,50,000
Machinery
By Bank Loan & 79,200
Interest
(60,000+19,200)
By Balance c/d 39,800
12,43,000 12,43,000

12. (a) Profit and Loss Appropriation Account

for the year ended 31st March, 2024
` ` `
To Salary - Bali 3,000 By Net profit 73,000
To Interest on Capitals:
Akbar 2,500
Bali 2,000 4,500
To Reserve (10% of 65,500) 6,550
To Partners’ current
accounts:
Akbar 29,475
Bali 29,475 58,950
73,000 73,000

Partners’ Capital Account

Date Akbar Bali Date Akbar Bali
31.03.24 To Balance 50,000 40,000 01.04.23 By Balance b/d 50,000 40,000
c/d
50,000 40,000 50,000 40,000

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Partners’ Current Account

Date Akbar Bali Date Akbar Bali
01.04.23 To Balance - 3,000 01.04.23 By Balance b/d 10,000
b/d
31.03.24 To Drawings 1,000 2,000 31.03.24 By Interest on 2,500 2,000
A/c Capital
31.03.24 To Balance 40,975 29,475 31.03.24 By Salary 3,000
c/d
31.03.24 By Profit and Loss 29,475 29,475
App A/c

41,975 34,475 41,975 34,475

Note: Profit before charging interest on Capital and Salary to Bali

= 70,000+3,000 =73,000
(b) Goodwill as per Capitalization Method:
(i) Capital Employed (Net Assets)
= Total Assets – External Liabilities
= ` 10,00,000 – ` 1,80,000 = ` 8,20,000
Normal Profit = 10% of ` 8,20,000 = ` 82,000
Super Profit = Average Profit – Normal Profit
= ` 1,00,000 – ` 82,000
= ` 18,000
Goodwill = Super Profit x 100/Normal rate of Return
= 18,000 X 100/10= `1,80,000
(ii) Goodwill as per 3 year’s purchase of super profits:
Goodwill = Super Profit x Number of Year’s purchased
= ` 18,000 x 3 = ` 54,000

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13. Revaluation Account

Particulars Amount Particulars Amount

(`) (`)
To Buildings A/c 30,000 By Investments A/c 9,000
To Plant and Machinery A/c 78,000 By Loss to Partners:
To Provision for Doubtful 83,400 X 91,200
Debts A/c Y 54,720
Z 36,480 1,82,400
1,91,400 1,91,400

Partners’ Capital A/c

Particulars X Y Z P Particulars X Y Z P
` ` ` ` ` ` ` `
To Revaluation 91,200 54,720 36,480 - By Balance 2,40,000 60,000 90,000 -
A/c b/d
To Investments - 45,000 -- By Reserves 30,000 18,000 12,000 -
A/c A/c
To X and Y’s - 60,000 60,000 By Z and P’s 30,000 90,000 - -
Capital A/c Capital
A/c
To Y’s Loan 68,280 -- By Bank A/c 31,200 - 2,34,480 1,80,000
A/c (balancing
figure)
To Balance c/d 2,40,000 - 2,40,000 1,20,000
3,31,200 1,68,000 3,36,480 1,80,000 3,31,200 1,68,000 3,36,480 1,80,000

Bank Account
Particulars Amount Particulars Amount
` `
To X’s capital A/c 31,200 By Bank overdraft A/c 1,32,000
To Z’s capital A/c 2,34,480 By Balance c/d 3,13,680
To P’s capital A/c 1,80,000
4,45,680 4,45,680

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Balance Sheet of Acme & Co.

as at 1st April, 2024

Liabilities ` Assets `
Capital Accounts: Land 30,000
X 2,40,000 Buildings 5,70,000
Z 2,40,000 Plant and Machinery 3,12,000
P 1,20,000 6,00,000 Furniture 1,29,000
Long Term Debts 9,00,000 Inventories 3,90,000
Trade payables 5,10,000 Trade receivables 4,17,000
Y’s Loan Account 68,280 Less: Provision for
Doubtful Debts (83,400) 3,33,600
Balance at Bank 3,13,680
20,78,280 20,78,280

14. Realisation Account

` ` `
To Sundry assets By Sundry creditors 20,000
A/c (transfer): A/c
By Mortgage loan 80,000
Premises 1,20,000 By Bank A/c (assets
Furniture 40,000 realised):
Stock 1,00,000 Premises 90,000
Furniture 16,000
Sundry Debtors 40,000 Stock 60,000
To Bank A/c 32,000 Debtors 24,000 1,90,000
(creditors paid)
To Bank A/c 80,000 By Loss transferred
(Mortgage loan) to Capital
Accounts:

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To Bank A/c 4,000 Neptune 54,000

(expenses)
Jupiter 36,000
Venus 18,000
Pluto 18,000 1,26,000
4,16,000 4,16,000

Bank Account
` `
To Balance b/d 8,000 By Realisation A/c 32,000
(creditors)
To Realisation A/c By Realisation A/c 4,000
(expenses)
(assets 1,90,000 By Mortgage loan 80,000
realised)
To Capital By Neptune's Capital 1,18,857
A/c(realisation A/c
loss
made good): By Jupiter's Capital 73,143
A/c
Neptune 54,000
Jupiter 36,000
Pluto 18,000 1,08,000
To Pluto's Capital 2,000
A/c
3,08,000 3,08,000

Partners’ Capital Account

Particulars Neptune Jupiter Venus Pluto Particulars Neptune Jupiter Venus Pluto
` ` ` ` ` ` ` `

To Balance b/d − − 10,000 12,000 By Balance 1,00,000 60,000 − −

b/d

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To Realisastion By General 24,000 16,000 8,000 8,000

A/c (loss) 54,000 36,000 18,000 18,000 reserve A/c
(3 : 2 : 1 :1)
To Venus's − − By Capital 6,000 4,000 2,000 2,000
Capital 11,143 6,857 reserve A/c
A/c (loss) (3 : 2 : 1 :1)
(W.N.1)
To Bank A/c 1,18,857 73,143 − − By Bank A/c 54,000 36,000 − 18,000
(loss on
realization)
By Neptune's − − 11,143 −
Capital A/c
By Jupiter's − − 6,857 −
Capital A/c
_______ _______ _____ _____ By Bank A/c − − − 2,000
1,84,000 1,16,000 28,000 30,000 1,84,000 1,16,000 28,000 30,000

W.N. 1: Statement showing distribution of Loss of Venus

Particulars Neptune Jupiter

Opening Capital 1,00,000 60,000
General Reserve 24,000 16,000
Capital reserve 6,000 4,000
Total 1,30,000 80,000
Ratio 13 8
Loss of Venus of ` 18,000 is to be 11,143 6,857
distributed in the ratio of (13:8)

15. In the books of Kunal Fortune Ltd.

Journal Entries

Particulars L.F. Debit Credit

Amount Amount
(` ) (` )
Bank A/c Dr. 30,000
To Equity Share Application A/c 30,000
(Money received on applications for

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30,000 shares @ ` 1 per share)

Equity Share Application A/c Dr. 30,000
To Equity Share Capital A/c 30,000
(Transfer of application money of
30,000 shares to share capital)
Equity Share Allotment A/c Dr. 60,000
To Equity Share Capital A/c 60,000
(Amount due on the allotment of
30,000 shares @ ` 2 per share)
Bank A/c Dr. 59,400
To Equity Share Allotment A/c 59,400
(Allotment money received on
29,700 shares)
OR Dr. 59,400
Bank A/c Dr. 600
Calls in arrears A/c 60,000
To Equity Share Allotment A/c
(Allotment money received except
300 shares)
Equity Share Capital A/c Dr. 900
To Share Forfeiture A/c 300
To Equity Shares Allotment A/c 600
(300 Shares of Arun forfeited)
OR
Equity Share Capital A/c Dr. 900
To Shares Forfeiture A/c 300
To Calls in arrears A/c 600
(300 shares forfeited due to non-
payment of allotment money)
Equity Share First Call A/c Dr. 89,100

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To Equity Share Capital A/c 89,100

(First call made due on 29,700
shares at ` 3 per share)
Bank A/c Dr. 87,750
To Equity Share First Call A/c 87,750
(First call money received on 29,250
shares at ` 3 per share)
OR

Bank A/c Dr. 87,750

Calls in arrears A/c Dr. 1,350
To Equity Share First Call A/c 89,100
(First Call money received except
450 shares)
Equity Share Capital A/c Dr. 2,700
To Share Forfeiture A/c 1350
To Equity Share First Call A/c 1350
(450 Shares of Ajeet forfeited)
OR
Equity Share Capital A/c
To Share Forfeiture A/c Dr. 2,700
To Calls in arrears A/c 1,350
(450 shares forfeited due to non - 1,350
payment of First call money)
Equity Share Second and Final Call Dr. 1,17,000
A/c
To Equity Share Capital A/c 1,17,000
(Second and Final call made due on
29,250 shares at ` 4 per share)
Bank A/c Dr. 1,16,400
To Equity Share Second and 1,16,400

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Final Call A/c

(Second and Final call money
received on 29,100 shares at ` 4 per
share)
OR Dr. 1,16,400
Bank A/c Dr. 600
Calls in arrears A/c 1,17,000
To Equity Shares Second and
Final call A/c
(Second and Final call money
received except 150 shares)
Equity Share Capital A/c Dr. 1,500
To Share Forfeiture A/c 900
To Equity Share Second and 600
Final Call A/c
(150 Shares of Mohan forfeited)
OR
Equity Share Capital A/c
To Shares Forfeiture A/c Dr. 1,500
To Calls in arrears A/c 900
(50 shares forfeited due to non- 600
payment of Second and final call
money)
Bank A/c Dr. 8,100
Share Forfeiture A/c Dr. 900
To Equity Share Capital A/c 9,000
(900 shares reissued at ` 9 per
share)
Share Forfeiture A/c Dr. 1,650
To Capital Reserve A/c (W.N.1) 1,650
(Profit on re-issue transferred to
Capital Reserve)

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Working Note-1:
Calculation of amount to be transferred to Capital Reserve:
Surplus out of 300 shares of Arun forfeited ` 300
Surplus out of 450 shares of Ajeet forfeited ` 1,350
Surplus out of 150 shares of Mohan forfeited ` 900
` 2,550
Less: Loss on re-issue of shares ` 900
Transferred to Capital Reserve `1,650
16. Journal Entries in the Books of Trinity Ltd.

Particulars Dr. Cr.

` `
Dividend A/c Dr. 10,000
To Bank A/c 10,000
(Dividend on preference paid)
Profit & Loss A/c Dr. 10,000
To Dividend A/c 10,000
(Dividend on preference shares written off
to profit and loss account)
10% Redeemable Preference Capital Dr. 1,00,000
Premium on redemption of Preference Dr. 10,000
Shares
To Preference Shareholders 1,10,000
(Amount payable to preference
shareholders on redemption)
Profit & Loss A/c Dr. 10,000
To Premium on Redemption of 10,000
Preference shares
(Amount of premium payable on
redemption of preference shares)

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Bank A/c Dr. 90,000

Profit and Loss A/c Dr. 10,000
To Investments A/c 1,00,000
(Amount realised on sale of Investments
and loss thereon adjusted)
Preference shareholders A/c Dr. 1,10,000
To Bank 1,10,000
(Payment made to preference shareholders)
General Reserve A/c Dr. 1,00,000
To Capital Redemption Reserve A/c 1,00,000
(Transfer to the Capital redemption reserve
account on redemption of shares)
Capital Redemption Reserve A/c Dr. 1,00,000
Securities Premium A/c Dr. 70,000
General Reserve A/c Dr 20,000
Profit & Loss A/c Dr. 10,000
To Bonus to Equity Shareholders A/c 2,00,000
(Amount adjusted by issuing bonus shares in
the ratio of 2:1)
Bonus to Equity Shareholders A/c Dr. 2,00,000
To Equity Share Capital 2,00,000
(Balance on former account transferred to
latter)
17. In the books of XY Ltd.
Journal Entries

Date Particular L.F Dr. Cr.

2023 Sundry Assets A/c Dr. 9,00,000
April Goodwill A/c (Bal. fig) Dr. 1,00,000
To Himalayan Ltd. A/c 8,80,000

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To Sundry Liabilities A/c 1,20,000

(Assets and liabilities taken over
for a net consideration of
` 8,80,000)
Himalyan Ltd. A/c Dr. 8,80,000
To 8% Debentures A/c 8,00,000
To Securities Premium A/c 80,000
(8000; 8% Debenture of
` 100 each issued at a premium of
10%
Bank A/c Dr. 1,80,000
To Debenture Application A/c 1,80,000
(Application money received for
6000, 8% Debenture)
Debenture Application A/c Dr. 1,80,000
To 8% Debenture A/c 1,80,000
(6000; 8% Debenture allotted)
Debentures allotment A/c Dr. 3,60,000
Loss on issue of debenture A/c Dr. 90,000
To 8% Debentures A/c 4.20,000
To Premium on redemption of 30,000
debentures A/c
(Allotment money due on 6000; 8%
Debentures at 10% discount and
redeemable at 5% premium)
Bank A/c Dr. 3,60,000
To Debentures Allotment A/c 3,60,000
(Allotment money received)
2024
Mar,31 Profit and Loss A/c Dr. 90,000

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ACCOUNTING

To Loss on issue of Debenture 90,000

A/c
(Loss on issue of debenture written
off)

18. (i) Going Concern concept: The financial statements are normally
prepared on the assumption that an enterprise is a going concern
and will continue in operation for the foreseeable future. Hence, it
is assumed that the enterprise has neither the intention nor the
need to liquidate or curtail materially the scale of its operations; if
such an intention or need exists, the financial statements may have
to be prepared on a different basis and, if so, the basis used is
disclosed.
(ii) Accounting Standards are selected set of accounting policies or
broad guidelines regarding the principles and methods to be
chosen out of several alternatives. The main objective of
Accounting Standards is to establish standards which have to be
complied with, to ensure that financial statements are prepared in
accordance with generally accepted accounting principles.
Accounting Standards seek to suggest rules and criteria of
accounting measurements. These standards harmonize the diverse
accounting policies and practices at present in use in India.
(iii) Retirement of bills of exchange: Sometimes, the acceptor of a
bill of exchange has spare funds much before the maturity date of
the bill of exchange accepted by him. He may, therefore, desire to
pay the bill before the due date. In such a circumstance, the
acceptor shall ask the payee or the holder of the bill to accept cash
before the maturity date. If the payee agrees, the acceptor may be
allowed a rebate or discount on such early payment. This rebate is
generally the interest at an agreed rate for the period between the
date of payment and date of maturity. The interest/rebate/
discount becomes the income of the acceptor and expense of the
payee. It is a consideration for premature payment. When a bill is
paid before due date, it is said to be retired under rebate.

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(iv) Banks are essential to modern society, but for an industrial unit, it
serves as a necessary instrument in the commercial world. Most of
the transactions of the business are done through bank whether it
is a receipt or payment. Rather, it is legally necessary to operate
the transactions through bank after a certain limit. All the
transactions, which have been operated through bank, if not
verified properly, the industrial unit may not be sure about its
liquidity position in the bank on a particular date. There may be
some cheques which have been issued, but not presented for
payment, as well as there may be some deposits which has been
deposited in the bank, but not collected or credited so far. Some
expenses might have been debited or bills might have been
dishonoured. It is not known to the industrial unit in time, it may
lead to wrong conclusions. The errors committed by bank may not
be known without preparing bank reconciliation statement.
Preparation of bank reconciliation statement prevents the chances
of embezzlement. Hence, bank reconciliation statement is very
important and is a necessity of an industrial unit as it plays a key
role in the liquidity control of the industry.

48 JANUARY 2025 EXAMINATION