B.

com (P) Semester-1

Financial Accounting Assignment
All questions are compulsory. Give proper explanation for theory questions.

1. State True or false with reasons:

i. Depreciation is only a process of valuation of an asset which shows fall in the
market value of an asset.
ii. Depreciation cannot be provided in case of loss in a financial year.
iii. Provision for depreciation accounts reduce the amount available for dividends.
iv. The terms depreciation, depletion and amortization mean the same thing.
v. Finished goods are normally valued at cost or market price, whichever is
lower.
vi. If closing inventory is overstated in a year the net profit of that year is
overstated.
vii. In periods of rising prices and increasing inventory quantities, FIFO method
brings down the taxable income.
viii. Change in method of depreciation is regarded as change in accounting policy
of the entity.
2. State how the following transaction would be dealt with in the financial statements
and state the relevant accounting standard:
i. A company entered into an agreement to sell its immovable property to another
company for ₹75 lakhs. The property was shown in the balance sheet at ₹17 lakhs.
The agreement to sell was concluded on 25th February 2022 and the sale deed was
registered on 30th April, 2022. The financial statements for the year 2021-22 were
approved by the Board of Directors on 22nd May, 2022. You are required to state,
how this transaction would be dealt with in the financial statements for the year
ended 31st March, 2022 as per AS-4
ii. A company finds that the stock sheets on 31st March, 2022 did not include two
pages containing details of inventory worth ₹50 lakhs. State, how will you deal
with this matter in the accounts of the company for the year ended 31st March,
2022 with reference to AS-5.
iii. X Ltd as part of cost cutting measure, announce a retrenchment scheme to reduce
its overall strength of employees during 1st April, 2021 to 31st December, 2021,
the company paid a total compensation of ₹72,00,000 to those employees who
retrenchment under the adoption of scheme but the accountant of concern
recorded this payment against the salaries and wages paid to employee. Do you
agree with accounting treatment done the accountant.?
3. Following are the balances from the trial balance of Mr. Tushar as at 31st March,
2022:
Particulars ₹ Particulars ₹
Purchases 5,70,000 Sales 7,77,500
Wages and Salaries 23,500 Capital 7,98,100
12% Investments (purchased 500 Provision for Doubtful Debts 10,000
on 01.07.2022) (01.04.2021)
 Bad Debts (after recovery of 500 Provision for Discount on 1800
bad debts of ₹2,500 w/o Debtors (01.04.2021)
during 2020-21)
Freight Inwards 25,000 Trade Creditors 10,000
Trade Debtors 2,56,000 Interest on Investment 6000
Salaries and Wages 11,200 Plant and Machinery 4,88,200
Salesmen’s Commission 20,000 Furniture 30,000
Discount Allowed 2,000 Income tax paid 10,000
Fire Insurance Premium 9,000 Prepaid fire insurance 3000
Premium
Outstanding Liabilities for 55,000
Expenses (Dr.)
Additional Information:
i. Stock in hand was not taken on 31st March but only on 7th April. Following
transaction had taken place during the period from 1st April to 7th April:
Sales: ₹2,50,000, Purchases: ₹1,50,000, Stock on 7th April was ₹1,80,000 and
the rate of gross profit on sales was 20%. Market value on 31st March is 80%,
Estimated realizable expenses 5%.
ii. Write off further ₹4000 as bad. Additional discounts of ₹1000 given to
debtors. Maintain provision for discount on debtors @2%. Maintain a
provision for doubtful debts @10%. Included amongst the debtors is ₹3000
due from Z and included among the creditors ₹1000 due to him.
iii. On the 31st March, goods for ₹50,000 were send to a customer on ‘sale of
return’ basis at a profit of 25% on cost and recorded as actual sales.
iv. It was discovered during 2021-22 that ₹25,000 being repairs of machinery
incurred on 1st July, 2019 had been capitalized and ₹45,000 being the cost of
machinery purchased on the 1st October 2018 had been written off to stores
and wages ₹5000 paid for its installation had been debited to wages account.
v. A machine costing ₹1,90,000 was purchased on 1st July,2021. Wages ₹10,000
paid for its installation have been debited to wages account.
vi. On 1st July, 2021, an old furniture having a book value ₹2000 on 1st April,
2021 was disposed off for ₹760 in exchange of new furniture costing ₹1680.
The net invoice of ₹920 was passed through purchase book.
vii. The salesman was entitled to a commission of 5% on total sales.
viii. Printing and stationary expenses of ₹55000 relating to previous year had not
been provided in that year but was paid in current year by debiting outstanding
liabilities of expenses.
ix. Provide for depreciation on plant and machinery @20% p.a. on reducing
balance basis. Write 10% of the furniture and fixatures. No depreciation needs
to be provided on furniture disposed off during the year.
Prepare trading and profit and loss account for the year ending 31st March,
2022 and a balance sheet as on that date.
4. From the following trial balance and additional information of Nidhi prepare trading
and profit and loss account for the year ending 31st March, 2022 and a balance sheet
as on that date.
Particulars Dr. Cr.
Opening stock 1,60,000 -
Purchases and sales 11,00,000 19,50,000
Debtors and creditors 2,78,200 1,50,000
Manufacturing wages 70,000 -
Power and fuel 20,000 -
Factory lighting 15,000 -
Salaries 1,10,000 -
Income tax 35,000 -
Life insurance premium 10,000 -
Bills Receivable/ Bills Payable 40,000 15,000
Machinery 2,50,000 -
Furniture (including furniture of ₹50,000 purchase on Oct 2,50,000 -
1, 2021)
Investment at 10% p.a. (April 1, 2021) (Long term) 60,000 -
Interest on investment - 4,000
Rent 60,000 -
General expenses 25,000 -
Bad Debts 10,000 -
Commission received - 6000
Rent outstanding - 10000
Cash in hand 16,800 -
Cash at bank 35,000 -
Capital - 4,60,000
Input CGST 1,01,000 -
Input SGST 1,01,000 -
Input IGST 48,000 -
Output CGST - 60,000
Output SGST - 60,000
Output IGST - 80,000
Total 27,95,000 27,95,000
Additional Information:
i. Closing stock was valued at ₹2,50,000 as at 31st, March, 2022.
ii. Goods worth ₹10,000 plus IGST @ 18% were sold on credit to Suchi and
dispatched on 28th March, 2022, but no entry was passed for this transaction.
iii. Goods costing ₹ 15,000 plus IGST @ 18% were purchased on credit from
Khushi and included in stock but no entry was passed to record this
transaction.
iv. Salaries outstanding as at 31st March 2022 ₹10,000.
v. Write off further bad debt ₹5,000.
vi. Create provision for doubtful debts @ 5% on debtors.
vii. Create provision on discount of 2% on debtors.
viii. One third of the commission received relates to the next accounting period.
ix. Depreciate machinery @10% p.a. and furniture @10% p.a.
5. Tushar Ltd acquired for its internal use a software on 28th January, 2022 from the
USA for US$ 2,00,000. The exchange rate on that date was ₹80 per USD. The seller
allowed trade discount @ 5%. The other expenditures were:
i. Import duty: 20%
ii. Purchase Tax: 18%
iii. Entry Tax: 5% (Recoverable later from tax department)
iv. Installation expenses: ₹26,800
v. Profession fees for clearance from customs: ₹50,000
Compute the cost of software to be capitalized.
6. A company had a balance of ₹ 4,05,000 on 1st January, 2018 in its machinery account,
10% per annum depreciation was charged by diminishing balance method. On 1st
July, 2018 the company sold a part of the machinery for ₹ 87,500 (which was
purchased on 1st January, 2016 for ₹1,20,000) and on the same date, the company
purchased a new machine for ₹2,50,000. On 31st December, 2018 the directors of the
company decided to adopt the fixed instalment method of depreciation as per AS-10
(Revised), instead of diminishing balance method, the rate of depreciation remaining
the same.
Prepare Machinery account in the books of the company for the year ended, 2018.
7. ABC Advertisers obtained advertisement right for one day world cup cricket
tournament to be held in May 2021 for ₹1600 lakhs in February 2021. By 31st March
2020, they had paid ₹1000 lakhs to secure these advertisement rights. The balance
₹600 lakhs was paid in April 2021. By March 2021, they procured advertisement for
75% of the available time for ₹2000 lakhs. The advertisers paid 60% of the amount by
that date. The balance 40% was received in April 2021. Advertisements for balance
25% time were procured in April 2021 for ₹200 lakhs. The advertisers paid the full
amount while booking the advertisement. 25% of the advertisement time is expected
to be available in May 2021 and balance in June 2021. Calculate the amount of net
revenue as per AS-9 to be recognized in June, 2021.
8. Swift Ltd. Acquired a patent at a cost of ₹80,00,000 for a period of 5 years and the
product life-cycle is also 5 years. The company capitalized the cost and started
amortizing the asset at ₹10,00,000 per annum. After two years it was found that the
product life-cycle may continue for another 5 years from then. The net cash flows
from the product during these 5 years were expected to be ₹36,00,000, ₹46,00,000,
₹44,00,000, ₹40,00,000, and ₹34,00,000. Find out the amortization cost of the patent
for each of the years.

9. Following transactions took place in respect of an item of material in the month of

march 2019:
Date Quantity Received Rate per unit (₹) Quantity Issued
March 2 200 units 2 -
March 10 300 units 2.4 -
March 15 - - 250 units
March 22 250 units 2.6 -
March 30 - - 200 units
 Prepare a store ledger card and calculate the value of closing stock of material using
weighted average method, FIFO, and LIFO method under perpetual system of
inventory valuation.
10. X Ltd purchased machinery from Y Ltd on 30/09/2019. The price was ₹1,045 lakhs
after charging 10% GST and giving a trade discount of 5% on the quoted price.
Transport charges were 0.25% on the quoted price and installation charges come to
1% on the quoted price. To finance the purchase of the machinery, company took a
term bank loan of ₹1,000 lakhs at an interest rate of 15% per annum. Fees of
consultants used for advice on the acquisition of the machine ₹13,00,000, Cost of site
preparation ₹9,00,000, Estimated dismantling costs to be incurred after 10 years
₹5,00,000. Expenditure incurred on the trial run was: Material ₹10,00,000, Wages:
₹8,00,000 and overheads ₹6,00,000. Sale Proceeds of goods produced during the trial
run ₹4,00,000.
Machinery was ready for use on 01/12/2019. However, it was actually put to use only
on 01/05/2020. The entire loan amount remained unpaid on 1/05/2020. X Ltd does not
intend to utilize the input tax paid on capital good.
i) Find out the cost of the machine.
ii) Suggest the accounting treatment for the cost incurred during the period
between the date the machine was ready for use and the actual date the
machine was put to use.
11. Mr. X commenced business on 1st January 2014, when he purchased machinery of
₹7,00,000. He adopted a policy of:
i. Charging depreciation at 15% p.a. on diminishing balance basis and;
ii. Charging full year’s depreciation on additions made during the year.
Over the years, the purchases of machinery have been:
Date ₹
1-8-2015 1,50,000
30-9- 2,00,000
2018
st
On 1 January, 2018, it was decided to change the method of depreciation and rate of
depreciation to 10% on straight line basis with effect from 1-1-2018 as per AS-
10(Revised). It was further decided to charge depreciation on time basis on additions
made during the year.
Prepare Machinery Account and Provision for depreciation account for the year 2014
to 2018.
12. Rajasthali Ltd manufactures a product ‘OM’ using a raw material M1. The company
took Bank Overdraft at an interest rate of 15% p.a. specifically for the purpose of
purchasing 10,000 kg of material M1 at ₹ 100 per kg. The purchase price includes
GST ₹10 per kg, in respect of which full credit is admissible. Freight, loading and
unloading charges incurred amounted to ₹40,800. Interest on such Bank overdraft
amounted to ₹25,000. Normal Transit loss is 2%. The company actually received
9760 kg and consumed 9,500 kg. One unit of Finished product requires five units of
raw materials. Direct Labour cost amounted to ₹2,28,000, Direct overheads cost
amounted to ₹57,000. Total Fixed overheads for the year were ₹1,20,000 on normal
capacity of 20,000 units of Finished goods. During the year sales of product ‘OM’
were ₹7,50,000 @ ₹750. There were no opening inventories. With reference to AS 2
“Inventory Valuation”, calculate the amount of abnormal loss(if any), closing
inventory of finished goods and raw material if:
i. Finished units can be sold @ ₹800 subject to payment of 10% brokerage on
selling price, replacement cost of raw material is ₹90 per kg.
ii. Finished units can be sold @ ₹700 subject to payment of 10% brokerage on
selling price, replacement cost of raw material is ₹90 per kg.