Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Paper-5: FINANCIAL ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

Section A is compulsory and answer any 5 questions from Section B

Section A

1. Answer the following questions (give workings): [2×10]

(i) MGS Ltd. purchased a machine costing `1,25,000 for its manufacturing operations and paid
shipping costs of `30,000. MGS Ltd. spent an additional `12,000 testing and preparing the
machine for use. What amount should MGS record as the cost of machine?

Answer:
As per As 10, the cost of fixed asset should comprise its purchase price and any attributable
cost of bringing the asset to its working condition for its intended use. Cost includes the
purchase price, freight and handling charges, insurance cost on the machine while in transit,
cost of special foundations, and costs of assembling, installation and testing.
Therefore the cost to be recorded is `(1,25,000+30,000+12,000) i.e. `1,67,000.

(ii) M bought goods from N for ` 16,000. N draws a bill on 1.1.2013 for 3 months which was
accepted by M for this purpose. On 1.3.2013, M arranged to retire the bill at a rebate of 15%
p.a. Show the entries in the books of N.

Answer:

In the books of N
Journal
Date Particulars L.F. Debit (`) Credit (`)
2013 M A/c Dr. 16,000
Jan 1 To, Sales A/c 16,000
(Goods sold to M)
Jan 1 Bills Receivable A/c Dr. 16,000
To, M A/c 16,000
(Bills drawn for 3 months)
March Cash A/c Dr. 15,770
1 Rebate allowed A/c Dr. 230
To, Bills Receivable A/c 16,000
(Bills retired under a rebate of 15% p.a.)
Rebate = `16,000 × 15/100 × 35/365 ( 1st March to 4th April)

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

(iii) In preparing the bank reconciliation statement for the month of June 2013, AB Company has
the following data:

`
Balance as per bank statement 15,375
Cheques in transit 1,250
Cheques issued but not presented 1,725
Bank service charges 100

Compute the Bank Balance as per Cash Book .

Answer:

Bank Balance as per Cash Book

=`15,375 + `1, 250 - `1,725 + `100
=`15,000.

(iv) Calculate the amount of Salary to be shown in the Income and Expenditure Account for the
year ended 31st March 2013 from the following information:

(a) Salary paid as per Receipt and Payment A/c `63,000

(b) Salary unpaid on 31.3.2012 `6,000
(c) Salary Prepaid on 31.3.2012 `5,000
(d) Salary unpaid on 31.3.2013 `7,000
(e) Salary prepaid on 31.3.2013 `8,000

Answer:

Particulars Amount (`) Amount (`)

Salary paid during 2012-13 63,000
Add: Salary prepaid on 31.03.2012 5,000
Salary unpaid on 31.03.2013 7,000 12,000
75,000
Less: Salary unpaid on 31.03.2012 6,000
Salary prepaid on 31.03.2013 8,000 14,000
Salary to be shown in Income & Expenditure A/c 61,000

(v) From the following particulars, show the entries in the books of Consignor:
Goods sent on Consignment 150 books of ` 200 each.

Expenses incurred by consignor Expenses incurred by consignee

Freight `4,000 Clearing `4,000

Insurances `2,000 Storage `1,000

Consignee sold 123 books and he informed that a deficiency of 3 units is disclosed by his
actual physical stock taking.

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Answer:
Journal
Date Particulars L.F Debit Credit
? Stock on Consignment A/c Dr. 6,400
To, Consignment A/c 6,400
? Stock Deficiency A/c Dr. 800
To, Consignment A/c 800
? Profit and Loss A/c Dr. 800
To, Stock Deficiency 800

Workings:
Valuation of Unsold Stock
Particulars Amount (`)
Total Cost 30,000
Add: Consignor’s expenses 6,000
Add: Consignees non recurring expenses 4,000
Cost Price of 150 books 40,000

24
Value of Stock = `40,000 =`6,400
150
3
Value of Deficiency of Stock = `40,000 =800
150
(vi) Mega Ltd. deals in three products A,B and C, which are neither similar nor interchangeable.
At the time of closing of its account for the year 2012-13 the historical cost and net realizable
value of the items of closing stock are determined as below:

Items Historical Cost Net realizable value

(` in Lakhs) (` in Lakhs)
A 22 16
B 18 18
C 10 14

What will be the value of closing stock?

Answer:

Computation of value of closing stock

Lower of Historical Cost and Net Realisable `

Value will be considered
A 16
B 18
C 10
Value of Closing Stock 44

(vii) A Ltd. purchased fixed assets costing ` 5,100 lakhs on 01.01.2013 and the same was fully
financed by foreign currency loan (U.S $) payable in three annual installments. Exchange
rates were U.S $ I = `42.50 and `45.00 as on 01.01.2013 and 31.12.2013 respectively. First
installment was paid on 31.12.2013. The entire difference in foreign exchange has been
capitalized.

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

You are required to state , how these transactions would be accounted for.

Answer:

Foreign Currency Loan= ` 5,100 lakhs/ ` 42.50= 120 lakhs US Dollars

Exchange difference = 120 lakhs US Dollars × (`45.00 – `42.50) = ` 300 lakhs
(including exchange loss on payment of first instalment)
Therefore, entire loss due to exchange differences amounting ` 300 lakhs should be charged
to Profit and Loss Account for the year and the stand of the company is wrong.

(viii) Golden Ltd. furnished the following particulars:

Debtors ledger include ` 7,500 due from Das & Co. whereas creditors ledger include ` 4,500
due to Das & Co. Show the journal entry.

Answer:
In the books of Oscar Ltd.
Journal Entry
Particulars Debit (`) Credit(`)
Creditors Ledger Adjustment A/c Dr. 4,500
To, Debtors Ledger Adjustment A/c 4,500
(Debtors ledger includes `7,500 due form Das & Co.
whereas Creditors Ledger include `4,500 due to Das &
Co. ,adjusted)

(ix) Sales was `30,00,000 in the previous year.

Gross Profit is 25% on Sales.
The Company expects 20% Sales increment in sales volume during this year.
Compute the Cost of goods Sold.

Answer:

Sales in previous year was `30,00,000

Sales of this year is `36,00,000
Cost of goods sold = Sales – Gross Profit = `36,00,000 - `9,00,000 = `27,00,000

(x) A company reports the following information regarding pension plan assets. Calculate the
fair value of plan assets.

Particulars Amount
`
Fair Market value of plan assets (beginning of year) 3,50,000
Employer Contribution 50,000
Actual return on plan assets 25,000
Benefit payments to retirees 20,000

Answer:

Computation of fair value of plan assets:

Particulars Amount
`

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Fair Market value of plan assets (beginning of year) 3,50,000

Employer Contribution 50,000
Actual return 25,000
Benefit payments (20,000)
Fair market value of plan assets (end of year) 4,05,000

Section B

Answer any 5 questions from the following

2. (a) Rectify the following errors by way of journal entries and work out their effect on profit or
loss of the concern:
i. ` 600 received from Viman has been debited to Mr. Vivek.
ii. Wages paid for the installation of a machine debited to wages account for ` 1,000.
iii. A purchase made for ` 2,000 was posted to purchase account as ` 200.
iv. Goods purchased for proprietor’s use for ` 1,800 debited to purchase account. [6]

Answer:

In the books of …..

Journal
Date Particulars L.F. Debit (`) Credit (`)
(i) Suspense A/c Dr. 1,200
To, Viman A/c 600
To, Mr. Vivek A/c 600
(received from Viman has been debited
to Mr. Vivek A/c, now rectified)
(ii) Machinery A/c Dr. 1,000
To, Wages A/c 1,000
(wages paid for maintenance of
machinery debited to Wages A/c, now
rectified)
(iii) Purchase A/c Dr. 1,800
To, Suspense A/c 1,800
(Purchase Account was short by `1,800,
now rectified)
(iv) Drawings A/c Dr. 1,800
To, Purchase A/c 1,800
(Goods purchased for proprietor’s use,
debited to Purchase Account, now
rectified)

Effect on Profit
Items Particulars Increase (`) Decrease(`)
(i) No effect on Profit - -
(ii) Increase in Profit 1,000 -
(iii) Decrease in Profit - 1,800
(iv) Increase in Profit 1,800 -
Total 2,800 1,800

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Increase in Profit 1,000

(b) On 1st April, 2012 Good Morning Ltd. offered 100 shares to each of its 500 employees at `50 per
share. The employees are given a month to decide whether or not to accept the offer. The
shares issued under the plan (ESPP) shall be subject to lock- in on transfers for three years
from grant date. The market price of shares of the company on the grant dated is ` 60 per
share. Due to post-vesting restrictions on transfer, the fair value of shares issued under the
plan is estimated at ` 56 per share.
On 30th April, 2012 , 400 employees accepted the offer and paid ` 30 per share purchased.
Normal value of each share is ` 10. Pass journal entry. [2]

Answer:

Fair value of an ESPP = ` 56 - ` 50 = ` 6.00

Number of shares issued = 400 employees X 100 shares / employee= 40,000 shares
Fair value of ESPP which will be recognized as expenses in the year 2012-2013
= 40,000 shares × ` 6 = ` 2,40,000
Vesting period = 1 month
Expenses recognized in 2012-2013 = ` 2,40,000

Journals
Date Particulars Dr. Cr.
` `
30.04.2012 Bank A/c (40,000 shares X ` 50) Dr. 20,00,000
Employees compensation expenses A/c Dr. 2,40,000
To, Share Capital A/c (40,000 shares X ` 10) 4,00,000
To, Securities Premium (40,000 shares X ` 46) 18,40,000
( Being shares issued under ESPP @ ` 50.00)

(c) Akash Ltd. has 3 departments A ,B and C. The following information is provided:

Particulars A B C
` ` `
Opening Stock 6,000 8,000 6,000
Consumption of direct materials 16,000 24,000 -
Wages 10,000 20,000 -
Closing Stock 8,000 28,000 16,000
Sales - - 68,000

Stock of each department is valued at cost to the department connected. Stocks of A

department are transferred to B at a margin of 50% above departmental cost. Stocks of B
department are transferred to C department at a margin of 10% above departmental cost. Other
expenses were: salaries `4,000, Printing and Stationary ` 2,000, rent `12,000, Interest paid `8,000,
Depreciation `6,000,. Allocate expenses in the ratio of departmental gross profit. Opening figures
of reserve for unrealized profits on departmental stock were: Department B `2,000; Department C
`4,000. [8]

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Answer:
Departmental Trading and Profit & Loss Account
Dr. for the year ended 31st March, 2013 Cr.
Particulars A B C Total Particulars A B C Total
` ` ` ` ` ` ` `
To, Opening 6,000 8,000 6,000 20,000 By, Internal 36,000 66,000 - 1,02,000
Stock transfer
To, Direct 16,000, 24,000 - 40,000 By, Sales - - 68,000 68,000
Material
To, Wages 10,000 20,000 - 30,000 By, Closing Stock 8,000 28,000 16,000 52,000
To, Internal - 36,000 66,000 1,02,000
Transfer
To, Gross Profit 12,000 6,000 12,000 30,000
c/d
44,000 94,000 84,000 2,22,000 44,000 94,000 84,000 2,22,000
To, Salaries 1,600 800 1,600 4,000 By, Gross Profit 12,000 6,000 12,000 30,000
b/d
To, Printing & 800 400 800 2,000 By, Net Loss c/d 800 400 800 2,000
Stationery
To, Rent 4,800 2,400 4,800 12,000
To, Depreciation 2,400 1,200 2,400 6,000
To, Interest paid 3,200 1,600 3,200 8,000
12,800 6,400 12,800 36,000 12,800 6,400 12,800 32,000
To, Net Loss b/d 2,000 By, Provision for 6,000
(After adjusting unrealized profit
the profit of on Opening
Deptt. C ) Stock
To, Provision for 7,836 By, Balance 3,836
Unrealised profit transferred to
on Closing Stock Profit & Loss A/c
9,836 9,836

Working Notes :
(i) FIFO method for stock issue has been assumed. Alternatively this question could have been solved
by assuming other methods for stock issue like LIFO Basis, Weighted Average basis, etc.
(ii) Calculation of unrealised profit on Closing Stock of Deptt. B `
Current cost incurred by Deptt. B (` 24,000 + ` 20,000 + ` 36,000) 80,000
Profit included in Above (` 36,000 × 50/150) 12,000
Profit included in Closing Stock of ` 28,000
(` 12,000 × ` 28,000/` 80,000) 4,200
(iii) Calculation of unrealised profit on Closing Stock of Deptt C `
Current Cost incurred by Deptt. C 66,000
Profit of Dept. B included in above (`66,000 × 10/110) 6,000
Cost element of Dept. B included in current cost (` 66,000 –6,000) 60,000
Profit of Dept. A included in above cost (` 12,000 × ` 60,000/` 80,000) 9,000
Total Profit included in current cost of Dept. C (` 6,000 + ` 9,000) 15,000
Unrealised profit included in closing stock of ` 16,000 (` 15,000 × ` 16,000/` 66,000) 3.636
(iv) Total unrealised profit (` 4,200 + ` 3,636) 7,836

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

3. (a) P, Q and R were in partnership sharing profits and losses in the ratio of 3 : 2 : 1. The Balance
Sheet as on 31.3.2013 is as under :

Liabilities Amount Assets Amount

` `
Capital – P 60,000 Machinery 80,000
Capital - Q 50,000 Furniture 15,000
Capital – R 40,000 Motor Car 30,000
Sundry Creditors 72,000 Stock 50,000
Bank Loan 30,000 Sundry Debtors 60,000
Other Liabilities 20,000 Cash at Bank 37,000
2,72,000 2,72,000

P retired on 1.9.2013 and the partnership deed provided inter alia that in the event of
admission, retirement or death of a partner, the assets and liabilities are to be revalued and
that goodwill of the firm is to be computed on the basis of 2 years purchase of the correct profit
of the last 4 years.

During the period he drew `30,000, interest on drawings @ 6% p.a.

It is discovered that the accounts required adjustments owing to certain mistakes in earlier
years. On 1.10.2010 repairs to machinery for ` 6,000 had been wrongly debited to the
Machinery Account, and on 1.4.2011 a piece of furniture, whose book value was `2,000 was
disposed of for `800 but the proceeds were wrongly credited to Sales Account. The partners
had been charging depreciation on all fixed assets at 10% p.a. on the reducing balance
system on a time basis. Profits for the last four years without adjusting the above mentioned
mistakes were as follows:
2009-10 `20,000; 2010-11 `24,000; 2011-12 `32,000; 2012-13 `36,000.
Revaluation on the date of retirement was:
Machinery- `90,000; Furniture- `10,000; Motor car - `22,000.

Partner will also be given proportionate share of profits based on the last year’s profit.
Determine the amount to be paid to the retiring partner. [8]

Answer:

Statement showing computation of the amount to be paid to the retiring partner:

Particulars Amount(`)
Capital 60,000
Share of Loss on revaluation (808)
3 26,440
Proportionate share of goodwill [`52,880 × ]
6
Proportionate share of last year’s profit - 7,644
3 5
[`36,693 × ]
6 12

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Drawings (30,000)
6 5 1 (375)
Interest on Drawings[`30,000 × ]
100 12 2
Amount to be paid to the retiring partner 62,901

Workings:

A.
Dr. Revaluation Account Cr.
Date Particulars ` Date Particulars `
To, Motor Car A/c 8,000 By, Machinery A/c 14,617
To, Furniture A/c 5,000
To, Partner’s Capital 1,617
A/c
(P-` 808; Q-` 539; R-`
270)

14,617 14,617

B. Ascertainment of Adjusted Profits

2009-10 2010-11 2011-12 2012-13
` ` ` `
Profits without adjustment 20,000 24,000 32,000 36,000
Less : Repairs previously capitalised (–) 6,000
Add : Depreciation wrongly charged on the above (+) 300 (+) 570 (+) 513
Less : Sale of Furniture wrongly credited to Sales (–) 800
Less : Loss on sale of Furniture not recorded (–) 1,200
(` 2,000 – 800)
Add : Depreciation on Furniture wrongly provided (+) 200 (+) 180
Adjusted Profits 20,000 18,300 30,770 36,693

C. Ascertainment of the Value of Goodwill and its Adjustment

Aggregate adjusted profits for 4 years: ` 1,05,763; Average Profits — `1,05,763 / 4
= ` 26,440.
Goodwill at 2 years’ purchase of average profit = ` 52,880 (` 26,440 × 2).

(b) The following information is avail from the books of the trader for the period 1st Jan. to 31st
March 2012:
I. Total Sales amounted to ` 76,000 including the sale of old furniture for ` 10,000 (book
value is ` 12,300). The total cash sales were 80% less than total credit sales.
II. Cash collection from Debtors amounted to 60% of the aggregate of the opening
Debtors and Credit sales for the period. Discount allowed to them amounted to `
2,600

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

III. Bills receivable drawn during the period totaled ` 7,000 of which bills amounting to `
3,000 were endorsed in favour of suppliers. Out of these endorsed bills, a Bill
receivable for ` 1,500 was dishonoured for non-payment, as the party became
insolvent and his estate realized nothing.
IV. Cheques received from customer of ` 5,000 were dishonoured; a sum of ` 500 is
irrecoverable.
V. Bad Debts written-off in the earlier year realized ` 2,500.
VI. Sundry debtors on 1st January stood at ` 40,000.
You are required to show the Debtors Ledger Adjustment Account in the General Ledger.
[6]

Answer:
In the General Ledger
Debtors Ledger Adjustment Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
2012 2011
Jan 1 To Balance b/d 40,000 Jan 1 By, General Ledger
March.31 ― General Ledger March.31 Adjustment A/c :
Adjustment A/c : Cash 57,000
- Sales 55,000 Discount Allowed 2,600
- Bills Receivable 1,500 Bills Receivable 7,000
Dishonoured Bad Debts 2,000
- Cheque Dishonoured 5,000
― Balance c/d 32,900

1,01,500 1,01,500
April 1 To Balance b/d 32,900

Workings:
1. Computation of Credit Sales
Cash Sales were 80% less than Credit Sales. So, if credit sales are ` 100 Cash Sales will be ` 20;
Total Sales (Cash + Credit) will be `120. Total Sales (` 76,000 - ` 10,000) = ` 66,000

66,000 100
Amount of Credit sales will be ` = ` 55,000.
120
2. Cash received
Cash received is 60% of opening Debtors plus Credit sales i.e. `40,000 + `55,000 = `95,000
60
Cash received 89,000 = `57,000.
100

(c) What are the advantages of Self Balancing System? [2]

Answer:
The advantages of Self-Balancing System are:
(i) If ledgers are maintained under self-balancing system it becomes very easy to locate
errors.

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

(ii) This system helps to prepare interim account and draft final accounts as a complete trial
balance can be prepared before the abstruction of individual personal ledger balances.
(iii) Various works can be done quickly as this system provides sub-division of work among the
different employees.
(iv) This system is particularly useful -
where there are a large number of customers or suppliers and
where it is desired to prepare periodical accounts.
(v) Committing fraud is minimized as different ledgers are prepared by different clerks.
(vi) Internal check system can be strengthened as it becomes possible to check the accuracy
of each ledger independently.

4. (a) Compute the percentage of completion and the Contract Revenues and Costs to be
recognized from the following data.
Contract Price — `150 Lakhs
Materials issued to the Contract — `36 Lakhs of which materials costing ` 6 Lakhs is still lying
unused at the end of the period.
Labour paid for workers engaged at site — ` 24 Lakhs (` 4 Lakhs is still payable)
Specific Contract Costs – ` 12 Lakhs, Sub-Contract Costs for work executed — `10 Lakhs,
Advances paid to Sub-Contractors — ` 6 Lakhs
Cost estimated to be incurred to complete the Contract — ` 60 Lakhs. [6]

Answer:

Based on above information, the Proportionate Cost Method will provide a realistic estimate of
stage of completion. This is calculated as under —
Materials Cost incurred on the Contract (net of Closing Stock)=` 36 – ` 6 = ` 30 Lakhs
Add : Labour Costs incurred on the Contract (paid + payable) = ` 24 + ` 4 = ` 28 Lakhs
Specific Contracts Costs = Given = ` 12 Lakhs
Subcontract costs (advances should not be considered) = Given = ` 10 Lakhs
Costs Incurred Till Date = ` 80 Lakhs
Add : Further Costs to be incurred = Given = ` 60 Lakhs
Total Contract Costs = `140 Lakhs
Hence, Percentage of Completion base on Costs = 80 ÷ 140 = 57.14%
= Costs Incurred Till Date ÷ Estimated Total Contract Costs
Contract Revenue to be recognised (as per Para 21) = 57.14% × `150=`85.71Lakhs
Less : Contract Costs to be recognised (as per Para 21) =as computed=`80.00 Lakhs
Therefore, Contract Profit = ` 5.71 Lakhs

(b) Blue Sky Ltd. used certain resources of Blue Moon Ltd. In return Blue Moon Ltd. received ` 15
lakhs and ` 22.50 lakhs as interest and royalties, respectively from Blue Sky Ltd. during the year
2012-13. Discuss the situation as per AS 9. [2]
Answer:
As per AS 9 on Revenue Recognition, revenue arising from the use by others of enterprise
resources yielding interest and royalties should only be recognised when no significant
uncertainty as to its measurability or collectability exists. These revenues are recognised on
following bases:

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Interest: On a time proportion basis taking into account the amount outstanding and the rate
applicable.
Royalties: On an accrual basis in accordance with the terms of the relevant agreement.

Here the interest should be recognised in the year to which it pertains, not in the year in which it
is received.

(c) A fire occurred in the office premises of lessee in the evening of 31.3.2012 destroying most
of the books and records. From the documents saved, the following information is gathered:

Short-working recovered :

2009-10 ` 4,000 (towards short-workings which arose in 2006-07)

2010-11 ` 8,000 (including ` 1,000 for short-working 2007-08)
2011-12 ` 2,000

Short-working lapsed :

2008-09 ` 3,000
2009-10 ` 3,600
2011-12 ` 2,000
A sum of ` 50,000 was paid to the landlord in 2008-09. The agreement of Royalty contains a
clause of Minimum Rent payable for fixed amount and recoupment of short-workings within 3
years following the year in which Short-workings arise.

Information as regards payments to landlord subsequent to the year 2008-09 is not readily
available.
Show the Short – working Account and the Royalty Account in the books of lessee. [8]

Answer:

Working Notes:
Analysis of payments

Year Minimum Royalty Actual Shortworking

Rent ` Payment `
` `
Occurred Recouped Lapsed Carried
Forward
2007-08 - - - - - - 11,600
2008-09 50,000 39,000 50,000 11,000 - 3,000 19,600(C)
2009-10 50,000 54,000 50,000 - 4,000 3,600 12,000(B)
2010-11 50,000 58,000 50,000 - 8,000 - 4,000(A)
2011-12 50,000 52,000 50,000 - 2,000 2,000 -

Analysis of Royalty Payable:

` `
Royalty in 2008-09 Minimum Rent – Shortworking 50,000 - 11,000 39,000
Royalty in 2009-10 Minimum Rent + Recoupment 50,000 + 4,000 54,000

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Royalty in 2010-11 Minimum Rent + Recoupment 50,000 + 8,000 58,000

Royalty in 2011-12 Minimum Rent + Recoupment 50,000 + 2,000 52,000

Explanation of the above mentioned Analysis:

(i) 2008-09 `50,000 was paid but there was no recoupment. `50,000 was the payment for
Minimum Rent. This has been posted in the minimum rent column, every year.
(ii) In 2011-12 Shortworking recouped + Shortworking lapsed = `2,000 + `2,000 = `4,000. This
has been posted as the amount carried forward in 2010-11. (A)
(iii) In 2010-11 `8,000 has been recouped. So, the closing balance of its preceding year
2009-10 was =`(4,000+8,000)=`12,000. (B)
(iv) In 2009-10 Shortworkings adjusted = amount recouped + amount lapsed
=`(4,000+3,600)=`7,600. In its preceding year 2008-09, the closing balance was
`(12,000+7,600) =`19,600. (C)
(v) No Shortworking occurred in 2009-10, 2010-11,2011-12. All Shortworkings occurred in
2008-09 or before.
(vi) Shortworking can be recovered within next 3 years.
Total Shortworking adjusted in 2011-12 `4,000 must be related to 2008-09.
Again out of `8,000 recouped in 2010-11. `1,000 is related to 2007-08.
Balance `7,000 was related to 2008-09.
Total Shortworking of 2008-09 = `4,000 + `7,000 = `11,000.
(vii) Opening Balance of Short working in 2007-08 = Closing balance + Amount recouped +
Amount Lapsed – Amount of Shortworking occurred i.e.`(19,600+3,000-11,000)=`11,600

In the books of ….
Royalty Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
` `
2008-09 To, Landlord A/c 39,000 2008-09 By, Profit and Loss A/c 39,000
39,000 39,000
2009-10 To, Landlord A/c 54,000 2009-10 By, Profit and Loss A/c 54,000
54,000 54,000
2010-11 To, Landlord A/c 58,000 2010-11 By, Profit and Loss A/c 58,000
58,000 58,000
2011-12 To, Landlord A/c 52,000 2011-12 BY, Profit and Loss A/ 52,000
52,000 52,000

Shortworkings Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
` `
2008-09 To, Balance b/d 11,600 2008-09 By, Profit and Loss A/c 3,000
To, Landlord A/c 11,000 By, Balance c/d 19,600
22,600 22,600
2009-10 To, Balance b/d 19,600 2009-10 By, Landlord A/c 4,000
By, Profit and Loss A/c 3,600
By, Balance c/d 12,000
19,600 19,600
2010-11 To, Balance b/d 12,000 2010-11 By, Landlord A/c 8,000
By, Balance c/d 4,000

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12,000 12,000
2011-12 To, Balance b/d 4,000 2011-12 By, Landlord A/c 2,000
By, Profit and Loss A/c 2,000
4,000 4,000

5. (a) From the following particulars, which have been extracted from the book of A & Co. , for the
year ended 31.01.2012, prepare General Ledger Adjustment Account in the Creditors Ledger
and Debtors Ledger Adjustment Account in t5he General Ledger:

Amount Amount
` `
Debtors Balance (01.01.2012) Dr. 20,000 Bills Receivable received 3,000
Cr. 300 Bills Receivable endorsed 800
Creditors Balance (01.01.2012) Dr. 200 Bills Receivable as endorsed 300
discounted
Cr. 15,000 Bills Receivable discounted 1,400
Purchases (including Cash `4,000) 12,000 Bills Receivable dishonoured 400
Sales (including Cash `6,000) 25,000 Interest charged on dishonoured 30
bills
Cash paid to suppliers in full 8,500 Transfer from one ledger to 600
settlement of claims for ` 9,000 another
Cash received from customers in 14,1000 Returns (Cr.) 700
full settlement of claims of ` 15,000
Bills Payable accepted (including 2,000 Debtors Balance (31.12.2012)Cr. 450
renewals)
Bills Payable withdrawn upon 500 Creditors Balance (31.12.2012) Dr. 10,870
renewals

[8]

Answer:
In the Creditors Ledger General Ledger Adjustment Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
2012 2012
Jan 1 To, Balance b/d 15,000 Jan By, Balance b/d 200
Dec. 31 To, Creditors Ledger Dec. 31 By, Creditors Ledger
Adjustment A/c: Adjustment A/c:
Purchases 8,000 Cash 8,500
Bills Payable Withdrawn 500 Discount Received 500
Bills Receivable 300 (9,000-8,500)
Dishonoured (as Returns Outward 700
endorsed) Bills Payable 2,000
Bills Receivable 800
(endorsed)
Transfer 600

To, Balance c/d 170 By, Balance c/d 10,870

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

23,970 23,970
2013 To, Balance b/d 10,870 2013 By, Balance c/d 170
Jan. 1 Jan. 1

In the General Ledger

Debtors Ledger Adjustment Account
Dr. Cr.
Date Particulars Amount(`) Date Particulars Amount(`)
2012 To, Balance b/d 20,000 2012 By, Balance b/d 300
Jan.1 Jan. 1
Dec.31 To, General Ledger Dec. 31 By, General Ledger
Adjustment A/c: Adjustment A/c:
Sales 19,000 Cash 14,100
Bills Receivable 300 Discount Allowed 900
endorsed dishonoured (15,000-14,100)
Bills Dishonoured 400 Bills Receivable 3,000
transfer 600

To, Balance c/d 450 By, Balance c/d 21,250

40,150 40,150
2013 21,250 2013
Jan. 1 To, Balance b/d Jan. 1 By, Balance b/d 450

(b) Azad , for mutual accommodation, draws a bill for `12,000 on Rahim. Azad discounted it for
`11,700. He remits `3,900 to Rahim. On the due date , Azad is unable to remit his dues to
Rahim to enable him to meet the bill. He, however, accepts a bill for `15,000 which Rahim
discounts for `14,500. Rahim send a `700 to Azad after discounting the above bill. Azad
becomes insolvent and a dividend of 80 paise in the rupee is received from his estate.

Pass journal entries in the books of Azad. [8]

Answer:

In the books of Azad

Journal Entries
Particulars L.F. Dr. Cr.
(`) (`)
Bills Receivable A/c Dr. 12,000
To, Rahim A/c 12,000
(Bill drawn for mutual accommodation and accepted by
Rahim.)
Bank A/c Dr. 11,700
Discount A/c Dr. 300
To, Bills Receivable A/c 12,000
(Bill discounted by the bank.)
Rahim A/c Dr. 4,000
To, Bank A/c 3,900
To Discount A/c 100
(1/3 Proceeds remitted to Rahim)

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Rahim A/c Dr. 15,000

To, Bills Payable A/c 15,000
(Bill accepted.)
Bank A/c Dr. 700
Discount A/c Dr. 300
To, Rahim A/c 1,000
(Proceeds received from Rahim including discount
charges.)
Bills Payable A/c Dr. 15,000
To, Rahim A/c 15,000
(Bill dishonored since he became insolvent)
Rahim A/c Dr. 9,000
To, Bank A/c 7,200
To,Deficiency A/c 1,800
(Cash paid to Rahim @80 paise in the rupee and balance
transferred to deficiency account)

Note:
Sharing Discount:
After discounting of the 1st bills, Azad received `8,000 (including discount)
Add: Amount remitted by Rahim (after discounting of the 2 nd bill) `700
Total benefit received by Azad `8,700

Now,

After discounting of the 2nd bill Rahim received `14,500

8,700
Proportion of Azad to Rahim = 500 =`300
14,500
Azad is to bear = `300 of discounting charges, and the balance by Rahim.

6. (a) On 01.07.2012,Pustak Printers purchased a printing machine from Mitra Ltd. on a Hire-
Purchase basis, payments to be made ` 8,000 on the said date and the balance in three half-
yearly instalments of ` 6,560; ` 5,952; ` 5,040; commencing from December 31, 2012. The
vendor charged interest at 10% p.a. calculated on half-yearly rates. Pustak Printers closes their
books annually on December 31, and provide depreciation at 10% p.a. on Diminishing
Balances eanh year. Work out the Cash Price of the machine and show the account of Mitra
Ltd. in the books of Pustak Printers. [8]

Answer:

[(P+i)=Instalment
Since rate of interest is @10% p.a. for half-yearly rates, it will be 5%
(100+5)= `105
= ]
`
Last Instalment 5,040
Less : Interest @ 240
Principal 4,800
Add : Instalment 5,952

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

10,752
Less : Interest @ 512
10,240
Add : Instalment 6,560
16,800
Less : Interest @ 800
Principal 16,000
Add : Down Payment 8,000
Cash Price 24,000

In the books of Pustak Printers

Dr. Mitra Ltd. Account Cr.

Date Particulars Amount Date Particulars Amount
(`) (`)
2011 2011
July 1 To, Bank A/c 8,000 July 1 By, Machinery A/c 24,000
Dec.31 ― Bank A/c 6,560 Dec.31 ― Interest A/c 800
― Balance c/d 10,240
24,800 24,800
2012 2012
June 30 To, Bank A/c 5,952 Jan.1 By, Balance b/d 10,240
Dec.31 To, Bank A/c 5,040 June 30 By, Interest A/c 512
Dec.31 By, Interest A/c 240
10,992 10,992

(b) Heaven Life Insurance Co. furnishes you the following information:

Particulars Amount (`)

Life insurance fund on 31.03.2013 39,00,000
Net Liability on 31.03.2013 as per actuarial valuation 30,00,000
Interim bonus paid to policyholders during intervaluation period 3,00,000

You are required to prepare:

(i) Valuation Balance Sheet;

(ii) Statement of Net Profit for the valuation period; and
(iii) Amount due to the policyholders. [6]

Answer:
Valuation Balance Sheet as at 31st March,2012
Liabilities Amount (`) Assets Amount(`)
Net Liabilities as per actuarial 30,00,000 Life Assurance Fund 39,00,000
valuation
Surplus 9,00,000
39,00,000 39,00,000

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Statement showing Net Profit for the valuation period

Particulars Amount (`)
Surplus as per Valuation Balance Sheet 9,00,000
Add: Interim Bonus Paid 3,00,000
12,00,000

Amount due to policyholders

Particulars Amount (`)
95% of Net Profit due to policyholders (95% of `12,00,000) 11,40,000
Less: Interim Bonus already paid 3,00,000
Amount due to policyholders 8,40,000

(c) What is register of claim with reference to Insurance Companies? [2]

Answer:

Register of claims

The Insurance Act, 1938 and the rules framed thereunder have an important bearing on the
preparation of accounts by insurance companies.
The insurer must maintain a register of claims .
It contains:
The details of claim made such as date of the claim, the name and address of the claimant
and the date on which the claim was discharged. If the claim was rejected, the date of
rejection and the reasons therefore.

7. (a) ESC Ltd. a power generation company, laid down a main at a cost of ` 25,00,000. Some
years later, the company laid down an auxiliary main for one-fifth of the length of the old main
at a cost of ` 7,50,000. At the same time, it also replaced the rest of the length of the old main
at a cost of ` 30,00,000 using in addition the materials of the old main amounting to ` 50,000.
The cost of materials and labour having gone up by 15%. Sale of old materials realized `
40,000. Materials of the old main valued at `25,000 were used in the construction of the
auxiliary main.

Give journal entries for recording the above transactions and also draw up the Replacement
A/c. [8]

Answer:

Journal Entries (Without Narration)

Particulars Debit (`) Credit(`)

1 Bank A/c Dr. 40,000
To, Replacement A/c 40,000
2 Auxiliary Main A/c Dr. 7,50,000
To, Bank A/c 7,25,000
To, Replacement A/c 25,000
3 Replacement A/c Dr. 22,50,000
New Main A/c Dr. 7,50,000
To, Bank A/c 30,00,000

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

4 Revenue A/c Dr. 21,85,000

To, Replacement A/c 21,85,000

A. Increased Cost of New Main:

25,00,000 × (4/5) `20,00,000
Add: Increase in Cost of 15% `3,00,000
`23,00,000

Cash Cost `30,00,000

Add: old materials used in renewals `50,000
Actual Cost `30,50,000

B. Auxiliary Main:
Total Cost `7,50,000
Less: Old Material used `25,000
Cash Cost `7,25,000

Replacement Account
Dr. Cr.
Particulars Amount (`) Particulars Amount(`)
To, Bank A/c 22,50,000 By, Bank A/c 40,000
By, Auxiliary Main A/c 25,000
By, Revenue A/c 21,85,000
22,50,000 22,50,000

(b) Write a note on internally Generated Computer Software. [4]

Answer:

Internally generated computer software for internal use is developed or modified internally by
the enterprise solely to meet the needs of the enterprise and at no stage it is planned to sell it.
The stages of development of internally generated software may be categorized into the
following two phases:

i. Preliminary project stage. i.e., the research phase.

ii. Development stage.

Preliminary project stage. i.e., the research phase.

At the preliminary project stage the internally generated software should not be recognized as
an asset. Expenditure incurred in the preliminary project stage should be recognized as an
expense when it is incurred. The reason for such a treatment is that at this stage of the software
project an enterprise cannot demonstrate that an asset exists from which future economic
benefits are probable.

Development stage
Internally generated software arising at the development stage should be recognized as an
asset if, and only if, an enterprise can find out all of the following:

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

The intention of the enterprise to complete the internally generated software and use it to
perform the functions needed.
The intention to complete the internally generated software can be demonstrated if -
The enterprise commits to the funding of the software project.
There is technical feasibility of installing the internally generated software.
The enterprise is able to use the software;
There is availability of adequate technical, financial and other resources to complete
the development and to use the software; and
There is enough capacity to measure the expenditure attributable to the software
during its development.

(c) Yuba Vavishwa Club was holding a building valuing ` 20 lakhs as on 31.03.2012.
Building Fund stands ` 17 lakhs and Cash at Bank is ` 32 lakhs as on 01.04.2012.
During the year 2012-13 donation received for the building fund is ` 42 lakhs.
Give the journal entries and the effect in the Balance Sheet as on 31.03.2013

If i) It purchases building of ` 32 lakhs during 2012-13

ii) It purchases building of ` 60 lakhs during 2012-13 [4]

Answer:
Situation (i)
Journal Entries
(` in Lakhs)
Date Particulars L.F. Debit (`) Credit(`)
Bank A/c Dr. 42
To, Donation for Building Fund A/c 42
(Donation received for Building Fund)
Building A/c Dr. 32
To, Bank A/c 32
( Building purchased utilizing the Building
Fund)
Building Fund A/c Dr. 32
To, Capital Fund A/c 32
( Being the capital expenditure transferred
to the Capital Fund)

Balance Sheet
as at 31.03.2013
(` in Lakhs)
Liabilities Amount (`) Assets Amount (`)
Capital Fund ? Building 20.00
Add: Building Fund 32.00 Add: Purchase
(Amount transferred) of building 32.00 52.00

Building Fund 17.00 Bank 32.00

Add: Donation 42.00 Add: Donation
59.00 Received 42.00
Less: Amount transferred 74.00
to Capital Fund 32.00 27.00 Less: Purchase of

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Building 32.00 42.00

Situation (ii)
Journal Entries
(` in Lakhs)
Date Particulars L.F. Debit (`) Credit(`)
Bank A/c Dr. 42
To, Donation for Building Fund A/c 42
(Donation received for Building Fund)
Building A/c Dr. 60
To, Bank A/c 60
( Building purchased utilizing the Building
Fund)
Building Fund A/c Dr. 59
To, Capital Fund A/c 59
( Being the capital expenditure transferred
to the Capital Fund)

Balance Sheet
as at 31.03.2013
(` in Lakhs)
Liabilities Amount (`) Assets Amount (`)
Capital Fund ? Building 20.00
Add: Building Fund 59.00 Add: Purchase
(Amount transferred) of building 60.00 80.00

Building Fund 17.00 Bank 32.00

Add: Donation 42.00 Add:
59.00 Donation
Less: Amount transferred Received 42.00
to Capital Fund 59.00 74.00
Less: Purchase of
Building 60.00 14.00

8. (a) Anik and Aniket decided to work a joint venture for the sale of electric motors.
st
On 1 May 2011, Anik purchased 100 electric motors at ` 175 each and dispatched 75 motors
to Aniket incurring ` 500 as freight and insurance charges. 5 electric motors were damaged in
st
transit. On 1 Feb. 2012, ` 500 were received by Anik from the insurance company, in full
th
settlement of his claim. On 15 March 2012, Anik sold 25 electric motors at ` 225 each. He
st
received ` 10,000 from Aniket on 1 April 2012.
th
On 15 May 2012, Aniket took delivery of the electric motors and incurred the following
expenses :
Clearing Chares ` 170; Repair charges to electric motors damaged in-transit ` 300; Godown
rent for 3 months ` 600.
He sold the electric motors as :
01.2.2012 5 damaged motors ` 170 each
20 motors at ` 200 each
15.3.2012 10 motors at ` 315 each

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

01.4.2012 40 motors at ` 250 each

It is agreed that they are entitled to a commission of 10% on the respective sales effected by
them; that the profits and losses shall be shared between Anik and Aniket in the ratio of 2:1.
th
Aniket remits Anik the balance of amount due on 30 April 2012. You are required to show the
Memorandum Joint Venture account only.
You are required to show the Memorandum Joint Venture Account only. [8]

Answer:

Memorandum Joint Venture Account

Dr. Cr.
Date Particulars Amount Date Particulars Amount
` `
2011 To Anik : Cost of Motors 17,500 2012 By Anik : Sale of Motors 5,625
May 1 (100 × ` 175) Mar. 15 (25 × ` 225)
May 15 To Anik : Freight and 500 Feb. 1 By Aniket : Sale of
Insurance Motors
5 × ` 170 = ` 850
20 × ` 200 = ` 4,000
10 × ` 315 = ` 3,150
40 × ` 250 = ` 10,000 18,000
Aniket : April 1 By Anik : Insurance 500
Clearing Charge 170 Claim
Repairs 300
Ground Rent 600 1,070
April 15 To Anik: Commission @ 10% 563
To AniketCommission@10% 1,800
‖ 30 To Profit on Venture :
Anik (2/3) 1,795
Aniket (1/3) 897 2,692
24,125 24,125

(b) On 31 March, 2011 Chinta Money Bank Ltd. had a balance of ` 27 crores in ―rebate on bill
discounted‖ account. During the year ended 31st March, 2012, Chinta Money Ltd. discounted
bills of exchange of ` 12,000 crores charging interest at 18% p.a., the average period of discount
being for 73 days. Of these, bills of exchange of ` 1,800 crores were due for realization from the
acceptor/customers after 31st March, 2012, the average period outstanding after 31st March,
2012 being 36.5 days.
Chinta Money Ltd. asks you to show the ledger accounts pertaining to:

I. Discounting of Bills of Exchange; and

II. Rebate on bill Discounted. [4]

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Answer:
Ledger of Chinta Money Bank Ltd.
Rebate on Bills Discounted Account
(` in Crore)
Dr. Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
01.04.11 To, Discount on Bills 27.00 01.04.11 By, Balance b/d 27.00
A/c
31.03.12 To, Balance c/d 32.40 31.03.12 By, Discount on bills 32.60
A/c (Rebate required)
59.40 59.40

Discount on Bills Account

(` in Crore)
Dr. Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
31.03.12 To, Rebate on Bills 32.40 01.04.11 By, Rebate on Bills A/c 27.00
Discount A/c
31.03.12 To, Profit and Loss A/c 426.60 31.03.12 By, Bills Purchased and 432.00
(Transfer) Discounted A/c
459 459

(c) Save Money Bank Ltd. had extended the following credit lines to a Small Scale Industry,
which had not paid any Interest since March, 2006:

Term Loan Export Loan

Balance Outstanding on 31.03.2012 ` 105 lakhs ` 90 lakhs
DICGC/ECGC cover 40% 50%
Securities held ` 45 lakhs ` 30 lakhs
Realisable value of Securities ` 30 lakhs ` 24 lakhs

Compute necessary provisions to be made for the year ended 31st March, 2012. [4]

Answer:

Particulars Term Loan Export Credit

(` in lakhs) (` in Lakhs)
Balance outstanding on 31.03. 105.00 90.00
Less: Realisable Value of Securities 30,00 24.00
75.00 66.00
Less: DICGC cover @40% 30.00 -
ECGC cover @50% - 33.00
Unsecured balance 45.00 33.00

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 Answer to PTP_Intermediate_Syllabus 2012_Dec2013_Set 1

Required Provision:
Particulars Term Loan Export Credit
(` in lakhs) (` in lakhs)
100% for unsecured portion 45.00 33.00
100% for secured portion 30.00 24.00
Total provision required 75.00 57.00

Directorate of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 24