Prob No: 5

Departmental Trading and P&L A/c for the six months ended 31/3/20
Particulars A B C
To Opening Stock 37,890 24,000 20,000
To Purchases 140,700 80,600 44,400
To Inter-Dept Transfers - - 11,300
(10,700 A + 600 B)
To Wages A/c - - 12,000
(48,000*25% Workshop)
To G.P. c/d 57,210 48,300 23,900
235,800 152,900 111,600
To Salaries
(a) General Office (48,000*50%*(3:2:1)) 12,000 8,000 4,000
(b) Showroom (48,000*25%*(1:2)) 4,000 8,000 -
To Rent 2,400 2,400 6,000
(C: 1000pm*6m), ((10,800-6000)*(1:1))
To Depreciation on F&F (750*(1:1:1)) 250 250 250
To Advertising 1,080 780 540
(2400*(18:13:9))
To Discount Allowed 540 390 270
(1,200*(18:13:9))
To Sundry Exp 5,400 3,900 2,700
(12,000*(18:13:9))

To N.P. c/d (transferred to P&L App. A/c) 31,940 24,830 10,290

57,610 48,550 24,050
d P&L A/c for the six months ended 31/3/2013
Particulars A B C
By Sales 180,000 130,000 90,000
By Inter-Dept Transfers 10,700 600 -

By Closing Stock A/c 45,100 22,300 21,600

235,800 152,900 111,600

By G.P. b/d 57,210 48,300 23,900
By Discount Received 400 250 150

57,610 48,550 24,050

 P&L Appropriation A/c
Particulars Amt Particulars Amt
To Provision for Unrealised Profit (WN 1) 1,710 By P&L A/c 67,060
To D's Capital A/c 31,483 (a) Dept A 31,940
(a) Dept A: (31,940*75%) 23,955 (b) Dept B 24,830
(b) Common Pool: 7,528 (c) Dept C 10,290
(((67,060*25%)-1710) *1/2)
To B's Capital A/c 22,386
(a) Dept B: (24,830*75%) 18,623
(b) Common Pool: 3763
(((67,060*25%)-1710) *1/4)
To R's Capital A/c 11,481
(a) Dept C: (10,290*75%) 7,718
(b) Common Pool: 3763
(((67,060*25%)-1710) *1/4)

67,060 67,060
 Prob No: 6
WN 1: Computation of Provision for Unrealised Profits
Particulars Amt
(a) Closing Stock of Dept C 21,600
(b) Dept A's Stock included in (a) above 5,700
(c) GP Ratio of Dept A 30%
57210 *100
180,000 + 10,700
(d) Provision for Unrealised Profit 1710
( (b)*(c ) )
Prob No: 6
Departmental Trading for the year ended 31/12/2013
Particulars A B Total
To Opening Stock 20,000 12,000 32,000
To Purchases 92,000 68,000 160,000
To Wages 12,000 8,000 20,000
To Carriage Inwards 2,000 2,000 4,000
To Inter-Dept Transfers
(a) PG 8,000 10,000 NA
(b) FG 40,000 35,000 NA
(c) Return of FG 7,000 10,000 NA

To G.P. c/d 42,500 42,000 82,373

223,500 187,000 298,373
rading for the year ended 31/12/2013
Particulars A B Total
By Sales 140,000 112,000 252,000
By Inter-Dept Transfers
(a) PG - At Cost Price 10,000 8,000 NA
(b) FG - At Selling Price 35,000 40,000 NA
(c) Return of FG 10,000 7,000 NA

By Closing Stock
(a) PG 4,500 6,000 10,500
(b) FG 24,000 14,000 35,873
(WN 1)
223,500 187,000 298,373
WN 1: Computation of Gross Profit Ratio and Closing Stock of FG at Cost price for Organisation as a whole
Particulars Amt
(a) Gross Profit Ratio
(i) Dept A 25.29%
Gross Profit *100
Sales + Transfer of FG - Return of FG
42500 *100
140,000 + 35,000 - 7000

(ii) Dept B 29.57%

42000 *100
112,000 + 40,000 - 10,000

(b) Dept A's FG Closing Stock at Cost Price

(i) FG Closing Stock (as given) 24,000
(ii) Dept B's Stock included in above Closing Stock 4,800 Profit is added by Dept B
( (i) * 20% )
(iii) Unrealised Profit in (ii) 1,419
( (ii)* GPR of Dept B 29.57% )
(iv) Dept A's FG Closing Stock at Cost Price 22,581
( (i) - (iii) )

(c) Dept B's FG Closing Stock at Cost Price

(i) FG Closing Stock (as given) 14,000
(ii) Dept A's Stock included in above Closing Stock 2,800 Profit is added by Dept A
( (i) * 20% )
(iii) Unrealised Profit in (ii) 708
( (ii)* GPR of Dept A 25.29% )
(iv) Dept B's FG Closing Stock at Cost Price 13,292
( (i) - (iii) )

(d) Total FG Closing Stock at Cost Price 35,873

( (b)(iv) + (c )(iv) )
Prob No: 7
Departmental P&L Adjustment A/c for the year ended 31/3/2005
Particulars A B C
To Services received from Dept A - 9,240 4,950
(a) Dept B: 8400*110%
(b) Dept C: 4500*110%
To Receipt of Supplies from Dept B 35,760 - 6,480
(a) Dept A: 29,800*120%
(b) Dept C: 5400*120%
To Receipt of Supplies from Dept C 400 5,600 -

To Charges on Shifting of staff (Expense) 4,400 1,100 -

To Increase in Profits due to Inter- 30,700

Departmental Transfers
40,560 46,640 11,430
Adjustment A/c for the year ended 31/3/2005
Particulars A B C
By Services provided by Dept A 14,190 - -
(9240 + 4950)

By Transfer of Supplies by Dept B - 42,240 -

(35,760 + 6480)

By Transfer of Supplies by Dept C - - 6,000

(400 + 5600)

By Recovery of Staff shifting Charges (Income) 1,100 4,400 -

By Decrease in Profits due to Inter- 25,270 5,430

Departmental Transfers
40,560 46,640 11,430
 N.P. before deducting UP
Less: UP
N.P. after deducting UP
10%

N.P. after Commission but before deducting UP

Wrongly,
N.P.
Les: Commission

Prob No 8:
Statement showing Corrected Profits
Particulars X Y Z
(a) Net Profit after Managers Commission 36,000 27,000 18,000
but before Unrealised Profit (as given)
(b) Add: Managers Commission wrongly computed 4,000 3,000 2,000
(a*10/90)
(c) Profit before Unrealised profit and Commission 40,000 30,000 20,000
(d) Less: Unrealised Profits (WN 1) -4,000 -4,500 -2,000
(e) Profit after Unrealised profits but before Managers 36,000 25,500 18,000
Commission
(f) Less: Commission @10% (e*10%) -3,600 -2,550 -1,800
(g) Corrected Profits (N.P. after UP and Commission) 32,400 22,950 16,200
WN 1: Computation of Unrealised Profits
Dept X Dept Y Dept Z
Particulars
Stock UP Stock UP Stock
(a) Transfer from Dept X 15,000 3,000 11,000
(15000*25/125)
(b) Transfer from Dept Y 14,000 2,100 12,000
(14,000*15%)
(c) Transfer from Dept Z 6,000 1,000 5,000 1,000
(6000*20/120) (5000*25/125)

X to Y 25% on Cost
X to Z 10% on Cost

Y to X 15% on Sales
Y to Z 20% on Sales

Z to X 20% on Cost
Z to Y 25% on Cost
Dept Z Total Unrealised
UP Profit
1,000 4,000
(11,000*10/110)
2,400 4,500
(12,000*20%)
2,000
Prob No 9:
Computation of Correct N.P. and GM's Commission
Particulars Alpha Beta Gamma
(a) Profit before charging GM's Commission 30,000 40,000 17,400
and Unrealised Profit (as given)
(b) Purchase for Alpha wrongly charged to Beta -10,000 10,000 -
(c) Less: Profit on Goods Sent on sale/return basis - -900 -
(8,400*12/112)
(d) General Expenses wrongly charged to Gamma - -2,100 2,100
instead of Beta
(e) Less: Unrealised Profits (On Closing Stock)
(i) Alpha to Beta (12,000*20/120) -2,000 - -
(ii) Beta to Gamma (4,400*10/110) - -400 -
(f) Corrected Profits before GM's Commission 18,000 46,600 19,500

GM's Commission = Overall Corrected Company Profits * 10/110

= 84,100*10/110
= 7,645

N.P. of Company after GM's Commission = 84,100 - 7645 = 76,455

Total
87,400

-
-900 Selling Price 8,400
Reduce sales 8,400 Decreases
- Added to Cl. St. 7,500 Increases
(8,400 * 100/112)
900 Net Decrease in Profits
-2,000 (8,400 *12/112)
-400
84,100
 Dept Stock A/c
Dept Markup A/c (Adjustment)
Dept P&L A/c

Computation of N.P. or L is duvuded into Two parts

I) Comp GP - By Preparing Dept Markup A/c (Closing Bal)
II) Comp NP - By Preparing Dept P&L A/c in Columnar form

Markup means Loading (Increase in Cost Price)

Cost 100
Markup (Loading) 50
Marked Price or Invoice Price 150

Dept Stock A/c Dr 150

To Creditor /Bank/Cash A/c 100
To Dept Markup A/c 50

Sales a) ASP (150) = Marked Price (150)

C/B/Debtors A/c Dr 150
To Dept Stock A/c 150

b) ASP (170) > Marked Price (150)

C/B/Debtors A/c Dr 170
To Dept Stock A/c 150
To Dept Markup A/c 20

c) ASP (140) < Marked Price (150)

C/B/Debtors A/c Dr 140
Dept Markup A/c Dr 10
To Dept Stock A/c 150

Abnormal Loss
Dept Markup A/c Dr 50
Dept P&L A/c Dr 100
To Dept Stock A/c 150

Reduction in Marked Price - Markdown during the year

Cost 100
Marked Price or Invoice Price 150
Marked Price is reduced by Rs. 5 (Markdown)
Revised Marked Price = 150 -5 = 145

Dept Markup A/c Dr 5

To Dept Stock A/c 5
At the End of the Accounting Year
a) Cl. Bal in Dept Stock A/c - c/f to Next Year (Closing Stock)

b) and c)
Closing Stock 30
Unrealised Profit (30*50/150) 10
UP should be carried forward to NY
In Branch Accounts, it will be removed from Branch Adj A/c and carried forward in a Separate account called as Bra
However, in Dept Accounts, it will be carried forward in Dept Markup A/c itself, need not to create a new A/c to car

Branch Adjustment A/c

To Br Stock Reserve A/c 10
(Unrealised Profit)

To Br.P&L A/c (GP) 40

50

Dept Markup A/c

(c ) To Dept.P&L A/c (GP) (b/f) 40

(b) To Balance c/d (30*50/150) 10

(Unrealised Profit)
50
eparate account called as Branch Stock Reserve A/c
ot to create a new A/c to carry forward

ch Adjustment A/c
By GSB 50

50

ept Markup A/c

By Dept Stock A/c 50

50
By Balance b/d 10
(At the beginning of NY)
Prob No: 11
Khadi Stock A/c
Particulars Amt Particulars Amt
To Balance b/d 12,740 By Debtors 95,600
( (10,500 * 133.33%) - 1260 )
To Creditors (Cost) 75,900 By Silk Stock A/c (Cost) 6,900
To Khadi Markup A/c (Markup) 25,300 By Khadi Markup (Markup) 2,300
(75,900*33.33%) (6900*33.33%)
By Khadi Markup (Markdown) 360
By Khadi Markup (390*33.33%) 130
By Khadi P&L A/c (Cost) 390

By Balance c/d 8,260

113,940 113,940
Khadi Markup A/c
Particulars Amt Particulars Amt
To Khadi Stock A/c 2,300 By Balance b/d 2,240
To Khadi Stock A/c 360 (12,740 - 10,500)
To Khadi Stock A/c 130 By Khadi Stock A/c 25,300

To Khadi P&L A/c (G.P.) 22,685

To Balance c/d (Unrealised Profit) 2,065

(8,260*33.33/133.33)
(8,260*25%) 27,540 27,540

Dept Stock A/c Dr 101,200

To Creditor A/c 75,900
To Dept Markup A/c 25300

Dept Stock A/c Dr 140,100

To Creditor A/c 93,400
To Dept Markup A/c 46700

Silk Stock A/c Dr 6,900

To Khadi Stock A/c 6,900

Dept Markup A/c Dr 130

Dept P&L A/c Dr 390
To Dept Stock A/c 519.9999999987
 Silk Stock A/c
Particulars Amt Particulars Amt
To Balance b/d 27,900 By Debtors 125,000
(18,600*150%) By Silk Markup A/c (Markdown) 2,000
To Creditors (Cost) 93,400
To Silk Markup A/c (Markup) 46,700
(93,400*50%)
To Khadi Stock (Cost) 6,900
To Silk Markup A/c (Markup) 3,450
(6900*50%) By Balance c/d 51,350

178,350 178,350

Silk Markup A/c

Particulars Amt Particulars Amt
To Silk Stock A/c 2,000 By Balance b/d 9,300
(27,900-18,600)
(18,600 * 50%)
To Silk P&L A/c (G.P.) 41,000 (27,900 * 50/150)
By Silk Stock A/c 46,700
To Balance c/d (Unrealised Profit) 16,450 By Silk Stock A/c 3,450
(WN 1)
59,450 59,450
WN 1: Computation of Unrealised profit on Closing stock of Silk Dept
Particulars Amt
(a) Closing Stock including Marked down Goods 51,350
(b) Add: Marked down Amount 1,000
(c) Closing stock at Normal Markup 52,350
(d) Normal/Gross Markup Amount ( (c) * 50/150 ) 17,450
(e) Less: Markdown Amt -1,000
(f) Net Markup 16,450
Prob No: 10
Memorandum Stock A/c
Particulars Amt Particulars Amt
To Balance b/d 111,260 By Debtors 320,000
((80,000*140%) - 740) By Memorandum Markup A/c 1,400
To Creditors (Cost) 180,000 (Markdown)
To Memorandum Markup A/c 72,000 By Memorandum P&L A/c 1,200
(180,000 * 40%) (Cost)
By Memorandum Markup A/c 480
(1200*40%)
By Balance c/d 40,180
363,260 363,260
Memorandum Markup A/c
Particulars Amt Particulars Amt
To Memorandum Stock A/c 1,400 By Balance b/d 31,260
To Memorandum Stock A/c 480 (111,260 - 80,000)
By Memorandum Stock A/c 72,000
To Memorandum P&L A/c (G.P.) 90,150

To Balance c/d (WN 1) 11,230

103,260 103,260

WN 1: Computation of Unrealised profit on Closing stock

Particulars Amt
(a) Closing Stock including Marked down Goods 40,180
(b) Add: Marked down Amount (1400*4000/16000) 350
16,000 1400
4000 ?
(c) Closing stock at Normal Markup 40,530
(d) Normal/Gross Markup Amount ( (c) * 40/140 ) 11,580
(e) Less: Markdown Amt -350
(f) Net Markup 11,230

Departmental Trading A/c for the year ended 30/6/2013

Particulars Amt Particulars Amt
To Opening Stock 80,000 By Sales 320,000
To Purchases 180,000 By Abnormal Loss 1,200

By Closing Stock 28,950

(40,180 - 11,230)
To G.P. c/d (b/f) 90,150 (40,530 - 11,580)
350,150 350,150
AS 6 Depreciation
AS 10 Fixed Assets
Merged in to
AS 10 Property, Plant and Equipments (Tangible Fixed Assets)

AS 26 Intangible Fixed Assets

Exploration
Machinery Extraction
Supply
Processing

Gross CA Historical Cost or Revalued Amt

Carrying Amt / Net CA / Net Book Value
Gross CA (Gross BV)
- Accummulated Dep

100
-20
80 Cap

Total 300,000 OH
100,000
Incurred even if there is no Purchase of Machinery - General OH - IS not part of Cost of Asset

200,000
Incurred only because of Purchase of Machinery - Specific OH (Directlty attributable cost) - Pa

Two types of Machinery Spares:

Non-Interchangeable: Capitalised to the Main PPE
Interchangeable: Treat as Inventories and charged to P&L
Example:
1) P&M is purchased from USA of RS. 1 crore and from manufacturer of machinery two sets of spare parts are Pu
In this case Spare parts cannot be used for any other P&M, they can be used only for a specific PPE and hence sp
Total Cost of PPE = 1 cr + 10 Lakhs = 1.10 Crores

2) 100 Printers from USA are Purchased of RS. 5 Lakhs. 1000 Catridges (Spare Parts) are also Purchased of Rs. 10
In this case Catridges can be used for any printer and hence they are Inventories

Prob No. 6 Rental Income should be credited to PPE A/c or P&L A/c?
Whether the above Income is from Incidental Operations of Construction?
Yes - Credit to PPE (Reduce from Cost of PPE)
No - Credit P&L A/c
 In this case giving vacant land on rent basis is not an Incidental operations of Construction of Building. Hence, cre

Exchange of Assets
Incoming PPE
Outgoing PPE

Incoming PPE should be capitalised at what Price?

Incoming PPE Fair Value - 100
Outgoing PPE Fair Value - 110
Outgoing PPE Book Value (Carrying Amt) - 80

Incoming PPE should be capitalised at Rs. 110

At Cost Price (Sacrifice)

Order of Preference
Outgoing PPE Fair Value +- Cash
Incoming PPE Fair Value
Outgoing PPE Book Value (Carrying Amt) +- Cash

New Machine Fair Value is 20,500

BV of Old Machine is Rs. 16,800

Cash Paid is Rs. 6000

Machinery should be capitalised at 20,500

P/L on Old Machinery?
New Machinery = Outgoing Machinery + Cash
20,500 = Outgoing Machinery + 6000
Outgoing Machinery = 20,500 - 6000 = 14,500 (Fair Value of Outgoing Asset)
Loss on Exchange of Old Machinery = BV - FV = 16,800 - 14,500 = 2,300

Consolidated Price
Guest House is Purchased at Rs. 150,00,000
Land
Building
Furniture
Appliances
Total Cost of Guest house should be apportioned among all the individual PPE's in the ratio of Individual PPE Fair

Revaluation Model
OC 100
Dep already provided in PY is 30
NBV 70

Revalued Amt 120 (70 is revalued to 120)

 Less: Acc Dep -30 PY's Dep Should not be deducted
Subsequent Dep should be deducted (Dep to be provided in

100 BV
102 FV/Market Value
2% Immaterial

Estimation - Discounted Future Cash flows from the Asset

PPE - are classified in to below different classess

Land
Buildings
P&M
Vehicles
F&F
Others
Org can select and revalue any of the class of PPE's above

For suppose Org decided to revalue only Lands (Allowed)

Within the class of Land there are in total 10 lands
Within the class every PPE (every land) should be revalued

Max amt of Revaluation

BV 100
Recoverable Amt is 120 (maximum amt)
Can the Org revalue PPE as 130 - NO
Can the Org revalue PPE as 110 - YES

Accounting Treatment for Revaluation Profit or Loss

I) First Time Revaluation
Profit It should be Credited to
Revaluation Reserve A/c
(Disclosed under Liabilities
side of Balance sheet)

Loss It should be Debited

(charged) to P&L A/c

II) Subsequent time revaluation

It depends on First Time result
a) First Time - Profit
Subsequent Profit or Loss
If Profit It should be Credited to
Revaluation Reserve A/c
 If Loss Loss should be Debited to For Example:
Revaluation Reserve A/c to First time profit is 50 - Cr to RR A/c
the extent of Balance available, Subsequent time:
remaining loss if any should be Case 1: Loss is 30
debited to P&L A/c Case 2: Loss is 60
b) First Time - Loss Case 3: Loss is 50
Subsequent Profit or Loss
If Profit Profit should be Credited For Example:
to P&L A/c to the extent of First time Loss is 50 - Dr to P&L
previous debits, remaining Subsequent time:
profit if any should be Case 1: Profit is 30
credited to Revaluation Res A/c Case 2: Profit is 60
Case 3: Profit is 50
If Loss It should be Debited
(charged) to P&L A/c

Depreciation
Change in
Useful life
RV
Cost of Asset
Method of Dep

Step 1: On date of change, find out BV by using Old factors

Step 2: Provide Dep in future on above BV by using New Factors

Depreciation on Addition/Extention to an Existing Asset (Main Asset)

It depends on whether this addition/extention is an Integral part of the main asset or not an integral part of main asset???

Integral Part Cost of addition/extention will be added to BV of main asset and depreciated based on life of
Not Integral Part Such extention/addition should be capitalised separately and provide depreciation based on i

If addition/extention cannot be used separately after sale of main asset - It is an Integral part (example, AC in Ca
If addition/extention can be used separately even after sale of main asset - It is not an Integral part (example, TV
 Revalued Amt
Book Value

OH - IS not part of Cost of Asset

(Directlty attributable cost) - Part of Cost of Asset

ry two sets of spare parts are Purchased at RS. 10L

y for a specific PPE and hence spare parts are Non-Interchangeable

rts) are also Purchased of Rs. 100,000 from USA manufacturer.

nstruction of Building. Hence, credit it to P&L A/c

n the ratio of Individual PPE Fair values

deducted (Dep to be provided in future - after revaluation)
s 50 - Cr to RR A/c

Entire loss debit to RR A/c

Loss of Rs. 50, debit to RR A/c, balance loss of Rs. 10, Debit to P&L A/c
Entire loss debit to RR A/c

50 - Dr to P&L

Entire profit Credit to P&L

Profit of 50, Credit to P&L A/c, Balance profit of 10, Credit to RR A/c
Entire profit Credit to P&L

ntegral part of main asset???

nd depreciated based on life of main Asset

provide depreciation based on its own useful life

Integral part (example, AC in Car)

not an Integral part (example, TV in car)
AS 13: Accounting for Investments

This topic is available only CA

It is req for CMA students, Redemption of Debenture (Co. Acc)

Classification of Investments
I Accounting Purpose
Investment in Properties (Land/Buildings)
Accounting for Inv in Properties should be done
by using Cost model of AS 10

II Valuation Purpose
Long Term / Non Current Investments

Intention on date of hold it for more than 12 months

Purchase?

Valuation Rule? At Cost Price

At what amt these

Inv should be disclosed
in Balance sheet
 Inv in other than Properties (Inv in Securities like Shares, Deb, Bonds, CP's...)
In Fixed Income Securities In Variable Income Securities

e.g. Debentures , Bonds e.g. Equity Shares and Preference shares

Inv in 10% Deb of RIL

RIL should pay the Int Compulsory irrespective Profits/Lossess
Int Income will be received
Hence, Deb are Fixed Income Securities

Inv in Equity shares of RIL

RIL will pay Equity Dividend only if Profits are available
Dividend Income depends on availability of Profits
Hence, E.shares are variable Inc Securities

Inv in 12% Pref shares of RIL

RIL will pay Preference Dividend only if Profits are available
Pref Dividend Income depends on availability of Profits
Hence, P.shares are variable Inc Securities

Current / Short Term Investments

not to old for more than 12 months

At Cost or MP whichever is lower, loss on

valuation if any should be charged to P&L
Accounting for Investment in Fixed Income Securities

Investment in Fixed Income Securities e.g. 12% D

Is not an Investment Int on
Account, it is in Debentures
mere additional Debentures A/c
information A/c (Asset) (Nominal)
Date Particulars Face Value Cost Interest
4/1/2013 To Cash A/c 1000 1050 30

To P&L A/c (b/f) 6 99

1000 1056 129

JE
1) Purchase of Debentures
10 Debentures
Face Value/Nominal Value per Deb is 100
Purchase price 105

RIL issued 12% Debentures 1/1/2011

FV is 100 per Deb
One Debenture Subscribed
Interest date - Received 12/31/2011 12
Interest date - Received 12/31/2012 12
During 2013 year - You approached me in regard to purchase of Deb. - on 1/4/2013
MP is Rs.105
Sold Deb at 105
Next Interest date 12/31/2013
RIL will pay the interest to Buyer of Rs 12
Seller is owner for 3 months - Rs 3 Int belongs to Seller
Buyer is owner for 9 months - Rs 9 belongs to Buyer
On 31/12/13, Buyer received Int belonging to Seller
Int which belongs to Seller will be recovered on Date of sale itself
As on 1/4/2013, Total amount to be paid by Buyer to Seller is as follows
MP is Rs.105 + Int of Rs 3 = 108
Int of Rs 3 is called as Broken Period Int
To Seller B.P.Int is Income
To Buyer B.P.Int is neither Income nor Expense
Broken Period Int should be computed from Previuos Int Due date to Date of Transaction(Sale/Purch
Hence JE is as follows:
Inv in Deb A/c (10 Deb*105) Dr 1050 (Consideration towards Princ)
 Int on Deb A/c (10 Deb*3) Dr 30 (B.P.I)
To Cash A/c (10Deb*(105+3)) 1080 (Cons towards Prin + BPI)

Expression of Price
108 - Cum Int Price 105 - Ex Int Price
Incl. Int Excl. Int
Cash Flow is 108 Cash Flow is 108
Payment of Int is Compulsory

KFC McD
Burger 100 100
Excl Tax Incl Tax
Tax should be paid

If question is silent, expressed price is always Ex-Int Price

2) Receipt of Interest
Cash A/c Dr
To Int on Deb A/c

3) Sale of Debentures
Cash A/c Dr 330
Loss on Sale of Deb A/c (P&L) (b/f) Dr
To Interest on Deb 9 (3 Deb*3)
To Investment in Deb 315 (3 Deb*105 Cost)
To Profit on sale of Deb A/c (P&L) (b/f) 6 (3 Deb*(107-105))

Alternatively,
Cash A/c Dr 330
To Interest on Deb 9 (3 Deb*3)
To Investment in Deb 321 (3 Deb*107)

Profit/Loss will not be recorded on

every sale, instead of that profit/Loss
will be calculated as balancing figure in
Cost column at the end of the year

4) At the End of the Accounting year

a) b/f in FV Column c/f to NY
b) Identify Int Accrued but not due if any and record
c) Valuation of Investments
Long Term Inv Current Inv
Disclose at Cost Price Discl at Cost or MV whichever is lower
(10 - 3 sold) Deb*105
735

d) b/f in Cost column - represents P/L on sale of Deb, transferred to P&L A/c
b/f in Int column - represents Int Income, transferred to P&L A/c
 Due date of Int Acc year ending
31/12/2020 31/12/2020
ome Securities e.g. 12% Debentures 31/3/2021
Is not an Investment Int on
Account, it is in Debentures
mere additional Debentures A/c
information A/c (Asset) (Nominal)
Date Particulars Face Value Cost Interest
By Cash A/c (Int Received) - - 120

By Cash A/c (Sale) 300 321 9

By Int Acc but not due A/c Nil

By Balance c/d 700 735
(b/f) (Computed)

1000 1056 129

of Transaction(Sale/Purchase)

owards Princ)
ons towards Prin + BPI)

Deb*105 Cost)
Deb*(107-105))

BPI
Consideration towards Princ
NO Int Accrued but not due
For the gap of 3 months - Int is accrued but not due

Int Income receivable A/c Dr

To Int Income A/c

Int Accrued but not due A/c Dr

To Int on Deb A/c
Prob No: 3 Int Due dates 30/6 31/12 31/12/2008
Investment in 9%Government Loan A/c
Date Particulars Face Value Cost Interest Date
4/1/2009 To Balance b/d 200,000 190,000 6/1/2009
4/1/2009 To Int Accrued but not due A/c 4,500
(200,000*9%*3/12)
5/31/2009 To Bank A/c 80,000 73,000 3,000 6/30/2009
(80,000*9%*5/12)
(5months are from 31/12/08 to 31/5/09) 11/30/2009
( (80,000*95%) - 3000 )
(Consideration towards Princ = Total Payment - BPI)
12/1/2009 To Bank A/c 10,000 10,000 375
(10,000*9%*5/12) 12/31/2009

3/31/2010

3/31/2010 To P&L A/c (b/f) - - 18,600 3/31/2010

3/31/2010

290,000 273,000 26,475

Sequence of Adj for Purchase/Sale:
FV
Int
Cost: a) Cum Int Price; Cost Column Amt = Price given - Int
b) Ex-Int Price; Cost Column Amt = Price Given
rnment Loan A/c
Particulars Face Value Cost Interest
By Bank A/c 60,000 56,400 2,250
(60,000*9%*5/12)
(60,000*94%)
By Bank A/c - - 9,900
((200,000+80,000-60,000)*9%*6/12)
By Bank A/c 40,000 37,300 1,500
(40,000*9%*5/12)
(5months are from 30/6/2009 to 30/11/2009)
((40,000*97%)-1500)
By Bank A/c - - 8550
(190,000*9%*6/12)
By Int Accrued but not Due A/c 4275
(190,000*9%*3/12)
By P&L A/c (b/f - Loss) 1,300
By Balance c/d 190,000 178,000
(b/f) (WN 1)
290,000 273,000 26,475
 Prob No: 7

WN 1: Valuation of Investments as on 31/03/2010 - Current Investments - FIFO

(a) FV of Investments held on 31/3/2010 190,000
(b) Cost Of Investments held as on 31/03/2010 on FIFO Basis 178,000
Face Value Cost
100,000 95,000
(190,000*100,000/200,000)
80,000 73,000
10,000 10,000
190,000 178,000

(c ) Market Value of Investments held 182,400

(190,000*96%)

(d) Value of Inestments held ( b or c whichever is lower) 178,000

Prob No: 7 Int Due dates 30/9 31/3
Investment in 12% Debentures of M/s Wye Ltd A/c
Date Particulars Face Value Cost Interest Date
12/1/2012 To Bank A/c 1,000,000 1,000,100 20,000 3/1/2013
(10,000 Deb*100)
(10,00,000*12%*2/12)
( (10,00,000*101%*101%) - 20,000 )
( (F.V.*Purchase Price percentage*Brokerage) - BPI ) 3/1/2013
3/1/2013 To P&L A/c (b/f) 30,000
1,000,000 1,000,100 50,000

Additional Note:
On Purchase: Brokerage is added to cost of Investments (100+1 = 101%)
On Sale: Brokerage is deducted from Sale Proceeds (100-1 = 99%)
es of M/s Wye Ltd A/c
Particulars Face Value Cost Interest
By Bank A/c 1,000,000 999,400 50,000
(10,00,000*12%*5/12)
((10,00,000*106%*99%) - 50,000)

By P&L A/c (b/f - Loss) 700

1,000,000 1,000,100 50,000

Main PPE 1,000,000 512000
Part/Inspection 100,000 51200 should be charged to P&L(De-recognised) before capitalising 120,000
1,100,000 563200

Next Part/Inspection 120,000

If Old Part/Inspection of 100,000 is capitalised separately, what is the treatment for CA of Rs. 51,200
should be charged to P&L(De-recognised) before capitalising 120,000

On Old P&M - CA of RS. 200,000 - Charged to P&L

P&L A/c Dr 200,000
To P&M A/c 200,000

New Machine received form Insurance Co. (Fair Value is 20,00,000)

P&M A/c Dr 2,000,000
To P&L A/c 2,000,000

Net Impact on P&L is Gain of Rs. 18,00,000

italising 120,000
Accounting for Investment in Variable Income Securities

Investment in Shares A/c

Is not an Account, it is Investment Dividend on

mere additional in Shares A/c Shares A/c
information (Asset) (Nominal)
Date Particulars No. of Shares Cost Dividend
To Bank A/c (Purchase) 100 1200 -
(100 sh*12)

Bonus shares 50 - -

To Bank A/c (Subscription for Rights) 50 1250 -

(50 right shares * 25)
To P&L A/c (b/f) (b/f)

Journal Entries
1) Purchase of Shares
Investment in Shares A/c Dr
To Bank A/c
Note: Broken Period Dividend is not applicable

2) Receipt of Dividend
Bank A/c Dr
To Investment in shares A/c (Pre-Acq Div - Cost Column)
To Dividend Income A/c (Post-Acq Div)

There are two types of Dividend:

I) Pre-Acquisition Div
If Dividend received is for the period which is prior to Acquisition of shares, then it is called as Pre-Acquis
Example:
2017-2018 I'm Owner of shares
You Purchased from me as on 1/7/2018
Company Declared dividend and paid it on 10/8/2018 for the FY 2017-2018
Buyer (You) will receive Dividend
For 2017-2018 you received Dividend
This 17-18 year is year previous(Before) to Acquisition of shares.
Then Dividend for the pre-acquisition period (17-18) is called Pre-Acquisition Div
This Dividend is received for a period during which Buyer is not the owner, hence it is in the nature of Ca
This Capital should be credited to Cost Column to recuce the Cost of Acquisition of shares

II) Pre-Acquisition Div

If Dividend received is for the period which is post to Acquisition of shares, then it is called as Post-Acqui
 Such Post-Acq Div is in Revenue nature and hence credited to Dividend A/c (P&L A/c)

3) Bonus Issue of Shares

Issue of shares to existing SH at free of cost
Bonus Sh (1:2)- Nil Consideration(Free)
Original share = 100 sh
Bonus Shares received = 100sh*1/2 = 50sh
For Bonus shares - No JE in the books of Investor
Just No. of Shares column should be updated with Bonus shares

4) Rights Issue of Shares

Issue of shares to existing SH at concessitional Rate
Rights Issue Ratio is 1:2
Original share = 100 sh
50 Right Shares
Face Value is 10
MP/Fair V is 30
Rights Issue Price is 25
(Generally will be less than MP)

Subscription to Right shares is only an option to Shareholder

SH can either subscribe or renounce the rights (Sale of rights)

I) If Subscribed
JE is same as Purchase of shares
Investment in Shares A/c Dr
To Bank A/c

II) Renunciation of Rights (Sale of Rights / Transfer of eligilibility to subscribe for\ Right shares)
Existing SH can transfer right to subcribe to Right shares to another person - Renunciation of Rights (Sale
at Rs. 3 per Right share

Accounting treatment in books of Existing SH for sale of rights

Sale proceeds = 50sh*3 = 150
Accounting treatment depends on whether original shares are purchased on
Ex-Rights basis Cum-Rights basis
Sale Proceeds should be credited to Sale Proceeds should
P&L A/c be credited to
Investment A/c (Cost
Column) to reduce
cost

Ex-Rights or Cum-Rights basis depends on whether original shares are purchased

before announcement of Rights or after announcement of rights by the company
Company announced on 1/8/2018 that it will issue right shares to those shareholders who will be the ow
Date of Announcement is 1/8/2018
 Date of Purchase of Original Shares
a) 25/7/2018 Original shares are purchased Before announcement of Rights - Ex
b) 5/8/2018 Original shares are purchased After announcement of Rights - Cum

5) Sale of Shares
Bank A/c Dr
To Investment in Shares A/c

Profit/Loss will not be recorded on

every sale, instead of that profit/Loss
will be calculated as balancing figure
in Cost column at the end of the year

6) At the End of the Accounting year

a) b/f in No. of Shares Column c/f to NY
b) Valuation of Investments
Long Term Inv Current Inv
Disclose at Cost Price Discl at Cost or MV whichever is lower

d) b/f in Cost column - represents P/L on sale of Shares, transferred to P&L A/c
b/f in Div column - represents Div Income, transferred to P&L A/c
ment in Shares A/c

Is not an
Account, it is
mere Investment in Dividend on
additional Debentures Shares A/c
information A/c (Asset) (Nominal)
Date Particulars No. of Shares Cost Dividend
By Bank A/c (Div) - Pre Aqu Div Post Acq Div

By Bank A/c (Renouncement of Rights 150 -

Cum-Rights basis)

By Bank A/c (Sale) xx xxx -

By Balance c/d (b/f) Valuation

en it is called as Pre-Acquisition Dividend

Proposed by Management
Then it will be declared in AGM
after declaration in AGM, then it will be paid
AGM should be conducted within 6 months from the end of year
2017-2018, last date to conduct AGM is 30/9/2018

nce it is in the nature of Capital Profit

n it is called as Post-Acquisition Dividend

r\ Right shares)
enunciation of Rights (Sale of Right)

holders who will be the owner on 10/8/2018

nouncement of Rights - Ex-Rights basis - Sale Proceeds should be credited to P&L A/c
uncement of Rights - Cum-Rights basis; Sale proceeds should be credited to Cost Column (Investment in shares A/c)
Prob No: 1
Investment in Equity shares of Alpha Ltd. A/c
Particulars No. of Shares Cost Particulars
To Balance b/d 500 62,500 By Bank A/c (Sale of Bonus shares)
(500sh*90)
Bonus Issue/Shares 500 -
( 500 sh*(1:1))

To P&L A/c (b/f) 13,750 By Balance c/d

1,000 76,250

WN 1: Valuation of Investments - Current Investments - Average Cost basis

a) No. of Shares held 500 sh
(b) Average Cost of shares held 31,250 ( (Total Cost of shares/Total no. of shares) * NO. of sh
62,500 + 0 *500 sh
500sh + 500sh

(c) MV of shares held 46,250

( 500 sh * 92.50)

(d) Value of Inestments held 31,250

( a or b whichever is lower)
 Prob No: 2
Investmen
No. of Shares Cost Date Particulars
500 45,000 1/1/2010 To Balance b/d
(20,000 sh * 16)
6/1/2010 To Bank A/c
(5000sh * (10+4))
8/2/2010 Bonus Issue
500 31,250 ((20,000 + 5000) *1/5)
(b/f) (WN 1) 9/30/2010 To Bank A/c (Rights Subscribed)
1,000 76,250 ((20,000+5000+5000)*1/3*50%)
(5000sh*15)

tal no. of shares) * NO. of shares held) 12/31/2010 To P&L A/c (b/f)

Note 1:
Since Original shares are purchased
before date of announcement
(30/6/2010), it is a case of Ex-Rights
basis. And hence Sale Proceeds from
Renuncement of Rights of Rs. 7,500
((20,000+5000+5000)*(1:3)*50%*
1.50) should be directly credited to
P&L A/c
 Investment in Equity shares of World Com Ltd A/c
No. of Shares Cost Dividend Date Particulars No. of Shares Cost
20,000 320,000 - 10/20/2010 By Bank A/c (Note 2) - 7,500

5,000 70,000 - 11/1/2010 By Bank A/c 20,000 300,000

(20,000 sh *(10+5))
5,000 - -

5,000 75,000 -

38,571 30,000 12/31/2010 By Balance c/d 15,000 196,071

(b/f) (Note 3)
35,000 503,571 30,000 35,000 503,571
 Note 2: Analysis of Dividend received in CY for the year ended 31/3/2010 (PY)
Dividend Number of shares eligible for Dividend = 25,000 shares
30,000 (Bonus & Right shares are not eligible for Dividend of PY)

- Dividend received on Opening balance shares

Post-Acquisition Dividend

Amt = 20,000sh*10*15% = 30,000

Credit to Dividend Column

30,000
 Note 3:
r ended 31/3/2010 (PY)
s eligible for Dividend = 25,000 shares
ares are not eligible for Dividend of PY)

Dividend received on shares purchased during CY

Pre-Acquisition Dividend

Amt = 5000sh*10*15% = 7,500

Credit to Cost Column (to reduce cost)

Valuation of Shares - Long Term Investment - Avg Cost basis
(a) No. of shares held 15,000 shares
(b) Average cost of Shares held 196,071
320,000 + 70,000 + 0 + 75,000 - 7,500 (Pre-Acq Div) * 15,000sh
20,000 + 5000 + 5000 + 5000
Prob No: 5
Investment in 12% Bonds A/c
Date Particulars Face Value Cost Interest Date
5/1/2011 To Bank A/c 2,400,000 1,992,000 24,000 9/30/2011
(24,000 * 100)
(24,00,000*12%*1/12)
((24,00,000*84%) - 24,000) 3/1/2012

3/31/2012

3/31/2012 To P&L A/c 105,000 249,000

3/31/2012
2,400,000 2,097,000 273,000
% Bonds A/c
Particulars Face Value Cost Interest Date
By Bank A/c - - 144,000 6/15/2011
(24,00,000*12%*6/12)

By Bank A/c 1,500,000 1,350,000 75,000

(15,000 * 100)
(15,00,000*12%*5/12)
(15,00,000*90%)
3/31/2012
By Bank A/c - - 54,000
(900,000*12%*6/12)

By Balance c/d 900,000 747,000

(19,92,000*9/24) 2,400,000 2,097,000 273,000
24L - 19,92,000
9L - ?
 Investment in Equity shares of Alpha Ltd A/c
Particulars No. of Shares Cost Dividend Date Particulars
To Bank A/c 150,000 3,825,000 - 10/31/2011 By Bank A/c
(150,000*25*102%) (80,000sh*22)

1/1/2012 By Bank A/c

(70,000sh*10*15%)
(Interim Div - Post)

To P&L A/c - - 105,000 3/31/2012 By P&L A/c

3/31/2012 By Balance c/d

150,000 3,825,000 105,000 (38,25,000*70/150)
 Investment in
No. of Shares Cost Dividend Date Particulars No. of Shares
80,000 1,760,000 - 7/10/2011 To Bank A/c 60,000
(60,000*44*102%)
1/15/2012 To Bank A/c 6,000
- - 105,000 (60,000*1/4*40%*25)

3/31/2012 To P&L A/c (b/f) -

- 280,000
66,000
70,000 1,785,000
150,000 3,825,000 105,000 Note 1:
Since Original shares are
purchased before date of
announcement, it is a case of
Ex-Rights basis. And hence Sale
Proceeds from Renuncement
of Rights of Rs. 20,250
(60,000*1/4*60%*2.25) should
be directly credited to P&L A/c
Investment in Equity shares of Beeta Ltd A/c
Cost Dividend Date Particulars No. of Shares Cost Dividend
2,692,800 - 3/15/2012 By Bank A/c - - 118,800
(66,000 sh*10*18%)
150,000

- 118,800

3/31/2012 By Balance c/d (b/f) 66,000 2,842,800

2,842,800 118,800 66,000 2,842,800 118,800
Prob No:6
Investment in Equity shares of V Ltd A/c
Date Particulars No. of Shares Cost Date
4/1/2011 To Bank A/c 5,000 615,000 3/31/2012
((5000sh*120*102.50%)

10/31/2011 Bonus Issue 2,500 -

(5000sh * 1/2)

3/31/2012 To P&L A/c - 15,500

3/31/2012
7,500 630,500
s of V Ltd A/c WN 1: Valuation of Investments - Current Investments - Average Cost bas
Particulars No. of Shares Cost Particulars Amt
By Bank A/c 2,500 220,500 a) No. of Shares held 5,000 sh
(2,500sh*90*98%) (b) Average Cost of shares held 410,000
615,000 + 0 *5000
5000 + 2500
(c) MV of shares held (5000sh*90) 450,000
(d) Value of Inestments held 410,000
( b or c whichever is lower)

By Balance c/d 5,000 410,000

7,500 630,500
ments - Average Cost basis
COMPANY ACCOUNTS

I) Issue and Forfeiture of Shares

Two types of shares
a) Equity shares (Ordinary shares)- Those which are not Preference Shares
b) Preference shares - Those shares for which Preferance is available over Equity Shares in regard to:
a) Over Payment of Dividend (Preference Div)
b) Over Repayment of Capital (On Liquidation)

Total Capital shall be divided in to Units, for example every Unit is of Rs. 10 each (Face Value)
For example, Total Capital is Rs. 10,00,000 divided in to Units of Rs. 10 each
Total no. of units = 10,00,000/10 = 100,000 units - are called as Shares

Issue Process of Shares

Company - Public Issue of shares of 100,000 shares of Rs. 10 each face value
Prospectus

1/6 to 6/6 - Period over which Public can apply for the shares
Public can apply for the shares through Application Forms
Nominal Value or Face Value is Rs. 10 per share
This Rs. 10, can be collected at a time or in stages
A) At at Time; Entire Rs. 10 should be paid along with application form (Called as Application Money)
B) In Stages
There are broadly three stages:
a) Application money - Money to be paid at the time of application of shares
b) Allotment money - Money to be paid immediately after Allotment of shares (Issuing of share certificates to a
c) Call money - Balance money, money to be paid on Call made by Company
(In Multiple sub-stages..First Call 1, Second call 1, Third and final call 1….'n' no. of calls can be ma

Shares can be Issue at Par or at Premium

At PAR Issue of shares at Par - Issuing the shares at Face Value or Nominal Value, Issue Price = Face Value = Rs. 10 each
At Premium Issue of shares at Premium - Issuing shares at more than Face Value; Issue price(12) > Face Value(10)
12 Comprises, 10 FV and 2 Securities Premium
Securities Premium is extra cost to shareholder and Capital Profit to Company
and such Capital Profit should be credited to a specific account called Securities Premium A/c

Issue of shares at Discount

A Company is Prohibited for Issue of shares at Discount (Issue Price(9) < Face Value (10)), unlessthey are Sweat Equity shares

Subscriptions:
I) Full Subscription (100%)
II) Under Subscription (<100%)
III) Over Subscription (>100%)
Example:
Company intends to Issue 100,000 shares
 Public Applied or Subscribed for,
a) 100,000 shares - Full Subscription
b) 85,000 shares - Under Subscription
c) 120,000 shares - Over Subscription

JE for Issue and Forfeiture of Shares

Case I: Issue of Shares at Par
A) Full Subscription
B) Under Subscription
C) Over Subscription
Case II: Issue of Shares at Premium
A) Full Subscription
B) Under Subscription
C) Over Subscription
Case III: Calls-in-Arrears
Case IV: Calls-in-Advance
Case V: Forfeiture of Shares
A) Forfeiture of Shares which were Issued at Par
B) Forfeiture of Shares which were Issued at Premium
Case VI: Re-Issue of Forfeited Shares
Case VII: Issue of Shares for other than Cash
 g of share certificates to applicants; On Issue of shares, applicants are called as Shareholders(Owners))

….'n' no. of calls can be made by Company)

= Face Value = Rs. 10 each

Face Value(10)

are Sweat Equity shares

Case I: Issue of Shares at Par (Issue Price = Face Value)
A) Full Subscription
Example:
A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 10, which is collected as follows:
Application money - 4
Allotment Money - 3
Call money - 3

Journal Entries
1) Application Money Received
Bank A/c Dr 400,000
To Share Application Money A/c 400,000
(100,000 sh * 4)

2) Allotment of shares
Share Application Money A/c Dr 400,000
To Share Capital A/c 400,000

3) Allotment Money
a) Due (Receivable)
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000
To Share Allotment Money A/c 300,000

4) Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000
To Share Call Money A/c 300,000

B) Under Subscription (<100%)

Two Types of Under subscription:
1) Subscription < 90% - For example 80,000 shares are Applied/Subscribed
2) 90% <= Subscription <100% - For example 93,000 or 90,000 shares are Applied/Subscribed
 1) Subscription < 90% - 80,000 shares are Applied/Subscribed
Under this case, as per SEBI, Issue Process should be cancelled.
Company should refund back entire application money received.

i) Application Money Received

Bank A/c Dr 320,000
To Share Application Money A/c 320,000
(80,000 sh * 4)

ii) On Refund
Share Application Money A/c Dr 320,000
To Bank A/c 320,000

2) 90% <= Subscription <100% - 93,000 or 90,000 shares are Applied/Subscribed

Under this case, Company can continue with Issue Process
JE are same as in Full Subscription, however entries should be recorded for 93,000 shares instead of 100,000 shares

C) Over Subscription (>100%)

A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 10, which is collected as follows:
Application money - 4
Allotment Money - 3
Call money - 3
Public Applied for 120,000 shares

In this case for issuing 100,000 shares for 120,000 applications, a process will be followed by company called as "Pr
Example for the above data:
Applications Allotments
60,000 60,000
50,000 40,000 Excess Application money is on 10,000 shares, Company c
10,000 Nil Entire Application money is to be refunded
120,000 100,000

Journal Entries
1) Application Money Received
Bank A/c Dr 480,000
To Share Application Money A/c 480,000
(120,000 sh * 4)

2) Allotment of shares
I Option: On Second Catg. Applications - Refund
Share Application Money A/c Dr 480,000
 To Share Capital A/c 400,000
(100,000 sh *4)
To Bank A/c 80,000
(20,000 sh *4)
(10,000 Applications of II Cat + 10,000 Applications of III Cat = 20,000 Applications)

Remaining JE are same as in Full Subscription (A)

3) Allotment Money
a) Due (Receivable)
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000
To Share Allotment Money A/c 300,000

4) Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000
To Share Call Money A/c 300,000

II Option: On Second Catg. Excess Application money - Retained

Two ways
First Alternate:
Share Application Money A/c Dr 440,000
To Share Capital A/c 400,000
(100,000 sh *4)
To Bank A/c (10,000 applications (III) * 4) 40,000

Balance available in Share Application money a/c is Rs. 40,000 (480,000 Cr - 440,000 Dr)
This money is excess application money Retained and will be adjusted against Allotment money due (future money
Share Application money A/c will be closed on adjustement against allotment money due

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)
b) Receipt
Bank A/c (300,000 - 40,000) Dr 260,000
Share Application Money A/c Dr 40,000
To Share Allotment Money A/c 300,000

Now, Share applicartion money a/c is Closed

4) Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000
To Share Call Money A/c 300,000
nstead of 100,000 shares

y company called as "Pro-rata Allotment"

,000 shares, Company can refund (I Option) such excess application money or it can retain and adjust against future money due (II Optio
 Second Alternate:
Share Application Money A/c Dr 480,000
To Share Capital A/c 400,000
(100,000 sh *4)
To Bank A/c (10,000 applications (III) * 4) 40,000
To Share Allotment Money A/c 40,000
Retained amount is transferred to Share Allotment money A/c
oney due (future money due)

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000

b) Receipt
 Bank A/c (300,000 - 40,000) Dr 260,000
To Share Allotment Money A/c 260,000

4) Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000
To Share Call Money A/c 300,000
uture money due (II Option) from shareholders
Case II: Issue of Shares at Premium
A) Full Subscription
A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 12, which is collected as follows:
Application money - 6 (4 FV + 2 Securities Premium)
Allotment Money - 3
Call money - 3

Journal Entries
1) Application Money Received 1)
Bank A/c Dr 600,000
To Share Application Money A/c 600,000
(100,000 sh * 6)

2) Allotment of shares 2)
Share Application Money A/c Dr 600,000
To Share Capital A/c (100,000sh *4) 400,000
To Securities Premium (100,000 sh *2) 200,000

3) Allotment Money 3)
a) Due a)
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000 b)
To Share Allotment Money A/c 300,000

4) Call Money
a) Due 4)
Share Call Money A/c Dr 300,000 a)
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000 b)
To Share Call Money A/c 300,000

B) Under Subscription (<100%)

Two Types of Under subscription:
1) Subscription < 90% - 80,000 shares are Applied/Subscribed
 2) 90% <= Subscription <100% - 93,000 or 90,000 shares are Applied/Subscribed

Application money - 6 (4 FV + 2 Securities Premium)

Allotment Money - 3
Call money - 3

1) Subscription < 90% - 80,000 shares are Applied/Subscribed

Under this case, as per SEBI, Issue Process should be cancelled.
Company should refund back Entire application money received.

i) Application Money Received

Bank A/c Dr 480,000
To Share Application Money A/c 480,000
(80,000 sh * 6)

ii) On Refund
Share Application Money A/c Dr 480,000
To Bank A/c 480,000

2) 90% <= Subscription <100% - 93,000 or 90,000 shares are Applied/Subscribed

Under this case, Company can continue with Issue Process
JE are same as in Full Subscription, however entries should be recorded for 93,000 shares instead of 100,000 shares

C) Over Subscription (>100%)

A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 12, which is collected as follows:
Application money - 6 (4 FV + 2 Securities Premium)
Allotment Money - 3
Call money - 3
Public Applied for 120,000 shares

In this case for issuing 100,000 shares for 120,000 applications, a process will be followed by company called as "Pr
Example for the above data:
Applications Allotments
60,000 60,000
50,000 40,000 Excess Application money is on 10,000 shares, Company can re
10,000 Nil Entire Application money is to be refunded
120,000 100,000

Journal Entries
1) Application Money Received
Bank A/c Dr 720,000
To Share Application Money A/c 720,000
(120,000 sh * 6)
2) Allotment of shares
I Option: On Second Catg. Applications - Refund
Share Application Money A/c Dr 720,000
(120,000 sh * 6)
To Share Capital A/c (100,000 sh *4) 400,000
To Securities Premium (100,000sh*2) 200,000
To Bank A/c (20,000 sh *6) 120,000
(10,000 Applications of II Cat + 10,000 Applications of III Cat = 20,000 Applications)

Remaining JE are same as in Full Subscription

II Option: On Second Catg. Excess Application money - Retained

Two ways
First Alternate:
Share Application Money A/c Dr 660,000
To Share Capital A/c (100,000 sh *4) 400,000
To Securities Premium (100,000sh*2) 200,000
To Bank A/c (10,000 sh (III) *6) 60,000

Balance available in Share Application money a/c is Rs. 60,000 (720,000 Cr - 660,000 Dr)
This money is excess application money Retained and will be adjusted against Allotment money due (future money
Share Application money A/c will be closed on adjustement against allotment money due

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c (300,000 - 60,000Retained) Dr 240,000
Share Application Money A/c Dr 60,000
To Share Allotment Money A/c 300,000

Now, Share applicartion money a/c is Closed

` Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000
To Share Call Money A/c 300,000
 Application money - 4
Allotment Money - 5 (3 FV + 2 Securities Premium)
Call money - 3

Application Money Received

Bank A/c Dr 400,000
To Share Application Money A/c 400,000
(100,000 sh * 4)

Allotment of shares
Share Application Money A/c Dr 400,000
To Share Capital A/c 400,000

Allotment Money
Due
Share Allotment Money A/c Dr 500,000
(100,000 sh * 5)
To Share Capital A/c (100,000*3FV) 300,000
To Securities Premium (100,000 sh *2) 200,000

Receipt
Bank A/c Dr 500,000
To Share Allotment Money A/c 500,000

Call Money
Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

Receipt
Bank A/c Dr 300,000
To Share Call Money A/c 300,000
pplied/Subscribed

lied/Subscribed

recorded for 93,000 shares instead of 100,000 shares

, a process will be followed by company called as "Pro-rata Allotment"

lication money is on 10,000 shares, Company can refund (I Option) such excess application money or it can retain and adjust against futu
ication money is to be refunded
= 20,000 Applications)

Second Alternate:
Share Application Money A/c Dr
To Share Capital A/c (100,000 sh *4)
To Securities Premium (100,000sh*2)
To Bank A/c (10,000 applications (III) * 6)
To Share Allotment Money A/c (10,000 applications (II) * 6)
(720,000 Cr - 660,000 Dr) Retained amount is transferred to Share Allotment money A/c
adjusted against Allotment money due (future money due)
ainst allotment money due
3) Allotment Money
a) Due
Share Allotment Money A/c Dr
To Share Capital A/c

b) Receipt
Bank A/c (300,000 - 60,000) Dr
To Share Allotment Money A/c

4) Call Money
a) Due
Share Call Money A/c Dr
To Share Capital A/c
(100,000 sh * 3)

b) Receipt
Bank A/c Dr
To Share Call Money A/c
n retain and adjust against future money due (II Option) from shareholders
 720,000
400,000
200,000
60,000
applications (II) * 6) 60,000
Allotment money A/c

300,000
300,000

240,000
240,000

300,000
300,000

300,000
300,000
Case III: Calls-in-Arrears
Shareholders might fail to pay Allotment money or Call money, such amount will be recognised
in a separate account called as Calls-in-Arrears A/c (Asset - Receivable from Shareholders)
Interest (Income) will be charged on Calls-in-Arrears at maximum of 10% pa for a period from Due date to Actual receipt date.

Example:
A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 10, which is collected as follows:
Application money - 4
Allotment Money - 3
Call money - 3
Shareholders holding 15,000 shares paid allotment money after one month

Journal Entries
1) Application Money Received
Bank A/c Dr 400,000
To Share Application Money A/c 400,000
(100,000 sh * 4)

2) Allotment of shares
Share Application Money A/c Dr 400,000
To Share Capital A/c 400,000

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c (85,000sh*3) Dr 255,000
Calls-in-Arrears A/c (15000sh*3) Dr 45,000
To Share Allotment Money A/c 300,000

c) Receipt of Calls-in-Arrears along with Interest

i) Interest Income Receivable
Shareholders A/c or Int Receivable A/c Dr 375
(45,000 * 10% * 1/12)
To Interest Income A/c 375

ii) Receipt
Bank A/c (45,000 + 375) Dr 45,375
To Calls-in-Arrears A/c 45,000
To Shareholders A/c or Int Receivable A/c 375
 4) Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 300,000
To Share Call Money A/c 300,000

Case IV: Calls-in-Advance

Shareholders might pay part or full amount in Advance (For say At the time of allotment money due shareholders also paid ca
Such amount will be recognised in a separate account called as Calls-in-Advance A/c (liability)
Interest (Expense) is allowed on such advance at maximum of 12% pa for the period from receipt date of such advance money

Example:
A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 10, which is collected as follows:
Application money - 4
Allotment Money - 3
Call money - 3
Shareholders holding 15,000 shares paid call money also along with allotment money. Call is made after 6 months.

Journal Entries
1) Application Money Received
Bank A/c Dr 400,000
To Share Application Money A/c 400,000
(100,000 sh * 4)

2) Allotment of shares
Share Application Money A/c Dr 400,000
To Share Capital A/c 400,000

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c Dr 345,000
(100,000sh*3) + (15,000sh * 3 Call Money)
 To Share Allotment Money A/c 300,000
To Calls-in-Advance A/c 45,000

4) Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c (85,000sh*3) Dr 255,000
Calls-in-Advance A/c (15000sh*3) Dr 45,000
To Share Call Money A/c 300,000

c) Interest for 6 months at 12%

(i) Due (or) Payable
Interest Expense A/c Dr 2700
To Shareholders A/c or Interest Payable A/c 2700
(45,000*12%*6/12)

(ii) On Payment
Shareholders A/c or Interest Payable A/c Dr 2700
To Bank A/c 2700
te to Actual receipt date.
shareholders also paid call money)

e of such advance money to due date of call

after 6 months.
Case V: Forfeiture of Shares
Forfeiture - Cancellation of allotted shares on Non-Payment of either Allotment money or Call money or both

A) Forfeiture of Shares which were Issued at Par

Example 1
A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 10, which is collected as follows:
Application money - 4
Allotment Money - 3
Call money - 3
Shareholders holding 15,000 shares couldn’t pay allotment money and call money, subsequently shares are forfeited

Journal Entries
1) Application Money Received
Bank A/c Dr 400,000
To Share Application Money A/c 400,000
(100,000 sh * 4)

2) Allotment of shares
Share Application Money A/c Dr 400,000
To Share Capital A/c 400,000

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c (85,000sh*3) Dr 255,000
Calls-in-Arrears A/c (15000sh*3) Dr 45,000
To Share Allotment Money A/c 300,000

4) Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c (85,000sh*3) Dr 255,000
Calls-in-Arrears A/c (15000sh*3) Dr 45,000
To Share Call Money A/c 300,000
 5) Forfeiture of Shares
Share Capital A/c Dr 150,000 (Called up Capital - Amount which are asked from shareh
(15,000 sh *(4+3+3) )
To Calls-in-Arrears A/c 90,000 (Amount Due but not received)
(45,000 Allotment + 45,000 Call)
To Share Forfeiture A/c 60,000 (Amount already received - should not be ref
(15,000sh *4 Application money)

Alternatively, (Calls-in-Arrears A/c is not recognised)

1) Application Money Received
Bank A/c Dr 400,000
To Share Application Money A/c 400,000
(100,000 sh * 4)

2) Allotment of shares
Share Application Money A/c Dr 400,000
To Share Capital A/c 400,000

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c (85,000sh*3) Dr 255,000
To Share Allotment Money A/c 255,000
(Calls-in-Arrears A/c is not recognised, Amount not received is
in Share Allotment money A/c only (300,000 Dr - 255,000 Cr = 45,000 Dr Balance) )

4) Call Money
a) Due
Share Call Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c (85,000sh*3) Dr 255,000
To Share Call Money A/c 255,000
(Calls-in-Arrears A/c is not recognised, Amount not received is
in Share Call money A/c only (300,000 Dr - 255,000 Cr = 45,000 Dr Balance) )

5) Forfeiture of Shares
Share Capital A/c Dr 150,000 (Called up Capital - Amount which are asked from shareh
(15,000 sh *(4+3+3) )
 To Share Allotment Money A/c 45,000 (Amount Due but not received)
To Share Call Money A/c 45,000 (Amount Due but not received)
To Share Forfeiture A/c 60,000 (Amount already received - should not be ref
(15,000sh *4 Application money)

B) Forfeiture of Shares which were Issued at Premium

Situation I: Securities Premium is Received
Situation II: Securities Premium is Not Received

Situation I: Securities Premium is Received

A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 12, which is collected as follows:
Application money - 6 (4 FV + 2 Securities Premium)
Allotment Money - 3
Call money - 3
Shareholders holding 15,000 shares couldn’t pay allotment money, subsequently shares are forfeited (Call is yet to me mad

Journal Entries
1) Application Money Received
Bank A/c Dr 600,000
To Share Application Money A/c 600,000
(100,000 sh * 6)

2) Allotment of shares
Share Application Money A/c Dr 600,000
To Share Capital A/c (100,000sh *4) 400,000
To Securities Premium (100,000 sh *2) 200,000

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 300,000
To Share Capital A/c 300,000
(100,000 sh * 3)

b) Receipt
Bank A/c (85,000*3) Dr 255,000
Calls-in-Arrears A/c (15,000*3) Dr 45,000
To Share Allotment Money A/c 300,000

4) Forfeiture of shares
If Securities Premium is already received, such premium should not be cancelled on Forfeiture
Securities Premium A/c should not be debited and Share Forfeiture A/c should be credited with amount received

Share Capital A/c Dr 105,000 (Called up Capital - Amount which are asked from shareh
 (15,000 sh *(4+3) )
To Calls-in-Arrears A/c / Share Allotment money A/c 45,000 (Amount Due but not received)
(45,000 Allotment)
To Share Forfeiture A/c 60,000 (Amount already received towards Face Valu
(15,000sh *4 FV - Application money)

Situation II: Securities Premium is Not Received

A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 12, which is collected as follows:
Application money - 4
Allotment Money - 5 (3 FV + 2 Securities Premium)
Call money - 3
Shareholders holding 15,000 shares couldn’t pay allotment money, subsequently shares are forfeited

Journal Entries
1) Application Money Received
Bank A/c Dr 400,000
To Share Application Money A/c 400,000
(100,000 sh * 4)

2) Allotment of shares
Share Application Money A/c Dr 400,000
To Share Capital A/c (100,000sh *4) 400,000

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 500,000
(100,000sh * 5)
To Share Capital A/c(100,000 sh * 3) 300,000
To Securities Premium (100,000 sh *2) 200,000

b) Receipt
Bank A/c (85,000*5) Dr 425,000
Calls-in-Arrears A/c (15,000*5) Dr 75,000
To Share Allotment Money A/c 500,000

4) Forfeiture of shares
If Securities Premium is not received, such premium should be cancelled on Forfeiture
Securities Premium A/c should be debited

Share Capital A/c Dr 105,000 (Called up Capital - Amount which are asked from shareh
(15,000 sh *(4+3) )
Securities Premium A/c Dr 30,000
 (15,000 sh * 2)
To Calls-in-Arrears A/c / Share Allotment Money A/c 75,000 (Amount Due but not received)
(75,000 Allotment)
To Share Forfeiture A/c 60,000 (Amount already received towards Face Valu
(15,000sh *4 Application money)
 money or both

ently shares are forfeited

unt which are asked from shareholders)

e but not received)

eady received - should not be refunded - Capital Profit to Company)

unt which are asked from shareholders)

e but not received)
e but not received)
eady received - should not be refunded - Capital Profit to Company)

forfeited (Call is yet to me made)

on Forfeiture
credited with amount received towards FV only

unt which are asked from shareholders)

e but not received)

eady received towards Face Value - should not be refunded - Capital Profit to Company)

unt which are asked from shareholders)

e but not received)

eady received towards Face Value - should not be refunded - Capital Profit to Company)
Case VI: Re-Issue of Forfeited Shares
Forfeited shares will be re-issued by an Auction

Conditions for Re-issue:

1) Loss on Re-Issue should not exceed profit on forfeiture
Consequently, Minimum Re-Issue Price = FV - Profit on forfeiture
Example:
FV 10
Issue Price 10
Application received 4 (From Old Shareholder)
On Forfeiture Profit 4 (Credited to Share Forfeiture A/c)
(Amt Received towards FV)
Minimum Re-Issue Price = FV - Profit on forfeiture = 10 - 4 = 6

Examples:
Minimum Re-Issue Price = FV 10 - Profit on Forfeiture 4 = 6
Re-Issued at 6
FV 10
Loss on Re-Issue is 4
Allowed since Loss is less than Profit onn Forfeiture

Re-Issued at 5
FV 10
Loss on Re-Issue is 5
which is more than profit on Forfeiture (4)
Not allowed

Re-Issued at 7
FV 10
Loss on Re-Issue is 3
Allowed since Loss is less than Profit onn Forfeiture

Re-Issued at 12
FV 10
Loss on Re-Issue is Zero
Allowed
Profit on Re-Issue is Rs. 2 (12 - 10), it is Securities Premium (Cr)

2) If Forfeited shares are re-issued at Premium, excess amount over FV

should be credited to Securities Premium A/c (as usual)
3) Loss on Re-Issue should be Debited to Share Forfeiture A/c
4) Remaining balance if any in Share forfeiture A/c, it should be
transferred to Capital Reserve A/c (Sh forfeiture a/c is closed)
Situation I: All forfeited shares are re-issued
A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 12, which is collected as follows:
Application money - 4
Allotment Money - 5 (3 FV + 2 Securities Premium)
Call money - 3
Shareholders holding 15,000 shares couldn’t pay allotment money, subsequently shares are forfeited
All Forfeited shares are re-issued at Rs. 9 per share

Journal Entries
1) Application Money Received
Bank A/c Dr 400,000
To Share Application Money A/c 400,000
(100,000 sh * 4)

2) Allotment of shares
Share Application Money A/c Dr 400,000
To Share Capital A/c (100,000sh *4) 400,000

3) Allotment Money
a) Due
Share Allotment Money A/c Dr 500,000
(100,000sh * 5)
To Share Capital A/c(100,000 sh * 3) 300,000
To Securities Premium (100,000 sh *2) 200,000

b) Receipt
Bank A/c (85,000*5) Dr 425,000
Calls-in-Arrears A/c (15,000*5) Dr 75,000
To Share Allotment Money A/c 500,000

4) Forfeiture of shares
If Securities Premium is not received, such premium should be cancelled on Forfeiture
Securities Premium A/c should be debited

Share Capital A/c Dr 105,000 (Called up Capital - Amount which are asked from sharehol
(15,000 sh *(4+3) )
Securities Premium A/c Dr 30,000
(15,000 sh * 2)
To Calls-in-Arrears A/c / Share Allotment Money A/c 75,000 (Amount Due but not received)
(75,000 Allotment)
To Share Forfeiture A/c 60,000 (Amount already received towards Face Valu
(15,000sh *4 Application money)
 5) Re-Issue of shares
Bank A/c (15,000sh*9) Dr 135,000
Share Forfeiture A/c Dr 15,000
(Loss on Re-Issue = 15,000 sh *(FV 10 - Reissue price 9) = 15,000sh*1)
To Share Capital A/c (15,000*10 FV) 150,000

6) Balance profit in Share Forfeiture to be transferred to Capital Reserve A/c

Share Forfeiture A/c Dr 45,000
To Capital Reserve A/c 45,000

Situation II: All forfeited shares are not re-issued

A Ltd goes for Public Issue of 100,000 shares
Face Value per share is Rs. 10
Issue Price is Rs. 12, which is collected as follows:
Application money - 4
Allotment Money - 5 (3 FV + 2 Securities Premium)
Call money - 3
Shareholders holding 15,000 shares couldn’t pay allotment money, subsequently shares are forfeited
Out of 15,000 Forfeited shares, 10,000 shares are re-issued at Rs. 9 per share, balance 5000 shares are yet to be re-issued

5) Re-Issue of shares
Bank A/c (10,000sh*9) Dr 90,000
Share Forfeiture A/c Dr 10,000
(Loss on Re-Issue = 10,000 sh *(FV 10 - Reissue price 9) = 10,000sh*1)
To Share Capital A/c (10,000sh *10 FV) 100,000

6) Balance profit on Shares Re-issued to be transferred to Capital Reserve A/c

Share Forfeiture A/c Dr 30,000
To Capital Reserve A/c 30,000
(10,000 sh *(4 - 1))
Re-Issued at 7
FV 10
Loss on Re-Issue is 3
Balance Profit after Re-Issue = 4-3 = 1
Share Forfeiture A/c
Particulars Amt Particulars Amt
Loss on Re-Issue 3 Profit on Forfeiture 4
Capital Reserve 1
(Balance profit on
shares re-issued)
4 4
are asked from shareholders)

eived towards Face Value - should not be refunded - Capital Profit to Company)
 Share Forfeiture A/c
Particulars Amt Particulars Amt
To Share Capital A/c 15,000 By Share Capital A/c 60,000
(Loss on Re-Issue=15,000*1) (Amt already received from Old Shareholder towards FV i.e.
To Capital Reserve (b/f) 45,000 Profit on Forfeiture = 15,000sh*4)
(Balance profit on shares
re-issued = 15000sh*3)
60,000 60,000

are yet to be re-issued

Share Forfeiture A/c

Particulars Amt Particulars Amt
To Share Capital A/c 10,000 By Share Capital A/c 60,000
(Loss on Re-Issue=10,000*1) (Amt already received from Old Shareholder towards FV i.e.
To Capital Reserve A/c 30,000 Profit on Forfeiture = 15,000sh*4)
(Balance profit on shares
re-issued = 10,000sh*3)

To Balance c/d (b/f) 20,000

(Full Profit on shares not re-issued
= 5000 sh *4)

60,000 60,000
By Balance b/d 20,000
Case VII: Issue of Shares for other than Cash
1) Asset Purchased on Credit
Asset A/c Dr
To Creditor A/c

2) Issue of shares as Consideration

Creditor A/c Dr
To Share Capital A/c
To Securities Premium A/c (If Issued at Premium)

Note: No. of shares to be issued = Consideration Payable / Issue Price

Consideration Payable 120,000
Issuing shares of Rs. 10 at Rs. 12
No. of shares = 120,000 / 12 = 10,000 shares

Creditor A/c Dr 120,000

To Share Capital A/c (10,000*10) 100,000
To Securities Premium A/c 20,000
(10,000 sh * 2)
Redemption Of Preference Shares

100 FV of P. shares
Infra. P. Company
Life of P.sh can be max of 30 years
From 21st year onwards, each year at minimum 10% should be redeemed
21 100*10% 10 Repaid
22 10
23 10
24 10

30 10

10 FV
8 Called and Paid up - Partly paidup P. shares
2 Call is done
For suppose, shareholder holding 100 P. shares, couldn't pay Final call
Company has forfeited the shares, Profit on forfeiture is Rs. 8 per share; total profit is 800
This profit is credited to Sh. Forfeiture A/c
These Forfeited P. shares are not allowed for Re-Issue (as the life is almost expired)
Hence, there is no loss on re-issue.
Total profit which was credited to Sh. Forfeiture A/c, will be transferred to Capital Reserve A/c
Directly full profit can be credited to Capital Reserve A/c

Journal Entries
1 Final call on Partly paidup Preference shares if any
(a) Due
P.sh final call A/c Dr
To x% PSC A/c
(x% is Rate of Preference Dividend)

(b) Receipt
Bank A/c Dr
To P.sh final call A/c

2 Receipt of Calls-in-Arrears if any

Bank A/c Dr
To Calls-in-Arrears A/c

3 Redepmtion of P.shares(ex. Redeemable at Premium of 10%)

(a) Due (Payable to P. SH)
x% PSC A/c Dr 100,000
 Premium on Redemption of P.sh A/c Dr 10,000
To Preference Shareholders A/c 110,000

(b) Payment
Preference Shareholders A/c Dr 110,000
To Bank A/c 110,000

4 Writing off Premium on Redemption

Securities Premium A/c Dr
Free Reserves A/c (GR/P&l) Dr
To Premium on Redemption of P.sh. a/c

5 Creation of Capital Redemption Reserve

Free Reserves A/c Dr 1)
To CRR A/c

2)

3)

4)

5)

6)

a)

b)
SP on fresh issue cannot used for r
However such SP on Fresh issue ca
Example:
artly paidup P. shares

are; total profit is 800

lmost expired)

red to Capital Reserve A/c

Premium
a) On Issue of P. shares - Profit to Company, credited to Securities Premium A/c ( Received extra amount- Profit)
b) On Redemption of P. Shares - Loss to Company (Paid extra amount), Debited to Premium on Redemption of P. Shares A/c (L
 Such loss can be set-off against Securities Premium A/c if any or Free Reserves (Profits which are available for
payment of Dividend - P&L A/c and General Reserve or any other reserve which is not created for any specific purpose)

Capital Redemption Reserve A/c

Source for Redemption of Preference Shares
(a) Out of Fresh Issue of shares(Equity/P. shares)
(b) Out of Profits/Reserves - Out of other than Fresh Issue

When to Create CRR (POT)?

If P. shares are redeemed out of other than fresh issue of shares,
then CRR should be created

For how much of amount?

Equal to Nominal Value (Face Value) of P.shares redeemed out of
other than fresh iuuse
Examples: 100 P.shares of Rs. 10 each are redeemed at par - Amt of CRR = 100 P.sh*10 = 1000
100 P.shares of Rs. 10 each are redeemed at premium of 10%(Cash Paid to P.SH is 1,100 - 100sh*11) - Amt of CRR = 100 P.sh*

Source of Creating CRR?

Out of Free Reserves (Securities Premium is not available)

JE
Free Reserves A/c Dr
To CRR A/c

Utilisation of CRR
Only for Bonus Issue of Shares

Journal Entries for Bonus Issue of Shares

On Appropriation of Reserves
CRR A/c Dr
Securities Prem A/c Dr
Free Reseves A/c Dr
To Bonus to Shareholders A/c

On Allotment of Bonus shares

 Bonus to Shareholders A/c Dr
To Share Capital A/c

SP on fresh issue cannot used for repayment of PSC (FV)

However such SP on Fresh issue can be used for payment of Premium on Redemption of P.shares

No. of shares 100

FV is 10
Redemption value is 10 (At Par)
Total Amt to be paid is = 100sh*10 = 1000
Fresh Issue 50 shares of FV 10 each and Issue price is 12 each
(Issue at Premium)
Total Issue Proceeds = 50sh*12 = 600 (Including SP of Rs 100)
Out of above 600 proceeds, only 500 can be used for repayment of PSC of RS. 1000 (above)
However SP on fresh issue of Rs. 100 can be used for payment of Premium on redemption of p. shares(If P.shares are redeeme
ium A/c ( Received extra amount- Profit)
Debited to Premium on Redemption of P. Shares A/c (Loss A/c)
 Reserves (Profits which are available for
erve which is not created for any specific purpose)

100 P. shares are to be redeemed

Rs. 10 each
Total Amt payable is Rs. 1000
Sources:
Out of Fresh Issue - Cash received on fresh issue can be used for payment on redemption of P. shares
Out of Profits/Reserves - Out of Other than Fresh Issue, from Cash already available
with the company P. shares are redeemed or from sale of Investments

R = 100 P.sh*10 = 1000

d to P.SH is 1,100 - 100sh*11) - Amt of CRR = 100 P.sh*10 = 1000
ption of P.shares

of RS. 1000 (above)

um on redemption of p. shares(If P.shares are redeemed at Premium)
Prob No: 1
JE in the Books of Producers Ltd
Date Particulars Debit Credit
1/31/2014 Fresh Issue of Equity shares
(a) Receipt of Application money
Bank A/c Dr 12,000
To E.share Application money A/c 12,000

(1000 sh*12)

(b) Allotment of Shares

E.share Application money A/c 12,000

To Equity Share Capital A/c 10,000

(1000sh*10)
To Securities Premium A/c 2,000
(1000sh*2)

1/31/2014 Sale of Investments

Bank A/c Dr 27,000
P&L A/c (Loss on Sale - b/f) Dr 1,000
To Investments A/c (BV) 28,000

1/31/2014 Redemption of Preference Shares

(a) Due
PSC A/c Dr 50,000
Premium on Redemption of P.sh Dr 2,500
(50,000*5%)
To Preference Shareholders A/c 52,500

(b) Payment
Preference Shareholders A/c Dr 52,500
To Bank A/c 52,500

1/31/2014 Writing off Premium on Redemption

Securities Premium A/c Dr 2,500
To Premium on Redemption of P.sh. A/c 2,500

1/31/2014 Creation of Capital Redemption Reserve Total PSC Redeemed is 50,000

(PSC redeemed - Fresh ESC = 50,000-10,000) 10,000 is redeemed out of Fresh Issue
GR A/c Dr 20,000 Balance 40,000 is redeemed out of other than fresh
P&L A/c (b/f) Dr 20,000
To CRR A/c 40,000 Net Reduction in Capital = 50,000 PSC redeemed - 1
 Prob No: 2
Balance Sheet of Producers Ltd as on 31/1/2014 (After Redemption) 48,000
Particulars Amount -2500
I) Equity and Liabilities 45,500
1) Shareholders Funds -12,000
(a) Share Capital - ESC (90,000+10,000) 100,000 33,500
(10,000 shares of Rs 10 each)

If we redeem P. shares out of other

(b) Reserves and Surplus 53,500 CRR can be created only out of FR -
(i) Securities Premium 9,500 33,500 is available for creation of C
(10,000 + 2000 - 2,500)

(ii) Surplus - P&L A/c 4,000 PSC to be redeemed is 65,000

(25,000 - 1000 - 20,000) 33,500 can be redeemed out of oth
(iii) CRR 40,000 Balance PSC of RS. 31,500 should b
No. of fresh New Equity shares to b
2) Current Liabilities 30,000 Issue proceeds = 500sh*63 = 31,50
Securities premium on Fresh Issue
183,500
II) Assets No. of fresh New Equity shares to b
1) Non Current Assets Issue proceeds = 630sh*63 = 39,69
(a) Fixed Assets Proceeds towards FV = 630 sh *50
(i) PPE 132,000 Proceeds towards Securities premi
L&B 100,000
Plant 30,000
Furniture 2000

2) Current Assets
(a) Inventories 30,000
(b) Trade Receivables 15,000
(c ) Cash and Cash Equivalents - Cash at Bank 6,500
(20,000 + 12,000 + 27,000 - 52,500)

183,500

Total PSC Redeemed is 50,000

10,000 is redeemed out of Fresh Issue
Balance 40,000 is redeemed out of other than fresh issue

Net Reduction in Capital = 50,000 PSC redeemed - 10,000 Fresh iSSue of ESC = 40,000
Prob No: 2

Closing Balance
Avaialble for redemption of Pref Shares

If we redeem P. shares out of other than fresh issue - create CRR

CRR can be created only out of FR - P&L A/c
33,500 is available for creation of CRR

PSC to be redeemed is 65,000

33,500 can be redeemed out of other than Fresh Issue
Balance PSC of RS. 31,500 should be redeemed out of Fresh Issue
No. of fresh New Equity shares to be issued = 31,500/63 = 500 shares
Issue proceeds = 500sh*63 = 31,500
Securities premium on Fresh Issue = 500sh*63 = 6,500; SP is being used for repayment of PSC, which is not allowed

No. of fresh New Equity shares to be issued = 31,500/50 = 630 shares

Issue proceeds = 630sh*63 = 39,690
Proceeds towards FV = 630 sh *50 = 31,500
Proceeds towards Securities premium = 630 sh * 13 = 8,190, can be used for payment of Premium on Redemption (650sh*100*7.5% = 4,
Journal Entries in the books of Exchange Ltd
Date Particulars Debit Credit
4/1/2014 Sale of Investments
Bank A/c Dr 16,000
P&L A/c (Loss on Sale) Dr 2,500 (b/f)
To Investments A/c 18,500

4/1/2014 Fresh Issue of Equity shares (WN 1)

(a) Receipt of Application money
Bank A/c Dr 39,690

To E.share Application A/c 39,690

(630 sh*63)

(b) Allotment of Shares

E.share Application A/c Dr 39,690
To Equity Share Capital A/c 31,500
(630sh*50)
To Securities Premium A/c 8,190
(630sh*13)

4/1/2014 Redemption of Preference Shares

(a) Due
7% PSC A/c Dr 65,000
Premium on Redemption of P.sh Dr 4,875
(65,000*7.5%)
To Preference Shareholders A/c 69,875

(b) Payment
Preference Shareholders A/c Dr 69,875
To Bank A/c 69,875

4/1/2014 Writing off Premium on Redemption

Securities Premium A/c Dr 4,875
To Premium on Redemption of P.sh. 4,875

4/1/2014 Creation of Capital Redemption Reserve (WN 1)

(PSC redeemed - Fresh ESC = 65,000 - 31,500)
P&L A/c Dr 33,500
To CRR A/c 33,500
WN 1: Computation of Amount of Equity shares to be issued
Preference Share Capital to be redeemed 65,000

From other than Fresh Issue From Fresh Issue of Shares

CRR is req to be created 31,500 (balance = 65,000 - 33,500)

CRR can be created from Free Reserves (P&L A/c) No. of Equity shares to be Issued = 31,500/50 = 630 shares
(PSC to be redeemed / Nominal Value)
P&L A/c balance 48000

Less: Loss on sale of Inv (2500)

Less: Closing Balance to be maintained (12,000)
Amount available to create CRR 33,500

Only 33,500 can be redeemed out of other than fresh Issue

 Balance Sheet of Exchange Ltd as on 1/4/2014 (After Redemption)
Particulars Amount
I) Equity and Liabilities
1) Shareholders Funds
(a) Share Capital - ESC (225,000 + 31,500) 256,500
( 5,130 shares of Rs 50 each)

(b) Reserves and Surplus 48,815

0 = 630 shares (i) CRR 33,500
(ii) Securities Premium 3,315
(8,190 - 4,875)

(iii) Surplus - P&L A/c 12,000

2) Current Liabilities
(a) Trade Payables - Sundry Creditors 56,500

361,815
II) Assets
1) Non Current Assets
(a) Fixed Assets 345,000

2) Current Assets
(a) Cash and Cash Equivalents - Cash at Bank 16,815
(31,000 + 16,000 + 39,690 - 69,875)
361,815
Prob No: 4
Cash and Bank A/c
Particulars Amt Particulars Amt
To Balance b/d 50,000 By Prefrence Dividend 10,000
(As on 31/3/2013 or 1/4/2013) (100,000*10%)
To Cash Generated from Operations 55,000 By Preference Shareholders 110,000
(a) Net Profit 15,000 (100,000*110%)

(b) Add: Non-Cash Exp

(i) Depreciation 20,000
(ii) Misc Exp Written off 20,000
To Sale Proceeds from Investments (b/f) 45,000 By Balance c/d 30,000
(Shortfall of C&B of Rs. 45,000 is
generated by sale of Investments) (As on 31/3/2014)
150,000 150,000
 Journal Entries
Date Particulars Debit Credit
3/31/2014 Sale of Investments
C&B A/c Dr 45,000
P&L A/c (Loss) Dr 5,000
To Investments A/c 50,000

(45,000 * 100/90)

3/31/2014 Redemption of Preference Shares

(a) Due

10% PSC A/c Dr 100,000

Premium on Redemption of P.sh Dr 10,000
(100,000*10%)
To Preference Shareholders A/c 110,000

(b) Payment
Preference Shareholders A/c Dr 110,000
To Bank A/c 110,000

3/31/2014 Writing off Premium on Redemption

Securities Premium A/c Dr 10,000
To Premium on Redemption of P.sh. 10,000

3/31/2014 Creation of Capital Redemption Reserve

(PSC redeemed - Fresh SC = 100,000 - 0 )
GR A/c Dr 100,000
To CRR A/c 100,000

3/31/2014 Bonus Issue (100,000*1/1 = 100,000)

(a) Appropriation of Reserves
CRR A/c Dr 100,000
To Bonus to E.SH. A/c 100,000

(b) Allotment of Bonus Shares

Bonus to E.SH. A/c Dr 100,000
To ESC A/c 100,000
Balance Sheet of Trinity Ltd as on 31/3/2014 (After Redemption)
Particulars Amount
I) Equity and Liabilities
1) Shareholders Funds
(a) Share Capital - ESC (100,000+100,000) 200,000
(20,000 shares of Rs 10 each)

(b) Reserves and Surplus 98,500

(i) Securities Premium 60,000
(70,000 - 10,000)
(ii) Other Reserves - GR 20,000

(120,000 - 100,000)
(iii) Surplus - P&L A/c 18,500
(18,500 + 15,000 - 10,000 - 5000)

2) Current Liabilities 11,500

310,000
II) Assets
1) Non Current Assets
(a) Fixed Assets (200,000 - 20,000) 180,000
(b) Non-Current Investments 50,000
(100,000 - 50,000)

2) Current Assets
(a) Inventories 25,000
(b) Trade Receivables 25,000
(c ) Cash and Cash Equivalents - Cash & Bank 30,000

310,000
 Prob No: 5
Journal Entries in the Book
Date
1

Additional Note:
Opening Balance as on 1/4/2013 18,500 2
Add: N.P. for the CY 15,000
Less: Appropriation towards P.Dividend -10,000
Less: Loss on sale of Investments -5,000
Closing balance of P&L as on 31/3/2014 18,500

3
4

5
 Journal Entries in the Books of XYZ Ltd
Particulars Debit Credit
Preference Shares Final Call
(a) Due
Preference share final call A/c Dr 1,500,000
To 8% PSC A/c 1,500,000

(50,000 sh * 30)

(b) Receipt
Bank A/c Dr 1,500,000

To Preference Share Final Call A/c 1,500,000

Rights Issue
(a) Receipt of Application money
Bank A/c Dr 1,000,000
To E.share Application A/c 1,000,000
(50,000 * 20)

(b) Allotment of Shares

E.share Application A/c Dr 1,000,000
To Equity Share Capital A/c 1,000,000

(c ) Allotment Money
(i) Due
Equity share Allotment A/c Dr 1,750,000
To ESC A/c (50,000*25) 1,250,000
To SP A/c (50,000*10) 500,000

(ii) Receipt
Bank A/c Dr 1,750,000
To Equity share Allotment A/c 1,750,000

Redemption of P.shares
(a) Due
8% PSC A/c (35,00,000 + 15,00,000) Dr 5,000,000
Premium on Redemption of P.sh Dr 250,000
(50,00,000*5%)
To Preference Shareholders A/c 5,250,000

(b) Payment
Preference Shareholders A/c Dr 5,250,000
To Bank A/c 5,250,000
Writing off Premium on Redemption
Securities Premium A/c Dr 250,000
To Premium on Redemption of P.sh. 250,000

Creation of Capital Redemption Reserve

(PSC redeemed - Rights Issue of ESC = 50,00,000 - (10,00,000 + 12,50,000) ) (or)
(PSC redeemed - Rights Issue of ESC = 50,00,000 - (50,000 sh* 45 ) )

GR A/c Dr 2,750,000
To CRR A/c 2,750,000
Balance Sheet of XYZ Ltd as on 31/3/2014 (After Redemption) (Extract)
Particulars 31/3/2014 31/12/2013
I) Equity and Liabilities
1) Shareholders Funds
(a) Share Capital
(i) ESC (CY: 100,00,000 + 22,50,000) 12,250,000 10,000,000
(150,000 shares of Rs 100 each, in which
50,000 shares are 45 paidup)
(100,000 shares of Rs 100 each), (50,000 shares of Rs. 100 each, Rs. 45 paidup)
(ii) 8%PSC - 3,500,000
(50,000 shares of Rs 100 each, 70 Paidup)

(b) Reserves and Surplus

(i) CRR (CY: 20,00,000 + 27,50,000) 4,750,000 2,000,000
(ii)Securities Premium 750,000 500,000
(CY: 500,000 + 500,000 - 250,000)
(iii) Other Reserves - GR 2,250,000 5,000,000
(CY: 50,00,000 - 27,50,000)
Sole Prop & Partnership Firms No separately prescribed formats of FS
Companies FS format are prescribed in Schedule III
Part I of Sch III - B/s Format
Part II of Sch III - Statement of P&L

Part I of Sch III - B/s Format

Vertical Format
I) Equity and Liabilities
II) Assets
Liab
I) Equity and Liabilities Assets
1) Shareholders Funds
a) Share Capital
b) Reserves and Surplus
c) Money received against Share Warrants

2) Share Application money pending Allotment

3) Non Current Liabilities

a) Long Term Borrowings
b) Deferred Tax Liability (AS 22)
c) Other Long Term Liab
d) Long Term Provisions (eg Prov for Gratuity) Provision for Dep
Provision for Baddebts
4) Current Liabilities neither Long Term Prov
a) Short Term Borrowings they will be disclosed as
b) Trade Payables (Creditors & Bills Payable)
c) Other Short Term Liab Provisions are of Two Ty
d) Short Term Provisions (eg Provision for Taxation) a) Provision against Asse
Debited to P&L A/c
II) Assets Disclosed as deduction f
1) Non Current Assets
a) Fixed Assets b) Provision for Expense
i) PPE Debited to P&L A/c
ii) Intangible Assets Disclosed under Liabilitie
iii) Capital WIP
iv) Intangible assets under development PY 2019-2020
b) Non Current Investments ROI filed within 30/9/20
c) Defrred Tax Asset (AS 22)
d) Long Term Loans & Advances
e) Other non current assets

2) Current Assets
a) Current Investments
b) Inventories
c) Trade Receivables (Debtors & B/R)
d) Cash & Cash Equivalents
e) Short Term Loans & Advances
f) Other current assets
 3/30/2021 Received Application money
4/10/2021 Shares are allotted
As on 31/3/2021 - B/S - Sh App money pending allotment

Provision for Dep

Provision for Baddebts
neither Long Term Prov nor Short Term Prov
they will be disclosed as deduction from respective asset under Assets side of B/S

Provisions are of Two Types

a) Provision against Assets (AS 4) eg Provision for Dep, Prov for Baddebts, Prov for decline in value of Inventories or Investments etc
Debited to P&L A/c
Disclosed as deduction from respective Asset under Assets side of B/S

b) Provision for Expenses (AS 29) eg Provision for Taxation, Prov for warranty Exp, Prov for Gratuity
Debited to P&L A/c
Disclosed under Liabilities side of B/S either as Long Term/Short Term Provisions

PY 2019-2020
ROI filed within 30/9/2020 (6 months)
ies or Investments etc
 SP 100
Realised in the form of cash - 60
Other than cash - 40 (for suppose, shares are issued at premium for other than cash - Purchase of FA)

As per SEBI, only 60 can be used for Bonus Issue

SP (As per SEBI, SP realised in the form of cash can only be used for Bonus Issue)
SP (Realised in Cash as per SEBI)

Capital Reserv(As per SEBI, CR realised in the form of cash can only be used for Bonus Issue)
(Realised in Cash as per SEBI)

Prob No: 1

Journal Entries in the Books of X Ltd

Date Particulars Debit Credit
4/1/2009 Share Final Call - Due
E.Share Final call A/c Dr 180,000
To ESC A/c 180,000
(90,000 sh * 2)

4/20/2009 Share Final Call - Receipt

Bank A/c Dr 180,000
To E.Share Final call A/c 180,000

4/20/2009 Bonus Issue

(a) Appropriation of Reserves
Securities Premium A/c Dr 20,000
(25,000 - 5000 Non Cash)
Capital Reserve A/c (Cash portion) Dr 40,000 Sale of P&M
GR A/c Dr 120,000
P&L A/c (b/f) Dr 45,000
To Bonus to E.SH A/c 225,000
(Bonus Amt = 90,000 sh *1/4*10)

(b) Allotment of Bonus shares

Bonus to E.SH A/c Dr 225,000
To ESC A/c 225,000

To enable the company for Bonus issue, it should

Note: Increase Authorised Equity share Capital to the
minimum extent as shown below:
Particulars Amt
(a) ESC before Bonus Issue (720,000 + 180,000) 900,000
(b) Add: Bonus to Existing Equity shareholders 225,000
(c ) Add: Amount of Equity shares to be issued 100,000
on Conversion of Partly Convertible Debentures
(500,000*20%)
(d) Add: Amount of Bonus shares to be issued to 25,000
Debenture holders on conversion of Debentures
to Equity shares (100,000*1/4)

(e ) Increased Authorised Equity share Capital 1,250,000

Additional Note:
As per SEBI, if on the date of Bonus, Convertibles
are available then even such Convertibles are also
eligible for Bonus shares along with existing Equity
shares. However Bonus shares for such Convertibles
will not be issued at the time of actual bonus, Bonus
shares for such convertibles will be issued on
Conversion. In the present problem, on conversion
of Debentures on 1/7/2009, total of Rs. 125,000
Equity shares will be given (i.e. 100,000 conversion
portion + 25,000 Bonus portion).
her than cash - Purchase of FA)

Balance Sheet of X Ltd as on 30/4/2009 (After Bonus

but before Conversion of Debentures) (Extract)
Particulars Note No. Amt
I) Equity and Liabilities
1) Shareholders Funds
(a) Share Capital 1 1,205,000
(b) R&S 2 195,000

2) Non-Current Liabilities
(a) Long Term Borrowings - 12% Partly 500,000
Convertible Debentures

Notes to Accounts:
1. Share Capital
(a) Authorised Share Capital
(i) ESC 1,250,000
(ii) 12% PSC 100,000
1,350,000

(b) Issued, Subscribed and Fully Paidup Capital

(i) ESC (720,000 + 180,000 + 225,000) 1,125,000
(ii) 12% PSC 80,000
1,205,000
2. Reserves & Surplus
(a) Securities Premium (25,000 - 20,000) 5,000
(b) Capital Reserve (75,000 - 40,000) 35,000

(c ) Surplus - P&L (200,000 - 45,000) 155,000

195,000
Issue and Redemption of Debentures

Issue of Debentures
Journal Entries
Particulars Debit Credit
1 Receipt of Application Money
Bank A/c Dr 100
To Deb. App. Money A/c 100

2 Allotment of Debentures
Case I: Issued at Par and redeemable at
(a) Par
Deb. App. Money A/c Dr 100
To x% Debentures A/c 100
(x% represents Rate of Interest)

(b) Premium (10%) - Future Loss (recorded)

Deb. App. Money A/c Dr 100
Loss on Issue of Debentures A/c Dr 10
To x% Debentures A/c 100
To Premium on Redemption of Deb A/c 10
(Liability)

(c ) Discount (5%) - Furure Profit (Not Recorded) - JE same as (a) Par

Deb. App. Money A/c Dr 100
To x% Debentures A/c 100

Issued
at Par No P/L
at Premium Present Profit - Cr to Securities Premium
at Discount Present Loss - Dr Loss on Issue of Debentures A/c

Redemption
at Par No P/L
at Premium Future Loss - should be recorded at the time of Issue of Deb (Conserv
at Discount Future Profit - should not be recorded at the time of Issue of Deb (Con

At the time of Issue of Debentures itself, redemption terms should also be disclosed
Hence, Redemption terms should also be considered at the time of accounting of Issue of Deb
 Case II: Issued at Premium (5%) and redeemable at
(a) Par
Deb. App. Money A/c Dr 105
To x% Debentures A/c 100
To Securities Premium A/c 5

(b) Premium (10%) - Future Loss (recorded)

Deb. App. Money A/c Dr 105
Loss on Issue of Debentures A/c Dr 10
To x% Debentures A/c 100
To Securities Premium A/c 5
To Premium on Redemption of Deb A/c 10
(Liability)

(c ) Discount (5%) - Furure Profit (Not Recorded) - JE same as (a) Par

Deb. App. Money A/c Dr 105
To x% Debentures A/c 100
To Securities Premium A/c 5

Securities Premium
s on Issue of Debentures A/c

be recorded at the time of Issue of Deb (Conservatism)

d not be recorded at the time of Issue of Deb (Conservatism)

d also be disclosed
f accounting of Issue of Deb
Case III: Issued at Discount(5%) and redeemable at
(a) Par
Deb. App. Money A/c 95
Loss/Discount on Issue of Debentures A/c 5
To x% Debentures A/c 100

(b) Premium (10%) - Future Loss (recorded)

Deb. App. Money A/c 95
Loss/Discount on Issue of Debentures A/c 5
Loss on Issue of Debentures A/c Dr 10
To x% Debentures A/c 100
To Premium on Redemption of Deb A/c 10
(Liability)

(c ) Discount (5%) - Furure Profit (Not Recorded) - JE same as (a) Par

Deb. App. Money A/c 95
Loss/Discount on Issue of Debentures A/c 5
To x% Debentures A/c 100
Redemption of Debentures
Methods of Redemption
1. By Payment
- Lumpsum
- Instalments
2. By Purchase of own Debentures
3. By Maintaining DRR
4. By Conversion

Journal Entries
I. By Payment
1. Due
(a) At Par
x% Debentures A/c Dr
To Debenture holders A/c

(b) At Premium
x% Debentures A/c Dr
Premium on Red of Deb A/c Dr
To Debenture holders A/c

(c ) At Discount
x% Debentures A/c Dr
To Discount/Profit on Redemptionof Deb A/c
To Debenture holders A/c

2. Payment
Debenture Holders A/c Dr
To Bank A/c

IV. By Convertion
1. Due
(a) At Par
x% Debentures A/c Dr
To Debenture holders A/c

(b) At Premium
x% Debentures A/c Dr
Premium on Red of Deb A/c Dr
To Debenture holders A/c

(c ) At Discount
x% Debentures A/c Dr
To Discount/Profit on Redemptionof Deb A/c
To Debenture holders A/c
 2. Payment
Debenture Holders A/c Dr
To ESC A/c
To Securities Premium A/c

II. By Purchase of own Debentures

1 On Purchase of Own Debentures
Inv in Own Deb A/c Dr Consideration towards pricp.
Int on Own Deb A/c Dr Broken Period Interest
To Bank A/c Total Cash Outflow
(Cum-Int Price)
2 On Cancellation of Own Deb Immediately/before maturity/on maturity
x% Debentures A/c Dr Face Value(100)
Loss on Cancellation of Deb A/c (P&L) (b/f) Dr 2
To Inv in Own Deb A/c Cost Price (102 / 99)
To Profit on Cancellation of Deb A/c (b/f) 1
(Capital Reserve)

3 Sale of Own Debentures

Bank A/c Dr Total Cash Inflow (Cum-Int Price)
Loss on Sale A/c (P&L) (b/f) Dr
To Inv in Own Deb A/c Cost or BV
To Int on Own Deb A/c Broken Period Interest
To Profit on Sale A/c (P&L) (b/f)

4 Interest Entries for Carried forward period (On each and every Int Due date)
(a) Int Expense on ALL Debentures (liability)
Int Exp A/c Dr
10,000 To Int Payable A/c

(b) Int Income on OWN Deb.(Asset)

1000 Interest Receivable A/c Dr
To Int on Own Deb A/c (Income)

(c ) Cancellation of Int on own Deb and payment to outsiders

10,000 Interest Payable A/c Dr
1,000 To Int Receivable A/c
9,000 To Bank A/c (Outsiders)

(d) Transfer to P&L

(i) P&L A/c Dr
To Int Exp A/c
(ii) Int on Own Deb A/c Dr
To P&L A/c
III. By Maintaining DRR
Life of Deb is 10 Years
I Year (First Year)
1 Appropriation of Profits
P&L A/c / P&L Appropriation A/c Dr
To DRR A/c

2 Purchase Investments (Amt of Purchase = Amt Appropriated)

DRR Investment A/c Dr
To Bank A/c

II to IX Year (In-Between Years)

1 Appropriation of Profits
2 Purchase Investments (Amt of Purchase = Amt Appropriated)
3 Receipt of Interest
Bank A/c Dr
To Int on DRR Inv A/c

4 Transfer of Int Inc to P&L A/c

Int on DRR Inv A/c Dr
To P&L A/c

X Year (Year of Redemption)

1 Appropriation of Profits
2 Purchase Investments (Amt of Purchase = Amt Appropriated)
3 Receipt of Interest
4 Transfer of Int Inc to P&L A/c

5 Sale of DRR Inv

Bank A/c Dr
Loss on Sale A/c (P&L) (b/f) Dr
To DRR Inv A/c
To Profit on Sale A/c (P&L) (b/f)

6 Redemption of Debentures
(a) Due
(b) Payment

7 Close DRR A/c - Purpose for which it is created is met

DRR A/c Dr
To General Reserve A/c

Note: Adequacy of DRR as per The Companies (Share Capital and Debentures) Amendment Rules, 2019
 DRR shall be minimum of 10% of the value of By what time From Investment
Outstanding Debentures Issued - In case of appropriation date of 30/4/2019 -
Unlisted Companies other than AIFI's, Banking should be done is Appropriation should
1 Companies (both Public and Privately placed not given also be done by
Debentures), and for Privately Placed 30/4/2019 for the FY
Debentures of NBFC's and HFC's 2019-2020

By 30/4/2019 for
the Financial year
2 Investment 2019-2020 (by
the end of first
month)
 B/S of Company
Liab Amt Assets Amt
x% Deb Inv in Own Deb A/c 102,000
(10,000 Deb of Rs. 100 each) (1000 Deb at 102)

Asset of 1000 Deb can be cancelled against x% Deb Liability?

YES

After cancellation of 1000 Deb (Redemption of 1000 Deb)

Liab Amt Assets Amt
x% Deb
(9,000 Deb of Rs. 100 each)

31-Dec Due date of Int

4/1/2020 Purchased Own Deb
Buyer should make payment for Broken period Int for
3 months

Total life of Deb is 10 years

In 6th year, by using surplus cash company has purchased Own Deb
After Purchase of Own Deb the company can
a) Cancel Immediately - Prob No. 1 and 3
b) Carry forward Own Deb as an Asset (Without Cancellation Immediately)
i) Sell Own Deb before maturity (in 8th year)
ii) Cancel before maturity ( in 8th year)
iii) Cancel on Maturity ( At the end of 10th year)
Problem No: 1
Additional Note 1:
1 On Purchase of Own Debentures
Inv in Own Deb A/c Dr (Consideration towards Principle)
Int on Own Deb A/c Dr (BPI)
To Bank A/c (Cum-Int Price)

2 On Cancellation of Own Deb Immediately

x% Debentures A/c Dr (Face Value)
Loss on Cancellation of Deb A/c (P&L) Dr (b/f)
To Inv in Own Deb A/c Cost
To Profit on Cancellation of Deb A/c (b/f) (b/f)
(Capital Reserve)

Combined JE of above two:

x% Debentures A/c Dr (Face Value)
Int on Own Deb A/c Dr (BPI)
Loss on Cancellation of Deb A/c (P&L) Dr (b/f)
To Bank A/c (Cum-Int Price)
To Profit on Cancellation of Deb A/c (b/f) (b/f)
(Capital Reserve)

Additional Note 2: JE for Purchase and Immediate Cancellation of Deb

1-Mar 6% Debentures A/c Dr 5000 Date
Int on Deb A/c Dr 50 1-Mar
(5000*6%*2/12) 1-Mar
To Bank A/c (5000*98%) 4900 1-Aug
To Profit on Cancellation of Deb A/c (b/f) 150 1-Aug
(Capital Reserve) 15-Dec
15-Dec
1-Aug 6% Debentures A/c Dr 10,000
Int on Deb A/c Dr 50 31-Dec
(10,000*6%*1/12)
To Bank A/c (10,000*100.25%) 10025
To Profit on Cancellation of Deb A/c (b/f) 25
(Capital Reserve) Date
1-Mar
15-Dec 6% Debentures A/c Dr 2500 30-Jun
Int on Deb A/c Dr 68.75 1-Aug
(2,500*6%*5.5/12) 15-Dec
To Bank A/c ( (2,500*98.5%) + 68.75 ) 2531.25 31-Dec
To Profit on Cancellation of Deb A/c (b/f) 37.5
(Capital Reserve)
 6% Debentures A/c
Particulars Amt Date Particulars
To Bank A/c (4,900 - 50) 4,850 1-Jan By Balance b/d (500 Deb * 100)
To Profit on Cancellation 150
To Bank A/c (10,025 - 50) 9,975
To Profit on Cancellation 25
To Bank A/c (2,531.25 - 68.75) 2,462.50
To Profit on Cancellation 37.50

To Balance c/d (b/f) 32,500

50,000

Int on Debentures A/c

Particulars Amt Date Particulars
To Bank A/c 50
To Bank A/c ((50,000 - 5000)*6%*6/12) 1,350
To Bank A/c 50
To Bank A/c 68.75
To Bank A/c 975
((50,000 - 5000 - 10,000 - 2500)*6%*6/12 31-Dec By P&L A/c (b/f)

2,493.75
Amt
50,000

50,000

Amt

2,493.75

2,493.75
Prob No: 3
5% Debentures A/c
Date Particulars Amt Date
3/1/2012 To Investment in Own Deb A/c (Cost) 24,725 1/1/2012
3/1/2012 To Profit on Cancellation A/c 275
(25,000 FV - 24,725)
9/1/2012 To Investment in Own Deb A/c (Cost) 19,708
9/1/2012 To Profit on Cancellation A/c 292
(20,000 FV - 19,708)
12/31/2012 To Balance c/d 105,000

150,000

x% Debentures A/c Dr 25,000

To Inv in Own Deb A/c 24,725
To Profit on Cancellation of Deb A/c (b/f) 275
(Capital Reserve)
c Investm
Particulars Amt Date Particulars
By Balance b/d 150,000 3/1/2012 To Bank A/c
(25,000*5%*5/12)
9/1/2012 To Bank A/c
(20,000*5%*5/12)
(20,125 - 417)

150,000
 Investment in Own Debentures A/c
FV Cost Interest Date Particulars FV Cost Interest
25,000 24,725 521 3/1/2012 By 5% Debentures A/c 25,000 24,725 -

20,000 19,708 417 9/1/2012 By 5% Debentures A/c 20,000 19,708 -

12/31/2012 By P&L A/c (b/f) - - 938

45,000 44,433 938 45,000 44,433 938

Prob No: 2
6% Debentures A/c
Date Particulars Amt Date
2/28/2012 To Bank A/c 1,000,000 1/1/2012

1,000,000

DRR A/c (At Minimum 10% of Deb Outstanding)

Date Particulars Amt Date
1/1/2012
2/28/2012 To General Reserve A/c 100,000 1/1/2012
(or 31/1/2012)
100,000

Bank A/c
Date Particulars Amt Date
1/1/2012 To Balance b/d 900,000 2/28/2012
2/28/2012 To DRR Investment A/c 150,000
2/28/2012 To Int on DRR Inv A/c 1,000 2/28/2012
2/28/2012

2/28/2012

1,051,000
es A/c DRR
Particulars Amt Date Particulars
By Balance b/d 1,000,000 1/1/2012 To Balance b/d
(10,000 * 100)
2/28/2012 To P&L A/c
1,000,000

of Deb Outstanding)
Particulars Amt
By Balance b/d 50,000
By P&L A/c (Appropriation) 50,000
( (10,00,000*10%) - 50,000 )
100,000

c
Particulars Amt
By Interest on Deb A/c 10,000
(10,00,000*6%*2/12)
By 6% Deb A/c 1,000,000
By Premium on Red 10,000
of Deb A/c
(10,00,000*1%)
By Balance c/d 31,000

1,051,000
 DRR Investment A/c (Deposit at Bank)
FV Cost Interest Date Particulars FV Cost
150,000 150,000 - 2/28/2012 By Bank A/c 150,000 150,000
(150,000 * 4% * 2/12)
1,000

150,000 150,000 1,000 150,000 150,000

 Prob No: 5
Journal Entries in the Books of BEE co. Ltd
Interest Particulars Debit Credit
1,000 1. Rights Issue of Shares
(a) Receipt of Application Money
Bank A/c Dr 75,000
To Equity share Application A/c 75,000
1,000 (20,000 shares*1/4*15)

(b) Allotment of shares

Equity share Application A/c Dr 75,000
To ESC A/c (5000*10) 50,000
To Securities Premium A/c (5000*5) 25,000

2. Bonus Issue
(a) Appropriation of Reserves ((20,000 sh + 5000 sh)*1/5*10 = 50,000)
Securities Premium A/c Dr 25,000
P&L A/c (b/f) Dr 25,000
To Bonus to Equity Shareholders A/c 50,000

(b) Allotment of Bonus shares

Bonus to Equity Shareholders A/c Dr 50,000
To ESC A/c 50,000

3. Creation of DRR at 10% of Debentures Outstanding

P&L A/c Dr 12,000
To DRR A/c 12,000
(120,000*10%)

4. Purchase of Investments at 15% of Debentures maturing in the year

DRR Investment A/c Dr 18,000
To Bank A/c 18,000
(120,000*15%)

5. Redemption of Debentures - Due

12% Debentures A/c Dr 120,000
Premium on redemption of Deb A/c (120,000*3%) 3,600
To Debenture holders A/c 123,600

6. Sale of DRR Investment

Bank A/c 18,000
To DRR Inv A/c 18,000

7. Redemption of Debentures - Payment

Debenture holders A/c Dr 123,600
 To Bank A/c 123,600

8. Writing off Premium on Red of Deb

P&L A/c Dr 3,600
To Premium on Redemption of Deb. A/c 3,600

9. Closing DRR A/c

DRR A/c 12,000
To General Reserve A/c 12,000

Additional Note:
DRR
10% On Total O/s Deb
On Deb which are to be redeemed in the year

DRR Inv
15% On Total O/s Deb
On Deb which are to be redeemed in the year

100,000
-25,000
75,000
15000 Deb
1575000 Redm Value
15.75
100000 E. shares

85,000 Deb - Cash

8925000 Cash
Balance Sheet of BEE Co. Ltd as on 1/4/2011
Particulars Amt
I) Equity and Liabilities
1) Shareholders Funds
(a) Share Capital - ESC 300,000
(200,000+50,000 Rightds +50,000 Bonus)
(30,000 shares of Rs. 10 each)
(b) Reserves and Surplus 91,400
(i) Other Reserves - GR 12,000
(ii) Surplus - P&L A/c
As Given 120,000
Less: Bonus Issue (25,000)
Less: Creation of DRR (12,000)
Less: Premium on Red (3,600)
of Deb
Closing Balance of P&L 79,400

2) Current Liabilities
(a) Trade Payables 115,000

506,400
II) Assets
1) NCA
a) Fixed Assets
(i) PPE - Freehold Property 115,000

2) Current Assets
a) Inventories 135,000
b) T/R 75,000
c) Cash & Cash Equivalents 181,400
(i) Cash in Hand 30,000
(ii) Cash at Bank 151,400
(200,000 + 75,000 - 18,000 + 18,000 - 123,600)

506,400

Prob 1 1 3/4 pages

Next prob - fresh page

Prob No. 1
I can finish in single page (by the end of first page)
I'll intentionally extend to second page, and finish it at beginning of 2nd page
I'll start next prob in 3rd page
Redm Value

25,000 + (75,000 - 15,000)

Prob No: 6
Computation of Number of Equity shares to be allotted and Cash to be paid to Debenture holders
Particulars Amt
a) Total Number of Debentures 100,000 Deb
b) Less: Number of Debentures for which Debentureholders did not
opt for Conversion (25,000 Deb)
c) Number of Debentures for which Debentureholders Opted for
Conversion 75,000 Deb
d) Maximum number of Debentures that can be Converted 15,000 Deb
(c*20%)
e) Conversion Value/Redemption Value (d*105) 1,575,000
f) Number of Equity shares to be allotted (e/15.75) 100,000 E. shares
g) Total number of Debenture for which Cash to be paid 85,000 Deb
(a-d)
h) Total Cash to be paid (g*105) 8,925,000
Debenture holders Balance Sheet of Convertible Ltd as on 1/7/2011
Particulars Amt
I) Equity and Liabilities

1) Shareholders Funds

(a) Share Capital - ESC (50,00,000 + 10,00,000) 6,000,000

(600,000 E.shares of Rs 10 each)
(b) Reserves and Surplus (75,000 + 100,00,000 + 10,00,000) 11,075,000
i) Securities Premium 575,000
(100,000 sh * 5.75)
Less: Premium on Red of Deb (500,000)
(100,000 Deb * 5) 75,000

ii) Other Reserves - GR 75,00,000

Add: Transfer from DRR A/c 25,00,000
10,000,000
iii) Surplus - P&L A/c 10,00,000

2) NCL
(a) Long Term Borrowings - Other Loans 6,500,000

3) CL 12,500,000

36,075,000
II) Assets
1) NCA
a) F.A 16,000,000

2) CA
(a) Cash and Cash Equivalents - C&B 75,000
(75,00,000 + 15,00,000 - 89,25,000)
(b) Other CA 20,000,000

36,075,000
Prob No: 8
Journal Entries in the Books of Libra Ltd
Date Particulars Debit Credit
5/1/2011 Receipt of Application money from Public
Bank A/c Dr 15,000,000
To Debenture Application money A/c 15,000,000
(150,000 Deb*100)

6/1/2011 Allotment of Debentures to Public and Underwriters

Debenture Application money A/c Dr 15,000,000
Underwriters A/c Dr 5,000,000
((200,000 Deb -150,000 Deb )*100)
To 15% Debentures A/c 20,000,000
(200,000 Deb *100)

6/1/2011 Underwriting Commission Payable

Underwriting Commission A/c Dr 400,000
To Underwriters A/c 400,000
(200,00,000 * 2%)

6/1/2011 Settlement with Underwriters

Bank A/c Dr 4,600,000
To Underwriters A/c 4,600,000
(50,00,000 - 400,000)

9/30/2011 Interest on Deb

Interest Expense A/c Dr 1,000,000
To Bank A/c 1,000,000
(200,00,000 * 15% * 4/12)

10/31/2011 Conversion of 60% Debentures

15% Debentures A/c Dr 12,000,000
(200,00,000 * 60%)
To ESC A/c (120,00,000 * 10/60) 2,000,000
To Securities Premium A/c 10,000,000
(120,00,000 * 50/60)

10/31/2011 Interest on Debentures Converted

Interest Expense A/c Dr 150,000
To Bank A/c 150,000
(120,00,000 * 15% * 1/12)

3/31/2012 Interest on Balance Debentures

Interest Expense A/c Dr 600,000
To Bank A/c 600,000
 (80,00,000 * 15% * 6/12)

3/31/2012 Writing Off Underwriting Commission

Securities Premium A/c Dr 400,000
To UC A/c 400,000

3/31/2012 Transfer of Interest Exp

P&L A/c Dr 1,750,000
To Interest Expense A/c 1,750,000
(10,00,000 +150,000 + 600,000)
Prob No: 10
12% Debentures A/c
Date Particulars Amt Date
3/31/2012 To Bank A/c 198,000 4/1/2011
(2000 Deb*100*99%)
3/31/2012 To Profit on 2,000
Cancellation A/c
(200,000 FV - 198,000)
3/31/2012 To Bank A/c (b/f) 1,400,000
1,600,000

DRR A/c
Date Particulars Amt Date
4/1/2011

4/1/2011

3/31/2012 To GR A/c (b/f) 160,000

160,000

12% Debentures A/c 200,000

To Bank A/c (200,000*99%) 198000

To Profit on Cancellation of Deb A/c (b/f) 2000
(Capital Reserve)
ures A/c
Particulars Amt Date Particulars
By Balance b/d 1,600,000 4/1/2011 To Balance b/d
(16000*100)
4/1/2011 To Bank A/c
((16,00,000*15%) - 200,000)

3/31/2012 To P&L A/c (b/f)

1,600,000

/c
Particulars Amt
By Balance b/d 100,000

By P&L A/c 60,000

((16,00,000*10%) - 100,000)

160,000
 DRR Investment A/c
FV Cost Interest Date Particulars FV Cost
200,000 200,000 - 3/31/2012 By Bank A/c - -
(240,000*9%)
40,000 40,000 - 3/31/2012 By Bank A/c 240,000 240,000

21,600
240,000 240,000 21,600 240,000 240,000
Interest
21,600

21,600
 Raw Materials WIP
Opening st Purchase Cl st Opening st

a) Cost of materials consumed = Op st + Pucha - Cl st of Raw Materials

b) Purchase of Stock-in-Trade
c) Changes in Inventories of FG, WIP and Stock-in-Trade
(Opening Stock - Closing Stock)

Managerial Remuneration
Managerial Personnel - U/s 196
Maximum Remuneration - U/s 197 (Companies having Adequate Profits)
Method of Computation of Net Profit - U/s 198
Recovery of MR - U/s 199
MR in case of absence or inadequacy of Profits - Schedule V

Managerial Personnel - U/s 196

WTD & MD Manager (CEO or President) PTD
Directors & Employees Only Employee Only Director

3 WTD
1 6% 5%
2 2% 2%
3 2% 2%
NO Yes

Sec 198 Profit on Sale of Assets

OC 100
BV/CA 60
Sale Proceeds 110
Profit on Sale 50
(SP - BV)
Sale Proceeds - OC 10 Should not be included as Income
Balance Profit 40 Should be Included
(OC - BV) or (Total Profit - (SP-OC))

123
Sch II - Minimum
P&M 2% minimum

Effective Cap is 3000 Cr

120 L + 0.01%(3000 - 250)Cr
120 L + (0.01%*2750 Cr)
120 L + 27.5 L 0.275
147.5 L
 WIP Finished Goods Stock-in-Trade
Cl st Opening st Cl st Opening st Purchase

100
60
90
30

be included as Income Nil Should not be included as Income

30 Should be Included
ock-in-Trade
Cl st
Prob No: 1
Computation of Net Profit as per Sec 198
Particulars Amt
a) Closing Balance in P&L as Given or Retained Profits 1,420,185
b) Less: Incomes not to be Included
i) Brought Forward Profits/Opening Balance in P&L -572,350
ii) Sale Proceeds from Machinery exceeding Original Cost -15,000
(SP 55,000 - OC 40,000)
c) Add: Expenses Not to be Deducted
i) Managerial Remuneration 285,350
ii) Depreciation as per BOA 522,543
iii) Provision for Tax 1,242,500
iv) Transfer to GR 400,000
v) Transfer to Investment Revaluation Reserve 12,500
d) Less: Depreciation as per Schedule II -575,345

e) N.P. U/S 198 2,720,383

Maximum MR allowed:
Case (a): One WTD
Maximum MR = 27,20,383 * 5% = Rs. 136,019 285,350

Case (b): Two WTD

Maximum MR = 27,20,383 * 10% = Rs. 272,038

Case (c ): Two WTD, PTD and a Manager

Maximum MR = 27,20,383 * 11% = Rs. 299,242

Comments: In Cases (a) and (b), M Ltd violated Provisions of Sec. 197
of The Companies Act, 2013 by paying more than maximum MR. M
Ltd Should either take required approvals or recover the excess MR
paid.
Prob No: 2
Computation of Effective Capital
Particulars Non-Investment Co.
a) Paidup ESC 9,600,000
b) Paidup PSC 1,500,000
c) CR (250,000*40%) 100,000
d) SP 50,000
e)15% Debentures 6,500,000
f) Public Deposits 370,000
g) Less: Investments -7,500,000
h) Less: P&L A/c debit balance(Accumuated Lossess) -1,580,000

i) Effective Capital 9,040,000

j) Maximum MR (Less than 5 crores) 6,000,000
 Prob No: 3

Investment Co.
9,600,000
1,500,000
100,000
50,000
6,500,000
370,000
-
-1,580,000

16,540,000
6,000,000
Prob No: 3
Let Engineer's Comission be ''x''
Let Chemist's Comission be ''y''

Hence,
Equation 1:Engineer's Commission (x) = 5%*( 500,000 - Chemist Comission(y) )
x = 5% (500,000 - y)

Equation 2: Chemist Commission (y) = 4%*(500,000 - Engineers's Comission (x) )

y = 4% (500,000 - x)

Substitute Equation 2 in Equation 1

x = 5%*(500,000 - (4%*(500,000 - x)))
x = 25,000 - 5%(20,000 - 0.04x)
x = 25,000 - 1000 + 0.002x
x - 0.002x = 24,000
0.998x = 24000
x = 24000/0.998
x = Rs. 24,048 (Engineer's Commission)

Hence, Chemist's Commission = y = 4%*(500,000 - 24,048)

= 4%*475,952
= Rs. 19,038
I) 10%
15%
18%

14.33% Avg of Prev three years

Max Div Rate in CY

II) Maximum amt that is allowed to withdraw from Reserves = 10% *(Paidup Cap + FR)

III) Balance Reserves >= 15% of Paidup Capital

( Existing Reserves - Reserves that can be Withdrawn ) >= 15% of Paidup Cap
ER - 15% Paidup Capital >= Reserves that can be withdrawn
Reserves that can be withdrawn <= ER - 15% Paidup Capital
Maximum Reserves that can be withdrawn = ER - 15% of Paidup Capital

Illustration - Page No. 85

The Company wants to declare an Equity Dividend of 10%. Can it do so?

1) Condition I : Company can declare an Equity Dividend of

10%, as it is less than Average Dividend rate of previuos
three years of 15%

Computation of amount to be withdrawn from Reserves for

payment of Dividend at 10%:
Particulars Amt
a) Equity Dividend Amt (35,00,000*10%) 350,000
b) Less: Profits available in P&L A/c for payment of E.Div -140,000
i) Opening Balance 31,500
ii) Add: CY Net profit 178,500
iii) Less: Preference Dividend (70,000)
(875,000 * 8%)
c) Amt required to be withdrawn from Reserves 210,000

2) Condition II:
Maximum amt that can be withdrawn from General
Reserves = 10% *(Paidup Cap + Free Reserves)
= 10% (35,00,000 + 875,000 + 10,50,000)
= 542,500

3) Condition III:
Maximum amt that can be withdrawn from General
Reserves = Existing Free Reserves - 15% of Paidup Capital
= 10,50,000 - (15%* (35,00,000 + 875,000) )
= 393,750

Conclusion:
 Since Rs. 210,000 is less than the amounts available as per
Conditions II and III, 10% of Equity Dividend can be paid by
withdrawing Rs. 210,000 from GR.

Accounting for Tax

PY 2018-2019
AY 2019-2020
General rule is that for the Income earned during 18-19(PY), Tax should be paid in 19-20(AY)

Advance Tax: for Income earned during 2018-2019 (PY), tax should be paid in 2018-2019
Can we calculate Taxable Income for 18-19 during 18-19?
Actaul TI cannot be calculated, Estimate Taxable Income and pay the tax
Every Assessee should ensure that atleast 90% of tax is paid in the form of Advance Tax.

Example:
Estimated TI 1,200,000
Advance tax paid 360,000

At the end of the year,

Actutal TI 1,300,000
Actual Total Tax 390,000
Balance amount of Tax of Rs. 30,000 (390,000 - 360,000),
should be paid before filing ROI/IT Returns

JE
1) On payment of Advance tax during the year
Advance tax A/c Dr 360,000
To Bank A/c 360,000

2) At the end of the Year - Create Provision for Tax

P&L A/c Dr 390,000
To Provision for Tax A/c 390,000

3) Balance tax to be paid (Self Assessment Tax)

Self Assesstment tax A/c Dr 30,000
To Bank A/c 30,000
vg of Prev three years

% *(Paidup Cap + FR)

f Paidup Cap
x should be paid in 19-20(AY)

uld be paid in 2018-2019

he form of Advance Tax.

Self Assessment Tax

Balance sheet
Liabilities Assets
Short Term Provisions:
Provision for tax 390,000 Advance tax 360,000
Self Assessment tax 30,000

The above accounts can be set-off only after completion of assessment by AO

Assessed Tax Equal 390,000
(Tax computed by AO) more than 390,000 450,000
less than 390,000 350,000
5>3
3<5
Case I: Assessed Tax (390,000) = Tax paid (390,000)
Provision for tax A/c Dr 390,000
To Advance tax A/c 360,000
To Self Assessment tax A/c 30,000

Case II: Assessed Tax(450,000) > Tax paid (390,000)

a) Increase Provision
P&L A/c Dr 60,000
To Provision for Tax A/c 60,000

b) Set-off
Provision for tax A/c Dr 450,000
 (390,000 + 60,000)
To Advance tax A/c 360,000
To Self Assessment tax A/c 30,000
To Income Tax Payable A/c 60,000

c) On Payment
Income tax Payable A/c Dr 60,000
To Bank A/c 60,000

Case III: Assessed Tax(350,000) > Tax paid (390,000)

a) For reduction in Provision
Provision for Tax A/c Dr 40,000
To P&L A/c 40,000

b) Set-off
Provision for tax A/c Dr 350,000
(390,000 - 40,000)
Income tax Refund Receivable A/c Dr 40,000 (b/f)
To Advance tax A/c 360,000
To Self Assessment tax A/c 30,000

c) On Receipt
Bank A/c Dr 40,000
To Income Tax Refund Receivable A/c 40,000
Prob No: 4
Provision for Income tax A/c
Particulars Amt Particulars Amt
To Advance tax A/c 140,000 By Balance b/d 120,000
To Income tax Payable A/c 12,000 By P&L A/c (2008-2009) 32,000
(152,000 - 140,000) (152,000 - 120,000)
By P&L A/c (2009-2010) 160,000
To Balance c/d 160,000
312,000 312,000

Advance tax A/c

Particulars Amt Particulars Amt
To Balance bld 220,000 By Provision for IT A/c 140,000

By Balance c/d 80,000

220,000 220,000

Income tax Payable A/c

Particulars Amt Particulars Amt
To Balance c/d (or) Bank A/c 12,000 By Provision for Income Tax A/c 12,000

12,000 12,000
 Prob No: 5
Computation of Effective Capital and Managerial Remunerati
Additional Note: Set-off for 2008-2009 Particulars
Provision for tax A/c Dr 152,000 a) Paidup Capital
(120,000 + 32,000) b) R&S
To Advance tax A/c 140,000 c) SP
To Income Tax Payable A/c 12,000 d)Long Term Loans
e) Less: Investments
h) Less: Prilimary Exp
i) Effective Capital
j) Maximum MR (Less than 5 crores)
and Managerial Remuneration
Non-Investment Co.
18,000,000
7,200,000
1,200,000
6,000,000
-3,600,000
-3,000,000
25,800,000
6,000,000
Prob No: 6
Profit and loss Statement of Delhi Implements Limited for the year ended 31/3/2010 (Amt
in Thousands)
Particulars Note No. Amt
I) Revenue from Operations - Sales (Product) 669,700
II) Other Income 2,880
III) Total Revenue 672,580
IV) Expenses
a) Cost of materials Consumed 468,410
(Opening + Purchases - Closing = 50,020 + 448,400 - 30,010)
b) Changes in Inventories of 18,990
(i) FG (Opening 99,900 - Closing 75,950) 23,950
(ii) WIP (20,080 - 25,040) -4,960
c) Employee Benefit Expenses - Salaries and Wages 29,710
d) Finance Cost 1 1,620
e) Depreciation and Amortisation 3,550
f) Other Expenses 2 116,140
g) Total Expenses 638,420
V) Profit before Tax (III - IV) 34,160
VI) Tax Expense (WN 2) 20,865
VII) Profit After Tax (V - VI) 13,295
Balance sheet of Delhi Implements Ltd as on 31/3/2010 (Amt in Thousands)
Particulars Note No. Amt
I) Equity and Liabilities
1) Shareholders Funds
a) Share Capital 3 20,000
b) Reserves and Surplus 4 45,685

2) NCL
a) Long Term Borrowings 5 29,480

3) CL
a) Trade Payables 110,775
b) Other CL - Outstanding MD's Remuneration (WN 1) 120
c) Short term Provisions - Provision for Tax (WN 2) 20,865
226,925
II) Assets
1) NCA
a) Fixed Assets 6 35,870
b) Non-Current Investments 190
(Market Value is 150)
c) Long Term Loans and Advances 580

2) CA
a) Inventories 7 131,000
b) Trade Receivables 8 58,940
c) Cash and Cash Equivalents - Cash at Bank 320
d) Other Current Assets - Interest Accrued 25

226,925
Notes to Accounts:
1) Finance Cost
a) Interest on Fixed Loans 620
b) Other Interest 1,000
1,620

2) Other Expenses
a) Payment to Auditors 65
i) For Audit (b/f) 50
ii) For Others 15
b) Provision for Doubtful debts 45
c) MD's Remuneration (WN 1) 120
d) Other items 115,910
i) Other Expenses as given in Trial Balance 117,640
ii) Less: Finance cost (1,620)
iii) Less: Payment to Auditor (65)
iv) Less: PDD (45)

116,140
WN 1: Computation of MD's Remuneration
a) Profit before tax and MD's Remuneration 34,280
(672,580-468,410-18,990-29,710-1,620-3,550- (65+45+115,910) )
b) Add: Depreciation as per Books 3,550
c) Less: Depreciation as per Sch II -4,250
d) Add: PDD 45
e) N.P. U/s 198 33,625
f) MD's Remuneration - Lower of below two 120
(i) 5% on N.P. (33,625 * 5%) 1,681
(ii) Maximum Amt 120

WN 2: Computation of Tax Expense

a) PBT 34,160
b) Add: PDD 45
c) Taxable Income 34,205
d) Provision for Tax ( c * 61%) 20,865

3) Share Capital
I) Authorised ESC 20,000
(20,00,000 shares of Rs. 10 each)
II) Issued, Subscribed and Fully paidup ESC 20,000
(20,00,000 shares of Rs. 10 each)
20,000
4) Reserves and Surplus
a) Other Reserves
i) Development Rebate reserve 2,340 2,000
Less: Re-Transferred to P&L -340
ii) Investment Allowance Reserve 4,250
iii) General Reserve 25,800 34,435
Add: Transfer from P&L 8,635

b) Surplus - P&L (Closing bal = Proposed Div) 5,000

i) PAT 13,295
ii) Add: Transfer from DRR 340
iii) Less: Transfer to GR (b/f) 8,635

45,685

5) Long Term Borrowings

a) Secured Loans 13,480
b) Fixed Deposits 16,000
29,480
6) Fixed Assets
a) Cost 63,870
b) Less: Accumulated Depreciation -28,000
35,870 Depreciation A/c Dr
To Prov for Dep A/c
7) Inventories
a) RM and Stores 30,010
b) WIP 25,040
c) FG 75,950
131,000
8) Trade Receivables
a) Trade Receivables 59,000
b) Less: PDD -60
(Out of total TR, Rs. 121 is due for more than 6 months)
58,940

9) The Company has Proposed Dividend at 25% i.e., Rs. 5000

(Additional Note: Proposed Dividend should not be accounted, it should be disclosed
under notes to accounts. Once it is declared, it can be accounted)
Prob No: 7
Profit and Loss Statement of Sheraton Hotel Ltd for the year ended 31/3/2010
Particulars Note No. Amt
I) Revenue from Operations 1 46,623
II) Other Income -
III) Total Revenue 46,623
IV) Expenses
a) Cost of materials Consumed - Purchase of Meat, Fish and Poultry 7,587
b) Purchase of Stock-in-Trade 2 11,733
c) Changes in Inventories of Sock-in-Trade 3 6
d) Employee Benefit Expenses 4 6,705
e) Finance Cost -
f) Depreciation and Amortisation 5 2,214
g) Other Expenses 6 8,172
h) Total Expenses 36,417
V) Profit before Tax (III - IV) 10,206
VI) Tax Expense 4,300
VII) Profit After Tax (V - VI) 5,906

Notes to Accounts:
1) Revenue from Operations
a) Wines, Spirits and Beers 10,068
b) Minerals, Cigars and Cigarettes 2,550
c) Meals 23,829
d) Rooms 9,375
e) Fires in Bedrooms 582
f) Washing Charges 219
46,623
2) Purchase of Stock-in-Trade
a) Wines, Spirits and Beers 5,223
b) Minerals, Cigars and Cigarettes 1,290
c) Sundry Provisions and Stores 5,220
11,733
3) Changes in Inventories of Stock-in-Trade
a) Wines, Spirits and Beers (Opening 1782 - Closing (1197+333+174) ) 78
b) Minerals, Cigars and Cigarettes (261 - (357+69) ) -165
c) Sundry Provisions, Stores and Coal (333 - (141+99) ) 93
6
4) Employee Benefit Expenses
a) Salaries 2,400
b) Wages 4,305
6,705
5) Depreciation and Amortisation
a) Premises, Furniture and Fittings 1,008
b) Glass and China, Linen 999
c) Cutlery and Plates 207
2,214
6) Other Expenses
a) Rates, Taxes and Insurance 1,713
b) Laundry 951
c) Coal and Gas 2,160
d) Electric Light 1,128
e) General Exp 1,710
f) Manager's Commission (WN 1) 510
8,172
WN 1: Computation of Manager's Commission
a) N.P. before tax and Manager's Commission 10,716
(46,623 - 7,587 - 11,733 - 6 - 6,705 - 2,214 - 7,662)
b) Manager's Commission (a*5/105) 510
Balance sheet of Sheraton Hotel Ltd as on 31/3/2010
Particulars Note No. Amt
I) Equity and Liabilities
1) Shareholders Funds
a) Share Capital 7 49,185
b) Reserves and Surplus - Surplus(P&L A/c Balance) 5,906

2) CL
a) Trade Payables 3,390
b) Other CL - Outstanding Manager's Commission (WN 1) 510
c) Short term Provisions - Provision for Tax 4,300
63,291
II) Assets
1) NCA
a) Fixed Assets 8 55,734

2) CA
a) Inventories 9 4,701
b) Trade Receivables - Visitors Accounts Unpaid 489
c) Cash and Cash Equivalents 10 2,367

63,291

7) Share Capital
I) Authorised ESC 100,000
(10,000 shares of Rs. 10 each)
II) Issued, Subscribed and fully paidup ESC 47,400
( (4950-210)shares * 10)
(4,740 shares of Rs. 10 each)
Add: Share Forfeiture A/c (210 shares*(10-1.50)) 1,785

49,185
8) Fixed Assets
a) Freehold Premises 46,800
(i) Opening Balance (b/f) 47,148
(ii) Less: Depreciation -348

b) Furniture and Fittings 8,934

(i) Opening Balance (b/f) 9,594
(ii) Less: Depreciation -660
55,734
9) Inventories
a) Wines, Spirits and Beers (1197+333+174) 1,704
b) Minerals, Cigars and Cigarettes (357+69) 426
c) Sundry Provisions, Stores and Coal (141+99) 240
d) Glass and China 1,101
e) Linen 840
f) Cutlery and Plates 390

4,701
10) Cash and Cash Equivalents
a) Cash in Hand 219
b) Cash at Bank 2,148
2,367

11) The Company has Proposed Dividend at 6.95% i.e., Rs. 3,294
(47,400*6.95%)
Prob No: 8
Profit and Loss Statement of M/s XYZ Books Ltd for the year ended
31/3/2010
Particulars Note No. Amt
I) Revenue from Operations 1 178,200
II) Other Income - Misc. Receipts 425
III) Total Revenue 178,625
IV) Expenses
a) Employee Benefit Expenses 2 5,723
b) Finance Cost 3 3,410
c) Depreciation and Amortisation 4 7,605
d) Other Expenses 5 53,150
e) Total Expenses 69,888
V) Profit before Tax (III - IV) 108,737
VI) Tax Expense 65,000
VII) Profit After Tax (V - VI) 43,737

Notes to Accounts:
1) Revenue from Operations
a) Gross Profit 175,000
b) Add: Purchases and Wages incurred 3,200
for making furniture wrongly debited to
Purchases A/c and Wages A/c
(2000 + 1200)
178,200

2) Employee Benefit Expenses

MD's Remuneration
a) N.P. before Tax and MD's Remuneration 114,460
(178,625 - 3,410 - 7,605 - 53,150)
b) Remuneration at 5% (a*5%) 5,723
c) Minimum Remuneration (300pm*12m) 3,600
d) Total MD's Remuneration (Higher of b and c) 5,723
(i) Paid (T/B) 3600
(ii) Outstanding (b/f) 2,123

3) Finance Cost
a) Interest on Debentures (30,000*9%) 2,700
i) Paid (T/B) 2,025
ii) Outstanding Interest (b/f) 675
b) Interest on Bank Loan 710
3,410
4) Depreciation and Amortisation
a) Buildings ( (105,000 - 30,000)*2.5% ) 1,875
b) Furniture 730
( (4500 - 400(Sale) + 3200(Purchase))*10%)
c) Motor Car (25,000*20%) 5,000
7,605
5) Other Expenses
a) Establishment Expenses 35,200
b) Repairs and Renewals 2,600
c) Motor car Expenses 4,200
d) Travelling and conveyance 1,600
e) Printing and Stationery 900
f) Telephone (1200 + 150 Adj against advance) 1,350
g) Commission on Sales 3,200
h) Advertisement (3500 - 1500 Materials) 2,000
i) Directors Fees 2,000
j) Loss on sale of Furniture (BV 400 - SP 300) 100
53,150
Balance sheet of M/s XYZ Books Ltd as on 31/3/2010
Particulars Note No. Amt
I) Equity and Liabilities
1) Shareholders Funds
a) Share Capital 6 92,000
b) Reserves and Surplus 7 46,737

2) NCL
a) Long Term Borrowings 8 80,000

3) CL
a) Trade Payables 9 32,100
b) Other CL 10 15,508
c) Short term Provisions - Provision for Tax 65,000
331,345
II) Assets
1) NCA
a) Fixed Assets
i) PPE 11 129,695
b) Non-Current Investments - Investment in shares 1,000

2) CA
a) Inventories 12 96,500
b) Trade Receivables 13 79,000
c) Cash and Cash Equivalents 14 16,400
d) Short term Loans and Advances 15 8,750

331,345

6) Share Capital
Issued, Subscribed and Full paidup ESC 92,000
(9200 shares of Rs. 10 each)
(9200 sh - 1000 sh Forfeited + 1000 sh Re-issued) 92,000

7) Reserves and Surplus

a) Capital Reserve 1,000
( Profit on Forfeiture - Loss on Re-Issue
= (1000sh*8) - ( (1000sh*10) - 3000 ) = 1000 )
b) Other Reserves - General Reserve 20,000
c) Surplus - P&L A/c 25,737
i) Opening Balance of P&L (2000 + 5000) 7000
ii) Less: Adj for shortfall in Provision for tax of PY -5000
 2000
iii) Add: CY N.P. 43,737
iv) Less: Appropriation - Transfer to GR -20,000

46,737
8) Long Term Borrowings
a) 9% Debentures - Unsecured 30,000
b) Bank Loan - Secured against Inventories 50,000
80,000
9) Trade Payables
a) Sundry Creditors 29,000
b) Bills payable 3,100
32,100
10) Other CL
a) Liabilities for Expenses 12,000
b) Outstanding MD's Remuneration 2,123
c) Outstanding Interest on Debentures 675
d) Outstanding Interest on Bank loan 710
15,508
12) Inventories
a) Closing Stock (as Given) 95,000
b) Add: Advertisement Materials 1,500
96,500
13) Trade Receivables
a) Sundry Debtors - Unsecured and Considered Good) 75,000
( Out of the above debtors Rs 10,000 is due for more than 6 months)
b) Bills Receivable 4,000
79,000
14) Cash and Cash Equivalents
a) Cash in Hand 3,800
b) Cash at Bank 12,600
16,400
15) Short term Loans and Advances
a) Security Deposits 400
b) Advances (8,500 - 150 Adj of telephone bill) 8,350
8,750
16) Contingent Liabilities and Commitments
a) Partly paidup Investment in shares (200sh*5) 1,000
b) Bills Discounted but not matured 1,500
2,500

17) The Company has Proposed Dividend at 12% of Rs. 11,040 (92,000*12%)
11) PPE
Gross Block/Cost Depreciation
Particulars
Opening Additions Disposals Closing Opening Additions Disposals
a) Land 30,000 - - 30,000 - - -
b) Building 100,000 - - 100,000 25,000 1,875 -
(Opening Dep: OC 100,000 - BV 75,000)

c) Furniture 9,000 3,200 800 11,400 4,500 730 400

(Opening Dep: OC 9000 - BV 4,500)
(Disposals Dep: OC 800 - BV 400)

d) Motor car 35,000 - - 35,000 10,000 5,000 -

Opening Dep: OC 35,000 - BV 25,000
eciation
Net Block
Closing
- 30,000
26,875 73,125 (75,000 - 1875)

4,830 6,570

15,000 20,000
129,695
AS -3: Cash Flow Statement

Cash Book
Inflows Debit
Outflows Credit
Opening Bal 100
Closing Bal 150
Increase in Cash 50 Why there is Increase in Cash?
Because of which activities?
CB - No
CFS - Yes

CFS is nothing but CB, with different format, so that reasons for Increase/Decrease in Cash is disclose
Is a part of FS
Management Responsibility to prepare FS

All Cash Transactions are classified in to three Activities

1) Operating Activities - Dustbin, It includes all transactions related to Operating Activity of the business (normal co
Cash Outflows - Purchase of Goods, Payment of Operating Exp(Salaries, Rent,..), Payment to Creditors
Cash Inflows - Sale of Goods, Receipt from Debtors, Commission, Bad debts Recovered

2) Investing Activities - Fixed Assets and Investments

Cash Outflows-Purchase of FA, Purchase of Securities
Cash Inflows - Sale proceeds from FA/Investments, Interest/Dividend Income received, Rent on Properties(Investm

3) Financing Activities - Capital and NCL

Cash Inflows - Issue proceeds from Shares/Deb/Bonds, Loan Taken
Cash Outflows - Payment of Interest/Dividend, Repayment/Redemption of Deb/shares/Loan

Special Points:
1) Profit or Loss on Sale of FA/Investments
Cost 100 Cost 100
BV 60 BV 60
SP 80 SP 50
Profit on Sale = 80 - 60 = 20 Loss on Sale = 50 - 60 = 10
it is realised in the form of cash it is not realised in the form of cash (Non-cash)

Sale Proceeds should be disclosed as Investing Activity, ignore Profit or loss on sale

2) Tax paid
Tax on Income - Operating Activity
Tax on Sale of CA - Investing Activity

Tax - Operating Activity

3) Discount Allowed or Received are not cash transactions
Cash A/c Dr 90 (Operating Activity)
Discount Allowed A/c Dr 10 (Non-Cash)
To Customer A/c 100

Creditor A/c Dr 100

To Cash A/c 90 (Operating Activity)
To Discount Received A/c 10 (Non-Cash)

4) Abnormal Loss
a) AL of Goods or FA
Damage of Goods/FA: Non-Cash Transactions
Insurance claim received on damage of Goods is an Operating Activity
Insurance claim received on damage of FA is an Investing Activity

b) AL of Cash
Operating Activity - Theft of Cash (Cash Outflow)
Insurance claim received is an Operating Activity (Cash Inflow)
ease/Decrease in Cash is disclosed

ctivity of the business (normal course of Business)

yment to Creditors

ved, Rent on Properties(Investments)

cash (Non-cash)

rofit or loss on sale

Format
Particulars Amt
I) Cash Flows from Operating Activities
II) Cash Flows from Investing Activities
III) Cash Flows Financing Activities
IV) Net Increase/Decrease in Cash and Cash Equivalents

I) Cash Flows from Operating Activities

A) Direct Approach
B) Indirect Approach

A) Direct Approach
Particulars Amt
1) Cash Sales and Collection from Debtors xxx
2)Less: Payment for Purchases and Expenses (xx)
(Cash Purchases, Payment to Creditors and Payment for Expenses)
3) Cash Generated from Operations (CGO) xxx
4) Less: Tax Paid (xx)
5) Cash Flow before Extra-Ordinary items xxx
6) Add/Less: Extra-Ordinary Items (AS-5) xx
7) Cash Flows from Operating Activities xxx

B) Indirect Approach
1) Profit before Tax and Extra-Ordinary Items xxx
2) Adjustments:
(a) Non-Cash items e.g. Depreciation xx
(b) Investing Activities e.g. Interest Income, Profit/Loss on sale of FA/Investments xx
(c) Financing Activities e.g. Interest Expense xx
3) Operating Profit before Working Capital Changes xxx
4) Adjustments for Working Capital Changes
(a) Less: Increase in CA (xx)
(b) Add: Decrease in CA xx
(c) Add: Increase in CL xx
(d) Less: Decrease in CL (xx)
5) Cash Generated from Operations (CGO) xxx
6) Less: Tax Paid (xx)
7) Cash Flow before Extra-Ordinary items xxx
8) Add/Less: Extra-Ordinary Items (AS-5) xx
9) Cash Flows from Operating Activities xxx

SEBI: All Listed Companies should follow Indirect Approach

II) Cash Flows from Investing Activities - No Specific Format (Inf +ve, Outf -ve)
III) Cash Flows Financing Activities - No Specific Format (Inf +ve, Outf -ve)

IV) Net Increase/Decrease in Cash and Cash Equivalents

Cash and Cash Equivalents - It includes Cash Bal, Bank bal and Highly Liquid Investments
High Liquid Inv: Inv with short period
Inv made for 5 days
Amt
50
-20
-15
15 100 Opening
115 Closing
15

Cash Inflows: +ve

Cash Outflows: -ve

50

100,000 PBT (Incomes - Exp)

T, P&L Includes,
a) Non-Cash Items - Removed
i) Exp - Add back
ii) Income - Deduct
Example: Add back Depreciation

b) Investing Activities - Removed

i) Exp - Add back
ii) Income - Deduct
Example: Deduct Interest Income

c) Financing Activities - Removed

i) Exp - Add back
ii) Income - Deduct
Example: Add back Interest Expense

Working Capital includes CA & CL

Debtors increased by Rs. 10,000
Cash is blocked with customers
Company didn't receive the cash - Deduct
Hence Increase in CA should be deducted

Decrease in CA - Add
Increase in CL - Add
Decrease in CL - Deduct

Creditors increased by Rs. 10,000

Cash is not paid to Creditors
Cash is with Company - Add
Cash Outflow is decreased

Working Capital Items to be excluded in (4):

There are certain items eventhough they are WC items in general, they will not be adjusted in Point 4 of Indirect Ap
1) Tax related accounts like, Provision for tax (CL), advance tax (CA)
2) Dividend Payable (CL)
3) Cash and Cash Equivalents
justed in Point 4 of Indirect Approach-Operating Act
Prob No: 1
Cash Flow Statement of Hills Ltd for the year ended 31/12/2010 (Direct Method)
(Rs '000)
Particulars Amt Amt
A) Cash Flows from Operating Activities
1) Cash Sales and Collections from Customers 2783
2) Less: Payment for Purchases and Expenses
a) Payment to Creditors -2047
b) Payments for OH -115
c) Wages and Salaries -69
3) Cash Generated from Operations 552
4) Less: Tax Paid -243
5) Net Cash Flow from Operating Activities 309

B) Cash Flows from Investing Activities

1) Sale Proceeds from FA 128
2) Payments for FA -230
3) Net Cash Flow from Investing Activities -102

C) Cash Flows from Financing Activities

1) Issue Proceeds from shares 300
2) Dividend Paid -80
3) Repayment of Loan -250
4) Net Cash Flow from Financing Activities -30

D) Net Increase in Cash and Cash Equivalents 177

Notes:
1) Cash and Cash Equivalents includes Cash only
2) Reconciliation:
a) Closing Balance of C&CE 212
b) Less: Opening Balance of C&CE -35
c) Increase in Cash and Cash Equivalents 177
Prob No: 2
Cash Flow Statement of Ryan Ltd for the year ended 31/03/2010 (Indirect Method)
Particulars Amt
A) Cash Flows from Operating Activities
1) Profit before Tax 23,000
2) Adjustments:
(a) Add: Depreciation 37,000
(b) Less: Interest Income -6,000
(c) Less: Gain on Sale of Investments -12,000
(d) Add: Loss on Sale of Plant 3,000
(e ) Add: Interest Expense 23,000
3) Operating Profit before Working Capital Changes 68,000
4) Adjustments for Working Capital Changes
(a) Less: Increase in CA - Inventories (144,000 - 110,000) -34,000
(b) Add: Decrease in CA
(i) Accounts Receivable (55,000 - 47,000) 8,000
(ii) Prepaid Expenses (5000-1000) 4,000
(c) Add: Increase in CL
(i) Accounts Payable (50,000 - 43,000) 7,000
(ii) Accrued Liabilities (12,000 - 9000) 3,000
5) Cash Generated from Operations (CGO) 56,000
6) Less: Tax Paid -9,000
(Payable at Beginning 5000 + 7000 CY Exp - Payable at End 3000)
(or) (Exp 7000 - O/s at End 3000 + O/s at Beginning 5000)
7) Net Cash Flow from Operating Activities

B) Cash Flows from Investing Activities

1) Purchase of Plant Assets -120,000
2) Sale Proceeds from Plant Assets 5,000
3) Purchase of Investments -78,000
4) Sale proceeds from Investments 102,000
5) Interest Income Received 6,000
6) Net Cash Flow from Investing Activities

C) Cash Flows from Financing Activities

1) Issue proceeds from Shares 150,000
2) Repayment of Bonds -50,000
3) Dividend Paid -8,000
4) Interest Expense Paid -23,000
5) Net Cash Flow from Financing Activities

D) Net Increase in Cash and Cash Equivalents

Notes:
1) Cash and Cash Equivalents includes Cash only
2) Reconciliation:
a) Closing Balance of C&CE 46000
b) Less: Opening Balance of C&CE -15000
c) Increase in Cash and Cash Equivalents 31000

Additional Note:
Source for Investing Activities:
1)FA of B/S or additional information
2)Investments of B/s or additional information
3) 2nd Point of Opearting Activities

Source for Financing Activities:

1) SC of B/S or additional information
2)NCL of B/S or additional information
3) 2nd Point of Opearting Activities
4) Dividends
Indirect Method)
Amt

Computation of Tax Paid:

Tax Payable A/c
Particulars Amt Particulars Amt
By Balance b/d 5000
To Cash/Bank A/c (b/f) 9000 By P&L A/c 7000
47,000
To Balance c/d 3000
12000 12000

-85,000

69,000

31,000
Prob No: 3
Cash Flow Statement of Sun Ltd for the year ended 31/3/2010 - Indirect Method
Particulars Amt
A) Cash Flows from Operating Activities
1) Profit before Tax 4,500
2) Adjustments:
(a) Add: Depreciation (1000 + 2500) 3,500
(b) Less: Profit on Sale of Vehicles -700
3) Operating Profit before Working Capital Changes 7,300
4) Adjustments for Working Capital Changes
(a) Less: Increase in CA
(i) Stock (17000 - 14000) -3,000
(ii) Debtors (8,000 - 6,000) -2,000
(b) Add: Increase in CL - Creditors (4000 - 2500) 1,500
5) Cash Generated from Operations (CGO) 3,800
6) Less: Tax Paid -1,000
(Payable at Beginning 1000 + 1500 CY Exp - Payable at End 1500)
7) Net Cash Flow from Operating Activities

B) Cash Flows from Investing Activities

1) Sale Proceeds from Vehicles 1,700
2) Purchase of Fixtures (WN 1) -7,000
3) Purchase of Vehicles (WN 1) -8,000
4) Net Cash Flow from Investing Activities

C) Cash Flows from Financing Activities

1) Issue proceeds from Shares (60,000 - 50,000) 10,000
2) Dividend Paid -1,000
3) Net Cash Flow from Financing Activities

D) Net Decrease in Cash and Cash Equivalents

Notes:
1) Cash and Cash Equivalents comprises Cash & Bank and Short term Investments
2) Reconciliation:
a) Closing Balance of C&CE (6000 + 2000) 8000
b) Less: Opening Balance of C&CE (8,500 + 1000) -9500
c) Decrease in Cash and Cash Equivalents -1500
Amt

2,800

WN 1: Computation of FA Purchased
Fixtures and Vehicles A/c
Particulars Fixtures Vehicles
-13,300 To Balance b/d 11,000 8,000

To Cash and Bank A/c 7,000 8,000

(Purchase during the CY - b/f)
18,000 16,000
9,000
Alternatively,
-1,500 Fixtures and Vehicles A/c
Particulars Fixtures Vehicles
To Balance b/d 11,000 8,000
To Profit on Sale A/c (P&L) - 700
To Cash and Bank A/c 7,000 8,000
(Purchase during the CY - b/f)
18,000 16,700
ixtures and Vehicles A/c
Particulars Fixtures Vehicles
By Depreciation 1,000 2,500
By Sale of Vehicles - 1,000
(BV of Asset Sold)
By Balance c/d 17,000 12,500
18,000 16,000

ixtures and Vehicles A/c

Particulars Fixtures Vehicles
By Depreciation 1,000 2,500
By Cash and Bank A/c - 1,700
(Sale Proceeds)
By Balance c/d 17,000 12,500
18,000 16,700
Prob No: 4
Cash Flow Statement of AA Ltd for the year ended 31/3/2010 - Indirect Method
(Rs in Lakhs)
Particulars Amt Amt
A) Cash Flows from Operating Activities
1) Profit before Tax (WN 1) 398
2) Adjustments:
(a) Add: Depreciation (WN 4) 400.4
(b) Add: Loss on Sale of FA (WN4) 1.40
(c ) Add: Interest Expense (450*14%) 63
3) Operating Profit before Working Capital Changes 862.80
4) Adjustments for Working Capital Changes
(a) Less: Increase in CA
(i) Inventories (700-500) -200
(ii) Sundry Debtors (450 - 320) -130
(b) Add: Increase in CL
(i) Cash Credits (120 - 90) 30
(ii) Sundry Creditors (220 - 180) 40
5) Cash Generated from Operations (CGO) 602.80
6) Less: Tax Paid (70 + 8) -78
7) Net Cash Flow from Operating Activities 524.80

B) Cash Flows from Investing Activities

1) Sale Proceeds from FA (WN 4) 0.20
2) Purchase of FA (WN 4) -402
3) Purchase of Investments (700-600) -100
4) Net Cash Flow from Investing Activities -501.80

C) Cash Flows from Financing Activities

1) Issue proceeds from Shares (SC (1200 - 1000) + SP (40 - 20) ) 220
2) Issue Proceeds from Debentures (450 - 400) 50
3) Interest Expense Paid -63
4) Dividend Paid -150
5) Net Cash Flow from Financing Activities 57

D) Net Increase in Cash and Cash Equivalents 80

Notes:
1) Cash and Cash Equivalents includes Cash & Bank only
2) Reconciliation:
a) Closing Balance of C&CE 130
b) Less: Opening Balance of C&CE -50
c) Increase in Cash and Cash Equivalents 80
WN 1: Computation of PBT
Particulars Amt
a) Increase in P&L A/c Balance 110
(Retained Profits = 460 - 350)
b) Add: Appropriation
(i) Dividend paid 150
(ii) Transferred to GR (WN 2) 48
c) PAT 308
d) Add: Tax Expense (WN 3) 90
e) PBT 398

WN 2:
General Reserve A/c
Particulars Amt Particulars Amt
By Balance b/d 700
By Provision for tax A/c (WN 3) 2

To Balance c/d 750 By P&L A/c (CY App -b/f) 48

750 750

WN 3:
Provision for Tax A/c
Particulars Amt Particulars Amt
To Cash and Bank A/c 8 By Balance b/d 10
To GR A/c (10 - 8) 2
To Cash and Bank A/c 70
By P&L A/c (CY Expense - b/f) 90
To Balance c/d 20
100 100

WN 4: Analysis of Fixed Assets

Fixed Assets A/c
Particulars Amt Particulars Amt
To Balance b/d 1600 By Sale of FA A/c 2

To Cash and Bank A/c (b/f) 402

(Purchase - Investing) By Balance c/d 2000
2002 2002

Accumulated Depreciation A/c

Particulars Amt Particulars Amt
To Sale of FA A/c 0.4 By Balance b/d 320

By P&L A/c (b/f) 400.4

To Balance c/d 720 (CY Depreciation - Operating)
720.4 720.4
Sale of Fixed Assets A/c
Particulars Amt Particulars Amt
To FA A/c 2 By Acc Dep A/c 0.4
By Cash and Bank 0.2 (Investing)
By Loss on sale of FA (b/f) 1.4 (Operating)
2 2
Prob No: 6
Cash Flow Statement of Raaga Ltd for the year ended 31/3/2010 - Indirect Method
Particulars
A) Cash Flows from Operating Activities
1) Profit before Tax and Extra-Ordinary items (WN 1)
2) Adjustments:
(a) Add: Depreciation (WN 3)
(b) Less: Profit on Sale of P&M (90,000 SP - 50,000 BV)
(c) Less: Profit on Sale of Investments (70,000 - 50,000)
(d) Add: Interest Expense on Debentures (200,000*9%)
(e )Add: Preliminary Expenses written off (25,000 - 10,000) (Non- Cash item for CY)
3) Operating Profit before Working Capital Changes
4) Adjustments for Working Capital Changes
(a) Less: Increase in CA
(i) Inventories (95,000 - 90,000)
(ii) Sundry Debtors (175,000 - 130,000)
(b) Add: Decrease in CA - B/R (70,000 - 65,000)
(c) Add: Increase in CL
(i) Sundry Creditors (95,000 - 80,000)
(ii) Liabilities for Expenses (30,000 - 20,000)
(d) Less: Decrease in CL - B/P (30,000 - 20,000)
5) Cash Generated from Operations (CGO)
6) Less: Tax Paid (WN 4)
7) Cash Flow before Extra-Ordinary items
8) Less: Extra-Ordinary Item paid during the year - Voluntary Separation Payment (WN 2)
9) Net Cash Flow from Operating Activities

B) Cash Flows from Investing Activities

1) Sale Proceeds from Land
2) Sale Proceeds from P&M
3) Purchase of P&M (WN 3)
4) Sale proceeds from Investments
5) Dividend received on Investments
6) Purchase of Investment (WN 5)
7) Net Cash Flow from Investing Activities

C) Cash Flows from Financing Activities

1) Issue proceeds from Equity Shares (600,000 - 500,000)
2) Redemption of Preference shares
3) Issue Proceeds from Debentures (200,000 - 100,000 Non-Cash)
4) Interest Expense Paid
5) Dividend Paid
6) Net Cash Flow from Financing Activities
 D) Net Decrease in Cash and Cash Equivalents

Notes:
1) Cash and Cash Equivalents includes Cash & Bank only
2) Reconciliation:
a) Closing Balance of C&CE
b) Less: Opening Balance of C&CE
c) Decrease in Cash and Cash Equivalents
(Investing)
(Operating)
Amt Amt
WN 1: Computation of PBT and Extra-Ordinary Items
245,000 Particulars Amt
a) Increase in P&L A/c Balance 50,000
135,000 (Retained Profits = 160,000 - 110,000 )
-40,000 b) Add: Appropriations
-20,000 (i) Dividend paid 60,000
18,000 c) PAT 110,000
15,000 d) Add: Tax Expense 135,000
353,000 e) PBT 245,000
f) Add/Less: Voluntary Separation Payments -
g) PBT and Extra-Ordinary Items 245,000
-5,000
-45,000 WN 2:
5,000 Voluntary Separation Payments A/c (Deferred Revenue Exp)
Particulars Amt
15,000 To Balance b/d 65,000
10,000
-10,000 To Cash and Bank A/c (b/f) 110,000
323,000 (Paid during the year - Operating)
-100,000 175,000
223,000
-110,000 WN 3:
113,000 Plant and Machinery A/c
Particulars Amt
To Balance b/d 500,000
150,000 To 9% Debentures A/c 100,000
90,000 To Cash & Bank A/c 350,000
-350,000 (450,000 - 100,000)
70,000
5,000 950,000
-25,000 WN 4:
-60,000 Provision for Tax A/c
Particulars Amt
To Cash and Bank A/c (b/f) 100,000
100,000
-200,000 To Balance c/d 95,000
100,000 195,000
-18,000
-60,000 WN 5:
-78,000 Investment A/c
Particulars Amt
 -25,000 To Balance b/d 80,000

To Cash and Bank A/c (b/f) 25,000

(Purchase)
105,000
65,000
-90,000
-25000
 Prob No: 11

ments A/c (Deferred Revenue Exp)

Particulars Amt
By GR A/c (Written off) 50,000

By Balance c/d 125,000

175,000

d Machinery A/c
Particulars Amt
By Sale of Plant (BV) 50,000

By Depreciation A/c 135,000

( b/f (or) 900,000*15% )
By Balance c/d 765,000
950,000

on for Tax A/c

Particulars Amt
By Balance b/d 60,000
By P&L A/c (CY Expense) 135,000

195,000

stment A/c
Particulars Amt
By Sale of Inv (Cost) 50,000
By Cash & Bank (Dividend) 5,000

By Balance c/d 50,000

105,000
Prob No: 11
Cash Flow Statement for the year ended 31/3/2013 - Direct Method (Rs in Crores)
Particulars Amt Amt
A) Cash Flows from Operating Activities
1) Cash Sales and Collections from Customers (131 + 67) 198
2) Less: Payment for Purchases and Expenses -159
3) CGO 39
4) Less: Tax Paid -14
5) Net Cash Flow from Operating Activities 25

B) Cash Flow From Investing Activities

1) Sale Proceeds from Machinery (BV 21 - Loss 0.30) 20.70
2) Purchase of Machinery -40
3) Net Cash Flow from Investing Activities -19.30

C) Cash Flow From Financing Activities

1) Redemption of Preference shares -16
2) Issue Proceeds from Equity Shares (16*125%) 20
3) Interest on Debentures Paid -1
4) Dividend paid -10
5) Net Cash Flow from Financing Activities -7

D) Net Decrease in Cash and Cash Equivalents -1.3

Notes:
1) Cash and Cash Equivalents includes Cash and Bank only
2) Reconciliation:
a) Closing Balance of C&CE (b/f) 7.70
b) Less: Opening Balance of C&CE -9
c) Decrease in Cash and Cash Equivalents -1.3
Prob No: 7
Cash Flow Statement of New Light Ltd for the year ended 31/3/2010 - Indirect Method
Particulars Amt
A) Cash Flows from Operating Activities
1) Profit before Tax (WN 1) 680,000
2) Adjustments:
(a) Add: Depreciation 360,000
(b )Add: Preliminary Expenses written off (80,000 - 40,000) 40,000
(c) Add: Loss on Sale of FA ( BV(200,000-80,000) - SP 100,000) 20,000
(d) Add: Loss on FA Discarded ( BV(56,000-40,000) - SP 0) 16,000
(e) Add: Interest Expense on Debentures (400,000*9%) 36,000
(f) Add: Premium on redemption of
(i) Preference Shares ((400,000 - 280,000)*5%) 6,000
(ii) Debentures ((400,000 - 280,000)*5%) 6,000
3) Operating Profit before Working Capital Changes 1,164,000
4) Adjustments for Working Capital Changes
(a) Less: Increase in CA ( 13,10,000 - (11,10,000+24,000) ) -176,000
(b) Add: Increase in CL (520,000 - 480,000) 40,000
5) Cash Generated from Operations (CGO) 1,028,000
6) Less: Tax Paid (PY Provision for Tax is paid in CY) -360,000
7) Net Cash Flow from Operating Activities

B) Cash Flows from Investing Activities

1) Sale Proceeds from FA 100,000
2) Purchase of FA (WN 2) -856,000
3) Sale proceeds from Investments ( Cost(400,000 - 320,000) + Profit 40,000) 120,000
4) Net Cash Flow from Investing Activities

C) Cash Flows from Financing Activities

1) Issue proceeds from Equity Shares (16,00,000 - 12,00,000) 400,000
2) Redemption of Preference shares at Premium ( (400,000-280,000) + 6000 ) -126,000
3) Redemption of Debentures at Premium ( (400,000-280,000) + 6000 ) -126,000
4) Interest Expense Paid -36,000
5) Preference Dividend Paid -40,000
6) Equity Dividend paid -104,000
7) Net Cash Flow from Financing Activities

D) Net Increase in Cash and Cash Equivalents

Notes:
1) Cash and Cash Equivalents includes Cash only
2) Reconciliation:
a) Closing Balance of C&CE 10,000
b) Less: Opening Balance of C&CE -10,000
c) Decrease in Cash and Cash Equivalents 0
 WN 1: Computation of PBT
Amt Particulars Amt
a) Increase in P&L A/c Balance 84,000
(Retained Profits = 444,000 - 360,000 )
b) Less: Undervaluation of Opening Stock -24,000
(216,000*10/90) Additional Note:
c) Add: Appropriations In all other Problems:
(ii) Preference Dividend (400,000*10%) 40,000 Provision for tax/Tax Pa
(iii) Equity Dividend (Paid 104,000 + Unpaid 16,000) 120,000 Additional info either Ta
(i) Transfer to GR (800,000 - 680,000) 120,000 Given
d) PAT 340,000 Exp
e) Add: Tax Expense (Closing Bal in Prov for Tax A/c) 340,000 Paid
e) PBT 680,000

In Current Prob:
Provision for tax/Tax Pa
Additional info neither T
Prov for tax A/c canot b
Tax Paid - PY Prov for ta
668,000 CY Tax Exp - Cl. Bal in Pr

-636,000

-32,000

-
 WN 2:
Fixed Assets A/c
Particulars Amt Particulars
To Balance b/d 3,200,000 By Sale of FA
By FA Discarded
Additional Note:
In all other Problems: To Cash A/c (b/f) 856,000 By Balance c/d
Provision for tax/Tax Payable - B/s (Purchase)
Additional info either Tax expense or tax paid are given 4,056,000
Compute
Paid
Exp
By Preparing Prov for Tax A/c

In Current Prob:
Provision for tax/Tax Payable - B/s
Additional info neither Tax expense nor tax paid are given
Prov for tax A/c canot be prepared
Tax Paid - PY Prov for tax Amt
CY Tax Exp - Cl. Bal in Prov for tax A/c
 Prob No: 12
Computation of Cash Flow from Operating activities (Indirect Method)
Particulars
Amt 1) Profit Before Tax and Extra-Ordinary Items (WN 1)
200,000 2) Adjustments:
56,000 (a) Add: Depreciation
(b) Add: Patents Written-Off
3,800,000 (c ) Less: Profit on Sale of Investments
3) Operating Profit before Working Capital Changes
4,056,000 4) Adjustments for Changes in WC
a) Less: Increase in CA
(i) Stock (160,000 - 120,000)
(ii) Debtors (75,000 - 7500)
b) Add: Decrease in CA - Prepaid Expenses (15,325 - 12,475)
c) Add: Increase in CL - Creditors (87,525 - 23,735)
5) Cash Generated from Operations
6) Less: Tax Paid (WN 2)
7) Cash Flow before Extra-Ordinary Items
8) Add: Extra-Ordinary Item - Insurance Claim
9) Net Cash Flow from Operating Activities
irect Method) WN 1: Computation of Profit Before Tax and Extra-Ordinary Items
Amt Particulars Amt
989,900 1) Retained Profit 880,900
2) Add: Appropriations - Transfer to Reserve 87,000
86,700 3) PAT 967,900
35,000 4) Add: Tax expense net of Refund (125,000 - 3000) 122,000
-10,000 5) PBT 1,089,900
1,101,600 6) Less: Extra-Ordinary item - Insurance Claim -100,000
7) Profit Before Tax and Extra-Ordinary Items 989,900

-40,000 WN 2:
-67,500 Provision for Tax A/c
2,850 Particulars Amt
63,790 To Refund of Tax 3,000
1,060,740
-115,775 To Cash A/c (Paid - b/f) 115,775
944,965 To Balance c/d 125,000
100,000 243,775
1,044,965
for Tax A/c
Particulars Amt
By Balance b/d 118,775
By P&L A/c (Expense) 125,000 122,000

243,775
AS 16: Borrowing Cost
BC

BC?
Period of Capitalisation
1)
2)
3)

1)

2)

3)

Measurement of BC - Computation of Amount of BC to be Capitalised

AS 16: Borrowing Cost
Includes Interest Exp
General Accounting Treatment of Interest - Charged to P&L A/c
AS 16: If Criteria and Conditions are Satisfied, then BC can be Capitalised

Any Cost associated with Borrowing of Funds

Borrowing of Funds - SH or Outsiders?
Borrowing of Funds - It does not Include Equity (SC), it includes only Liabilities(Outsiders)
Liabilities - NCL or CL?
Liabilities - Includes Both NCL(Long Term) and CL(Short Term)

BC Includes
1) Interest
2) Other Cost (5 Points)
(a) Commitment Charges

(b) Amortisation of Discount on Issue of Deb or Premium on Redemption of Deb

(c ) Amortisation of Ancillary Cost (Additional Cost) (eg Processing Fees, Underwrtting Commission etc)
(d) Finance Charges in case of Finance Lease (AS 19)
(e ) Exchange Difference on Foreign Currency Borrowings to the extent of Interest Saved
Example, Pg no. 233 of Print material
Int to be paid = $10,000*5%*Rs.48/$ = Rs.24,000 is BC
Exchange Difference on Loan = $10,000* Rs. (48-45)/$ = Rs. 30,000
In this Rs. 30,000, how much is BC? - To the Extent of Interest Saved
Case I: Int Rate in India is 11% pa (As per the example)
Interest Saved = Int if Borrowed in India - Int on FCB
= (Rs. 450,000*11%) - 24,000
= Rs. 49,500 - Rs. 24,000
= Rs. 25,500 is Interest Saved
Foreign Exchange Difference = Rs. 30,000
Int Saved = Rs. 25,500 Balance FED is Rs. 4500
BC as AS -16 As per AS 11
If Criteria and Conditions are Satisfied, FE Loss should be charged
it can be capitalised to P&L A/c
 Hence Total BC to be Capitalised = Int of Rs. 24,000 + FED of Rs. 25,500
= Rs. 49,500
Foreign Exchange Diff
Period of Capitalisation
Start
Suspend
Stop

Start
On Satisfaction of following 5 Conditions
2 General Conditions 3 Specific Conditions
Are applicable for Capitalisation of any Amount Are applicable only for Cap of BC (AS 16)
Are available in AS 10, AS 16 and AS 26

Suspension of Capitalisation
If work/Activity is Suspended - Why?
As a part of process of Production/Manufacturing For any other reasons
Continue Capitalisation (Don't Suspend) Suspend Capitalisation and Capitalisation
will be resumed once Activity on the Asset
is resumed.

Cessation of Capitalisation - Multiple Assets

5 Phases/Parts in Construction of an Asset
1st Part - 100% done - Continue or Stop Capitalisation?
Work is still going on remaining 4 parts - Capitalisation will be Continued

It depends on whether 1st part can be used independtly? (without completion of other 4 parts)
Yes No
Stop Capitalisation on 1st Part Continue Capitalisation on 1st Part

Measurement of BC - Computation of Amount of BC to be Capitalised

Borrowing of Funds
Specific/Special Borrowing General Borrowing
Int = Total Interest(BC) incurred on Borrowing - Investment Income Int = Exp Incurred on Asset * Capitalisation Rate
=(100Lakhs*10%) - (40 Lakhs*12%) = 10 L - 4.8 L = 5.2 L (Capitalisation Rate is nothing but Weighted Average R
Example:
Loan 100L at 10% Interest rate
Exp incurred on the Asset is 60L
Surplus amount of 40L - Is invested at 12% - Investment Income (for e.g. 4.8Lakhs)
Criteria Conditions Treatment of BC
Yes Yes Capitalise
Yes No Charge to P&L
No Yes Charge to P&L
No No Charge to P&L

Example:
Loan Sanctioned by Bank for Construction of Building is Rs. 100 Cr at 10% Interest
Construction is over 3 years
In I year, utilised Rs. 30 Cr out of Sanctioned Loan of Rs.100 Cr
Int will be levied by Bank on Rs. 30 Cr only
On remaining Unutilised amount of Rs. 70 Cr, Commitment Charges (e.g. 1%) are levied

Case II: Int Rate in India is 13% pa Case III: Int Rate in India is 5% pa
Interest Saved = Int if Borrowed in I Interest Saved = Int if Borrowed in India - Int on FCB
= (Rs. 450,000*13 = (Rs. 450,000*5%) - 24,000
= Rs. 58,500 - Rs. = Rs. 22,500 - Rs. 24000
= Rs. 34,500 is In = - Rs. 1,500 is Interest Saved
Foreign Exchange Difference = Rs. 30,000
Int Saved = Rs. 30,000 Int Saved = Nil Balance FED i
BC as AS -16 BC as AS -16 As per AS 11
If Criteria and Conditions are Satisfied,
If Criteria and Conditions are Satisfied, FE Loss should b
it can be capitalised it can be capitalised to P&L A/c
 Hence Total BC to be Capitalised = InHence Total BC to be Capitalised = Int of Rs. 24,000 + FED Nil
= Rs. 24,000
Foreign Exchange Difference = Rs. 30,000

italisation Rate
ut Weighted Average Rate; In FM WACC)
Example:
Particulars Amt Int Weights CR = Sum (Int * W)
14% Debentures 100 14% 0.5 7.00%
15% Bank Loan 50 15% 0.25 3.75%
12% of Bonds/PD 50 12% 0.25 3.00%
200 1 13.75%
From the above 200L, 80L is utilised for Constuction of Building
BC = 80L * 13.75% = 11 Lakhs
Prob No: 13
Computation of Capitalisation Rate
Particulars Amt Int Weights CR = Sum (Int * W)
10% Debentures 80 10% 0.53 5.33%
12% Bank Loan 20 12% 0.13 1.60%
9% PD 50 9% 0.33 3.00%
150 1 9.93%
From the above 150L, 50L is utilised for Constuction of Plant
BC = 50L*9.93% = 4.97 Lakhs
ndia - Int on FCB

Balance FED is 30,000

As per AS 11
ed, FE Loss should be charged
to P&L A/c
nt of Rs. 24,000 + FED Nil
July No Int
Aug Exp Int will be on Exp incurred in July
Sept Exp Int will be on Exp incurred in July, Aug and Int in Aug (Cum A
Oct Exp Int will be on Exp incurred in July, Aug, Sept and Int in Aug a

Alt - I Alt - II
July 300,000 5m 250000 15000
Aug 400,000 4m 266666.7 16000
Sept 600,000 3m 300000 18000
Oct 500,000 2m 166666.7 10000
Nov 400,000 1m 66666.67 4000
Dec 300,000 0m 0 0
2,500,000 1050000
63000 63000

25,00,000 + 63,000
2,563,000

ParticularsAmt Int Weights CR = Sum (Int * W)

600,000 11% 0.35 3.88%
1,100,000 13% 0.65 8.41%
1,700,000 1 12.29%
uly, Aug and Int in Aug (Cum Amt)
uly, Aug, Sept and Int in Aug and Sept (Cum Amt)

Alt - III
15000
16000
18000
10000
4000
0

63000
AS 12: Accounting for Government Grants

Definitions and Scope

Accounting for Government Grants

I) On Recognition
II) On Refund

I) Accounting Treatment for Recognition of Government Grant

Govt Grants are Classified in to Three Types:
A) Capital Grant (Grant in relation to FA-Capex)
B) Revenue Grant (Grant in relation to Rev Exp)
C) Grant in the nature of Promoter's Contribution

A) Capital Grant (Grant in relation to FA-Capex)

1) Monetary Grant - In the form of Cash
2) Non-Monetary Grant - In the form of Kind

1) Monetary Grant - In the form of Cash

a) Depreciable FA (e.g. P&M)
Two Alternative Accounting Treatments:
First Alternative
Gross Value 100 Lakhs
Less: Grant Received (60) Lakhs
P&M will be disclosed 40 Lakhs
Depreciation (SLM-10% pa) should be provided on Rs. 40 Lakhs by following rules of AS 10/26
Depreciation charged to P&L = 40*10% = 4 pa

Note: If Grant amount (100 Lakhs) is equal to Gross Value(100 Lakhs)

Disclose FA at Nominal value (negligible amount), for say at 1 or 10 or 100
No need to Provide Depreciation on the above Nominal Value

Second Alternative
Asset should be maintained at Gross Value only and Depreciation should be provided on such G
Gross Value 100 Lakhs
Depreciation(SLM -10%) should be provided on Rs. 100 Lakhs by following rules of AS 10/26
Depreciation charged to P&L = 100*10% = 10 pa

Grant will be credited to a separate A/c called as Deferred Govt. Grant A/c
Deferred Govt. Grant A/c
Particulars Amt Particulars
To P&L A/c 6 By Bank or
(60*10%) GG Receivable A/c
To Balance c/d 54
60
 P&L A/c
Particulars Amt Particulars
To Dep 10 By Def Govt Grant
(100*10%)

Net Dep in the above P&L = 10 - 6 = 4 which is same as First alternative

2) Non-Monetary Capital Grant - In the form of Kind

Asset is acquired at
a) Concessational Rate - Recognise Asset at Acquisition Cost(Amount paid to Govt)
P&M Received 100
Acquisition Cost 40
(Amount paid to Govt)
Asset should be recognised at 40

b) Free of Cost - Recognise Asset at Nominal Value

B) Revenue Grant (Grant in relation to Rev Exp)

Grant should be Credited to Deferred Govt Grant A/c and it should be apportioned to P&L in the ratio of Expense for which Gr
Disclosure in P&L:
First Alternative: Consider as "Other Income" under Revenue
Second Alternative: Deduct it from repective Expense

C) Grant in the nature of Promoter's Contribution

Credit to Capital Reserve A/c

II) Accounting Treatment for Refund of Government Grant

On Recognition On Refund
Deducted from GV of Asset Add back to BV of Asset
Cr to Def Govt Grant A/c Debit to Def Govt Grant A/c to the extent balance available, balance refund amount debit to P&
Cr to Capital Reserve Debit to Capital Reserve

Deferred Govt. Grant A/c

Particulars Amt Particulars
I yr 6
II yr 6
III yr 6
Balance c/d 42

Refund 42 Balance b/d

For suppose, 50 L is refunded.

42 should be debited to D.GG A/c and the balance amt of 8 debit to P&L
Concept Prob No. 4
Revenue Grant
600,000 should be apportioned to P&L in the ratio of Expenses incurred
Ratio of Exp
1 130,000 (50,000 + 80,000)
2 110,000
3 120,000
Hence, Ratio of app is 13:11:12
1 216667
2 183333
3 200000
JE in I Year
Bank A/c Dr 400,000
GG Receivable A/c Dr 200,000
To D.GG A/c 600,000

D.GG A/c Dr 216,667

To P&L A/c 216,667

JE in II Year
Bank A/c Dr 100,000
To GG Receivable A/c 100,000

D.GG A/c Dr 183,333

To P&L A/c 183,333

JE in III Year
Bank A/c Dr 100,000
To GG Receivable A/c 100,000

D.GG A/c Dr 200,000

To P&L A/c 200,000

Concept Prob No. 9

Deferred Govt. Grant A/c
Particulars Amt Particulars Amt
To P&L A/c (2 * 4y/9y) 0.89 By Bank A/c 2
(app for 4 years)
To Balance c/d 1.11
2 2
To Bank A/c 1.11 By Balance b/d 1.11

1.11 1.11

P&L A/c (Extract)

Particulars Amt Particulars Amt
To Bank A/c 0.89
(Refund 2 - 1.11 DGG A/c)
 b) Non-Depreciable FA (e.g. Land)
Two Alternative Accounting Treatments:
First Alternative
Gross Value 100 Lakhs
Less: Grant Received (60) Lakhs
Land will be disclosed at 40 Lakhs
ollowing rules of AS 10/26 No Depreciation on above

Note: If Grant amount (100 Lakhs) is equal to Gross Value(100 Lakhs)

Disclose FA at Nominal value (negligible amount), for say at 1 or 10 or 100

Second Alternative
ould be provided on such GV Asset should be maintained at Gross Value only
Land (GV) 100 Lakhs
owing rules of AS 10/26 Two Cases:
1) Conditions attached to Grant are Satisfied - Credit Govt Grant directly to Capital Reserve A/c
2) Conditions attached to Grant are yet to be Satisfied - Credit to Deferred Govt Grant A/c and
it will be apportioned to P&L in the ratio of Cost to be incurred to satisfy the Conditions attached t
rant A/c
Amt
60 This 60 should be apportioned to P&L in
ceivable A/c the ratio of Depreciation on Asset

60
 Amt
6

s same as First alternative

tio of Expense for which Grant is received

P to Govt A/c Dr
To DGG A/c

DGG A/c Dr
To P&L A/c

refund amount debit to P&L A/c

rant A/c
Amt
60

42

ance amt of 8 debit to P&L A/c

ctly to Capital Reserve A/c
erred Govt Grant A/c and
satisfy the Conditions attached to Grant
I) Foreign Currency Transactions
A) Initial 3/1/2019 P&M Purchased from ABC Corp (USA) on Credit for $1000
Measurement On 1/3/19 Exc Rate is Rs. 70/$ (Exchange Rate available on Date of Transaction)
P&M A/c Dr Rs. 70,000
To ABC Corp A/c Rs. 70,000

B) Subsequent 3/31/2019 Balance Sheet date, Exc Rate is Rs. 72/$

Measurement P&M is Non-Monetary item
-If Carreid at Cost No need to re-measure
-If Carried at FV/NRV/MV Change the Exch Rate from 70 to 72

ABC Corp is Monetary Item Change the Exch Rate from 70 to 72

a) ABC Corp A/c

P&L A/c (Loss) Dr 2,000
To ABC Corp A/c ($1000*(72-70)) 2,000

Note: P/L on Change in Exch Rate should be transferred to P&L A/c

b) P&M A/c
If P&M is at Cost Price - NO Additional JE

If P&M is at FV/NRV
P&M A/c ($1000*(72-70)) Dr 2,000
To P&L A/c (Gain) 2,000

4/20/2019 $1000 paid to ABC Corp

Case I: Exch Rate is Rs. 75/$
ABC Corp A/c (70,000 + 2000) Dr 72,000
P&L A/c Dr 3,000
To Bank A/c ($1000*75) 75,000

Case II: Exch Rate is Rs. 67/$

ABC Corp A/c (70,000 + 2000) Dr 72,000
To Bank A/c ($1000*67) 67,000
To P&L A/c 5,000

3000
222000
 Loss Dr P&L
Profit Cr P&L

Loss Dr Depreciable Asset - Add to Asset

Profit Cr Depreciable Asset - Deduct from Asse

FCMITD A/c Dr 80,000

To P&L A/c 80,000
( (100,000 Dr - 20,000 Cr - 400,000 Cr) / 4 Years
= 320,000 Cr / 4 years = 80,000 pa )

III) Forward Exchange Contract

F. Exch Rates
Dollars - 1000
After 2 months - Rs. 75 / $ Forward Rate
Today's Ech Rate is Rs. 74/$ - Spot Rate
At the end of the 2 months, Exh Rate is Rs. 76 /$ - Actual Rate

There are two types of Forward Exchange Contracts:

A) Hedging Contract - A contract entered to minimise Risk
3/1/2019 P&M Purchased for $100 cr from ABC Corp on Credit of 3 months
Due date for payment is 1/6/2019
On 1/3/2019 Exch Rate is Rs. 70/$ (Spot Rate)

Over next three months of credit period Exch rates will fluctautes,
hence there is RISK (If Exch rate increases-Loss Increases) associated with Liability of ABC Corp
Any way is available to restrict the loss(eliminate the Risk)?
Yes - By entering in to Forward Exchange Contract

On 1/3(when Exch rate is Rs.70/$ - Spot Rate), We went to Bank, and we asked them that on 1/6 at what rate
Bank informed that they will sell dollars on 1/6 at Rs.71/$ - This information is given 1/3
Agreement is entered on 1/3, to Purchase Dollars from Bank on 1/6 at Rs. 71/$ ( Forward Rate - the rate at w
Irrespective of Actual Exchange Rate on 1/6, we have to purchase and Bank should sell dollars at Rs. 71/$

Accounting
Premium or Discount = Forward Rate - Spot Rate = $100( 71 - 70 ) = $100 * Rs 1/$ = Rs.100 It should be appor
Rs . 100 should be apportioned over 3 months viz, March (2018-2019) (Rs. 33.33) and April, May (2019-2020)

48.85
47.5
1.35 Loss
27000 Loss
app over 4 months
12/31/2007
4/30/2008
 YE is 31/3
2007-2008 - 3m (31/12/2007 to 31/3/2008) 20250
2008-2009 - 1m (1/4/2008 to 30/4/2008) 6750

B) Speculative Contract - Entered for Trading purpose (Risk is created)

Contract entered for gaining profits without any obligation

Today's Exh Rate is Rs. 70/$

Our estimation is that, Exh rate might be Rs. 75/$ after 3 months
We went to Bank and asked abt forward rate, Rs. 71/$

Accounting
Premium or Discount should be ignored (Difference b/w Forward rate and Spot Rate)

Case I: Where YE is avaibale during Contract Period

On B/S date, P/L should be recognised in P&L = Forward rate on B/S date for remaining period - Original Forward Rate
On Date of Sale, P/L should be recognised in P&L = Sale Rate - Forward rate on B/S date for remaining period

3/1/2013 47.10 Forward Rate - 3 months 6/1/2013

3/31/2013 47.15 Forward Rate - for remaining 2 months 6/1/2013
In 2012-2013, difference b/w above two rates should be recognised in P&L
47.10 - 47.15 = 0.05 $100,000 * 0.05 = Rs. 5000

Contract sold at 47.18 as on 30/4/2013

47.18
47.15
In 2013-2014, difference b/w above two rates should be recognised in P&L
0.03 $100,000 * 0.03 = Rs. 3000

Case II: Where YE is not avaibale during Contract Period

Profit / Loss = Sale Rate - Original Forward Rate

1/6/2013 for 3 months

9/1/2013
YE is 31/3
ble Asset - Add to Asset
ble Asset - Deduct from Asset

of ABC Corp

em that on 1/6 at what rate Bank will Sell Dollars?

orward Rate - the rate at which agreement is signed)

d sell dollars at Rs. 71/$

= Rs.100 It should be apportioned to P&L over life of contract (3 months)

and April, May (2019-2020) (Rs. 66.67)
iginal Forward Rate
Buy back of Shares

I) Computation of Maximum number of shares that are allowed for buyback - Least of all below three
1) Shares Outstanding Test
At Max a Company can buy back 25% of total number of shares Outstanding
Maximum no. of shares allowed for buy back = 25% * Total no. of shares Outstanding

2) Resources Test
Case (a): Only BOD Resolution - Maximum Funds available for buy back = 10% (Paidup Cap + Free Reserves)
Case (b): BOD Resolution and Special resolution of Shareholders - Maximum Funds available for buy back = 25% (Paidup Cap +
Maximum no. of shares allowed for buy back = Max Funds available / BBP = 10% or 25% (Paidup Cap + Free Reserves) / BBP

Face Value is 10 Paidup Cap 1,000,000

MP is 30 FR 4,000,000
BBP >30 (MP) 5,000,000
is 35 Max Funds available 500000
Loss = BBP - FV = 35 - 10 = 25 BBP is Rs.25 per share 20000
Set-off against SP and Free Reserves

SP can be used to Buy back shares

Can payment be done out of SP? - NO
Any loss on Buy back can be set-off against profits available in SP

3) Debt-Equity Ratio Test

After Buy back, Debt / Equity <= 2:1, Debt is Borrowed Funds and Equity is Shareholders Funds (Paidup Cap + FR)
Debt <= 2Equity
1/2 Debt <= Equity
Equity >= 1/2 Debt
Minimum Equity to be maintained after buy back = 1/2 Debt
Maximum no. of shares allowed for buy back = (Present Equity - Minimum Equity to be maintained after buy back) / BBP
= (Present Equity - 1/2 Debt) / BBP

II) Accounting for Buy back

1) On Purchase of Shares
Shares Bought back A/c Dr 35
To Bank A/c 35

2) On Cancellation of shares bought back

Share Capital A/c Dr 10
 Securities Prem/Free ReservesDr 25 (b/f)
To Shares Bought back A/c 35

3) Creation of Capital Redemption Reserve

Free Reserves A/c Dr
To CRR A/c

Capital Redemption Reserve A/c

1) Source for Buy back of Equity shares
(a) Out of Fresh Issue of shares(Equity/P. shares)
(b) Out of Profits/Reserves - Out of other than Fresh Issue

2) When to Create CRR (POT)?

If E. shares are bought back out of
other than fresh issue of shares,
then CRR should be created

3) For how much of amount?

Equal to Nominal Value (Face
Value) of E.shares bought back out
of other than fresh iuuse
Examples: 100 E.shares of Rs. 10 each are Bought back at par - Amt of CRR = 100 E.sh*10 = 1000
100 E.shares of Rs. 10 each are bought back at Rs. 11 each (BBP) (Cash Paid to E.SH is 1,100 - 100sh*11) - Amt of CR

4) Source of Creating CRR?

Out of Free Reserves (Securities Premium is not available)

5) JE
Free Reserves A/c Dr
To CRR A/c

6) Utilisation of CRR
Only for Bonus Issue of Shares
 25000 shares

ack = 25% (Paidup Cap + Free Reserves)

p + Free Reserves) / BBP

shares

Debt 4,000,000
Equity 3,000,000
Minimum Equity to be maintained after buy back = 1/2 Debt = 20,00,000
after buy back) / BBP 1,000,000 Amt available for buy back
BBP 25
40000 shares

( 30,00,000 - 20,00,000)/25
( Present Equity - 1/2 Debt)/BBP
(Present Equity - Minimum Equity to be mainatined after buy back) /
- 100sh*11) - Amt of CRR = 100 P.sh*10 = 1000
Debt = 20,00,000

natined after buy back) / BBP

Prob No. 1
I) Computation of Maximum number of shares that are allowed for buy back
A) Shares Outstanding Test
Maximum no. of shares allowed for buy back = 25% * Total no. of shares Outstanding
= 25% * (Rs. 300 Cr / 10)
= 25% * 30 Cr Shares
= 7.5 Cr shares

B) Resources Test
Maximum no. of shares allowed for buy back = 25% (Paidup Cap + Free Reserves) / BBP
= 25% (300Cr + (270 + 100 + 50)Cr ) / (25*120%)
= (25%*720 Cr)/30
= 6 Cr shares
C) Debt-Equity Ratio Test ( Amt and No. in Crores)
When Loan Funds are
Particulars
800 1200 1500
a) Present Equity (300 + (270 + 100 + 50)) 720 720 720 400
b) Minimum Equity to be maintained after 400 600 750 Paidup Cap + FR
buy back such that Debt-Equity Ratio shall
not exceed 2:1 (1/2 * Debt)
c) Maximum Amt available for Buyback and for 320 120 Nil
creation of CRR
d) Max amt available for Buy back 240 90 Nil To Buy back one share:
(c*BBP/(BBP+NV) ), (320*30/(30+10) = 320*30/40) Amt to be paid to Shareh
e) BBP 30 30 Amt to be transferred to
f) Max no. of shares allowed for buy back (d/e) 8.00 3.00 Nil

D) Summary (No. of shares in Cr)

When Loan Funds are
Particulars
800 1200 1500
A) Shares O/S Test 7.5 7.5 7.5
B) Resources Test 6 6 6
C) Debt Equity Ratio Test 8 3 Nil
Maximum number of shares that can be bought back 6 3 Nil
by satisfying all the three condition/Tests (least of all three)

II) Journal Entries in the books of XYZ Ltd

When Loan Funds are
Particulars 800 1200
Debit Credit Debit Credit
1) On Buy back of shares
Shares Bought back A/c Dr 180 90
To Bank A/c (6cr sh*30) (3cr sh*30) 180 90

2) On Cancellation
Share Capital A/c (6 cr sh * 10) (3 Cr sh*10) Dr 60 30
Securities Premium A/c Dr 100 60 (b/f)
General Reserve A/c (b/f) Dr 20 -
To Shares Bought back A/c 180 90
3) Creation of CRR
General Reserve A/c Dr 60 30
To CRR A/c 60 30

(ESC BB - Fresh PSC = )

(Assets - Outside Liab)/No. of E.sh = Value of E.sh on Net Assets basis

 720
320
Paidup Cap + FR Buy back + CRR

To Buy back one share:

Amt to be paid to Shareholder 30 BB 40 30 40
Amt to be transferred to CRR 10 CRR BB&CRR BB BB&CRR
40 320 ? 120
=320*30/40 =120*30/40
320 BB & CRR =240 =90
320*30/40 320*10/40
240 80
BB CRR
BBP 30
8 Cr sh
 30
BB
?
=120*30/40
ESOP

AS 15: Employee Benefits

Guidance Note to AS 15, called as Employee Share based Payments
Under this GN, ESOP is covered
Only Basics of ESOP is at Inter Level

Basics
Understanding the ESOPs
Accounting

1/1/2019 Recruited 100 employees

Training will be provided for a period of 12 months
For this Training heavy Exp is incurred by an entity
These employees are prone to risk from Competitors
Now the main task is to retain them
Any entity takes lot of measures to retain
One the measures is ESOP

Example: On recruitment of employees on 1/1/2019, an ESOP agreement is be entered.

Terms of it are:
If employee remains in org for a continous period of 5 years, then at the end of the 5th year every employee is
1000 shares at Rs. 20, whose MP is Rs. 50 (Face Value 10). And employees should subscribe for the shares with
It is only an option called as Employee Share/Stock Options, these options are not in the form of securities, but

Special Terms under ESOP:

1 Grant Date
The Date on which scheme/agreement/contract of ESOP is entered. (Starting date) (1/1/2019)

2 Vest
Eligibility to get the shares or Right to subscribe for the shares
( On 31/12/2023, Options are vested (eligible) with the employee )

3 Vesting Conditions
To get the eligibility of the shares, the conditions to be satisfied are called as Vesting Conditions (5 years of Con
They are of Two types:
a) Service conditions (5 years of Continous service as an employee)
b) Performance conditions
i) Non-Market related (Increase in Profits)
ii) Market related (Increase in Price of the shares)

4 Vesting Period
The Period during which Vesting conditions are expected to be satisfied is called as Vesting Period.
In case of Service conditions - Vesting period is Service period (5 Years)
In Case of Performance conditions - Vesting period may not be fixed, it has to estimated based on terms of ESO
 5 Exercise Price
The price to be paid by the employees, to subscribe for the shares is called as EP. (Rs. 20)

6 Exercise Period
The period over which employee should subcribe for the shares is called as Exercise period
It starts immediately after vesting period.

7 Lapse of options
Options became ineligible to subscribe
Lapse of Unvested Options - Options are lapsed before satisfying Vesting conditions
Lapse of Vested Options - Options are lapsed after satisfying Vesting conditions

Accounting
The difference between MP(50) and EP(20) is an Expense for the entity i.e. Rs. 30 per option
Total no. of options = 100 empl * 1000 options per emp = 100,000 options
Total Expense = 100,000 options * 30 = Rs. 30,00,000

Accounting for Expense depends on availability of vesting conditions

Case I: If Vesting conditions are not available

There is no Vesting Period. Options are vested immediately on the Grant date itself.
Total Expense should be accounted immediately on the Grant date.

Case II: Vesting conditions and consequently Vesting Period are available
Total Expense will be accounted over Vesting Period. (Rs. 30,00,000 will be accounted over 5 years, 600,000 pe

Journal Entries
Case I: If Vesting conditions are not available
Options are vested on the Grant date itself i.e. 1/1/2019
Exercise Period is 6 months
Over 6 months of Period, Out of 100 employees, only 90 employees subscribed by paying Rs. 20 per option

1) On 1/1/2019 - Grant Date - Recognise Total Expense

Employee Compensation Exp A/c Dr 3,000,000
To Employees Stock Options Outstanding A/c 3,000,000
Note: Employees Stock Options Outstanding A/c will be closed (Debited) either on Subscription or on Lapse of

2) On Exercise of the Options / On Subscription

Bank A/c (90Emp*1000 Opt*20) A/c Dr 1,800,000
Employees Stock Options Outstanding Dr 2,700,000
(90Emp*1000 opt* 30)
To ESC A/c (90Emp*1000 Opt*10 Face Value) 900,000
To Securities Premium A/c 3,600,000 Sec Prem = Issue Price -
(90Emp*1000 opt* (50 - 10))
3) Lapse of Options
Employees Stock Options Outstanding Dr 300,000
To Employee Compensation Exp A/c 300,000
(10 empl*1000 opt*30)

4) Expense to be transferred to P&L A/c

P&L A/c Dr 2,700,000
To Employee Compensation Exp A/c 2,700,000
(30,00,000 - 300,000)
h year every employee is eligible to get
cribe for the shares within 6 months up on getting eligibility.
he form of securities, but they are in the form of Contract/agreement.

onditions (5 years of Continous service as an employee)

Within 3 years, whenever Profits are doubled, then employees are eligible for 1000 options each

sting Period.

ed based on terms of ESOP.

over 5 years, 600,000 per annum)

ing Rs. 20 per option

scription or on Lapse of options

Sec Prem = Issue Price - FV

=Issue Price (Market Price) - FV
= 50 - 10
= 40
Prob No. 1
Journal Entries
Date Particulars Debit Credit
4/1/2013 Recognition of Expense on Grant Date
Employee Compensation Exp A/c Dr 300,000
To Employees Stock Options Outstanding A/c 300,000
( 500 empl * 100 options * (56 - 50) )

4/30/2013 On Exercise of the Options / On Subscription

Bank A/c (400 Emp*100 Opt*50) A/c Dr 2,000,000
Employees Stock Options Outstanding Dr 240,000
(400 Emp*100 Opt*6)
To ESC A/c (400 Emp*100 Opt*10) 400,000
To Securities Premium A/c 1,840,000
(400 Emp*100 Opt*(56 - 10))

4/30/2013 Lapse of Options

Employees Stock Options Outstanding Dr 60,000
To Employee Compensation Exp A/c 60,000
(100 Empl* 100 options * (56-50) )

3/31/2014 Expense to be transferred to P&L A/c

P&L A/c Dr 240,000
To Employee Compensation Exp A/c 240,000
(300,000 - 60,000)
 Prob No. 2
Journal Entries
1/4/2010 + 2.5 yrs Date
9/30/2012 Vested 3/31/2011
5/1/2012 Unvested options 300
12m E Period
9/30/2013
6/30/2013 During EP, 600 are exc
9/30/2013 100 options are lapsed - Vested 3/31/2011

1000*(160 - 40)
120000
Recog over VP of 2.5 years 3/31/2012
Per option 120 Exp 1000 Options
1st Year 48 48000
2nd Yr 48 48000
3rd Yr 24 24000
120 120000 3/31/2012

1/4/2010 to 31/3/2011
4/1/2010
3/31/2011 3/31/2013
1000 options
100 lapsed on 31/10/2010

6/30/2013

9/30/2013
(1/4/2010 + 2.5 yrs VP + 1 Yr EP)
 Journal Entries
Particulars Debit Credit
Recognition of Expense for I year
Employee Compensation Exp A/c Dr 48,000
To Employees Stock Options Outstanding A/c 48,000
(1000 options * (160-40)/2.5 years )

Expense to be transferred to P&L A/c

P&L A/c Dr 48,000
To Employee Compensation Exp A/c 48,000

Recognition of Expense for II year

Employee Compensation Exp A/c Dr 48,000
To Employees Stock Options Outstanding A/c 48,000
(1000 options * (160-40)/2.5 years )

Expense to be transferred to P&L A/c

P&L A/c Dr 48,000
To Employee Compensation Exp A/c 48,000

Expense to be written back on Unvested options lapsed (WN 1)

Employees Stock Options Outstanding Dr 12,000
To General Reserve A/c 12,000
2012-2013 (3rd Year)
1/4/2012 to 31/3/2013
Did we Debit Exp A/c - NO
Now we cannot open exp a/c by crediting
Hence, instead of crediting Exp a/c, GR a/c should be credited

On Exercise of the Options / On Subscription

Bank A/c (600 options * 40) A/c Dr 24,000
Employees Stock Options Outstanding Dr 72,000
(600 options *120)
To ESC A/c (600 options *10) 6,000
To Securities Premium A/c 90,000
(600 options * (160-10) )

Lapse of Vested Options

/4/2010 + 2.5 yrs VP + 1 Yr EP)
Employees Stock Options Outstanding Dr 12,000
To General Reserve A/c 12,000
( 100 options * 120)
 300 Options are lapsed, reversal of Expense (48 + 48)
700 Options exp should be recorded - 24

28800 Exp to be reversed (300 * 96)

16800 Exp to be provided (700 * 24)
12000 Net Exp to be reversed

WN 1: Computation of Net Expense to be Reversed or Provided

Particulars Amt
a) Expense to be written back on the unvested options lapsed 28,800
(300 options * (48 + 48))(or) (300 options * (160-40)/2.5 * 2 years)
b) Expense to be recognised on the balance options which are Vested 16,800
( (1000 options - 300 options lapsed) * 24 )

c) Net Expense to be written back for the year ended 31/3/2013 (a - b) 12,000
 Prob No. 5
WN 1: Computation of Employee Compensation Expense to be recognised
Particulars 3/31/2010
eversal of Expense (48 + 48) a) Estimated Vesting Period 2 Years
be recorded - 24 b) Number of options expected to vest 95,000
(100,000-5000)
c) Total Expense to be recognised (b*(50-20)) 2,850,000
(to be recognised over Vesting Period)
d) Cummulative Expense to be recognised till date 1,425,000
(c *1/2)
e) Cummulative Expense already recorded in PY -
f) Expense to be recognised for the year (d - e) 1,425,000

100,000
87,500 Vested
12,500 Unvested Options lapsed
85000 Exce
2,500 Vested Options lapsed
be recognised Journal Entries
3/31/2011 3/31/2012 Date Particulars
3 Years 3 Years 3/31/2010 Recognition of Expense for I year
91,000 87,500 Employee Compensation Exp A/c Dr
(95000-4000) (91000-3500) To Employees Stock Options Outstanding A/c
2,730,000 2,625,000
3/31/2010 Expense to be transferred to P&L A/c
1,820,000 2,625,000 P&L A/c Dr
(c * 2/3) (c * 3/3) To Employee Compensation Exp A/c
1,425,000 1,820,000
395,000 805,000 3/31/2011 Recognition of Expense for II year
Employee Compensation Exp A/c Dr
To Employees Stock Options Outstanding A/c

ted Options lapsed 3/31/2011 Expense to be transferred to P&L A/c

P&L A/c Dr
d Options lapsed To Employee Compensation Exp A/c

3/31/2012 Recognition of Expense for III year

Employee Compensation Exp A/c Dr
To Employees Stock Options Outstanding A/c

3/31/2012 Expense to be transferred to P&L A/c

P&L A/c Dr
To Employee Compensation Exp A/c

3/31/2013 On Exercise of the Options / On Subscription

Bank A/c (850 empl * 100 options*20 ) Dr
Employees Stock Options Outstanding Dr
(850 empl * 100 options * 30 )
To ESC A/c (850 empl * 100 options * 10 FV )
To Securities Premium A/c
(850 empl * 100 * (50 IP -10 FV) )

3/31/2013 Lapse of Vested Options (87,500 - (850*100) = 2,500 options)

Employees Stock Options Outstanding Dr
To General Reserve A/c
(2,500 options * 30)
 Prob No. 6
MP or FV of Option is given
Debit Credit If EX Price Fair Value of Option
30 16
1,425,000 40 12
1,425,000 It is Expense to be recorded

Exp to be recorded = MP of share - Exc Price

1,425,000 Exp to be recorded = Fair Value of Options
1,425,000

395,000
395,000

395,000
395,000

805,000
805,000

805,000
805,000

1,700,000
2,550,000

850,000
3,400,000

00) = 2,500 options)

75,000
75,000
Computation of Employee Compensation Expense to be recognised
Particulars Year I Year II
a) Estimated Expense to be recognised per option (FV of Option) 16 16
b) Number of options expected to vest 10,000 10,000
c) Total Expense to be recognised (a*b) 160,000 160,000
d) Vesting Period 3 years 3 years
e) Cummulative Expense to be recognised till date 53,333 106,667
(c * 1/3) (c * 2/3)
f) Cummulative Expense already recorded in PY - 53,333
g) Expense to be recognised for the year (e - f) 53,333 53,334
 Prob No. 3
Computation of Employee Compensation Expense to be recognised
Year III Particulars
12 a) Number of Options expected to vest per employee
10,000 b) No. of employees expected to satisfy vesting Conditions
120,000 c) Total No. of Options expected to Vest (a*b)
3 years d) Total Expense to be recognised (c*20)
120,000 e) Vesting Period
(c * 3/3) f) Cummulative Expense to be recognised till date
106,667
13,333 g) Cummulative Expense already recorded in PY
h) Expense to be recognised for the year (f - g)

Total Value of Options forfeited (lapsed) = Total Expense for all employees - Total Expens
= (300 Empl *45 options *20) - 247,500
= 270,000 - 247,500
= 22,500
Alternatively,
Total Value of Options forfeited (lapsed) = (Total no. of Empl - Empl for whom Exp is prov
= (300 - 275) Empl * 45 * 20
= 22,500
 Prob No. 4
o be recognised 1st
3/31/2011 3/31/2012 3/31/2013 Actual 5%
30 45 45 Est 3% pa over 3 years period
280 270 275
8,400 12,150 12,375 2nd
168,000 243,000 247,500 Actual
3 Years 3 Years 3 Years Est 6% pa over 3 years period
56,000 162,000 247,500
(d*1/3) (d*2/3) (d*3/3) 3rd
- 56,000 162,000 840 empl
56,000 106,000 85,500 In 1000 empl, 160 empl left org - Actual

nse for all employees - Total Expense provided by the end of 3rd year
mpl *45 options *20) - 247,500

of Empl - Empl for whom Exp is provided)*No. of Options*Exp per option

75) Empl * 45 * 20
 Market Price is 65 WN 1: Computation of Employee Compensation Expense to be recognised
Particulars
er 3 years period (a) Expected annual forfeitures
b) No. of employees expected to satisfy vesting Conditions

c) Total No. of Options expected to Vest (b* 300 options per empl)
er 3 years period d) Total Expense to be recognised (c*15)
e) Vesting Period
f) Cummulative Expense to be recognised till date

mpl left org - Actual g) Cummulative Expense already recorded in PY

h) Expense to be recognised for the year (f - g)
to be recognised Journal Entr
Year I Year II Year III Date
3% pa 6% pa NA I year
912.67 830.58 840 (Actual)
(1000*97%*97%*97%) (1000*94%*94%*94%)
273,802 249,175 252,000
4,107,029 3,737,628 3,780,000 I year
3 Years 3 Years 3 Years
1,369,010 2,491,752 3,780,000
(d * 1/3) (d * 2/3) (d * 3/3)
- 1,369,010 2,491,752 II year
1,369,010 1,122,742 1,288,248

II year

III year

III year

V year

VI year

VI year
 Journal Entries
Particulars Debit Credit
Recognition of Expense for I year
Employee Compensation Exp A/c Dr 1,369,010
To Employees Stock Options Outstanding A/c 1,369,010

Expense to be transferred to P&L A/c

P&L A/c Dr 1,369,010
To Employee Compensation Exp A/c 1,369,010

Recognition of Expense for II year

Employee Compensation Exp A/c Dr 1,122,742
To Employees Stock Options Outstanding A/c 1,122,742

Expense to be transferred to P&L A/c

P&L A/c Dr 1,122,742
To Employee Compensation Exp A/c 1,122,742

Recognition of Expense for III year

Employee Compensation Exp A/c Dr 1,288,248
To Employees Stock Options Outstanding A/c 1,288,248

Expense to be transferred to P&L A/c

P&L A/c Dr 1,288,248
To Employee Compensation Exp A/c 1,288,248

On Exercise of the Options / On Subscription - At the end of 5th year

Bank A/c (200 empl * 300 * 50 ) Dr 3,000,000
Employees Stock Options Outstanding Dr 900,000
(200 empl * 300 * 15 )
To ESC A/c (200 empl * 300 * 10 ) 600,000
To Securities Premium A/c 3,300,000
(200 empl * 300 * (65-10) )

On Exercise of the Options / On Subscription - At the end of 6th year

Bank A/c (600 empl * 300 * 50 ) Dr 9,000,000
Employees Stock Options Outstanding Dr 2,700,000
(600 empl * 300 * 15 )
To ESC A/c (600 empl * 300 * 10 ) 1,800,000
To Securities Premium A/c 9,900,000
(600 empl * 300 * (65-10) )

Lapse of Vested Options - At the end of 6th year

((840-800) Empl * 300 options = 12,000 options)
Employees Stock Options Outstanding Dr 180,000
To General Reserve A/c 180,000
(12,000 options * 15)
 Liquidation process
All Assets will be sold
Settlement of Liabilities
Settlement of SH (First P.SH then E.SH)

The above process will be done Liquidator

Statement of Affairs
It includes information regard to
1) Assets
2) Liabilities
3) SH

Balance sheet is not enough?

Assets
B/S NCA & CA at Cost (BV)
St of Affairs Pledged and Not Pledged Assets Estimated Realisable Value

Liabilities
B/S NCL & CL
St of Affairs Secured Creditors (Fixed charge creditors)
Floating Charge Creditors
Unsecured Creditors

Secured Creditors (Fixed charge creditors)

Preferential Creditors (Created by Companies Act in case of a Company which is under Liquidation)
Floating Charge Creditors
Unsecured Creditors
ny which is under Liquidation)
 Statement of Affairs of ….. As on ……
Particulars Amt (ERV)
Assets not Specifically Pledged as per List A 350,000
(a) C-in-Arrears 50,000
(b) Debtors 100,000
(c ) Patents
(d) P&M

Assets Specifically Pledged as per List B

Estimated Surplus (Total of Surplus Column) from Assets specifically Pledged 20,000
Estimated Total Assets available for Preferential creditors, Floating charge 370,000
creditors and Unsecured creditors

Summary of Gross Assets

Particulars Amt
a) Gross Realisable value of Assets specifically Pledged 300,000
b) Gross Realisable value of Other Assets 350,000
c) Total 650,000

Gross Value Liabilities

280,000 Secured Creditors to the extent of Secured Portion as per List B -
50,000 Preferential Creditors as per List C -50,000
Estimated balance of Assets available for Floating charge creditors 320,000
and Unsecured creditors
100,000 Floating Charge Creditors as per List D -100,000
Estimated Surplus as regards to Floating Charge creditors 220,000
80,000 Unsecured Creditors as per List E (Incl Deficiency amt) -80,000
510,000 Estimated Surplus as regards to Creditors 140,000
(Gross Assets - Gross Liabilities = 650,000 - 510,000)

PSC as per List F -50,000

ESC as per List G -200,000
Estimated Deficiency as regards to members as per list H -110,000
Estimated Surplus as regards to members +ve
Preferential Creditors
1) Any amt due to Govt within 12 months of winding up
Commencement of Liq date is 1/1/2020
Govt Dues as on 1/1/2020 is 100
For 2019 - 80; For 2018 - 20
Amt due within 12 months, should be given preference
Out of 100, only 80 should be preference
Balance 20 should be included in Unsecured Cred

2)
Salary due as on 1/1/2020 is 200,000
For 2019, 150,000 and for 2018, 50,000
For 2019, 150,000 - 30,000 pm for 5 months; 2 employees 15,000 pm each
Least of below three - PC:
Preceeding (Within) 12 months - 150,000
4 months Salary - 30,000pm*4m= 120,000
20000 per claimant/employee - 2 emp*20,000 = 40,000

Out of total Salary due of Rs. 200,000, only 40,000 is PC and balance 160,000 is UC

Unsecured Creditors
a) Unsecured portion of Secured Creditors
b) Left out portion of Preferential Creditors
c) Other Unsecured Creditors

1/4/2020 PY 3 years
19-20
18-19
17-18
Explanation should be given at least from 1/4/2017 to 31/3/2020
As on 1/4/2017, what is the position of R&S : +ve / Credit Bal or -ve / Debit Bal,
Credit Bal - Item Contributing to Surplus (B), Debit Bal - Item contributing to Def. (A)
to the above amount, all items of three years should be adjusted

-100 4/1/2017
10
-30
-50
-170 3/31/2020
 BV ERV
Debtors 120,000 100,000

BV ERV - is not available

Debtors 120,000
Assumption is ERV = BV

Deficiency
Particulars ERV GL Ranking as Surplus (ERV > GL)
Unsecured (GL >
ERV)
Land 100 80 - 20
Investments 100 110 10 -
Machinery 100 100 - -
300 290 10 20

Estimated Surplus from Assets specifically Pledged

Estimated Net Surplus from Assets specifically Pledged
Secured Creditors to the extent of Secured Portion as per List B; (Total Secured Creditors (290) - Deficiency ranking as Unsecu

Particulars Amt

is available after setting off Floating charge creditors

Estimated balance of Assets available for Unsecured creditors
 B/S
Laib Amt Assets Amt
Cap 100 NCA 150
NCL 50 CA 50
CL 80 P&L (Dr Bal) 30 R&S -ve / Debit Bal; Contributing to Def; Excess of C
230 230

B/S
Laib Amt Assets Amt
Cap 100 NCA 200
NCL 50 CA 50
CL 80
R&S (Cr Bal) 20
250 250
R&S +ve / Credit Bal; Contributing to Surplus; Excess of Assets (250) over Cap & Liab (230)
 Secured Creditors = 110

Secured Portion Unsecured Portion of Secured Creditor

20-10 = 10 100 10

- Deficiency ranking as Unsecured (10) = 280 Secured portion of Secured creditors)

ontributing to Def; Excess of Cap & Liab (230) over Assets (200) as on 1/4/2017
Prob No. 1
Statement of Affairs of X Ltd. As on 31/3/2013
Particulars Amt (ERV)
Assets not Specifically Pledged as per List A 856,500
a) Goodwill 1000
b) Buildings 300,000
c) Plant 525,000
d) Fixtures 10,000
e) Debtors 20,000
f) Cash 500

Assets Specifically Pledged as per List B

Estimated Surplus from Assets specifically Pledged 6,000

Estimated Total Assets available for Preferential creditors, Floating charge 862,500
creditors and Unsecured creditors
Summary of Gross Assets

GL Liabilities
25,000 Secured Creditors to the extent of Secured Portion as per List B -
18,000 Preferential Creditors as per List C (WN 1) -18,000
Estimated balance of Assets availbale for Floating charge creditors 844,500
and Unsecured creditors
164,000 Floating Charge Creditors as per List D - Debenture Holders -164,000
a) 5% Debentures 160,000
b) Interest Accrued 4000
Estimated Surplus as regards to Floating Charge creditors 680,500
23,000 Unsecured Creditors as per List E (WN 1) -23,000
230,000 Estimated Surplus as regards to Creditors 657,500
(Gross Assets - Gross Liabilities = 887,500 - 2,30,000 )

PSC as per List F -

ESC as per List G -1,000,000
(10,000 shares of Rs. 100 each)
Estimated Deficiency as regards to members as per list H -342,500
WN 1: Computation of Preferential and Unsecured Creditors
Particulars PC
a) Wages (15 men * 4 months * 100) 6,000
b) Salaries (PC: 5E * 4m * 300pm) (UC:5E *2m *300pm) 6,000
c) Rent of Godown -
d) TDS 1,000
e) Directors Fees -
f) Other Sundry Creditors (36,000 -a-b-c-d-e) -
g) Compensation payable to an employee 5,000
18,000

Statement of Deficiency - List H

Particulars Amt
A) Items contributing to deficiency
1) Excess of Capital & Liabilities over Assets as on 1/4/2010 77,925
(P&L A/c Dr Bal)
2) Net Trading lossess during the period
a) 2010-2011: 65,000 - 80,990 15,990
b) 2011-2012: 45,000 - 66,245 21,245
c) 2012-2013: 40,000 - 63,340 23,340

3) Estimated Lossess on Realisation of Assets (BV - ERV) 199,000

a) Goodwill (100,000 - 1000) 99,000
b) Buildings (350,000 - 300,000) 50,000
c) Plant (550,000 - 525,000) 25,000
d) Fixtures (23,000 - 10,000) 13,000
e) Inventories (38,000 -31,000) 7,000
f) Trade Receivables (25,000 - 20,000) 5,000

4) Other items - Employees Compensation 5,000

342,500

B) Items contributing to Surplus -

C) Estimated Deficiency (A - B) 342,500

 Particulars ERV GL Deficiency Ranking as Surplus
Unsecured
Inventories 31,000 25,000 - 6,000
Total 31,000 25,000 - 6,000

Particulars Amt
a) Gross Realisable value of Assets specifically 31,000
Pledged
b) Gross Realisable value of Other Assets 856,500
c) Total 887,500
UC
-
3,000
3,000
-
500
16,500
-
23,000
Prob No. 2
Statement of Affairs of Equipment Ltd. as on 31/12/2012
(Nature of Windingup: Compulsory)
Particulars
Assets not Specifically Pledged as per List A
a) Calls in Arrears 5000
b) Plant 130,000
c) Tools 4000
d) Patents 30,000
e) Inventories 74,000
f) Trade receivables 60,000

Assets Specifically Pledged as per List B

Estimated Surplus from Assets specifically Pledged

Estimated Total Assets available for Preferential creditors, Floating charge
creditors and Unsecured creditors
Summary of Gross Assets

GL Liabilities
250,000 Secured Creditors to the extent of Secured Portion as per List B (270,000 - 20,000)
22,000 Preferential Creditors as per List C (WN 1)
Estimated balance of Assets available for Floating charge creditors
and Unsecured creditors
102,500 Floating Charge Creditors as per List D - Debenture Holders
a) 5% Debentures 100,000
b) Interest Accrued (100,000*5%*6/12) 2,500
Estimated Surplus as regards to Floating Charge creditors
292,500 Unsecured Creditors as per List E (WN 1)
667,000 Estimated Deficiency as regards to Creditors
(Gross Assets - Gross Liabilities = 603,000 - 667,000 )

6% PSC as per List F (1000 shares of Rs. 100 each)

ESC as per List G (3000 shares of Rs. 100 each, Rs. 80 each Paidup)

Estimated Deficiency as regards to members as per list H

Note:
a) The Uncalled ESC is Rs. 60,000 (3000 shares *20)
b) Estimated Windingup Expenses Rs. 15,000

WN 1: Computation of Preferential and Unsecured Creditors

Particulars
a) Trade Payables
b) Owing for Wages
c) Secretary's Salary (PC: 500pm*4m) (UC: 3000 - 2000)
d) MD's Salary
e) Unsecured Portion of Secured Creditors (Bank OD)

Statement of Deficiency - List H

Particulars
A) Items contributing to Deficiency
1) Dividend paid during 2008
a) Preference Dividend (95,000*6%) 5,700
b) Equity Dividend (240,000*10%) 24,000
2) Net Trading losses during last 5 years period
a) 2009, 2010 and 2011 109,000
b) 2012 (WN 2) 131,300

3) Lossess other than Trading losses - Loss of Stock due to fire

4) Estimated Losses on Realisation of Assets (BV - ERV)
a) Plant (200,000 - 130,000) 70,000
b) Tools (20,000 - 4000) 16,000
c) Patents (50,000 - 30,000) 20,000
d) Inventories (87,000 - 74,000) 13,000
e) Investments (180,000 - 170,000) 10,000
f) Trade receivables (90,000 - 60,000) 30,000

Total

B) Items contributing to Surplus

1) Excess of Assets over Capital and Liabilities as on 31/12/2007
(GR Credit Bal 40,000 - P&L A/c Debit Bal 25,000)
2) Trading profit during the last 5 years
a) 2008 40,000
b) 2012 -
3) Estimated profit on realisation of Assets - Land Building (130,000 - 120,000)

Total
C) Estimated Deficiency (A - B)
Amt (ERV)
303,000

Particulars ERV GL Deficiency

Ranking as
Unsecured
L&B 130,000 80,000 -
Investments 170,000 190,000 20,000
Total 300,000 270,000 20,000
50,000
353,000

Particulars
a) Gross Realisable value of Assets specifically
Pledged
b) Gross Realisable value of Other Assets
c) Total

-
-22,000
331,000

-102,500

228,500
-292,500
-64,000

-100,000
-240,000

-404,000
PC UC
- 265,500
20,000 -
2,000 1,000
- 6,000
- 20,000
22,000 292,500

WN 2: Computation of Profit / Loss for the year 2012

Amt Balance Sheet of Equipment Ltd. as on 31/12/2012
Liabilities Amt Assets Amt
29,700 ESC 240,000 L&B 120,000
6% PSC 95,000 Plant 200,000
Tools 20,000
240,300 5% Debentures 100,000 Patents 50,000
Interest Accrued on Debentures 2,500 Inventories 87,000
Bank OD 190,000 Investments 180,000
Mortgage on L&B 80,000 T/R 90,000
40,000
159,000 Trade Payables 265,500 P&L A/c (Dr Bal - 255,000
Owing for wages 20,000 Accumulated losses - b/f)
Secretary's Salary O/s 3,000
MD's Salary O/s 6,000

1,002,000 1,002,000

469,000

15,000

40,000

10,000

65,000
404,000
Surplus

###
###
###

Amt
###

###
###
 R&S A/c
Date Particulars Amt Date Particulars Amt
12/31/2007 To P&L A/c 25,000 12/31/2007 By GR A/c 40,000
12/31/2008 To Pref Div 5,700 12/31/2008 By P&L A/c 40,000
12/31/2008 To Equity Div 24,000
09,10 & 11 To P&L A/c 109,000
09,10 & 11 To Loss of Stock 40,000

12/31/2012 To P&L A/c (b/f) 131,300

( Loss of the year 2012) 12/31/2012 By Balance c 255,000
( P&L A/c Dr Bal )

335,000 335,000
 Sec Cre & Workmen Dues
Pref Cred Excl Workmen Dues
Float
Unsec

Prob No.3 According to The Companies Act, 2013, Security of every Secured Creditor
is deemed to be subject to a Paripassu charge in favor of Overriding Preferential Creditors (Wokmen Dues).
i.e. Workmen dues shall have proportionate rights over Pledged Assets along with Secured Creditors.

Amount realised of Rs. 400,00,000, on sale of Pledged Assets should be distibuted among Secured Creditor(Bank) a
in the ratio of 5 : 1.25 (Amount Due Ratio)

Secured Creditor's (Bank) share = 400,00,000*5/6.25 = 320,00,000

Workmen's share = 400,00,000*1.25/6.25 = 80,00,000
No amount is available for payment of Taxes due to Govt (Preferential Creditors) and Unsecured Creditors.

Commencement of Liq 1/1/2019

Floating ch creditors paid on 30/6/2020

Int should be paid only up to 1/1/2019 or up to 30/6/2020?

Compulsory WP (Insolvent Co.) - 1/1/2019
Voluntary WP (Solvent Co.) - 30/6/2020
editors (Wokmen Dues).
Secured Creditors.

among Secured Creditor(Bank) and Dues to Workmen

nd Unsecured Creditors.
Prob No. 4
Liquidator's Final Statement of Account
*Nature of windingup - Voluntary
*Commencement of Windingup - 31/3/2014 or 1/4/2014
*Completion of Windingup - 30/6/2014
Receipts Amt
Opening Bank Balance 60,000
Assets Realised by Liquidator: 640,000
a)P&M 360,000
b) Inventories 120,000
c) T/R 160,000

Surplus received from Secured creditors 240,000

(L&B 340,000 - Loan 90,000 - Int 10,000)

940,000
ator's Final Statement of Account

Payments Amt
Liquidation Expenses 4,600
Liquidator's Remuneration:
a) On Realisation of Assets 29,400
((640,000 + 340,000)*3%)
b) On Distribution among E.SH 1,000
(51,000 (b/f before payment to E.SH) *2/102)

Preferential Creditors 30,000

Floating charge creditors - Debentureholders 215,000
a) 10% Debentures 200,000
b) Interest Accrued
i) Up to Commencement 10,000
ii) From Commencement to 5,000
Actual payment date
(200,000*10%*3/12)

Unsecured Creditors (490,000 - Motgage 370,000

Loan 90,000 - Preferential cred 30,000)

Contributories:
a) Preference Shareholders 240,000
i) 10% PSC 200,000
ii) Arrears of P. Dividend 40,000
(200,000*10%*2y)

b) Equity Shareholders (b/f) (WN 1) 50,000

i) To Rs.75 paidup Shareholders 35,000
ii) To Rs.60 paidup Shareholders 15,000

940,000
 Prob No. 5

WN 1: Distribution among E.SH

Payments Amt
a) Surplus available for E.SH 50,000
b) First payment to Higher Paidup E.SH for the difference amount 30,000
- Rs. 75 Paidup shareholders, Rs. 15 per share (75 - 60)
(2000 sh * 15)
c) Balance surplus among all the E. shareholders - Rs. 2.5 per share on 20,000
8000 shares (20,000/8000sh)
d) Hence, total amount per share to be paid on Rs. 75 Paidup shares (15 + 2.50) - 17.50
On 2000 shares Rs. 17.50 each i.e. Rs. 35,000
e) Amount per share to be paid on Rs. 60 Paidup shares - 2.50
On 6000 shares Rs. 2.50 each i.e. Rs. 15,000
Prob No. 5
Liquidator's Final Statement of Account
*Nature of windingup - Voluntary
*Commencement of Windingup - 1/1/2012
Receipts Amt Payments
Opening Cash & Bank Balance - Liquidation Expenses
Realisation of Assets 500,000 Liquidator's Remuneration
a) On Realisation of Assets
(500,000*3%)
b) On Distribution among Shareholders
(408,000(b/f before payment to SH) *2/102)

Preferential Creditors (Salaries & Wages)

Unsecured Creditors (68,000 - 6000)

Contributories:
a) Preference Shareholders
i) 6% PSC 150,000
ii) Arrears of P. Dividend 9000
(150,000*6%*1y)
iii) 1/3 rd of Surplus 50,333
(151,000(b/f)*1/3)
b) Equity Shareholders
i) ESC 90,000
ii) 2/3 rd of Surplus 100,667
(151,000(b/f)*2/3)

500,000
 Prob No. 6
Liquidator's Final Statement of Account
*Nature of winding up - Voluntary
*Commencement of Winding up - 1/1/2014
Amt *Completion of Winding up - 30/6/2014
9,000 Receipts Amt
Opening Bank Balance 74,000
15,000 Realisation of Assets:
a) Plant & Stock (205,000 + 200,000) 405,000
8,000 i) In the form of Cash 262,200
o SH) *2/102) ii) In the form of 6% Deb 142,800
in N Ltd (405,000 - 262,200)
6,000 b) Trade Receivables (52,000 -2000 Exp) 50,000
62,000
Interest on 6% Deb in N Ltd 4,200
( (142,800*100/102)*6%*6/12)
209,333

190,667

533,200
500,000
243,398
 Prob No. 8
or's Final Statement of Account

Payments Amt
Liquidation Expenses 3,000
Liquidator's Remuneration on 7,302
disbursement to Members
(250,700(b/f before payment to SH) *3/103)
Floating Charge Creditors - Mortgage Loan 204,000
a) 4% Loan 200,000
b) Interest from 31/7/13 to 4,000
31/1/14 (200,000*4%*6/12)

Unsecured Creditors: 75,500

a) Trade Payables (75,000*98%) 73,500
b) Outstanding Expenses 2,000

Contributories:
a) Preference Shareholders - 9% PSC 100,000
(Paid in the form of Cash)
b) Equity Shareholders (b/f 1) 143,398
i) In the form of 6% Deb in N Ltd 142,800
ii) In the form of Cash (b/f 2) 598
(143,398 - 142,800)
533,200
Prob No. 8
Liquidator's Final Statement of Account
*Nature of winding up - Voluntary
Receipts Amt Payments
Assets Realised by Liquidator 2,000,000 Liquidation Expenses
Liquidator's Remuneration:
Contributories: a) On Realisation of Assets
Partly Paidup E. Shares 58,000 (20,00,000 * 2.5%)
( (30,000 - 1000)shares*(10-8) ) b) On Payment to Unsecured
and preferential creditors
(13,98,000 (b/f)*2/102)
Preferential Creditors
Floating Charge Creditors - Deb H
Unsecured Creditors (b/f)

2,058,000

Percentage of Amount Paid to Unsecured Creditors = Actual Amt Paid *100

Total Unsecured Creditors Liability
= 1,320,588
(18,00,000 + 30,000 Unsecured portion of Secured Cred)

= 72.16%
 Amt
10,000

50,000

27,412

50,000
600,000
1,320,588

2,058,000

*100
ed portion of Secured Cred)
Prob No. 7
Liquidator's Final Statement of Account
*Nature of windingup - Voluntary
*Commencement of Windingup - 30/9/2012
Receipts Amt
Opening Bal of Cash & Bank -
Realisation of Other Assets 4,400,000
(15,00,000+14,00,000+15,00,000)
Surplus from Inventories 300,000
((200,000+200,000+400,000) - Bank OD 500,000)

Receipt from Contributories:

Lower Paidup E. Shareholders - Rs. 5 Paidup 789,600
(200,000sh*3.948(WN 1))

5,489,600

3.948
tor's Final Statement of Account

Payments Amt
Liquidation Expenses 80,000
Liquidator's Remuneration 209,200
a) On Realisation of Assets 104,000
((44,00,000+800,000)*2%)
b) On Savings to Equity 105,200
shareholders (WN 2)

Preferential Creditors: 410,000

a)Loan from Director to pay wages 100,000
b) PF of Employees 300,000
c) ESI Premium 10,000

Floating charge creditors - Debenture holders 2,280,000

a) 14% Debentures 20,00,000
b) Accrued Int up to 30/9/2012 280,000

Unsecured Creditors - Trade Payables 1,500,000

Contributories:
a) Preference Shareholders - 14% PSC 1,000,000
b) Equity Shareholders - Higher Paidup 10,400
(WN 1)
5,489,600

Diff Paidup sh
Surplus - First pay to Higher Paidup sh for difference
Deficit - First Call on Lower paidup sh for difference amt
9
5

800000
800,000
2

0.052 9
-0.052 +4 5
 WN 1: Settlement to Equity Shareholders
Particulars Amt
a) Deficit before Liquidators remuneration on savings -674,000
to E. SH and after payment to P.SH
b) Add: Notional Call on Lower Paidup E. shares(Rs. 5 800,000
paidup) for the difference amount
(200,000 sh * (9-5) )
c) Surplus available to all E. shareholders before 126,000
Liquidators remuneration on savings to E.SH
d) Less: Liquidators remuneration on savings to E.SH -105,200
(WN 2)
e) Net Surplus available to all E. shareholders 20,800
f) Surplus per E. share (20,800/400,000 sh) 0.052
g) Actual Call per share to be made on Lower Paidup 3.948
E. shares (Notional Call 4 - Surplus 0.052)
h) Surplus to be paid on Higher paidup E. shares 10,400
(200,000 sh *0.052)

Diff Paidup sh
urplus - First pay to Higher Paidup sh for difference
Deficit - First Call on Lower paidup sh for difference amt

+4 9

Surplus belongs to all E.SH

Surplus to be paid to all E.SH

-0.315
+4 -0.315 3.685
Notional Call
737000
 Prob No. 10
WN 2: Computation of Liquidators remuneration on savings to E.SH
Particulars Amt
a) Maximum Legal liability of E. Shareholders - 400,000
Uncalled Capital after Notional Call
( (200,000 + 200,000) Shares *1)
b) Add: Surplus available (WN 1 (c ) ) 126,000
c) Gross Savings to E.SH 526,000
d) Liquidators remuneration on savings to E.SH 105,200
(c*25/125)

Actual Call

737,000 to Higher paidup sh

3.685
Prob No. 10
Receiver's Receipts and Payments A/c
Receipts Amt Payments
Assets Realised by Receiver - Part of 200,000 Receiver's Expenses
Sundry Current Assets Preferential Creditors - Income Tax Arrears
Surplus received from Secured Creditors 70,000 (Assessment concluded in July 2013)
(L&B 150,000 - Mortgage Loan 80,000)
Floating Charge Creditors - Deb H
a) 13% Debentures 150,000
b) Accrued Int 9,750
(150,000*13%*6/12)
Surplus Transferred to Liquidator (b/f)

270,000

Liquidator's Final Statement of Account

Receipts Amt Payments
Surplus received from Receiver 82,250 Liquidator's Expenses
Assets Realised by Liquidator - Balance of 100,000 Liquidator's Remuneration on realisation
Sundry Current Assets of Assets (100,000 * 3%)

Contributories: Unsecured Creditors:

Partly Paidup E. Shares (WN 1) 10,850 a) Director's (Bank OD) 30,000
(5000 sh * 2.17 Actual Call) b) Creditors for Trade 32,000

Contributories:
a) Preference Shareholders
i) 11% PSC 100,000
ii) Arrears of P. Div 22,000
(100,000 * 11% * 2 years)
b) Equity Shareholders - Fully Paidup (WN 1)

193,100
Amt
2,000
26,000

159,750

82,250

270,000

Amt WN 1: Settlement to Equity Shareholders

2,800 Particulars Amt
3,000 a) Deficit after payment to Preference Shareholders -7,550
b) Add: Notional Call on Partly Paidup E. shares 12,500
(5,000 sh * (10 - 7.50) )
62,000 c) Surplus available to all E. shareholders 4,950
d) Surplus per E. share (4950/15,000 sh) 0.33
e) Actual Call per share to be made on Partly Paidup 2.17
E. shares (Notional Call 2.50 - Surplus 0.33)
f) Surplus to be paid on Fully paidup E. shares 3,300
122,000 (10,000 sh * 0.33)

3,300

193,100
B List Contibutories
Is applicable only for companies which are under Liquidation and there are Partly paidup E. shares

X Sold Shares to Y
within 8 months after above sale, Company aanounced Liquidation
On the date of commencement of Liqudation - Owner of shares is Y (A List Contributory)
Primarily Uncalled cap should be paid by Y
If Y pays it - No concept of B List Contributory
If Y is unable to pay, Company cannot ask from X in general
However by insertion of section on B List contributories, now company got the right to ask uncalled cap from X (B List Contribu

For calling X as B List Contributory, Company should windup within 1 year after sale of shares by X
Amt that can be collected from B List Contributory:
Lower of following two
i) Uncalled Capital
ii) Apportioned Outstanding Creditors as on date of sale of shares
Shares are sold on 10/8/2019, on which date Creditors O/s is Rs. 100,000
Company announced windingup on 31/12/2019, on which date creditors O/s is Rs. 120,000
 Prob No.11
Statement of Liability of B List Contributories
P Q
Particulars Creditors
1500 Sh 1000 Sh
a) Liability as on 1/5/2012 should be 3,300 1,500 1,000
apportioned among all Shareholders in
no. of shares held ratio (3,300 *15:10:5:3)

b) Incremental Liability as on 1/10/2012 1,000 - 555

led cap from X (B List Contributory) should be apportioned among Q, R and S
((4300-3300)*10:5:3)

c) Incremental Liability as on 1/11/2012 300 - -

should be apportioned among R and S
((4600-4300)*5:3)

d) Incremental Liability as on 1/2/2013 1,400 - -

should be allocated only to S (6000-4600)
e) Total Apportioned Creditors 1,500 1,555
f) Uncalled Capital (No. of shares * (10-8)) 3,000 2,000
g) Maximum amount that can be received 1,500 1,555
from B List Contributories
(e or f whichever is lower)

Note: Since company went in to liquidation after 12 months of sale of shares by A, A is not a B
 R S
500 Sh 300 Sh
500 300

278 167

188 112

- 1,400

965 1,979
1,000 600
965 600

of shares by A, A is not a B List contributory

AS-2: Valuation of Inventories
90% - Costing

Inventory includes,
RM
WIP/SFG
FG or Stock-in-Trade
Consumables
Machinery Spare Parts that can be used Interchangeably (for more than one type of Machine)

Note:
Machinery Spare Parts that cannot be used Interchangeably (for one type of Machine) - PPE (As per AS 10)

Valuation of Inventories
I) For WIP, FG and Stock-in-trade: Inventories are valued at Cost or NRV whichever is lower

Net Realisable Value = Estimated Selling Price - Estimated Cost of Completion(Applicable only for WIP) - Estimated S

Example 1: FG or Stock-in-Trade
Inventories are valued at Cost or NRV whichever is lower
Net Realisable Value = Estimated Selling Price - Estimated Selling Expenses
3/31/2021 B/S - Closing Stock
100 Units of FG
Cost 100 Future Profit - ignore
NRV = 120 - 5 = 115 Future Loss - record immediately
FG shall be value at Cost price
Future Profit = 115-100 = 15 Ignore

Cost 100
NRV = 103 - 5 = 98
FG shall be value at NRV
Future Loss = 98 - 100 = -2 Recognised immediately

FG are at 100 (Cost)

JE for recognition of future loss of Rs. 2
P&L A/c Dr 2
To Provision for decline in value of Goods A/c 2

Provision shall be deducted from Closing stock in Balance sheet

In B/s, FG shall be disclosed as follows:
FG 100
Less: Provision (2)
98

Example 2: WIP
 Inventories are valued at Cost or NRV whichever is lower
Net Realisable Value = Estimated Selling Price - Estimated Cost of Completion(Applicable only for WIP) - Estimated
3/31/2021 B/S - Closing Stock
1 unit of WIP (70% complete)
Cost incurred for 70% is 800
Further cost to be incurred for converting in to FG is Rs. 300 (Estimated)
Estimated selling price of FG is Rs. 1200
Estimated selling exp is Rs. 40
Valuation of WIP?

Cost of WIP 800

NRV of WIP = 1200 - 300 - 40 = 860
WIP shall be valued at 800

sp is for f/g

II) For RM, Consumable and Machinery Spare Parts:

Inventories are
(a) valued at Cost or Replacement Price(Current Purchase Price) whichever is lower if FG are sold at L
(b) otherwise (FG are sold at Cost or more than cost) valued at Cost

Case I: FG are sold at less than it's cost price (at loss)
3/31/2021 B/S - Closing Stock
1 Unit of RM which was purchased at Rs. 120 (Cost) as on 10/1/2021
same 1 unit of RM can be purchased as on 31/3/2021 at Rs. 110 (Replacement Price or Current Purch
RM are valued at Cost (120) or Replacement Price(110) whichever is lower; i.e. at Rs. 110

Case II: FG are sold at Cost price or at more than cost price (Profit)
3/31/2021 B/S - Closing Stock
1 Unit of RM which was purchased at Rs. 120 (Cost) as on 10/1/2021
same 1 unit of RM can be purchased as on 31/3/2021 at Rs. 110 (Replacement Price or Current Purch
RM are valued at Cost (120)

Exclusion from Cost:

1) Adm OH
2) Selling and Distribution OH
3) Storage Cost
4) Abnormal Loss
5) Borrowing cost subject to AS 16
 of Machine)

hine) - PPE (As per AS 10)

plicable only for WIP) - Estimated Selling Expenses

ss - record immediately
plicable only for WIP) - Estimated Selling Expenses

hichever is lower if FG are sold at Loss (Less than Cost price)

eplacement Price or Current Purchase Price)

s lower; i.e. at Rs. 110

eplacement Price or Current Purchase Price)

Example on Percentage of Work Completed:
Total Contract Revenue is 100 Lakhs
Cost Incurred till B/S date 30
Estimated further cost to be Incurred 50
80

30/(30+50) * 100 37.50%

Percentage of Work Competed= Cost Incurred till B/S date * 100

Cost Incurred till B/S date + Estimated further cost to be Incurred

30 * 100
30 + 50

Revenue to be recognised= Total Contract Revenue * Percentage of Work Completed

100 Lakhs * 37.5%
37.5 Lakhs

P/L = Revenue - Cost = 37.5 Lakhs - 30 Lakhs = 7.5 Lakhs (Profit)

P/L = Revenue - Cost = Nil - 30 Lakhs = -30 Lakhs (Loss)

At the time of recognition - Rev should not be recognised

After recognition of Revenue - Reverse the rev which is already recognised
Provision for Bad debts

Contract 100
Cost 110

Prob No. 7
Cost Incurred to secure contract 2018-2019
Contract is obtained 2019-2020
Such cost which is incurred to secure
contract should not be included in Contract
Cost (Charged to P&L A/c)

100
80 20 Profit
105
C1 -5 Expected Loss

Prob No: 12
13,400,000
 3,350,000
16,750,000

15,000,000
-1,750,000

80%
12000000
mated further cost to be Incurred

= 37.50%

tage of Work Completed

2019-2020
2019-2020
Such cost which is incurred to
secure contract should be
included in Contract Cost

30 37.50%
37.5 Rev
30
7.5 Proft

Cost Incurred till B/s date P&L A/c

Est further cost to be incurred Part Amt Part Amt
Total Cost To Cost Incurred 13,400,000 By Revenue from 12000000
Contract
Total Contract Revenue To Provision for 350,000
Total Expected Loss future expected loss By Net Loss (b/f) 1,750,000

Percentage of Completion 13,750,000 13,750,000

Revenue to be recognised Alternatively,
P&L A/c
Part Amt Part Amt
To Cost Incurred 13,400,000 By Revenue from 12000000
Contract
To Provision for 350,000
future expected loss By Net Loss 1,750,000
(b/f)
13,750,000 13,750,000

Present Loss = Cost 134 - Rev 120 = 14 Lakhs

Future loss = 17.50 Total loss - 14 Present Loss = 3.50 Lakhs, for which provision to be created
 -1,400,000

which provision to be created

Example 1:
720 Income received in Avance
2017-2018
1/20/2018 720 12 monthly mag
1-Feb 1 mag is deliv
60 Reve
660 Balance Income received in Avance

1-Mar 1 mag is deliv

60 Reve
600 Balance Income received in Avance - Discl in B/s as on 31/3/2018
Example 2:
720 12 monthly mag & 4 Q mag
1 monthly mag is Rs. 50 each; for 12 mag Rs. 600
1 Q mag is Rs. 100 each; for 4 Q mag Rs. 400

720 600:400
12 monthly mag = 720*600/1000 = 432; per mag Rs.36
4 Q mag = 720*400/1000 = 288; per mag Rs.72

125 May
375 June

Cash Discount - Accounted, taken to P&L A/c

Trade Discount - If discount is at the time of Sale/Purchase, then it is Trade Discount. Not to be accounted.
It will be deducted from Transaction value
n 31/3/2018

t to be accounted.
Partnership Accounts
CA-Fnd CMA -Fnd
Partnership - Dissolution of Partnership (Deed) No

CA - Inter CMA - Inter

Partnership - Dissolution of Firm (Business as whole) Partnership - Dissolution
(Group - II) Partnership - Dissolution
(Group -I) - Paper 5

Partnership - I
a) Basics
b) Dissolution of Partnership - Business is Continued with a New Partnership Deed/Agreement
Change in PSR
Admission of a Partner
Retirement of a Partner
Death of a Partner

Partnership-II
Dissoultion of Firm - Business is Closed
Regular Dissolution (Incl G vs M Rule)
Sale/Conversion to Company
Amalgamation of Firms
Piece-Meal Distribution

Partnership - BASICS
The Indian Partnership Act, 1932 defines partnership as “the relationship between persons who have agreed to share the pro
any of them acting for all”.

Contract/Agreement among Partners

1) Oral
2) Written
a) Registered
b) Un-Registered

Partnership Agreement which is Registered is called as Partnership Deed

SPECIAL FEATURES OF PARTNERSHIP ACCOUNTS:

1) Profit Sharing Ratio
PSR is as per Agreement - Agreed Ratio
If Agreement is silent - Equal Ratio - It is given in The Indian Partnership Act, 1932

2) P Act is applicable only if Deed/Agreement is silent

Particulars Act - If deed is silent
PSR Equal
 Int on Capital Nil
Int on Drawings Nil
Int on Partners Loan 6% p.a. (Max)
Salary/Bonus/Comm etc Nil

3) Capital Methods
Capital A/c Fluctuating Capital Method
Part Amt Part Amt
To Drawings A/c By Balance b/d
To Int on Drawings A/c By Cash/Bank/AssetA/c
To N.L. (Additional Capital)
To Cash/Bank/Asset A/c By Int on Capital A/c
(Withdrawal of Cap) By Salary/Comm/Bonus/etc
By N.P.
To Balance c/d

a) Fluctuating Capital Method

b) Fixed Capital Method

Fluctuating Capital Method

Partners Capital A/c - Fluctuating Cap Method
Part A B C Part A
To Drawings A/c By Balance b/d 100
To Int on Drawings A/c By Cash/Bank/AssetA/c
To N.L. (Additional Capital)
To Cash/Bank/Asset A/c By Int on Capital A/c
(Withdrawal of Cap) By Salary/Comm/Bonus/etc
By N.P.
To Balance c/d 120

10% 5

1
Fixed Captital Method
For each Partner there will be TWO Accounts, they are Capital A/c and Current A/c

Partners Capital A/c - Fixed Cap Method

Part A B C Part A
To Cash/Bank/Asset A/c By Balance b/d
(Withdrawal of Cap) By Cash/Bank/AssetA/c
To Balance c/d (Additional Capital for other than Temporary Pe
 Partners Current A/c
Part A B C Part A
To Drawings A/c By Balance b/d
To Int on Drawings A/c By Cash/Bank/AssetA/c
To N.L. (Additional Capital for Temporary Period)
By Int on Capital A/c
By Salary/Comm/Bonus/etc
By N.P.
To Balance c/d

4) Int on Capital
Accounting:
Int on cap A/c Dr
To P.Cap/Current A/c

P&L or P&L Appropriation A/c Dr

To Int on Cap A/c

If IOC is payable only if profits are available - P&L Appropriation A/c (IOC is appropriation out of Profits)
Otherwise (IOC is Charge against Profits) - P&L A/c

Calculation of IOC:
1) On Opening Bal or on Closing Bal of Capital A/c?
On Opening Balance of Capital A/c for full year
However if there is any additional cap introduced during the year, IOC should be computed
on such additional cap from date of introduction to year ending date.

2) In case of Fluctuating Cap Method - On Capital A/c Bal

In Case of Fixed Cap Method - On Capital A/c balance only (Current A/c balance should not be considered)

3) Computation - If Appropriation out of Profits

a) In case of Lossess - NO IOC
b) In Case of Profits
i) Sufficient Profits - Full IOC
ii) In-Sufficient - Restrict IOC to the extent of Profits available and such amt will be
apportioned among all Partners in Capital Ratio
Example:
Profits available is Rs. 15,000
Cap A/c A 80,000 B 80,000 C 40,000 Total
IOC at 10% 8000 8000 4000 20000
Since, Profits of Rs. 15,000 are In-sufficient to allow IOC of Rs. 20,000,
restrict IOC to the extent of profits available. Hence, Total IOC should be only Rs. 15000
 Distribute Rs. 15,000 among all partners in the ratio of Cap A/c balance
i.e; 15,000 * (8:8:4)
A B C
IOC 6000 6000 3000

5) Int On Drawings
Accounting:
P.Cap /Current A/c Dr
To IOD A/c

IOD A/c Dr
To P&L/P&L App A/c

Calculation of IOD:
1) On Drawings during the year
2) IOD should be allowed only if it is given in P.deed at Agreed rate.
3) For what period
From Date of Each Drawing to Year Ending Date

6) Int on Partners Loan

Accounting:
Int Expense A/c Dr
To Int Payable A/c (or) Partners Loan A/c
To Bank A/c (if Paid)

P&L A/c Dr
To Int Expense A/c

Calculation:
1) It should be computed At Agreed rate as in P.Deed or Loan agreement
2) If deed is silent: At Max 6% p.a. (Act)

7) Remuneration/Salary/Bonus/Commission etc
Accounting:
Salary A/c Dr
To P.Cap/Current A/c

P&L A/c or P&L App A/c Dr

To Salary A/c

Computation:
1) Salary should be allowed only if it is given in P.deed at Agreed amount.
2) In case of Commission/Bonus
Example:
a) At 10% p.a. on N.P. before charging such Commission
 Commission = N.P. before Commission * R/100 = N.P. before Commission * 10/100
b) At 10% p.a. on N.P. after charging such Commission
Commission = N.P. before Commission * R/100+R = N.P. before Comm * 10/110

8) Guaranteed Minimum Profit

Actual share or MGP amount whichever is higher will be given to Guaranteed Partner
In case of shortfall,
a) If guarantee is given by Firm - Such shortfall should be borne by all other partners in PSR or any other agreed ra
b) If guarantee is given by specific one or more partners - Shortfall should be borne by such Specific Partner/s in P

Example:
To Partner C, Minimum Guaranteed Profits is 6 p.a. - Guarantee given by Firm
PSR is A:B:C = 1:1:1
Profits:
Case I: 12
A B C
Actual Share (12*1:1:1) 4 4 4
Adjustment -1 -1 2
3 3 6

Case II: 24
A B C
Actual Share (24*1:1:1) 8 8 8
Adjustment 0 0 0
8 8 8

Case III: 3
A B C
Actual Share (3*1:1:1) 1 1 1
Adjustment -2.5 -2.5 5
-1.5 -1.5 6

Case IV: -3 (Loss)

A B C
Actual Share (-3*1:1:1) -1 -1 -1
Adjustment -3.5 -3.5 7
-4.5 -4.5 6
 CMA - Inter
Partnership - Dissolution of Partnership (Deed)
Partnership - Dissolution of Firm (Business as whole)
(Group -I) - Paper 5

e agreed to share the profit or loss of a business carried on by all or

 B C

4 3

3.2 2.4 Capital A/c - Fixed

0.8 0.6 Current A/c - Fluctuating

B C

other than Temporary Period)

 B C

Temporary Period)

Salaries P&L Charged against Profit

Dividend P&L App App out of Profits

out of Profits)

not be considered)

1,000,000
100000 IOC

Profits 80,000
 SR or any other agreed ratio
uch Specific Partner/s in PSR or agreed ratio
Prob No: 1

Wrong
Bank A/c Dr 60,000
To L&B A/c 60000

Correct
Bank A/c Dr 60,000
Loss on sale A/c Dr 10,000
To L&B A/c 70000

Rect JE
P&L Adj A/c (Loss on sale) Dr 10,000
To L&B A/c 10000

P&L Adjustment A/c

Particulars Amt Particulars Amt
To Land & Building A/c 10,000 By Prepaid license Fees A/c 1,000
(Loss on Sale) (2000*6/12)
To Machinery A/c 4,300
(Loss on Scrapping)
To PDD A/c (WN 1) 5,820
To Stock A/c 4,800
(Net Decrease =
Decrease (37,400-26,000) - Increase 6,600
= Decrease 11,400 - Increase 6,600)
To Cash A/c 700
(Misappropriation) By P.Cap A/c (b/f) 68,360
To A's Cap A/c 32,580 A 34,180
((402,000 - 40,000)*9%) B 34,180
To B's Cap A/c 11,160 (68,360*1:1)
((200,000 - 76,000)*9%)

69,360 69,360
WN 1:
PDD A/c
Particulars Amt Particulars Amt
To Baddebts A/c 10,420 By Balance b/d 10,000

To Balance c/d 5,400 By P&L Adj A/c (b/f) 5,820

(5400*100%)
15,820 15,820
 Partners Cap A/c
Particulars A B Particulars A
To P&L Adj A/c 34,180 34,180 By Balance b/d 457,400
By P&L Adj A/c (IOC) 32,580
To Balance c/d (b/f) 455,800 196,380
489,980 230,560 489,980
B
219,400
11,160

230,560
Goodwill
I) Valuation
II) Accounting - Depends on Situation of Accounting

I) Valuation
4 Methods

1) Average Profits Method

Goodwill = Average Profits * No. of years of Purchase

Average Profits:
a) Simple - In case of no Increasing or Decreasing Trend in Profits
b) Weighted Avg - In Case of Trend
Example:
1/1/2020
No. of years of Purchase is 5
Year Profits
2017 100 100 100
2018 90 110 90
2019 120 140 70
No Trend Increasing Trend Decreasing Trend
Simple Weighted Avg Weighted Avg

Simple Avg profits = Sum of Profits/No. of years

= (100+90+120)/3
= 103.33
Goodwill = 103.33*5 years = 516.67

WAP = (Sum of (P*W)) / Sum of Weights

Year Profits Weights P*W
2017 100 1 100
2018 110 2 220
2019 140 3 420
6 740
WAP = Sum of P*W / Sum of Weights = 740/6
= 123.33
Goodwill = 123.33*5 years = 616.67

Year Profits Weights P*W

2017 100 1 100 2019
2018 90 2 180 2018
2019 70 3 210 2017
6 490
WAP = Sum of P*W / Sum of Weights = 490/6
= 81.67
 Goodwill = 81.67*5 years = 408.35

2) Super Profits Method

Goodwill = Super Profits * No. of years of Purchase
Super Profits = Average or Actual Profits - Normal Profits
Average Profits - Same as in 1st method
Normal Profits = Actual Capital Employed * Normal Rate of Return(NRR)
NRR is the return expected by Industry as a whole
Actual Capital Employed = Total amount invested in the business = Capital + R&S + Long term Liabilities (or) Assets - Current L

Example:
No. of years of Purchase is 3 years
Average Profits = 120,000
Actual CE is 10,00,000
NRR is 10%
Goodwill = (120,000 - (10,00,000*10%))* 3 years
= (120,000 - 100,000) * 3 years
= 20,000 * 3 y
= 60,000

3) Annuity Method
Goodwill = Super Profits * Present Value Anuuity Factor for NO. of years of Purchase
= Super Profits * PVAF

Example:
No. of years of Purchase is 3 years PVIF
PVAF at 10% for 3 years is 2.487 20000 0.909091
Average Profits = 120,000 20000 0.826446
Actual CE is 10,00,000 20000 0.751315
NRR is 10% 2.486852
Goodwill = Super Profits * Present Value Anuuity Factor for NO. of years of Purchase PVAF
= 20,000*2.487
49740

4) Capitalisation method
Goodwill = Normal CE - Actual CE
Normal CE = Actual or Average Profits / NRR

Example:
ACE is 10,00,000
Actual Profit is 120,000
NRR is 10%

Goodwill = (120,000/10%) - 10,00,000

= 12,00,000 - 10,00,000
 = 200,000
Normal CE - To earn same actual Profits what other should Invest (To earn 120,000 others should invest 12,00,000)
3
2
1
Liabilities (or) Assets - Current Liabilities

18181.82
16528.93
15026.3
49737.04
uld invest 12,00,000)
Dissolution of Partnership (Deed)
Under following four situations Partnership is Dissolved
I) Change in PSR
II) Admission of a Partner 80% A:B
III) Retirement of a Partner 90% C
IV) Death of a Partner 80% A:B:C

I) Change in PSR A:B:C

On the date of Change in PSR the following adjustments should be done: C
1) Adjustments of Profits (Incl Rectification of Errors) A:B
2) Adjustment for Reserves
3) Accounting for Goodwill
4) Revaluation of Assets and Liabilities
5) Adjustment of Capital account balances

A&B are Partners

Old PSR 2:1
New PSR 1:1

1) Adjustments of Profits (Incl Rectification of Errors)

Change in PSR can be
a) Prospective (from today)
Past Profits - Old PSR
Future Profits - New PSR

b) Retrospective
Past Profits - already distributed in Old PSR - Now they should be re-distributed in New PSR
Future Profits - New PSR

Past Profits - already distributed in Old PSR - Now they should be re-distributed in New PSR
Example
Change in PSR is applicable from PY
A&B are Partners
Old PSR 2:1
New PSR 1:1
PY Profits is 12

JE
a) Writeback of PY Profits in Old PSR
A's Cap/Current A/c Dr 8
B's Cap/Current A/c Dr 4
(12*2:1)
To P&L Adjustment A/c 12

b) Rectification of Errors if any

c) Distribute Revised Profits in New PSR
P&L Adj A/c Dr 12
To A's Cap/Current A/c 6
To B's Cap/Current A/c 6
(12*1:1)

2) Adjustment of Reserves and Surplus

First Option: Distribute R&S in Old PSR
JE
R&S A/c Dr
To P.Cap/Current A/c

Second Option: Leave Undistributed or Adj of R&S directly through Partners Cap A/c
JE
Gaining Partners Cap A/c Dr
To Sacrificing Part Cap A/c

Example:
A&B are Partners
Old PSR 2:1
New PSR 1:1
R&S is 12
Identification of Gaining and Sacrificing Partners along with amount of Gain or Sacrifice
Two Methods:
Ratios Method (ICAI SM)
A B
New 50% 50%
Old 66.67% 33.33%
-16.6700% 16.6700%
Sacrifice Gain

R&S 12
A Sac -2 In the future A's Cap A/c will be Debited with 2 extra (Lowe
B Gain 2 In the future B's Cap A/c will be credited with 2 extra

B's Cap (Gaining Partners ) A/c Dr 2

To A's Cap (Sacrificing Part) A/c 2

Tabular Method
Particulars A B
a) R&S in New PSR 6 6
(12*1:1)
b) R&S in Old PSR 8 4
(12*2:1)
 c) Gain/(Sacrifice) -2 2
(a - b)

B's Cap A/c Dr 2

To A's Cap A/c 2

3) Goodwill
Goodwill can be Purchased Goodwill
Self Generated Goodwill

As per AS-26, Only Purchased Goodwill should be accounted (Self Generated Goodwill should not be account
Under Dissolution of Partnership - Goodwill is Self Generated; Goodwill a/c should not be recognised in Book

Accounting - Two Cases

Case A) Small Firms - AS 26 is not Applicable (Goodwill can be recognised)
Goodwill A/c Dr
To Partners Capital A/c
(Old PSR)

Case B) Medium and Large Firms - AS 26 is Applicable (Goodwill a/c should not be recognised in Books)
Option 1: No Restriction on Opening Goodwill A/c
i) Raise(Create) Goodwill in Old PSR
Goodwill A/c Dr
To Partners Capital A/c
(Old PSR)

ii) Writeoff Goodwill in New PSR

Partners Capital A/c Dr
To Goodwill A/c
(New PSR)

Example:
Goodwill = 12
i)
Goodwill A/c Dr 12
To A's Cap A/c 8
To B's Cap A/c 4
(12*2:1)

ii)
A's Cap A/c Dr 6
B's Cap A/c Dr 6
(12*1:1)
To Goodwill A/c 12
 Net Impact:
A is Credited with 2 (Cr8 - Dr6)
B is Debited with 2 (Cr4 - Dr6)
Combined JE
B's Cap A/c Dr 2
To A's Cap A/c 2
Which is Option II

Option 2: Restriction on Opening Goodwill A/c (or) Adj of Goodwill directly through Partners Cap A/c
JE
Gaining Partners Cap A/c Dr
To Sacrificing Part Cap A/c

Example:
A&B are Partners
Old PSR 2:1
New PSR 1:1
Goodwill is 12
Identification of Gaining and Sacrificing Partners along with amount of Gain or Sacrifice
Two Methods:
Ratios Method (ICAI SM)
Tabular Method
Particulars A B
a) Goodwill in New PSR 6 6
(12*1:1)
b) Goodwill in Old PSR 8 4
(12*2:1)
c) Gain/(Sacrifice) -2 2
(a - b)

B's Cap A/c Dr 2

To A's Cap A/c 2

4) Revaluation of Assets and Liabilities

Asset Increase Profit
Decrease Loss

Liabilities Increase Loss

Decrease Profit

Accounting - Two Cases

Case A: New Balance sheet - Revalued Amts of A&L
In this Case Revaluation A/c shall be Prepared
JE
(a) Increase in Asset or Decrease in Liability (Profit)
 Assets A/c Dr
Liabilities A/c Dr
To Revaluation A/c

(b) Decrease in Asset or Increase in Liability (Loss)

Revaluation A/c Dr
To Assets A/c
To Liabilities A/c
Land
c) If Profit
Revaluation A/c Dr
To P.Cap A/c (Old PSR)

If Loss
P.Cap A/c (Old PSR)Dr
To Revaluation A/c

Case B: New Balance sheet - Old Values of A&L

Option 1: By Preparing Memorandum Revaluation A/c
I Part - Same as Revaluation A/c - Old PSR
II Part - Mirror image Revaluation A/c - New PSR
(Undoing/Reversing Revaluation)
Option 2: Without Touching A&L, adjusting for Revaluation - Adjustment directly through P.Cap
JE
Gaining P.Cap A/c Dr
To Sacrificing P.Cap A/c

Example:
A&B are Partners
Old PSR 2:1
New PSR 1:1
Revaluation Profit is 1200
Identification of Gaining and Sacrificing Partners along with amount of Gain or Sacrifice
Two Methods:
Ratios Method (ICAI SM)
Tabular Method
Particulars A B
a) Rev Profit in New PSR 600 600
(1200*1:1)
b) Rev Profit in Old PSR 800 400
(1200*2:1)
c) Gain/(Sacrifice) -200 200
(a - b)

B's Cap A/c Dr 200

To A's Cap A/c 200

5) Adjustment of P. Capital Account balances

Two Bases:
A) First Base is Total Cap of P.firm
New P.Cap A/c Balances can be in PSR (New) or any Agreed Ratio

Example: Total Cap as base - In New PSR

A&B are Partners
Old PSR 2:1
New PSR 1:1
Existing Cap A/c Balances after first Four adjustments are, A 350 and B 250

Particulars A B Total
 a) Existing Cap Bal 350 250 600
b) Desired Cap Bal 300 300 600
(600*1:1)
c) Excess/(Deficit) 50 -50
Payment to A Receive from B

B) Second Base is any Individual P.Cap A/c Balance

New P.Cap A/c Balances can be in PSR (New) or any Agreed Ratio

Example: A's Cap A/c Bal as Base - In New PSR

A&B are Partners
Old PSR 2:1
New PSR 1:1
Existing Cap A/c Balances after first Four adjustments are, A 350 and B 250

Particulars A B Total
a) Existing Cap Bal 350 250 600
b) Desired Cap Bal 350 350 700

c) Excess/(Deficit) 0 -100
Receive from B

Example: B's Cap A/c Bal as Base - In New PSR

A&B are Partners
Old PSR 2:1
New PSR 1:1
Existing Cap A/c Balances after first Four adjustments are, A 350 and B 250

Particulars A B Total
a) Existing Cap Bal 350 250 600
b) Desired Cap Bal 250 250 500

c) Excess/(Deficit) 100 0
Payment to A
2:1

2:1:1

2:1:1

2:1
Cap A/c will be Debited with 2 extra (Lower amt is credited)
Cap A/c will be credited with 2 extra
Generated Goodwill should not be accounted)
dwill a/c should not be recognised in Books

ecognised in Books)
h Partners Cap A/c

t of Gain or Sacrifice

Revaluation A/c
Particulars Amt Particulars Amt
To Decrease in Assets 400 By Increase in Assets 1000
To Increase in Liab 300 By Decrease in Liab 500

To P.Cap A/c (old PSR) 800

1500 1500

100 2018
120 2020

Memorandum Revaluation A/c

Particulars Amt Particulars Amt
To Decrease in Assets 400 By Increase in Assets 1000
To Increase in Liab 300 By Decrease in Liab 900

To P.Cap A/c (old PSR) 1200

1900 1900
To Increase in Assets 1000 By Decrease in Assets 400
To Decrease in Liab 900 By Increase in Liab 300

By P.Cap A/c (New PSR) 1200

1900 1900

Hence, in the new B/S, Assets and

Liabilities will be disclosed at Old Values
I Part - Same as Revaluation A/c - Old PSR
Memorandum Revaluation A/c Dr 1200
To A's Cap A/c 800
To B's Cap A/c 400
(1200*2:1)

II Part - Mirror image Revaluation A/c - New PSR

(Undoing/Reversing Revaluation)
A's Cap A/c Dr 600
B's Cap A/c Dr 600
(1200*1:1)
 To Memorandum Revaluation A/c 1200

Combined JE
B's Cap A/c Dr 200
To A's Cap A/c 200
(Which is Option II)

hrough P.Cap

t of Gain or Sacrifice

Example: Total Cap as base - In Other Agreed Ratio 3:2

A&B are Partners
Old PSR 2:1
New PSR 1:1
Existing Cap A/c Balances after first Four adjustments are, A 350 and B 250

Particulars A B Total
 a) Existing Cap Bal 350 250 600
b) Desired Cap Bal 360 240 600
(600*3:2)
c) Excess/(Deficit) -10 10
Receive from A Payment to B

Example: A's Cap A/c Bal as Base - In Other Agreed Ratio 3:2
A&B are Partners
Old PSR 2:1
New PSR 1:1
Existing Cap A/c Balances after first Four adjustments are, A 350 and B 250

Particulars A B Total
a) Existing Cap Bal 350 250 600
b) Desired Cap Bal 350 233.33 583.33
(350*2/3)
c) Excess/(Deficit) 0 16.67
Payment from B

3/5 350
2/5 ?B
= 350*2/3 = 233.33

Example: B's Cap A/c Bal as Base - In Other Agreed Ratio 3:2
A&B are Partners
Old PSR 2:1
New PSR 1:1
Existing Cap A/c Balances after first Four adjustments are, A 350 and B 250

Particulars A B Total
a) Existing Cap Bal 350 250 600
b) Desired Cap Bal 375 250 625
(250*3/2)
c) Excess/(Deficit) -25 0
Receive from A

2/5 250
3/5 ?A
= 250*3/2 = 375
Prob No: 2
JE for Change in PSR
B's Cap A/c Dr 28,483
To A's Cap A/c 28,483

Balance Sheet as on 1/4/2004

Liabilities Amt Assets Amt
P. Cap A/c: All Assets - Same as in Question
A (75,000 + 28,483) 103,483
B (25,000 - 28,483) -3,483

All other Liabilities - Same as in Question

WN 1: Adjustment of Reserves
Total Reserves = Contingency Reserves Rs. 8000 + General Reserve Rs. 12,000 = 20,000
Particulars A B
a) Reserves in New PSR (20,000*1:3) 5,000 15,000
b) Reserves in Old PSR (20,000*3:1) 15,000 5,000
c)Gain/(Sacrifice) (a - b) -10,000 10,000
Cr Dr

WN 2: Adjustment for Goodwill - Weighted Avg Profits method

Year Profits Weights P*W
2001-02 19000 1 19000
2002-03 20000 2 40000
2003-04 21000 3 63000
6 122000
WAP = Sum of P*W / Sum of Weights = 122,000/6
= 20,333.33 20333.3333333333
Goodwill = 20,333.33*2 years = 40,667

Alternatively,
Value of Goodwill = (19,000*1) + (20,000*2) + (21,000*3) *2 years
1+2+3
= 40,667

Particulars A B
a) Goodwill in New PSR (40,667*1:3) 10,167 30,500
b) Goodwill in Old PSR (40,667*3:1) 30,500 10,167
c)Gain/(Sacrifice) (a - b) -20,333 20,333
Cr Dr

WN 3: Revaluation of Assets and Liabilities

Memorandum Revalua
Particulars
To Provision for DD on B/R
(6000*5%)
To Investments A/c (10,000 - 3600)
To Stock A/c (50,000*10%)
To Furniture A/c (3000 - 2700)
To Outstanding Salary A/c
To Claim for Damages
To Creditors A/c
To Provision for Bills Discounted
Dishonoured
To Workmens Compensation A/c
 To Provision for DD on Debtors
(2000 - (32,000*5%) )
To P&M A/c (10,000*20%)
To L&B A/c (25,000 - 21,000)
To Investments A/c
To Creditors A/c
To SV from JLP

To Partners Cap A/c

A 925
B 2,775
(3,700*1:3 New PSR)

Particulars A B
a) MR in New PSR 925 (Cr) 2,775 (Cr)
b) MR in Old PSR 2,775 (Dr) 925 (Dr)
1,850 (Dr) 1,850 (Cr)

WN 4: Summary
Particulars A B
a) Adjustment for R&S (WN 1) 10,000 (Cr) 10,000 (Dr)
b) Adj for Goodwill (WN 2) 20,333 (Cr) 20,333 (Dr)
c) Adj for Revaluation of A&L (WN 3) 1,850 (Dr) 1,850 (Cr)
d) Net Amt to be Adjusted 28,483 28,483
Cr Dr
Memorandum Revaluation A/c
Amt Particulars Amt
300 By Provision for DD on Debtors 400
(2000 - (32,000*5%) )
6,400 By P&M A/c (10,000*20%) 2000
5,000 By L&B A/c (25,000 - 21,000) 4000
300 By Investments A/c 400
2,000 By Creditors A/c 650
1,000 By SV from JLP 6000
1,500
500
By Partners Cap A/c (Loss) 3,700
150 A 2,775
B 925
17,150 (3,700*3:1 Old PSR) 17,150
400 By Provision for DD on B/R 300
(6000*5%)
2000 By Investments A/c (10,000 - 3600) 6,400
4000 By Stock A/c (50,000*10%) 5,000
400 By Furniture A/c (3000 - 2700) 300
650 By Outstanding Salary A/c 2,000
6000 By Claim for Damages 1,000
By Creditors A/c 1,500
3,700 By Provision for Bills Discounted 500
Dishonoured
By Workmens Compensation A/c 150

17,150 17,150
II) Admission of a Partner
On the date of Admission of a Partner the following adjustments should be done:
1) Adjustments of Profits (Incl Rectification of Errors) - Same as in Change in PSR
2) Adjustment for Reserves - Same as in Change in PSR
3) Accounting for Goodwill
4) Revaluation of Assets and Liabilities - Same as in Change in PSR
5) Capital Introduced by New Partner
6) Adjustment of Capital account balances - Same as in Change in PSR

2) Reserves and Surplus - Same as Change in PSR

Example for Directly through P.Cap - Option II

A&B are Partners
Old PSR A:B 2:1
New Partner C is admitted in to business
New PSR A:B:C 4:2:3
R&S is 12
Identification of Gaining and Sacrificing Partners along with amount of Gain or Sacrifice
Tabular Method
Particulars A B C 100
a) R&S in New PSR 5.33 2.67 4.00 100
(12*4:2:3)
b) R&S in Old PSR 8 4 0
(12*2:1)
c) Gain/(Sacrifice) -2.67 -1.33 4
(a - b) Sac Sac Gain

C's Cap A/c Dr 4

To A's Cap A/c 2.67
To B's Cap A/c 1.33

3) Accounting for Goodwill

Old Partners A&B
C is admitted in to Business
Capital 100,000 + Premium(Goodwill) 10,000

Case I: C privately paid amount to Existing Partners (Old) - No Accountong in the Books of P.Firm
Case II: New Partner brings Cash for Goodwill
JE
Combined JE Individual JE
Bank A/c Dr Bank A/c Dr
To Old Partners Cap A/c To New Partners Cap A/c
(In Sacrificing Ratio)
New Partners Cap A/c Dr
 To Old Partners Cap A/c
(In Sacrificing Ratio)
If Goodwill amount is withdrawn by Old Partners
Part Cap A/c Dr
To Bank A/c

Case III: New Partner is Unable to bring Cash towards Goodwill - Same as Change in PSR (Full Concept)
Case A) Small Firms - AS 26 is not Applicable (Goodwill can be recognised)
Goodwill A/c Dr
To Partners Capital A/c
(Old PSR)

Case B) Medium and Large Firms - AS 26 is Applicable (Goodwill a/c should not be recognised in Books)
Option 1: No Restriction on Opening Goodwill A/c
i) Raise(Create) Goodwill in Old PSR
Goodwill A/c Dr
To Partners Capital A/c
(Old PSR)

ii) Writeoff Goodwill in New PSR

Partners Capital A/c Dr
To Goodwill A/c
(New PSR)

Example
Goodwill is 12
A:B
Old 2:1
New A:B:C 2:1:1
Solution:
a) Raising Goodwill
Goodwill A/c Dr 12
To A's Cap A/c 8
To B's Cap A/c 4
(12 * 2:1)

b) Writingoff
A's Cap A/c Dr 6
B's Cap A/c Dr 3
C's Cap A/c Dr 3
(12 * 2:1:1)
To Goodwill A/c 12

Net Impact:
A is Credited with 2 (Cr8 - Dr6)
 B is Credited with 1 (Cr4 - Dr3)
C is Debited with 3 (Cr 0 - Dr 3)
Combined JE
C's Cap A/c Dr 3
To A's Cap A/c 2
To B's Cap A/c 1
Which is Option II

Option 2: Restriction on Opening Goodwill A/c (or) Adj of Goodwill directly through Partners Cap A/c
JE
Gaining Partners Cap A/c Dr
To Sacrificing Part Cap A/c

Example
Goodwill is 12
A:B
Old 2:1
New A:B:C 2:1:1
Solution:
Particulars A B C
a) Goodwill in New PSR 6 3 3
(12*2:1:1)
b) Goodwill in Old PSR 8 4 -
(12*2:1)
c) Gain/(Sacrifice) -2 -1 3
(a - b) Sac Sac Gain

C's Cap A/c Dr 3

To A's Cap A/c 2
To B's Cap A/c 1

5) Capital Introduced by New Partner

Cash/Bank A/c Dr
Asset A/c Dr
To New Partners Cap A/c

Computation of New PSR and Sacrificing Ratio

I) Computation of New PSR
Example
A&B 2:1 (Old PSR)
C is admitted in to busines with 1/4 th profit share

Case I: 1/4 th is sacrificed by A&B in their old PSR (2:1)

 Solution:
C's share is 1/4
New Profit share of A = Old share - Sacrifice share
= 2/3 - (1/4*2/3) 1/4 is sacrificed in 2:1
= 2/3 - 1/6 A B
= (4-1)/6 1/4*2/3 1/4*1/3
= 3/6
= 1/2
1/4 is sacrificed in 3:2
New Profit share of B = Old share - Sacrifice share A B
= 1/3 - (1/4*1/3) 1/4*3/5 1/4*2/5
= 1/3 - 1/12
= (4-1)/12
= 3/12
= 1/4

Hence New PSR = A:B:C = 1/2 : 1/4 : 1/4 = 2:1:1

II) Computation of Sacrificing Ratio

Case I: Old PSR and New PSR are given
Sacrifice = Old - New

Case II: Only Old PSR is given

A&B 2:1 (Old PSR)
C is admitted in to busines with 1/4 th profit share
It should be assumed that Sacrifce PSR = Old PSR = 2:1
No need to compute sacrificing ratio
A B C
50 50
25 50 25
Case II: 1/4 th is sacrificed by A&B in agreed ratio 3:2 (not in PSR) Case III: If Question did not mention ab
 Solution: It should be assumed that sacrifice is do
C's share is 1/4
New Profit share of A = Old share - Sacrifice share
rificed in 2:1 = 2/3 - (1/4*3/5)
= 2/3 - 3/20
= (40-9)/60
= 31/60

rificed in 3:2 New Profit share of B = Old share - Sacrifice share

= 1/3 - (1/4*2/5)
= 1/3 - 2/20
= (20-6)/60
= 14/60

Hence New PSR = A:B:C = 31/60: 14/60: 1/4 = 31:14:15

Question did not mention about sacrifice done by whom and in what ratio
be assumed that sacrifice is done by all old Partners in Old PSR i.e., Case I
Prob No: 3
Partners Capital Accounts
Particulars A B C Particulars
By Balance b/d
By Contingency Reserves A/c
(6000*1:2)
By Goodwill A/c
( (18,000 - 14,000)*1:2 )
By Revaluation A/c
By Goodwill A/c
By Furniture A/c
By Stock A/c
To Balance c/d 53,200 53,200 53,200 By Bank A/c (Brought in)
(A's Cl. Bal = B's Cl. Bal) (b/f)
(C's Cl. Bal = B's Cl. Bal) 53,200 53,200 53,200

Note: Since questioned mentioned that Cash should be brought in (only) for equalisation of P. cap a/c balances,
highest P.Cap a/c balance i.e. B is taken as base, so that other Partners i.e. A & C will bring in the cash.
 Revaluation A/c
A B C Particulars Amt
26,400 33,600 -
2,000 4,000 - To P. Cap A/c: 19,400
A 6,467
1,333 2,667 - B 12,933
(19,400*1:2)
6,467 12,933 - 19,400
- - 6,000
- - 2,800
- - 13,600
17,000 30,800
(b/f) (b/f)
53,200 53,200 53,200

of P. cap a/c balances,

will bring in the cash. Balance Sheet as on 1/4/2002 (After admission of C)
Liabilities Amt
Partners Cap. Bal:
A 53,200
B 53,200
C 53,200

Sundry Creditors 9,000

168,600
 Prob No: 4
Revaluation A/c
Particulars Amt Particulars P
By L&B A/c 15,600
(30,000 - 14,400)
By Furniture A/c 3,800 To Cash A/c 7,320
(6000 - 2200) (b/f)

19,400 To Balance c/d 88,200

Q2 - 29,400
P6 - ? 95,520
R5 - ?
S3 - ?

as on 1/4/2002 (After admission of C)

Assets Amt
Goodwill 24,000
(18,000 + 6000)
L&B 30,000
Furniture 8,800
(6000 + 2800)
Stock (26,000 + 13600) 39,600
Sundry Debtors 6,400
Cash at Bank 59,800
(12,000 + A17,000 + C30,800)

168,600
 Partners Capital Accounts
R S Q Particulars P R S Q
By Balance b/d 70,800 59,700 29,100 -
By GR A/c (21,000*6:5:3) 9,000 7,500 4,500 -
6,800 By Revaluation A/c 15,720 13,100 7,860 -
(b/f) By Cash A/c - - - 29,400

73,500 44,100 29,400 By Cash A/c 2,640

(b/f) (b/f)
80,300 44,100 29,400 95,520 80,300 44,100 29,400
 Revaluation A/c
Particulars Amt Particulars Amt
To Furniture A/c 1,840 By Goodwill A/c 17,640
To Stock A/c (58,800*10%) 5,880 (28,140 - 10,500)
To O/s Repair Bill A/c 2,640 By L&B A/c 29,400
To P.Cap A/c: 36,680 (119,700 - 90,300)
P 15,720
R 13,100
S 7,860
(36,680*6:5:3) 47,040 47,040

Cash A/c
Particulars Amt Particulars Amt
To Balance b/d 3,780 By P's Cap A/c 7,320
To Q's Cap A/c 29,400 By R's Cap A/c 6,800
To S's Cap A/c 2,640
By Balance c/d (b/f) 21,700
35,820 35,820

Balance sheet as on 1/4/1996 (After Admission of Q)

Liabilities Amt Assets Amt
Partners Cap A/c: Goodwill 28,140
P 88,200 L&B 119,700
R 73,500 Furniture (14,700 - 1,840) 12,860
S 44,100 Stock (58,800*90%) 52,920
Q 29,400 Sundry Debtors 52,920

Sundry Creditors 37,800 Cash 21,700

Bills Payable 12,600
Outstanding Repair Bill 2,640

288,240 288,240
WN 1: Computation of New PSR
a) Q's share = 1/8 - Sacrificed by P, R and S in Old PSR
b) P's new share = Old share - Sac share = 6/14 - (1/8*6/14) = 6/14 - 6/112 = (48-6)/112 = 42/112 = 3/8
c) R's new share = 5/14 - (1/8 * 5/14) = 5/14 - 5/112 = (40-5)/112 = 5/16
d) S's new share = 3/14 - (1/8 * 3/14) = 3/14 - 3/112 = (24-3)/112 = 21/112 = 3/16
e) Hence new PSR = P:R:S:Q = 3/8 : 5/16 : 3/16 : 1/8 = 6:5:3:2
Prob No. 5
Partners Current A/c
Particulars Taylor Best Watson
To Taylor Current A/c (WN 1) - 1,200 3,600
To Best Capital A/c (WN 2) 2,000

To Balance c/d (b/f) 10,200

10,200 3,200 3,600
To Balance b/d - 2,000 2,600
To Drawings A/c 5,000 2,500 1,500
To Int on Current A/c - 200 260
(2000*10%), (2600*10%)

Statement of Distribution of Profits for the year ended 31/12/1997

Particulars Amt
a) Net Profit before Int on Cap and Current 16,400
A/c as given
b) Less: IOC (640+640+320) -1,600
c) Add: Int on Current A/c (200+260) 460
d) Net Profit for the year 15,260
e) Distribution
i) Taylor (WN 3) 6,130
ii) Best (WN 3) 5,630
iii) Watson (WN 3) 3,500
Partners Current A/c
Particulars Taylor Best Watson
By Balance b/d 3,400 1,200 -
By Best and Watson Current A/c (WN 1) 4,800 - -
By Taylors Capital A/c (WN 2) 2,000
By Watson Capital A/c (WN 2) 1,000
By Balance c/d (b/f) 2,000 2,600
10,200 3,200 3,600
By Balance b/d 10,200 - -
By Interest on Cap A/c 640 640 320
(Cap A/c Bal (WN 2)*8%)
WN 1: Adjustment for Goodwill
A) Valuation
a) Average profits of Previous 4 years = (14,600 + 13,820 + 9,400 + 11760) / 4
= 12395

b) Average profits of Previous 5 years = (14,600 + 13,820 + 9,400 + 11,760 + 10,420) / 5

= 12000

c) Goodwill = (a or b whichever is lower)*1.5

= 12,000*1.5 = 18,000

B) Adjustment
Particulars Taylor Best Watson
a) Goodwill in New PSR 7,200 7,200 3,600
(18,000 * 2:2:1)
b) Goodwill in Old PSR 12,000 6,000 -
(18,000*2:1)
c) Gain/(Sacrifice) -4,800 1,200 3,600

JE
Best Current A/c Dr 1200
Watson Current A/c Dr 3600
To Taylor Current A/c 4800

WN 3: Distribution of Profits
a) Watson
i) N.P. 15,260
ii) Less: Prior share to Taylor -500
iii) N.P. after Taylors prior share 14,760
iv) Actual share of Watson (iii*1/5) 2,952
v) Minimum Guaranteed Profit 3,500
vi) Watsons share of Profits 3,500
(iv or v whichever is higher)

b) Taylor and Best

Particulars Taylor Best
(i) Prior share 500 0
(ii) Actual Share (14,760*2/5) 5,904 5,904
iii) Less: Adj for shortfall for Watson -274 -274
( (3500 - 2952)*(2:2) )
6,130 5,630
WN 2:
Partners Capital A/c
Particulars Taylor Best Watson Particulars
To Taylors Current A/c (b/f) 2,000 By Balance b/d
To Watsons Current A/c (b/f) 1,000 By Cash A/c
To Balance c/d 8,000 8,000 4,000 By Best Current A/c (b/f)
(20,000*2:2:1)
10,000 8,000 5,000
Taylor Best Watson
10,000 6,000 -
- - 5,000
2,000

10,000 8,000 5,000

Prob No: 6
Old 1:1
New PSR 2:2:1
Sac Ratio 1:1 DOA
J K
1/2 - 2/5 1/2 - 2/5
(5-4)/10 (5-4)/10
1/10 1/10
1/10 : 1/10
Sac Ratio 1:1

Goodwill
Already recorded
Bank A/c Dr 3000
To L's Current A/c

Now to be recorded,
L's Current A/c Dr 3000
To J's Current A/c
To K's Current A/c
(3000*1:1 Sac Ratio)
P&L A/c for the year ended 31/12/1997
Particulars 1/1 to 31/8 1/9 to 31/12
To Trading Expenses A/c 10,000 5,000
(15,000*8:4)
To Manager's Salary A/c 4,000 -
To Manager's Bonus A/c (28000*5%) 1,400 -
a) Already Paid (T/B) 1050
b) Outstanding (1400-1050) 350
To Depreciation on E&V
a) Upto 31/8: 21,000*20%*8/12 2,800
b) After 31/8: 15,000*20%*4/12 1,000
(On Revalued Amt)
To Int on Cap A/c
a) J: 30,000*8%*(8:4) 1,600 800
b) K: 15,000*8%*(8:4) 800 400

To P.Current A/c: 7,400 6,800

a) Up to 31/8: Old PSR J:K 1:1
J 3,700
K 3,700
(7,400* 1:1)
b) After 31/8: New PSR J:K:L 2:2:1
L's Share: 2000
 i) MGP (6000*4/12) 2000
ii) Actual Share 1360
(6,800*1/5)
iii) Whichever is higher
J 2,400
K 2,400
(6800-2000 L's share)*(1:1)
28,000 14,000
 12m
1/1/1997 to 31/12/1997
9/1/1997
Before Adm After Adm
1/1 to 31/8 1/9 to 31/12
8m 4m
L is manager L is Partner
Bonus & Sal No B & S
No Profits 1/5 share in Profits with MGP of 6000 pa

3000

1500
1500

or the year ended 31/12/1997

Particulars 1/1 to 31/8 1/9 to 31/12 Particulars
By Gross Profit b/d 28,000 14,000 To Balance b/d
(42,000 * 8 months : 4 months)

To Balance c/d

To Balance b/d
To J's & K's Current A/c

To Balance c/d

To Balance b/d
To L's Capital A/c

To Balance c/d

Particulars
 To Balance c/d

28,000 14,000
 Partners Current A/c Three stages:
J K L Particulars J K L (a) First 8m
7,800 7,100 - By Balance b/d - - 1,800 (b) Admission of L
By IOC A/c 1,600 800 - (c ) Last 4 m
By Outstanding Bonus A/c - - 350
By P&L A/c 3,700 3,700 -
- - 2,150 By Balance c/d 2,500 2,600
7,800 7,100 2,150 7,800 7,100 2,150
2,500 2,600 - By Balance b/d - - 2,150
- - 3,000 By L's Current A/c 1,500 1,500 -
(Goodwill = 15000*1/5*(1:1)
By Revaluation A/c (WN 1) 3,600 3,600 -
2,600 2,500 - By Balance c/d - - 850
5,100 5,100 3,000 5,100 5,100 3,000
- - 850 By Balance b/d 2,600 2,500 -
- - 1,500 By IOC A/c 800 400 -
By P&L A/c 2,400 2,400 2,000
5,800 5,300 - By Balance c/d - - 350
5,800 5,300 2,350 5,800 5,300 2,350

Partners Capital A/c

J K L Particulars J K L
By Balance b/d 30,000 15,000 -
30,000 15,000 1,500 By L's Current A/c - - 1,500
30,000 15,000 1,500 30,000 15,000 1,500
 WN 1:
Revaulation A/c
Admission of L Particulars Amt Particulars Amt
To E&V A/c 3,200 By L&B A/c 10,400
(BV - RA = (28,400 - 18,000)
(21,000 - 2,800) - 15,000 )
To P. Current 7,200
J 3,600
K 3,600
(7200*1:1)
10,400 10,400
III) Retirement of a Partner
On the date of Retirement of a Partner the following adjustments should be done:
1) Adjustments of Profits (Incl Rectification of Errors) - Same as in Change in PSR
2) Reserves and Surplus - Same as Change in PSR
3) Goodwill - Same as Change in PSR
4) Revaluation of Assets and Liabilities - Same as Change in PSR
5) Settlement to Retired Partner
6) Adjustment of Capital Account balances - Same as Change in PSR

5) Settlement to Retired Partner - Date of Settlement = Date of Retirement

a) If Cash available
Retiring Part Cap A/c Dr
To Cash/Bank A/c

b) If cash is not available

Retiring Part Cap A/c Dr
To Retiring Part Loan A/c (Outsiders Loan)

Computation of New PSR and Gaining Ratio

I) Computation of New PSR
New share = Old share + Gain share

Example:
A:B:C = 2:1:1
C retired
A&B will be gaining

Case I:C's share is 1/4, taken by A&B in Old PSR i.e. 2:1 Case II:C's share is 1/4, taken by A&B in Agreed R
Solution: Solution:
A's New share = Old Share + Gain share A's New share = Old Share + Gain share
= 2/4 + (1/4*2/3) = 2/4 + (1/4*1/2)
=2/4 + 2/12 = (6+2)/12 =2/4 + 1/8 = (4+1)/8
=8/12 =5/8

B's New share = Old Share + Gain share B's New share = Old Share + Gain share
= 1/4 + (1/4*1/3) = 1/4 + (1/4*1/2)
=1/4 + 1/12 = (3+1)/12 =1/4 + 1/8 = (2+1)/8
=4/12 =3/8
Hence New PSR is A:B = 8:4 = 2:1 Hence New PSR is A:B = 5:3

II) Computation of Gaining Ratio

Case I: Old PSR and New PSR are given
Gain = New - Old

Case II: Only Old PSR is given

It should be assumed that Gaining PSR = Old PSR
/4, taken by A&B in Agreed Ratio i.e. 1:1 (Not Old PSR) Case III: If Question did not mention about Gaining ratio
It should be assumed that Gain is in Old PSR i.e., Case I
Share + Gain share

8 = (4+1)/8

Share + Gain share

8 = (2+1)/8
ut Gaining ratio
SR i.e., Case I
WN 1: Adjustment for Goodwill
Particulars Arthur Baldwin Curtis
a) Goodwill in New PSR 6,750 - 4,050
(10,800*5:3)
b) Goodwill in Old PSR 4,800 3,600 2,400
(10,800*4:3:2)
c) Gain/(Sacrifice) (a - b) 1,950 -3,600 1,650
WN 2:
Memorandum Revaluation A/c
Particulars Amt Particulars Amt
To Stock A/c (8000*6%) 480 By Factory Land & Building 5000
To PDD A/c ((5000*5%) - 100) 150 (25000*20%)
To Outstanding Legal Charges 770
To Partners Cap A/c: 3600
Arthur 1600
Baldwin 1200
Curtis 800
(3600*4:3:2)
5000 5000
To Factory Land & Building 5000 By Stock A/c (8000*6%) 480
(25000*20%) By PDD A/c ((5000*5%) - 100) 150
By Outstanding Legal Charges 770
By Partners Cap A/c: 3600
Arthur 2250
Curtis 1350
(3600*5:3)
5000 5000
 Journal Entries
Particulars Debit Credit Particulars Arthur
Arthurs's Cap A/c 1,950 To Baldwins Cap A/c 1,950
Curtis Cap A/c 1,650 To Memorandum Revaluation A/c 2,250
To Baldwin's Cap A/c 3,600
(WN 1) To Cash A/c -
((B/s 5,500)+Adj of Cap A/c Balances (100+2700))
Memorandum Revaluation A/c 3,600 To Baldwin's Loan A/c (b/f)
To Arthur Cap A/c 1,600 To Balance c/d 17,500
To Baldwin Cap A/c 1,200 (28,000 * 5:3)
To Curtis Cap A/c 800 21,700
(WN 2)

Arthur Cap A/c 2,250

Curtis cap A/c 1,350
To Memorandum Revaluation A/c 3,600
(WN 2)

Cash A/c 2,800

To Arthur Cap A/c 100
To Curtis Cap A/c 2,700
(From P. Cap A/c's)

Baldwins Cap A/c 19,800

To Cash A/c 8,300
To Baldwins Loan A/c 11,500
(From P. Cap A/c's)
 Partners Capital A/c
Baldwin Curtis Particulars Arthur Baldwin Curtis
- 1,650 By Balance b/d 20,000 15,000 10,000
- 1,350 By Arthur's and Curtis's Cap A/c - 3,600 -
By Memorandum Revaluation A/c 1,600 1,200 800
8,300 -
s (100+2700))
11,500
- 10,500 By Cash A/c (b/f) 100 2,700

19,800 13,500 21,700 19,800 13,500

 Prob No: 8
Balance sheet as on 1/1/2004 (After Retirement of Baldwin)
Liabilities Amt Assets Amt
P. Cap A/c: Factory Land and Building 25,000
Arthur 17,500 Plant and Machinery 8,500
Curtis 10,500 Stock 8,000
Debtors 5000 4,900
Baldwin's Loan A/c 11,500 Less: PDD (100)
Sundry Creditors 6,900 Cash -

46,400 46,400
Prob No: 8
P&L Adj A/c
Particulars Amt Particulars Amt
By Machinery A/c 9,540
To Part Cap A/c 10,555 ( (10,000 + 600) * 90%)
A 4,222 By Mr. X A/c 600
B 4,222 By Prepaid Interest A/c 415
C 2,111 (16,600*15%*2/12)
(10,555*(2:2:1))
10,555 10,555

Revaluation A/c
Particulars Amt Particulars Amt
To P&M A/c 5,854
( (49,000 + 9,540)*10%) By Partners Cap A/c 7,465
To PDD A/c 1,110 A 2,986
( (21,600 + 600)*5% ) B 2,986
To Liability for Bills Discounted A/c 501 C 1,493
(7,465*(2:2:1))
7,465 7,465
 Partners Capital A/c
Particulars A B C
To C's Cap A/c (WN 1) 11,401 11,401 -
To Revaluation A/c 2,986 2,986 1,493
To Bank A/c 17,710
( (36,913 - 1493) * 50%)
To C's Loan A/c 17,710
( (36,913 - 1493) * 50%)
To Balance c/d (b/f) 32,290 23,890
46,677 38,277 36,913

Balance sheet as on 1/4/2003

Liabilities Amt Assets Amt
P. Cap A/c P&M 52,686
A 32,290 ( (49,000 + 9,540)*90%)
B 23,890 F&F 4,800
Stock 22,800
C's Loan A/c 17,710 Debtors 22,200 21,090
(21,600 + 600)
Sundry Creditors 12,000 Less: PDD (1,110)
15% Mortgage Loan 16,600 Prepaid Interest 415
Liability for Bills Discounted A/c 501 Cash in Hand 1,000
Cash at Bank 200
102,991 102,991
Capital A/c WN 1: Adjustment for Goodwill
Particulars A B C 1) Valuation
By Balance b/d 33,600 25,200 12,000 Goodwill = Average profits of previous three yea
By P&L Adj A/c 4,222 4,222 2,111 = (18,380 + 32,000 + (7,471 + 10,555) )
By A's and B's Cap A/c (WN 1) - - 22,802 3
By Bank A/c (17,710 * 1:1) 8,855 8,855 - = 114,010

2) Adjstment
Partculars
46,677 38,277 36,913 a) Goodwill in New PSR
(114,010 * 1:1)
b) Goodwill in Old PSR
(114,010 * 2:2:1)
c) Gain/(Sacrifice) (a - b)
ts of previous three years * 5 times
000 + (7,471 + 10,555) )

A B C
57,005 57,005 -

45,604 45,604 22,802

11,401 11,401 -22,802

IV) Death of a Partner
On the date of Death of a Partner the following adjustments should be done:
1) Adjustments of Profits (Incl Rectification of Errors) - Same as in Change in PSR
2) Reserves and Surplus - Same as Change in PSR
3) Goodwill - Same as Change in PSR
4) Revaluation of Assets and Liabilities - Same as Change in PSR
5) Settlement to Deceased Partner
6) Adjustment of Capital Account balances - Same as Change in PSR

5) Settlement to Deceased Partner

a) Transferring Amount from Deceased Partners Cap to Legal representative or Executors A/c
Deceased Partners Cap A/c Dr
To Executors A/c

b) If Cash available
Executors A/c Dr
To Cash/Bank A/c

c) If cash is not available

Executors A/c Dr
To Executors Loan A/c

Additional Concepts
1) Computation of New PSR & Gaining Ratio - Same as in case of Retirement

2) Year Beginning Date Date of Death Date of Settlement

1/1/2019 5/10/2019 7/10/2019

From Begining of the year to Date of death

For this period of 4 months and 10 days, all amounts due being a partner will be transferred to Deceased Part Cap A
Profit Share?
I Option: Calculate actual profits by Preparing T, P&L A/c for the period from Beginning of the year to Date of Death
II Options: Compute Deceased Partners share based on PY profits or allow Interest in lieu of (Instead of) profits or a

JE
P&L Suspense A/c Dr
To Deceased Partn Cap A/c

P&L A/c Dr
To P&L Suspense A/c

From Date of Death to Date of Settlement

For the gap of 2 months, since amount belonging to Deceased Partner is used by the business, Compensation shoul

Computation of Compensation?
It will be as Agreed in P. Deed
If P. Deed is silent - Sec 37 of P Act is applicable
Int at 6% pa or Pro-rata share in Profits, whichever is higher

Example:
Amount due to deceased Partners is 500,000
Int = 500,000*6%*2/12 = 5000

Pro-rata share in Profits:

A, B and C
C is deceased
Cap A/c balances on date of death are
A 10,00,000
B 800,000
C 500,000

Profits for 2 months is 100,000

For Total Inv of 23,00,000 - Profits earned is 100,000
For C's share of 500,000 - Profits earned?

Pro-Rata share in Profits of C = 100,000*500,000/23,00,000 = 21,739

Hence, Compensation = Int of 5000 or Pro-rata share in profits of 21,739 whichever is higher
= 21,739
ferred to Deceased Part Cap A/c including Profit share

g of the year to Date of Death

ieu of (Instead of) profits or any other manner as agreed

business, Compensation should be allowed.

Prob No: 9
Dare's Cap A/c
Particulars Amt Particulars
By Balance b/d
To Dare's Legal Representative A/c 120,000
120,000

Dare's Current A/c

Particulars Amt Particulars
To Drawings A/c 5,000 By Balance b/d
By Flower's Current A/c (WN 1)
By Strong's Current A/c (WN 1)
By Salary A/c (600pm * 5m)
By IOC A/c (120,000*5%*5/12)
To Dare's Legal Representative A/c (b/f) 42,000 By Int in lieu of Profits (120,000*10%*5/12)

47,000

Dare's Legal Representative A/c

Particulars Amt Particulars
By Dare's Capital A/c
To Bank A/c (b/f) 162,000 By Dare's Current A/c

162,000

P&L Appropriation A/c

Particulars Amt Particulars
To Salary to Dare A/c 3,000 By P&L A/c (2003)
To IOC A/c
(a) Dare 2,500
(b) Flower (180,000*5%) 9,000
(c ) Strong (60,000*5%) 3,000
To Interest in lieu of Profits A/c 5,000
To Partners Current A/c (b/f) 33,500
(a) Flower 25,125
(b) Strong 8,375
(33,500*3:1)
56,000
 WN 1: Adjustment for Goodwill
Amt A) Valuation
120,000 Goodwill = Average profits of Previous three years * No. of years of Purchase
= (23,000 + 50,000 + 35,000)/3 * 2 years
120,000 = 72,000

B) Adjustment
Amt Particulars Flower Dare Strong
12,500 a) Goodwill in New PSR 54,000 - 18,000
18,000 (72,000 * 3:1)
6,000 b) Goodwill in Old PSR 36,000 24,000 12,000
3,000 (72,000 * 3:2:1)
2,500 c) Gain/(Sacrifice) (a - b) 18,000 -24,000 6,000
5,000

47,000

Amt
120,000
42,000

162,000

Amt
56,000

56,000
Hidden or Inferred or Implied Goodwill
Example:
A's Cap = 20,000
B's Cap = 15,000
C is admitted as a new Partner with 1/4 th share in Profits and 18,000 as Capital
Find Out Hidden Goodwill if any in the C's Capital amount of Rs. 18,000?
Solution:
Particulars
a) Total Capital of firm based on C's Capital introduced (18,000 / 1/4 ) (or) (18,000*100/25)
b) Actual Total Capital (A 20,000 + B 15,000 + C 18,000)
c) Total Goodwill of the Firm (a - b)
d) C's share of Goodwill hidden in Capital of 18,000
(19,000 * 1/4)

In 18,000 of cash brought in by C, Rs. 4,750 is towards Goodwill and balance 13,250 is towards Capital
 Amt
72,000
53,000
19,000
4,750

is towards Capital
Partnership-II
Dissoultion of Firm - Business is Closed
Regular Dissolution (Incl G vs M Rule)
Sale/Conversion to Company
Amalgamation of Firms
Piece-Meal Distribution

Regular Dissolution
Sell Individual Assets
Outside Liabilities
Partner's Loan
Partner's Cap A/c (Incl Current)

Journal Entries - P. Firm BOA should be closed

A Special account is maintained to calculate P/L on Sale of Assets and Payment of Liabilities - Realisation A/c
Nature is - Nominal
Closing Bal in this account - belongs to Partners - distribute in PSR

1 Transfer to Realisation A/c at BV

a) All Assets except Cash and Bank
Realisation A/c Dr
To Sundry Assets A/c

b) All Outside Liabilities

Outside Liab A/c Dr
To Realisation A/c

2 Realisation of Assets
a) For Cash
Cash/Bank A/c Dr
To Realisation A/c

b) Taken over by Partner

Partners Cap A/c Dr
To Realisation A/c

c) Taken over by Creditor - No JE

3 Settlement of Liabilities
a) In Cash
Realisation A/c Dr
To Cash/Bank A/c

b) Taken Over by Partner

Realisation A/c Dr
 To Partners Cap A/c

4 Realisation Expenses
Realisation A/c Dr
To Cash/Bank A/c

5 Compute P/L (b/f in Realisation) and transfer to Partners Cap A/c

a) If Profit
Realisation A/c Dr
To Partners Cap A/c

b) If Loss
Partners Cap A/c Dr
To Realisation A/c

6) Payment of Partners Loan

Partners Loan A/c Dr
To Cash/Bank A/c

7) Settlement of Partners Cap balances

a) Computation of Amount due to Partners
Transfer the balances in the following accounts to Partners Cap A/c
i) Current Accounts
ii) Reserves and Surplus
iii) Drawings
iv) any other accounts which belongs to Partners

After transfer of all the above, balancing figure in Partners Cap A/c represents total amount due

b) Settlement
CASE I: All Partners are SOLVENT
i) If Credit Balance - Paid
Partners Cap A/c Dr
To Cash/Bank A/c

ii) If Debit Balance - Receive

Cash/Bank A/c Dr
To Partners Cap A/c

CASE II: Few Partners are INSOLVENT

CASE III: All Partners are INSOLVENT
abilities - Realisation A/c
amount due
Prob No: 1
Realisation A/c
Particulars Amt Particulars Amt
To P&M A/c 30,000 By Provision against Debtors 400
To F&F A/c 2,000 By Sundry Creditors A/c 17,800
To Stock A/c 10,400 By Loan on Hypothecation 6,200
To Debtors 18,400 of stock A/c
To JLP A/c 15,000
To Patents and Trademarks A/c 10,000 By Add's Cap A/c (5000+300) 5,300
By Bank A/c: 55,700
To Bank A/c: 18300 a) JLP 10,200
a) Creditors 12,800 b) P&M 17,000
(17,800-4500Patents-500Disc) c) F&F 1,000
b) Loan on Hyp of Stock 3,200 d) Stock 9,000
(6,200 - 3000 Shares) e) Debtors 16,500
c) Realisation Exp 2,300 f) Patents 2,000
((10,000-6000)*50%)
By Partners Cap A/c: (b/f) 18,700
Read 8311
Write 4156
Add 6233
104,100 (18,700*4:2:3) 104,100

Bank A/c
Particulars Amt Particulars Amt
To Balance b/d 8,000 By Realisation A/c 18,300
To Realisation A/c 55,700 (Payments)
(Sale proceeds from Assets) By Read's Loan A/c 15,000
To Add's Cap A/c 5,400 By Read's Cap A/c 27,200
By Write's Cap A/c 8,600

69,100 69,100
Additional Note:
1) Surrender of JLP
Bank A/c Dr 10,200
Add's Cap A/c Dr 5,300
To Realisation A/c 15,500

2) Unrecorded Asset / Asset not available in Books - Investment in Shares

If Asset is not appearing in B/S, it need not to be created and transferred to Realisation A/c
a) Create the Asset
Inv in shares A/c Dr 3,000
To Realisation A/c 3000
b) Transferring to Realisation A/c at BV
R A/c Dr 3,000
To Inv in shares 3000
Better to ignore a and b JE, as they are opposite to oneanother

Directly record the entry for either sale or taken by Partner

If taken over by creditor, No JE - Prob No 1

3) Unrecorded Liability / Liability not available in Books

If Creditor is not appearing in B/S, it need not to be created and transferred to Realisation A/c
Directly record the entry for either payment or taken by Partner
If paid by transferring an Asset, No JE
 Partners Cap A/c
Particulars Read Write Add Particulars
To Realisation A/c - - 5,300 By Balance b/d
To Realisation A/c (Loss) 8,311 4,156 6,233 By JLP Reserve A/c
(12,400*4:2:3)
To Bank A/c 27,200 8,600 - By Bank A/c
(Cr Bal - Paid) (Dr Bal - Received)
35,511 12,756 11,533
 Prob No. 2
Realisation A/c
Read Write Add Particulars Amt
30,000 10,000 2,000 To Machinery A/c 37,700
5,511 2,756 4,133 To Furniture A/c 12,300
To JLP Inv 10,000
- - 5,400 To Investments 7,500
To Debtors 9,500
35,511 12,756 11,533 To Stock 8,000
To Y's Cap A/c (Creditors) 10,000
To Bank A/c
a)Creditors(WN 1) 11,875
b) Realisation Exp 1,100
c) Salary O/s 2,000

To Y's Cap A/c 1,600

(Salary = 400pm*4months)
To Partners Cap A/c (b/f) 13,025
X 5,210
Y 5,210
Z 2,605
(13,025*2:2:1) 124,600

Bank A/c
Particulars Amt
To Balance b/d 23,500
To Realisation A/c 94,800

118,300
Realisation A/c Partners Ca
Particulars Amt Particulars X Y
By Creditors 18,500 To Balance b/d - -
By Salary Outstanding 2,000 To Realisation A/c 9,000 -
By X's Cap A/c (Inv) 6,000 (6000+3000)
By Bank A/c
a) JLP 10,000
b) FA 70,000
c) Stock 7,000
d) Debtors (6000+800) 6,800
e) Special Tool 1,000
By X's Cap A/c (Alpha & Co.) 3,000 To Bank A/c (b/f) 44,210 54,810
By Z's Cap A/c (Special Tool) 300
53,210 54,810

124,600

Bank A/c
Particulars Amt
By Realisation A/c 14,975
By X's Cap A/c 44,210
By Y's Cap A/c 54,810
By Z's Cap A/c 4,305

118,300
 Partners Cap A/c
Z Particulars X Y Z
2,000 By Balance b/d 40,000 30,000 -
300 By Realisation A/c - 11,600 -
(10,000 + 1600)
By Realisation A/c 5,210 5,210 2,605
(Profit)
By Reserve Fund 4,000 4,000 2,000
(10,000*2:2:1)
By JLP Res 4,000 4,000 2,000
(10,000*2:2:1)
4,305

6,605 53,210 54,810 6,605

 Prob No. 3
WN 1: Settlement of Creditors Realisatio
Particulars Amt Particulars
a) Balance as per Balance sheet 18,500 To Goowill A/c
b) Add: Unrecorded credit purchase 5,000 To P&M A/c
of Special Tool To Furniture A/c
c) Total Creditors 23,500 To Stock A/c
d) Less: T.O. by Y -10,000 To Sundry Debtors
e) Less: Special Tool T.O. -1,000 To JLP
f) Balance creditors 12,500 To Commission Receivable
g) Payment of balance creditors 11,875 To Ram's Cap A/c
at 5% Discount (12,500*95%) a) Bank OD
b) Loan from Mrs Ram
To Cash A/c
(Dish of Discounted B/R)
To Ram's Cap A/c (Exp)

Cash A
Particulars
To Balance b/d
To Realisation A/c
(232,500 + 140,550)
 Realisation A/c
Amt Particulars Amt
456,300 By Sundry Creditors 567,000
607,500 By Bank OD 606,450
64,650 By Loan from Mrs Ram A/c 150,000
236,700 By Cash A/c:
534,000 a) JLP 232,500
265,500 b) Commission 140,550
140,550 By Ram's Cap A/c
a) Goodwill and P&M 900,000
606,450 b) Furniture and Stock (360,000*1/2) 180,000
150,000 By Rahim's Cap A/c (360,000*1/2) 180,000
30,750 By Partners Cap A/c: (b/f) 153,900
Ram 76,950
18,000 Rahim 51,300
Antony 25,650
(153,900 * 3:2:1)
3,110,400 3,110,400

Cash A/c
Amt Particulars Amt
48,750 By Realisation A/c 30,750
373,050 By Antony's Cap A/c 150,000
By Ram's Cap A/c 163,410
By Rahim's cap A/c 77,640

421,800 421,800
 Partners Cap A/c
Particulars Ram Rahim Antony Particulars
To Realisation A/c 1,080,000 180,000 - By Balance b/d
(900,000+180,000) By Realisation A/c
To Realisation A/c(Loss) 76,950 51,300 25,650 (606,450 + 150,000 + 18,000)
To Cash A/c - - 150,000 By JLP Res A/c (265,500*3:2:1)
To Antony's Cap A/c 6,840 4,560 - By Ram's and Rahim's Cap A/c
(11,400*3:2) (Excess payment to Antony
To Cash A/c (b/f) 163,410 77,640 - to be borne by other partners in PSR)

1,327,200 313,500 175,650

 Prob No. 4

Ram Rahim Antony

420,000 225,000 120,000
774,450 - -

132,750 88,500 44,250

- - 11,400 Due 138,600
Paid 150,000
partners in PSR) Excess Paid 11,400

1,327,200 313,500 175,650

Prob No. 4
Realisation A/c
Particulars Amt Particulars Amt
To P&M A/c 50,000 By Trade Creditors 25,000
To Buildings A/c 30,000 By B's Cap A/c(Car:12,000*1/2 or 3/6) 6,000
To Stock A/c 20,000 By C's Cap A/c(Car:12,000*1/2 or 3/6) 6,000
To Sundry Debtors 25,000 By B's Cap A/c 70,000
To Office Car A/c 15,000 a) Buildings & Plant 60,000
To Bank A/c (Comm = 24000*5%) 1,200 b) Stock (20,000*1/2) 10,000
To Bank A/c (Creditors) 25,000 By C's Cap A/c 40,000
To P. Cap A/c (b/f) 4,800 a) Plant 30,000
A 1920 b) Stock (20,000*1/2) 10,000
B 1440 By Bank A/c (Debtors) 24,000
C 1440
(4,800*4:3:3) 171,000 171,000

Bank A/c
Particulars Amt Particulars Amt
To Balance b/d 5,000 By Realisation A/c (1200 + 25,000) 26,200
To Realisation A/c 24,000 By A's Cap A/c 59,920
To B's Cap A/c 46,060
To C's Cap A/c 11,060

86,120 86,120

Additional Note:
1) Adj for Unexpired Goodwill
A's Cap A/c Dr 6,000
B's Cap A/c Dr 4,500
(10,500*4:3)
To C's Cap A/c 10500

2) Gift of Office Car to A by B&C

B's Cap A/c Dr 6,000
C's Cap A/c Dr 6,000
(12,000*3:3)
To Realisation A/c 12000
 Partners Cap A/c
Particulars A B C Particulars A
To C's Cap A/c 6,000 4,500 - By Balance b/d 60,000
(10,500*4:3) By A's and B's Cap A/c -
To Realisation A/c - 6,000 6,000 By Realisation A/c (Profit) 1,920
To Realisation A/c - 70,000 40,000 By Reserves (10,000*4:3:3) 4,000
To Bank A/c (b/f) 59,920 - - By Bank A/c (b/f) -
65,920 80,500 46,000 65,920
 B C
30,000 20,000
- 10,500
1,440 1,440
3,000 3,000
46,060 11,060
80,500 46,000
Settlement to Partners
CASE II: Few Partners are INSOLVENT

A B C D
Cap Bal 100 80 20 50
Cr Cr Dr Dr
Solvent Solvent Solvent Insolvent
PSR 1:1:1:1
Incase of Credit Bal, need not to verify Partner's Solvency Position - they are always Solvent Partners (A and B)
Only in case of Debit Bal - Solvency Position will be verified,
a) if a Partner is able to pay full amount then such partner is considered as Solvent partner (C )
b) if a Partner is unable to pay full amount then such partner is considered as Insolvent partner (D)

For suppose, D is able to pay only Rs. 10 out of total amount due of rs. 50
Then balance amt of Rs. 40 irrecoverable from D and it is Loss to Firm - Insolvency Loss
Who has to bear this Insolvency Loss? And in What Ratio?
As per Judgement given under court case: Garner Vs Murray Law
Second Who? - Other Solvent Partners who are having Credit Bal (A and B)
Rule Hence, D's Insolvency Loss of Rs. 40 should be borne by A and B

Ratio? - Capital Ratio

Case I: Fixed cap method
Cap A/c Bal
Current A/c Bal

Ratio of only Capital A/c balances

Case II: Fluctuating Cap method

Cap A/c - Consider Ratio of Capital Accounts before adjusting dissolution adjustments/Points

First To Prove Solvency of Partners - All Solvent Partners (A, B and C), should bring the Cash into Business, equivalent to
Rule
For example
Realisation loss is 60
A B C D
15 15 15 15
Solvent Solvent Solvent Insolvent
Cash 15 15 15

G Vs M Rules are not applicable in following situations

a) When P. Deed is not silent
b) When all Partners are Insolvent Partners
c) When only one partner is Solvent Partner
olvent Partners (A and B)

Solvent partner (C )
as Insolvent partner (D)

djustments/Points

h into Business, equivalent to Realisation loss share if any

Prob No. 14
Realisation A/c
Particulars Amt Particulars Amt
To Goodwill A/c 40,000 By Provision against Debtors A/c 100
To Freehold Property 8,000 By Trade Creditors A/c 12,400
To Plant and Equipment 12,800 By Q's Cap A/c (M. Vehicle) 500
To Motor Vehicle 700 By Bank A/c
To Stock A/c 3,900 a) Freehold Property 7,000
To Trade Debtors 2,000 b) P & E 5,000
To Bank A/c c) Stock 3,000
a) Trade Creditors 11,700 d) Trade Debtors 1,600
b) Expenses 1,500 By Partners Cap A/c (b/f) 51,000
P 25,500
Q 17,000
P 8,500
(51,000 * 3:2:1)
80,600 80,600

Bank A/c
Particulars Amt Particulars Amt
To Balance b/d 200 By Realisation A/c 13,200
To Realisation A/c 16,600 (11,700 + 1500)
(7000+5000+3000+1600) By P's Loan A/c 8,000
To R's Cap A/c 300 By P's Cap A/c 14,200
To P's Cap A/c 25,500 By Q's Cap A/c 24,200
To Q's Cap A/c 17,000
59,600 59,600
 Partners Cap A/c
Particulars P Q R Particulars
To Realisation A/c - 500 - By Balance b/d
To Realisation A/c (Loss) 25,500 17,000 8,500 By P's Current A/c
To R's Current A/c - - 400 By Q's Current A/c
To P&L A/c (12,000*3:2:1) 6,000 4,000 2,000 By Bank A/c (R. Loss - First Rule)
To R's Capital A/c 300 300 - By Bank A/c
(Insolvency Loss (900*2/3) (900(b/f) * 1/3)
*20,000:20,000 ) By P's Cap A/c
By Q's Cap A/c
To Bank A/c (b/f) 14,200 24,200 -

46,000 46,000 10,900

 Prob No. 15
Realisation A/c
P Q R Particulars Amt
20,000 20,000 10,000 To Fixed Assets A/c 40,000
500 - - To Stock A/c 25,000
- 9,000 - To Debtors A/c 25,000
25,500 17,000 - To Cash A/c
- - 300 a) Creditors (29000*98%) 28,420
b) Expenses 1,080
- - 300 To X's Cap A/c (Mrs X's Loan) 10,000
- - 300

46,000 46,000 10,900

129,500

Cash A/c
Particulars Amt
To Balance b/d 1,000
To Realisation A/c 61,500
To X's CapA/c 9,600
To Z's CapA/c 4,800

76,900
Realisation A/c Part
Particulars Amt Particulars X
By Provision against Debtors 5,000 To Creditors A/c (4000*2:2:1) 1,600
By Loan from Mrs X 10,000 To Balance c/d (b/f) 27,600
By Sundry Creditors (25,000+4000) 29,000 29,200
By Cash A/c 61,500 To Realisation A/c (Loss) 9,600
a) FA 20,000 To Advance to Y A/c -
b) Stock 21,000 To Y's Cap A/c (4,400*27600:9200) 3,300
c) Debtors 20,500
By Partners Cap A/c 24,000 To Cash A/c (b/f) 34,300
X 9600
Y 9600 47,200
Z 4800
(24,000*2:2:1)
129,500

Cash A/c
Particulars Amt
By Realisation A/c (28420 + 1080) 29,500
By Z's Loan A/c 5,000
By X's Cap A/c 34,300
By Z's Cap A/c 8,100

76,900
 Prob No. 16
Partners Cap A/c
Y Z Particulars X Y Z
1,600 800 By Balance b/d 29,200 10,800 10,000
9,200 9,200
10,800 10,000 29,200 10,800 10,000
9,600 4,800 By Balance b/d 27,600 9,200 9,200
4,000 - By Realisation A/c (Mrs. X Loan) 10,000 - -
- 1,100 By Cash A/c (R. Loss) 9,600 - 4,800
By X's Cap A/c - 3,300 -
- 8,100 By Z's Cap A/c - 1,100 -

13,600 14,000 47,200 13,600 14,000

Assets TO
by
Company
Prob No. 16
P&L Adjustment A/c
Particulars Amt Particulars Amt
To Machinery A/c 14,580 By P. Cap A/c (b/f) 24,580
(20,000*90%*90%*90%) A 12,290
To Stock A/c 10,000 B 6,145
C 6,145
(24,580*2:1:1)
24,580 24,580

Realisation A/c
Particulars Amt Particulars Amt
To Goodwill A/c 15,000 By AB Pvt. Ltd A/c (WN 1) 178,000
To Machinery A/c (75,000 - 14,580) 60,420 (Purchase Consideration Due)
To Debtors A/c (80,000 - 10,000) 70,000
To Stock A/c (60,000 - 10,000) 50,000 By P. Cap A/c (b/f) 19,420
To Investments A/c 2,000 A 9,710
(Loss on T.O. by B = 5000 - 3000) B 4,855
C 4,855
(19,420*2:1:1)
197,420 197,420

Additional Note 1:
B's Cap A/c Dr 3000
Realisation A/c (b/f - Loss) Dr 2000
To Investments A/c (BV) 5000

Additional Note 2:
Bank A/c
Particulars Amt Particulars Amt
To Balance b/d 5,000 By A's Cap A/c 23,213
To A's Cap A/c 9,710
To B's Cap A/c 4,855
To B's Cap A/c 3,648

23,213 23,213
 Partners Cap A/c
Particulars A B C
To Debtors A/c - - 10,000
To P&L Adj A/c 12,290 6,145 6,145
To Balance c/d (b/f) 77,710 53,855 -
90,000 60,000 16,145
To Bal b/d - - 6,145
To Investments A/c - 3,000 -
To Realisation A/c (Loss) 9,710 4,855 4,855
To C's Cap A/c (11,000* (77,710: 53,855)) 6,497 4,503 -
To E. shares in AB Pvt. Ltd. A/c 118,000 60,000 -
(B: 6000sh*10 ; A: (17,800-6000)sh*10 )

To Bank A/c (b/f) 23,213

157,420 72,358 11,000
Partners Cap A/c
Particulars A B C
By Balance b/d 90,000 60,000 10,000

By Balance c/d (b/f) - - 6,145

90,000 60,000 16,145
By Balance b/d 77,710 53,855 -
By Creditors A/c 50,000 - -
By B/P A/c (30,000 * 2:1) 20,000 10,000 -
By Bank A/c (Realisation Loss) 9,710 4,855 -
By A's Cap A/c - - 6,497
By B's Cap A/c - - 4,503

By Bank A/c (b/f) - 3,648 -

157,420 72,358 11,000
WN 1: Computation of Purchase Consideration - Net Assets method
Particulars Amt
1) Assets T.O. at Fair Values
a) Goodwill 12,000
b) Machinery 60,420
c) Debtors (70,000*90%) 63,000
d) Stock 42,580

2) Less: Liabilities T.O. at Fair Values Nil

3) Purchase Consideration 178,000

(No. of E. shares of Rs. 10 each issued by Co. = 178,000/10 = 17,800 shares)
SALE TO COMPANY
1 Assets and Liab TO by Company
a) Assets TO (BV)
Realisation A/c Dr
To Assets A/c

b) Liabilities Taken over (BV)

Liabilities A/c Dr
To Realisation A/c

2 Purchase Consideration
a) Purchase Consideration due/Receivable
P. Company A/c Dr
To Realisation A/c

b) Purchase Consideration received

Cash/Bank A/c Dr
Securities of Company A/c Dr
(Shares/Deb/Bonds etc)
To P. Company A/c

3 Assets and Liab not taken over by Company

a) Assets Not taken over
Cash/Bank/P. Cap A/c Dr
Realisation A/c (b/f - Loss) Dr
To Asset A/c (BV)
To Realisation (b/f - Profit)

b) Liabilities Not taken over

Liabilities A/c (BV) Dr
Realisation A/c (b/f - Loss) Dr
To Cash/Bank/P.Cap A/c
To Realisation (b/f - Profit)

4 Realisation / Dissolution Expenses

Realisation A/c Dr
To Cash/Bank A/c
To P.Cap A/c(if paid by Partner)

5 Compute P/L (b/f in Realisation) and transfer to Partners Cap A/c

a) If Profit
Realisation A/c Dr
To Partners Cap A/c

b) If Loss
 Partners Cap A/c Dr
To Realisation A/c

6 Settlement of Partners Cap balances

a) Computation of Amount due to Partners
Transfer the balances in the following accounts to Partners Cap A/c
i) Current Accounts
ii) Reserves and Surplus
iii) Drawings
iv) any other accounts which belongs to Partners

After transfer of all the above, balancing figure in Partners Cap A/c represents total amount due

b) Settlement
i) If Credit Balance - Paid
Partners Cap A/c Dr
To Cash/Bank A/c
To Securities of P. Company A/c

ii) If Debit Balance - Receive

Cash/Bank A/c Dr
To Partners Cap A/c
 Computation of Purchase Consideration - Net Assets Method
It is Payable by Company to P. Firm
a) Assets TO at Fair Values(Market Price/TO value) 10,000
b) Less: Liabilities TO at Fair Values -7,000
c) Net Assets (Purchase Consideration) 3,000

to Partners Cap A/c

s to Partners Cap A/c

in Partners Cap A/c represents total amount due

Settlement to Partners
CASE III: All Partners are INSOLVENT

From Every Partner amt is receivable - Debit Bal in P.Cap A/c

It is loss to Business, this loss will be transferred to a special a/c called as Deficiency A/c

From Every Partner amt is receivable - Debit Bal in P.Cap A/c - Corresponding credit for this debit will be in any Liability A/c like
Amount is not sufficent to pay liabilities in total, available amt will be given to creditors and balance amount of creditors will b
By this deficiency should be automatically closed

Deficiency A/c
Particulars Amt Particulars Amt
To P. Cap A/c 100 By Creditors A/c 100

100 100

Under this case, Outside Liab (eg Creditors A/c), should not be transferred to Realisation A/c
 Prob No. 17
Realisation A/c
Particulars Amt
To P&M 2,500
To Furniture 500
To Debtors 1,000
will be in any Liability A/c like Creditors A/c or Bank OD To Stock 800
ce amount of creditors will be transferred to Deficiency A/c To Cash A/c (Exp) 175

4,975

Cash A/c
Particulars Amt
To Balance b/d 200
To Realisation A/c 2,300
(1250+150+400+500)
To Bimal's Cap A/c 200

2,700

Creditors A/c
Particulars Amt
To Cash A/c 2,525
To Deficiency A/c (b/f) 2,275
4,800

Deficiency A/c
Particulars Amt
To Amal's Cap A/c 588
To Bimal's Cap A/c 1,687

2,275
Realisation A/c Partners Cap A/c
Particulars Amt Particulars Amal Bimal
By Cash A/c To Drawings or Balance b/d - 550
a)P&M 1,250 To Realisation A/c 1,338 1,337
b)Furniture 150
c)Debtors 400
d)Stock 500 1,338 1,887
By P. Cap A/c (b/f) 2,675
Amal 1338
Bimal 1337
(2675*1:1)
4,975

Cash A/c
Particulars Amt
By Realisation A/c 175

By Creditors A/c (b/f) 2,525

2,700

Creditors A/c
Particulars Amt
By Balance b/d 4,800

4,800

Deficiency A/c
Particulars Amt
By Creditors A/c 2,275

2,275
Partners Cap A/c
Particulars Amal Bimal
By Balance b/d 750 -
By Cash A/c - 200

By Deficiency A/c (b/f) 588 1,687

1,338 1,887
Prob No. 5
Realisation A/c
Particulars Amt Particulars Amt
To Stock A/c 16,000 By Provision against Debtors A/c 500
To Debtors A/c 10,000 By ST Pvt. Ltd. A/c 65,000
To Fixed Assets A/c 30,300 (Purchase Consideration)
To Bank A/c (Exp) 3,000 By Bank A/c (11,300 - 11,000) 300
To Z A/c (1000*50%) 500 (Profit on Surrender of JLP)
To P. Cap A/c (b/f) 6,800 By Sundry Creditors A/c 800
P 2,720 (20,300 - 19,500)
Q 2,720
R 1,360
(6,800*2:2:1) 66,600 66,600

Bank A/c
Particulars Amt Particulars Amt
To Balance b/d 4,500 By Sundry Creditors A/c 19,500
To ST Pvt. Ltd. A/c 65,000 By Realisation A/c 3,000
To JLP A/c 11,000 By Z A/c (Payment on Dishonour 1,000
To Realisation A/c 300 of Discounted Bill)
(Profit on Surrender of JLP=11,300 - 11,000)) By P's Cap A/c 24,920
To Z A/c (1000*50%) 500 By Q's Cap A/c 24,920
By R's Cap A/c 7,960

81,300 81,300
 Partners Cap A/c
Particulars P Q R Particulars
By Balance b/d
By Realisation A/c (Profit)
By Reserve Fund A/c
(10,000 * 2:2:1)
By JLP Reserve A/c
To Bank A/c (b/f) 24,920 24,920 7,960 (8,000 * 2:2:1)

24,920 24,920 7,960

Additional Notes:
Bank A/c Dr 11,300
To JLP A/c 11,000
To Realisation A/c (b/f) 300

S. Creditors A/c Dr 20,300

To Bank A/c 19,500
To Realisation A/c (b/f) 800

Z A/c Dr 1,000
To Bank A/c 1,000

Bank A/c Dr 500

Realisation A/c Dr 500
To Z A/c 1,000
 Prob No. 6
Balance Sheet M/s A&B as on 30.06.2014
P Q R Liabilities Amt
15,000 15,000 3,000 Capital (b/f) 239,800
2,720 2,720 1,360 A 122,900
4,000 4,000 2,000 B 116,900
(From P. Cap A/c)
3,200 3,200 1,600
Sundry Creditors (60,000-10,000) 50,000
Bank O.D. (35,000-15,000) 20,000
24,920 24,920 7,960

309,800

Realisation A/c
Particulars Amt
To Machinery A/c 142,500
To Leasehold Premises A/c 32,300
To Stock A/c 75,000
To Debtors A/c 60,000
To P. Cap A/c (b/f) 100,000
A 50,000
B 50,000
(100,000 *1:1) 409,800
eet M/s A&B as on 30.06.2014 Partners Cap A/c
Assets Amt Particulars A
Machinery 142,500 To P&L A/c (26,000*1:1) 13,000
a) Opening 150,000 To Drawings A/c 10,000
b)Less:Dep (7,500) 12/31/2013 To Balance c/d (b/f) 117,000
(150,000*10%*6/12) 140,000
Leasehold Premises 32,300 To Drawings A/c (11,800*1/2) 5900
a) Opening 34,000
b)Less:Dep (1700)
(34,000 * 5%) 6/30/2014 To Balance c/d (b/f) (239,800) 122,900
128,800
Stock 75,000
Debtors 60,000
To Equity shares in XY Pvt. Ltd. 172,900
309,800 (b/f)
172,900
Realisation A/c
Particulars Amt
By Sundry Creditors 50,000
By Bank OD 20,000

By XY Pvt. Ltd. A/c (WN 2) 339,800

309,800 Assets TO
409,800 -70,000 Less: Liab TO
239,800 Net Assets TO
100,000 Add: Goodwill
339,800 Purchase Consideration
(Alternatively, see WN 2)
Partners Cap A/c
B Particulars A B
13,000 By Balance b/d 140,000 130,000
6,000
111,000
130,000 140,000 130,000
5900 By Balance b/d 117,000 111,000 1/1/2014
By P&L A/c (WN 1) 11,800 11,800
(23,600 * 1:1)
116,900
122,800 128,800 122,800
By Balance b/d 122,900 116,900
By Realisation A/c 50,000 50,000
166,900 (Profit)

166,900 172,900 166,900

WN 1: Computation of Net Profit and Drawings for the period of 6 months
Particulars Amt
a) Closing Combined Capital Balance 239,800 (From B/S)
b) Less: Opening Combined Cap Bal -228,000 (From P.Cap)
( A 117,000 + B 111,000 )
c) Profit after Drawings 11,800 100 NP
d) Add: Drawings during 6 months 11,800 -50 Drawings(50%)
e) Net Profit for the period of 6 months 23,600 50 Profits after drawings (

WN 2: Computation of Purchase Consideration

Purchase Consideration = Net Assets Taken Over + Goodwill
= Closing Combined Cap Balance + Goodwill
= 239,800 + 100,000 = 339,800
 Prob No. 7

Partners Cap A/c

Particulars A B C

To Balance c/d 40,244 30,183 20,123

40,244 30,183 20,123
Drawings(50%) To Equity shares in ABC Pvt. Ltd. 75,000
Profits after drawings (50%) (150,000*50%)
To Cash A/c (b/f) - 41,666 27,779
75,000 41,666 27,779
Partners Cap A/c WN 1: Computation of Profit/Loss for the period
Particulars A B C Trading and P&L A/c for the period
By Balance b/d 40,000 30,000 20,000 Particulars
By P&L A/c (WN 1) 244 183 123 To Opening Stock A/c
40,244 30,183 20,123 To Purchases A/c
By Balance b/d 40,244 30,183 20,123 (10,000 + 5000)
By Realisation A/c (Profit) 15,311 11,483 7,656 To G.P. c/d
By Cash A/c (b/f) 19,445 - -
75,000 41,666 27,779 To Salaries and other Exp
To Discount Allowed A/c
To Interest on A's Loan A/c
(25,000 * 6% *2/12)
To P. Cap A/c
A 244
B 183
C 123
(550*4:3:2)

WN 2:
Balance sheet of M/s A,B a
Liabilities
P. Cap:
A
B
C

A's Loan
Sundry Creditors
(10,000+10,000-5000-300)
Bank OD

WN 3:
Realisation
Particulars
To Furniture and Fittings
To Delivery Van
To Closing stock
To Sundry Debtors
To Cash in Hand
To Partners Cap A/c
 A 15,311
B 11,483
C 7,656
(34,450 * 4:3:2)

WN 4:
Cash A/
Particulars
To Balance b/d
To ABC Pvt. Ltd. A/c
(150,000*50%)
To A's Cap A/c
 Prob No. 8

f Profit/Loss for the period from 1/4/2015 to 31/5/2015

and P&L A/c for the period from 1/4/2015 to31/5/2015
Amt Particulars Amt
60,000 By Sales A/c 35,000
15,000 (20,000 + 15,000)
By Closing Stock 45,000
5,000
80,000 80,000
4,000 By G.P. b/d 5,000
500 By Discount Received A/c 300
250

550

5,300 5,300

alance sheet of M/s A,B and C as on 31/5/2015

Amt Assets Amt
Furniture and Fittings 15,000
40,244 Delivery Van 15,000
30,183
20,123 Closing stock 45,000
Sundry Debtors 46,500
25,000 (40,000+15,000-8000-500)
14,700
Cash in Hand (b/f) 16,250
7,500

137,750 137,750

Realisation A/c
Amt Particulars Amt
15,000 By Sundry Creditors 14,700
15,000 By Bank OD 7,500
45,000
46,500 By ABC Pvt. Ltd. 150,000
16,250
34,450
 172,200 172,200

Cash A/c
Amt Particulars Amt
16,250 By Realisation A/c 16,250
75,000 By A's Loan A/c 25,000
By B's Cap A/c 41,666
19,445 By C's Cap A/c 27,779

110,695 110,695
1) Accounting in the Books of Prabhu and Co.
Realisation A/c
Particulars Amt Particulars Amt
To P&M A/c 250,000 By Sundry Creditors 150,000
To F&F A/c 25,000 By Bhagwan Ltd. A/c 300,000
To Stock A/c 100,000 (25,000 sh *12)
To Sundry Debtors A/c 100,000 By Partners Cap A/c (b/f) 25,000
Prabhu 12,500
Bhola 6,250
Shiv 6,250
475,000 (25,000 *2:1:1) 475,000

Cash and Bank A/c

Particulars Amt Particulars Amt
To Balance b/d 25,000
(20,000 + 5000)
To Prabhu's Cap A/c 37,500 By Bhola's Cap A/c 81,250
To Shiv's Cap A/c 18,750

81,250 81,250
 Partners Cap A/c
Particulars Prabhu Bhola Shiv Particulars
To Realisation A/c (loss) 12,500 6,250 6,250 By Balance b/d
To E.shares in Bhagwan Ltd 150,000 75,000 75,000 By General Res A/c
(300,000 *2:1:1) (or) (50,000 * 2:1:1)
( (25,000sh *2:1:1)*12)
To Cash and Bank A/c (b/f) - 81,250 - By Cash and Bank A/c (b/f)

162,500 162,500 81,250

Additional Note: Accounting of Unrecorded Liability in the booksa of Firm

1) Recognition of Liability
Realisation A/c Dr 12,500
To Other Liability A/c 12,500

2) Transfer to Realisation A/c on Taken over by Company

Other Liability A/c Dr 12,500
To Realisation A/c 12,500
 2) Journal Entries in the Books of Bhagwan Ltd. (Purchasing Company)
Particulars Debit
Prabhu Bhola Shiv 1) Purchase Consideration due
100,000 150,000 50,000 Business Purchase A/c Dr 300,000
25,000 12,500 12,500 To Prabhu and Co. A/c

2) Incorporation of Assets and Liabilities T.O. at Fair Values

37,500 - 18,750 P&M A/c Dr 250,000
F&F A/c Dr 25,000
162,500 162,500 81,250 Stock A/c Dr 100,000
Sundry Debtors A/c Dr 100,000

To Sundry Creditors A/c

To Other Liability A/c
To Business Purchase A/c
To Capital Reserve A/c (b/f)

3) Discharge of Purchase Consideration

Prabhu and Co. A/c Dr 300,000
To Equity Share Capital A/c (25,000 sh*10 FV)
To Securities Premium A/c (25,000 sh*2)

4) Cancellation of Mutual Owings

Sundry Creditors A/c Dr 50,000
To Sundry Debtors A/c

3) Balance sheet of Bhagwan Ltd as on 1/4/2012

Particulars Note No.
I) Equity and Liabilities
1) Shareholders Funds
a) Share Capital - ESC (10,00,000 + 250,000)
(125,000 shares of Rs. 10 each)
b) Reserves and Surplus 1

2) Current Liabilities
a) Trade Payables - Sundry Creditors
(650,000 + 150,000 T.O - 50,000 Mutal Owings)
b) Other CL - Other Liability

II) Assets
1) Non Current Assets
a) Fixed Assets
i) PPE 2

2) Current Assets
a) Inventories (425,000 + 100,000)
b) Trade Receivables - Sundry Debtors
(412,500 + 100,000 T.O - 50,000 Mutual Owings)
c) Cash and Cash Equivalents 3

Notes to Accounts
1) Reserves and Surplus
a) Capital Reserve
b) Securities Premium
c) Other Reserves - General Reserve

2) PPE
a) P&M (800,000 + 250,000)
b) F&F (112,500 + 25,000)

3) Cash and Cash Equivalents

a) Cash at Bank
b) Cash in Hand
urchasing Company)
Credit

300,000

Net Assets TO 312,500 Net Assets TO 312,500

PC 300,000 PC 340,000
12,500 Lower Payment -27,500
Capital Profit Dr Goodwill
Cr to CR

150,000
12,500
300,000
12,500

250,000
50,000

Sundry Debtors 412500 50000 Receivable from Prabhu Co.

50,000 Sundry Creditors 150000 50000 Payable to Bhagwan Ltd

Liab Assets
Payable to Bhagwan LtReceivable from Prabhu Co.

Additional Note: Preparation of B/S of Company

Amt Existing A&L of B Ltd + JE as above(Taken Over)

1,250,000

412,500

750,000

12,500

2,425,000
1,187,500

525,000
462,500

250,000

2,425,000

12,500
50,000
350,000
412,500

1,050,000
137,500
1,187,500

200,000
50,000
250,000
Higher Payment

Cancellation
Cr
Dr
Prob No. 9
WN 1:
Partners Cap A/c
Particulars A B C Particulars
By Balance b/d
By General Reserve A/c
(10,000*3:2)
By Goodwill A/c (WN 2)
By Cash A/c (WN 2)
To Balance c/d (b/f) 77,360 74,907 20,453 By Cash A/c
77,360 74,907 20,453
To Drawings A/c (1000*12m) 12,000 12,000 12,000 By Balance b/d
To Balance c/d (b/f) 87,920 70,427 15,973 By P&L A/c (37,600 * 3:1:1)
99,920 82,427 27,973
To E. shares in ABC Pvt Ltd. A/c 104,592 34,864 34,864 By Balance b/d
(174,320*3:1:1)
To Cash A/c (b/f) 35,563 By Cash A/c (b/f)
104,592 70,427 34,864
 WN 2: Adjustment for Goodwill
1) Valuation of Goodwill
A B C a) Computation of Future maintainable Operating Profits
40,000 50,000 - Particulars 08-09 09-10
6,000 4,000 - i) Net Profit as given 20,000 -10,000
ii) Add: A's Salary (500pm *12m) 6,000 6,000
31,360 20,907 - iii) Less: Extraneous Profit -30,000 -
- - 10,453 (Abnormal Profit)
- - 10,000 iv) Add: Loss by Strike - 20,000
77,360 74,907 20,453 (Abnormal Loss)
77,360 74,907 20,453 v) Less: Interest Income on -1,200 -1,200
22,560 7,520 7,520 Investment in 6% Deb of X Ltd
99,920 82,427 27,973 (20,000*6%) (Non-Operating item)
87,920 70,427 15,973 vi) FMOP -5,200 14,800

16,672 18,891 Additional Note:

104,592 70,427 34,864 For Computation of FMOP, the following items should be adjusted:
i) Non repeatable items
Expense - Add
Income - Less

ii) Abnormal items

Loss - Add
Gain/Profit - Less

iii) Non-Operating items

Expense - Add
Income - Less

b) Goodwill = Average profits of last five years * 2 years Purchase

= ( (-5200*1) + (14800*2) + (24800*3) + (29800*4) + (34800*5) )
(1+2+3+4+5)
= 392,000 *2 years
15
= 52,267

2) Accounting for Goodwill

a) Raising Goodwill in Old PSR
Goodwill A/c Dr 52,267
To A's Cap A/c 31,360
To B's Cap A/c 20,907
 (52,267*3:2)

b) Cash brought in by C for his share of Goodwill (52,267*1/5 = 10,453)

Cash A/c Dr 10,453
To C's Cap A/c 10,453
(Instead of crediting Sacrificing partners Cap A/c, New Partner is credited since Go
and full amount of Goodwill is already credited to Old Partners Cap A/c)
 WN 3: Balance sheet of M/s A, B and C as on 31/3/2014
Liabilities Amt Assets
P. Cap Land and Building
10-11 11-12 12-13 A 87,920 (60,000 - 3000)
20,000 25,000 30,000 B 70,427 Goodwill
6,000 6,000 6,000 C 15,973 Stock
- - - Investment in 6%
A's Loan 10,000 Deb of X Ltd
- - - Cash (b/f)
184,320
-1,200 -1,200 -1,200
WN 4:
Realisation A/c
24,800 29,800 34,800 Particulars Amt Particulars
To Land and Building 57,000 By A's Loan A/c
To Goodwill 52,267
be adjusted: To Stock 40,000 By ABC Pvt. Ltd. A/c
To Investment in 6% 20,000 (Purchase Consideration = Net Assets T.O
Deb of X Ltd
To Cash 15,053

184,320

9800*4) + (34800*5) ) *2 years

7*1/5 = 10,453)

Partner is credited since Goodwill is raised

Partners Cap A/c)
 Main Solution
n 31/3/2014 P&L A/c for the year ended 31/3/2014
Amt Particulars Amt
57,000 To Depreciation on Building 3,000
(60,000 * 5%)
52,267 To Interest on A's Loan A/c 600
40,000 (10,000 * 6%)
20,000 To Net Profit (b/f) 37,600
41,200
15,053
184,320 Balance sheet of ABC Pvt. Ltd. As on 1/4/2014
Particulars Amt
I) Equity and Liabilities
1) Shareholders Funds
Amt a) Share Capital - ESC 174,320
10,000 (174,320 shares of Rs. 1 each)

174,320 2) Non Current Liabilities

sideration = Net Assets T.O. = b/f in Realisation A/c) a) Long Term Borrowings - A's Loan 10,000

184,320
II) Assets
184,320 1) Non Current Assets
a) Fixed Assets
i) PPE - Land and Buildings 57,000
ii) Intangible Assets - Goodwill 52,267
b) Non Current Investments - Inv in 20,000
6% Deb of X Ltd.

2) Current Assets
a) Inventories 40,000
b) Cash and Cash Equivalents - Cash 15,053

184,320
 Prob No. 10
the year ended 31/3/2014 I) Accounting in the Books of M/s A,B and C.
Particulars Amt
By Trading Profit 40,000 Realisation A/c
By Int on Investment in 1,200 Particulars
6% Deb of X Ltd. (20,000*6%) To Furniture and Fittings A/c
(Balance BV = 11,000 - 2000 T.O. by C)
To Machinery A/c
41,200 To Land A/c
To Stock A/c
To Motor Cycles A/c
( Loss on Sale = BV(30,000-9000) -
Sale Proceeds 13,000 )
To Debtors A/c
(Loss on T.O. by C = 43,000 - 40,000)
To P. Cap A/c:
A 8,500
B 17,000
C 25,500
(51,000 * 1:2:3)

Cash A/c
Particulars
To Balance b/d
To Motor Cycle A/c (Sale Proceeds)
To A's Cap A/c
To B's Cap A/c

WN 1: Computation of Purchase Consideration

1) Assets T.O. at Fair Values
a) F&F
b) Machinery
c) Stock
d) Land

2) Less: Liabilities T.O. at FV

3) Net Assets TO
4) Add: Goodwill as given
5) Purchase Consideration

Additional Note:
Cash A/c Dr
Realisation A/c Dr
To MC A/c
(30,000 - 9000 gift to C)

C's Cap A/c Dr

Realisation A/c Dr
To Debtors A/c
M/s A,B and C.

Realisation A/c
Amt Particulars Amt Particulars
9,000 By AB Pvt Ltd. A/c (WN 1) 600,000 To Motor cycle A/c
(9000*1:2)
120,000 To Furniture and Fittings A/c
174,000 To Debtors A/c
235,000 To C's Current A/c
8,000 To Cash A/c (b/f)
To E. Shares in AB Pvt Ltd A/c
(600,000 * 1:1)
3,000

51,000

600,000 600,000

Cash A/c
Amt Particulars Amt
87,000 By Creditors A/c 70,000
13,000 By C's Cap A/c 183,500
125,080
28,420
253,500 253,500

ase Consideration II) Accounting in the Books of M/s AB Pvt Ltd.

Particulars
13,000 I) Equity and Liabilities
125,000 1) Shareholders Funds
200,000 a) Share Capital - ESC
174,000 (6000 shares of Rs. 100 each)

-
512,000 II) Assets
88,000 1) Non Current Assets
600,000 a) Fixed Assets
i) PPE
F&F 13,000
13,000 Machinery 125,000
8,000 (b/f) Land 174,000
21,000 ii) Intangible Assets - Goodwill

2) Current Assets
40,000 a) Inventories
3,000 (b/f)
43,000
 Partners Cap A/c
A B C Particulars A B C
3,000 6,000 - By Balance b/d 100,000 200,000 300,000
By A's Loan A/c 28,000 - -
- - 2,000 By Int Accrued A/c 2,000 - -
- - 40,000 By Realisation A/c (Profit) 8,500 17,000 25,500
- - 100,000 By A's and B's Current A/c 39,420 60,580 -
- - 183,500
300,000 300,000 By Cash A/c (b/f) 125,080 28,420 -

303,000 306,000 325,500 303,000 306,000 325,500

M/s AB Pvt Ltd.

Amt

600,000

600,000

312,000
 88,000

200,000

600,000
Prob No. 11 I) Accounting in the Books of M/s X, Y and Z
Goodwill Adjustment A/c
Particulars Amt
To X's Cap A/c 24,000
To Y's Cap A/c 16,000
(40,000*3:2)
To Z's Cap A/c 20,000

60,000

P&L Appropriation A/c

Particulars Amt
To X's Cap A/c 26,400
To Y's Cap A/c 17,600
(44,000*3:2)
To X's Cap A/c 6,240
To Y's Cap A/c 6,240
To Z's Cap A/c 3,120
((59,600-44,000)*2:2:1)
59,600

WN 1:
Realisation A/c
Particulars Amt
To Plant A/c 2,000
(Loss on Sale = BV 8000 - 6000 )
To Sundry Debtors A/c 70,000
To Plant A/c (46000-8000) 38,000
To Fixtures (14000 + 6000) 20,000
To Stock A/c 24,000
To Bank A/c 15,360
(34,600 + Sale of Plant 6000 - Payment to X 25,240)
To Goodwill A/c 80,000

249,360

Additional Note
X's Cap A/c Dr 7,400
To MC A/c
To Realisation A/c
Bank A/c Dr 6,000
Realisation A/c Dr 2,000
To Plant A/c
will Adjustment A/c Partners
Particulars Amt Particulars X
By X's Cap A/c 24,000 To Goodwill Adj A/c 24,000
By Y's Cap A/c 24,000
By Z's Cap A/c 12,000
( (40,000+20,000)*(2:2:1) )
To Balance c/d (b/f) 106,400
60,000 130,400
To Drawings A/c 22,000
Appropriation A/c To Motor Car A/c (BV) 5,400
Particulars Amt To Realisation A/c 2,000
By P&L A/c 59,600 15,600 (Profit = 7400-5400)
To X's Loan A/c 90,000
To Bank A/c (b/f) 25,240
To E. shares in YZ -
Pvt. Ltd. (125,360*1:1)
To Cash A/c (b/f) -
144,640
59,600

II) Accounting in the Books of M/s YZ Pvt Ltd.

Realisation A/c Balance Sheet as on 1/4/2014
Particulars Amt Particulars Amt
By X's Cap A/c 2,000 I) Equity and Liabilities
(Profit on MC T.O.= 7400-5400) 1) Shareholders Funds
a) Share Capital - ESC 125,360
By Sundry Creditors A/c 32,000 (12,536 shares of Rs. 10 each)
By X's Loan A/c 90,000
2) NCL
By YZ Pvt. Ltd. A/c (b/f) 125,360 a) LTB - X's Loan 90,000
(Purchase Consideration = Net Assets T.O. = b/f in Realisation A/c)
3)CL
a)Trade Payables-Sundry 32,000
249,360 Creditors
247,360
II) Assets
1) Non Current Assets
a) Fixed Assets
5,400 i) PPE 58,000
2,000 Plant 38,000
Fixtures 20,000
 ii) Intangible Assets
Goodwill 80,000
8,000
2) Current Assets
a) Inventories 24,000
b) Trade Receivables - Debtors 70,000
c) C&CE - Cash at Bank 15,360

247,360
 Prob No. 12
Partners Cap A/c
Y Z Particulars X Y Z
24,000 12,000 By Balance b/d 80,000 50,000 24,000
By P&L Appropriation A/c 26,400 17,600 -
(44,000 *3:2)
By Fixture A/c - - 6,000
59,600 38,000 By Goodwill Adj A/c 24,000 16,000 20,000
83,600 50,000 130,400 83,600 50,000
20,000 9,600 By Balance b/d 106,400 59,600 38,000
By P&L Appropriation A/c 6,240 6,240 3,120
By Goodwill A/c 32,000 32,000 16,000
(80,000*2:2:1)

62,680 62,680

15,160 - By Cash A/c (b/f) - - 15,160

97,840 72,280 144,640 97,840 72,280

s YZ Pvt Ltd.
Prob No. 12
Partners Cap A/c
Particulars A B C D Particulars
To A's Cap A/c - - 1,800 - By Balance b/d
To B's Cap A/c - - 1,200 - By C's Cap A/c (3000*3:2)
To Balance c/d (b/f) 8,800 6,200 - -
8,800 6,200 3,000 -
By Balance b/d
By Goodwill A/c (3000*3:2)
By Cash A/c
To Balance c/d (b/f) 10,600 7,400 - 4,500 ( 1/4*(A(8800+1800)+B(6200+1200)) )
10,600 7,400 - 4,500
To Equity Shares in XYZ Pvt. Ltd. 8,560 5,930 - 3,510 By Balance b/d
( 18000*(12,600:8,733:5,167) ) By Realisation A/c (Profit)

To Cash A/c (b/f) 4,040 2,803 - 1,657

12,600 8,733 - 5,167

 WN 1:
A B C D Realisation A/c
7,000 5,000 3,000 - Particulars Amt
1,800 1,200 - - To Goodwill A/c 8,000
(5000+3000)
8,800 6,200 3,000 - To Sundry Assets A/c 6,000
8,800 6,200 - - To P. Cap A/c (b/f) 4,000
1,800 1,200 - - A 2000
- - - 4,500 B 1333
B(6200+1200)) ) D 667
10,600 7,400 - 4,500 (4000*3:2:1)
10,600 7,400 - 4,500 18,000
2,000 1,333 - 667
WN 2:
Cash A/c
Particulars Amt
12,600 8,733 - 5,167 To Balance b/d 5,500
To D's Cap A/c 4,500

10,000
 Prob No. 13
Pa
Realisation A/c Particulars A
Particulars Amt To A's Executors A/c (b/f) 60,000
By XYZ Pvt. Ltd. A/c 18,000 To Balance c/d (b/f) -
(Purchase Consideration) 60,000
To Balance c/d (b/f) -
-
To B's Current A/c -
To C's Current A/c -
To Bank A/c (b/f) -
-
18,000
Part
Particulars A
Cash A/c To Balance b/d -
Particulars Amt To A's Current A/c (WN 1) -
By Sundry Creditors 1,500
By A's Cap A/c 4,040
By B's Cap A/c 2,803
By D's Cap A/c 1,657 To A's Executors A/c (b/f) 80,000
80,000
10,000 To Balance b/d -
To Drawings A/c -

-
To Balance b/d -

-
 Partners Cap A/c
B C Particulars A B C
- - By Balance b/d 60,000 40,000 20,000
40,000 20,000
40,000 20,000 60,000 40,000 20,000
40,000 20,000 By Balance b/d - 40,000 20,000
40,000 20,000 - 40,000 20,000
7,383 - By Balance b/d - 40,000 20,000
- 19,192 By Realisation A/c (WN 3) - 12,574 6,287
45,191 7,095
52,574 26,287 - 52,574 26,287

Partners Current A/c

B C Particulars A B C
- 5,000 By Balance b/d 29,000 20,000 -
32,000 16,000 By B's Current A/c (WN 1) 32,000 - -
By C's Current A/c (WN 1) 16,000 - -
By Profit on JLP A/c 3,000 2,000 1,000
( (26,000-20,000)*3:2:1)
By Balance c/d (b/f) - 10,000 20,000
32,000 21,000 80,000 32,000 21,000
10,000 20,000 By P&L A/c 17,617 8,808
15,000 8,000 ( (32,000 - 3,000 - 2,575)*2:1 )
By Balance c/d (b/f) - 7,383 19,192
25,000 28,000 - 25,000 28,000
7,383 19,192 By B's Cap A/c (b/f) - 7,383 -
By C's Cap A/c (b/f) - - 19,192
7,383 19,192 - 7,383 19,192
 A's Executors A/c
Particulars Amt Particulars Amt
To Bank A/c 20,000 By A's Capital A/c 60,000
To Balance c/d 120,000 By A's Current A/c 80,000
140,000 140,000
To Bank A/c 20,000 By Balance b/d 120,000
By Interest Exp A/c 3,000
To Balance c/d 103,000 (120,000*5%*6/12)
123,000 123,000
To Bank A/c 20,000 By Balance b/d 103,000
By Interest Exp A/c 2,575
To Balance c/d 85,575 (103,000*5%*6/12)
105,575 105,575
By Balance b/d 85,575
By Interest Exp A/c 2,139
To Bank A/c (b/f) 87,714 (85,575*5%*6/12)
87,714 87,714

Additional Note:
Bank A/c
Particulars Amt Particulars Amt
To Purchasing Co. A/c 140,000 By A's Executors A/c 87,714
By B's Cap A/c 45,191
By C's Cap A/c 7,095

140,000 140,000
WN 1: Adjustment for Goodwill and Revaluation profit on Death of A
a) Goodwill 60,000
b) Add: Revaluation Profit 36,000
c) Total Amt to be Adjusted 96,000

Particulars A B C
i) Adj in New PSR - 64,000 32,000
(96,000*2:1)
ii) Adj in Old PSR 48,000 32,000 16,000
(96,000*3:2:1)
iii) Gain/(Sacrifice) (i - ii) -48,000 32,000 16,000

B's Current A/c Dr 32,000

C's Current A/c Dr 16,000
To A's Current A/c 48,000
WN 2:
Balance Sheet as on 1/1/2012
Liabilities Amt Assets Amt
P. Capitals: P. Current A/c:
B 40,000 B 7,383
C 20,000 C 19,192

A's Exectors A/c 85,575 Sundry Net Assets (b/f) 119,000

145,575 145,575

WN 3:
Realisation A/c
Particulars Amt Particulars Amt
To Sundry Net Assets 119,000 By Purchasing Company A/c 140,000
(WN 2)
To Interest Exp A/c 2,139

To P.Cap. A/c (b/f) 18,861

B 12,574
C 6,287
(18,861*2:1)
140,000 140,000
Amalgamation of P. Firms
Case I: A Partnership firm purchasing another Partnership Firm
Case II: Two Partnership firms combining their business and forming a New Partnership firm
M/s AB M/s CD are called as Amalgamating P. firms/ O
A B C D

M/s ABCD is Called as Amalgamated P. firm / New

A B C D

M/s AB M/s BC
A B B C

M/s ABC
A B C

Accounting Process
I) Old Firm BOA should be closed
II) New Firm BOA should be opened

I) Old Firm BOA should be closed

1) Revaluation of Assets and Liabilities
a) Increase in Value of Asset and Decrease in value of Liability
Assets A/c Dr
Liabilities A/c Dr
To Revaluation A/c

b) Decrease in Assets and Increase in Liabilities

Revaluation A/c Dr
To Assets A/c
To Liabilities A/c

c) B/f in Revaluation represents P/L - Transferred to P. Cap A/c

Revaluation A/c Dr
To P. Cap A/c
(Profit)

2) Assets and Liabilities taken over by New P. firm

a) Assets T.O.
New Firm A/c Dr 100
To Assets A/c

b) Liabilities T.O.
 Liabilities A/c Dr
To New Firm A/c 40

3) Assets and Liabilities not taken over - P/L from these Assets and Liabilities should be transferred to P. Cap A/c
Bank A/c Dr 100
To Asset A/c 80
To P. Cap A/c 20

4) Goodwill to be adjusted as required - According to Question

5) Ascertain Amount Due to Partners

Transfer all accounts balances which belongs to Partners, similar to Sale to Company, like R&S, P. Current A/c, Dr

6) Transfer of Closing Balances in P. Cap A/c to New Firm

a) If Credit Balance
P. Cap A/c Dr
To New Firm A/c

b) If Debit Balance
New Firm A/c Dr
To P. Cap A/c

II) New Firm BOA should be opened

Sundry Assets T.O. A/c Dr
Goodwill A/c (b/f) Dr
To Sundry Liabilities T.O. A/c
To P. Cap A/c
To Capital Reserve A/c (b/f)
 M/s AB Purchased by M/s CD
as Amalgamating P. firms/ Old P. firm A.ting A.ted

s Amalgamated P. firm / New Firm

transferred to P. Cap A/c

y, like R&S, P. Current A/c, Drawings

Prob No. 18
Accounting in the Books of M/s AD & Co. (Amalgamated / New P. Firm)
(i) Adjustment for Goodwill
Raising Goodwill in Old PSR Writing off Goodwill in
Partners M/s AB & Co. M/s CD & Co. New PSR ( (75,000 + Difference
Total
(75,000*2:1) (50,000*3:2) 50,000)*2:1:3:2 )
A 50,000 (Cr) - 50,000 (Cr) 31,250 (Dr) 18,750 (Cr)
B 25,000 (Cr) - 25,000 (Cr) 15,625 (Dr) 9,375 (Cr)
C - 30,000 (Cr) 30,000 (Cr) 46,875 (Dr) 16,875 (Dr)
D - 20,000 (Cr) 20,000 (Cr) 31,250 (Dr) 11,250 (Dr)
Alternatively,
(i) Adjustment for Goodwill

Particulars A B C D
a) Goodwill in New PSR 31,250 15,625 46,875 31,250
(75,000+50,000)*(2:1:3:2)

b) Goodwill in Old PSR

i) M/s AB&Co. (75,000*2:1) 50,000 25,000 - -
ii) M/s CD&Co. (50,000*3:2) - - 30,000 20,000
iii) Total 50,000 25,000 30,000 20,000

c) Gain / (Sacrifice) (a-b(iii)) -18,750 -9,375 16,875 11,250

Cr Cr Dr Dr
(ii) Journal Entries in the Books of AD & Co. (New / Amalgamated Firm)

Particulars Debit Credit

1) Incorporation of Assets , Liabilities and P. Cap A/c's
taken over
a) AB & Co.
Building A/c Dr 100,000
Machinery A/c Dr 125,000
Furniture A/c Dr 15,000
Stock A/c Dr 24,000
Debtors A/c Dr 65,000
Due from CD & Co. A/c Dr 47,000
Bank A/c Dr 18,000
Cash A/c Dr 4,000
To Provision Doubtful Debts A/c 5,000
To Creditors A/c 52,000
To A's Cap A/c (WN 1) 210,667
To B's Cap A/c (WN 1) 130,333

b) CD & Co.
Building A/c Dr 125,000
Machinery A/c Dr 110,000
Furniture A/c Dr 12,000
Stock A/c Dr 36,000
Debtors A/c Dr 78,000
Bank A/c Dr 15,000
Cash A/c Dr 5,000
To Provision Doubtful Debts A/c 8,000
To Due to AB & Co. A/c 47,000
To Creditors A/c 35,000
To C's Cap A/c (WN 1) 174,600
To D's Cap A/c (WN 1) 116,400

2) Adjustment of Goodwill
C's Cap A/c Dr 16,875
D's Cap A/c Dr 11,250
To A's Cap A/c 18,750
To B's Cap A/c 9,375

3) Cancellation of Mutual owings

Due to AB & Co. A/c Dr 47,000
To Due from CD & Co. A/c 47,000
4) Adjustment of P. Cap A/c Balances (WN 2)
a) A's Cap A/c Dr 124,267
To A's Current A/c 124,267

b) B's Cap A/c Dr 87,133

To B'sCurrent A/c 87,133
(iii) Balance sheet of AD & Co. as on 1/4/2011
Liabilities Amt Assets Amt

P. Cap A/c: (WN 2) Building (100,000+125,000) 225,000

A 105,150 Machinery(125,000+110,000) 235,000
B 52,575 Furniture (15000+12000) 27,000
C 157,725 Stock (24000+36000) 60,000
D 105,150 Debtors 143,000 130,000
(65,000 + 78,000)
P. Current A/c: Less: PDD (13,000)
A 124,267 (5000+8000)
B 87,133 Bank (18000+15000) 33,000
Cash (4000+5000) 9,000
Sundry Creditors (52,000+35000) 87,000
719,000 719,000
WN 1: Computation of Capital account balances of Partners to be Incorporated
(Closing P. Cap A/c balance in the books of Old Firm)

Particulars AB & Co. CD & Co.

A B C D
a) Balance as given 150,000 100,000 120,000 80,000
b) Add: Revaluation Profit
i) AB & Co.: ( (100,000-75,000) + (125,000-120,000) 16,667 8,333 - -
- 5000 ) * (2:1)
ii) CD & Co.: ( (125,000-90,000) + (110,000-100,000) - - 22,200 14,800
- 8000 ) * (3:2)
c) Add: Reserves (66,000*2:1), (54,000*3:2) 44,000 22,000 32,400 21,600

d) Cap A/c balances to be incorporated 210,667 130,333 174,600 116,400

WN 2: Adjustment of P. Cap A/c Balances by taking D's cap as base (in BOA of AD &Co.)
P. Cap A/c
Particulars A B C D
To A's and B's Cap A/c - - 16,875 11,250

To A's and B's Current A/c (b/f) 124,267 87,133 - -

To Balance c/d 105,150 52,575 157,725 105,150
(105,150 *2/2, 1/2, 3/2) (b/f)
229,417 139,708 174,600 116,400

2:1:3:2
n BOA of AD &Co.)
P. Cap A/c
Particulars A B C D

By Sundries or Sundry 210,667 130,333 174,600 116,400

Net Assets
By C's and D's Cap A/c 18,750 9,375

229,417 139,708 174,600 116,400

Prob No. 19
(ii) P. Cap in the Books of Old Firms
A) Accounting in the Books of X & Co.
P. Cap A/c
Particulars X Y Particulars
By Balance b/d
By Revaluation A/c
(200,000+300,000)*3:1
By Goodwill A/c
(200,000*3:1)
To Balance c/d (b/f) 1,635,000 865,000 By Reserves A/c
(200,000*3:1)
1,635,000 865,000

B) Accounting in the Books of Y & Co.

P. Cap A/c
Particulars Y Z Particulars
By Balance b/d
By Revaluation A/c
(160,000*2:1)
By Goodwill A/c
(164,000*2:1)
To Balance c/d (b/f) 1,416,000 708,000 By Reserves A/c
(600,000*2:1)
1,416,000 708,000
 (i) Accounting in the Books of XYZ & Co. (New Firm)
Journal Entries in the Books of XYZ & Co. (New / Amalgamated Firm)
Particulars Debit
X Y 1) Incorporation of Assets , Liabilities and P. Cap A/c's
960,000 640,000 Taken over
375,000 125,000 a) X & Co.
Goodwill A/c 200,000
150,000 50,000

150,000 50,000
To X's Cap A/c
1,635,000 865,000 To Y's Cap A/c

Y Z b) Y & Co.
800,000 400,000 Goodwill A/c 164,000
106,667 53,333

109,333 54,667

400,000 200,000 To Y's Cap A/c

To Z's Cap A/c
1,416,000 708,000

2) Writing off Goodwill

X's Cap A/c Dr 182,000
Y's Cap A/c Dr 121,333
Z's Cap A/c Dr 60,667
(364,000 * 3:2:1)
TO Goodwill A/c (200,000+164,000)
 WN 1: Adjustment of P. Cap A/c Balances by taking Total cap as base (in BOA of New Firm)
P. Cap A/c
Particulars X Y Z
Credit To Goodwill A/c 182,000 121,333 60,667

To Cash A/c (b/f) 739,667

To Balance c/d 2,130,000 1,420,000 710,000
((42,60,000*3:2:1)
2,312,000 2,281,000 770,667
(Total Cap before adj = (16,35,000+22,81,000+708,000) - Goodwill 364,000) = 42,60,000)

1,635,000
865,000

1,416,000
708,000

364,000
p as base (in BOA of New Firm)
P. Cap A/c
Particulars X Y Z
By Sundries or Sundry 1,635,000 2,281,000 708,000
Net Assets

By Cash A/c (b/f) 677,000 62,667

2,312,000 2,281,000 770,667

odwill 364,000) = 42,60,000)
Piece Meal Distribution

Distribution Sequence
1) Outside Liabilities
2) P. Loans
3) P. Cap

1) Outside Liabilities
C1 C2 C3 Total
O/s Amt 300 300 200 800
Case I: Amt 1000 -300 -300 -200

Case II: Amt 500 -187.5 -187.5 -125

- Should be distributed
in Amt O/s Ratio 3:3:2
Amt 100 -37.5 -37.5 -25
- Should be distributed
in Amt O/s Ratio 3:3:2
Amt 500 -75 -75 -50
- Balance O/s amt of Rs. 200
Should be distributed
in Amt O/s Ratio 3:3:2

2) P. Loans - Same as (1)

Note: P. Firm can retain some amount before starting the distribution for meeting future expenses

3) P. Cap
Two Methods for distribution among the Partners
I) Maximum Loss Method
II) Highest Relative Capital Method

I) Maximum Loss Method

Example 1
PSR is 2:1:1
A B C Total
Cap Amt O/s 300 300 200 800
Amt available 200
Max Loss = 800 - 200
= 600
ML should be distributed
in PSR (600*2:1:1) -300 -150 -150 -600
Amt to be Distributed 0 150 50 200
Balance Amt O/s 300 150 150 600
Amt available 350(Final)
Max Loss = 600 - 350
= 250
ML should be distributed
in PSR (250*2:1:1) -125 -62.5 -62.5 -250
Amt to be Distributed 175 87.5 87.5 350
Balance Amt O/s - Loss 125 62.5 62.5 250
to be borne by Partners
or meeting future expenses

Example 2
PSR is 4:1:1
A B C Total
Cap Amt O/s 300 300 200 800
Amt available 200
Max Loss = 800 - 200
= 600
ML should be distributed
in PSR (600*4:1:1) -400 -100 -100 -600
-100 200 100 200
In Capital Ratio (100*3:2) 100 -60 -40 0
Amt to be Distributed 0 140 60 200
Balance Amt O/s 300 160 140 600
Amt available 350(Final)
Max Loss = 600 - 350
= 250
ML should be distributed
in PSR (250*4:1:1) -167 -42 -42 -250
Amt to be Distributed 133 118 98 350
Balance Amt O/s - Loss 167 42 42 250
to be borne by Partners
Prob No. 20
Statement of Distribution of Cash under Maximum Loss Method
Particulars Cash Available Creditors
1) Amount Available / Balance Due - 40,000
2) Realisation of Assets on 1/2/2013 30,000
3) Payment to Creditors -30,000 -30,000
4) Amount Available / Balance Due - 10,000
5) Realisation of Assets on 1/4/2013 73,000
6) Payment to Creditors and then to P. Loan -20,000 -10,000
7) Amount Available / Balance Due 53,000 -
8) Maximum Loss = Total Amt O/s - Cash Available
= 110,000 - 53,000 = 57,000
9) ML to be distributed in PSR (57,000*5:3:2)

10) Distribution of White's Deficit (Dr Bal) among other

partners in Capital Ratio (2100*(50,000:45,000))
11) Amt to be Distributed
12) Payment of Cash -53,000 -
13) Amount Available / Balance Due - -
14) Realisation of Assets on 1/6/2013 47,000
15) Maximum Loss = Total Amt O/s - Cash Available
= (29,605 + 15000 + 12,395) - 47,000 = 10,000
16) ML to be distributed in PSR (10,000*5:3:2)
17) Amt to be Distributed
18) Payment of Cash -47,000 -
19) Amount Available / Balance Due - Realisation Loss to - -
be borne by Partners
er Maximum Loss Method Cash A/c
Red's Loan Red's Cap White's Cap Blue's Cap Particulars Amt
10,000 50,000 15,000 45,000 To Balance b/d -
To Realisation A/c 30,000
- - - - To Realisation A/c 73,000
10,000 50,000 15,000 45,000

-10,000 - - -
- 50,000 15,000 45,000 To Realisation A/c 47,000

-28,500 -17,100 -11,400

21,500 -2,100 33,600 150,000

-1,105 2,100 -995

20,395 - 32,605
- -20,395 - -32,605
- 29,605 15,000 12,395

-5,000 -3,000 -2,000

24,605 12,000 10,395
- -24,605 -12,000 -10,395
- 5,000 3,000 2,000
Cash A/c P. Cap A/c
Particulars Amt Particulars Red White Blue
By Realisation A/c (Cred) 30,000 To Cash A/c 20,395 - 32,605
To Cash A/c 24,605 12,000 10,395
By Realisation A/c (Cred) 10,000 To Realisation A/c (Loss) 5,000 3,000 2,000
By Red's Loan A/c 10,000 50,000 15,000 45,000
By Red's Cap A/c 20,395
By Blue's Cap A/c 32,605
By Red's Cap A/c 24,605
By White's Cap A/c 12,000
By Blue's Cap A/c 10,395

150,000
c Additional Note:
Particulars Red White Blue Realisation A/c
By Balance b/d 50,000 15,000 45,000 Particulars Amt Particulars
To Premises 40,000 By Creditors
To P&M 30,000 By Cash A/c
50,000 15,000 45,000 To Stock 30,000 (30,000+73,000+47,000)
To Debtors 60,000 By P. Cap A/c (b/f - Loss)
To Cash A/c 40,000 - Red 5000
- White 3000
- Blue 2000
(10,000*5:3:2)
200,000
Amt
40,000
150,000

10,000

200,000
Highest Relative Capital Method
PSR is 2:1:1
A B C Total
a) Cap Amt O/s 300 300 200 800
b) PSR Units 2 1 1
c) Capital per unit of Profit (a/b) 150 300 200
d) B's and C's Cap by taking 300 150 150
A's Cap as base (150*b)
e) Excess Capital of B and C over A - 150 50
(a-d)
f) PSR Units 1 1
g) Capital per unit of Profit (e/f) 150 50
h) B's Cap by Taking C's Cap as base 50 50
(50*f)
i) Excess Cap of B over C (g -h) 100 -

Sequence of Distribution A B C
100
50 50 (1:1)
300 150 150 (2:1:1)
PSR is 3:2:1
A B C
a) Cap Amt O/s 300 300 200
b) PSR Units 3 2 1
c) Capital per unit of Profit (a/b) 100 150 200
d) B's and C's Cap by taking 300 200 100
A's Cap as base (100*b)
e) Excess Capital of B and C over A - 100 100
(a-d)
f) PSR Units 2 1
g) Capital per unit of Profit (e/f) 50 100
h) C's Cap by Taking B's Cap as base 100 50
(50*f)
i) Excess Cap of C over B (g -h) - 50

Sequence of Distribution A B C
50
100 50 (2:1)
300 200 100 (3:2:1)
Prob No. 21
WN 1: Analysis of Highest Relative Capitals
Particulars A B C
a) Capital Balance as given 15,000 7,500 15,000
b) PSR Units 4 3 3
c) Capital Per Unit of Profit (a/b) 3,750 2,500 5,000
d) Capital account balances by taking 10,000 7,500 7,500
B's Capital as base (2,500* b)
e) Excess Capitals of A and C over B (a-d) 5,000 - 7,500
f) PSR Units 4 - 3
g) Capital Per Unit of Profit (e/f) 1,250 - 2,500
h) Capital account balances by taking 5,000 - 3,750
A's Capital as base (1250* f)
i) Excess Cap of C over A (e -h) - - 3,750

Sequence of Distribution
Particulars A B C
a) First Payment - - 3,750
b) Then Next payment 5,000 - 3,750 (4:3)
c) Then at last 10,000 7,500 7,500 (4:3:3)
 Statement of Distribution of Cash under Highest Relative Capital Method
Particulars Cash Available Creditors B's Loan A's Cap
1) Amt available / Balance due 275 16,500 4,500 15,000
2) Discount Received from Creditors -600
3) Amt available / Balance due 275 15,900 4,500 15,000
4) Realisation of Assets - I Instalment 18,650
5) Less: C's Remuneration on Realisation of Assets -187
(18,650 * 1%)
6) Less: Dissolution Expenses -3,000
7) Amt available for distribution 15,738
8) Payment to Creditors -15,738 -15,738
9) Amt available / Balance due - 162 4,500 15,000
10) Realisation of Assets - II Instalment 17,320
11) Less: C's Remuneration on realisation of Assets -173
(17,320 * 1%)
12) Amt available for distribution 17,147
13) Payment to creditors and then B's Loan -4,662 -162 -4,500
14) Amt available / Balance due 12,485 - - 15,000
15) Less: C's Remuneration on Payment to Partners -1,135
(12,485*10/110)
16) Amt available for distribution among Partners 11,350
17) Payment to C (WN 1) -3,750
18) Balance Cash available of Rs. 7600 (11,350-3750) -7,600 -4,343
should be paid to A and C in PSR (7600*4:3) (WN 1)
19) Amt available / Balance due - - - 10,657
20) Realisation of Assets - III Instalment 10,000
21) Less: C's Remuneration on realisation of Assets -100
(10,000 *1%)
22) Less: C's Remuneration on Payment to Partners -900
( (10,000 - 100) *10/110 )
23) Amt available for distribution 9,000
24) Payment to A and C for the balance due -1,150 -657
( ( (5000+3750) - 7600 ) * 4:3 )
25) Balance Cash available should be paid to all -7,850 -3,140
Partners in PSR ( (9000-1150) * 4:3:3)
26) Amt available / Balance due - - - 6,860
27) Realisation of Assets - IV (Last) Instalment 7,000
28) Less: C's Remuneration on realisation of Assets -70
(7000 *1%)
29) Less: C's Remuneration on Payment to Partners -630
( (7000 - 70) *10/110 )
30) Amt available for distribution 6,300
31) Payment to all Partners in PSR ( 6,300 * 4:3:3) -6,300 -2,520
32) Amt available / Balance due - Realisation Loss - - - 4,340
thod
B's Cap C's Cap
7,500 15,000

7,500 15,000

7,500 15,000

7,500 15,000

-3,750
- -3,257

7,500 7,993

- -493

-2,355 -2,355

5,145 5,145

-1,890 -1,890
3,255 3,255
Prob No. 22
Statement of Distribution of Cash among Outside Liabilities and P. Loan
Trade
Particulars Cash Available Bank OD
Loans
1) Amt available / Balance Due 20,000 300,000 300,000
2) Less: Estimated Dissolution Exp -10,000
3) Amt available for distribution 10,000
4) Payment towards all Outside Liabilities -10,000 -3,000 -3,000
in the ratio of amount Outstanding
(10,000 * 3:3:2:2)
5) Amt available / Balance Due - 297,000 297,000
6) Realisation of Assets as on 1/1/2014 350,000
7) Payment towards all Outside Liabilities -350,000 -105,000 -105,000
in the ratio of amount Outstanding
(350,000 * 3:3:2:2)
8) Amt available / Balance Due - 192,000 192,000
9) Realisation of Assets as on 15/1/2014 400,000
10) Payment towards all Outside Liabilities -400,000 -120,000 -120,000
in the ratio of amount Outstanding
(400,000 * 3:3:2:2)
11) Amt available / Balance Due - 72,000 72,000
12) Realisation of Assets as on 1/2/2014 50,000
13) Payment towards all Outside Liabilities -50,000 -15,000 -15,000
in the ratio of amount Outstanding
(50,000 * 3:3:2:2)
14) Amt available / Balance Due - 57,000 57,000
15) Realisation of Assets as on 15/2/2014 140,000
16) Payment towards all Outside Liabilities -140,000 -42,000 -42,000
in the ratio of amount Outstanding
(140,000 * 3:3:2:2)
17) Amt available / Balance Due - 15,000 15,000
18) Realisation of Assets as on 1/3/2014 50,000
19) Payment towards all Outside Liabilities -50,000 -15,000 -15,000
in the ratio of amount Outstanding
(50,000 * 3:3:2:2)
20) Amt available / Balance Due - - -
21) Realisation of Assets as on 15/3/2014 800,000
22) Payment towards Siddhart's Loan -200,000 - -
23) Amount available for distribution among 600,000 - -
Partners Cap

Statement of Distribution of Cash among Partners Cap under Maximum Loss Method
Particulars Cash Available Daksh Yash
1) Amount available / Balance due 600,000 300,000 200,000
2) Less: Deficit in amount set aside for -10,005
 Dissolution Expenses (20,005 - 10,000)
3) Amount available for distribution among 589,995
Partners Cap
4) Less: Daksh's Remuneration on Payment
among Partners Cap (589,995*5/105) -28,095
5) Net Amount available for distribution 561,900
6) Payment to Siddhart being minor -100,000 - -
7) Amount available / Balance Due 461,900 300,000 200,000
8) Maximum Loss = (300,000 + 200,000)
- 461,900 = 38,100
9) Distribute ML among Partners in PSR -19,050 -19,050
(38,100*1:1)
280,950 180,950
10) Payment amg Partners -461,900 -280,950 -180,950
11) Amount available / Balance Due - 19,050 19,050
- Realisation loss

Under Highest Relative Capital Method

WN 1: Analysis of Highest Relative Capitals
Particulars Daksh Yash
a) Capital Balance as given 300,000 200,000
b) PSR Units 1 1
c) Capital Per Unit of Profit (a/b) 300,000 200,000
d) Capital account balances by taking 200,000 200,000
Yash's Capital as base (200,000* b)
e) Excess Capitals of Daksh over Yash (a-d) 100,000 -

Statement of Distribution of Cash among Partners Cap under Highest Realtive Cap Method
Particulars Cash Available Daksh Yash
1) Amount available / Balance due 600,000 300,000 200,000
2) Less: Deficit in amount set aside for -10,005
Dissolution Expenses (20,005 - 10,000)
3) Amount available for distribution among 589,995
Partners Cap
4) Less: Daksh's Remuneration on Payment
among Partners Cap (589,995*5/105) -28,095
5) Net Amount available for distribution 561,900
6) Payment to Siddhart being minor -100,000 - -
7) Amount available / Balance Due 461,900 300,000 200,000
8) Payment to Daksh (WN 1) -100,000 -100,000 -
9) Balance cash available to be distributed -361,900 -180,950 -180,950
in PSR ( (461,900-100,000) * 1:1 )
11) Amount available / Balance Due - 19,050 19,050
- Realisation loss
de Liabilities and P. Loan
Siddhart's
Other Loans Creditors
Loan
200,000 200,000 200,000

-2,000 -2,000 -

198,000 198,000 200,000

-70,000 -70,000

128,000 128,000 200,000

-80,000 -80,000 -

48,000 48,000 200,000

-10,000 -10,000 -

38,000 38,000 200,000

-28,000 -28,000 -

10,000 10,000 200,000

-10,000 -10,000 -

- - 200,000

- - -200,000
- - -

mum Loss Method

Siddhart
100,000
 -100,000
-

-
-
-

Realtive Cap Method

Siddhart
100,000

-100,000
-

-
-
AS 17: Segment Reporting
It is a Disclosure based Standard
Disclosure based Standard - As part of FS, extra disclosures should be given
No Accounting from it (No JE) - It will not have any effect on BOA(Journal and Ledger)

The following are disclosure based standards available in Syllabus

CMA - Inter CA - Inter
1 1
3 3
17 17
18 18
20
21
24

AS 17: Segment Reporting

Sch III of The Co. Act, 2013: P&L and Balance sheet - P/L and Assets & Liabilities will be disclosed organisation wise
Under AS 17, P/L and Assets & Liabilities will be disclosed Segment wise
example, For ITC Ltd.
Business Segments
Tobacco FMCG Hotels

Geographical Segments - Can be based on Location of Customers or Location of Operation(Assets)

a)If Business is only within India
North India South India Others

b) If Business is in Other Countries also

i)Indian Sub-continent or South East Asia
ii) European Countries
iii)North America
iv) South America
v) Others

Business Segments
1 Aashirvaad Atta
Salt
a)They are Diff Products
b)Risk & Return from both the above are same
Both the above will fall under same segment

Sunfeast BiscMom's Magic

Bounce
a)They are Diff Products
b)Risk & Return from both the above are same
 Both the above will fall under same segment

Aashirvaad and Sunfeast Biscuits will be disclosed under Same Segment - Risk and Returns are same - FMCG Segme

2 FMCG
Hotels
a)They are Diff Products/Services
b)Risk & Return from both the above are Different
Hence they are different Business Segments

Geographical Segments
Different in Location of Customers/Operations
Different in Risk and Returns

Disclosures

Geogrpahical
Seg - Based
Geogrpahical on Location
Seg - Based of
Business on Location of Opeartions/A
Segments Customers ssets
Case I Primary SegmSecondary SegmeSecondary Segments - 2 info
Case II Secondary SePrimary Segments
Secondary Segments - 2 info
Case III Secondary SeSecondary SegmePrimary Segments - 8 info

Reportability of Segments
10 Segments
FMCG Hotels Tobocco Others (*incl remaining 7 Seg)
Seg Rev
Seg Result
Seg Assets
Seg Liab

5 Conditions

1. Segment Revenue Condition (External + Inter Segment)

A B C D E F G H
Rev 100 10 200 80 50 150 30 90
RS RS

3. Segment Assets
A B C D E F G H
Assets 100 110 150 80 50 150 30 90
RS
2. Segment Result
A B C D E F G H
Result 100 -50 300 -10 20 70 -90 40
RS RS

5th Condition
Case I:
TR (External) 1000
Ext Rev of 7 RS 780
78%
5th cond is satisfied

Case II: TR (External) 1000

Ext Rev of 7 RS 740
74%
5th cond is not satisfied
make NRS as RS, such that 75% is achieved
One of the NRS having Ext Rev of Rs. 25 is made as RS
Ext Rev of 8 RS 765
76.50%
5th cond is satisfied now

Investments 1000 Excl for Seg Assets

Inv Income 100 Excl for Seg Rev

Loan taken 1000 Excl for Seg Liab

Int Exp 100 Excl for Seg Exp

100
90 125
Charged MP

A
B C

Mr.X SI on other Entity

C/SI on org
RP
isclosed organisation wise

tion(Assets)
ns are same - FMCG Segment

I K Total Rev
170 210 1090
RS RS 10% of TR = 109
for RS, SR >=109

I K
170 160 1090
10% of TA = 109
for RS, SA >=109
 I K
50 70 650 Profit Segments Total
-150 Loss Segments Total

Higher of above in absolute terms, 650 is higher

10% of 650 = 65
for RS, SP/L >= 65
AS 18 Related Party Disclosures

b) Associate & JV’s of the entity

Investing party OR Venturer in respect of which reporting entity is an associate or joint venture;

A Ltd

B Ltd C
(an Associate) JV
(A Ltd and D Ltd are under Common Business called as C)

i) For A Ltd, B Ltd is an Associate iii) For A Ltd - C is a JV

For A Ltd - B Ltd is Relative For A Ltd - C is Relative

ii) For B Ltd - A Ltd is an Investing Party iv) For C, A Ltd is a Venturer
For B Ltd - A Ltd is Relative For C - A Ltd is a Relative

v) B and C are related with eachother?

NO

vi) Co-Associates and Co-Venturers are relatives?

NO - A Ltd and D Ltd are Co-Venturers and are not Relatives

25% VP and Power to direct Control

25% VP and Right to Participate(influence) Associate
or joint venture;
FS of Banking Companies
I) Prudential Norms
II) Special Transactions
III) Financial Statements

Basic Operation
Accepting Deposits and Lending Advances

Deposits are Liabilities Interest

e.g. Demand(Current) Deposits,
Fixed Deposits, Saving deposits

Advances are Assets (loans Given) Interest

e.g. Personal loans, Home loans,
Gold Loans, Vehicle loans…Term Loans
Loans repayable on demand, Cash credits, Bank OD

CRR Cash Reserve Ratio

Deposits which have to be maintained by Banks with RBI
for example it is to be maintained at 4%
Ratio should be applied on Time and demand deposits

SLR Statutory Liquidity Ratio

It is the amount of funds which are to be maintained with respective Bank itself in Liquid condition
for example it is to be maintained at 21%
Ratio should be applied on Time and demand deposits

Statutory Reserve
Appropriation of profits
Every Banking co. should transfer atleast 25% of Yearly profits to a separate reserve called as Statutory Reserve

I) Prudential Norms
1) Income Recognition Norms
2) Provisioning against Assets (Advances)
3) Classification and Valuation of Investments
4) Capital Adequacy Norms (only for CA)

1) Income (Interest) Recognition Norms

Interest Income on Advances(Assets) Performing Adv/Assets (PA)
If it is not an NPA, it is PA

On Accrual(Due) basis

JE
A) Performing Advances
 1) On Due date - Recognition of Int Inc
Customers Loan A/c Dr
To Interest Income A/c

2) On receipt
Cash/Bank A/c Dr
To Customer's Loan A/c

B) Non - Performing Advances

1) On Due date
Customers Loan A/c Dr
To Interest Suspense A/c

2) On Receipt
a)
Cash/Bank A/c Dr
To Customer's Loan A/c

b) Recognition of Int Inc

Int Suspense A/c Dr
To Interest Income A/c

3) On Insolvency
a) For Interest
Interest Suspense A/c Dr
To Customers Loan A/c

b) For Principal
Bad debts A/c Dr
To Customers Loan A/c

2) Provisioning against Assets (Advances)

Standard Assets / Performing Assets Non-Performing Assets (Due>90 days)
(If it is not an NPA) - Sub standard Assets (After becoming NPA, during
- Doubtful Assets (After the above 12 months)
- Loss Assets (Identified as irrecoverable by Manage

Standard Assets
a) Agricultural and SME - 0.25%
b) Commercial Real Estate - 1%
c) Others - 0.4%

Sub-Standard Assets
a) Secured Portion - 15%
b) Unsecured Portion
 i) Infrastructure Loan where safeguards like Escrow a/c are maintained - 20%
ii) Others - 25%

Doubtful Assets
a) Secured Portion
i) Doubtful upto 1 year - 25%
ii) Doubtful for more than 1 year but not exceeding 3 years - 40%
iii) Doubtful for more than 3 years - 100%

b) Unsecured - 100%

Loss Assets - 100%

3) Classification and Valuation of Investments

Classification of Investments Valuation
Held to Maturity (HTM) (At Max 25% of Portfolio) At Cost Price / Acquistion Price
Held for Trading (HFT) Marked to market at end of every month or at more
Available for Sale (AFS) (Dustbin) Marked to market at end of every Quarter or at mo

Marked to market - Cost should be compared with M

II) Special Transactions

1) Discounting of BOE
JE
a) On Discounting (12% pa, for 3 months)
Bills Purchased and Discounted A/c Dr 100
To Discount on Bills A/c (100*12%*3/12) 3
To Customer's A/c 97

Rebate on Bills Discounted

Date of Discounting 1/3/2019
Bill Term is 3 months
Amt is 100
Rate of Discount is 12%
Discount on Bill = 3 (for March, April and May)
Accounting year ending is on 31/3/2019
Hence, Discount income for the month of March should be recognised in 2018-2019
Discount income for the months of April and May should be carried forward to 2019-2020 and should be recogni
For the months of April and May's Income, Rebate should be created

Creation of Rebate - At the end of the year

18-19 Discount on Bills A/c Dr 2
To Rebate on Bills Discounted A/c 2
 (will be carried forward to NY)

Transfer of Discount Income to P&L (March)

Discount on Bills A/c Dr 1
To P&L A/c 1

In the next year - Reversal of Rebate

Rebate on Bills Discounted A/c Dr 2
19-20 To Discount on Bills A/c 2

2) Bills for Collection

Bills for Collection (Asset) A/c - Receivable from Drawee's
Bills for Collection (Liability) A/c - Payable to Drawer
The following JE are to be recorded under Register/Memorandum Books (not part of Financial Books)
a) Bills received for collection
Bills for Collection (Asset) A/c Dr
To Bills for Collection (liability) A/c

b) On Collection of Bills
Cash/Bank A/c Dr
To Bills for Collection (Asset) A/c

Bills for Collection (Liability) A/c Dr

To Cash/Bank A/c/Customer's A/c

Combined JE of above,
Bills for Collection (Liability) A/c Dr
To Bills for Collection (Asset) A/c

c) Dishonour of Bills
Bills for Collection (Liability) A/c Dr
To Bills for Collection (Asset) A/c

3) Acceptances, Endorsements and other Obligations (Incl Guarantees)

The following JE are to be recorded under Register/Memorandum Books (not part of Financial Books)
a) On Acceptance by Bank
Constituent's Liability for Acceptance, Endorsements and other Obligations A/c Dr
(Contingent Asset)
To Acceptance, Endorsements and other Obligations A/c
(Contingent Liability)

b) On Payment by Bank or by Customer

Acceptance, Endorsements and other Obligations A/c Dr
 (Contingent Liability)
To Constituent's Liability for Acceptance, Endorsements and other Obligations A/c
(Contingent Asset)
 Expense

Income

Liquid condition

ve called as Statutory Reserve

Non-Performing Adv/Assets (NPA)

If amount is due for a period of more than 90 days, then such asset/adv is called as NPA

On Cash/Receipt basis
ets (Due>90 days)
s (After becoming NPA, during first 12 months)
fter the above 12 months)
fied as irrecoverable by Management, Internal Auditor, Statutory Auditor, RBI Inspector)
 end of every month or at more frequent intervals, whichever is lower
end of every Quarter or at more frequent intervals, whichever is lower

Cost should be compared with Market Price

19-2020 and should be recognised as income in 19-20

rt of Financial Books)

rt of Financial Books)
Prob No. 1
Computation of Interest Income to be recognised for the year ended 31/3/2014 (Rs. In Lakhs)
Particulars On Performing Adv - On Non Performing Total
Accrual basis Adv - Receipt basis
a) Term Loans 120 5 125
b) Cash Credits and OD 750 12 762
c) Bills purchased and disc 150 20 170
d) Total 1020 37 1057
Prob No. 2
Computation of amount of Provision to be created (Rs in Lakhs)
Amount of Percentage of Amt of
Particulars
Advance Provision Provision
a) Standard 7,000 0.40% 28
b) Sub-standard (Assumed as Secured) 3,000 15.00% 450
c) Doubtful
i) Secured
For less than 1 year 500 25.00% 125
1 year to 3 years 300 40.00% 120
More than 3 years - - -
ii) Unsecured 1,000 100.00% 1,000
(1000+500+300-500-300)
d) Loss 200 100.00% 200

1,923
Prob No. 4
Computation of Provision against Advances (Rs. In Lakhs)

I) Export Credit
Particulars Amt
a) Amount of Advance 50.00
b) Less: Realisable value of Security (Secured Portion) -12.00
c) Unsecured Portion 38.00
d) ECGC Coverage or Guaranteed Amt (c*40%) 15.20
e) Balance Unsecured Portion (c - d) 22.80
f) Provision to be maintained (Doubtful for more than 34.80
3 years)
i) On Sceured Portion (b*100%) 12
ii) On Unguaranteed Unsceured Portion 22.80
(e*100%)

II) Term Loan

Particulars Amt
a) Amount of Advance 75.00
b) Less: Realisable value of Security (Secured Portion) -18.00
c) Unsecured Portion 57.00
d) DICGC Coverage or Guaranteed Amt 20.00
i) 50% of Unsecured portion (c*50%) 28.50
ii) Maximum amount 20.00
(Whichever is lower)
e) Balance Unsecured Portion (c - d) 37.00
f) Provision to be maintained (Doubtful for more than 44.20
1 year but less than 3 years)
i) On Sceured Portion (b*40%) 7.20
ii) On Unguaranteed Unsceured Portion 37.00
(e*100%)
Prob No. 12
Computation of Closing Rebate on Bills Discounted as on 31/3/2014
No. of days after Discount
Amt of Bill Due Date
31/3/2014 Percentage
140,000 6/5/2014 66 (30+31+5) 14%
436,000 6/12/2014 73 (30+31+12) 14%
282,000 6/25/2014 86 (30+31+25) 14%
406,000 7/6/2014 97 (30+31+30+6) 16%
 Journal Entries
Rebate
Date Particulars Debit
140,000*14%*66/365 = 3,544 3/31/2014 Reversal of Opening Rebate
436,000*14%*73/365 = 12,208 Rebate on Bills Discounted A/c Dr 22,160
282,000*14%*86/365 = 9,302 To Discount on Bills A/c
406,000*16%*97/365 = 17,263
Total Rebate = 42,317 3/31/2014 Creation of Closing Rebate
Discount on Bills A/c Dr 42,317
To Rebate on Bills Discounted A/c

3/31/2014 Transfer of Discount Income to P&L

(105,708 Cr Bal + 22,160 Cr - 42,317 Dr = 85,551)
Discount on Bills A/c Dr 85,551
105708 Cr To P&L A/c
22,160 Cr
-42,317 Dr
85551
 Prob No. 13
Journal Entries in the books of Uncertain Bank Ltd. (Amt in Crores)

Credit Date Particulars Debit Credit

4/1/2013 Reversal of Opening Rebate
Rebate on Bills Discounted A/c Dr 9
22,160 To Discount on Bills A/c 9

2013-2014 Discounting of Bills

Bills Purchased and Discounted A/c Dr 4,000
42,317 To Discount on Bills A/c 144
(4000*18%*73/365)
To Customer's A/c (b/f) 3,856

3/31/2014 Creation of Rebate

85,551 Discount on Bills A/c Dr 10.80
To Rebate on Bills Discounted A/c 10.80
(600*18%*36.5/365)

3/31/2014 Transfer of CY Discount Income

Discount on Bills A/c Dr 142.20
To P&L A/c 142.20
(9 + 144 - 10.80)
 Discount on Bills A/c
Date Particulars Amt Date Particulars Amt
3/31/2014 To Rebate on Bills Disc A/c 10.8 4/1/2013 By Rebate on Bills Disc A/c 9
13-14 By Bills Purchased and Disc A/c 144

3/31/2014 To P&L A/c (b/f) 142.2

153 153

Rebate on Bills Discounted A/c

Date Particulars Amt Date Particulars Amt
4/1/2013 To Discount on Bills A/c 9 4/1/2013 By Balance b/d 9
3/31/2014 By Discount on Bills A/c 10.8
3/31/2014 To Balance c/d (b/f) 10.8
19.8 19.8
Prob No. 15
Bills for Collection (Asset) A/c
Date Particulars Amt Date Particulars
4/1/2013 To Balance b/d 700,000 2013-2014 By Bills for collection
2013-2014 To Bills for collection 6,450,000 (Liability) A/c
(Liability) A/c 2013-2014 By Bills for collection
(Liability) A/c

3/31/2014 By Balance c/d

7,150,000
 Bills for Collection (Liability) A/c
Amt Date Particulars Amt Date Particulars
4,700,000 2013-2014 To Bills for collection 4,700,000 4/1/2013 By Balance b/d
(Asset) A/c 2013-2014 By Bills for collection
550,000 2013-2014 To Bills for collection 550,000 (Asset) A/c
(Asset) A/c

1,900,000 3/31/2014 To Balance c/d 1,900,000

7,150,000 7,150,000
 Prob No. 17
Acceptances, Endorsements and other obligations A/c (Liab
Amt Date Particulars Amt Date
700,000 2013-2014 To Constituent's Liability for 2,000,000 4/1/2013
6,450,000 Acceptances, Endorsements 2013-2014
and other Obligation A/c
(paid by clients)
2013-2014 To Constituent's Liability for 230,000
Acceptances, Endorsements
7,150,000 and other Obligation A/c
(paid by Bank = 22,30,000-20,00,000)
6/10/2013 To Constituent's Liability for 1,000,000
Acceptances, Endorsements
and other Obligation A/c
(A - paid by Bank )
9/30/2013 To Constituent's Liability for 1,200,000
Acceptances, Endorsements
and other Obligation A/c
(B - paid by clients)
11/30/2013 To Constituent's Liability for 500,000
Acceptances, Endorsements
and other Obligation A/c
(C - paid by Bank )

3/31/2014 To Balance c/d 1,570,000

D 800,000
E 500,000
F 270,000
6,500,000
her obligations A/c (Liability)
Particulars Amt
By Balance b/d 2,230,000
By Constituent's Liability for 4,270,000
Acceptances, Endorsements
and other Obligation A/c
A 10,00,000
B 12,00,000
C 500,000
D 800,000
E 500,000
F 270,000

6,500,000
Prob No: 5
Profit and Loss A/c of Modern Bank Ltd for the year Ended 31/3/2014 (Rs in '000)
Particulars Schedule No. Amt(2013-2014)
I) Income

Interest Earned 13 2,586

Other Income 14 822
Total 3,408
II) Expenditure
Interest Expended 15 969
Operating Expenses 16 2096
Provisions and Contingencies (Note 2) 240
Total 3305
III) Profit / Loss
Net Profit/Loss-for the year(I-II) 103
Profit / Loss Brought Forward -6
Total 97
IV) Appropriations
Transfer to Statutory Reserves (103 *25%) 25.75
Transfer to Other Reserves - Revenue Reserves (103 *5%) 5.15
Balance Carried over to B/S (b/f) 66.10
Total 97
 (Rs in '000) Schedules:
Amt (2012-2013)
13 Interest Earned

1,696 Particulats 13-14 (CY)

734 a) Interest/Discount on Advances/Bills (Note 1) 2,297
2,430 b) Interest on Investments(Income) 112
c) Interest on Balances with RBI 177
739 2,586
1697 Note 1:
- Particulats 13-14 (CY)
2436 i) Interest and Discount as given (Credit/Income) 2,045
ii) Add: Tax Provision (Debit/Expense) 148
-6 iii) Add: Provision for Doubtful Debts 92
- iv) Add: Loss on Sale of Investments 12
-6 2,297

- 14 Other Income
- Particulars 13-14 (CY)
-6 a) Commission, Exchange and Brokerage 712
-6 b) Profit on Sale of Investments 122
Less: Loss on Sale of Investments -12
822

15 Interest Expended
Particulats 13-14 (CY)
a) Interest on Deposits 822
b) Interest to RBI 147
969

16 Operating Expenses
Particulats 13-14 (CY)
a) Payment to and Provision for Employees 855
b) Rent, Taxes and Lighting 179
c) Printing and Stationery 212
d) Advertisement and Publicity 98
e) Depreciation 98
f) Directors Fees 212
g) Auditors Fees 110
h) Law Charges 152
i) Postage, Telegram and Telephones 62
j) Insurance 52
k) Repair and Maintenece 66
 2,096
Note 2: Provisions and Contingencies
Particulars 13-14 (CY)
a) Tax Provision 148
b) Provision for Doubtful Debts 92
240
 Prob No: 6
Profit and Loss A/c of Hyderabad Bank Ltd for the year Ended 31/3/2014 (Rs in '000)
Particulars Schedule No.
I) Income

12-13 (PY) Interest Earned 13

1,427 Other Income 14
114 Total
155 II) Expenditures
1,696 Interest Expended 15
Operating Expenses 16
12-13 (PY) Provisions and Contingencies (WN 1)
1,427 Total
- III) Profit/Loss
- Net Profit/Loss-for the year(I-II)
- Profit / Loss Brought Forward
1,427 Total
IV) Appropriations
Transfer to Statutory Reserves
12-13 (PY) Balance Carried over to B/S (b/f)
722 Total
12

734

12-13 (PY)
612
127
739

12-13 (PY)
727
158
147
112
98
148
110
50
48
42
57
 1,697

12-13 (PY)

-
d 31/3/2014 (Rs in '000)
Amt Schedules:
13 Interest Earned

3,830 Particulars Amt

250 a) Interest/Discount on Advances/Bills 2,840
4,080 i) On Cash Credits ( 1820 - (820-400) ) 1400
ii) On Over Draft ( 750 - (450 - 100) ) 400
2,720 iii) On Term Loans( 1540 - (750-250) ) 1040
2,340 b) Interest on Investments(Income) 840
680 c) Interest on Balances with RBI 150
5,740 3,830

-1,660 14 Other Income

- Particulats Amt
-1,660 a) Commission, Exchange and Brokerage 275
i) Comm. on Remittances and Transfers 75
- ii) Comm. on Letters of Credits 118
-1,660 iii) Comm. on Govt Business 82
-1,660 b) Profit on Sale of L&B 27
c) Less: Loss on Exchange Transactions -52
250

15 Interest Expended
Particulats Amt
a) Interest on Deposits 2,720
2,720

16 Operating Expenses
Particulats Amt
a) Payment to and Provision for Employees 1,520
i) Salaries, Allowances and bonus to employees 1240
ii) Payment to PF 280
b) Auditors Fees and allowances 120
c) Directors Fees and allowances 250
d) Advertisements 180
e) Printing and Stationery 140
f) Repairs and Maintenance 50
h) Postage, Telegrams and Telephones 80
2,340
WN: 1 Provisions and Contingencies
A) Provision against Advances
Amount of Percentage of Provision
Particulars Advance Provision Amt
a) Standard (Others) 3,000 0.40% 12.00
b) Substandard (Secured) 1,120 15.00% 168.00
c) Doubtful - Unsecured 200 100.00% 200.00
d) Doubtful - Secured for one year 50 25.00% 12.50
e) Loss 200 100.00% 200.00
592.50

B) Provision for decline in MV of HFT and AFS Investments

Provision = Cost - MV
= (2,750*75%) - 1,975
= 87.50

C) Total Provisions and Contingencies = 592.50 + 87.50 = 680

Prob No. 8
Balance Sheet of South Indian Bank Ltd as on 31/3/2014 (Rs in Lakhs)
Particulars Sch No Amt
Capital and Liabilities
Capital 1 198
Reserves & Surplus 2 793.00
Deposits 3 1,487.12
Borrowings 4 110.00
Other Liabilities and Provisions 5 0.10
Total 2,588.22
Assets
Cash in Hand and Balance with RBI 6 219.64
Balance with Banks, Money at call and Short Notice 7 344.38
Investments 8 165.40
Advances 9 1,632.98
Fixed Assets 10 225.82
Other Assets 11 -
Total 2,588.22
Contingent Liabilities 12 19.62
Biils for Collection 18.10
Schedules
1 Capital
Issued, Subcribed and Called up Equity Share Capital 198
(19,80,000 Shares of Rs 10 each)
198

2 Reserves & Surplus

a) Statutory Reserves 268.50
(231 + (150*25%))
b) Balance in P&L A/c 524.50
i)Opening Balance 412
ii)CY N.P. After Appropriation (150*75%) 112.50
793.00

3 Deposits
a) Demand Deposits - Current Accounts 520.12
b) Savings Deposits 450.00
c) Term Deposits - Fixed Deposits 517.00
1,487.12

4 Borrowings
Borrowings from other Banks 110.00
110.00

5 Other Liabilities and Provisions

Bills Payable 0.10
0.10
 Prob No: 9

6 Cash in Hand and Balance with RBI

a) Cash in Hand 160.15
b) Balance with RBI (Min CRR=1487.12*4%) 59.49
i) Balance as given 37.88
ii) Add: Deficit transferred from 21.61
Cash with other Banks(b/f)
219.64

7 Balance with Banks, Money at call and Short Notice

a) Balance with other Banks (155.87 - 21.61) 134.26
b) Money at call 210.12
344.38

8 Investments
a) Gov Sec 110.17
b) Gold 55.23
165.40
9 Advances
A) a) Bills Purchased and Discounted -
b) OD, Cash Credits (28+812.10) 840.10
c) Term Loans 792.88
1,632.98

B) a) Secured by Tangible Assets (b/f) 1,155.33

b) Secured by Govt Guarantees(50%*792.88) 396.44
c) Unsecured (812.10*10%) 81.21
1,632.98

10 Fixed Assets
a) Premises 155.70
(i) Opening Balance (b/f) 156.80
(ii) Depreciation (1.10)

b) Other Assets - Furniture 70.12

(i) Opening Balance (b/f) 70.90
(ii) Depreciation (0.78)

225.82
11 Other Assets -

12 Contingent Liabilities
a) Claims against Bank not acknowledged as Debt 5.50
b) Acceptances and Endorsements 14.12
19.62
Prob No: 9
Balance Sheet of Vaishnavi Bank Ltd as on 31/3/2014 (Rs in Thousands) Schedules
Particulars Sch No Amt 1
Capital and Liabilities
Capital 1 190,000
Reserves & Surplus 2 202,400 2
Deposits 3 137,550
Borrowings 4 77,230
Other Liabilities and Provisions 5 11,420
Total 618,600
Assets
Cash in Hand and Balance with RBI 6 75,000 3
Balance with Banks, Money at call and Short Notice 7 72,350
Investments 8 167,130
Advances 9 196,000
Fixed Assets 10 63,500
Other Assets 11 44,620
Total 618,600 4
Contingent Liabilities 12 56,500
Bills for Collection 43,500

Profit and Loss A/c of Vaishnavi Bank Ltd for the year Ended 31/3/2014 (Rs in '000) 5
Particulars Sch No. Amt
I) Incomes
Interest Earned 13 100,000
Other Income 14 9,800 13
Total 109,800
II) Expenditure
Interest Expended 15 7,950
Operating Expenses 16 45,950
Provisions and Contingencies -
Total 53,900
III) Profit / Loss 14
Net Profit/Loss-for the year(I-II) 55,900
Profit / Loss Brought Forward 6,500
Total 62,400
IV) Appropriations
Transfer to Statutory Reserves (55,900*25%) 13,975
Balance Carried over to B/S (b/f) 48,425
Total 62,400 15
16
Capital
Issued, Subscribed and Called up Capital 190,000 6
190,000
Reserves and Surplus
a) Statutory Reserves (140,000 + 13,975) 153,975
b) Balance in P&L A/c 48,425 7
i) Opening Balance 6,500
ii) Add: N.P. After Appropriations 41,925
(48,425 -6,500) or (55,900 - 13,975) 202,400
Deposits
a) Demand Deposits - Current Accounts (97,000 + OD 2500) 99,500 8
b) Savings Deposits 15,000
c) Term Deposits - Fixed Deposits 23,050
137,550

Borrowings
a) From Banks 77,230 9
77,230

Other Liabilities and Provisions

a) Employees Security Deposits 7,420
b) Rebate on Bills Discounted (Income Received in Advance) 4,000
11,420 10
Interest Earned
a) Interest/Discount on Advances/Bills 100,000
(i) Interest on Advances 62,000
(ii) Discount on Bills 42,000
(iii) Less: Rebate on Bills Discounted (4,000)
100,000

Other Income
a) Commission and Brokerage 25,300
b) Rents 600 11
c) Misc Incomes 3,900
d) Less: Loss on sale of Investments -20,000
9,800

Interest Expended 12
a) Interest on Deposits 7,950
7,950
Operating Expenses
a) Payment to & Provision for Employees - Salaries 21,200
b) Rent, Rates and Taxes 12,000
c) Directors Fees 1,000
d) Postage 1,250
e) Audit Fees 5,000
f) Depreciation (5000+500) 5,500
45,950
Cash in Hand and Balance with RBI
Cash in Hand and with RBI 75,000
75,000

Balance with Banks, Money at call and Short Notice

a) Balance with Other Banks 46,350
b) Money at call and Short Notice 26,000
72,350

Investments
a) Government Securities - Bonds 94,370
b) Gold Billion 15,130
c) Silver 2,000
d) Other Investments 55,630
167,130
Advances
A) a) Bills Purchased and Discounted 12,500
b) OD(Current Accounts) 2,500
C) Term Loans 181,000
196,000

Fixed Assets
a) Premises (Buildings) 59,200
(i) Opening Balance (Cost) 65,000
(ii) Less: Depreciation (800 + 5000) (5,800)

b) Others - Furniture 4,300

(i) Opening Balance (Cost) 5,000
(ii) Less: Depreciation (200 + 500) (700)

63,500
Other Assets
a) Interest Accrued on Investments 24,620
b) Inter Office Adjustments - Branch Adjutments 20,000
44,620

Contingent Liabilities
a) Acceptances and Endoresements 56,500
56,500
4) Capital Adequacy Norms (only for CA)

Every Bank, depending on the Risk of Assets held, adequate Capital should be maintained, which is determined by a toll called
At minimum, every Bank should maintain CAR of 9%.

CAR = Capital Funds *100

Risk Weighted Assets (RWA)

= Tier I Cap + Tier II Cap *100

RWA (Incl Off-B/S items)

RWA Refer SM Pg.No. 8.36 (Unit 3)

Capital Funds
A) Tier I Capital includes:
1 Paid-up Equity Share Capital
2 Statutory Reserves
3 Other disclosed free Reserves including Securities Premium
4 Capital Reserves representing surplus arising out of Sale proceeds of Assets
5 Less:
i) Intangible Assets and Accumulated lossess
ii) DTA

B) Tier II Capital Includes:

1 Undisclosed Reserves
2 Revaluation Reserves at a discount of 55%
3 General Provisions and loss reserves at a maximum of 1.25% of RWA
(GP & LR or 1.25% of RWA whichever is lower)
4 Redeemable PSC and Debt Capital Instruments
5 Subordinated Debt at a maximum of 50% of Tier I Capital
(Debt with initial maturity of less than 5 years or Debt with remaining maturity of
1 year and any Unsecured Debt)
6 Investment Reserve Account at a maximum of 1.25% of RWA
(IRA or 1.25% of RWA whichever is lower)
7 Foreign Currency Translation Reserve (FCTR) at a discount of 25%

Note: Tier II Capital should not exceed Tier I Capital

or Tier II Capital is to be considered at a maximum of Tier I Capital

I 10
II 6 12
(10 ashould be cons)
ed, which is determined by a toll called as Capital Adequacy Ratio (CAR)

1000
400 Sale Proceeds of Asset

RWA 1,000,000
12500

GP&LR 20,000 10,000

to be considered 12500 10,000
whichever is lower
Prob No. 10
A) RWA (Rs. in Lakhs)
Asset Amount of RWA
Asset Risk Percentage
Cash and Balance with RBI 480 0% -
Balances with other Banks 1,250 20% 250
CD's with other Banks 2,850 20% 570
Other Investments 78,250 100% 78,250
Loans and Advances:
a) Guaranteed by Govt. 12,820 0% -
b) Guaranteed by PSU's of Govt. 70,210 0% -
c) Others 520,250 100% 520,250
Premises, Furniture and Fittings 18,200 100% 18,200
Other Assets 20,120 100% 20,120
Acceptances, endorsements and LC's 370,250 100% 370,250
1,007,890

B) Capital Funds (Rs. in Lakhs)

1) Tier I Capital
Particulars Amt
a) ESC 48,000
b) Statutory Reserves 28,000
c) Capital Reserves out of Sale of Assets 930
(1210 - 280 Revaluation Reserve)
76,930
2) Tier II Capital
Particulars Amt
Revaluation Reserve (280*(100%-55%)) 126
126

3) Capital Funds (1 + 2) 77,056

C) Capital Adequacy Ratio

CAR = Tier I Cap + Tier II Cap *100

RWA (Incl Off-B/S items)

= 77,056 *100
1,007,890

= 7.65%

Bank should improve CAR, as existing ratio of 7.65% is less than minimum to be maintained of 9%
NBFC

Loans & Advances Governed by RBI - These

Chit Funds are only covered under
Leasing & HP topic of NBFC
Insurance Business Governed by IRDA
Mutual Funds Governed by SEBI

Net Owned Funds

Owned Funds 1,300,000
10% of Owned Funds 130,000
Investment 600,000
Investment exceeding 10% of Owned Funds = 600,000 - 130,000 = 470,000

Net Owned Funds = Owned Funds - Investment exceeding 10% of Owned Funds
= 13,00,000 - 470,000 = 830,000

11. NPA
a) NBFC-D & NBFC-ND-SI
i) New Rules (31/3/2018 onwards) 3 months or more
ii) Old Rules (Upto 31/3/2017)
LR & HP Inst 6 months or more
Others 4 months or more

b) NBFC - ND - NSI
LR & HP Inst 12 months or more
Others 6 months or more
Note: If any Facility becomes NPA, all other facilities extended to the same person automaticaly deemed as NPA (irrespective
Mr.A
L1 L2
NPA Assumed as NPA

4m or more NPA
upto 14m SS 12m
Aftr 14m D Aft 12
Loss
ed as NPA (irrespective of no. of months over due on other facilities)
Prob No. 1
Computation of Net Owned Funds of Templeton Finance Ltd. (Rs. '000)

Particulars Amt

a) Owned Funds (Paid up ESC + FR - Def Exp = 100 + 500 - 200) 400

b) 10% of Owned Funds (a*10%) 40

c) Net Owned Funds (Owned funds - (Investment in shares and Debentures

of Subsidiaries and group Companies - 10% of Owned Funds) 240
= 400 - ((100+100) - 40 ) )
Prob No. 3
Computation of Provision to be created for the year ended 31/3/2017 (Amt in Lakhs)

NBFC-ND-SI & NBFC-D (Up to

Amt of NBFC-ND-NSI 31/3/2017)
Particulars
Advance
Percentage of Amt of Prov Percentage of
Prov. Prov.
Standard 16,800 0.25% 42.00 0.35%
Sub-Standard 1,340 10.00% 134.00 10.00%
Doubtful Secured
a) Up to 1 year 320 20.00% 64.00 20.00%
b) 1 to 3 years 90 30.00% 27.00 30.00%
c) More then 3 years 30 50.00% 15.00 50.00%
Doubful Unsecured 97 100.00% 97.00 100.00%
Loss Assets 48 100.00% 48.00 100.00%
Total Provision 427.00
 Prob No. 4
Computation of Provision to be created for the year e

FC-ND-SI & NBFC-D (Up to NBFC-ND-SI & NBFC-D Particulars Over due
31/3/2017) (31/3/2018 and onwards)
Amt of Prov Percentage of Amt of Prov
Prov. LCD Telivisions up to 12m
58.80 0.40% 67.20 Washing Machines for 24m
134.00 10.00% 134.00 Refrigerators for 30m
AC's for 45m
64.00 20.00% 64.00 Total Provision
27.00 30.00% 27.00
15.00 50.00% 15.00
97.00 100.00% 97.00
48.00 100.00% 48.00
443.80 452.20
 Prob No. 5
n to be created for the year ended 31/3/2017 (Amt in Crores) I) WN 1:
Percentage of
NBV Amt of Prov
Prov Deferred Cash Price = Cash Price - Down P
Opening Bal
20,123 0% -
2,410 10% 241.00 60
1,280 40% 512.00 4/1/2016 50.25
647 70% 452.90 39.49
1,205.90 27.60
14.48

a) Principal Outastanding as on 1/4/2016(a

b) As on 31/3/2017, Instalment is not over

Int Income should be recognised on Acc
NBFC should recognise Int income of Rs
1: (Amt in Lakhs) II)

erred Cash Price = Cash Price - Down Payment = 80 - 20 = 60

Instalment amt
Int @10.42% Princ. Repaid Closing Bal
((100-20)/5)
6.25 16 9.75 50.25 3/31/2016
5.24 16 10.76 39.49
4.11 16 11.89 27.60
2.88 16 13.12 14.48
1.52 16 14.48 0.00

incipal Outastanding as on 1/4/2016(after repayment of First Instalment) = Rs. 50.25

s on 31/3/2017, Instalment is not overdue for more than 12 months and hence
t Income should be recognised on Accrual basis for the year 2016-2017
BFC should recognise Int income of Rs. 5.24 for the year 2016-2017

III)
Computation of Provision as per Para 9(2)(i) of NBFC Prudential Norms as on 31/3/2017 (Amt in Lakhs)

Particulars Amt

a) Instalments Overdue 16
b) Add: Future Instalments (16*3) 48
c) Less: Balance of Unmatured Finance Charges (Future Int) -8.51
(4.11 + 2.88 + 1.52)
d) Less: Depreciated value of Underlying Asset -48 80
(OC - Dep for 2 years = 80 - (80/5 * 2) = 80 -32) 5
7.49 16 Dep pa
48
Computation of Net Book Value as on 31/3/2017 (Amt in Lakhs)
Particulars Amt
a) Instalments Overdue 16
b) Add: Future Instalments (16*3) 48
c) Less: Balance of Unmatured Finance Charges (Future Int) -8.51
(4.11 + 2.88 + 1.52)
d) Less: Provision as per Para 9(2)(i) -7.49
e) Net Book Value 48

Since Instalment is Overdue upto 12 months, NBFC need not to create any Additional
Provisional for the year ended 31/3/2017
Prob No. 2
Classification of Assets - NBFC-D and NBFC-ND-SI (Amt in Lakhs)
Particulars Amt
a) Standard Assets (Overdue within 4m) - (b/f 1) 150
i) 200 Accounts overdue for 2 months 40
ii) 24 Accounts overdue for 3 months 24
iii) Others (b/f - 2) (150-40-24) 86
6Acc > 14m
b) Sub-Standard 6L
i) 4 Accounts (10 accounts - 6 Accounts) 14 Doubtful
overdue for less than 14 months after
becoming Substandard (Amt = 20L - 6L)

c) Doubtful 26
i) 6 Accounts overdue for more than 14 6
14 months after becoming Substandard
ii) 4 Accounts for more than 3 years 20

d) Loss Assets
i) 1 Account identified as non-recoverable by 10
Management

e) Total Amount Outstanding (as given) 200

 10 Acc 20L

6Acc > 14m 4Acc < 14m

14L(b/f)
Sub St
For regular valuation on B/S date (Not Inter class transfers) - Category Wise

Category Inv in E. shares Cost MP

RIL 100 95 95 Loss 5
Wipro Ltd 100 110 100 Profit 10
Scrips
TCS 100 90 90 Loss 10
Tata Motors 100 150 100 Profit 50
400 445 385 400
I II
Scrip wise - Not Allowed Category wise - Allowed
Category Inv in P.shares Cost MP Dep on one scrip is adju
RIL 100 70
Scrips Infosys 100 120
TCS 100 105
300 295 whichever is lower i.e. 295
Dep on one scrip is adjusted against app on anoth
However, Dep on one Category is not to be adjuste

In other words, Intra Category adjustment is poss

Prob No. 6
i) Yes, the Company can adjust Appreciations & Depreciations on Scripts within a Category, as Valuation will be done
Category wise not Script wise

ii) Valuation of Investments as on 31/3/2013 (Category Wise - Quoted Current Investments - Cost or MP whichever
A) Equity shares
Value of E.shares as on 31/3/2013 = Total Cost of all E. shares or Total MV of all E.shares whichever is lower
= (60+31.5+60+60+90+75+30) or (61.2 +24+36+120+105+90+6) whichever is lower
=406.50 or 442.20 whichever is lower
=406.50

B) Mutual Funds
Value of Mutual Funds as on 31/3/2013 = Total Cost of all Mutual Funds or Total MV of all Mutual Funds whichever
= (39+30+6) or (24+21+9) whichever is lower
=75 or 54 whichever is lower
= 54

C) Govt Securities
Value of Govt Securities as on 31/3/2013 = Total Cost of all Govt Securities or Total MV of all Govt Securities whiche
= (60+75) or (66+72) whichever is lower
=135or 138 whichever is lower
= 135
 iii) No, it is not possible to off-set depreciation in investment in Mutual funds against appreciation in investment in E. s
as each category should be valued separately.

Inter Class Transfer - Scrip wise BV or MV whichever is lower

Category Inv in E. shares BV MP

RIL 100 95 95
Wipro Ltd 100 110 100
Scrips
TCS 100 90 90
Tata Motors 100 150 100
385 Dep on one scrip is not a

T-I 100
T-II 30
RWA 700

CAR 18.57% Min 15%

T-I is only 14.29% Min 10%

considered
Subordinated Debt Amt of be considered under T-II Cap
0%
20%
40%
60%
80%
 (Total Cost of all scrips 400 or Total MP of all scrips 445 whichever is lower)

Category wise - Allowed

Dep on one scrip is adjusted against app on another scrip

ted against app on another scrip

tegory is not to be adjusted against app on another Category

egory adjustment is possible whereas Inter Category is not possible

as Valuation will be done

s - Cost or MP whichever is lower)

whichever is lower

Mutual Funds whichever is lower

all Govt Securities whichever is lower

ation in investment in E. shares and Govt. secutrities,

Dep on one scrip is not adjusted against app on another scrip

Amalgamation of Companies - AS 14

A Ltd Purchased business of B Ltd

A Ltd is called as B Ltd is called as
Purchasing Co. Selling co.
Transfaree Transferor
Amalgamated Co. Amalgamating

A Ltd and B Ltd formed as AB Ltd

A Ltd and B Ltd are called as
Selling co.
Transferor
Amalgamating

AB Ltd is called as
Purchasing Co.
Transfaree
Amalgamated Co.

I) Computation of Purchase Consideration

II) Accounting in the Books of Selling Company - AS 14 is not applicable
III) Accounting in the Books of Purchasing Company

I) Computation of Purchase Consideration

Amount to be Paid by P. Co. to S. Co. is called as Purchase Consideration
The discussion is about what is the amount of consideration, it is not about in which form it is paid
Three methods of Computation
1) Net Assets Method
2) Payments Method
3) Intrinsic Value Method

1) Net Assets Method (POV of A&L TO)

a) Assets Taken Over at Fair Values / Agreed Values xxx
b) Less: Liabilities TO at FV / Agreed Values -xx
c) Purchase Consideration xxx

Note: If FV/AV are not given in question, then Book Values will be assumed as FV.

2) Payments Method (POV is from SH)

Purchase Consideration includes only amount payable to Shareholders (Both Equity and Preference) not to othe

Example:
a)
Selling Co. SC 100,000 (10,000 shares of Rs. 10 each)
 P. CO. agreed for payment of Rs.25 per share
Purchase Consideration = 10,000 sh *25 = 250,000

b)
Selling Co. SC 100,000 (10,000 shares of Rs. 10 each)
P. CO. agreed for payment of Rs.15 per share and to issue
1 share in P. Co. (FV 10, MV is Rs. 12) for 1 share in S. CO.
Purchase Consideration = (10,000 sh *15) + (10,000 sh * 1:1 * 12)
= 150,000 + 120,000 = 270,000

c)
Selling Co. SC 100,000 (10,000 shares of Rs. 10 each)
P. CO. agreed for exchange of shares in 3:2 ratio
(3 shares in P Ltd are issued for every 2 shares in S Ltd)
One share in P. Co. is worth (MP) of Rs. 15
Purchase Consideration = (10,000 sh * 3:2 * 15)
= 15,000 sh *15 = 225,000

Note: In absense of information about method to be apllied in question, try to apply Payments Method, if not possible then
y and Preference) not to other than Shareholders
Method, if not possible then Net Assets Method(Backup Method)
Prob No. 1 Prob No. 3
Computation of Purchase Consideration - Payments Method
Particulars Amt
a) To Preference Shareholders - 9% Preference Shares 150,000
(2000 P.sh * 3:4 * 100)
b) To Equity Shareholders 850,000
i) Cash (5000 E.sh * 20) 100,000
ii) Equity Shares (5000 E. sh * 6:5 * 125) 750,000

c) Purchase Consideration (a + b) 1,000,000

Prob No. 2
Computation of Purchase Consideration - Payments Method
Particulars Amt
a) To Preference Shareholders 880,000
i) Cash (8000 sh * 10) 80,000
ii) 9% P. Shares (8000 sh *1:1 * 100) 800,000

b) To Equity Shareholders 2,400,000

i) Cash (15,000 sh * 20) 300,000
ii) Equity Shares (15000 sh *1:1 * 140) 21,00,000

c) Purchase Consideration (a + b) 3,280,000

Prob No. 3
Computation of Purchase Consideration - Payments Method
Particulars Neel Ltd Gagan Ltd
To Equity Shareholders
a) Equity Shares (475:525)
i) Neel Ltd: 24,000 Sh*475/1000*25 285,000
= 11,400 sh * 25
ii) Gagan Ltd: 24,000 sh * 525/1000 * 25 315,000
= 12,600 sh * 25

b) 12% Preference Shares (WN 1) 560,000 616,000

c) Purchase Consideration (a + b) 845,000 931,000

WN 1: Computation of Amount of 12% Preference Shares to be issued

Particulars Neel Ltd Gagan Ltd
1) Net Assets Taken Over
a) P&M (Revalued) 525,000 675,000
b) Building (Revalued) 775,000 648,000
c) Current Assets 163,500 158,600
d) Less: Current Liabilities -623,500 -557,600
e) Net Assets TO 840,000 924,000
2) 8% Return on Net Assets (1(e )*8%) 67,200 73,920 Pref. Div = NV of P.Shares * Rate of P. D
3) Amount of 12% Preference Shares to be 560,000 616,000 67,200 = NV of P.Shares * 12%
issued such that Income on P. Shares NV of P. Shares = 67,200/12% = 560,000
will be equal to 8% return on Net Assets
( (2)/12% ) NV of P. Shares = 73,920/12% = 616,000

616000
= NV of P.Shares * Rate of P. Div
NV of P.Shares * 12%
hares = 67,200/12% = 560,000 12% 67,200
100% ? = 67,200*100/12 = 560,000
hares = 73,920/12% = 616,000
II) Accounting in the Books of Selling Company - AS 14 is not applicable

1 Assets and Liab TO by Purchasing Company

a) Assets TO (BV)
Realisation A/c Dr
To Assets A/c

b) Liabilities Taken over (BV)

Liabilities A/c Dr
To Realisation A/c

2 Purchase Consideration
a) Purchase Consideration due
P. Company A/c Dr
To Realisation A/c

b) Purchase Consideration received

Cash/Bank A/c Dr
Securities of Company A/c Dr
(Shares/Deb/Bonds etc)
To P. Company A/c

3 Assets and Liab not taken over by Company

a) Assets Not taken over
Cash/Bank Dr
Realisation A/c (b/f - Loss) Dr
To Asset A/c (BV)
To Realisation (b/f - Profit)

b) Liabilities Not taken over

Liabilities A/c (BV) Dr
Realisation A/c (b/f - Loss) Dr
To Cash/Bank A/c
To Realisation (b/f - Profit)

4 Realisation Expenses
Case I: Borne by Selling Company
Realisation A/c Dr
To Cash / Bank A/c

Case II: Borne by Purchasing Company

No JE

Case III: Initially Paid by Selling Co. and later on Reimbursed by Purchasing Co.
a) On Payment
 P. Company A/c Dr
To Cash / Bank A/c

b) On Reimbursement
Cash/Bank A/c Dr
To P. Company A/c

5 Preference Shareholders
a) Due
PSC A/c Dr 100
Premium on Redm of P. Shares A/c Dr 10
Realisation A/c (Loss) Dr 5
To P. Shareholders A/c 115

b) Payment
P. Shareholders A/c Dr 115
To Cash/Bank A/c
To Securities of P. Company A/c 115

6 Computation of Amount Due to E. Shareholders

a) ESC and R&S
ESC A/c Dr
R&S A/c Dr
To E. Shareholders A/c

b) Accumulated Lossess (P&L A/c Dr Bal) and Expenses not written off
E. Shareholders A/c Dr
To P&L A/c
To Exp. Not written off A/c

c) Realisation A/c b/f

If Profit
Realisation A/c Dr
To E. SH A/c

If Loss
E. SH A/c Dr
To Realisation A/c

7 Payment to E. SH
E. Shareholders A/c Dr
To Cash/Bank A/c
To Securities of P. Company A/c
Prob No. 4
B. 1) Provisions 2% and 2.5% respectively to be raised on Inventories and Trade Receivables.

WN 1: Computation of Purchase Consideration - Intrinsic Value Method

Particulars A Ltd B Ltd
1) Assets TO at Fair Values / Agreed Values
a) Goodwill 80,000 -
b) L&B 450,000 300,000
c) P&M 620,000 500,000
d) F&F 60,000 20,000
e) Trade Receivables (BV*97.5%) 268,125 170,625
f) Inventories (BV*98%) 220,500 137,200
g) Cash at Bank 120,000 55,000
h) Cash in Hand 41,375 17,175

2) Less: Liabilities TO at FV/Agreed Values

a) 5% Debentures -200,000 -
b) Trade Payables -100,000 -210,000
c) Secured Loan - -200,000
3) Net Assets TO - Purchase Consideration 1,560,000 790,000

Form of Purchase Consideration

Particulars A Ltd B Ltd
1) To Preference Shareholders - Preference Shares 440,000 330,000
A Ltd: ( (400,000/100)*5/1*(18 + 4) )
B Ltd:( (300,000/100)*5/1*(18 + 4) )

2) To Equity Shareholders
a) Equity Shares 1,056,000 396,000
A Ltd:( (800,000/100)*6/1*(18 + 4) )
B Ltd:( (300,000/100)*6/1*(18 + 4) )

b) Cash (b/f) 64,000 64,000

3) Purchase Consideration 1,560,000 790,000

Assets at BV 1,871,375
-Liab at BV -300000
belongs to P.SH & E.SH 1,571,375
-P.SH at Face V -400000
Belongs to E.SH 1,171,375
8000 E.sh
146.421875 BV per E.share

Assets at Fair V 1,871,375

-Liab at Fair V -300000
belongs to P.SH & E.SH 1,571,375
-P.SH at Purch Consid -400000
Belongs to E.SH 1,171,375
8000 E.sh
146.421875 IV per E.share
Accounting in the Books of A Ltd (Selling Company)
Realisation A/c
Particulars Amt Particulars Amt
To Goodwill A/c 80,000 By 5% Debentures A/c 200,000
To L&B A/c 450,000 By Trade Payables A/c 100,000
To P&M A/c 620,000
To F&F A/c 60,000 By AB Ltd A/c (WN 1) 1,560,000
To Trade Receivables A/c 275,000
To Inventories 225,000
To Bank A/c 120,000
To Cash A/c 41,375 By Equity Shareholders A/c (b/f) 51,375
To Preference Shareholders A/c 40,000

1,911,375 1,911,375

AB Ltd. A/c (Purchasing Company)

Particulars Amt Particulars Amt
To Realisation A/c 1,560,000 By Preference Shares in AB Ltd A/c 440,000
By Equity Shares in AB Ltd A/c 1,056,000
By Cash A/c 64,000
1,560,000 1,560,000

Preference Shareholders A/c

Particulars Amt Particulars Amt
To Preference Shares in AB Ltd A/c 440,000 By 7% PSC A/c 400,000
By Realisation A/c (b/f) 40,000

440,000 440,000

Equity Shareholders A/c

Particulars Amt Particulars Amt
To Realisation A/c (Loss) 51,375 By ESC A/c 800,000
To Equity Shares in AB Ltd A/c 1,056,000 By P&L A/c 371,375
To Cash A/c 64,000

1,171,375 1,171,375
Accounting in the Books of Purchasing Company/ Transfaree Company / Amalgamated Company

Nature of Amg and Method of Accounting

Nature
Purchase Merger

Method of Accounting
Purchase Pooling of Interest Method

Identification of Nature of Amg:

If ALL the following 5 conditions are satisfied, then it is Merger otherwise it will be Purchase
1 All Assets and Liabilities of S Ltd should be taken over by P Ltd
2 All the above Assets and Liabilities should be taken over at same BV as in S Ltd
3 Equity Shareholders holding not less than (atleast) 90% of Nominal Value of Equity shares in S
become Equity Shareholders in P Ltd.
S Ltd.
A 600
B 200
C 150
D 50
1000
A, B and C agreed to become E. SH of P Ltd.
They hold 95% of NV of shares, and hence condition 3 is satisfied
4 To the aforementioned E. Shareholders, Purchase consideration is paid only in the form of E.
Exception: For Fractional Shares, Cash can be paid.
Example:
Mr. A holds 100 shares in S Ltd
Exchange Ratio is 1:3
P. Company should issue 33.33 shares (100sh*1/3)
33 shares will be given, for 0.33 shares (Fractional Shares), cash can be paid
In the above case, condition is satisfied.

5 P Ltd should have intention to continue same business of S Ltd after amalgamation

Journal Entries - Purchase Method

1) Purchase Consideration Due
Business Purchase A/c Dr
To Liquidator of S Ltd. A/c

2) Incorporation of Assets and Liabilities Taken Over at Fair Values / Agreed Values
Sundry Assets TO A/c Dr
Goodwill A/c Dr (b/f)
To Sundry Liab A/c
To Business Purchase A/c
To Capital Reserve A/c (b/f)
3) Discharge of Purchase Consideration
Liquidator of S Ltd A/c Dr
To Cash/Bank A/c
To ESC A/c / PSC A/c / Debentures A/c
To Securities Premium A/c

Journal Entries -Pooling of Interest Method (Merger)

1) Purchase Consideration Due
Business Purchase A/c Dr
To Liquidator of S Ltd. A/c

2) Incorporation of Assets and Liabilities Taken Over at Book Values and incorporation of Adjusted R&S of S Ltd.
Sundry Assets TO A/c Dr

To Sundry Liab A/c

To Business Purchase A/c

3) Discharge of Purchase Consideration

Liquidator of S Ltd A/c Dr
To Cash/Bank A/c
To ESC A/c / PSC A/c / Debentures A/c
To Securities Premium A/c

Note:
Illustration for Computation of Adjusted R&S to be incorporated:
Balance Sheet of S Ltd. at 31.03.2010
Liabilities Amt Assets Amt
Share capital 100 Sundry Assets 200
Reserves :
General Reserve 25
Profit and Loss A/c 20
Statutory Reserves 5

Outside liabilities 50
200 200

Particulars Case I Case II Case III

a) Share Capital of S Ltd 100 100 100
b) Purchase Consideration 120 160 90
c) Amounts to be adjusted against R&S of S Ltd. (a - b) -20 -60 10
d) Adjustment against R&S of S Ltd
i) General Reserve 25-20=5 25 - 25=0 25
 ii) P&L 20-0=20 20-20=0 20
iii) Statutory Reserve 5 5 5
iv) Balance loss to be adjusted against R&S of P Ltd. 15 (Dr)
v) Capital Reserve 10

2) Incorporation of Assets and Liabilities Taken Over at Book Values and incorporation of Adjusted R&S of S Ltd.
Case I Sundry Assets TO A/c Dr 200
To Sundry Liab A/c 50
To Business Purchase A/c 120
To GR A/c 5
To P&L A/c 20
To Statutory Reserve A/c 5

Case III Sundry Assets TO A/c Dr 200

To Sundry Liab A/c 50
To Business Purchase A/c 90
To GR A/c 25
To P&L A/c 20
To Statutory Reserve A/c 5
To Capital Reserve 10

Case II Sundry Assets TO A/c Dr 200

P&L/GR A/c (R&S of P Ltd) Dr 15
To Sundry Liab A/c 50
To Business Purchase A/c 160
To Statutory Reserve A/c 5

4) Other Entries under Purchase and Pooling of Interest (Merger)

a) Discharge of Liability immediately after taking over
Purchase Merger
Liability A/c Dr Not Applicable
To C/B/Security A/c If any Liability is discharged immediately after TO, then it should
is not taken over and hence 1st condition is not satified, theref

b) Intercompany Owings / Mutual Owings

Purchase Merger
Creditors A/c or B/P A/c or Loan Taken A/c Dr Same as in Purchase
To Debtors A/c or B/R A/c or Loan Given A/c

c) Creation of Stock Reserve

Purchase Merger
Goodwill/Capital Reserve A/c Dr R&S A/c Dr
To Stock Reserve A/c To Stock Reserve A/c
 A Ltd sold goods costing 100 at 150 to B Ltd
B Ltd consumed 120 value of goods and balance goods of Rs. 30 is in Closing stock of B Ltd
A Ltd purchased B Ltd
At the time of Incorporation of A&L of B Ltd in A's books, the above closing stock of Rs. 30 is also incorporated
150 IP - 50 Profit
30 IP - ? =30*50/150 = 10
In the above closing stock there is Unrealised profit of Rs. 10, for which Stock Reserve should be created

d) Realisation Expenses
Purchase Merger
Case I: Borne by Selling Company
No JE No JE

Case II: Borne by Purchasing Company

Goodwill/Capital Reserve A/c Dr R&S A/c Dr
To Cash / Bank A/c To Cash / Bank A/c

Case III: Initially Paid by Selling Co. and later on Reimbursed by Purchasing Co.
a) On Payment by S Ltd
Goodwill/Capital Reserve A/c Dr R&S A/c Dr
To S Ltd. A/c To S Ltd. A/c

b) On Reimbursement
S Ltd. A/c Dr S Ltd. A/c Dr
To Cash / Bank A/c To Cash / Bank A/c

e) Contra Entry for Statutory Reserves

Purchase Merger
Amlagamation Adjustment A/c Dr No JE - Already incorporated in 2nd Entry
To Statutory Reserve A/c

Additional Note:
Adoption of Fair values / Book Values in different areas:
Computation of Purch consideration - Net Assets Method (or Intrinsic Value method)
Fair Values

Accounting in S Ltd - Transfer of A&L TO by P Ltd to Realisation

Book Values

Accounting in P Ltd -
i) Purchase for Incorporation - Fair Values
ii) Merger for Incorporation - Book Values
mated Company

A Ltd Purchsed B Ltd

5C

e it will be Purchase
ver by P Ltd
n over at same BV as in S Ltd
) 90% of Nominal Value of Equity shares in S Ltd, should

nce condition 3 is satisfied

consideration is paid only in the form of E. shares.

Shares), cash can be paid

ness of S Ltd after amalgamation

Note: Anlaysis of Goodwill or Capital Reserve

I II III
a) Net Assets Taken Over 100 100 100
b) Purchase Consideration 100 120 90
- -20 10
Additional Cost Capital Profit
 Goodwill Credited to Capital Reserve

ation of Adjusted R&S of S Ltd.

ation of Adjusted R&S of S Ltd.

harged immediately after TO, then it should be deemed as Liability

nd hence 1st condition is not satified, therefore nature will be only Purchase.
sing stock of B Ltd

ing stock of Rs. 30 is also incorporated

Stock Reserve should be created

Dr

porated in 2nd Entry

alue method)
Prob No. 7
WN 1: Computation of Purchase Consideration - Payments Method (Amt and No. of shares in Lakhs)
To E.Shareholders, Amount of Equity shares issued by P Ltd to V Ltd = (6000/10)*3/2*10 = 9000

Accounting in the Books of P Ltd (Purchasing Company) (Amt in Lakhs)

*) Nature of Amalgamation - Merger (Given in Question)
*) Method of Accounting - Pooling of Interest Method

Journal Entries
Particulars Debit Credit
1) Purchase Consideration Due
Business Purchase A/c Dr 9,000
To Liquidator of V Ltd A/c 9,000

2) Incorporation of Assets and Liabilities

taken over at BV and Adjusted R&S
P&M A/c Dr 5,000
Furniture, Fixtures and Fittings A/c Dr 1,700
Inventories A/c Dr 4,041
Trade Receivables A/c Dr 1,020
Bank A/c Dr 609
B/R A/c Dr 80

To 12% Debentures A/c 1,000

To Trade Payables A/c 463
To Trade Provisions A/c 702
To Business Purchase A/c 9,000
To General Reserve A/c (WN 2) 200
To P&L A/c (WN 2) 775
To Foreign Projects Reserve 310

3) Discharge of Purchase Consideration

Liquidator of V Ltd A/c Dr 9,000
To ESC A/c 9,000

4) Other Entries
a) Conversion of Debentures
12% Debentures A/c Dr 1,000
To 13% Debentures A/c 1,000

b) Canacellation of Mutual owings

B/P A/c Dr 80
To B/R A/c 80
c) Amalgamation Expenses
General Reserve A/c Dr 1
To Bank A/c 1
od (Amt and No. of shares in Lakhs)
d = (6000/10)*3/2*10 = 9000

WN 2: Computation of Adjusted R&S to be incorporated

Particulars Amt
a) Share Capital of V Ltd 6,000
b) Purchase Consideration 9,000
c) Amounts to be adjusted against R&S of V Ltd. (a - b) -3,000
d) Adjustment against R&S of V Ltd
i) General Reserve (3200 - 3000) 200
ii) P&L A/c (825 - 50 Discount on Issue of Debentures) 775
iii) Foreign Projects Reserve (Assumed as Statutory Reserve) 310
 Prob No. 8

Additional Note: Preparation of Purchasing Company Balance sheet

Purchasing Company is an Purchasing Company is a
Existing Co. New Company

Existing B/S + JE of Amg Only from JE of Amg

Balance sheet of P Ltd as on 1/4/2010 ( After Amalgamation)

Particulars Note No. Amt
I) Equity and Liabilities
1) Shareholder Funds
a) Share Capital - ESC
a) Share Capital - ESC (15,000 + 9000) 24,000
(2400 Lakh shares of Rs. 10 each)
b) Reserves and Surplus 1 16,654

2) NCL
a) LTB - 13% Debentures 1,000

3) CL
a) Trade Payables 2 1,583
b) Short Term Provisions - Trade Provisions 2,532
(1830 + 702)
45,769
II) Assets
1) NCA
a) Fixed Assets
i) Property, Plant and Equipment 3 29,004

2) Current Assets
a) Inventories (7862 + 4041) 11,903
b) Trade Receivables (2120 + 1020) 3,140
c) Cash and Cash Equivalents - Cash at Bank 1,722
(1,114 + 609 - 1)
45,769
Note to Accounts:
1) Reserves and Surplus
a) Securities Premium 3,000
b) Other Reserves
i) General Reserve (9500+200-1) 9,699
ii) Foreign Projects Reserve 310
c) Surplus - P&L (2,870 + 775 ) 3,645
16,654

2) Trade Payables
a) B/P (120 - 80) 40
b) Other Trade Payables (1080 + 463) 1,543
1,583

3) PPE
a) L&B 6,000
b) P&M (14,000 + 5000) 19,000
c) F,F & F (2304 + 1700) 4,004
29,004
Prob No. 8
WN 1: Computation of Purchase Consideration to X Ltd - Net Assets Method
a) Sundry Assets TO at Fair Value or Agreed Values 100,000
b) Less: Payables TO -25,000
c) Purchase Consideration 75,000
Accounting in the Books of X Ltd (Selling Co.)
Realisation A/c
Particulars Amt Particulars Amt
To Sundry Assets A/c 120,000 By Payables A/c 25,000
By XY Ltd. A/c (WN 1) 75,000
By E.Shareholders A/c (b/f) 20,000
120,000 120,000

XY Ltd A/c (purchasing Co.)

Particulars Amt Particulars Amt
To Realisation A/c 75,000 By E. Shares in XY Ltd A/c 75,000

75,000 75,000
Loan to Y A/c
Particulars Amt Particulars Amt
To Balance b/d 15,000 By E. Shares in 15,000
XY Ltd. A/c
15,000 15,000

E. Shares in XY Ltd A/c

Particulars Amt Particulars Amt
To XY Ltd. A/c 75,000
To Loan to Y A/c 15,000 By E. Shareholders A/c 90,000
90,000 90,000
E.Shareholders A/c
Particulars Amt Particulars Amt
To Realisation A/c (Loss) 20,000 By ESC A/c 100,000
By P&L A/c 10,000
To E. Shares in XY Ltd A/c (b/f) 90,000
110,000 110,000
Prob No. 9
WN 1: Computation of Purchase Consideration - Payments Method
To E.Shareholders, Amount of Equity shares issued by Careful Ltd = (10,00,000/100)sh*1/1*20 = 200,000

Journal Entries in the books of Careful Ltd. (Purchasing Company)

*) Nature of Amalgamation - Purchase
*) Method of Accounting - Purchase

Particulars Debit Credit

1) Purchase Consideration Due
Business Purchase A/c Dr 200,000
To Liquidator of Reckless Ltd A/c 200,000

2) Incorporation of Assets and Liabilities

taken over at FV/AV
P&M A/c (b/f) Dr 430,000
Inventories A/c Dr 120,000
T/R A/c Dr 60,000
Bank A/c Dr 5,000
To Debenture Holders A/c 115,000
To Trade Payables A/c 300,000
To Business Purchase A/c 200,000

3) Discharge of Purchase Consideration

Liquidator of Reckless Ltd A/c Dr 200,000
To ESC A/c 200,000

4) Other Entires
a) Issue of New Debentures to Debenture holders
Debenture Holders A/c Dr 115,000
To 6% Debentures A/c 115,000

b) Issue of Shares for Cash

Bank A/c Dr 400,000
To ESC A/c (20,000 sh *20) 400,000

c) Part Payment to T/P

Trade Payables A/c Dr 100,000
To Bank A/c 100,000
 Prob No. 10

,000/100)sh*1/1*20 = 200,000

Balance sheet of Careful Ltd as on 1/1/2011 ( After Amalgamation)

Particulars Note No. Amt
I) Equity and Liabilities
1) Shareholder Funds
a) Share Capital - ESC (200,000 + 400,000) 600,000
(30,000 shares of Rs. 20 each)
b) R&S -

2) NCL
a) LTB - 6% Debentures 115,000

3) CL
a) Trade Payables (300,000 - 100,000) 200,000

915,000
II) Assets
1) NCA
a) Fixed Assets
i) Property, Plant and Equipment - P&M 430,000

2) CA
a) Inventories 120,000
b) Trade Receivables 60,000
c) Cash and Cash Equivalents - Cash at Bank 305,000
(5000 + 400,000 -100,000)
915,000
Prob No. 10
WN 1: Computation of Purchase Consideration - Payments Method (Rs. In '000)
Particulars B Ltd C Ltd
a) To Preference Shareholders - 13% Preference Shares 5,000 -
(50,000 P.Sh * 100)

b) To Equity Shareholders - Equity Shares

i) B Ltd: 20,00,000sh*10 20,000
ii) C Ltd: 440,000sh*10 4,400
c) Purchase Consideration 25,000 4,400

Accounting in the Books of B Ltd (Selling Co.)

Prepare the following accounts:
Realisation A/c
D Ltd A/c (Purchasing Comp)
Preference SH A/c
E. SH A/c
Accounting in the Books of D Ltd (Purchasing Company) (Amt in Thousands)
*) Nature of Amalgamation - Merger (Since all 5 Conditions are satisfied)
*) Method of Accounting - Pooling of Interest Method

Journal Entries
Particulars Debit Credit
1) Purchase Consideration Due
Business Purchase A/c Dr 29,400
To Liquidator of B Ltd A/c 25,000
To Liquidator of C Ltd A/c 4,400

2) Incorporation of Assets and Liabilities at BV and Adjusted R&S

a) Of B Ltd
L&B A/c Dr 7,400
P&M A/c Dr 16,380
Furniture A/c Dr 270
Patents A/c Dr 600
Inventories A/c Dr 4,050
T/R A/c Dr 800
Bank A/c Dr 100
P&L A/c (WN 2) Dr 900
To Trade Payables A/c 700
To Business Purchase A/c 25,000
To Capital Reserve A/c (WN 2) 4,800

b) Of C Ltd
Goodwill A/c Dr 150
Furniture A/c Dr 500
MV A/c Dr 705
Inventories A/c Dr 2,600
T/R A/c Dr 1,290
Bank A/c Dr 155
To Trade Payables A/c 250
To Business Purchase A/c 4,400
To General Reserve A/c (WN 2) 600
To P&L A/c (WN 2) 150

3) Discharge of Purchase Consideration

Liquidator of B Ltd A/c Dr 25,000
Liquidator of C Ltd A/c Dr 4,400
To 13% PSC A/c (WN 1) 5,000
To ESC A/c (20,000 + 4,400) (WN 1) 24,400
4) Other Entries
a) Liquidation Expenses
P&L A/c Dr 3
To Bank A/c 3

b) Issue of shares for Cash

Bank A/c Dr 2,400
To ESC A/c (200,000sh*10) 2,000
To Securities Premium A/c (200,000sh*2) 400

Note to Accounts:
2) Reserves and Surplus
a) Securities Premium 400
b) Capital Reserve 4,800
c) Other Reserves - GR 600
c) Surplus - P&L (-900 + 150 -3) -753
5,047
 Prob No. 11

WN 2: Computation of Adjusted R&S to be incorporated

Particulars B Ltd C Ltd
a) Share Capital (B: 5000 PSC + 15000 ESC) 20,000 4,000
b) Purchase Consideration 25,000 4,400
c) Amounts to be adjusted against R&S (a - b) -5,000 -400
d) Adjustment against R&S Selling Company
i) General Reserve (B: (3,500 - 3500)), (C:(1000-400)) - 600
ii) P&L A/c (600 - 600) - 150
iii) Capital Reserve 4,800 -
iv) Balance unadjusted loss debited to P&L A/c (of D Ltd) 900 -
Prob No. 11
WN 1: Balance Sheet as on 30/9/2010
Liabilities Rama Krishna Assets
ESC 600,000 400,000 Fixed Assets (500,000*95%)
Reserves 150,000 100,000 (350,000*95%)
P&L 150,000 75,000 Inventories
(Rama: 65,000+145,000-(10%*600,000) ) Trade Receivables
(Krishna: 55,000+60,000-(10%*400,000) )

Trade Payables 37,500 30,000 Cash and Bank (b/f)

937,500 605,000

WN 2: Computation of Purchase Consideration - Intrinsic Value Method

Particulars Rama Krishna
1) Assets at Fair Values / Agreed Values
a) Fixed Assets 475,000 332,500
b) Inventories (Krishna: 75,000+ 15,000) 95,000 90,000
c) Trade Receivables 140,000 100,000
d) C&B 227,500 97,500
e) Goodwill 0 25,000
2) Less: Liabilities at FV/Agreed Values - T/P -37,500 -30,000
3) Net Assets 900,000 615,000 Paid by issuing shares of Rama, Issue Price = I
Purchase
Consideration
4) No. of Shares O/S of Rama Ltd 60,000 shares
5) Intrinsic Value per Share ( (3)/(4) ) 15
6) No. of Shares to be issued by Rama Ltd 41,000 shares
to Krishna Pvt. Ltd on the basis of Intrinsic
value (Purchase consideration / IV Per share
= 615,000/15) (Issue price is Intrinsic Value)

Accounting in the books of Rama Ltd (Purchasing Company)

*) Nature of Amalgamation - Purchase
*) Method of Accounting - Purchase

Particulars Debit Credit

1) Purchase Consideration Due (WN 2)
Business Purchase A/c Dr 615,000
To Liquidator of Krishna Pvt. Ltd A/c 615,000

2) Incorporation of Assets and Liabilities

taken over at FV/AV
Fixed Assets A/c Dr 332,500
Inventories A/c Dr 90,000
Trade Receivables A/c Dr 100,000
C&B A/c Dr 97,500
Goodwill A/c Dr 25,000
To Trade Payables A/c 30,000
To Business Purchase A/c 615,000

3) Discharge of Purchase Consideration

Liquidator of Krishna Pvt. Ltd A/c Dr 615,000
To ESC A/c (41,000 sh *10) 410,000
To Securities Premium A/c (41,000*5) 205,000
 Prob No. 12
I) Computation of Purchase Consideration - Net Assets Method
Rama Krishna Particulars Amt
475,000 332,500 1) Assets at Fair Values / Agreed Values
a) Fixed Assets 1,280,000
95,000 75,000 b) Inventories 770,000
140,000 100,000 c) Bills Receivables 30,000
2) Less: Liabilities at FV/Agreed Values -
3) Net Assets - Purchase Consideration 2,080,000
227,500 97,500 4) Amount of 10% P. shares issued of 510,000
937,500 605,000 Rs. 100 each (5,100 Preference shares)
5) Balance consideration is discharged by issue 1,570,000
of Equity shares of Rs. 10 each, Rs. 8 paidup
( (3)-(4) ); 196,250 Equity shares (15,70,000/8)

of Rama, Issue Price = Intrinsic Value per share

sets Method II) Accounting in the Books of Exe Ltd. (Selling Company)
Realisation A/c
Particulars Amt Particulars Amt
To Fixed Assets A/c 964,000 By Wye Ltd A/c 2,080,000
To Inventories A/c 775,000 By B/P A/c 2,000
To B/R A/c 30,000 (Profit = 40,000 - 38,000)
To Trade Receivables A/c 2,000 By Trade Payables A/c 15,000
(Loss = 152,000 - 150,000) (Profit = 226,000 - 211,000)
To Bank A/c (Loss on paym of ta 2,000
To Bank A/c (Exp) 8,000

To E. Shareholders A/c (b/f) 316,000

2,097,000 2,097,000
Cash/Bank A/c
Particulars Amt Particulars Amt
To Balance b/d 329,000 By B/P A/c 38,000
To Trade Receivables A/c 150,000 By Provision for I. Tax A/c 220,000
By Realisation A/c 2,000
(222,000 - 220,000)
By Realisation A/c (Exp) 8,000
By Trade Payables A/c (b/f) 211,000
479,000 479,000

Prov for Tax A/c Dr 220,000

Realisation A/c (b/f) Dr 2,000
To C/B 222,000
 Wye Ltd A/c (Purchasing Co.)
Particulars Amt Particulars Amt
To Realisation A/c 2,080,000 By 10% P. Shares in Wye Ltd A/c 510,000
By E. Shares in Wye Ltd. A/c 1,570,000
2,080,000 2,080,000

E. Shareholders A/c
Particulars Amt Particulars Amt
By ESC A/c 1,200,000
By Profit prior to Inc A/c 42,000
By Contingency Reserve A/c 270,000
To 10% P. Shares in W 510,000 By P&L A/c 252,000
To E. Shares in Wye Lt 1,570,000 By Realisation A/c 316,000

2,080,000 2,080,000
III) Accounting in the books of Wye Ltd (Purchasing Company)
*) Nature of Amalgamation - Purchase
*) Method of Accounting - Purchase

Particulars Debit Credit

1) Purchase Consideration Due
Business Purchase A/c Dr 2,080,000
To Liquidator of Exe Ltd A/c 2,080,000

2) Incorporation of Assets and Liabilities

taken over at FV/AV
Fixed Assets A/c Dr 1,280,000 Net Assets
Inventories Dr 770,000 Purchase
Bills Receivables Dr 30,000 No b/f in Inorporation JE
To Business Purchase A/c 2,080,000

3) Discharge of Purchase Consideration

Liquidator of Exe Ltd A/c Dr 2,080,000
To ESC A/c 1,570,000
To 10% PSC A/c 510,000
 Prob No. 14
WN 1: Computation of Purchase Consideration - Payments Method ( Amt in Lakhs)
Particulars Amt
a) To Equity Shareholders - E. Shares 800
(80 Lakh Sh*4/5*12.50)
b) To Preference Shareholders - 13% Cum P. shares 350
(35 Lakh sh*10)
c) Purchase Consideration 1150

norporation JE
 Accounting in the Books of V Ltd. (Selling Company) (Amt in Lakhs)
Realisation A/c
Particulars Amt Particulars Amt
To L&B A/c 445 By 10% Debentures A/c 600
To P&M A/c 593 By Outstanding Deb Int A/c 30
To F, F & F A/c 114 By Trade Payables A/c 170
To Inventories A/c 380 By P Ltd. A/c (WN 1) 1150
To T/R A/c 256
To Bank A/c 69
To Cash A/c 6

To E. Shareholders A/c (b/f) 87

1950 1950
Accounting in the Books of P Ltd (Purchasing Company) (Amt in Lakhs)
*) Nature of Amalgamation - Merger (Given in Question)
*) Method of Accounting - Pooling of Interest Method

Journal Entries
Particulars Debit Credit
1) Purchase Consideration Due
Business Purchase A/c Dr 1,150
To Liquidator of V Ltd A/c 1,150

2) Incorporation of Assets and Liabilities

taken over at BV and adjusted R&S
L&B A/c Dr 445
P&M A/c Dr 593
F, F & F A/c Dr 114
Inventories A/c Dr 380
T/R A/c Dr 256
Bank A/c Dr 69
Cash A/c Dr 6
P&L A/c (WN 2) Dr 87
To 10% Debentures A/c 600
To Outstanding Deb Int A/c 30
To Trade Payables A/c 170
To Business Purchase A/c 1150

3) Discharge of Purchase Consideration

Liquidator of V Ltd A/c Dr 1150
To ESC A/c (80*4/5*10) 640
To Securities Premium A/c (80*4/5*2.50) 160
To 13% Cum PSC A/c 350

4) Other Entries
a) Conversion of Debentures
10% Debentures A/c Dr 600
To 10.5% Cum Secured Debentures A/c 600

b) Payemnt of O/s Int

O/s Debenture Int A/c Dr 30
To Bank A/c 30

c) Cancellation of mutual Owings

Trade Payables A/c Dr 7
 To Trade Receivables A/c 7

d) Creation of Stock Reserve

P&L A/c Dr 1
To Stock Reserve A/c (5*20%) 1

e) Amalgamation Expenses
P&L A/c Dr 2
To Bank A/c 2
 50,000
60000
96
625

Prob No. 5

WN 2: Computation of Adjusted R&S to be incorporated

Particulars Amt
a) Share Capital of V Ltd 1,150
b) Purchase Consideration (WN 1) 1,150
c) Amounts to be adjusted against R&S of V Ltd. (a - b) -
d) R&S of V Ltd to be incorporated - P&L A/c Dr Balance 87
 Deb in B Ltd
Agreed value
Issue Price, Rs. 4 is discount
No. of Deb, FV of Deb Issued is Rs. 62,500
Total Discount = 625 Deb*4 = 2,500

Prob No. 5
WN 1: Computation of Purchase Consideration - Payments Method Accounting in the Book
Particulars Amt WN 2: Balance sheet of B Ltd. As on 30/6/201
To Equity Shareholders Liabilities
a) In the form of Equity Shares 561,875 ESC
( (30,000 sh*3/2) - 50 Fractional Shares )*12.50 General Reserve
= (45,000 sh - 50 sh)*12.50 = 44,950 sh*12.50 P&L A/c (55,000 + 20,000)
6% Debentures
b) In the form of Cash 75,625 Trade Payables
i) For Fractional Shares (50 sh * 12.50) 625
ii) For Shares in B Ltd. (30,000sh*2.50) 75,000

c) Purchase Consideration 637,500 Rea

Particulars
To Goodwill A/c
To L,Band P A/c
To Inventories A/c
To Trade Receivables A/c
To Cash & Bank A/c

To E. SH A/c (b/f)

Equity Sh
Particulars

To E. Shares in A Ltd. A/c

To Cash A/c
 Accounting in the Books of B Ltd. (Selling Company)
of B Ltd. As on 30/6/2010
Amt Assets Amt
300,000 Goodwill 50,000
85,000 Land, Building & Plant 320,000 305,000
75,000 Less: Provision for Dep (15,000)
50,000 Inventories 90,000
15,000 Tarde Receivables 25,000
Cash & Bank (b/f) 55,000
525,000 525,000

Realisation A/c
Amt Particulars Amt
50,000 By Provision for Dep A/c 15,000
320,000 By 6% Debentures A/c 50,000
90,000 By Trade Payables A/c 15,000
25,000 By P&L A/c 20,000
55,000 (Profit for the period of 6 months)
By A Ltd. A/c (WN 1) 637,500
197,500
737,500 737,500
Equity Shareholders A/c
Amt Particulars Amt
By ESC A/c 300,000
By GR A/c 85,000
By P&L A/c 55,000
561,875 By Realisation A/c 197,500
75,625
637,500 637,500
To SH

To DH of S ltd
III) Accounting in the books of A Ltd (Purchasing Company)
*) Nature of Amalgamation - Purchase
*) Method of Accounting - Purchase

Particulars Debit Credit

1) Purchase Consideration Due
Business Purchase A/c Dr 637,500
To Liquidator of B Ltd A/c 637,500

2) Incorporation of Assets and Liabilities

taken over at FV/AV
Land A/c Dr 100,000 Additional Note:
Building A/c Dr 250,000 If no change in BV, then no cha
Plant A/c Dr 350,000 If there is a Change in BV, then
Inventories A/c (90,000 - (84,000 - 80,000) ) Dr 86,000 Computing FV: BV now - Loss
Trade Receivables A/c (25,000 - (18,000-18,000)) Dr 25,000
Cash & Bank A/c Dr 55,000

To Provision for Depreciation A/c 15,000

To Debenture Holders A/c (50,000*120%) 60,000
To Trade Payables A/c 15,000
To P&L Suspense A/c 20,000
To Business Purchase A/c 637,500
To Capital Reserve A/c (b/f) 118,500
(CR amt is after adj of Goodwill of Rs. 50,000)

3) Discharge of Purchase Consideration

Liquidator of B Ltd. A/c Dr 637,500
To ESC A/c (561,875*10/12.50) (44,950sh*10) 449,500
To SP A/c (561,875*2.50/12.50)(44,950sh*2.50) 112,375
To Cash & Bank A/c 75,625

4) Other Entries
a) Discharge of Debentures Holders
Debenture holders A/c Dr 60,000
Discount on Issue of Deb A/c (b/f)(625 Deb*4) Dr 2,500
 To 7% Debentures A/c (60,000/96*100 = 625 Deb*100) 62,500

b) Amalgamation Expenses
Capital Reserve A/c Dr 5,000
To Cash & Bank A/c 5,000
Additional Note:
If no change in BV, then no change in FV (L,B & P)
If there is a Change in BV, then FV will change
Computing FV: BV now - Loss 6 months back (Inventories)
: BV now - (BV 6 months back - FV 6 months back)
Reconstruction
Liab Amt Assets Amt
Shareholders Funds NCA

NCL CA
CL P&L A/c (Dr Bal) 100

NCL
Debenture Holders
10% Debentures 1,000,000
-400,000
600,000 13% Secured Deb

SH
100,000 sh *10 1,000,000
-900,000
100,000

Two types of Recunstruction:

Internal R
External R - Amalgamation of Companies (Example is Prob No. 9)

JE
1 (c )
Asset 100
Creditor 120

Cred A/c Dr 120

To Asset A/c 100
To R A/c 20

2 (a) Creditor 120 2 (b) Creditor 120

Payment 100 Discount/Waiver 20

Cred A/c Dr 120 Cred A/c Dr 20

To Cash A/c 100 To R A/c
To R A/c 20
Balance amt of Rs. 100 will be settled in the futur

2(c ) Debenture Holders

10% Debentures 1,000,000
-400,000
600,000 13% Secured Deb
 10% Debentures A/c Dr 1,000,000
To 13% Sec Deb A/c 600,000
To Rec A/c -400,000

3(c ) 10,000 shares of Rs. 100 each full paidup, SC is 10,00,000

Converting them into,
10,000 shares of Rs. 100 , 10 paidup (Only Paidup value is reduced)
SC A/c Dr 900,000
To Rec 900,000
(10,000 sh*90)

Revised SC is 100,000, In this case as the shares are converted

to Partly paidup, Compoany can make a call in future of Rs. 90

10,000 shares of Rs. 100 each fully paidup, SC is 10,00,000

Converting them into,
10,000 shares of Rs. 10 each fully paidup (FV and Paidup Value both are reduced)
SC (FV 100) A/c Dr 1,000,000
To SC (FV 10) A/c 100,000
To R A/c 900,000

SC is 100,000
 FA Revaluation of Assets Reconstruction A/c - Cr Rev Profit
Sell Unproductive Assets Reconstruction A/c - Cr Profit on Sale

Surplus >= 100 Reconstruction A/c - Nominal in nature

All Exp/Lossess because of Recunstruction process - Debited
All Incomes/Gains because of Recunstruction process - Credited
This Account is also called as Capital reduction A/c

XYZ Ltd

20

100 will be settled in the future

Prob No. 1
Journal Entries
Particulars Debit Credit
1) Capital Reduction
a) P. SH
6% Cumm. PSC A/c (FV Rs. 100 each) Dr 400,000
To 6% Cumm. PSC (FV Rs. 75 each) A/c 300,000
(4000 sh *75)
To Reconstruction A/c (b/f) 100,000

b) E.SH
ESC (FV Rs. 10 each) A/c Dr 750,000
To ESC (FV Rs. 2 each) A/c (75,000 sh*2) 150,000
To Reconstruction A/c (b/f) 600,000

2) Payment of Arrears of P. Div (add. Note)

Reconstruction A/c Dr 24,000
(400,000*6%*4 years *1/4)
To ESC (FV Rs. 2 each) A/c 24,000

3) Payment of Accrued Interest

Accrued Int A/c Dr 22,500
To Bank A/c 22,500

4) Debenture Holders
a) Part payment
6% Debentures A/c Dr 120,000
To Freehold Property A/c 100,000
To Reconstruction A/c (b/f) 20,000

b) Issue of new Debentures

Bank A/c Dr 130,000
To 8% Floating Charge Debentures A/c 130,000

5) Revaluation of Freehold Property

Freehold Property A/c Dr 62,500
(387,500 - Balance BV(425,000-100,000))
To Reconstruction A/c 62,500

6) Sale of Investments
Bank A/c Dr 140,000
To Investments A/c 55,000
To Reconstruction A/c (b/f) 85,000

7) Settlement of Director's Loan

 Director's Loan A/c Dr 100,000
To ESC (FV Rs. 2 each) A/c (100,000*90%) 90,000
To Bank A/c (100,000*5%) 5,000
To Reconstruction A/c (b/f) 5,000

8) Payment of Penalty on cancellation

of contracts
Reconstruction A/c Dr 12,500
To Bank A/c (250,000*5%) 12,500

9) Utilisation of Reconstruction surplus

Cr +ve (100,000 + 600,000 - 24,000 +20,000
Dr -ve +62,500 + 85,000 +5000 - 12,500 = 836,000)
Reconstruction A/c Dr 836,000
To P&L A/c 435,000
To Patents A/c 37,500
To Goodwill A/c 130,000
To Def. Advertisement A/c 100,000
To Inventories A/c 65,000
To Trade Receivables A/c 68,500
Additional Note:
Arrears of P. Div (Contingent Liability) = 400,000*6%*4y = 96,000

3/4 = 72,000 1/4 = 24,000

Waived Paid by issue of E. Shares of Rs. 2 each

NO JE JE
Reconstruction A/c Dr
To ESC (FV Rs. 2 each) A/c
Statement of Balance sheet of A Ltd and Reduced as on 1/1/2011
Particulars Note No. Amt
I) Equity and Liabilities
1) Shareholders Funds
a) Share Capital 1 564,000
b) Reserves and Surplus -

2) Non Current Liabilities

a) Long Term Borrowings 2 385,000

3) Current Liabilities
a) Trade Payables 300,000

1,249,000
II) Assets
1) Non Current Assets
a) Fixed Assets
i) PPE 3 437,500

2) Current Assets
a) Inventories (425,000 - 65,000) 360,000
b) Trade Receivables (485,000 - 68,500) 416,500
c) Cash & Cash Equivalents - Cash at Bank (WN 1) 35,000

1,249,000
Notes to Accounts:
1) Share Capital
a) Issued, Subscribed and fully paidup
i) ESC 264,000
(750,000-750,000+150,000+24,000+90,000)
(132,000 E.sh of Rs. 2 each)

ii) 6% Cumm. PSC (400,000 - 400,000 + 300,000) 300,000

(4000 P.sh of Rs. 75 each)
564,000

2) Long Term Borrowings

a) 6% Debentures (375,000-120,000) 255,000
b) 8% Floating Charge Debentures 130,000
385,000

3) Property, Plant and Equipment

a) Freehold Property 387,500
b) Plant 50,000
437,500
 Prob No. 2

WN 1: Computation of Closing Bal in Bank A/c

Bank A/c
Particulars Amt Particulars Amt
To 8% Debentures A/c 130,000 By Balance b/d (OD) 195,000
To Sale of Inv A/c 140,000 By Accrued Int A/c 22,500
By Director's Loan A/c 5,000
By Reconstruction A/c 12,500
By Balance c/d 35,000
270,000 (Normal Bal) 270,000
Cr +ve
Dr -ve
Prob No. 2
Journal Entries
Particulars Debit Credit
1) Equity share Capital Reduction
ESC (FV Rs. 10 each) A/c Dr 200,000
To ESC (FV Rs. 2.50 each) A/c(20,000*2.5) 50,000
To Reconstruction A/c (b/f) 150,000

2) Rights Issue
Bank A/c Dr 60,000
(20,000 sh*1:1*3)
To ESC (FV Rs. 2.50 each) A/c 50,000
(20,000 sh *1/1 * 2.5)
To Securities Premium A/c 10,000
(20,000 sh *1/1 * 0.5)

3) PSC
5% Cumm. PSC (FV Rs. 10 each) A/c Dr 70,000
To 8% Cumm. PSC (FV Rs.10 each) 35,000
(3500 sh* 10)
To ESC (FV Rs. 2.50 each) A/c 35,000
(14,000 sh *2.50)

4) Debentureholders
a) Interest Payment
Int Payable on Deb A/c Dr 12,800
To ESC (FV Rs. 2.50 each) A/c (2000*2.50) 5,000
To Reconstruction A/c (b/f) 7,800

b) Conversion of Deb
8% Debentures A/c Dr 80,000
To 9.5% Debentures A/c 80,000

c) Fresh Issue of Debentures

Bank A/c (9000*90%) Dr 8,100
Reconstruction A/c (9000*10%) Dr 900
To 9.5% Debentures A/c 9,000

5) Settlement of Directors Loan

Directors Loan A/c Dr 16,000
To Reconstruction A/c 6,000
To ESC (FV Rs. 2.50 each) A/c (1000sh*2.5) 2,500
To Securities Premium A/c (b/f) 7,500

6) Sale of Investments
Bank A/c Dr 60,000
To Investments A/c 27,000
To Reconstruction A/c (b/f) 33,000

7) Part Payment to T/P

T/P A/c Dr 46,000
To Bank A/c 46,000

8) Revaluation of Building
Building A/c (80,000 - 27,246) Dr 52,754
To Reconstruction A/c 52,754

9) Utilisation of Reconstruction surplus

(150,000 + 7,800 -900 + 6000 +33,000 +
52,754 = 248,654)
Reconstruction A/c Dr 248,654
To P&L A/c 39,821
To Goodwill A/c 60,000
To T/R A/c (70,692*10%) 7,069
To Land A/c (156,000 - 90,000) 66,000
To Equipment A/c (10,754 - 10,000) 754
To Inventories A/c (120,247 - 50,000) 70,247
To Capital Reserve A/c (b/f) 4,763

Notes to Accounts:
2) R&S
a) Securities Premium (10,000 + 7,500) 17,500
b) Capital Reserve 4,763
22,263
 10,000 sh of Rs. 10 each 100,000
Capital Reduction 10,000 sh of Rs. 2 each 20,000
Profit 80,000 Directly credited to R A/c

10,000 sh of Rs. 10 each 100,000

Surrender of shares to Company 8000 sh of Rs. 10 each 80,000 Profit Temp transferred to Sh Surr A/c
Remaining - 2000sh *10 20,000 Once the surrendered shares are Used or

Afterwards, it will be transferred to Recon

Sub-Division
Old 10,000 sh of Rs. 10 each 100,000 1 sh 10 each
New 100,000 sh of Rs. 1 each 100,000 10 sh 1 each

Consolidation
Old 100,000 sh of Rs. 1 each 100,000 10 sh 1 each
New 10,000 sh of Rs. 10 each 100,000 1 sh 10 each
nsferred to Sh Surr A/c
surrendered shares are Used or Cancelled, then Sh Surrendered A/c will be closed

ds, it will be transferred to Reconst A/c

Prob No. 3
Journal Entries
Particulars Debit Credit
1) Sub-Division of Shares
ESC (FV 100 each) A/c Dr 1,000,000
(10,000 sh * 100)
To ESC (FV 10 each) A/c 1,000,000
(10,000 sh *(10:1) * 10)
(100,000 sh * 10)

2) Surrender of 50% Shares

ESC (FV 10 each) A/c Dr 500,000
(50,000 sh * 10)
To Shares Surrendered A/c 500,000

3) Re-Issue of Surrendered shares

as 12% Preference Shares
Shares Surrendered A/c Dr 100,000
(10,000 sh * 10)
To 12% PSC A/c 100,000

4) Debentureholders
12% Debentures A/c Dr 150,000
(200,000*75%)
Accrued Int A/c (24,000*75%) Dr 18,000
To Reconstruction A/c 168,000

5) Trade Payables
a) Shares Surrendered A/c Dr 36,000
To ESC A/c 36,000
(72,000*50%)

b) Trade Payables A/c Dr 72,000

To Reconstruction A/c 72,000

6) Cancellation of balance surrendered shares

(500,000 Cr - 100,000 Dr - 36,000 Dr = 364,000)
Shares Surrendered A/c Dr 364,000
To Reconstruction A/c 364,000

7) Utilisation of Reconstruction Surplus

(168,000 + 72,000 + 364,000 = 604,000)
Reconstruction A/c Dr 604,000
To P&L A/c 600,000
To Capital Reserve A/c (b/f) 4,000
 Prob No. 4
Statement of Balance sheet of Revise Ltd and Reduced as on 1/4/2010
Particulars Note No. Amt
I) Equity and Liabilities
1) Shareholders Funds
a) Share Capital 1 636,000
b) Reserves & Surplus - Capital Reserve 4,000

2) NCL
a) LTB - 12% Debentures (200,000*25%) 50,000

3) CL
a) Other Current Liabilities - Accrued Interest (24,000*25%) 6,000
b) Short Term Provisions - Provision for Income Tax 24,000

720,000
II) Assets
1) Non Current Assets
a) Fixed Assets
i) PPE - Machinery 100,000

2) Current Assets
a) Inventories 320,000
b) Trade Receivables 270,000
c) Cash & Cash Equivalents - Cash at Bank 30,000

720,000

Notes to Accounts:
1) Share Capital
a) Issued, Subscribed and fully paiup
i) ESC (10,00,000 - 500,000 + 36,000) 536,000
(53,600 shares of Rs. 10 each)
ii) 12% PSC 100,000
(10,000 shares of Rs. 10 each)
636,000
Prob No. 4 Prob No. 5
Journal Entries
Particulars Debit Credit
1) Part repayment of Debentures
10% Debentures A/c Dr 14,000
To Freehold L&B A/c 6,000
To Reconstruction A/c (b/f) 8,000

2) Revaluation of balance L&B

Freehold L&B A/c Dr 12,000
To Reconstruction A/c 12,000
(40,000 - Balance BV (34,000-6000) )

3) Settlement of T/P
a) T/P A/c Dr 18,000
To 11% Mortgage Debentures A/c 15,500
To Reconstruction A/c (b/f) 2,500

b) T/P A/c Dr 10,000

To Bank A/c (10,000*85%) 8,500
To Reconstruction A/c (b/f) 1,500

4) Investments TO by Bank
Bank A/c Dr 22,000
To Investments A/c 15,000
To Reconstruction A/c (b/f) 7,000

5) Capital Reduction
a) ESC
ESC (FV Rs. 10 each) A/c Dr 150,000
To ESC (FV Rs. 1 each) (15,000sh*1) 15,000
To Reconstruction A/c (b/f) 135,000

b) PSC
9% Cumm. PSC (FV Rs. 10 each) A/cDr 100,000
To 9% Cumm. PSC (FV Rs. 8 each) 80,000
To Reconstruction A/c (b/f) 20,000

6) Rights Issue of E. Shares

Bank A/c Dr 30,000
(15,000 sh*2/1 * 1)
To ESC (FV Rs. 1 each) 30,000

7) Reconstruction Expenses
Reconstruction A/c Dr 3,500
 To Bank A/c 3,500

8) Payment of Interest Due

Interest Due A/c Dr 4,200
To Bank A/c 4,200
.
9) Utilisation of Reconstruction Surplus
(8000 + 12,000 + 2500 +1500 + 7000
+ 135,000 + 20,000 - 3,500 = 182,500 )
Reconstruction A/c Dr 182,500
To Plant A/c (96,000-59,000) 37,000
To Tools and Dies A/c (27,300-15000) 12,300
To Inventories A/c (42,500 - 30,000) 12,500
To T/R A/c (53,400 - 48,700) 4,700
To R&D Expenses A/c 18,000
To P&L A/c 98,000
Prob No. 5
Journal Entries
Particulars Debit Credit
1) P.SH
a) 8% PSC A/c Dr 600,000
To Reconstruction A/c (600,000*30%) 180,000
To Bank A/c (b/f) 420,000

b) Reconstruction A/c Dr 33,600

To Bank A/c (600,000*8%*1Y*70%) 33,600

2) Debentureholders
9% Debentures A/c Dr 600,000
Interest Accrued A/c Dr 108,000
To 12% Debentures A/c 600,000
To Reconstruction A/c (b/f) 108,000

3) Bank OD
Bank of India (OD) A/c Dr 150,000
Interest Accrued on OD A/c Dr 15,000
To Reconstruction A/c (15,000*50%) 7,500
To Bank A/c (b/f) 157,500

4) T/P
Trade Payables A/c Dr 69,000
To Reconstruction A/c (69,000*5%) 3,450
To Bank A/c (b/f) 65,550

5) Cost of Reconstruction
Reconstruction A/c Dr 3,350
To Bank A/c 3,350

6) E. SH (WN 1) (Only Paidup Value is reduced)

ESC A/c Dr 300,000
To Reconstruction A/c 300,000

7) Utilisation of Surplus
Reconstruction A/c Dr (b/f) 562,000
To P&L A/c 408,000
To Patents & Copyrights 80,000
To T/R A/c 30,000
To Fixed Assets A/c 34,000
To Investments A/c (65,000 - 55,000) 10,000

8) Cash Contribution by E.SH (WN 2)

Bank A/c Dr 700,000
To ESC A/c 700,000

1,000,000
-300,000
700,000
1,400,000
200,000 sh
7 Paid up per share, FV Rs.10 each
Rs. 3 Uncalled Cap
WN 1: Computation of Surplus to be generated from E. SH
Reconstruction A/c
Particulars Amt Particulars Amt
To Bank A/c 33,600 By 8% PSC A/c 180,000
To Bank A/c 3,350 By Interest Accrued A/c 108,000
To P&L A/c 408,000 By Interest Accrued on OD A/c 7,500
To Patents & Copyrights 80,000 By T/P A/c 3,450
To T/R A/c 30,000
To Fixed Assets A/c 34,000 By ESC A/c (b/f) 300,000
To Investments A/c 10,000

598,950 598,950

WN 2: Computation of Cash to be contributed by E. SH

Bank A/c
Particulars Amt Particulars Amt
To Balance b/d 10,000 By 8% PSC A/c 420,000
To ESC A/c (b/f) 700,000 By Reconstruction A/c 33,600
By Bank of India (OD) A/c 150,000
By Interest Accrued on OD A/c 7,500
By T/P A/c 65,550
By Reconstruction A/c 3,350

By Balance c/d 30,000

710,000 710,000
hare, FV Rs.10 each
Prob No. 8
Journal Entries
Particulars Debit Credit
1) (a) Final Call
Bank A/c Dr 1,000,000
To ESC A/c (100,000 sh*10) 1,000,000

(b) Capital Reduction

ESC (FV Rs. 50 each) A/c Dr 7,500,000
( (50,000 + 100,000)sh*50 )
To ESC (FV Rs. 40 each) A/c 6,000,000
( (50,000 + 100,000)sh*40 )
To Reconstruction A/c (b/f) 1,500,000

2) Rights Issue
Bank A/c Dr 1,250,000
To ESC A/c (FV Rs. 40 each) 1,250,000

3) Settlement of T/P
Trade Payables A/c Dr 1,240,000
To ESC (FV Rs. 40 each) A/c 750,000
To Bank A/c ((12,40,000-750,000)*70%) 343,000
To Rec A/c ((12,40,000-750,000)*30%) 147,000

4) Settlement of Mr. Shiv

a) 8% Debentures A/c Dr 300,000
12% Debentures A/c Dr 400,000
To Mr. Shiv A/c 700,000

b) Mr. Shiv A/c Dr 700,000

To Reconstruction A/c 200,000
To 15% Debentures A/c (b/f) 500,000

c) Bank A/c Dr 100,000

To 15% Debentures A/c 100,000

5) Settlement of Mr. Ganesh

a) 8% Debentures A/c Dr 100,000
12% Debentures A/c Dr 200,000
To Mr. Ganesh A/c 300,000

b) Mr. Ganesh A/c Dr 300,000

To Reconstruction A/c 50,000
To 15% Debentures A/c (b/f) 250,000
6) Revaluation of L&B and Stock
L&B A/c (51,84,000 - 42,70,000) Dr 914,000
Stock A/c (350,000 - 320,000) Dr 30,000
To Reconstruction A/c 944,000

7) Payment of O/s Exp

O/s Expenses A/c Dr 1,060,000
To Bank A/c 1,060,000

8) Utilisation of Reconstruction Surplus

(15,00,000 + 147,000 + 200,000 + 50,000
+944,000)
Reconstruction A/c Dr 2,841,000
Capital Reserve A/c (b/f) Dr 500,000
To Machinery A/c (850,000-720,000) 130,000
To Computers A/c (520,000-400,000) 120,000
To Trade Debtors A/c (10,90,000*10%) 109,000
To Goodwill A/c 2,200,000
To P&L A/c 782,000
Consolidation of Financial Statements
AS 21 Consolidation of Subsidiaries
AS 23 Consolidation of Associates
AS 27 Consolidation of JV
All the above AS are Disclosure based standards

CA Inter Consolidation of Subsidiaries - Basics

H Ltd S Ltd
Standalone FS Standalone FS

Combined FS - CFS
It includes:
Consolidation of B/S (CBS)
Consolidation of Statement of P&L
Consolidation of Cash Flow Statement

I) Consolidation of B/S
H Ltd S Ltd 60%
Standalone B/S Standalone B/S
Line-by-Line addition of all items of FS, with just only 3 adjustments
I Adjustment: Cost of Control
II Adjustment: Minority Interest
III Adjustment: Inter-Company Transactions

I Adjustment: Cost of Control (Goodwill / Capital Reserve) & II Adjustment: Minority Interest

Case I: Preparation of CBS on the Date of Acquisition (31/3/2019)

B/s of H Ltd as on 31/3/2019
Liab Amt Assets Amt
SC 100 Sundry Net Assets 175
R&S 150 Investment in Equity 75
shares of S Ltd (60%)
250 250
Date of Investment by H Ltd in S Ltd is 31/3/2019

Line-by-line Addition:
Consolidated BS as on 31/3/2019
Liab Amt Assets Amt
SC (100 + 50) 150 Sundry Net Assets 275
R&S (150+ 50) 200 (175 + 100)
Investment in Equity 75
shares of S Ltd (60%)
350 350
CBS after COC:
Consolidated BS as on 31/3/2019
Liab Amt Assets Amt
SC (100 + (50 - 30 COC) ) 120 Sundry Net Assets 275
R&S (150+ (50 - 30 COC) ) 170 (175 + 100)
Goodwill 15
Investment in Equity -
shares of S Ltd (60%)
290 290

CBS after COC and MI:

Consolidated BS as on 31/3/2019
Liab Amt Assets Amt
SC (100 + (50 - 30 COC -20 MI) ) 100 Sundry Net Assets 275
R&S (150+ (50 - 30 COC -20MI) ) 150 (175 + 100)
Minority Interest 40 Goodwill 15
(SC 20 + R&S 20) Investment in Equity -
shares of S Ltd (60%)
290 290

Case II: Preparation of CBS after Acquisition

DOA is 31/3/2019
Prepartion of CBS is 31/3/2020 (2nd year)

B/s of H Ltd as on 31/3/2020

Liab Amt Assets Amt
SC 100 Sundry Net Assets 200
R&S 175 Investment in Equity 75
shares of S Ltd (60%)
275 275

Line-by-line Addition:
Consolidated BS as on 31/3/2020
Liab Amt Assets Amt
SC (100 + 50) 150 Sundry Net Assets 330
R&S (175+80) 255 (200 + 130)
Investment in Equity 75
shares of S Ltd (60%)
405 405

CBS after COC:

Consolidated BS as on 31/3/2020
Liab Amt Assets Amt
SC (100 + (50 - 30 COC) ) 120 Sundry Net Assets 330
 R&S (175+ (80 - 30 COC) ) 225 (200 + 130)
Goodwill 15
Investment in Equity -
shares of S Ltd (60%)
345 345
Note: COC will always remain same irrespective of date of preparation of CBS
COC is always determined as on DOA

CBS after COC and MI:

Consolidated BS as on 31/3/2020
Liab Amt Assets Amt
SC (100 + (50 - 30 COC - 20 MI)) 100 Sundry Net Assets 330
R&S 193 (200 + 130)
(175 + (80 -30 COC -20 MI -12 MI)) Goodwill 15
(193: 175 H Ltd + 18 H share in Post R&S of S Ltd) Investment in Equity -
MI 52 shares of S Ltd (60%)
(SC 20 + Pre-Acq R&S 20 + Post-Acq R&S 12)

345 345

Steps for preparation of CBS

1 DOA - 31/3/2019
2 Shareholding Pattern (H Ltd 60% and MI 40%)
3 Analysis of S Ltd's R&S - Pre and Post
4 Apportionment of S Ltd's R&S
5 MI
6 COC
7 Inter co.Transactions
8 R&S for CBS

S Ltd is having Preference Share Capital

PSC can be hold by H Ltd and MI
H Ltd co.'s share in PSC of S Ltd is cancelled as part of COC (just like ESC) (Step 6)
MI share will be disclosed in MI (just like ESC) (Step 5)

H Ltd Dividend received from S Ltd

Dividend is calssified in to:
Pre-Acq Dividend - Deducted from Cost of Investment; If Dividend is paid by S Ltd out of Pre-Acq Profits, it is called
Post Acq Dividend - Treated as regular Dividend Income (R&S); If Dividend is paid by S Ltd out of Post-Acq Profits, it

Stock Reserve
Case I: Downstream H
H Ltd sold goods to S Ltd, 100 cost of goods sold at 150
S Ltd consumed 120, balance 30 is included in Closing stock
 In this 30, profit is available, added by H Ltd S
Stock Reserve = 30*50/150 = 10
Stock Reserve will be in R&S of H Ltd, and hence it should be deducted
from R&S of H Ltd, i.e. Step 8

Case II: Upstream H

S Ltd sold goods to H Ltd, 100 cost of goods sold at 150
H Ltd consumed 120, balance 30 is included in Closing stock
In this 30, profit is available, added by S Ltd S
Stock Reserve = 30*50/150 = 10
Stock Reserve will be in R&S of S Ltd which were apportioned among H Ltd and MI (Step 4)
H Ltd share = 10*60% = 6 Deduct from Step 8
MI Share = 10*40% = 4 Deduct from Step 5
 B/s of S Ltd as on 31/3/2019
Liab Amt Assets Amt
SC 50 Sundry Net 100
R&S 50

100 100

For Suppose holding percentage is 80%

Determination of COC: Determination of COC:
a) Cost of Investment 75 a) Cost of Investment
b) Value of Investment 60 b) Value of Investment
i) SC of S Ltd (50*60%) 30 i) SC of S Ltd (50*80%) 40
ii) R&S of S Ltd (50*60%) 30 ii) R&S of S Ltd (50*80%) 40
c) Cost of Control - Goodwill 15 c) Cost of Control - Capital Reserve
 B/s of S Ltd as on 31/3/2020
Liab Amt Assets Amt
SC 50 Sundry Net 130
R&S 80

130 130

Determination of COC: (31/3/2019)

a) Cost of Investment 75
b) Value of Investment 60
i) SC of S Ltd (50*60%) 30
ii) R&S of S Ltd (50*60%) 30
c) Cost of Control - Goodwill 15

R&S of S Ltd (as on 31/3/2020) 80

R&S as on DOA is 50 : Pre-Acquisition R&S (31/3/2019) R&S after DOA is 30 : Post-Acquisition R&S
H Ltd 60% = 50*60% = 30 Cancelled for COC H Ltd 60% = 30*60% = 18 Included in R&S of CBS
 MI 40% = 50*40% = 20 Incl as part of MI MI 40% = 30*60% = 12 Incl as part of MI

Determination of COC: (31/3/2020)

a) Cost of Investment 75
b) Value of Investment 60
i) SC of S Ltd (50*60%) 30
ii) Pre-Acq R&S of S Ltd (50*60%) 30
c) Cost of Control - Goodwill 15

of Pre-Acq Profits, it is called as Pre-Acq Div

Ltd out of Post-Acq Profits, it is called as Post-Acq Div

100 cost + 50 Profit = 150

150 - 50
30 - ?

10

H Ltd (60%) 6 Deduct from Step 8

MI (40%) 4 Deduct from Step 5

(Upstream - H Ltd's share)

75
80

5
 Post-Acq
Particulars
Pre-Ac (CP) RR RP(P&L)
R&S (GR) 50 30
 50 30 0
H Ltd (60%) 30 18 0 Cancelled as COC
MI (40%) 20 12 0 Step 6
Incl as part of MI (Step 5)
Included in R&S of CBS
Step 8
Prob No. 1
Computation of Goodwill/Capital Reserve ( Cost of Control)

Particulars Amt
a) Cost of Investment 6,300,000
i) Amount Invested 70,00,000
ii) Less: Pre-Acquisition Dividend (700,000) 3/31/2004
((70,00,000/20)*10*20%)

b) Value of Investment (WN 1) 9,695,000

c) Capital Reserve ( b - a) 3,395,000

WN 1: Computation of Value of Investment - X Ltd's share in

Net Assets of Y Ltd as on DOA
Particulars Amt
1) Assets
a) Fixed Assets (120,00,000 *120%) 14,400,000
b) Investments (55,00,000*90%) 4,950,000
c) Current Assets 7,000,000
d) Loans and Advances 1,500,000

2) Less: Liabilities
a) 15% Debentures -9,000,000
b) Current Liabilities -5,000,000
3) Net Assets 13,850,000
4) X Ltd's share in Net Assets of Y Ltd ((3)*70%) 9,695,000
 Prob No. 3

Div is paid by Y
Out of R&S available on 31/3/2004
DOA is 31/3/2004
On DOA, available R&S are called as Pre-Acq R&S
It means, Div is paid out of Pre-Acq R&S and hence it is Pre-Acq Div

Div rate is 20%

FV of shares?

X paid total 70L at Rs. 20 per share

NO. of sh purch = 70L/20 = 350,000 sh
FV of shares = 350,000sh*10 = 35,00,000
Pre-Acq Div = 35,00,000*20% = 700,000
Prob No. 3
I) Computation of MI
Particulars As on DOA As on DOC
(1/1/2003) (31/12/2003)
Case 1: A
MI (10%)
a) SC (100,000*10%) 10,000 10,000
b) P&L (50,000*10%), (70,000*10%) 5,000 7,000
c) MI 15,000 17,000

Case 2: B
MI (15%)
a) SC (100,000*15%) 15,000 15,000
b) P&L (30,000*15%), (20,000*15%) 4,500 3,000
c) MI 19,500 18,000

Case 3: C
MI (20%)
a) SC (50,000*20%) 10,000 10,000
b) P&L (20,000*20%) 4,000 4,000
c) MI 14,000 14,000

Case 4: D
MI - Nil

II) Computation of Cost of Control - Goodwill/Capital Reserve as on 1/1/2003 (DOA)

Particulars Case 1: A (90%) Case 2: B (85%)
a) Cost of Investment 140,000 104,000
b) Value of Investment
i) SC (SC as on 1/1/2003 * Percentage of Holding) 90,000 85,000
ii) Pre-Acquisition Profits 45,000 25,500
( (P&L A/c balance as on 1/1/2003)*Percentage of holding )
iii) Total 135,000 110,500

c) Capital Reserve / (Goodwill) ( b-a ) -5,000 6,500

III) Computation of R&S to be disclosed in CBS as on 31/12/2003

Particulars Case 1: A (90%) Case 2: B (85%)
a) Holding Company's R&S as given 200,000 200,000
b) Holding Company's share in Subsidiary's Post-Acquisition R&S
i) P&L A/c Balance as on 31/12/2003 70,000 20,000
ii) Less: P&L A/c balance as on 1/1/2003 (Pre-Acq Profits) -50,000 -30,000
iii) Post-Acquisition Profits 20,000 -10,000
iv) Holding Company's share in Post-Acquisition Profits 18,000 -8,500
c) Capital Reserve (COC) - 6,500
d) R&S for CBS ( a + b(iv) + c ) 218,000 198,000
Case 3: C (80%) Case 4: D (100%)
56,000 100,000

40,000 50,000
16,000 40,000

56,000 90,000

- -10,000

Case 3: C (80%) Case 4: D (100%)

200,000 200,000

20,000 55,000
-20,000 -40,000
- 15,000
- 15,000
 - -
200,000 215,000
Prob No. 4
WN 1: Analysis and Apportionment of R&S in B Ltd
P&L A/c Balance as on 31/12/2003 = 80,000
(60,000 + 20,000)

Balance as on 1/1/2003 = 60,000 2003 Profit = 20,000

Less: Balance Dividend = (10,000) Less: Dividend = -20,000
50,000 0

Pre-Acquisition Profits

A Ltd's Share (80%) MI Share (20%)

Rs. 40,000 Rs. 10,000

WN 2: Analysis of Dividend
Total Dividend = Rs. 30,000

From Pre-Acq Profits From Post-Acq Profits

Rs. 10,000 Rs. 20,000

Pre-Acquisition Dividend Post-Acquisition Dividend

A Ltd's Share (80%) A Ltd's Share (80%)

Rs. 8000 Rs. 16,000

I) JE for Dividend received in the books of A Ltd.

Bank A/c Dr 24,000
To Investment A/c (Pre-Acq Div) 8,000
To Dividend A/c (P&l A/c)(Post-Acq Div) 16,000
 Prob No. 5
II) Computation of Minority Interest
Particulars 1/1/2003 12/31/2003
a) Share Capital (100,000*20%) 20,000 20,000
b) P&L A/c Balance (60,000*20%) (50,000*20%) 12,000 10,000
c) MI 32,000 30,000

III) Computation of COC as on 1/1/2003

Particulars Amt
a) Cost of Investment 132,000
i) Amount Invested 140,000
ii) Less: Pre-Acquisition Dividend(WN 2) (8000)

b) Value of Investment - A Ltd's share in B Ltd's 120,000

i) SC (100,000*80%) 80,000
ii) Pre-Acquisition Profits (WN 1) 40,000
c) Goodwill (a - b) 12,000

Alternatively,
Particulars Amt
a) Cost of Investment 140,000
b) Value of Investment - A Ltd's share in B Ltd's 128,000
i) SC (100,000*80%) 80,000
ii) Pre-Acquisition Profits (60,000*80%) 48,000
c) Goodwill (a - b) 12,000
Prob No. 5
I) Computation of COC as on 1/1/1997 II) Computation of Minority Interest
Particulars Amt Date
a) Cost of Investment - Amt Invested 1,000,000 12/31/1997

b) Value of Investment - X Ltd's share in Y Ltd's 756,000

i) SC (10,00,000*70%) 700,000 12/31/1998
ii) Pre-Acquisition Profits (80,000*70%) 56,000
c) Goodwill (a - b) 244,000
12/31/1999

12/31/2000

12/31/2001

12/31/2002

12/31/2003
Computation of Minority Interest
Particulars Amt
a) SC (10,00,000*30%) 300,000
b) P&L ( (80,000 - 250,000)*30%) -51,000
c) MI 249,000 Cr Balance - Amt Payable to Minority SH
a) SC (10,00,000*30%) 300,000
b) P&L ( (-170,000 - 400,000)*30%) -171,000
c) MI 129,000
a) SC (10,00,000*30%) 300,000
b) P&L ( (-570,000 - 500,000)*30%) -321,000
c) MI (Debit Balance - Adjusted against R&S of CBS) -21,000 Dr Balance - Amt Receivable from Minority SH
a) SC (10,00,000*30%) 300,000
b) P&L ( (-10,70,000 - 120,000)*30%) -357,000
c) MI (Debit Balance - Adjusted against R&S of CBS) -57,000
a) SC (10,00,000*30%) 300,000
b) P&L ( (-11,90,000 + 50,000)*30%) -342,000
c) MI (Debit Balance - Adjusted against R&S of CBS) -42,000
a) SC (10,00,000*30%) 300,000
b) P&L ( (-11,40,000 + 100,000)*30%) -312,000
c) MI (Debit Balance - Adjusted against R&S of CBS) -12,000
a) SC (10,00,000*30%) 300,000
b) P&L ( (-10,40,000 + 150,000)*30%) -267,000
c) MI 33,000
 Prob No. 2
WN 1: Analysis of R&S of Raju Ltd.
P&L A/c Balance as on 31/12/2003 = 425,000
(125,000 + 300,000)

able to Minority SH

Balance as on 1/1/2003 2003 Profit

RS. 125,000 Rs. 300,000

Pre-Acquisition Profits
ceivable from Minority SH Up to DOA 1/8/2003 After DOA 1/8/2003
(7 months) (5 months)
=300000*7/12 = 300,000*5/12
=175,000 = 125,000

Pre-Acquisition Profits Post-Acquisition Profits

Hence Total Pre-Acquisition profits = 125,000+175,000 = Rs. 300,000

Post-Acquisition profits = Rs. 125,000

WN 2: Analysis of Dividend
Total Dividend paid by Raju Ltd = 5000sh*100*40%
= 200,000

Ravi Ltd's share (Holding Co.) MI Share

=3000 sh*100*40% =2000sh*100*40%
= 120,000 =80,000

JE in the Books of Ravi Ltd for receipt of Dividend

Total Dividend of the year 2003 (200,000) is paid from Profits of the year 2003 (300,000)
Profits of the Year 2003 is apportioned as Pre and Post on the basis of 7 months and 5 months
Hence, Dividend received by Ravi Ltd of Rs. 120,000 should also be apportioned as Pre and Po

Bank A/c Dr 120,000

To Investment A/c (Pre-Acq Div) 70,000
(120,000*7/12)
To Dividend A/c (P&l A/c)(Post-Acq Div) 50,000
(120,000*5/12)
 After DOA 1/8/2003
(5 months)
= 300,000*5/12

Post-Acquisition Profits

he year 2003 (300,000)

s of 7 months and 5 months respectively
e apportioned as Pre and Post on the basis of 7 months and 5 months respectively
Prob No. 6
Working Notes:
1) Date of Acquisition is 1/7/2003

2) Shareholding Pattern
Particulars No. of Percentage of
Shares Holding
a) X Ltd. 1600 80%
b) MI 400 20%
2000 100%

3) Analysis of R&S in Y Ltd

a) Reserves Closing Balance = 100,000

Pre-Acquisition Profits (CP)

(Assumed that no appropriations are done
to Reserves A/c during the CY)

b) Revaluation Profit
Particulars Amt
a) BV of P&M as on 1/1/2003 150,000
b) Less: Depreciation from Jan to June, 2003 -7,500
(150,000*10%*6/12)
Rate of Dep = (150,000-135,000) *100 = 10%
150,000
c) BV of P&M as on 1/7/2003 142,500
d) Revalued Amt of P&M as on 1/7/2003 180,000
e) Revaluation Profit (d - c) 37,500

Pre-Acquisition Profits (CP)

c) P&L A/c Closing Balance = 82,000

Opening Balance as on 1/1/2003 = 30,000 Profits earned during the 72,000

Less: Dividend paid = -20,000 year 2003
(200,000*10%) (82,000 - 10,000)
10,000

Pre-Acquisition Profits (CP)

Profits from Jan to June, 2003 Profits from July toDec, 2003 = 36,000
36,000 (72000*6/12) Less: Additional Depreciation= -1875
(37,500*10%*6/12)
Pre-Acquisition Profits (CP)
 4) Apportionment of R&S in Y Ltd
Pre-Acq Profits Post-Acq Profits
Particulars
(Capital Profits) Revenue Res Rev Profits
a) Reserves 100,000 - -

b) Revaluation Profit 37,500 - -

c) P&L (Pre:10,000+36,000) 46,000 - 34,125
d) Total 183,500 - 34,125
e) Apportionment
i) X Ltd (80%) 6 146,800 - 27,300
ii) MI (20%) 36,700 - 6,825

5) Minority Interest (20%)

Particulars Amt
a) SC (200,000*20%) 40,000
b) Capital Profits (WN 4) 36,700
c) Revenue Profits (WN 4) 6,825
83,525

Dec, 2003 = 36,000

preciation= -1875
 34,125

Post-Acquisition Profits (RP)

 6) Cost of Control
Particulars Amt
a) Cost of Investment 324,000
i) Amount Invested 340,000

ii) Less: Pre-Acquisition Dividend (16,000)

(20,000*80%)
b) Value of Investment - X Ltd's share in Y Ltd's 306,800
i) SC (200,000*80%) 160,000
8 ii) Pre-Acquisition Profits (WN 4) 146,800
5 c) Goodwill (a - b) 17,200

7) Inter Company Transactions - Nil

8) R&S for CBS

Particulars Reserves P&L
a) R&S of X Ltd. 240,000 57,200
b) Less: Pre-Acquisition Dividend - -16,000
c) Add: X Ltd's share in Y Ltd's Post Acq Profits (WN 4) - 27,300
d) Net Amt 240,000 68,500
R&S for CBS = 240,000 + 68,500 = 308,500
Consolidated Balance sheet of X Ltd. and it's Subsidiary Y Ltd.
as on 31/12/2003
Particulars Note No. Amt
I) Equity and Liabilities

1) Shareholders Funds
a) Share Capital - ESC 500,000 (Will be of only Holding Company SC)
(5000 shares of Rs. 100 each)
b) Reserves & Surplus (WN 8) 308,500

2) Minority Interest (WN 5) 83,525

3) Current Liabilities
a) Trade Payables 1 64,500
b) Other Current Liabilities - Bank OD (80,000 + 0) 80,000

1,036,525
II) Assets
1) Non Current Assets
a) Fixed Assets
i) PPE 2 740,625
ii) Intangible Assets - Goodwill (WN 6) 17,200

2) Current Assets
a) Inventories (120,000 + 36,400) 156,400
b) Trade Receivables 3 99,800
c) Cash and Cash Equivalents - Cash in Hand 22,500
(14,500 + 8000)
1,036,525
Notes to Accounts:
1) Trade Payables
a) Bills Payable ( 0 + 8,400) 8,400
b) Creditors (47,100 + 9000) 56,100
64,500

2) PPE
a) Land and Buildings (150,000 + 180,000 ) 330,000
b) P&M (240,000 + 135,000 + 37,500 - 1,875) 410,625
740,625

3) Trade Receivables
a) Bills Receivable (15,800 + 0) 15,800
b) Debtors (44,000 + 40,000) 84,000
99,800
ing Company SC)
Prob No. 7
Working Notes:
1) Date of Acquisition is 1/4/2003

2) Shareholding Pattern
Particulars Percentage of
Holding
a) Alpha Ltd. 90%
b) MI 10%
100%

3) Analysis of R&S in Beta Ltd

a) General Reserves Closing Balance = 20,000

Pre-Acquisition Profits (CP)

b) P&L A/c Closing Balance = 20,500

Opening Balance as on 1/4/2003 = 22,000 Profits earned during the

Less: Dividend paid for the year = -9000 year 2003-2004
ended 31/3/2003 13,000 Less: Interim Dividend paid -4500
for the year 2003-2004
Pre-Acquisition Profits (CP)
Post-Acquisition Profits (RP)
 4) Apportionment of R&S in BetaPre-Acq
Ltd
Profits Post-Acq Profits
Particulars
(Capital Revenue Res Rev Profits
Profits)
a) General Reserves 20,000 - -

b) P&L 13,000 - 7,500

c) Total 33,000 - 7,500
e) Apportionment
i) Alpha Ltd (90%) 6 29,700 - 6,750 8
ii) MI (10%) 3,300 - 750 5

5) Minority Interest (10%)

a) SC (60,000*10%) 6,000
b) Capital Profits (WN 4) 3,300
c) Revenue Profits (WN 4) 750
10,050

12,000

ividend paid -4500

7500

Post-Acquisition Profits (RP)

6) Cost of Control
Particulars Amt
a) Cost of Investment 101,900
i) Amount Invested 110,000

ii) Less: Pre-Acquisition Dividend (8,100)

(9,000*90%)
b) Value of Investment - Alpha Ltd's share in Beta Ltd's 83,700
i) SC (60,000*90%) 54,000
ii) Pre-Acquisition Profits (WN 4) 29,700
c) Goodwill (a - b) 18,200

7) Inter Company Transactions

a) Adjustment for Unrealised Profit in Closing Stock - Included in Current Assets
i) Aggregate Current Assets (30,000 + 18,000) 48,000
ii) Less: Stock Reserve (6000*33.33%) (6000*50/150) -2,000
iii) Current Assets for CBS 46,000

b) Inter Company Debentures and Investments

Particulars 6% Debentures Investments
i) Aggregate Values 10,000 156,000
ii) Less: Cancellation of Debentures in Beta Ltd held -10,000 -10,000
by Alpha Ltd.
iii) Less: Cost of Invetsment in Shares cancelled for COC (WN 6) - -101,900
iv) Net for CBS - 44,100

8) R&S for CBS

Particulars General Reserves P&L
a) Alpha Ltd's R&S 45,000 36,000
b) Add: Alpha Ltd's share in Beta Ltd's Post Acq Profits - 6,750
(WN 4)
c) Less: Stock Reserve (WN 7(a) ) -2,000
d) Net Amt 45,000 40,750
R&S for CBS = 45,000 + 40,750 = 85,750
Consolidated Balance sheet of Alpha Ltd. and it's Subsidiary Beta Ltd.
as on 31/03/2004
Particulars Note No. Amt
I) Equity and Liabilities

1) Shareholders Funds
a) Share Capital - ESC 180,000
(180,000 shares of Rs. 1 each)
b) Reserves & Surplus (WN 8) 85,750

2) Minority Interest (WN 5) 10,050

3) Current Liabilities (39000 + 9500) 48,500
324,300

II) Assets
1) Non Current Assets
a) Fixed Assets
i) PPE (94,000 + 96,000) 190,000
ii) Intangible Assets - Goodwill (20,000 + 6000 + 18,200(WN 6) ) 44,200
b) Non-Current Investments (WN 7 (b) ) 44,100

2) Current Assets (WN 7 (a) ) 46,000

324,300
Prob No. 8
Working Notes: In the Books of X Ltd, JE for acquisitio
1) Date of Acquisition is 1/1/2003 Inv in Shares of Y Ltd A/c Dr
To ESC A/c
2) Shareholding Pattern To Securities Premium A/c
Particulars Percentage of
Holding
a) X Ltd. 75%
b) MI 25%
100%

3) Analysis of R&S in Y Ltd

P&L A/c Closing Balance = 20,000

Opening Balance as on 1/4/2002 CY Retained Profits = 8000

Rs. 12,000 (PBT 18,000 - Tax 6000 -Interim Div 4000) or (20,000 - 12,0

(1/4/2002 to 30/6/2003 - 15 months)

Pre-Acquisition Profits (CP)
From 1/4/2002 to 31/12/2002 (9m) From 1/1/2003 to 30/06/2
= 8000*9/15 = 8000*6/15
= 4800 = 3200

Pre-Acquisition Profits (CP) Post-Acquisition Profits (RP)

oks of X Ltd, JE for acquisition of shares in Y Ltd 4) Apportionment of R&S in Y Ltd
res of Y Ltd A/c Dr Pre-Acq Profits
Particulars
(Capital Profits)
rities Premium A/c a) P&L (CP:12,000+4,800) 16,800

b) Total 16,800
e) Apportionment
i) X Ltd (75%) 6 12,600
ii) MI (25%) 4,200

5) Minority Interest (25%)

a) SC (60,000*25%)
b) Capital Profits (WN 4)
c) Revenue Profits (WN 4)
m Div 4000) or (20,000 - 12,000)

From 1/1/2003 to 30/06/2003 (6m)

= 8000*6/15

quisition Profits (RP)

 6) Cost of Control
Post-Acq Profits Particulars
Revenue Res Rev Profits a) Cost of Investment - Amt Invested (note)
- 3,200 b) Value of Investment - X Ltd's share in Y Ltd's

- 3,200 i) SC (60,000*75%) 45,000

ii) Pre-Acquisition Profits (WN 4) 12,600
- 2,400 8 c) Goodwill (a - b)
- 800 5
Note: Computation of Amount Invested by X Ltd to acquire 75% shares in Y
a) Total no. of shares in Y Ltd (60,000/10)
15,000 b) No. of shares acquired by X Ltd. (a *75%)
4,200 c) Amt Invested (4500 sh *5/4 * 25)
800
20,000 7) R&S for CBS
Particulars

a) X Ltd's R&S
b) Add: X Ltd's share in Y Ltd's Post Acq Profits (WN 4)
c) Add: Securities Premium on Issue of Shares to
shareholders of Y Ltd (4500 sh *5/4 * 15) or
(140,625*15/25)
d) Net Amt
R&S for CBS = 55,000 + 64,400 + 84,375 = 203,775
 Consolidated Balance sheet of X Ltd. and it's Subsidiary Y Ltd.
Amt as on 30/06/2003
140,625 Particulars
57,600 I) Equity and Liabilities

1) Shareholders Funds
a) Share Capital - ESC (150,000 + (140,625*10/25)
83,025 (20,625 shares of Rs. 10 each)
b) Reserves & Surplus (WN 7)
Ltd to acquire 75% shares in Y Ltd
6000 sh 2) Minority Interest (WN 5)
4500 sh
140,625 3) Current Liabilities
a) Other Current Liabilities (27000+7000)
b) Short Term Provisions - Provision for Tax (33000+6000)
General Securities
Reserves P&L Premium
55,000 62,000 -
- 2,400 - II) Assets
1) Non Current Assets
84,375 a) Fixed Assets
i) PPE
55,000 64,400 84,375 ii) Intangible Assets - Goodwill (WN 6)
b) Non- Current Investments

2) Current Assets
a) Inventories (32,000+21,000)
b) Trade Receivables (41000+17000)
c) Cash and Cash Equivalents - Cash at Bank
(15000+8000)

Notes to Accounts:
1) PPE
a) Freehold Property (200000+38000)
b) P&M (32000+9000)
Subsidiary Y Ltd.

Note No. Amt

206,250

203,775

20,000

34,000
3000+6000) 39,000

503,025

1 279,000
83,025
7,000

53,000
58,000
23,000

503,025

238,000
41,000
279,000
Prob No. 9
Working Notes:
1) Date of Acquisition is 1/4/2001

2) Shareholding Pattern
Particulars Percentage of
No. of Shares Holding
a) S Ltd. 8000 80%
b) MI 2000 20%
10,000 100%

3) Analysis of R&S in M Ltd

a) General Reserves Closing Balance = 36,000

Balance as on 1/4/2001 = 30,000 Appropriations to General Reserve during

Less: Bonus Issue = -20,000 three years after acquision = 6000
(10,000sh*1/5*10) (36,000-30,000) or (2000pa*3y)
(100,000*1/5) 10,000 Post-Acquisition Profits (RR)

Pre-Acquisition Profits (CP)

b) Revaluation Profit/Loss
Particulars Amt
i) Revalued amount of Fixed Assets as on 1/4/2001 108,000
ii) Book Value of Fixed Assets as on 1/4/2001 120,000
BV as on 31/3/2004 84,000
BV as on 1/4/2001 with Depreciation on SLM at 10% pa
(84,000*100/70)
iii) Revaluation Loss (ii - i) 12,000

Pre-Acquisition Loss (Capital loss)

c) P&L A/c Closing Balance = 20,000

Balance as on 1/4/2001 = 16000 Retained Profits for three years = 14,000

Less: First year Dividend -10000 (20,000 - 6000)
paid out of Pre-Acq Profits = Add: Depreciation written back 3600
(100,000*10%) on Revaluation Loss
(Pre-Acq Dividend) (12,000*10%*3 y)
6000 17,600

Pre-Acquisition Profits (CP) Post-Acquisition Profits (RP)

 4) Apportionment of R&S in M Ltd
Pre-Acq Profits Post-Acq Profits
Particulars
(Capital Profits) Revenue Res Rev Profits
a) Reserves 10,000 6,000 -

b) Revaluation Loss -12,000 - -

c) P&L 6,000 - 17,600
d) Total 4,000 6,000 17,600
e) Apportionment
i) X Ltd (80%) 6 3,200 4,800 14,080 8
ii) MI (20%) 800 1,200 3,520 5

5) Minority Interest (20%)

a) SC ((100,000 + 20,000)*20%) 24,000
(Original SC + Bonus)
b) Capital Profits (WN 4) 800
c) Revenue Reserves (WN 4) 1,200
d) Revenue Profits (WN 4) 3,520
29,520

70 - 84,000
100 - ?

quisition Profits (RP)

6) Cost of Control
Particulars Amt
a) Cost of Investment 80,000
i) Amount Invested 88,000

ii) Less: Pre-Acquisition Dividend (8,000)

(10,000*80%)
b) Value of Investment - S Ltd's share in M Ltd's 99,200
i) SC ((100,000+20,000)*80%) 96,000
ii) Pre-Acquisition Profits (WN 4) 3,200
c) Capital Resrve (b - a) 19,200

7) Inter Company Transactions

a) BOE
Particulars B/R B/P
i) Aggregate Values (4000+16000), (2000+5000) 20,000 7,000
ii) Less: Inter Co. BOE -2,000 -2,000
iii) Net for CBS 18,000 5,000

b) Out of Total Contingent Liability for Bills Discounted of Rs. 2500,

Rs. 1500 is to be cancelled and Net Contingent Liability of Rs. 1000
should be disclosed under CBS

c) Owings
Particulars S. Debtors S. Creditors
i) Aggregate Values 21,000 11,000
ii) Less: Inter Company Owings -4,000 -2,000
iii) Net for CBS 17,000 9,000
Note: Cheque in Transit of Rs. 2000, should be disclosed as part of C&CE in CBS

8) R&S for CBS

Particulars General Capital
Reserves P&L Reserve
a) S Ltd's R&S 20,000 12,000 -
b) Less: Pre-Acquisition Dividend - -8,000 -
c) Add: S Ltd's share in M Ltd's Post Acq Profits (WN 4) 4,800 14,080 -
d) Cost of Control - - 19,200
e) Net Amt 24,800 18,080 19,200
R&S for CBS = 24,800 + 18,080 + 19,200 = 62,080
Consolidated Balance sheet of S Ltd. and it's Subsidiary M Ltd. Additional Note:
as on 31/03/2004 Bonus Issue impacts,
Particulars Note No. Amt R&S of Subsidiary - Step 3
I) Equity and Liabilities SC of Subsidiary - Step 5 and 6

1) Shareholders Funds
a) Share Capital - ESC 120,000
(12,000 shares of Rs. 10 each)
b) Reserves & Surplus (WN 8) 62,080

2) Minority Interest (WN 5) -

3) Current Liabilities
a) Trade Payables 1 14,000
225,600
II) Assets
1) Non Current Assets
a) Fixed Assets
i) PPE (44,000 + 84,000 - 12,000 + 3600 ) 119,600
2) Current Assets
a) Inventories (10,000 + 40,000) 50,000
b) Trade Receivables 2 35,000
c) Cash and Cash Equivalents - Cash at Bank 21,000
(6000 + 13,000 + 2000 Cheque in Transit(WN 7(c))
225,600
Notes to Accounts:
1) Trade Payables
a) B/P 5000
b) S. Creditors 9,000
14000
2) Trade Receivables

a) B/R 18000
b) S. Debtors 17,000
35000
3) Contingent Liability for Bills Discounted not yet matured of Rs. 1000 (WN 7(b))
ue impacts,
bsidiary - Step 3
sidiary - Step 5 and 6
Prob No. 10 A Ltd B Ltd
P&L A/c Balance 360000 224000 244,000
Strike off Propsed Dividends given in the question -20,000
224,000
Working Notes:
1) Date of Acquisition is 1/1/1992

2) Shareholding Pattern
Particulars No. of Equity Percentage of
Shares Holding
a) A Ltd. 30,000 75%
b) MI 10,000 (b/f) 25%
40,000 100%

3) Analysis of R&S in B Ltd

a) General Reserve Closing Balance = 200,000

Balance as on 1/1/1992 = 180000 CY Appropriation = 20,000

Less: Bonus Issue -100000
(400,000 ESC*1/4) Post-Acquisition Profits (RR)
80000

Pre-Acquisition Profits (CP)

b) P&L A/c Closing Balance = 224,000

Balance as on 1/1/1992 = 40,000 CY Profits after Appropriation = 184,000

(224,000 - 40,000) or
Pre-Acquisition Profits (CP) (204,000 - 20,000) Post-Acquisition Profits (RP)
 4) Apportionment of R&S in M Ltd
Pre-Acq Profits Post-Acq Profits
Particulars
(Capital Profits) Revenue Res Rev Profits
a) Reserves 80,000 20,000 -
c) P&L 40,000 - 184,000
d) Total 120,000 20,000 184,000
e) Apportionment

i) A Ltd (75%) 6 90,000 15,000 138,000 8

ii) MI (25%) 30,000 5,000 46,000 5

5) Minority Interest (25%)

a) ESC ((400,000 + 100,000)*25%) 125,000
b) Capital Profits (WN 4) 30,000
c) Revenue Reserves (WN 4) 5,000
d) Revenue Profits (WN 4) 46,000
e) 12% PSC ((20,000 P. sh - 15,000 P.sh held by A Ltd.)*10 ) 50,000
256,000

quisition Profits (RP)

6) Cost of Control
Particulars Amt
a) Cost of Investment 582,000
i) Amount Invested (450,000+180,000) 630,000
ii) Less: Pre-Acquisition Dividend (48,000)
( E.Dividend (400,000*10%*75%) + P.Div (15,000sh*10*12%) )

b) Value of Investment - A Ltd's share in B Ltd's 615,000

i) SC ( ESC((400,000 + 100,000)*75%) + PSC(15,000sh*10) ) 525,000
ii) Pre-Acquisition Profits (WN 4) 90,000

c) Capital Resrve (b - a) 33,000

7) Inter Company Transactions

a) Owings
Particulars T. Creditors C. Assets
i) Aggregate Values (CA: 260,000 + 480,000) (TC: 410,000+210,000) 620,000 740,000
ii) Less: Mutual Indebtness -24,000 -24,000
iii) Net for CBS 596,000 716,000

b) 10% Debentures and Investments

Particulars Investments in
10% Deb Deb
i) Aggregate Values 50,000 25,000
ii) Less: Inter Company -25,000 -25,000
iii) Net for CBS 25,000 -

c) Interest on Debentures
Particulars Int Payable Int Receivable
i) Aggregate Values 5000 2500
ii) Less: Inter Company -2500 -2500
iii) Net for CBS 2,500 -

8) R&S for CBS

Particulars General
Reserves P&L
a) A Ltd's R&S 360,000 360,000
b) Less: Pre-Acquisition Dividend (WN 6) - -48,000
c) Add: A Ltd's share in B Ltd's Post Acq Profits (WN 4) 15,000 138,000
d) Cost of Control - -
e) Add: Interest Income on Inv in 10% Debenture in B Ltd (now Accounted) - 2,500
f) Net Amt 375,000 452,500
R&S for CBS = 375,000 + 452,500 +33,000 = 860,500
Capital
Reserve
-
-
-
33,000
-
33,000
 H Ltd 3/31/2019
S Ltd 12/31/2018
CBS?
I Choice: S Ltd should prepare new standalone FS as on 31/3/2019 (Year ending date of H Ltd)
II Choice: Prepare CBS, with different reporting dates, however adjust Material items and Intercompany Transactions for th

Prob No. 11
Working Notes:
1) Date of Acquisition is not required

2) Shareholding Pattern
Particulars No. of Percentage of
Shares Holding
a) M Ltd. 40000 80%
b) MI 10000 20%
50000 100%

3) Analysis of R&S in N Ltd

R&S Closing Balance = 205,000

Pre-Acquisition Profits Post Acq Profits before adj 130,000

Rs. 75,000 ( Given) of material and Inter company
transactions (205,000-75,000)
Less: Abnormal Loss on damage -5,000
of Goods by Fire (20,000*25%)
Add: Profit on Sale of Goods by 30,000
N Ltd to M Ltd (Note)
Adjusted Post-Acq Profits 155,000
Note:
Particulars Amt
a) COGS by M Ltd to N Ltd 150,000
b) Invoice Price of goods sold by M Ltd to N Ltd - Cost to N Ltd 180,000
(a*120%)
c) Cost of Goods Sold by N Ltd to M Ltd (b*50%) 90,000
d) Net Amount Payable by N Ltd to M Ltd in respect of 60,000
above transactions (as given)
e) Sale Value of Goods by N Ltd to M Ltd 120,000
(Gross Amt Payable - Net Amt Payable = 180,000 - 60,000)

f) Profit earned by N Ltd on sale of goods to M Ltd (e - c) 30,000

M Ltd A/c (in the books of N Ltd)
Particulars Amt Particulars Amt
To Sales (b/f) 120,000 By Purchases 180,000
To Balance c/d 60,000
180,000 180,000
pany Transactions for the gap period

4) Apportionment of R&S in N Ltd

Pre-Acq Profits Post-Acq Profits
Particulars
(Capital Profits) Rev Reserves & Profits
a) R&S 75,000 155,000

b) Total 75,000 155,000

e) Apportionment
i) M Ltd (80%) 6 60,000 124,000 8
ii) MI (20%) 15,000 31,000 5

5) Minority Interest (20%)

a) SC (500,000*20%) 100,000
b) Capital Profits (WN 4) 15,000
c) Revenue Freserves and Profits (WN 4) 31,000
146,000
6) Cost of Control
Particulars Amt
a) Cost of Investment - Amt Invested 800,000

b) Value of Investment - X Ltd's share in Y Ltd's 460,000

i) SC (500,000*80%) 400,000
ii) Pre-Acquisition Profits (WN 4) 60,000
c) Goodwill (a - b) 340,000

7) Inter Company Transactions

a) Stock
Particulars M Ltd N Ltd
i) Stock as given 200,000 350,000
ii) Less: Cost of Goods Damaged - -20,000
iii) Add: Cost of Goods Purchased from M Ltd - 180,000
iv) Less: Cost of Goods Sold to M Ltd - -90,000
v) Less: Unrealised Profit on Downstream Transaction -15,000
( (180,000 - 90,000) * 20/120); ( (180,000 - 150,000)*50%)
vi) Adjusted Stock 200,000 405,000
Stock for CBS = 200,000 + 405,000 = 605,000

b) Owings
Particulars Debtors Creditors
i) Aggregate Values 415,000 460,000
ii) Add: Net Amount Payable from Transaction of - 60,000
goods between N Ltd and M Ltd
iii) Less: Mutual Indebtness -60,000 -60,000
iv) Net for CBS 355,000 460,000

c) 13% Debentures and Investment in Debentures

Particulars 13% Investment
Debentures in Deb
i) Aggregate Values 300,000 150,000
ii) Less: FV of Inter Company Debentures -100,000 -100,000
(1000 Deb *100)
iii) Less: Loss on Cancellation of Debentures (b/f) - -50,000
 200,000 -

8) R&S for CBS

Particulars R&S
a) M Ltd's R&S 450,000
b) Add: M Ltd's share in N Ltd's Post Acq Profits (WN 4) 124,000
c) Less: Stock Reserve on Downstream -15,000
d) Less: Loss on Cancellation of Debentures -50,000
e) Net for CBS 509,000
Consolidated Balance sheet of M Ltd. and it's Subsidiary N Ltd.
as on 31/03/2004
Particulars Note No. Amt

I) Equity and Liabilities

1) Shareholders Funds
a) Share Capital - ESC 1,000,000
(100,000 shares of Rs. 10 each)
b) Reserves & Surplus (WN 8) 509,000
2) Minority Interest (WN 5) 146,000
3) NCL
a) LTB - 15% Debentures (WN 7 (c ) ) 200,000
3) Current Liabilities
a) Trade Payables (WN 7 (b) ) 460,000
b) Other CL (200,000 + 40,000) 240,000
2,555,000
II) Assets
1) Non Current Assets
a) Fixed Assets
i) PPE (650,000 + 405,000) 1,055,000
ii) Intangible Assets - Goodwill (WN 6) 340,000

2) Current Assets
a) Inventories (WN 7 (a) ) 605,000
b) Trade Receivables (WN 7 (b) ) 355,000
c) Cash and Cash Equivalents - Cash at Bank 200,000
(80,000 + 105,000 + Insurance Claim Received(20,000*75%))
2,555,000
Prob No. 12 (Refer SM for Question - No. 10; Pg No. 10.46)
Working Notes:
1) Computation of Adjusted Reserves and Surplus 2)
Particulars Amt
a) R&S as given 714,000
b) Less: Decrease in Closing Stock for -34,000
change in Valuation from FIFO to W.Avg
c) Add: PDD not required 9,000
d) Less: Advertisement Exp Written off -30,000
3)
659,000

4)

Consolidated P&L and Cash Flow statement:

Holding + Subsidiary - Inter Co.
Adjustment of Inventory
Particulars Amt
a) Inventory as given 742,000
b) Less: Decrease in Closing Stock for -34,000
change in Valuation from FIFO to W.Avg
708,000

Adjustment of Trade Receivable

Particulars Amt
a) Trade Receivable as given (Net of Provision) 891,000 99
b) Add: PDD not required (891,000*1/99) 9,000 1
900,000 100

Adjustment of Prepaid Expenses

Particulars Amt
a) Prepaid Expenses as given 48,000
b) Less: Advertisement Exp Written off -30,000
18,000
AS 20: Earnings Per Share

EPS (General) Earnings available to Equity Shareholders JE for EPS?

No. of Equity shares Outstanding No JE

AS 20 is Disclosure based standard

EPS will be disclosed as part of FS (Statemen
Basic EPS Profits available to E.SH (PAES)
Weighted Average no. of E.SH O/s (WANES)

Diluted EPS Adjusted Profits available to E.SH (APAES)

Adjusted Weighted Average no. of E.SH O/s (AWANES)

Basic EPS Numerator: Profits available to E.SH (PAES)

a) Profit as per P&L A/c
b) less: Tax Expense (if not already adjusted)
c) Add/Less: Extra-ordinary items, Exceptional items and Prior period items (if not already adjusted)
d) Less: Preference Dividend
If P.shares are Non-Cumulative, then deduct P. Div only if it is declared
If P.shares are Cumulative, then deduct P. Div always
e) PAES

Denominator: WANES
Situation / Case I: Fresh Issue or Buy back - Weights are Time Factors
Example 1 4/1/2019 Fresh Issue is on 1/10/2019 3/31/2020
100,000 50,000 150,000
WANES:
6/12 * 100,000 = 50,000
6/12 * 150,000 = 75,000
125000

Example 2 4/1/2019 Fresh Issue is on 1/05/2019 Fresh Issue is on 01-11-2019

100,000 50,000 30,000
 WANES:
1/12 * 100,000 = 8333.33
6/12 * 150,000 = 75,000
5/12* 180,000 = 75,000
158,333

Example 3 4/1/2019 Fresh Issue is on 1/10/2019 1/11/2019 Buy back

100,000 50,000 30,000
WANES:
6/12 * 100,000 = 50,000
1/12 * 150,000 = 12,500
5/12* 120,000 = 50,000
112,500

Situation / Case II: Partly Paid up Equity Shares - Convert Partly Paidup shares by multiplying Conversion Factor (Percentage of Paidup = Paidup Amt/F
Example 1 4/1/2019 3/31/2020
100,000 100,000
of Rs. 10 each fully Paidup of Rs. 10 each fully Paidup
50,000 50,000
of Rs. 10 each, Rs. 6 Paidup of Rs. 10 each, Rs. 6 Paidup
WANES:
100,000 + (50,000 * 6/10 ) 50,000 sh*6 = 30,000 sh*10
100,000 + 30,000
130,000

Example 2 4/1/2019 Fresh Issue is on 1/10/2019 3/31/2020

100,000 50,000 150,000
of Rs. 10 each fully Paidup of Rs. 10 each, Rs. 6 paidup
As Fresh Issue and Partly Paidup are available, Time factor and conversion factor should be used
WANES:
6/12 * 100,000 = 50,000
6/12 * (100,000 sh + (50,000*6/10)) = 6/12 *(100,000 sh + 30,000 sh) = 65,000
115,000
Situation / Case III: Bonus Issue - Assume that these Bonus shares are issued at the beginning of reporting period (PY)
Example 1 4/1/2019 10/1/2019 3/31/2020
100,000 Bonus Issue of 1:2, 50,000 sh 150,000
CY 2019-2020 PAES is Rs.25,00,000
PY 2018-2019 PAES is Rs. 18,00,000
Solution:
It should be assumed that 50,000 bonus shares are issued on 1/4/2018
Hence from the beginning of PY, 150,000 shares are available
during CY, 150,000 shares are O/s or available
WANES is 150,000 shares

EPS of CY 2019-2020 = 25,00,000/150,000 = Rs. 16.67 per share

Original EPS of PY 2018-2019 = 18,00,000/100,000 = Rs. 18 per share

(This EPS is disclosed in PY FS)

Revised/Adjusted EPS of PY 2018-2019 = 18,00,000/150,000 = Rs. 12 per share

(This EPS is disclosed in CY FS)

Example 2 2011(PY) 2012(CY)

PAES 100,000 PAES 120,000
No. of shares 10,000 On 1/1/2012 Bonus 1:2, 5000sh
Total shares 10,000 + 5000 = 15,000 shares

Original EPS of 2011 = 100,000/10,000 = 10

Adj EPS of 2011 = 100,000/15,000 = 6.67
EPS of 2012 = 120,000/15,000 = 8

Situation / Case IV: Rights Issue

Step 1: Computation of Theoritcal Ex-Rights Fair value
Fair Value of shares before Rights Issue + Rights Issue Proceeds
Original No. of shares + NO. of Right Shares
Step 2: Computation of Rights Adjustment Factor (RAF) or Bonus Factor
Fair Value per share immediately before Rights Issue
Step 1

Step 3: Multiply RAF to the no. of shares O/s at the beginning of PY

Step 4: Compute EPS

a) Original EPS of PY
b) Adjusted EPS of PY
c) CY EPS

Example 1 4/1/2019 10/1/2019 3/31/2020

100,000 Rights Issue of 1:2, 50,000 sh 150,000
CY 2019-2020 PAES is Rs.25,00,000 RIP is Rs. 25
PY 2018-2019 PAES is Rs. 18,00,000 FV immediately preceeding to Rights Issue is Rs. 30 per share

Solution:
Step 1: Computation of Theoritcal Ex-Rights Fair value
Fair Value of shares before Rights Issue + Rights Issue Proceeds
Original No. of shares + NO. of Right Shares

(100,000sh*30) + (50,000sh*25) 4250000 28.33

100,000 sh + 50,000 sh 150,000 SH

Step 2: Computation of Rights Adjustment Factor (RAF) or Bonus Factor

Fair Value per share immediately before Rights Issue 30 1.06
Step 1 28.33

Step 3: Multiply RAF to the no. of shares O/s at the beginning of PY

100,000 sh * 1.06 = 106,000 shares In 50,000 Right shares, 6000 shares are bonu

Step 4: Compute EPS

 a) Original EPS of PY = 18,00,000 / 100,000 = Rs. 18 per share
b) Adjusted EPS of PY = 18,00,000 / 106,000 = Rs. 16.98 per share

c) CY EPS
4/1/2019 10/1/2019 3/31/2020
106,000 44,000 sh 150,000
(50,000 - 6000)
WANES = (6/12 * 106,000) + (6/12 *150,000)
= 53,000 + 75,000 = 128,000 sh
CY EPS = 25,00,000/128,000
= Rs. 19.53 per share

Diluted EPS Adjusted Profits available to E.SH (APAES)

Adjusted Weighted Average no. of E.SH O/s (AWANES)

E.Sh
? are not eq shares today - they might be E.sh in future
They are called as Potential Equity Shares
Because of these PES, in future
i) EPS might Increase
ii) EPS might Decrease - Discl it to SH today

Potential Equity Shares

Because of PES, in the future EPS is going to be reduced
It is the responsibility of the mngt of Co. to disclosed such estimated reduced EPS to SH, called as Diluted EPS
Because of PES, in the future EPS is going to be Increased, then such PES impact should be ignored

PES are Securities or Contract(agreement), existing on the B/S date, which are having potential to be
converted in to E. shares in the future.
PES are Classified in to two types
1) Convertibles e.g. Convertible Debentures or Convertible Preference shares
2) Options e.g. ESOP
 Options can be further classified in to,
a) Options excercisable at less than Fair Value
b) Options excercisable at Fair Value

Numerator Adjusted Profits available to E.SH (APAES)

a) PAES (as per B.EPS) xxx
b) Add/Less: Adjustments xx
i) Add: Interest on Convertible Debentures Convertible Debentures
ii) Less: Tax savings forgone on above Interest Int
iii) Add: Preference Dividend on Conertible Preference shares
iv) Others Convertible Preference shares
c) APAES xxx P.Div

Denominator Adjusted Weighted Average no. of E.SH O/s (AWANES)

a) WANES as per B.EPS xxx
b) Add: PES xx
i) Convertibles: On conversion, issuable E. shares
ii) Options
a) Exc at less than FV: Bonus elememt shares (No. of Options*(FV-EP)/FV )
b) Exc at FV: Nil
c) AWANES xxx
1000
Fair Value
EP
167
(1000*(30-25)/30 )

6/12* 50000
6/12* (50,000+20,000)

Prob no. 10
 Adjusted Profits available to E.SH (APAES)
a) PAES (as per B.EPS) 10,000,000
b) Add/Less: Adjustments
i) Add: Interest on Convertible Debentures 1200000
ii) Less: Tax savings forgone on above Interest -360000
c) APAES 10,840,000

Adjusted Weighted Average no. of E.SH O/s (AWANES)

a) WANES as per B.EPS 5,000,000
b) Add: PES
i) Convertibles: On conversion, issuable E. shares 1000000 (100,000 *10)
c) AWANES 6,000,000

D.EPS 1.81

Prob No. 12 Adjusted Weighted Average no. of E.SH O/s (AWANES)

a) WANES as per B.EPS 500,000
b) Add: PES
ii) Options
a) Exc at less than FV: Bonus elememt shares (No. of Options*(FV-EP)/FV )
(100,000 * (20-15)/20) 25000
c) AWANES 525,000

D.EPS 2.29

Prob No.8
600 sh*5/10 = 300 sh
600 sh of Rs. 5 each = 300 sh of Rs. 10 each
1800
300
2100 sh
100 EPS per share of Rs. 10 each
50 EPS per share of Rs. 5 each
ased standard
as part of FS (Statement of P&L - Last item)

3/31/2020
180,000
 3/31/2020
120,000

f Paidup = Paidup Amt/Face Value)

19-20 FS
CY PY
19-20 18-19
16.67 12
Adjusted EPS of PY
 For every 1 Original share, 0.06 bonus share is issued
1 0.06
100,000 ?
6000
es, 6000 shares are bonus shares
options
30
25

25000
35000
60000
 10-Jun Approved
30-Sep Announcement
10-Oct Sale agreement

10-Jun Approved
15-Aug Sale agreement
10-Oct Announcement

A Ltd (Holding) B Ltd (Sub)

CFS (A & B)
As 24 is applicable even to this CFS

B Ltd is closed down

It is Discon Oper from CFS point of view?

A Ltd and B Ltd A Ltd and BLtd

are in to same line of Business are in to different line of Business

Not a Disc Operation Yes, Discon Operation

 Physical substance
Value of Physical sub is negligible

Mobile (Android) 50,000

Value of Android 5,000 Doesn't have separate identity, hence android should not be capitalised separately, it

In the mobile, 6,000 Separate identity (Application Software)

installed a paid app

TA? 50,000 Incl Android - As per AS 10

Intangible Asset? 6,000 Mobile application - As per AS 26

.
Incoming Asset
Outgoing Asset

Inc Asset should be capitalised in the below order of preference,

1) FV of Outgoing Asset +- Cash
2) FV of Incoming Asset
3) BV of Outgoing Asset +- Cash

Expenses Incurred on Issue of Securities can be Deferred and Amortised

Asset
An Asset is a Present economic resource(Future Economic benefits) controlled by the entity as a result of past events
d not be capitalised separately, it should be cap along with mobile (System Software)

as a result of past events

 Provisions
Against Assets (are not Liabilities)
e.g. Prov for Depreciation, Doubtful Debts
Covered by AS 4

Charge against Profits - Debited to P&L A/c

Disclosed as deduction from the respective Asset

Events occurring after the

Balance Sheet Date

Year Ending 3/31/2019

FS are Approved on 8/31/2019

On 10/6/2019 - Significant Event has taken place

In General it should be adjusted in FS of 2019-2020
However if it is an Adjusting Event as per AS 4, then it should be adjusted in FS of 2018-2019 (PY FS) as an Event oc

Adjusting Event
Condition/circumstance/situation available on B/S Date (31/3/2019)
Event is acting like an additional Evidence - Adj Event

Adj A/L in B/s 31/3/2019

Non-Adjusting Event
If it not an Adj Event
Event is a new Event

Don't Adjust A/L in B/s 31/3/2019

Disclose in Notes to Accounts (Part of FS)

Year Ending 3/31/2019

FS are Approved on 8/31/2019
AGM is on 9/30/2019
Significant Event took place on 10/09/2019 - Such Events will not be adjusted or disclosed in FS, in Directors Report

Propsed Div
As on B/S date 31/3/2019 - BOD Proposed Div
It is declared in AGM
Conceptualy it is an Adj event
However in AS 4 exception is created and it will not be adj in FS of 18-19, it is treated as Non Adj event and disclosu
 It will be adj in FS 19-20 after declaration in AGM

Events affecting Going concern assumption

B/S date is 31/3/2019
Major fire accident occurred on 10/6/2019, which affects Going concern Assumption of business
FS are approved on 31/8/2019
As the fire accident is completely new event, it is Non-Adj Event conceptually
However in AS 4 exception is created and it is treated as Adj Event and FS of 18-19 should be adjusted

Theft occurred on 15/2/2019

B/S date 31/3/2019
Theft is identified on 10/4/2019 before FS are approved
It is an Adj Event
 for Expenses (are Liabilities)
e.g. Provision for Warranty Expenses
Covered in AS 29

Charge against Profits - Debited to P&L A/c

Disclosed under Liabilities as Long Term Provisions or as Short Term Provisions

n it should be adjusted in FS of 2018-2019 (PY FS) as an Event occurred after balance sheet

Date (31/3/2019)

Events will not be adjusted or disclosed in FS, in Directors Report they might be disclosed

t be adj in FS of 18-19, it is treated as Non Adj event and disclosure will be done in Notes to Accounts
 affects Going concern Assumption of business

Non-Adj Event conceptually

ted as Adj Event and FS of 18-19 should be adjusted
NET PROFIT OR LOSS FOR THE PERIOD,
PRIOR PERIOD ITEMS AND
CHANGES IN ACOUNTIG POLICES

Changes in Accounting Policies

Accounting Principle and Method of applying such principle

If Change in Accounting policy is in respect of Fixed Assets (Tangible AS 10 & Intangible AS 26)- Prospectiv
If Change in Accounting policy is in respect of Other than Fixed Assets - Retrospective

Changes in Accounting Estimates - Prospectively

NET PROFIT OR LOSS FOR THE PERIOD

For the purpose of Separate line disclosure is required or not, all the items of Expenses and incomes are classified in to:
1) Ordinary items
a) Exceptional - Separate line disclosure is required
b) Other than Exceptional - Separate line disclosure is not required

2) Extra-ordinary items - Separate line disclosure is required

e AS 10 & Intangible AS 26)- Prospective
ets - Retrospective

and incomes are classified in to:

 Provisions - for Expenses
Charge against Profits - Debited to P&L A/c
Disclosed under Liabilities as Long Term Provisions or as Short Term Provisions

Contingent Liabilities
It will not be accounted (No effect on P&L or B/s)
In Notes to Accounts it will be disclosed (Part of Financial Statements)

Contingent Assets
It will not be Accounted and will not be disclosed in Financial Statements
If Directors wants, they can disclose in Director's Report (not a part of Financial Statements)

Goods are sold to customers without any warranty period

However in last 5 years, we never charged any amt on customers for manuf defects within one year
Suddenly in CY to one of the customers, free repairs are declined

Prob 5 Lease agreement is signed on 25/3/2020

Modifications are taken place on 10/4/2020
As on 31/3/2020 - Provision for such future Exp?
No

As on 31/3/2021 - Provision for such future Exp?

YES

100,000 300400 4/1/2016 Prov

DR 10% 30400
0.90909091 33044
0.82644628 36156
PV 82,645 400000
Accounting Profit (or) Income 500,000 Taxable Income 800,000
Tax Rate is 30%
Tax Exp as per Acc Profit 150,000 Tax amt to be paid 240,000

High Dep Low Dep

Low Dep High Dep
 90,000

Ignore DTA/DTL
Diffrence b/w AI & TI can be of two types

Permanent Diff Temporary Diff

e.g. Deemed Income e.g. Depreciation

This deemed Income is

never profit under Accountancy
DTA/DTL
I way II way III way

If AI>TI - DTL If AP>TP - DTL If A.Exp > T.Exp - DTA

If AI<TI - DTA If AP<TP - DTA If A.Exp < T.Exp - DTL

3/31/2021 B/s
PY 2021-2022 Feb of 2021
AY 2022-2023
 Temporary Difference - DTL/DTA
Case I
Accounting Profit (or) Income 500,000
Taxable Income 800,000
Tax Rate is 30%
Tax will be paid on Taxable Income - Current Tax 240,000
Tax on Accounting Inc/Profit 150,000
Deferred Tax - Difference between Tax on Taxable
Income and Tax on Accounting Income 90,000
Rule based identification AI (500,000) < TI (800,000)

Hence, Deferred Tax Asset

Concept based identification Prepaid

Hence, Deferred Tax Asset

Tax Exp - It is the amount which should be charged

to P&L; (Current Tax +- Deferred Tax) 150,000
(Current Tax - Deferred Tax
Asset (Prepaid) = 240,000 -
90,000 = 150,000 )

DTA A/c Dr
To Tax Expense (P&L) A/c
Similar to,
Salaries Prepaid A/c Dr
PY 2020-2021 To Salaries Exp
PY 2021-2022
TA 1 2 3 4
Case II Acc-Exp 100 0 0 0
500,000 Tax -Exp 20 20 20 20
300,000 Diff 80 -20 -20 -20
Tax Rate is 10%
90,000
150,000 Tax Expense Hence, Diff of 1st year is set-off in the following four years

60,000 DTA
AI (500,000) > TI (300,000)

In the first year, DTA is recognised which is reduced by Rs. 2 each i

Hence, Deferred Tax Liability
following four years, such that DTA will be zero by the end of 5th

Outstanding
Hence, Deferred Tax Liability III way
If A.Exp > T.Exp - DTA

150,000 If A.Exp < T.Exp - DTL

(Current Tax + Deferred Tax
Liability (Outstanding) =
90,000 + 60,000 = 150,000 )

Tax Expense (P&L) A/c Dr

To DTL A/c
Similar to,
Salaries Exp A/c Dr
To O/s Salaries A/c
 5 Total Prob No. 7
0 100 JE Dep
20 100 1st Year DTA A/c Dr 8 P.Exp
-20 0 To Tax Exp A/c 8

2nd Year Tax Exp A/c Dr 2

owing four years To DTA 2

3rd Year Tax Exp A/c Dr 2

To DTA 2 Dep

h is reduced by Rs. 2 each in the

be zero by the end of 5th year
4th Year Tax Exp A/c Dr 2 P.Exp
To DTA 2
5th Year Tax Exp A/c Dr 2
To DTA 2 DTL (Net)
Prob No. 7 Prob No. 8
300,000 DTL 150000 1 2 3
30,000 DTA 15000 Acc-Inc 11 16 21
Net DTL 135000 Tax -Inc 7 18 23
Diff 4 -2 -2
P&L A/c Dr 135,000 Tax Rate is 35%
To DTL A/c 135,000 DTL 140,000

Creation of DTL in the First Year

300,000 P&L A/c Dr 140,000

30,000 To DTL A/c 140,000

270,000
50% In the Seond and third year DTL shall be reduced by 70,000 e
135000 P&L A/c Dr 135,000 Such that at the end of 3rd year, DTL A/c will be closed

To DTL A/c 135,000

 Prob no.9
Tax
10-11 11-12
-200,000 100,000
Adj of Loss of PY NA -100,000
Net Taxable Income -200,000 Nil
Tax to be paid - Current tax Nil Nil

L shall be reduced by 70,000 each (200,000 of Diff * 35%)

r, DTL A/c will be closed
 Prob No.10
FY 12-13
12-13 Tax Accounts
120,000 BV 75,000 BV 75,000
-100,000 -SP -10,000 Asset is sold at the end of the Second year
20,000 65,000 For entire second year on asset sold dep should be
8000 Dep 16250 Dep = 75,000*25% = 18,750

Dif is 18,750 - 16,250 = 2,500 (Leads to DTA)

Profit on Sale of Asset will not be recognised under tax

However under Accounts it will be taken as income, Profit on Sale = SP 10,000 - BV of Asset (5
Dif is 7,188 - 0 = 7,188 (Leads to DTL)

Net DTL = (7,188 - 2,500)*40%

= 4,688*40%

= 1875.2
 Prob No.11

Date

end of the Second year 31/12/2011

year on asset sold dep should be provided
31/12/2012

31/12/2012

Sale = SP 10,000 - BV of Asset (5000 - 1250 - 938) = 10,000 - 2,812 = 7,188

31/12/2013
31/12/2013

DTL to be carried forward is computed

The above approach is different from o
 Deferred Tax Liability A/c
Particulars Amt Date Particulars Amt
31/12/2011 By P&L A/c 40,000
To Balance c/d 40,000 (DTL = 100,000*40%)
40,000 40,000
To P&L A/c (b/f) 22,500 1/1/2012 To Balance b/d 40,000

To Balance c/d 17,500

(100,000 - 50,000 set-off = 50,000 c/f)
(50,000*35%)

40,000 40,000
To P&L A/c (b/f) 17,500 1/1/2013 To Balance b/d 17,500
To Balance c/d -

(50,000-50,000)

17,500 17,500

TL to be carried forward is computed and amt of DTL to be reversed is taken as b/f in 2nd & 3rd year
he above approach is different from other problems because in this prob tax rates are changing
 ISFS - Concepts and then Problems
ICAI - 80% of questions are same
RTP - 2 (Current attempt and Previous attempt)
Previous QP

P-1 P-5
Higly Imp A - II and I A - II and I
Mod Imp B- IV Company Accounts B- IV
Imp C - III C - III

7 hours
Min 6 hours
not more than 7 hours

Afternoon - Problematic papers

AS 19

Lessor Lessee
(Transferor) (Transfaree)

Classification are of two types:

1) For Applicability
Non-Cancellable - AS 19 is applicable
Cancellable - AS 19 is not applicabe

2) For Accounting
Finance (e.g. Hire Purchase)
Operating (e.g. Building on Lease/Rent )

Lease Term
10 years
6 years - No Option of Cancelling
in last 4 years, it can be cancelled
Lease Term is 6 years (Non-Cancellable Period)

10 years
It can be renewed for further 2 years
Lease Period is 10y + 2 y (Two conditions are satisfied)

2) For Accounting
Finance (e.g. Hire Purchase)
Operating (e.g. Building on Lease/Rent )

Substantial Risk and Rewards associated with ownership of the Asset are transferred?
Yes Transferred from Lessor to Lessee - Finance; (Substantial R&R are with Lessee)
Not Transferred from Lessor to Lessee - Operating; (Substantial R&R are with Lessor)

5 Indicators
If any one of these indicators are available in agreement, then automatically the lease will be generally considered
Economic life Lease period
10 yrs 8 yrs/9/10

FV 1,000,000
PV of MLP 900,000

NPV = 0
PV of CI - Pv of CO = 0
PV of CI = PV of CO

10% NPV = 343,002 - 320,000 = 23,002

 14% NPV =307,776 - 320,000 = -12,224

Accounting for Finance Lease (Hire Purchase)

In the Books of Lessee (Similar to Hire Purchaser)
In the Books of Lessor (Similar to Hire Vendor)

In the Books of Lessee (Similar to Hire Purchaser) In the Books of Lessor (S

1) Capitalisation of Asset 1) Sale of Goods / Asset
Asset A/c Dr Lessee A/c
To Lessor A/c To Sales A/c (Goods) o
(At FV of Asset or at PV of MLP whichever is lower) (Record the JE at Net In
Computation of Net Inv
2) Interest a) Gross Investment (ML
Interest Exp A/c Dr b) Less: Unearned Finan
To Lessor c) Net Investment

3) On Lease Payments For PV of GI, Discount ra

Lessor A/c Dr
To Bank A/c 2) Interest
Lessee A/c
4) At the end of the year To Int Income A/c
(a) Provide Dep (As per AS 10 PPE)
Depreciation A/c Dr 3) On receipt of Lease Pa
To Asset A/c Bank A/c
To Lessee A/c
(b) Transfer to P&L
P&L A/c Dr 4) At the end of the year
To Int Exp A/c (a) No Depreciation
To Dep A/c
(b) Transfer to P&L
Int Inc A/c
To P&L A/c

Accounting for Operating Lease (Building is on Rent)

In the Books of Lessee (Tenant)
In the Books of Lessor (Owner)

In the Books of Lessee (Tenant) In the Books of Lessor (O

1) On Payment of Lease 1) Capitalise the Asset -
Rent A/c Dr 2) On Receipt of Lease p
To Bank A/c Bank A/c
To Rent Income A/c
2) At the end of the year - Transfer to P&L
P&L A/c Dr 3) At the end of the year
To Rent A/c (a) Provide Dep (As per A
 Depreciation A/c
To Asset A/c

(b) Transfer to P&L

Rent Inc A/c
To P&L A/c

P&L A/c
To Dep A/c

Note: Lease Rentals should be charged to P&L on SLM or on any other Systematic basis as given - Refer Concept pr

Initial Direct Cost

Capitalise (Added to Cost of Leased Asset) in case of Finance Lease - Books of Lessee
Charged to P&L or Deferred over Lease period in other cases (FL-Books of Lessor and Operating Lease - Books of Lessee & Less

Prob No. 11
Computation of Interest in the books of Lessee
Opng Bal Int at 15% Instalment Principal Repaid Cl. Bal
(Lease Rent)
1,855,850 278,378 625,000 346,623 1,509,228
1,509,228 226,384 625,000 398,616 1,110,612
1,110,612 166,592 625,000 458,408 652,203
652,203 97,797 750,000 652,203 0

Int Exp A/c Dr 278,378

To A Ltd 278,378

A Ltd A/c Dr 6,25,000

To Bank A/c 6,25,000

Computation of Interest in the books of Lessor

Opng Bal Int at 15% Instalment Principal Repaid Cl. Bal
(Lease Rent)
2,000,000 300,000 625,000 325,000 1,675,000

B Ltd A/c Dr 300,000

To Int Income A/c 300,000

Bank A/c Dr 625,000

To B Ltd 625,000
Sale and Lease Back
Lease back can be Finance Lease or Operating Lease
If Asset is sold without Lease back - Treatment of Profit or Loss on sale will be in accordance with AS 10 PPE, Transfer to P&L A
If Asset is sold with Lease back - Treatment of Profit or Loss on sale will be in accordance with AS 19, which is as follows

I) If Lease back is Finance Lease

Profit or Loss on such Sale should be deferred and amortised over lease period in proportion to Depreciation provided on such

II) If Lease back is Operating Lease

Case 1: Sale Value(220) = Fair Value (220)
Profit or Loss on Sale should be recognised in P&L A/c

Case 2: Sale Value(250) > Fair Value (220)

Extra profit is generated = 250-220 = 30
Because of Extra profit, future exp of Rent is increased

Summary of below cases: (Applicable for Case 2 & 3)

Normal Profit or Loss - Recog in P&L Immediately
Artificial Profit - D&A over Lease Period
Artificial Loss - Recog in P&L Immediately

Total Profit/Loss on Sale = SV - BV

Normal Profit /Loss = FV-BV
Artificial P/L = SV-FV

A) BV is 200
Profit on Sale = SV - BV
= 250 - 200
=50
Normal Profit Artificial Profit
FV-BV SV-FV
=220-200 =250-220
=20 =30
Recog in P&L D&A over
immediately Lease Period

In Exam presentation is as follows:

Profit to be recog in P&L = FV-BV = 220-200 = 20
Profit to be D&A over lease period = SV-FV = 250-220 = 30

B) BV is 230
Profit on Sale = SV - BV
=250 - 230
=20
Normal Loss Artificial Profit
 FV-BV SV-FV
=220-230 =250-220
=(10) =30
Recog in P&L D&A over
immediately Lease Period

C) BV is 270
Loss on Sale = SV - BV
=250 - 270
= (20)
Normal Loss Artificial Profit
FV-BV SV-FV
=220-270 =250-220
=(50) =30
Recog in P&L D&A over
immediately Lease Period

Case 3: Sale Value(200) < Fair Value (220)

A) BV is 190
Profit on Sale = SV - BV
= 200 - 190
=10
Normal Profit Artificial Loss
FV-BV SV-FV
=220-190 =200-220
=30 =(20)
Recog in P&L Recog in P&L
immediately immediately

B) BV is 210
Loss on Sale = SV - BV
= 200 - 210
= -10
Normal Profit Artificial Loss
FV-BV SV-FV
=220-210 =200-220
=10 =(20)
Recog in P&L Recog in P&L
immediately immediately

C) BV is 240
Loss on Sale = SV - BV
= 200 - 240
= -40
Normal Loss Artificial Loss
FV-BV SV-FV
=220-240 =200-220
=(20) =(20)
Recog in P&L Recog in P&L
immediately immediately
be generally considered as Finance Lease
In the Books of Lessor (Similar to Hire Vendor)
1) Sale of Goods / Asset
Lessee A/c Dr
To Sales A/c (Goods) or Asset A/c
(Record the JE at Net Investment Amt)
Computation of Net Investment:
a) Gross Investment (MLP from Lessor's POV + UGRV)
b) Less: Unearned Finance Income (Gross Investment - PV of Gross Investment)
c) Net Investment

For PV of GI, Discount rate is IRR

2) Interest
Lessee A/c Dr
To Int Income A/c

3) On receipt of Lease Payments

Bank A/c Dr
To Lessee A/c

4) At the end of the year

(a) No Depreciation

(b) Transfer to P&L

Int Inc A/c Dr
To P&L A/c

In the Books of Lessor (Owner)

1) Capitalise the Asset - Amount is as per AS 10 PPE
2) On Receipt of Lease payments
Bank A/c Dr
To Rent Income A/c

3) At the end of the year

(a) Provide Dep (As per AS 10 PPE)
 Depreciation A/c Dr
To Asset A/c

(b) Transfer to P&L

Rent Inc A/c Dr
To P&L A/c

P&L A/c Dr
To Dep A/c

given - Refer Concept prob No. 10

e - Books of Lessee & Lessor)

Prob No. 12

Computation of annual lease payment to the lessor

Cost 1,000,000
Less: PV of UGRV (100,000*0.7513) -75,130
Amt to be recovered in the form of Lease Rentals 924,870
Lease Period is 3 years
PVAF for 3 years at 10% 2.4868
Lease Rent pa 371,912

MLP = LR + GRV
= (371,912 * 3y) + 0
= 11,15,735

PV of MLP = 924,870

Unearned FI = GI - PV of GI
= (MLP + UGRV)- PV (MLP+UGRV)
= ((371,912*3y)+100,000 ) - PV of ((371,912*3y)+100,000 )
= 12,15,735 - PV of 12,15,735 371912
=12,15,735 - 10,00,000 924870.7616
=215,735 75130
1000000.7616
10 PPE, Transfer to P&L A/c
which is as follows

eciation provided on such Leased Asset

Life 5y 8y
NPV 400,000 560,000
PVAF (5y, PVAF (8y, 10%)
E Annual BNPV/PVAF NPV/PVAF
P5
Self
Royalties
NPO
Computerised Acc Sys

P12
Underwritting
Insurance
Electricity
AS 15 - Model
SELF-BALANCING LEDGERS

Debtors A/c
Particulars Amt
Debit Bal To Balance b/d xxx

Amt Recievable from Customer is Increased

(or) Increasing Bal
To Sales A/c (Credit) xxx
To Bank A/c (Cheque Dishonoured) xxx
To B/R A/c (Dishonoured) xxx
To Interest Income A/c xxx

Credit Bal To Balance c/d (Closing Advance) xxx

xxx

Ledger - All Ledger Accounts

If Single Book of Ledger is Heavy, Single Book of Ledger can be Sub-divided in to Three Ledger Books
Classification of Ledger
1) Debtors(Customers) Ledger / Sales Ledger
2) Creditors(Suppliers) Ledger / Purchase(Bought) Ledger
3) General Ledger

At the end of the year, Trial Balance will be prepared

If it is not tallied
Identification of Error will be difficult
Error can be in DL, CL or GL
 This topic helps in Identification of Erros (Error is in which Ledger), by preparing Control Accounts in above ledgers

Example:
Credit sale of Goods to Suresh of Rs. 100
Suresh A/c (DL) Dr 100
To Sales A/c (GL)

Now we can prepare T/B from Both the ledgers

Particulars Debit
Suresh 100
Sales
100

Can we prepare T/B from individual Ledgers - NO

T/B from DL
Particulars Debit
Suresh 100
Control A/c
100

Purpose of Control A/c - It is maintained so that Trial Balance can be prepared from individual Ledger

Credit sale of Goods to Suresh of Rs. 100

Suresh A/c (DL) Dr 100
To Sales A/c (GL)

Suresh A/c (DL) Dr 100

To General Ledger Adj A/c (Control A/c-DL)

Debtors Ledger Adj A/c (Control A/c-GL) Dr 100

To Sales A/c (GL)

The above two JE shall be recorded as follows,

Original JE,
Suresh A/c (DL) Dr 100
To Sales A/c (GL)

Self Balancing JE,

Debtors Ledger Adj A/c (Control A/c-GL) Dr 100
To General Ledger Adj A/c (Control A/c-DL)

There are in total Four Control Accounts

In DL General Ledger Adj A/c
In CL General Ledger Adj A/c
In GL Debtors Ledger Adj A/c & Creditors Ledger Adj A/c
Some more examples for Self Balancing JE
Discount allowed to Suresh
Discount Allowed A/c (GL) Dr
To Suresh A/c (DL)

GLA A/c (DL) Dr

To DLA A/c (GL)

BOE accepted by Suresh

B/R A/c (GL) Dr
To Suresh A/c (DL)

GLA A/c (DL) Dr

To DLA A/c (GL)
 Debtors A/c
Particulars Amt
By Balance b/d (Opening Advance) xxx Credit Bal

Recievable from Customer is Decreased

(or) Decreasing Bal
By Cash / Bank A/c (Collections) xxx
By Discount Allowed A/c xxx
By Sales Returns A/c xxx
By Baddebts A/c xxx
By Bills Receivable A/c xxx
By Creditors A/c xxx

By Balance c/d xxx Debit Bal

xxx

Mr. A
Debtor
100
receivable

Creditors A/c Dr 80
To Debtors A/c 80

Mr.A
Debtor
100

Creditors A/c Dr 100

To Debtors A/c 100

edger can be Sub-divided in to Three Ledger Books

It Contains all Accounts of Customers

It Contains all Accounts of Suppliers
It Contains all the remaining ledger accounts (Dustbin)
n which Ledger), by preparing Control Accounts in above ledgers

100

Credit

100
100

T/B from GL
Credit Particulars Debit Credit
Control A/c 100
100 Sales 100
100 100 100

rial Balance can be prepared from individual Ledger

100

100

100

100

100
 Creditors A/c
Particulars Amt
Debit Bal To Balance b/d (Opening Advance) xxx

Payable to Supplier is Decreased

(or) Decreasing Bal
To Cash / Bank A/c xxx
To Discount Received A/c xxx
To Purchase Returns A/c xxx
To Bills Payable A/c xxx
To Debtors A/c xxx

Credit Bal To Balance c/d xxx

xxx

Creditor
80
payable

A/c Dr 80
tors A/c 80

Mr.B
Creditor
100

A/c Dr 100
tors A/c 100
Creditors A/c
Particulars Amt
By Balance b/d xxx Credit Bal

Payable to Supplier is Increased

(or) Increasing Bal
By Purchases A/c (Credit) xxx
By Bank A/c (Cheque Issued is Dishonoured) xxx
By Bills Payable A/c (Dishonoured) xxx
By Interest Exp A/c xxx

By Balance c/d (Closing Advance) Debit Bal

xxx
Formats of Control Accounts:
1) Debtors Ledger Adjustment/Control A/c (DLA) General Ledger Similar to Debtors A/c
2) General Ledger Adjustment A/c (GLA) Debtors Ledger Mirror Image of DLA

3) Creditors Ledger Adjustment/Control A/c (CLA) General Ledger Similar to Creditors A/c
4) General Ledger Adjustment A/c (GLA) Creditors Ledger Mirror Image of CLA
 DLA A/c (GL) - Similar to Debtors A/c
Debit Bal To Balance b/d xxx

Amt Recievable from Customer is Increased

(or) Increasing Bal
To GLA A/c (in DL)
Sales A/c (Credit) xxx
Bank A/c (Cheque Dishonoured) xxx
B/R A/c (Dishonoured) xxx
Interest Income A/c xxx

Credit Bal To Balance c/d (Closing Advance) xxx

xxx

GLA A/c (In DL) - Mirror Image of DLA/Debtors A/c

Particulars Amt
To Balance b/d (Opening Advance) xxx

Recievable from Customer is Decreased

(or) Decreasing Bal
To DLA A/c (GL)
Cash / Bank A/c (Collections) xxx
Discount Allowed A/c xxx
Baddebts A/c xxx
Bills Receivable A/c xxx
Sales Returns A/c xxx
Creditors A/c xxx
To Balance c/d xxx
xxx
GL) - Similar to Debtors A/c
By Balance b/d (Opening Advance) xxx Credit Bal
Debit Bal
Recievable from Customer is Decreased
(or) Decreasing Bal
By GLA A/c (in DL)
Cash / Bank A/c (Collections) xxx
Discount Allowed A/c xxx
Baddebts A/c xxx
Bills Receivable A/c xxx
Sales Returns A/c xxx
Creditors A/c xxx
By Balance c/d xxx Debit Bal
xxx Credit Bal

- Mirror Image of DLA/Debtors A/c

Particulars Amt
By Balance b/d xxx

Amt Recievable from Customer is Increased

(or) Increasing Bal
By DLA A/c (GL)
Sales A/c (Credit) xxx
Bank A/c (Cheque Dishonoured) xxx
B/R A/c (Dishonoured) xxx
Interest Income A/c xxx

By Balance c/d (Closing Advance) xxx

xxx
 CLA A/c (In GL) - Similar to Creditors A/c
Particulars Amt Particulars Amt
To Balance b/d (Opening Advance) xxx By Balance b/d xxx

Payable to Supplier is Decreased Payable to Supplier is Increased

(or) Decreasing Bal (or) Increasing Bal
To GLA A/c (In CL) By GLA A/c (In CL)
Cash / Bank A/c xxx Purchases A/c (Credit) xxx
Discount Received A/c xxx Bank A/c (Cheque Issued is Dishonoured) xxx
Purchase Returns A/c xxx Bills Payable A/c (Dishonoured) xxx
Bills Payable A/c xxx Interest Exp A/c xxx
Debtors A/c xxx

To Balance c/d xxx By Balance c/d (Closing Advance)

xxx xxx

GLA A/c (In CL) - Mirror Image of CLA A/c or Creditors A/c
Particulars Amt Particulars Amt
To Balance b/d xxx By Balance b/d (Opening Advance) xxx

Payable to Supplier is Increased Payable to Supplier is Decreased

(or) Increasing Bal (or) Decreasing Bal
To CLA A/c (In GL) By CLA A/c (In GL)
Purchases A/c (Credit) xxx Cash / Bank A/c xxx
Bank A/c (Cheque Issued is Dishonoure xxx Discount Received A/c xxx
Bills Payable A/c (Dishonoured) xxx Purchase Returns A/c xxx
Interest Exp A/c xxx Bills Payable A/c xxx
Debtors A/c xxx

To Balance c/d (Closing Advance) By Balance c/d

xxx xxx
Credit Bal

Debit Bal
The following are the transactions(Examples) for which there will not be any Self Balancing JE
If in the Original JE, either Customer A/c or Supplier A/c are not involved, then there will not be any SB JE
1) Purchase of Machinery for Cash Rs. 100
Machinery A/c (GL) Dr 100
To Cash A/c (GL) 100

SB JE
GLA A/c Dr
To GLA A/c
Same Account is debited and credited, hence need not to record self balancing JE

2) Sale of Machinery for cash

3) B/R Honoured
Cash A/c (GL) Dr
To B/R A/c (GL)

SB JE
GLA A/c Dr
To GLA A/c
Same Account is debited and credited, hence need not to record self balancing JE

4) Provision for Bad debts

P&L A/c (GL) Dr
To PBD A/c (GL)

SB JE
GLA A/c Dr
To GLA A/c
Same Account is debited and credited, hence need not to record self balancing JE
Prob No: 1 Debit -Increasing Credit - Decreasing
DLA A/c (GL) - Similar to Debtors A/c
Particulars Amt Particulars Amt
To Balance b/d 18,700
To GLA A/c By GLA A/c
Credit Sales 19,700 Cash 9,800
B/R Dishonoured 1,000 Discount Allowed 200
B/R Accepted by Customers 12,000

By Balance c/d 17,400

39,400 39,400

GLA A/c (In DL) - Mirror image of DLA

Particulars Amt Particulars Amt
By Balance b/d 18,700
To DLA A/c By DLA A/c
Cash 9,800 Credit Sales 19,700
Discount Allowed 200 B/R Dishonoured 1,000
B/R Accepted by Customers 12,000

To Balance c/d 17,400

39,400 39,400
Debit - Decreasing Credit - Increasing
CLA A/c (In GL) - Similar to Creditors A/c
Particulars Amt Particulars Amt
By Balance b/d 23,560
To GLA A/c By GLA A/c
Cash 28,800 Credit Purchases 25,560
Discount Received 1,200

To Balance c/d 19,120

49,120 49,120

GLA A/c (In CL) - Mirror Image of CLA A/c

Particulars Amt Particulars Amt
To Balance b/d 23,560
To CLA A/c By CLA A/c
Credit Purchases 25,560 Cash 28,800
Discount Received 1,200

By Balance c/d 19,120

49,120 49,120
Prob No: 2 Debit -Increasing Credit - Decreasing
DLA A/c (GL) - Similar to Debtors A/c
Particulars Amt Particulars Amt
To Balance b/d 235,000 By Balance b/d (Advance) 3,500
To GLA A/c By GLA A/c
Credit Sales 765,000 Sales Returns 15,000
Bank (Cheque Dish) 5,000 Cash/Bank 590,000
B/R (Dishonoured) 7,000 B/R 110,000
Discount Allowed 9,000
Baddebts 9,000
Creditors (1500 + 1600) 3,100

To Balance c/d (Advance) 3,000 By Balance c/d (b/f) 275,400

1,015,000 1,015,000

Debtors A/c (DL) Dr

To Creditors A/c (CL)

DLA A/c (GL) Dr

To CLA A/c (GL)

GLA A/c (CL) Dr

To GLA A/c (DL)
Prob No: 3
Decreasing Bal Increasing Bal
GLA A/c (In DL) - Mirror Image of DLA(Debtors)
Particulars Amt Particulars
To Balance b/d (Opening Advance) 240 By Balance b/d
To DLA A/c (GL) By DLA A/c (GL)
Cash 58,200 Credit Sales (120,000 - 8100)
Discount Allowed (59,000 - 58,200) 800 Bills Receivable (Dishonour)
Sales Returns 2,600 Dishonour of Endorsed Bill
Bills Receivable 20,100
Baddebts (2,200 + 300) 2,500
Creditors (1100 + 1900) 3,000

To Balance c/d (b/f) 74,540 By Balance c/d (Closing Advance)

161,980
 Increasing Bal Decreasing Bal
GLA A/c (In CL) - Mirror Image of CLA A/c(Creditors)
Amt Particulars Amt Particulars
47,200 To Balance b/d 26,300 By Balance b/d (Opening Advance)
To CLA A/c (GL) By CLA A/c (GL)
111,900 Credit Purchases 67,000 Cash
1,500 Dishonour of Endorsed Bill 1,000 Discount Received (40,000 - 30,500)
1,000 Purchase Returns
Bills Payable
Bills Receivable Endorsed
Debtors (1100 + 1900)

380 To Balance c/d (Closing Advance) 420 By Balance c/d (b/f)

161,980 94,720
 Prob No: 4
CLA A/c (In GL) - Similar to Creditors A/c
Particulars Amt
Amt To Balance b/d (Opening Advance) (WN 3) 2,400
280 To GLA A/c (In CL)
Payment (WN 2) 8,750
30,500 Purchase Returns (WN 5) 1,250
9,500 Discount Received (WN 6) 350
1,800
5,500 To Balance c/d (b/f or WN 9) 2,000
4,000
3,000 14,750

40,140
94,720 WN:
1) Total Credit Purchases = X2000 + A4000 + Y2500 + B2000 = 10,500

2) Total Payment to Creditors = X1600 + R1000 + Y3000(Advance) + A 3,150 (4000 - 500 - 350)

3) Opening Advance = X400 + P2000 = 2,400

4) Opening Balance (Normal) = R1000 = 1000

5) Purchase Returns = A500 + Q750 = 1250

6) Discount Received = A350 ((4000-500)*10%) = 350

7) Opening Advance received back = P2000 = 2000

8) Closing Advance = Y500 + Q750 = 1250

9) Closing Balance (Normal) = B2000

 Prob No: 5
In GL) - Similar to Creditors A/c DLA A/c (GL) - Similar
Particulars Amt Particulars
By Balance b/d (WN 4) 1,000 To Balance b/d
By GLA A/c (In CL) To GLA A/c
Purchases (WN 1) 10,500 Credit Sales (WN 1)
Advance received back (WN 7) 2,000 Creditors(Endorsed B/R Dish)
Bank (Cheque Dish)

By Balance c/d (Closing Advance) (WN 8) 1,250

14,750

Y2500 + B2000 = 10,500

00 + Y3000(Advance) + A 3,150 (4000 - 500 - 350) = 8,750

DLA A/c (GL) - Similar to Debtors A/c WN 1: Computation of Credit Sales
Amt Particulars Amt Particulars Amt
40,000 a) Total Sales as given 60,000
By GLA A/c b) Less:Sale of Old Furniture -1,200
49,000 Discount Allowed 2,600 c) Total Sale of Goods 58,800
600 Collections 50,800 d) For Suppose Credit Sales is x
6,000 ( ((40,000 + 49,000)*60%) - 2,600 ) e) Hence Cash Sales is (x * 20%) 0.2x
Bills Receivable 6,000 f) Total Sales = x + 0.2x = 58,800
Baddebts (600 + 500) 1,100 1.2x = 58,800
x (Credit Sales) = 58,800/1.2 = 49,000
By Balance c/d (b/f) 35,100
95,600 95,600
Sectional Balancing System Prob No: 6
Three Ledgers
DL No Control Accounts No T/B
CL No Control Accounts No T/B
GL Two Control Accounts
Total Debtors Control A/c (DLA) - Similar to Debtors A/c
Total Creditors Control A/c (CLA) - Similar to Creditors A/c

Note: Under this system there will not be any separate JE

It means, the above twoi control accounts are not from JE, they are
prepared on memorandum basis
Prob No: 6
Total Debtors A/c - Similar to Debtors A/c
Particulars Amt Particulars Amt
To Balance b/d 87,200 By Balance b/d (Opening Adva 600
To Sales A/c (Credit = 94,000 - 4000) 90,000 By Bank A/c 60,000
To Cash (Advance repaid back) 600 By Cash A/c 48,000
To B/R A/c (Dish) 6,000 By B/R A/c 26,000
To Cash A/c (Noting Charges) 60 By Baddebts A/c 1,000
To Bank A/c (Cheque Dish) 800 By Discunt Allowed A/c 700
To Interest Income A/c 1,250 By Creditors A/c 900
By Sales Returns A/c 2,760

To Balance c/d (Closing Advance) Nil By Balance c/d (b/f) 45,950

185,910 185,910
 Royalties
Royalties Royalties is an Agreement through which One Person (Owner or Lessor) may transfer "Right to Use" of an
for a particular period of time and for Consideration.

Examples:
a) Author of Book gives rights to Publish the Book (Copyrights)
b) Patent Rights are licensed to another person
c) Owner of Coal or Mineral Mine allows another Person to extract Coal or mineral from mine

Special Terms
1) Minimum Rent or Dead Rent or Fixed Rent or Certain Rent or Static Rent
The Minimum amount (as per agreement) which has to be paid by lessee to lessor is called as Minimum Re
In Case an agreement contains clause for Minimum Rent, Royalty to be paid by lessee to Lessor is Minimu
Examples:
Per Unit of Book Sold Rs. 100
Minimum Rent to be paid is Rs. 400,000 pa

Case 1 3,500 Books are sold by publisher

Rent to be paid by Publisher (Lessee) to Author (Lessor) = 400,000
Actual Royalty / Rent = 3500 Books sold * 100 per book = 350,000
Minimum Rent/Royalty = 400,000

Case 2 5,500 Books are sold by publisher

Rent to be paid by Publisher (Lessee) to Author (Lessor) = 550,000
Actual Royalty / Rent = 5500 Books sold * 100 per book = 550,000
Minimum Rent/Royalty = 400,000

2) Short Workings
Short Workings is the amount by which Minimum Rent exceeds Actual Rent.
Short Workings = Minimum Rent - Actual Rent
In Case 1 above, Short Workings = 400,000 - 350,000 = 50,000
In Case 2 above, Short Workings = Nil, since Minimum does not exceed Actual

3) Excess Workings
Excess Workings is the amount by which Actual Rent exceeds Minimum Rent.
Excess Workings = Actual Rent - Minimum Rent
In Case 1 above, Excess Workings = Nil, since Actual does not exceed Minimum
In Case 2 above, Excess Workings = 550,000 - 400,000 = 150,000

In a Particular year, either Short Workings or Excess Workings arises. Both cannot arise in a single year.

4) Recoupment of Short Workings

If Agreement allows, Short Workings raised in One year can be carried forward to future and it can
be adjusted against Excess Workings if any.
Example: Y1 Y2 Y3 Y3
Minimum Rent 400,000 400,000 400,000 400,000
Actual 350,000 380,000 550,000 550,000
Short Workings 50,000 20,000 Nil Nil
Excess Workings Nil Nil 150,000 150,000
Royalty to be Paid 400,000 400,000 550,000 480,000
If right of recoupment is available in agreement ( (MR or A
If right of recoupment is not available in agreement

Royalty to be paid = (MR or AR) Whichever is higher - Short Workings Recouped as per agreement
Short Workings can be recouped in the year in which Excess workings are available

Two Types of Recoupment:

a) Fixed Right: In this case, Short workings are allowed to be recouped within specified number of years from date of leas
For Example, Short workings can be recouped within three years from the date of Lease.
Example: Y1 Y2 Y3
Minimum Rent 400,000 400,000 400,000
Actual 250,000 380,000 550,000
Short Workings 150,000 20,000 Nil
Excess Workings Nil Nil 150,000
Royalty to be Paid 400,000 400,000 400,000

Balance shortworkings yet to be recouped = 150,000 + 20,000 - 150,000 recouped = 20,000

In this case as Short workings should be recouped within 3 years, the balance SW of RS. 20,
carried forward to 4th year. They are lapsed at the end of 3rd year
For Suppose in Y3 also SW are arised, then nothing can be recouped, entire SW are lapsed
For suppose in Y4 SW are arised, then such SW cannot be carried forward to Y5, they are ar

b) Fluctuating Right:
In this case, Short Workings arised in any year are allowed to be recouped in the specified following years.
For Example, Short workings can be recouped in two years subsequent to year it arised
If SW arised in 1st year, it can be recouped in 2nd and 3rd years; if arised in 7th year, it can be recouped in

5) Adjustment of Minimum Rent

If agreement provides, MR can be adjusted proportinately in case of any Strike or Lockout etc in any year.
Example: MR is 400,000 pa; Strike was for 5 months during the year.
Adjusted MR = 400,000*7/12 = 233,333

Journal Entries
I) In the Books of Lessee
II) In the Books of Lessor

I) In the Books of Lessee

Year 1) Actual Rent (350,000) < Minimum Rent (400,000) (or) MR > AR
a) Due
Royalty Expense A/c Dr 350,000 (Actual Rent)
Short Workings A/c Dr 50,000 (MR - AR)
To Lessor or Landlord A/c 400,000 (MR or AR Whichever is higher)

b) Payment
Lessor (or) Landlord A/c Dr 400,000
To TDS Payable A/c (10%) 40,000
To Bank A/c (b/f) 360,000

TDS Payable A/c Dr 40,000

To Bank A/c 40,000

c) At the end of the year

Manufacturing A/c or P&L A/c Dr 350,000
To Roylaty Expense A/c 350,000

Year 2) Actual Rent (430,000) > Minimum Rent (400,000) (or) MR < AR
a) Due
Royalty Expense A/c Dr 430,000 (Actual Rent)
To Lessor or Landlord A/c 400,000 ((MR or AR) Whichever is higher - Short Workings Recoupe
To Short Workings A/c 30,000 (Short Workings to the extent of 30,000 can only be recou

b) Payment
Lessor (or) Landlord A/c Dr 400,000
To TDS Payable A/c (10%) 40,000
To Bank A/c (b/f) 360,000

TDS Payable A/c Dr 40,000

To Bank A/c 40,000

c) At the end of the year

Manufacturing A/c or P&L A/c Dr 450,000 (Actual Royalty Exp + SW Lapsed)
To Royalty Expense A/c 430,000
To Short Workings A/c 20,000 (lapsed, SW A/c is closed now)

II) In the Books of Lessor

Year 1) Actual Rent (350,000) < Minimum Rent (400,000) (or) MR > AR
a) Due
Lessee A/c Dr 400,000 (MR or AR Whichever is higher)
To Royalty Income A/c 350,000 (Actual Rent)
To Short Workings Allowable A/c 50,000 (MR - AR)
(or) Royalty Suspense A/c

b) Receipt
TDS A/c Dr 40,000
Bank A/c Dr 360,000
To Lessee A/c 400,000

c) At the end of the year

Royalty Income A/c Dr 350,000
To P&L A/c 350,000

Year 2) Actual Rent (430,000) > Minimum Rent (400,000) (or) MR < AR
a) Due
Lessee A/c Dr 400000 ((MR or AR) Whichever is higher - Short Workings Recouped)
Short Workings Allowable A/c Dr 30000 (Short Workings to the extent of 30,000 can only be recouped, balance
To Royalty Income A/c 430000 (Actual Rent)

b) Receipt
TDS A/c Dr 40,000
Bank A/c Dr 360,000
To Lessess A/c 400,000

c) At the end of the year

Royalty Income A/c Dr 430,000
Short Workings Allowable A/c Dr 20,000 (lapsed)
To P&L A/c 450,000
ansfer "Right to Use" of an Asset to another person (User or Lessee),

eral from mine

sor is called as Minimum Rent.

lessee to Lessor is Minimum Rent or Actual Rent whichever is higher

hor (Lessor) = 400,000

00 per book = 350,000

hor (Lessor) = 550,000

00 per book = 550,000

to future and it can

ble in agreement ( (MR or AR) Whichever is higher - Short Workings Recouped )

r of years from date of lease.

150,000 recouped = 20,000

, the balance SW of RS. 20,000 cannot be

ped, entire SW are lapsed

d forward to Y5, they are arised and lapsed in 4th year itself

e specified following years.

h year, it can be recouped in 8th and 9th years.

or Lockout etc in any year.

 r - Short Workings Recouped)
of 30,000 can only be recouped, balance 20,000 are lapsed)
kings Recouped)
only be recouped, balance 20,000 are lapsed)
Prob. No. 1
WN 1: Analysis of Royalties
Output Actual Rent at Rs. Minimum Excess Short Workings
Year
(Tons) 7.50 per Ton Rent Workings Occurred
2006-07 10,000 75,000 150,000 - 75,000
2007-08 12,000 90,000 150,000 - 60,000
2008-09 25,000 187,500 150,000 37,500 -
2009-10 20,000 150,000 150,000 - -
2010-11 50,000 375,000 150,000 225,000 -
2011-12 15,000 112,500 90,000 22,500 -

Royalty Expense A/c Dr 75,000 (Actual Rent)

Short Workings A/c Dr 75,000 (MR - AR)
To Lessor or Landlord A/c 150,000

Royalty Expense A/c Dr 90,000 (Actual Rent)

Short Workings A/c Dr 60,000 (MR - AR)
To Lessor or Landlord A/c 150,000

Royalty Expense A/c Dr 187,500

To Lessor or Landlord A/c 150,000
To Short Workings A/c 37,500

Royalty Expense A/c Dr 150,000

To Lessor or Landlord A/c 150,000

Royalty Expense A/c Dr 375,000

To Lessor or Landlord A/c 375,000

Royalty Expense A/c Dr 112,500

To Lessor or Landlord A/c 112,500
 Royalty E
Short Workings Royalty to be Date
Recouped Lapsed Carried Forward Paid 3/31/2007
- - 75,000 150,000
- - 135,000 150,000 3/31/2008
37,500 37,500 60,000 150,000
- 60,000 - 150,000 3/31/2009
- - - 375,000 3/31/2009
- - - 112,500
3/31/2010
Actual Rent)
3/31/2011
(MR or AR Whichever is higher)
3/31/2012
Actual Rent)

Short Wo
Date
3/31/2007

(recouped) 4/1/2007
3/31/2008

4/1/2008

4/1/2009
 Royalty Expense A/c
Particulars Amt Date Particulars Amt Date
To Lessor A/c 75,000 3/31/2007 By P&L A/c (b/f) 75,000
75,000 75,000 3/31/2007
To Lessor A/c 90,000 3/31/2008 By P&L A/c 90,000
90,000 90,000
To Lessor A/c 150,000 3/31/2008
To Short Workings A/c 37,500 3/31/2009 By P&L A/c 187,500
187,500 187,500 3/31/2009
To Lessor A/c 150,000 3/31/2010 By P&L A/c 150,000
150,000 150,000 3/31/2010
To Lessor A/c 375,000 3/31/2011 By P&L A/c 375,000
375,000 375,000 3/31/2011
To Lessor A/c 112,500 3/31/2012 By P&L A/c 112,500
112,500 112,500 3/31/2012

Short Workings A/c

Particulars Amt Date Particulars Amt
To Lessor A/c 75,000 3/31/2007 By Balance c/d 75,000
75,000 75,000
To Balance b/d 75,000
To Lessor A/c 60,000 3/31/2008 By Balance c/d 135,000
135,000 135,000
To Balance b/d 135,000 3/31/2009 By Royalty Expense A/c 37,500
3/31/2009 By P&L A/c (Lapse) 37,500
3/31/2009 By Balance c/d 60,000
135,000 135,000
To Balance b/d 60,000 3/31/2010 By P&L A/c 60,000
60,000 60,000
 Prob No. 2
Lessor A/c
Particulars Amt Date Particulars Amt
3/31/2007 By Royalty Expense A/c 75,000
To Bank A/c (b/f) 150,000 3/31/2007 By Short Workings A/c 75,000
150,000 150,000
3/31/2008 By Royalty Expense A/c 90,000
To Bank A/c 150,000 3/31/2008 By Short Workings A/c 60,000
150,000 150,000
To Bank A/c 150,000 3/31/2009 By Royalty Expense A/c 150,000
150,000 150,000
To Bank A/c 150,000 3/31/2010 By Royalty Expense A/c 150,000
150,000 150,000
To Bank A/c 375,000 3/31/2011 By Royalty Expense A/c 375,000
375,000 375,000
To Bank A/c 112,500 3/31/2012 By Royalty Expense A/c 112,500
112,500 112,500
Prob No. 2
WN 1: Computation of Coal Produced in each Year (in Tons) WN 2: Analysis of Royalties
Year Sales Closing Stock Opening Stock Net Production Output
Year
2009 2,000 300 - 2,300 (Tons)
2010 3,500 400 300 3,600 2009 2,300
2011 4,800 600 400 5,000 2010 3,600
2012 5,600 500 600 5,500 2011 5,000
2013 8,000 800 500 8,300 2012 5,500
2013 8,300
Note: Net Production = Sales + Closing Stock - Opening Stock
sis of Royalties
Actual Rent at Minimum Excess Short Workings Royalty to be
Rs. 15 per Ton Rent Workings Occurred Recouped Lapsed Carried Forward Paid
34,500 75,000 - 40,500 - - 40,500 75,000
54,000 75,000 - 21,000 - - 61,500 75,000
75,000 75,000 - - - - 61,500 75,000
82,500 75,000 7,500 - 7,500 54,000 - 75,000
124,500 75,000 49,500 - - - - 124,500
Prob No. 4
WN 1: Computation of Amount Payable to Lessor and Actual Royalty
Particulars 2008-09 2009-10 2010-11
a) Net Amount paid to Lessor as given 12,000 12,000 12,000
(After deducting TDS)
b) Gross amount payable to Lessor 15,000 15,000 15,000
(Before deducting TDS) (a*100/80)
c) Less: Short Workings Occurred (Note (a)) -3,200 - -
d) Add: Short Workings Recouped (given) - 2,500 1,000

e) Actual Rent or Royalty 11,800 17,500 16,000

Notes:
a) Short workings arised or Occurred in 2008-09 = (Total Short workings recouped and Lapsed in 2009-10
(Short Workings A/c balance available as on 1/4/2008)
= (2500 + 1000 + 500) - 800
= 3,200

b) In 2008-09, Short Workings are raised or Occurred, it indicates that Minimum Rent is greater than Act
Hence, Minimum Royalty (2008-09) = Gross amount Payable to Lessor in 2008-09 = Rs. 15,000
 2011-12
19,200

24,000 (Credit to Lessor A/c) Gross 100

TDS -20
- Net 80
-

24,000 (Debit to Royalty Expense A/c)

Royalty Expense A/c Dr

ped and Lapsed in 2009-10 & 2010-11) - Short Workings A/c(Occurred)Dr
ilable as on 1/4/2008) To Lessor or Landlord A/c
(Royalty Exp = Payable - SW occurred)

m Rent is greater than Actual Rent and Minimum Rent is payable to Lessor Royalty Expense A/c Dr
-09 = Rs. 15,000 To Lessor or Landlord A/c
To Short Workings A/c (Recouped)
(Royalty Exp = Payable + SW Recouped)
 (b/f) (Actual Rent)
3,000 (MR - AR)
15,000 (MR or AR Whichever is higher)

(b/f)
15,000
1,000 (recouped)
W Recouped)
NPO's
Basics
Financial Statements or Final Accounts
Treatment of Certain/Special items

I) Basics
These entities, works without profit motive.
Still they earn profits or suffer lossess
Cash flows are more importatnt than P or L
examples, Educational Inst, Hospitals, any association working for benefit of members, orphanage or Old age homes, charitabl

II) Financial Statements or Final Accounts

FS includes:
1 Receipts and Payments A/c
2 Income and Expenditure A/c
3 Balance sheet

1 Receipts and Payments A/c

It is Cash Book (Cash & Bank)
Real A/c - Debit what comes-in and Credit what goes-out
All Receipts of Cash & Bank will be debited & All Payments will be credited
It is maintained on Cash basis not on Accrual basis

Receipts and Payments A/c

Particulars/Receipts Amt Particulars/Payments Amt
To Balance b/d xxx By Balance b/d (Bank OD) xxx
a) Cash in Hand
b) Cash at Bank

All Receipts of Cash & Bank All Payments of Cash & Bank
Revenue Incomes Revenue Expenditure
Capital Incomes Capital Expenditure

To Balance c/d (Bank OD) xxx By Balance c/d xxx

a) Cash in Hand
b) Cash at Bank

2 Income and Expenditure A/c

It is similar to Trading and P&L A/c
Nominal in nature
Accrual basis

Income and Expenditure A/c

Particulars/Expenditure Amt Particulars/Incomes Amt
 All revenue Expenditures All revenue Incomes
Of CY Of CY

To Surplus (or) Excess of (b/f) By Deficit (or) Excess of Exp over (b/f)
Incomes over Exp Incomes
(Transferred to Capital Fund) (Transferred to Capital Fund)

3 Balance sheet
Capital is also called as Capital Fund / General Fund / Accumulated Fund

ACCOUNTING TREATMENT OF CERTAIN or SPECIAL ITEMS :

1) Donations
Donations represent usual receipt of any non-profit organisation.

General Donations - Any donation received without a specific purpose. They can be used for any purpose, Revenu
JE
a) Cash/Bank A/c Dr
To Donations A/c

b) Donations A/c Dr
To I&E A/c

Specific / Special Donations - Any donation received with a specific purpose. They have to be used for specified pur
when received will be credited to Specific Fund A/c. On Utilisation Fund a/c should be closed by transferring to Cap
If any fund amount is not utilised in the year of receipt, then fund a/c will be carried forward to NY, by disclosing it

Accounting is as follows:
JE
a) On Receipt
Cash/Bank A/c Dr
To Furniture Fund A/c (Specific Fund)

b) On Utilisation
Furniture A/c Dr
To Cash/Bank A/c

Furniture Fund A/c Dr

To Capital Fund A/c

c) If Fund amount is Invested

i) On Investment
Furniture Fund Investment (FFI) A/c Dr
 To C/B A/c

ii) On Receipt of Interest Income

C/B A/c Dr
To Int Inc on FFI A/c

iii) Transfer of Int Income to Furniture Fund

Int Inc on FFI A/c Dr
To Furniture Fund A/c

iv) Sale of FFI

C/B A/c (Sale Proceeds) Dr
Furniture Fund A/c (Loss-b/f) Dr
To FFI A/c (BV)
To Furniture Fund A/c (Profit - b/f)

2) Subscriptions or Membership Fees

Subscriptions are the revenue receipts received annually from the members of a non-profit organisation.
They are income to be accounted on accrual basis. They should be credited to I&E A/c. This treatment suits the sub
Annual Subscription/Membership Fees
JE
a) On Receipt
C/B A/c Dr 1000
To Subscriptions A/c 1000

b) At the end of the year

Subscriptions A/c Dr 1000
To I&E A/c 1000

But, where the subscription is received in a lumpsum under the head “Life Membership Fee”, the following is the a

An amount equal to the annual subscription may be transferred every year to the Income and Expenditure A/c and
If the life member dies before the whole amount is transferred, the balance amount should be transferred to the C

C/B A/c Dr 10,000

To Life Time Membership/Subscription A/c 10,000

Life Time Membership A/c Dr 1000

To I&E A/c 1000

Balance amount of Rs. 9000 will be carried forward to NY by disclosing in B/S under Liabilities side

For suppose, Member is dead in Second year

Life Time Membership A/c Dr 9000
To Capital Fund A/c 9000
3) Entrance Fees or Admission Fees
They can be Revenue in nature or Capital in nature as mentioned in question. In Absensce of information, it should
If Revenue - Credit I&E A/c
If Capital - Credit Capital Fund

JE
a) On Receipt
C/B A/c Dr
To Entrance Fees or Admission Fees A/c

b) At the end of the year

Entrance Fees or Admission Fees A/c Dr
To I&E A/c (Revenue)
To Capital Fund A/c (Capital)

4. Legacy
When any property is received under a will of deceased person, it is treated as capital receipt and credited to Capit
JE
Cash/Bank A/c Dr
Any other Asset A/c Dr
To Capital Fund A/c

5. Honorarium
The Gift given, in Cash or in Kind, to honour a Guest is called as Honorarium.
It is Revenue Exp and Debited to I&E A/c
JE
Honorarium Exp A/c Dr
To Cash/Bank A/c

I&E A/c Dr
To Honorarium Exp A/c

Special Issues:
1) Receipts & Payments of any certain Operation
For Example, Sports Meet of a Club or Conference in a college etc
Receipts are Rs. 100,000 and Payments are Rs. 80,000
In R&P A/c, diclosure should be on Gross basis. Under Receipts side, 100,000 and on Payments side 80,000 should be disclose
In I&E A/c, disclosure should be on Net Basis. Net Receipts if any (100,000-80,000 = 20,000) should be credited to I&E A/c and
debited to I&E A/c (Receipts are Rs. 100,000 and Payments are Rs. 180,000; Net Payments is Rs. 80,000)

2) Accounting for Trading operations if any

Example, Canteen in a Educational Instituition
Trading and P&L should be prepared separately for Trading Operation (Canteen), and Net Profit/Loss should be taken to I&E A
Old age homes, charitable inst, Temple or church trust etc

nts will be credited

or any purpose, Revenue in nature, Credit I&E A/c

be used for specified purpose only, Capital in nature, such donations

ed by transferring to Capital Fund.
d to NY, by disclosing it under Liabilities side of B/S.
organisation.
treatment suits the subscription received annually.

e”, the following is the accounting treatment:

nd Expenditure A/c and balance carried as a liability.

be transferred to the Capital fund on the date of his death.
of information, it should be assumed as Capital in nature.

pt and credited to Capital Fund A/c.

0,000 should be disclosed

credited to I&E A/c and Net Payments if any should be
s Rs. 80,000)

hould be taken to I&E A/c

Accrual Charts

1) Computing Salary Exp from Salaries Paid

a) Salaries paid as given ( R&P A/c ) xxx
b) Add: Outstanding Salaries at the end of the year xxx
c) Less: Outstanding Salaries at the beginning of the year (xxx)
d) Less: Prepaid Salaries at end of the year (xxx)
e) Add: Prepaid Salaries at the beginning of the year xxx
f) Salary Expense for the year ( I&E A/c ) xxx

2) Computing Salaries Paid from Salary Exp

a) Salary Expense for the year as given ( I&E A/c ) xxx
b) Less: Outstanding Salaries at the end of the year (xxx)
c) Add: Outstanding Salaries at the beginning of the year xxx
d) Add: Prepaid Salaries at end of the year xxx
e) Less: Prepaid Salaries at the beginning of the year (xxx)
f) Salaries paid during the year ( R&P A/c ) xxx

3) Computing Subscription Income from Subscription Receipts

a) Subscription Received during the year as given ( R&P A/c ) xxx
b) Add: Subscription Receivable/Outstanding/Accrued at the End of the year xxx
c) Less: Subscription Receivable at the Begining of the year (xxx)
d) Less: Subscription received in advance at the end of the year (xxx)
e) Add: Subscription received in advance at the begining of the year xxx
f) Subscription Income for the year ( I&E A/c ) xxx

4) Computing Subscription Received from Subscription Income

a) Subscription Income for the year as given ( I&E A/c ) xxx
b) Less: Subscription Receivable/Outstanding/Accrued at the End of the year (xxx)
c) Add: Subscription Receivable at the Begining of the year xxx
d) Add: Subscription received in advance at the end of the year xxx
e) Less: Subscription received in advance at the begining of the year (xxx)
f) Subscription Received during the year ( R&P A/c ) xxx
Prob No. 1
Additional Note:
Computing Subscription Income from Subscription Receipts
a) Subscription Received during the year as given ( R&P A/c ) 208,000
b) Add: Subscription Receivable/Outstanding/Accrued at the End of the year (4*1600) 6,400
c) Less: Subscription Receivable at the Begining of the year -16,000
d) Less: Subscription received in advance at the end of the year -10,400
e) Add: Subscription received in advance at the begining of the year 4,000
f) Subscription Income for the year ( I&E A/c ) 192,000
 Subscription A/c for the year 2013
Date Particulars Amt Date
1/1/2013 To Subscription Receivable A/c 16,000 1/1/2013
(Opening Asset bal)

12/31/2013 To I&E A/c (b/f) 192,000 2013

(Subscription Income)
12/31/2013 To Subscription Received in 10,400 12/31/2013
Advance A/c
(Closing Liability bal) 218,400
 Prob No. 2
the year 2013
Particulars Amt
By Subscription Received in 4,000
Advance A/c
(Opening Liability bal)
By Cash/Bank A/c (Received) 208,000

By Subscription Receivable A/c 6,400

(4 Persons * 1600)
(Closing Asset bal) 218,400
Prob No. 2
Additional Note:
Computing Subscription Received from Subscription Income
a) Subscription Income for the year as given ( I&E A/c ) 3,000
b) Less: Subscription Receivable/Outstanding/Accrued at the End of the year (200 PY + 140 CY) -340
c) Add: Subscription Receivable at the Begining of the year 400
d) Add: Subscription received in advance at the end of the year 80
e) Less: Subscription received in advance at the begining of the year -100
f) Subscription Received during the year ( R&P A/c ) 3,040
 Subscription A/c for the year 2013
Date Particulars Amt Date
1/1/2013 To Subscription Receivable A/c 400 1/1/2013
(Opening Asset bal)

12/31/2013 To I&E A/c 3,000 2013

(Subscription Income)
12/31/2013 To Subscription Received in 80 12/31/2013
Advance A/c
(Closing Liability bal) 3,480
 Prob No. 3
or the year 2013
Particulars Amt
By Subscription Received in 100
Advance A/c
(Opening Liability bal)
By Cash/Bank A/c (Received - b/f) 3,040

By Subscription Receivable A/c 340

(200 PY + 140 CY)
(Closing Asset bal) 3,480
Prob No. 3
I) Computation of Subscription income to be recognised
Particulars Amt
a) Life Time Subscription per member 40,000
b) Spread over 20 years
b) Subscription Income per annum to be recognised 2,000
in I&E A/c for each member (a/b)
d) Total Members (20 old + 10 New) 30 members
e) Total Subscription Income for the year 2012 (c*d) 60,000

II) Computation of Life Time Membership fees to be carried forward to NY by disclosing in B/S
Particulars Amt
a) Opening Balanace as on 1/1/2012 as given 640,000
b) Add: Received during the year 2012 400,000
c) Less: Transferred to I&E A/c -60,000
d) Life Time Membership fees to be carried forward 980,000
to NY by disclosing in B/S
Prob No. 4
Restaurant Trading A/c for the year ended 31/3/2013
Particulars Amt Particulars Amt
To Opening Stock A/c 2,600 By Restaurant Receipts (Sales) A/c 56,800
To Purchases A/c (WN 1) or 50,800
(5,600 + 50,400 - 5,200) By Closing Stock A/c 3,000
To G.P (b/f) 6,400
(Transferred to I&E A/c) 59,800 59,800

Income & Expenditure A/c for the year ended 31/3/2013

Expenditure Amt Income Amt
To Wages A/c 13,380 By Subscription Income A/c 29,620
To Rent A/c (7500*12m/18m) 5,000 a) Received 29,720
To Rates A/c 2,700 b) Add: Receivable at End 1,000
To Secretary's Salary A/c 3,120 c)Less:Receivable at Beginning (700)
To Lighting A/c 7,200 d) Less:Received in Advance (400)
To Competition prizes Consumed A/c 4,300 at the End
a) Opening Stock 800 By Gross Profit from Restaurant 6,400
b) Add: Purchases 4,000 By Games and Competition Receipts 13,640
c) Less: Closing stock (500)
To Printing , Postage and sundries A/c 6,000
To Depreciation on Furniture A/c 4,800
(48,000 * 10%)
To Surplus (b/f) 3,160

49,660 49,660

Balance Sheet as on 31/3/2013

Liabilities Amt Assets Amt
Capital Fund: (b/f 1) 56,750 Furniture (48,000-4800) 43,200
Opening Balance (b/f 2) 50,390
Add: Entrance Fees 3,200 Closing of Restaurant 3,000
Add: Surplus 3,160 Stock of Prizes 500
Subscription Receivable 1,000
Creditors for Restaurant 5,600 Prepaid Rent (7500*3m/18m) 1,250
Subscription Received in Advance 400 Fixed Deposit 8,000
Due to Secretary for Petty Expenses 80 Cash 5,880

62,830 62,830
 Prob No. 5
WN 1: Computation of Restaurant Purchases
Creditors A/c
Particulars Amt Particulars Amt
To Cash A/c 50,400 By Balance b/d 5,200

To Balance c/d 5,600 By Purchases A/c (b/f) 50,800

56,000 56,000

18m
12m CY
3m NY (paid up to 30/6); Prepaid
from 31/3 to 30/6 - 3 months
3m PY rent paid in CY
Prob No. 5
Revised Receipts and Paymemts A/c for the year ended 31/12/2013
Receipts Amt Payments Amt
To Balance b/d By Premises A/c 30,000
a) Cash 450 By Honorarium to Secretary 11,000
b) Bank Bal as per Cash Book 24,420 (12,000 - 1000 Outstanding)
(PB 24,690 - 270 Cheque Issued By Rent A/c 2,400
but not presented for payment) By Rates and Taxes A/c 3,780
To Subscriptions A/c 62,130 BY Printing and Stationery A/c 1,410
To Fair Receipts A/c 7,200 By Sundry Expenses A/c 5,350
To Variety Show Receipts A/c 12,810 By Wages A/c 2,520
To Interest A/c 690 By Fair Expenses A/c 7,170
To Bar Collections A/c 22,350 By Bar Purchase - Payments 17,310
To Sale Proceeds from Old Car 9,000 By Repairs a/c 960
By New Car (37,800+9000) 46,800
By Balance c/d
a) Cash -
b) Bank Bal as per Cash Book 10,350
(PB 10,440 - 90 Cheque Issued
but not presented for payment)

139,050 139,050
 Income & Expenditure A/c for the year ended 31/12/2013
Expenditure Amt Income Amt
To Honorarium to Secretary A/c 12,000 By Subscription Income A/c 61,470
(Incl O/s 1000) a) Received 62,130
To Rent A/c 2,400 b) Add: Receivable at End 2,940
To Rates and Taxes A/c 3,780 c)Less:Receivable at Beginning (3,600)
To Printing and Stationery A/c 1,410 By Net Receipts from Fair (7200 - 7,170) 30
To Sundry Expenses A/c 5,350 By Variety Show receipts/Income 12,810
To Wages A/c 2,520 By Interest A/c 690
To Repairs a/c 960 By Gross Profit from Bar Operations (WN 1) 6,000
To Depreciation A/c By Profit on sale of Old Car A/c 3,300
a) Premises 3,030 (SP 9000 - BV(Cost 36,570 - Dep 30,870) )
(Cost 117,000 - Dep 56,400)*5%
b) Car (46,800*20%) 9,360

To Surplus (b/f) 43,490

84,300 84,300

Balance Sheet as on 31/12/2013

Liabilities Amt Assets Amt
Capital Fund: (b/f 1) 108,620 Premises 57,570
Opening Balance (b/f 2) 65,130 a) Cost 117,000
Add: Surplus 43,490 b)Less:Acc Dep. (56,400+3,030) (59,430)

Creditors for Bar Purchases 1,290 Car 37,440

Outstanding Honorarium to Secretary 1,000 a) Cost 46,800
b)Less:Acc Dep. (9,360)

Bar Closing Stock 2,610

Subscription Due 2,940
Bank Balance 10,350
Cash -
110,910 110,910
WN 1:
Bar Trading A/c for the year ended 31/12/2013
Particulars Amt Particulars Amt
To Opening Stock A/c 2,130 By Restaurant Receipts (Sales) A/c 22,350
To Purchases A/c (WN 2) 16,830
To G.P (b/f) 6,000 By Closing Stock A/c 2,610
(Transferred to I&E A/c)
24,960 24,960

WN 2: Computation of Bar Purchases

Creditors A/c
Particulars Amt Particulars Amt
To Cash / Bank A/c 17,310 By Balance b/d 1,770

To Balance c/d 1,290 By Purchases A/c (b/f) 16,830

18,600 18,600
Prob No. 6
Income & Expenditure A/c for the year ended 31/12/2013
Expenditure Amt
To Salaries A/c 168,400
(155,900 + O/s 12,500)
To P&S A/c 8,500
To Postage & Tel A/c 2,500
To Insurance A/c 5,900
(10,400 - Prepaid 4,500)
To Periodicals A/c 15,600
To General Exp A/c 5,250
To Depreciation
a) Books ((230,000+52,200)*15%) 42,330
b) Buildings (37,89,000*1%) 37,890
c) Furniture ((159,500+35,500)*10%) 19,500

To Surplus (b/f) 192,030

497,900

Balance Sheet as on 31/12/2013

Liabilities Amt
Capital Fund: 6,065,350
a) Opening Balance 54,71,720
b) Add: Entance Fees 2,02,600
c) Add: Donations 1,99,000
d) Add: Surplus 1,92,030

Prize Fund 215,700

a) Opening Balance 2,15,000
b) Add: Int Income 10,200
c) Less: Prizes Given (9,500)

Investment Reserve Fund 185,000

Creditors 177,900
Outstanding Salaries 12,500
Subscription Received in Advance 7,850

6,664,300
 Prob No. 7
enditure A/c for the year ended 31/12/2013
Income Amt
By Net Examination Fees A/c (32,500 - 24,000) 8,500
By Certificate Fees A/c 7,800
By Subscription Income A/c 290,450
a) Received 275,800
b) Add: Receivable at End 22,500
c) Less: Received in Adv (7,850)
at End
By Hire Charges A/c 95,500
By Interest Income A/c 91,250
a) Received 85,000
b) Add: Receivable at End 6,250
By Other Receipts A/c 4,400

497,900

alance Sheet as on 31/12/2013

Assets Amt
Buildings (37,89,000-37,890) 3,751,110
Library Books (230,000+52,200-42,330) 239,870
Furniture (159,500+35,500-19,500) 175,500

Investments 2,125,000
Prize Investments 210,400
Prize Bank Balance 2,450

Debtors 59,700

Subscription Receivable 22,500

Interest Receivable 6,250
Prepaid Insurance 4,500

Cash 1,520
Bank 65,500
6,664,300
Prob No. 7
Receipts and Paymemts A/c for the year ended 31/03/2013
Receipts Amt Payments Amt
To Building and Books Fund A/c 200,000 By Refreshments 8,000
To Entrance Fees A/c 17,000 By Salaries A/c 4,800
To Subscriptions A/c 19,000 By Maintenance of Ground 1,000
To Locker Rent A/c 600 By Rent A/c 8,000
To Sundry Income A/c 1,060 By Land A/c 10,000
To Refreshments A/c 16,000 By Furniture A/c 130,000
By Books A/c 25,000
By Building and Books Fund 160,000
Investments - 9% Govt sec A/c
By Building and Books Fund 15,000
Investments - Term Deposit
To Balance c/d - Bank OD (b/f) 108,140 with Bank A/c
(200,000-25,000-160,000)
361,800 361,800
 Income & Expenditure A/c for the year ended 31/03/2013
Expenditure Amt Income Amt
To Salaries A/c 5,000 By Entrance Fees A/c 17,000
To Maintenance of Ground 2,000 By Subscriptions A/c 20,000
To Rent A/c 8,000 By Locker Rent A/c 600
To Depreciation By Sundry Income A/c 1,600
a) Furniture (146,000*10%) 14,600 By Refreshments Income A/c 8,000
b) Books (25,000*10%) 2,500 (16,000 - 8000)

To Surplus (b/f) 15,100

47,200 47,200
 Balance Sheet as on 31/03/2013
Liabilities Amt Assets
Capital Fund: 40,100 Land
Opening Bal - Furniture (146,000-14,600)
Add: Surplus 15,100 Books (25,000-2500)
Add: B&B Fund Utilised 25,000
Buildings & Books Fund 175,000 Subscription Receivable
(200,000-25,000) (20,000 - 19,000)
Outstanding Salaries (5000-4800) 200 Sundry Income Receivable
Maintenance of Ground 1,000 (1600 - 1060)
(2000 - 1000) Building and Books Fund
Creditors for Furniture 16,000 Investments - 9% Govt sec
(146,000 - 130,000) Building and Books Fund
Bank OD - Investments - Term Deposit
(200,000 - 25000 Books -160,000 Govt. Sec)
232,300
 Prob No. 8
Balance Sheet as on….
Amt Liabilities Amt
10,000 Capital Fund: 100,000
131,400 Opening Balance 60,000
22,500 Add: Surplus 20,000
Add:Entrance Fees (4000*50%) 2000
1,000 Add: Legacies 8000
Add: Capital Grants 10,000
540
Building Fund (30,000 + 2000Income) 32,000
160,000 General Fund 10,000
Prize Fund (10,000 + 1000 Income - 10,200
15,000 800 Exp)

O/s Consultancy 1,000

340,440 Allowances O/s 800
154,000
 Prob No. 9
ance Sheet as on…. Balance Sheet as on 31/12/2012
Assets Amt Liabilities Amt
Furniture (8000 - 800 Dep) 7,200 Capital Fund (b/f) 78,000
Swimming Pool 40,000
Equipments 20,000 O/s P&S (2600 - 2000) 600
O/s Advertising (1800 - 1600) 200
Fixed Deposit 20,000
Investment of General Fund 36,000
Investment of Prize Fund 10,000

Subscription Receivable 10,000

78,800
Cash at Bank (Current A/c) 10,000
Cas in Hand 800

154,000
e Sheet as on 31/12/2012 Balance Sheet as on 31/12/2013
Assets Amt Liabilities Amt
Building 44,000 Capital Fund: 96,160
Cricket Equipment 25,000 a) Opening Balance 78,000
Furniture 4,000 b) Surplus 18,160

Entrance Fees Receivable 1,000 Subscription received in Advance 400

Subscription Receivable 600 O/s Manager's Salary 500
(1500 - 1000)
Cash & Bank 4,200 O/s P&S 400
O/s Audit Fees 500
78,800

97,960
 Prob No. 10
ance Sheet as on 31/12/2013 Receipts and Paymemts A/c for the year ende
Assets Amt Receipts Amt
Buildings (44,000 * 95%) 41,800 To Balance b/d 160
Cricket Equipment (25,000*90%) 22,500 To Subscriptions (WN 1) 2,100
Furniture (4000*94%) 3,760 To Donations 1,050

Entrance Fees Receivable 500

(Income 10,500 - 10,000 received) 3,310
Subscription Receivable 600
(15,600 - 15,000) WN 2:
Interest on Investments 1,000 Sundry Assets A/c
Receivable (4000 - 3000) Particulars Amt
Prepaid Fire Insurance (1200-1000) 200 To Balance b/d 2,600
To C&B A/c (Purchase - b/f) 400
Investments 20,000
3,000
Cash & Bank 7,600
97,960
emts A/c for the year ended 31/12/2013
Payments Amt
By Salaries 1,750
By General Expenses 500
By Sundry Assets (WN 2) 400

By Balance c/d (b/f) 660

3,310

Sundry Assets A/c

Particulars Amt
By Depreciation A/c 300

By Balance c/d 2,700

3,000
WN 1: Computing Subscription Received from Subscription Income
a) Subscription Income for the year as given ( I&E A/c ) 2000
b) Less: Subscription Receivable at the End of the year (2013 70 + 2012 (200-180) ) -90
c) Add: Subscription Receivable at the Begining of the year 200
d) Add: Subscription received in advance at the end of the year 40
e) Less: Subscription received in advance at the begining of the year -50
f) Subscription Received during the year ( R&P A/c ) 2100
SEBI At Minimum 90% of the Securities should be subscribed
If less than 90% is subscribed, then Company cannot continue with Issue Process, it should
refund back the entire application maoney to apllicants/subscribers.

This Risk of Under Subscription can be transferred by entering in to an Underwriting agreement.

Underwriting Agreement
It is an agreement under which Company agrees for issue of shares through Underwriters.
In case of any shortfall in Public Subscription, then Underwriters has to subcribe/apply for such shortfall.
For this transfer of Risk, Underwriters requires consideration called as Underwriting Commission.

Underwriting Commission

Liability of Underwriters
Particulars U1 U2 U3
1) Gross Liability (100,000 sh*4:3:3) 40,000 30,000 30,000
2) Less: Firm Underwriting -5,000 -2,000 -
3) Less: Marked Applications -30,000 -20,000 -20,000
4) Less: Unmarked Applications(5000sh*4:3:3) -2,000 -1,500 -1,500
5) Shortfall from Public Subscription 3,000 6,500 8,500
6) Add: Firm Underwriting 5,000 2,000 -
7) Total Liability of Underwriters 8,000 8,500 8,500

Particulars U1 U2 U3
1) Gross Liability (100,000 sh*4:3:3) 40,000 30,000 30,000
2) Less: Firm Underwriting -5,000 -2,000 -
3) Less: Marked Applications -36,000 -20,000 -20,000
4) Less: Unmarked Applications(5000sh*4:3:3) -2,000 -1,500 -1,500
5) Shortfall/(Surplus) from Public Subscription -3,000 6,500 8,500
6) Dist of Surplus of U1 among other Und in GL 3,000 -1,500 -1,500 (3000*3:3)
7)Net Shortfall from Public Subscription - 5,000 7,000
6) Add: Firm Underwriting 5,000 2,000 -
7) Total Liability of Underwriters 5,000 7,000 7,000

Accounting - JE
g agreement.

pply for such shortfall.

g Commission.

(3000*3:3)
Prob No. 1 Prob No. 2
Total Apll 80000
Less: Firm -20000
Less: Marked -40000
Unmarked 20000

Computation of Underwriters Liability (no. in shares)

Particulars A B C
1) Gross Liability 60,000 30,000 10,000
2) Less: Firm Underwriting -8,000 -10,000 -2,000
3) Less: Marked Applications -20,000 -14,000 -6,000
4) Less: Unmarked Applications -12,000 -6,000 -2,000
(80,000 - (2) - (3) )*(6:3:1)
5) Shortfall from Public Subscription 20,000 - -
6) Add: Firm Underwriting 8,000 10,000 2,000
7) Total Liability of Underwriters 28,000 10,000 2,000
Prob No. 2
Computation of Underwriters Liability (no. in shares)
Particulars Aditya Diwan Anoop
1) Gross Liability (15,00,000*70%*(3:1:1)) 630,000 210,000 210,000
2) Less: Firm Underwriting -30,000 -20,000 -10,000
3) Less: Marked Applications -550,000 -200,000 -150,000
4) Less: Unmarked Applications(50,000*3:1:1) -30,000 -10,000 -10,000
5) Shortfall / (Surplus) from Public Subscription 20,000 -20,000 40,000
6) Surplus of Diwan distributed among Aditya -15,000 20,000 -5,000
and Anoop in relative GL Ratio (20,000*3:1)
7) Net Shortfall from Public Subscription 5,000 - 35,000
8) Add: Firm Underwriting 30,000 20,000 10,000
9) Total Liability of Underwriters 35,000 20,000 45,000

Additional Note:
Firm Underwriting should be Subscribed along with the Public, application money is already received
Now application money is receivable only on Shortfall from Public subsciption.

Journal Entries
Particulars Debit Credit
1) Application money receivable on shortfall
from Public Subscription
Aditya's A/c (5000sh *2.50) Dr 12,500
Anoop's A/c (35,000sh *2.50) Dr 87,500
To ESC A/c 100,000

2) Underwriting Commission Payable

Underwriting Commission A/c Dr 420,000
(10,50,000 sh*10*4%)
To Aditya's A/c (630,000sh *10*4%) 252,000
To Diwan's A/c (210,000 sh *10*4%) 84,000
To Anoop's A/c (210,000 sh *10*4%) 84,000
(or) (420,000 * 3:1:1)

3) Settlement
a) Payment
Aditya's A/c (252,000 - 12,500) Dr 239,500
Diwan's A/c Dr 84,000
To Bank A/c 323,500

b) Receipt from Anoop

Bank A/c Dr 3,500
To Anoop's A/c (87,500 - 84,000) 3,500
Prob No. 3
Computation of Underwriters Liability (no. in shares)
Particulars A B
1) Gross Liability (400,000 * 25:25:25:10:15) 100,000 100,000
2) Less: Firm Underwriting - -
3) Less: Marked Applications -102,000 -95,000
4) Less: Unmarked Applications(10,000* 25:25:25:10:15) -2,500 -2,500
5) Shortfall / (Surplus) from Public Subscription -4,500 2,500
6) Surplus of A distributed among other underwriters 4,500 -1,500
in relative GL Ratio (4,500 * 25:25:10:15)
7) Net Shortfall from Public Subscription - 1,000
8) Add: Firm Underwriting - -
9) Total Liability of Underwriters - 1,000

Brokerage A/c Dr 500

To D's A/c 500
(10,000 sh*10*0.5%)
 Prob No. 4

C D E
100,000 40,000 60,000
- -10,000 -
-60,000 -22,000 -51,000
-2,500 -1,000 -1,500
37,500 7,000 7,500
-1,500 -600 -900

36,000 6,400 6,600

- 10,000 -
36,000 16,400 6,600
Prob No. 4
Computation of Underwriters Liability (no. in shares)
Particulars Anand Vijay Ashok
1) Gross Liability ((20,00,000-500,000)*(1:1:1)) 500,000 500,000 500,000
2) Less: Firm Underwriting -50,000 -50,000 -50,000
3) Less: Marked Applications -425,000 -450,000 -350,000
4) Less: Unmarked Applications(12,97,000 - (3))*(1:1:1) -24,000 -24,000 -24,000
5) Shortfall / (Surplus) from Public Subscription 1,000 -24,000 76,000
6) Surplus of Vijay distributed among Anand & Ashok -1,000 24,000 -23,000
7) Net Shortfall from Public Subscription - - 53,000
8) Add: Firm Underwriting 50,000 50,000 50,000
9) Total Liability of Underwriters 50,000 50,000 103,000

Additional Note:
Firm Underwriting shares
a) Apllication money is already received
b) Allotment money is Receivable

Shortfall from Public

a) Apllication money is Receivable
b) Allotment money is Receivable

Journal Entries
Particulars Debit Credit
1) Application money receivable on Shortfall
Ashok A/c (53,000*2.5) Dr 132,500
To ESC A/c 132,500

2) Allotment money receivable on Firm Underwriting shares

and on Shortfall
Anand A/c (50,000*2) Dr 100,000
Vijay A/c (50,000*2) Dr 100,000
Ashok A/c (103,000*2) Dr 206,000
To ESC A/c 406,000

3) Underwriting Commission Due

Underwriting Commission A/c Dr 750,000
(15,00,000*10*5%)
To Anand A/c 250,000
To Vijay A/c 250,000
To Ashok A/c 250,000
(750,000*1:1:1)

4) Settlement
a) Payment
Anand A/c (250,000-100,000) Dr 150,000
Vijay A/c (250,000-100,000) Dr 150,000
TO Bank A/c 300,000

b) Receipt
Bank A/c Dr 88,500
To Ashok A/c (132,500+206000 - 250,000) 88,500
Benefit of Firm Underwriting
Case (a): Benefit of Firm Underwriting is given to Individual Underwriters (Should be assumed if question is silent)
Under this case Firm Underwriting Shares should be deducted as Actually agreed and added back as acuatlly agreed

Case (b): Benefit of Firm Underwriting is not given to Individual Underwriters

Under this case Firm Underwriting Shares should be deducted in Gross Liability Ratio (like Unmarked Applications),
however they should be added back as actually agreed (Prob no. 7)

Prob No. 7
Computation of Underwriters Liability (no. in shares) and Underwriting Commission
Particulars P Q R
1) Gross Liability (100,000 sh *30:30:20:20) 30,000 30,000 20,000
2) Less: Firm Underwriting (Benefit not given) -2,100 -2,100 -1,400
( (3000+2000+1000+1000)*(30:30:20:20) )
3) Less: Marked Applications -19,000 -10,000 -21,000
4) Less: Unmarked Applications -3,600 -3,600 -2,400
(70,000 - (3) )*(30:30:20:20)
5) Shortfall / (Surplus) from Public Subscription 5,300 14,300 -4,800
6) Surplus of R distributed among Other Underwriters -1,800 -1,800 4,800
in there relative GL Ratio (4800*30:30:20)
7) Net Shortfall from Public Subscription 3,500 12,500 -
8) Add: Firm Underwriting 3,000 2,000 1,000
9) Total Liability of Underwriters 6,500 14,500 1,000
10) Underwriting Commission 22,500 22,500 15,000
(GL Shares * Issue Price * Rate = (1)*(10+5)*5%)

Credit for Marked Applications ( Based on which ratio for deducting Unmarked applications is determined)
Case (a) Credit for Marked application is not given (Should be assumed if question is silent)
Under this case, Unmarked applications should be deducted in GL Ratio (Prob no. 1 to 5 and 7)

Case (b) Credit for Marked application is given

Under this case, Unmarked applications should be deducted in (Gross Liability less Marked Application) Ratio (Prob

Prob No. 6
(b) Credit for marked applications is not given
Computation of Underwriters Liability (no. in shares)
Particulars A B C
1) Gross Liability (10,000 sh *40:35:25) 4,000 3,500 2,500
2) Less: Marked Applications -2,000 -1,000 -2,000
4) Less: Unmarked Applications (3000*40:35:25) -1,200 -1,050 -750
5) Shortfall / (Surplus) from Public Subscription 800 1,450 -250
6) Surplus of C distributed among Other Underwriters -133 -117 250
in there relative GL Ratio (250*40:35)
7) Net Shortfall from Public Subscription(Total Liab of Und) 667 1,333 -

(a) Credit for marked applications is given

Computation of Underwriters Liability (no. in shares)
Particulars A B C
1) Gross Liability (10,000 sh *40:35:25) 4,000 3,500 2,500
2) Less: Marked Applications -2,000 -1,000 -2,000
3) GL Less Marked Applications 2,000 2,500 500
4) Less: Unmarked Applications (3000*20:25:5) -1,200 -1,500 -300
5) Shortfall from Public Subscription (Total Liab of Und) 800 1,000 200
umed if question is silent)
ded back as acuatlly agreed (Prob no. 1 to 5)

e Unmarked Applications),

S
20,000
-1,400

-8,000
-2,400

8,200
-1,200

7,000
1,000
8,000
15,000

ed Application) Ratio (Prob no. 6)

Financial Statements of Insurance Companies

Insurance is a Contract in which Risk is transferred from One person

Insurance (Insured/Policy Holder/Transferor of Risk) to other person
(Insurer/Insurance co./Acceptor of Risk/Transfaree of Risk), for a
consideration (Premium) for a period of time (Policy Period).

Insurance Co.
Premium - Income
Claim - Expense

Insurance Business
Life Insuarnce
General Insurance

ICICI
Life Ins - ICICI Prudential Life
General Ins - ICICI Lombard

FS includes
Revenue A/c or Techinical A/c or Policy Holders A/c
P&L A/c or Non-Technical A/c or Shareholders A/c
Balance sheet

Incomes Expenses
classified in to two types classified in to two types
a) Incomes generated from Policyholders - Revenue A/c a) Expenses incurred for Policyholders -
e.g. Premium Income, Income from Investments (PH Funds) e.g. Claims, Commission, Bonus etc
b) Incomes generated from Shareholders - P&L A/c b) Expenses incurred for Shareholders -
e.g. Income from Investments (SH Funds) e.g. Dividend, any other Exp not direc

Special Items
1) Claims
JE
1) Claims Intimated, Accepted and paid during the year
Claims A/c Dr
To Bank A/c

2) At the End of the Year

a) Outstanding Claims
Claims A/c Dr
To Outstanding Claims A/c

b) Transfer to Revenue A/c

Revenue A/c Dr
 To Claims A/c
Example 1
Note: Claims Outstanding are of two types: Year Ending is 31/3/2019
i) Claims Intimated, Accepted but not paid (Example 2) 3/25/2019
ii) Claims Intimated but not accepted and not paid (Example 3) 3/30/2019
3/31/2019
The above example is for Claims Paid
Claims A/c Dr
To Bank A/c

2) Re-Insurance
Direct Insurance Re-Insurance
RIL Ltd (Insured)----Transfer of Risk(100%)----ICICI Lombard (Insurer) ----Transfer of Risk (40%)-----HDFC Insura

ICICI Lombard (Direct Insurance - Accepting Risk)

Premium - Income
Claim - Expense
Commission - Expense

Under Re-Insurance
Premium will be paid by ICICI(Payment - Exp) to HDFC(Received - Income)
Claim will be paid by HDFC(Payment - Exp) to ICICI(Receipt - Income)
Commission will be paid by HDFC(Payment - Exp) to Agent(ICICI)(Receipt - Income)

ICICI Lombard (Re-Insurance - Transferring Risk - Ceding Company)

Premium - Expense
Claim - Income
Commission - Income

HDFC Insurance Co. (Re-Insurance - Accepting Risk - Accepting Co.)

Premium - Income
Claim - Expense
Commission - Expense

Summary:
Direct Insurance and Re-Insurance Accepted are same.
For Calculating, Net Premium/Claim/Commission fromula is Direct Business + Reinsurance Accepted - Reinsurance c

e.g. Premium on:

Direct 100
ReInsurance ceded 40
 ReInsurance Accepted 30
Net Premium Income?
Net Claim = 100 - 40 + 30 = 90

e.g. Claim on:

Direct 100
ReInsurance ceded 40
ReInsurance Accepted 30
Net Claim Expense?
Net Claim = 100 - 40 + 30 = 90

3) Co-Insurance
RIL Ltd -----Transfer of Risk-----ICICI Lombard (60%)
------HDFC Insurance (40%)
Two or more Insurance Companies Accepting Risk directly from Insured under a single Policy

4) Reserve for Unexpired Risk / Unexpired Risk Reserve (General Insurance)

FY: 2018-2019
On 1/1/2019 Accepted a policy
Policy Amt is 100,000
Premium is 5000 (received on 1/1/2019)
Policy period is One year (1/1/2019 to 31/12/2019)
As on 31/3/2019, Risk is not materialised (Loss is not Occurred)
Risk is Unexpired as on 31/3/2019, risk is continued to next year(19-20) i.e. up to 31/12/2019

How much of Premium Income to be carried forward to 2019-20209 (NY)?

Marine Insurance: 100%, Others: 50%
(or)
For FY 2018-2019 (CY), how much of Premium Income to be recognised?
Marine: 0%, Others: 50%

Premium will be carried forward to NY in a Separate account called as URR A/c

JE
1) At the End of FY - Create URR
Revenue A/c or Premium A/c Dr
To URR A/c

2) At the beginning of NY - Reverse the URR

URR A/c Dr
To Revenue/Premium A/c

5) Actuarial Valuation of Gross Liability (Life Insurance Companies)

Revenue A/c Dr
 To Actuarial GL A/c

6) Bonus (Life Insurance Companies)

Distribution of Profits of Life Insurance Company among Policy Holders is called as Bonus.
As per The Insurance Act, 1938, every Life Insurance company should distribute 95%
of Profits among Policy holders. They are allowed to retain only 5%.

Payment of Bonus can be in any of the following Ways,

a) In Cash
b) In reduction of Premium
Example,
Gross Premium is 100
Gross Bonus is 40
Net Amount of Rs. 60 (100-40) will be received from Policy Holder
JE
Bank A/c Dr 60
Bonus A/c Dr 40
To Premium A/c 100

c) Reversionary Bonus
Bonus is not paid to PH on declaration. It will be retained and accumulated by Insurance
company. Then it will be paid at the time of payment of Claim.

7) Linked Liability Policy

rred for Policyholders - Revenue A/c
ommission, Bonus etc
rred for Shareholders - P&L A/c
any other Exp not directly related to Insurance Business
 Example 2 Example 3
Year Ending is 31/3/2019 Year Ending is 31/3/2019
Intimation received 3/25/2019 Intimation received 3/25/2019
Acceptance 3/30/2019 Acceptance 4/3/2019
Paid 4/4/2019 Paid (in NY) 4/10/2019
ple is for Claims Paid The above example is for Claims O/s The above example is for Claims O/s
Dr Claims A/c Dr Claims A/c Dr
To Outstanding Claims A/c To Outstanding Claims A/c

Claims Intimated, Accepted but not paid Claims Intimated but not accepted and n
Claims A/c Dr Claims A/c Dr
To Claims Intimated, Accepted but not paid A/c To Claims Intimated but not accepted

Re-Insurance
sk (40%)-----HDFC Insurance

Accepted - Reinsurance ceded

 Intimation received
Acceptance
Paid (in NY)
ple is for Claims O/s
Dr
ng Claims A/c

d but not accepted and not paid

Dr
mated but not accepted and not paid A/c
Prob No: 4
WN 1: Computation of URR to be created or written back (Rs in Crores)
Particulars Marine Fire Misc
a) Premiums on DB written 18.00 43.00 12.00
b) Add: Re-Insurance Accepted 7.00 5.00 4.00
c) Less: Re-Insurance ceded -6.70 -4.30 -7.00
d) Net Premium 18.30 43.70 9.00
e) Closing URR required 18.30 21.85 4.50
(Marine: 100%, Others: 50%)
f) Less: Opening Balance in URR -15.00 -20.00 -5.00
g) URR to be Created/(Written back) 3.30 1.85 -0.50
Journal Entries URR A/c
Particulars Debit Credit Particulars Marine Fire
1) Create URR
Marine Revenue A/c Dr 3.30 To Revenue A/c (b/f) - -
Fire Revenue A/c Dr 1.85 To Balance c/d (WN 1) 18.30 21.85
To URR A/c 5.15 18.30 21.85

2) Write back URR

URR A/c Dr 0.50
To Misc Revenue A/c 0.50
 Prob No: 5
URR A/c
Misc Particulars Marine Fire Misc
By Balance b/d 15.00 20.00 5.00
0.50
4.50 By Revenue A/c (b/f 3.30 1.85 -
5.00 18.30 21.85 5.00
Prob No: 5
Fire Revenue A/c for the year ended 31/3/2013
Particulars Sch No Amt
Premiums Earned (Net) 1 1,150,000
Total (A) 1,150,000
Claims Incurred (Net) 2 530,000
Commission 3 300,000
Operating Expenses related to Fire Ins Business 4 200,000
Total (B) 1,030,000
Operating Profit/(loss) from Fire Insurance Business (A - B) 120,000

Schedules:
1) Premiums Earned (Net)
Particulars Amt
a) Premium on Direct business Written 1,300,000
b) Add: Premium on Reinsurance Accepted -
c) Less: Premium on Reinsurance ceded -100,000
d) Net Premium 1,200,000
e) Less: Adjustment for Change in URR -50,000
(Closing URR required - Opening URR available
= (d*50%) - 550,000 = 50,000 Create )
f) Premium Earned (Net) 1,150,000

2) Claims Incurred (Net)

Particulars Amt
a) Claims Paid on Direct Business 490,000
b) Add: Reinsurance Accepted -
c) Less: Reinsurance Ceded -
d) Net Claims Paid 490,000
e) Add: Outstanding Claims at the end of the year (31/3/2013) 80,000
f) Less: Outstanding Claims at the Beginning of the year (1/4/2012) -50,000
g) Claims Expense before Direct Cost 520,000
h) Add: Legal Expense regarding Claims 10,000
i) Total Claims Incurred 530,000

3) Commission
Commission on Direct Business written 300,000
300,000

4) Operating Expenses related to Fire Ins Business

Expenses of Management 200,000
200,000
Prob No: 6
Marine Revenue A/c of M/s Big Fish Marine Insurance Company Ltd for the year ended 31/3/2015
Particulars Sch No
Premiums Earned (Net) 1
Interest and Dividend - Gross
Profit on sale of Investments
Total (A)
Claims Incurred (Net) 2
Commission 3
Operating Expenses related to Marine Ins Business 4
Total (B)
Operating Profit/(loss) from Marine Insurance Business (A - B)

Schedules:
1) Premiums Earned (Net)
Particulars Amt
a) Premiums on Direct Business written 1,875,000
b) Add: Premium on Re-Insurance Accepted -
c) Less: Premium on Re-Insurance ceded (Paid) -228,000
d) Net Premium 1,647,000
e) Add: Outstanding Premium (Receivable) at the end of the year (31/3/2015) 125,000
f) Total Premium earned (net) 1,772,000
g) Less: Adjustment for change in URR and Additional Reserve -99,200
(Closing required - Opening available
= (f*110%) - 18,50,000 = 19,49,200 - 18,50,000)
h) Premium Earned (Net) 1,672,800

2) Claims Incurred (Net)

a) Claims paid on Direct Business 1,054,000
b) Add: Re-Insurance Accepted -
c) Less: Re-Insurance ceded -
d) Net Claims Paid 1,054,000
e) Add: Outstanding Claims at the end of the year (31/3/2013) 225,000
f) Less: Outstanding Claims at the beginign of the year (1/4/2012) -189,000
g) Claims Expense before Direct cost 1,090,000
h) Add: Direct Cost
i) Surveyor's Fees 45,000
ii) Legal Expenses regarding claims 65,000
i) Total Claims Incurred 1,200,000

3) Commission
Commission on Direct Business written 194,000
194,000
4)Operating Expenses related to Marine Ins Business
Expenses of Management (485,000 - 45,000 - 65,000) 375,000
375,000
 Prob No: 7
d 31/3/2015
Amt
1,672,800
165,250
46,000
1,884,050
1,200,000
194,000
375,000
1,769,000
115,050
Prob No: 7
Marine Revenue A/c of M/s Sagar Bhima Company Ltd for the year ended 31/3/2015
Particulars Sch No
Premiums Earned (Net) 1
Interest, Dividend and Rent - Gross (Net 115,500 + TDS 24,500)
Total (A)
Claims Incurred (Net) 2
Commission 3
Operating Expenses related to Marine Ins Business 4
Total (B)
Operating Profit/(loss) from Marine Insurance Business (A-B)

Profit and Loss A/c of M/s Sagar Bhima Company Ltd for the year ended 31/3/2015
Particulars Sch No
1. Operating Profit from Marine Business
2. Other Income (Interest on IT Refund 12,000 + Profit on sale of Motor Car 5000)
Total (A)
3. Other Expenses - Bad Debts
Total (B)
PBT (A - B)
Provision for Tax
PAT

Schedules:
1) Premiums Earned (Net)
Particulars
a) Premiums on Direct Business written
b) Add: Premium on Re-Insurance Accepted
c) Less: Premium on Re-Insurance ceded (Paid)
d) Net Premium
e) Add: Premium Receivable at the end of the year (180,000+28,000-42,000)
f) Less: Premium Receivable at the beginning of the year (120,000 + 21,000 - 20,000)
g) Total Premium earned (net)
h) Less: Adjustment for change in URR and Additional Reserve
(Closing required - Opening available
= (g*(100%+5%)) - 26,50,000 = 26,93,250 - 26,50,000 )
i) Premium Earned (net)

2) Claims Incurred (Net)

Particulars
a) Claims paid on Direct Business
b) Add: Re-Insurance Accepted
c) Less: Re-Insurance ceded
d) Net Claims Paid
e) Add: Outstanding Claims at the end of the year (31/3/2015) (175,000 + 22,000 - 12,000)
f) Less: Outstanding Claims at the begining of the year (1/4/2014) (95,000 + 13,000 - 9000)
g) Claims Expense before Direct cost
h) Add: Direct Cost - Legal Expenses regarding claims
i) Total Claims Incurred

3) Commission
(a) Commission on Direct Business written
(b) Add: Re-Insurance Accepted
(c ) Less: Re-Insurance ceded

4) Operating Expenses related to Marine Insurance Business

a) Employees Remuneration and welfare benefits - Salaries
b) Rent, rates and taxes
c) P&S
d) Other Legal Expenses (60,000 - 20,000)
 Prob No: 8

Amt
2,521,750
140,000
2,661,750
1,781,000
147,000
341,000
2,269,000
392,750

Amt
392,750
17,000
409,750
5,000
5,000
404,750
297,000
107,750

Amt
2,400,000
360,000
-240,000
2,520,000
166,000
-121,000
2,565,000
-43,250

2,521,750

Amt
1,650,000
125,000
-100,000
1,675,000
 185,000
-99,000
1,761,000
20,000
1,781,000

150,000
11,000
-14,000
147,000

260,000
18,000
23,000
40,000
341,000
Prob No: 8
Marine Revenue A/c of M/s New India Insurance Company Ltd for the year ended 31/3/2014 (Amt in Lakhs)
Particulars Sch No
Premiums Earned (Net) 1
Interest, Dividend and Rent - Gross (10 + 5)
Total (A)
Claims Incurred (Net) 2
Commission 3
Operating Expenses related to Marine Ins Business 4
Total (B)
Operating Profit/(loss) from Marine Insurance Business (A-B)

Profit and Loss A/c of M/s New India Insurance Company Ltd for the year ended 31/3/2014 (Amt in Lakhs)
Particulars
1. Operating Profit from Marine Business
Total (A)
2. Provisions (Other than Taxation)
a) Provision for Diminutuion in value of Investments in shares (Cost 20 - MV 18)
3. Other Expenses - Bad Debts
Total (B)
PBT
Provision for Tax (WN 1)
PAT
Balance of Profit/Loss brought forward from PY
Balance carried forward to Balance sheet (5.35 + 10)

Schedules:
1) Premiums Earned (Net)
Particulars Amt
a) Premiums on Direct Business written 50
b) Add: Premium on Re-Insurance Accepted 5
c) Less: Premium on Re-Insurance ceded (a*20%) -10
d) Net Premium 45
e) Add: Adjustment for Change in URR 15
(Closing required - Opening available
= (d*100%) - 60 = 45 - 60 )
f) Premium Earned (Net) 60

2) Claims Incurred (Net)

Particulars Amt
a) Claims paid on Direct Business 25
b) Add: Re-Insurance Accepted 4
c) Less: Re-Insurance ceded (a*20%) -5
d) Net Claims Paid 24
e) Add: Outstanding Claims at the End of the year 30
f) Less: Outstanding Claims at the beginning of the year -20
g) Total Claims Incurred 34

3) Commission
(a) Commission on Direct Business written 5.00
(b) Add: Re-Insurance Accepted (1(b) *25%) 1.25
(c ) Less: Re-Insurance ceded (1(c ) *25%) -2.50
3.75

4) Operating Expenses related to Marine Insurance Business

a) Expenses of Management 5.00
b) Other Expenses 1.25
6.25

WN 1: Computation of Tax Expense

a) PBT 19
b) Add: Provision for Diminutuion in value of Investments in shares 2
c) Taxable Income 21
d) Provision for Tax (c*65%) 13.65
Amt
60
15
75
34
3.75
6.25
44
31

Amt
31
31

2
10
12
19
13.65
5.35
10
15.35

45
60
-15 Written Back
Financial Statements - Refer CMA Institiute Material

Balance Sheet
Sources of Funds
a Shareholders Funds - 3 sub points
b Borrowings
c Policyholders Funds - 4 sub points
d Funds for future Appropriations

Application of Funds
a) Investments - 3 sub points
b) Loans
c) FA
CA - 2 sub points
CL
Provisions
d) Net CA (CA - CL&Prov)
e) Misc Exp
Prob No: 1
Revenue Account of National Life Assurance Company Ltd for the year ended 31/3/2015
Particulars Sch No Amt
Premiums Earned - Net
a)Premium (Direct Business) 1 710,000
b)Re-Insurance Ceded -70,000
c)Re-Insurance Accepted 50,000

Income from Investments

a) Interest, Dividend and Rent - Gross 216,000
Total (A) 906,000
Commission 2 50,500
Operating Expenses related to Insurance Business 3 45,500
Total (B) 96,000
Benefits Paid - Net 4 501,750
Interim Bonus Paid 22,500
Total (C) 524,250
Surplus ( A - B - C ) 285,750
Appropriations:
Transfer to Shareholders Account(P&L A/c) 285,750
Total (D) 285,750

P&L Account of National Life Assurance Company Ltd for the year ended 31/3/2015
Particulars Sch No Amt
Amount transferred from Policyholders Account 285,750
Total (A) 285,750
Expenses -
Total (B) -
Profit before Tax ( A - B ) 285,750
Provision for Taxation -
Profit After Tax 285,750
Appropriations:
Proposed Final Dividend (20,00,000*5%) 100,000
Profit carried forward to Balance sheet (Transferred to Life Fund) 185,750

Schedules:
1) Premium
a) First Year 590,000
b) Renewal Premium 120,000
c) Single Premium -
710,000

2) Commission
a) Commission paid on Direct
 First year Premium 40,500
Renewal Premium 2,000
Single Premium -
b) Add: Commission on Re-Insurance Accepted 12,000
c) Less: Commission on Re-Insurance ceded -4,000
50,500

3) Operating Expenses related to Insurance Business

a) Employees remuneration and welfare benefits - Salaries 30,400
b) Auditors Fees 5,400
c) Law Charges 3,400
d) Rent 3,600
e) Travelling Exp 1,950
f) Other Exp 750
45,500

4) Benefits paid (Net)

I)a) Insurance Claims (Direct Business)
i) Claims by Death 200,000
ii) Claims by Maturity 220,000
iii) Annuinities/Pension in Payment 81,750
iv) Other Benefits paid -
501,750

II) Benefits paid to Claimants

a) In India (130,000 + 140,000 + 72,500) 342,500
b) Outside India (b/f) 159,250
501,750
Balance Sheet of National Life Assurance Company Ltd as on 31/3/2015
Particulars Sch No Amt
Sources of Funds
Shareholders Funds:
Share Capital 5 2,000,000
Reserves and Surplus 6 3,810,750
Sub Total 5,810,750
Borrowings 7 21,750
Policyholders Funds -
Sub Total -
Funds for Future Appropriations -

Total 5,832,500
Application of Funds
Investments 8 4,000,000
Loans 9 1,642,500
Fixed Assets 10 102,300
Current Assets:
Cash & Bank Balance 11 67,500
Advances and other Assets 12 169,500
Sub-Total (A) 237,000
Current Liabilities 13 49,300
Provisions 14 100,000
Sub-Total (B) 149,300
Net Current Assets (A -B) 87,700

Total 5,832,500

5) Share Capital
Issued, Subscribed and Called up ESC 2,000,000
(20,000 shares of Rs 100 each)
2,000,000

6) Reserves and Surplus

a) Other Reserves
(i) Life Assurance Fund 3,585,750
Opening Balance 3,400,000
Add: Balance Surplus for the year 185,750
(ii) General Reserve 225,000
3,810,750

7) Borrowings
Bank Loan 21,750
 21,750

8) Investments
a) Deposit with RBI 210,000
b) Indian Govt Securities 1,090,000
c) Foreign Govt Securities 75,000
d) State Govt Securities 725,000
e) Securities on which Interest is guranteed by Govt 450,000
f) Shares of Companies incorporated in India 1,450,000
4,000,000

9) Loans
a) Security wise clasification
i) Secured
On Mortgage of Property in India 1,432,500
ii) Unsecured
Loans against Policies 210,000
1,642,500

10) Fixed Assets

a) Leasehold Buildings 63,300
b) Furniture and Fixtures 39,000
102,300

11) Cash and Bank balances

a) Cash in Hand 7,000
b) Cash at Bank
i) Deposit Accounts 20,000
ii) Current Acconts 40,500
67,500

12) Advances and Other Assets

a) Outstanding Premiums 66,000
b) Agents Balances (Dr) 18,000
c) Advance to Ceding Companies 47,000
d) Due from Re-Insurers 38,500
169,500

13) Current Liabilities

a) Due to Re-Insurers 47,500
b) Sundry Creditors 1,800
49,300

14) Provisions
Proposed Dividends 100,000
100,000
Prob No: 2
Revenue Account of Everbody Assurance Company Ltd for the year ended 31/3/2015
Particulars Sch No Amt
Premiums Earned - Net
a)Premium (Direct Business) 1 219,472
b)Re-Insurance Ceded -
c)Re-Insurance Accepted -

Income from Investments

a) Interest, Dividend and Rent - Gross 67,861
(52,461 + Receivable 15,400)
Other Income - Consideration for Annuities Granted 10,712
Total (A) 298,045
Commission 2 26,541
Operating Expenses related to Insurance Business 3 19,890
Provision for tax 3,060
Total (B) 49,491
Benefits Paid - Net 4 196,680
Interim Bonus Paid (9,450 + 2,500 + 1,500) 13,450
Total (C) 210,130
Surplus ( A - B - C ) 38,424
Appropriations:
Balance being Funds for Future Appropriations 38,424
Total (D) 38,424

Schedules:
1) Premium
a) Premium received 210,572
b) Add: Outstanding Premium 7,400
c) Add: Further Bonus in reduction of premium 1,500
219,472
2) Commission

Commission paid on Direct 26,541

26,541
3) Operating Expenses related to Insurance Business
Expenses of Management 19,890
19,890
4) Benefits paid (Net)
a) Insurance Claims (Direct Business)
i) Claims by Death (76,980 + 8000 Outstanding Claims) 84,980
ii) Claims by Maturity 50,420
iii) Annuinities/Pension in Payment 29,420
iv) Other Benefits - Surrenders 21,860
 186,680
b) Add: Reinsurance Accepted Claims 10,000
196,680
 Prob No. 3
Balance Sheet of Everbody Assurance Company Limited as on 31/3/2015
Particulars Sch No Amt
Sources of Funds
Shareholders Funds:
Share Capital 5 1,399,400
Reserves and Surplus 6 1,470,562
Sub Total 2,869,962
Borrowings 7 -
Policyholders Funds -
Sub Total -
Funds for Future Appropriations 38,424

Total 2,908,386
Application of Funds
Investments 8 2,490,890
Loans 9 -
Fixed Assets 10 419,110
Current Assets:
Cash & Bank Balance 11 6,000
Advances and other Assets 12 22,800
Sub-Total (A) 28,800
Current Liabilities 13 30,414
Provisions 14 -
Sub-Total (B) 30,414
Net Current Assets -1,614

Total 2,908,386

5) Share Capital
Issued, Subscribed and Called up ESC 1,400,000
Less: Preliminary Expenses -600

1,399,400
6) Reserves and Surplus
Other Reserves - Life Assurance Fund 1,470,562
1,470,562

7) Borrowings -

8) Investments
Government Securities 2,490,890

2,490,890
9) Loans -

10) Fixed Assets

Sundry FA 419,110
419,110
11) Cash and Bank balances
Cash and Bank Balance 6,000
6,000
12) Advances and Other Assets
a) Outstanding Premiums 7,400
b) Interest Accrued 15,400
22,800
13) Current Liabilities
a) Outstanding Claims (10,034 + 8000) 18,034
b) Annunities Due 2,380
c) Due to Re-Insurers (Claims covered under Re-Insurance) 10,000
30,414
14) Provisions -
Prob No. 3
Journal Entries
Particulars Debit Credit
a) Claims A/c Dr 10,000
To Claims Intimated, Accepted 10,000
but not paid A/c
(Claims Outstanding A/c)

b) Claims Outstanding A/c Dr 6,000

To Claims A/c 6,000

c) Int Accrued (Receivable) A/c Dr 800

To Int Income on Investments A/c 800

d) Premium A/c Dr 600

To Due to Re-Insurers A/c 600
(Premium Payable A/c)

e) Due from Re-Insurers A/c Dr 26,000

(Claims Receivable A/c)
To Claims A/c 26,000

f) Commission A/c Dr 8,000

To Outstanding Commission A/c 8,000

g) Bonus A/c Dr 10,000

To Premium A/c 10,000

h) P&L A/c Dr 2,000

To Provision for Taxation A/c 2,000
Security Deposit (SD)
1 On receipt of SD
Bank A/c Dr
To SD A/c (Should be disclosed in B/S under NCL)

2 Int Payable to Consumer on SD 100000

Electricity Bill (Receivable) 500000

Cash A/c Dr 400000

Int Accrued on SD A/c Dr 100000
To Sales A/c 500000

3 On Repayment of SD
SD A/c Dr
To Bank A/c

SLD Charges
SLD Charges received from Consumer 500000
Life of Service line (asset) 50 years
Depreciation Rate is 3% pa

Method 1 Bank A/c Dr 500000

To Deferred SLD Charges A/c 500000

Deferred SLD Ch A/c Dr 10000

To P&L A/c 10000
(500,000/50 years)

Remaining balance in Def SLD Ch A/c will be carried forward to future

Method 2 Bank A/c Dr 500000

To SLD Reserve A/c 500000
No amt will be transferred to P&L A/c

Method 3 Bank A/c Dr 500000

To Deferred SLD Reserve A/c 500000

Deferred SLD Reserve A/c Dr 15000

To P&L A/c 15000
(500,000*3%)

Remaining balance in Def SLD Reserve A/c will be carried forward to future

Method 4 Bank A/c Dr 500000

To Service Line Asset A/c 500000
Tariff = Cost Incurred + Profit
Total Cost Incurred is not allowed to be charged on Customer
What is the cost to be charged ie regulated under 2009 Regulations or Guidelines

Debt-Equity
Equity should not exceed 30% of Total Investment
If Equity is less than 30%, actual should be considered
If equity is more than 30%, such excess shall be treated as Notional Loan

Under Cost Incurred for the purpose of Tariff, the following cost will be considered
a) Interest on Debt (1st table in material)
b) Return on Equity at 14% (2nd table in material)
Question GANGOTRI LTD. reports the following information regarding Pension Plan assets.
Fair market value of Plan Assets as on 31.03.2015 17,00,000
Fair market value of Plan Assets as on 01.04.2014 16,00,000
Benefit payments to Retirees 1,80,000
Employer contribution 1,50,000
Calculate the Actual Return on Plan Assets as per AS-15.
Solution: Particulars
Fair market value of Plan assets as on 31.03.2015 1,700,000
Less: Fair market value of Plan assets as on 01.04.2014 -1,600,000
100,000
Add: Benefit payment to Retirees 180,000
Less: Employer Contributions -150,000
Actual Return on Plan Assets 130,000

Alternatively,
Plan Assets A/c (at Fair values)
Particulars Amt
To Bal b/d 1,600,000
To Cont from Employer 150,000

To Actual Return from Plan Assets (b/f) 130,000

1,880,000
ension Plan assets. Question

Solution:

(at Fair values)

Particulars Amt
By Benefits paid 180,000

By Bal c/d 1,700,000

1,880,000
ROLTA Ltd. reports the following information regarding Pension Plan Assets:

Particulars Amount
Fair market value of Pension Plan assets as on 01.04.2015 600,000
Fair market value of Pension Plan assets as on 31.03.2016 900,000
Actual Return 195,000
Benefit payments of Retirees 150,000
Calculate the Employer’s Contribution to the Pension Plan assets during
the year 2015-16 as per AS-15.
Particulars
Fair market value of Plan assets as on 31.03.2016 900,000
Less: Fair market value of Plan assets as on 01.04.2015 -600,000
300,000
Add: Benefit payment to Retirees 150,000
Less: Actual Return -195,000
Employer Contributions 255,000

Alternatively,
Plan Assets A/c (at Fair values)
Particulars Amt
To Bal b/d 600,000
To Cont from Employer (b/f) 255,000

To Actual Return from Plan Assets 195,000

1,050,000
 Particulars Amt
By Benefits paid 150,000

By Bal c/d 900,000

1,050,000