Practice questions for module no.

07 to 16

Chapter – 7
Short Term Investment

Investment in Equity Instruments: Journal entries

Topic – 116 Measurement of Investment in Equity Instruments – Practice

Sample Co. made an investment of Rs. 400,000 in equity shares of Symbol Ltd. on 1st October 2020.
Transaction cost incurred as broker’s fee Rs. 20,000.
On the reporting date, 31st December 2020, the fair value of these shares was Rs. 350,000.
 Chapter – 8
Accounting for fixed Assets

Topic 119 – Revaluation of Land – Practice

Sample Co. purchased land for Rs. 100 million on the 1st January 2020.
Sample Co. applies revaluation model for measurement of land after initial recognition.
The land was revalued to its fair value Rs.130 million on 31st December 2020.

Continue with the previous scenario.

On 31st December 2021, the fair value of land was determined at Rs. 95 million.

Revaluation of Depreciable Asset – Practice

Sample Co. purchased machine for Rs. 100 million on the 1st January 2020, that is to be depreciated
at 10% using straight line method. Assume nil residual value.
The machine was revalued at Rs. 120 million on 31st December 2021.

Accounting for Revaluation of Fixed Assets

Step 1 – Calculate depreciation of the asset till the date of revaluation and transfer accumulated
depreciation account to the asset account
Accumulated Depreciation Dr. x,xxx
Fixed Asset Cr. x,xxx
Step 2 – Adjust the net carrying amount of the asset to its fair value that will result into a gain or loss
on revaluation
Step 3 – Recognise; revaluation gain as a Reserve in Equity and; revaluation loss as an Expense in
SOPL (if it is first time / initial revaluation)

Topic 121 – Excess Depreciation against Revalued Asset – Practice

Sample Co. purchased machine for Rs. 100 million on the 1st January 2020, that is to be depreciated
at 10% using straight line method. Assume nil residual value.
The machine was revalued at Rs. 120 million on 31st December 2021.

Sample Co. estimated that there is no change in the remaining useful life of the revalued machine.
On 31st December 2022, it was found that the carrying amount of the asset was not materially
different from its fair value.

Topic 122 – Disposal of Revalued Asset – Practice

Sample Co. purchased machine for Rs. 100 million on the 1st January 2020, that is to be depreciated
at 10% using straight line method. Assume nil residual value.
The machine was revalued at Rs. 120 million on 31st December 2021.

Sample Co. estimated that there is no change in the remaining useful life of the revalued machine.
On 31st December 2022, it was found that the carrying amount of the asset was not materially
different from its fair value.

Sample Co. disposed of the revalued machine on 31st December 2023 for Rs. 50m.

Topic 126 – Accounting for Fixed Assets – Accounting Policies and Fixed Assets Schedule
Fixed Assets Schedule

Chapter – 9

Accounting For Non-Current Assets

Topic 127 – Accounting for Non-Current Assets – Intangible Fixed Assets (Recap)

Topic 130 – Cost of Intangible Asset – Practice

Scenario I
Sample Co. is a newly established telecom company. It purchased List of customers from a supplier,
who developed it over the years, for Rs. 100 million on the 1st January 2020.
Should Sample Co. capitalise it as intangible asset.

Conclusion
No!
Sample Co. should not recognize intangible asset for the purchase of such list of customer, as the
cost of list cannot be distinguished from the cost of developing the business as a whole.

Scenario II
Sample Co. acquired a competitor, which also has a large customer list with complete information
such as name, address, contacts and average purchase amount. The customer list has a value and
could be sold it to third parties.
Should Sample Co. capitalise it as intangible asset.

Conclusion
Yes!
Sample Co. should recognize the customer list acquired in acquisition of competitor as an intangible
asset. The possibility to sell the list or to exchange it, provides evidence that it is separately
identifiable asset.
Topic 134 – Research and Development Cost – Practice

Distinguish as to which of the following costs would be capitalized.

a) Expenditure on research of new improved material costing Rs. 10,000.

b) Expenditure on applied research amounting Rs. 1,000,000.
c) Donation to a research foundation amounting Rs. 500,000.
d) Expenses of Rs.200,000 on a project which has the technical feasibility to be completed; the
management intends to complete the project; future economic benefits will be derived;
company has adequate technical and financial resources to complete the project.
e) Expenditure on a project amounting Rs. 500,000. Later on it was discovered that this project
is not technically possible to continue.
f) Expenditures on construction of prototypes amounting Rs. 700,000.

1. Research cost to be expensed

2. Development cost to be capitalised based if criteria is met
Topic 135 – Development Cost – Practice

Question
Sample Co. incurred following expenses on design, construction and testing of pre-production
prototypes.
Cost of materials Rs.100,000
Depreciation of machinery (exclusively used for prototypes) Rs. 7,000
Wages paid to employees engaged in that process Rs. 54,000
Direct expenses Rs. 39,000
Administrative expenses Rs. 28,000
Calculate the cost of the intangible asset generated by the company.

Answer
Cost to be capitalised as intangible asset
Cost of materials Rs.100,000
Depreciation of machinery (exclusively used for prototypes) Rs. 7,000
Wages paid to employees engaged in that process Rs. 54,000
Direct expenses Rs. 39,000
Total cost of prototype – Intangible asset Rs. 200,000

Scenario
Sample Co. is conducting an overhaul of the financial reporting systems. Sample Co. has purchased
several software to customize and integrate them for its own use.
The customization will take 18 months to complete at a cost of Rs. 500,000 by using internal and
external resources.

Conclusion
Sample Co. may capitalize the customized software as an internally generated intangible asset,
provided:
1. it has the resources to complete the project;
2. the software will be used in operating the business; and
3. it is probable the system will generate future economic benefits.

Conclusion
The costs that may be capitalised are those directly attributable to the project and incremental to
the entity as a result of undertaking the project.

Conclusion
These would usually include:
• Materials and services used in customizing the software;
• The staff salaries engaged on the project;
• Other expenditure such as license fees directly attributable to acquiring the software; and
• Overheads
Topic 137 – Intangible Assets Amortization – Practice

Question
Sample Co. acquired copy rights at Rs. 100,000 to be used for 10 years.
Calculate the amortization expense to be charged in each year. The pattern of consuming economic
benefits cannot be estimated.

Solution
Cost Rs. 100,000
Useful Life 10 years.
Amortization Rs. 10,000
Per annum

Question
Sample Co. acquired a production formula for Rs. 3 million. Benefits associated to the formula will
expire in 5 years’ time.
Expected total production is 150,000 units as below:
Year Benefit
1 50,000 units
2 40,000 units
3 30,000 units
4 20,000 units
5 10,000 units

Solution
Amortization expense
Year Rs.000
1 = 3million x 50/150 1,000
2 = 3million x 40/150 800
3 = 3million x 30/150 600
4 = 3million x 20/150 400
5 = 3million x 10/150 200
Topic 138 – Intangible Assets Indefinite Useful Life

An intangible asset with an indefinite useful life shall not be amortised.

Scenario
Sample Co. acquired a trademark that has remaining legal life of five years but is renewable every 10
years at little cost.
Sample Co. intends to renew the trademark continuously and evidence supports its ability to do so.

Scenario ….
An analysis of:
a) product life cycle studies,
b) market, competitive and environmental trends, and
c) brand extension opportunities
provides evidence that trademarked product will generate net cash inflows for the acquiring entity
for an indefinite period.

Topic 139 – Intangible Assets – Review of Useful Life

Scenario
The licensing authority subsequently decides that it will no longer renew broadcasting licenses, but
rather will auction the licenses.
At the time the licensing authority’s decision is made, the Sample’s broadcasting licnese has three
years until it expires.

Conclusion
Sample Co. expects that the license will continue to produce net cash inflows until the license
expires.
Because the broadcasting license can no longer be renewed, its useful life is not longer indefinite.

Chapter – 10
Investment Property

Topic 143 – Investment Property Identification Scenario

Sample Co. built a residential property with the intention of selling it.
In the past, Sample Co. has regularly developed property and then sold it immediately after
completion.
In order to increase the chances of a sale, this time Sample Co. chooses to let some of the flats on
rent as soon as they are ready for occupation.
The tenants move into the property before completion. How should Sample Co. present this
property?

Conclusion
Sample Co. should classify this property as inventory. Because of Sample’s core business and its
strategy regarding selling property.
Letting out strategy is being carried out with the intention of increasing the chances of selling this
property.
This property is not let out for the long-term generation of rental income.
Neither this property is held for the purpose of capital appreciation.
Cont.….
X’s intention to sell the property under construction immediately after completion in the ordinary
course of business has not changed. Consequently, the property under con-struction does not fulfil
the definition of an investment property (IAS 40.9(a)).
Sample’s intention to sell the property under construction immediately after completion in the
ordinary course of business has not changed. Consequently, the property under construction does
not fulfil the definition of an investment property.

Topic 148 – Transfer to or from Investment Property – Practice

Question - 1
Can a property that has previously been classified as an investment property be reclassified as
inventory if it is renovated to create disposal through sale?

Answer - 1
Yes. This may be the case when a significantly higher rental standard is achieved through renovation
or when the lettable area is notably increased.
However, if the renovation only serves to maintain the property at its current level, then there is no
development with the aim of sale.

Question - 2
Can a property under construction classified as inventory be reclassified as an investment property
if the disposal plans no longer exist?

Answer - 2
No. A property under construction that has been classified as inventory to date is not to be
reclassified solely on the basis of its intended use being changed.
This requires, an operating lease agreement to be commenced.
 Chapter – 11
Accounting for Impairment of Assets

Impairment
An asset is termed as impaired if its recoverable amount is lesser than its carrying amount.

Cost of asset 500

Accumulated Dep. - 100
Carrying amount 400
Recoverable amount 280
Impairment loss 120

Example
A company has a machine in its statement of financial position at a carrying amount of Rs.300,000.
The machine has been tested for impairment and found to have recoverable amount of Rs.275,000
meaning that the company must recognize an impairment loss of Rs.25,000.

Accounting Entry
Impairment Loss Dr. 25,000
Accumulated Impairment Loss Cr. 25,000

Statement of Profit or Loss

Impairment Expense 25,000

Statement of Financial Position

Assets
Machine 300,000
Accumulated
Impairment - 25,000
Net Book Value 275,000
Topic 153 – Accounting Treatment of Impairment Loss Practice Scenario - 1

Scenario - 1
On 1st January 20X1, Sample Co purchased a machine for Rs.240,000 with an estimated useful life
of 20 years and estimated nil residual value. Depreciation is charged on a straight-line basis.
On 1st January 20X4, an impairment review showed the machine’s recoverable amount to be
Rs.100,000 and its remaining useful life to be 10 years.

Solution
Step 1
Calculate carrying amount of the machine on 31st December 20X3
(immediately before the impairment)
Rupees
Cost of Machine 240,000
Accumulated depreciation (3 × (240,000 ÷ 20 years)) - 36,000
Carrying amount 204,000

Solution
Step 2
Calculate impairment loss
(to be recognized in the year 4 on 1st January 20X4)
Impairment loss on 1st January 20X4 is Rs.104,000
Net Book Value 204,000
Recoverable Amount 100,000
Rs. 104,000 is charged to profit or loss as expense.

Solution
Step 3
Calculate depreciation expense
(to be recognized in the year 4 ending on 31st December 20X4)
Depreciation charge in 20X4 Rs.100,000 ÷ 10 10,000
The recoverable amount is allocated on the expected remaining useful life.

Topic 154 – Accounting Treatment of Impairment Loss Practice Scenario - 2

Scenario - 2
Sample company has a machine in its statement of financial position at a carrying amount of
Rs.300,000 including a previously recognized revaluation surplus of Rs.20,000.

Scenario - 2
The machine has been tested for impairment and found to have recoverable amount of Rs.275,000
meaning that the company must recognize an impairment loss of Rs.25,000.
Solution
Impairment not covered by a previously recognized revaluation surplus on the same asset is
recognized in statement of profit or loss.

Chapter – 12
Investment in Non-Current Financial Assets

Topic 155 – Accounting for Investment in Equity or Debt Instruments Non-Current Financial
Assets

Investment in Equity Instruments

Buying or subscribing equity shares of another entity
Shares in X Co. Dr.
Cash/Bank Cr.

Investment in Debt Instruments

Advancing loan to another entity
Loan to X Co. Dr.
Cash/Bank Cr.

Investment in Debt Instruments

Buying loan notes or bonds of another entity
Loan notes in X Co. Dr.
Cash/Bank Cr.

Topic 157 – Investment in Equity Instruments Initial Measurement – Practice

Scenario
On 1 January 20X1, Sample Co. purchased 500 equity shares in Symbol Limited for Rs.100,000 at its
fair value on that date.
Transaction costs is amounted to Rs.1,000 on 1 January 20X1.
Topic 158 – Investment in Debt Instruments Initial Measurement – Practice

Scenario
Sample Bank granted a Rs. 1 million loan to Symbol Co. on 1 January 20X1 at par. The loan is
repayable in 2 years’ time and bears annual interest of 7%.
A similar loan in the market normally bears interest at 9% per annum (as at 1 January 20X1), however
Sample Bank is willing to receive a lower yield on the loan as Symbol Co. has agreed to transfer all
other banking requirements solely to Sample Bank.

Topic 160 – Financial Assets Measurement at FVTPL

Scenario
On 1 January 20X1, Sample Co. purchased 500 equity shares in Symbol Limited for Rs. 100,000 at its
fair value on that date. Transaction costs is amounted to Rs. 1,000 on 1 January 20X1.
The fair value of Symbol’s shares at 31 December 2014 was Rs. 120 000.

Topic 161 – Financial Assets Measurement at FVTOCI

Scenario
On 1 January 20X1, Sample Co. purchased 500 equity shares in Symbol Limited for Rs. 100,000 at its
fair value on that date. Transaction costs is amounted to Rs. 1,000 on 1 January 20X1.
The fair value of Symbol’s shares at 31 December 2014 was Rs. 120 000.

Topic 162 – Financial Assets Measurement at Amortised Cost

Scenario
Sample Bank granted a Rs. 1 million loan to Symbol Co. on 1 January 20X1 at par. The loan is
repayable in 2 years’ time and bears annual interest of 7%.
A similar loan in the market normally bears interest at 9% per annum (as at 1 January 20X1), however
Sample Bank is willing to receive a lower yield on the loan as Symbol Co. has agreed to transfer all
other banking requirements solely to Sample Bank.
 Chapter – 13
Revenue from Contracts with Customers

Topic 165 – Revenue Recognition – Scenario

Scenario
Sample Co. a telecom operator entered into a contract with JQ on 1 July 20X1. In line with the contract, JQ
subscribes for Sample Co's monthly telecom services for 12 months and in return, JQ receives free handset
from Sample Co. JQ will pay a monthly fee of Rs. 100.
JQ gets the handset immediately after contract signature.
Sample Co. sells the same handsets for Rs. 240 and the same monthly telecom plans for Rs. 80 per month
without handset.
How should Sample Co. recognize revenues from the contract with JQ for the year ending on 31 December
20X1 (six months period)?

Steps Step 1: Identify contract

1. Identify contract Written contract between JQ and Sample Co.
2. Identify the separate POs Step 2: Identify POs
3. Determine TP PO1: Monthly telecom services PO2: Handset
4. Allocate the TP to POs Step 3: Determine TP
5. Recognise revenue Monthly fee: Rs. 100
Months of subscription: 12
Transaction price: Rs. 1,200

Accounting Entries
1 Jan 20X1
Contract Asset Dr. 240
Sales of handset Cr. 240
31 Jan 20X1
Trade Receivable Dr. 100
Sales of Services Cr. 80
Contract Asset Cr. 20
(for six months Jan to Dec)
 Statement of Profit or Loss
Extract – 1 Jan to 31 Dec 20X1
Sales of handset 240
Sales of telecom services 480
Total Revenue 720
Statement of Financial Position
Extract – as on 31 Dec 20X1
Contract Asset 240
Amortised (Rs.20x6months) - 120
120
Trade Receivable (Dec.20X1) 100

Topic 167 – Identifying a Contract with Customer – Practice

Scenario 1
Sample Co. (car dealer) agreed on 1 March 20X1 to sell 10 cars to Alpha Co. Due to some deficiency
in drafting the agreement each party’s rights cannot be identified.
On 31 March 20X1 Sample Co. delivered the cars that were accepted by Alpha Co. Full payment was
made by Alpha Co. on 10 April 20X1, which is non-refundable.

Conclusion
Sample Co. cannot identify each party’s rights so revenue recognition should be delayed until the
entity’s performance is complete and substantially all of the consideration has been collected and
is non-refundable.
Therefore, revenue should be recognised on April 10, 20X1.

Scenario 2
Sample Electronic Co. agreed to deliver 10 lap tops to IQ within 3 months. As per the agreement
Sample Co. can cancel the contract any time before delivering the lap tops.
Sample Co. is not required to pay any penalty to IQ if it is unable to satisfy the performance
obligation.

Conclusion
A contract does not exist if each party (either buyer or seller) has an enforceable right to terminate a
wholly unperformed contract without compensating the other party.
As Sample Co. can cancel the contract without paying any compensation to IQ therefore contract
does not exist.

Topic 168 – Identifying a Separate Performance Obligation

Scenario
Sample Co. sells 10 washing machines for Rs. 50,000 each to SRB Laundry, and agrees to provide
following for free:
1. 2 years’ after sale service
2. 10 kg detergent every month for the next 12 months
3. 50% discount voucher if next purchase is made in the upcoming 6 months.

Conclusion
There are 4 separate performance obligations:
1. Delivery of 10 washing machines (point in time)
2. Service and maintenance over 2 years (over time)
3. 10 kg detergent over the next 12 months (over time)
4. Discount voucher (point in time)

Topic 169 – Determining Transaction Price

Scenario
Sample Co. enters into a contract to supply 100 tons of coal to a customer in two weeks for Rs.
200,000.
If the coal is not supplied on time, there will be a penalty of Rs. 20,000.
Sample Co. has a history of supplying coal and there is 90% chance that the coal will be supplied on
time.

Conclusion
There are two possible outcomes:
• Rs. 200,000 if supply is made on time
• Rs. 180,000 if supply is not made on time
The “most likely amount” method better predicts the amount of consideration
Therefore, transaction price is Rs. 200,000 as there is 90% chance of on time supply.

Scenario
On 1 December 20X1, Sample Co. sold 300 mobile phones for Rs. 5,000 each.
Customer has the right to return the phones within 3 months, with full refund. Thereafter the
customer can no longer return and must pay in full.
Sample Co. has previously worked with this customer and can reliably estimate that 5% of the
mobile phones will probably be returned within a 3-month period.

Conclusion
Transaction price contains a variable element, when customer has the right to return.
Since the variable element can be reliably estimated, it is taken into account in the revenue estimate,
and the total amount of revenue will be Rs. 1,425,000 (300 x 95% x Rs.5,000).

Topic 170 – Allocating Transaction Price to Performance Obligation

Scenario
Sample Co. a telecom operator entered into a contract with JQ on 1 July 20X1. In line with the
contract, JQ subscribes for Sample Co's monthly telecom services for 12 months and in return, JQ
receives free handset from Sample Co. JQ will pay a monthly fee of Rs. 100.
JQ gets the handset immediately after contract signature.
Sample Co. sells the same handsets for Rs. 300 and the same monthly telecom plans for Rs. 80 per
month without handset.
How should Sample Co. recognize revenues from the contract with JQ for the year ending on 31
December 20X1 (six months period)?

Accounting Entries
1 Jan 20X1
Contract Asset Dr. 286
Sales of handset Cr. 286
31 Jan 20X1
Trade Receivable Dr. 100
Sales of Services Cr. 76
Contract Asset Cr. 24
(for six months Jan to Dec)

Topic 171 – Recognizing Revenue “when” or “as” the entity satisfies PO

Scenario
Sample Co. a telecom operator entered into a contract with JQ on 1 July 20X1. In line with the
contract, JQ subscribes for Sample Co's monthly telecom services for 12 months and in return, JQ
receives free handset from Sample Co. JQ will pay a monthly fee of Rs. 100.
JQ gets the handset immediately after contract signature.
Sample Co. sells the same handsets for Rs. 300 and the same monthly telecom plans for Rs. 80 per
month without handset.
How should Sample Co. recognize revenues from the contract with JQ for the year ending on 31
December 20X1 (six months period)?
Step 5: Recognize revenue (“when” or “as”) an entity satisfies a PO
PO 1: Handset / Mobile Phone
At the point in time, when handset is Delivered
PO 2: Monthly telecom services Over time, as monthly telecom services are
provided
Accounting Entries
1 July 20X1
Contract Asset Dr. 286
Sales of handset Cr. 286
(At the point in time, “when” handset is Delivered)
31 July 20X1 – 31 Dec 20X1
Trade Receivable Dr. 100
Sales of Services Cr. 76
Contract Asset Cr. 24
(Over the time, “as” monthly service is provided)
(for six months July to December 20X1)

Statement of Profit or Loss

Extract – 1 Jul to 31 Dec 20X1
Sales of handset 286
Sales of telecom services 456
Total Revenue 742
Statement of Financial Position
Extract – as on 31 Dec 20X1
Contract Asset 286
Amortised (Rs.24x6months) - 144 142
Trade Receivable (Dec.20X1) 100

Chapter – 14
Financial statement analysis

Topic 173 – Vertical Analysis

Chain Analysis

Sales in the year

Rs.
20X0 7,500
20X1 5,400 72% of 20X0
20X2 10,500 194% of 20X1
20X3 11,250 107% of 20X2
Index Analysis

Sales in the year

Rs.
20X0 7,500 Base Year
20X1 5,400 72%
20X2 10,500 140%
20X3 11,250 150%

Topic 176 – Profitability Ratios

Topic 177 – Liquidity Ratios

Topic 178 – Debt/Leverage Ratios

Topic 179 – Efficiency Ratios

Ratios Include

• Asset Turnover Ratio

• Inventory Turnover Ratio
• Receivable Turnover Ratio
• Inventory Holding Period
• Receivable Collection Period
Topic 180 – Market/Owners’ Ratios

Ratios Include

• Book Value Per Share

• Dividend Yield Ratio

• Earnings Per Share

• Price Earnings Ratio

Topic 181 – Cash Flow Ratios

Ratios Include
• Cash flow coverage ratio
• Current liability coverage ratio
• Cash flow margin ratio
• Price to cash flow ratio
• Cash flow to net income
 Chapter – 15
Accounting for Incomplete Records

Topic 185 – Statement of Profit or Loss for Small Entities

Question
Rs.
Opening Owner Equity 100
Closing Owner Equity 150
Drawings during the year 140
Fresh capital introduced during the year 25
Prepare Statement of Profit or loss for the reporting year
Answer
Statement of Owner’s Equity
On the Reporting Date
Rs.
Opening Owner’s Equity 100
Profit for the Year + ?
Fresh Capital + 25
Drawings -140
Closing Owner’s Equity 150

Topic 186 – Statement of Affairs

Statement of Affairs
It is a statement containing balances of assets and liabilities of an entity on a specific date.

Topic 187 – Accounting for Incomplete Records – Practice (Part A)

Practice Question
Burhan and Bilal are partners in Sample Developers sharing profits and losses in the ratio of 3:2.
They do not keep proper books of accounts. On 31 December, 20X1, the following Statement of
Affairs was extracted from their record:

Practice Question – cont.….

On 31st December, 20X2, their assets and liabilities were:
Plant & Machinery Rs 50,000; Trade Receivables Rs 40,000; Inventories Rs 30,000; Other
Receivables Rs 5,000; Cash at Bank Rs 25,000; Trade Payables Rs 25,000; Loan from Bilal Rs 25,000.
Prepare a Statement of Profit or Loss for the year ended 31st December, 20X2 and Balance Sheet on
that date after taking into consideration the following facts:
a) Plant and machinery is to be depreciated by Rs. 4,000.
b) Inventories are to be reduced at NRV Rs. 25,000.
c) A provision for bad debts is to be raised at 5% on Trade Receivables
d) Interest on loan is due at 6% p.a.
e) During the period Burhan and Bilal withdrew Rs 5,000 and Rs 3,000 respectively.

Steps to follow
1. Ascertain opening and closing balances of Net Assets / Owners’ Equity
2. Ascertain Profit for the year
3. Prepares partners’ current account
4. Prepare Balance Sheet
Topic 188 – Accounting for Incomplete Records – Practice (Part B)

Practice Question
Burhan and Bilal are partners in Sample Developers sharing profits and losses in the ratio of 3:2. They do not
keep proper books of accounts. On 31 December, 20X1, the following Statement of Affairs was extracted from
their record:

Practice Question – cont.….

On 31st December, 20X2, their assets and liabilities were:
Plant & Machinery Rs 50,000; Trade Receivables Rs 40,000; Inventories Rs 30,000; Other Receivables Rs 5,000;
Cash at Bank Rs 25,000; Trade Payables Rs 25,000; Loan from Bilal Rs 25,000.
Prepare a Statement of Profit or Loss for the year ended 31 st December, 20X2 and Balance Sheet on that date
after taking into consideration the following facts:
a) Plant and machinery is to be depreciated by Rs. 4,000.
b) Inventories are to be reduced at NRV Rs. 25,000.
c) A provision for bad debts is to be raised at 5% on Trade Receivables
d) Interest on loan is due at 6% p.a.
e) During the period Burhan and Bilal withdrew Rs 5,000 and Rs 3,000 respectively.
Topic 190 – Conversion Mapping Income Statement with source documents

Preparing Income Statement

Income Statement (SOPL) can be prepared with the help of a set of incomplete records.
Mapping is important from students’ point of view.
Topic 191 – Conversion – Mapping Balance Sheet with source documents

Preparing Balance Sheet

Balance Sheet (SOFP) can be prepared with the help of a set of incomplete records.
Mapping is important from students’ point of view.

Topic 192 – Source Record for Mapping

Topic 193 – Conversion into Double entry Practice – Question (Part A)

Practice Question
Sample Departmental Store does not follow double entry bookkeeping. Its accountant provides
following records for the year ending on 31st December 20X2:
1. Statement of Affairs 1-1-20X1
2. Cash book (Two Column)
3. Trade Receivables
4. Trade Payables
Year End Adjustments
31st December 20X2
• Closing Inventory Rs. 1,700
• Rent owing Rs. 50
• Depreciation on fixture 10% pa.
Prepare Income statement for the year ended 31st December 20X2 and Balance Sheet as on that
date.
Topic 194 – Conversion into Double entry Practice – Answer (Part B)

Answer

Topic 195 – Conversion into Double entry – Missing Information

Missing Information
In some questions all the sufficient information is not provided that is needful to convert single entry
into double entry.
For example; credit sales could be missing despite the fact that cash was received from credit
customers during the reporting period.

Tracing Missing Information

Finding out the reciprocal Dr. or Cr. effect in the set of five source records.
1. Cash and Bank Book
2. Trade Receivables Ledger
3. Trade Payables Ledger
 4. Statement of Affairs (Op.)
5. Year-end adjustments

Topic 196 – Conversion into Double entry – Markup and Margin

 Markup
It is the % age of gross profit over cost of
goods sold.
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑡
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
x 100 = %
Rs.
Sales 125%
800,000
Cost of Sales 100%
640,000
Gross Profit 25%
160,000
160,000
640,000
x 100 = 25%

Margin
It is the % age of gross profit over Sales.
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑡
Sales
x 100 = %
Rs.
Sales 100% 800,000
Cost of Sales 80% 640,000
Gross Profit 25% 160,000
160,000
800,000
x 100 = 20%

Topic 197 – Conversion into Double entry – Use of Markup Ratio

Scenario 1
Goods are sold at 15% profit on cost. The selling price is Rs.
34,500. Calculate gross profit.
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑡
x 100 = %
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
Rs.
Sales 115% 34,500
Cost of Sales 100% ?
Gross Profit 15% ?
34,500
115
x 15 = 4,500

Rule of Thumb
• Base information is always equal to 100%.
• Information provided in absolute form is divided by its own % age and multiplied by the % age
of required information.
 Scenario 2
Goods are sold at 25% profit on cost. If the gross profit is Rs. 75,000.
Calculate the amount of Sales.
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑡
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
x 100 = %
Rs.
Sales 125% ?
Cost of Sales 100% ?
Gross Profit 25% 75,000
75,000
25
x 125 = 375,000

Scenario 3
Goods are sold at 40% markup. If the gross profit is Rs. 120,000.
Calculate the amount of Cost of Sales.
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑡
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
x 100 = %
Rs.
Sales 140% ?
Cost of Sales 100% ?
Gross Profit 40% 120,000
120,000
40
x 100 = 300,000

Topic 198 – Conversion into Double entry – Use of Margin Ratio

Scenario 1 Rule of Thumb

Goods are sold at 35% profit on sales. The cost of goods sold is Rs. • Base
260,000. Calculate gross profit. information is always
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑡 equal to 100%.
x 100 = %
Sales • Information
Rs. provided in absolute
Sales 100% ? form is divided by its
Cost of Sales 65% 260,000 own % age and
Gross Profit 35% ? multiplied by the % age
260,000
x 35 = 140,000 of required
65
information.
 Scenario 2
Goods are sold at 25% profit on sales. If the gross profit is Rs. 80,000.
Calculate the amount of Sales.
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑡
Sales
x 100 = %
Rs.
Sales 100% ?
Cost of Sales 75% ?
Gross Profit 25% 80,000
80,000
25
x 100 = 320,000

Scenario 3
Goods are sold at 40% margin. If the gross profit is Rs. 120,000.
Calculate the amount of Cost of Sales.
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑡
x 100 = %
Sales
Rs.
Sales 100% ?
Cost of Sales 60% ?
Gross Profit 40% 120,000
120,000
40
x 60 = 180,000

Topic 199 – Conversion of Margin Ratio into Markup Ratio

Scenario
Sample Co. follows the policy to sell goods at 25% margin. Calculate
its markup rate.
Margin Markup
Sales 100% ?
Cost of Sales 75% 100%
Gross Profit 25% ?
100
Markup rate x 25 = 33.33%
75
100
Sales rate x 100 = 133.33%
75

Scenario
Sample Co. follows the policy to sell goods at 25% margin. Calculate
its markup rate.
Margin Markup
Sales 100% ?
Cost of Sales 75% 100%
Gross Profit 25% ?
Alternatively
25
Markup rate 75x 100 = 33.33%
Remember
Gross profit = 1/4th = 25%
Gross profit = 1/5th = 20%
Gross profit = 1/3rd = 33.33%
Gross profit = ½ = 50%

Chapter – 16
Accounting for Non-Profit Organization

Topic 200 – Conversion of Markup Ratio into Margin Ratio

Scenario
Sample Co. follows the policy to sell goods at 25% markup. Calculate
its margin rate.
Margin Markup
Sales 125% 100%
Cost of Sales 100% ?
Gross Profit 25% ?
100
Margin rate x 25 = 20%
125
100
Cost of Sales rate 125x 100 = 80%

Scenario
Sample Co. follows the policy to sell goods at 25% markup. Calculate
its margin rate.
Margin Markup
Sales 125% 100%
Cost of Sales 100% ?
Gross Profit 25% ?
Alternatively
25
Margin rate 125x 100 = 20%

Remember
In case of profit, the sales %age will always be greater than the cost %age.
125 S – 100 C = 25 Profit
100 S – 80 C = 20 Profit
In case of loss, the cost %age will always be greater than the sales %age.
100 S – 125 C = – 25 Loss
80 S – 100 C = – 20 Loss
Topic 204 – Income and Expenditure Account

Subscription Income on accrual basis

Sample Library received Rs. 55,000 as subscription during the year ending on 31 Dec 20X1. Few
members did not pay subscription that is still due Rs 5,000 whereas, few members paid their
subscription in advance for the year 20X2 Rs. 2,000.
Subscription Income Rupees
Received during the year 55,000
Subscription due on closing date + 5,000
Subscription advance on closing date - 2,000
Subscription income for the year 20X1 58,000

Expenses of NPO
Payments for revenue expenditures appearing in the Cash Book (Receipt and Payment Account) are
adjusted with the opening and closing balances of owing and prepaid to get the amount of expense.
Depreciation of fixed asset is worked out to account for in the Income and Expenditure account.

Expenses of NPO Rs.

Expenses paid DTY ***
Op advance + ***
Cl advance - ***
Op owing - ***
Cl owing + ***
Expenses FTY ***

Incomes of NPO Rs.

Income received DTY ***
Op advance + ***
Cl advance - ***
Op owing - ***
Cl owing + ***
Income FTY ***

Topic 205 – Incomes of NPO – Practice Subscription Account

Practice Question
Below is the information pertaining to subscription income of Sample Club for the year 20X2.
Subscription received during the year 20X2 Rs. 12,000
Subscription received in advance for 20X3 Rs. 1,600
Subscription outstanding at the beginning of 20X2 Rs. 2,000
Subscription outstanding at the closing 20X2 Rs. 700
Calculate the amount of subscription income for the year 20X2.

Practice Question (Same information asked in different way)

Below is the information pertaining to subscription income of Sample Club for the year 20X2.
Subscription received during the year – for 20X2 Rs. 8,400
Subscription received during the year – for 20X3 Rs. 1,600
Subscription received during the year – for 20X1 Rs. 2,000
Subscription received in previous year – for 20X2 Rs. 1,000
Subscription due/owing at the end of year 20X2 Rs. 1,700
Calculate the amount of subscription income for the year 20X2.

Topic 205 – Incomes of NPO – Practice Membership Fee Account

Practice Question
Following information relates to membership fee of Sample Club for the accounting year ending on 31 March
2002.
1. Cash received in the year totaled Rs. 100,000.
2. On 1 April 20X1; Rs. 2,000 was in arrears for 31 March 20X1 and Rs. 800 was received in advance for
the year ending on 31 March 20X2.
3. On 31 March; received Rs. 1,500 towards the next year’s fee and the amount still recoverable was Rs.
1,700.
Calculate “Membership Fee” for the year 20X2

Practice Question (Same information asked in different way)

Sample Club receives Rs. 1,000 annually from each member. Below is the information for the accounting year
ending on 31 March 20X2.
1. Received membership fee from 100 members.
2. On 1 April 20X1; fee was due from 20 members and 8 members had already paid their fee in advance
for the next year ending on 31 March 20X2.
3. On 31 March 20X2; received fee from 15 members towards the next year’s fee and the amount of fee
was still recoverable from 17 members.
Calculate “Membership Fee” for the year 20X2.
Topic 207 – Income and Expenditure Account – Practice

Practice Question
Prepare Income & Expenditure Acct and Balance Sheet of Sample Health Club from the information
provided for the year ending on 31/03/20X2.
On 1 April 20X1 the club assets and liabilities were: Furniture and Equipment Rs. 48,000; Restaurant
stocks Rs. 2,600; Stock of prizes Rs. 800. Rs 5,200 was owing for restaurant supplies.
On 31 March 20X2 the restaurant Stock was Rs. 3,000 and stock of prizes was Rs. 500; the club owed
Rs. 5,600 for restaurant supplies.
Subscription fee was found un-paid Rs. 1,000 on March 31, 20X2, and the amount of Rs. 29,720
shown in cash book included Rs. 700 in respect of previous year and Rs. 400 received in advance for
the following year. Fixed assets are subject to 10% depreciation.
Topic 208 – Income and Expenditure Account – Practice (Answer)

Statement of Affairs
As on 1st April 20X1

Assets Rs Liabilities Rs
Furniture & Equipment 48,000 Restaurant Creditors 5,200
Inventory Prizes 800 Capital Fund
Inventory Restaurant 2,600 (Balancing figure) 51,640
Subscription owing 700
Cash at bank 4,740
56,840 56,840

Topic 209 – Income and Expenditure Account – Practice (Answer)

Sample Health Club

Income and Expenditure Statement
Rs.
Incomes
Subscription Fee
Received 29,720
Opening Due - 700
Closing Due 1,000
Closing Advance - 400 29,620
Entrance Fee 3,200
Games Competition 13,720
Restaurant Profit 6,400
Total 52,940
 Expenditures
Salaries and Wages 16,500
Rent 18 months 7,500
Prepaid 6 months - 2,500 5,000
Rates and taxes 2,200
Lighting and cleaning 7,700
Printing and postage 6,000
Competition prizes
Purchases 4,000
Opening Stock 800
Closing Stock - 500 4,300
Depreciation 4,800
Surplus (Balancing figure) 6,440
Total 52,940

Topic 210 – Income and Expenditure Account – Large NPO – Practice

Additional Information
1. Subscription for the year end outstanding Rs. 2,000
2. Write off depreciation @10% per annum on furniture and 2% on building including the
extension.
3. Stock of clod drinks Rs. 1,000

Topic 211 – Income and Expenditure Account – Large NPO – Practice (Answer)
Sample Welfare Society
Income and Expenditure Account – For the Year Ended 30 June 20X2

Expenditure Rs. Income Rs.

Rent 6,000 Subscriptions 30,000
Rates, taxes & insurance 600 Add: Outstanding 2,000 32,000
Secretary’s honorarium 1,200 Card & Billiard Room Receipts 4,000
Entrance fees 1,000 Cold Drinks Sales 5,000
 Salaries & wages 5,800 Cold Drink Purchase 4,000
Printing and Stationary 1,000 Cold Drink opening stock 500
Legal charges 500 Cold Drink closing stock 1,000 3,500 1,500
Sundry expenses 1,600 Cold Drink Profits
Repairs to building and furniture 400
Utility Bills 1,000
interest on loan 1,000
Add: Outstanding 1,250 2,250
Depreciation 2,000
Excess of income over
Expenditure (Surplus) 14,150
Total 37,500 Total 37,500

Topic 212 – Income and Expenditure Account – Large NPO – Practice (Answer)

Sample Welfare Society

Balance Sheet – As on 30 June 20X2

Assets Rs. Capital Fund and Liabilities Rs.

Club House 40,000 Capital Fund 30,000
Add: Extension 10,000 Add: Surplus 14,150 44,150
Less: Depreciation - 1,000 49,000
Furniture & Fixture 10,000 15% Loan 20,000
Less: Depreciation - 1,000 9,000 Interest on loan (Outstanding) 1,250
Stock in hand Cold Drink 1,000 Subscriptions received in advance 1,500
Entrance fee receivable 2,400 Accrued expenses 1,500
Subscription due 2,000
Cash at Bank 3,000
Cash in hand 2,000
Total 68,400 Total 68,400