Question 1

Ind GAAP refers to the set of accounting principles and standards used in India for
preparing financial statements. It provides guidelines for consistent and accurate
financial reporting.

1. Key Concepts

Accrual Concept: This principle states that revenues and expenses should be
recognized when they are earned or incurred, not when cash is received or paid. For
example, if a product is sold, revenue is recognized when the sale occurs, even if the
payment is received later.

Consistency Concept: Once a company adopts a particular accounting method, such as

a method of inventory valuation or depreciation, it should use the same method in future
periods unless a change is required or justified. Any changes must be disclosed.

Prudence Concept: This principle encourages caution when making estimates. It

suggests that companies should not overstate income or assets, and should recognize
all potential liabilities and losses as soon as they are reasonably expected, but not
revenues until they are realized.

Going Concern Concept: This assumes that a company will continue its operations in
the foreseeable future unless there is evidence suggesting otherwise. This concept
affects how assets and liabilities are valued (i.e., not based on liquidation value).

Matching Concept: According to this principle, expenses should be recorded in the

same period as the revenue they helped generate. For example, if a company sells
goods in one period, the cost of those goods (inventory) should be recognized as an
expense in the same period.

2. Key Conventions

Historical Cost Convention: Under this convention, assets are recorded at their original
cost at the time of acquisition. Any changes, like depreciation or impairment, are made
based on this cost. This ensures objectivity and reliability in the financial statements.
Materiality Convention: This principle allows for ignoring small, insignificant items that
would not affect the financial decision-making of users of the financial statements. For
example, very small rounding differences or minor expenses may be ignored if they do
not significantly affect the company’s overall financial health.

Full Disclosure Convention: This requires companies to provide all relevant financial
information in their financial statements. Disclosures include not only the main financial
numbers but also explanations about accounting policies, assumptions, and any
potential risks or uncertainties that might affect the business.

Conservatism Convention: This principle suggests that companies should recognize

potential losses and liabilities as soon as they are likely, but should only recognize
revenues when they are certain. This ensures that financial statements are not overly
optimistic and that potential risks are accounted for early.

Question 2

a) Rahul commenced business with a capital of ₹5,00,000

● Aspect: Capital introduction (Owner’s equity)

● Accounting entry:
○ Debit: Cash/Bank ₹5,00,000 (Asset)
○ Credit: Capital ₹5,00,000 (Owner’s equity)

b) Deposited ₹1,00,000 into Canara Bank

● Aspect: Deposit into business bank account (Asset increase)

● Accounting entry:
○ Debit: Bank ₹1,00,000 (Asset)
○ Credit: Cash ₹1,00,000 (Asset decrease)

c) Purchased goods worth ₹25,500 for cash

● Aspect: Purchase of goods (Inventory increase, cash decrease)

● Accounting entry:
○ Debit: Inventory ₹25,500 (Asset)
○ Credit: Cash ₹25,500 (Asset decrease)

d) Goods bought from Mohan ₹45,200

● Aspect: Credit purchase of goods (Accounts payable increase)

● Accounting entry:
○ Debit: Inventory ₹45,200 (Asset)
○ Credit: Accounts payable ₹45,200 (Liability)
e) Sold goods for cash ₹12,000

● Aspect: Sale of goods (Revenue increase, cash increase)

● Accounting entry:
○ Debit: Cash ₹12,000 (Asset increase)
○ Credit: Sales revenue ₹12,000 (Revenue)

f) Sold goods to Ram Kumar ₹15,500

● Aspect: Credit sale (Accounts receivable increase)

● Accounting entry:
○ Debit: Accounts receivable ₹15,500 (Asset)
○ Credit: Sales revenue ₹15,500 (Revenue)

g) Paid electrical charges ₹5,400

● Aspect: Expense payment (Cash decrease, expense incurred)

● Accounting entry:
○ Debit: Electricity expense ₹5,400 (Expense)
○ Credit: Cash ₹5,400 (Asset decrease)

h) Purchased furniture for office use ₹2,500

● Aspect: Purchase of fixed asset (Furniture increase, cash decrease)

● Accounting entry:
○ Debit: Furniture ₹2,500 (Asset)
○ Credit: Cash ₹2,500 (Asset decrease)

i) Amount withdrawn from bank ₹40,000

● Aspect: Withdrawal for personal use (Bank decrease, owner’s equity decrease)
● Accounting entry:
○ Debit: Drawings ₹40,000 (Owner’s equity decrease)
○ Credit: Bank ₹40,000 (Asset decrease)

j) Paid to Mohan ₹15,000

● Aspect: Payment to supplier (Accounts payable decrease, cash decrease)

● Accounting entry:
○ Debit: Accounts payable ₹15,000 (Liability decrease)
○ Credit: Cash ₹15,000 (Asset decrease)
Question 3

Particulars Debit (Rs.) Credit (Rs.)

Capital 50,000
Plant &
Machinery 80,000
Sales 1,77,000
Purchases 60,000
Returns
Outward 750
Returns Inward 1,000
Stock
(1.1.2024) 30,000
Discount (Dr) 350
Discount (Cr) 800
Bank Charges 75
Debtors 45,000
Creditors 25,000
Salaries 6,800
Carriage
Inwards 750
Wages 10,000
Carriage
Outwards 1,200
Bad Debts
Provision 525
Rent and Taxes 10,000
Advertisement 2,000
Cash in Hand 900
Cash at Bank 6,000

Total Debit: 2,43,600

Total Credit: 2,43,600

Question 4

1. Trading Account for the year ending 31.12.1995

Dr. Trading Account

Particulars Rs. Particulars Rs.

Opening Stock 44,000 Sales 3,01,000
Purchases 2,20,000 Return Inwards 5,000
Carriage on (Calculated
Purchases 3,600 Gross Profit c/d below)
Closing Stock 40,120
Cost of Goods (Calculated
Sold (COGS) below)

Calculation of Cost of Goods Sold (COGS):

● Opening Stock + Purchases + Carriage on Purchases – Closing Stock

● COGS = 44,000 + 2,20,000 + 3,600 – 40,120 = 2,27,480

Now, Gross Profit will be calculated as:

● Sales – COGS – Return Inwards

● Gross Profit = 3,01,000 – 2,27,480 – 5,000 = 68,520

Cr. Trading Account

Particulars Rs. Particulars Rs.

Sales 3,01,000 COGS 2,27,480
Return Inwards 5,000 Gross Profit 68,520
Gross Profit c/d 68,520

2. Profit and Loss Account for the year ending 31.12.1995

Dr. Profit and Loss Account

Particulars Rs. Particulars Rs.

Gross Profit b/d 68,520 Salaries 18,000
General Taxes and
Expenses 8,000 Insurance 4,000
Bad Debts Commission
Written off 1,600 Allowed 4,400
Depreciation on
Business Interest on 2,500 (5% of
Premises 600 Capital ₹50,000)
Depreciation on Provision for 1,800 (5% of
Furniture 520 Doubtful Debts ₹36,000)

Adjustments:

1. Provision for doubtful debts: We need to create a 5% provision on debtors (Rs

36,000).
○ Provision = 5% of Rs. 36,000 = Rs. 1,800
2. Depreciation:
○ Depreciation on Business Premises = Rs. 600
○ Depreciation on Furniture = Rs. 520
3. Interest on Capital:
○ 5% of ₹50,000 = ₹2,500
4. Unexpired Insurance:
○ Insurance carried forward = ₹1,400

Cr. Profit and Loss Account

Particulars Rs. Particulars Rs.

Rent from
Tenants 2,000 Gross Profit 68,520
Interest on Interest on
Capital 2,500 Capital 2,500
(Calculated
Net Profit below)

Calculation of Net Profit:

● Gross Profit = ₹68,520

● Total Expenses: 18,000 (Salaries) + 4,000 (Taxes and Insurance) + 8,000
(General Expenses) + 1,600 (Bad Debts) + 600 (Depreciation on Premises) +
520 (Depreciation on Furniture) + 4,400 (Commission Allowed) + 1,800
(Provision for Doubtful Debts)
● Total Expenses = ₹39,920
● Net Profit = Gross Profit – Total Expenses = 68,520 – 39,920 = 28,600

Balance Sheet as of 31.12.1995

Assets

Particulars Rs.
Fixed Assets
Business
Premises (after 40,000 – 600 =
Depreciation) 39,400
Furniture (after 5,200 – 520 =
Depreciation) 4,680
Current Assets
Debtors (after 36,000 – 1,800
Provision) = 34,200
Closing Stock 40,120
Bank & Cash
Bank Overdraft 8,400
(Not given,
Cash assume zero)
Total Assets 1,28,400

Liabilities

Particulars Rs.
Capital 50,000
Add: Net Profit 28,600
Less: Drawings 0
Total Capital 78,600
Liabilities
Creditors 26,600
Provision for
Doubtful Debts 1,800
Total Liabilities 1,28,400

Question 5
To prepare the Stores Ledger Account under the Weighted Average
Price method.

1. Calculate the Weighted Average Price:

The weighted average price is recalculated every time new units are
received. It is calculated as:

Weighted Average Price=Total Cost of Units Available for Sale/Total Units

Available for Sale
Receipts and Issues:

1. Opening Balance: No opening stock.

2. Receipt on 3rd October (1000 units @ ₹8 each):
○ Total cost = 1000 units * ₹8 = ₹8,000
○ Average cost price = ₹8.00 per unit
○ Closing balance: 1000 units at ₹8.00
3. Receipt on 13th October (1800 units @ ₹8.60 each):
○ Total cost = 1800 units * ₹8.60 = ₹15,480
○ New average cost price = (₹8,000 + ₹15,480) / (1000 + 1800) =
₹23,480 / 2800 = ₹8.38 per unit
○ Closing balance: 2800 units at ₹8.38 each
4. Receipt on 23rd October (1200 units @ ₹7.60 each):
○ Total cost = 1200 units * ₹7.60 = ₹9,120
○ New average cost price = (₹23,480 + ₹9,120) / (2800 + 1200) =
₹32,600 / 4000 = ₹8.15 per unit
○ Closing balance: 4000 units at ₹8.15 each

Issues:

1. Issue on 5th October (800 units):

○ Issue cost = 800 units * ₹8.00 = ₹6,400
○ Closing balance: 3200 units at ₹8.00
2. Issue on 15th October (800 units):
○ Issue cost = 800 units * ₹8.38 = ₹6,704
○ Closing balance: 2400 units at ₹8.38 each
3. Issue on 25th October (1200 units):
○ Issue cost = 1200 units * ₹8.15 = ₹9,780
○ Closing balance: 1200 units at ₹8.15 each

Stores Ledger Account:

Balance
Date Particulars Units Rate (₹) Amount (₹) (Units) Balance (₹)
Opening Balance b/d - - - 0 0
3rd October Receipt 1000 8 8,000 1000 8,000
13th October Receipt 1800 8.6 15,480 2800 23,480
23rd October Receipt 1200 7.6 9,120 4000 32,600
5th October Issue 800 8 6,400 3200 26,200
15th October Issue 800 8.38 6,704 2400 19,496
25th October Issue 1200 8.15 9,780 1200 9,716