Accounting

Revision Test Papers

Compilation
Intermediate
3 Attempts

4th Edition
 Questions from Nov ‘22 to Nov ‘23
 Amended by Finance Act, 2022
 For November 2023 Attempt
 All Questions in Chapter wise format

Vishesh Khatwani | 8555070670

 Table of Contents
Sr. No Particulars Page Number
1.1 Accounting Standards- Introduction *N/A
1.2 AS 1- Disclosure of Accounting Policies R 1.2-1
1.3 AS 2- Valuation of Inventory R 1.3-1 – R 1.3-2
1.4 AS 3- Cash Flow Statements R 1.4-1 – R 1.4-3
1.5 AS 10-Property, Plant & Equipment R 1.5-1 – R 1.5-2
1.6 AS 11- The Effects of Changes in Foreign Exchange rates R 1.6-1 – R 1.6-2
1.7 AS 12-Accounting for Government Grants R 1.7-1 – R 1.7-2
1.8 AS 13-Accounting for Investments R 1.8-1 – R 1.8-2
1.9 AS 16-Borrowing Costs R 1.9-1 – R 1.9-3
2 Framework for preparation & presentation of Financial R 2.1- R 2.2
Statements
3.1 Financial Statements of Companies R 3.1-1 – R 3.1-9
3.2 Preparation of Cash Flow Statement R 3.2-1 – R 3.2-4
4 Managerial Remuneration R 4.1- R 4.2
5 Profit or Loss Pre & Post Incorporation R 5.1- R 5.5
6 Accounting for Bonus Issue & Right Issue R 6.1- R 6.4
7 Redemption of Preference Shares R 7.1- R 7.5
8 Redemption on Debentures R 8.1- R 8.3
9 Investment Accounts R 9.1- R 9.4
10 Insurance Claim R 10.1- R 10.4
11 Hire Purchase Transactions R 11.1- R 11.4
12 Departmental Accounts R 12.1- R 12.4
13 Accounting for Branches including Foreign Branches R 13.1- R 13.7
14 Accounts from Incomplete Records R 14.1- R 14.10
Accounting Revision Test Paper NEW Course Compilation includes:
3 RTP’s: Nov ’22, May ’23, Nov ‘23

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Vishesh Khatwani | 8555070670

 R 1.2-1

Chapter 1.2
AS 1- Disclosure of Accounting Policies
Question 1
In the books of Rani Ltd., closing inventory as on 31.03.2022 amounts to ₹ 1,75,000 (valued on the basis
of FIFO method).
The Company decides to change from FIFO method to weighted average method for ascertaining the
costs of inventory from the year 2021-22. On the basis of weighted average method, closing inventory
as on 31.03.2022 amounts to ₹ 1,59,000. Realizable value of the inventory as on 31.03.2022 amounts to
₹ 2,07,000.
Discuss disclosure requirements of change in accounting policy as per AS 1. (May 23)
Answer 1
As per AS 1 “Disclosure of Accounting Policies”, any change in an accounting policy which has a material
effect should be disclosed in the financial statements. The amount by which any item in the financial
statements is affected by such change should also be disclosed to the extent ascertainable. Where such
amount is not ascertainable, wholly or in part, the fact should be indicated. Thus Rani Ltd. should disclose
the change in valuation method of inventory and its effect on financial statements. The company may
disclose the change in accounting policy in the following manner:
“The company values its inventory at lower of cost and net realizable value. Since net realizable value of
all items of inventory in the current year was greater than respective costs, the company valued its
inventory at cost. In the present year i.e. 2021-22, the company has changed to weighted average
method, which better reflects the consumption pattern of inventory, for ascertaining inventory costs from
the earlier practice of using FIFO for the purpose. The change in policy has reduced current profit and
value of inventory by ₹ 16,000 (1,75,000 – 1,59,000).”

Question 2
ABC Ltd. was making provision for non-moving inventories based on issues for the last 12 months up
to 31.3.2022.
The company wants to provide during the year ending 31.3.2023 based on technical evaluation:
Total value of Inventory ₹ 100 lakhs
Provision required based on 12 months issue ₹3.5 lakhs
Provision required based on technical evaluation ₹ 2.5 lakhs
Does this amount to change in Accounting Policy? Can the company change the method of provision?
(Nov ’23 & May 20)

Answer 2
Accounting policy of a company may require that provision for non-moving inventories should be made.
The method of estimating the amount of provision may be changed in case a more prudent estimate
can be made.
The decision of making provision for non-moving inventories on the basis of technical evaluation does
not amount to change in accounting policy.
In the above case, considering the total value of inventory, the change in the amount of required
provision of non-moving inventory from ₹ 3.5 lakhs to ₹ 2.5 lakhs is also not material.
The disclosure can be made for such change in the following lines by way of notes to the accounts in
the annual accounts of ABC Ltd. for the year 2022 -23:
"The company has provided for non-moving inventories on the basis of technical evaluation unlike
preceding years. Had the same method been followed as in the previous year, the profit for the year
and the corresponding effect on the year-end net assets would have been lower by ₹ 1 lakh."

Vishesh Khatwani | 8555070670

Chapter 1.2 AS 1- Disclosure of Accounting Policies
 R 1.3-1

Chapter 1.3
AS 2- Valuation of Inventory
Question 1
The closing stock of finished goods (at cost) of a company amounted to ` 4,50,000. The following items
were included at cost in the total:
(a) 100 coats, which had cost ` 2,200 each and normally sold for ` 4,000 each. Owing to a defect in
manufacture their NRV was determined at 50% of their normal selling price.
(b) Shirts which had cost ` 50,000, their net realizable value at Balance sheet date was ` 55,000. Commission
@ 10% on sales is payable to agents.
What should the inventory value be according to AS 2 after considering the above items? (Nov’22)
Answer 1
Valuation of closing stock
`
Closing stock at cost 4,50,000
Less: Adjustment for 100 coats (Working Note 1) (20,000)
Value of inventory 4,30,000
Working Notes:
1. Adjustment for Coats Rs.
Cost included in Closing Stock 2,20,000
NRV of Coats 2,00,000
Adjustment to be made as NRV is less than Cost 20,000
2. No adjustment required for shirts as their NRV is more than their cost which was included in value
of inventory.

Question 2
An enterprise ordered 20,000 KG of certain material at ₹ 110 per unit. The purchase price includes GST
₹ 12 per KG, in respect of which full input tax credit (ITC) is admissible. Freight incurred amounted to ₹
1,17,600. Normal transit loss is 2%. The enterprise actually received 19,500 KG and consumed 18,000
KG of the material.
You are required to calculate cost of material per KG;
Allocation of material cost. (May 23)
Answer 2
Calculation of Normal cost per Kg.
₹
Purchase price (20,000 Kg. x ₹ 110) 22,00,000
Less: Input Tax Credit (20,000 Kg. x ₹ 12) (2,40,000)
19,60,000
Add: Freight 1,17,600
A. Total material cost 20,77,600
B. Number of units normally received = 98% of 20,000 Kg. Kg. 19,600
C. Normal cost per Kg. (A/B) 106
Allocation of material cost
Kg. ₹ /Kg. ₹
Materials consumed 18,000 106 19,08,000
Cost of inventory 1,500 106 1,59,000
Vishesh Khatwani | 8555070670
Chapter 1.3 AS 2- Valuation of Inventory
 R 1.3-2

Abnormal loss 100 106 10,600

Total material cost 19,600 106 20,77,600
Note: Abnormal losses are recognized as separate expense.

Question 3
Alpha Ltd. sells flavored milk to customers; some of the customers consume the milk in the shop run
by Alpha Limited. While leaving the shop, the consumers leave the empty bottles in the shop and the
company takes possession of these empty bottles. The company has laid down a detailed internal
record procedure for accounting for these empty bottles which are sold by the company by calling for
tenders.
Keeping this in view:
Decide whether the inventory of empty bottles is an asset of the company;
If so, whether the inventory of empty bottles existing as on the date of Balance Sheet is to be
considered as inventories of the company and valued as per AS 2 or to be treated as scrap and shown
at realizable value with corresponding credit to ‘Other Income’? (Nov ’23)

Answer 3
As per the ‘Framework on Presentation and Preparation of Financial Statements’:
Tangible objects or intangible rights carrying probable future benefits, owned by an enterprise are called
assets.
Alpha Ltd. sells these empty bottles by calling tenders. It means further benefits are accrued on its
sale.
Therefore, empty bottles are assets for the company.
As per AS 2, inventories are assets held for sale in the ordinary course of business.
Inventory of empty bottles existing on the Balance Sheet date is the inventory and Alpha Ltd. has
detailed controlled recording and accounting procedure which duly signify its materiality.
Thus, inventory of empty bottles cannot be considered as scrap and should be valued as inventory in
accordance with AS 2.

Vishesh Khatwani | 8555070670

Chapter 1.3 AS 2- Valuation of Inventory
 R 1.4-1

Chapter 1.4
AS 3- Cash Flow Statements
Question 1
The closing stock of finished goods (at cost) of a company amounted to ` 4,50,000. The following items
were included at cost in the total:
(a) 100 coats, which had cost ` 2,200 each and normally sold for ` 4,000 each. Owing to a defect in
manufacture their NRV was determined at 50% of their normal selling price.
(b) Shirts which had cost ` 50,000, their net realizable value at Balance sheet date was ` 55,000.
Commission @ 10% on sales is payable to agents. What should the inventory value be according to AS
2 after considering the above items? (Nov’22)
Answer 1
Valuation of closing stock

`
Closing stock at cost 4,50,000
Less: Adjustment for 100 coats (Working Note 1) (20,000)
Value of inventory 4,30,000
Working Notes:
1. Adjustment for Coats Rs.
Cost included in Closing Stock 2,20,000
NRV of Coats 2,00,000
Adjustment to be made as NRV is less than Cost 20,000
2. No adjustment required for shirts as their NRV is more than their cost which was included in value
of inventory.

Question 2

On the basis of the following information prepare a Cash Flow Statement for the year ended 31st
March, 2023 (Using direct method):
(i) Total sales for the year were ₹ 796 crores out of which cash sales amounted to
₹ 524 crores.
(ii) Receipts from credit customers during the year, totalled ₹ 268 crores.
(iii) Purchases for the year amounted to ₹ 440 crores out of which credit purchase was 80%.
Balance in creditors as on 1.4.2022 ₹ 168 crores
31.3.2023 ₹ 184 crores
(i) Suppliers of other consumables and services were paid ₹ 38 crores in cash.
(ii) Employees of the enterprises were paid 40 crores in cash.
(iii) Fully paid 9% Preference shares of the face value of ₹ 64 crores were redeemed. Equity shares of
the face value of ₹ 40 crores were allotted as fully paid up at premium of 20%.
(iv) 10% Debentures of ₹ 40 crores at a premium of 10% were redeemed. Debenture holders were
issued equity shares in lieu of their debentures.
(v) ₹ 52 crores were paid by way of income tax.
(vi) A new machinery costing ₹ 50 crores was purchased in part exchange of an old machinery. The
book value of the old machinery was ₹ 26 crores. Through the negotiations, the vendor agreed to
Vishesh Khatwani | 8555070670
Chapter 1.4 AS 3- Cash Flow Statements
 R 1.4-2

take over the old machinery at a higher value of

₹ 30 crores. The balance was paid in cash to the vendor.
(vii) Investment costing ₹ 36 cores were sold at a loss of ₹ 4 crores.
(viii) Dividends totaling ₹ 30 crores was also paid.
(ix) Debenture interest amounting ₹ 4 crore was paid.
(x) Non-cash expenditure incurred during the current year was 1.2 crores.
(ix) Dividends declared during the current year was 15% on equity share capital (ESC =
‘120 crores).
(x) On 31st March 2022, Balance with Bank and Cash on hand totalled ₹ 4 crores.(Nov ’23)
Answer 2

Cash flow statement (using direct method) for the year ended 31st March, 2023
(₹ in crores) (₹ in crores)
Cash flow from operating activities
Cash sales 524
Cash collected from credit customers 268
Less: Cash paid to suppliers for goods & services and to
employees (502)
(Refer Working Note)
Cash from operations 290
Less: Income tax paid (52)
Net cash from operating activities 238
Cash flow from investing activities
Net Payment for purchase of Machine (50 – 30) (20)
Proceeds from sale of investments 32
Net cash from investing activities 12
Cash flow from financing activities
Redemption of Preference shares (64)
Proceeds from issue of Equity shares 48
Debenture interest paid (4)
Dividend Paid (30)
Net cash used in financing activities (50)
Net increase in cash and cash equivalents 200
Add: Cash and cash equivalents as on 1.04.2022 4
Cash and cash equivalents as on 31.3.2023 204
Working Note:
Calculation of cash paid to suppliers of goods and services and to employees

(₹ in crores)
Opening Balance in creditors Account 168
Add: Purchases (440x .8) 352
Total 520
Less: Closing balance in Creditors Account 184
Cash paid to suppliers of goods 336
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Chapter 1.4 AS 3- Cash Flow Statements
 R 1.4-3

Add: Cash purchases (440x .2) 88

Total cash paid for purchases to suppliers (a) 424
Add: Cash paid to suppliers of other consumables and services (b) 38
Add: Payment to employees (c) 40
Total cash paid to suppliers of goods & services and to employees 502
[(a)+ (b) + (c)]

Vishesh Khatwani | 8555070670

Chapter 1.4 AS 3- Cash Flow Statements
 R 1.5-1

Chapter 1.5
AS 10-Property, Plant & Equipment
Question 1
RS Ltd. has acquired a heavy plant at a cost of ` 2,00,00,000. The estimated useful life is 10 years. At the
end of the 2nd year, one of the major components i.e. the Boiler has become obsolete (which was
acquired at price of ` 50,00,000) and requires replacement, as further maintenance is uneconomical.
The remainder of the plant is perfect and is expected to last for next 8 years. The cost of a new boiler is
` 60,00,000. Can the cost of the new boiler be recognised as an asset, and, if so, what should be the
carrying value of the plant at the end of second year? (Nov’22)

Answer 1
Recognition of Asset: The new boiler will produce economic benefits to RS Ltd., and the cost is
measurable. Hence, the item should be recognized as an asset. The cost old boiler should be de-
recognized and the new boiler will be added .
Statement showing cost of new boiler and machine after year 2
Original cost of plant ` 2,00,00,000
Less: Accumulated depreciation [(2,00,00,000 /10) x 2] ` 40,00,000
Carrying value of the plant after two years ` 1,60,00,000
Less: Current Cost of Old Boiler to be derecognized
Less: WDV of Boiler (replaced) after 2 years 40,00,000
(50,00,000/10 x 8)
1,20,00,000
Add: Cost of new Boiler to be recognized 60,00,000
Revised carrying amount of Plant 1,80,00,000

Question 2
Star Limited purchased machinery for ₹ 6,80,000 (inclusive of GST of ₹ 40,000). Input credit is available
for entire amount of GST paid. The company incurred the following other expense for installation.
₹
Cost of preparation of site for installation 21,200
Total Labour charges 56,000
(200 out of the total of 500 men hours worked, were spent on installation of the machinery)

Spare parts and tools consumed in installation 5,000

Total salary of supervisor 26,000
(Time spent for installation was 25% of the total time worked)
Total technical expense 34,000
(1/10 relates to the plant installation)
Test run and experimental production expenses 18,000
Consultancy charges to architect for plant set up 11,000
Depreciation on assets used for installation 12,000
The machine was ready for use on 15.01.2021 but was used from 01.02.2021. Due to this delay further
expenses of ₹ 8,900 were incurred. Calculate the value at which the plant should be capitalized in the
books of Star Limited. (May 23)

Answer 2
Calculation of Cost of Plant
Particulars `
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Chapter 1.5 AS 10-Property, Plant & Equipment
 R 1.5-2

Purchase Price Given 6,80,000

Add: Site Preparation Cost Given 21,200
Labour charges (56,000×200/500) Given 22,400
Spare parts 5,000
Supervisor’s Salary 25% of ` 26,000 6,500
Technical costs 1/10 of ` 34,000 3,400
Test run and experimental production Given 18,000
charges
Architect Fees for set up Given 11,000
Depreciation on assets used for installation Given 12,000
Total Cost of Asset 7,79,500
Less: GST credit receivable (40,000)
Value to be capitalized 7,39,500
Note: Further Expenses of ₹ 8,900 from 15.1.2021 to 1.2.2021 to be charged to profit and loss A/c as
plant was ready for production on 15.1.2021.

Question 3
A Ltd. is installing a new plant at its production facility. It has incurred these costs:
₹
1. Cost of the plant (cost per supplier's invoice plus taxes) 25,00,000
2. Initial delivery and handling costs 2,00,000
3. Cost of site preparation 6,00,000
4. Consultants used for advice on the acquisition of the plant 7,00,000
5. Interest charges paid to supplier of plant for deferred 2,00,000
credit
6. Estimated dismantling costs to be incurred after 7 years 3,00,000
7. Operating losses before commercial production 4,00,000
Advise A Ltd. on the costs that can be capitalized in accordance with AS 10. (Nov ’23)

Answer 3
Costs which will be capitalized:
₹
1. Cost of the plant 25,00,000
2. Initial delivery and handling costs 2,00,000
3. Cost of site preparation 6,00,000
4. Consultants' fees 7,00,000
5. Estimated dismantling costs to be incurred after 7 years 3,00,000
Total 43,00,000

Note: Interest charges paid on to the supplier for deferred credit of the plant (not a qualifying asset)
of ₹ 2,00,000 and operating losses before commercial production amounting to ₹ 4,00,000 are not
regarded as directly attributable costs and thus cannot be capitalized.
They should be written off to the Profit and Loss in the period they are incurred.

Vishesh Khatwani | 8555070670

Chapter 1.5 AS 10-Property, Plant & Equipment
 R 1.6-1

Chapter 1.6
AS 11- The Effects of Changes in Foreign Exchange rates
Question 1
A company had imported raw materials worth US Dollars 6,00,000 on 5th January, 2022, when the
exchange rate was ` 43 per US Dollar. The company had recorded the transaction in the books at the
above mentioned rate. The payment for the import transaction was made on 5th April, 2022 when the
exchange rate was ` 47 per US Dollar. However, on 31st March, 2022, the rate of exchange was ` 48 per
US Dollar. The company passed an entry on 31st March, 2022 adjusting the cost of raw materials
consumed for the difference between ` 47 and ` 43 per US Dollar.
In the background of the relevant accounting standard, is the company’s accounting treatment correct?
Discuss(Nov’22)
Answer 1
As per AS 11 (revised 2003), ‘The Effects of Changes in Foreign Exchange Rates’, monetary items
denominated in a foreign currency should be reported using the closing rate at each balance sheet date.
The effect of exchange difference should be taken into profit and loss account. Trade payables is a
monetary item, hence should be valued at the closing rate i.e, ` 48 at 31st March, 2022 irrespective of the
payment for the same subsequently at lower rate in the next financial year. The difference of ` 5 (` 48-`
43) per US dollar should be shown as an exchange loss in the profit and loss account for the year ended
31st March, 2022 and is not to be adjusted against the cost of raw materials. In the subsequent year, the
company would record an exchange gain of ` 1 per US dollar, i.e., the difference between ` 48 and ` 47 per
US dollar. Hence, the accounting treatment adopted by the company is incorrect.

Question 2
ABC Builders Limited had borrowed a sum of US $ 15,00,000 at the beginning of Financial year 2020-21
for its residential project at London Interbank Offered Rate (LIBOR) + 4 %. The interest is payable at the
end of the Financial Year. At the time of availing the loan, the exchange rate was ₹ 72 per US $ and the
rate as on 31st March, 2021 was ₹ 76 per US $. If ABC Builders Limited borrowed the loan in Indian
Rupee equivalent, the pricing of loan would have been 9.50%. Compute Borrowing Cost and exchange
difference for the year ending 31st March, 2021 as per applicable Accounting Standards. (Applicable
LIBOR is 1%).(May 23)
Answer 2
(i) Interest for the period 2020-21
= US $ 15 lakhs x 5% × ₹ 76 per US $ = ₹ 57 lakhs
(ii) Increase in the liability towards the principal amount
= US $ 15 lakhs × ₹ (76 - 72) = ₹ 60 lakhs
(iii) Interest that would have resulted if the loan was taken in Indian currency
= US $ 15 lakhs × ₹ 72 x 9.5% = ₹ 102.60 lakhs
(iv) Difference between interest on local currency borrowing and foreign currency borrowing = ₹
102.60 lakhs less ₹ 57 lakhs = ₹ 45.60 lakhs.
Therefore, out of ₹ 60 lakhs increase in the liability towards principal amount, only
₹ 45.60 lakhs will be considered as the borrowing cost. Thus, total borrowing cost would be ₹ 102.60 lakhs
being the aggregate of interest of ₹ 57 lakhs on foreign currency borrowings plus the exchange difference
to the extent of difference between interest on local currency borrowing and interest on foreign currency
borrowing of ₹ 45.60 lakhs.

Hence, ₹ 102.60 lakhs would be considered as the borrowing cost to be accounted for as per AS 16
“Borrowing Costs” and the remaining ₹ 14.4 lakhs (60 - 45.60) would be considered as the exchange
difference to be accounted for as per AS 11 “The Effects of Changes in Foreign Exchange Rates”.

Question 3
Explain "monetary item" as per Accounting Standard 11.
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Chapter 1.6 AS 11- The Effects of Changes in Foreign Exchange rates
 R 1.6-2

How are foreign currency monetary items to be recognized at each Balance Sheet date? Classify the
following as monetary or non-monetary item:
Share Capital.
Trade Receivables.
Investments.
Fixed Assets. (Nov ’23)
Answer 3
As per AS 11, Monetary items are money held and assets and liabilities to be received or paid in fixed
or determinable amounts of money.
Foreign currency monetary items should be reported using the closing rate at each balance sheet date.
However, in certain circumstances, the closing rate may not reflect with reasonable accuracy the
amount in reporting currency that is likely to be realized from, or required to disburse, a foreign
currency monetary item at the balance sheet date.
In such circumstances, the relevant monetary item should be reported in the reporting currency at the
amount which is likely to be realized from or required to disburse, such item at the balance sheet date.
Classification of items as monetary or non-monetary item:
Share capital Non-monetary
Trade receivables Monetary
Investments Non-monetary Fixed
Assets (PPE) Non-monetary

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Chapter 1.6 AS 11- The Effects of Changes in Foreign Exchange rates
 R 1.7-1

Chapter 1.7
AS 12-Accounting for Government Grants
Question 1
Samrat Limited has set up its business in a designated backward area which entitles the company for
subsidy of 25% of the total investment from Government of India. The company has invested ` 80 crores
in the eligible investments. The company is eligible for the subsidy and has received ` 20 crores from the
government in February 2022. The company wants to recognize the said subsidy as its income to
improve the bottom line of the company.
Do you approve the action of the company in accordance with the Accounting Standard?(Nov’22)
Answer 1
As per AS 12 “Accounting for Government Grants”, where the government grants are in the nature of
promoters’ contribution, i.e., they are given with reference to the total investment in an undertaking or
by way of contribution towards its total capital outlay (for example, Central Investment Subsidy Scheme)
and no repayment is ordinarily expected in respect thereof, the grants are treated as capital reserve which
can be neither distributed as dividend nor considered as deferred income.
The subsidy received by Samrat Ltd. for setting up its business in a designated backward area will be
treated as grant by the government in the nature of promoter’s contribution as the grant is given with
reference to the total investment in an undertaking i.e. subsidy is 25% of the eligible investment and also
no repayment is apparently expected in respect thereof.
Since the subsidy received is neither in relation to specific fixed assets nor in relation to revenue. Thus,
the company cannot recognize the said subsidy as income in its financial statements in the given case. It
should be recognized as capital reserve which can be neither distributed as dividend nor considered as
deferred income.

Question 2
Hygiene Ltd. had received a grant of ₹ 50 lakh in 2012 from a State Government towards installation
of pollution control machinery on fulfilment of certain conditions. The company, however, failed to
comply with the said conditions and consequently was required to refund the said amount in 2022.
The company debited the said amount to its machinery account in 2022 on payment of the same. It
also reworked the depreciation for the said machinery from the date of its purchase and passed
necessary adjusting entries in the year 2022 to incorporate the retrospective impact of the same. State
whether the treatment done by the company is correct or not. (May 23)
Answer 2
As per the facts of the case, Hygiene Ltd. had received a grant of ₹ 50 lakh in 2012 from a State Government
towards installation of pollution control machinery on fulfilment of certain conditions. However, the
amount of grant has to be refunded since it failed to comply with the prescribed conditions. In such
circumstances, AS 12, “Accounting for Government Grants”, requires that the amount refundable in
respect of a government grant related to a specific fixed asset is recorded by increasing the book value of
the asset or by reducing the capital reserve or the deferred income balance, as appropriate, by the amount
refundable. The Standard further makes it clear that in the first alternative, i.e., where the book value of
the asset is increased, depreciation on the revised book value should be provided prospectively over the
residual useful life of the asset. Accordingly, the accounting treatment given by Hygiene Ltd. of increasing
the value of the plant and machinery is quite proper. However, the accounting treatment in respect of
depreciation given by the company of adjustment of depreciation with retrospective effect is improper
and constitutes violation of AS 12.

Question 3
S Ltd. has received a grant of 18 crores from the Government for setting up a factory in a backward
area. Out of this grant, the company distributed 12 crores as dividend.
Also, S Ltd. received land free of cost from the State Government but it has not recorded it at all in
the books as no money has been spent.
In the
Vishesh Khatwani light of AS-12
| 8555070670 examine, whether the treatment of both the grants is correct. (Nov ’23)
Chapter 1.7 AS 12-Accounting for Government Grants
 R 1.7-2

Answer 3
As per AS 12, when government grant is received for a specific purpose, it should be utilized for the
same.
Thus, the grant received for setting up a factory is not available for distribution of dividend.
As per AS-12, if an asset is acquired free of cost it is to be recorded at a nominal value.
Thus, even if the company has not spent money for the acquisition of land, land should be recorded in
the books of accounts at a nominal value.
The treatment of both the elements of the grant is incorrect as per AS 12.

Vishesh Khatwani | 8555070670

Chapter 1.7 AS 12-Accounting for Government Grants
 R 1.8-1

Chapter 1.8
AS 13-Accounting for Investments
Question 1
Mother Mart Ltd., wants to re-classify its investment in accordance with AS 13. Decide the treatment to
be given in each of the following cases assuming that the market value has been determined in an arm's
length transaction between knowledgeable and willing buyer and seller:
(i) A portion of current investments purchased for ` 25 lakhs to be reclassified as long-term investments,
as the company has decided to retain them. The market value as on the date of balance sheet was `
30 lakhs. The fair value of the investments on the date of transfer is same as the market value on the
balance sheet date

(ii) Another portion of current investments purchased for ` 20 lakhs has to be re- classified as long-term
investments. The Fair value of these investments as on the date of the balance sheet was ` 12.5 lakhs.
(iii) One portion of long-term investments, no longer considered for holding purposes, to be reclassified
as current investments. The original cost of these was ` 15 lakhs, but had been written down to ` 11
lakhs to recognize permanent decline as per AS 13.(Nov’22)
Answer 1

As per AS 13 ‘Accounting for Investments’, where investments are reclassified from current to long-term,
transfers are made at the lower of cost and fair value at the date of transfer. When long-term investments
are re-classified as current investments, transfers are made at the lower of cost and carrying amount at
the date of transfer.
(i) In the first case, the market value of the investments is ` 30 lakhs, which is higher than its cost i.e. ` 25
lakhs. Therefore, the transfer to long term investments should be made at cost i.e. ` 25 lakhs
(ii) In the second case, the market value of the investment is ` 12.5 lakhs, which is
lower than its cost i.e. ` 20 lakhs. Therefore, the transfer to long term investments should be made in the
books at the market value i.e. ` 12.5 lakhs. The loss of ` 7.50 lakhs (20-12.5) should be charged to Profit
and Loss statement.
(iii) In the third case, the book value of the investments is ` 11 lakhs, which is lower than its cost, i.e. ` 15 lakhs.
As the transfer should be at carrying amount, hence this re-classified current investment should be carried
at ` 11 lakhs.

Question 2
Gowtham Limited invested in shares of another company (with the intention to hold the shares for
short-term period) on 30th November, 2021 at a cost of ₹ 4,25,000. It also earlier purchased Gold of ₹
8,00,000 and Silver of ₹ 3,50,000 on 31st March, 2019.
Market values as on 31st March, 2022, of the above investments are as follows:
Shares ₹ 3,50,000
Gold ₹ 10,25,000
Silver ₹ 5,10,000
You are required to explain how will the above investments be shown (individually and in total) in the
books of account of Gowtham Limited for the year ending 31st March, 2022 as per the provisions of AS
13. (May 23)

Answer 2

As per AS 13 (Revised) ‘Accounting for Investments’, for investment in shares - if the investment is
purchased with an intention to hold for short-term period (less than one year), then it will be classified as
current investment and to be carried at lower of cost and fair value, i.e., in case of shares, at lower of cost
(₹ 4,25,000) and market value (₹ 3,50,000) as on 31 March 2022, i.e., ₹ 3,50,000.
Gold and silver are generally purchased with an intention to hold it for long term period (more than one
Vishesh Khatwani | 8555070670
Chapter 1.8 AS 13-Accounting for Investments
 R 1.8-2

year) until and unless given otherwise. Hence, the investment in Gold and Silver (purchased on 31stMarch,
2019) should continue to be shown at cost (since there is no ‘other than temporary’ diminution) as on
31st March, 2022, i.e., ₹ 8,00,000 and ₹3,50,000 respectively, though their market values have been
increased.
Thus the shares, gold and silver will be shown at ₹ 3,50,000, ₹ 8,00,000 and
₹ 3,50,000 respectively and hence, total investment will be valued at ₹ 15,00,000 for the year ending on
31st March, 2022 as per AS 13.

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Chapter 1.8 AS 13-Accounting for Investments
 R 1.9-1

Chapter 1.9
AS 16 Borrowing Costs
Question 1
Harish Construction Company is constructing a huge building project consisting of four phases. It is expected
that the full building will be constructed over s everal years but Phase I and Phase II of the building will be
started as soon as they are completed.
Following is the detail of the work done on different phases of the building during the current year: (` in
lakhs)
Phase I Phase II Phase III Phase IV
` ` ` `
Cash expenditure 10 30 25 30
Building purchased 24 34 30 38
Total expenditure 34 64 55 68
Total expenditure of all phases 221
Loan taken @ 15% at the beginning of the year 200
During mid of the current year, Phase I and Phase II have become operational. Find out the total amount to
be capitalized and to be expensed during the year.(Nov ’22)
Answer 1
Particulars `
1. Interest expense on loan ` 2,00,00,000 at 15% 30,00,000
2 Total cost of Phases I and II (` 34,00,000 +64,00,000) 98,00,000
3. Total cost of Phases III and IV (` 55,00,000 + ` 68,00,000) 1,23,00,000
4. Total cost of all 4 phases 2,21,00,000
5. Total loan 2,00,00,000
6. Interest on loan used for Phases I & II, based on proportionate 1(approx.)
3,30,317
30,00,000
Loan amount = 2,21,00,000 × 98,00,000

Interest on loan used for Phases III & IV, based on proportionate Loan
7. 30,00,000 16,69,683
amount= 2,21,00,000 × 1,23,00,000 (approx.)
Accounting treatment:
1. For Phase I and Phase II
Since Phase I and Phase II have become operational at the mid of the year, half of the interest amount
of ` 6,65,158.50 (i.e. ` 13,30,317/2) relating to Phase I and Phase II should be capitalized (in the ratio of
asset costs 34:64) and added to respective assets in Phase I and Phase II and remaining half of the
interest amount of ` 6,65,158.50 (i.e. ` 13,30,317/2) relating to Phase I and Phase II should be expensed
during the year.
2. For Phase III and Phase IV
Interest of ` 16,69,683 relating to Phase III and Phase IV should be held in Capital Work-in-Progress till
assets construction work is completed, and thereafter capitalized in the ratio of cost of assets. No part
of this interest amount should be charged/expensed off during the year since the work on these phases
has not been completed yet.

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Chapter 1.9 AS 16 Borrowing Costs
 R 1.9-2

Question 2
Expert Limited issued 12% secured debentures of ₹ 100 lakhs on 01.06.2021. Money raised from debentures
to be utilized as under:
Intended Purpose Amount ₹ in lakhs
Construction of factory building 40
Working Capital 30
Purchase of Machinery 15
Purchase of Furniture 2
Purchase of truck 13
Additional Information:
Interest on debentures for the Financial Year 2021-2022 was paid by the Company.
During the year, the company invested idle fund of ₹ 5 lakhs (out of the money raised from debentures) in
Bank's fixed deposit and earned interest of ₹ 50,000.
In March, 2022 construction of factory building was not completed (it is expected that it will take another
6 months).
In March 2022, Machinery was installed and ready for its intended use.
Furniture was put to use at the end of March 2022.
Truck is going to be received in April, 2022.
You are required to show the treatment of interest as per AS 16 in respect of borrowing cost for the year
ended 31st March, 2022 in the Books of Expert Limited. (May 23)
Answer 2
According to AS 16 “Borrowing Costs”, a qualifying asset is an asset that necessarily takes a substantial period
of time to get ready for its intended use. As per the Standard, borrowing costs that are directly attributable
to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of
that asset. The amount o f borrowing costs eligible for capitalization should be determined in accordance with
this Standard. Other borrowing costs should be recognized as an expense in the period in which they are
incurred. It also states that to the extent that funds are borrowed specifically for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization on that asset should be determined
as the actual borrowing costs incurred on that borrowing during the period less any income on the temporary
investment of those borrowings.
Thus, eligible borrowing cost = ₹ 10,00,000 (100 lakhs x 12% x 10/12) – ₹ 50,000 = ₹ 9,50,000
Particulars Nature of assets Interest to be Interest to be
capitalized (₹) charged to Profit &
Loss Account (₹)
Construction of factory Qualifying Asset 9,50,000x40/100 NIL
building = ₹ 3,80,000
Purchase of Machinery Not a Qualifying Asset NIL 9,50,000x15/100
= 1,42,500
Purchase of and Not a Qualifying Asset NIL 9,50,000x2/100
furniture =19,000
Purchase of truck Not a Qualifying Asset NIL 9,50,000x13/100
= 1,23,500
Working Capital Not a Qualifying Asset NIL 9,50,000x30/100
= ₹ 2,85,000
Total ₹ 3,80,000 ₹ 5,70,000
Vishesh Khatwani | 8555070670
Chapter 1.9 AS 16 Borrowing Costs
 R 1.9-3

Question 3
Raj & Co. has taken a loan of US$ 20,000 at the beginning of the financial year for a specific project at an
interest rate of 6% per annum, payable annually. On the day of taking loan, the exchange rate between
currencies was ₹ 48 per 1 US$. The exchange rate at the closing of the financial year was ₹ 50 per 1 US$.
The corresponding amount could have been borrowed by the company in Indian Rupee at an interest
rate of 11% per annum.
Determine the treatment of borrowing cost in the books of accounts. (Nov ’23)
Answer 3
Interest on Foreign Currency Loan:
= US $ 20,000 x₹ 50 per US $ x 6% = ₹ 60,000.
Foreign Exchange Loss on Foreign currency loan:
= US$ 20,000 x₹ (50-48) = ₹ 40,000.
Interest that would have been if the loan was taken in Indian currency i.e. local currency:
= US $ 20,000 x 48 x 11% = ₹1,05,600
Difference between interest on local currency borrowing and foreign currency borrowing:
= ₹ 1,05,600 - ₹ 60,000 = ₹45,600
The entire exchange difference of 40,000 would be considered as borrowing costs. The total
borrowing cost would be ₹ 100000 (₹ 60000+ ₹ 40000).

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Chapter 1.9 AS 16 Borrowing Costs
 R 2.1

Chapter 2
Framework for preparation and presentation of Financial
Statements
Question 1
A Ltd. has entered into a binding agreement with Gamma Ltd. to buy a custom-made machine Rs.1,00,000.
At the end of 20X1-X2, before delivery of the machine, A Ltd. had to change its method of production.
The new method will not require the machine ordered and it will be scrapped after delivery. The
expected scrap value is nil.
You are required to advise the accounting treatment and give necessary journal entry in the year 20X1-
X2. (May 20 ,May 23 & Nov 23)
Answer 1
A liability is recognised when outflow of economic resources in settlement of a present obligation can be
anticipated and the value of outflow can be reliably measured. In the given case, A Ltd. should recognise a
liability of Rs.1,00,000 to Gamma Ltd..
When flow of economic benefit to the enterprise beyond the current accounting period is considered
improbable, the expenditure incurred is recognised as an expense rather than as an asset. In the present
case, flow of future economic benefit from the machine to the enterprise is improbable. The entire amount
of purchase price of the machine should be recognised as an expense.
Journal entry
Loss on change in production method Dr. 1,00,000
To Gamma Ltd. 1,00,000
(Loss due to change in production method)
Profit and loss A/c Dr. 1,00,000
To Loss on change in production method 1,00,000
(Loss transferred to profit and loss account)

Question 2
Summarised Balance Sheet of Cloth Trader as on 31.03.2021 is given below:
Equity & Liabilities Amount (`) Assets Amount (`)
Proprietor's Capital 3,00,000 Property, plant and equipment 3,60,000
Profit & Loss Account 1,25,000 Closing Inventory 1,50,000
10% Loan Account 2,10,000 Trade receivables 1,00,000
Trade payables 50,000 Deferred Expenses 50,000
Cash & Bank 25,000
6,85,000 6,85,000
Additional Information is as follows :
(1) The remaining life of Property, plant and equipment is 8 years. The pattern of use of the asset is even.
The net realisable value of Property, plant and equipment on 31.03.2022 was ` 3,25,000.
(2) Purchases and Sales in 2021-22 amounted to ` 22,50,000 and ` 27,50,000 respectively.
(3) The cost and net realizable value of inventory on 31.03.2022 were ` 2,00,000 and ` 2,50,000
respectively.
(4) Expenses including interest on loan for the year amounted to ` 78,000.
(5) Deferred Expenses are amortized equally over 5 years.
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Chapter 2 Framework for preparation and presentation of Financial Statements
 R 2.2

(6) Sundry Debtors on 31.03.2022 are ` 1,50,000 of which ` 5,000 is doubtful. Collection of another ` 25,000
depends on successful re-installation of certain product supplied to the customer;
(7) Closing Sundry Creditors are ` 75,000, likely to be settled at 10% discount.
(8) Cash balance as on 31.03.2022 is ` 4,22,000.
(9) There is an early repayment penalty for the loan of ` 25,000. You are required to prepare: (Not assuming
going concern)
(1) Profit & Loss Account for the year 2021-22.
(2) Balance Sheet as on 31st March, 2022.(Nov’22)
Answer 2
Profit and Loss Account for the year ended 2021-22(not assuming going concern)
Particulars Amount ` Particulars Amount `
To Opening Stock 1,50,000 By Sales 27,50,000
To Purchases 22,50,000 By Closing Stock 2,50,000
To Expenses 78,000 By Trade payables 7,500
To Depreciation 35,000
To Provision for doubtful debts 30,000
To Deferred expenses 50,000
To Loan penalty 25,000
To Net Profit (b.f.) 3,89,500
30,07,500 30,07,500
Balance Sheet as at 31st March, 2022 (not assuming going concern)
Liabilities Amount ` Assets Amount `
Capital 3,00,000 Fixed Assets 3,25,000
Profit & Loss A/c 5,14,500 Inventory 2,50,000
10% Loan 2,35,000 Trade receivables (less provision) 1,20,000
Trade payables 67,500 Deferred expenses Nil
Bank 4,22,000
11,17,000 11,17,000

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Chapter 2 Framework for preparation and presentation of Financial Statements
 R 3.1-1

Chapter 3.1
Financial Statements of Companies
Question 1

The following balance appeared in the books of Oliva Ltd. as on 31-03-2022.

Particulars ` Particulars `
Inventory 01-04-2021 Sales 17,10,000
-Raw Material 30,000 Interest 3,900
-Finished goods 46,500 76,500 Profit and Loss A/c 21,000
Purchases of raw 12,60,000 Share Capital 3,15,000
material
Manufacturing Expenses 2,70,000 Secured Loans:
Short–term 4,500
Long-term 21,000 25,500
Fixed Deposits
(unsecured)
Salaries and 40,200 Short -term 1,500
wages
General Charges 16,500 Long - term 3,300 4,800
Building 1,01,000 Trade payables 3,27,000
Plant and
Machinery 70,400
Furniture 10,200
Motor Vehicles 40,800
Investments: Current 4,500
Non-Current 7,500 12,000
Trade receivables 2,38,500
Cash in Bank 2,71,100
24,07,200 24,07,200
From the above balance and the following information, prepare the company’s statement of Profit and
Loss for the year ended 31st March, 2022 and company’s Balance Sheet as on that date:
1. Inventory on 31st March,2022- Raw material ` 25,800 and finished goods ` 60,000.
2. Outstanding Expenses: Manufacturing Expenses ` 67,500 & Salaries & Wages ` 4,500.
3. Interest accrued on Securities ` 300.
4. General Charges prepaid ` 2,490.
5. Provide depreciation: Building @ 2% p.a., Machinery @ 10% p.a., Furniture @ 10% p.a. & Motor
Vehicles @ 20% p.a.
6. Current maturity of long term loan is ` 1,000.
7. The Taxation provision of 40% on net profit is considered. (Nov’22)

Answer 1
Oliva Ltd.
Balance Sheet as at 31.03.2022
Particulars Note Amount
(1) Equity and Liabilities
(i) Shareholders’ funds
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Chapter 3.1 Financial Statements of Companies
 R 3.1-2

(a) Share Capital 3,15,000

(b) Reserves and surplus 1 50,430
(2) Non-current liabilities
(a) Long-term borrowings 2 23,300
(3) Current Liabilities
(a) Short -term borrowings 3 7,000
(b) Trade payables 3,27,000
(c) Other current liability 4 72,000
(d) Short term provision 5 19,620
II ASSETS 8,14,350
(1) Non-current assets
(a) Property, Plant & equipment 6 2,04,160
(b) Non-current investments 7,500
(2) Current assets
(a) Current investments 4,500
(b) Inventories 7 85,800
(c) Trade receivables 2,38,500
(d) Cash and cash equivalents 2,71,100
(e) Short-term loans and advances 8 2,490
(f) Other current assets 9 300
8,14,350

Oliva Ltd.
Statement of Profit and loss for the year ended 31.03.2022
(`)
Particulars Note Amount
I Revenue from operations 17,10,000
II Other income (3,900 +300) 4,200
III Total income (I +II) 17,14,200
IV Expenses:
Cost of materials consumed 10 12,64,200
Purchases of inventory-in-trade --
Changes in inventories of finished goods, work-in-progress and 11 (13,500)
inventory-in-Trade
Employee benefit expenses 12 44,700
Finance costs --
Depreciation and amortization expenses 18,240
Other expenses 13 3,51,510
Total Expenses 16,65,150
V Profit before exceptional and extraordinary items and tax 49,050
VI Exceptional items --
VII Profit before extraordinary items and tax 49,050
VIII Extraordinary items --
IX Profit before tax 49,050
X Tax expense (40% of 49,050) 19,620
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Chapter 3.1 Financial Statements of Companies
 R 3.1-3

XI Profit/Loss for the period from continuing operations 29,430

Notes to accounts
No. Particulars Amount Amount
1. Reserve & Surplus
Profit & Loss Account: Balance b/f 21,000
Net Profit for the year 29,430 50,430
2. Long term borrowings
Secured loans (21,000 less current maturities 1,000) 20,000

Fixed Deposits: Unsecured 3,300 23,300

3. Short term borrowings
Secured loans 4,500
Fixed Deposits -Unsecured 1,500
Current maturities of long term borrowings 1,000 7,000
4. Other current liabilities
Expenses Payable (67,500 + 4,500) 72,000 72,000
5. Short term provisions
Provision for Income tax 19,620
6. Property, plant and equipment
Building 1,01,000
Less: Depreciation @ 2% ( 2,020) 98,980
Plant & Machinery 70,400
Less: Depreciation @10% (7,040) 63,360
Furniture 10,200
Less: Depreciation @10% (1,020) 9,180
Motor vehicles 40,800
Less: Depreciation @20% (8,160) 32,640 2,04,160
7 Inventory
Raw Material 25,800
Finished goods 60,000 85,800
8. Short term Loans & Advances
General Charges prepaid 2,490
9. Other Current Assets
Interest accrued 300
10. Cost of material consumed
Opening inventory of raw Material 30,000
Add: Purchases 12,60,000 12,90,000
Less: Closing inventory (25,800) 12,64,200
11. Changes in inventory of Finished Goods & WIP
Closing Inventory of Finished Goods 60,000
Less: Opening Inventory of Finished Goods (46,500) 13,500
12. Employee Benefit expenses
Salary & Wages (40,200 + 4,500) 44,700
13. Other Expenses:
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Chapter 3.1 Financial Statements of Companies
 R 3.1-4

Manufacturing Expenses (2,70,000 + 67,500) 3,37,500

General Charges (16,500 – 2,490) 14,010 3,51,510

Question 2

On 31st March 2022, Hari Ltd. provides you the following particulars:

Particulars Debit ₹ Credit ₹

Equity Share Capital (Face value of ₹ 100 each) 12,50,000

Call in Arrears 1,250

Land & Building 6,87,500
Plant & Machinery 6,56,250
Furniture 62,500
General Reserve 2,62,500
Loan from State Financial Corporation 1,87,500
Inventory:
Raw Materials 62,500
Finished Goods 2,50,000 3,12,500
Provision for Taxation 1,60,000
Trade Receivables 2,50,000
Advances 53,375
Profit & Loss Account 1,08,375
Cash in Hand 37,500
Cash at Bank 3,08,750
Unsecured Loan (Long-term) 1,51,250
Trade Payables 2,50,000
The following additional information is also provided:
(i) 2,500 Equity shares were issued for consideration other than cash.
(ii) Debtors of ₹ 65,000 (included in trade receivables) are due for more than 6 months.
(iii) The cost of the assets were:
Building ₹ 7,50,000, Plant & Machinery ₹ 8,75,000 and Furniture ₹ 78,125
(iv) The balance of ₹ 1,87,500 in the Loan Account with State Finance Corporation is inclusive of ₹
9,375 for Interest accrued but not due. The loan is secured by hypothecation of Plant & Machinery.
(v) Balance at Bank includes ₹ 2,500 with Global Bank Ltd., which is not a Scheduled Bank.
You are required to prepare the Balance sheet of Hari Ltd. as on 31st March, 2022 as per Schedule III to
the Companies Act, 2013. (May 23)
Answer 2

Hari Ltd.
Balance Sheet as on 31st March 2022

Particulars Notes ₹
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Chapter 3.1 Financial Statements of Companies
 R 3.1-5

Equity and Liabilities

1 Shareholders' funds
a Share capital 1 12,48,750
b Reserves and Surplus 2 3,70,875
2 Non-current liabilities
Long-term borrowings 3 3,29,375
3 Current liabilities
a Trade Payables 2,50,000
b Other current liabilities 4 9,375
c Short-term provisions 5 1,60,000
Total 23,68,375
Assets
1 Non-current assets
Property, Plant & Equipment (PPE) 6 14,06,250
2 Current assets
a Inventories 7 3,12,500
b Trade receivables 8 2,50,000
c Cash and cash equivalents 9 3,46,250
d Short-term loans and advances 53,375
Total 23,68,375

Notes to accounts
₹
1 Share Capital
Equity share capital
Issued & subscribed & called up
12,500 Equity Shares of ₹ 100 each
(of the above 2,500 shares have been issued for
consideration other than cash) 12,50,000
Less: Calls in arrears (1,250) 12,48,750

Total 12,48,750
2 Reserves and Surplus
General Reserve 2,62,500
Surplus (Profit & Loss A/c) 1,08,375
Total 3,70,875
3 Long-term borrowings
Secured Term Loan
State Financial Corporation Loan (1,87,500–9,375) 1,78,125
(Secured by hypothecation of Plant
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Chapter 3.1 Financial Statements of Companies
 R 3.1-6

and Machinery)
Unsecured Loan 1,51,250
Total 3,29,375
4 Other current liabilities
Interest accrued but not due on loans (SFC) 9,375
5 Short-term provisions
Provision for taxation 1,60,000
6 PPE
Land and Building 7,50,000
Less: Depreciation (62,500) 6,87,500
Plant & Machinery 8,75,000
Less: Depreciation (2,18,750) 6,56,250
Furniture & Fittings 78,125
Less: Depreciation (15,625) 62,500
Total 14,06,250
7 Inventories
Raw Materials 62,500
Finished goods 2,50,000
Total 3,12,500
8 Trade receivables
Outstanding for a period exceeding six months 65,000
Other Amounts 1,85,000
Total 2,50,000
9 Cash and cash equivalents
Cash at bank
with Scheduled Banks 3,06,250
with others (Global Bank Ltd.) 2,500 3,08,750
Cash in hand 37,500
Total 3,46,250

Question 3

From the following particulars furnished by Ambience Ltd., prepare the Balance Sheet as on 31 st March
2023 as required by Division I of Schedule III of the Companies Act, 2013.

Particulars Debit ₹ Credit ₹

Equity Share Capital (Face value of ₹ 100 each) 25,00,000

Call in Arrears 2,500

Land & Building 13,75,000
Plant & Machinery 13,12,500
Furniture 1,25,000
General Reserve 5,25,000
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Chapter 3.1 Financial Statements of Companies
 R 3.1-7

Loan from State Financial Corporation 3,75,000

Inventories: Raw
Materials 1,25,000
Finished Goods 5,00,000 6,25,000
Provision for Taxation 3,20,000
Trade receivables 5,00,000
Advances 1,06,750
Profit & Loss Account 2,16,750
Cash in Hand 75,000
Cash at Bank 6,17,500
Unsecured Loan 3,02,500
Trade creditors (for Goods and Expenses) 5,00,000
47,39,250 47,39,250
The following additional information is also provided:
(i) 5,000 Equity shares were issued for consideration other than cash.
(ii) Trade receivables of ₹ 1,30,000 are due for more than 6 months.
(iii) The cost of the Assets were:
Building ₹ 15,00,000, Plant & Machinery ₹ 17,50,000 and Furniture ₹ 1,56,250
(iv) The balance of ₹ 3,75,000 in the Loan Account with State Finance Corporation is inclusive of ₹
18,750 for Interest Accrued but not Due. The loan is secured by hypothecation of Plant &
Machinery.
(v) Balance at Bank includes ₹ 5,000 with Global Bank Ltd., which is not a Scheduled Bank.
(vi) Bills Receivable for 1,60,000 maturing on 15th June, 2023 has been discounted.
(vii) Provide to doubtful debts @ 5% on trade receivables.(Nov ’23)
Answer 3

Ambience Ltd.
Balance Sheet as on 31st March, 2023
Particulars Notes ₹
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 24,97,500
b Reserves and Surplus 2 7,16,750
2 Non-current liabilities
Long-term borrowings 3 6,58,750
3 Current liabilities
a Trade Payables 5,00,000
b Other current liabilities 4 18,750
c Short-term provisions 5 3,20,000
Total 47,11,750
Assets
1 Non-current assets
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Chapter 3.1 Financial Statements of Companies
 R 3.1-8

Property, Plant and Equipment 6 28,12,500

2 Current assets
a Inventories 7 6,25,000
b Trade receivables 8 4,75,000
c Cash and cash equivalents 9 6,92,500
d Short-term loans and advances 1,06,750
Total 47,11,750
Contingent Liabilities and Commitments (to the
extent not provided for) Contingent Liabilities: 1,60,000
Bills discounted but not matured
Notes to accounts
₹
1 Share Capital
Equity share capital
Issued & subscribed & called up & paid-up
25,000 Equity Shares of ₹ 100 each
(of the above 5,000 shares have been issued for
consideration other than cash) 25,00,000
Less: Calls in arrears (2,500) 24,97,500
Total 24,97,500
2 Reserves and Surplus
General Reserve 5,25,000
Surplus (Profit & Loss A/c 2,16,750
Less: provision for debtors 25,000 1,91,750
Total 7,16,750
3 Long-term borrowings
Secured Term Loan
State Financial Corporation Loan (3,75,000-18,750) 3,56,250
(Secured by hypothecation of Plant and Machinery)
Unsecured Loan 3,02,500
Total 6,58,750
4 Other current liabilities
Interest accrued but not due on loans (SFC) 18,750
5 Short-term provisions
Provision for taxation 3,20,000
6 Property, Plant and Equipment
Land and Building 15,00,000
Less: Depreciation (1,25,000) 13,75,000
Plant & Machinery 17,50,000
Less: Depreciation (4,37,500) 13,12,500
Furniture & Fittings 1,56,250
Less: Depreciation (31,250) 1,25,000
Total 28,12,500
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Chapter 3.1 Financial Statements of Companies
 R 3.1-9

7 Inventories
Raw Materials 1,25,000
Finished goods 5,00,000
Total 6,25,000
8 Trade receivables
Outstanding for a period exceeding six months 1,30,000
Other Amounts 3,70,000
Less: Provision for doubtful debts (25,000)
Total 4,75,000
9 Cash and cash equivalents
Cash at bank
with Scheduled Banks 6,12,500
with others (Global Bank Ltd.) 5,000 6,17,500
Cash in hand 75,000
Total 6,92,500

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Chapter 3.1 Financial Statements of Companies
 R 3.2-1

Chapter 3.2
Preparation of Cash Flow Statement
Question 1

The Balance Sheet of Max Ltd. for the year ending 31st March, 2022 and 31st March, 2021 were
summarized as:

Particulars Note No 2022 2021

` `
Equity and Liabilities
Shareholders' funds
Equity share capital 1,20,000 1,00,000
Reserves 1 9,000 8,000
Current Liabilities
(i) Trade Payables 8,000 5,000
(ii) Short term provision 2 7,000 4,000
1,44,000 1,17,000
Non-current assets
(i) PPE (at W.D.V) 3 78,000 58,000
(ii) Long Term Investments 32,000 28,000
Current Assets
(i) Inventory 14,000 8,000
(ii) Trade Receivables 8,000 6,000
(iii) Cash & Bank 12,000 17,000
1,44,000 1,17,000
Notes to accounts
2022 2021
1 Reserves and Surplus
Profit & Loss A/c 9,000 8,000
2 Short term provision
provision for Income tax 7,000 4,000
3 PPE
Building 19,000 20,000
Furniture & Fixture 34,000 22,000
Cars 25,000 16,000
78,000 58,000
The Profit and Loss statement for the year ended 31st March, 2022 disclosed:

`
Profit before tax 8,000
Income Tax (7,000)
Profit after tax 1,000
Further Information is available:
1. Depreciation on Building for the year ` 1,000
2. Depreciation on Furniture & Fixtures for the year ` 2,000
3. Depreciation on Cars for the year ` 5,000. One car was disposed during the year for ` 3,400 whose
written down value was ` 2,000.
4. Purchase investments for ` 6,000.
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Chapter 3.2 Preparation of Cash Flow Statement
 R 3.2-2

5. Sold investments for ` 10,000, these investments cost ` 2,000.

Prepare Cash Flow Statements for the year ended 31st March, 2022 as per AS-3 (revised) using
indirect method. (Nov’22)
Answer 1

Max Ltd. Cash Flow Statement for the year ended 31st March, 2022
(`) (`)
Cash flows from operating activities
Net Profit before taxation 8,000
Adjustments for:
Depreciation ` (1,000 + 2,000 +5,000) 8,000
Profit on sale of Investment (8,000)
Profit on sale of car (1,400)
Operating profit before working capital changes 6,600
Increase in Trade receivables (2,000)
Increase in inventories (6,000)
Increase in Trade payables 3,000
Cash generated from operations 1,600
Income taxes paid (4,000)
Net cash generated from operating activities (A) (2,400)
Cash flows from investing activities
Sale of car 3,400
Purchase of car (16,000)
Sale of Investment 10,000
Purchase of Investment (6,000)
Purchase of Furniture & fixtures (14,000)
Net cash used in investing activities (B) (22,600)
Cash flows from financing activities
Issue of shares for cash 20,000
Net cash from financing activities(C) 20,000
Net decrease in cash and cash equivalents (A + B +C) (5,000)
Cash and cash equivalents at beginning of period 17,000
Cash and cash equivalents at end of period 12,000
Working Notes:

1. Calculation of Income taxes paid

`
Income tax expense for the year 7,000
Add: Income tax liability at the beginning of the year 4,000
11,000
Less: Income tax liability at the end of the year (7,000)
4,000
2. Calculation of Fixed assets acquisitions
Furniture & Fixtures (`) Car (`)
W.D.V. at 31.3.2022 34,000 25,000
Add back: Depreciation for the year 2,000 5,000
Disposals - 2,000
36,000 32,000
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Chapter 3.2 Preparation of Cash Flow Statement
 R 3.2-3

Less: W.D.V. at 31.3.2021 (22,000) (16,000)

Acquisitions during 2021-2022 14,000 16,000

Question 2

Following is the Balance Sheet of Fox Ltd. You are required to prepare cash flow statement using
Indirect Method.

Particulars Note 31st March,2021 31st March,2020

No. (`) (`)
(I) Equity and Liabilities
1. Shareholders’ Funds
(a) Share capital 1 5,60,000 3,00,000
(b) Reserve and Surplus 2 35,000 25,000
2. Current Liabilities
(a) Trade payables 1,50,000 60,000
(b) Short-term provisions 8,000 5,000
(Provision for taxation)
Total 7,53,000 3,90,000
(II) Assets
1. Non-current assets
(a) Property, Plant and 3,50,000 1,80,000
Equipment
2. Current assets
(a) Inventories 1,20,000 50,000
(b) Trade receivables 1,00,000 25,000
(c) Cash and cash equivalents 1,05,000 90,000
(d) Other current assets 78,000 45,000
Total 7,53,000 3,90,000
Notes to Accounts
Particulars 31st March,2021 (₹) 31st March,2020
(₹)
1. Share capital
(a) Equity share capital 4,10,000 2,00,000
(b) Preference share capital 1,50,000 1,00,000
5,60,000 3,00,000
2. Reserve and surplus
Surplus in statement of profit and loss at the 25,000
beginning of the year
Add: Profit of the year 20,000
Less: Dividend (10,000)
Surplus in statement of profit and loss at the 35,000 25,000
end of the year
Additional Information:
1. Dividend paid during the year ₹ 10,000
2. Depreciation charges during the year ₹ 40,000. (May 23)
Answer 2

Fox Ltd.
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Chapter 3.2 Preparation of Cash Flow Statement
 R 3.2-4

Cash Flow Statement for the year ended 31st March 2021
₹ ₹
Cash flows from operating activities
Net Profit (35,000 less 25,000) 10,000

Add: Dividend 10,000

Provision for tax 8,000
Net profit before taxation and extraordinary items 28,000
Adjustments for:
Depreciation 40,000
Operating profit before working capital changes 68,000
Increase in trade receivables (75,000)
Increase in inventories (70,000)
Increase in other current assets (33,000)
Increase in trade payables 90,000 (88,000)
Cash used in operating activities (20,000)
Less: Tax paid* (5,000)
Net cash used in operating activities (25,000)
Cash flows from investing activities
Purchase of PPE (2,10,000)
Net cash used in investing activities (2,10,000)
Cash flows from financing activities
Issue of equity shares for cash 2,10,000
Issue of preference shares 50,000
Dividends paid (10,000)
Net cash generated from financing activities 2,50,000
Net increase in cash and cash equivalents 15,000
Cash and cash equivalents at beginning of period 90,000
Cash and cash equivalents at end of period 1,05,000

*Provision for tax of last year considered to be paid in the current year.

Working Note:

₹
Property, plant and equipment acquisitions
W.D.V. at 31.3.2021 3,50,000
Add back:
Depreciation for the year 40,000
3,90,000
Less: W.D.V. at 31.12.2020 1,80,000
Acquisitions during 2020-2021 2,10,000

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Chapter 3.2 Preparation of Cash Flow Statement
 R 4.1

Chapter 4
Managerial Remuneration
Question 1
The following information of X Ltd. (a non-investment company) as on 31st March, 2022 was
obtained:
`
Authorized capital:
15,000, 14% preference shares of ` 100 15,00,000
1,50,000 Equity shares of ` 100 each 1,50,00,000
Issued and subscribed capital: 1,65,00,000
14,000, 14% preference shares of ` 100 each fully paid 14,00,000
1,30,000 Equity shares of ` 100 each, ` 90 paid-up 1,17,00,000
Capital reserves (` 1,75,000 is revaluation reserve) 2,00,000
Securities premium 50,000
15% Debentures 70,00,000
Investment in shares, debentures, etc. 60,00,000
Profit and Loss account (debit balance) 13,50,000
You are required to compute Effective Capital as per the provisions of Schedule V to the Companies
Act, 2013. (Nov’22)
Answer 1
Computation of Effective Capital
`
Paid-up share capital-
14,000, 14% Preference shares 14,00,000
1,30,000 Equity shares 1,17,00,000
Capital reserves (excluding revaluation reserve) 25,000
Securities premium 50,000
15% Debentures 70,00,000
(A) 2,01,75000
Investments 60,00,000
Profit and Loss account (Dr. balance) 13,50,000
(B) 73,50,000
Effective capital (A–B) 1,28,25,000

Question 2
Omega Ltd. provides the following information as on 31st March, 2022:
Liabilities ₹
Authorized capital:
50,000, 14% preference shares of ₹100 50,00,000
5,00,000 Equity shares of ₹100 each 5,00,00,000
5,50,00,000
Issued and subscribed capital:
38,750, 14% preference shares of ₹ 100 each fully paid 38,75,000
2,70,000 Equity shares of ₹ 100 each, ₹ 80 paid-up 2,16,00,000
Share suspense account 45,00,000
Reserves and surplus:
Capital reserves (₹ 2,50,000 is revaluation reserve) 4,38,750
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Chapter 4 Managerial Remuneration
 R 4.2

Securities premium 1,12,500

Secured loans:
15% Debentures 1,46,25,000
Unsecured loans:
Public deposits 8,32,500
Cash credit loan from SBI (short term) 2,96,250
Current Liabilities:
Trade Payables 7,76,250
Assets:
Investment in shares, debentures, etc. 1,75,25,000
Profit and Loss account (Dr. balance) 34,25,000
Share suspense account represents application money received on shares, the allotment of which is
not yet made. You are required to compute effective capital as per the provisions of Schedule V if
Omega Ltd is non-investment company. Would your answer differ if Omega Ltd. is an investment
company? (May 23)
Answer 2
Computation of effective capital:
Where Where
Omega Ltd.is Omega Ltd.is
a non- an
investment investment
company company
Paid-up share capital —
38,750, 14% Preference shares 38,75,000 38,75,000
2,70,000 Equity shares 2,16,00,000 2,16,00,000
Capital reserves 1,88,750 1,88,750
Securities premium 1,12,500 1,12,500
15% Debentures 1,46,25,000 1,46,25,000
Public Deposits 8,32,500 8,32,500
(A) 4,12,33,750 4,12,33,750
Investments 1,75,25,000
Profit and Loss account (Dr. balance) 34,25,000 34,25,000
(B) 2,09,50,000 34,25,000
Effective capital (A–B) 2,02,83,750 3,78,08,750

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Chapter 4 Managerial Remuneration
 R 5.1

Chapter 5
Profit or Loss Pre and Post Incorporation
Question 1
The promotors of Shiva Ltd. took over on behalf of the company a running business with effect from 1st
April 2021. The company got incorporated on 1st August 2021. The annual accounts were made up to 31st
March, 2022 which revealed that the sales for the whole year totalled ` 24 lakhs out of which sales till 31st
July, 2021 were for ` 6 lakhs. Gross profit ratio was 20%.
The expenses from 1st April 2021, till 31st March, 2022 were as follows:
Particulars `
Salaries 75,000
Rent, Rates and Insurance 30,000
Sundry Office Expenses 72,000
Traveller's Commission 20,000
Discount allowed 16,000
Bad Debts 8,000
Directors' Fee 30,000
Tax Audit Fee 16,000
Depreciation on Property, Plant & Equipment 15,000
Debenture Interest 14,000
Prepare a statement showing the calculation of profits for the pre-incorporation and Post incorporation
periods. (Nov’22)
Answer 1
Statement showing the calculation of Profits for the pre-incorporation and post-incorporation periods
Particulars Total Basis of Pre-in- Post-in-
Amount Allocation corporation corporation
(`) (`) (`)
Gross Profit (20% of ` 24,00,000) 4,80,000 Sales 1,20,000 3,60,000
Less: Salaries 75,000 Time 25,000 50,000
Rent, rates and Insurance 30,000 Time 10,000 20,000
Sundry office expenses 72,000 Time 24,000 48,000
Travellers’ commission 20,000 Sales 5,000 15,000
Discount allowed 16,000 Sales 4,000 12,000
Bad debts 8,000 Sales 2,000 6,000
Directors’ fee 30,000 Post - 30,000
Tax Audit Fees* 16,000 Sales 4,000 12,000
Depreciation on PPE 15,000 Time 5,000 10,000
Debenture interest 14,000 Post - 14,000
Net profit 184,000 41,000 1,43,000
* Tax Audit Fees allocated in the ratio of sales.
Thus, pre-incorporation profits is ` 41,000 and post- incorporation profit is ` 1,43,000.
Working Notes:
1. Sales ratio
(`)
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Chapter 5 Profit or Loss Pre and Post Incorporation
 R 5.2

Sales for the whole year 24,00,000

Sales up to 31st July, 2021 6,00,000

Therefore, sales for the period from 1st August, 2021 to 31st March, 2022 18,00,000
Thus, sale ratio = 600:1800 = 1:3
2. Time ratio
1st April, 2021 to 31st July, 2021 : 1st August, 2021 to 31st March, 2022
= 4 months: 8 months = 1:2, Thus, time ratio is 1:2.

Question 2

M/s New Venture, who was carrying on business from 1st June, 2021 gets itself incorporated as a company
on 1st October, 2021. The first accounts are drawn upto 31st March 2022. The gross profit for the period is
₹ 1,20,000.

Following information is given :

(a) General Expenses are ₹ 24,000.

(b) Director's Fees is ₹ 24,000 p.a.

(c) Incorporation Expenses ₹ 4,000.
(d) Rent upto 31st December, 2021 was ₹ 6,000 p.a., after which it was increased to ₹ 8,000 p.a.
(e) Salary of the Manager, who upon incorporation of the company was made a director, is ₹ 12,000 p.a.
His remuneration as director is included in the above figure of fees to the directors.
(f) Advertisement Expenses of ₹ 5,000 pertains to the incorporated company.
(g) Bad debts ₹ 4,000.
Give statement showing pre and post incorporation profit. The net sales are ₹ 20,00,000, the monthly
average of which, for the first four months is one-half of that of theremaining period. The company earned
a uniform profit. Interest and tax may be ignored. (May 23)
Answer 2

Particulars Basis Pre- Post- Total

incorporation incorporation
period period

₹ ₹ ₹

Gross Profit Sales Ratio 30,000 90,000 1,20,000

Less: General expenses Time Ratio 9,600 14,400 24,000
Director’s fee Actual --- 12,000 12,000
Incorporation expenses Actual --- 4,000 4,000
Rent W.N.2 2,000 3,500 5,500
Manager’s salary Actual 4,000 --- 4,000
Advertisement expenses Post --- 5,000 5,000
Bad Debts Sales Ratio 1,000 3,000 4,000
Pre-incorporation Profit
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Chapter 5 Profit or Loss Pre and Post Incorporation
 R 5.3

transferred to Capital Reserve

Post-incorporation Profit 13,400 48,100 61,500
transferred to P/L Account

Working Notes:

1. Calculation of sales ratio ₹

Let the average monthly sales of first four months = 100
Next six months = 200
Total sales of first four months = 100 x 4 = 400
Total sales of next six months = 200 x 6 = 1,200
Ratio of sales = 400 : 1,200 = 1:3
2. Rent
Till 31st December, 2021, rent was ₹ 6,000 p.a., i.e. ₹ 500 p.m. So, pre-incorporation rent = ₹
500 x 4 = ₹ 2,000
Post incorporation rent = (₹ 500 x 3) + (8,000 x 3/12) = ₹ 3,500.
3. Time Ratio
Pre-incorporation period = 1st June, 2021 to 30th Sept, 2021 = 4 months
Post-incorporation = 1st October, 2021 to 31st March, 2022 = 6 months
= 4 months: 6 months Thus, time ratio is 2:3

Question 3

The partners of Shanti Enterprises decided to convert the partnership firm into a Private Limited Company
Shaurya (P) Ltd. with effect from 1st January, 2022. However, company could be incorporated only on 1st
June, 2022. The business was continued on behalf of the company and the consideration of ₹ 3,00,000 was
settled on that day along with interest @ 12% per annum. The company availed loan of ₹ 4,50,000 @ 10%
per annum on 1st June, 2022 to pay purchase consideration and for working capital. The company closed its
accounts for the first time on 31st March, 2023 and presents you the following summarized profit and loss
account:

₹ ₹
Sales 9,90,000
Cost of goods sold 5,94,000
Discount to dealers 23,100
Directors’ remuneration 30,000
Salaries 45,000
Rent 67,500
Interest 52,500
Depreciation 15,000
Office expenses 52,500
Sales promotion expenses 16,500 9,03,600
Preliminary expenses (to be written off in first year itself) 7,500
Profit 86,400
Sales from June, 2022 to December, 2022 were 2½ times of the average sales, which further increased to
Vishesh Khatwani | 8555070670
Chapter 5 Profit or Loss Pre and Post Incorporation
 R 5.4

3½ times in January to March quarter, 2023. The company recruited additional work force to expand the
business. The salaries from July, 2022 doubled. The company also acquired additional showroom at
monthly rent of ₹ 5,000 from July, 2022.

You are required to prepare a Profit and Loss Account showing apportionment of cost and revenue
between pre-incorporation and post-incorporation periods. (Nov ’23 & May 20)
Answer 3

Shaurya (P) Limited

Profit and Loss Account
for 15 months ended 31st March, 2023

Pre. inc. Post inc. Pre. inc. Post inc. (10

(5 months) (10 months) (5 months) months)

(₹) (₹) (₹) (₹)

To Cost of sales 90,000 5,04,000 By Sales 1,50,000 8,40,000

To Gross profit 60,000 3,36,000 (W.N.1)
1,50,000 8,40,000 1,50,000 8,40,000
To Discount to dealers 3,500 19,600 By Gross profit 60,000 3,36,000
To Directors’ - 30,000 By Loss 375
remuneration
To Salaries (W.N.2) 9,375 35,625
To Rent (W.N.3) 7,500 60,000
To Interest (W.N.4) 15,000 37,500
To Depreciation 5,000 10,000
To Office 17,500 35,000
expenses
To Preliminary - 7,500
expenses
To Sales 2,500 14,000
promotion
expenses
To Net profit - 86,775
60,375 3,36,000 60,375 3,36,000

Working Notes:

1. Calculation of sales ratio:

Let the average sales per month in pre-incorporation period be x
Average Sales (Pre-incorporation) = x X 5 = 5x Sales (Post
incorporation) from June to December, 2022 = 2½ x X 7 = 17.5x

From January to March, 2023 = 3½ x X 3 = 10.5x

Total Sales (Post incorporation) 28x
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Chapter 5 Profit or Loss Pre and Post Incorporation
 R 5.5

Sales ratio of pre-incorporation & post incorporation is 5x : 28x

2. Calculation of ratio for salaries
Let the average salary be x
Pre-incorporation salary =xX5 = 5x Post
incorporation salary
June, 2022 = x
July 22 to March, 2023 = x X 9 X 2 = 18x
19x
Ratio is 5 : 19
3. Calculation of Rent ₹
Total rent 67,500
Less: Additional rent for 9 months @ ₹ 5,000 p.m. 45,000
Rent of old premises apportioned in time ratio 22,500
Apportionment Pre Inc. Post Inc.
Old premises rent 7,500 15,000
Additional Rent 45,000
7,500 60,000
4. Calculation of interest
3,00,000×12×5
Pre-incorporation period from January, 2022 to May, 2022 100×12
₹ 15,000
4,50,000×10×10
Post incorporation period from June, 2022 to March, 2023 ₹37,500
100×12

₹ 52,500

Vishesh Khatwani | 8555070670

Chapter 5 Profit or Loss Pre and Post Incorporation
 R 6.1

Chapter 6
Accounting for Bonus Issue and Right Issue
Question 1

Pass Journal Entries in the following circumstances:

(i) Rise Limited with subscribed capital of ₹ 7,50,000 consisting of 75,000 Equity shares of ₹ 10
each; called up capital ₹ 7.50 per share. A bonus of ₹ 1,87,500 declared out of General Reserve to be
applied in making the existing shares fully paid up.
(ii) A Limited company having fully paid up capital of ₹ 75,00,000 consisting of Equity shares of ₹ 10
each, had General Reserve of ₹ 13,50,000. It was resolved to capitalize ₹ 7,50,000 out of General Reserve
by issuing 75,000 fully paid bonus shares of ₹ 10 each, each shareholder to get one such share for every
ten shares held by him in the company. (Nov’22)
Answer 1
Journal Entries
₹ ₹
(i) General Reserve A/c Dr. 1,87,500
To Bonus to shareholders A/c 1,87,500
(For making provision of bonus issue)
Share final call A/c 1,87,500
To Equity share capital A/c 1,87,500
(For final calls of ₹ 2.50 per share on 75,000 equity shares due as
per Board’s Resolution dated….)
Bonus to shareholders A/c Dr. 1,87,500
To Share final call A/c 1,87,500
(For bonus money applied for call)
(ii) General Reserve A/c Dr. 7,50,000
To Bonus to shareholders A/c 7,50,000
(For making provision of bonus issue)
Bonus to shareholders A/c Dr. 7,50,000
To Equity share capital A/c 7,50,000
(For issue of 75,000 bonus shares at ₹ 10)

Question 2

Meeta Ltd. has decided to increase its existing share capital by making rights issue to its existing
shareholders. The company is offering one new share for every two shares held by the shareholder. The
market value of the share is ₹ 360 and the company is offering one share of ₹ 180 each. Calculate the
value of a right. What should be the ex-right value of a share?(Nov’22)
Answer 2
Ex-right value of the shares = (Cum-right value of the existing shares + Rights shares x Issue Price)
/ (Existing Number of shares + No. of right shares)
= (₹ 360 x 2 Shares + ₹ 180 x 1 Share) / (2 + 1) Shares
= ₹ 900 / 3 shares = ₹ 300 per share.
Value of right = Cum-right value of the share – Ex-right value of the share
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Chapter 6 Accounting for Bonus Issue and Right Issue
 R 6.2

= ₹ 360 – ₹ 300 = ₹ 60 per share.

Hence, any one desirous of having a confirmed allotment of one share from the company at ₹ 180 will have
to pay ₹ 120 (2 shares x ₹ 60) to an existing shareholder holding 2 shares and willing to renounce his right of
buying one share in favour of that person.

Question 3

Following items appear in the Trial Balance of Satish Limited as on 31 st March, 2022:

Particulars Amount
9,000 Equity shares of ₹ 100 each 9,00,000
Capital Reserves (including ₹ 80,000 being profit on sale of plant) 1,80,000
Securities Premium 80,000
Capital Redemption Reserve 60,000
General Reserve 2,10,000
Profit and Loss Account (Cr. Balance) 1,30,000
The company decided to issue bonus shares to equity shareholders at the rate of 1 share for every 3
shares held. Company decided that there should be the minimum reduction in free reserves. Pass
necessary Journal Entries in the books of Satish Ltd. (May 23)

Answer 3

Journal Entries in the Books of Satish Ltd

Particulars Debit (₹) Credit (₹)
Capital Redemption Reserve A/c Dr. 60,000
Securities Premium A/c Dr. 80,000
Capital Reserve A/c Dr. 80,000
General Reserve A/c * Dr. 80,000
To Bonus to Shareholders 3,00,000
(Being issue of one bonus shares for every 3
shares held, by utilization of various Reserves, as
per Board’s resolution dated .......... )
Bonus to Shareholders A/c Dr. 3,00,000
To Equity Share Capital A/c 3,00,000
(Being capitalization of profit)
*Note: Instead of general reserve, Profit and Loss Account may also be used.

Question 4

A company having 1,00,000 shares of ₹ 10 each as its issued share capital, and having a market value of
₹ 46, issues rights shares in the ratio of 1:10 at an issue price of ₹ 31. Pass journal entry for issue of
right shares. (May 23)

Answer 4

The entry at the time of subscription of right shares by the existing shareholders will be:

Bank A/c Dr. 3,10,000

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Chapter 6 Accounting for Bonus Issue and Right Issue
 R 6.3

To Equity Share Capital A/c 1,00,000

To Securities Premium A/c 2,10,000 (Being issue

of 10,000 right shares @ ₹ 31 offered)

Question 5

Following is the extract of the Balance Sheet of Abhishek Ltd. as at 31st March, 2023

Particulars ₹
Share capital
Authorised capital:
60,000 12% Preference shares of ₹ 10 each 6,00,000
8,00,000 Equity shares of ₹ 10 each 80,00,000
86,00,000
Issued and Subscribed capital:

48,000 12% Preference shares of ₹ 10 each fully paid 4,80,000

5,40,000 Equity shares of ₹ 10 each, ₹ 8 paid up 43,20,000
Reserves and surplus:
Capital Redemption Reserve 2,40,000
Securities premium (collected in cash) 1,50,000
General Reserve 7,20,000
Profit and Loss Account 12,00,000
On 1st April, 2023, the company has made final call @ ₹ 2 each on 5,40,000 equity shares. The call
money was received by 20th April, 2023. Thereafter, the company decided to capitalize its reserves by
way of bonus at the rate of one share for every four shares held.
Show necessary journal entries in the books of the company and prepare the relevant extract of the
balance sheet as on 30th April, 2023 after bonus issue. (Nov ’23)
Answer 5

Journal Entries in the books of Abhishek Ltd.

Date Particulars ₹ ₹
1-4-2023 Equity share final call A/c Dr. 10,80,000
To Equity share capital A/c 10,80,000
(For final calls of ₹ 2 per share on
5,40,000
equity shares due as per
Board’s Resolution dated….)
20-4-2023 Bank A/c Dr. 10,80,000
To Equity share final call A/c 10,80,000
(For final call money on 5,40,000 equity
shares received)
Capital redemption reserve A/c Dr. 2,40,000
Securities Premium A/c Dr. 1,50,000
General Reserve A/c Dr. 7,20,000
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 R 6.4

Profit and Loss A/c (b.f.) Dr. 2,40,000

To Bonus to shareholders A/c 13,50,000
(For making provision for bonus issue of
one share for every four shares held)
Bonus to shareholders A/c Dr. 13,50,000
To Equity share capital A/c 13,50,000
(For issue of bonus shares)
Extract of Balance Sheet as at 30th April, 2023 (after bonus issue)

Particulars ₹
Share capital
Authorized Capital
60,000 12% Preference shares of ₹ 10 each 6,00,000
8,00,000 Equity shares of ₹ 10 each 80,00,000
Issued and subscribed capital
48,000 12% Preference shares of ₹10 each, fully paid 4,80,000
6,75,000 Equity shares of ₹ 10 each, fully paid 67,50,000
(Out of the above, 1,35,000 equity shares @ ₹ 10 each were issued by
way of bonus shares)
Reserves and surplus
Profit and Loss Account 9,60,000

Question 6

Beta Ltd. has decided to increase its existing share capital by making rights issue to its existing
shareholders. Beta Ltd. is offering one new share for every two shares held by the shareholder. The
market value of the share is ₹ 180 and the company is offering one share of ₹ 90 each. Calculate the
value of a right. What should be the ex-right market price of a share? (Nov ’23)

Answer 6

Ex-right value of the shares =

(Cum-right value of the existing shares + Rights shares x Issue Price) / (Existing No. of shares + Rights No.
of shares) = (₹ 180 x 2 Shares + ₹ 90 x 1 Share) / (2 + 1) Shares
= ₹ 450 / 3 shares = ₹ 150 per share.
Value of right = Cum-right value of the share – Ex-right value of the share
= ₹ 180 – ₹ 150 = ₹ 30 per share.
Hence, any one desirous of having a confirmed allotment of one share from the company at ₹ 90 will have to
pay ₹ 60 (2 shares x ₹ 30) to an existing shareholder holding 2 shares and willing to renounce his right of
buying one share in favour of that person.

Vishesh Khatwani | 8555070670

Chapter 6 Accounting for Bonus Issue and Right Issue
 R 7.1

Chapter 7
Redemption of Preference Shares
Question 1
The capital structure of Chand Ltd. consists of 20,000 Equity Shares of Rs.10 each fully paid up and 1,000
8% Redeemable Preference Shares of Rs.100 each fully paid up (issued on 1.4.20X1).
Undistributed reserve and surplus stood as: General Reserve Rs.80,000; Profit and Loss Account
Rs.20,000; Investment Allowance Reserve is Rs.10,000 out of which Rs.5,000 is not free for distribution
as dividend; Cash at bank amounted to Rs.98,000. Preference shares are to be redeemed at a Premium
of 10% and for the purpose of redemption, the directors are empowered to make fresh issue of Equity
Shares at par after utilizing the undistributed reserve and surplus, subject to the conditions that a sum
of Rs.20,000 shall be retained in general reserve and which should not be utilized.
Pass Journal Entries to give effect to the above arrangements and also show how the relevant items will
appear in the Balance Sheet of the company after the redemption carried out. (May 20 ,May 19 & Nov 23)
Answer 1
Journal Entries
Date Particulars Dr. (Rs.) Cr. (Rs.)
Bank A/c Dr. 25,000
To Equity Share Capital A/c 25,000
(Being the issue of 2,500 Equity Shares of Rs.10 each at
par as per Board’s Resolution
No…..dated…….)
8% Redeemable Preference Share Capital A/c Dr. 1,00,000
Premium on Redemption of Preference Shares A/c Dr. 10,000
To Preference Shareholders A/c 1,10,000
(Being the amount paid on redemption transferred to
Preference Shareholders Account)
Preference Shareholders A/c Dr. 1,10,000
To Bank A/c 1,10,000
(Being the amount paid on redemption of preference
shares)
Profit & Loss A/c Dr. 10,000
To Premium on Redemption of Preference Shares A/c 10,000
(Being the premium payable on redemption is
adjusted against Profit & Loss Account)

General Reserve A/c Dr. 60,000

Profit & Loss A/c Dr. 10,000
Investment Allowance Reserve A/c Dr. 5,000
To Capital Redemption Reserve A/c 75,000
(Being the amount transferred to Capital Redemption
Reserve Account as per the requirement of the Act)

Balance Sheet as on ………[Extracts]

Particulars Notes No. Rs.
EQUITY AND LIABILITIES
1. Shareholders’ funds
a Share capital 1 2,25,000
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Chapter 7 Redemption of Preference Shares
 R 7.2

b Reserves and Surplus 2 1,02,000

Total ?
ASSETS
2. Current Assets
Cash and cash equivalents (98,000 + 25,000 – 1,10,000) 13,000
Total ?

Notes to accounts
1. Share Capital
22,500 Equity shares (20,000 + 2,500) of Rs.10 each fully paid 2,25,000
up
2. Reserves and Surplus
General Reserve 20,000
Capital Redemption Reserve 75,000
Investment Allowance Reserve 5,000
1,00,000
Working Note:
No of Shares to be issued for redemption of Preference Shares:
Face value of shares redeemed Rs.1,00,000
Less: Profit available for distribution as dividend:
General Reserve: Rs.(80,000-20,000) Rs.60,000
Profit and Loss (20,000 – 10,000 set aside for adjusting premium payable on redemption of
preference shares) Rs.10,000
Investment Allowance Reserve: (Rs.10,000-5,000) Rs.5,000 (Rs.75,000)
Rs.25,000
Therefore, No. of shares to be issued = 25,000/Rs.10 = 2,500 shares.

Question 2
Dheeraj Limited had 5,000, 10% Redeemable Preference Shares of ₹ 100 each, fully paid up. The company
had to redeem these shares at a premium of 10%. It was decided by the company to issue the following:
(i) 40,000 Equity Shares of ₹ 10 each at par.
(ii) 2,000 12% Debentures of ₹ 100 each.
The issue was fully subscribed and all accounts were received in full. The payment was duly made. The
company had sufficient profits. Show journal entries in the books of the company.(Nov’22)
Answer 2
In the books of Dheeraj Limited Journal Entries
Date Particulars Dr. (₹) Cr. (₹)
Bank A/c Dr. 4,00,000
To Equity Share Capital A/c 4,00,000
(Being the issue of 40,000 equity shares of ₹ 10
each at par as per Board’s resolution No…dated..)
Bank A/c Dr. 2,00,000
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Chapter 7 Redemption of Preference Shares
 R 7.3

To 12% Debenture A/c 2,00,000

(Being the issue of 2,000 Debentures of ₹ 100 each
as per Board’s Resolution No…..dated……)
10% Redeemable Preference Share Capital A/c Dr. 5,00,000
Premium on Redemption of Preference Shares A/c Dr. 50,000
To Preference Shareholders A/c 5,50,000
(Being the amount payable on redemption transferred
to Preference Shareholders Account)
Preference Shareholders A/c Dr. 5,50,000
To Bank A/c 5,50,000
(Being the amount paid on redemption of preference Dr. 50,000
shares)
Profit & Loss A/c 50,000

To Premium on Redemption of Preference Shares A/c Being

the adjustment of premium on redemption against Profits &
Loss Account)
Profit & Loss A/c

To Capital Redemption Reserve A/c (Working Dr. 1,00,000

Note) (Being the amount transferred to Capital Redemption
Reserve Account as per the requirement of the Act)
1,00,000

Working Note:
Amount to be transferred to Capital Redemption Reserve Account
Face value of shares to be redeemed ₹ 5,00,000
Less: Proceeds from new issue (₹4,00,000)
Balance ₹ 1,00,000

Question 3

(a) The Board of Directors of a Company decided to issue minimum number of equity shares of ₹ 9 to
redeem ₹ 2,50,000 preference shares. The maximum amount of divisible profits available for
redemption is ₹ 1,50,000. Calculate the number of shares to be issued by the company to ensure that
the provisions of Section 55 are not violated. Also determine the number of shares if the company
decides to issue shares in multiples of ₹ 50 only.
(b) Make Ltd. had 6,000, 14% Redeemable Preference Shares of ₹ 100 each, fully paid up. The company
had to redeem these shares at a premium of 10%.
It was decided by the company to issue the following:
(i) 50,000 Equity Shares of ₹ 10 each at par,
(ii) 2,000 12% Debentures of ₹ 100 each.
The issue was fully subscribed, and all amounts were received in full. The payment was duly made. The
company had sufficient profits. Show Journal Entries in the books of the company. (May 23)

Answer 3

(a) Nominal value of preference shares ₹ 2,50,000

Maximum possible redemption out of profits ₹ 1,50,000
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Chapter 7 Redemption of Preference Shares
 R 7.4

Minimum proceeds of fresh issue ₹ 2,50,000 – 1,50,000 = ₹ 1,00,000

Proceed of one share =₹9

Minimum number of shares = 1,00,000 / 9 = 11,111.11 shares

As fractional shares are not permitted, the minimum number of shares to be issued is 11,112 shares.
If shares are to be issued in multiples of 50, then the next higher figure which is a multiple of 50 is 11,150.
Hence, minimum number of shares to be issued in such a case is 11,150 shares.

(b) In the books of Make Ltd.

Journal Entries

Date Particulars Dr. (₹) Cr. (₹)

Bank A/c Dr. 5,00,000
To Equity Share Capital A/c 5,00,000
(Being the issue of 5,00,000 equity shares of ₹
10 each at par as per Board’s resolution
No……dated…..)
Bank A/c Dr. 2,00,000
To 12% Debenture A/c 2,00,000
(Being the issue of 2,000 Debentures of
₹ 100 each as per Board’s Resolution
No…..dated……)
Profit & Loss A/c Dr. 1,00,000
To Capital Redemption Reserve A/c 1,00,000
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)
12% Redeemable Preference Share Capital A/c Dr. 6,00,000
Premium on Redemption of Preference Shares
A/c Dr. 60,000
To Preference Shareholders A/c
6,60,000
(Being the amount payable on redemption
transferred to Preference Shareholders
Account)
Preference Shareholders A/c Dr. 6,60,000
To Bank A/c 6,60,000

(Being the amount paid on redemption of

preference shares)
Profit & Loss A/c Dr. 60,000
To Premium on Redemption of Preference 60,000
Shares A/c
(Being the adjustment of premium on
redemption against Profits & Loss Account)

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Chapter 7 Redemption of Preference Shares
 R 7.5

Working Note:
Amount to be transferred to Capital Redemption Reserve Account

Face value of shares to be redeemed 6,00,000

Less: Proceeds from new issue (5,00,000)
Total Balance 1,00,000

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Chapter 7 Redemption of Preference Shares
 R 8.1

Chapter 8
Redemption of Debentures
Question 1
The following balances appeared in the books of Omega Ltd. as on 1-4-2020:
(i) 10 % Debentures Rs. 75,00,000
(ii) Balance of DRR Rs. 2,50,000
(iii) DRR Investment Rs. 11,25,000 represented by 10% Rs. 11,250 Secured Bonds of the
Government of India of Rs. 100 each.
Annual contribution to the DRR was made as per the requirement. On 31-3-2021, balance at bank was Rs.
80,00,000 before receipt of interest. Interest on Debentures had already been paid. The investments were
realized at par for redemption of debentures at a premium of 10% on the above date.
Omega Ltd. is an unlisted company (other than AIFI, Banking company, NBFC and HFC). You are required
to prepare Debenture Redemption Reserve Account, Debenture Redemption Reserve Investment
Account and Bank Account in the books of Omega Ltd. for the year ended 31st March, 2021. (May ’21
,May 20 & Nov 23) (Similar to May’20 & Nov 23 but with different figures)
Answer 1
Debenture Redemption Reserve Account
Date Particulars Rs. Date Particulars Rs.
31st March, 2021 To General reserve 1st April, By Balance b/d 2,50,000
A/c 7,50,000 2020
(Refer Note)
1st April, By Profit and loss A/c 5,00,000
2020 (Refer Note 1)
7,50,000 7,50,000

10% Secured Bonds of Govt. (DRR Investment) A/c

Rs. Rs.
1st April, 2020 To Balance b/d 11,25,000 31st March, 2021 By Bank A/c 11,25,000
11,25,000 11,25,000
Bank Account
Rs. Rs.
31st March, To Balance b/d 80,00,000 31st March, By Debenture holders 82,50,000
2021 To Interest on 1,12,500 2021 A/c
DRR Investment (110% of 75,00,000)
(11,25,000X 10%)
To DRR By Balance c/d 9,87,500
Investment A/c 11,25,000
92,37,500 92,37,500
Working note –
Calculation of DRR before redemption = 10% of Rs. 75,00,000 = 7,50,000 Available balance = Rs.
2,50,000
DRR required =7,50,000 – 2,50,000= Rs. 5,00,000.

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Chapter 8 Redemption of Debentures
 R 8.2

Question 2
XYZ Ltd. has issued 1,000, 12% convertible debentures of ₹ 100 each redeemable after a period of five years.
According to the terms & conditions of the issue, these debentures were redeemable at a premium of 5%.
The debenture holders also had the option at the time of redemption to convert 20% of their holdings into
equity shares of ₹ 10 each at a price of ₹ 20 per share and balance in cash. Debenture holders amounting ₹
20,000 opted to get their debentures converted into equity shares as per terms of the issue. You are
required to calculate the number of shares issued and cash paid for redemption of ₹ 20,000 debenture
holders.(Nov’22)

Answer 2

Number of debentures
Debenture holders opted for conversion (20,000 /100) 200
Option for conversion 20%
Number of debentures to be converted (20% of 200) 40
Redemption value of 40 debentures at a premium of 5% [40 x
(100+5)] ₹ 4,200
Equity shares of ₹ 10 each issued on conversion
[₹ 4,200/ ₹ 20] 210 shares
Calculation of cash to be paid: ₹
Number of debentures 200
Less: number of debentures to be converted into equity shares (40)
160
Redemption value of 160 debentures (160 × ₹ 105) ie. ₹ 16,800.

Question 3

Alfa Ltd. (listed company) issued ₹ 3,00,000 5% Debentures on 30th September 20X0 on which interest is
payable half yearly on 31st March and 30th September. The company has power to purchase debentures in
the open market for cancellation thereof. The following purchases were made during the year ended 31st
December, 20X2 and the cancellation were made on the same date. On 31 December 20X0, investments
had been made for the purpose of redemption were ₹ 45,000.

1st March 20X2 - ₹ 50,000 nominal value purchased for ₹ 49,450 ex-interest.
1st September 20X2 - ₹ 40,000 nominal value purchased for ₹ 40,250 cum-interest.
You are required to draw up the following accounts for the year ended 31st December, 20X2:
(i) Debentures Account; and
(ii) Own Debentures (Investment) Account.
Ignore taxation. Interest to be rounded off to the nearest rupee on the higher side. (May 23)
Answer 3

Alfa Ltd.
Debentures Account
20X2 ₹ 20X2 ₹

March 1 To Own Debentures 49,450 Jan 1 By Balance b/d 3,00,000

March 1 To Profit on cancellation
(50,000-49,450)
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Chapter 8 Redemption of Debentures
 R 8.3

550

Sep 1 To Own Debentures

(Note 3)
39,416

Sep 1 To Profit on cancellation

(40,000-39,416)
584

Dec 31 Balance c/d 2,10,000

3,00,000 3,00,000

Own Debentures (Investment) Account

Nominal Interest Cost Nominal Interest Cost

Cost Cost
₹
₹ ₹ ₹ ₹ ₹
20X2 20X2
March 1 To Bank 50,000 1,042 49,450 March 1 By 50,000 - 49,450
(W.N. 1) Debentu
res A/c
Sep 1 To Bank 40,000 834 39,416 Sep 1 By 40,000 - 39,416
(W.N. 2 & Debentu
3) res A/c
- - Dec. 31 By P&L 1,876 -
A/c
90,000 1,876 88,866 90,000 1,876 88,866
Working notes:
1. 50,000 x 5% x 5/12 = 1,042
2. 40,000 x 5% x 5/12 = 834
3. 40,250 – 834 = 39,416

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Chapter 8 Redemption of Debentures
 R 9.1

Chapter 9
Investment Accounts
Question 1

Alpha Ltd. purchased 5,000, 13.5% Debentures of Face Value of ₹ 100 each of Pergot Ltd. on 1st May 2021
@ ₹ 105 on cum interest basis. The interest on these debentures is payable on 31st & 30th of March &
September respectively. On August 1st 2021 the company again purchased 2,500 of such debentures @ ₹
102.50 each on cum interest basis. On October 1st, 2021 the company sold 2,000 Debentures @ ₹ 103 each
on ex- interest basis. The market value of the debentures as at the close of the year was ₹ 106. You are
required to prepare the Investment in Debentures Account in the books of Alpha Ltd. for the year ended
31st Dec. 2021 on Average Cost Basis. (Nov’22)
Answer 1

Books of Alpha Ltd.

Investment in 13.5% Debentures in Pergot Ltd. Account (Interest
payable on 31st March & 30th September)

Date Particulars Nominal Interest Amount Date Particulars Nominal Interest Amount
2021 ₹ ₹ ₹ 2021 ₹ ₹ ₹
May 1 To Bank 5,00,000 5,625 5,19,375 Sept.30 By Bank 50,625
(6 months Int)
Aug.1 To Bank 2,50,000 11,250 2,45,000 Oct.1 By Bank 2,00,000 2,06,000
Oct.1 To P&L A/c 2,167
Dec.31 To P&L A/c 52,313
Dec.31 By Balance c/d 5,50,000 18,563 5,60,542

7,50,000 69,188 7,66,542 7,50,000 69,188 7,66,542

Note: Cost being lower than Market Value the debentures are carried forward at Cost.
Working Notes:
1. Interest paid on ₹ 5,00,000 purchased on May 1st, 2021 for the month of April 2021, as part of
purchase price: 5,00,000 x 13.5% x 1/12 = ₹ 5,625
2. Interest received on 30th Sept. 2021
On ₹ 5,00,000 = 5,00,000 x 13.5% x ½ = 33,750
On ₹ 2,50,000 = 2,50,000 x 13.5% x ½ = 16,875
Total ₹ 50,625
3. Interest paid on ₹ 2,50,000 purchased on Aug. 1st 2021 for April 2021 to July 2021 as part of purchase
price:
2,50,000 x 13.5% x 4/12 = ₹ 11,250
4. Loss on Sale of Debentures Cost of acquisition
(₹ 5,19,375 + ₹ 2,45,000) x ₹ 2,00,000/₹ 7,50,000 = 2,03,833
Less: Sale Price (2,000 x 103) = 2,06,000
Profit on sale = ₹ 2,167
5. Cost of Balance Debentures
(₹ 5,19,375 + ₹ 2,45,000) x ₹ 5,50,000/₹ 7,50,000 = ₹ 5,60,542
6. Interest on Closing Debentures for period Oct.-Dec. 2021 carried forward (accrued interest)
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Chapter 9 Investment Accounts
 R 9.2

₹ 5,50,000 x 13.5% x 3/12 = ₹ 18,563

Question 2

Remo Ltd. held on 1st April, 2021, 1000 9% Government Securities at ₹ 90,000 (Face Value of Security ₹ 100
each). Three month's interest had accrued on the above date. On 1 st May, the company purchased the
same Government Securities of the face value of ₹ 80,000 at ₹ 95 cum-interest. On 1st June, ₹ 60,000 face
value of the security was sold at ₹ 94 cum-interest. Interest on the security was paid each year on 30 th June
and 31st December and was credited by the bank on the same date. On 30th September,

₹ 40,000 face value of the Govt. securities were sold at ₹ 97 cum-interest. On 1st December, the company
purchased the same security ₹ 10,000 at par ex-interest. On 1st March, the company sold ₹ 10,000 face
value of the government securities at ₹ 95 ex- interest.

You are required to draw up the 9% Government Security Account in the books of Remo Limited. FIFO
method shall be followed.

Calculation shall be made to the nearest rupee or multiple thereof. (May 23)

Answer 2

In the Books of Remo Ltd.

9% Government Securities (Investment) Account
Face Interest Cost Particulars Face Value Interest Cost
Value
2021 ₹ ₹ ₹ 2021 ₹ ₹ ₹
April To Balance June 1 By Bank
1 b/d 1,00,000 2,250 90,000 A/c 60,000 2,250 54,150
May To Bank June 30 By Bank
1 A/c 80,000 2,400 73,600 A/c - 5,400 -
June To P&L A/c - - 150 Sept. 30 By Bank
1 A/c 40,000 900 37,900
Sept. To P & L A/c - - 1,900 Dec. 31 By Bank - 4,050 -
30 A/c
Dec. To Bank Mar.1 By Bank
1 A/c 10,000 375 10,000 2022 A/c 10,000 150 9,500
Mar. To P&L A/c - - 300 Mar. 31 By
1 2022 Balance 80,000 1,800 74,400
2022
c/d
Mar. To P&L A/c
31, (Transfer) - -
9,525
2022
1,90,000 14,550 1,75,950 1,90,000 14,550 1,75,950
Working Notes:

1. Interest accrued on 1st April 2021 = ₹1,00,000 x 9% x 3/12 = ₹ 2,250

2. Accrued Interest on 800 units as on 01 05.2021 = ₹ 80,000 x 9/100 x 4/12 = ₹ 2,400
3. Cost of Investment for purchase on 01.05.2021 = ₹ 76,000 - ₹ 2,400 = ₹ 73,600
4. Accrued Interest on 600 units as on 01 06.2021 = ₹ 60,000 x 9/100 x 5/12 = ₹ 2,250
5. Profit on Securities sold on 1st June = ₹ 54,150 (56,400 – 2,250)- ₹ 54,000 (60,000 x 90,000/1,00,000) = ₹
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Chapter 9 Investment Accounts
 R 9.3

150
6.Interest received on 30 06.2021 = ₹1,20,000 x 9/100 x 6/12 = ₹ 5,400
7.Accrued Interest on 400 units as on 30 09.2021 = ₹ 40,000 x 9/100 x 3/12 = ₹ 900
8.Cost of 400 Govt. Securities sold on 30.09.2021 = 40,000 x 90,000/1,00,000 = ₹ 36,000
9. Profit on securities sold on 30th September = ₹37,900 (38,800-900) - ₹ 36,000 = ₹ 1,900
10. Accrued Interest on 1 12.2021 = ₹ 10,000 x 9/100 x 5/12 = ₹ 375
11. Interest received on 31 12.2021 = ₹ 90,000 x 9/100 x 6/12 = ₹ 4,050
12. Accrued Interest on 100 units as on 01 03.2022 = ₹ 10,000 x 9/100 x 2/12 = ₹ 150
13. Cost of 100 Govt. Securities sold on 01.03.2022 = ₹ 10,000 x 73,600/80,000 = ₹ 9,200
14. Profit on securities sold on 01.03.2022 = ₹ 9,500 - ₹ 9,200 = ₹ 300 15
Calculation of closing balance: Units ₹
Securities in hand remained in hand at 31/3/2022
From original holding (1,00,000 – 60,000 – 40,000) -
Purchased on 1st May (80,000 – 10,000) 70,000 64,400
Purchased on 1st December 10,000 10,000
80,000 74,400

Question 3

On 1st April, 2022, Alpha has 1,00,000 equity shares of Beta Ltd. at a book value of ₹ 15 per share (nominal
value ₹ 10 each). He provides you the further information:

1. On 20th June, 2022 he purchased another 20,000 shares of Beta Ltd. at ₹ 16 per share
2. On 1st August, 2022, Beta Ltd. issued one equity bonus share for every six shares held by the
shareholders.
3. On 31st October, 2022, the directors of Beta Ltd. announced a right issue which entitles the holders
to subscribe three shares for every seven shares at ₹ 15 per share. Shareholders can transfer their
rights in full or in part.
Alpha sold 1/3rd of entitlement to Umang for a consideration of ₹ 2 per share and subscribed the rest on
5th November, 2022.
You are required to prepare Investment A/c in the books of Alpha for the year ending 31st March, 2023.
(Nov ’23)
Answer 3

In the books of Alpha

Investment Account (Equity
shares in Beta Ltd.)

Date Particulars No. of Amount (₹) Date Particulars No. ofAmount

shares shares (₹)
1.4.2022 To Balance 1,00,000 15,00,000 31.3.2023 By Balance c/d 1,80,000 24,20,000
b/d (Bal. fig.)
20.6.2022 To Bank A/c 20,000 3,20,000
1.8.2022

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Chapter 9 Investment Accounts
 R 9.4

To Bonus 20,000 -
issue
(W.N.1)
5.11.2022 To Bank A/c
(right
shares) 40,000 6,00,000
(W.N.4)
1,80,000 24,20,000 1,80,000 24,20,000
Working Notes:
1,00,000+20,000
(1) Bonus Shares = 6
= 20,000 Shares
1,00,000+20,000+20,000
(2) Right Shares = 7
X 3 = 60,000 Shares
1
(3) Sale of Rights = 60,000 Shares × × Rs. 2 = Rs. 40,000 to be credited to Statement of Profit & Loss
3
1
(4) Right subscribed = 60,000 Shares × × Rs. 15 = Rs. 6,00,000
3

Vishesh Khatwani | 8555070670

Chapter 9 Investment Accounts
 R 10.1

Chapter 10
Insurance Claims
Question 1

On 27th July, 2022, a fire occurred in the godown of M/s. Vijay Exports and most of the stocks were
destroyed. However goods costing ₹ 5,000 could be salvaged.
From the salvaged accounting records, the following information is available relating to the period
from 1 4.2022 to 27.7.2022:
1. Stock as per balance sheet as on 1.4.2022 ₹ 63,000
2. Purchases (including purchase of machinery costing ₹ 10,000) ₹ 2,92,000
3. Wages (including wages paid for installation of machinery ₹ 3,000) ₹ 53,000
4. Sales (including goods sold on approval basis amounting to ₹ 4,12,300
₹ 40,000). No approval has been received in respect of 1/4th of the
goods sold on approval.
5. Cost of goods distributed as free sample ₹ 2,000
Other Information:
(i) While valuing the stock on 31.3.2022, ₹ 1,000 had been written off in respect of certain slow
moving items costing ₹ 4,000. A portion of these goods were sold in June, 2022 at a loss of ₹
700 on original cost of ₹ 3,000. The remainder of these stocks is now estimated to be worth its
original cost.
(ii) Past record shows the normal gross profit rate is 20%.
(iii) The Company had taken the fire insurance policy of ₹ 55,000 with the average clause.
Compute the amount of claim of stock destroyed by fire, to be lodged to the Insurance Company.
Also prepare Memorandum Trading Account for the period 1.4.2022 to 27.7.2022 for normal and
abnormal items.(Nov’22)
Answer 1

Memorandum Trading Account for the period 1st April, 2022 to 27th July, 2022

Normal Items Abnormal Total Normal Abnormal Total

Items Items Items
₹ ₹ ₹ ₹ ₹ ₹
To Opening 60,000 4,000 64,000 By Sales (W.N. 4,00,000 2,300 4,02,300
stock (W.N.5) 3)
To Purchases ( 2,80,000 - 2,80,000 By Loss - 700 700
W.N. 1)
To Wages 50,000 - 50,000 By Goods on 8,000 - 8,000
(W.N. 4) Approval
(W.N. 2)
To Gross profit 80,000 - 80,000 By Closing 62,000 1,000 63,000
@ 20% stock (Bal. fig.)
4,70,000 4,000 4,74,000 4,70,000 4,000 4,74,000
Statement of Claim for Loss of Stock

₹
Book value of stock as on 27th July, 2022 62,000
Add: Abnormal Stock 1,000
Less: Stock salvaged (5,000)
Loss of stock 58,000
Amount of claim to be lodged with insurance company

Vishesh Khatwani | 8555070670

Chapter 10 Insurance Claims
 R 10.2

Policy value
= Loss × Value of stock on the date of fire

= ₹ 58,000 x (55,000/ 63,000) = ₹ 50,635 (rounded off)

Working Notes:
1. Calculation of Adjusted Purchases
₹
Purchases 2,92,000
Less: Purchase of Machinery (10,000)
Less: Free samples (2,000)
Adjusted purchases 2,80,000
2. Calculation of Goods with Customers
Approval for sale has not been received = ₹ 40,000 X 1/4 = ₹ 10,000.

Hence, these should be valued at cost i.e. (₹ 10,000 – 20% of ₹ 10,000) = ₹ 8,000
3. Calculation of Actual Sales
Total Sales ₹ 4,12,300
Less: Approval for sale not received (1/4 X ₹ 40,000) ₹10,000
Actual Sales ₹4,02,300
4. Calculation of Wages
Total Wages ₹ 53,000
Less: Wages for installation of machinery (₹ 3,000)
₹ 50,000
5. Value of Opening Stock
Original cost of stock as on 31st March,2022
= ₹ 63,000 + ₹1,000 (Amount written off)
= ₹ 64,000.

Question 2

A fire occurred in the premises of M/s Star & Sons on 21st March 2022. The concern had taken
Insurance Policy of ₹ 75,000 which was subject to average clause. From the books of accounts, the
following particulars are available relating to the period 1st April 2021 to March 21st 2022 :

(i) Stock as on April 1st 2021 ₹ 1,50,500

(ii) Purchases (including purchase of ₹ 40,000 for which purchase
invoices had not been received from suppliers, though goods
have been received in godown) ₹ 3,17,000
(iii) Cost of goods distributed as, samples for advertising
from April 1st 2021 to the date of fire, included in above purchases ₹ 32,000
(iv) Sales (excluding goods sold on approval basis
having sale value ₹ 35,000) ₹ 4,55,000
Approval has been received for goods before the date of fire.
(v) Purchase return ₹ 15,000
(vi) Wages (including salary of Manager ₹ 10,000) ₹ 65,000
Vishesh Khatwani | 8555070670
Chapter 10 Insurance Claims
 R 10.3

(vii) Average Rate of Gross Profit @ 20% on sales

(viii) Cost of goods salvaged ₹ 12,000
You are required to calculate the amount of claim to be lodged to Insurance Company. (May 23)

Answer 2

Memorandum Trading Account for the period 1st April, 2021 to 21st March, 2022
₹ ₹
To Opening Stock 1,50,500 By Sales 4,90,000
(4,55,000 + 35,000)
To Purchases 3,17,000
Less: Returns (15,000) By Closing Stock (Bal. fig.) 83,500
Goods distributed as
samples (32,000) 2,70,000
To Wages 55,000
To Gross Profit 98,000
(20% of Sales)
5,73,500 5,73,500
Statement of Insurance Claim

₹
Value of stock destroyed by fire 83,500
Less: Salvaged Stock 12,000
Loss of stock 71,500
Note: Since policy amount is less than vale of stock on date of fire, average clause will
apply. Therefore, claim amount will be computed by applying the formula.
𝐼𝑛𝑠𝑢𝑟𝑒𝑑 𝑉𝑎𝑙𝑢𝑒
Claim = 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 X Loss suffered
Claim amount = ₹ 71,500 x 75,000/ 83,500 = ₹ 64,222 (rounded off)

Question 3

The premises of Animesh Ltd. caught fire on 22nd January 2023, and the stock was damaged. The
firm makes account up to 31st March each year. On 31st March, 2022 the stock at cost was ₹
13,27,200 as against ₹ 9,62,200 on 31st March, 2021.

Purchases from 1st April, 2022 to the date of fire were ₹ 34,82,700 as against ₹ 45,25,000 for the full
year 2021-22 and the corresponding sales figures were ₹ 49,17,000 and ₹ 52,00,000 respectively. You
are given the following further information:
(i) In July, 2022, goods costing ₹ 1,00,000 were given away for advertising purposes, no entries
being made in the books.
(ii) During 2022-23, a clerk had misappropriated unrecorded cash sales. It is estimated that the
defalcation averaged ₹ 2,000 per week from 1st April, 2022 until the clerk was dismissed on
18th August, 2022.
(iii) The rate of gross profit is constant.
From the above information calculate the stock in hand on the date of fire. (Nov ’23 & May ‘18)

Answer 3

Ascertainment of rate of gross profit for the year 2021-22 Trading A/c for the year ended 31-3-2022
₹ ₹
To Opening stock 9,62,200 By Sales 52,00,000
Vishesh Khatwani | 8555070670
Chapter 10 Insurance Claims
 R 10.4

To Purchases 45,25,000 By Closing stock 13,27,200

To Gross profit 10,40,000
65,27,200 65,27,200
𝐺𝑃
Rate of Gross Profit = 𝑆𝑎𝑙𝑒𝑠
X 100

10,40,000
= 52,00,000 X 100 = 20%

Memorandum Trading A/c for the period from 1 4-2022 to 22-01-2023

₹ ₹ ₹ ₹
To Opening stock 13,27,200 By Sales 49,17,000
To Purchases 34,82,700 Add: Unrecorded 40,000 49,57,000
Less: Goods used for cash
advertisement (1,00,000) 33,82,700 By Closing stock 7,44,300
To Gross profit 9,91,400
(20% of ₹ 49,57,000)
57,01,300 57,01,300
Estimated stock in hand on the date of fire was ₹ 7,44,300.
Working Note:
Cash sales defalcated by the Accountant:

Defalcation period = 1.4.2022 to 18.8.2023 = 140 days

Since, 140 days / 7 = 20 weeks
Therefore, amount of defalcation = 20 weeks × ₹ 2,000 = ₹ 40,000.

Vishesh Khatwani | 8555070670

Chapter 10 Insurance Claims
 R 11.1

Chapter 11
Hire Purchase
Question 1
Leena Transport Limited purchased from Ethnic Motors, 4 tempos costing ₹ 2,75,000 each on the hire
purchase system on 1.1.2020. Payment was to be made ₹ 2,00,000 down and the balance in 3 equal annual
instalments payable on 31.12. 2020, 31.12.2021 and 31.12.2022 together with interest @ 12% p.a.
Leena Transport Ltd. charge depreciation at the rate of 10% p.a. on the diminishing balance. It paid the
instalment due at the end of the first year, i.e., 31.12. 2020, but could not pay the next on 31.12.2021. Ethnic
Motors decided to takeover 2 tempos and to leave the other 2 tempos with the purchaser on 1.1.2022,
adjusting the value of the 2 tempos (taken over) against the amount due on 31.12.2021. The tempos taken
over were valued on the basis of 15% depreciation(W.D.V method) annually. Show the necessary accounts
in the books of Leena Transport Ltd. for the years 2020, 2021 and 2022 assuming the balance was paid to
ethnic Motors Ltd. on 31.12.2022.(Nov’22)
Answer 1
In the books of Leena Transport Limited Tempos Account
₹ ₹
2020 2020
Jan.01 To Ethnic Motors 11,00,000 Dec. 31 By Depreciation – 10% on
1,10,000
₹ 11,00,000
₹ (2,75,000 x 4) By Balance c/d 9,90,000
11,00,000 11,00,000
2021 2021
Jan. 1 To Balance b/d 9,90,000 Dec.31 By Depreciation A/c 99,000
By Ethnic Motors A/c (Value of 2 3,97,375
tempos taken away)
By Profit & Loss A/c 48,125
(Balancing figure)
By Balance c/d 4,45,500
(Value of two tempos left)
2022 9,90,000 2022 9,90,000
Jan. 1 To Balance b/d 4,45,500 Dec. 31 By Depreciation A/c 44,550
4,45,500 By Balance b/d 4,00,950
4,45,500
Ethnic Motors Limited
₹ ₹
2020 2020
Jan-01 To Bank (Down 2,00,000 Jan-01 By Tempos A/c 11,00,000
Payment)
Dec-31 To Bank 4,08,000 Dec-31 By Interest (12% on 1,08,000
To Balance c/d 6,00,000 ₹ 9,00,000) ________
2021 12,08,000 2021 12,08,000
Jan-01 To Tempo 3,97,375 Jan. 1 By Balance b/d 6,00,000
Dec-31 To Balance c/d 2,74,625 Dec-31 By Interest (12% on 72,000
₹ 6,00,000)
6,72,000 6,72,000
Vishesh Khatwani | 8555070670
Chapter 11 Hire Purchase
 R 11.2

2022 2022
Dec-31 To Bank 3,07,580 Jan-01 By Balance b/d 2,74,625
Dec-31 By Interest (12% on
₹ 2,74,625) 32,955
3,07,580 3,07,580
Working Notes:

Working Notes:

(1) Value of Two Tempos left with the buyer

₹
Cost ₹ (2,75,000 x 2) 5,50,000
Depreciation @ 10% p.a. under WDV method for 2 years [i.e. ₹ 55,000 + ₹ (1,04,500)
49,500]
Value of the Tempos left with the buyer at the end of 2nd year 4,45,500
(2) Value of a Tempos taken away by the seller – Number of tempos - 2
₹
Cost – (₹ 2,75,000 x 2) 5,50,000
Depreciation @ 15% p.a. under WDV method for 2 years [i.e. ₹ 82,500 + ₹ (1,52,625)
70,125]
Value of Tempos taken away at the end of 2nd year 3,97,375

Question 2

The following particulars relate to hire purchase transactions:

(i) R (hire purchaser) purchased three machineries from S on hire purchase system. The cash price of
each machinery being ₹ 3,00,000.
(ii) The hire purchaser charged depreciation @ 20% on written down value method.
(iii) Two machineries were seized by hire vendor when second installment was not paid at the end of
the second year. The hire vendor valued the two machineries at cash price less 30% depreciation
charge for each of the years under written down value method.
(iv) The hire vendor spent ₹ 15,000 on repairs of the machineries and then sold them for a total amount
of ₹ 2,55,000.
You are required to compute:
(1) Agreed value of two machineries taken back by the hire vendor.
(2) Book value of one machine left with the Hire purchaser.
(3) Profit or loss to hire purchaser on two machineries taken, back by the hire vendor.
Profit or loss on machineries repossessed, when sold by the hire vendor. (May 23)

Answer 2

₹
(i) Price of two machines = ₹ 3,00,000 x 2 6,00,000
Vishesh Khatwani | 8555070670
Chapter 11 Hire Purchase
 R 11.3

Less: Depreciation for the first year @ 30% 1,80,000

30 4,20,000
Less: Depreciation for the second year = ₹ 4,20,000 x
100

1,26,000
Agreed value of two machines taken back by the hire vendor 2,94,000
(ii) Cash purchase price of one machine 3,00,000
Less: Depreciation on ₹ 3,00,000 @20% for the first year 60,000
Written drown value at the end of first year 2,40,000
Less: Depreciation on ₹ 2,40,000 @ 20% for the second year 48,000
Book value of machine left with the hire purchaser 1,92,000
(iii) Book value of one machine as calculated above 1,92,000
Book value of Two machines = ₹ 1,92,000 x 2 3,84,000
Value at which the two machines were taken back, calculated in (i) 2,94,000
above
Hence, loss to hire purchaser on machine taken back by hire vendor
(₹3,84,000 – ₹ 2,94,000) ₹ 90,000
(iv) Profit or loss on machines repossessed when sold by hire vendor

Sale proceeds 2,55,000

Less: Value at which machines were taken back 2,94,000
Repairs 15,000 (3,09,000)
Loss on resale 54,000

Question 3

The following particulars relate to hire purchase transactions:

(a) X purchased three cars from Y on hire purchase basis, the cash price of each car being ₹ 1,00,000.
(b) The hire purchaser charged depreciation @ 20% on diminishing balance method.

(c) Two cars were seized by hire vendor when second installment was not paid at the end of the
second year. The hire vendor valued the two cars at cash price less 30% depreciation charged
under it diminishing balance method.
(d) The hire vendor spent ₹ 5,000 on repairs of the cars and then sold them for a total amount of ₹
85,000.
You are required to compute:
(i) Agreed value of two cars taken back by the hire vendor.
(ii) Book value of car left with the hire purchaser.
(iii) Profit or loss to hire purchaser on two cars taken back by their hire vendor.
(iv) Profit or loss of cars repossessed, when sold by the hire vendor. (May 19, Nov 18 & Nov 23)
Answer 3

₹
(i) Agreed value of two cars taken back by the hire vendor 2,00,000
Vishesh Khatwani | 8555070670
Chapter 11 Hire Purchase
 R 11.4

Price of two cars = ₹ 1,00,000 x 2

Less: Depreciation for the first year @ 30% 60,000
1,40,000
30 42,000
Less: Depreciation for the second year = ₹ 1, 40,000 x
100

Agreed value of two cars taken back by the hire vendor 98,000
(ii) Book value of car left with the hire purchaser
Cash purchase price of one car 1,00,000
Less: Depreciation on ₹ 1,00,000 @20% for the first year 20,000
Written drown value at the end of first year 80,000
Less: Depreciation on ₹ 80,000 @ 20% for the second year 16,000
Book value of car left with the hire purchaser 64,000
(iii) Profit or loss to hire purchaser on two cars taken back by their hire
vendor.
Book value of one car as calculated in working note (ii) above 64,000
Book value of Two cars = ₹ 64,000 x 2 1,28,000
Value at which the two cars were taken back, calculated in working note 98,000
(i) above
Hence, loss on cars taken back = ₹ 1,28,000 – ₹ 98,000 = ₹ 30,000
(iv) Profit or loss of cars repossessed, when sold by the hire vendor.

Sale proceeds of cars repossessed 85,000

Less: Value at which plant were taken back ₹ 98,000
Repair ₹ 5,000 1,03,000
Loss on resale 18,000

Vishesh Khatwani | 8555070670

Chapter 11 Hire Purchase
 R 12.1

Chapter 12
Departmental Accounts
Question 1
M/s. Bombay Cotton has 2 Departments Y and Z. The following information is provided for the year ended
31st March, 2022:

Particulars Department Y (₹) Department Z (₹)

Opening Stock 60,000 40,000
Purchases 1,20,000 3,05,400
Wages 70,000 32,000
Sales 3,10,300 3,72,700
Closing Stock 23,700 40,700
Other Expenses are:

Particulars Amount in (₹)

Salaries 30,000
Rent 9,000
Advertisement 24,000
General Expenses 3,000
Depreciation 18,000
All Expenses are to be allocated between the Departments in the ratio of their Gross Profit.
Department Y sells goods to Department Z at a profit of 25% on sales. Department Z sells goods to
Department Y at a profit of 28% on cost.
Each Department Manager is entitled to 10% Commission on Net Profit subject to unrealized profit on
departmental sales being eliminated.
Stock Transfer during the year from Department Y to Department Z was ₹ 40,000 and from Department Z
to Department Y was ₹ 50,000.
Closing Stock includes transfer from Department Y to Department Z ₹ 12,000 and from Department Z to
Department Y ₹ 21,200. Opening stocks do not include any inter department transfer.
Prepare Departmental Trading and Profit & Loss Account for the year ended 31st March, 2022.(Nov’22)
Answer 1

Departmental Trading and Profit & Loss Account in the books of M/s. Bombay Cotton for the year ended
31st March, 2022

Particulars Department Department Particulars Department Department

Y (₹) Z(₹) Y (₹) Z (₹)
To Opening Stock 60,000 40,000 By Sales 3,10,300 3,72,700
To Purchase 1,20,000 3,05,400 By Transfers 40,000 50,000
To Wages 70,000 32,000 By Closing Stock 23,700 40,700
To Transfers 50,000 40,000
To Gross Profit c/d 74,000 46,000
3,74,000 4,63,400 3,74,000 4,63,400
To Salaries 18,500 11,500 By Gross Profit b/d 74,000 46,000
To Rent 5,550 3,450
To Advertisement 14,800 9,200
Vishesh Khatwani | 8555070670 Chapter 12 Departmental Accounts
 R 12.2

To General Expenses 1,850 1,150

To Depreciation (all
expenses divided in
ratio of 37: 23) 11,100 6,900
To Net profit c/d 22,200 13,800
74,000 46,000 74,000 46,000
To Unrealized profit 3,000 4,638 By Net Profit b/d 22,200 13,800
To Manager’s
commission 1,920 916
To Net profit 17,280 8,246
22,200 13,800 22,200 13,800
Working notes:
1. Unrealized profit included in the closing stock
28
Department Y = 21,200× 128 = 4,637.50(rounded off as ₹ 4,638)

Department Z = 12,000 x 25%= 3,000

2. Calculation of Manager’s Commission
Particulars Department Y (₹) Department Z (₹)
Net Profit 22,200 13,800
Less: Stock Reserve 3,000 4,638
19,200 9,162
Manager’s Commission @ 10% 1,920 916

Question 2

The following balances were extracted from the books of Beta. You are required to prepare Departmental
Trading Account and general Profit & Loss Account for the year ended 31st December, 2022:

Particulars Deptt. A Deptt. B

₹ ₹
Opening Stock 3,00,000 2,40,000
Purchases 39,00,000 54,60,000
Sales 60,00,000 90,00,000
General expenses incurred for both the Departments were ₹ 7,50,000 and you are also
supplied with the following information:
(i) Closing stock of Department A ₹ 6,00,000 including goods from Department B for ₹ 1,20,000 at cost
to Department A.
(ii) Closing stock of Department B ₹ 12,00,000 including goods from Department A for ₹ 1,80,000 at cost
to Department B.
(iii) Opening stock of Department A and Department B include goods of the value of ₹ 60,000 and ₹ 90,000
taken from Department B and Department A respectively at cost to transferee departments.
The gross profit is uniform from year to year. (May 23)

Answer 2
Departmental Trading Account for the year ended on 31st December, 2022

Vishesh Khatwani | 8555070670 Chapter 12 Departmental Accounts

 R 12.3

Particulars A B Particulars A B
₹ ₹ ₹ ₹
To Opening Stock 3,00,000 2,40,000 By Sales 60,00,000 90,00,000
To Purchases 39,00,000 54,60,000 By Closing Stock 6,00,000 12,00,000

To Gross Profit 24,00,000 45,00,000

66,00,000 1,02,00,000 66,00,000 1,02,00,000
General profit and loss account of Beta for the year ended on 31st December, 2022
Particulars Amount Particulars Amount
₹ ₹
To General expenses* 7,50,000 By Stock reserve (opening stock)
To Stock reserve (Closing Dept. A 30,000
Stock)
Dept. A 60,000 Dept. B 36,000
Dept. B 72,000 By Gross Profit
To Net Profit 60,84,000 Dept. A 24,00,000
____ Dept. B 45,00,000
69,66,000 69,66,000
Working Notes:
Dept. A Dept. B
1. Percentage of Profit 24,00,000/60,00,000 x 100 45,00,000/90,00,000 x 100
40% 50%
2. Opening Stock reserve 60,000 x 50% = 30,000 90,000 X 40% = 36,000

3. Closing Stock reserve 1,20,000 x 50%=60,000 1,80,000 x 40% = 72,000


General expenses have not been allocated to individual department and are charged to General Profit and
Loss Account.

Question 3
A firm has two departments--P and Q. Department Q makes furniture with the wood supplied by P
department at its usual selling price. From the following figures prepare Departmental Trading and Profit
and Loss Account for the year 2022:

P Q
₹ ₹
Opening Stock on 1st January, 2022 3,00,000 50,000
Sales 24,00,000 4,00,000
Purchases 20,00,000 15,000
Supply to Q 3,00,000 --
Selling expenses 20,000 6,000
Wages 60,000 20,000
Closing Stock on 31st December, 2022 2,00,000 60,000
Vishesh Khatwani | 8555070670 Chapter 12 Departmental Accounts
 R 12.4

The value of stocks in the furniture department consist of 75 % wood and 25 % other
expenses. P Department earned Gross Profit at 15 % on sales in 2021. General expenses of the business as
a whole came to ₹ 1,10,000. The firm adopts FIFO method for assigning costs to inventories. (Nov ’23 &
Nov 19)
Answer 3

Department Trading and Profit and Loss Account

Particulars Dept. P Dept. Q Particulars Dept. P Dept. Q
To Opening stock 3,00,000 50,000 By Sales 24,00,000 4,00,000
To Purchase 20,00,000 15,000 By Transfer to Q 3,00,000
To Wages 60,000 20,000 By Closing stock 2,00,000 60,000
To Transfer from P - 3,00,000
To Gross profit 5,40,000 75,000
29,00,000 4,60,000 29,00,000 4,60,000
To Selling expenses 20,000 6,000 By Gross profit 5,40,000 75,000
To Net Profit 5,20,000 69,000
5,40,000 75,000 5,40,000 75,000
General Profit & Loss Account
Particulars Amount Particulars Amount
To General Expenses 1,10,000 By Net Profit from
To Stock Reserve (WN2) 9,000 P 5,20,000
To Net Profit 4,75,625 Q 69,000
By Stock reserve (opening WN-1) 5,625
5,94,625 5,94,625

Working Notes
1. Calculation of Stock Reserve (opening)
50,000 x 75% wood x 15% = ₹ 5,625
2. Calculation of closing stock reserve
Gross profit Rate of Department P - for 2022 5,40,000 / (24,00,000 +
3,00,000) x 100 = 20% 60,000x 75% x 20% = ₹ 9,000

Vishesh Khatwani | 8555070670 Chapter 12 Departmental Accounts

 R 13.1

Chapter 13
Accounting For Branches Including Foreign Branches
Question 1
M & S Co. of Lucknow has a branch(integral foreign operation) in Canberra, Australia. As on 31st March
2022, the following ledger balances have been extracted from the books of the Lucknow office and the
Canberra.
Lucknow office (₹ In Canberra Branch (Aust.
thousand) Dollars in thousand)
Dr. Cr. Dr. Cr.
Capital 2,000
Reserves & Surplus 1,000
Land 500
Buildings (Cost) 1,000
Buildings Dep. Reserves 200
Plant and Machinery (Cost) 2,500 200
Plant and Machinery Dep.
Reserves 600 130
Debtors/Creditors 280 200 60 30
Stock as on 1-4-2021 100 20
Branch Stock Reserve 4
Cash & Bank Balances 10 10
Purchases/Sales 240 520 20 123
Goods sent to Branch 100 5
Managing Partner's Salary 30
Wages and Salary 75 45
Rent 12
Office Expenses 25 18
Commission Receipts 256 100
Branch/HO Current Account 120 7
4,880 390 390
The following information is also available:
(i) Stock as at 31st March, 2022 Lucknow ₹ 1,50,000 Canberra A$ 3125 (all stock are out of purchases
made at Abroad)
(ii) Head Office always sent goods to the Branch at cost plus 25%
(iii) Provision is to be made for doubtful debts at 5%
(iv) Depreciation is to be provided on Buildings at 10% and on Plant and Machinery at 20% on written
down value.
You are required to:
(1) Convert the Branch Trial Balance into rupees by using the following exchange rates:
Opening rate 1 A $ = ₹ 50
Closing rate 1 A $ = ₹ 53
Average rate 1 A $ = ₹ 51.00
For Fixed Assets 1 A $ = ₹ 46.00
Vishesh Khatwani | 8555070670
Chapter 13 Accounting For Branches Including Foreign Branches
 R 13.2

(2) Prepare Trading and Profit and Loss Account for the year ended 31st March 2022 showing to the extent
possible H.O. results and Branch results separately.(Nov’22)
Answer 1
M & S Co. Ltd.Canberra, Australia Branch Trial Balance as on 31st March 2022
($ ‘thousands) (₹ ‘thousands)
Dr. Cr. Conversion Dr. Cr.
rate per $
Plant & Machinery (cost) 200 ₹ 46 9,200
Plant & Machinery Dep. Reserve 130 ₹ 46 5,980
Trade receivable/payable 60 30 ₹ 53 3,180 1,590
Stock (1.4.2021) 20 ₹ 50 1,000
Cash & Bank Balances 10 ₹ 53 530
Purchase / Sales 20 123 ₹ 51 1,020 6,273
Goods received from H.O. 5 Actual 100
Wages & Salaries 45 ₹ 51 2,295
Rent 12 ₹ 51 612
Office expenses 18 ₹ 51 918
Commission Receipts 100 ₹ 51 5,100
H.O. Current A/c 7 Actual 120
18,855 19,063
Foreign Exchange Loss (bal. fig.) 208
390 390 19,063 19,063
Closing stock 3.125 53 165.625*
Trading and Profit & Loss Account for the year ended 31st March, 2022
(₹’000)
H.O. Branch Total H.O. Branch Total
To Opening Stock 100 1,000.000 1,100.000 By Sales 520 6,273.000 6,793.000
To To Purchases Goods 240 1,020.000 1,260.000 By Goods sent to 100 – 100.000
received Branch
from Head Office – 100.000 100.000 By Closing Stock 150 165.625 315.625
To Wages & Salaries 75 2,295.000 2,370.000
To Gross profit c/d 355 2,023.625 2,378.625
770 6,438.625 7,208.625 770 6,438.625 7,208.625
To Rent – 612.000 612.000 By Gross profit 355 2,023.625 2,378.625
b/d
To To Office expenses 25 918.000 943.000 By Commission 256 5,100.000 5,356.000
Provision for receipts
doubtful 14 159.000 173.000
debts @ 5%
To Depreciation (W. N.) 460 644.000 1,104.000

To Balance c/d 112 4,790.625 4,902.625

611 7,123.625 7,734.625 611 7,123.625 7,734.625

To Managing 30.000 By Balance b/d 4,902.625

Partner’s Salary
To Exchange Loss 208.000 By Branch stock 4.000
reserve
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To Balance c/d 4,668.625

4,906.625 4,906.625

Working Note:
Calculation of Depreciation

H.O ₹ ‘000 Branch₹ ‘000

Building – Cost 1,000
Less: Dep. Reserve (200)
800
Depreciation @ 10% (A) 80
Plant & Machinery Cost 2,500 9,200
Less: Dep. Reserve (600) (5,980)
1,900 3,220
Depreciation @ 20% (B) 380 644
Total Depreciation (A+B) 460 644

Question 2
PQR has a branch at Houston (USA). Business of the Branch is carried out substantially independent by way
of accumulating cash and other monetary items, incurring expenses, generating income and arranging
borrowing in its local currency. The trial balance of the Branch as at 31st March, 2022 is as follows:

US$
Particulars Debit Credit
Office equipment (Cost) 56,400
Opening Accumulated Depreciation (Office 5,400
equipment)
Furniture and Fixtures (Cost) 36,000
Opening Accumulated Depreciation 6,840
(Furniture and Fixtures)
Opening Stock as on 1st April, 2021 24,500
Purchases 96,500
Sales 1,76,250
Salaries 4,250
Carriage inward 256
Rent, Rates & Taxes 956
Trade receivables 12,560
Trade payables 8,650
Cash at bank 2,540
Cash in hand 500
Head office Account _______ 37,322
Total 2,34,462 2,34,462
Following further information are given:

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(i) Salaries outstanding as on 31st March, 2022 is US$ 600.

(ii) Depreciate office equipment and furniture & fixtures @ 10% at written down value.
(iii) Closing stock as on 31st March, 2022 is US $, 24,650.
(iv) You are informed that the Head office is showing receivable from the Branch as ₹ 23,75,614 as
on 31st March, 2022. No transaction in respect of the Branch is pending in Head office.
(v) Office equipment (cost) includes one office equipment of US $ 2,400 purchased on 1/04/2021.
(vi) One furniture of carrying value of US $ 450 as on 01/04/2021 (cost: US $ 500 and Accumulated
depreciation: US $ 50) has been sold for US $ 405 on 31/03/2022 to Mr. M at no profit no loss.
Mr. M has not paid the amount till the finalization of branch account. No entry has been passed
for this sale of furniture in the above trial balance.
(vii) The rate of exchange on different dates are:
Date 1 US $ is equivalent to
1st April, 2021 ₹ 64
31st December, 2021 ₹ 70
31st March, 2022 ₹ 75
Average for the year ₹ 72
You are required to prepare the trial Balance after incorporating adjustments given and converting US $
into rupees. (May 23)
Answer 2
In the books of PQR
Trial Balance (in Rupees) of Houston (USA) Branch – Non-Integral foreign operation as on 31st March, 2022
Dr. Cr. Conversion Dr. Cr.

US $ US $ rate ₹ ₹
Office Equipment 56,400 75 42,30,000
Depreciation on Office 10,500 75 7,87,500
Equipment (Accumulated)
(5,400+5,100)
Depreciation 8,016 75 6,01,200
Furniture and fixtures 35,500 75 26,62,500
(36,000-500)
Depreciation on furniture and 9,661 75 7,24,575
fixtures (Accumulated)
(6,840-50-45 +2,916)
Stock (1st April, 2021) 24,500 64 15,68,000
Purchases 96,500 72 69,48,000
Sales 1,76,250 72 126,90,000
Carriage inward 256 72 18,432
Salaries (4,250+600) 4,850 72 3,49,200
Rent, rates and taxes 956 72 68,832
Salaries payable 600 75 45,000
Head Office A/c 37,322 23,75,614
(given)
Trade receivables 12,560 75 9,42,000
Trade payables 8,650 75 6,48,750
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Cash at bank 2,540 75 1,90,500

Cash in hand 500 75 37,500
Mr. M 405 75 30,375
(Receivable for sale of
furniture)
Exchange gain (bal. fig.) 3,75,100
2,42,983 2,42,983 176,46,539 176,46,539
Closing stock 24,650 US$ x ₹ 75 =₹18,48,750.

Question 3

Treadmill invoices goods to its branch at cost plus 20%. The branch sells goods for cash as well as on credit.
The branch meets its expenses out of cash collected from its debtors and cash sales and remits the balance
of cash to head office after withholding ₹ 20,000 necessary for meeting immediate requirements of cash.
On 31st March, 2022 the assets at the branch were as follows:

₹ (‘000)
Cash in Hand 20
Trade Debtors 768
Stock, at Invoice Price 2,160
Furniture and Fittings 1,000
During the accounting year ended 31st March, 2023 the invoice price of goods dispatched by the head
office to the branch amounted to ₹ 2 crore 64 lakhs. Out of the goods received by it, the branch sent back
to head office goods invoiced at ₹ 1,44,000. Other transactions at the branch during the year were as
follows:
(₹ ‘000)
Cash Sales 19,400
Credit Sales 6,280
Cash collected by Branch from Credit Customers 5,684
Cash Discount allowed to Debtors 116
Returns by Customers direct to Head office (at invoice price) 204
Bad Debts written off 74
Expenses paid by Branch 1,684
On 1st January, 2023 the branch purchased new furniture for ₹ 2 lakh for which payment was made
by head office through a cheque.
On 31st March, 2023 branch expenses amounting to ₹ 12,000 were outstanding and cash in hand was
again ₹ 20,000. Furniture is subject to depreciation @ 16% per annum on diminishing balance method.
Prepare Branch Account in the books of head office for the year ended 31st March, 2023. (Nov ’23)
Answer 3

In the Head Office Books

Branch Account
for the year ended 31st March, 2023
₹ ‘000 ₹’000
To Balance b/d By Balance b/d

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Cash in hand Trade 1

20 Stock reserve ₹ 2,160 × 6 360
debtors 768
Stock 2,160 By Goods sent to branch A/c 314
Furniture and fittings 1,000 (Returns to H.O.)
{144 + [204 -34 (loading]}
To Goods sent to branch A/c 26,400 By Goods sent to branch A/c 4,376
(Loading
To Bank A/c (Payment for 200 on net goods sent to branch –
furniture) (26,256 x 1/6)
To Balance c/d 456 By Bank A/c (Remittance from 23,400
Stock reserve (2,736 x 1/6) branch to H.O.)
To Outstanding expenses 12 By Balance c/d
To Profit and loss A/c (Net 2,192 Cash in hand 20
Profit)
Trade debtors 970
Stock 2,736
Furniture and fittings 1,032
33,208 33,208
Working Notes:

1. Invoice price and cost

Let cost be 100

So, invoice price 120

Loading 20
Loading: Invoice price = 20 : 120 = 1 : 6
2. Invoice price of closing stock in branch
Branch Stock Account

₹ ‘000 ₹ ‘000
To Balance b/d 2,160 By Goods sent to branch 144
To Goods sent 26,400 By Branch Cash 19,400
to branch
By Branch debtors 6,280
By Balance c/d (Bal fig) 2,736
28,560 28,560
Note: adjustment regarding returns by Customers direct to Head office has not been made in
branch stock account.
3. Closing balance of branch debtors
Branch Debtors Account

₹ ‘000 ₹ ‘000
To Balance b/d 768 By Branch cash 5,684
To Branch stock 6,280 By Branch expenses discount 116
By Goods sent to Branch (Returns) 204
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By Branch expenses
(Bad debts) 74
By Balance c/d (Bal fig) 970
7,048 7,048
4. Closing balance of furniture and fittings
Branch Furniture and Fittings Account

₹ ‘000 ₹ ‘000
To Balance b/d 1,000 By Depreciation (160+8) 168
To Bank 200 By Balance c/d 1,032
1,200 1,200
Note: Since the new furniture was purchased on 1st Jan 2023 depreciation will be for 3
months.
5. Remittance by branch to head office
Branch Cash Account
₹ ‘000 ₹ ‘000
To Balance b/d 20 By Branch expenses 1,684
To Branch stock 19,400 By Remittances to H.O. 23,400
To Branch debtors 5,684 By Balance b/d 20
25,104 25,104

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Chapter 14
Accounts from Incomplete Records
Question 1
Aman, a readymade garment trader, keeps his books of account under single entry system. On the
closing date, i.e. on 31st March, 2021 his statement of affairs stood as follows:
Equity & Liabilities Amount ₹ Assets Amount ₹
Aman's capital 4,80,000 Building 3,25,000
Loan 1,50,000 Furniture 50,000
Creditors 3,10,000 Motor car 90,000
Stock 2,00,000
Debtors 1,70,000
Cash in hand 20,000
Cash at bank 85,000
9,40,000
9,40,000
Riots occurred and a fire broke out on the evening of 31st March, 2022, destroying the books of accounts.
On that day, the cashier had absconded with the available cash. You are furnished with the following
information:
1. Sales for the year ended 31st March, 2022 were 20% higher than the previous year's sales, out of
which, 20% sales were for cash. He always sells his goods at cost plus 25%. There were no cash
purchases.
2. Collection from debtors amounted to ₹ 14,00,000, out of which ₹ 3,50,000 was received in cash.
3. Business expenses amounted to ₹ 2,00,000, of which ₹ 50,000 were outstanding on 31st March, 2022
and ₹ 60,000 paid by cheques.
4. Gross profit as per last year's audited accounts was ₹ 3,00,000.
5. Provide depreciation on building and furniture at 5% each and motor car at 20%.
6. His private records and the Bank Pass Book disclosed the following transactions for the year 2021-
22:
₹
Payment to creditors (paid by cheques) 13,75,000
Personal drawings (paid by cheques) 75,000
Repairs (paid by cash) 10,000
Travelling expenses (paid by cash) 15,000
Cash deposited in bank 7,15,000
Cash withdrawn from bank 1,20,000
7. Stock level was maintained at ₹ 3,00,000 all throughout the year.
8. The amount defalcated by the cashier is to be written off to the Profit and Loss Account.
You are required to prepare Trading and Profit and Loss A/c for the year ended 31st March, 2022 and
Balance Sheet as on that date of Aman. All the workings should f orm part of the Answer.(Nov’22)
Answer 1
Trading and Profit and Loss Account of Aman for the year ended 31st March, 2022
₹ ₹

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 R 14.2

To Opening Stock 2,00,000 By Sales 18,00,000

To Purchases (Bal. fig.) 15,40,000 By Closing Stock 3,00,000
To Gross Profit c/d 3,60,000
21,00,000 21,00,000
To Business Expenses 2,00,000 By Gross Profit b/d 3,60,000
To Repairs 10,000
To Depreciation:
Building 16,250
Machinery 2,500
Motor Car 18,000 36,750
To Travelling Expenses 15,000
To Loss by theft (cash 20,000
defalcated)
To Net Profit 78,250
3,60,000 3,60,000

Balance Sheet of Aman as at 31st March, 2022

Liabilities ₹ ₹ Assets ₹ ₹
Capital 4,80,000 Building 3,25,000
Add: Less: Depreciation (16,250) 3,08,750
Net Profit 78,250 Furniture 50,000
Drawings (75,000) 4,83,250 Less: Depreciation (2,500) 47,500
Loan 1,50,000 Motor car 90,000
Less: Depreciation (18,000) 72,000
Sundry Creditors 4,75,000 Stock in Trade 3,00,000
Outstanding Sundry Debtors 2,10,000
business
Expenses 50,000 Bank Balance 2,20,000
11,58,250 11,58,250
Working Notes:

1. Cash and Bank Account

Particulars Cash Bank Particulars Cash Bank
To Balance b/d 20,000 85,000 By Payment to Creditors - 13,75,000
To Collection from 3,50,000 10,50,000 By Business Expenses 90,000 60,000
Debtors
To Sales (18,00,000 x 3,60,000 – By Repairs 10,000 –
20%)
To Cash (C) – 7,15,000 By Cash (C) (withdrawal) 1,20,000
By Bank (C) 7,15,000
To Bank (C) 1,20,000 - By Travelling Expenses 15,000 –
By Private Drawings - 75,000
By Balance c/d Cash 2,20,000

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 R 14.3

By defalcated (balancing 20,000

fig.)
8,50,000 18,50,000 8,50,000 18,50,000
1. Calculation of sales during 2021-22 ₹
Gross profit (last year i.e. for year ended 31.3.2021 3,00,000
Goods sold at cost plus 25% i.e. 20% of sales Sales for 2020-21 3,00,000/0.2 15,00,000
Sales for 2021-22 (15,00,000 x 1.2) 18,00,000
Credit sales for 2021-22 14,40,000
(80% of 18,00,000)
2. Debtors Account
To Bal. b/d. 1,70,000 By Cash 3,50,000
To Sales (18,00,000 x 80%) 14,40,000 By Bank 10,50,000
By Bal. c/d 2,10,000
16,10,000 16,10,000
3. Creditors Account
To Bank 13,75,000 By Bal. b/d 3,10,000
To Bal. c/d (bal. fig.) 4,75,000 By Purchases 15,40,000
- _____
18,50,000 18,50,000

Question 2

The following information relates to the business of ABC Enterprises, who requests you to prepare a
Trading and Profit & Loss A/c for the year ended 31st March, 2022 and a Balance Sheet as on that date.

(a) Assets and Liabilities as on:

in ₹
1.4.2021 31.3.2022
Furniture 60,000 63,500
Stock 80,000 70,000
Sundry Debtors 1,60,000 ?
Sundry Creditors 1,10,000 1,50,000
Prepaid Expenses 6,000 7,000
Outstanding Expenses 20,000 18,000
Cash in Hand & Bank Balance 12,000 26,250
(b) Cash transaction during the year:
(i) Collection from Debtors, after allowing discount of ₹ 15,000 amounted to ₹ 5,85,000.
(ii) Collection on discounting of Bills of Exchange, after deduction of discount of ₹ 1,250 by bank,
totalled to ₹ 61,250.
(iii) Creditors of ₹ 4,00,000 were paid ₹ 3,92,000 in full settlement of their dues.
(iv) Payment of Freight inward of ₹ 30,000.
(v) Amount withdrawn for personal use ₹ 70,000.
(vi) Payment for office furniture ₹ 10,000.
(vii) Investment carrying annual interest of 6% were purchased at ₹ 95 (200 shares, face Value ₹ 100
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Chapter 14 Accounts from Incomplete Records
 R 14.4

each) on 1st October 2021 and payment made thereof.

(viii) Expenses including salaries paid ₹ 95,000.
(ix) Miscellaneous receipt of ₹ 5,000.
(c) Bills of exchange drawn on and accepted by customers during the year amounted to ₹ 1,00,000. Of these,
bills of exchange of ₹ 20,000 were endorsed in favour of creditors. An endorsed bill of exchange of ₹
4,000 was dishonoured.
(d) Goods costing ₹ 9,000 were used as advertising material.
(e) Goods are invariably sold to show a gross profit of 20% on sales.
(f) Difference in cash book, if any, is to be treated as further drawing or introduction of capital by proprietor
of ABC enterprises.
(g) Provide at 2% for doubtful debts on closing debtors. (May 23)
Answer 2

Trading and Profit and Loss Account of ABC enterprise for the year ended 31st March 2022
₹ ₹
To Opening Inventory 80,000 By Sales 6,08,750
To Purchases 4,56,000 By Closing inventory 70,000
Less: For advertising (9,000) 4,47,000
To Freight inwards 30,000
To Gross profit c/d 1,21,750
6,78,750 6,78,750
To Sundry expenses 92,000 By Gross profit b/d 1,21,750
To Advertisement 9,000 By Interest on 600
investment
To Discount allowed – (20,000 x 6/100 x ½)
Debtors 15,000 By Discount received 8,000
Bills Receivable 1,250 16,250 By Miscellaneous 5,000
income
To Depreciation on 6,500
furniture
To Provision for 1,455
doubtful debts
To Net profit 10,145
1,35,350 1,35,350

Balance Sheet as on 31st March, 2022

Liabilities Amount Assets Amount
` ` ` `
Capital as on 1,88,000 Furniture (w.d.v.) 60,000
1.4.2021 Additions during the 10,000
year
Less: Drawings (91,000) Less: Depreciation (6,500) 63,500
97,000 Investment 19,000
Add: Net Profit 10,145 1,07,145 Interest accrued 600

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Chapter 14 Accounts from Incomplete Records
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Sundry creditors 1,50,000 Closing inventory 70,000

Sundry debtors 72,750
Outstanding 18,000 Less: Provision for 1,455 71,295
expenses doubtful debts
Bills receivable 17,500
Cash in hand and at bank 26,250
Prepaid expenses 7,000
2,75,145 2,75,145
Working Notes:
(1) Capital on 1st April, 2021
Balance Sheet as on 1st April, 2021
Liabilities ` Assets `
Capital (Bal.fig.) 1,88,000 Furniture (w.d.v.) 60,000
Creditors 1,10,000 Closing Inventory 80,000
Outstanding expenses 20,000 Sundry debtors 1,60,000
Cash in hand and at bank 12,000
Prepaid expenses 6,000
3,18,000 3,18,000
(2) Purchases made during the year
Sundry Creditors Account
₹ ₹
To Cash and bank A/c 3,92,000 By Balance b/d 1,10,000
To Discount received A/c 8,000 By Sundry debtors A/c 4,000
To Bills Receivable A/c 20,000 By Purchases A/c 4,56,000
To Balance c/d 1,50,000 (Balancing figure)

5,70,000 5,70,000

(3) Sales made during the year

₹
Opening inventory 80,000
Purchases 4,56,000
Less: For advertising (9,000) 4,47,000
Freight inwards 30,000
5,57,000
Less: Closing inventory (70,000)
Cost of goods sold 4,87,000
Add: Gross profit (25% on cost) 1,21,750
6,08,750
(4) Debtors on 31st March, 2022
Sundry Debtors Account
₹ ₹
To Balance b/d 1,60,000 By Cash and bank A/c 5,85,000
To Sales A/c 6,08,750 By Discount allowed A/c 15,000
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 R 14.6

To Sundry creditors By Bills receivable A/c 1,00,000

A/c
(bill dishonoured) 4,000 By Balance c/d (Bal.fig.) 72,750
7,72,750 7,72,750
(5) Additional drawings by proprietors of ABC enterprises
Cash and Bank Account
` `
To Balance b/d 12,000 By Freight inwards A/c 30,000
To Sundry debtors A/c 5,85,000 By Furniture A/c 10,000
To Bills Receivable A/c 61,250 By Investment A/c 19,000
To Miscellaneous income 5,000 By Expenses A/c 95,000
A/c
By Creditors A/c 3,92,000
By Drawings A/c
[` 70,000 + ` 21,000) 91,000
(Additional drawings)]
By Balance c/d 26,250
6,63,250 6,63,250

(6) Amount of expenses debited to Profit and Loss A/c

Sundry Expenses Account
` `
To Prepaid expenses A/c 6,000 By Outstanding expenses 20,000
(on 1.4.2021) A/c (on 1.4.2021)
To Bank A/c 95,000 By Profit and Loss 92,000
A/c (Balancing
figure)
To Outstanding expenses By Prepaid expenses
A/c (on 31.3.2022) 18,000 A/c (on 31.3.22) 7,000
1,19,000 1,19,000

(7) Bills Receivable on 31st March, 2022

Bills Receivable Account
₹ ₹
To Debtors A/c 1,00,000 By Creditors A/c 20,000
By Bank A/c 61,250
By Discount on bills receivable A/c 1,250
By Balance c/d (Balancing figure) 17,500
1,00,000 1,00,000
Note: All sales and purchases are assumed to be on credit basis.

Question 3

From the following information in respect of Mr. Aman, prepare Trading and Profit and Loss Account for
the year ended 31st March, 2023 and a Balance Sheet as at that date:
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 R 14.7

31-03-2022 31-03-2023
(1) Liabilities and Assets ₹ ₹
Stock in trade 3,20,000 2,80,000
Debtors for sales 6,40,000 ?
Bills receivable - ?
Creditors for purchases 4,40,000 6,00,000
Furniture at written down value 2,40,000 2,54,000
Expenses outstanding 80,000 72,000
Prepaid expenses 24,000 28,000
Cash on hand 8,000 6,000
Bank Balance 40,000 3,000
(2) Receipts and Payments during 2022-2023:
Collections from Debtors
(after allowing 2-1/2% discount) 23,40,000
Payments to Creditors
(after receiving 2% discount) 15,68,000
Proceeds of Bills receivable discounted at 2%) 2,45,000
Proprietor’s drawings 2,80,000
Purchase of furniture on 30.09.2022 40,000
12% Government securities purchased on 1- 4,00,000
10-2022
Expenses 7,00,000
Miscellaneous Income 20,000
(3) Sales are effected so as to realize a gross profit of 50% on the cost.
(4) Capital introduced during the year by the proprietor by cheques was omitted to
be recorded in the Cash Book, though the bank balance of 3,000 on 31st March,
2023 (as shown above), is after taking the same into account.
(5) Purchases and Sales are made only on credit.
(6) During the year, Bills Receivable of ₹ 4,00,000 were drawn on debtors. out of
these, Bills amount to ₹ 80,000 were endorsed in favour of creditors. Out of this
latter amount, a Bill for ₹ 16,000 was dishonoured by the debtor. (Nov ’23)
Answer 3

Trading and Profit and Loss Account of Mr. Aman for the year ended 31st March, 2023

Amount Amount
₹ ₹
To Opening stock 3,20,000 By Sales 27,96,000
To Purchases (W.N.5) 18,24,000 By Closing stock 2,80,000
To Gross profit c/d (Bal. fig.) 9,32,000 _______
30,76,000 30,76,000
To Expenses (W.N.7) 6,88,000 By Gross profit b/d 9,32,000
To Discount allowed (W.N.9) 65,000 By Discount received 32,000
(W.N.10)

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To Depreciation on furniture 26,000 By Interest on Govt. 24,000

(W.N.1) Securities (W.N.8)
To Net profit 2,29,000 By Miscellaneous income 20,000
10,08,000 10,08,000
Balance Sheet of Mr. Aman as on 31st March, 2023
Amount Amount
Liabilities Assets
₹ ₹

Capital (W.N.6) 7,52,000 Furniture 2,54,000

Add: Additional capital 3,44,000 12% Government 4,00,000

(W.N.2) Securities Accrued
interest on Govt.
Add: Profit during the year 2,29,000 securities (W.N.8) 24,000

13,25,000 10,45,000 Debtors (W.N.3) 6,52,000

Less: Drawings (2,80,000) Bills Receivable 70,000

(W.N.4)

Creditors 6,00,000 Stock 2,80,000

Outstanding expenses 72,000 Prepaid expenses 28,000

Cash on hand 6,000
Bank balance 3,000

17,17,000 17,17,000

Working Notes:
1. Furniture account
₹ ₹
To Balance b/d 2,40,000 By Depreciation (bal.fig.) 26,000
To Bank 40,000 By Balance c/d 2,54,000
2,80,000 2,80,000
2. Cash and Bank account
₹ ₹
To Balance b/d By Creditors 15,68,000
Cash 8,000 By Drawings 2,80,000
Bank 40,000 By Furniture 40,000
To Debtors 23,40,000 By 12% Govt. securities 4,00,000
To Bill Receivable 2,45,000 By Expenses 7,00,000
To Miscellaneous 20,000 By Balance c/d
income
To Additional 3,44,000 Cash 6,000
Capita
l (bal. fig.) _______ Bank 3,000
29,97,000 29,97,000
3. Debtors account
Vishesh Khatwani | 8555070670
Chapter 14 Accounts from Incomplete Records
 R 14.9

₹ ₹
To Balance b/d 6,40,000 By Cash and Bank 23,40,000
To Creditors 16,000 By Discount 60,000
(Bills
receivabl
e dishonoured)
To Sales (W.N.11) 27,96,000 By Bills Receivable 4,00,000
By Balance
c/ 6,52,000
d (bal.fig.)
34,52,000 34,52,000
4. Bills Receivable account

₹ ₹
To Debtors 4,00,000 By Bank 2,45,000
By Discount 5,000
By Creditors 80,000
By Balance c/d (bal. fig.) 70,000
4,00,000 4,00,000
5. Creditors account

₹ ₹
To Bank 15,68,000 By Balance b/d 4,40,000
To Discount 32,000 By Debtors (Bills receivable 16,000
dishonoured)
To Bills receivable 80,000 By Purchases (bal. fig.) 18,24,000
To Balance c/d 6,00,000
22,80,000 22,80,000
6. Balance Sheet as on 1st April, 2022

Liabilities ₹ Assets ₹
Creditors 4,40,000 Furniture 2,40,000
Outstanding expenses 80,000 Debtors 6,40,000
Capital (balancing figure) 7,52,000 Stock 3,20,000
Prepaid expenses 24,000
Cash 8,000
_______ Bank balance 40,000
12,72,000 12,72,000
7. Expenses incurred during the year

₹
Expenses paid during the year 7,00,000
Add: Outstanding expenses as on 31.3.2023 72,000
Prepaid expenses as on 31.3.2022 24,000 96,000
7,96,000
Less: Outstanding expenses as on 31.3.2022 80,000
Vishesh Khatwani | 8555070670
Chapter 14 Accounts from Incomplete Records
 R 14.10

Prepaid expenses as on 31.3.2023 28,000 (1,08,000)

Expenses incurred during the year 6,88,000
8. Interest on Government securities
4,00,000 x 12% x 6/12= ₹ 24,000
Interest on Government securities receivables for 6 months = ₹ 24,000
9. Discount allowed
₹
Discount to Debtors 23,40,000/97.5% x 60,000
2.5%
Discount on Bills Receivable 2,45,000/98% x 2% 5,000
65,000
10. Discount received
₹
Discount to Creditors 15,68,000/98% x 2% 32,000
11. Credit sales
Cost of Goods sold = Opening stock + Net purchases – Closing stock
= ₹ 3,20,000 + ₹ 18,24,000 – ₹ 2,80,000
= ₹ 18,64,000
Sales price = ₹ 18,64,000 + 50% of 18,64,000 = ₹ 27,96,000

Vishesh Khatwani | 8555070670

Chapter 14 Accounts from Incomplete Records