Suggested Answers of Advanced Accounting Intermediate Examination – December 2001
The Institute of Chartered Accountants of Nepal
Suggested Answers of Advanced Accounting
Â
Intermediate Examination – December 2001
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Answer all questions.
Working notes should form part of the answer.
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1.      The financial position of two companies Big Ltd. and Small Ltd. as on 31.3.2001 was as under:         20
Â
 |
Big Ltd. (Rs.) |
Small Ltd. (Rs.) Â |
Assets: |
 |
 |
Goodwill |
40,000 |
25,000 |
Building |
2,00,000 |
80,000 |
Machinery |
6,00,000 |
1,30,000 |
Investments |
70,000 |
45,000 |
Stock |
2,90,000 |
1,60,000 |
Debtors |
3,00,000 |
1,80,000 |
Cash & Bank |
30,000 |
20,000 |
Preliminary Expenses |
20,000 |
10,000 |
 |
15,50,000 |
6,50,000 |
 |
 |
 |
Liabilities: |
 |
 |
Share Capital: |
 |
 |
Equity Shares of Rs. 10 each |
10,00,000 |
3,00,000 |
7% Preference shares of Rs. 100 each |
2,00,000 |
– |
8% Preference shares of Rs. 100 each |
– |
1,50,000 |
General Reserve |
1,00,000 |
45,000 |
Retirement Gratuity Fund |
70,000 |
45,000 |
Workmen's Compensatin Fund |
– |
20,000 |
Sundry Creditros |
1,80,000 |
90,000 |
 |
15,50,000 |
6,50,000 |
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         Big Ltd. absorbs Small Ltd. on the following terms and conditions:
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i.              8% Preference shareholders are to be paid at 10% premium by issue of 7% preference shares of Big Ltd.
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ii.            Goodwill of Small Ltd. is valued at Rs. 60,000, Buildings are valued at Rs. 1,35,000 and Machinery at Rs. 1,45,000. Investments are worth Rs. 46,500.
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iii.          Stock and book debts of Small Ltd. are valued at 10% below their book values.
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iv.          Equity shareholders of Small Ltd. will be issued 5 shares of Big Ltd. at 10% premium for every 4 shares held.
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v.            Rs. 20,000 liquidation expenses will be borne by Big Ltd.
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Close the books of Small Ltd. and show the acquisition entries in the books of Big Ltd. Also draft the Balance Sheet after absorption.
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Answer    Â
In the books of Small Ltd.
Realisation Account
 |
Rs. |
 |
Rs. Â |
To Sundry Assets |
640000 |
By Gratuity Fund |
45000 |
         (650000-10000) |
 |
By Sundry Creditors |
90,000 |
To Preference Shareholders          (Premium of redemption |
15000 |
By Big Ltd. Â Â Â Â Â Â Â Â Â (Purchase Consideration) |
597500 |
To Bank- (Liquidation Exp.) |
20000 |
 |
 |
To Equity Shareholders |
57500 |
 |
 |
 |
732500 |
 |
732500 |
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Shareholders Account
 |
Equity (Rs.) |
Preference (Rs.) |
 |
Equity (Rs.) |
Preference (Rs.) Â |
To Prelim Expenses |
10,000 |
 |
By Share capital |
3,00,000 |
1,50,000 |
To 7% Pref. Shares of Big Ltd. |
 |
1,65,000 |
By Realisation A/c |
 |
15,000 |
To Equity shares of Big Ltd. |
4,12,500 |
 |
(Premium on redemption) |
 |
 |
 |
 |
 |
By Workmen compensation Fund |
 20,000 |
 |
 |
 |
 |
By General Reserve |
45,000 |
 |
 |
 |
 |
By Realisation A/c |
57,500 |
 |
 |
 |
 |
(Profit on realisation) |
 |
 |
 |
4,22,500 |
1,65,000 |
 |
4,22,500 |
1,65,000 |
Â
Big Limited Account
 |
Rs. |
 |
Rs. Â |
To Realisation Account |
5,97,500 |
By Bank |
20,000 |
 |
 |
By 7% Preference shares |
1,65,000 |
 |
 |
By Equity Shares |
4,12,500 |
 |
5,97,500 |
 |
5,97,500 |
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In the books of Big Ltd.
Â
Journal Entries |
Rs. |
 |
Rs. Â |
Goodwill A/c (60,000+20,000)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Dr. |
80,000 |
 |
 |
Building A/c                                                     Dr. |
1,35,000 |
 |
 |
Machinery A/c                                                  Dr. |
1,45,000 |
 |
 |
Investment A/c                                                  Dr. |
46,500 |
 |
 |
Stock A/c                                                         Dr. |
1,44,000 |
 |
 |
Debtors A/c Dr. |
1,80,000 |
 |
 |
Bank A/c                                                          Dr. |
20,000 |
 |
 |
 |
 |
 |
 |
To Gratuity Fund |
 |
 |
45,000 |
To Sundry Creditors |
 |
 |
90,000 |
To Provision for Doubtful debts |
 |
 |
18,000 |
To Liquidators of Small Ltd. |
 |
 |
5,97,500 |
 |
7,50,500 |
 |
7,50,500 |
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(Being assets and liabilities taken over as per agreed valuation.)
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Liquidators of Small Ltd.                                  Dr. |
5,97,500 |
 |
 |
 |
 |
To Bank |
 |
20,000 |
To 7% Preference shares Capital |
 |
1,65,000 |
To Equity Shares Capital |
 |
3,75,000 |
To Share Premium |
 |
37,500 |
 |
5,97,500 |
5,97,500 |
Â
(Being purchase consideration satisfied as above.)
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Balance Sheet as at 31st March, 2001
Â
Sources |
Rs. Â |
Share Capital: |
 |
3,650 7% Preference shares of Rs. 10 each |
3,65,000 |
1,37,500 Equity shares of Rs. 10 each fully paid up (1650 Preference shares and 37,500 equity shares were issued without payment received in cash) |
13,75,000 |
Reserve & Surplus: |
 |
Share Premium |
37,500 |
General Reserve |
1,00,000 |
 |
18,77,500 |
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Application |
Rs |
 |
Rs. |
Fixed Assets: |
 |
 |
 |
Goodwill                                                           |
1,20,000 |
 |
 |
Building                                                            |
3,35,000 |
 |
 |
Machinery                                                         |
7,45,000 |
 |
12,00,000 |
Investments |
 |
 |
1,16,500 |
Current Assets |
 |
 |
 |
Stock |
4,34,000 |
 |
 |
Debtors                                                4,80,000 |
 |
 |
 |
Less: Prov. for doubtful                           18,000 |
4,62,000 |
 |
 |
Cash & Bank |
30,000 |
 |
 |
 |
9,26,000 |
 |
 |
Less Current Liabilities |
 |
 |
 |
Gratuity Fund                                       1,15,000 |
 |
 |
 |
Sundry Creditors                                  2,70,000 |
3,85,000 |
 |
 |
Net Current Assets |
 |
 |
5,41,000 |
Miscellaneous Expenditure to the extent now written off Preliminary expenses |
 |
 |
20,000 |
 |
 |
 |
18,77,500 |
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        Â
         Working Notes:
                                                                                                                                     Rs.
Purchase Consideration                                                                                                   Â
Goodwill                                                                                                                60,000
Building                                                                                                              1,35,000
Machinery                                                                                                           1,45,000
Investments                                                                                                            46,500
Stock                                                                                                                   1,44,000
Debtors                                                                                                                1,62,000
Cash & Bank                                                                                                          20,000
                                                                                                                            7,12,500
Less: Liabilities:
Gratuity Fund                                         45,000
Sundry Creditors                                    90,000                                                 1,35,000
                                                                                                                            5,77,500
Â
To be satisfied as under:
7% Reedamable Preference shares                                                                     1,65,000
Equity shares issued at 10% premium 30000 x 5/4Â = 37500
shares of Rs. 10 each at a premium of 10%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 4,12,500
                                                                                                                            5,77,500
Â
Liquidation Expenses                                                                                             20,000
Total Purchase Consideration                                                                             5,97,500
        Â
2.      M/s Brown & Co. have their Head Office at New Delhi and a Branch at Jodhpur. The goods are sent to Branch at 20% less than the list price, which is cost plus 100%.              16
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         From the following particulars, ascertain the Profit made by the Branch as well as Head Office on wholesale basis:
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 |
Head Office (Rs.) |
Branch Office (Rs.) Â |
Opening stock at cost price |
40,000 |
– |
Opening stock at Invoice price |
– |
20,000 |
Purchases |
4,00,000 |
– |
Expenses |
60,000 |
12,000 |
Goods destroyed in an accident at Invoice Price |
– |
2,000 |
Sales at list price |
3,40,000 |
1,60,000 |
Goods sent to Branch/Received by Branch at Invoice price |
1,60,000 |
1,60,000 |
Branch Manager's salary |
– |
12,000 |
Head Office Manager's salary |
30,000 |
– |
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         You are asked to prepare Branch Stock Account, Branch Profit and Loss Account, Goods sent to Branch Account and General Trading Profit and Loss Account of Head Office.
        Â
Answer
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Branch Stock A/c
Â
 |
Rs. |
 |
Rs. Â |
To Balance B/d |
20,000 |
By Cash Sales |
1,60,000 |
To Goods Sent to Branch A/c |
1,60,000 |
By P & L A/c (Goods destroyed) |
2,000 |
To Gross Profit C/d |
32,000 |
By Balance C/d (Note i) |
50,000 |
 |
2,12,000 |
 |
2,12,000 |
Â
Â
Branch Profit and Loss A/c
Â
Â
 |
Rs. |
 |
Rs. Â |
To Goods destroyed |
2,000 |
By Gross Profit B/d |
32,000 |
To Branch expenses |
12,000 |
 |
 |
To Branch Managers Salary |
12,000 |
 |
 |
To Net Profit |
6,000 |
 |
 |
 |
32,000 |
 |
32,000 |
Â
Â
Goods Sent to Branch A/c
Â
Â
 |
Rs. |
 |
Rs. Â |
To Trading A/c |
1,60,000 |
By Branch Stock A/c |
1,60,000 |
 |
 |
 |
 |
 |
1,60,000 |
 |
1,60,000 |
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Â
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Let the cost price       =      100/- Rs.
List Price                   =      200/- Rs.
Invoice Price              =      20% Less than the List price
                                   =      200 - 40 = Rs. 160/-
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Note i:
Closing Stock at Branch at Invoice Price
Closing Stock            =         (Opening stock + Goods from H.O. - Cost of Goods sold - Stock Destroyed)
                                   =         20000+160000 - 128000 - 2000 = Rs. 50000/-
                                              160000 x 160/200 = 128000
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Â
Â
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General Trading, Profit and Loss A/c
Head Office
Â
 |
Rs. |
 |
Rs. Â |
To Opening Stock |
40,000 |
By Sales |
3,40,000 |
To Purchases |
4,00,000 |
By Goods Sent to Branch A/c |
1,60,000 |
To Gross Profit C/d |
2,30,000 |
By Closing Stock (Note ii) |
1,70,000 |
 |
6,70,000 |
 |
6,70,000 |
 |
 |
 |
 |
To Expenses |
60,000 |
By Gross Profit B/d |
2,30,000 |
To Manager's Salary |
30,000 |
By Branch P & L A/c |
6,000 |
To Stock Reserve |
18,750 |
By Stock Reserve A/c (Note iii) |
7,500 |
To Net Profit Transferred |
1,34,750 |
 |
 |
 |
2,43,500 |
 |
2,43,500 |
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Note ii)Â Closing Stock at H.O. at Cost
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Closing Stock = (Opening Stock + Purchases - Cost of Goods sold - Cost of goods sent to branch)
= 40,000 + 4,00,000 - 1,70,000 - 1,00,000 = Rs. 2,70,000/-
Cost of goods sold = 3,40,000 ´ 100/200 = Rs. 1,70,000/-
Cost of goods sent to Branch = 1,60,000 ´ 100/160 = Rs. 1,00,000/-
Opening & Closing Stock at Branch are appearing at Invoice price. The Head Office will have to make adjustment for unrealised profit.
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Stock Reserve for opening stock = 20,000 ´ 60/160 = Rs. 7,500/-
Stock Reserve for closing stock = 50,000 ´ 60/160 = Rs. 18,750/-
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3.      Mr. A and Mr. B have been carrying on business in partnership under the name M/s X & Co. as equal partners for the purpose of sharing profits or losses of the firm. The firm's Balance Sheet is as shown below:                                                                                                           16
Â
Balance Sheet of M/s X & Co. as t 31.3.2001
Â
Liabilities  |
Rs. |
Assets |
Rs. |
Capital Accounts: |
 |
Fixed Assets: |
 |
         Mr. A     68,000 |
 |
         Goodwill |
20,000 |
         Mr. B     56,000 |
1,24,400 |
         Freehold premises |
41,400 |
Sundry Creditors |
19,600 |
Current Assets: |
 |
 |
 |
         Stock |
28,400 |
 |
 |
         Sundry Debtors |
32,200 |
 |
 |
         Cash on hand |
22,00 |
 |
1,44,000 |
 |
1,44,000 |
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         It is agreed that Mr. A should retire on 1st April, 2001 and his son Mr. C should join the firm on the same day. Mr. C should be entitled to one-third of the firm's profit or loss in future.
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For the purpose of A's retirement and Mr. C's admission, Goodwill was revalued at Rs. 44,000 and Freehold premises was revalued at Rs. 48,000. Other terms agreed were that enough money was to be introduced to enable Mr. A to be paid out and to leave Rs. 20,000 cash for working capital requirements. Mr. B and Mr. C should bring such sums so as to make their capital proportionate to their future share of profit.
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Mr. A agreed to make a gift by transfer from his Capital Account one-half of the amount, which Mr. C should bring in as his capital.
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Mr. B and Mr. C paid in cash the amount due from them and the amount due to Mr. A was paid on the same day.
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You are asked to draw up the Journal entries to recovered these transactions in the books of the firm and prepare the Balance Sheet after the retirement of Mr. A.
Â
Answer    Â
A's Capital + Increase
Rs. 68,000 + 15,300Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â =Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 83,300
B's Capital + Increase                                                     Â
Rs. 56,400 + 15,300Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â =Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 71,700
                                                                                                                            1,55,000
Â
Less: Excess cash (22,000 - 20,000)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2,000 (-)
         (Working capital)
Total Capital of Mr. B and Mr. C.                                                                      1,53,000
Â
Mr. C's Share = 1/3
Mr. B's Share = 1 - 1/3 = 2/3
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Therefore, Mr. C has to provide = 1,53,000 ´ 1/3             =                                 51,000
Mr. B's Capital should be = 1,53,000 ´ 2/3                       =                             1,02,000
B's Existing capital = Rs. 71,700/-
Excess to be brought in by B Â = Â Â Â Â Â 1,02,00 - 71,700 = 30,300/-
Gift made by Mr. A to Mr. C Â = Â Â Â Â Â 1/2 of C's Capital
                                                 =      51,000 ´ 1/2 = 25,500/-
         A's Capital A/c               =     83,300
Less: Gifted to Mr. C Â Â Â Â Â Â Â Â Â Â Â Â Â = Â Â Â Â Â 25,500
         Balance Due                            57,800
Â
Â
Journal Entries:
1.4.2001         Goodwill A/c                    Dr.                     24,000
                       Freehold premises A/c     Dr.                       6,600
                                       To Mr. A's Capital A/c                                                   15,300
                                       To Mr. B's Capital A/c                                                   15,300
                       (Being the increase in revaluation of assets transferred to Mr. A and
Mr. B in equal Ratio)
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2.                    Mr. A's Capital A/c          Dr.                     25,500
                                       To Mr. C's Capital A/c                                                   25,500
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                       (Being gift of Rs. 25,500 given by Mr. A to Mr. C i.e. half of the capital Amount due from Mr. C.)
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3.                    Cash A/c                           Dr.                     55,800
                                       To Mr. B's Capital A/c                                                   30,300
                                       To Mr. C's Capital A/c                                                   25,500
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                       (Being Cash required paid in by Mr. B and Mr. C)
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4.                    Mr. A's Capital A/c          Dr.                     57,800
                                       To Cash A/c                                                                   57,800
Â
                       (Being the amount due to Mr. A paid)
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Balance Sheet of M/s X and Co. as at 1.4.2001
Â
Liabilities  |
Rs. |
Assets |
Rs. |
Capital Accounts: |
 |
Fixed Assets: |
 |
Mr. B |
1,02,000 |
Goodwill |
44,000 |
Mr. C |
51,000 |
Freehold premises |
48,000 |
Current Liabilities: |
 |
Current Assets: |
 |
Sundry Creditors |
19,600 |
Stock |
28,400 |
 |
 |
Sundry Debtors |
32,200 |
 |
 |
Cash |
20,000 |
 |
1,72,600 |
 |
1,72,600 |
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Â
4.      Excellent Life Assurance Company Limited had a paid up capital of Rs. 100 crores divided into 10 lakhs equity shares of Rs. 100 each. Its net liability on all contracts inforce as on 31.3.2001 was Rs. 21 lakhs. From the following figures extracted from its books for the year ended 31.3.2001. you are required to prepare the Revenue Account for the year ended 31.3.2001 and a valuation Balance Sheet as on that date:                                                                                                             16
Â
                                                                                                                       Rs. in lakhs
Â
Life Assurance Fund on 1.4.2000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 25
Premiums received during the year ended 31.3.2001Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 14
Interest, dividends and rents                                                                                           8
Bonus in cash                                                                                                                  2
Fines and fees                                                                                                              0.5
Management expenses                                                                                                    2
Bonus in reduction of premium                                                                                 0.25
Commission                                                                                                               1.20
Surrenders                                                                                                                  1.00
Claims by death                                                                                                            14
Claims by maturity                                                                                                         5
Consideration for Annuities granted                                                                            0.5
Annuities paid                                                                                                                 1
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         The company has paid interim Bonus of Rs. 0.10 lakh during the valuation period. Ascertain the Surplus and prepare a Statement to allocate such surplus as detailed below:
         25% of such surplus to be allocated to Equity Shareholders, 70% to policyholders and the balance to be carried forward.
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Answer
Excellent Life Assurance Company Limited
Revenue Account for the year ended 31.3.2001
Â
  |
Rs. in Lakh |
 |
Rs. In Lakh |
To Claims Paid: |
 |
By Assurance fund at the beginning |
25.00 |
         By Death               14 |
 |
By Premiums |
14,00 |
         By Maturity           5_ |
19.00 |
By Consideration for Annuties granted |
0.50 |
To Annuties |
1.00 |
By Interest, Dividends and Rents |
8.00 |
To Surrenders |
1.00 |
By Fines and Fees |
0.50 |
To Bonus in cash |
2.00 |
 |
 |
To Bonus in reduction of premium |
0.25 |
 |
 |
To Management expenses |
2.00 |
 |
 |
To Commission |
1.20 |
 |
 |
To Life assurance fund at the end |
21.55 |
 |
 |
 |
48.00 |
 |
48.00 |
Â
Â
Valuation Balance Sheet as at 31.3.2001
Â
  |
Rs. in Lakh |
 |
Rs. in Lakh |
To Net Liability as per actuary |
21.00 |
By Life Assurance Fund |
21.55 |
To Surplus |
0.55 |
 |
 |
 |
21.55 |
 |
21.55 |
Â
Statement Showing the allocation:
Â
  |
Rs. in Lakh |
Surplus as per balance sheet |
0.55 |
Add: Interim Bonus paid |
0.10 |
Net Profit for the period |
0.65 |
 |
 |
Policy holders will get 70%Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = |
0.4550 |
Equity shareholders will get 25%Â Â Â Â Â Â Â Â Â = |
0.1625 |
Balance to be carried forward 5%Â Â Â Â Â Â Â Â Â = |
0.0325 |
 |
0.6500 |
Â
Net Amount payable to Policy holders = 0.455 - 0.10 = 0.355 Lakh
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5.      From the following particulars, prepare the Balance Sheet Green Limited, which has equity shares of Rs. 10 each fully paid up:                                                                                       16
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i.              Sales for the year Rs. 21,00,000
ii.            Gross profit ratio 33 1/3%
iii.          Stock turnover ratio = 14 (turnover represents cost of goods sold)
iv.          Opening stock was Rs. 90000
v.            Cost of sales to Fixed Assets = 1.4
vi.          Fixed Assets to Net worth = 5/6
vii.        General reserve to Equity Share Capital = 1/3
viii.      Debt collection period = 73 days
ix.          Quick Assets ratio = 1.25
x.            Current Assets ratio = 1.5
xi.          14% Secured (long-term) Debentures = Rs. 20,000
Â
Answer    Â
Given:
Sales                                                                     2,10,000
Less Gross Profit                                =            7,00,000                 (33 1/3% on sales)
Therefore Cost of goods Sold             =           14,00,000
Â
Stock turn over Ratio                                        14
Cost of goods sold / Average Stock                  14
Â
Therefore Average Stock      =         Cost of goods sold / 14
                                              =         14,00,000/14
                                              =         Rs. 1,00,000
Â
Therefore Total Stock = AV. Stock ´ 2 = Rs. 2,00,000
                                              = Op. Stock + Cl. Stock
Given Op. Stock = 90,000
Therefore, Closing Stock = 2,00,000 - 90,000 = Rs. 1,10,000
Â
Fixed Assets to Net worth = 5/6
But Cost of sales to Fixed Assets = 1.4
Â
Cost of sales / Fixed Assets = 1.4
14,00,000 / Fixed Assets = 1.4
Â
Therefore Fixed Assets = 14,00,000 / 1.4 = Rs. 10,00,000
Â
Therefore Net Worth = 10,00,000 / 5 ´ 6 = 12,00,000
Net worth = Equity share capital + general reserve
Â
General Reserve to Equity share capital = 1/3 or 1:3
Therefore General reserve = 12,00,000/4 = Rs. 3,00,000
Equity share capital = Rs. 9,00,000
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Debt Collection period = Debtors / Sales ´ 365 = 73 days
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Therefore Sundry Debtors = 21,00,000 / 365 ´ 73 = Rs. 4,20,000
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Current Assets = 1.5 (Stock + S. Drs. + Cash)
Quick assets ratio = 1.25 (Sundry Drs. + Cash)
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Closing Stock = 0.25 = Rs. 1,10,000
Therefore Current Assets = 110000 / 0.25 ´ 1.50 = 660000
Current Assets / Current Liabilities = 1.5 / 1
Therefore Current Liabilities = 660000 / 1.5 ´ 1 = 440000
C.A. = 660000 = S. Drs. + Stock + Cash
660000 = 420000 + 110000 + Cash
Therefore cash = 130000
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Balance Sheet of Green Limited as at ...........
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Liabilities  |
Rs. |
Assets |
Rs. |
90000 Eq. Sh. of Rs. 10 each |
900000 |
Fixed Assets |
1000000 |
General Reserve |
300000 |
Current Assets: |
 |
14% Secured Debentures |
20000 |
         Cash |
130000 |
Current Liabilities |
440000 |
         Closing Stock |
110000 |
 |
 |
         Sundry Drs. |
420000 |
 |
1660000 |
 |
1660000 |
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6.      Attempt any four of the following:                                                               4 ´ 4 = 16
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a.            Define 'Contingency' and 'events occurring after the Balance Sheet date' as per AS 4.
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Under AS 4 a Contingency is a condition or situation, the ultimate outcome of which, gain or loss, will be known or determined only on the occurance, or non - occurance, of one or more uncertain future events.
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Events occuring after the balance sheet date are those significant events, both favourable and unfavourable, that occur between the balance date and the date on which the financial statements are approved by the Board of Directors in the case of a company, and by the corresponding approving authority in the case of any other entity.
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b.            Briefly explain the objective and scope of Accounting for the effects of changes in Foreign Exchange rates – AS 11.
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Under AS 11 objective of accounting for the effects of changes in foreign exchange rates is that an enterprise may have transactions in foreign currencies or it may have foreign branches. Foreign currency transaction should be expressed in the enterprises' reporting currency and the financial statements of foreign branches should be translated into the enterprises reporting currency inorder to include them in the financial statements of the enterprises. The principal issues in accounting for foreign currency transaction and foreign branches are to decide which exchange rate to use and how to recognize in the financial statements the financial effect of changes in exchange rates.
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Scope: This statement should be applied by an enterprise:
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i)Â Â Â Â Â Â Â Â Â Â Â Â Â In accounting for transactions in foreign currencies; and
ii)Â Â Â Â Â Â Â Â Â Â Â In translating the financial statements of foreign branches for inclusion in the financial statements of the enterprise.
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c.             List out the differences between Hire-purchase system and Installment Purchase system.
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i)Â Â Â Â Â Â Â Â Â Â Â Â Â Transfer of ownership:
ii)Â Â Â Â Â Â Â Â Â Â Â Recovery of goods
iii)Â Â Â Â Â Â Â Â For feature of installments paid
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 |
Hire Purchases System  |
 |
Installment Purchase System |
(a) |
Ownership in goods will pass to the buyer only on payment of last installment. |
 |
Ownership in the goods will pass to the buyer immediately at the time of sale  |
(b) |
In case if the buyer fails to pay any installment the seller can recover the goods back from buyer. |
 |
The seller cannot recover the goods. He can only sue for recovery of price and damages. Â |
(c) |
Default in payment by the buyer the seller can forfeit all moneys paid by the buyers so far. |
 |
The money paid by the buyer, will be taken as a payment towards part of the selling price and the seller can sue only for the balance. |
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d.            Briefly explain about Payment of Firm's Debts and Separate Debts on dissolution of a partnership firm.
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When there are joint debts due from the partnership and also any separate debts due from any partner, firms property must be first applied in the payment of the debt of the firm and if there is any surplus then the share of each partner in such surplus must be applied in payment of his separate debts or paid to him, if he has no debts. So also separate property of any partner must first be applied in payment of his separate debts, and the surplus, if any, in the payment of the debts of the firm. Where partnership assets are insufficient to meet out the liabilities of the partnership, the creditors of the firm can resort to the partners personal property outside the firm provided their personal and private creditors have already been paid out of it.
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e.             Claim under Loss of profit policy – Elucidate.
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Fire results loss of profits to the business on account of its dislocation. Such a loss can be covered by taking a loss of profit policy. The policy specifies both the period as well as the amount it covers. While determining the amount of policy the insured should take into account not only the amount of net profit he earn but also the amount of standing or fixed charges which have been charged against the revenue for determining the amount of net profit. This policy covers profit that would have been earned as if the reduction in sales (short sales) would not have been there. i.e., Had the short sales would not have resulted what would have been earned as normal profit will also be covered under this policy.
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f.Briefly explain "Compilation of Accounts" under Government Accounting.
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The initial accounts of Government transactions in India are prepared by the authority through whom the transactions occur, such as treasurer, the various departmental offices and other organisations etc. from these initial accounts the Indian Audit and Accounts department as well as the central accounting organisation of the central Government compile, under different heads prescribed for Govt. accounts, and bring out monthly and annually the combined result of all the transactions which occur during that period. From the accounts so complied by the Indian Audit and Accounts department and other agencies the combined finance and revenue accounts of the union and state governments are prepared by the comptroller and Auditor General of India. These accounts incorporate the result of the total Government transactions arising both in Indian and outside India.