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CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Practice Questions and
Topic Wise
Exam Questions & Answers
i
TABLE OF CONTENTS
ICAP PAST
CH. TOPIC NOTES PRACTICE ICAP QB MCQs
PAPER
Q A Q A Q A Q A
1 Accounting and Reporting Concepts
2 IAS 1: Preparation of Financial

Statements
3 IAS 7: Statement of Cash Flows
4 Income and Expenditure Account 143 151 162 191 204 236 243 257 261
5 Preparation of Accounts From

Incomplete Records
6 Introduction to Cost of Production
7 IAS 16: Property, Plant and Equipment
IAS 20: Govt. Grants
8 IAS 23: Borrowing Cost
IAS 40: Non-Current Assets: Sundry

Standards
9 IAS 36: Impairment of Assets
10 IFRS 15: Revenue from Contracts with

Customers
11 Interpretation of Financial Statements
12 Revision of some concepts
ii
Income & Expenditure Account
4
OBJECTIVE OF NON-PROFIT ORGANIZATION AND DIFFERENCES WITH PROFIT
LO 1
MAKING ORGANIZATION
LO 2 PREPARATION OF INCOME AND EXPENDITURE ACCOUNT
LO 3 PREPARATION OF RECEIPT AND PAYMENT ACCOUNT
LO 4 MAIN SOURCES OF REVENUE
LO 5 OTHER SOURCES OF REVENUE
CHAPTER-4 INCOME AND EXPENDITURE ACCOUNT
fLO1: OBJECTIVE OF NON-PROFIT ORGANIZATION AND DIFFERENCES WITH PROFIT

MAKING ORGANIZATION
Till now, we have learnt the accounting of organisations whose objective is to earn profit, now we move
to the accounting of those organisations whose objective is not to earn the profit rather they work for the
welfare of society, poor etc.
Edhi Welfare Trust is a typical example where donation received from various people is used to help the
needy. Sometimes young people in a society open up a library or sports club for the benefit of people
living in that locality. You may find a hospital or clinic in a town for the check-up of poor and needy.
Differences among profit and non-profit organization
Profit making Organisation Non-profit Organisation

1. Prepares Profit and Loss account Prepares Income and Expenditure account
2. Calculates Profit/(loss) Calculates Surplus/(Deficit)
3. Capital General fund/ Fund/ Accumulated fund
4. There is an owner of business There is no owner of business
5. Owner may withdraw money at any time There is no concept of drawings
6. Cash book Receipt and payment account
LO2: PREPARATION OF INCOME AND EXPENDITURE ACCOUNT

It is similar to the profit and loss account prepared by a profit making organisations. By deducting the
expenses from incomes the resultant figure is surplus or deficit.
The main sources of revenue of these organizations are subscriptions, admission fees, donations and
government or other grants.
LO3: PREPARATION OF RECEIPT AND PAYMENT ACCOUNT

A Receipt and Payments Account is a summary of the Cash Book. It gives the opening cash and bank, the
receipts and payments in cash or by cheque during an accounting period and the resultant balance of cash
and bank at the end of the accounting period. All the receipts and payments (whether in cash or cheque)
are shown on the debit side, and all payments (whether in cash or cheque) are shown on the credit side.
LO4: MAIN SOURCES OF REVENUE
i) Donations
Donation received by non-profit organization can be of two types:
a) For general purpose
b) For specific purpose
a) General Purpose
A donation which is appearing on the receipt side of receipt and payment account and against which no
detail is provided it will be taken to income. Following journal entry will be passed:
Particulars ; Cr.
Cash Xxx
Donation Income Xxx
b) For Specific Purpose

It can further be divided in two types:
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i) Donations to purchase/construct fixed assets

If the donor donating the amount imposes a condition that the amount will be used to construct/ acquire a
fixed asset then we will create a liability in our books to construct a fixed asset in future in an account
styled “specific fund account”.
By the time the asset is constructed it will be debited to asset a/c.
Example
A Social Club has received donation from one of its prestigious client for the purpose of construction of
new building. The amount of Rs. 900,000 is received on April 1, 2010. The building work started
immediately and an expense of Rs. 200,000 is incurred during the year ended December 31, 2010.
Pass the necessary journal entries for Y.E. 31.12.2010.
Journal entries
Date Particulars Dr. Cr.
April 1, 2010 Cash 900,000
Building Fund 900,000
(On receipt of donation for specific purpose)
31.12.2010 Building 200,000
Cash 200,000
(On incurring cost on building)
Dr. Building Fund Account Cr.

2010 c/d 900,000 Cash 900,000
The closing balance will appear on liability side.
ii) Donations to meet a specific expense
If the person donating amount imposes a condition that the amount will be used to meet a specific
expense then it will be credited to the specific fund account (liability to incur expense in future is
increased). As and when the expense is incurred the fund account will be debited (liability to incur
expense is decreased).
Example
A Medical Society has received donation of Rs. 300,000 on February 1, 2012 from one of its prestigious
client for the purpose of meeting certain welfare expenditures. Rs. 100,000 has been expanded in 2012
and the remaining has been incurred in 2013.
The year end is December 31.
Pass the necessary journal entries
Journal entries
February 1, 2012 Cash 300,000
Welfare Fund 300,000
(On receipt of donation for meeting expenses)
2012 Welfare Fund 100,000
Cash 100,000
(On incurring expenses)
2013 Welfare Fund 200,000
Cash 200,000
(On incurring expenses)
Dr. Welfare Fund Account Cr.

Cash 100,000 Cash 300,000
2012 c/d 200,000
Cash 200,000 b/d 200,000
2013
c/d -
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Note: Sometimes as per question requirement donation net of expenses is to be taken to income. This will
be the case normally when activity is completed in the same year in which donation is received.
Specific fund from own sources

Example
A social club in a small town has managed to accumulate a significant balance on its accumulated fund
over the years.
Its members have decided that the club should establish a fund to contribute to the school fees of children
of high promise from the town. Parents of such children would apply to the club for a grant of Rs.50,000.
Rs. 1,500,000 is to be set aside for this purpose.
What journal entries would be required?
Answer
This would be accounted for as follows:
Setting up the fund
Dr. Accumulated fund 1,500,000
Cr. Special fund (Education fund) 1,500,000
On the award of a grant
Dr. Special fund (Education fund) 50,000
Cr. Cash 50,000
ii) Subscriptions
It is membership fee paid by the members to avail the services of non-profit organisation. This is the main
source of revenue of all non profit organizations.
Subscription account appears as follows:
Dr. Subscription account Cr.
opening receivable xxx opening advance Xxx
I and E (bal.) xxx Cash and Bank xxx
closing advance xxx closing receivable xxx
xxx xxx
Practice Questions for subscription account

Question -1
i) Subscriptions received during the year 2002 Rs. 7,000
ii) Subscriptions outstanding at the beginning of 2002 Rs. 1,400
iii) Subscriptions outstanding at the closing of 2002 Rs. 1,600
Calculate the amount of subscriptions to be credited to Income and Expenditure Account for the year
2002.
Question -2
2002.
Rs.
i) Subscriptions received during 2002 12,000
ii) Subscriptions received in advance for 2003 1,600
iii) Subscriptions outstanding at the beginning of 2002 2,000
iv) Subscriptions outstanding at the closing of 2002 700
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Question -3
Mr. Flier, the treasure of Fly-High Club for the accounting year April 2002 to March 2003, submits the
following data for membership fees.
i) Cash/cheque received in the year totaled Rs. 100,000.
ii) As on 1.4.2002, Rs. 2000 was in arrears for 2001-02 (but cleared by 31.3.2003) and Rs. 800 was
received by the previous year’s treasurer for Mr. Flier.
iii) Mr. Flier received Rs. 1,500 towards the next year’s fees, but has yet not recovered Rs. 1,700
from his current year’s members.
Show the final subscriptions income of the year 2002-03.
Question-4
ended December 31, 2002.
Rs.
i) Subscriptions received during 2002 15,000
ii) Subscriptions outstanding at the end of 2001 2,000
iii) Subscriptions received in advance on 31st December 2001 1,000
iv) Subscriptions received in advance on 31st December 2002 3,000
st
v) Subscriptions outstanding on 31 December 2002 5,000
Question-5
Prepare an account showing subscriptions received in 2002-03 as per Receipts and Payment Account.
Rs.
i) Subscriptions Income for 2002-03 as per Income and Expenditure Account 82,000
ii) Advance subscriptions received in 2001-02 4,000
iii) Subscriptions outstanding at the end of 2002-03 including Rs. 1,000 for 2001-02 9,500
iv) Advance subscriptions received for 2003-04 2,000
v) Subscriptions written-off during 2002-03 500
vi) Subscriptions receivable on 1.4.2002 5,000
Year ended March 31.
Question-6
The following information was obtained from the Secretary of the Crazy Jay Club:
Rs.
Subscriptions received in 2002-03 as per Receipts and Payments Account 89,000
Advance subscriptions received in 2001-02 5,000
Subscriptions outstanding at the end of 2002-03 (including Rs. 1,500 for 2001-02) 12,500
Advance subscriptions received for 2003-04 3,000
Subscriptions written-off during 2002-03 600
Subscriptions receivable on 1.4.2002 8,400
Prepare account showing the Subscriptions Income for the year ended 31.3.2003.
Question-7
Anderson Club has 300 annual members in the annual general meeting held on 31st December, 2001, it
was decided to raise the subscriptions from the current Rs. 200 p.a. to Rs. 300 p.a. from the year 2002.
The members who have paid in advance will be allowed subscriptions at the old rates.
Subscriptions received in advance on 31.12.2001 was Rs. 2,000 and subscriptions in arrear on 31.12.2001
was Rs. 3,000
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Subscriptions in arrear on 31.12.2001 were received during 2002 with the exception of those due from 5
members.
Subscriptions in arrear for the year 2002 are in respect of 15 members.
You are required to prepare Subscriptions Account for the year 2002 and calculate the amount of
subscriptions received in cash during the year 2002.
Answer-1
Opening Receivable 1,400
Income & Expenditure (bal.) 7,200 Cash 7,000
Closing receivable 1,600
Answer-2
Opening Receivable 2,000 Opening Advance -
Income & Expenditure (bal.) 9,100 Cash 12,000
Closing Advance 1,600 Closing receivable 700
Answer-3
Opening Receivable 2,000 Opening Advance 800
Income & Expenditure (bal.) 99,000 Cash/Bank 100,000
Closing Advance 1,500 Closing receivable 1,700
Answer-4
Opening receivable 2,000 Opening advance 1,000
I and E (Bal.) 16,000 Cash 15,000
closing advance 3,000 closing receivable 5,000
Answer-5
I and E 82,000 Cash (bal.) 75,000
Bad debt 500
Answer-6
I and E (bal.) 95,700 Cash 89,000
Bad debt 600
Answer -7
Opening Receivable (15 x 200) 3,000 Opening Advance (200 x 10) 2,000
Income & Expenditure 89,000 Cash (bal.) 84,500
Closing receivable
- 2001 (5 x 200) 1,000
Closing Advance - - 2002 (15 x 300) 4,500
Total members 300
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Subscription income
Members paid in advance (10 x 200) 2,000
Other members (290 x 300) 87,000
89,000
LO5: OTHER SOURCES OF REVENUE

i) Entrance fees
In addition to the membership fees the new members upon entrance have to pay the entrance fee. This fee
is usually included in the income of the organization for the year in which it is received. However it may
also be decided by the organization to credit it to general fund.
Commonly the entry for this is as follows:
Particulars Dr. Cr.
Cash xxx
Entrance fee Income xxx
ii) Legacy
When any thing is given away personally, it is called gift. When any gift is made by a will, it is termed as
legacy. It is generally credited to general fund account in the year of receipt treating it as capital receipt.
Commonly the entry for this is as follows:
Particulars Dr. Cr.
Cash xxx
General Fund xxx
iii) Profit from trading activity
Sometimes to meet the expenses non-profit organization opens up a bar shop etc. For this student should
always prepare a trading account showing separately the profit from trading operations.
Opening stock, closing stock appearing in the question is an indication that the non-profit organization is
involved in a trading activity.
For trading activity always prepare the following working:
Profit from trading activity
Revenue xxx
Less: Cost of sales
Opening stock xxx
Purchases (Note) xxx
Direct wages xxx
Other direct expenses xxx
Less: Closing Stock (xxx) (xxx)
Profit xxx
(Note) For calculating purchases figure always prepare creditors account if opening closing balances of
creditors are appearing in the question.
iv) Service activities in a non-profit organization
Sometimes a non-profit organization starts charging a nominal fee for the rendering of services.
a) Normally the revenue earned through service activity will be appearing on the receipt
side and no related expenses will be appearing on the payment side. In this case the
whole receipt will be shown in income.
Examples
1. Hospital
 OPD charges
 X-Ray charges
 Laboratory charges
 In-patient billing
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2. Sports club
 Billiard takings
 Billiard room
 Bowling Green
 Green fees
 Card and billiard room receipt
 Swimming pool
 Tennis court receipt
3. Library
 Charges for book reading
b) In other cases revenue earned through service activity will be appearing on the receipt
side and related expense will be appearing on the payment side. In such cases you should
net the revenues with expenses by showing the net figure on the income side.
Activity Revenues Expenses
Charity show Charity show proceeds Charity show expenses
Competition Games competition receipts Competition prizes
Annual dinner Annual Dinner - Sale of Tickets Annual Dinner-Expenses
Club activities Contribution to Club activities Club activities expenses
Net proceeds (Club activities) Remuneration to Club coach
Following statements given in question shows that net figure is to be taken to income.
 Separate books/accounts/records are kept for service activity
 Show profit arising from service activity separately
For this always calculate the profit through following working:
Revenue xxx
Less: All Direct costs (xx)
Profit xxx
v) Interest or gain on disposal of investments

a) Interest on investments
Example
A non-profit organization purchased investments/ Defence Saving certificates/ National
Saving certificates/ Post office Saving Certificates/ Term Deposit certificates/ shares of a
company by paying Rs. 200,000 on March 1, 2010. The interest received on above
investments on December 31, 2010 amounted to Rs. 30,000.
Pass journal entries
Journal entries
March 1, 2010 Investments 200,000
Cash 200,000
(On investing money)
December 31, 2010 Cash 30,000
Interest income 30,000
(On earning interest)
b) Gain on sale of investments
Example
Continuing from example in point (a) previously, assume the investments were sold for
Rs. 240,000 on June 30, 2011. The interest earned for the 6 months amounted to Rs.
13,000.
Pass journal entries.
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Journal entries
June 30, 2011 Cash 13,000
(On earning interest)
June 30, 2011 Cash 240,000
I and E (bal.) 40,000
Investments 200,000
(On withdrawing investments)
vi) Life membership
Instead of paying annual subscription, by paying life membership amount a person becomes
member for whole of the life.
Example
A non-profit organization received Rs. 1,000,000 each from 2 life members in 2012. Year end is
December 31. Prepare the necessary entries for 2012 and 2013 under following scenarios:
1. Recognize it as income when it is received.
2. Recognize as income over a period of 5 years.
3. Recognize it as equity reserve assuming 1 member passed away in 2013.
Option-1
Cash 2,000,000
2012 Life membership Income 2,000,000
(On joining of 2 members)
Option-2
Cash 2,000,000
1.1.2012 Deferred Income 2,000,000
Deferred Income 400,000
31.12.2012 Life membership Income 400,000
(2,000,000/5)
Deferred Income 400,000
31.12.2013 Life membership Income 400,000
(2,000,000/5)
Option-3
Cash 2,000,000
1.1.2012 Life-membership Fund 2,000,000
Life-membership Fund 1,000,000
2013 General Fund 1,000,000
(On death of 1 member)
Common mistake by students

While calculating the opening balance of fund they ignore the opening balance of cash and bank balance
given in the receipt and payment account.
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PRACTICE QUESTIONS
Question-1
Gulshan Joy Club prepared the following Receipts and Payments Account for the year ended 31.12.2012:
Receipts Rs Payments Rs
Balance b/d 60,500 Sports Equipments 35,000
(purchased on 30.5.2012)
Subscriptions: Tournament Expenses 6,300
-2011 3,000 Electricity 26,000
-2012 124,500 Salaries and Wages 35,000
-2013 7,500
Entrance Fees 23,000
Donation received 9,600 Balance c/d 125,800
228,100 228,100
Additional information:
(i) Fixed assets of the club on 1.1.2012 include the following
 Sports Equipment-Rs.150,000:
 Club Ground-Rs.450,000:
 Furniture-Rs.85,000:
(ii) In 2011, subscriptions for 2012 were collected -Rs.12,000:
(iii) Unpaid for 2012- subscriptions Rs.8,000; and electricity Rs.3,000.
(iv) Depreciation to be provided @ 20% p.a. on sports equipment and @ 10% p.a. on furniture.
Required:
Prepare an Income and Expenditure Account for the year ended on 31.12.2012 and a balance sheet as on
that date. (8)
Question-2
The following is the Receipts and Payments Account of the Friends Association for the year ending 31st
December , 2011:
Receipts Rs. Payments Rs.
Balance b/d 5,000
Subscription 10,500 Rent 3,300
Entrance Fees 2,000 Salaries and Wages 8,750
Interest on Investments 1,500 Furniture 1,500
Donations 750 Repairs 600
Balance c/d 5,600
19,750 19,750
Other Information:
1) Subscription received in advance during the year is Rs. 500.
2) Closing subscription receivable is Rs. 2,000
3) Rent represents payment for 11 months and 1 month's rent is still payable.
4) Salaries for Rs. 250 are prepaid.
5) Depreciation on furniture is to be recorded @ 10% for whole year.
Required: From the above information prepare an Income and Expenditure Account for the year ending
31st December 2011. (8)
151
Question-3
The following is the Receipts and Payments Account of the Lahore Sports Club for the year ending 31st
March, 2010:
Balance (April 1, 2009) 20,000
Entrance Fees 30,000 Rent 60,000
Subscription: Stationery Expenses 5,000
2008-09 13,500 Wages 12,500
2009-10 160,000 Billiards Table 125,000
2010-11 24,000 Repair and Renewals 13,600
197,500
Locker Rent 24,300 Balance (March 31, 2010) 55,700
271,800 271,800
1) Locker rents Rs. 5,000 relate to 2008-09 and Rs. 8,500 is still owing
2) Rent Rs. 6,000 pertained to 2008-09 and Rs. 7,000 pertained to 2010 is still due.
3) Stationery expenses Rs. 950 related to 2008-09 and prepaid on March 31, 2010 Rs. 780.
4) Subscription unpaid for 2009-10 Rs. 10,000
5) Fixed assets (if any) are to be depreciated @ 25% for whole year.
Required:
From the above information you are required to make out an Income and Expenditure Account of the club
for the year ending March 31, 2010 and a Balance Sheet as on that Date (8)
Question-4
From the following Trial Balance of Lahore Club prepare an Income and Expenditure Account for the
year ended on 31st March. 2003 and a Balance Sheet as on that date (all figures in Rupees):
Particulars Dr. Cr.
General Fund 30,000
Cash in hand 2,000
Cash at Bank 3,000
Sundry Debtors 2,400
Sundry Creditors 1,500
Loan @ 15% (01.07.2002) 20,000
Furniture and Fixture 10,000
Clubhouse 40,000
Stock of Bottles (01.04.2002) 500
Rent 6,000
Rates, Taxes and Insurance 600
Secretary's Honorarium 1,200
Entrance Fees 1,000
Rent payable 1,500
Steward's and servant's wages 5,800
Extension of Club house 10,000
Printing and stationery 1,000
Law charges 500
Annual subscriptions 30,000
Card and Billiard room receipts 4,000
Washing of liveries and sundries 1,600
Biscuits, Bottles and Sweets sold 5,000
Repairs to club house and furniture 400
152
Conversion expenses 1,000

Biscuits Bottles and Sweets purchased 4,000
Interest on Loan 1,000
Total 92,000 92,000
Additional Information:
(i) Subscriptions for 2002-03 outstanding Rs.2,000;
(ii) Write-off depreciation @ 10% p.a. on furniture and 2% on Club house including the extension;
(iii) Stock of Bottles Rs.400: Biscuits Rs.600 on 31.03.2003. (15)
Question-5
A summary of receipts and payments of Medical Aid Society for the year ended 31.12.2002 is given
below:
Balance (1.1.2002) 7,000 Payment for medicines 30,000
Subscriptions 50,000 Honorarium to doctors 10,000
Donations 14,500 Salaries 27,500
Interest on investments @ 7% p.a. 7,000 Sundry expenses 500
Charity show proceeds 10,000 Equipment purchased 15,000
Charity show expenses 1,000
Balance (31.12.2002) 4,500
88,500 88,500
Additional Information (in Rupees):
1.1.2002 31.12.2002
Subscriptions due 500 1,000
Subscriptions received in advance 1,000 500
Stock of medicines 10,000 15,000
Amount due to Medicine suppliers 8,000 12,000
Value of equipments 21,000 30,000
Value of Buildings 40,000 38,000
Required:
Prepare an Income and Expenditure Account for the year ended 31st December, 2002 and the Balance
Sheet as on that date. (12)
Question-6
The following summary of the Cash Book has been prepared by the Treasurer of a Club:
Cash in hand and at bank on April 1, 2002 4,740 Wages-Outdoor staff 13,380
Members' subscriptions 29,720 Restaurant purchases 50,400
Entrance fees 3,200 Rent-18 months to June 30,2003 7,500
Restaurant receipts 56,800 Rates 2.200
Games competition receipts 13,640 Secretary's salary 3,120
Miscellaneous income 80 Lighting, cleaning and sanitary services 7,700
Competition prizes 4,000
Printing, postage and sundries 6,000
Placed in fixed deposits with bank 8,000
Balance in hand and at bank on March
31,2003 5,880
108,180 108,180
1) On 1 April 2002, the Club's assets were: Furniture and Equipment Rs. 48,000: Restaurant Stocks
Rs.2,600; Stock of Prizes Rs.800. Rs. 5,200 was owing for supplies to the Restaurant.
153
2) On March 31, 2003 the Restaurant Stocks were Rs.3,000 and prizes in hand were Rs.500 while
the Club owed Rs.5,600 for Restaurant Supplies.
3) It was also found that Members' Subscriptions unpaid at March 31, 2003, amounted to Rs.1,000
and that the figure of Rs.29,720 shown in the Cash Book included Rs.700 in respect of the
previous year and Rs.400 paid in advance for the following year.
Required:
Prepare an account showing the profit or loss made on the Restaurant and a General Income and
Expenditure Account for the year ended 31st March, 2003 together with a Balance Sheet at that date, after
writing 10 percent off on the furniture and equipment. (12)
Question-7
New Murree Recreation Club consists of a Tennis section and a Badminton section. The Balance Sheet of
the Club as on 1.1.2002 is as under:
Liabilities Rs. Assets Rs.
Accumulated Fund 417,500 Club House 250,000
Courts: Tennis (Cost Rs.100,000) 80,000
Badminton (Cost Rs.50,000) 35,000
Furniture 25,000
Bank Deposit 10,000
Cash and Bank 17,000
Petty Cash 500
417,500 417,500
The following is the Receipts and Payments Account for the year ended 31.12.2002:
Balance b/d 17,000 New Tennis Court (1.1.2002) 100,000
Ten-year Tennis Memberships 60,000 Annual Dinner-Expenses 10,500
Subscriptions: Expenses on Tournament:
General 25,000 Tennis 15,000
Sectional: Badminton 4,000
Tennis 32,000 Bank Deposits 3,000
Badminton 21,000 General Expenses on:
Tournament Entry Fees: Tennis 12,000
Tennis 20,000 Badminton 10,000
Badminton 5,000 Rates of Club House 12,000
Annual Dinner-Sale of Tickets 12,000 Miscellaneous Expenses 14,000
New coaching scholarship fund 10,000 Petty Cash 700
Balance c/d 20,800
202,000 202,000
(1) In order to help pay for the new tennis court, ten-year tennis memberships were offered for sale at
the beginning of 2002 at Rs.2,000 each.
(2) It is the club's policy to write-off the cost of the tennis and badminton courts over a ten-year
period.
(3) The petty cash balance on 31.12.2002 was Rs.200. The petty cash float is used exclusively for
postage.
(4) Rs.10,000 received as donations during the year for the new coaching scholarship fund. This will
be utilised for providing training facilities for promising young sportspersons. It is expected to
make the first award during 2004.
(5) The balance of the Bank Deposit Account on 31.12.2002 was Rs.14,200.
(6) Furniture is to be depreciated at 10%.
154
Required:
Prepare an Income and Expenditure Account for the year ended 31.12.2002 showing the net surplus or
deficit arising separately from the tennis section and badminton section. Also prepare the Balance Sheet
of the Club as on 31.12.2002. (18)
Question-8
The following is the Receipts and Payments Account of Sydney Club for the year ended 31st March.
2003:
Receipts Rs. Payment Rs.
Opening Balance: Salaries 120,000
Cash 10,000 Creditors 1,520,000
Bank 3,850 Printing and Stationery 70,000
Subscriptions Received 202,750 Postage 40,000
Entrance Donation 100,000 Telephones and Telex 52,000
Interest Received 58,000 Repairs and Maintenance 48,000
Sale of Assets 8,000 Glass and Table Linen 12,000
Miscellaneous Income 9,000 Crockery and Cutlery 14,000
Receipts at: Garden Upkeep 8,000
Coffee Room 1,070,000 Membership Fees 4,000
Biscuits 610,000 Insurance 5,000
Swimming Pool 80,000 Electricity 28,000
Tennis Court 2,000 Closing Balance:
Cash 8,000
Bank 224,600
2,153,600 2,153,600
The Assets and Liabilities as on 01.04.2002 were as follows:
Particulars Rs. Particulars Rs.
Fixed Assets (net) 500,000 Sundry Creditors 112,000
Stock 380,000 Subscriptions Received in Advance 15,000
Investment in 12% Government Securities 500,000 Building Fund 250,000
Outstanding Subscriptions 12,000
Prepaid Insurance 1,000
The following adjustments are to be made while drawing up the Accounts:
(i) Subscriptions received in advance as on 31st March, 2003 was Rs. 18,000.
(ii) Outstanding subscriptions as on 31st March. 2003 was Rs. 7,000.
(iii) Outstanding expenses are salaries Rs.8,000 and electricity Rs. 15,000.
(iv) The WDV of assets sold as on 01.04.2002 was Rs.10,000.These were sold on 1.04.2002.
(v) Depreciation is to be provided at the rate of 10% on assets.
(vi) Purchases made during the year amounted to Rs. 1,500,000.
(vii) The value of closing stock was Rs. 210,000.
(viii) The club as a matter of policy charges-off to Income and Expenditure Account all purchases
made on account of crockery, cutlery, glass and linen in the year of purchase.
Required:
Prepare an Income and Expenditure Account for the year ended 31st March, 2003 and the Balance Sheet
as on 31st March, 2003 along with necessary workings. (18)
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Question-9
The following information is supplied to you by the Treasurer of The Sargodha Boys Club. From these
details, prepare the Income and Expenditure Account for the year ended 31.12.2002. and the Balance
Sheet as on that date:
(a) The club was founded five years before when a loan of Rs.200,000 was obtained, free of interest,
from a local authority. A club house was erected at the cost of Rs.175,000 and paid for out of the
Loan Account. Rs. 80,000 has now been repaid on account of the loan.
(b) Subscriptions received during 2002 totalling Rs.56,950, made up of the following-for 2001
Rs.2,750; for 2002 Rs.53,000; for 2004 Rs.1,200.
In 2001, some subscriptions for 2003 were received in advance, amounting to Rs.2,350.
When the annual accounts for 2001 were prepared, it was estimated that 2001 subscriptions
arrears amounting to Rs.4,400 would be collected in 2002.
On 31.12.2002, it was considered that subscriptions arrears of Rs.3,800 would be received in
2003, but the subscriptions still in arrears for 2001 should by written-off.
(c) On 31.12.2001, the credit balance on the Life Membership Fund Account was Rs.47,200. During
2002, amount received in respect of life membership amounted to Rs.27,000.
(d) The net profit on bar during the year was Rs.10,500 after charging 1/2 of salaries. Purchases and
sales of bar during the year amounted to Rs.15,000 and Rs.30,000 respectively. The stock of bar
on 31.12.2002 was Rs.8,000.
(e) During the year ended, among others, the club paid for the following —
Loan repayment Rs.20,000; Salaries Rs.15,000; Electricity Rs.5,500; Cleaning Rs.2,600; Sundry
expenses Rs.8,200.
(f) The other assets and liabilities as on 1.1.2002 and 31.12.2002 were as follows (all figures in
rupees)
Date Cash and Bank Equipments Vehicles furniture
1.12002 25,150 15,000 80,000 40,000
31.12.2002 ? 12,000 65,000 36,000
(14)
Question-10
The following is the Receipts and Payments Account of Barisha Recreation Club for the year ended
31.12.2002:
Cash in Hand 500 Rent of Club House 1,300
Cash at Bank 6,000 Painting of club House 700
Members' Subscriptions: Wages of Ground Maintenance 1,500
Ordinary for 2001 100 General Expenses 1,300
Ordinary for 2002 1,800 Electricity Charges 1,800
Ordinary for 2003 200 Investment 10,000
Life Membership Subscriptions 2,000 Secretary's Honorarium 600
Sale of Tickets for Annual Exhibition 10,000 Annual Meeting Expenses 400
Sale of Refreshments 12,000 Sports Equipments 1,800
Interest on Investments 1,300 Purchase of Refreshments 5,500
Sale of Furniture (on 30.6.2002) 100 Printing and Stationery 500
(original cost on 1.1.2001 was Rs.500) Insurance 300
Cash in Hand 2,000
Cash at Bank 6,300
34,000 34,000
The following information is also available:
(a) On 31.12.2001, outstanding subscriptions for 2001 were Rs.150.
(b) On 31.12.2001, advance subscriptions for 2002 received were Rs.50.
(c) On 31.12.2002, outstanding subscriptions for 2002 were Rs.300.
156
(d) A life membership scheme was introduced in 2001. Under the scheme, life membership
subscription is Rs.500. Life membership subscriptions totalling Rs.2,500 were collected during
2001.
(e) On 1.1.2002, Investment was Rs.20,000 and interest accrued on investment on 31.12.2002 was
Rs.1,200.
(f) On 1.1.2001, Furniture costing Rs.8,000 were purchased and it was decided to write off
depreciation on furniture and sports equipments @ 10% p.a. on cost.
(g) In 2001, a plot of land was purchased for Rs.20,000 to construct club house.
(h) Other assets and liabilities of the club were: (all figures in rupees)
Stock of Insurance Creditors for
Rent accrued
refreshment prepaid refreshment
31.12.2001 1,900 70 200 400
31.12.2002 2,100 50 100 500
Required:
Prepare an Income and Expenditure Account for the year ended 31.12.2002 and also a Balance Sheet as
on that date. (15)
Question-11
The Comrades club makes up its account to 31st December in each year. On 31st December, 2002 the
treasurer left the club premises and has not been seen since. An examination of the records showed that
the books had not been written up for a considerable time, and it was decided to reconstruct the figures
from 1st January 2002.
A summary of the Bank Account for the year showed the following:
Balance (1.1.2002) 416 Rent & Rates 460
Bank deposits 42,610 Insurance 40
Electricity 156
Bar purchases 35,067
Telephone 59
Cash withdrawn 5,848
Balance as on 31.12.2002 1,396
43,026 43,026
The following information is also obtained:
1. The barman places takings in the bank 'night safe' on his way home for crediting to the club
account. The duplicate paying-in-slips total Rs.40,612 for the year. The treasurer had no access to
bar takings or stock.
2. The receipt counterfoils for members' subscriptions total Rs.3,050 for the year.
3. A summary of expenditure for petty cash was as follows:
Glasses, crockery and maintenance Rs.1,310; Wages Rs.2,658; National Insurance Rs.210;
Sundry expenses Rs.257.
4. Outstanding amounts and prepayments at 31st December were:
2001 2002
Rates prepaid 26 28
Rent outstanding 40 82
Electricity outstanding 24 18
5. The Bar stock on 1st January, 2002 was Rs.3,607 and on 31st December, 2002 was Rs.2,916. The
cash in hand with the treasurer at the beginning of the year was Rs.35.
You are required to prepare:
(i) A summary of the cash position for the year ended 31st December. 2002 indicating the amount, if
any, to be claimed under the club's fidelity insurance policy;
(ii) An Income and Expenditure Account for the year 2002. (15)
157
Question-12
Universal Brotherhood Club does not maintain complete double entry books of Account. From the
following details, prepare a Receipts and Payment Account, and an Income and Expenditure Account for
the year ended 31.12.2002, and a Balance Sheet as on that dale (all figures in rupees):
5%
Outstanding Advance Outstanding Advance Cash and Sports
Date Investme Furniture
Subscriptions Subscriptions Salaries Salaries Bank Goods
nts
1.1.2002 14,000 2,800 1,400 - 14,000 14,000 2,800 5,600
31.12.2002 19,600 5,600 700 700 ? 7,000 1,400 11,200
1) Subscriptions for the year amount to Rs.70,000.
2) Salaries paid Rs.15,400.
3) 50% of investments was sold at Rs.6,720 on 1.1.2002.
4) Interest on investments left unsold was received.
5) Furniture having book value of Rs.1,400 was sold for Rs.700 at the beginning of the year.
6) Sports goods were purchased at the end of the year.
7) Charge 20% depreciation on sports goods and 10% on furniture.
8) Sports expenses amount Rs.14,000.
9) Miscellaneous expenses are Rs.4,200 and rent amount to Rs.8,400. (12)
Question-13
The Bilal Sports Club provides the following information:
(1) The Club conducts all its transactions in cash — any surplus being paid into a Saving Account.
Interest credited to this account for the year to 31.3.2003 was Rs.3,500.
(2) The Club has 100 members who pay an annual subscription of Rs.50 each. However, on
31.3.2002, ten members had already paid their subscriptions for 2002-03.
(3) The Club has only two sources of income: subscriptions from members and bar sales. A profit
margin of 30% of selling price is normally applied to determine bar selling prices but during the
year Rs.3,970 of goods were sold at cost.
(4) A summary of the payments for the year is as follows (all figures in rupees):
Purchase of Equipments (1.4.02) 1,000 Rental of Premises 10,000
Lighting 2,620 Club Match Expenses 6,750
Repairs to Equipments 1,760 Trophies (treated as an expense) 4,240
Bar Creditors 74,550 Refreshments for Visiting Teams 2,350
(5) The Club has the following other assets and liabilities (all figures in rupees):
Date Equipments Saving Account Bar Stock Bar Creditors
1.4.2002 40,000 46,000 8,400 6,300
31.3.2003 ? ? 9,200 4,700
(6) Equipments are depreciated at 10% of the value of equipments held on 31st March each year.
(a) A Bar Trading Account for the year ended 31.3.2003;
(b) A Receipts and Payments Account for the year ended 31.3.2003;
(c) An Income and Expenditure Account for the year ended 31.3.2003; and
(d) A Balance Sheet as at 31.3.2003. (16)
158
Question-14
The Balance Sheet of Sandhead Club as on 31.12.2001 was as follows :
Fund and Liabilities Rs Assets Rs
Accumulated Fund 102,700 Building 100,000
Life Membership Fund 37,800 Equipments 15,000
Furniture 2,000
Bar Creditors 14,000 Bar Stock 10,000
Subscriptions in Advance 1,000 Bar Debtors 12,000
Subscriptions in Arrear 1,500
155,500 155,500
The following are the transactions during the year 2002:
Subscriptions
The club has 300 annual members. In December 2001: it was decided to raise the subscriptions from the
current Rs.100 p.a. to Rs.150 p.a. from the year 2002. The members who have paid in advance will be
allowed subscriptions at the old rates. Subscriptions in arrear on 31.12.2001 were received during 2002
with the exception of those due from 5 members which is to be treated as bad. Subscriptions in arrear for
the year 2002 are in respect of 15 members.
Life Membership Fund
For many years, life membership of the club cost Rs.1,000 but w.e.f. 1.1.2002, the rate has been increased
by Rs.200. The life membership details on 31.12.2001 were as follows:
During 2002, 4 new members were enrolled and one other member (who had joined in 1998) died.
Donation
At the beginning of 2002, the club received a donation of Rs.50,000. The amount was invested in 10%
Govt. Securities. As per the desire of the donor, the principal amount should be maintained for a period of
10 years, but the income to be generated from that can be used for current operations. The interest accrued
on 31.12.2002 amounted to Rs.4,500.
Bar
The gross profit percentage is 20% on sales. Purchases made during the year were Rs.55,000-out of which
Rs.30,000 on credit. During the year, amount received from debtors was Rs.32,000 and amount paid to
the creditors was Rs.24,000. On 31.12.2002, debtors were Rs.10,000 and the value of the stock was
Rs.25,000. The salaries and other expenses were Rs.4,000.
Furniture
A part of the furniture was sold on 1.1.2002 for Rs.750. On 31.12.2002, the value of the furniture was
Rs.1,080 after charging depreciation @ 10% p.a.
Expenses
During the year, the club paid for the following:
(i) Salaries Rs.12,000; (ii) Repairs Rs.5,000; (iii) Electricity Rs.12,000; (iv) Miscellaneous expenses
Rs.14,000.
(i) Receipts and Payments Account;
(ii) Income and Expenditure Account for the year ended 31.12.2002; and
(iii) Balance Sheet as on that date. (20)
159
Question-15
From the following information, prepare a Receipts and Payments Accounts for the year ended 31st
December.2002.
Receipts:
 Donation for Building Rs.60,000;
 Sale of old newspapers Rs.500;
 Fees for coaching Rs.2,000;
 Sundries Rs.200:
 Subscriptions realised for 2001 Rs.4,000;
 Subscriptions for 2002 Rs.25,000;
 Subscriptions for 2003 Rs.600.
Payments:
 Salaries Rs.6,000;
 Repairs Rs.1,000;
 Newspaper Rs.1,000;
 Printing and Stationery Rs.500;
 Rates and Taxes Rs.1,000;
 Electricity Rs.400;
 Sundries Rs.200:
 Construction of Building Rs.50,000.
Cash-in-Hand: 1st January Rs.1,000; 31st December 2002 Rs.33,200.
Other Information:
(i) Subscriptions to be realised for 2002 Rs.1,200:
(ii) Outstanding Expenses: Repairs Rs.100; Printing Rs.400.
Also pass journal entry for building donation received and construction of building. (12)
Question-16
The following balances are obtained from the books of Kanpur Cricket Club as on 31.3.2002 and
31.3.2003 (all figures in rupees):
Particulars 31.3.2002 31.3.2003 Particulars 31.3.2002 31.3.2003
Buildings 80,000 85,500 Outstanding Expenses 3,000 1,200
Furniture 40,000 30,600 Sports Equipments 24,000 21,600
Advance Subscriptions 1,500 1,000 Investments - 12,000
Arrears of Subscriptions 3,000 5,000 Books 15,000 16,200
Prepaid Expenses 800 1,000 Cash 16,000 17,100
Consider the following information relevant to the year 2002-03:

(i) Depreciation provided for the year: Building – Rs.4,500; Furniture – Rs.3,400; Sports equipments
– Rs.5,400; Books – Rs.1,800.
(ii) Some old furniture standing in the books for Rs.6,000 as on 1.4.2002 was sold for Rs.4,000 on
the same date.
(iii) The Club had 300 members on 31.3.2003 as per the Register of Members. No fresh members
were admitted during the year but 10 members left the Club on 1.10.2002.
(iv) Subscriptions payable - Rs.15 per month.
(v) Donation received Rs.5,000 has been capitalised.
(vi) Considerable expenses were paid during the year.
Required:
Prepare a Receipts and Payments Account and Income and Expenditure Account for the year ended
31.3.2003 and the Balance Sheet as on that date. (12)
160
Question-17
Prepare a Receipts and Payments Account of Woodburn Club for the year ended 31.12.2002.
Income & Expenditure Account for the year ended 31.12.2002 is as follows:
Income
Donations 430
Subscriptions 600
1,030
Expenses
Salaries 700
General expenses 200
Depreciation of assets 120
(1,020)
Surplus 10
Adjustments were also to be made for the following items: Subscriptions for 2001 outstanding on 1.1.2002. Rs.80
but Rs.72 only of this amount were realised in 2002. Subscriptions received in advance on 31.12.2001 were Rs.20
and 31.12.2002 were Rs.16. Subscriptions for 2002 outstanding at 31.12.2002 were Rs.28. Fixed Assets on 1.1.2002
were Rs.1,040. Fixed Assets (after depreciation) were Rs.1,080 on 31.12.2002. Cash in hand on 31.12.2002 was
Rs.264. (12)
Question-18
Income and Expenditure Account of Boat Club for the year ended on 31.12.2002 stood as follows:
Income Rs.
Subscriptions 38,000
Entrance Fees 10,500
Donation 12,000
Sale of Old Periodicals 500
61,000
Expenses
Salaries 19,500
General Expenses 10,000
Audit Fees 2,500
Printing and Stationery 6,000
Interest and Bank Charges 3,000
Rent 3,000
Periodicals 4,000
Travelling Expenses 2,500
Depreciation on Furniture 1,500
(52,000)
Surplus 9,000
The following is the Balance Sheet of the Club as at 31.12.2001:
Funds and Liabilities Rs Assets Rs
Liabilities for: Salaries 1,500 Furniture 7,500
Rent 500 Sports Equipment 10,000
Advance Subscriptions (2002) 1,000 Subscriptions Receivable 4,000
General Fund 37,000 Cash and Bank 18,500
40,000 40,000
Other details on 31.12.2002: Salaries outstanding-Rs.2,500; Subscriptions outstanding-Rs.3,000;
Subscriptions received in advance-Rs.1,000.
Required:
Prepare Receipts and Payments Account for 2002 and Balance Sheet as at 31.12.2002. (14)
161
PRACTICE SOLUTIONS
Answer-1
Gulshan Joy Club
Income and Expenditure account
for the year ended December 31, 2012
Incomes Rs.
Entrance Fee 23,000
Donation 9,600
Subscription (W-1) 144,500
177,100
Expenses
Tournament Expenses 6,300
Electricity (W-4) 29,000
Salaries and Wages 35,000
Depreciation on Sports Equipment (W-2.1) 34,083
Depreciation on Furniture 8,500
(112,883)
Surplus 64,217
Gulshan Joy Club

Balance Sheet
as on December 31, 2012
Capital and liabilities Rs.
Capital
Opening Fund (W-5) 736,500
Surplus/(Deficit) 64,217
800,717
Current Liabilities
Subscription Received in advance 7,500
Electricity Payable 3,000
10,500
Total 811,217
Assets
Non-Current Assets
Sports Equipment (W-2) 150,917
Club Ground 450,000
Furniture (W-3) 76,500
677,417
Current Assets:
Subscription Receivable 8,000
Cash and Bank Balance 125,800
133,800
Total 811,217
162
WORKINGS
(W-1) Dr. Subscription account Cr.
op. receivable 3,000 op. advance 12,000
I and E (Bal.) 144,500 Cash and bank 135,000
(3,000+124,500+7,500)
cl. advance 7,500 cl. receivable 8,000
(W-2) Dr. Sports equipment Cr.

b/d 150,000 Depreciation (W-2.1) 34,083
Cash and bank 35,000 c/d (bal.) 150,917
(W-2.1) Depreciation Rs
On opening assets (150,000 x 20%) 30,000
On additions (35,000 x 20% x 7/12) 4,083
34,083
(W-3) Dr. Furniture Cr.

b/d 85,000 Depreciation (85,000 x 10%) 8,500
c/d (bal.) 76,500
(W-4) Dr. Electricity Cr.

Cash and bank 26,000 op. -
cl. 3,000 I and E (Bal.) 29,000
(W-5) Opening fund Rs.

Assets
Sports Equipment 150,000
Club Grounds 450,000
Furniture 85,000
Cash and Bank Balance 60,500
748,500
Liabilities
Subscription Received in advance 12,000
(12,000 )
736,500
Answer-2
Friends Association
For the year ended December 31, 2011
Incomes Rs.
Entrance Fee 2,000
Interest on Investment 1,500
Donation 750
16,250
Expenses
Rent (W-3) 3,600
Salaries and Wages (W-2) 8,500
163
Depreciation on Furniture (1,500 x 10%) 150

Repairs 600
(12,850)
Surplus 3,400
WORKINGS
op. receivable - op. advance -
cl. advance 500 cl. receivable 2,000
(W-2) Dr. Salaries expense Cr.

op. - I and E (Bal.) 8,500
Cash and bank 8,750 cl. 250
(W-3) Dr. Rent expense Cr.

Cash and bank 3,300 op. -
cl. (3,300/11 x 1) 300 I and E (Bal.) 3,600
Answer-3
Lahore Sports club
for the year ended March 31, 2010
Incomes Rs.
Entrance Fee 30,000
Locker's Rent (W-2) 27,800
227,800
Expenses
Rent (W-4) 61,000
Stationery (W-3) 3,270
Wages 12,500
Depreciation on Billiard Tables (125,000 x 25%) 31,250
Repair and Renewals 13,600
(121,620)
Surplus 106,180
Lahore Sports club
Balance Sheet
as on March 31, 2010
Capital
137,730
Current Liabilities
Rent Payable 7,000
Subscription received in advance 24,000
31,000
Total 168,730
164
Assets
Non-Current Assets
Billiard Tables (125,000 – 31,250) 93,750
Current Assets:
Cash & Bank 55,700
Locker Rent Receivable 8,500
Stationery Prepaid 780
74,980
Total 168,730
WORKINGS
op. receivable 13,500 op. advance -
(W-2) Dr. Locker rent account Cr.

I and E (bal.) 27,800 Cash and bank 24,300
(W-3) Dr. Stationery expense Cr.
op. 950
Cash and bank 5,000 I and E (bal.) 3,270
cl. 780
Cash and bank 60,000 op. 6,000
cl. 7,000 I and E (bal.) 61,000
Assets
Cash & Bank 20,000
- Subscription Receivable 13,500
Locker Rent Receivable 5,000
38,500
Liabilities
Rent Payable 6,000
Stationery Payable 950
6,950
31,550
Answer-4
Lahore Club
Incomes Rs.
Card and billiard room receipt 4,000
Profit from bar (W-l) 1,500
37,500
165
Expenses
Rent 6,000
Rates, taxes and insurance 600
Secretary’s honorarium 1,200
Entrance fees 1,000
Steward and servant wages 5,800
Law charges 500
Washing of liveries and sundries 1,600
Repairs to club house and furniture 400
Depreciation (1,000+800+200) 2,000
Conversion expenses 1,000
Interest on loan (20,000 x 15% x 9/12) 2,250
(23,350)
Surplus/( Deficit) 14,150
Lahore Club
Balance Sheet
Rs.
Fund and liabilities
Fund
General Fund 30,000
Surplus/ (Deficit) 14,150
44,150
Loan Payable 20,000
Current Liabilities
Creditors 1,500
Rent payable 1,500
Interest payable (2,250-1,000) 1,250
4,250
Total 68,400
Assets
Non-Current Assets
Furniture and fixture (10,000-1,000) 9,000
Club House (40,000-800) 39,200
Extension of Club House (10,000-200) 9,800
58,000
Current Assets:
Bank 3,000
Cash 2,000
Debtors 2,400
Subscription receivable 2,000
Stocks (400+600) 1,000
10,400
Total 68,400
166
WORKINGS
(W-l) Profit from bar Rs. Rs.
Revenue 5,000
Less: COS
Op. stock 500
Purchases 4,000
Less: CI. Stock (400+600) (1,000) (3,500)
Profit 1,500

I and E (bal.) 32,000 Cash 30,000
cl. receivable 2,000
Answer-5
Medical Aid Society
Incomes Rs.
Donations 14,500
Interest on investments 7,000
Charity show profit (10,000-1,000) 9,000
Subscription (W-l) 51,000
81,500
Expenses
Medicine consumed (W-3) 29,000
Honorarium to doctors 10,000
Salaries 27,500
Sundry expenses 500
Depreciation
- Equipment (21,000+15,000-30,000) 6,000
- Building (40,000-38,000) 2,000
(75,000)
Medical Aid Society

Balance Sheet
Fund and liabilities Rs.
Fund
Opening fund (W-4) 169,500
176,000
Current liabilities
Amount due to medicine suppliers 12,000
Subscription in advance 500
12,500
Total 188,500
167
Assets
Non-Current Assets
Equipment 30,000
Building 38,000
68,000
Investments 100,000
Current Assets:
Stock of medicine 15,000
Cash and bank 4,500
20,500
Total 188,500
WORKINGS
(W-l) Dr. Subscription account Cr.
op. receivable 500 op. advance 1,000
I and E (bal.) 51,000 Cash 50,000
(W-2) Dr. Creditor for medicine Cr.
Bank 30,000 op. 8,000
cl. 12,000 Purchase (bal.) 34,000
(W-3) Dr. Medicine stock account Cr.
op. 10,000 I and E (bal.) 29.000
Creditors(Purchases) (W-2) 34,000 cl. 15,000
(W-4) Opening fund Rs
Assets
Subscription receivable 500
Equipment 21,000
Building 40,000
Investments *(7,000/7x100) 100,000
Cash and bank 7,000
178,500
Liabilities
Subscription in advance 1,000
Amount due to medicine suppliers 8,000
9,000
169,500
* Interest income is grossed up to calculate the opening cost of investment.
If the investments are not appearing on the payment side in receipt and payment account it means that
investments are appearing since last year.
168
Answer-6 Club
Incomes Rs.
Entrance fees 3,200
Profit from restaurant (W-l) 6,400
Competition profit (13,640-(W-4)4,300) 9,340
Miscellaneous income 80
48,640
Expenses
Wages 13.380
Rent (7,500/18Mxl2M) 5,000
Rates 2.200
Secretary's salary 3,120
Lighting,, cleaning and sanitary services 7,700
Printing, postage and sundries 6,000
Depreciation (48.000x10%) 4,800
(42.200)
Club
Balance Sheet
as on March 31, 2003 Rs.
Fund
56,830
Current Liabilities
Suppliers of restaurant 5,600
6,000
Total 62,830
Assets
Non-Current Assets
Furniture and equipment (48,000-4,800) 43,200
Fixed Deposit 8,000
Current Assets:
Cash and bank 5,880
Restaurants stock 3,000
Prepaid rent (7,500/l8Mx3M) 1,250
Prizes in hand 500
11,630
Total 62,830
169
WORKINGS
(W-1) Profit/(loss) from restaurant Rs. Rs.
Revenue 56,800
Less; COS
Op. Stock 2,600
Purchases (W-3) 50,800
Less: CI. Stock (3,000) (50,400)
Profit 6,400

op. receivable 700 op. advance
(W-3) Dr. Suppliers for restaurants Cr.

cl. 5,600 Purchases (bal.) 50,800
(W-4) Dr. Prizes account Cr.

op. 800 I and E (bal.) 4,300
Cash (Purchases) 4,000 cl. 500

Assets
Cash and bank 4,740
Furniture and Equipment 48,000
Restaurant stocks 2,600
Stocks of prizes 800
56,840
Liabilities
Rent Payable (1.1.2002 – 31.3.2002) (7,500/18Mx3M) 1,250
Suppliers of restaurant 5,200
6,450
`50,390
Answer-7 New Murree Recreation Club

Incomes Rs.
Profit from tennis section (W-l) 11,000
Profit from badminton section (W-l) 7,000
Profit from annual dinner (12,000-10,500) 1,500
Interest income (W-3) 1,200
Subscription 25,000
45,700
170
Expenses
Rates of club house 12,000
Miscellaneous expenses 14,000
Postage expense (W-2) 1,000
Depreciation
- Furniture (25,000 x 10%) 2,500
(29,500)
New Murree Recreation Club
Balance Sheet
as on December 31, 2002 Rs.
Fund
Opening Fund 417,500
433,700
New coaching scholarship fund 10,000
Current Liabilities
Tennis membership in advance (W-4) 54,000
Total 497,700
Assets
Non-Current Assets
Club house 250,000
Tennis court (100,000 + 100,000) 200,000
Less: Accumulated depreciation (20,000 + 20,000) (40,000)
Badminton court 50,000
Furniture (25,000 - 2,500) 22,500
462,500
Bank deposit account 14,200
Current Assets:
Cash and bank 20,800
Petty cash 200
21,000
Total 497,700
WORKINGS
(W-l) Profit from tennis section and badminton section Tennis Badminton
Membership subscription (W-4) 6,000
Sectional subscription 3 2,000 21,000
Entry fee 20,000 5,000
58,000 26,000
Less: Expenses
On tournament 15,000 4,000
Depreciation
- Tennis court (100,000+100,000)/10 20,000
- Badminton court (50,000/10) 5,000
General expenses 12,000 10,000
47,000 19,000
Profit 11,000 7,000
171
(W-2) Dr. Petty cash Cr.

op. 500 Postage exp. (bal.) 1,000
Cash and bank 700 c/d 200
(W-3) Dr. Bank Deposit account Cr.
op. 10,000
Cash and bank 3,000
Interest income (bal.) 1,200 cl. 14,200
(W-4) Dr. Tennis membership Cr.
cl. (60,000/10 x 9) 54,000
Answer-8
Sydney Club
For the year ended March 31, 2003
Incomes Rs.
Entrance donation 100,000
Interest income (500,000x12%) 60,000
Miscellaneous income 9,000
Swimming pool 80,000
Tennis court 2,000
455,750
Expenses
Loss on disposal of assets (10,000+8,000) 2,000
Depreciation (W-5) 49,000
Salaries (120,000+8,000) 128,000
Postage 40,000
Telephone and telex 52,000
Repairs and maintenance 48,000
Glass and Table Linen 12,000
Crockery and Cutlery 14,000
Garden Upkeep 8,000
Membership fees 4,000
Insurance (W-4) 6,000
Electricity (28,000+15,000) 43,000
(476,000)
Surplus/(Deficit) (20,250)
Sydney Club
Balance Sheet
Fund
Opening Fund (W-7) 1,029,850
Surplus/(Deficit) (20,250)
1,009,600
Building Fund account 250,000
172
Current Liabilities
Salary payable 8,000
Electricity payable 15,000
Creditors (W-3) 92,000
133,000
Total 1,392,600
Assets
Non-Current Assets
Fixed assets (W-5) 441,000
Government securities 500,000
Current Assets:
Cash 8,000
Bank 224,600
Stock 210,000
Interest receivable (60,000 - 58,000) 2,000
451,600
Total 1,392,600
WORKINGS
(W-1) Profit from bar Rs. Rs.
Revenue
- Coffee room 1,070,000
- Biscuits 610,000
1,680,000
Less: COS
Op. stock 380,000
Purchases 1,500,000
Less: CI. Stock (210,000) (1,670,000)
Profit 10,000

op. Receivable 12,000 op. advance 15,000
I and E (bal.) 194,750 Cash 202,750
(W-3) Dr. Creditor for purchases Cr.
Bank 1,520,000 op. 112,000
cl. (bal.) 92,000 Purchases 1,500,000
(W-4) Dr. Insurance expense Cr.
op. 1,000 I and E (bal.) 6,000
Cash 5,000 cl. -
(W-5) Dr. Fixed assets - at WDV Cr.
op. 500,000 Disposals 10,000
Depreciation 49,000
(500,000-10,000 ) x 10%
cl. (bal.) 441,000
173

Assets
Cash 10,000
Bank 3,850
Fixed assets 500,000
Stock 380,000
Government securities 500,000
Prepaid insurance 1,000
1,406,850
Liabilities
Sundry creditors 112,000
Subscription received in advance 15,000
(377,000)
1,029,850
Answer-9 Sargodha Boys Club
for the year ended December 31. 2002
Incomes Rs.
67,300
Expenses
Salaries (15,000x1/2) 7,500
Electricity 5,500
Cleaning 2,600
Sundry expenses 8,200
Bad debts 1,650
Depreciation
- Equipment (15,000 - 12,000) 3,000
- Vehicle (80,000 - 65,000) 15,000
- Furniture (40,000 - 36,000) 4,000
(47,450)
Sargodha Boys Club
Balance Sheet
Fund
174,850
Life membership fund (W-5) 74,200
Loan (W-3) 120,000
Current Liabilities
Total 372,600
174
Assets
Non-Current Assets
Club house 175,000
Equipment 12,000
Vehicle 65,000
Furniture 36,000
288,000
Current Assets:
Bar stock 8,000
Cash and bank (W-4) 72,800
84,600
Total 372,600
WORKINGS Rs. Rs.

(W-1) Profit from bar
Revenue 30,000
Less: COS
Op. Stock (W-8) 5,000
Purchases 15,000
Less: CI. Stock (8,000) (12,000)
Gross profit 18,000
Less: Salaries (15,000x1/2) (7,500)
Profit 10,500
(W-2) Dr. Subscript on account Cr.
op. Receivable 4,400 op. Advance 2,350
Bad debt 1,650
(4,400-2,750)
cl. Advance (1,200+2,350) 3,550 cl. receivable 3,800
(W-3) Dr. Loan account Cr.
Cash and bank 20,000 op. (bal.) 140,000
cl. (200,000-80.000) 120,000
(W-4) Receipt and payment account
b/d 25,150 Loan 20,000
Bar purchases 15,000
Subscription 56,950 Salaries 15,000
Life membership fund 27,000 Electricity 5,500
Bar sales 30,000 Cleaning 2,600
Sundry Expenses 8,200
c/d (bal.) 72,800
(W-5) Dr. Life membership subscription Cr.
b/d 47,200
c/d (bal.) 74,200 Cash 27,000
175
(W-6) Calculation of gross profit at bar

Net Profit = Gross profit - Expenses (1/2 of salaries)
10,500 = X-(1/2 of 15,000)
X = 18,000
(W-7) Calculation of cost of sales
Sales - COS = Gross profit (W-6 )
30,000-X = 18,000
X= 12,000
(W-8) Calculation of opening stock at bar
COS (W-7) = Op stock + Purchases-cl. Stock
12,000 = X + 15,000 - 8,000
X = 5,000
Assets
Club house 175,000
Equipment 15,000
Vehicle 80,000
furniture 40,000
Bar stocks (W-8) 5,000
344,550
Liabilities
Loan payable (W-3) 140,000
Life member ship fund 47,200
189,550
155,000
Answer-10
Barisha Recreation Club
Incomes Rs.
Sale of tickets for annual exhibition 10,000
Interest income (1,300+ 1,200) 2,500
Profit from refreshment (W-1) 6,600
21,250
Expenses
Rent expense (W-5) 1,200
Painting of club house 700
Wages of Ground Maintenance 1,500
General Expenses 1,300
176
Electricity Charges 1,800

Secretary's Honorarium 600
Annual Meeting Expenses 400
Printing and Stationery 500
Insurance (W-4) 320
Loss on sale of furniture (500-75) -100 325
Depreciation
- furniture (8,000-500) x 10% + (500 x 10% x 6/12) 775
- Equipment (1,800x10%) 180
(9,600)
Barisha Recreation Club
Balance Sheet
Fund
64,320
Life subscription (W-6) 4,500
Current Liabilities
Rent payable 100
Creditor for refreshment 500
800
'Total 69,620
Assets
Non-Current Assets
Land 20,000
Sports equipment (1,800-180) 1,620
Furniture (8,000-500) 7,500
Less: Accumulated depreciation (800+775-75) (1,500)
27,620
Investments (20,000 + 10,000) 30,000
Current Assets:
Interest receivable on investment 1,200
Stock of refreshment 2,100
Prepaid insurance 50
Subscription receivable (W-2) 350
Bank 6,300
Cash 2,000
12,000
Total 69,620
177
WORKINGS Rs. Rs.

(W-1) Profit from refreshment activity
Revenue 12,000
Less: COS
Op. stock 1,900
Purchases 5,600
Less: CI. Stock (2,100) (5,400)
Profit 6,600

op. receivable 150 op. advance 50
I and E (bal.) 2,150 Cash (100+1,800+200) 2,100
cl. advance 200 cl. Receivable (300+(150-100) 350
(W-3) Dr. Creditor for purchases Cr.

Bank 5,500 op. 400
cl. 500 Purchases (bal.) 5,600

op. 70 I and E (bal.) 320
Cash 300 cl. 50

Bank 1,300 b/d 200
c/d 100 I and E (bal.) 1,200
(W-6) Dr. Life membership subscription Cr.
b/d 2,500
c/d (bal.) 4,500 Cash 2,000
Assets
Cash in hand 500
Cash at bank 6,000
Stock of refreshment 1,900
Investment 20,000
Land 20,000
Furniture 8,000
Less : Accumulated depreciation (8,000 x 10%) (800)
55,820
Liabilities
Life membership subscription 2,500
Rent accrued 200
Creditors for refreshment 400
3,150
52,670
178
Answer-11
(i) Dr. Cash account Cr.
Op. 35 Bank 42,610
Glass, crockery etc. 1,3 10
Subscription 3,050 Wages 2,658
Bank 5,848 Insurance 210
Bar room takings 40,612 Sundry expense 257
Insurance receivable (bal.) 2,500
cl. -
(ii)
Comrades Club
Incomes Rs.
Subscription 3,050
7,904
Expenses
Rent and rates (W-2) 500
Insurance (40+210) 250
Electricity (W-3) 150
Telephone 59
Glass, crockery and maintenance 1,310
Wages 2,658
Sundry expenses 257
(5,184)
WORKINGS
(W-l) Profit from bar Rs. Rs.
Revenue 40,612
Less: COS
Op. Stock 3,607
Less: CI. Stock (2,916) (35,758)
Profit 4,854
(W-2) Dr. Rent and Rates expense Cr.

b/d 26 b/d 40
Bank 460 I and E (bal.) 500
c/d 82 c/d 28
(W-3) Dr. Electricity expense Cr.
Bank 156 op. 24
cl. 18 I and E (bal.) 150
179
Answer-12 Universal Brotherhood Club

Receipt and payment account
op. 14,000 Salaries 15,400
Subscription(W-l) 67,200 Sports goods purchased (11,200-5,600) 5,600
Investments Sold 6,720 Sports expenses 14,000
Interest income (7,000 x 5%) 350 Miscellaneous expense 4,200
Disposal 700 Rent 8,400
c/d (bal.) 41,370
Universal Brotherhood Club

Incomes Rs.
interest income on investments (7,000x5%) 350
Subscription 70,000
70,350
Expenses
Salaries (W-2) 14,000
Sports expenses 14,000
Rent 8,400
Loss on sale of investments (7,000-6,720) 280
Loss on sale of furniture (1,400-700) 700
Depreciation
- Furniture (2,800-1,400)x10% 140
- Sports goods (5,600x20%) 1,120
(42,840)
Universal Brotherhood Club

Balance Sheet
Fund
73,710
Current Liabilities
Salaries payable 700
6,300
Total 80,010
Assets
Non-Current Assets
Furniture account (W-3) 1,260
Sports goods (11,200-1,120) 10,080
11,340
180
Investments 7,000
Current Assets:
Salaries prepaid 700
61,670
Total 80,010
WORKINGS
I and E 70,000 Cash and bank (bal.) 67,200
(W-2) Dr. Salaries payable Cr.
op. 1,400
cl. 700 cl. (Adv.) 700
(W- 3) Dr. Furniture account Cr.
op. 2,800 Disposal 1,400
Depreciation (2,800-1,400) x 10% 140
cl. (bal.) 1,260

Assets
Furniture 2,800
Sports goods 5,600
Investments 14,000
50,400
Liabilities
Salaries payable 1400
4,200
46,200
Answer-13
(a)
Bilal Sports Club
Bar Trading account
Rs. Rs.
Revenue (see below) 101,370
Less: COS
Op. stock 8,400
Purchase (W-2) 72,950
Less: Cl. Stock (9,200) (72,150)
Profit 29,220
181
Calculation of sales
Cost of sale (As above) 72,150
Less: Cost of goods which are sold at cost (3,970)
Cost of goods which are sold at 30% of selling price 68,180
Selling price of goods which are sold at profit (68,180/70x100) 97,400
Selling price of goods which are sold at cost 3,970
Total sales 101,370
(b)
Bilal Sports Club
Subscription (W-l) 4,500 Purchase of equipment 1,000
Bar sales (part-a) 101,370 Lighting 2,620
Repairs to equipment 1,760
Bar creditors 74,550
Rental of premise 10,000
Club match expenses 6,750
Trophies 4,240
Refreshment for visiting teams 2,350
Saving account (bal.) 2,600
c/d -
(c) Bilal Sports Club
Incomes Rs.
Profit from bar (part-a) 29,220
Interest on saving account 3,500
Subscription 5,000
37,720
Expenses
Lighting 2,620
Rental of premises 10,000
Club match expenses 6,750
Trophies 4,240
Refreshment for visiting teams 2,350
Depreciation 4,100
(31,820)
(d) Bilal Sports Club
Balance Sheet
Fund
93,500
182
Current liabilities
Bar creditors 4,700
Total 98,200
Assets
Non-Current Assets
Equipment (40,000+1,000-4,100) 36,900
Current Assets
Bar stock 9,200
Saving account (W-3) 52,100
61,300
Total 98,200
WORKINGS
(W- 1) Dr. Subscription account Cr.
op. Receivable - Op. Advance (10x50) 500
I and E (100 x 50) 5,000 Cash and bank (bal.) 4,500
cl. advance - cl. receivable -
(W- 2) Dr. Creditor for bar Cr.

cl. 4,700 Purchase (bal.) 72,950
(W- 3) Dr. Saving account Cr.
b/d 46,000
Interest 3,500
Cash (put in) (part-b) 2,600 c/d (bal.) 52,100
Assets
Equipment 40,000
Bar stocks 8,400
Saving account 46,000
94,400
Liabilities
Bar creditors 6,300
6,800
87,600
Answer-14
(i)
Sandhead Club
b/d 15,000 Bar purchases (55,000-30,000) 25,000
Subscription (W-2) 42,250 Bar salaries and exp. 4,000
183
Life mem. fund (W-6) 4,800 Govt. Securities 50,000

Donation 50,000 Salaries 12,000
Bar sales (W-4) 20,000 Repairs 5,000
Bar debtors 32,000 Electricity 12,000
Sale of furniture 750 Miscellaneous exp. 14,000
c/d 18,800
(ii)
Sandhead Club
Incomes Rs.
55,000
Expenses
Depreciation furniture (W-5) 120
Loss on sale of furniture ((W-5)800-750) 50
Bad debt 500
Salaries 12,000
Repairs 5,000
Electricity 12,000
(43,670)
(iii) Sandhead Club

Balance Sheet
Fund
Opening fund 102,700
Transferred from life membership fund (W-6) 1,000
115,030
Donation Fund 50,000
Current Liabilities
Total 226,630
Assets
Non-Current Assets
Building 100,000
Equipment 15,000
Furniture 1,080
116,080
Government Securities 50,000
184
Current Assets
Interest receivable 4,500
Bar debtors 10,000
Bar stock 25,000
Subscription receivable (W-2) 2,250
60,550
Total 226,630
WORKINGS
(W-1)Profit from bar Rs. Rs.
Revenue (40,000/80x100) 50,000
Less: COS
Op. stock 10,000
Purchases 55,000
Less: CI. Stock (25,000) (40,000)
Gross profit 10,000
Less: Expenses (4,000)
Profit 6,000
op. receivable 1,500 op. Advance 1,000
I and E (as below) 44,500 Cash (bal.) 42,250
Bad debt (5 x 100) 500
cl. advance - cl. Receivable (15 x 150) 2,250
Subscription income (290 members x Rs. 150) + (10 members x Rs. 100) 44,500
We have received Rs.100/member from 10 members in previous year which is current year income. In the
current year subscription from remaining 290 members @ Rs.150 will also be taken to income of current
year.
(W- 3) Dr. Creditor for purchases Cr.
Bank 24,000 op. 14,000
cl. (bal.) 20,000 Purchases 30,000
(W- 4) Dr. Bar debtors Cr.
op. 12,000 Bank 32,000
Sale 30,000 c/d 10,000
Cash sale= 50,000-30,000 =
20,000
(W- 5) Dr. Furniture account Cr.
op. 2,000 Disposal (see below) 800
Depreciation (see below) 120
(2,000-800) x 10%
cl. 1,080
If book value of assets after depreciation is given then we calculate depreciation charge for the
year and book value of assets excluding disposals.
Depreciation for the year (1,080/90x10) 120
Opening Book value of assets excluding disposals (1,080/90x100) 1,200
Book value of assets disposed off (2,000 - 1,200) 800
185
(W- 6) Dr. Life membership fund a/c Cr.

General Fund 1,000 b/d 37,800
c/d 41,600 Cash (4x1,200) 4,800
Answer-15
b/d 1,000 Salaries 6,000
Repair 1,000
Building Fund 60,000 Newspaper 1,000
Sale of old newspaper 500 Printing and stationery 500
Fee for coaching 2,000 Rates and taxes 1,000
Sundries 200 Electricity 400
Subscription 29,600 Sundries 200
(4,000+25,000+600) Building account 50,000
c/d 33,200
Journal entry for building donation and construction Dr. Cr.

Cash 60,000
(on receipt of specific donation for construction of asset)
Building account 50,000
Cash 50,000
(On construction of building)
Answer-16
Kanpur Cricket club
b/d 16,000 Investments (12,000-0) 12,000
Buildings (W-2) 10,000
Subscription (W-1) 52,400 Sports equipment (W-4) 3,000
Sale of furniture 4,000 Books (W-5) 3,000
Donation 5,000 Expenses (bal.) 32,300
c/d 17,100
Kanpur cricket club
Incomes Rs.
Expenses
Expenses (W-6) 30,300
Loss on sale of furniture (6,000-4,000) 2,000
Depreciation
- Building 4,500
186
- Furniture 3,400
- Sports Equipment 5,400
- Books 1,800
(47,400)
Kanpur Cricket club
Balance Sheet
Fund
Donation 5,000
186,800
Current Liabilities
Outstanding expenses 1,200
2,200
Total 189,000
Assets
Non-Current Assets
Building 85,500
Furniture 30,600
Sports equipment 21,600
Books 16,200
153,900
Investments 12,000
Current Assets
Prepaid expenses 1,000
Cash 17,100
23,100
Total 189,000
WORKINGS
I and E 54,900 Cash (bal.) 52,400
Subscription income
Subscription income from April 2002 to September 2002 (310 members x Rs. 15x6 months) 27,900
Subscription income from October 2002 to March 2003 (300 members x Rs. 15x6 months) 27,000
54,900
(W- 2) Dr. Building account Cr.

op. 80,000 Depreciation 4,500
Cash 10,000 cl. 85,500
187
(W- 3) Dr. Furniture a/c Cr.

Cash - Depreciation 3,400
cl. 30,600
(W- 4) Dr. Sports equipment Cr.
Cash 3,000 cl. 21,600
(W- 5) Dr. Books account Cr.
Cash 3,000 cl. 16,200
(W- 6) Dr. Expenses Cr.
Op. prepaid 800 Op. Payable 3,000
Cash 32,300 I and E (bal.) 30,300
(From receipt and payment acc.)
Cl. Payable 1,200 Cl. Prepaid 1,000
(W-7) Opening fund
Assets Rs.
Building 80,000
Furniture 40,000
Prepaid expenses 800
Books 15,000
Cash 16,000
178,800
Liabilities
4,500
174,300
Answer-17
Woodburn Club
for the year ended December 31,2002
b/d (bal.) 54 Salaries 700
Subscription (W-1) 840 General expenses 200
Donations 430 Fixed assets purchased (W-2) 160
c/d 264
WORKINGS
I and E 800 Cash (bal.) 840
cl. advance 16 cl. receivable
- 2001 (80-72) 8
- 2002 28
188
(W- 2) Dr. Fixed assets account Cr.

b/d 1,040 Depreciation 120
Cash (bal.) 160 c/d 1,080
Answer-18
Boat Club
b/d 18,500 Salaries (W-2) 18,500
Subscription (W-1) 39,000 General expenses 10,000
Entrance fees 10,500 Audit fee 2,500
Donation 12,000 Printing and stationery 6,000
Sale of old periodicals 500 Interest and bank charge 3,000
Rent (W-3) 3,500
Periodicals 4,000
Travelling expenses 2,500
c/d (bal.) 30,500
Boat Club
Balance Sheet
as on December 31,2002
Fund
Opening Fund 37,000
46,000
Current Liabilities
Salaries payable 2,500
3,500
Total 49,500
Assets
Non-Current Assets
Furniture (7,500-1,500) 6,000
16,000
Current Assets:
33,500
Total 49,500
WORKINGS
op. receivable 4,000 op. Advance 1,000
I and E 38,000 Cash and bank (bal.) 39,000
189
(W-2) Dr. Salaries Cr.

Cash and bank (bal.) 18,500 Op. 1,500
cl. 2,500 I and E 19,500
(W-3) Dr. Rent Cr.
Cash and bank (bal.) 3,500 Op. 500
cl. - I and E 3,000
190
ICAP PAST PAPER QUESTIONS

QUESTION-1
At October 01, 1999, a club Membership subscription account showed a debit balance of Rs. 200,000 and
a credit balance of Rs. 90,000. During the year ended September 30, 2000, subscription received
amounted to Rs. 480,000. On the same date subscription paid in advance amounted to Rs. 85,000, and
subscription in arrear and expected to be collected amounted to Rs. 50,000.
Required:
The amount to be transferred to the income and expenditure account in respect of subscriptions for the
year ended September 30, 2000. (05)
(Spring 2001)
QUESTION-2
The Mayfair Sports and Social Club's assets and liabilities for the previous and current year were as
follows:
At December At December
31,2002 31, 2003
Rs. Rs.
Equipment 125,000 140,000
Subscriptions in arrears 10,000 9,000
Subscriptions in advance 6,500 5,500
Creditors for soft drinks stock 17,500 21,500
Soft Drinks stocks 40,000 30,000
Rent owing 7,500 5,000
Electricity owing 5,250 7,000
Bank balance 36,150 65,000
During the year the cash receipts were:
Subscriptions (including Rs. 3,000 of arrears from

previous year and the balance to be written off) 105,000
Soft Drinks takings 205,000
Sale of tickets for annual dinner 120,000
Sale of raffle tickets 9,000
The following payments were made during the year:
Affiliation fees 5,000
Purchase of equipment 40,000
Soft Drinks stocks 102,500
Soft Drinks salesman's wages 37,500
Catering 72,000
Hire of band 15,000
Raffle prizes 3,000
Rent of hall 75,000
Printing and postage 10,000
Electricity 29,050
Hon. Secretary's expenses 6,100
Required: The Mayfair Sports and Social Club's
(i) Soft Drinks trading account for the year ended December 31, 2003 (03)
(ii) Income and expenditure account for the year ended Dec. 31, 2003 (07)
(iii) Balance sheet as at 31 December 2003. (05)
(Spring 2004, Q # 4)
191
QUESTION-3
The treasurer of the Karachi Social Club prepared the following Receipts & Payments account for the
year ended 30th September 1993:
Receipt Rs. Rs. Payment Rs. Rs.
1992 1st Oct. Bal. b/f 1993
Current account 1,320 Payment for bottle purchases 12,230
Deposit account 2,100 Rent & Rates 7,880
Cash in hand 60 3,480 Payment to entertainers 3,360
Printing & stationery 1,720
General expenses 4,490
1993: Bottle Stewards Wages 8,300
Subscription 13,690
Bottle Sales 24,850 Balance c/f
Other sales from devices etc. 4,570 Current account 6,400
Legacy from former member 2,000 Deposit account 4,600
Bank deposit interest 420 Cash in hand 30 11,030
49,010 49,010
The following information is made available to you:-
(a) Opening & Closing balances:
1 Oct. 1992 30 Sep. 1993
Rs. Rs.
Bottle Stocks 1,630 1,850
Subscription in arrears. 770 620
Subscription in advance 250 310
Creditors for bottle purchases 1,330 1,150
Rent & Rates accrued 750 820
Fidelity bond given by Steward. 200 200
(b) The bottle sales of Rs.480 on the evening of 30th September 1993 have been retained in the
steward's office and are not included in the above receipts and payments accounts.
Required:
(a) A trading account to show the Profit arising from the bottle. (06)
(b) Income & Expenditure account of the Club for the year ended 30th September 1993, and (06)
(c) A Balance Sheet as on that date. (08)
(May 1996, Foundation Part -1, Q # 5)
QUESTION-4
Following is the Receipts and payments Account of Friends club for the year ended 31st December 1993:
Balance at bank 1st January 1,020 New Furniture 4,500
Club entrance fees 420 Bakery purchases 44,340
Subscriptions 1992 250 Wages 4,160
1993 3,050 Rent 1,860
1994 350 Utilities. 1,280
Club bakery sales 52,270 Postage, Stationery etc. 330
Sales of investments 7,500 Insurance. 180
Sundry expenses. 460
Balance at bank 31st Dec.1993 7,750
64,860 64,860
192
(1) On 31st December 1992, the Club held investments which cost Rs.5,000. During the current year
these were sold for Rs.7,500.
(2) Furniture was valued at Rs.3,000 on 31st December 1992. On 30th June 1993, the club purchased
additional furniture at a cost of Rs.5,200. Depreciation of all furniture is to be provided for at the
rate of 10%p.a.
(3)
31st December
1992 1993
Rs. Rs.
Utilities expenses due 160 190
Subscription due 250 400
Rent due 180 360
Bakery stock (cost) 2,720 3,150
Creditors for bakery purchases 3,060 3,580
Prepaid Insurance 50 70
Required: Prepare Income and Expenditure Account for the year ended 31st December 1993 and a
Balance Sheet at that date. (15)
(November 1995, Q# 3)
QUESTION-5
Following is the Receipts and Payments Account of Cessna Sporting Club for the year ended 31st
December, 1993:
RECEIPTS Rs. PAYMENTS Rs.
Cash at bank and in hand on 1st Jan.93 4,000 National Savings Account. 9,800
Receipts from Billiard Room 4,400 Salaries of staff (including Dec. 1992 7,020
salaries Rs. 580)
Receipts from Bowling Green 3,800 Glass, China, Linen etc. 4,400
Receipts from Green Fees 3,980 Sundry Creditors of 1992 1,180
Rent of Lockers 1993 200 Term Deposit. 8,000
Rent of Lockers 1994 1,460 Newspaper & Magazines 1,160
Takings from Dining Room 56,000 Entertainment. 1,480
Imran Khan Pavilion Fund 39,240
Collection Repairs, Cleaning and Washing 4,840
Sale of tickets for Annual Dinner 3,560 Expenditure of Imran Khan Pavilion 29,780
Sale of tickets for Entertainment 6,000 Secretary's salary 3,000
Entrance Fees 8,720 Printing, Stationery & Postage. 4,660
Annual Subscription 1992 600 Utility bills 2,520
Annual Subscription 1993 26,660 Cost of food etc. 48,000
Annual Subscription 1994 1,000
(in advance) Cost of Annual Dinner 3,100
Rent, rate & taxes 9,240
Profit on National savings 380
Account Balance at bank and in hand 21,820
160,000 160,000
(1) The value of Club assets on 1st Jan. 1993 was:
 Furniture & Fixtures Rs. 30,000;
 Glass, China, Linen Rs. 6,400;
 Stock of Stationery Rs.1,000;
 Consumable Stores Rs.2,500.
193
(2) On 31st December, 1993 the stocks were:

 Stationery Rs. 1,500 and
 Consumable stores Rs. 1,900.
(3) The unpaid subscriptions for 1993 were Rs. 900 and there was a sum of Rs. 980 due to creditors
for food supplied and Rs. 600 due to staff as salary for Dec. 93.
(4) Depreciation is to be charged @ 10% p.a. on Furniture &Fixtures and 20% on Glass, China Linen
etc.
(5) Entrance Fees are also to be considered as revenue.
Required:
Prepare an Income and Expenditure Account for the year ended 31 Dec. 93 and a Balance Sheet as on that
date. Also prepare Balance Sheet as on 31 Dec. 92 showing net Club funds as on that date. (20)
(April 1994, Q# 4)
QUESTION-6
Following is the Receipts and Payments Account of Sehat Club for the year ended 30 June 2011:
Receipts and Payments Account
For the year ended 30 June 2011
Opening balance 15,000 Salaries 63,500
Subscriptions 201,000 Rent 34,000
Entrance fees 63,000 Travelling expenses 1,500
Donations 38,000 Printing and stationery 1,000
Interest 16,000 General charges 2,500
Receipt on disposal of furniture 500 Periodicals 500
Investments 200,000
Closing balance 30,500
333,500 333,500
Balance Sheet
As on 30 June 2010
Funds & Liabilities Rs. Assets Rs.
General Fund 172,500 Furniture – net 40,000
Liabilities: Rent 11,000 Sports equipments – net 20,000
Salaries 17,500 Investments 100,000
Interest receivables 11,000
Bank balance 15,000
201,000 201,000
Other details for the year ended 30 June 2011 are as follows:
(i) Furniture purchased on 1 July 2009 costing Rs. 4,000 was disposed off on 1 January 2011 at a
scrap value of Rs. 500.
(ii) On 1 July 2010, furniture having written down value of Rs. 6,000 was traded-in with new
furniture having fair value of Rs. 6,700.
(iii) Depreciation is charged on diminishing balance basis at 20% on furniture and 15% on sports
equipments.
(iv) Sports equipments worth Rs. 12,000 were received at year end as donation.
(v) Following amounts are receivable / outstanding as at 30 June 2011:
Rs.
Entrance fee receivable 3,000
Salaries outstanding 4,000
Rent outstanding 2,000
194
Required:
Prepare an income and expenditure account of Sehat Club for the year ended 30 June 2011 and its balance
sheet on that date. (18)
(Autumn 2011, Q # 5)
QUESTION-7
The following balances have been obtained from the books of Gulshan Cricket Club:
June 30, 2007 June 30, 2008
Building 6,024,000 6,438,150
Furniture 3,012,000 2,710,800
Books 1,129,500 1,246,950
Sports equipments 1,807,200 1,595,200
Investments - 436,000
Advance subscription 86,000 92,000
Prepaid expenses 122,000 176,000
Expenses payable 186,900 207,600
Subscriptions receivable 326,000 357,000
Cash 1,204,800 1,586,500
The following information is also available in respect of the year ended June 30, 2008.
(i) Depreciation for the year has been credited directly to the asset accounts. The rates of
depreciation are as follows:
Building 5%
Furniture and books 10%
Sports equipments 20%
(ii) The club had 600 members on June 30, 2008. No fresh members were admitted during the year
but 10 members left the club on January 1, 2008. Subscription per member is Rs. 500 per month.
Required:
(a) Summary of receipts and payments made during the year ended June 30, 2008.
(b) Income and Expenditure Account for the year ended June 30, 2008. (20)
(Autumn 2008, Q # 4)
QUESTION-8
The following information available from the records of ABC Sports Association for the year ended June
30, 2002:
Rs.
- Subscription received 250,000
- Upkeep of play ground 30,000
- Entrance fees received 80,000
- Rent paid 12,000
- Salaries and wages 32,000
- Travelling expenses 9,000
- Stock of equipment on July 1, 2001 90,000
- Tournament expenses 14,000
- Printing and stationery 30,000
- General expenses 60,000
- Tournament fees received 25,000
- Tournament prizes awarded 7,000
- Donations received 110,000
- Stock of refreshments on July 1, 2001 5,400
- Purchases of canteen stores and refreshments 84,600
- Cash and bank balances 470,000
- General fund 300,000
- Subscription arrears 180,000
- Creditors for expenses 33,000
195
(a) Subscription in arrears as on June 30, 2002 were as follows:

For 1999-2000 20,000
For 2000-2001 30,000
For 2001-2002 130,000
During the year, arrear subscription totaling Rs. 90,000 relating to earlier periods has been collected.
(b) Donations of Rs. 110,000 include Rs. 40,000 received on tournament account.
(c) 25 percent of the entrance fees has to be capitalized.
(d) Stock of refreshments as on June 30, 2002 was as under:
Rs.
Value of provisions, stores, etc. 20,000
Value of eatables and perishables 5,000
Value of mineral water bottles, cigarettes etc. 3,000
(e) Separate funds and books of account are maintained for tournaments and separate profit is to be
calculated for tournament. The Management Committee decided to value the items as follows:
(i) To value provisions and stores at cost.
(ii) The stock of perishables and eatables on the basis of realized sale proceeds on the
subsequent day to the closing of accounts. Sales of eatables and perishables on July 1,
2002 amount to Rs. 2,750.
(iii) Mineral water bottles and cigarettes are to be valued at 80 percent of their purchase price.
(iv) A bill for the brochure brought out for the tournament is pending settlement and is for Rs.
12,000.
(v) Depreciation charge at the rate of 15% on net book value.
Required:
Prepare income and expenditure account for ABC Sports Association only for the year ended June
30,2002. (18)
(Spring 2003, Q # 5)
QUESTION-9
The accountant of Executive Club has resigned and Mr. Imdad has been assigned the task of preparing the
accounts for the year ended December 31, 2006. On taking charge, Mr. Imdad found that the books had
not been written since January. After searching the available records and discussing various issues with
members of the management committee, he was able to gather the following information:
1. A member of management committee controls the receipts relating to snooker table charges,
which totaled Rs. 3,225,000.
2. Members' subscriptions amounting to Rs. 3,650,000 were received during the year. Of these, Rs.
75,000 relate to the year 2007.
3. Rs. 3,000,000 had been donated for a new building and this sum is to be credited to Building
Reserve account.
4. The club provides catering services on which a profit margin of 20% of sales is earned. Stocks
and purchases relate to these services.
5. The carrying value of snooker tables as at January 1, 2006 was Rs. 4,900,000. The cost of the
tables was Rs. 9,000,000. Tables acquired during the year were installed on December 31, 2006.
10 percent deposit on the newly acquired tables was paid on November 1, 2006. Balance is
payable in January 2007. The expected life of each table is six years with nil scrap value.
196
6. A summary of the bank account for the year showed the following:
Rs. Rs.
Balance at Jan. 1, 2006 198,500 Insurance 90,000
Bank deposits (comprising of 26,160,500 Rent and rates 1,480,000
receipts from snooker table Electricity 735,000
charges, subscriptions, donation Purchases 18,155,000
and catering services) Communications 92,500
Withdrawals 4,232,500
10% deposit on new
snooker tables 130,000
Balance at Dec. 31, 2006 1,444,000
26,359,000 26,359,000
7. A summary of expenditure paid from petty cash is as follows:
Rs.
Glasses and crockery 430,000
Wages 1,975,000
Sundry club expenses 290,000
Repairs to snooker equipment 510,000
8. Mr. Imdad was also able to ascertain the following balances as at December 31:
2006 2005
Rupees Rupees
Prepaid rent 150,000 125,000
Electricity bills payable 155,000 120,000
Suppliers balances 2,330,000 1,430,000
Stocks 2,995,000 1,940,000
Stocks of crockery 550,000 685,000
9. The club has a fidelity insurance policy and any cash deficiency up to a maximum of Rs.
1,000,000 is recoverable under the policy.
Required:
(a) An income and expenditure account for the year ended December 31, 2006 showing separately,
the results relating to catering services. (19)
(b) A balance sheet as at December 31, 2006. (07)
(Spring 2007, Q# 4)
QUESTION-10
The treasurer of a golf club has produced the following receipts and payments account for the year ended
31 December 2012:
Balance at 1 January 2012 157,800 Canteen payments 213,000
Subscriptions 654,900 Wages & salaries – clubhouse 284,000
Canteen receipts 331,400 Wages & salaries – canteen 78,900
Golf course fees 284,000 Course repairs 149,900
Events receipts 86,800 Insurance 72,000
Competition fees 46,600 Electricity 47,300
Course equipment sold 19,800 Telephone 19,700
Events expenses 47,300
Competition expenses 12,600
Balance at 31 December 2012 641,600
1,581,300 1,581,300
197
(i) Opening and closing balances of current assets and liabilities are as follows:
1 January 2012 31 December 2012
-------Amount in Rupees----
Canteen trade payables 71,000 55,200
Canteen inventory 60,000 39,500
Telephone due 3,900 5,900
Competition expenses due 3,200 3,900
(ii) Fixed assets balances at 1 January 2012, and the applicable depreciation rates are as follows:
Accumulated
Cost Rate of dep.
Depreciation
on cost
-----Amount in Rupees----
Clubhouse and course 3,156,000 214,600 5%
Fixtures and fittings 552,000 166,000 10%
Course equipment 1,262,000 542,000 20%
(iii) The value of clubhouse and course comprises of freehold land and buildings in the ratio of 60:40.
(iv) Course equipment costing Rs. 55,000 was disposed of during the year for Rs. 19,800. The
equipment had been purchased on 1 January 2008. No depreciation is charged in the year of
sale.
(v) The insurance premium paid during the year covers the period 1 October 2012 to 30 September
2013. The premium for the previous year amounted to Rs. 48,000.
(vi) The canteen manager is entitled to a bonus equal to 20% of canteen profits after charging his
bonus.
(vii) NRV of the opening canteen inventory was Rs. 55,200.
Required:
(a) A Canteen Trading Account for the year ended 31 December 2012. (04)
(b) An Income & Expenditure Account for the year ended 31 December 2012 and a balance sheet of
the club as at that date. Results of canteen, competition and events should be shown separately as
a line item. (20)
(Spring 2013, Q#2)
QUESTION-11
Seaview Club started its operations on 1 February 2015, Sponsor of the club contributed Rs.50 million
towards general fund for the start of operations and placed the amount in the bank. Following is the
receipts and payments summary for the period from the period from 1 February 2015 to 31 December
2015.
Receipts Rs. in ‘000 Payments Rs. in ‘000
Sponsor's contribution 50,000 Furniture & fixtures 1,200
Joining fees 20,800 Van 1,500
Subscription from members 29,952 Salaries 1,000
Sale of beverages 1,500 Rent 3,600
Utilities 570
Insurance 120
Repairs and maintenance 275
Payments for purchase of beverages 1,367
Advance for plot 65,000
Balance 27,620
102,252 102,252
198
(i) The joining fee for award of membership is Rs.50,000. Annual subscription is Rs. 24,000. All
new members pay three years' subscription in advance. The memberships were awarded as
follows:
Month March June September December
No. of members 112 98 101 105
(ii) All sales of beverages are billed in the first week of the next month and the payment is received
in the same month. Sale of beverages during December 2015 amounted to Rs.150,000.
(iii) Purchases made during the year of beverages amounted to Rs. 1,760. 25% of total purchases of
beverages made during the year remained unsold at year-end.
(iv) Salaries are paid on the first day of next month. The amount of salaries includes an advance
amounting to Rs. 10,000 paid to an employee on 1 December 2015. The advance is repayable on
1 February 2016.
(v) Rent for three years was paid in advance on 1 February 2015.
(vi) Presently the club is operating on rental premises. However, a plot of land has been purchased on
which construction would commence shortly. Title of land would be transferred after completion
of legal formalities.
(vii) Payments for utilities include security deposit paid to utility companies amounting to Rs.20,000.
Utility bills are paid on the 7th day of the next month.
(viii) Insurance premium was paid on 1 February 2015 covering a period of 12 months.
(ix) Repairs and maintenance include an advance of Rs.100,000 paid to contractor for construction of
a parking shed. Repair bills amounting to Rs.7,000 were outstanding at year-end.
(x) Furniture & fixtures and van were purchased on 1 February 2015. Depreciation on these assets is
to be charged at 10% and 20% respectively.
Required
Prepaid statement of financial position as at 31 December 2015 and income & expenditure account of
Seaview Club for the period ended 31 December 2015. (20)
(Spring-16 Q.1 CAF-05)
QUESTION-12
The Old Citizen Association furnished the following information for the year ended December 31, 2004:
(1) They started the year with Rs. 37,600 in the bank and ended with an overdraft of Rs. 45,600,
which was secured by the deposit of investments with the bank.
(2) They received subscriptions amounting to Rs. 66,800 out of which Rs. 2,000 were arrears,
Rs.60,800 and Rs. 4,000 represented current subscriptions and advance respectively.
(3) They received Rs. 41,600 donations for the General Fund. Rs. 68,000 donations were received for
Medical Aid Fund out of which Rs. 57,600 was paid.
(4) Government securities at January 1, amounted to Rs. 160,000. Half of these were sold for
Rs.100,000. These investments produced interest of Rs. 2,800 during the year.
(5) Office premises were purchased on December 31, 2004 for Rs. 240,000 and a mortgage was
arranged through a bank for Rs. 120,000. Legal expenses amounted to Rs. 8,400. One installment
of Rs. 6,400 was paid to the bank of which Rs. 3,600 was interest. Alterations and decorations of
the premises amounted to Rs. 45,600 of which Rs. 12,000 was still owing.
(6) Office furniture was valued at Rs. 12,000 at January 1, 2004 Rs. 13,600 was paid for additions on
January1, 2004 and Rs. 5,600 was still owing. Depreciation is estimated at 10 per cent per annum.
(7) Other payments were:
Rs.
Office Salaries 28,000
Rent and rates 13,600 (Rs. 4,000 was payable on December 31, 2003)
Stationery and postage 12,000
Other expenses 69,200 (of which Rs. 6,400 related to next year)
199
Required:
(a) Prepare accounting entry for above transaction
(b) Prepare balance sheet
(c) Receipt and Payment Account for the year ended December 31, 2004. (09)
(d) Income and Expenditure Account for the year ended December 31, 2004. (10)
(Spring 2005, Q # 5)
QUESTION-13
The Accountant of Gharib Charitable Hospital has prepared following Receipts & Payment Account for
the year ended on December 31, 1999:
Receipt & Payment Account
For the year ended on December 31,1999
Cash at bank and in hand 27,342 Medicines 49,131
OPD charges 59,673 X-Rays Film 25,000
X-Rays charges 40,440 Laboratory supplies 8,517
Laboratory charges 24,867 Consultant fees 156,500
In-patient billings 567,230 Salaries 298,450
Donations 345,200 Electricity 324,710
Cleaning & general 38,549
Stationery & supplies 19,825
Repairs & maintenance 25,221
Telephone charges 31,750
Equipment 54,000
Cash at bank and in hand 33,099
1,064,752 1,064,752
Following additional information is available:
a) Position of certain assets and liabilities as at December 31, 1999 and 1998 was as under:
1999 1998
Salaries due 22,520 26,780
X-Rays charges 2,780 1,600
In-patient billings 57,920 27,270
Laboratory charges 2,100 1,900
Stock of medicines 7,450 6,230
Stock of Laboratory supplies & X-Rays Films 3,980 4,170
Electricity bill due 30,100 24,200
Telephone bill due 2,720 2,100
Cleaning & General due 3,710 2,400
Consultants fees payable 15,500 12,000
Equipment 614,000 560,000
Furniture 100,000 100,000
Creditors for:
- medicines 4,500 4,000
- x-rays films 3,500 4,000
- lab supplies 1,300 1,200
(b) Both furniture and equipment as at December 31, 1998 were purchased in 1997 when hospital
started its operations.
(c) It is hospital's policy to charge depreciation @ 10% p.a.
Required:
(a) Income & Expenditure Account for the year ended on December 31, 1999 and
(b) Balance Sheet as at that date. (23)
200
QUESTION-14
The accountant of Leisure Club was terminated on account of charges of fraud on 31 December 2016 and
Mr. Emad has been appointed in his place. Emad has gathered the following information in respect of the
year ended 31 December 2016:
(i) The club has 3,300 members and the membership fee is Rs. 10,000 per annum. The fee payable by
each member becomes due on the first day of the quarter in which he became a member. The fee received
in each quarter was as follows:
Quarter First Second Third Fourth Total
Subscription received (Rs.) 9,900,000 8,250,000 5,500,000 9,350,000 33,000,000
Last year the fee was Rs. 9,000 per annum. However, the number of members was the same.
(ii) A summary of the bank account for the year is shown below:
Deposits Rs. Withdrawals Rs.
Balance as at 1 Jan. 2016 3,700,500 Insurance 175,000
Cash deposited into bank 37,848,500 Rent and rates 4,200,000
Written off amount recovered 1,860,000 Utilities 4,365,000
Disposal of fixed assets 750,000 Freehold land purchased 17,000,000
Members subscription received 19,800,000 Cash withdrawals from bank 6,120,000
directly in bank account Payment to creditors 18,155,000
Exercise equipment 7,350,000
Balance as at 31 Dec. 2016 5,894,000
63,959,000 63,959,000
(iii) Amounts paid from petty cash were as follows:
Rs.
Salaries 2,300,000
(iv) The club has a tuck shop which earns a profit margin of 20% of sales. All sales of tuck shop are
made on cash. During the year, stock costing Rs. 500,000 was destroyed by fire.
(v) The opening WDV of fixed assets was Rs. 28,000,000. Exercise equipment was purchased on 1
October 2016. Fixed assets having opening WDV of Rs. 800,000 were disposed off on 31 March
2016. Fixed assets are depreciated @ 20% under the reducing balance method.
(vi) The opening and closing balances of cash in hand were Rs. 300,000 and Rs. 25,000 respectively.
(vii) The following balances have been extracted through a scrutiny of the available records:
2016 2015
------Rupees------
Creditors 3,330,000 2,500,000
Prepaid rent 175,000 168,000
Stock- tuck shop 2,500,000 2,300,000
Required:
(a) Determine the amount of loss incurred by the club due to fraud committed by the previous
accountant. (09)
(b) An income and expenditure account for the year ended 31 December 2016. (05)
(c) Statement of financial position as at 31 December 2016. (06)
(Spring 2017, Q # 1)
201
QUESTION-15
Violin Family Club was formed in 2016. Following are the details of assets and liabilities of the
club as on 31 December 2017:
Assets Rs. in '000’ Liabilities Rs. in '000’
Subscription in arreas: Bank overdraft 181
2016 15 Subscription in advance for 2018 45
2017 90 Accrued electricity 23
Advance rent 24 Canteen wages 11
Canteen stock 215 Canteen creditors 118
Snooker tables 960
Furniture & equipment 720
2,024 378
(i) Some of the balances as on 31 December 2018 are as follows:
Assets Rs. in '000’ Liabilities Rs. in '000’
Subscription in arrears for 30 Accrued electricity 35
2018
Canteen stock 247 Canteen creditors 142
(ii) Break-up of the subscription received during 2018 is as follows:
Related to year Rs. in ‘000’
2017 60
2018 920
2019 75
The club's management has decided to write-off the remaining subscription in arrears
relating to the year 2016 and 2017.
(iii) A scheme was introduced in 2016 under which a person is awarded life time membership
upon payment of Rs. 120,000. Life memberships received in the years 2016, 2017 and
2018 were 5, 8 and 6 respectively. Life memberships are credited to ‘Life Membership
Fund’ upon receipt and are transferred to income equally over 10 years, starting from the
year of admission.
(iv) The club operates a canteen. Till last year, the canteen earned a gross profit of 20% of
sales. Effective 1 January 2018, selling prices were increased by 10%.
(v) Details of some payments during 2018 are as follows:
Rs. in ‘000’
Canteen creditors 512
Salaries 285
Equipment 66
Electricity 263
(vi) Equipment acquired during the year is only 30% paid and the remaining amount is
payable in February 2019.
(vii) Wages of canteen staff are paid on 5th of each month.
(viii) The club operates from a rented place. The rent is paid quarterly in advance on 1 March,
1 June, 1 September and 1 December. As per agreement, annual rent was increased by
Rs. 6,000 with effect from 1 September 2018.
202
(ix) Balance of snooker tables as at 31 December 2017 represents the book value of 5 similar
tables purchased in 2016. One of the tables was sold to a member for cash during the year
for Rs. 212,000.
(x) Snooker tables are depreciated at 12.5% on straight line method while furniture &
equipment are depreciated at 20% using reducing balance method. Full year depreciation
is charged in the year of addition whereas no depreciation is charged in the year of
disposal.
Required:
(a) Prepare income and expenditure account for the year ended 31 December 2018 (12)
(b) Prepare statement of financial position as on 31 December 2018 (09)
(Spring 2019, Q # 6)
203
ICAP PAST PAPER SOLUTIONS

Answer-1
Amount to be transferred to income ad expenditure account is (W-1) Rs. 335,000.
(W-1)
1 and E (bal.) 335,000 Cash 480,000
620,000 620,000
Answer- 2
(i) Profit from soft drinks Rs. Rs.
Revenue 205,000
Less: COS
Op. stock 40,000
Purchases 106,500
Wages 37,500
Less: Cl. Stock (30,000) (154,000)
Profit 51,000
(ii)
Mayfair Sports and Social Club
Incomes Rs.
Profit from soft drinks 51,000
Profit of raffle (9,000 – 3,000) 6,000
289,000
Expenses
Affiliation fees 5,000
Catering 72,000
Hire of band 15,000
Rent of hall (W-5) 72,500
Printing and postage 10,000
Hon. Secretary expenses 6,100
Bad debt (W-2.1) 7,000
(258,400)
Surplus/ (deficit) 30,600
204
(iii)
Mayfair Sports and Social Club
Balance Sheet
Fund
205,000
Current Liabilities
Creditors for soft drinks 21,500
Rent owing 5,000
Electricity owing. 7,000
39,000
Total 244,000
Assets
Non-Current Assets
Equipment 140,000
Current Assets
Soft drinks stocks 30,000
Subscription in arrears 9,000
Bank 65,000
104,000
Total 244,000
WORKINGS
(W-1) Opening fund
Assets
Equipment 125,000
Soft drinks stocks 40,000
Subscription in arrears 10,000
Bank 36,150
211,150
Liabilities
Creditors for soft drinks 17,500
Rent owing 7,500
Electricity owing 5,250
(36,750)

1 and E (bal.) 112,000 Cash and bank 105,000
Bad debt (W-2.1) 7,000
127,500 127,500
205
Rs.
(W-2.1)Opening receivable 10,000
Less: Received during the year (3,000)
Bad debt 7,000
(W-3) Dr. Creditors for soft drinks Cr.
124,000 124,000
(W-4) Dr. Equipment Cr.
op. 125,000 Depreciation (bal.) 25,000
Cash and bank 40,000 c/d 140,000
165,000 165,000
(W-5) Dr. Rent Cr.

cl. 5,000 I and E (bal.) 72,500
80,000 80,000
cl. 7,000 I and E (bal.) 30,800
36,050 36,050
Answer- 3
Profit from Bottles
Rs.
Bottles sales (24,850+480) 25,330
Less: COS
Op. stock 1,630
Wages 8,300
Less: Cl. Stock (1,850) (20,130)
Profit 5,200
As Rs. 480 is with steward so we will debit the Cash and credit the Sale.
b) Karachi Social Club
for the year ended September 30, 1993
Incomes Rs.
Profit from bottles (part-a) 5,200
Other sales from devices 4,570
Interest on bank deposit 420
23,670
Expenses
Rent and rates (W-4) 7,950
Entertainers expense 3,360
(17,520)
206
Karachi Social Club

Balance Sheet
as on September 30,1993
Fund Rs.
Opening Fund ((W-1) 3,350 + 2,000) 5,350
11,500
Current Liabilities
Creditors for bottles purchases 1,150
Rent and rates accrued 820
Fidelity bond given by steward 200
2,480
Total 13,980
Assets
Current Assets
Bottles stocks 1,850
Subscription in arrears 620
Current account 6,400
Deposit account 4,600
Cash (30+480) 510
13,980
Total 13,980
WORKINGS
(W-1) Opening fund
Assets Rs.
Bottles stocks 1,630
Cash 60
5,880
Liabilities
Creditors for bottles purchases 1,330
Rent and rates accrued 750
Fidelity bond given by steward 200
(2,530)
3,350
(W-2) Dr. Subscription account Cr
I and E (bal.) 13,480 Cash and bank 13.690
cl. advance 310 cl. receivable 620
14,560 14,560
(W-3) Dr. Creditors-Bottles purchases Cr
cl. 1,150 Purchases (bal) 12,050
13,380 13,380
207
(W-4) Dr. Rent and rates Cr.

Cash and bank 7,880 op 750
cl. 820 I and E (bal.) 7,950
8,700 8,700
Answer -4
Friends Club
Incomes Rs.
Club entrance fees 420
Profit from bakery (W-l) 7,840
Profit on sale of investments (7,500-5,000) 2,500
14,210
Expenses
Wages 4,160
Utilities (W-5) 1,310
Postage stationery etc. 330
Insurance (W-7) 160
Sundry expenses 460
Depreciation (3,000 x 10%) + (5,200 x 10% x 6/12) 560
(9,020)
Friends Club
Balance Sheet
Rs.
Fund
Opening Fund 8,640
13,830
Current Liabilities
Utilities expenses due 190
Rent due 360
Creditors for bakery purchases 3,580
Subscription advance 350
Payable for furniture (5,200 – 4,500) 700
5,180
Total 19,010
Assets
Non-Current Assets
Furniture (W- 4) 7,640
Current Assets
Subscription due 400
Bakery Stock 3,150
Bank 7,750
11,370
Total 19,010
208
WORKINGS
(W-l) Profit from bakery
Rs.
Club sales bakery 52,270
Less: COS
Op. stock 2,720
Less: Cl. Stock (3,150) (44,430)
Profit 7,840
(W-2)
op. receivable 250 op. advance -
I and E (bal.) 3,450 Bank (250+3,050+350) 3,650
4,050 4,050
(W-3)
Dr. Creditors for bakery purchases Cr.
Bank 44,340 Op. 3,060
47,920 47,920
(W-4)
Dr. Furniture Cr.
Op. 3,000
Additions (Adjustment 2) 5,200 Dep. (3,000 x 10%+5,200 x 10% x 6/12) 560
cl. 7,640
8,200 8,200
(W-5)
Dr. Utility expense Cr.
Bank 1,280 Op. payable 160
cl. payable 190 I and E (Bal.) 1,310
1,470 1,470
(W-6)
Dr. Rent expense Cr.
Bank 1,860 Op. 180
cl. 360 I and E (Bal.) 2,040
2,220 2,220
(W-7)
Dr. Insurance expense Cr.
Op. 50 I and E (Bal.) 160
Bank 180 cl. 70
230 230
(W-8) Opening fund
Assets Rs.
Bakery Stock 2,720
Bank 1,020
Investments 5,000
Furniture 3,000
12,040
209
Liabilities
Utilities expenses due 160
Rent due 180
Creditors for bakery purchases 3,060
3,400
8,640
Answer- 5
Cessna Sporting Club
Incomes Rs.
Billiard room 4,400
Bowling Green 3,800
Green fees 3,980
Rent of lockers (W-4) 200
Income from dining room (W-l) 5,320
Profit from entertainment (6,000-1,480) 4,520
Entrance fee 8,720
Profit on National Saving account 380
58,880
Expenses
Salaries to staff (W-5) 7,040
Newspaper and magazine 1,160
Repairs, cleaning and washing 4,840
Secretary's salary 3,000
Printing, stationery and postage (W-6) 4,160
Utility bills 2,520
Rent, rates and taxes 9,240
Depreciation – Furniture (30,000x10%) 3,000
Stores consumed (W-7) 600
(35,560)
Cessna Sporting Club
Balance Sheet
Fund
Opening Fund 42,740
66,060
Imran Khan Pavilion Fund 39,240
Current Liabilities
Creditors for food 980
Salary payable to staff 600
Advance rent of lockers 1,460
Advance subscription 1,000
4,040
Total 109,340
210
Assets
Non-Current Assets
Furniture and fixtures (30,000 - 3,000) 27,000
Glass, China, Linen (6,400 + 4,400 - (W-1) 2,160) 8,640
Imran Khan Pavilion 29,780
65,420
Investments
National Saving account 9,800
Term Deposits 8,000
Current Assets
Stationery 1,500
Consumable stores 1,900
26,120
Total 109,340
WORKINGS
(W-l) Profit from dining room
Takings from dining room 56,000
59,560
Less: Cost of sales
Cost of annual dinner 3,100
Depreciation Glass china linen (6,400 + 4,400) x 20% 2,160 (54,240)
Profit 5,320
(W-2)
opening receivable 600 opening advance -
1 and E (bal.) 27,560 Cash and bank (600+26,660+1,000) 28,260
closing advance 1,000 closing receivable 900
29,160 29,160
(W-3)
Dr. Creditors for food Cr.
Cash and bank (48,000 + 1,180) 49,180 op. 1,180
50,160 50,160
(W-4)
Dr Rent lockers Cr.
Cash and bank (200 + 1,460) 1,660
I and E (bal.) 200
cl. Advance 1,460
1,660 1,660
(W-5)
Dr. Salaries staff Cr.
Cash and bank 7,020 op. 580
cl. 600 I and E (bal.) 7,040
7,620 7,620
211
(W-6)
Dr. Stationery Cr.
op. 1,000
cl. 1,500
5,660 5,660
(W-7)
Dr. Consumable stores Cr
Op. 2,500
Cash and bank - I and E (Bal.) 600
cl. 1,900
2,500 2,500
(W-8) Opening fund
Assets Rs.
Furniture and fixtures 30,000
Glass, China, Linen 6,400
Stationery 1,000
Consumable stores 2,500
44,500
Liabilities
Creditors 1,180
Salary payable to staff 580
(1,760)
42,740
Answer-6
Sehat Club
for the year ended June 30, 2011
Incomes Rs.
Entrance fees (W-2) 66,000
Donations (38,000+12,000) 50,000
Interest (W-3) 5,000
Gain on exchange of asset (W-7) 700
315,700
Expenses
Rent (W-11) 25,000
Travelling expense 1,500
General charges 2,500
Periodicals 500
Depreciation – sports equipment (20,000 x 15%) 3,000
Depreciation – furniture (W-9) 7,820
Loss on disposal of asset (W-6) 2,380
(93,700)
Surplus 222,000
212
Sehat Club
Balance Sheet
As on June 30, 2011
Fund:
394,500
Current liabilities:
Salaries outstanding 4,000
6,000
Total 400,500
Assets
Non-Current Assets:
Sports equipment (W-4) 29,000
59,000
Investments (100,000+200,000) 300,000
Current Assets:
Bank 30,500
Entrance fee receivable 3,000
41,500
Total 400,500
WORKINGS
Op. receivable 15,000 Cash and bank 201,000
I and E (bal.) 194,000 cl. receivable 8,000
(W-2) Dr. Entrance fee account Cr.

Op. receivable - Cash and bank 63,000
I and E (bal.) 66,000 cl. receivable 3,000
(W-3) Dr. Interest income Cr.
Op. 11,000 Cash and bank 16,000
I and E (bal.) 5,000 cl. 0
(W-4) Dr. Sports equipment Cr.
Op. 20,000 Depreciation expense 3,000
Donation (Additions) 12,000 cl. (bal.) 29,000
(W-5) Dr. Furniture account Cr.
b/d 40,000 Disposal (W-8) 2,880
Disposal (new) 6,700 Disposal 6,000
Depreciation expense (W-9) 7,820
c/d (bal.) 30,000
(W-6) Dr. Disposal account (Adj. # i) Cr.

Furniture a/c (old) (W-8) 2,880 Cash and bank 500
P and L (bal.) 2,380
213
(W-7) Dr. Disposal account (Adj. # ii) Cr.

Furniture a/c (old) 6,000 Furniture (new) 6,700
P/L (bal.) 700
Entry for exchange: Dr. Cr.

Furniture (new) 6,700
P/L (bal.) 700
Furniture (old) 6,000
(W-8) WDV of disposals
Cost 4,000
Less: Depreciation 30.6.2010 (4,000x20%) (800)
WDV (30.06.2010) 3,200
Less: Depreciation till 1.1.2011 (3,200 x 20% x 6/12) (320)
WDV (1.1.2011) 2,880
(W-9) Depreciation expense – furniture
Depreciation – on opening assets excluding disposals
Opening assets WDV 40,000
Disposals WDV ((W-8) 3,200+6,000) (9,200)
30,800 20% 6,160
Depreciation – on additions (6,700x20%) 1,340
Depreciation – on disposals (W-8) 320
7,820
(W-10) Dr. Salaries account Cr.
op. 17,500
cl. 4,000
(W-11) Dr. Rent account Cr.
op. 11,000
cl. 2,000
Answer-7
It was a good question which tested the analytical skills of the students. Examinees were required to
calculate the additions made to the non-current assets by grossing up the book value using the
depreciation rates given. Further the opening and closing balances of receipt and payment account were
given and no information was given regarding expense incurred during the year so expense paid would be
calculated as a balancing figure in the receipt end payment account. The students which were able to
understand the above mentioned points had no problem in preparing the income and expenditure account.
(a)
Gulshan Cricket Club
Receipt and Payment Account
For the year ended June 30, 2008
b/d 1,204,800 Building (W-2.1) 753,000
Subscription (W-1) 3,605,000 Furniture (W-2.2) -
Books (W-2.3) 256,000
Equipment (W-2.4) 186,800
Investment 436,000
Expenses (bal. fig.) 1,591,500
c/d 1,586,500
4,809,800 4,809,800
214
WORKINGS
(W-l)
Dr. Subscription a/c Cr.
b/d 326,000 b/d 86,000
I & E (W-1.1) 3,630,000 Cash (bal. fig.) 3,605,000
c/d 92,000 c/d 357,000
4,048,000 4,048,000
(W-1.1) Subscription income for the year
Period Covered Months Member Rate/month Total
From Jul 1, 2007 - Dec 31, 2007 6 610 500 1,830,000
From Jan 1, 2008 - Jun30, 2008 6 600 500 1,800,000
Total income 3,630,000
(W-2)
For the purpose of calculating additions figure for non-current assets we will prepare the relevant asset
accounts. Opening and closing balances of asset accounts have been given and the rate of depreciation is
given in the question so we can calculate the depreciation figure using the closing book values of asset
accounts. For example if depreciation rate is 5%, it means that closing book value represents 95%. After
calculating the depreciation figure the additions will be the balancing figure.
(W-2.1)
Dr. Building account Cr.
b/d 6,024,000 Depreciation (6,438,150x 5/95) 338,850
Additions (bal. fig.) 753,000 c/d 6,438,150
6,777,000 6,777,000
(W-2.2)
Dr. Furniture account Cr.
b/d 3,012,000 depreciation (2,710,800 x 10/90) 301,200
Additions (bal. fig.) - c/d 2,710,800
3,012,000 3,012,000
(W-2.3)
Dr. Books account Cr.
b/d 1,129,500 Depreciation (1,246,950 x 10/90) 138,550
1,385,500 1,385,500
(W-2.4)
Dr. Equipment Cr.
b/d 1,807,200 Depreciation (1,595,200 x 20/80) 398,800
1,994,000 1,994,000
(b)
Income and Expenditure Account
for the year ended June 30. 2008
Rs. Rs.
Income
Subscription (W-1.1) 3,630,000
Expenditure
Expenses (other than depreciation) (W-1) 1,558,200
Depreciation
- Building 338,850
- Furniture 301,200
215
- Books 138,550
- Sports Equipment 398,800 2,735,600
WORKINGS
(W-1)
The payment of expenses has already been calculated in the part (a) as balancing figure and the opening
and closing balances of expense payable and prepaid expenses have been given in the question, so putting
all these in the T account we can calculate the expense for the year as balancing figure.
Dr. Expense account Cr.
b/d 122,000 b/d 186,900
Cash (part-a) 1,591,500 1 &. E (bal. fig.) 1,558,200
c/d 207,600 c/d 176,000
1,921,100 1,921,100
As far as the answer is concerned, it is complete, now lets move forward and check the solution. Think for
5 minutes before you proceed that how the solution can be checked.
Balance sheet
as on June 30, 2008
2007 2008
Assets
Building 6,024,000 6,438,150
Furniture 3,012,000 2,710,800
Books 1,129,500 1,246,950
Sports equipments 1,807,200 1,595,200
Investments - 436,000
Cash 1,204,800 1,586,500
Prepaid expenses 122,000 176,000
Subscription receivable 326,000 357,000
Total assets 13,625,500 14,546,600
Liabilities
Expenses payable 186,900 207,600
Advance subscription 86,000 92,000
Total liabilities 272,900 299,600
Fund (Total assets - Total liabilities) 13,352,600 14,247,000
-Fund 2008 14,247,000
Fund 2007 (13,352,600)
Difference (Surplus/ (deficit) as calculated above) 894,400
Answer-8
ABC Sports Association
Incomes Rs.
Entrance fee (80,000-25% of 80,000) 60,000
Donations (110,000-40,000) 70,000
Profit on tournament (W-l) 32,000
452,000
216
Expenses
Canteen store and refreshment consumed (W-4) 64,850
Upkeep of play ground 30,000
Rent 12,000
Salaries and Wages 32,000
Depreciation – equipment (90,000 x 15%) 13,500
(251,350)
WORKINGS
(W-l) Profit from tournament
Revenue 25,000
Donation 40,000
65,000
Less: Expenses
Tournament expenses 14,000
Tournament prizes awarded 7,000
Brochure expense 12,000 (33,000)
Profit 32,000

op. receivable 140,000 Cash 250,000
(20,000+30,000+90,000) cl. receivable 180,000
(20,000 + 30,000 + 130,000)
1 and E (bal.) 290,000
430,000 430,000
As the receivable of 2000 and 2001 is outstanding on 30.6.2002, so to arrive at the op. receivable
at 1.7.2001 we have to add in this balance the receipts of previous years received in current year.
(W-3) Stock of refreshment
Cost Value
Value of provisions, stores etc. 20,000 20,000
Value of eatables and perishables 5,000 2,750
Value of mineral water bottles, cigarettes (3,000 x 80%) 3,000 2,400
25,150
Subsequent sale of eatables shows that NRV on balance sheet date was Rs. 2,750.
(W-4) Dr. Canteen store and refreshment consumed Cr.

b/d 5,400 I and E (bal.) 64,850
Cash 84,600 c/d (W-3) 25,150
430,000 430,000
217
Answer- 9
(a)
Executive Club
Incomes Rs.
Receipts from snooker table 3,225,000
Profit from catering services (W-l) 4,500,000
Subscription (W-2) 3,575,000
11,300,000
Expenses
Insurance 90,000
Rent and rates (W-6) 1,455,000
Communications 92,500
Wages 1,975,000
Sundry club expenses 290,000
Repairs to snooker equipment 510,000
Glass and crockery consumed (W-5) 565,000
Depreciation (9,000,000/6) 1,500,000
Misappropriation expense (W-4.1) 6,242,000
(13,489,500)
Deficit (2,189,500)
(b) Executive Club
Balance Sheet
Fund
Surplus/(Deficit) (2,189,500)
4,109,000
Building Reserve account 3,000,000
Current Liabilities
Suppliers 2,330,000
Electricity bills payable 155,000
Payable for snooker tables (W-8) 1,170,000
3,730,000
Total 10,839,000
Assets
Non-Current Assets
Snooker table (9,000,000 + (W-8) 1,300,000) 10,300,000
Less Accumulated depreciation (4,100,000+1,500,000) (5,600,000)
4,700,000
Current Assets:
Bank 1,444,000
Prepaid rent 150,000
Stocks 2,995,000
Stocks of crockery 550,000
Insurance claim receivable 1,000,000
6,139,000
Total 10,839,000
218
WORKINGS
(W-1) Profit from catering services
Rs. Rs.
Revenue (W-1.1) 22,500,000
Less: COS
Op. stock 1,940,000
Purchases (W-3) 19,055,000
Less: CI. Stock (2,995,000) (18,000,000)
Profit 4,500,000
(W-1.1)
Revenue = (Cost of sales (W-1) / 80 x 100)
= 18,000,000/ 80 x 100
= 22,500,000
(W-2)
I and E (bal.) 3,575,000 Cash 3,650,000
cl. advance 75,000
3,650,000 3,650,000
(W-3)
Dr. Supplier account Cr.
Bank 18,155,000 op. 1,430,000
cl. 2,330,000 Purchases (bal.) 19,055,000
20,485,000 20,485,000
(W-4)
Dr. Cash account Cr.
op. - Glass and crockery 430,000
Snooker table charges 3,225,000 Wages 1,975,000
Subscription 3,650,000 Sundry club exp. 290,000
Building reserve fund 3,000,000 Repairs 510,000
Revenue 22,500,000 Bank 26,160,500
Bank 4,232,500 Misappropriation exp. (bal.) 7,242,000
c/d -
36,607,500 36,607,500
(W-4.1) Journal entry for cash misappropriation
Dr. Cr.
Insurance claim receivable 1,000,000
I and E (bal.) 6,242,000
Cash 7,242,000
(Cash misappropriation transferred to income and expenditure)
(W-5)
Dr. Glass and crockery account Cr.
op. 685,000 I and E (bal.) 565,000
Cash 430,000 cl. 550,000
1,115,000 1,115,000
(W-6)
Dr. Rent and rates Cr.
op. 125,000 I and E (bal.) 1,455,000
Bank 1,480,000 cl. 150,000
1,605,000 1,605,000
219
(W-7)
Dr. Electricity Cr.
Bank 735,000 op. 120,000
cl. 155,000 I and E (bal.) 770,000
890,000 890,000
(W-8) Journal entry for snooker table purchased
Dr. Cr.
Snooker table (130,000/10 x 100) 1,300,000
Bank 130,000
Payable for snooker table (bal.) 1,170,000
By grossing up the deposit of 130,000 given in bank account we can calculate the cost.
On additions no depreciation will be charged because these were purchased on December 31.
(W-9) Opening fund
Assets Rs.
Snooker table 9,000,000
Less: Accumulated Depreciation (4,100,000)
Stocks 1,940,000
Stocks of crockery 685,000
Bank 198,500
7,848,500
Liabilities
Suppliers 1,430,000
Electricity payable 120,000
(1,550,000)
Opening Fund 6,298,500
Answer-10
(a) Golf Club
Trading account for canteen
Rs. Rs.
Revenue 331,400
Less: Cost of sales
Opening stock (Lower of cost or NRV) 55,200
Wages 78,900
Less: Closing Stock (39,500) (291,800)
Profit before bonus 39,600
Less: Bonus (39,600/120 x 20) (6,600)
Profit after bonus 33,000
(b)
Golf Club
Incomes Rs.
Canteen profit (Part-a) 33,000
Golf course fees 284,000
Event profit (86,800 - 47,300) 39,500
Gain on sale of course equipment (W-8) 8,800
Competition profit (46,600 - (W-4) 13,300) 33,300
1,085,000
220
Expenses
Wages and salaries club house 284,000
Course repairs 149,900
Electricity 47,300
Telephone expense (W-3) 21,700
Depreciation
Club house and course (3,156,000 x 40%) x 5% 63,120
Fixtures and fittings (552,000 x 10%) 55,200
Course equipment (W-7) 241,400
(931,620)
Surplus 153,380
Golf Club
Balance Sheet
Fund and Liabilities
Fund
4,332,280
Current Liabilities
Canteen trade payable 55,200
Telephone due 5,900
Competition expense due 3,900
Bonus payable (part-a) 6,600
107,100
Total 4,439,380
Assets
Non-Current Assets
Club house and course 3,156,000
Fixtures and fittings 552,000
Course equipment (W-6) 1,207,000
Less: Accumulated depreciation (W-7) (739,400)
3,676,680
Current Assets:
Canteen inventory 39,500
Subscription arrears 27,600
Insurance prepaid (W-5) 54,000
762,700
Total 4,439,380
WORKINGS
(W-1) Dr. Canteen trade payables Cr.
221

(W-3) Dr. Telephone Cr.
cl. 5,900 I and E (bal.) 21,700
(W-4) Dr. Competition expenses Cr.
cl. 3,900 I and E (bal.) 13,300
(W-5) Dr. Insurance expenses Cr.

op. (48,000/12 x 9) 36,000 I and E (bal.) 54,000
Cash and bank 72,000 cl. (72,000/12 x 9) 54,000
(W-6) Dr. Course equipment Cr.

op. 1,262,000 Disposal 55,000
cl. (bal.) 1,207,000
(W-7) Dr. Accumulated depreciation Cr.

Disposal (55,000 x 20% x 4) 44,000 op. 542,000
cl. (bal.) 739,400 Depreciation 241,400
(1,262,000 - 55,000) x 20%
(W-8) Dr. Disposal Cr.

Course equipment 55,000 Accumulated dep. 44,000

Assets
Canteen inventory 55,200
Subscription arrears 15,800
Club house and course 3,156,000
Less: Accumulated depreciation (214,600)
Course equipment 1,262,000
Prepaid insurance (W-5) 36,000
4,312,200
Liabilities
Canteen trade payables 71,000
Subscription advance 55,200
Telephone due 3,900
Competition expense due 3,200
(133,300)
4,178,900
222
Answer-11
Seaview Club
Rs. in ‘000’
Incomes
Profit from beverages (W-1) 330
Joining fee income 20,800
Subscription income (W-2) 4,630
25,760
Expenses
Insurance (W-6) (110)
Rent (3,600/36 months x 11 months) (1,100)
Salaries (W-4) (1,089)
Utilities (W-5) (605)
Repairs and maintenance (W-7) (182)
Depreciation (W-3) (385)
(3,471)
Surplus 22,289
Seaview Club
Statement of Financial Position
General Fund and liabilities Rs. in ‘000’
General Fund
General fund balance inserted 50,000
72,289
Non-current liabilities
Subscription in advance - non current 15,338
portion
Current Liabilities
Subscription in advance - current (W-2) 9,984
portion
Creditors (W-1.2) 393
Salary payable (W-4) 99
Repair and maintenance payable 7
Utilities payable (W-5) 55
10,538
Total 98,165
Assets
Non-Current Assets
Furniture and Fixture (1,200 - 110) 1,090
Van (1,500 - 275) 1,225
2,315
Advance rent (3,600/36M x (25-12) = 13M) 1,300
Security deposit 20
223
Current Assets:
Receivable of Beverages 150
Stocks (W-1) 440
Advance salary 10
Advance rent (3,600/36M x 12M) 1,200
Advance for plot 65,000
Bank 27,620
Advance for shed 100
Prepaid Insurance (W-6) 10
94,530
Total 98,165
WORKINGS
(W-1) Profit from beverages Rs.
Revenue (W-1.2) 1,650
Less: COS
Op. stock 0
Purchases 1,760
Less: Closing Stock (1,760 x 25%) (440)
Cost of sales (1,320)
Profit 330
(W-1.1)
Dr. Creditor Cr.
Cash 1,367 Opening -
Closing (bal.) 393 Purchases 1,760
(W-1.2)
Dr. Debtor account- Beverages Cr.
Op. receivable - Cash 1,500
Sales (bal.) 1,650 cl. Receivable 150
(W-2)
Op. receivable - Op. advance -
I and E (see below) 4,630 Cash 29,952
cl. Advance (bal.) 25,322 cl. receivable
Income for the year Rs. in ‘000’
Income from members entered in March (112 members x Rs. 24 x 10/12) 2,240
Income from members entered in June (98 members x Rs. 24 x 7/12) 1,372
Income from members entered in September (101 members x Rs. 24 x 4/12) 808
Income from members entered in December (105 members x Rs. 24 x 1/12) 210
4,630
Break-up of closing advance in current and non-current portion
Closing advance as per T- account 25,322
Less: Current portion (112 + 98 + 101 + 105) x Rs.24 (9,984)
Non-current portion 15,338
(W-3) Depreciation Expense for the year
Furniture and Fixture (1,200 x 10% x 11/12) 110
Van (1,500 x 20% x 11/12) 275
385
224
(W-4)
Dr. Salaries account Cr.
Cash 1,000 I and E (bal.) 1,089
cl. Payable (see below) 99 cl. Advance 10
Salaries paid from February - November (1,000 - 10) 990
Salary for December yet payable (990/10 months) 99
(W-5)
Dr. Utilities expense Cr.
Cash (570 – 20) 550 I and E (bal.) 605
c/d (550/10M x 1M) 55
(W-6)
Dr. Insurance expense Cr.
Cash 120 I and E (bal.) 110
c/d (150/12 x 1) 10
(W-7)
Dr. Repair expense Cr.
Cash (275 – 100) 175 I and E (bal.) 182
c/d 7
Answer-12
(a) Old Citizen Association
Receipt and Payment account
Dr. for the year ended December 31,2004 Cr.
Rs. Rs.
b/d (opening balance of bank) 37,600
Subscription account 66,800 Medical Aid Fund 57,600
General Fund 41,600 Office Premises 240,000
Medical Aid Fund 68,000 Premises (legal expense) 8,400
Government securities- Sale proceeds 100,000 Loan repayment (6,400-3,600) 2,800
Interest on securities 2,800 Interest on loan 3,600
Loan (mortgage) 120,000 Premises (alteration and decoration) 33,600
(45,600-12,000)
Furniture 13,600
Office salaries 28,000
Rent and rates 13,600
c/d (closing O/D balance of bank) 45,600 Other expenses 69,200
482,400 482,400
(b)
Old Citizen Association
Incomes Rs.
Profit on sale of Government securities (100,000-(W-2)80,000) 20,000
Interest on Government securities 2,800
83,600
225
Expenses
Interest on loan 3,600
Depreciation ((W-3)31,200 x 10%) 3,120
Office salaries 28,000
Other expenses (W-5) 62,800
(119,120)
Surplus/ (deficit) (35,520)
WORKINGS
I and E (bal.) 60,800 Bank 66,800
cl. advance 4,000 cl. receivable -
66,800 66,800
(W-2) Dr. Government securities Cr.
op. 160,000 Disposal (160,000/2) 80,000
cl. (bal.) 80,000
160,000 160,000
(W-3) Dr. Office Furniture account Cr.
op. 12,000
Bank 13,600
Payable for furniture 5,600 cl. (bal.) 31,200
31,200 31,200
(W-4) Dr. Rent and rates Cr.

op. payable 4,000
Bank 13,600 I and E (bal.) 9,600
13,600 13,600
(W-5) Dr. Other expenses Cr.

Bank 69,200 I and E (bal.) 62,800
cl. Advance 6,400
69,200 69,200
Note: It is assumed that legal expenses are for the purpose of premises
Journal entries for understanding purposes (Not a part of ICAP question) Dr. Cr.
(3) Bank 41,600
General Fund 41,600
(General fund receipts)
Bank 68,000
Medical Aid Fund 68,000
(Specific fund receipts to meet expenses)
Medical Aid Fund 57,600
Bank 57,600
(Expenditure from specific fund)
(4) Bank 100,000
P and L 20,000
Government securities (160,000/2) 80,000
(Entry for disposal of investment)
226
(5) Premises 240,000

Bank 240,000
(Purchase of premises)
Bank 120,000
Loan (Mortgage) 120,000
(Loan arranged for premises)
Premises 8,400
Bank 8,400
(legal expense paid- assumed for the purpose of premises)
Loan (bal.) 2,800
Interest Expense 3,600
Bank 6,400
(Repayment of loan and interest)
Premises (alteration and decoration) 45,600
Bank (bal.) 33,600
Payable for alteration and decoration 12,000
Answer-13
(a) Gharib Charitable Hospital
Incomes Rs.
OPD charges 59,673
X-Ray charges (W-1) 41,620
Laboratory charges (W-3) 25,067
In-patient billing (W-2) 597,880
Donation 345,200
1,069,440
Expenses
Medicines (W-4) 48,411
Laboratory supplies and X-Ray films (W-5) 33,307
Consultant fees (W-11) 160,000
Cleaning and general (W-10) 39,859
Stationery and supplies 19,825
Telephone charges (W-9) 32,370
Depreciation
Equipment (W-6) 61,400
Furniture (100,000 x 10%) 10,000
(1,055,193)
(b) Gharib Charitable Hospital
Balance Sheet
Fund
666,079
227
Current Liabilities
Salaries due 22,520
Electricity bill due 30,100
Telephone bill due 2,720
Cleaning and general due 3,710
Consultant fee payable 15,500
Creditors
- Medicine 4,500
- X-ray films 3,500
- Lab supplies 1,300
83,850
Total 749,929
Assets
Non-Current Assets
Furniture (100,000-10,000) 90,000
642,600
Current Assets:
X- Ray charges receivable 2,780
In patient billings receivable 57,920
Laboratory charges receivable 2,100
Stock of laboratory supplies and X-ray films 3,980
107,329
Total 749,929
WORKINGS
(W-1)
Dr. X- Ray charges receivable Cr.
op. 1,600 Cash and Bank 40,440
I and E(bal) 41,620 cl. 2,780
43,220 43,220
(W-2)
Dr. In patient billings receivable Cr.
I and E(bal) 597,880 cl. 57,920
625,150 625,150
(W-3)
Dr. Laboratory charges receivable Cr.
I and E(bal) 25,067 cl. 2,100
26,967 26,967
(W-4)
Dr. Stock of medicine Cr.
op. 6,230 I and E (bal) 48,411
Creditor-medicine (W-12) 49,631 cl. 7,450
55,861 55,861
228
(W-5)
Dr. Stock of laboratory supplies and X-ray films Cr.
op. 4, 170
Creditor X-ray (W-13) 24,500 I and E (bal) 33,307
Creditor laboratory supp. (W-14) 8,617 cl. 3,980
37,287 37,287
(W-6)
Dr. Equipment Cr.
b/d 560,000 Depreciation
(560,000+54,000) x 10% 61,400
Cash and Bank 54,000 cl. 552,600
614,000 614,000
It is assumed that all additions took place at the start of the year.
(W-7)
Dr. Salaries expense Cr.
Cash and Bank 298,450 Op. 26,780
cl. 22,520 I and E (bal) 294,190
320,970 320,970
(W-8)
Dr. Electricity bill expense Cr.
cl. 30,100 I and E (bal) 330,610
354,810 354,810
(W-9)
Dr. Telephone bill expense Cr.
cl. 2,720 I and E(bal) 32,370
34,470 34,470
(W-10)
Dr. Cleaning and general expense Cr.
cl. 3,710 I and E (bal) 39,859
42,259 42,259
(W-11)
Dr. Consultant fee payable Cr.
cl. 15,500 I and E(bal) 160,000
172,000 172,000
(W-12)
Dr. Creditor-Medicine Cr.
cl. 4,500 Medicine 49,631
53,631 53,631
(W-13)
Dr. Creditor-X-ray films Cr.
cl. 3,500 Stock- X ray film (bal.) 24,500
28,500 28,500
229
(W-14)
Dr. Creditor-lab supplies Cr.
cl. 1,300 Stock-Lab. Supplies (bal.) 8,617
9,817 9,817
(W-15) Opening fund

Assets Rs.
X- Ray charges receivable 1,600
In patient billings receivable 27,270
Laboratory charges receivable 1,900
Stock of laboratory supplies and X-ray films 4,170
Equipment 560,000
Furniture 100,000
728,512
Liabilities
Salaries due 26,780
Electricity bill due 24,200
Telephone bill due 2,100
Clearing and general due 2,400
Consultant fee payable 12,000
Creditors
- Medicine 4,000
- X-ray films 4,000
- Lab supplies 1,200
(76,680)
651,832
Answer-14
(a)
Leisure club
Cash Receipts Rs. Cash Payments Rs.
Opening Bal. 300,000 Salaries 2,300,000
Bank withdrawal 6,120,000 Bank 37,848,500
Subscription(33,000,000 – 19,800,000) 13,200,000 Sundry Expenses 640,000
Tuck shop sales(w-5) 22,856,250 Cash Misappropriation(bal.) 1,662,750
Closing Bal. 25,000
(b)
Leisure Club
Incomes Rs.
Subscription (W-1) 31,817,500
Tuck Shop (W-6) 4,571,250
Other income(Bad debt recovered) 1,860,000
38,248,750
230
Expenditures
Salaries 2,300,000
Insurance 175,000
Rent (W-10) 4,193,000
Utilities 4,365,000
Repair & Maintenance 700,000
Sundry Expenses 640,000
Depreciation (W-8) 5,847,500
Abnormal Loss 500,000
Cash Misappropriation Part a 1,662,750
Loss on disposal of asset (W-9) 10,000
(20,393,250)
Surplus 17,855,500
Leisure Club
Balance Sheet
As on December 31, 2016
Fund :
Opening Fund 21,326,000
Surplus 17,855,500
39,181,500
Current liabilities:
Creditor 3,330,000
Advance Subscription(W-1) 11,825,000
15,155,000
Total 54,336,500
Assets
Non-Current Assets:
Fixed Assets- WDV (W-7) 45,742,500
Current Assets:
Bank 5,894,000
Cash 25,000
Prepaid Rent 175,000
Inventory 2,500,000
8,594,000
Total 54,336,500
WORKINGS
Op. advance(w-3) 1,0642,500
I and E (bal.) 31,817,500 Cash (3,300x10,000) 33,000,000
cl. advance(w-3) 11,825,000
(W-2)Advance Closing Balance subscription

Quarter-1 Rs.
Quarter-2 (8,250,000 x 3/12) 2,062,500
Quarter-3 (5,500,000 x 6/12) 2,750,000
Quarter-4 (9,350,000 x 9/12) 7012,500
11,825,000
231
Advance Opening Balance subscription: 11,825,000 x 9/10 = 10,642,500

(W-3) Dr. Creditor Account Cr.
Op. 2,500,000
Bank 18,155,000 Purchases (bal) 18,985,000
cl. 3,330,000
(W-4) Dr. Inventory Account(Tuck shop) Cr.

Op. 2,300,000 Cost of Sale (bal.) 18,285,000
Creditor(w-3) 18,985,000 Abnormal Loss 500,000
cl. 2,500,000
(W-5) Calculation of Sales

Tuck Shop Sale = 18,285,000/80x100
= 22,856,250
(W-6) Income from Tuck Shop
Sale 22,856,250
Less: Cost of Sales (18,285,000)
Income 4,571,250
(W-7) Dr. Fixed Assets(WDV) Cr.

b/d 28,000,000 Disposal (800,000-40,000) 760,000
Addition 7,350,000 Depreciation 5,847,500
Addition 17,000,000
c/d (bal.) 45,742,500
(W-8) Depreciation expense

Depreciation – on opening assets excluding
disposals
Opening assets WDV 28,000,000
Disposals WDV (800,000)
27,200,000 x20% 5,440,000
Depreciation – on additions 7,350,000 x20%x3/12 40,000
Depreciation – on disposals 800,000 x20%x3/12 367,500
5,847,500
(W-9) Dr. Disposal Account Cr.
Fixed Assest 800,000 Bank 750,000

Acc.Depreciation 40,000
Loss on disposal(bal.) 10,000
(W-10) Dr. Rent account Cr.
op. 168,000
Bank 4,200,000 I and E (bal.) 4,193,000
cl. 175,000
232
Answer-15
(a)
Violin Family Club
Income and expenditure account for the year ended 31 December 2018
Rs. in '000
Income
Subscription (W-1) 995
960
Gain on disposal of table (212– ) 20
5
Profit from canteen 57
Life membership (W-2) 228
1,300
Expenditures
Rent (W-3) 146
Salaries 285
Depreciation – snooker tables (W-6) 128
Depreciation – furniture & equipment (720+220)×20% 188
Subscription written off 45
(1,067)
Excess of income over expenditure 233
Canteen trading account for the year ended 31 December 2018
Rs. in '000 Rs. in '000
504 693
Sales × 110
80
Cost of goods sold
Opening stock 215
Purchases (W-8) 536
Closing stock (247) 504
Gross profit 189
Expenses
Wages 11×12 (132)
Profit from canteen 57
(b) Violin Family Club Rs. in '000
Statement of financial position as on 31 December 2018
Assets
Non-current assets
Snooker table (W-5) 640
Furniture & equipment (W-7) 752
1,392
Current assets:
Canteen stock 247
Prepaid rent 25
Subscriptions in arrears 30
Bank (W-9) 1,094
1,396
2,788
General funds
Opening balance (2,024–378)–1,344(W-2) 302
Excess of income over expenditure 233
535
233
Liabilities
Accrued electricity 35
Subscription in advance (W-1) 75
Creditors for equipment (W-7) 154
Canteen wages payable 11
417
2,788
WORKINGS
(W-1)
Subscription
Rs. in '000 Rs. in '000
Opening arrears: Opening advance 2018 45
2016 15 Receipts (60+920+75) 1,055
2017 90 Write off (15+30) 45
Income balance 995 Closing arrears 30
Closing advance 75
1,175 1,175
(W-2)
Life membership
Rs. in '000 Rs. in '000
Income [(5+8+6)×120÷10] 228 Opening balance
(5×120×8÷10)+(8×120×9÷10) 1,344
Closing balance 1,836 Receipt (6×120) 720
2,064 2,064
(W-3) Prepaid Rent
Date Rs. in '000 Date Rs. in '000
1-1-18 b/d (Rent of Jan & Feb) 24
1-3-18 Cash
24
( = 12 per month × 3 months) 36
2
1-6-18 24
Cash ( × 3) 36 P & L (Balancing) 146
2
1-9-18 Cash 12.5  3 37.5
1-12-18 Cash 12.5  3 37.5 31-12-18 c/d (12.5  2) 25
171 171
Rent after September 1, 2018
(12 per month ×12 = 144 + 6 = 150 per annum) (150/12 = 12.5 per month)
(W-4) Accrued Electricity
Cash 263 1-1-18 b/d 23
31-12-18 c/d 35 P&L 275
298 298
(W-5) Snooker Table (WDV)

1-1-18 b/d 960 Depreciation (W-6) 128
Disposal (960/5) 192
31-12-18 c/d 640
960 960
234
(W-6) Depreciation for the year

Cost of snooker table
960
Cost = 1 − 0.125  2 = 1,280
1280
Cost on 1 table = 5 = 256
Cost of remaining 4 tables = 256  4 = 1,024
Depreciation of snooker table = 1,024  12.5% = 128
Depreciation on equipment and furniture
(720+66+154)×20%=188
(W-7) Furniture and Equipment (WDV)

1-1-18 b/d 720 Depreciation (W-6) 188
Cash 66
Account payable
66 31-12-18 c/d 752
(30% 70%) 154
940 940
(W-8) Canteen Creditor

Cash 512 1-1-18 b/d 118
31-12-18 c/d 142 Purchases 536
654 654
(W-9) Bank/cash
Rs. in '000 Rs. in '000
Subscriptions 1,055 Opening balance 181
Life membership (W-2) 720 Rent 147
Sale proceeds from table 212 Salaries 285
Canteen receipts 693 Electricity 263
Canteen salaries 132
Equipment 66
2,680 2,680
235
ICAP QUESTION BANK QUESTION

QUESTION-1
The treasurer of the Giltan Golf Club has prepared the following receipts and payments account for the
year ended 31 March 2016.
Receipts Rs.(000) Payment Rs.(000)
Balance at 1 April 2015 682 Functions 305
Subscriptions 2,930 Repairs 146
Functions 367 Telephone 67
Sale of land 1,600 Extension of club house 600
Bank interest 60 Furniture 135
Bequest (legacy) 255 Heat and light 115
Sundry income 46 Salary and wages 2,066
Sundry expenses 104
Balance at 31 March 2016 2,402
5,940 5,940
(a) Subscriptions received included Rs.65,000 which had been in arrears at 31 March 2015 and
Rs.35,000 which had been paid for the year commencing 1 April 2016.
(b) Land sold had been valued in the club's books at cost Rs.500,000.
(c) Accrued expenses
31 March 2015 31 March 2016
Rs.(000) Rs.(000)
Heat and light 32 40
Wages 12 14
Telephone 14 10
58 64
(d) Depreciation is to be charged on the original cost of assets appearing in the books at
31 March 2016 as follows:
Buildings 5%
Fixtures and fittings 10%
Furniture 20%
(e) The following balances are from the club's books at 31 March 2015:
Rs.(000)
Land at cost 4,000
Buildings at cost 3,200
Buildings allowance for depreciation 860
Fixtures and fittings at cost 470
Fixtures allowance for depreciation 82
Furniture at cost 380
Furniture allowance for depreciation 164
Subscriptions in arrears (including Rs.15,000 irrecoverable - member had emigrated) 80
Subscriptions in advance 30
Required:
Prepare an income and expenditure account for the year ended 31 March 2016 and a Statement of
financial position as at that date.
(ICAP Question bank 4.1)
236
QUESTION-2
The Langton Hockey club does not have any formal accounting records but the following information is
available.
(1) The payments that have been made by the club for the year ending 30 June 2016 are as follows:
Rs.(000)
Purchase of second hand table tennis table 250
Rent 600
Tea stall purchases 900
Annual fair expenses 1,450
Outings expenses 370
Prizes for whist evenings 90
Repairs to snooker table 35
Refreshments at social evenings 240
(2) The club’s income, apart from annual subscriptions, is as follows:
Rs.(000)
Contributions to outings 300
Takings at the annual fair 2,150
The club also run a tea stall in the village car park every Sunday in the summer months. This sells
tea and coffee, cakes, biscuits and ice creams etc. The profit margin on the tea stall is normally
20% of selling price.
(3) All the club’s transactions are in cash but if there are any surplus funds they are banked in a local
bank account. The balance on the bank account was Rs.30,000 at 1 July 2015.
(4) The club has an annual subscription rate of Rs.20,000 per annum per person or Rs.50,000 per
annum for a family membership. Members are asked to pay their subscription in the July at the
beginning of the club’s accounting year.
There are 10 family members of the club. Of these two paid their 2016 subscription in June 2015
and all the rest were received before 30 June 2016.
No individual members had paid their 2016 subscriptions in advance but at 30 June 2016 four
members still owed their subscriptions. They had been contacted and all four had promised to pay
at the next evening social event. There are in total 80 individual members.
(5) The club has the following other assets and liabilities:
30 June 2015 30 June 2016
Rs. (000) Rs. (000)
Sports equipment 2,560 Note 6
Inventory for the tea stall 120 60
Payables for the tea purchases 110 190
Prepayment of rent 40 50
(6) The sports equipment is all depreciated at 20% per annum on net book value on the basis of the
equipment held at 30 June each year.
(7) The old table tennis table was sold during the year for Rs.40,000. Its value as recorded by the
club at 30 June 2015 was Rs.30,000.
Required:
You are required to prepare an income and expenditure account for the year ended 30 June 2016 and a
statement of financial position at that date. (20)
237
QUESTION-3
You have agreed to take over the role of bookkeeper for the AB sports and social club.
The summarised statement of financial position on 31 December 2014 as prepared by the previous
bookkeeper contained the following items.
Assets Rs.
Heating oil for clubhouse 1,000
Shop and cafe inventories 7,000
New sportswear, for sale, at cost 3,000
Used sportswear, for hire, at valuation 750
Equipment for groundsman
Cost 5,000
Depreciation (3,500) 1,500
Subscriptions due 200
Bank
Accumulated fund 23,150
Payables
Sportswear 300
The bank account summary for the year to 31 December 2015 contained the following items.
Receipts Rs.
Bankings
Shop and café 20,000
Sale of sportswear 5,000
Hire of sportswear 3,000
Interest on deposit account 800
39,800
Payments Rs.
Rent and repairs of clubhouse 6,000
Heating oil 4,000
Sportswear 4,500
Grounds person 10,000
Shop and cafe purchases 9,000
Transfer to deposit account 6,000
39,500
You discover that the subscriptions due figure as at 31 December 2014 was arrived at as follows.
Subscriptions unpaid for 2013 10
Subscriptions paid for 2015 40
Corresponding figures at 31 December 2015 are:
Subscriptions paid for 2016 200
238
Subscriptions due for more than 12 months should be written off with effect from 1 January 2015.
Asset balances at 31 December 2015 include: Rs.
Heating oil for club house 700
New sportswear, for sale, at cost 4,000
Used sportswear, for hire, at valuation 1,000
Closing payables at 31 December 2015 are for:
Shop and cafe inventories 800
Sportswear 450
Heating oil for clubhouse 200
Two thirds of the sportswear purchases made in 2015 had been added to inventory of new sportswear in
the figures given in the list of assets above, and one third had been added directly to the inventory of used
sportswear for hire.
Half of the resulting new sportswear for sale at cost' at 31 December 2015 is actually over two years old.
You decide, with effect from 31 December 2015, to transfer these older items into the inventory of used
sportswear, at a valuation of 25% of their original cost.
No cash balances are held at 31 December 2014 or 31 December 2015. The equipment for the grounds
person is to be depreciated at 10% per annum, on cost.
Required:
Prepare the income and expenditure account and statement of financial position for the AB sports club for
2015. (23)
QUESTION-4
The GD Sports Club do not keep any accounting records other than notes concerning the subscriptions of
members and the amounts paid for expenses. During discussions with the club committee you discover
the following:
(1) The club does not have a bank account and conducts all its transactions in cash, any surplus being
paid into a building society account. The interest credited to this account for the year to 31 March
2015 was Rs.350.
(2) A summary of the payments for the year is:
Rs.
Deposit to building society account 250
Purchase of dartboards 100
Heat/light 262
Repairs to snooker tables 176
Cafe payables 7,455
Rental of premises 1,000
Club match referees’ fees and expenses 675
Trophies, etc (treated as an expense) 424
Refreshments for visiting teams 235
(3) The club has 100 members who each pay Rs.5 per annum subscription. However, on 31 March
2014 ten members had already paid their subscriptions for 2015.
On 31 March 2015 two members who had not been seen in the club since August 2014 had not
paid their subscriptions for 2015 and it has been decided that the amount due be written off and
that their names be removed from the list of members.
(4) The club has only two sources of income from club members - subscriptions and cafe sales. A
profit margin of 30% of selling price, is normally applied to determine cafe selling prices but
during the year Rs.397 of goods were sold at cost.
239
(5) The club has the following other assets/liabilities:

1 April 2014 31 March 2015
Rs. Rs.
Equipment 4,000 ?
Building society account 4,600 5,200
Cafe inventories 840 920
Cafe payables 630 470
Cash in hand nil nil
Creditor for heat/light 34 41
(6) Equipment is depreciated at 10% of the value of equipment held on 31 March each year.
Required:
(a) Prepare a cafe trading account for the year ended 31 March 2015; (8)
(b) Prepare an income and expenditure account for the year ended 31 March 2015. (7)
(c) Prepare a statement of financial position at 31 March 2015. (5)
(20)
QUESTION-5
The HB Tennis Club was formed on 1 April 2015 and has the following receipts and payments account
for the six months ended 30 September 2015:
Subscriptions 12,600 Purchase of equipment 4,080
Tournament fees 465 Groundsman’s wages 4,520
Bank interest 43 Rent and business rates 636
Sale of club ties 373 Heating and lighting 674
Life membership fees 4,200 Postage and stationery 41
Court maintenance 1,000
Tournament prizes 132
Purchase of club ties 450
Balance c/d 6,148
17,681 17,681
Notes:
1) The annual subscription fee is Rs.300. On 30 September there were five members who had not
paid their subscriptions, but this money was received on 4 October 2015.
2) The equipment is expected to be used by the club for five years, after which time it will need to
be replaced. Its estimated scrap value at that time is Rs.50.
3) During the six months, the club purchased 100 ties printed with its own design. Forty of these ties
remained unsold at 30 September 2015.
4) The club has paid business rates in advance on 30 September 2015 of Rs.68.
5) The club treasurer estimates that the following amounts should be accrued for expenses:
Rs.
Groundsman’s wages 40
Postage and stationery 12
Heating and lighting 53
6) The life membership fees received relate to payments made by four families. The scheme allows families to
pay Rs. 1,050 which entitles them to membership for life without further payment. It has been agreed that
such receipts would be credited to income and expenditure in equal instalments over 10 years.
Required:
(a) Prepare the club’s income and expenditure account for the six months ended
30 September 2015. (8)
(b) Prepare the club’s statement of financial position at 30 September 2015. (7)
240
QUESTION-6
The Monarch Sports Club has the following summary of its cash book for the year ended
30 June 2015:
Rs. Rs.
Opening bank balance 12,500
Receipts:
Life membership fees 3,000
Competition receipts 7,500
Entrance fees 2,500
Equipment sold 1,000
32,000
44,500
Payments:
Transport to matches 3,700
Competition prizes 4,300
Coaching fees 2,100
Repairs to equipment 800
Purchase of new equipment 4,000
Purchase of sports pavilion 35,000
(49,900)
Closing balance (overdrawn) (5,400)
The following information is available regarding the position at the beginning and end of the accounting
year:
1 July 2014 30 June 2015
Rs. Rs.
Subscriptions in advance 1,100 900
Subscriptions in arrears 200 300
Coaching fees outstanding 150 450
Of the subscriptions outstanding at the beginning of the year, only half were eventually received.
The equipment sold during the year had a net book value of Rs.1,200 at 1 July 2014.
Equipment is to be depreciated at 20% per annum straight line. Life membership fees are taken to cover
10 years.
The treasurer insists that no depreciation needs to be charged on the sports pavilion, as buildings do not
decrease in value. He says that the last club of which he was treasurer did charge depreciation on its
buildings but that when the club came to replace them, there was still insufficient money in the bank to
pay for the new building.
Required:
Prepare an income and expenditure account for the Monarch Sports Club for the year ended 30 June 2015.
(10)
241
QUESTION-7
The LH Sports Club opened on 1 May 2014 having purchased premises for Rs.80,000 and furniture for
Rs. 18,000, both financed by an interest-free loan from a member. The club secretary has produced the
following income and expenditure account for the year to 30 April 2015.
Income Rs. Rs.
Joining fees (89 members x Rs.200 each) 17,800
Annual subscriptions 12,000
Cafe profits 8,450
Dinner Dance surplus 830
Equipment hire receipts 1,750
40,830
Expenditure
Premises costs 10,990
Equipment costs 5,590
Secretary’s expenses 470
Bank charges 125 (17,175)
Surplus for the year 23,655
The income and expenditure account has been prepared after taking into account the following items at
30 April 2015:
cafe inventories Rs. 1,400
payables for cafe supplies Rs.1,320
rates and insurances prepaid Rs.2,280
The following items have not been taken into account:
 the equipment costs figure includes Rs.4,000 for the purchase of equipment
 depreciation is to be provided as follows:
o at 2% on premises
o at 10% on furniture
o at 20% on equipment
 joining fees are to be spread over a five-year period
 the annual subscriptions figure includes Rs.960 paid in advance
 subscriptions outstanding at the end of the year, and expected to be collected, amount to Rs.300.
The bank balance at 30 April 2015 was Rs.21,295.
Required:
(a) Calculate the correct surplus for the year. (6)
(b) Prepare the statement of financial position at 30 April 2015. (8)
242
ICAP QUESTION BANK SOLUTIONS

Answer-1
Gilton Golf Club

for the year ended 31, March 2016
Incomes Rs. (000)
Profit from functions (367 - 305) 62
Profit from sale of land (W-11) 1,100
Bank interest 60
Bequest 255
Sundry income 46
Subscription 2,860
4,383
Expenses
Bad debts (W-1) 15
Repairs 146
Telephone (W-2) 63
Heat & Light (W-10) 123
Salaries & Wages (W-9) 2,068
Sundry expenses 104
Depreciation - Building (W-4) 190
Depreciation - Furniture (W-8) 103
Depreciation - Fixtures & fittings (W-6) 47
(2,859)
Net profit 1,524
Gilton Golf Club

Balance Sheet
as on 31, March 2016
Rs. (000)
Fund
9,142
Current liabilities
Heat & Light 40
Wages 14
Telephone 10
99
Total 9,241
243
Assets
Non-Current Assets
Land (4,000 – 500) 3,500
Buildings (W-3) 3,800
Less: Accumulated depreciation (W-4) (1,050) 2,750
Fixtures Fittings (W-5) 470

Less: Accumulated depreciation (W-6) (129) 341
Furnitures (W-7) 515

Less: Accumulated depreciation (W-8) (267) 248
6,839
Current Assets
Bank 2,402
Total 9,241
(Workings)
(W-1)
Op. receivable 80 Op. advance 30
Cl. Advance 35 Bad debts (80 – 65) 15
(W-2)
Dr. Telephone Cr.
Op. payable 14
Cash and bank 37 I and E (bal.) 63
Cl. Payable 10 15
(W-3)
B/d 3,200
Additions 600
c/d. (bal.) 3,800
(W-4)
Dr. Accumulated depreciation-building Cr.
B/d 860
Dep. Exp (3,800 x 5%) 190
c/d. (bal.) 1,050
(W-5)
Dr. Fixtures and fittings account Cr.
B/d 470
c/d. (bal.) 470
(W-6)
Dr. Accumulated depreciation-fixtures Cr.
B/d 82
Dep. Exp (470 x 10%) 47
c/d. (bal.) 129
(W-7)
Dr. Furniture account Cr.
B/d 380
Additions 135
c/d. (bal.) 515
244
(W-8)
Dr. Accumulated depreciation-furniture Cr.
B/d 164
Dep. Exp (515 x 20%) 103
c/d. (bal.) 267
(W-9)
Dr. Salaries & Wages Cr.
Op. payable 32
Cl. Payable 14
(W-10)
Dr. Heat & Light Cr.
Op. payable 32
Cl. Payable 40
(W-11) Profit from sale of land
Bank 1,600,000
Land 500,000
I & E (bal.) 1,100,000
(W-12) Opening fund
Assets Rs.
Land 4,000
Buildings (3,200 - 860) 2,340
Fixtures & fittings (470 - 82) 388
Bank balance 682
Furniture (380 - 164) 216
7,706
Liabilities
Heat & Light 32
Telephone 14
Wages 12
88
7,618
Answer-2
Langton Hockey Club
Incomes Rs.(000)
Profit from tea stall (W-1) 260
Profit from annual fair (2,150-1,450) 700
Profit on sale of table tennis table (40-30) 10
3,070
Expenses
Rent (W-4) 590
Loss on Outgoing (300-370) 70
245
Prizes for whist evenings 90

Refreshments 240
Depreciation (W-7) 556
(1,581)
Net Profit 1,489
Langton Hockey Club
Balance Sheet
as on June 30, 2016
Fund Rs.
4,029
Current Liabilities
Trade payables 190
190
Total 4,219
Assets
Non-Current Assets
Sports equipments (W-7) 2,224
2,224
Current Assets:
Bank (W-6) 1,805
Prepaid rent (W-4) 50
Stocks for tea stall 60
subscriptions due (W-3) 80
1,995
Total 4,219
Workings
(W-l) Profit from Tea stall Rs.
Revenue (1040 x 100/80) 1,300
Less: COS (W-1.1) (1,040)
260
(W-l.1) Cost of sales Rs.
Op. stock 120
Purchases (W-2) 980
Less: Cl. Stock (60)
1,040
(W-2) Dr. Payables for tea purchases Cr.

Cash 900 b/d 110
c/d 190 Purchases (bal) 980
op. advance-Family (2 x 50) 100
I and E (bal.) 2,100 Cash- Family (8 x 50) 400
Cash- Individuals (76 x 20) 1,520
cl. Receivable (4 x 20) 80
246
(W-4) Dr. Rent Account Cr.

b/d 40
Cash 600 I and E (bal.) 590
cl. 50
(W-5) Dr. Cash account Cr.

op. 0 Table tennis table 250
Contribution to outings 300 Rent 600
Annual fair takings 2,150 Tea stall purchases 900
Tea stall sales 1,300 Annual fair 1,450
Subscriptions 1,920 Outings 370
Sale of table 40 Prizes 90
Repairs 35
Refreshments 240
Bank(bal.) 1,775
(W-6) Dr. Bank account Cr.

op. 30
Cash 1,775
cl. 1,805
(W-7) Dr. Sports equipment account Cr.

op. 2,560 Disposal 30
Cash 250 Dep (2,560 - 30 + 250) x 20% 556
cl. 2,224
(W-8) Opening fund

Assets Rs.
Stocks for tea stall 120
Prepaid rent 40
Bank 30
2,750
Liabilities
Trade payables 1 10
210
2,540
Answer-3
AB Sports And Social Club
Incomes Rs.(000)
Profit from shop & café (W-2) 9,200
Profit from sale of sports wear (W-4) 2,900
Net proceeds from hire of old sports wear (3,000 - (W-6) 1,300) 1,700
Interest on deposit of account 800
25,320
247
Expenses
Rent of club house 6,000
Heating oil (W-8) 4,500
Grounds person 10,000
Loss on transfer of sports wear (W-4.1) 1,500
Depreciation (5,000 x 10%) 500
Bad debts (W-1) 30
(22,530)
Surplus 2,790
AB Sports And Social Club

Balance Sheet
Fund and liabilities Rs. Rs.
Fund
Opening Fund 23,150
25,940
Current Liabilities
Shop & Café 800
Sportswear 450
Heating oil (W-7) 200
1,650
Total 27,590
Assets
Non-Current Assets
Equipments for ground person 5,000
Less: Accumulated depreciation (3,500+500) (4,000) 1,000
Current Assets:
Bank-Current account (W-8) 1,300
Bank-Deposit account (10,000+6,000) 16,000
Heating oil 700
Shop & Cafe inventory 5,000
New sportswear (W-4) 2,000
Hire sportswear (W-6) 1,500
Subscriptions due 90
26,590
Total 27,590
Workings
op. receivable (230+10) 240 op. advance 40
I and E (bal.) 10,720 Bank 11,000
cl. advance 200 Bad debts (10+20) 30
c/d 90
248
(W-2) Profit from Shop & Cafe Rs.

Sales 20,000
Less: Cost of sales
Op. Inventory 7,000
Purchases (W-2.1) 8,800
Cl. Inventory (5,000)
(10,800)
Gross profit 9,200
(W-3) Dr. Creditors - shop and café Cr.

Bank 9,000 op. 1,000
(W-4) Profit from Sales of new sportswear Rs.

Sales 5,000
Less: Cost of sales
Op. Inventory 3,000
Less: Shifted to old sports wear (2,000)
Less: Cl. Inventory (4,000 - 2,000) (2,000)
(2,100)
Profit 2,900
(W-4.1) Entry for shifting of new sports wear to old one

Old sportswear (2,000 x 25%) 500
I and E (bal.) 1,500
New sports wear 2,000
(W-5) Dr. Payable sports-wear Cr.

op. 300
Bank 4,500 Purchases new SW 3,100
(4,500+450-300) x 2/3
Purchases old SW 1,550
cl. 450 (4,500+450-300) x 1/3
(W-6) Dr. Old sportswear stock a/c Cr.

b/d 750
Payable SW (W-5) 1,550 I and E (.bal) 1,300
New SW shifted (W-4.1) 500 c/d (1,000+ 500) 1,500
(W-7) Dr. Heating oil Cr.

b/d 1,000
Bank 4,000 I and E (.bal) 4,500
Cl. Payable 200 c/d 700
249
(W-8) Dr. Bank-Current account Cr.

Rs Rs.
b/d 1,000 Rent & Repairs 6,000
Subscriptions 11,000 Healing oil 4,000
Shop & Café 20,000 Payable for Sportswear 4,500
Sale of sportswear 5,000 Creditor shop, cafe 9,000
Interest 800 Ground person 10,000
Hire of sportswear 3,000 Deposit account 6,000
c/d (bal.) 1,300
Answer-4(a)
GD Sports Club
Cafe Trading Account
for the year ended March 31, 2015 Rs.
Sales (W-8) 10,137
Less: Cost of sales
Op. Inventory 840
Cl. Inventory (920)
(7,215)
Gross profit 2,922
Answer-4(b)
GD Sports Club
Incomes Rs.
Profit from café (Part-a) 2,922
Interest Income from building society 350
Subscription (W-l) 490
3,762
Expenses
Rentals 1,000
Heat & light (W-6) 269
Referees fees & expenses 675
Trophies 424
Refreshments for visitors 235
(3,189)
Net Profit 573
250
Answer-4(c)
GD Sports Club
Balance Sheet
as on march 31, 2015
Fund
Surplus/(Deficit) 573
9,299
Current Liabilities
Payable for café (W-3) 470
Heal & light (W-6) 41
511
Total 9,810
Assets
Non-Current Assets
Equipments (W-2) 3,690
3,690
Current Assets
Cafe inventory 920
Building society deposit 5,200
6,120
9,810
Workings
op. advance (10 x 5) 50
I and E (bal.) 490 Cash (88 x 5) 440
(W-1.1) Members who paid subscription this year

Total members 100
Members who paid subscription in advance last year (10)
Members who have left the club (2)
Members who paid subscription this year 88
(W-2) Dr. Equipments-account Cr.

b/d 4,000 Depreciation 1,000+100) x 10% 410
Cash(Dartboards) 100 c/d (bal.) 3,690
(W-3) Dr. Cafe payable account Cr.

b/d 630
Cash 7,455 Purchases (bal.) 7,295
c/d 470
251
(W-4) Dr. Cash account Cr

b/d - Deposit to society a/c 250
Subscriptions (W-1) 440 Equipment (Dartboards) 100
Sales (W-8) 10,137 Heat & light 262
Repairs 176
Cafe purchases account 7,455
Rentals 1,000
Fees & expenses 675
Trophies 424
Refreshments 235
c/d -
(W-5) Opening accumulated fund

Assets Rs.
Equipments 4,000
Cafe inventory 840
Building Society account 4,600
9,440
Liabilities
Payables-cafe 630
Payables-Heat & Light 34
(714)
8,726
(W-6) Dr. Heat & Light Cr.

Cash 262 b/d 34
c/d 41 P and L (bal.) 269
(W-7) Dr. Building Society Deposit account Cr.

b/d 4,600
Cash 250
Interest Income 350 c/d 5,200
(W-8) Sales
Cost of Sales = 7,215
C+P=S C+P=S
70+30=100 70+0=70
Total
Cost 6,818(bal.) 397 7,215
Sales 9,740(6,818/70x100) 397 10,137
252
Answer-5
HB tennis Club
for Six months ended on September 30, 2015
Incomes Rs. (000)
Tournament fees 465
Bank interest 43
Life membership (W-3.1) 210
Profit from sale of club tics (W-l) 103
7,871
Expenses
Groundsmans wages (W-5) 4,560
Rent and rates (636-68) 568
Heating and lighting (W-4) 727
Postage and stationery (W-6) 53
court maintenance 1,000
Depreciation of equipment ((4,080-50)/5 x 6/12) 403
Tournament prizes 132
(7,443)
Net Profit 428
HB tennis Club
Balance Sheet
as on September 30, 2015
Rs.(000)
Fund
Opening Fund -
Surplus/(Deficit) 428
428
Current Liabilities
Grounds men wages (W-5) 40
Postage and stationery (W-6) 12
Subscription in advance (W-2) 6,300
Heating and lighting (W-4) 53
6,405
Total 10,823
Assets
Non-Current Assets
Equipments 4,080
Less: Accumulated depreciation ((4,080-50)/5 x 6/12) (403) 3,677
Current Assets:
Bank 6,148
Rates paid in advance 68
Stock of ties 180
Subscription in arrears (W-2) 750
7,146
Total 10,823
253
WORKINGS
(W-1) Profit from sale of ties Rs in ‘000’
Revenue 373
Less: COS
Op. stock 0
Purchases 450
Less: Cl. Stock (40x450/100) (180)
(270)
Profit 103

op. receivable - op. advance -
cl. advance (W-2.2) 6,300 cl. receivable (W-2.1) 750
(W-2.1) Subscription receivable at the end of 6 months (5 x 300 x 6/12) 750

(W-2.2) Subscription advance for the next 6 months (12,600x6/12) 6,300
(W-3) Dr. Life membership account Cr.

b/d -
I and E (W-3.1) 210 Cash and bank 4,200
c/d (bal.) 3,990
(W-3.1) Amount taken to I & E in these 6 months (4,200/10 x 6/12) 210
(W-4) Dr. Heating and Lighting Cr.

b/d -
Cash and bank 674 I and E 727
cl. 53
(W-5) Dr. Grounds men wages Cr.

op. - b/d -
Cash and bank 4,520 1 and E (bal.) 4,560
c/d 40 cl.
(W-6) Dr. Postage and stationery Cr.
b/d -
c/d 12 cl.
Answer-6
Monarch Sports Club
Incomes Rs.(000)
Life membership (W-2) 300
Net income from competition (7,500-4,300) 3,200
Entrance fee 2,500
24,400
254
Expenses
Transport 3,700
Coaching fees (W-4) 2,400
Repairs 800
Bad debts (W-l) 100
Loss on disposal of equipments (W-3) 200
Depreciation (4,000 x 20%) 800
(8,000)
Net Profit 16,400
Workings
op. receivable 200 op. advance 1,100
1 and E (bal.) 18,400 Bank 18,000
Bad debt (200x1/2) 100
(W-2) Dr. Life membership account Cr.

b/d -
1 and K (3,000/10) 300 Bank 3,000
c/d (bal.) 2,700
(W-3) Dr. Disposal account Cr.

Equipment-NBV 1,200 Bank 1,000
I and E (bal.) 200
(W-4) Dr. Coaching fees Cr.

b/d 150
Bank 2,100 1 and E (bal.) 2,400
c/d 450
Answer-7
LH Sports Club
for the year ended April 30, 2015 Rs.
Surplus as per draft income & expenditure account 23,655
Add:
Capital expenditure wrongly included in equipment costs 4,000
Subscription receivable for current year not included in income 300
4,300
Less:
Depreciation not deducted
Premises (80,000 x 2%) 1,600
Furniture (18,000 x 10%) 1,800
Equipment (4,000 x 20%) 800
Joining fee of next 4 years wrongly included (W-l) 14,240
Advance subscription for the next year wrongly included 960
(19,400)
Correct surplus for the year 8,555
255
LH Sports Club
Balance Sheet
As on April 30, 2015
Fund
Non-Current Liabilities
Loan from member 98,000
Joining fee 14,240
112,240
Current Liabilities
Payables for cafe supplies 1,320
2,280
Total 123,075
Assets
Non-Current Assets
Premises 80,000
Less: Accumulated depreciation (80,000 x 2%) (1,600) 78,400
Furnitures 18,000
Less: Accumulated depreciation (18,000 x 10%) (1,800) 16,200
Equipments 4,000
Less: Accumulated depreciation (4,000 x 20%) (800) 3,200
97,800
Current Assets:
Cafe Inventory 1,400
Subscriptions in arrears 300
Prepaid rates and insurance 2,280
Bank 21,295
25,275
Total 123,075
Workings
(W-l) Joining fees Rs.
Total joining fees received (89 x 200) 17,800
Joining fees for the current year (17,800/5) (3,560)
Excess joining fees included in I&E for current year 14,240
256
ICAP MULTIPLE CHOICE QUESTIONS (MCQs)
Q.1 Which of the following is generally considered as a non-profit oriented organization?

(a) Charitable organization (b) Corporation
(c) Audit firms (d) Insurance companies
Q.2 Expenditures greater than incomes of a non-profit organization give rise to a:
(a) Loss (b) Profit
(c) Surplus (d) Deficit
Q.3 An advance receipt of subscription from a member of the non-profit organization is considered as
a/an:
(a) Expense (b) Liability
(c) Equity (d) Asset
Q.4 Income and expenditure account is based on;
(a) Cash accounting (b) Accrual accounting
(c) Government accounting (d) Management accounting
Q.5 Life membership fees of not for profit concerns is?
(a) Capital Receipts (b) Revenue Receipts
(c) Both (a) & (b) (d) None (a) & (b)
Q.6 When cash is received for life membership, which one of the following double entries is passed?
(a) Cash Debit and capital Credit
(b) Life membership Debit and cash Credit
(c) Investment Debit and cash Credit
(d) Cash Debit and life membership fund Credit
Q.7 XYZ club has a bar that maintains a separate trading account for its trading activities. Which of
the following is the treatment of profit or loss on bar trading activities?
(a) Profit or loss is directly shown in the statement of financial position
(b) Profit or loss is to be presented in income and expenditure account
(c) Profit or loss is credited in income statement
(d) Profit or loss is added to accumulated fund
Q.8 Which of the following is the accounting equation for a non-profit organization?
(a) Asset = Capital + Liabilities
(b) Capital + Liabilities = Assets
(c) Accumulated fund + Liabilities = Assets
(d) Liabilities = Asset + Accumulated fund
Q.9 Subscription earned but not yet received is considered as a/an:
(a) Asset (b) Liability
(c) Income (d) Expenditure
Q.10 A non-profit organization received Rs. 100,000 as the entrance fee of a new member. If 20% of
the fee has to be capitalized, what is the amount of fee needs to be shown in the income and
expenditure account?
(a) Rs.20,000 (b) Rs.80,000
(c) Rs.90,000 (d) Rs.10,000
257
Q.11 Rs.1,000,000 received as the annual membership subscription. Out of this, Rs. 200,000 is
pertaining to the previous accounting period whereas Rs.100,000 is receivable at the end of the
current accounting period.
Calculate the amount of subscription that will be shown in the income and expenditure account.
(a) Rs.100,000 (b) Rs.900,000
(c) Rs.1,200,000 (d) Rs.800,000
Q.12 Income and expenditure accounts show:
(a) Cash available to an organization
(b) Closing capital of an organization
(c) Cash available in the bank account
(d) Surplus or deficit for the current accounting period
Q.13 On what basis the ‘receipts and payments account’ is prepared?
(a) Cash basis (b) Accrual basis
(c) Both accrual and cash basis (d) None of the two
Q.14 Payment of Honorarium to secretary is treated as?
(a) Capital Expenditure (b) Revenue Expenditure
(c) Cash Expenses (d) None of these
Q.15 Income and Expenditure Account records:
(a) Capital items (b) Revenue items
(c) A and B both (d) None of these
Q.16 A club has 500 members. Annual membership fees are Rs.1,000. Therefore, membership fees for
the year should be Rs.500,000.
The club’s subscription records for the year ended 31 December 2013 show the following:
At 31 December 2012 At 31 December 2013
Calculate the amount of cash received during the year.
Rs. ___________
Q.17 At 31 March 2012 a cricket club had membership subscriptions in arrears amounting to Rs.48,000
and had received Rs.12,000 subscriptions in advance.
During the year to 31 March 2013 the club received Rs.624,000 including 26 memberships for
the year to 31 March 2014 at Rs.1,200 per annum in advance.
At 31 March 2013 16 members owed subscriptions of Rs.1,200 each.
Calculate the amount of subscription income during the year.
Rs. ___________
Q.18 At 31 March 2012 a cricket club had membership subscriptions in arrears amounting to Rs.48,000
and had received Rs. 12,000 subscriptions in advance.
During the year to 31 March 2013 the club received Rs. 624,000 including 26 memberships for
the year to 31 March 2014 at Rs.1,200 per annum.
At 31 March 2013 16 members owed subscriptions of Rs.1,200 each.
Half of the members who were in arrears at the end of the previous period still had not paid by 31
March 2013. It was decided to write these amounts off.
Required:
Calculate the amount of subscription income during the year.
Rs. ___________
258
Q.19 Seaview Club started its operations on 1 February 2015. Total subscription received for the
period ended 31 December 2015 was Rs. 29,952,000
Annual subscription is Rs. 24,000. All new members pay three years’ subscription in advance.
The memberships were awarded as follows:
No. of member 112 98 101 105
What amount of subscription income should be included in income and expenditure account for
the period ended 31 December 2015?
Rs. _________
Q.20 Seaview Club started its operations on 1 February 2015. Total subscription received for the
period ended 31 December 2015 was Rs.29,952,000
Annual subscription is Rs.24,000. All new members pay three years’ subscription in advance.
The memberships were awarded as follows:
No. of member 112 98 101 105
What amount of advance subscription should be included in non-current liabilities as at 31
December 2015?
Rs. __________
Q.21 The main objective of a non-profit organization is;
(a) To earn profits (b) To create monopoly
(c) Welfare of the society (d) To provide for owner’s dividends
Q.22 Non-profit organizations prepare all of the following accounts except the;
(a) Receipt and payment account (b) Income and expenditure account
(c) Statement of financial position (d) Profit or loss account
Q.23 Examples of non-profit organisation is:
(a) Commercial banks (b) Civil hospital
(c) Private educational institutions (d) Association of person
Q.24 The main source of income for non-profit organisation is:
(a) Subscription (b) Sales
(c) Dividends (d) Other income
Q.25 Income and expenditure accounts show;
(a) Cash available to an organization
(b) Closing capital of an organization
(c) Cash available to the bank account
(d) Surplus or deficit for an accounting period
Q.26 The statement of financial position of a non-profit organization does not contain the;
(a) Owner’s equity (b) Liability
(c) Asset (d) Income
Q.27 Rent expense of a non-profit organization paid in advance. Which of the following is the correct
classification of rent?
(c) Asset (d) Equity
259
Q.28 An advance receipt of subscription from a member of the non-profit organization is considered as
(c) Asset (d) Equity
Q.29 The capital of a non-profit organization is generally known as
(a) Equity (b) Accumulated funds
(c) Retained earning (d) Cash fund
Q.30 When cash is received for life membership, which one of the following double entries is passed?
(a) Cash (debit) and capital (credit)
(b) Life membership (debit) and cash (credit)
(c) Cash (debit) and investment (credit)
(d) Cash (debit) and Life membership (credit)
Q.31 If debit side of receipt and payment account exceeds credit, it represents:
(a) Cash at bank (b) Bank overdraft
(c) Surplus (d) Deficit
Q.32 Receipt and payment account include:
(a) Revenue items (b) Capital items
(c) Both capital and revenue items (d) None of above
Q.33 Sale of an old newspaper is classified as:
(c) Asset (d) Income
Q.34 Gift presented to Chief Guest at annual function by a non-profit organization is:
(a) Gift (b) Reward
(c) Honorarium (d) Grant
260
ICAP MULTIPLE CHOICE QUESTIONS (MCQ) SOLUTIONS

A.1 (a)
A.2 (d)
A.3 (b)
A.4 (b)
A.5 (a)
A.6 (d)
A.7 (b)
A.8 (c)
A.9 (a)
A.10 (b)
A.11 (b)
Subscription a/c
Rs. Rs.
b/d 200,000 Cash received 1,000,000
I&E 900,000 c/d 100,000
1,100,000 1,100,000
A.12 (d)
A.13 (a)
A.14 (b)
A.15 (b)
A.16 Rs. 492,000
Subscriptions
Rs. Rs.
Balance b/d 18,000 Balance b/d 10,000
I&E 500,000 Cash 492,000
Balance c/d 6,000 Balance c/d 22,000
524,000 524,000
A.17 Rs. 576,000
Subscriptions
Rs. Rs.
I&E 576,000 Cash 624,000
Balance c/d [26  Rs. 1,200] 31,200 Balance c/d [16  Rs. 1,200] 19,200
655,200 655,200
A.18 Rs.600,000
Subscriptions
Rs. Rs.
I&E 600,000 Cash 624,000
Bad debts [48,000 x ½] 24,000
Balance c/d [26 x Rs. 1,200] 31,200 Balance c/d [16 x Rs. 1,200] 19,200
679,200 679,200
261
A.19 Rs.4,630,000
Subscription for 3 years is Rs.72,000 so subscription for 1 year is Rs.24,000 or Rs. 2,000
per month
Receipt /
Number of members  Subscriptions for the period Total
Members
Mar / Dec 112  24,000  10/12 2,240,000
Jun / Dec 98  24,000  7/12 1,372,000
Sep / Dec 101  24,000  4/12 808,000
Dec 105  24,000  1/12 210,000
Total subscription income for 3 years 4,630,000
A.20 Rs.15,338,000
Subscription for 3 years is Rs.72,000 so subscription for 1 year is Rs.24,000 or Rs.2,000
per month
Number Members I&E Current Non-current
Months Months Months
Mar / 112 10 12 14 (36 – 10 – 12)
Jun / 98 7 12 17 (36 – 7 – 12)
Sep / 101 4 12 20 (36 – 4 – 12)
Dec / 105 1 12 23 (36 – 1 – 12)
Non Current Position

Number of members  Subscriptions for the period Total
112  24,000  14/12 3,136,000
98  24,000  17/12 3,332,000
101  24,000  20/12 4,040,000
105  24,000  23/12 4,830,000
Total subscription received to 3 years 15,338,000
A.21 (c)
A.22 (d)
A.23 (b)
A.24 (a)
A.25 (d)
A.26 (a)
A.27 (c)
A.28 (b)
A.29 (b)
A.30 (d)
A.31 (a)
A.32 (c)
A.33 (d)
A.34 (c)
262
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Topic Wise
i
TABLE OF CONTENTS
ICAP PAST
PAPER
Q A Q A Q A Q A

Statements
4 Income and Expenditure Account
5 Preparation of Accounts From 263 267 284 324 352 421 430 448 454
Incomplete Records

Standards

Customers
ii
Preparation of Accounts from
Incomplete Records
5
LO 1 CALCULATION OF PROFIT/SALES/COST FIGURES THROUGH EQUATIONS
LO 2 CONVERSION OF SINGLE ENTRY TO DOUBLE ENTRY SYSTEM
LO 3 CALCULATION OF PROFIT THROUGH BALANCE SHEET APPROACH
LO 4 CATEGORIES OF QUESTIONS
Many small business have neither the time nor the experience necessary to maintain a fully set of
accounting records using the double entry system; and cannot afford the expense of outside staff to keep
such records. However, every business is interested to know its profit from time to time. Some businesses
only records receipts from debtor, payment to creditors, payments for expenses and opening closing list of
liabilities. In such organizations these documents along with bank statement are used to ascertain the
profit. Single entry system may be defined as a system in which accounting records are not kept strictly
according to the double entry principles of bookkeeping. Since all the transactions are not recorded
strictly on the double entry principle, it is not possible to prepare a Trial Balance and check the
arithmetical accuracy of the books of account.
CHAPTER-5 PREPARATION OF ACCOUNTS FROM INCOMPLETE RECORDS
LO1: CALCULATION OF PROFIT/SALES/COST FIGURES THROUGH EQUATIONS

There are two ways in which the equation can be given in paper:
1. Gross profit is 20% of cost.
 Goods are sold at 20% mark-up.
 Goods were sold at a markup of 20% on cost/cost of sales.
 Sales are made at cost plus 20%
 Goods are sold at 20% above cost
 Goods are sold to show a profit of 20% on cost.
Equation for all of above
Cost of Sales + Gross Profit = Sales
100 + 20 = 120
2. Gross profit is 20% of selling price.
 Goods are sold at 20% margin
 Sales were made at a profit of 20% on sales
 Gross profit is made at 20% on sales value
 There was a fixed margin of gross profit of 20% on sales
 Sales were effected at a uniform rate of gross profit at 20% on sales
Equation for all of above
Cost of Sales + Gross Profit = Sales
80 + 20 = 100
PRACTICE QUESTIONS
Question # 1: Profit percentage on cost is 17% while cost is 650,000. Find profit and sales?
Question # 2: Profit percentage on sales is 21% and sales is Rs. 510,000. Profit and cost are to be found?
Question # 3: Profit is 15% of cost while sales made is Rs. 215,000. Find profit and cost?
Question # 4: Profit is 23% of sales while cost incurred is Rs. 395,000. Find profit and sales?
Question # 5: Profit is 18% of sales, which amounts of Rs. 215,000. Find cost and sales?
Question # 6: Profit amounts to Rs. 150,000. This amount forms 10% of cost. Find cost and sales?
Question # 7: Sales made are Rs. 313,000. Profit earned is 23% of sales. Find profit and cost?
Answers
Answer # 1:
100 + 17 = 117
Profit = 650,000 x 17 = 110,500
100
Sale = 650,000 x 117 = 760,500
100
Answer # 2:
79 +21 = 100
Profit = 510,000 x 21 = 107,100
100
Cost = 510,000 x 79 = 402,900
100
Answer # 3:
100 + 15 = 115
Profit = 215,000 x 15 = 28,043
115
Cost = 215,000 x 100 = 186,957
115
263
Answer # 4:
77 + 23 = 100
Profit = 395,000 x 23 = 117,987
77
Sale = 395,000 x 100 = 512,987
77
Answer # 5:
82 + 18 = 100
Profit = 215,000 x 82 = 979,444
18
Sale = 215,000 x 100 = 1,194,444
18
Answer # 6:
100 + 10 = 110
Cost = 150,000 x 100 = 1,500,000
10
Sale = 150,000 x 110 = 1,650,000
10
Answer # 7:
77 + 23 = 100
Profit = 313,000 x 23 = 71,990
100
Cost = 313,000 x 77 = 241,010
100
Prepare equation
 Asif sells the goods at a profit margin of one-third of their selling price i.e. at a profit margin of 50% of
cost of sales.
 Mark-up is 1/3rd of cost
LO2: CONVERSION OF SINGLE ENTRY TO DOUBLE ENTRY SYSTEM

We have seen that under the single entry system adequate accounting information is not available.
Following are the steps to be performed for preparing financial statements:
Step 1 Open up the:
 debtor a/c,
 creditor a/c,
 cash a/c,
 bank a/c and
 inventory a/c
 only those expense accounts whose opening or closing prepaid or payables are given.
Put the opening and closing balances in all the accounts mentioned above.
Step 2 Pass the double entry for each figure appearing in the question starting from the top of question.
Step 3 Read out the descriptive information provided in the question to calculate the missing information.
Step 4 Fill out the missing information by passing the double entry for each amount. Missing information
is calculated as balancing figure.
Step 5 Complete the profit and loss and balance sheet.
264
Following are the important issues which are to be considered:
Issues Treatment
1. Calculating sales There are normally two ways of calculating sales:
 As balancing figure in debtor account
 Through cost of sales using standard GP ratios
2. First account to Always complete the creditor account first to calculate credit purchases.
be completed
3. Calculation of Prepare inventory account.
abnormal loss or Note: In such questions sales will normally be calculated as balancing in debtor
closing stock account.
4. If there is a It could be either:
missing figure on  Cash sales
debit side of cash  Cash received from debtors
a/c  Bank withdrawls
5. Cash Prepare cash account. Misappropriation will be balancing figure on credit side.
misappropriation
LO3: CALCULATION OF PROFIT THROUGH BALANCE SHEET APPROACH

For a very small scale business it may not be possible to prepare complete profit and loss a/c. Here profit can
be calculated through following statement:
Rs.
Closing capital (Closing assets – Closing liabilities) xxx
Add: Drawings xxx
Less: Opening capital (Opening assets – Opening liabilities) xxx
Less: New capital xxx
Profit for the year xxx
This statement can be easily understood through the help of following a/c:
Dr. Capital account Cr.
b/d -
Drawings New capital
Profit for the year (bal.)
c/d
Example-1
Let us take a simple example in which Mr. X keeps no adequate records. The business was set up on 1st
January 2002 with a capital in cash Rs. 50,000. At the end of the year, the following assets and liabilities
were revealed:
Assets: Building at cost – Rs. 30,000; Stock – Rs. 10,000; Trade debtors – Rs. 20,000; Cash – Rs. 15,000
Liabilities: Trade creditors – Rs. 5,000. Calculate profit for the year:
Answer-1
Statement of Profit and Loss
Rs.
Closing Capital (Closing Assets – Closing Liabilities) 70,000
Less: New Capital 50,000
Profit for the year 20,000
265
Example-2
The balance sheets of Mr. Ali as at December 31, 2009 and 2008 are as follows:
2009 2008
Creditors 3,500 2,450
Debtors 4,750 2,850
Fixed assets 9,750 9,600
During the year ended December 31, 2009 following transactions took place:
1) New capital inserted 400

2) Drawings 250
Required: Calculate profit for the year?
Answer-2
One way
For calculating the profit for each year we will prepare the capital account in statement form.
Rs.
Closing capital (4,750 + 9,750 – 3,500) 11,000
Add: Drawings 250
Less: New capital (400)
Less: Opening capital (2,850 + 9,600 – 2,450) (10,000)
Profit for the year 850
Alternate way
Rs.
Increase/ (decrease) in capital (W-1) 1,000
Add: Drawings 250
Less: New capital (400)
(W-1) Increase/ (Decrease) in capital Rs.

Increase in creditor (1,050)
Increase in debtor 1,900
Increase in fixed asset 150
1,000
LO4: CATEGORIES OF QUESTIONS
Description Practice Past

Set papers
Typical questions 1-18 1-18
Questions dealing with cash misappropriation - 19-22
Questions in which abnormal loss or closing stock is missing 17-19 23-31
Questions in which profit is determined through balance sheet approach 20-24 32-33
Mixed Question 25-29 -
266
PRACTICE QUESTIONS
Question-1
The following is a summary of Aashir’s bank account for the year ended 31 December 20X2:
Rs Rs
Balance 1.1.20X2 4,100 Payments to creditors for goods 67,360
Receipts from debtors 91,190 Rent 3,950
Balance 31.12.20X2 6,300 Insurance 1,470
Sundry expenses 610
Drawings 28,200
101,590 101,590
Cash sales are Rs. 17,400. Out of this, Aashir has paid wages of Rs. 11,260, drawings of Rs 1,200 and
purchase of goods Rs 4,940.
The following additional information is available:
31.12.20X1 31.12.20X2
Stock 10,800 12,200
Creditors for goods 12,700 14,100
Debtors for goods 21,200 19,800
Insurance prepaid 420 440
Rent owing 390 -
Fixtures at valuation 1,800 1,600
Required:
You are to draw up a set of financial statements for the year ended 31 December 20X2. Show all of your
workings. (8)
Question-2
Bell has kept records of his business transactions in a single entry form, but he did not realise that he had
to record cash drawings. His bank account for the year 20X8 is as follow:
Rs Rs
Balance 1.1.20X8 920 Cash withdrawn from bank 12,600
Receipts from debtors 94,200 Trade creditors 63,400
Loan from F Tung 2,500 Rent 3,200
Insurance 1,900
Drawings 11,400
Sundry expenses 820
Balance 31.12.20X8 4,300
97,620 97,620
Records of cash paid were: Sundry expenses Rs 180; Trade creditors Rs 1,310.
Cash sales amounted to Rs. 1,540.
The following information is also available:
31.12.20X7 31.12.20X8
Rs. Rs.
Cash in hand 194 272
Trade creditors 7,300 8,100
Debtors 9,200 11,400
Rent owing - 360
Insurance paid in advance 340 400
Van (at valuation) 5,500 4,600
Stock 24,200 27,100
267
Required:
You are to draw up a trading and profit and loss account for the year ended 31 December 20X8, and a
balance sheet as at that date. Show all of you workings. (10)
Question-3
From the following information, calculate Drawings in cash by the proprietor:
Opening cash in hand 10,000 Cash purchases 15,000
Opening cash at bank 5,000 Purchase of furniture (for office use) in cash 600
Cash sales 20,000 Expenses — Cash 1,000
Cash collected from Debtors 50,000 Expenses — Cheque 1,500
Drawings by cheque 5,000 Cash deposited 60,000
Cheque issued to creditors 30,000 Closing cash in hand 12,500
Closing cash at bank 8,500
(7)
Question -4
S, a trader, does not keep a complete set of books. On May 1, 2002 his debtors were Rs. 24,500 and
creditors Rs. 7,500.
A summary of his cash book for the year to 30th April, 2003 showed the following totals.
Cash(Rs.) Bank(Rs.)
Credits - Payments to creditors for purchases 1,350 11,250

Debits - Receipts from debtors for sales - 21,250
Sales of machinery 13,000 -
Rent of warehouse sublet 390 -
Cash sales 5,000 3,750
Cash capital introduced on Nov 1, 2002 - 2,500
At April 30, 2003 the debtors and creditors respectively amounted to Rs.44,000 and Rs.9,750. Cash
discount allowed to debtors was Rs. 230 and those received from creditors were Rs. 810.
Required:
Ascertain the Total Sales and Total Purchases for the year. (5)
Question -5
Mr. Ali Abbas is running a general store and has provided you with following information:
June 30, June 30,
Particulars 2009 2008
Rupees
Cash in hand 700 14,300
Cash at bank 103,400 349,100
Sundry debtors 80,900 48,700
Stock 27,500 15,700
Sundry creditors 130,800 116,100
Rent payable 4,500 3,500
Electricity and telephone bills prepaid 8,800 -
1. Debtors only make payment in cheques which amounted to Rs. 250,000 during the year.
2. Cash received from cash sales is deposited in the bank after making drawings and meeting certain
expenses the details for which during the year are as follows:
Rupees
Electricity 3,000
Repairs 2,400
The drawings during the year range from 200,000 to 300,000.
268
3. Bank payments during the year ended June 30, 2009 have been summarized as follows:
Rupees
Creditors 800,000
Rent 50,400
Electricity 13,900
Delivery costs (to customers) 4,000
Stationery 66,200
4. The goods are sold at 20% above cost.
Required:
You are required to prepare trading and profit and loss account and balance sheet as on June 30, 2009.
(12)
Question-6
Mr. Usman Safdar is running a general store and has provided you with following information:
June 30, June 30,
Rupees
Cash at bank 103,400 349,100
Stock 27,500 15,700
1. Debtors only make payment in cash which amounted to Rs. 250,000.
2. Cash received from cash sale and debtors is deposited in bank after making drawings and meeting
following expenses.
Rupees
Electricity 3,000
Repairs 2,400
Rupees
Creditors 800,000
Rent 50,400

5. All purchases are made on credit.
Required:
(12)
Question-7
Mr. Syed Aamir Ali is running a general store and has provided you with the following information:
June 30, June 30,
Rupees
Cash at bank 103,400 349,100
Stock 27,500 15,700
269
1. Purchases are made in cash as well as on credit.

2. Payment to creditors is always through cheque.
3. All sales are made on credit.
4. All debtors make payment through cheque which amounted to Rs. 600,000.
5. In addition to cash drawings following cash expenses were also incurred:
Rupees
Electricity 6,000
Repairs 5,400
Rupees
Creditors 350,000
Rent 50,400
Cash withdrawn ?
Required:
(15)
Question-8
Mr. Syed Yasir Ali is running a general store and has provided you with following information:
June 30, June 30,
Rupees
Cash at bank ? 349,100
Stock 27,500 15,700
1. He makes payment to creditors through cheques which amounted to Rs. 910,000. However, for
other items, payments are made out of cash receipts. Available cash is deposited in a bank
account weekly. Nothing is being withdrawn from bank for business purpose.
2. Purchases are only made on credit.
3. All debtors make payment through cheque. Credit sale amounted to Rs. 600,000.
4. Following amounts are paid during the year:
Staff salaries for the year 360,000
Personal expenses of Mr. Syed Yasir Ali 60,000
Cash retained for sundry business expenses (per month) 20,000
Of the cash taken for sundry business expenses, Rs 10 thousand was in hand on June 30, 2009.
5. Profit is 30% of selling price.
6. Opening cash is Rs. 14,300.
Required:
(14)
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Question-9
The following is a summary of the Bank Account of Mr. Khanna, a trader, for the year 2002.
Bank Summary
Particulars Rs Particulars Rs
Balance on January 1,2002 5,140 Payment to trade creditors 187,860
Cash receipts on account of credit sales 243,720 General expenses 16,970
Balance on December 31.2002 1,180 Rent & rates 7,710
Drawings 37,500
250,040 250,040
All business takings had been paid into the bank except Rs 21,180 out of which he paid wages amounting
to Rs 12,800. He retained Rs 8,380 for private purposes. The following information is obtained from the
books:
Particulars 31.12.2001 31.12.2002 Particulars 31.12.2001 31.12.2002
Stock in trade 24,300 31,500 Rates paid in advance 420 450
Creditors for goods 19,450 17,090 Creditors for general expenses 810 1,340
Debtors for goods 21,800 26,900
Furniture and fittings 10,000 10,000
Discounts received from trade creditors during 2002 amounted to Rs 1,500. No discounts were allowed to
customers. The amount due to the customer who overpaid his account was set off against sales to him in
2002.
Required:
Prepare a Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance Sheet as on
that date . (12)
Question -10
Mr. Sandy Brown started business on 1.1.2002 with his own capital of Rs 20,000 and an interest free loan
of Rs 20,000 from a friend.
His business makes toys, which are selling at Rs 40 each. Anand, who has little knowledge of
accountancy, produced the following information at the end of the first year's trading: Cash received: Sale
proceeds of 2,000 toys Rs 80,000.
Cash paid: Wages Rs 28,000; Raw materials Rs 13,600; Rent Rs 8,000; General expenses Rs 4,800; Loan
repaid Rs 6,000.
You ascertain the following additional information:
(1) A further 300 toys were sold in 2002, but not paid for at the year end.
(2) Rs 3,600 of raw materials received in the year, but not paid for.
(3) The only stock at 31.12.2002 was Rs 1,600 raw materials.
(4) The rent covered the period from 1.1.2002 to 31.3.2003.
(5) Expenses included Rs 800 withdrawn by Sandy Brown for his own use.
(6) The initial capital and loan of Rs 40,000 was used to buy furniture with 4-year life and an
anticipated residual value of Rs 8,000.
(7) The wages figure included Rs 10,000 for installing the fixture.
Required:
Prepare a Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance Sheet as on
that date. (15)
271
Question -11
Mr. Green is in business but does not keep full accounting records. For the year ended 31.12.2002, he is
able to provide you with the following information (all figures in rupees):
Date Stock Debtors Creditors Furniture
1.1.2002 29,500 3,250 7,360 12,000
31.12.2002 32,710 5,010 10,140 10,500
You are able to prepare the following summary of his cash and bank transactions for 2002:
Cash Rs Rs Bank Rs Rs
Opening balance 490 Opening balance 9,200
Receipts - Receipts -
Cash Sales 53,600 Cheques from Customers 17,330
Cheque Cashed 2,600 56,200 Paid into Bank 39,950 57280
56,690 66,480
Payments - Payments -
Purchases 3,400 Creditors 29,500
Wages 1,020 Wages 3,710
Other Expenses 2,260 Other Expenses 7,700
Drawings 8,200 Rent 12,500
Paid into Bank 39,950 54,830 Cash Withdrawn 2,600 56,010
Closing Balance 1,860 Closing Balance 10,470
Required:
Prepare Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance Sheet as on
that date. (12)
Question -12
P maintains accounts under single entry system and furnishes the following information for the year
ending 31.12.2001 (all figures in rupees):
Furniture
Date Bank Stock Debtors Building Creditors
(after depreciation)
1.1.2001 28,000 30,000 45,000 15,000 150,000 32,000
31.12 2001 ? 40,000 33,000 18,000 ? 36,000
Cost of goods sold during the year was Rs 360,000. The rate of gross profit is 25% on sales.
All purchases and sales are on credit and amounts received from customers and payments to suppliers are
by cheques. P realised Rs 10,000 in cash on the sale of scrap from which he paid Rs 6,000 as freight on
purchases and the balance was retained for his personal use.
Details of his other transactions with the bank are as under:
Receipts
Capital invested Rs 150,000; Rental income 800.
Payments
10% Govt. bonds Rs. 150,000 (purchased on 1.7.2001); Salaries Rs 60,000; Taxes (11 months ending
30.11.2001) Rs 11,000; Printing and stationery Rs 7,800; Miscellaneous expenses Rs 12,000; Drawings
Rs 26,000.
Bad Debts written-off during the year were Rs 7,000. Furniture has been depreciated by 10% and
Building is to be depreciated by 2%.
The shop assistant is entitled to a commission of 10% of net profit after charging his commission.
Required:
Prepare Trading and Profit and Loss Account for the year ensuing 31.12.2001 and Balance Sheet as on
that date. (16)
272
Question -13
On 1.1.1993, Mr S. Sen commenced business. He did not maintain proper books of account. At the end of
the year, the following information is obtained after going through the records:
(i) All cash received from cash sales was banked after keeping Rs 1,000 p.m. for petty expenses and
after withholding monthly drawings of Rs 500.
(ii) Counter foils of pay-in-slip revealed the following deposits:
capital contributed Rs 100,000; balance of cash sales Rs 78,000; collections from debtors
Rs.100,000.
(iii) Counter foils of cheques revealed the following payments:
payment to creditors Rs 150,000; salary Rs 35,000; purchase of furniture Rs 10,000.
(iv) Sales were effected at a uniform rate of gross profit at 25% on sales.
(v) Discount allowed Rs 2,000, discount received Rs 3,000 and bad debts Rs 1,000.
(vi) Petty cash expenses were; postage Rs 200; stationery Rs 1,000; conveyance Rs 2,000 and rent
Rs.2,200.
(vii) On 31.12.1993 amount due from debtors Rs 10,000 and amount owing to creditors were
Rs.20,000.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31.12.1993 and a Balance Sheet as on
that date. (15)
Question -14
X is a tobacco merchant. He follows the practice of paying creditors for goods purchased through his
bank account and making payments in cash on all nominal accounts.
X had not kept his books on the double entry principles nor had he balanced his Cash Book. However, the
following information has been extracted from X's accounting records (all figures in Rupees).
Date Cash Bank Debtors Creditors Investments Stock
1.1.1994 30 1,000 1,750 3,410 6,250 2,500
31.12.1994 50 1,500 2,500 3,750 6,250 1,870
Transactions during the year 1994 were the following (all figures in Rupees):
Salaries paid (in cash) 1,500 Payments to creditors through bank
and of trade expenses in cash 20,000
General expenses paid(in cash) 3,500 Payments into bank – business 18,750
Payment for stationery(in cash) 870 Payments into bank - additional capital 250
Payment of rent and rates(in cash) 700 Payments from bank account – personal 3,250
Lighting charges paid(in cash) 250 Cash payments – personal 910
Cash receipts from debtors 31,250
Stock taken for personal use 140
Required:
Prepare Trading and Profit and Loss Account for the year ended 31.12.1994 and Balance Sheet on that
date. (15)
Question -15
The following balances are available from the books of Mr. Aamir as on 31.12.1994 and 31.12.1995 (all
figures in rupees):
Date Building Equipments Furniture Debtors Creditors Stock Bank Loan Cash
31.12.1994 60,000 120,000 10,000 ? 32,000 ? 20,000 32,000
3112.1995 60,000 134,000 10,000 48,000 ? 34,000 16,000 22,000
The transactions of Mr. Aamir during the year ended 31.12.1995 were the following:
273
Collection from Debtors Rs 186,000; Payment to Creditors Rs 122,000; Cash Purchases Rs 32,000;
Expenses Rs 20,000; Sale of one Equipment on 1.1.95 for Rs. 6,000 (book value Rs 10,000); Drawings
Rs 20,000.
Cash sales amounted to 10% of total sales. Credit sales amounted to Rs 180,000. Credit purchases were
80% of total purchases. Mr. Aamir sells goods at cost plus 33 1/3%. His suppliers allowed him discount
Rs 2,000.
Equipment and furniture are to be depreciated by 10% p.a. and building by 2% p.a.
Required:
Prepare the Trading and Profit and Loss Account for the year ended 31.12.1995, and a Balance Sheet as
on that date. (12)
Question -16
X is a sole trader selling goods from a rented shop. He has not kept proper accounting records for the year
ended 31.12.2002. His assets and liabilities at 31.12.2001 and 3I.12.2002 were as follows:
Liabilities 31 12 2001 31.12.2002 Assets 31 12.2001 31.12.2002
Rs Rs Rs Rs
Loan from D (Note 4) 24,000 12,000 Shop Equipments at cost 14,800 ?
Creditors 12,100 14,200 Less: Accumulated
Depreciation (Note 2) (6,900) ?
Outstanding Expenses 2,300 ? 7,900 ?
(Note 5)
Bank Overdraft 2,600 See below Stock 146,400 128,700
Debtors 14,400 15,700
Rent in Advance (Note 1,000 1,500
3)
Bank - 4,850
Cash 800 900
The following summary shows receipts and payments by X:
Cash Book Summary
Sales revenue banked 131,600 Opening balance 2,600
Proceeds of sate of shop equipment 300 Payments to Creditors 81,400
(Note 2) Rent (Note 3) 8,250
Purchase of shop equipment (Note 2) 1,800
Expenses (Note 5) 18,600
Interest on Loan (Note 4) 2,400
Repayment of Loan (Note 4) 12,000
131,900 131,900
Before banking the shop takings, X took various amounts as drawings.
Notes:
(1) X fixes his selling prices by doubling the cost of all items purchased.
(2) During the year X sold for Rs 300 equipment that had cost Rs 800, and had a W.D.V.at 1.1.2001
of Rs. 200.He purchased further equipment on 1.7.2001 for Rs 1,800.
Depreciation is charged @ 10% p.a. on the straight line basis.
(3) Rent is payable quarterly in advance on 1st March, 1st June, 1st September and 1st December
each year. On 1.6.2002 the annual rent was increased from Rs 6,000 to Rs 9,000.
(4) The loan from D carries interest @ 10% p.a. payable annually on 30th November. On 30.11.2002
X repaid Rs 12,000 of the loan. The balance is repayable on 30.11.2006.
274
(5) The outstanding expenses at 1.1.2002 consist of the Rs 200 interest accrued on D's Loan (see
Note 4) and expenses of Rs 2,100. At 31.12.2002, outstanding expenses amounted to Rs 3,300.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31.12.2002 and a Balance sheet as on
that date. (20)
Question-17
Mr. Umer is in business but does not keep full accounting records. For the year ended 31.12.2002, he is
able to provide you with the following information (all figures in rupees):
Date Debtors Creditors
1.1.2002 3,250 7,360
31.12.2002 5,010 10,140
You are able to prepare the following extracts from his cash and bank transactions for 2002:
Cash Rs.
Receipts -
Cash Sales 53,600
Regards:Awais Ali
Payments -
Purchases 3,400
Bank Rs.
Receipts -
Cheques from Customers 17,330
Payments -
Creditors 29,500
Opening stock is 29,500.
Gross profit is 20% of cost.
Required:
a) Value of closing stock.
b) Prepare trading a/c. (10)
Question-18
Following is the detail of assets and liabilities on January 1, 2007 provided by Mr. Asim:
Rs.
Debtors 200,000
Creditors 80,000
Stock 80,000
Transactions during the year ended December 31, 2007:
Rs.
Cash received from debtors 800,000
Goods withdrawn by owner 20,000
Payment to creditors 500,000
Decrease in debtors 180,000
Increase in creditors 300,000
Decrease in stock 75,000
Normal selling price is 25% above cost however 20% of sales are made at 10% below cost.
Required:
Calculate stock shortage and prepare trading a/c. (10)
275
Question-19
Shafiq Ahmad is in the business of sun-flower oil. He expanded his business considerably during the year
ended June 30, 2009 but did not maintain proper books of account. He has now extracted the following
details from a register maintained at the business premises:
Summary of receipts and payments

Rupees
Receipts:
Additional capital injected 1,000,000
From debtors 4,713,750
From insurance company for damaged stock 30,000
Cost of transportation recovered from customers 200,000
Payments:
Landlord 192,000
Salaries 248,000
Fuel and maintenance of delivery trucks 224,000
Miscellaneous office expenses 112,000
Personal income-tax 50,000
Transfer to 12% fixed deposit (on Feb. 1,2009) 200,000
Suppliers 3,200,000
Cost of transportation paid to suppliers 250,000
Purchase of truck and initial repair thereof 360,000
From the income tax file for the year ended June 30,2008, he determined the following:
Capital 497,300
Creditors for oil purchases 1,200,000
Creditors for expenses: - Rent for June 2008 16,000
- Salaries 4,000
Debtors 160,000
Provision for bad debts 48,000
Stock of oil (1,250 units) 1,250,000
Furniture 30,000
Accumulated depreciation on furniture 5,700
Delivery trucks 400,000
Accumulated depreciation on trucks 144,000
On scrutiny of the other records, he was able to gather the following information:
(i) 2,800 tins of oil were sold during the year at Rs. 2,000 each.
(ii) 3,000 tins were purchased during the year at Rs. 1,200 each. 50 tins costing Rs. 60,000 were
damaged in transit against which insurance claim of Rs. 30,000 was received. The damaged tins
were sold for Rs. 15,000 and the amount is included in receipt from debtors. Two tins costing Rs.
2,400 were withdrawn for personal use and ten tins costing Rs. 12,000 were gifted to a charity.
(iii) The units lying in stock cost Rs. 1,200 each. 50 tins lying in closing stock were declared unfit for
health, by the quality inspection department and could either be sold at Rs. 1,000 each or
reprocessed by a third party, at a further cost of Rs. 900 each. A decision in this regard has not
been made so far.
(iv) A second-hand delivery truck costing Rs. 300,000 was purchased on April 1, 2009 by paying
cash. Rs. 60,000 were spent to bring it in proper operating condition.
276
(v) Rs. 10,000 were paid for registration of the truck and a fee of Rs. 18,000 was paid for obtaining
fitness certificate which is valid for 3 years. These amounts are included in fuel and maintenance
expenses shown above.
(vi) Debtors amounting to Rs. 60,000 were written off during the year. Bad debts are estimated at 2%
of sales.
(vii) Depreciation is charged from the date of purchase. The rate of depreciation is 10% and 20% of
WDV on furniture and delivery trucks respectively.
Required:
(a) Trading & profit and loss account for the year ended June 30, 2009.
(b) Balance sheet as at June 30, 2009. (25)
{Autumn 2009, Q # 3} (amended)
Question-20
Mr. Zaryab who keeps his books on single entry system, tells you that his capital on 31.12.2002 is Rs
18,700 and on 1st January, 2002 was Rs 19,200. He further informs you that he gave loan of Rs 3,500 to
his brother on private account and withdrew Rs 300 p.m. for personal purposes. He also used a flat for his
personal purposes, the rent of which @ Rs 100 per month and electric charges Rs 10 per month were paid
from the business account. He sold his 7% Government Bond of Rs 2,000 at 3% premium and brought
that money into business. Besides this, there is no other information.
Required:
Prepare his Statement of Profit for the year ended 31.12.2002. (10)
Question-21
On January 1, 2002 Aamir started a business with a capital of Rs 100,000 with which he opened a bank
account. On the same day, he bought furniture and fittings for shop costing Rs 4,800 and goods for trade
costing Rs 25,000.
On December 31, his stock-in-hand was valued at Rs 29,000 and furniture and fittings stood at Rs 6,300.
On that date, his book debts amounted to Rs 78,000 of which Rs 1,200 was considered to be bad.
Creditors amounted to Rs 15,000. His balance as per Cash Book was Rs 5,500 a cheque for Rs 400 sent
for deposit on December 30, was not realized till after December 31, and cheque for Rs 700 issued on
December 29, was not presented to Bank till after December 31. Bank charges for the year amounted to
Rs 50 but this was not known to the trader on December 31. His drawings during the year amounted to Rs
9,300. He had also taken for personal use goods from the shop valued at Rs 1,500.
Required:
Prepare a Statement showing Aamir’s profit or loss during 2002. (10)
Question-22
The Statement of Affairs of Waqas as on 1st April, 2002 is given below:
Liabilities Rs Assets Rs
Sundry Creditors 16,500 Cash 7,450
Accrued expenses 3,500 Sundry Debtors 25,350
Capital 50,000 Stock 30,300
Furniture 6,900
70,000 70,000
During the year ended 31st March, 2003 his drawings amounted to Rs 15,000. He also withdrew goods
worth Rs 600 for his personal use. On 1st July, 2002, Waqas transferred some of his household furniture
to the business at a value of Rs 2,100. His assets and liabilities as on 31st March, 2003 were:
277
Regards:Awais Ali
Liabilities Rs Assets Rs
Sundry Creditors 18,600 Cash 6,580
Accrued expenses 4,300 Sundry Debtors 36,900
Stock 40,320
Furniture 9,000
Prepaid Rent 400
Furniture is to be depreciated @ 10% p.a. and a provision is to be created on debtors @ 5%.
Required:
Ascertain the profit or loss for the year ended 31st March, 2003. (8)
Question-23
On 1.1.2001, the assets and liabilities of Sougata Roy, a retailer, were as follows:
Building Rs 500,000; Motor van Rs 100,000; Furniture Rs 80,000; Stock Rs 60,000; Debtors Rs
40,000; Provision for Doubtful Debts Rs 4,000; Cash Rs 2,500; Creditors Rs 42,000; Loan Rs 100,000;
Bank Overdraft Rs 15,000.
The following information was available at 31.12.2001:
(1) Stock Rs 60,000; Debtors Rs 50,000; Cash Rs 4,500; Creditors Rs 37,000; Loan Rs 80,000; Bank
Overdraft Rs 10,000.
(2) No fixed assets had been bought or sold during the year.
(3) Fixed assets are to be depreciated as follow:
(i) Motor van by 20% p.a. (ii) Furniture by 25% p.a.
(4) A provision for doubtful debts is to be maintained at 10% of year-end debtors.
(5) Sougata withdrew Rs 6,000 p.m. for his own use.
(6) On 1.3.2001. Sougata brought further Rs 30,000 as capital into the business.
Required:
Prepare a Statement of Profit and Loss for the year ended 31.12.2001 and a Statement of Affairs as on
that date. (8)
Question-24
ABC ltd. Has extracted following information from the trial balance for two years ended 31, December:
2010 2009
Rs. In ‘000’ Rs. In ‘000’
Prepaid expenses 0 12
Investment 700 -
Property 2,700 2,700
Cash balance 570 308
Delivery van 500 500
Loan from bank 500 500
Accounts payable 84 110
Accrued expenses 15 -
Inventories 200 94
Bank balance (50) 300
Accounts receivables 279 170
Further information:
(i) An allowance for doubtful debts should be established on 31 December 2010 in the amount of Rs.
9,000.
(ii) Depreciation to be provided on carrying amounts as follows:
Property 10%
Delivery van 15%
278
(iii) Additional capital of Rs. 500,000 was introduced in the business during the year.
(iv) The owner withdrew a total sum of Rs. 50,000 during the year.
Required:
(a) Calculate the capital at the start of the year by preparing a statement of net assets at that date.
(b) Prepare a statement of net assets at the end of the year.
(c) Calculate profit for the year in statement form. (10)
Question-25
1.1.2001 31.12.2001
Debtors 200,000 400,000
Creditors 250,000 300,000
Stock 30,000 40,000
Cash 510,000 15,000
- During the year owner made cash drawings which are not known.
- Payments made to creditors amounted to Rs. 400,000 and expenses of Rs. 90,000 has been paid in
cash.
- GP ratio is 10% of cost.
Required:
Calculate gross profit and cash drawings. (6)
Question -26
1.1.2001 31.12.2001
Debtors 30,000 50,000
Creditors 70,000 90,000
Cash 6,000 30,000
Stock 10,000 25,000
- Payment to creditors amounted to Rs. 300,000.

- Goods drawn by owner amounted to Rs. 4,000.
- Closing debtor includes bad debt of Rs. 2,000.
- Expenses paid in cash Rs. 50,000 – Discount Received 3,000
Required:
Calculate gross profit. (6)
Question -27
1.1.2001 31.12.2001
Debtor 10,000 40,000
Creditor 20,000 25,000
Cash 10,000 50,000
- Payments made to creditors amounted to Rs. 390,000.

- Opening stock is 120,000.
- Goods are sold at a profit of 5% on cost price except goods costing Rs. 5,000 are sold at 20% of
sale price.
Required: Calculate gross profit and closing stock. (8)
279
Question -28
1.1.2011 31.12.2011
Debtors 10,000 40,000
Stock 16,000 11,000
Cash 10,000 25,000
- A flood arose in the year due to which some stock was lost abnormally.
- Payments to creditors amounted to Rs. 400,000 and for expenses Rs. 104,000.
- Sale return amounted to Rs. 15,000.
- Closing debtor include goods sent on approval basis amounting to Rs. 6,000 and goods are not
approved.
- Carriage-in amounted to Rs. 15,000.
- Goods withdrawn by owner Rs. 3,000.
Required:
Calculate gross profit assuming GP ratio is 25% of selling price. Also calculate abnormal loss. (12)
Question-29
Opening Closing
Debtors 10,000 20,000
Cash 20,000 40,000
Stock 3,000 4,000
Bank 1,000 5,000
- Cash is deposited in bank after making payments for purchases and expense and drawings.
- Rupees
- Purchases (Inventory) 360,000
- Expenses 40,000
- Drawings 20,000
- Bank receipts comprise of cheques from debtors and cash deposited.
- Debtors gave us cheque of Rs. 40,000. Sale Return Rs. 3,000.
- Cashier has misappropriated with some cash.
- Fixed assets bought through paying cheque Rs. 370,000.
- New capital in cash inserted is Rs. 500,000 in addition to cash receipt from debtors.
- GP ratio is 30% of cost.
Required: Calculate Gross Profit and cash misappropriation in statement form. (12)
Question-30
Mr. Abbasi appointed you as his accountant. Soon thereafter he left for a foreign tour. Before leaving, he
left a note describing his financial dealings during the year ended December 31, 2008. These are
summarized as under:
(i) He commenced his business on January 1, 2008 with a capital of Rs. 600,000. He opened a
business bank account with an initial deposit of Rs. 550,000.
(ii) Business premises were acquired on rent. He took possession of the premises on January 2, 2008
and paid advance rent of Rs. 150,000 covering the period up to March 31, 2009. The payment
was made by cheque. The premises were furnished at a cost of Rs. 60,000 which was paid
through bearer cheque
280
(iii) Equipment was acquired on payment of advance of Rs. 40,000 on 1st January 2008. After
payment of 75% of the balance amount, Rs. 4,000 were still outstanding on December 31, 2008.
(iv) A second hand van was purchased on February 1, 2008 for Rs. 200,000. Rs. 52,000 were spent on
its repair to bring it to working condition. The life of the van at the time of purchase, was
estimated at 6 years.
(v) Depreciation on furniture and equipment should be charged at the rate of 20% on declining
balance method whereas the van should be depreciated on straight line basis.
(vi) 8,000 pairs of jeans were bought for Rs. 1,200,000. Cheques totaling Rs. 800,000 have been paid
to the supplier whereas the balance is payable on April 30, 2009. 7,000 pairs had been sold by
December 31, 2008. Mr. Abbasi had received Rs. 1,400,000, before the end of the year whereas
Rs. 50,000 are still receivable from the customers. The physical inventory taken at the end of the
year showed a balance of 950 pairs of jeans.
(vii) 1,600 T-shirts were bought for Rs. 120,000 and paid through cheque. 1,400 T-shirts were sold in
cash for Rs. 150,000. 20 T-shirts were gifted by Mr. Abbasi to his family members whereas 30 T-
shirts were given away to the customers. The remaining T-shirts have been damaged and are
expected to sell for Rs. 5,000.
(viii) 1,000 pocket calculators were bought on credit for Rs. 400,000. Later it was noticed that they
were slightly defective. After intense negotiation the supplier agreed to give a 50% discount. It is
expected that these calculators will be repaired for Rs. 100 each and would be sold for Rs.
250,000.
(ix) The cash received from the sale of T-shirts was partly used to pay the following business
expenses:
Petrol 40,000
Utilities 19,000
Others 6,000
(x) Mr. Abbasi took a trip of upcountry with his family which costed him Rs. 80,000 which was all
drawn from the bank. He also withdrew Rs. 12,000 per month for his personal use.
Required: From the above information, prepare:
(a) a trading and profit and loss account for the year ended December 31, 2008; and
(b) a balance sheet as at December 31, 2008. (22)
Regards:Awais Ali
281
PRACTICE SOLUTIONS
Answer-1
Mr. Aashir
Trading and Profit and loss account
Rs.
Sales (17,400 + (W-1) 89,790) 107,190
Less: Cost of sales: (W-8) (72,300)
Gross Profit 34,890
Less: Admin Expenses:
Rent (W-6) 3,560
Sundry expenses 610
Wages expense 11,260
(17,080)
Net Profit 17,810
Mr. Aashir
Balance Sheet
Capital
Opening capital (10,800-12,700+21,200+420+1,800-390+4,100) 25,230
Add: net profit 17,810
Less: Drawings (28,200 + 1,200) (29,400)
13,640
Current Liabilities
Trade Creditors 14,100
Bank overdraft 6,300
Rent payable -
20,400
34,040
Assets
Non-Current Assets
Fixture 1,600
Current Assets
Stocks 12,200
Debtors 19,800
32,440
34,040
WORKINGS
(W-1)
Dr. Debtors account Cr.
Op. 21,200
Sales (bal.) 89,790 Bank 91,190
cl. 19,800
282
(W-2)
Dr. Creditors account Cr.
Bank 67,360 Op. 12,700
Cl. 14,100 Inventory (bal.) 68,760
(W-3)
Dr. Bank account Cr.
Op. 4,100 Creditors 67,360
Debtors 91,190 Rent 3,950
Insurance 1,470
Sundry expenses 610
c/d 6,300 Drawings 28,200
(W-4)
b/d - Wages expense 11,260
Sale 17,400 Drawings 1,200
Inventory (Purchases) 4,940
c/d (bal.) -
(W-5)
Dr. Insurance Cr.
Op. 420 P and L (bal.) 1,450
Bank 1,470 cl. 440
(W-6)
Dr. Rent Cr.
Bank 3,950 Op. 390
cl. 0 P and L (bal.) 3,560
(W-7)
Dr. Fixture Cr.
b/d 1,800 Depreciation (bal.) 200
c/d 1,600
(W-8)
Dr. Inventory account Cr.
Op. 10,800 Cost of Sales (Bal.) 72,300
Cash 4,940 cl. 12,200
Answer-2
Mr. Bell
Trading and Profit and Loss Account
Rs.
Sales (1,540 + (W-1) 96,400) 97,940
Gross Profit 35,330
Rent (W-6) 3,560
Sundry expenses (820+180) 1,000
(7,300)
Net Profit 28,030
283
Mr. Bell
Balance Sheet
Capital
Opening capital (calculate yourself) 33,054
Add: Net Profit 28,030
Less: Drawings (11,400 + (W-4)12,572) (23,972)
37,112
Loan Payable 2,500
Current Liabilities
Rent owing 360
8,460
Regards:Awais Ali 48,072
Assets
Non-Current Assets
Van 4,600
Current Assets:
Stocks 27,100
Debtors 11,400
Prepayment 400
Bank 4,300
Cash 272
43,472
48,072
WORKINGS
(W-1)
Op. 9,200
Sales (bal.) 96,400 Bank 94,200
cl. 11,400
(W-2)
Op. 7,300
Bank 63,400 Inventory (bal.) 65,510
Cash 1,310
cl. 8,100
(W-3)
b/d 194 Creditors 1,310
Bank 12,600 Drawings (bal.) 12,572
Sales 1,540 Sundry expenses 180
c/d 272
(W-4)
Dr. Insurance Cr.
Op. 340
Bank 1,900 P and L (bal.) 1,840
cl. 400
284
(W-5)
Dr. Rent Cr.
Op. -
Bank 3,200 P and L (bal.) 3,560
cl. 360
(W-6)
Dr. Van Cr.
b/d 5,500 Depreciation (bal.) 900
c/d 4,600
(W-7)
Cl. 27,100
Answer-3
Drawings in cash are Rs. (W-2) 10,900.
(W-1)
Op. 5,000 Creditors 30,000
Drawings 5,000
Cash 60,000 Expenses 1,500
Cash (bal.) 20,000
c/d 8,500
(W-2)
Op. 10,000 Inventory (Purchases) 15,000
Sales 20,000 Furniture 600
Debtor 50,000 Expenses 1,000
Bank (W-1) 20,000 Bank 60,000
Drawings (bal.) 10,900
c/d 12,500
Answer-4
Sales Rs.
Cash (5,000 + 3,750) 8,750
Credit (W-1) 40,980
49,730
Purchases
Cash -
Credit (W-2) 15,660
15,660
WORKINGS
(W-1)
Op. 24,500 Bank 21,250
Sales (bal.) 40,980 Discount allowed 230
cl. 44,000
285
(W-2)
Bank 11,250 Op. 7,500
Cash 1,350 Inventory (bal.) 15,660
Discount received 810
cl. 9,750
Answer-5
Mr. Ali Abbas
Rs.
Sales (W-7) 963,480
Gross Profit 160,580
Rent (W-6) 51,400
Delivery costs 4,000
Stationery 66,200
Repairs 2,400
(132,100)
Net Profit 28,480
Mr. Ali Abbas
Balance Sheet
as on June 30, 2009
Capital
Opening capital (W-9) 308,200
Less: Drawings (W-4) (250,680)
86,000
Current Liabilities
Rent payable 4,500
135,300
Total 221,300
Assets
Non-Current Assets -
Current Assets
Stocks 27,500
Debtors 80,900
Bank 103,400
Cash 700
Prepaid electricity 8,800
221,300
221,300
286
WORKINGS
(W-1) Dr. Debtors account Cr.
op. 48,700
Sales (bal.) 282,200 Bank 250,000
cl. 80,900
(W-2) Dr. Creditors account Cr.

op. 116,100
cl. 130,800

op. 349,100 Creditors 800,000
Cash (Bal.) 438,800 Electricity 13,900
Stationery 66,200
cl. 103,400

op. 14,300 Electricity 3,000
Sales (W-7) 681,280 Repairs 2,400
Bank (W-3) 438,800
c/d 700

op. -
Cash 3,000 P and L (bal.) 8,100
Bank 13,900 cl. 8,800
(W-6) Dr. Rent Cr.

op. 3,500
Bank 50,400 P and L (bal.) 51,400
cl. 4,500
(W-7) Calculation of sales
Total Sale = Cost of sales (W-8) +20 % of cost of sale

Y = X + 20% of X
= 802,900 + 20% of 802,900
= 963,480
Cash Sale = 963,480 - (W-1)282,200 = 681,280
(W-8) Calculation of Cost of sales
cl. 27,500
(W-9) Opening Capital = 14,300 + 349,100 + 48,700 + 15,700-116,100-3,500 = 308,200
287
Answer-6
Mr. Usman Safdar
Rs.
Sales ((W-1)282,200 + (W-5) 658,480) 940,680
Less: Cost of sales (W-6) (783,900)
Electricity 3,000
Repair 2,400
Rent 50,400
(55,800)
Net Profit 100,980
Mr. Usman Safdar
Balance Sheet
as on June 30, 2009
Capital
Opening capital (14,300 + 349,100 + 48,700 + 15,700 - 30,100) 397,700
186,700
Current Liabilities
Total 212,500
Assets
Current Assets:
Stocks 27,500
Debtors 80,900
Bank 103,400
Cash 700
Total 212,500
WORKINGS
(W-1)
Op. 48,700 Cash 250,000
Sales (bal.) 282,200
cl. 80,900
(W-2)
Op. 30,100
cl. 25,800
(W-3)
Op. 349,100 Creditors 800,000
Cash (bal.) 604,700 Rent 50,400
c/d 103,400
288
(W-4)
Op. 14,300 Drawings (bal.) 311,980
Sales (W-5) 658,480 Electricity 3,000
Debtors 250,000 Repairs 2,400
Bank (W-3) 604,700
c/d 700
Total Sale = Cost of sale (W-6) + 20% of cost of sale
Y = (783,900/100 x 120) = 940,680
Cash sale = 940,680 – 282,200 658,480

Creditors (W-2) 795,700 Cl. 27,500
Answer-7
Mr. Syed Aamir Ali
Rs.
Sales (W-1) 632,200
Electricity 6,000
Repair 5,400
Rent 50,400
(61,800)
Net Profit 43,567
Mr. Syed Aamir Ali

Balance Sheet
as on June 30, 2009
Capital
Opening capital (14,300+349,100+48,700+15,700-30,100) 397,700
186,700
Current Liabilities
212,500
Assets
Current Assets:
Stocks 27,500
Debtors 80,900
Bank 103,400
Cash 700
212,500
289
WORKINGS
(W-1)
Op. 48,700 Bank 600,000
cl. 80,900
(W-2)
Op. 30,100
cl. 25,800
(W-3)
Op. 349,100 Creditors 350,000
Cash (bal.) 445,300
c/d 103,400
(W-4)
Op. 14,300 Drawings (bal.) 254,567
Bank (W-3) 445,300 Inventory (Purchases) (W-6) 192,933
Electricity 6,000
Repairs 5,400
c/d 700

Total Sales = Cost of sales + 20% of cost of sales
X = (632,200(W-1)/120 x 100) = 526,833
(W-6) Calculation of Cash purchases

b/d 15,700 Cost of Sales (W-5) 526,833
Cash (purchases) (Bal.) 192,933 c/d 27,500
Answer-8
Mr. Syed Yasir Ali
Rs.
Sales (600,000 + (W-4) 677,000) 1,277,000
Salaries 360,000
Sundry business expenses ((20,000 x 12) – 10,000) 230,000
(590,000)
Net Profit (206,900)
290
Mr. Syed Yasir Ali

Balance Sheet
as on June 30, 2009
Capital
Opening capital (349,100+48,700+15,700+14,300-30,100) 397,700
Add: Net Profit (206,900)
Less: Drawings (60,000)
130,800
Current Liabilities
156,600
Assets
Current Assets:
Stocks 27,500
Debtors 80,900
Bank 38,200
Cash 10,000
156,600
WORKINGS
(W-1)
Op. 48,700 Bank (bal.) 567,800
Sales 600,000
cl. 80,900
(W-2)
Op. 30,100
cl. 25,800
(W-3)
Op. 349,100 Creditors 910,000
Cash (W-4) 31,300
Debtors (W-1) 567,800 c/d 38,200
(W-4)
Op. 14,300 Salaries 360,000
Sales (W-5) 677,000 Drawings 60,000
Sundry expenses (20,000x12)-10,000 230,000
Bank (bal.) 31,300
c/d 10,000
(W-5) Calculation of total sales and cash sales
Total Sale = Cost of sales + 30% of sale
Y = X + 30% of Y
X = (893,900/70 x 100) = 1,277,000
Cash sale = Total sales – credit sales
= 1,277,000 – 600,000 = 677,000
291

Cl. 27,500
Answer-9
Mr. Khanna
Rs.
Sales (W-1) 270,000
Gross Profit 90,200
Wages 12,800
General expenses (W-5) 17,500
(37,980)
Add: Other income:
Discount received 1,500
Net Profit 53,720
Mr. Khanna
Balance Sheet
as on December31, 2002
Capital
Less: Drawings (37,500+8,380) (45,880)
49,240
Current Liabilities
Creditors for general expenses 1,340
19,610
Total 68,850
Assets
Non-Current Assets:
Furniture 10,000
Current Assets:
Stocks 31,500
Debtors 26,900
Prepaid rent 450
58,850
Total 68,850
292
WORKINGS
(W-1)
b/d 21,800
Sales (Bal.) 270,000 Cash 264,900
c/d 26,900
(W-2)
b/d 19,450
Cl. 17,090
(W-3)
b/d -
Debtors (Bal.) 264,900 Bank 243,720
Wages 12,800
Drawings (21,180 – 12,800) 8,380
c/d -
(W-4)
Dr. Rent and rates Cr.
b/d. 420
Bank 7,710 P and L (bal.) 7,680
c/d 450
(W-5)
Dr. Creditors – general expenses Cr.
b/d 810
Bank 16,970 P and L (bal.) 17,500
cl. 1,340
(W-6) Opening capital
Assets Rs.
Non-Current Assets
Furniture and fittings A 10,000
Current Assets
Stocks 24,300
Debtors 21,800
Prepaid rent 420
Bank 5,140
B 51,660
Current Liabilities
Creditors for goods 810
C (20,260)
Opening capital D=A+B-C 41,400
(W-7)
Creditors (W-2) 187,000 cl. 31,500
293
Answer-10
Mr. Sandy Brown
Rs.
Sales (80,000+300x40) 92,000
Gross Profit 76,400
Less: Admin Expenses
Wages (28,000 – 10,000) 18,000
Rent (W-3) 6,400
General expense (4,800 – 800) 4,000
Depreciation (50,000 – 8,000)/4 years 10,500
(38,900)
Net Profit 37,500
Mr. Sandy Brown
Balance Sheet
Capital
Capital introduced 20,000
Less: Drawings (800)
56,700
Loan (20,000 – 6,000) 14,000
Current Liabilities
Payable for expenses -
3,600
74,300
Assets
Non-Current Assets
Furniture and fixture (40,000 + 10,000) 50,000
Less Accumulated depreciation (10,500)
39,500
Current Assets
Stocks 1,600
Debtors (300 x 40) 12,000
Prepaid rent (W-3) 1,600
Cash (W-1) 19,600
34,800
Total 74,300
294
WORKINGS
(W-1)
b/d -
Capital 20,000 Wages 18,000
Loan 20,000 Furniture and fixture 10,000
Sales 80,000 Inventory (Purchases) 13,600
Rent 8,000
Drawings 800
Loan 6,000
Furniture 40,000
c/d (bal.) 19,600
(W-2)
Op. - Cost of Sales (Bal.) 15,600
Creditors 3,600
Cash 13,600 Cl. 1,600
(W-3)
Dr. Rent expense Cr.
b/d. - P and L (bal.) 6,400
Cash 8,000 c/d (8,000/15 x 3) 1,600
Answer-11
Mr. Green
Rs.
Sales (53,600+(W-1)19,090) 72,690
Gross Profit 40,220
Wages (1,020 +3,710) 4,730
Rent 12,500
Depreciation (12,000 -10,500) 1,500
Other expenses (2,260 + 7,700) 9,960
(28,690)
Net Profit 11,530
Mr. Green
Balance Sheet
Capital
Opening Capital (W-3) 47,080
50,410
Current Liabilities
60,550
295
Assets
Non-Current Assets
Furniture 10,500
Current Assets:
Stocks 32,710
Debtors 5,010
Bank 10,470
Cash 1,860
50,050
60,550
WORKINGS
(W-1)
Op. 3,250
Sales (bal.) 19,090 Bank 17,330
cl. 5,010
(W-2)
b/d 7,360
c/d 10,140
(W-3)
Opening capital
Assets
Stock 29,500
Furniture 12,000
Debtors 3,250
Cash 490
Bank 9,200
54,440
Liabilities
Creditors (7,360)
47,080
(W-4)
b/d 29,500 Cost of Sales (Bal.) 32,470
Cash (purchases) 3,400 c/d 32,710
Answer-12
Mr. P
Rs.
Sales (W-6) 480,000
Less: Cost of sales: (360,000)
Salaries 60,000
Tax (11,000 + (11,000/11x1) 12,000
296

Miscellaneous exp. 12,000
Bad debt expense 7,000
Depreciation:
Building (150,000 x 2%) 3,000
(103,800)
Add: Other income:
Interest income (150,000 x 10% x 6/12) 7,500
Rental income 800
Sale of scrap 10,000
18,300
Net Profit before commission 34,500
Commission (34,500/110 x 10) (3,136)
Net Profit 31,364
Mr. P
Balance Sheet
Capital
Less: Drawings (26,000+(10,000-6,000)) (30,000)
387,364
Current Liabilities
Commission payable 3,136
Taxes payable (11,000/11x1) 1,000
40,136
427,500
Assets
Non-Current Assets
Building (150,000 – 3,000) 147,000
Furniture 18,000
165,000
Investments 150,000
Current Assets
Stocks 40,000
Debtors 33,000
Bank (W-3) 32,000
Interest receivable (150,000 x 10% x 6/12) 7,500
112,500
427,500
WORKINGS
Op. 45,000 Bank (Bal.) 485,000
Sales (W-6) 480,000 Bad debt 7,000
cl. 33,000
297

b/d 32,000
Inventory (W-6.1) 364,000
Bank (bal.) 360,000
c/d 36,000
Op. 28,000 Investments 150,000
Capital 150,000 Salaries 60,000
Rental income 800 Tax 11,000
Debtors (W-1) 485,000 Printing and stationery 7,800
Miscellaneous exp. 12,000
Drawings 26,000
cl. (Bal.) 32,000
Sale of scrap income 10,000 Freight expense 6,000
Drawings (Bal.) 4,000
c/d -
(W-5) Dr. Furniture Cr.
Op. 15,000
Additions (bal.) 5,000 Depreciation 2,000
(18,000/90x10)
cl. 18,000
Total Sale = Cost of sale +25 % of sale
Y = X + 25% of Y
Y = 360,000/100 x 125
Y = 480,000
(W-6.1) Calculation of credit purchases
Op. 30,000 Cost of Sales 360,000
Creditors (Bal.) 364,000
Freight 6,000 cl. 40,000
(W-7)
Opening capital Rs.
Assets
Stock 30,000
Furniture 15,000
Building 150,000
Debtors 45,000
Bank 28,000
268,000
Liabilities
Creditors (32,000)
236,000
298
Answer-13
Mr. S. Sen
Rs.
Sales ((W-1) 113,000 + (W-4) 96,000) 209,000
Gross Profit 52,250
Salaries 35,000
Postage 200
Stationery 1,000
Conveyance 2,000
Rent 2,200
Discount allowed 2,000
Bad debt 1,000
(43,400)
Add: Discount received 3,000
Net Profit 11,850
Mr. S. Sen
Balance Sheet
Capital
Opening Capital -
105,850
Current Liabilities
125,850
Assets
Non-Current Assets
Furniture 10,000
Current Assets
Stocks (W-7) 16,250
Debtors 10,000
Bank (W-3) 83,000
Petty cash (W-5) 6,600
115,850
125,850
WORKINGS
(W-1)
Bank 100,000
Sales (bal.) 113,000 Discount allowed 2,000
Bad debt 1,000
cl. 10,000
299
(W-2)
cl. 20,000
(W-3)
Capital 100,000 Creditors 150,000
Cash 78,000 Salaries 35,000
Debtors 100,000 Furniture 10,000
c/d (bal.) 83,000
(W-4)
Sales (bal.) 96,000 Petty cash (1,000 x 12) 12,000
Drawings (500 x 12) 6,000
Bank 78,000
c/d -
(W-5)
Dr. Petty cash account Cr.
Cash 12,000 Postage 200
Stationery 1,000
Conveyance 2,000
Rent 2,200
c/d (bal.) 6,600
Total Sales = Cost of sales + 25% of sales
X = (209,000/100 x 75) = 156,750
(W-7) Calculation of closing stock
Op. - Cost of Sales (W-6) 156,750
Cl. (Bal.) 16,250
Answer-14 Mr. X
Rs.
Sales (W-1) 32,000
Gross Profit 15,920
Salaries 1,500
Stationery 870
Rent and rates 700
Lighting charges 250
Trade expenses (W-4) 4,750
(11,570)
Net Profit 4,350
300
Mr. X
Balance Sheet
Capital
Capital introduced 250
Less: Drawings (140 + 3,250 + 910) (4,300)
8,420
Current Liabilities
12,170
Assets
Non-Current Assets
Investments 6,250
Current Assets
Stocks 1,870
Debtors 2,500
Bank 1,500
Cash 50
5,920
12,170
WORKINGS
(W-1)
b/d 1,750 Cash 31,250
Sales (bal.) 32,000
cl. 2,500
(W-2)
b/d 3,410
Bank (W-3) 15,250 Inventory (bal.) 15,590
c/d 3,750
(W-3)
b/d 1,000 Drawings 3,250
Cash 18,750 Creditors (see below) 15,250
Capital 250
cl. 1,500
Payments to creditors
Payments to creditors through bank and of trade expenses in cash 20,000
Less: Trade expenses in cash (W-4) (4,750)
15,250
301
(W-4)
b/d 30 Drawings 910
Debtors 31,250 Bank 18,750
Salaries 1,500
Stationery 870
Rent and rates 700
Lighting charges 250
Expenses (bal.) 4,750
c/d 50
(W-5)
Opening capital Rs.
Assets
Investments 6,250
Stock 2,500
Cash 30
Bank 1,000
Debtor 1,750
11,530
Liabilities
Creditors 3,410
8,120
Creditors (W-2) 15,590 Drawings 140
Cl. 1,870
Answer-15
Mr. Aamir
Rs.
Sales (180,000+(W-2)20,000) 200,000
Gross Profit 50,000
Expenses 20,000
Loss on sale of equipment (10,000 – 6,000) 4,000
Depreciation
Furniture (10,000 x 10%) 1,000
Building (60,000 x 2%) 1,200
(39,600)
Add: Discount received 2,000
Net Profit 12,400
302
Mr. Aamir
Balance Sheet
Capital
240,400
Bank loan 16,000
Current Liabilities
292,400
Assets
Non-Current Assets
Furniture (10,000 – 1,000) 9,000
Equipment (134,000 – 13,400) 120,600
Building (60,000 – 1,200) 58,800
188,400
Current Assets
Stocks 34,000
Debtors 48,000
Cash 22,000
104,000
292,400
WORKINGS
(W-1)
Dr. Debtor account Cr.
b/d (bal.) 54,000 Cash 186,000
Sales 180,000
c/d 48,000
(W-2) Cash sales (180,000/90 x 10) 20,000

If cash sale is 10% of total sale, it means that credit sale given in question is 90% of total sales.
(W-3)
b/d 32,000
Cash 122,000 Inventory (Purchases) 128,000
Discount received 2,000 (32,000/20x80)
c/d (bal.) 36,000
Total Inventory (Purchases)

Credit purchases 128,000
Add: Cash purchases 32,000
Total 160,000
303
(W-4)
b/d 32,000 Creditors 122,000
Debtors 186,000 Inventory (Purchases) 32,000
Sale (W-2) 20,000 Expenses 20,000
Disposal 6,000 Drawings 20,000
Bank loan (20,000 – 16,000) 4,000
c/d 22,000
(W-5)
Dr. Equipment account – at BV Cr.
Op 120,000 Disposals 10,000
Cash and bank (bal.) 24,000
cl. 134,000
Depreciation expense equipment

On Opening excluding disposals ((120,000 – 10,000) x 10%) 11,000
On additions (24,000 x 10%) 2,400
13,400
(W-6) Calculation of cost sales
Total Sale = Cost of sale + 33.3333% of cost of sale
Y = X + 33.3333% of X
Cost of sales = (200,000/133 x 100)
= 150,000
(W-7) Calculation of opening stock
Op. (Bal.) 24,000 Cost of Sales (W-6) 150,000
Cash 32,000 Cl. 34,000
Assets Rs.
Building 60,000
Equipment 120,000
Furniture 10,000
Stock (W-7) 24,000
Debtor (W-1) 54,000
Cash 32,000
300,000
Liabilities
Bank loan 20,000
Creditors 32,000
52,000
248,000
304
Answer-16
Mr.X
Rs.
Sales (W-4.1) 202,400
Less: Cost of sales (W-4.2) (101,200)
Interest on loan (W-8) 2,300
Gain on disposal (200 -300) (100)
(31,240)
Net Profit 69,960
Mr. X
Balance Sheet
Capital
Capital introduced (calculate itself) 129,500
130,060
Loan D (24,000 – 12,000) 12,000
Current Liabilities
Interest on loan payable (W-8) 100
Outstanding expenses excluding int. on loan 3,300
17,600
159,660
Assets
Non-Current Assets
Shop equipment (14,800 – 800 + 1,800) 15,800
Accumulated depreciation (Op. +Dep.(W-7) - disposals) (6,900 + 1,490 - 600) (7,790)
Current Assets: 8,010
Stocks 128,700
Debtors 15,700
Bank 4,850
Cash 900
Prepaid (W-5) 1,500
151,650
159,660
WORKINGS
(W-1)
Op. 14,400
Sales (W-4.1) 202,400 Cash (Bal.) 201,100
cl. 15,700
305
All of the amount received by debtors is in cash because in cash book summary receipt from debtors in
not appearing, so cash received will be balancing figure in this account because we can calculate sales
figure by multiplying COS with 2.
(W-2)
Op. 12,100
Bank 81,400 Inventory (Bal.) 83,500
cl. 14,200
(W-3) No need to preparing bank account as it is given in question
(W-4)
Op. 800
Debtor (W-1) 201,100 Bank 131,600
Drawings (Bal.) 69,400
Cl. 900
As the two figures are missing in cash account i.e. receipt from debtors and drawings so there is no
question that there can be any cash sale. Further there is no other information through which we can
bifurcate between cash and credit sale.
(W-4.1) Calculation of total sales

We will firstly calculate COS and then multiply it with 2 to calculate sales figure.
Sales = COS x 2 = 101,200 (W-4.2) x 2 = 202,400
(W-4.2)
Cl. 128,700
(W-5)
Dr. Rent account Cr.
Op. prepaid 1,000
Bank 8,250 P and L (bal.) 7,750
cl. (750 x 2) 1,500
Monthly bill = 9,000/12 = 750
The total of last payment made on December 1 is 2,250 (750 x 3) out of which 1,500 (750 x 2) is prepaid.
(W-6)
Dr. Outstanding expenses Cr.
Op. (2,300-200) 2,100
Bank 18,600 P and L (bal.) 19,800
cl. 3,300
(W-7) Depreciation calculation
Calculation Dep.
Opening cost 14,800
Less: Deletion (800)
Remaining asset on which full year dep. will be charged 14,000 x 10% 1,400
On additions (1,800 x 10% x 6/12) 90

On deletions -
Total 1,490
306
(W-8)
Dr. Interest expense Cr.
b/d 200
Bank 2,400 P and L (below) 2,300
c/d (bal.) 100
Interest on loan
Period Outstanding balance Calculation Interest
From Jan 1 to 30 Nov 11M 24,000 (24,000 x 10% x 11/12) 2,200
From 1 Dec to 31 Dec 1M 12,000 (12,000 x 10% x 1/12) 100
2,300
Missing information (Ideally following should have been your thought process at this stage)
Both purchase and sale figures were not given. Firstly in debtor account two figures were missing cash
received and credit sale so there was a need to calculate any one figure firstly. So firstly we went to see
the cash account to search for the cash received from debtors but in this account again two figures were
missing that is cash from debtors and drawings. Therefore we decided to calculate the sales figure first.
As per the question the sales are two times of COS. For COS we need purchase figure, we searched for
the purchase figure in creditor account it was not there, however we calculated it as a balancing figure.
After this we calculated the COS figure and multiplied it with 2 to get the total sales figure. Then this
figure of sale was put in debtors account to calculate the cash received from them as a balancing figure.(
You might ask a question here that why we have put the total sales figure in debtor account in the debtor's
account rather than credit sale. The answer is in the whole question there is no information given through
which we can bifurcate between cash sale and credit sale, therefore whole of the sale is credit sale.) Then
cash received is put in the cash account to calculate the drawings as a balancing figure.
Answer-17
a) Value of closing stock is Rs. 4,605 (W-5).
b)
Mr. Umer
Trading Account
for the year ended December 31, 2002 Rs.
Sales (W-3) 72,690
Gross Profit 12,115
WORKINGS
(W-1) Dr. Debtor account Cr.
op. 3,250
Sales (bal.) 19,090 Bank 17,330
cl. 5,010

op. 7,360
cl. 10,140
(W-3) Calculation of total sales (19,090 (W-1) + 53,600) 72,690
307

Total Sales = Cost of sale + 20 % of cost of sale
Y = X + 20% of X
X = 72,690/120 x 100
X = 60,575

Op. 29,500 Cost of Sales (W-4) 60,575
Cash 3,400 Cl. (Bal.) 4,605
Answer-18
Stock shortage is Rs. 320,422(W-4).
Mr. Asim
Trading Account
Rs.
Sales (W-1) 620,000
Gross Profit 85,422
WORKINGS
(W-1) Dr. Debtor account Cr.
op. 200,000 Cash 800,000
cl. 20,000

b/d 80,000
Cash 500,000 Inventory (Bal.) 800,000
c/d 380,000
(W-3) Calculation of sales and cost of sales
Total sales (W-1) 620,000
Allocation of sales
Sale made at normal selling price (620,000 x 80%) 496,000
Sale made below cost (620,000 x 20%) 124,000
Calculation of cost of sales

Sale made at normal selling price (496,000/125 x100) 396,800
Sale made below cost (124,000/90 x 100) 137,778
534,578
(W-4) Calculation of Abnormal Loss

Op. 80,000 Cost of Sales (W-3) 534,578
Creditors (W-2) 800,000 Drawings 20,000
Abnormal Loss (Bal.) 320,422
cl. 5,000
308
Answer-19
Shafiq Ahmad
for the year ended June 30, 2009 Rs.
Sales (2,800 x 2,000) 5,600,000
Less: Cost of sales (W-11) (3,365,000)
Gross Profit 2,235,000
Rent (W-5) 176,000
Fuel and maintenance expense (224,000-10,000 - 18,000) 196,000
Fitness certificate expense (W-7) 1,500
Abnormal loss of units damaged (W-8) 15,000
Advertisement expense 12,000
Provision for doubtful debts (W-2) 124,000
Depreciation on furniture (W-10) 2,430
Depreciation on Trucks (W-10) 69,700
(952,630)
Add: Other Income
Cost of transportation recovered 200,000
Interest Income (200,000 x 12% x 5/12) 10,000
Net Profit 1,492,370
Shafiq Ahmad
Balance Sheet
as on June 30, 2009
Capital
Opening capital 497,300
Capital introduced 1,000,000
Add: Net Profit 1,492,370
Less: Drawings (2,400 + 50,000) (52,400)
2,937,270
Current Liabilities
Trade Creditors (W-3) 1,600,000
Total 4,537,270
Assets
Non-Current Assets
Furniture 30,000
Less: Accumulated depreciation (5,700 + (W-10) 2,430) (8,130)
Delivery trucks (400,000 + 300,000 + 60,000 + 10,000) 770,000
Less: Accumulated depreciation (144,000+(W-11) 69,700) (213,700)
578,170
Current Assets:
Stocks 1,660,600
Debtors (W-1) 1,001,250
Less: Provision for bad debt (W-2) (112,000)
Fixed Deposit 200,000
Interest receivable on fixed deposit (200,000 x 12% x 5/12) 10,000
309
Cash and Bank (W-4) 1,182,750

Prepaid fitness certificate (18,000/36M x 33M) 16,500
3,959,100
Total 4,537,270
WORKINGS
op. 160,000 Cash and bank (4,713,750-15,000) 4,698,750
Sales (2,800 x 2,000) 5,600,000 Bad debts 60,000
cl. (bal.) 1,001,250
5,760,000 5,760,000
Rs 15,000 included in receipts from debtors will be netted off against abnormal loss rather than
treating it to be sales.
(W-2) Dr. Provision for bad debt account Cr.
Bad debt 60,000 op. 48,000
cl. (5,600,000 x 2%) 112,000 P and L (bal.) 124,000
172,000 172,000
(W-3) Dr. Creditors for oil purchases Cr.

Cash and bank 3,200,000 op. 1,200,000
cl. (bal.) 1,600,000 Inventory (3,000 x 1,200) 3,600,000
4,800,000 4,800,000
B Dr. Cash and bank account Cr.

Op. 75,000 Rent 192,000
Capital 1,000,000 Salaries 248,000
Debtors 4,713,750 Fuel (224,000-10,000 - 18,000) 196,000
Insurance 30,000 Fitness certificate expense 18,000
Debtors 200,000 Misc. exp 112,000
Drawings (Personal tax) 50,000
Fixed deposit 200,000
Suppliers 3,200,000
Transportation cost 250,000
Truck (360,000 + 10,000) 370,000
cl. (bal.) 1,182,750
6,018,750 6,018,750
(W-5) Dr. Rent Cr.

P and L (bal.) 176,000
192,000 192,000

P and L (bal.) 244,000
248,000 248,000
(W-7) Dr. Fitness certificate expense Cr.
Cash and bank 18,000 P and L (bal.) 1,500
Closing prepaid (18,000/36x33) 16,500
18,000 18,000
310
(W-8) Calculation of abnormal loss

Dr. Cash and bank (from sale) 15,000
Dr. Cash and bank (from insurance claim) 30,000
Dr. P and L (bal.) 15,000
Cr. Inventory (50 x 1,200) 60,000
(W-9) Valuation of closing stock
Reconciliation of units Units
Opening units 1,250
Purchases (Inventory) 3,000
Sold (2,800)
Damaged in transit (50)
Drawings (2)
Gifted to charity (10)
Closing stock 1,388
Total closing stock 1,388
Stock on which NRV test to be applied (50)
Remaining stock (which is to be shown at cost) 1,338
Value of unfit stock
Cost
Cost of un fit stock (50 x 1,200) 60,000
NRV
NRV- if sold without processing
Estimated selling price X No of units (50 x 1,000) 50,000
NRV - if sold with further processing
(Estimated selling price (N-l) - estimated cost of completion) x No. of units
(2,000- 900) x 50 55,000
NRV (higher of 50,000 and 55,000 as calculated above) N -2 55,000
Value of total closing stock
Value of unfit stock (Lower of Cost or Net realizable value) (as above)
55,000
Add: Cost of remaining stock (1,338 x 1,200) 1,605,600
Closing stock 1,660,600
N-l It is assumed that stock after processing will be sold at normal selling price.
N-2 It is better to get it further processed because it can be sold then for Rs 55,000 instead
of 50,000.
(W-10) Depreciation calculation Furniture

Opening cost 30,000
Less: Opening accumulated depreciation (5,700)
Opening book value 24,300
Depreciation (24,300 x 10%) 2,430
Delivery truck
Opening cost 400,000
Depreciation on opening assets (256,000 x 20%) 51,200
Depreciation on additions (300,000+60,000+10,000) x 20% x 3/12 18,500
Total depreciation 69,700
Note: Rs. 18,000 will be treated as prepaid expense.
311

Op. 1,250,000 Cost of Sales (Bal.) 3,365,000
Creditors (3,000 x 1,200) 3,600,000 Abnormal Loss (W-8) 60,000
Cash (Transportation) 250,000 Drawings 2,400
Advertisement (gifts for charity) 12,000
Cl. (W-9) 1,660,600
Answer-20
Rs.
Closing capital 18,700
Add: Drawings
Loan to brother 3,500
Personal use (300 x 12) 3,600
Rent of personal flat (100 x 12) 1,200
Electricity charge of personal flat (10 x 12) 120
8,420
Less: New capital
Principal realized 2,000
Profit on sale realized (2,000 x 3%) 60
(2,060)
Less: Opening capital (19,200)
Answer-21
Rs.
Closing capital (W-1) 102,550
Add: Drawings
Cash 9,300
Goods 1,500
10,800
Less: New capital (100,000)
(W-1) Closing capital
Assets Rs.
Stock 29,000
Furniture and fixture 6,300
Debtors (78,000 – 1,200) 76,800
Bank (5,500 – 50) 5,450
117,550
Liabilities
Creditors (15,000)
102,500
There will be no impact of presented, uncollected cheques because these items do not affect the bank
account balance.
312
Answer-22
Rs.
Add: Drawings
Cash 15,000
Goods 600
15,600
Less: Opening capital (50,000)
Assets
Non-Current Assets
Furniture 9,000
Less: Accumulated depreciation (6,900 x 10% + 2,100 x 10% x 9/12) (848)
A 8,153
Current Assets
Stocks 40,320
Debtors 36,900
Less: Prov. For doubtful debts (36,900 x 5%) (1,845)
Cash 6,580
Prepaid rent 400
B 82,355
Current Liabilities
Accrued expenses 4,300
C (22,900)
Closing capital D=A+B+C 67,608
Answer-23
Rs.
Add: Drawings
Cash (12,000 x 6) 72,000
Goods -
72,000
Less: Opening capital (W-1) (621,500)
WORKINGS
Assets Rs.
Non-Current Assets
Building 500,000
Motor van 100,000
Furniture 80,000
A 680,000
313
Current Assets
Stocks 60,000
Debtors 40,000
Cash 2,500
B 98,500
Current Liabilities
Bank O/D 15,000
Loan 100,000
C (157,000)
Opening capital D=A+B+C 621,500

Assets
Non-Current Assets
Building 500,000
Motor van [100,000-(100,000 x 20%)] 80,000
Furniture (80,000-80,000 x 25%) 60,000
A 640,000
Current Assets
Stocks 60,000
Debtors 50,000
Cash 4,500
B 109,500
Current Liabilities
Bank O/D 10,000
Loan 80,000
C (127,000)
Closing capital D=A+B+C 622,500
Answer-24
(a) Net assets (capital) at the start of the year
Assets: Rs.000
Property 2,700
Delivery van 500
Inventories 94
Account receivable 170
Pre-paid expenses 12
Bank balance 300
Cash balance 308
4,084
314
Liabilities:
Bank loan 500
Payables 110
(610)
Net assets (capital) 3,474
(b) Net assets (capital) at the end of the year
Assets: Rs.000
Property (2,700 – 10% of 2,700) 2,430
Delivery van (500 – 15% of 500) 425
Investment 700
Inventories 200
Account receivable (279 – 9) 270
Cash balance 570
4,595
Liabilities:
Bank loan 500
Bank overdraft 50
Accounts payable 84
Accrued expenses 15
(649)
Net assets (capital) 3,946
(c) Profit for the year
Rs.000
Net assets (capital) at the year-end 3,946
Net assets (capital) at the start of the year (3,474)
Increase in net assets 472
Add back drawings 50
Deduct capital introduced (500)
Answer-25
Rs.
Sales (W-4) 484,000
Gross Profit 44,000
(W-1)
Creditors
Cash 400,000 b/d 250,000
c/d 300,000 Inventory (bal.) 450,000
(W-2)
Cash
b/d 510,000 Creditors 400,000
Expenses 90,000
Debtors (W-3) 284,000 Drawings (Bal.) 289,000
c/d 15,000
315
(W-3)
Debtors
b/d 200,000 Cash (bal.) 284,000
Sales (W-4) 484,000
c/d 400,000
(W-4)
COS + GP = Sale
100 + 10 = 110
Sale = 440,000/100 x 110
= 484,000
(W-5)
Inventory
Op. 30,000
Creditor s(Purchases) (W-1) 450,000 Cost of sales (bal.) 440,000
Cl. 40,000
Answer-26
Rs.
Sales (W-3) 394,000
Gross Profit 90,000
WORKINGS
(W-1)
Creditors
Discount Received 3,000 b/d 70,000
c/d 90,000
(W-2)
Cash
b/d 6,000 Creditors 300,000
Debtor s (bal.) 374,000 Expenses 50,000
c/d 30,000
(W-3)
Debtors
b/d 30,000 Cash (W-2) 374,000
Sales (bal.) 394,000 Bad debt 2,000
c/d (50,000 – 2,000) 48,000
(W-4)
Inventory
Op. 10,000 Drawings 4,000
Creditor (Purchases) (W-1) 323,000 Cost of sales (bal.) 304,000
Cl. 25,000
Answer-27
Rs.
Sales (W-2) 460,000
Gross Profit 22,857
Closing Stock is Rs. 77,857 (W-5)
316
WORKINGS
(W-1)
Creditors
Cash 390,000 b/d 20,000
c/d 25,000 Inventory (bal.) 395,000
(W-2)
Debtors
b/d 10,000 Cash (W-3) 430,000
Sales (bal.) 460,000 c/d 40,000
(W-3)
Cash
b/d 10,000 Creditors 390,000
Debtors (bal.) 430,000
c/d 50,000
(W-4)
Cost of sales
C+P =S C+P =S
80 + 20 = 100 100+5 = 105
Sale (5,000/80x100) 6,250 (Balancing) 453, 750 460,000
Cost 5,000 (453,750/105x100) 432,143 437,143
(W-5)
Inventory
Op. 120,000
Creditors (Purchases) (W-1) 395,000 Cost of sales (W-4) 437,143
Cl. (Bal.) 77,857
Answer-28
Rs.
Sales (579,000 – 6,000) 573,000
Less: Sale return (15,000)
558,000
Gross profit 139,500
Abnormal Loss is Rs. 10,000 (W-5).

WORKINGS
(W-1)
Creditors
Cash 400,000 b/d 3,000
Inventory (bal.) 416,000
c/d 19,000
317
(W-2) Cash
b/d 10,000 Creditors 400,000
Debtors (bal.) 534,000 Expenses 104,000
Carriage in 15,000
c/d 25,000
(W-3) Debtors
b/d 10,000 Sales Return 15,000
Sales (bal.) 579,000 Sales 6,000
Cash (W-2) 534,000
c/d (40,000 – 6,000) 34,000
(W-4)
Calculation of Cost of Sales
C+P = Sale
75 + 25 = 100
Cost = 558,000/100 x 75
= Rs. 418,500
(W-5) Inventory
Op. 16,000 COS (W-4) 418,500
Creditor (Purchases) (W-1) 416,000 Abnormal Loss (Bal.) 10,000
Carriage in 15,000 Drawings 3,000
Cl. (11,000 + (6,000/100 x 75)) 15,500
Answer-29
Rs.
Sales (473,600(W-5) – 3,000) 470,600
Statement showing misappropriation of Cash Rs.

Opening cash 20,000
Debtors (W-2) 420,600
Capital 500,000
Less: Creditors (360,000)
Expenses (40,000)
Drawings (20,000)
Bank (W-4) (334,000)
Closing (40,000)
Cash misappropriation 146,600
WORKINGS
(W-1)
Debtors
b/d 10,000 Bank 40,000
Sales (W-5) 473,600 Cash (bal.) 420,600
Sale Return 3,000
c/d 20,000
(W-2)
Creditors
Cash 360,000 b/d 6,000
Inventory (bal.) 363,000
c/d 9,000
318
(W-3) Cash
b/d 20,000 Creditors 360,000
Debtors (W-1) 420,600 Expenses 40,000
Drawings 20,000
Bank (W-4) 334,000
Misappropriation (bal.) 146,600
Capital 500,000 c/d 40,000
(W-4) Bank
b/d 1,000 Fixed assets 370,000
Cash (bal.) 334,000
Debtors 40,000 c/d 5,000
(W-5)
Calculation of sales
COS + Profit = Sales
100+30 = 130
Net sales = 362,000/100 x 130
Net sales = 470,600
Gross Sales = 470,600 + 3,000 = 473,600
(W-6) Inventory
Opening 3,000 COS (bal.) 362,000
Creditors (Purchases) (W-2) 363,000 Cl. 4,000
Answer-30
Mr. Abbasi
Rs.
Sales (W-6) 1,600,000
Less: Cost of sales
Opening Stock -
Purchases (W-7) 1,516,250
Closing Stock (W-9) (297,500)
(1,218,750)
Rent (W-4) 120,000
Petrol expense 40,000
Utilities expense 19,000
Other expenses 6,000
Advertisement expense (120,000/1,600) x 30 2,250
Depreciation
- Premises furnishing (60,000 x 20%) 12,000
- Equipment (56,000 x 20%) 11,200
-Van (252,000/6Years) x 11/12 38,500
(248,950)
Net Profit 132,300
319
Mr. Abbasi
Balance sheet
as on June 30, 2009
Capital
Capital introduced (W-3) 600,000
506,800
Current Liabilities
Payable for equipment 4,000
Creditors - jeans (W-10) 400,000
Creditors - pocket calculator (W-11) 200,000
604,000
1,110,800
Assets
Non-Current Assets
Premises furnishing 60,000
48,000
44,800
Van (200,000+52,000) 252,000
213,500
306,300
Current Assets
Debtors Jeans 50,000
Prepaid rent (W-4) 30,000
Stock (W-9) 297,500
Bank (W-2) 292,000
Cash (W-1) 135,000
804,500
1,110,800
WORKINGS
(W-1) Dr. Cash Cr.
b/d - Petrol expense 40,000
Capital (600,000 – 550,000) 50,000 Utilities expense 19,000
Sales T-shirts 150,000 Other expenses 6,000
c/d (W-1) 135,000
200,000 200,000
320
(W-2) Dr. Bank Cr.

b/d - Rent 150,000
Capital 550,000 Premises furnishing 60,000
Sales Jeans 1,400,000 Equipment 40,000
Van (200,000+52,000) 252,000
Drawing (foreign trip) 80,000
Drawing (12,000 x 12) 144,000
Creditors Jeans 800,000
Purchases T-shits 120,000
c/d (bal.) 292,000
1,950,000 1,950,000
(W-3) Dr. Capital Cr.

Bank 550,000
c/d 600,000 Cash 50,000
600,000 600,000
(W-4) Dr. Rent Cr.

Bank 150,000 P and L (bal.) 120,000
cl. Prepaid (150,000/15 x 3) 30,000
150,000 150,000
(W-5) Entries for purchase of equipment

Following entry will be passed on the date of acquiring the furniture
Dr. Cr.
Bank 40,000
(Equipment purchased by making an advance payment)
Following entry will be passed on the date of payment of 75% of balancing amount.
Dr. Cr.
Payable for equipment (16,000 x 75%) 12,000
Bank 12,000
(Payment of 75% of balancing amount)
(W-5.1)
Cost of equipment Rs.
Advance payment 40,000
Payable (4,000/25% x 100%) 16,000
56,000
321
Rs 4,000 represents the 25% of balance amount payable, therefore, Rs. 4,000 is grossed up to
arrive at the full balance amount.
(W-6) Sales calculation Rs.
Jeans (1,400,000+50,000) 1,450,000
T-shirt 150,000
Pocket calculators _ -
1,600,000
(W-7) Purchases calculation Rs.

Jeans 1,200,000
T-shirt (W-7.1) 116,250
Pocket calculators (W-7.2) 200,000
1,516,250
(W-7.1) Dr. Purchase T-shirts Cr.

Bank 120,000 Drawing ((120,000/1,600)x20) 1,500
Advertisement expense
((120,000/1,600) x 30) 2,250
Trading account (bal.) 116,250
120,000 120,000
B Dr. Purchase Pocket calculators Cr.
Creditors Pocket calculators 400,000 Creditors Pocket calculators 200,000
(400,000 x 50%)
Trading account (bal.) 200,000
400,000 400,000
(W-8) Dr. Drawing Cr.
Bank 80,000
Bank 144,000
Purchases T-shirts 1,500 Capital account (bal.) 225,000
225,000 225,000
Cost of NRV of Value
Closing
Purchase Quantity Per unit closing closing =Lower of
stock
Particulars Price purchased Cost (Qty.) stock stock cost or NRV
A B C=A/B D E=D x C (W-9.1)
Jeans 1,200,000 8,000 150 950 142,500 N/A 142,500
T-shirt 120,000 1,600 75 150 11,250 5,000 5,000
Pocket calculators 200,000 1,000 200 1,000 200,000 150,000 150,000
297,500
No adjustment is passed for shortage of 50 units (8,000-7,000-950) of T- shirt as it is treated as normal
loss.
(W-9.1) NRV Calculation Rs.
Pocket calculators
Estimated selling price 250,000
Less: Cost of repairs (100 x 1,000) (100,000)
150,000
322
(W-10) Dr. Creditors – Jeans Cr.

Bank 800,000 Purchases 1,200,000
c/d 400,000
1,200,000 1,200,000
(W-11) Dr. Creditors-Pocket Calculators Cr.
Purchases (400,000 x 50%) 200,000 Purchases 400,000
c/d 200,000
400,000 400,000
323

QUESTION-1
Mr. Saud Jawad has been running a small business for several years, but he never kept adequate
accounting records. However, a need to obtain a bank loan for business expansion has necessitated the
preparation of Final accounts for the year ended June 30, 2002. As a result, the following information has
been obtained after careful research:
(a) Mr. Saud Jawad's business assets and liabilities are as follows:
July 01,2001 June 30, 2002
Rupees Rupees
Stocks 86,000 168,000
Trade debtors 39,000 43,000
Prepaid rent 3,000 4,200
Accrued electricity charges 2,100 1,600
Bank 23,000 16,500
Cash in hand 3,600 3,300
(b) All takings have been banked after deducting the following payments.
Rupees
Cash drawing Mr. Saud Jawad has not kept a record of cash drawings but
suggests these will be in the region of 80,000
Casual labour 12,000
Purchase of goods for resale 18,000
Note: Takings have been the source of all amounts banked.
(c) Bank payments during the year ended June 30, 2002 have been summarized as follows:
Rupees
Purchases 1,015,000
Rent 50,400
Electricity 13,900
Delivery costs (to customers) 30,000
Casual labour 66,200
(d) It has been established that a gross profit of 33% on cost has been obtained on all goods sold.
(e) Mr. Saud Jawad is able to confirm that he has taken out of the business goods for his own use
costing Rs. 6,000 during the year.
Required:
(a) Prepare a Trading and Profit and Loss Account for the year ended June 30, 2002; and
(b) Balance Sheet as at June 30, 2002. (25)
{Autumn 2002, Q # 7}
QUESTION-2
On December 13, 2001 the accounting records of Mr. Ikram Rizwan were partly destroyed by fire. His
accountant has provided the following list of assets, liabilities and capital at December 31, 2000:
Rupees
Plant and Machinery 1,280,000
Office Equipment 450,000
Inventory 305,000
Debtors and prepayments 350,000
Creditors and accruals 176,000
Loan (interest @10% per annum) 950,000
Capital 1,170,500
324
A summary of his receipts & payments during the year 2001 can be extracted from the bank statements,
as follows:
Receipts: Rupees
Capital paid in 220,000
Receipt from Debtors 4,275,000
Payments:
Cash withdrawn 224,500
Loan repayments 220,000
Paid to creditors 1,756,000
Rent paid 220,000
Wages 900,000
General expenses paid 125,000
The following additional information is obtained:
i) At December 31, 2000, the debtors figure included Rs.25,000 for rent paid in advance and the
creditors figure included Rs.43,000 for wages accrued for the last week of December 2000;
ii) Of the cash withdrawn from the bank during the year 2001, was for:
Rupees
Wages 67,500
Cash payment to suppliers 42,000
Printing of advertising leaflets (half of which are still to be distributed) 26,000
Remainder is taken by Mr. Ikram for personal use.
iii) The plant and machinery had been purchased for Rs. 2,000,000 on January 1, 1999 and was being
depreciated at 20% per annum on the reducing balance basis. The Office equipment was bought
on January 1, 2000 and was being depreciated over 10 years on the straight line basis.
iv) During the year 2001, Mr. Ikram transferred a private motor vehicle worth Rs. 50,000 to his
business. It is to be depreciated over 4 years on the straight-line basis.
v) The bank balance at December 31, 2001, according to the bank statement, after adjusting for un-
presented cheques, was Rs. 1,067,000. Any difference is assumed to be cash sales banked, after
deducting Rs.300 per week wages paid to Mr. Ikram's son, who assists in the office.
vi) The loan repayments from the bank account include interest of Rs. 95,000.
vii) Other balances at December 31, 2001 are:
Rupees
Inventory 287,500
Rent paid in advance 27,000
Wages owing 52,500
Creditors for supplies 122,000
Debtors 223,000
viii) It is discovered subsequently that debtor owing Rs. 160,000 has gone into liquidation, and a
recovery of only 20% is expected.
Required:
a) Prepare the trading and profit and loss account for Mr. Ikram Rizwan for the year ended
December 31, 2001. (12)
b) Prepare a Balance Sheet at December 31, 2001. (08)
{Spring 2002, Q # 3}
QUESTION-3
Mr. Gul Nawaz is a market trader who does not keep a full set of accounting records. His transactions are
mainly for cash and although he keeps detail of all his expenses, he has no proper record of his receipts
from sales.
325
You ascertain the following information which may be taken as correct:-

a) Balances at 1st Oct. 1993 30th Sept. 1994
Rs. Rs.
Motor Van 2,000 See note(e) below
Stocks 4,500 6,100
Debtors 790 1,050
Creditors for supplies 2,530 3,070
Creditors for expenses 900 820
Expenses paid in advance 160 215
b) During the year he received a cheque for Rs 14,000 in respect of a legacy due to him. A friend
cashed the cheque for him.
c) Payments in cash were as follows:-
Rs.
For Supplies 52,180
For business expenses 7,215
For private purposes 6,250
For New Motor Van [See note (e) below]
For Casual wage 5,330
Loan to brother 3,500
d) Mr. Gul Nawaz estimates that his ratio of gross profit to sales was a uniform 25%.
e) On October 1,1993he purchased a new Motor Van, paying Rs 5,800 in cash, which was after
deducting allowance of Rs 1,200 on the old van. The new van is to be depreciated by 10% on
cost.
f) He agrees that any discrepancy on the cash account should be regarded as additional personal
drawings.
Required:
1. An account of Mr. Gul Nawaz cash transactions for the year ended 30th September, 1994. (10)
2. Trading and Profit and Loss account for the year ended 30th September 1994 and a Balance Sheet
at that date. (15)
QUESTION-4
The Accountant discerns the following details of transactions for Panorama retail store for the year ended
31st December, 1991.
(a) The sales are mostly on a credit basis. No record of sales have been made but Rs. 10,000 has been
received, Rs. 9,500 by cheque and Rs. 500 by cash, from persons to whom goods have been sold.
(b) Amount paid by cheque to suppliers during the year Rs. 7,200.
(c) Expenses paid during the year: by cheque, Rent Rs. 200, General Expenses Rs. 180, by cash Rent
Rs. 50.
(d) The owner took Rs. 10 cash per week (for two weeks) as drawings.
(e) Other information available is:
As at As at
31.12.90 31.12.91
Rupees Rupees
Debtors 1,100 1,320
Creditors for goods 400 650
Rent Owing - 50
Bank Balance 1,130 3,050
Cash Balance 80 10
Stock 1,590 1,700
326
(f) The only fixed assets consist of fixtures which were valued at 31 December, 1990, at Rs.800.
These are to be depreciated at 10 percent per annum.
You are required to prepare Trading and Profit & Loss Account and Balance Sheet along with other
related accounts on 31st December, 1991. (10)
{October 1992, CA. Inter -1}
QUESTION-5
Rashid commenced business as a cloth merchant on January 1, 2000 with a capital of Rs. 50,000. On the
same day he purchased furniture and fittings for cash Rs. 15,000. Following are the particulars obtained
from his books kept under single entry system:
Rupees
Sales (inclusive of cash sales Rs. 35,000) 85,000
Purchases (Inclusive of cash purchases Rs. 20,000) 75,000
Rashid's drawings 6,000
Salaries to staff 10,000
Bad debts written off 2,500
Business expenses 3,500
Rashid took cloth worth Rs. 2,500 from the shop for private use and paid Rs. 1,000 to his son, but omitted
to record these transactions in his books. On December 31, 2000 his debtors were Rs. 26,000 and
creditors Rs. 18,000. Stock in hand on December 31, 2000 was Rs. 39,000.
Depreciation is to be charged @ 10%.
Required:
Trading and profit and loss for the year ended December 31, 2000 and the Balance Sheet as at December
31, 2000. (11)
{Autumn 2001, Module - B}
QUESTION-6
A small trader Mr. Zubair maintains no books: All his collections are lodged in the Bank after meeting his
business expenses and personal drawings. The following information is available:
(i) The bank statement shows a deposit of Rs. 60,100 and withdrawals of Rs. 59,250.
(ii) He had placed Rs. 5,000 in Fixed Deposit on Sept 30, 1999 and withdrew the same with mark-up
@ 20% on March 31, 2000.
(iii) The assets and liabilities on June 30, 2000 were:
Rupees
Stocks 5,500
Debtors 5,750
Bank Balance 1,600
Furniture 10,000
Creditors 2,000
(iv) In the absence of reliable information, estimates are supplied on the following matters:
(a) The stock & debtors have increased by Rs. 500 during 'the year.
(b) The creditors were Rs. 1,000 on July 01, 1999.
(c) During the year the personal expenses amounted to Rs. 4,000 & business expenses Rs. 3,500.
Required: Prepare the following for the year ended June 30, 2000
(a) Trading & Profit & Loss Account
(b) Balance Sheet. (18)
{Spring 2001}
QUESTION-7
Mr. Rameez after converting the ground floor of his house in a retail shop, started to trade there on 1
October 1996. The cost of the conversion was Rs. 250,000 and of fixtures and fittings Rs. 30,000. To
finance the above outlay, Rameez opened a separate business account at his bank to which he transferred
Rs. 50,000 from his private account and arranged overdraft facilities upto Rs. 300,000 under a guarantee
from a friend, Mr. Qadeer who deposited securities with the bank as collateral. In consideration, Mr.
Rameez agreed to pay Mr. Qadeer 5% of the net profit of the first year's trading.
327
Apart from the bank statements, the only records Mr. Rameez kept were files of statements from supplies,
paid cheques and unpaid invoices for goods purchased, together with a note book in which he recorded a
few sales to special customers who had credit accounts and paid by cheques. Cash from cash sales was
paid into the till out of which he paid certain expenses, banking the balance on daily basis apart from
keeping a small balance as a float. He paid all suppliers of goods by cheque.
Mr. Rameez paid all the expenses of the house out of his private account and used part of the dwelling
portion as an office.
It was agreed with Mr. Qadeer that for this he should be credited with the following in respect of the year:
Rs.
Electricity 5,000
An analysis of the bank statements for the year ended 30 September 1997 was as follows:
Paid to open account 50,000 Cash for till 2,000
Supplies discount 1,000 Conversion of premises 250,000
Special customers 38,200 Fixtures & fittings 30,000
Banking 376,900 Supplies for purchases 372,800
Balance, 30 Sept. 1997 203,700 Insurance of stocks 4,000
Bank charges & Interest 11,000
669,800 669,800
Mr. Rameez estimates that during the year following were paid out of the till before making the banking
Wages Rs. 40,000, Sundry shop expenses Rs. 5,000, and drawings Rs. 60,000 Mr. Qadeer agrees with
these figures. Depreciation is to be charged at 2 % on the conversion cost and 5% on fixtures & fittings.
You ascertain that on 30 September 1997:
(i) Cheques totaling Rs. 3,000 from special customers, paid into the bank on 30 September 1997, had
not been credited by the bank.
(ii) The amounts paid for insurance included the premium of Rs. 2,000 for the year ending 30
Septembers 1998.
(iii) Closing stock, taking at cost was Rs. 36,000
(iv) The balance in the till was Rs. 1,500.
(v) Suppliers unpaid invoices amounted to Rs. 40,300 and amount payable Rs. 1,000 for wages and
Rs. 600 for shop expenses.
(vi) Special customers owed Rs. 17, 200
Required: Prepare Mr. Rameez Balance sheet at 30 September 1997, and his trading and profit and loss
account for the year ended on that date allowing for Mr. Qadeer's guarantee commission.
(20)
(October 1997)
QUESTION-8
Mishap a trader prepared his accounts for the year ended June 30, 1994 using a computer. Unfortunately
immediately after the preparation of the accounts, the computer was attacked by a virus. Consequently all
the data pertaining to the accounts was destroyed. Mr. Mishap however found in his papers a balance
sheet and a cash and bank account as follows:-
328
MR. MISHAP
BALANCE SHEET AS AT
30,1994 June 30,1993
Rupees Rupees
Fixed Assets 430,000 365,000
Current Assets:
Stocks in trade 265,000 227,000
Trade debtors 243,600 167,750
Prepayments: Rents 8,500 8,500
Insurance 16,500 12,250
Cash in hand 2,900 5,500
Cash at bank 4,500 18,000
541,000 439,000
Total Assets 971,000 804,000
Current Liabilities:
Trade creditors for goods supplied 192,300 194,650
Bills payable: Telephone 8,760 4,540
Advertising 14,580 7,770
Fixed assets 45,000 37,360
Accruals: Salaries & Wages. 20,960 11,540
Interest payable 5,450 12,750
Telephone 7,950 2,390
295,000 271,000
Total Assets less Current Liabilities 676,000 533,000
Represented By:
Capital Account: Balance brought forward. 366,000 323,760
Profit for the year. 355,000 127,450
721,000 451,210
Less: drawings 145,000 85,210
Balance carried forward 576,000 366,000
Loan from Bank 100,000 167,000
676,000 533,000
MR. MISHAP
CASH & BANK FOR THE YEAR ENDED JUNE 30,1994
Rupees Rupees
Balance b/f: Cash 5,500 Payments against credit
Bank 18,000 purchases 18,696,670
Cash purchases 240,680
Cash received against credit sales 20,150,340 Salaries & Wages. 940,970
Cash sales 972,470 Rent rates and taxes 102,000
Proceeds from sale of fixed assets 42,500 Telephone & Postage 230,570
Interest paid 44,050
Fixed Assets 225,360
Insurance 149,500
Advertising. 241,350
Bank loan repaid 67,000
Drawings 145,000
Balance c/f: Cash 2,900
Bank 4,500
21,188,810 21,188,810
329
Mr. Mishap was able to retrieve the following further information:

Discount allowed on amount received from trade debtors. 25,450
Discount received on amounts paid to trade creditors. 32,540
Returns against sales on credit 13,780
Returns against purchases on credit 23,780
Provision for bad debts 1-7-93 balance brought forward 35,000
Provision for bad debts 30-6-94 balance carried forward 80,000
Trade debts written off against which no provision for bad debts was made 30,340
Loss on sale of fixed assets 33,200
You are required:
Prepare a profit & loss account for the year ended June 30, 1994. (25)
{October 1994}
QUESTION-9
Mansoor deals in small electrical equipments and appliances. His Balance Sheet for the year ended 30
June 2011 was as follows.
Capital and Liabilities Rupees Assets Rupees
Capital 1,185,000 Fixtures 235,000
Creditors: Stocks 552,000
Goods 220,000 Debtors 281,000
Electricity charges 5,500 Property tax paid in advance 11,500
Accounting charges 11,500 237,000 Cash in hand 35,000
Cash at bank 307,500
1,422,000 1,422,000
On 30 June 2012, there was a fire in his shop which destroyed all his fixtures and stocks. The following
information has been gathered from the records available with him.
(a) The Insurance company agreed to pay Rs. 225,000 for fixtures and Rs. 630,000 for stock without
production of accounts; the stock on hand was however Rs. 670,000.
(b) The payments made during the year were as follows :
Rupees Rupees
Personal expenses 188,000 Property tax 32,000
Sundry expenses 15,000 Rent 240,500
Accounting charges 20,500 Purchase of goods 5,061,000
Electricity 50,500 Fixtures 45,000
(c) The following payments were made during the year, out of cash receipts:
(i) Assistant's salary Rs. 132,000.
(ii) Cash purchases averaging Rs. 24,000 per month.
(iii) Drawings which varied between Rs. 10,000 and Rs. 15,000 per month.
All other receipts were deposited into the bank. Total deposits amounted to Rs. 5,780,800 and included
scrap sale of Rs. 35,000.
(d) The following balances as on 30 June 2012 were determined from the available records:
Assets and Liabilities Rupees
Debtors 494,000
Creditors for goods 212,000
Creditors for electricity charges 1,900
Accounting charges payable 1,800
Property tax paid in advance 15,000
Cash in hand 40,500
330
(e) Included in the debtors is an amount of Rs. 14,000 which is considered uncollectible.
(f) The rate of gross profit as a percentage of sale was 20%.
Required:
Prepare Trading and Profit and Loss Account for the year ended 30 June 2012 and a Balance Sheet as on
that date. (24)
{Autumn 2012, Q#1}
QUESTION-10
Adnan runs a wholesale business. On December 31, 2009 he realised that his cash and bank balances have
reduced considerably. He has requested you to investigate the situation and has provided you the
following information:
Balances 2009 2008
Rupees
Cash at bank 103,400 349,100
Stock 27,500 15,700
Rent payable (one month) 4,500 3,500
Electricity and telephone bills payable 8,800 -
(i) 20% of the goods were sold on cash basis at a markup of 22% on cost. Credit sales were
made at a profit of 20% on sales. All collections from debtors were made in cash.
(ii) Adnan paid wages, rent, electricity and telephone charges in cash out of sale proceeds.
The remaining amount of sale proceeds was deposited into bank.
(iii) The bank pass book reveals the following withdrawals:
Rupees
Creditors 1,423,800
Fixed assets (acquired on July 1, 2009) 75,000
Drawings 122,600
(iv) All purchases were made on credit.
(v) Wages amounted to Rs. 8,900 per month.
(vi) Payment on account of electricity and telephone charges amounted to Rs. 33,000.
(vii) Rent has been increased from October 2009.
(viii) The opening balance in the fixed assets account net of depreciation was Rs. 285,000.
Depreciation is recorded @ 10% p.a. on declining balance method and is based on
number of months for which the assets have been in use.
Required:
(a) Prepare Adnan's profit and loss account for the year ended December 31, 2009 and his
balance sheet as on that date.
(b) Compute the amount of cash shortage, if any.
(18)
{Spring 2010, Q# 8}
QUESTION-11
Yousuf, a sole trader started business on July 01, 2006 with Rs. 2.40 million cash and a shop that had cost
Rs. 1.80 million. One-third of the cost of shop represented the value of land.
Yousuf keeps very little records. He pays for purchases of materials through cheques. However, for other
items, payments are made out of cash receipts. Available cash is deposited in a bank account weekly. He
does not keep any record of bank account or sales. Debtors are recorded only by keeping a copy of the
sales invoice and the same is given to the customer on receipt of the outstanding amount.
331
An analysis of the bank statements has shown that total deposits amounted to Rs. 15,960,000 inclusive of
the original cash investment and bank loan credit. The bank statement shows a balance of Rs. 896,000 as
on June 30, 2007. Outstanding cheques which were presented for payment after the year end amounted to
Rs. 258,000. Cash in hand on 30 June was Rs. 40,080.
Annual stock taking was carried out on June 30, 2007, which showed inventory in hand costing Rs.
2,005,200. Outstanding invoices to debtors totaled Rs. 152,400 but an amount of Rs. 14,760 appeared to
be bad. Unpaid suppliers' invoices for materials amounted to Rs. 453,600.
During the year, Yousuf borrowed Rs. 1.20 million from his bank for business purposes. Loan
repayments of Rs. 652,000 were made through cheques, which included interest for the year amounting to
Rs. 52,000.
Yousuf had withdrawn Rs. 576,000 from the cash collections. Expenses paid in cash were as follows:
Rupees
Utilities 66,480
Advertising 6,000
Salesman (part time) 70,800
Supplies, stationery, etc. 12,000
Insurance 28,080
Property tax 42,000
Store fixtures with a list price of Rs. 840,000 were purchased early in July 2006. According to the terms
of payments, a down payment of Rs. 672,000 had been made through cheque. The remaining amount was
paid in July 2007. Depreciation rate for all depreciable assets is 5%.
Required: Prepare necessary Profit and Loss Account of Mr. Yousuf for the year ended June 30, 2007,
and Balance Sheet as at June 30, 2007 supported by all necessary computations. (25)
{Autumn 2007, Q# 4}
QUESTION-12
Hamid is the proprietor of a general store. He has not previously engaged an accountant. From the
examination of the records and from interviews with Mr. Hamid, you ascertain the following information
for the year ended March 31, 2005:
1. The takings are kept in a drawer. At the end of each day the cash is counted and recorded on a
slip of paper. Mrs. Hamid transcribes the figure into a notebook at irregular intervals. Few slips of
paper were inadvertently destroyed before the figures had been written into the notebook. There
is a single bank account in the joint names of Mr. and Mrs. Hamid which is used for business as
well as personal transactions.
2. All payments to suppliers of goods are made by cheques. On totaling the cheque counterfoils, it
was found that total payments to suppliers amounted to Rs. 8,545,500.
3. The following balances can be accepted:
March 31
2004 2005
Rs. Rs.
Cash and bank 180,900 275,400
Debtors 412,200 441,900
Creditors for purchases of stock 251,100 218,700
Stock in trade at cost 1,755,000 1,710,000
4. Debts totaling Rs. 320,400 were abandoned during the year as bad; the takings include Rs. 22,500
recovered in respect of an old debt abandoned in a previous year.
5. The shop is situated in the house where Hamid lives. The rent of the house is Rs. 11,700 per
month. The living accommodation may be regarded as one third of the whole.
332
6. The following expenses were incurred:

(i) Rs. 31,500 running expenses of Hamid's personal car.
(ii) Rs. 54,000 for repainting of the whole premises, the landlord having refused to have this
done.
(iii) Rs. 144,000 for repairing the storage accommodation.
(iv) Miscellaneous shop expenses amounting to Rs. 77,200.
7. Hamid takes Rs. 35,000 per month from the business and hands it over to his wife, who pays all
the household expenses.
8. Hamid pays his own personal expenses with cash taken from the drawer. These are estimated at
Rs. 4,000 per month.
9. Hamid won a small prize bond for Rs. 50,000 and bought a small gift for his wife for Rs. 8,000.
10. During the year Hamid bought a secondhand car (not used for business) from a friend; the price
agreed was Rs. 315,000, but as the friend owed Hamid Rs. 60,300 for goods supplied from the
business the matter was settled by a cheque for the difference.
11. An assurance policy on Hamid's life matured and realized Rs. 576,900.
12. Hamid paid Rs. 90,000 to a friend in an emergency and received a cheque there against. The
cheque was dishonoured and the friend is repaying by installments. He had paid Rs. 36,000 by
March 31, 2005.
13. Other private payments by cheque totaled Rs. 86,400.
14. You are to provide Rs. 30,000 for accountancy fees.
Required:
(a) Cash and bank summary for the year ended March 31, 2005. (08)
(b) Capital Account showing drawings during the year ended March 31, 2005. (06)
(c) Profit and loss account for the year ended March 31, 2005. (04)
(d) Balance sheet of the business as at March 31, 2005. (04)
{Autumn 2005, Q # 8}
QUESTION-13
Due to the death of his book-keeper, Asif failed to keep proper records for the year ended June 30, 2010.
He has forwarded to you the following statements:
BALANCE SHEET
as on June 30, 2009
Rs. Rs.
Asif-capital account 613,300 Land and building at cost 130,000
6% Loan 500,000 Furniture: Cost 825,000
Trade creditors 500,100 Depreciation (485,000) 340,000
Accrued expenses 21,700 Stock 482,500
Bank overdraft 24,200 Trade debtors 670,000
Less: Provision (27,000) 643,000
Prepayments 53,800
Cash in hand 10,000
1,659,300 1,659,300
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Summary of the transactions in the bank book

Deposits against cash sales 624,750 Creditors 2,509,600
Receipts from debtors 3,071,000 Sundry expenses 212,500
Furniture sold on 1-Jul-09 Salaries 440,400
(purchased for Rs. 280,000 on 1-Jul-06) 122,400 Furniture purchased on 01-Jan-10 64,000
Interest on loan up to 31-Mar-10 22,500
Total 3,818,150 Total 3,249,000
You have carried out the necessary scrutiny and ascertained the following:
(i) Asif sells the goods at a profit margin of one-third of their selling price i.e. at a profit margin of
50% of cost of sales.
(ii) On June 30, 2010 trade debtors aggregated Rs. 600,500. These included Rs. 18,000 pertaining to
goods which were sent on sale or return basis and were unsold on June 30.
(iii) Closing stock was valued at Rs. 580,000.
(iv) Receipts from debtors include an advance of Rs. 2,500 for goods delivered in July 2010.
(v) Rs. 3,700 were recovered from a debtor which had been fully provided for on June 30, 2009. A
new customer who was introduced in 2010 and owed Rs. 4,200 was declared as bankrupt.
(vi) Sundry expenses payable on June 30, 2010 amounted to Rs. 19,000 (excluding interest on loan)
whereas prepayments amounted to Rs. 9,700.
(vii) Asif estimates that he withdrew Rs. 60,000 for his personal use and paid sundry expenses
aggregating Rs. 25,000 before depositing the proceeds from cash sales.
(viii) Depreciation on furniture is provided at the rate of 10% per annum on cost.
(ix) Bonus is payable to the manager at 5% of the net profit after charging such bonus.
(x) The following account balances were obtained from the memorandum records:
 Purchases Rs. 2,570,000
 Discounts received Rs. 30,000
 Sales returns Rs. 15,000
Required:
(a)A Trading and Profit & Loss account of Mr. Asif for the year ended June 30, 2010; and
(b) A balance sheet as on June 30, 2010 (25)
{Autumn 2010, Q# 3}
QUESTION-14
As per the balance sheet of a sole proprietor, Akbar & Sons the profit for the year ended December 31,
2001 was Rs. 45,000, whereas the profit figure in the balance sheet as on December 31, 2002 is Rs.
85,000.
The following facts are ascertained relating to the year ended December 31, 2002:
(a) 10% depreciation on diminishing value method has been charged to plant and machinery. The net
book value of plant and machinery as on December 31, 2002 was Rs. 100,000 whereas its cost
was 150,000.
(b) Provision for doubtful debts is 2% of debtors as on December 31, 2002. Gross debtors are Rs.
250,000 and a provision of Rs. 3,000 was already available from the last year.
(c) Rs. 5,000 loss on sale of fixed assets has been debited.
(d) Advertising of Rs. 8,000 has been made during the year.
(e) Indirect manufacturing expenses have been incurred amount to Rs. 50,000.
(f) Insurance of Rs. 15,000 from July 2002 to June 2003 is paid.
(g) Drawings of Rs. 20,000 have been made by Mr. Saad.
(h) Gross profit percentage is 25 percent.
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Required: Find out:

(i) gross profit;
(ii) sales;
(iii) cost of sales; and
(iv) direct manufacturing expenses for the year ended December 31, 2002. (13)
{Spring 2003, Q # 3}
QUESTION-15
Mr. Azam does not maintain Double Entry Records. Balance Sheet data, details of cash receipts and
payments and other information (available in his records) for preparation of his annual accounts at the end
of the year 1990 are given below:-
As on 1st As on 31st
Jan. 1990 Dec, 1990
Rupees Rupees
(a) Assets:
Cash 140,000 297,500
Bills Receivables 35,000 57,750
Sundry Debtors 175.000 122,500
Accrued Interest Income 2,100 2,800
Finished Goods (Inventory) 490,000 525,000
Stationery & Stores, and Supplies in hand 14,000 6,300
Furniture-at cost Less depreciation 126,000 197,750
(b) Liabilities:-
Bills payable - 140,000
Sundry Creditors 175,000 227,500
Accrued Salaries 3,500 1,750
Rent Received in advance 3,500 5,250
(c) Details of Cash Receipts and Payments for the year 1990:-
Rupees Rupees
Balance in hand 1st January, 1990 140,000
Receipts-
Cash Sales 322,000
Credit Sales (on account) 1,680,000
Rent Income 54,250
Interest Income 1,750
Sales of Furniture 12,250
Bills Receivables cleared from bank 344,750 2,415,000
2,555,000
Payments:-
Sundry Creditor for purchases (on account) 1,400,000
Salaries 147,000
Rent Expenses 154,000
Office Stationery 7,000
Purchase of Furniture 122,500
General Expenses paid 42,000
Bank for Bills Payable 210,000
Mr. Azam's drawings 175,000 2,257,500
Balance of Cash in hand as on 31st December, 1990 297,500
(d) Other relevant information, not yet accounted for are given below:-
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1) Purchases discounts received during the year amounted to Rs. 21,000.Discounts

amounted to Rs. 16,800.
2) Proceeds from Sale of Furniture for the years were Rs 12,250 as included in the Cash
Receipts. The furniture that was sold had as original cost of Rs. 56,000 and was 50%
depreciated during the previous years.
You are required to prepare Mr. Azam's Balance Sheet as at December 31, 1990 and Profit and Loss
Account for the year ended December 31, 1990 with necessary Notes to the accounts. (20)
{October 1991, C.A. Inter -1}
QUESTION-16
Following is the balance sheet of Ashfaq as at 30 June 2013:
Owner's equity / Liabilities Rupees Assets Rupees
Ashfaq’s capital 4,396,600 Motor car 2,000,000
Creditors 1,102,000 Furniture 1,000,000
Accrued rent 20,000 Stock-in-trade 1,805,000
Loan taken from a friend 27,900 Debtors 350,000
Balance at bank 360,600
_________ Cash in hand 15,900
5,546,500 5,546,500
Ashfaq needs to submit his Trading and Profit and Loss Account for the year ended 30 June 2014 and
Balance Sheet as of that date to his bankers in order to obtain an overdraft facility.
He has not maintained proper books of account of the business but has provided you the following
information:
(i) He purchased goods from a single supplier who allows a discount of 3% on goods purchased in
excess of Rs. 3,000,000 in a year. The discount for the year ended 30 June 2014 amounts to Rs.
265,800 and would be received in August 2014.
(ii) All goods are sold at cost plus 60%.
(iii) All cash received against sale of goods has been banked with the exception of the following weekly
average cash expenses/drawings:
Rupees
Drawings 30,000
Carriage outward 5,000
Petrol 3,000
Misc. expenses 2,500
(iv) Cash in hand on 30 June 2014 amounted to Rs. 26,700.
(v) An analysis of Ashfaq’s bank statement revealed the following information:
Receipts Rupees Payments Rupees
Collection from debtors 464,400 Purchase of goods 9,850,700
Cash deposited into bank 13,717,800 Car expenses (for business) 73,000
Rent 42,000
Repayment of loan to friend 27,900
Salaries 1,600,000
Purchase of freehold land 2,500,000
Printing & stationery 46,000
Advertisement 125,000
Insurance 50,000
Truck hire charges 657,000
_________ Misc. expenses 362,300
14,182,200 15,373,900
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(vi) Depreciation on motor car and furniture is to be provided @ 30% and 15% respectively under the
reducing balance method.
(vii) Stock-in-trade on 30 June 2014 amounted to Rs. 702,000.
Required:
Prepare Trading and Profit and Loss Account for the year ended 30 June 2014 and Balance Sheet as on 30
June 2014. (20)
{Autumn 2014, Q #7, CAF-05}
QUESTION-17
Following is the Balance Sheet of Arshad, a wholesaler-cum-retailer, as at 31 December 2012:
Capital / Liabilities Rs. Assets Rs.
Capital 480,000 Building 300,000
Loan 152,500 Furniture 60,000
Creditors 310,000 Car 90,000
Stock 200,000
Debtors 170,000
Cash in hand 37,500
Cash at bank 85,000
942,500 942,500
Arshad needs to submit his income statement and balance sheet to his bank in order to secure a running
finance facility. He has not maintained proper books of account but has provided you the following
information:
(i) Arshad sells goods at a gross profit of 25% on cost. Last year, he had earned a gross profit of Rs.
300,000.
(ii) The sales for the current year were 20% higher than last year. 30% of the total sales were made for
cash.
(iii) On 1 January 2013, he increased his stock level by 25% and maintained that level throughout the
year.
(iv) Collections from debtors amounted to Rs. 1,300,000 out of which Rs. 300,000 were received in
cash. Creditors were paid by cheques only.
(v) Business expenses amounted to Rs. 210,000 out of which Rs. 50,000 were outstanding at 31
December 2013 and Rs. 100,000 were paid by cash.
(vi) Following details have been collected from counterfoils of his cheque book :
Rupees
Payment to Creditors 1,375,000
Personal Drawings 75,000
Cash deposited with Bank 668,500
Cash withdrawn from bank for office use 120,000
(vii) Depreciation is charged at 5% on building and furniture and 20% on motor car.
Required:
Prepare Trading and Profit and Loss Account and Balance Sheet as at 31 December 2013. (19)
{Spring 2014, Q #5}
QUESTION-18
Babar had purchased a running business from Razi on 1 January 2014 at a total agreed price of
Rs.960,000. Babar died on 16 June 2014 and his son Sami took over the business. Sami wants to assess
the profitability of the business and for that purpose he has collected the following information from the
records maintained by him and his father:
(i) Correspondence between Babar and Razi has revealed that they had agreed to value the inventory
and other assets of the business at Rs.600,000 and Rs.120,000 respectively. However, in view of
Razi’s standing in the market, the deal had been finalized at a lump sum price of Rs.960,000
payable in two equal instalments. The first instalment was paid by Babar from his personal
account.
337
(ii) Babar had opened a bank account in the name of the business. An analysis of the bank statement
revealed the following details:
(iii)
Receipts Rupees
Amount deposited by Babar on 1 January 2014 from his personal account 2,000,000
Day to day collections banked at day end 3,800,000
Payments
Second instalment to Mr. Razi on 31 January 2014 480,000
Purchases 3,150,000
Lease rent 120,000
Electricity 22,000
Furniture purchased on 1 July 2014 25,000
(iv) Babar and Sami kept a notebook which shows that the following payments were made out of
daily sale proceeds before depositing them in the bank:
Rupees
Salaries and EOBI payments 184,300
Purchases 49,500
Sundry shop expenses 35,600
Drawings 192,500
(v) On 31 August 2014, there was a burglary at the warehouse and inventory costing Rs. 50,000 was
stolen. Due to defect in the insurance policy, the insurance company acknowledged the claim of
Rs. 20,000 only, which was received on 5 November 2014.
(vi) On 31 December 2014, stock on hand costed Rs. 450,000. Cash in hand, trade creditors and
accrued expenses (electricity) amounted to Rs. 34,500, Rs. 82,500 and Rs. 5,200 respectively.
(vii) Depreciation on fixtures and fittings is to be provided at the rate of 10% per annum.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31 December 2014 and Balance Sheet as
on 31 December 2014. (20)
(Spring-15, Q.1 CAF-05)
QUESTION-19
Following was the Balance Sheet of Karim & Sons as on 30th June 1989.
Liabilities Rupees Assets Rupees
Capital Account 960,000 Buildings 600,000
General Reserve 305,000 Furniture 120,000
Sundry Creditors 620,000 Motor Car 180,000
Stocks 400,000
Cash in hand 75,000
Cash in bank 170,000
1,885,000 1,885,000
A fire occurred on the evening of 30th June 1990 in the premises destroying all books and records. The
Cashier absconded. A sum of Rs. 48,000 was found in the Cash Safe.
You receive the following information from the memoranda record of the Manager:-
i) Sales for the year were 20% higher than the previous year.
ii) The goods were sold at cost plus 25%.
iii) 20% of the total sales were made for cash.
iv) There were no cash purchases.
338
v) The stock level was raised to Rs. 500,000 from 1st July, 1989 and was maintained at that level all
through the year.
vi) Collections from the Debtors amounted to Rs. 2,600,000 of which Rs. 600,000 were received in
cash.
vii) Business expenses amounted to Rs. 420,000 of which Rs. 120,000 were paid through cheque and
Rs. 100,000 were outstanding on 30th June, 1990.
viii) All the payments to the creditors were made through Bank only.
ix) Analysis of the Bank Pass Book revealed the following:
Rupees
Payments to Creditors 2,750,000
Personal Drawings 150,000
Cash deposited in the Bank 1,337,000
Cash withdrawn from the Bank 240,000
x) Gross profit as per last year's audited accounts was Rs. 600,000.
xi) Provide Depreciation on Building & Furniture @ 5% and Motor Car @ 20%.
You are required to:
(i) Compute:
(a) Total Debtors Account
(b) Total Creditors Account
(c) Total Sales
(ii) Ascertain the amount if any taken away by the Cashier.
(iii) Prepare the Trading and Profit & Loss Account for the year ended 30th June, 1990 and Balance
Sheet as on that date. (20)
{November 1990}
Question-20
Altaf Ali, who carried on a retail business, engaged an assistant at Rs. 4,000 per month who started work
on 1 January 1993. On 1 April 1993, the assistant did not report for work and it was found that he had
left, taking with him the balance in the till. It had been Altaf Ali's practice to bank each Saturday morning
the balance in the till resulting from the previous week's transactions. No float was maintained.
The only records kept, apart from the bank statements, were a notebook with details of sales on credit and
all file of unpaid invoices for goods supplied to him.
Having been instructed to establish the amount of the assistant's defalcation, you ascertain the following:
1. A Balance Sheet had been prepared on December 31, 1992 as follows:-
Rupees Rupees
Capital 72,400 Fixtures and Fittings, 50,000
Sundry Creditors. 49,400 Stock in trade. 34,400
Accrued expenses 5,000 Sundry debtors. 17,200
Balance at bank 25,200
126,800 126,800
2. An analysis of the Bank Statements up to 31st March 1993 was:
Rupees Rupees
Balance on 31 Dec. 92 25,200 Creditors for goods 187,400
Payment in: Rent and expenses 11,600
Debtor's cheques 9,000 Balance on 31 Mar. 93 29,600
Cash 194,400
228,600 228,600
3. Before paying in the balance in the till, Altaf Ali paid the assistant and took Rs. 8,000 for himself
every month.
4. Petty expenses, paid out of the till, could be assumed to average Rs. 1,600 per month.
5. Stock taken at the commencement of business on 1 April, 1993 was Rs. 18,000.
339
6. The debtor's note book showed that sales on credit had amounted to Rs. 19,800 and that on
31 March 93 there was Rs. 20,400 owing.
7. Creditors for goods (Sundry Creditors) had always been paid by cheque. Unpaid invoices on
31 March 93 totaled Rs. 56,000 Creditors for expenses amounted to Rs. 4,000 on 31 March 93.
8. Debtors and Creditors having been circularized, it was found that debtors in fact totaled
Rs. 16,800 and that although creditors were agreed at Rs. 56,000, goods had been returned against
a cash receipt of Rs.2,400 which had not been recorded.
9. There was a fixed margin of gross profit of 20% on sales.
10. An insurance company had agreed to admit a claim for the amount of the defalcation as
established by you.
You are required:
a) To prepare a statement, with adequate supporting schedules, showing your calculation of the
amount of defalcation; and
b) To prepare a Balance Sheet as on March 31, 1993. (20)
{April 1994}
QUESTION-21
Mr. Rehan was carrying on a business as a retailer. He sold his goods at a fixed margin of 20 % above
cost. He had a manager to whom he paid Rs. 30,000 p.m. On 1st January 2004 his balance sheet was as
follows:
Rs.'000' Rs.'000'
Creditors 3,000 Cash 100
Capital 12,000 Bank 2,300
Debtors 600
Stock 10,400
Furniture 1,600
15,000 15,000
Mr. Rehan used to make the following disbursements at the last day of each month:
 Salary of Manager Rs. 30,000.
 Drawings for personal use Rs. 50,000.
 Shop expenses (rent, etc) Rs. 50,000.
On January 1, 2004 Mr. Rehan went on a foreign trip and could come back only on March 1, 2004 when
he found that the manager had decamped with all the available cash.
The following information is available:
(Rs. '000')
Debtors on March 1, 2004 (according to books) 1,100
Creditors on March 1, 2004 (according to books) 2,800
Amount paid to creditors by cheque 6,000
Cheques received from debtors 1,600
Stock on March 1, 2004 (By actual count) 8,000
Cash deposited in bank as per deposit slip 5,000
It was found that a bearer cheque for Rs. 300,000 (which was not entered into books at all) received from
a debtor was encashed by the manager. Uncrossed cheque for Rs. 200,000 issued to creditor was also
encashed by the Manager. This cheque had been entered in the books. Stock records show that goods of
the cost of Rs. 200,000 were missing. It was assumed that the goods were sold by the manager and sale
proceeds misappropriated.
Required:
a) Ascertain the amount defalcated from the above information.
b) Draft a Balance Sheet of Mr. Rehan as at March 1, 2004. (20)
{Autumn 2004, Q # 4}
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QUESTION-22
Rahil runs a retail business. He appointed a cashier at a monthly salary of Rs. 13,000 on 1 April 2016.
The cashier did not report for work on 1 July 2016 and it was found that he had left, taking with him the
balance in the till.
It had been Rahil's practice to deposit on each weekend the available balance in the till after retaining a
float of Rs. 5,000. He maintains record of sales on credit and a file of unpaid invoices in respect of goods
purchased by him.
The following information has been ascertained from the available records:
(i) Balance Sheet as on 31 March 2016 was as follows:
Rupees Rupees
Rahil’s capital 233,000 Fixtures and fittings - WDV 161,000
Creditors for goods 159,000 Inventory 111,000
Creditors for expenses 16,000 Debtors 55,000
Cash at bank 76,000
Cash in hand 5,000
408,000 408,000
(ii) Following is a summary of the bank statement from 1 April to 30 June 2016:
Rupees Rupees
Balance on 1 April 2016 76,000 Payment to suppliers for goods 604,000
Cheques received from customers 29,000 Rent & other expenses 37,000
Cash deposited 627,000 Balance on 30 June 2016 91,000
732,000 732,000
(iii) The following amounts were paid from the till:
Rs. per
month
Salary to cashier 13,000
Rahil’s drawings 26,000
Petty expenses 5,000
(iv) Fixtures and fittings are depreciated at 10% per annum using reducing balance method.
(v) Inventory on 1 July 2016 was Rs. 58,000.
(vi) Credit sales during the quarter ended 30 June 2016 amounted to Rs. 64,000 whereas the debtors
balances as on 30 June 2016 amounted to Rs. 66,000. However, direct confirmations from debtors
showed that receivables in fact totalled Rs. 54,000.
(vii) Creditors for goods and expenses had always been paid by cheque. Unpaid invoices for goods on
30 June 2016 totalled Rs. 181,000 and creditors for expenses amounted to Rs. 13,000. Detailed
scrutiny of records revealed that a cash receipt of Rs. 8,000 which had been received against
goods returned to a supplier had not been recorded.
(viii) Rahil sells goods at a gross profit margin of 20% on sales.
Required:
(a) Prepare a statement showing calculation of the amount of defalcation. (11)
(b) Prepare a balance sheet as on 30 June 2016. (09)
{Autumn 2016, Q # 1}
341
QUESTION-23
Basheer operates a retail store. He maintains incomplete accounting records. He had experienced a theft
of stock on the part of his staff last year and has asked you to determine whether there is any indication of
shortage in the current year also. In the course of your investigation, you obtain the following
information:
(a) The physical inventory taken at December 31, 2005, under your observation amounted to Rs.
83,420. The inventory at December 31, 2004, was Rs. 120,260.
(b) Average gross profit in recent periods has been 35% of net sales. Basheer expects the same
results for 2005.
(c) The December 31, 2004 balance sheet shows trade debtors of Rs. 41,140 and trade creditors of
Rs. 112,440.
(d) During 2005 an amount of Rs. 4,320 was written off and Rs. 2,960 written off in 2004 were
collected and recorded as a regular collection on account.
(e) A list of unpaid sales invoices shows that customers owed Rs. 64,920 on December 31, 2005.
(f) Unpaid purchase invoices indicate that Basheer owed Rs. 100,540 to the trade creditors at the end
of 2005.
(g) An analysis of the receipts and payments shows the following:
Receipts Rs.
From customers 997,020
Payments
To trade creditors 779,400
To customers for returned goods 1,440
Required: Compute the amount by which the physical inventory is short, if any. (16)
{Spring 2006, Q #6}
QUESTION-24
During the night of 15th December 2004, flood water entered in the warehouse of Fine Distributors and
destroyed the entire inventory. Certain information relating to the period from 1st July to 14th December,
2004 is however, available at the Sales Office of the company.
Rs.
Gross sales 9,625,000
Opening stocks 1,250,000
Gross purchases 8,250,000
Un-recorded sales 625,000
Sales return 1,250,000
Purchase return 375,000
Freight on purchase 1,250,000
Mark up on cost 20%
Required: Calculate the Cost of Stocks, for which the company should lodge an insurance claim. (06)
(Spring 2005, Module C, Q # 3)
QUESTION-25
Mr. Ahmad Sarwar runs a jewellery shop in Saddar Karachi. On January 1, 2002, his trade inventory, at
cost, amounted to Rs. 470,000 and his trade payables were 395,000.
During the six months to June 30, 2002, sales were Rs. 420,000. Ahmad makes a gross profit of 33.5% on
sales value of everything he sells.
On June 30, there was a burglary at the shop, and all the inventory was stolen.
In trying to establish how much inventory had been taken, Ahmad was only able to say that:
(i) He knew from his bank statements that he had paid Rs. 284,000 to trade account payables in the
6-month period to June 30, 2002.
(ii) He currently had payables due Rs. 555,000
342
Required:
(a) Calculate the amount of inventory stolen. (06)
(b) Prepare a trading account for the six months to June 30, 2002. (06)
{Spring 2003, Q # 7}
QUESTION-26
Danish, a sole trader in a retail business makes all sales on cash basis. His draft balance sheet on 30th
June was under:-
Rupees Rupees
Capital account 5,000 Fixtures and fitting 1,400
Stock (at cost) 3,600
Trade creditors 680 Bank balance 980
Creditors for expenses 340 Cash in hand 40
6,020 6,020
Exactly eight weeks later, on the night of 25th August 1994, a fire occurred which destroyed all his stock,
fixtures and fittings, financial books, records and papers, with the exception of the file of unpaid invoices
and cash box containing the unbanked cash that he had taken home with him. His fire insurance policy
included cover of his stock (at cost), not exceeding Rs. 5,000 and fixtures and. fittings at an agreed value
of Rs. 1,350. He had not insured against loss of profit. The cash in hand on 30th June 1994 and all
takings-up to the close of Business on 25th August 1994 had been banked with the exception of:
(a) Rs. 15 per week that he had withdrawn for personal use.
(b) Rs. 12 per week paid as wages, and
(c) Rs. 60 in the cash box taken home with him.
All payments for goods and expenses, other than wages, were made by cheque. The selling price of his
goods was obtained by adding 30% to the cost price. An analysis of his bank statement for the eight
weeks ended 25th August 1994 showed the following receipts and payments:
Rupees
Receipt: Cash banked 2,884
Payments: Creditors for goods supplied 1,400
Expenses 460
Total of unpaid invoices on 25th August 1994 amounted:
For goods 560
For expenses 140
Required:
(i) Statement showing his claim for loss of stock by fire. (5)
(ii) A profit and loss account for the eight weeks ended 25th August 1994 and a balance sheet at that
date assuming the claims for loss of stock and furniture and fixtures are admitted. (20)
{April 1995, Q#1}
QUESTION-27
Munira is engaged in trading of garments. She has not maintained proper accounting records. She
suspects that some of her employees are involved in some sort of misappropriation. The list of creditors,
debtors and stocks prepared by her, show the following balances:
Balances at December 31
2007 2006
Rs. 000 Rs. 000
Trade Creditors 9,500 8,000
Trade Debtors 3,600 2,000
Stocks at cost 8,500 12,500
343
The following transactions were recorded during the year ended December 31, 2007:
(Rs. 000s)
Sales to staff on cash basis 315
Discounts allowed on early payments 360
Paid to suppliers in cash 12,700
Trade Discounts Received 400
Bad Debts written off 200
Other related information is as under:
(i) Normal sales are made at cost plus 20% but sales to staff are made at cost plus 5%.
(ii) About 4% of the purchases during the year were defective and had to be sold at 30% below
normal selling price.
(iii) The list of closing stock at December 31, 2007 includes four items having a total cost of Rs. 470
thousand. There was a casting error on the invoice raised by the supplier and the total has been
erroneously recorded as Rs 740 thousand. The invoice is still unpaid.
Required: You are required to calculate the loss incurred by Munira during the year 2007 on account of
misappropriations (if any). (19)
{Spring 2008, Q # 6}
QUESTION-28
Danish does not keep proper books of account due to his lack of knowledge of double entry system of
accounting. He has supplied you the following information with respect to the year ended 31 December
2011 from the records kept in his diary:
(i) Receipts and payments made during the year:
Rupees
Discount allowed to debtors 1,400
Bad debts written off 1,800
Cash paid to creditors 63,000
Discount allowed by creditors 1,000
Sales returns 3,000
Purchases returns 2,000
Expenses paid 6,000
Drawings 5,000
Rent paid 2,500
(ii) Opening balances as on 1 January 2011:
Assets and liabilities Rupees
Debtors 45,000
Creditors 24,000
Cash 4,500
Stock 25,000
Motor van 16,000
(iii) Debtors and creditors as on 31 December 2011 amounted to Rs. 48,600 and Rs. 27,000
respectively.
(iv) Outstanding expenses as on 31 December 2011 amounted to Rs. 1,200.
(v) Depreciation is charged on furniture and fixtures at the rate of 10% and on motor van at 20%.
(vi) Danish sells goods at cost plus 40% and follows a policy of maintaining a provision of 5% of the
outstanding debtors.
Required:
(a) Trading and profit and loss account for the year ended 31 December 2011.
(b) Balance sheet as at 31 December 2011. (21)
{Spring 2012, Q# 5}
344
QUESTION-29
Mr. Tahir took a store on rent from January 1, 2010 and started a grocery business. Analysis of his
bank account for the year ended December 31, 2010 is given below:
Rs. in '000
Balance on January 1, 2010 3,960
Receipts deposited in bank 41,850 45,810
Payments on January 1, 2010

Fixture and fittings 600
Motor van 240
Payments on July 1, 2010

Truck 1,200
Deep freezers 800
Payments during the year

Purchases 37,496
Drawings 1,960
Rent, rates and taxes 1,750
Lighting and heating 100
Repairs 460
Sundry business expenses 272 (44,878)
Balance on December 31, 2010 932
Following further information is available.
(i) The total receipts included:
Rs.in'000
Encashment of personal savings certificates 960
Proceeds from sale of motor van on May 1, 2010 200
Rent of Mr. Tahir's bungalow 480
(ii) All cash received against sale of goods has been banked with the exception of:
Rs. in '000
Staff salaries for the year 2,600
Personal expenses of Mr. Tahir (per month) 100
Cash retained for sundry business expenses (per month) 20
Of the cash taken for sundry business expenses, Rs 10 thousand was in hand on December 31, 2010.
(iii) Repairs include Rs. 36 thousand paid in respect of Mr. Tahir's bungalow.
(iv) On December 31, 2010 advance rent of the store amounted to Rs. 400 thousand; creditors for
purchases totalled Rs. 1,900 thousand whereas debtors amounted to Rs. 150 thousand,
(v) Depreciation is provided at 25% on motor vehicles and at 15% on fixture and fittings and deep
freezers,
(vi) Sales are made at 20% above cost.
Required:
(a) The trading and profit and loss account of Mr. Tahir for the year ended December 31, 2010.
(b) Balance sheet as on December 31, 2010. (19)
{Spring 2011, Q# 3}
345
QUESTION-30
Shafiq Ahmad is in the business of sun-flower oil. He expanded his business considerably during the year
ended June 30, 2009 but did not maintain proper books of account. He has now extracted the following
details from a register maintained at the business premises:
Summary of receipts and payments
Rupees
Receipts:
Additional capital injected 1,000,000
From debtors 4,713,750
From insurance company for damaged stock 30,000
Cost of transportation recovered from customers 200,000
Payments:
Landlord 192,000
Salaries 248,000
Fuel and maintenance of delivery trucks 224,000
Personal income-tax 50,000
Transfer to 12% fixed deposit (on Feb. 1,2009) 200,000
Suppliers 3,200,000
Cost of transportation paid to suppliers 250,000
Purchase of truck and initial repair thereof 360,000
From the income tax file for the year ended June 30,2008, he determined the following:
Capital 497,300
Creditors for oil purchases 1,200,000
Creditors for expenses: - Rent for June 2008 16,000
- Salaries 4,000
Debtors 160,000
Provision for bad debts 48,000
Stock of oil (1,250 tins) 1,250,000
Furniture 30,000
Accumulated depreciation on furniture 5,700
Delivery trucks 400,000
Accum0ulated depreciation on trucks 144,000
On scrutiny of the other records, he was able to gather the following information:
(i) 2,800 tins of oil were sold during the year at Rs. 2,000 each.
(ii) 3,000 tins were purchased during the year at Rs. 1,200 each. 50 tins were damaged in transit
against which insurance claim of Rs. 30,000 was received. The damaged tins were sold for Rs.
15,000 and the amount is included in receipt from debtors. Two tins were withdrawn for personal
use and ten tins were gifted to a charity.
(iii) 50 tins were declared unfit for health, by the quality inspection department and could either be
sold at Rs. 1,000 each or reprocessed by a third party, at a further cost of Rs. 900 each. A decision
in this regard has not been made so far.
(iv) A second-hand delivery truck costing Rs. 300,000 was purchased on April 1, 2009 by paying
cash. Rs. 60,000 were spent to bring it in proper operating condition.
(v) Rs. 10,000 were paid for registration of the truck and a fee of Rs. 18,000 was paid for obtaining
fitness certificate which is valid for three years. These amounts are included in fuel and
maintenance expenses shown above.
346
(vi) Debtors amounting to Rs. 60,000 were written off during the year. Bad debts are estimated at 2%
of sales.
(vii) Depreciation is charged from the date of purchase. The rate of depreciation is 10% and 20% of
WDV on furniture and delivery trucks respectively.
(viii) Stock is valued on weighted average basis.
Required:
(a) Trading & profit and loss account for the year ended June 30, 2009.
(b) Balance sheet as at June 30, 2009. (25)
{Autumn 2009, Q # 3}
QUESTION-31
Zafar is a wholesaler and usually sells goods on credit. However, he also makes some cash sales. Zafar
does not keep proper books of accounts and has provided you the following information related to the
year ended 30 June 2013:
(i) Assets and liabilities at 1 July 2012 were as follows:
Rupees
Fixed assets at book value 3,560,000
Inventory 774,000
Cash 59,000
Bank 553,000
Trade receivables 237,000
Prepayment (insurance) 39,000
Trade payables 553,000
Bank loan (repayable over 5 years) 592,000
Rent payable 59,000
(ii) Balances on 30 June 2013 were as follows:
Cash on hand 75,000
(iii) Purchases for the year amounted to Rs. 1,270,000.
(iv) Cheques deposited into bank, during the year, amounted to Rs. 1,559,000.
(v) Zafar withdrew Rs. 118,000 out of cash sales for personal use.
(vi) On the night of 30 November 2012, there was a burglary at the shop and some inventory was
stolen. In order to establish how much inventory was stolen, Zafar informed you that:
 He had paid Rs. 510,200 against trade payables in the five month period to 30 November
2012.
 Trade payables due on 30 November 2012 amounted to Rs. 466,600.
 An inventory count was carried out on the following day after the burglary and the cost of
inventory was determined as Rs. 476,600.
 Due to a defect in the insurance policy, no insurance claim was received.
(vii) On 30 April 2013, inventory costing Rs. 60,000 was damaged and scrapped. The insurance
company agreed to pay Rs. 42,000 only.
(viii) Zafar makes a gross profit of 25% of the sales value and his sales occur evenly throughout the year.
Required:
Calculate the amount of inventory stolen, the cost of the closing inventory and the gross profit for the year
ended 30 June 2013. (21)
{Autumn 2013, Q#5}
347
QUESTION-32
An analysis of the records of Mr. Jameel disclosed changes in account balances for 2002 and
supplementary data as listed below.
Rs.
Cash at bank 6,500 increase
Accounts Receivable 1,500 decrease
Stock 14,000 increase
Notes payable 5,000 increase
Accounts payable 2,500 increase
During the year, he had borrowed Rs. 12,000 from the bank and paid off notes of Rs. 15,000 and interest
of Rs. 750. Interest of Rs. 250 is still outstanding as at 31 December 2002.
During the year Mr. Jameel transferred certain marketable securities that he owned, to the business and
these were sold for Rs. 4,200 to finance purchase of stock. He made weekly drawings of Rs. 250 in 2002.
Required :Calculate his net income or loss for 2002 from the above data. (07)
{Autumn 2003, Q # 6}
QUESTION-33
An analysis of the records of Kashif Ahmed disclosed changes in account balances for 1992 and
supplementary data as listed below. Form this data calculate the net income or loss for 1992.
Rs.
Cash 195,000 Increase
Trade debts. 45,000 Decrease
Finished goods stock 420,000 Increase
Bills payable 150,000 Increase
Trade creditors. 75,000 Increase
During the year Kashif Ahmed borrowed Rs. 360,000 from the bank and paid off bills of Rs. 450,000 and
mark up of Rs. 22,500. Mark up of Rs. 7,500 is accrued as of December 31 1992.
In 1992, Kashif Ahmed also transferred certain investments that he owed to the business and these were
sold for Rs. 126,000 to finance the purchase of merchandise.
Kashif Ahmed made weekly drawings of Rs. 4,500 in 1992. (10)

{October 1993 CA. Inter-I}
QUESTION-34
Saleem is the owner of S-Mart, a grocery store. His accountant resigned and left on 1 January 2017.
Saleem suspects that the previous accountant was involved in some sort of misappropriation. The
information available with him is as follows:
(i) Summary of bank statement:

Receipts Rupees Payments Rupees
Balance as at 1 Jan 2016 250,000 Suppliers 1,807,500
Cheques from debtors 824,000 Salaries 48,000
Cash sales 1,450,000 Rent 72,000
Sale of old vehicle on 1 Jan 2016 15,000 Utilities 36,000
Other expenses 24,750
New vehicle on 1 Mar 2016 230,000
Balance as at 31 Dec 2016 320,750
2,539,000 2,539,000
348
(ii) Other balances extracted from the records maintained by the previous accountant:
31-Dec- 31-Dec-
Rupees
Furniture and fixtures - WDV 555,000 550,000
Equipment - WDV 64,000 80,000
Vehicle - WDV 210,000 18,500
Inventory 215,000 250,000
Debtors 340,000 260,000
Advance rent - 3,000
Cash in hand 31,510 45,000
Creditors 354,500 100,000
Salaries payable 22,000 18,000
(iii) Before depositing the receipts from cash sales in the bank, Saleem took Rs. 12,000 per month for
personal use. All other payments were made through bank and the debtors settled their accounts
through cheques.
(iv) The creditors have confirmed the balances due from them. However review of the statement
provided by one of the creditors indicates that goods returned for cash amounting to Rs. 24,000
were not recorded in the books.
(v) Unpaid invoice for furniture purchased during the year for Rs. 45,000 is included in creditors.
(vi) The margin on cash sales and credit sales is 20% and 25% respectively. From 1 July 2016, prices
to cash customers were further reduced by 6% due to which quantity sold against cash in the 2nd
half of the year increased by 25% as compared to the first half of the year.
(vii) All the debtors confirmed their balances except an amount of Rs. 50,000. On investigation it was
found that the related goods had been issued against fake invoices. Required:
Required
(a) Determine the amount of suspected fraud. (04)
(b) Prepare statement of profit or loss for the year ended 31 December 2016. (11)
QUESTION-35
Following information pertains to Alpha Traders (AT) for the year ended 31 December 2017:
(i) 60% goods are sold for cash to walk-in customers at list price. Remaining goods are sold to corporate
customers on credit at a trade discount of 2% on list price. They only pay through cheques.
(ii) Balances extracted from AT’s records:
31-Dec-2017 31-Dec-2016
--------- Rs. in ‘000 ---------
Furniture and fittings – net ? 10,175
Stock-in-trade 14,500 12,300
Trade debtors – gross 5,900 4,400
Prepaid rent 180 145
Accrued salaries 310 460
(iii) All furniture and fittings were purchased on 1 July 2015 and are depreciated using straight-line
method at 5% per annum.
(iv) Provision for doubtful debts is maintained at 4%. During the year, balances totaling Rs. 260,000 were
written-off.
349
(v) Summarised bank statement:

Deposits Rs. in ‘000 Withdrawals Rs. in ‘000
Opening balance 9,800 Utilities 1,400
Corporate customers 34,240 Rent, rates and taxes 2,100
Cash 56,380 Repairs & maintenance 2,800
Insurance claim 5,500 Cash 6,320
Return outward 2,170 Creditors 87,200
Delivery charges recovered 330 Delivery truck (second hand) 2,300
108,420 108,420
(vi) Cash payments for the year:
Rs. in ‘000
Salaries 6,500
Repairs & maintenance 500
Drawings ?
(vii) Insurance claim represents cost of goods lost in transit during the year.
(viii) A cheque of Rs. 300,000 issued on 15 December 2017 against rent, has not yet been presented
whereas cheque from a debtor, deposited on 31 December 2017 amounting to Rs. 3,200,000 is not
appearing in the bank statement.
(ix) Creditors are paid through cheques only. Payments made to creditors include:
 Rs. 48,000,000 after availing discount of 4%.
 A cheque of Rs. 1,900,000 issued to a supplier in December 2016. No discount was allowed by
the supplier on this payment.
(x) The delivery truck was purchased on 1 March 2017. Prior to use, the truck was repaired at a cost of
Rs. 260,000. The repair work was completed on 31 March 2017. The amount is included in payment for
repairs and maintenance above. Depreciation on delivery truck is charged on a straight-line basis at 12.5%
per annum.
Required:
Prepare the following:
(a) Statement of profit or loss for the year ended 31 December 2017. (12)
(b) Statement of financial position as on 31 December 2017. (08)
(Spring 2018, Q8)
QUESTION-36
On 1 July 2017, Nezam took over a running business namely FC Traders (FCT). Proper books of
account are not maintained for FCT. Following information has been gathered for preparation of
statement of profit or loss for the year ended 30 June 2018:
(i) Balances of certain assets and liabilities:
30-Jun-2018 1-Jul-2017
Assets and liabilities
------ Rs. in '000 ------
Equipment 4,000 4,000
Furniture and fixtures 2,500 2,500
Trade debtors 1,600 -
Inventory 2,400 2,800
Unused miscellaneous supplies 400 300
Unpaid suppliers’ bills 2,800 1,850
Shop rent payable 400 200
350
(ii) Summary of bank payments for the year ended 30 June 2018:
Rs. in '000
Suppliers 13,600
Repair and maintenance 950
Shop rent 2,000
Miscellaneous supplies 800
Utilities 1,200
(iii) Payments made out of cash sales before being deposited into the bank:
Rs. in '000
Salaries and wages 1,800
Purchase of inventory 3,000
Part payment of sales commission to riders 90
(iv) Unpaid suppliers’ bills as at 30 June 2018 include a bill of Rs. 320,000 which was
mistakenly taken at Rs. 230,000.
(v) During the year, goods costing Rs. 540,000 were withdrawn by Nezam for
personal use.
(vi) Inventory as at 30 June 2018 includes goods costing Rs. 250,000 which were
badly damaged in an accident and have no sales value.
(vii) Mark-up on goods sold are as follows:
Mark-up on cost
50% of goods – sold on cash counter 35%
20% of goods – sold for cash through riders 40%
30% of goods – sold for credit 45%
(viii) The riders are entitled to 3% commission.
(ix) Fixed asset at 30 June 2018 are to be depreciated at 10% per annum.
(x) Salaries and wages for June 2018 amounting to Rs. 165,000 were paid on 5 July
2018.
Required:
Prepare a statement of profit or loss for the year ended 30 June 2018. (13)
(Autumn 2018)
351

ANSWER-1
Mr. Saud Jawad
Rupees
Sales (W-8) 1,276,800
Rent (W-5) 49,200
Casual Labour (12,000+66,200) 78,200
(170,800)
Net Profit 146,000
Mr. Saud Jawad
Balance Sheet
as on June 30, 2002
Capital and liabilities
Capital Rupees
Opening capital (calculate yourself) 78,500
Less: Drawings ((W-4)74,100+6,000) (80,100)
144,400
Current Liabilities
Electricity Payable 1,600
90,600
Total 235,000
Assets
Current Assets:
Stocks 168,000
Debtors 43,000
Prepaid rent 4,200
Bank (W-3) 16,500
Cash 3,300
235,000
Total 235,000
WORKINGS
(W-1)
Op. 39,000 Cash (bal) 1,272,800
Sales (W-8) 1,276,800
cl. 43,000
1,315,800 1,315,800
Takings have been the source of all amounts banked means that debtors do not give the cheques and we
receive money in cash only from them. Further in bank account only cash is deposited therefore it will
appear as balancing figure in bank account.
352
(W-2)
Dr. Creditor account Cr.
op. 74,000
Bank 1,015,000 Inventory (bal.) 1,030,000
cl. 89,000
1,104,000 1,104,000
(W-3)
op. 23,000
Cash (Bal.) 1,169,000 Creditors 1,015,000
Rent 50,400
Electricity 13,900
Casual Labour 66,200
cl. 16,500
1,192,000 1,192,000
(W-4)
op. 3,600
Debtors (W-1) 1,272,800 Casual labour expense 12,000
Purchases 18,000
Bank (W-3) 1,169,000
Drawing (bal.) 74,100
c/d 3,300
1,276,400 1,276,400
(W-5)
Dr. Rent expense account Cr.
op. 3,000
P and L (bal.) 49,200
Bank 50,400
cl. 4,200
53,400 53,400
(W-6)
Dr. Electricity Cr.
Op. 2,100
Bank 13,900 P and L (bal.) 13,400
cl. 1,600
15,500 15,500
(W-7) Calculation of Cost of Sales
Creditors (W-2) 1,030,000 Drawing 6,000
Cash (Purchases) 18,000 c/d 168,000

Total Sales = (Cost of sale (W-7) / 100 x 133)
= (960,000 / 100 x 133)
= 1,276,800
353
ANSWER-2
Mr. Ikram Rizwan
Rupees
Sales {(W-l) 4,173,000 + (W-4.1) 121,600} 4,294,600
Interest Expense 95,000
Rent (W-5) 218,000
Wages ((W-6)977,000+(300 x 52)) 992,600
Advertisement (W-7) 13,000
Prov. for doubtful debt (160,000 x 80%) 128,000
Depreciation
Plant and machinery (1,280,000 x 20%) 256,000
Office equipment ((W-8)500,000/10) 50,000
Motorcar (50,000/4) 12,500
(1,890,100)
Net Profit 600,000
Mr. Ikram Rizwan
Balance Sheet
Capital and liabilities Rupees
Capital
Opening capital 1,170,500
Capital introduced (220,000+50,000) 270,000
1,951,500
Current Liabilities
Wages 52,500
Loan (950,000-(W-3.1)125,000) 825,000
999,500
Total 2,951,000
Assets
Non-Current Assets
Plant and machinery (1,280,000-256,000) 1,024,000
Office equipment (450,000-50,000) 400,000
Motorcar (50,000-12,500) 37,500
1,461,500
354
Current Assets:
Stocks 287,500
Debtors 223,000
Less: Provision for doubtful debts (128,000)
Prepaid advertisement (W-7) 13,000
Prepaid rent 27,000
Bank 1,067,000
1,489,500
Total 2,951,000
WORKINGS
op. (350,000-25,000) 325,000 Bank 4,275,000
Sales (bal.) 4,173,000
cl. 223,000
4,498,000 4,498,000
(W-2)
op.(176,000-43,000) 133,000
Cash 42,000
cl. 122,000
1,920,000 1,920,000
(W-3)
op. (O/D) 88,500
Capital 220,000 Cash 224,500
Debtors 4,275,000 Loan(Principal) (220,000-95,000) 125,000
Cash (bal.) 106,000 Interest expense 95,000
Creditors 1,756,000
Rent expense 220,000
Wages exp. 900,000
cl. 1,067,000
4,601,000 4,601,000
As the closing balance is after adjustment of un-presented cheques therefore it is not required to prepare
BRS here.
(W-3.1) Entry for loan and interest Debit Credit
Dr. Interest expense 95,000
Dr. Loan payable 125,000
Cr. Bank 220,000
Bank 224,500 Wages 67,500
Sales (W-4.1) 121,600 Creditors 42,000
Wages(son) (300 x 52) 15,600
Bank (W-3) 106,000
Drawing (bal.) 89,000
c/d -
346,100 346,100
355
As per question all the cash received from cash sales is deposited in bank after paying wages to son, so if
we add-up the wages paid to son and amount deposited in bank we can calculate the cash sales.
(W-4.1) Amount deposited in bank 106,000
Add: Wages to son 15,600
Cash sales 121,600
As all amount withdrawn from bank is used to meet the expenses and drawing and all cash sales are used
to pay wages with remaining amount deposited in bank so the closing balance of cash account will be
zero.
(W-5) Dr. Rent Cr.
op. 25,000
Bank 220,000 P and L (bal) 218,000
cl. 27,000
245,000 245,000
(W-6) Dr. Wages Cr.

Op. 43,000
Bank 900,000 P and L (bal) 977,000
Cash 67,500
cl. 52,500
1,020,000 1,020,000
(W-7) Dr. Advertisement Cr.

op. - P and L (bal) 13,000
Cash 26,000
CL. (26,000/2) 13,000
26,000 26,000
As half are still to be distributed so this is not an expense of current year rather it is a pre-paid.
(W-8) Cost of equipment is Rs. 500,000 (450,000/90x100)

Op. 305,000 Cost of Sales (Bal.) 1,804,500
Creditors (W-2) 1,787,00
0
cl. 287,500
ANSWER-3
1) Dr. Cash account Cr.
op. 330
Capital 14,000 Creditors 52,180
Debtors 67,900 Business Expenses 7,215
Drawings 6,250
New motor van 5,800
Wages 5,330
Drawing (loan brother) 3,500
c/d 465
82,230 82,230
356
2)
Mr. Gul Nawaz
for the year ended September 30,1994
Rs.
Sales (W-5) 68,160
Gross Profit 17,040
Business expenses (W-3) 7,080
Casual wages 5,330
Loss on exchange (W-6) 800
Depreciation ((W-6)7,000 x 10%) 700
(13,910)
Net Profit 3,130
Mr. Gul Nawaz
Balance Sheet
Capital Rs.
10,240
Current Liabilities
Business expenses 820
3,890
Total 14,130
Assets
Non-Current Assets
Motor Van (W-6) 7,000
Less Accumulated depreciation (700)
6,300
Current Assets
Stocks 6,100
Debtors 1,050
Prepaid business expenses 215
Cash 465
7,830
Total 14,130
WORKINGS
op. 790
Sales (W-5) 68,160 Cash (bal.) 67,900
cl. 1,050
68,950 68,950
357

op. 2,530
cl. 3,070
55,250 55,250
(W-3) Dr. Business Expenses Cr.

op. 160 op. 900
Cash 7,215 P and L (bal.) 7,080
cl. 820 cl. 215
8,195 8,195
(W-4) Dr. Drawings Cr.
Cash 6,250
Cash (loan brother) 3,500
Cash (part-a) 1,490 Capital (bal.) 11,240
11,240 11,240
Total Sale = (Cost of sale (W-5.1) / 75 x 100)
= 51,120 / 75 x 100
= 68,160
(W-5.1) Calculation of Cost of Sales
Cl. 6,100
(W-6) Dr. Cr.
Motor Van (new) 7,000
P and L (bal.) 800
Motor Van (old) 2,000
Cash 5,800
Cost of new asset

TIA 1,200
Add: Cash paid 5,800
7,000
Assets Rs.
Motor Van 2,000
Stocks 4,500
Debtors 790
Prepaid expenses 160
Cash 330
7,780
Liabilities
Creditors for supplies 2,530
Creditors for expenses 900
(3,430)
4,350
358
ANSWER-4
Panorama Retail Store
Rs.
Sales (W-1) 10,220
Gross Profit 2,380
Rent expense (W-5) 300
Depreciation (800x10%) 80
(560)
Net Profit 1,820
Panorama Retail Store
Balance Sheet
Capital Rs.
Less: Drawings (10x2) (20)
6,100
Current Liabilities
Trade Creditors 650
Rent owing 50
700
Total 6,800
Assets
Non-Current Assets
Furniture (800-80) 720
Current Assets
Stocks 1,700
Debtors 1,320
Bank 3,050
Cash 10
6,080
Total 6,800
WORKINGS
(W-1)
op. 1,100 Cash 500
Sales (bal.) 10,220 Bank (W-3) 9,500
cl. 1,320
11,320 11,320
Bank 7,200 op. 400
Cash (W-4) 500 Inventory (bal.) 7,950
cl. 650
8,350 8,350
359
(W-3)
op. 1,130 Creditors 7,200
Debtors (bal.) 9,500 Rent 200
cl. 3,050
10,630 10,630
(W-4)
op. 80 Rent expense 50
Debtors 500 Drawing (10 x 2) 20
Creditors (bal.) 500
cl. 10
580 580
(W-5)
Dr. Rent account Cr.
Cash 50 op. -
Bank 200 P and L (bal.) 300
cl. 50
300 300
Assets
Fixtures 800
Debtors 1,100
Bank balance 1,130
Cash balance 80
Stock 1,590
4,700
Liabilities
Creditors for goods (400)
4,300
Creditors (W-2) 7,950 Cl. 1,700
ANSWER-5
Mr. Rashid
Rs.
Sales 85,000
Gross Profit 51,500
Salaries 10,000
Bad debts 2,500
Depreciation Furniture (15,000 x 10%) 1,500
(17,500)
Net Profit 34,000
360
Mr. Rashid
Balance Sheet
Capital Rs.
Less: Drawings (6,000+2,500+1,000) (9,500)
74,500
Current Liabilities
Total 92,500
Assets
Non-Current Assets
Furniture 15,000
13,500
Current Assets:
Stocks 39,000
Debtors 26,000
Cash (W-3) 14,000
79,000
Total 92,500
WORKINGS
(W-1)
op. - Cash (Bal.) 21,500
Sales (85,000-35,000) 50,000 Bad debts 2,500
cl. 26,000
50,000 50,000
(W-2)
Cash (Bal.) 37,000 Inventory (Purchases) 55,000
cl. 18,000 (75,000-20,000)
55,000 55,000
(W-3)
Capital 50,000 Furniture 15,000
Sales 35,000 Purchases 20,000
Debtors (W-1) 21,500 Creditors (W-2) 37,000
Drawings 6,000
Drawings (son) 1,000
Salaries 10,000
c/d (Bal.) 14,000
106,500 106,500
Creditors (W-2) 55,000 Drawings 2,500
Cash (Purchases) 20,000 c/d 39,000
361
ANSWER-6
Mr. Zubair
Rupees
Sales (W-1) 67,600
Gross Profit 7,850
Less: Business Expenses (3,500)
Add: Interest on deposit (5,000 x 20% x 6/12) 500
Net Profit 4,850
Mr. Zubair
Balance Sheet
as on June 30, 2000
Capital Rs.
20,850
Current Liabilities
Total 22,850
Assets
Non-Current Assets
Furniture 10,000
Current Assets:
Stocks 5,500
Debtors 5,750
Bank 1,600
12,850
Total 22,850
WORKINGS
Op. (5,750 - 500) 5,250 Cash (W-4) 67,100
Sales (bal.) 67,600 cl. 5,750
72,850 72,850
(W-2)
Bank 59,250 op. 1,000
cl. 2,000 Inventory (bal.) 60,250
61,250 61,250

b/d (bal.) 750 Creditors (withdrawal) 59,250
Cash 60,100 c/d 1,600
60,850 60,850
362
Note: As all collections are lodged in banks after making drawing and paying certain expenses,
therefore creditors are being paid in cheque.
Bank 60,100
Debtor (bal.) 67,100 Fixed deposit 5,000
Fixed deposit 5,000 Business expenses 3,500
Interest on deposit 500 Drawings 4,000
(5,000 x 20% x 6/12)
c/d -
64,750 64,750
Assets Rs.
Furniture 10,000
Stock (5,500-500) 5,000
Debtors (5,750-500) 5,250
Bank (W-3) 750
21,000
Liabilities
Creditors (1,000)
20,000
Op. (5,500-500) 5,000 Cost of Sales (Bal.) 59,750
Cl. 5,500
ANSWER-7
Mr. Rameez
for the year ended September 30,1997
Rs.
Sales ((W-1) 58,400 + (W-4) 481,400) 539,800
Electricity 5,000
Wages (40,000 + 1,000) 41,000
Insurance expense (W-6) 2,000
Bank charges and interest 11,000
Sundry shop expense (5,000 + 600) 5,600
Depreciation:
- Conversion cost (250,000 x 2%) 5,000
- Fixtures and fittings (30,000 x 5%) 1,500
(83,700)
Add: Supplies discount 1,000
Profit before commission 80,000
Less: Commission to Qadeer (80,000 x 5%) (4,000)
Net Profit 76,000
363
Mr. Rameez
Balance Sheet
Capital Rs.
Capital introduced (W-5) 67,600
83,600
Current Liabilities
Wages payable 1,000
Shop expenses 600
Commission payable to Qadeer 4,000
Bank over draft (W-2) 200,700
246,600
Total 330,200
Assets
Non-Current Assets
Conversion cost 250,000
273,500
Current Assets:
Stocks 36,000
Special customers 17,200
Cash 1,500
56,700
Total 330,200
WORKINGS
(W-1) Dr. Special customer account Cr.
op. - Bank (38,200+3,000) 41,200
Sales (bal.) 58,400 cl. 17,200
58,400 58,400
(W-2) Bank reconciliation statement

Balance as per adjusted cash book (bal.) (200,700)
Less: Uncredited cheques (3,000)
Balance as per bank statement (given) (203,700)

op. -
cl. 40,300
413,100 413,100
364

op. -
Bank 2,000 Bank 376,900
Sales (bal.) 481,400 Wages 40,000
Sundry shop expense 5,000
Drawing 60,000
c/d 1,500
483,400 483,400
(W-5) Dr. Capital account Cr.

op. -
Bank 50,000
Electricity 5,000
cl. (bal.) 67,600
67,600 67,600

op. -
Bank 4,000 P and L (bal.) 2,000
cl. 2,000
4,000 4,000

Cl. 36,000
ANSWER-8
Mr. Mishap
for the year ended June 30,1994
Rupees
Sales (972,470 + (W-l) 20,340,760) 21,313,230
21,299,450
Rent (W-4) 102,000
Telephone (W-6) 240,350
Advertising (W-7) 248,160
Interest (W-10) 36,750
Miscellaneous expense 98,260
365
Provision for bad debt (W-2) 75,340

(2,047,450)
Add: Other Income (Discount received) 32,540
Net Profit 355,000
WORKINGS
(W-1)
Op. (167,750+35,000) 202,750 Cash and bank 20,150,340
Discount Allowed 25,450
Sales (bal.) 20,340,760 Sales return 13,780
Bad debt 30,340
cl.(243,600+80,000) 323,600
20,543,510 20,543,510
The debtors figure given in the balance sheet is net of provision so to arrive at the gross figure of debtors
the balance of provision given in the other information needs to be added. The reason how one comes to
know that the debtor is net of provision is that in balance sheet only debtors are appearing and in the
descriptive information provision for doubtful debts detail is given.
(W-2)
Dr. Provision for bad debt account Cr.
Bad debt 30,340 op. 35,000
cl. 80,000 P and L (bal.) 75,340
110,340 110,340
op. 194,650
Cash and bank 18,696,670 Inventory (bal.) 18,750,640
Dis. Received 32,540
Inventory (Purchases return) 23,780
cl. 192,300
18,945,290 18,945,290
(W-4)
Dr. Prepaid Rent Cr.
op. 8,500
Cash and bank 102,000 P and L (bal) 102,000
cl. 8,500
110,500 110,500
(W-5)
Dr. Prepaid insurance Cr.
Op. 12,250
Cash and bank 149,500 P and L (bal) 145,250
cl. 16,500
161,750 161,750
(W-6)
Dr. Telephone payable Cr.
cl. (7,950+8,760) 16,710 (4,540+2,390)
P and L (bal) 240,350
247,280 247,280
366
(W-7)
Dr. Advertising expense payable Cr.
cl. 14,580 P and L (bal) 248,160
255,930 255,930
(W-8)
Dr. Payable for fixed assets Cr.
op. 37,360
Cash and bank 225,360 Fixed asset 233,000
cl. 45,000 (bal.)
270,360 270,360
(W-9)
Dr. Payable salaries &Wages Cr.
cl. 20,960 P and L (bal) 950,390
961,930 961,930
(W-10)
Dr. Interest Cr.
cl. 5,450 P and L (bal) 36,750
49,500 49,500
(W-11)
Dr. Fixed asset account Cr.
op. 365,000 Disposal 75,700
Fixed asset payable (W-8) 233,000 Depreciation (bal.) 92,300
cl. 430,000
598,000 598,000
(W-12)
Dr. Disposal account Cr.
Fixed Asset (BV) (bal.) 75,700 P and L 33,200
(Cost-accumulated dep.) Cash and bank 42,500
75,700 75,700
Cash (Purchases) 240,680 Creditors 23,780
Creditor (W-3) 18,750,640 Cl. 265,000
ANSWER-9
Mr. Mansoor
Rs.
Sales (5,223,000/80x100) 6,528,750
Accounting charges (W-7) 10,800
Property tax (W-5) 28,500
367
Rent (W-8) 255,500

Assistant salary 132,000
Abnormal loss (670,000 - 630,000) 40,000
Loss on sale of fixtures (W-9.1) 55,000
Bad debt 14,000
(597,700)
Add: Other Income
Sale of scrap 35,000
Net Profit 743,050

Mr. Mansoor
Balance Sheet
as on June 30, 2012
Capital
Less: Drawings (188,000 + (W-4) 144,450) (332,450)
1,595,600
Current Liabilities
Creditors for goods 212,000
Creditors for electricity charges 1,900
Accountancy charges payable 1,800
230,700
Total 1,826,300
Assets
Non-Current Assets
Fixtures (W-9) -
Current Assets:
Stocks -
Insurance claim receivable - stock 630,000
Insurance claim receivable - fixtures 225,000
Debtors (494,000 - 14,000) 480,000
Cash (W-3) 40,500
Bank 435,800
Property tax in advance 15,000
1,826,300
Total 1,826,300
WORKINGS
op. 281,000 Cash (bal.) 6,315,750
Sales 6,528,750 Bad debt 14,000
cl. (494,000 - 14,000) 480,000

op. 220,000
cl. 212,000
368

op. 307,500 Drawings 188,000
Cash 5,780,800 Sundry expenses 15,000
Accounting charges 20,500
Electricity 50,500
Property tax 32,000
Rent 240,500
Creditors 5,061,000
Fixture 45,000
cl. (bal.) 435,800

op. 35,000 Salary 132,000
Debtors (W-1) 6,315,750 Inventory(Purchases)(24,000x12) 288,000
Sale of scrap income 35,000 Drawings (bal.) 144,450
Bank 5,780,800
c/d 40,500
(W-5) Dr. Property tax Cr.

op. 11,500
Bank 32,000 P and L (bal.) 28,500
cl. 15,000

op. 5,500
Bank 50,500 P and L (bal.) 46,900
cl. 1,900
(W-7) Dr. Accounting charges expense Cr.

op. 11,500
Bank 20,500 P and L (bal.) 10,800
cl. 1,800
(W-8) Dr. Rent Cr.

Bank 240,500 op. -
cl. 15,000 P and L (bal.) 255,500
(W-9) Dr. Fixtures Cr.

b/d 235,000 Disposals 280,000
Bank 45,000 c/d (bal.) -
(W-9.1) Entry for loss of fixture

Insurance claim receivable 225,000
P/L (bal.) 55,000
Fixtures (W-9) 280,000
(W-10) Dr. Inventory account Cr.

Creditors (W-2) 5,053,000 Abnormal Loss 670,000
Cash (Pur.) (24,000 x 12) 288,000
Cl. -
369
ANSWER-10
Mr. Adnan
for the year ended December 31, 2009 Rupees
Sales (W-8) 1,774,815
Wages (8,900 x 12) 106,800
Rent (W-4.1) 45,000
Electricity and telephone bills (W-5) 41,800
Misappropriation expense (part-b) 196,715
(422,565)
Net Loss (74,450)
Mr. Adnan
Balance Sheet
Capital Rupees
Add: Net Profit/(loss) (74,450)
396,150
Current Liabilities
Rent payable 4,500
Electricity and telephone bill payable 8,800
144,100
Total 540,250
Assets
Non-Current Assets
Fixed assets - book value (W-6) 327,750
Current Assets:
Stocks 27,500
Sundry debtors 80,900
Cash 700
Bank 103,400
212,500
Total 540,250
(b) Statement of Defalcation
Opening balance and Receipts
Opening balance 14,300
Debtors 1,394,500
Sales (W-8) 348,115
1,756,915
370
Payments and closing balance

Wages (8,900 x 12) 106,800
Rent (W-4) 44,000
Electricity and telephone 33,000
Bank (W-3) 1,375,700
Closing balance 700
1,560,200
Amount of defalcation 196,715
WORKING
Op. 48,700 Cash (Bal.) 1,394,500
Sales (W-9) 1,426,700 Cl. 80,900
1,475,400 1,475,400

Bank 1,423,800 Op. 116,100
Cl. 130,800 Inventory (bal.) 1,438,500
1,554,600 1,554,600
Op. 349,100 Creditors 1,423,800

Cash (Bal.) 1,375,700 Fixed assets 75,000
Drawing 122,600
Cl. 103,400
1,724,800 1,724,800

Cash (bal.) 44,000 Op. 3,500
Cl. 4,500 P and L (W-4.1) 45,000
48,500 48,500
(W-4.1) Rent expense
From January to September (3,500 x 9) 31,500
From October to December (4,500 x 3) 13,500
45,000
(W-5) Dr. Electricity and telephone bills Cr.

Cash 33,000 b/d -
c/d 8,800 P and L (bal.) 41,800
41,800 41,800
(W-6) Dr. Fixed asset – BV Cr.

Op. 285,000
Bank 75,000 Depreciation 32,250
(285,000 x 10% + 75,000 x 10% x 6/12)
c/d (bal.) 327,750
360,000 360,000
371
(W-7) Calculation of opening capital

Cash in hand 14,300
Cash at bank 349,100
Sundry debtors 48,700
Stock 15,700
Fixed assets 285,000
Sundry creditors (116,100)
Rent payable (3,500)
593,200

Cash sales
Cost of goods which are sold on cash ((W-9) 1,426,700 x 20%) = 285,340
Sale price of goods which are sold on cash (285,340 / 100 x 122) 348,115
Credit sales
Cost of goods which are sold on credit ((W-9) 1,426,700 x 80%) = 1,141,360
Sale price of goods which are sold on credit (1,141,360 / 80 x 100) 1,426,700
Total Sale Price 1,774,815
cl. 27,500

b/d 14,300 Wages (8,900 x 12) 106,800
Debtors 1,394,500 Rent (W-4) 44,000
Cash (sales) (W-8) 348,115 Electricity and telephone 33,000
Bank (W-3) 1,375,700
Misappropriation expense (bal.) 196,715
c/d 700
1,756,915 1,756,915
ANSWER-11
Mr. Yousaf
Rupees
Sales (W-l) 13,353,840
Utilities 66,480
Advertising 6,000
Sales man salary 70,800
Supplies, stationery 12,000
Insurance 28,080
Property tax 42,000
Bad debt expense 14,760
Depreciation
372
-Shop (1,200,000 x 5%) 60,000

-Store fixtures (840,000 x 5%) 42,000
Interest on loan 52,000
(394,120)
Net Profit 513,320
Mr. Yousaf
Balance Sheet
as on June 30,2007
Capital
Capital introduced (W-5) 4,200,000
4,137,320
Bank loan (1,200,000- 600,000(W-6)) 600,000
Current Liabilities
Payable for store fixtures (W-7) 168,000
621,600
Total 5,358,920
Assets
Non-Current Assets
Land 600,000
Less: Accumulated depreciation -
600,000
Shop 1,200,000
1,140,000
Store fixtures 840,000
798,000
Current Assets
Stocks 2,005,200
Debtors (W-1.1) 137,640
Bank (W-3.1) 638,000
Cash 40,080
2,820,920
Total 5,358,920
WORKINGS
op. - Bad debt 14,760
Sales (Bal.) 13,353,840 Cash (W-4) 13,201,440
cl. (W-1.1) 137,640
13,353,840 13,353,840
(W-1.1) Total closing debtors 152,400
Less: Bad debts (14,760)
Final closing balance 137,640
373

Op. -
Bank (W-3) 13,998,000 Inventory (Bal.) 14,451,600
cl. 453,600
14,451,600 14,451,600

op. -
Cash 15,960,000 Loan 600,000
Interest expense 52,000
Payable-Store fixtures 672,000
Creditors (Bal.) 13,998,000
cl. (W-3.1) 638,000
15,960,000 15,960,000
(W-3.1) Calculation of closing adjusted balance of cash book
Rupees
Adjusted cash book balance (bal.) 638,000
Add: Unpresented cheques 258,000
Balance as per bank statement (given) 896,000

op. -
Capital 2,400,000 Bank 15,960,000
Loan 1,200,000 Drawings 576,000
Debtors (Bal.) 13,201,440 Utilities 66,480
Advertising 6,000
Sales man salary 70,800
Supplies, stationery 12,000
Insurance 28,080
Property tax 42,000
cl. 40,080
16,801,440 16,801,440
(W-5) Dr. Capital account Cr.

op. -
Cash 2,400,000
Land (1.8M x 1/3) 600,000
cl. (Bal.) 4,200,000 Shop (excluding land) (1.8M x 2/3) 1,200,000
4,200,000 4,200,000
Rupees
(W-6) Amount paid to bank 652,000
Less: Interest paid (52,000)
Principal paid 600,000
(W-7)
Dr. Payable - Store fixture Cr.
op. -
Bank 672,000 Store fixtures 840,000
cl. (Bal.) 168,000
840,000 840,000
374

Op. - Cost of Sales (Bal.) 12,446,400
Creditors (W-2) 14,451,600
cl. 2,005,200
ANSWER-12
(a) Cash and bank summary
Dr. Cash and bank account Cr.
op. 180,900 Creditors 8,545,500
Bad debt recovery 22,500 Rent (11,700 x 12) x 2/3 93,600
Capital (prize bond) 50,000 Drawing (home rent) (11,700 x 12) x l/3 46,800
Capital (assurance policy) 576,900 Drawing 31,500
Capital (cheque from friend) 90,000 Repaint exp (54,000 x2/3) 36,000
Capital (cheque received) 36,000 Drawing (home repaint) (54,000 x l/3) 18,000
Repair expense 144,000
Debtors (bal.) 9,308,800 Shop expenses 77,200
Drawings (35,000 x 12) 420,000
Drawings (4,000 x 12) 48,000
Drawing 8,000
Drawing (car) (315,000-60,300) 254,700
Drawing (loan to friend) 90,000
Capital (cheque dishonour) 90,000
Drawing 86,400
cl. 275,400
10,256,100 10,256,100
(b)
Dr. Capital account Cr.
op. (W-2) 2,097,000
Cash and Bank (cheque dishonour) 90,000 Cash and Bank (prize bond) 50,000
Cash and Bank (assurance policy) 576,900
Cash and Bank (cheque from friend) 90,000
Drawing (W-1) 1,063,700 Cash and Bank (cheque received) 36,000
Profit 482,400
cl. 2,178,600
3,332,300 3,332,300
(W-1)
Dr. Drawing Cr.
Cash and Bank (11,700 x 12) x1/3 46,800
(Rent of home)
Cash and Bank (personal exp) 31,500
Cash and Bank (54,000 x1/3) 18,000
(repainting home)
Cash and Bank (35,000 x 12) 420,000
Cash and Bank (4,000 x 12) 48,000
Cash and Bank (Wife gift) 8,000
Cash and Bank (car) 254,700
(315,000-60,300)
Debtor (car) 60,300
Cash and Bank (loan to friend) 90,000
Cash and Bank 86,400 Capital (bal.) 1,063,700
1,063,700 1,063,700
375

Assets Rupees
Debtors 412,200
Stock 1,755,000
2,348,100
Liabilities
Trade creditors (251,100)
2,097,000
(c) Mr. Hamid
Rs.
Sales (W-1) 9,719,200
Bad debts 320,400
Rent expense (11,700 x 12) x 2/3 93,600
Repairing expense (54,000 x 2/3) 36,000
Repair storage accommodation 144,000
Shop expenses 77,200
Accountancy fees 30,000
(701,200)
Add: Other Income
Bad debt recovery 22,500
Net Profit 482,400
(d) Mr. Hamid
Balance Sheet
Capital (part-b) 2,178,600
Current Liabilities
Accountancy expense payable 30,000
248,700
Total 2,427,300
Assets
Current Assets:
Stocks 1,710,000
Debtors 441,900
Total 2,427,300
WORKINGS
op. 412,200 Cash and bank (part-a) 9,308,800
Sales (bal.) 9,719,200 Bad debts 320,400
Drawing (car) 60,300
cl. 441,900
10,131,400 10,131,400
376
(W-2)
op. 251,100
cl. 218,700
8,764,200 8,764,200
Cl. 1,710,000
Journal entries for understanding purposes (Not a part of I CAP question)
Debit Credit
(10)Drawing 315,000
Debtor 60,300
(Payment of second hand car)
(12) Drawing 90,000
(Entry on loan given to friend)
Capital 90,000
(Cheque received from friend)
Capital 90,000
(Cheque received from friend dishonoured)
Capital 36,000
(Cheques received till year end)
ANSWER-13
Mr. Asif
Rupees
Sales (W-11) 3,690,750
Salaries 440,400
Sundry expenses (W-5) 278,900
Interest on loan (500,000 x 6%) 30,000
Loss on disposal of furniture (W-9) 73,600
Provision (W-1.1) 500
Depreciation Furniture (W-8) 57,700
(881,100)
Add: Other Income
Profit before bonus 379,450
Less: Bonus (379,450/105 x 5) (18,069)
Profit after bonus 361,381
377
Mr. Asif
Balance Sheet
as on June 30, 2010
Capital Rupees
914,681
Loan 500,000
Current Liabilities
Trade Creditors (W-2) 530,200
Interest payable on loan (W-13) 7,500
Advance from customer 2,500
Payable to manager 18,069
577,269
Total 1,991,950
Assets
Non-Current Assets
Land and Building at cost 130,000
Furniture 609,000
Less: Accumulated depreciation of furniture (W-7) (458,700)
280,300
Current Assets
Stock (W-10) 592,000
Debtors (W-1) 582,500
Less: Provision for doubtful debt (W-1.1) (23,300)
Prepayment 9,700
Bank (W-3) 544,950
Cash (W-4) 5,800
1,711,650
Total 1,991,950
WORKINGS
op. 670,000 Cash 3,700
Bank (3,071,000-2,500) 3,068,500
Sales (bal.) 3,021,900 Sale return 15,000
Sale 18,000
Bad debt (Note) 4,200
cl. (600,500-18,000) 582,500
3,691,900 3,691,900
Note: It is assumed that court has confirmed the bankruptcy; therefore Rs. 4,200 is treated as bad debt.
(W-1.1) Dr. Provision for bad debt acc. Cr.

Bad debt 4,200 b/d 27,000
c/d (27,000 – 3,700) 23,300 P/L (bal.) 500
27,500 27,500
378

Discount received 30,300 op. 500,100
Bank 2,509,600 Inventory (Purchases) 2,570,000
c/d (bal.) 530,200
3,070,100 3,070,100

b/d 24,200
Receipts 3,818,150 Payments 3,249,000
c/d (bal.) 544,950
3,818,150 3,818,150

b/d 10,000
Sales (W-11) 701,850 Bank 624,750
Debtor 3,700 Sundry expenses 25,000
Drawings 60,000
c/d (bal.) 5,800
715,550 715,550
(W-5) Dr. Sundry Expenses Cr.

b/d 53,800 b/d 21,700
Bank 212,500
Cash 25,000 P and L (bal.) 278,900
c/d 19,000 c/d 9,700
310,300 310,300
(W-6) Dr Furniture account Cr.

b/d 825,000 Disposal 280,000
Additions 64,000
c/d (bal.) 609,000
889,000 889,000
(W-7) Dr. Accumulated depreciation Cr.

Disposal (W-7.1) 84,000 b/d 485,000
c/d (bal.) 458,700 Depreciation exp. (W-8) 57,700
542,700 542,700
(W-7.1) Accumulated depreciation of disposal (280,000 x 10% x 3 years)

(Years in use before disposal =3 years) 84,000

On opening excluding disposals (825,000 - 280,000) x 10% 54,500
On additions (64,000 x 10% x 6/12) 3,200
57,700
379
(W-9) Dr. Furniture disposal Cr.

Cost 280,000 Accumulated dep. (W-7.1) 84,000
Bank 122,400
P and L (bal.) 73,600
280,000 280,000
(W-10) Closing stock
As per physical count 580,000
Lying with other parties at cost (18,000/100x66.67) 12,000
592,000
(W-11) Calculation of total sales

Net Total Sale = ((W-12) Cost of sale/100 x 150)
= 2,460,500/100 x 150
= 3,690,750
Calculation of cash sales
Net Cash sale = Net Total Sale - Net Credit Sale = 3,690,750 - 2,988,900 = 701,850
Net credit sale = 3,021,900 -15,000 -18,000 = 2,988,900

Creditors 2,570,000
c/d (W-10) 592,000
(W-13) Dr. Interest expense Cr.
Bank 22,500 P and L (500,000 x 6% ) 30,000

c/d (bal.) 7,500
30,000 30,000
ANSWER-14
i)
Gross profit = Net profit + Admin expenses
= 85,000 + (W-l) 22,500
= 107,500
(W-l) Admin Expenses

Rupees
Provision for doubtful debts (250,000x2%)-3,000 2,000
Advertising expense 8,000
Insurance expense (15,000x6/12) 7,500
22,500
ii) Sales (107,500/25x100) 430,000
iii) Cost of sales = Sales - GP (430,000 -107,500) 322,500
iv) Direct manufacturing expense = Cost of sales - Indirect manufacturing expense
= 322,500 - 50,000
= 272,500
As the question is silent, so it is assumed that depreciation is included in indirect manufacturing expenses.
380
ANSWER-15
Mr. Azam
Rupees
Sales ((W-2)2,011,800+322,000) 2,333,800
Rent expense 154,000
Office stationery (W-7) 14,700
Loss on sale of furniture (W-10) 15,750
(411,250)
Add: Other income
Interest income (W-6) 2,450
Rental income (W-9) 52,500
75,950
Net Profit 210,000
Mr. Azam
Balance Sheet
Capital Rupees
835,100
Current Liabilities
Bills payable 140,000
Accrued Salaries 1,750
Rent Received in advance 5,250
374,500
Total 1,209,600
Assets
Non-Current Assets
Furniture 197,750
Current Assets
Cash 297,500
Bills Receivables 57,750
Accrued Interest Income 2,800
Finished Goods (Inventory) 525,000
Stationery & Stores, and Supplies (in hand) 6,300
1,011,850
Total 1,209,600
381
WORKINGS
(W-1) Dr. Bill receivable account Cr.
op. 35,000
Debtor (bal.) 367,500 Cash 344,750
cl. 57,750
402,500 402,500

op. 175,000 Cash 1,680,000
Sales (bal.) 2,011,800 Discount allowed 16,800
Bill receivable (W-1) 367,500
cl. 122,500
2,186,800 2,186,800
(W-3) Dr. Bill payable account Cr.

op. -
Cash 210,000 Creditor (bal.) 350,000
cl. 140,000
350,000 350,000

op. 175,000
Bill payable (W-3) 350,000
Cash 1,400,000 Inventory (bal.) 1,823,500
cl. 227,500
1,998,500 1,998,500
(W-5) Dr. Furniture- at Book value Cr.

op. 126,000
Cash (additions) 122,500 Disposals (56,000 x 50%) 28,000
Depreciation (bal.) 22,750
c/d 197,750
248,500 248,500
(W-6) Dr. Interest income Cr.

op. 2,100
P and L (bal.) 2,450 Cash 1,750
cl. 2,800
4,550 4,550
(W-7) Dr. Stationery etc. Cr.

op. 14,000
Cash 7,000 P and L (bal.) 14,700
cl. 6,300
21,000 21,000
382
(W-8) Dr. Salaries expense Cr.

op. 3,500
Cash 147,000 P and L (bal.) 145,250
cl. 1,750
148,750 148,750
(W-9) Dr. Rental income Cr.

op. 3,500
P and L (bal.) 52,500 Cash 54,250
cl. 5,250
57,750 57,750
(W-10) Dr. Furniture disposal Cr

Furniture – BV (56,000 x 50%) 28,000 Cash 12,250
P and L (bal.) 15,750
28,000 28,000
(W-11)Opening capital
Assets Rupees
Cash 140,000
Bills Receivables 35,000
Accrued Interest Income 2,100
Finished Goods (Inventory) 490,000
Stationery & Stores, and Supplies (in hand) 14,000
Furniture-at cost Less depreciation 126,000
982,100
Liabilities
Accrued Salaries 3,500
Rent Received in advance 3,500
(182,000)
800,100

Cl. 525,000
Answer 16
Mr. Ashfaq
Rs.
Sales (W-8) 20,315,520
Carriage out 260,000
383
Petrol 156,000
Misc. expenses (130,000 + 362,300) 492,300
Car expenses 73,000
Salaries 1,600,000
Travelling expense 40,000
Truck rent 657,000
Depreciation
Motor car (2,000,000 x 30%) 600,000
Furniture (1,000,000 x 15%) 150,000
(4,286,300)
Mr. Ashfaq
Balance Sheet
as on June 30, 2014
Capital
Less: Drawings (30,000 x 52) (1,560,000)
6,168,620
Loan (27,900 - 27,900) -
Current Liabilities
Bank overdraft (W-3) 831,100
3,942,400
Total 10,111,020
Assets
Non-Current Assets
Motor car (2,000,000 - 600,000) 1,400,000
Furniture (1,000,000 - 150,000) 850,000
Land 2,500,000
4,750,000
Current Assets
Stocks 702,000
Debtors (W-1) 4,366,520
Cash 26,700
Discount receivable 265,800
5,361,020
Total 10,111,020
WORKINGS
op. 350,000 Cash (W-4) 15,834,600
Sales (W-8) 20,315,520 Bank 464,400
cl. (bal.) 4,366,520
384
(W-2) Dr. Creditor account Cr.

op. 1,102,000
Bank 9,850,700 Purchases (W-2.1) 11,860,000
cl. (bal.) 3,111,300
(W-2.1) Purchases
As given in question 3,000,000
Remaining on which discount will be allowed (265,800/3 x 100) 8,860,000
Gross purchases (At list price) 11,860,000

op. 360,600 Creditors 9,850,700
Debtors 464,400 Car expenses 73,000
Cash 13,717,800 Rent 42,000
Loan 27,900
Salaries 1,600,000
Land 2,500,000
Travelling exp. 40,000
Print & Stat. 46,000
Insurance 50,000
Truck rent 657,000
cl. (bal.) 831,100 Misc. expense 362,300

op. 15,900 Drawing(30,000 x 52) 1,560,000
Debtors (bal.) 15,834,600 Carriage (5,000 x 52) 260,000
Petrol (3,000 x 52) 156,000
Misc Exp.(2,500 x 52) 130,000
Bank 13,717,800
c/d 26,700
(W-5) Dr. Insurance Cr.

op. 15,000
Bank 50,000 P and L (bal.) 65,000
cl. -

op. 20,000
Bank 42,000 P and L (bal.) 22,000
cl. -
(W-7) Dr. Inventory Cr.

op. 1,805,000
Creditor (Pur.) 11,860,000 COS (bal.) 12,697,200
(W-2.1) Discount receivable 265,800
cl. 702,000
385

Total Sale = Cost of sale + 60 % of cost of sale
= Cost of sales (W-7) /100 x 160
= 12,697,200/100 x 160
= 20,315,520
ANSWER-17
Mr. Arshad
Trading and Profit & Loss Account
For the year ended 31-12-2013
Rupees
Sales (W-5) 1,800,000
Less: Administration Expenses
Business Expenses 210,000
Depreciation - Building (300,000 x 5%) 15,000
- Car (60,000 x 5%) 3,000
- Furniture (90,000 x 20%) 18,000
(246,000)
Net Profit 114,000
Mr. Arshad
Balance Sheet
As on 31-12-2013
Capital and Liabilities Rupees
Capital
Opening Capital 480,000
Add: Profit for the Year 114,000
Less: Drawing (75,000)
519,000
Liabilities:
Creditor (W-2) 425,000
Business Expenses Payable 50,000
Loan 152,500
627,500
1,146,500
Assets:
Non current assets:
Building (300,000 -15,000) 285,000
Furniture (60,000 -3,000) 57,000
Car (90,000 -18,000) 72,000
414,000
Current Assets:
Debtor (W-1) 130,000
Stock (200,000 x 25% + 200,000) 250,000
Bank (W-4) 123,500
Cash (W-3) 229,000
732,500
1,146,500
386
WORKINGS:
(W-1)
b/d. 170,000 Cash 300,000
Sales (W-6) 1,260,000 Bank (1,300,000 – 300,000) 1,000,000
c/d (Bal.) 130,000
(W-2)
Bank 1,375,000 b/d 310,000
Inventory (W-7) 1,490,000
c/d (bal.) 425,000
(W-3)
b/d 37,500 Business Expenses 100,000
Sales (W-6) 540,000 Bank 668,500
Debtor 300,000
Bank 120,000 c/d (Bal.) 229,000
(W-4)
b/d 85,000 Business Expenses (W-8) 60,000
Debtor 1,000,000 Creditor 1,375,000
Cash 668,500 Drawings 75,000
Cash 120,000
c/d (Bal.) 123,500

(W-5)
Last Year Sale = 300,000/25 x 125 = Rs. 1,500,000
Current Year Sales = 1,500,000 x 1.20 = Rs. 1,800,000
(W-6)
Cash and Credit sale:
Cash Sales = 1,800,000 x 30% = Rs. 540,000
Credit Sales = 1,800,000 x 70% = Rs. 1,260,000
(W-7)
Dr. Inventory Account Cr.
b/d 200,000 COS (1,800,000/125 x 100) 1,440,000
Creditor (Bal.) 1,490,000 c/d (200,000 x 25% + 200,000) 250,000
(W-8)
Dr. Business Expense Account Cr.
Bank (Bal.) 60,000
Cash 100,000 P/L 210,000
c/d (Payable) 50,000
387
ANSWER-18
Mr. Babar
for the year ended 31 December, 2014
Rupees
Sales ( W-4 ) 4,276,400
Less: Cost of sales (W-l) (3,382,000)
Salary and EOBI 184,300
Lease rent 120,000
Electricity ( W-5 ) 27,200
Abnormal loss (W-l.l) 30,000
Depreciation exp. (25,000 x 10% x 6/12) 1,250
(398,350)
Net Profit 496,050
Mr. Babar
Balance Sheet
as on 31 December, 2014
Capital
Capital introduced ((W-6) 480,000 + 2,000,000) 2,480,000
2,783,550
Current Liabilities
Payable to Razi ((W-6) 480,000 - 480,000) -
Payable for expenses 5,200
87,700
Total 2,871,250
Assets
Non-Current Assets
23,750
Goodwill (W-6) 240,000
Other assets 120,000
360,000
Current Assets
Inventory 450,000
Bank (W-3) 2,003,000
Cash 34,500
2,487,500
Total 2,871,250
388
WORKINGS
(W-l) Dr. Inventory account Cr.

Payable to Razi 600,000 Abnormal loss 50,000
Cash 49,500
Creditors (W-2) 3232,500 COS (bal.) 3,382,000
cl. 450,000
(W-1.1)
Particulars Dr. Cr.
Cash 20,000
P/L(Bal.) 30,000
Inventory 50,000

op. -
cl. 82,500

op. - Creditors 3,150,000
Capital 2,000,000 Payable to Razi 480,000
Cash 3,800,000 Lease rent 120,000
Electricity 22,000
Furniture 25,000
Closing(bal) 2,003,000

Ins. claim received 20,000 Bank 3,800,000
Sales (bal.) 4,276,400 Salary and EOBI 184,300
Inventory 49,500
Drawings 192,500
c/d 34,500
(W-5) Dr. Electricity Payable Account Cr.

Bank 22,000 PL(Bal) 27,200
cl. 5,200
(W-6) Entries at the start of the Business

Particulars Dr. Cr.
Inventory 600,000
Other Assets 120,000
G/Will(Bal). 240,000
Payable to Razi 480,000
Capital 480,000
(Acquisition of business from Mr. Razi)
389
ANSWER-19
(a) Dr. Debtors account Cr.
op. 340,000 Cash 600,000
Sales (part-c) 2,880,000 Bank (2,600,000 - 600,000) 2,000,000
cl. (bal.) 620,000
3,220,000 3,220,000
(b)
op. 620,000
Bank 2,750,000 Inventory (Purchases) 2,980,000
cl. (bal.) 850,000 (part (iii) W-2)
3,600,000 3,600,000
(c) Calculation of sales
Sale of current year = Sale of last year (W-l) + 20% of Sale of last year
= 3,000,000 + 20% of 3,000,000
= 3,600,000
Cash sale = 20 % of total sale
= 720,000
Credit Sale = (3,600,000-720,000)
=2,880,000
(W-1) Sale of last year
Sales = (Gross profit/ 25 x 125)
= (600,000 / 25 x 125)
= 3,000,000
(ii) Cashier has taken Rs. 50,000 with him.
op. 75,000
Bank 240,000 Bank 1,337,000
Debtors 600,000 Expenses (W-1) 200,000
Sale 720,000 Misappropriation (bal.) 50,000
(part (c) of(i)) c/d 48,000
1,635,000 1,635,000
Rupees
(W-1) Total business expenses 420,000
Less: Payable (100,000)
Less: Paid through bank (120,000)
Paid through cash 200,000
(iii)
Karim and Sons
for the year ended June 30,1990
Rupees
Sales (part (c)of(i)) 3,600,000
Less: Cost of sales (W-2.1) (2,880,000)
390

Expenses 420,000
Misappropriation expense (part ii) 50,000
Depreciation
Building (600,000x5%) 30,000
Furniture (120,000x5%) 6,000
Motor car (180,000x20%) 36,000
(542,000)
Net Profit 178,000
Karim and Sons

Balance Sheet
as on June 30,1990
Capital Rupees
General reserve 305,000
1,293,000
Current Liabilities
Trade Creditors (part (b) of (i)) 850,000
Payable for expenses 100,000
950,000
Total 2,243,000
Assets
Non-Current Assets
Building (600,000-30,000) 570,000
Furniture (120,000-6,000) 114,000
Motor car (180,000-36,000) 144,000
828,000
Current Assets
Stocks 500,000
Debtors (part (i)) 620,000
Bank (W-1) 247,000
Cash 48,000
1,415,000
Total 2,243,000
WORKINGS
(W-1)
op. 170,000 Creditors 2,750,000
Cash 1,337,000 Drawings 150,000
Debtors 2,000,000 Cash 240,000
Expenses 120,000
cl. (bal.) 247,000
3,507,000 3,507,000
391
(W-2) Calculation of Inventory (Purchases)

Op. 400,000 Cost of Sales (W-2.1) 2,880,000
Creditors (Bal.) 2,980,000 Cl. 500,000
Cost of sales = (Sales (part (i)(c)) / 125 x 100)
= 3,600,000 / 125 x 100
= 2,880,000
Answer-20
Statement of Defalcation
Receipts Rupees
Purchase return 2,400
Sales (W-6) of part b 240,200
Debtors (W-l) of part b 11,200
253,800
Payments
Salaries (4,000x3) 12,000
Drawings (8,000x3) 24,000
Petty expenses (1,600x3) 4,800
Bank 194,400
235,200
Amount of defalcation 18,600
(b) Altaf Ali
for the year ended March 31,1993
Rupees
Sales (W-6) 260,000
Gross Profit 52,000
Rent and expense (W-5) 10,600
Petty expense 4,800
Salaries 12,000
(27,400)
Net Profit 24,600
Altaf Ali
Balance Sheet
As on March 31,1993
Capital
Less. Drawings (8,000x3) (24,000)
73,000
Current Liabilities
60,000
Total 133,000
392
Assets
Non-Current Assets
Fixture and fitting 50,000
Current Assets
Stocks 18,000
Debtors 16,800
Bank 29,600
Receivable from Insurance company (part-1) 18,600
83,000
Total 133,000
WORKINGS
(W-1)
B Cr.
op. 17,200 Bank 9,000
Sales 19,800 Cash (bal.) 11,200
cl. 16,800
37,000 37,000
b Dr. Creditors account Cr.
op. 49,400
cl. 56,000
243,400 243,400
From point 7, it is clear that no payment is made to creditors in cash.
op. 25,200
Cash 194,400 Creditors 187,400
Debtors 9,000 Rent and expense 11,600
cl. 29,600
228,600 228,600
op. - Salaries (4,000x3) 12,000
Inventory (Purchase return) 2,400 Drawings (8,000x3) 24,000
Sales (W-6) 240,200 Petty expense (1,600x3) 4,800
Debtors (W-1) 11,200 Bank 194,400
Defalcation expense (bal.) 18,600
253,800 253,800
(W-5) Dr. Rent and expense Cr.
op. 5,000
Bank 11,600 P and L (bal.) 10,600
cl. 4,000
15,600 15,600
= (208,000/ 80 x 100)
Total Sale = 260,000
Cash sale = Total sale - credit sale

= 260,000- 19,800
= 240,200
393

Creditors (W-2) 194,000 Cash (Purchase return) 2,400
Cl. 18,000
Answer-21
Calculation of Amount defalcated
Rs in "000"
Cheques from debtors 300
Cheques issued to creditors 200
Cash in hand misappropriated (including cash received from sale of missing stock) (W-4) 2,580
3,080
b) Mr. Rehan
for the period ended March 1, 2004
Rs in "000"
Sales (W-5) 9,840
Gross Profit 1,640
Salaries (30 x 2) 60
Shop expenses (50 x 2) 100
Misappropriation expense (part-a) 3,080
(3,240)
Net Profit/(loss) (1,600)
Mr. Rehan
Balance Sheet
as on March 1, 2004
Rs in "000"
Capital
Add: Net Profit(Loss) (1,600)
Less: Drawings (50 x 2) (100)
10,300
Current Liabilities
Trade Creditors (W-2) 3,000
Total 13,300
Assets
Non-Current Assets
Furniture 1,600
Current Assets:
Stocks 8,000
Debtors (W-1) 800
Bank (W-3) 2,900
11,700
Total 13,300
Workings (All in Rs. “000”)
394

op. 600
Sales (bal.) 2,100 Bank 1,600
Misappropriation expense 300
cl. (1,100-300) 800
27,00 27,00
op. 3,000
cl. (2,800+200) 3,000 Misappropriation expense 200
9,000 9,000
(W-3)
op. 2,300 Creditors 6,000
Debtor 1,600
Cash 5,000
cl. (bal.) 2,900
8,900 8,900
(W-4)
op. 100 Salary (30 x 2m) 60
Sales (W-5) 7,740 Drawings (50 x 2m) 100
Expenses (50 x 2m) 100
Bank 5,000
Misappropriation expense (bal.) 2,580
c/d -
7,840 7,840
The sale proceeds of missing stock is included in the figure of Rs. 2,580 being already included in sales
figure of Rs. 7,740 therefore no separate adjustment is passed.

= (8,200 / 100 x 120)
= 9,840
Cash sale = Total sale - credit sale
= 9,840 - (W-1) 2,100
= 7,740
(W-5.1) Calculation of cost of sales

c/d 8,000
395
ANSWER-22
(a)
Statement of amount of defalcation
Rupees
Opening balance (Cash on 31/3/2016) 5,000
Add:
Cash sales (W-7) 774,750
Cash receipts from debtors (W-2) 36,000
Cash receipt against purchase return 8,000
Less:
Bank deposits (627,000)
Assistant’s salary (13,000 x 3) (39,000)
Petty expenses (5,000 x 3) (15,000)
Drawings (26,000 x 3) (78,000)
Closing balance (0)
Total defalcation amount 64,750
(b)
Mr. Rahil
Balance Sheet
as on June 30, 2016
Capital Rupees
Add: Net Profit (W-8) 10,975
165,975
Current Liabilities
Expenses payable 13,000
194,000
Total 359,975
Assets
Non-current Assets:
Fixtures and Fittings (W-5) 156,975
Current Assets:
Stocks 58,000
Debtors 54,000
Bank 91,000
203,000
Total 359,975
WORKINGS
(W-1)
Creditors account
Bank 604,000 b/d 159,000
Purchases (Bal.) 626,000
c/d 181,000
396
(W-2)
Debtors account
b/d 55,000 Bank 29,000
Sales 64,000 Cash (Bal.) 36,000
c/d 54,000
As the debtors have confirmed the balance of Rs. 54,000 so Rs. 66,000 is ignored.
(W-3)
Inventory account
b/d 111,000 Cost of sales (Bal.) 671,000
Creditor (Purchases) (W-1) 626,000 Cash (purchase return) 8,000
c/d 58,000
(W-4)
Cash account
Opening balance 5,000 Petty expenses (5,000 x 3) 15,000
Debtors (W-2) 36,000 Bank 627,000
Cash sales (W-7) 774,750 Salary (13,000 x 3) 39,000
Inventory (purchase return) 8,000 Drawings (26,000 x 3) 78,000
Misappropriation expense (Bal.) 64,750
Closing balance 0
(W-5)
Fixtures and fittings – at BV
b/d 161,000 Depreciation (161,000 x 10% x 3/12) 4,025
c/d (Bal.) 156,975
(W-6)
Expenses
Bank 37,000 b/d 16,000
cl 13,000 P/L (Bal.) 34,000
C+P=S
80 + 20 = 100
Total Sale = 671,000 x 100

80
= 838,750
Cash sale = 838,750 – 64,000

= 774,750
(W-8) Profit and loss statement
Rupees
Sales (W-7) 838,750
Rent and other expenses (W-6) 34,000
Salary (13,000 x 3) 39,000
Petty expenses (5,000 x 3) 15,000
Cash misappropriation (Defalcation) (W-4) 64,750
(156,775)
Net Profit 10,975
397
ANSWER-23
Stock shortage is Rs. 140,872.
Calculation
Dr. Inventory account
Cr.
Op. 120,260 Cost of Sales (W-3) 663,468
Creditors (W-2) 767,500 Abnormal Loss (Bal.) 140,872
Cl. 83,420
(Workings)
(W-1)
Dr. Debtors Account Cr.
Sales (Bal.) 1,022,160 Bad debt 4,320
Cash (997,020-2,960) 994,060
1,063,300 1,063,300
(W-2)
Dr. Creditors Account Cr.
Cash 779,400 Inventory (Bal.) 767,500
879,940 879,940
(W-3) Calculation of cost of sales Rupees

Sale 1,022,160
Net sales 1,020,720
Cost of sales (1,020,720/100 x 65) 663,468
Entry for sale return in this question is Dr. Sale return and Cr. Cash.
ANSWER-24
Company should lodge insurance claim of Rs. 2,875,000.
Calculation
Op. 1,250,000 Cost of Sales (W-1) 7,500,000
Creditor 8,250,000 Abnormal Loss (Bal.) 2,875,000
Cash (Freight) 1,250,000 Creditor (Purchase ret.) 375,000
Cl. -

Sale (9,625,000+625,000) 10,250,000
Less: Sale return (1,250,000)
Net sales 9,000,000
Cost of sales (9,000,000/120 x 100) 7,500,000
398
Answer-25
(a) Stock shortage is Rs. 634,700.
Calculation
Op. 470,000 Cost of Sales (W-1) 279,300
Creditors (W-2) 444,000 Abnormal Loss (Bal.) 634,700
c/d -
(W-1) Cost of sales (420,000/100 x 66.5) 279,300

(W-2)
Dr. Creditors Account Cr.
b/d 395,000
c/d 555,000
839,000 839,000
b)
Mr. Ahmad Sarwar
Trading Account
for the period ended March 1, 2004
Rs in "000"
Sales 420,000
ANSWER-26
i) Stock shortage is Rs. 2,480
Calculation
b/d 3,600 Cost of Sales ((W-4)3,120/130 x 100) 2,400
Creditor (Purchases) (W-1) 1,280 Abnormal Loss (Bal.) 2,480
c/d -
ii) Mr. Danish

for the period ended August 25,1994
Rs.
Sales (W-4) 3,120
Less: Cost of sales ((W-4)3,120/130 x 100) (2,400)
Gross Profit 720
Wages (12 x 8weeks) 96
Expenses (W-2) 260
Loss on furniture and fixture (W-6) 50
(406)
Net Profit 314
399
Mr. Danish
Balance Sheet
as on August 25,1994
Capital Rs.
Add: Net Profit 314
Less: Drawings (15 x 8weeks) (120)
5,194
Current Liabilities
Trade Creditors 560
Creditors for expenses 140
700
Total 5,894
Assets
Non-Current Assets
Furniture (W-5) -
Current Assets
Insurance claim receivable ((W-7)2,480 + 1,350) 3,830
Bank (W-3) 2,004
Cash 60
5,894
Total 5,894
WORKINGS
op. 680
cl. 560
1,960 1,960
(W-2) Dr. Creditors expenses Cr.

op. 340
Bank 460 P and L (bal.) 260
cl. 140
600 600

op. 980 Creditors 1,400
Cash 2,884 Creditors - expenses 460
cl. (bal.) 2,004
3,864 3,864

op. 40
Sales (bal.) 3,120 Bank 2,884
Drawings (15x8) 120
Wages (12x8) 96
c/d 60
3,160 3,160
400
(W-5) Dr. Furniture account Cr.

c/d (bal.) -
1,400 1,400
(W-6) Dr. Furniture disposal account Cr.

Furniture 1,400 Insurance claim receivable 1,350
P and L (bal.) 50
1,400 1,400
ANSWER-27
Munira
Calculation of stock shortage
Stock shortage is Rs. 632,840.
Calculation
b/d 12,500,000 Cost of Sales (W-2) 17,567,160
Creditors (W-4) 13,930,000 Abnormal Loss (Bal.) 632,840
c/d (W-1) 8,230,000
(W-l) Closing stock (8,500,000-270,000) 8,230,000
(W-2) Cost of sales using standard ratios
Rupees
Staff (W-7) 300,000
Defective purchases (W-5) 557,200
Normal sales (W-6) 16,709,960
17,567,160
(W-3)
op. 2,000,000 Cash 18,360,000
Discount Allowed 360,000
Sales (bal.) 20,520,000 Bad debts 200,000
cl. 3,600,000
22,520,000 22,520,000
(W-4)
op. 8,000,000
Cash 12,700,000 Inventory (bal) 13,930,000
cl. (W-4.1) 9,230,000
21,930,000 21,930,000
(W-4.1)Calculation of closing creditors
Rupees
As per list 9,500,000
Difference in invoice (470-740) (270,000)
9,230,000
401
(W-5) COS and sale price of defective purchases

Purchases sold at 30% below normal selling price (13,930,000(w-4) x4%) 557,200
Sale price in monetary term (Cost/cost% x Sale price %) (557,200/100 x (W-5.1)84) 468,048
(W-5.1)Sale price in percentage terms of defective purchase
Total Sale = Cost of sale +20 % of cost of sale
Y = X + 20% of X
120 = 100 + 20 (Assume cost to be 100)
If normal selling price is 120, then we can calculate the selling price of defective purchases
Normal selling price 120
Less: 30% of normal selling price (120 x 30%) (36)
Selling price of defective purchases 84
(W-6) Calculation of cost of sales of normal goods
Cost of sales = (Sales (W-6.1) /120 x 100)
= 20,051,952/120 x 100
= 16,709,960
(W-6.1)Sales excluding staff and defective purchases
Rupees
As per debtor account (W-3) 20,520,000
To staff 315,000
Total sale 20,835,000
Less: sale to staff (sold at cost+5%) (315,000)
Less: Sale price of defective purchases (W-5) (sold at 30% below selling price) (468,048)
Sales at normal selling price (sold at cost+20%) 20,051,952
(W-7) Calculation of cost of sales of goods sold to staff

Cost of sales = (Sales /105 x 100)
= 315,000 /105 x 100
= 300,000
ANSWER-28
Mr. Danish
Rupees
Sales (W-1) 89,800
Net sale 86,800
Gross Profit 24,800
Rent expense 2,500
Depreciation
Furniture and fixture (15,000 x 10%) 1,500
Motor van (16,000 x 20%) 3,200
(20,030)
Add: Discount received income 1,000
Net Profit 5,770
402
Mr. Danish
Balance Sheet
Capital
82,270
Current Liabilities
28,200
Total 110,470
Assets
Non-Current Assets
Furniture and fixture (15,000 – 1,500) 13,500
Motor van (16,000 – 3,200) 12,800
26,300
Current Assets
Inventory (W-7) 30,000
Debtors 48,600
Less: Provision for doubtful debts (2,430) 46,170
Cash and bank 8,000
84,170
Total 110,470
WORKINGS
op. 45,000 Cash 80,000
Sales (bal.) 89,800 Bad debts 1,800
Sale return 3,000
cl. 48,600
Cash 63,000 op. 24,000
Inventory (Return) 2,000 Inventory (Purchases) (bal.) 69,000
cl. 27,000
op. 4,500
Debtors 80,000 Creditors 63,000
Expenses 6,000
Drawings 5,000
Rent expense 2,500
c/d (bal.) 8,000
(W-4) Dr. Expense Cr.
Cash 6,000 op. -
cl. 1,200 P and L (bal.) 7,200
403
(W-5) Dr. Provision for doubtful debt Cr.

b/d -
Bad debt 1,800 P and L (bal.) 4,230
c/d (48,600 x 5%) 2,430
Net Sale = Cost of sale + 40 % of cost of sale
Cost of sale = (89,800 - 3,000)/140 x 100
Cost of sales = 62,000
Op. 25,000 Cost of Sales (W-6) 62,000
Creditors (W-2) 69,000 Creditors (returns) 2,000
Cl. (Bal.) 30,000
Assets
Debtors 45,000
Cash 4,500
Furniture and fixture 15,000
Stock 25,000
Motor Van 16,000
105,500
Liabilities
Creditors (24,000)
81,500
ANSWER-29
Mr. Tahir
Rupees
Sales (W-1) 44,400,000
Less: Cost of sales (W-8.1) (37,000,000)
Rent, rates and taxes (W-4) 1,350,000
Lighting and heating 100,000
Repair (W-5) 424,000
Sundry business expenses (W-6) 502,000
Salaries 2,600,000
Loss on sale of motor van (240,000-20,000) – 200,000 20,000
Depreciation:
Motor van (240,000 x 25% x 4/12) 20,000
Truck (1,200,000 x 25% x 6/12) 150,000
Furniture (600,000 x 15%) 90,000
Deep freezer (800,000 x 15% x 6/12) 60,000
(5,316,000)
2,084,000
404
Mr. Tahir
Balance Sheet
As on December 31,2010
Capital
Opening capital -
Capital introduced (3,960,000+960,000+480,000) 5,400,000
Less: Drawings (W-7) (3,196,000)
4,288,000
Current Liabilities
Trade Creditors 1,900,000
Total 6,188,000
Assets
Non-Current Assets
Furniture 600,000
Truck 1,200,000
Deep freezer 800,000
2,300,000
Current Assets
Stocks (W-8) 2,396,000
Debtors 150,000
Bank 932,000
Cash (W-3) 10,000
3,888,000
Total 6,188,000
WORKINGS

Op. - Cash (W-3) 44,250,000
Sales (bal.) 44,400,000
cl. 150,000

Bank 37,496,000 op. -
cl. 1,900,000 Inventory (bal.) 39,396,000

op. - Bank 41,850,000
Debtors (bal.) 44,250,000 Salaries 2,600,000
Capital 960,000 Expenses 230,000
Disposal – car 200,000 (20,000 x 12 – 10,000)
Capital 480,000 Drawings 1,200,000
(100,000 x 12 months)
c/d 10,000
405
(W-`4) Dr. Rent, rates and taxes Cr.

op. -
Bank 1,750,000 P and L (bal.) 1,350,000
cl. 400,000
(W-5) Dr. Repair expenses Cr.

Bank 460,000 P and L (bal.) 424,000
Drawings 36,000
(W-6) Dr. Sundry expenses Cr.

Bank 272,000 P and L (bal.) 502,000
Cash (W-3) 230,000
(W-7) Dr. Drawings account Cr.

Bank 1,960,000
Cash (100,000x12) 1,200,000
Repair 36,000 c/d 3,196,000

Op. - Cost of Sales (W-8.1) 37,000,000
Creditors (W-2) 39,396,000
Cl. (Bal.) 2,396,000
(W-8.1) Calculation of cost of sales

COS = (W-1) 44,400,000/120 x 100 = 37,000,000
ANSWER-30
Shafiq Ahmad
for the year ended June 30, 2009 Rupees
Sales (2,800 x 2,000) 5,600,000
Rent (W-5) 176,000
Fuel and maintenance expense (224,000-10,000 - 18,000) 196,000
Fitness certificate expense (W-6.1) 1,500
Abnormal loss of units damaged (W-8) 15,000
Advertisement expense (1,200 x 10) 12,000
Depreciation on furniture (W-10) 2,430
Depreciation on Trucks (W-10) 69,700
(952,630)
Add: Other Income
Cost of transportation recovered 200,000
Interest Income (200,000 x 12% x 5/12) 10,000
406
Shafiq Ahmad
Balance Sheet
as on June 30, 2009
Capital
Capital introduced 1,000,000
Less: Drawings (2 x 1,200+ 50,000) (52,400)
2,937,270
Current Liabilities
Total 4,537,270
Assets
Non-Current Assets
Furniture 30,000
Less: Accumulated depreciation (5,700 + (W-10) 2,430) (8,130)
Delivery trucks (400,000 + 300,000 + 60,000 + 10,000) 770,000
Less: Accumulated depreciation (144,000+(W-11)69,700) (213,700)
578,170
Current Assets:
Stocks 1,660,600
Debtors (W-1) 1,001,250
Less: Provision for bad debt (W-2) (112,000)
Fixed Deposit 200,000
Interest receivable on fixed deposit (200,000 x 12% x 5/12) 10,000
Cash and Bank (W-4) 1,182,750
Prepaid fitness certificate (18,000/36M x 33M) 16,500
3,959,100
Total 4,537,270
WORKINGS
op. 160,000 Cash and bank (4,713,750-15,000) 4,698,750
Sales (2,800 x 2,000) 5,600,000 Bad debts 60,000
cl. (bal.) 1,001,250
5,760,000 5,760,000
Rs 15,000 included in receipts from debtors will be netted off against abnormal loss rather than
treating it to be sales.
(W-2) Dr. Provision for bad debt account Cr.

Bad debt 60,000 op. 48,000
cl. (5,600,000 x 2%) 112,000 P and L (bal.) 124,000
172,000 172,000
(W-3) Dr. Creditors for oil purchases Cr.
Cash and bank 3,200,000 op. 1,200,000
Inventory (Purchases)(3,000 x 1,200) 3,600,000
cl. (bal.) 1,600,000
4,800,000 4,800,000
407
(W-4) Dr. Cash and bank account Cr.

Op. 75,000 Rent 192,000
Capital 1,000,000 Salaries 248,000
Debtors 4,713,750 Fuel (224,000-10,000 - 18,000) 196,000
Insurance 30,000 Fitness certificate expense 18,000
Debtors 200,000 Misc. exp 112,000
Drawings (Personal tax) 50,000
Fixed deposit 200,000
Suppliers 3,200,000
Truck (360,000 + 10,000) 370,000
cl. (bal.) 1,182,750
6,018,750 6,018,750
(W-5) Dr. Rent Cr.

P and L (bal.) 176,000
192,000 192,000

P and L (bal.) 244,000
248,000 248,000
(W-6.1) Dr. Fitness certificate expense Cr.

Cash and bank 18,000 P and L (bal.) 1,500
Closing prepaid (18,000/36x33) 16,500
18,000 18,000

Creditors 3,600,000 Drawing expense (2 x 1,200(W-9.1)) 2,400
Cash (Carriage-inward) 250,000 Advertisement (10 x 1,200(W-9.1)) 12,000
Abnormal Loss (W-8) 60,000
Cl. (W-9) 1,660,600
(W-8) Calculation of abnormal loss

Dr. Cash and bank (from sale) 15,000
Dr. Cash and bank (from insurance claim) 30,000
Dr. P and L (bal.) 15,000
Cr. Purchases (50 x 1,200(W-9.1)) 60,000

Reconciliation of units
Units
Opening units 1,250
Purchases 3,000
408
Sold (2,800)
Damaged in transit (50)
Drawings (2)
Gifted to charity (10)
Closing stock 1,388
Total closing stock 1,388
Stock on which NRV test to be applied (50)
Remaining stock (which is to be shown at cost) 1,338
Value of unfit stock

Cost
Cost of unfit stock (50 x 1,200 (W-9.1)) 60,000
NRV
NRV- if sold without processing
Estimated selling price X No of units (50 x 1,000) 50,000
NRV - if sold with further processing
(Estimated selling price (N-l) - estimated cost of completion) x No. of units
(2,000- 900) x 50 55,000
NRV (higher of 50,000 and 55,000 as calculated above) N -2 55,000

Value of total stock
Lower of Cost or Net realizable value (as above) 55,000
Add: Cost of remaining stock (1,338 x 1,200(W-9.1)) 1,605,600
Closing stock 1,660,600
N-l It is assumed that stock after processing will be sold at normal selling price.
N-2 It is better to get it further processed because it can be sold then for Rs 55,000 instead
of 50,000.
(W-9.1) Calculation of weighted average cost
Total Cost Units
Opening 1,250,000 1,250
Purchases (3,600,000+250,000) 3,850,000 3,000
5,100,000 4,250
Weighted average cost = 5,100,000 = 1,200
4,250
(W-10) Depreciation calculation Furniture
Rupees
Opening cost 30,000
Depreciation (24,300 x 10%) 2,430
Delivery truck
Rupees
Opening cost 400,000
Depreciation on opening assets (256,000 x 20%) 51,200

Depreciation on additions (300,000+60,000+10,000) x 20% x 3/12 18,500
Total depreciation 69,700
Note: Rs. 18,000 will be treated as prepaid expense.
409
ANSWER-31
Cost of stock stolen on 30 November 2012 203,700
Cost of stock as on 30 June 2013 538,300
Mr. Zafar
Trading Account
Rupees
Sales 1,656,000
Less: Cost of sales
Op. stock 774,000
Purchases 1,270,000
Abnormal loss (263,700)
Cl. Stock (538,300)
(1,242,000)
WORKINGS
op. 237,000
Sales (bal.) 1,522,000 Bank 1,559,000
cl. 200,000
(W-2) Dr. Creditor account (July 12 - June 13) Cr.

op. 553,000
Bank Xxx Purchases 1,270,000
cl. Xxx
(W-3) Dr. Creditor account (July 12 - Nov. 12) Cr.

op. 553,000
Bank 510,200 Purchases 423,800
cl. 466,600
op. 553,000
Debtors 1,559,000
cl. Xxx
No need to complete this account

op. 59,000 Drawings 118,000
c/d 75,000
(W-6) Dr. Inventory (July 12 - June 13) Cr.

b/d 774,000 Abnormal loss (W-7) 203,700
Creditor 1,270,000 Abnormal loss 60,000
Cost of sales (W-9) 1,242,000
c/d (bal.) 538,300
410
(W-7) Dr. Inventory (July 12 - Nov. 12) Cr.

b/d 774,000 Abnormal loss (bal.) 203,700
Creditor 423,800 COS (W-9) 517,500
c/d 476,600
(W-8) Calculation of total sales

Credit sales 1,522,000
Cash sales 134,000
1,656,000
(W-9) Cost of sales

Cost of sales whole year (1,656,000/100 x 75) 1,242,000
Cost of sales (July 12 - Nov. 12) (1,242,000/12 x 5) 517,500
ANSWER-32
Rupees
Increase/(decrease) in capital (W-l) (750)
Add: Drawings (250 x 52) 13,000
(W-1) Increase/(decrease) in capital
Increase in cash at bank 6,500
Decrease in accounts receivable (1,500)
Increase in stock 14,000
Increase in notes payable (5,000)
Increase in accounts payable (2,500)
Increase in bank loan (12,000)
Increase in interest payable (250)
(750)
ANSWER-33
Calculation of profit for the year Rs.
Increase/(decrease) in capital (W-l) (22,500)
Add: Drawings (4,500 x 52) 234,000
(W-1)Increase/(decrease) in capital
Increase in cash 195,000
Decrease in trade debts (45,000)
Increase in stock 420,000
Increase in bills payable (150,000)
Increase in creditors (75,000)
Increase in bank loan (360,000)
Increase in mark-up payable (7,500)
(22,500)
411
ANSWER-34
Rs.
(a) Loss due to fraud:
Cash embezzled through purchase return 24,000
Stock embezzled through fake debtors (50,000 x 0.75) 37,500
Cash due to fraud (W-1) 50,740
112,240
WORKINGS
(W-1)
b/d 45,000 Drawing (12,000 x 12) 144,000
Sales (W-6) 1,631,250 Bank 1,450,000
To fraud (bal.) 50,740
c/d 31,510
Statement of profit & loss

For the year ended 31/12/16
Rs. in 000’
Sales cash (W-6) 1,687,500
Less: Discount (W-6) (56,250)
Credit sale (W-5) 854,000
Net sales 2,485,250
Less: Cost of goods sold
Open inventory 250,000
Purchases (W-2) 2,017,000
Less: Return out ward (24,000)
Less: Stock misappropriation (37,500)
Less: Closing stock (215,000) (1,990,500)
Less: Operating expenses

Rent expenses (W-8) 75,000
Utilities (W-9) 36,000
Other expense 24,750
Loss on sales of vehicle (W-11) 3,500
Salaries exp (W-12) 52,000
Loss due to fraud (a) 112,240
Depreciation:
Equip (W-13) 16,000
Vehicle (W-10) 20,000
(379,490)
Net profit 115,260
(W-2)
Dr. Creditor a/c Cr.
Bank 1,807,500 b/d 100,000
Purchase (bal.) 2,017,000
c/d (354,500-45,000) 309,500
(W-3)
412
Dr. Debtor a/c Cr.

b/d 260,000 Bank 824,000
Credit sale (bal.) 854,000
c/d (340-50) 290,000
(W-4)
Dr. Inventory a/c Cr.
b/d 250,000 COS (bal.) 1,990,500
Purchases 2,017,000 Stock misappropriation 37,500
Return outward 24,000
c/d 215,000
(W-5) Calculation of cost of goods sold

Total cost of goods sold 1,990,500
Less: Cost of credit sales (845,000x75%) (640,500)
Cost of cash sales 1,350,000
(W-6) Total cash sales

Period Ratio Cost Gross sales Discount (6%)
First six month 1 600,000 750,000 (W-7)
Second six months 1.25 750,000 937,500 (W-7) 56,250
2.25 (W-5) 1,350,000 1,687,500 56,250

Or
1,350,000 ÷ 2.25 = 600,000 – 1,350,000 = 750,000
(W-7) Gross sales

Margin = 80%+20% = 100%
600,000
x 100 = 750,000
80
750,000
80
x 100 = 937,500
(W-8)
Dr. Rent a/c Cr.
b/d 3,000 P/L (bal.) 73,000
Bank 70,000 c/d -
(W-9)
Dr. Utility a/c Cr.
b/d -
Bank 36,000 P/L 36,000
c/d -
(W-10)
Dr. Vehicle a/c Cr.
b/d 18,500 Disposal 18,500
Purchase 230,000 Dep. exp. (bal.) 20,000
c/d 210,000
(W-11)
Dr. Disposal a/c (vehicle) Cr.
Vehicle 18,500 Cash 15,000
Loss 3,500
413
(W-12)
Dr. Salaries pay Cr.
Bank 48,000 b/d 18,000
P/L (bal.) 52,000
c/d 22,000
(W-13)
Dr. Equipment pay Cr.
b/d 80,000
Dep. Exp. 16,000
c/d 64,000
(W-14)
Dr. Furniture a/c Cr.
b/d 550,000
Purchased 45,000 Dep. Exp. 40,000
c/d 555,000
Answer-35
Alpha Traders
Trading and profit and loss account
For the year ended 31.12.2017
Rs. in“000”
Sales (39,200+60,000) (W-11) 99,200
Less: Cost of sales
Opening Stock 12,300

Add: Purchases 88,500
Less: Purchase Return (2,170)
Less: Abnormal Loss (5,500)
Less: Closing Stock (14,500) (78,630)
Gross Profit 20,570
Less: Operating Expenses

Provision for bad debts (W-5) (320)
Dep – furniture (W-6) (550)
Dep – delivery truck (W-9) (240)
Rent expense (W-7) (2,365)
Repair and maintenance (2,800+500-260) (3,040)
Utilities (1,400)
Misc. expenses (1,300)
Abnormal loss (5,500)
(21,065)
Add: Other income
Ins. Claim 5,500
Delivery charges 330
Discount received (W-2) 2,000
7,830
Net Profit 7,335
414
Alpha Traders
As on 31.12.2017
Rs. in“000”
Equity and liabilities
Equity W-1 26,534
Add: Profit 7,335
Less: Drawings W-4 (3,260)
Current Liabilities
Creditors W-2 9,700
Salaries Payable W-8 310
40,619
Assets
Non-current assets
Furniture and fitting W-6 9,625
Delivery Truck W-9 2,320
Current assets
Stock 14,500
Debtors W-3 5,900
Less: Provision W-5 (236) 5,664
Rent Prepaid W-7 180
Bank W-10.1 7,900
Cash W-4 430
40,619
W-1 Opening capital
= 10,175 + 12,300 + 4,400 + 145 + 750 +7,900 – 8,500 – 176 – 460
= 26,534
W-2
Creditor Account
Rs Rs.
Bank (87,200-1,900) 85,300 b/d 8,500
Dis. Rec. (48,000/96 x 4) 2,000 Purchases (bal.) 88,500
c/d 9,700
W-3
Debtor Account
Rs Rs.
b/d 4,400 Bad debt 260
Sales (bal.) 39,200 Bank ( 34,240 + 3200) 37,440
c/d 5,900
W-4
Cash Account
Rs Rs
b/d 750 Bank 56,380
Bank 6,320 Salaries 6,500
Cash 60,000 Repair and maintenance 500
c/d 430
415
W-5
Provision for bad debt
Rs Rs
Bad debt 260 b/d (4,400 x 4% ) 176
c/d (5,900 x 4% ) 236 P/L (bal.) 320
W-6
Furniture and fittings
Rs Rs
b/d 10,175 Dep. (W-6.1) 550
c/d 9,625
W-6.1 Dep.
𝑊𝐷𝑉
Dep exp = 𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑢𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒
10,175
= (20−1.5)
10,175
= 18.5
Dep exp = 550
W-7
Rent Account
Rs Rs
b/d 145 P/L (bal.) 2,365
Bank (2100 + 300) 2,400 c/d 180
W-8
Salaries Account
Rs Rs
Cash 6,500 b/d 460
c/d 310 P/L (bal.) 6,350
W-9
Truck Account
Rs Rs
b/d - 9
Dep exp (2,560 x 12.5% x 12
) 240
31/03/17 Bank/Cash (2,300+260) 2,560 c/d 2,320
W-10
2017 2016
Balance as per bank book (bal.) 7,900 7,900
Add: Un-Presented Cheques 300 1,900
Less: Un-Credited Cheques (3,200) -
Balance as per Bank Statement 5,000 9,800
416
W-10.1
Bank Account
Rs Rs
b/d 7,900 Utilities 1,400
Debtors (34,240 + 3200 ) 37,440 Rent and rates (2,100+ 300) 2,400
Cash 56,380 Repair and maintenance 2,800
Ins. Claim 5,500 Cash 6,320
Purchase Return 2,170 Creditors 85,300
Delivery Charges 330 Delivery Truck 2,300
Misc. exp 1,300
______ c/d 7,900
109,720 109,720
W-11
Cost of sales
78,630
60% 40%
COS- Cash Sales COS- Credit Sales
47,178 31,452
Credit
39,200
Actual Sales = 98
x 100
Credit Sales without discount = 40,000

40,000
S.P of cash sales = x 47,178
31,452
Cash Sales = 60,000
ANSWER-36
FC Traders
Statement of Comprehensive Income
For the Year Ended 30-June-18
Rs. In ‘000
Sales (W-3) 24,325
Gross profit 6,825
Less: Operating Expenses
Rent (W-5) (2,200)
Misc. Supplies (W-6) (700)
Repair (950)
Utilities (1,200)
Selling commission rider (W-7) (147)
417

Depreciation equipment (400)
Depreciation furniture (250)
Abnormal loss (250)
(Loss) (1,237)
FC Traders
Balance Sheet
As on 30-June-18
Capital and liabilities Rs. In ‘000
Capital (W-8) 7,550
Add profit (loss) (1,237)
Less Drawings (540) 5,773
Non-Current Liabilities -
Current liability
Creditor (W-1) 2,890
Rent payable (W-5) 400
Commission payable (W-7) 57
Salaries payable (W-4) 165
Bank overdraft (W-9) 715 4,227
10,000
Assets Non-Current Assets
Equipment 4,000 – 400 3,600
Furniture 2,500 – 250 2,250
Current Assets
Debtor (W-11) 1,600
Stock (W-2) 2,150
Un-used Miscellaneous (W-6) 400
10,000
W-1
Creditor Account
Rs. Rs.
Bank 13,600 Balance b/d 1,850
Stock (balance) 14,640
Balance c/d (2,800 + 90) 2,890
W- 2
Stock Account
Rs. Rs.
Balance b/d 2,800 Abnormal loss 250
Creditor 14,640 Drawing 540
Cash 3,000 Cost of sale (Balance) 17,500
Balance c/d (2,400 – 250) 2,150
W- 3
418
Sales Calculations
Rs.
17,500  50%  1.35 11,813
17,500  20%  1.40 4,900
17,500  30%  1.45 7,612
24,325
W- 4
Salaries and Wages
Rs. Rs.
Balance b/d - Balance b/d -
Cash 1,800 Profit & loss 1,965
Balance c/d 165
W- 5
Rent Account
Rs. Rs.
Bank 2,000 Balance b/d 200
Profit & Loss (Balance) 2,200
Balance c/d 400
W- 6
Miscellaneous Supplies
Rs. Rs.
Balance b/d 300 Profit & Loss (Balance) 700
Bank 800
Balance c/d 400
W- 7
Commission Account
Rs. Rs.
Cash 90 Balance b/d -
Profit & Loss (4,900  3%) 147
Balance c/d 57
W- 8
Opening Capital
Rs.
Equipment 4,000
Furniture 2,500
Inventory 2,800
Un-used miscellaneous suppliers 300
Less: Creditor (1,850)
Rent payable (200)
7550
419
W-9
Bank Account
Rs. Rs.
Creditor 13,600
Cash (W-10) 11,823 Rent 2,000
Debtor (W-11) 6,012 Miscellaneous supplies 800
Repair 950
Balance c/d 715 Utility 1,200
18,550 18,550
W- 10
Cash Account
Rs. Rs.
Sales 11,813 Bank (Balance) 11,823
Sales 4,900 Stock 3,000
Salaries 1,800
Commission 90
Balance c/d -
16,713 16,713
W- 11
Debtor Account
Rs. Rs.
Balance b/d - Bank 6,012
Sales 7,612
Balance c/d 1,600
420

QUESTION-1
a) A business makes all of its sales at a mark-up of 25%. During the year sales totalled Rs.98,000
and purchases were Rs.71,000. The inventory at the start of the year was valued at Rs. 10,200.
What was the value of the closing inventory at the end of the year? (3)
b) A business has the following assets and liabilities at the start and end of March.
1 March 31 March
Rs. Rs.
Trade receivables 6,100 7,400
Trade payables 3,900 3,500
The summarised bank statements for the year showed the following figures:
o Bankings for the year were Rs.78,500
o Payments to suppliers for the year were Rs.49,700
o The owner banks her takings from the till each month but before doing so in March she took
Rs. 5,000 for her own use.
What are the sales for the year? (4)
c) An accountant has prepared the following list of the assets and liabilities of a business, but has
forgotten to enter the cash balance.
Rs.
Inventory 9,300
Non-current assets 98,900
Capital 97,200
Bank loan 15,700
Receivables 16,800
Bank ?
What is the missing figure for 'Bank'? (4)
QUESTION-2
Irum is a sole trader. She does not keep a full set of accounting records but does keep some records of
transactions and documents. She has asked you to prepare her accounts for the year ended 31 December
2015.
You have been given a list of the assets and liabilities of the business at the start and end of the year.
Assets and liabilities
At 1 Jan 2015 At 31 Dec 2015
Rs.000 Rs.000
Trade receivables 5,500 6,100
Inventory 10,400 ?
Irum has no idea what her inventory value was at 31 December as that she did not count or value her
inventory at the year end.
She has also been given you a summary of her bank statements for the year.
Summary of bank statement
Receipts Payments
Rs.000 Rs.000
1 Jan Balance b/d 1,620 To suppliers 42,800
Bankings 65,400 For expenses 9,300
Living expenses 10,400
31 Dec Balance c/d 4,520
You have also been able to gather the following information from Irum:
421
i) Irum banks her takings from the till each week but before doing so pays Rs.50,000 to her
employees and takes Rs.30,000 herself. The business operates for 50 weeks each year.
ii) The till always has a cash float of Rs. 100,000.
iii) The sales of the business are both cash and credit sales and are all made at a mark-up of 40%.
Required:
(a) Calculate sales for the year. (4)
(b) Calculate the value of the closing inventory at 31 December 2015. (4)
QUESTION-3
(a) A greengrocer made sales during the month of Rs.49,200. Opening inventory amounted to
Rs.3,784 and month-end inventory was Rs.5,516. During the month he purchased for cash goods
which cost Rs.38,632.
Required:
Determine the gross profit and calculate the gross profit percentage as a percentage of sales value.
(3)
(b) A rival has made sales of Rs.50,100 at a fixed mark-up of 25%. Closing inventory was valued at
Rs.5,438 and he purchased goods during the month amounting to Rs.38,326.
Required:
Determine the value of the opening inventory. (3)
(c) A local store makes sales at a fixed gross profit of 10% on sales value. Sales during the month
amounted to Rs. 186,460; closing inventory was Rs. 16,800 and represents an increase of 25%
over the value of the opening inventory.
Required:
Determine the cost of purchases during the month. (3)
QUESTION-4
Tahir retired from his employment abroad and returned to this country, where he purchased a small kiosk.
He took over the business on 1 July 2014, acquiring the existing inventory at a valuation of Rs.1,142,000.
The rest of the purchase price was apportioned as to Rs.1,500,000 for fixtures and fittings and the balance
for goodwill.
The following day he acquired a second-hand computer and accounts package at a price of Rs.80,000.
Unfortunately, Tahir made an error when printing his year-end accounts causing him to lose all data
except for printed a summary listing of payments from the till.. Other than this, the only records available
were his bank statements and a number of vouchers. Surplus cash was banked during the year.
A summary of his bank account for the year ended 30 June 2015 shows the following.
Rs.000 Rs.000
Cash introduced 5,000 Purchase of business 3,192
Bankings from shop 16,427 Purchase of accounts computer 80
Loan from mother (long-term) (interest at 1,000 Rent (15 months to 30 September 2015) 500
5% pa)
Rates (9 months to 31 March 2015) 84
Electricity 92
Purchases for resale 14,700
Private cheques 1,122
Balance 30 June 2015 2,657
22,427 22,427
422
The computer print-out was as follows.

Rs.000
Cash purchases for resale 1,606
Staff wages 742
Sundry shop expenses 156
Cash drawings 520
On 30 June 2015 inventory, measured at cost, amounted to Rs.1,542,000, amounts due from customers
Rs.74,000, and cash in hand amounted to Rs.54,000.
Depreciation is to be recognised on fixtures and fittings at a rate of 10%.
Accounts outstanding on 30 June 2015 were purchases of Rs.470,000 and rates of Rs.120,000 for the year
ended 31 March 2016.
Required:
Prepare Tahir’s statement of comprehensive income for the year ended 30 June 2015 and a statement of
financial position at that date. (20)
QUESTION-5
Ijaz is in business but does not keep proper books of account. In order to prepare his statement of
comprehensive income and statement of financial position for the year ended 31 December 2015 you are
given the following information.
1 Jan 2015 31 Dec 2015
Rs.000 Rs.000
Inventory on hand 1,310 1,623
Receivables 268 412
Payables for goods 712 914
Payables for expenses 116 103
In addition you are able to prepare the following summary of his cash and bank transactions for the year.
Cash account
Rs.000 Rs.000
Balance 1 January 62 Payments into bank 3,050
Shop takings 4,317 Purchases 316
Cheques cashed 200 Expenses 584
Drawings 600
Balance 31 December 29
4,579 4,579
Bank account
Rs.000 Rs.000
Balance 1 January 840 Cash withdrawn 200
Cheques from customers 1,416 Purchases 2,715
Cash paid in 3,050 Expenses 519
Drawings 400
Delivery van (purchased 1 September) 900
Balance 31 December 572
5,306 5,306
In addition Ijaz says that he had taken goods for personal consumption and estimates that those goods cost
Rs.100,000.
In considering accounts receivable Ijaz suggests that a provision is to be made of 5% of amounts due after
writing off a specific bad debt of Rs.30,000.
Depreciation on the delivery van is to be recognised at 20% per annum.
Required:
Prepare the statement of comprehensive income and a statement of financial position at
31 December 2015. (20)
423
QUESTION-6
Rashid is coming to the end of his first year’s trading. He has not kept proper books and records.
The following information relates to the year ended 30 September 2015.
(1) He set up in business when he won Rs. 200,000,000 on football pools. He invested the money in
the bank and set up in business as a retailer of clothing.
(2) He banks his takings periodically after payment of the following amounts.
Wages Rs.75,000 per week
Cleaning Rs. 10,000 per week
Sundries Rs. 15,000 per week
Personal expenses Rs.25,000 per week
Cash in hand at the end of the year was Rs.250,000.

(3) A summary of his bank statements reveals the following.
Rs.000 Rs.000
Capital introduced 200,000 Purchase of leasehold premises 150,000
Bankings 125,750 Purchase of vans 6,000
Telephone 896
Payments to suppliers 86,232
Wages 15,282
Repairs 3,637
Personal expenses 323
Balance c/d 61,698
325,750 325,750
An unpresented cheque of Rs.385,000 for repairs was still outstanding.

(4) Other assets and liabilities at 30 September 2015 were as follows.
Rs.000
Inventory 8,400
Accrued expense - telephone 125
Prepaid expense- rent and rates 258
(5) Depreciation is to be recognised on the van at 25% of its cost. The lease on the premises is for
50 years.
(6) Rashid estimates that his gross profit percentage is 25% on sale price, and also informs you that
he does not keep a record of the goods he took for his own use.
Required:
Prepare a statement of comprehensive income for the year ended 30 September 2015 and a statement of
424
QUESTION-7
Mudassar had retired from the army some years ago to run a grocery business in the country. On
1 October 2015 his assistant failed to report for work and it was later discovered that he had disappeared
taking the contents of the cash till with him.
An analysis of Mudassar’s bank statements for the year ended 31 December 2015 revealed the following.
Rs.000 Rs.000
Balance b/f 280 Suppliers 13,600
Tax refund 1,000 Rent 800
Bankings 16,720 Rates 400
Insurance 200
Drawings 2,500
Bank charges 100
Balance c/f 400
18,000 18,000
A statement of affairs produced by Mudassar comprised the following.
31 December
2015 2014
Rs.000 Rs.000
Motor car (NBV) 3,200 3,600
Fixtures (NBV) 3,400 4,000
Inventory 1,200 900
Trade receivables 150 90
Rent prepaid 30 20
Cash Nil 380
Trade payable 120 110
A rough cash book kept by Mudassar showed the following.
Rs.000
Assistant’s wages 1,800
Sundry expenses 250
Cash purchases 300
Drawings 2,400
Cash received from customers 21,550
A footnote recorded that discounts received and discounts allowed were Rs.200,000 and Rs.300,000
respectively.
The insurance company agreed to admit the claim for loss of cash upon production of a full set of
accounts.
Required:
Prepare a statement of comprehensive income for the year ended 31 December 2015 and a statement of
425
QUESTION-8
Aslam, who has been in business as a contractor since 1 January 2015, received a request from the tax
authorities for his first year’s accounts.
He had not kept proper records of his business transactions, but was able to supply the following
information.
(1) From bundles of receipts and a wages notebook some of the cash expenses for the year appeared
to have been as follows.
Rs.000
Wages and Social Security 3,346
Materials 1,400
Electricity 56
General expenses 14
(2) Drawings were estimated at Rs. 18,000 per week, out of which Aslam had paid the rent of his
builder's yard of Rs.2,000 per week. His own Social Security contributions had been included in
Wages and Social Security and totalled Rs.65,000 for the year.
(3) On 1 April he purchased a van for Rs.856,000. His mother lent him Rs.400,000 for the deposit,
and the balance was payable by twelve monthly instalments of Rs.38,000 each commencing on
1 June. The loan from his mother had not been repaid at the end of the year.
(4) A summary of his bank account showed the following.
Rs.000 Rs.000
Balance 1 January 2015 150 Materials 4,790
Bankings 9,204 Van expenses 342
Cheques drawn for cash 3,100
Cement mixer 200
Van instalments 266
Private cheques 342
Balance 31 December 2015 204
9,354 9,354
(5) On 31 December 2015 inventory (materials) amounted to Rs.560,000, cash in hand Rs.10,000,
trade receivables Rs.1,200,000, trade payables for materials Rs.149,000, and outstanding van
expenses Rs.36,000. There was no work in progress on 31 December 2015.
(6) Depreciation of Rs.108,000 is to be recognised on the van and Rs.50,000 on the cement mixer.
Required:
Prepare Aslam’s statement of comprehensive income for the year ended 31 December 2015 and a
statement of financial position at that date. (20)
426
QUESTION-9
Umar is a grocer who had not kept a full set of books. The following was a summary of his bank
statements for the year ended 31 December 2015.
Rs.000 Rs.000
Amounts credited by bank 35,170 Balance 1 January 2015 892
Payments for trade payables 30,500
Rent and rates 475
Fixtures 100
Loan interest 120
Drawings 900
Customers’ cheques dishonoured 180
Balance 31 December 2015 993
35,170 35,170
Additional information
1) During the year Umar had paid out of his cash takings, wages amounting to Rs.2,950,000 and sundry
expenditure of Rs. 140,000. He retained Rs.3,000 a week and maintained a balance of Rs.20,000 in
the till for change. The balance of his takings, together with cheques amounting to Rs.250,000, which
he had cashed out of his takings for the convenience of certain friends, was paid into the bank.
2) Cheques drawn payable to trade payables, but not presented at 1 January 2015, amounted to
Rs.280,000 and at 31 December 2015 to Rs.320,000.
3) All dishonoured cheques were re-presented and honoured during the year.
4) The loan interest was paid to Brough who had lent Umar Rs.4,000,000 some years ago at a rate of
interest of 3% per annum. The interest was duly paid half- yearly on 31 March and 30 September, and
the loan was still outstanding at the end of the year.
5) Discounts allowed by suppliers amounted to Rs.480,000 and those allowed to customers were
Rs.520,000.
6)
1 Jan 2015 31 Dec 2015
Rs.000 Rs.000
Inventories 4,500 5,800
Debtors (including in debtors a bad debt of Rs. 200,000 to be written off) 2,800 3,200
Accrued general expenses 240 190
Rates paid in advance 40 50
Fixtures (including those purchased during year) valued at 2,800 2,550
Amounts due for lighting and heating 80 70
Required:
Prepare
(a) a statement of Umar’s capital at 1 January 2015. (4)
(b) a statement of comprehensive income for the year ended 31 December 2015. (9)
(c) a statement of financial position at 31 December 2015. (7)
(20)
427
QUESTION-10
Yasin received a legacy of Rs. 20,000,000 on 1 January 2015 and on that date purchased a small retail
business. The completion statement from the solicitor revealed the following.
Rs.000
Freehold shop property 10,000
Goodwill 2,000
Inventories 1,600
Trade receivables 400
Shop fixtures 2,600
Rates in advance to 31 March 2015 100
16,700
The legacy was used to discharge the amount due on completion and the balance was paid into a newly
opened business bank account.
Yasin had not kept proper records of his business transactions but was able to supply the following
information.
(1) A summary of the cash till rolls showed his shop takings for the year to be Rs.25,505,000; this
includes all cash received from customers including those at 1 January 2015.
(2) The takings had been paid periodically into the bank after payment of the following cash
expenses.
Rs.000
Wrapping materials 525
Staff wages 3,423
Purchases for resale 165
Petrol and oil 236
(3) Personal cash drawings were estimated at Rs.20,000 per week and goods taken for own use at
Rs.2,000 per week.
(4) A summary of the bank statements showed the following.
Rs.000 Rs.000
Legacy - residual balance 3,300 Purchases for resale 14,863
Sale of fixtures purchased at 1 January Motor expenses 728
2015 but not required (cost Rs.200,000;
depreciation Nil) 130
Delivery van (cost - 1 April2015) 1,200
Loan from Robin at 10% pa 2,000 General expenses 625
Cash banked 19,900 Loan interest 100
(six months to 30 September)
Private cheques 1,329
Electricity 228
Rates (year to 31 March 2016) 500
Balance per statement at
31 December 2015 5,757
25,330 25,330
A cheque drawn on 28 December 2015 of Rs. 125,000 for goods purchased was presented to the
bank on 4 January 2016.
(5) During the year bad debts of Rs.223,000 arose and were irrecoverable. The trade receivables at
31 December 2015 amounted to Rs.637,000, of which Rs. 100,000 is doubtful and for which an
allowance should be recognised should be made.
428
(6) At 31 December 2015 there were

Rs.000
Inventories 2,360
Store of wrapping materials 53
Trade payables - purchases 358
Electricity accrued 50
Accountancy fees accrued 100
Cash float in till 180
(7) The difference arising on the cash account was discussed with Yasin but remained unexplained
and was dealt with in an appropriate manner.
(8) Depreciation is to be recognised at the rate of 10% per annum on the fixtures and at the rate of
20% on the van.
Required:
Prepare a statement of comprehensive income for the year ended 31 December 2015 and a statement of
429

Answer-1 (a)
Closing value of stock (W-1) 28,000
(W-1)
b/d 10,200 Cost of sale (98,000 / 125 x 100) 78,400
Creditors 71,000 c/d (Bal.) 2,800
Answer-1 (b)
Sales (W-1) 84,800
(W-1)
Dr. Trade receivables Account Cr.
b/d 6,100 Cash (W-2) 83,500
Sales (Bal.) 84,800 c/d 7,400
(W-2)
Dr. Cash Account Cr.
b/d -- Bank 78,500
Trade receivables (Bal.) 83,500 Drawings 5,000
Answer-1 (c)
Assets = Capital + Liabilities

Inventory + Non-current assets + Receivables + Bank = Capital + Liabilities
9,300 + 98,900 + 16,800 + Bank =97,200 +4,900 + 15,700
Bank = -7,200
Answer-2
(a) Sales (W-1) 70,000,000

(b) Closing Value of Stock (W-2) 3,900,000
(W-1)
Dr. Trade receivables Account Cr.
b/d 5,500,000 Cash (W-4) 69,400,000
Sales (Bal.) 70,000,000 c/d 6,100,000
(W-2)
b/d 10,400,000 Cost of sale (70,000,000 / 140 x 100) 13,810,000
Creditor (W-3) 43,500,000 c/d (Bal.) 3,900,000
(W-3)
Dr. Trade payables Account Cr.
Bank 42,800,000 b/d 2,800,000
c/d 3,500,000 Inventory (Bal.) 43,500,000
430
(W-4)
b/d 100,000 Bank 65,400,000
Trade receivables (Bal.) 69,400,000 Wages (50 x 50,000) 2,500,000
Drawings (50 x 30,000) 1,500,000
c/d 100,000
Answer: 3 (a)
Sales 49,200
Gross Profit 12,300
Gross profit percentage:

(Gross profit / sale) x 100 {(12,300 / 49,200) x 100} 25%
(W-1)
b/d 3,784 Cost of sales (Bal.) 36,900
Cash 38,632 c/d 5,516
Answer-3 (b)
Opening Value of Stock (W-1) 7,192
(W-1)
b/d (Bal.) 7,192 Cost of sales (50,100 / 125) x 100 40,080
Creditors 38,326 c/d 5,438
Answer-3 (c)
(W-1)
b/d (16,800 / 125) x 100 13,400 Cost of sales (186,460 / 100 x 90) 167,814
Purchases (Bal.) 171,174 c/d 16,800
431
Answer-4 (All Amount in Rs.’000’ in this question)
Mr. Tahir
Rs.
Sales (W-3) 19,579
Gross Profit 3,203
Interest Expense (1,000 x 5%) 50
Rent Expenses (W-5) 400
Rates Expenses (W-6) 114
Depreciation -Fixture and fitting (1,500 x 10%) 150
-Computer (80x 10%) 8
Electricity Expense 92
Staff Wages 742
Sundry Expense 156
1,712
Net Profit 1,491
Mr. Tahir
Balance Sheet
as on June 30, 2015
Capital
Add: Net profit for the year 1,491
Less: Drawings (1,122 + 520) (1,642)
4,849
Liabilities
Loan 1,000
Current Liabilities
Trade Creditors 470
Rates payable (W-6) 30
Interest Expense payable (1,000 x 5%) 50
550
6,399
Assets
Non-Current Assets
Good will (W-7) 550
Fixture and fitting 1,500
Less: Accumulated Depreciation (1,50)
Computer 80
Less: Accumulated Depreciation (8)
1,972
432
Current Assets
Debtor 74
Inventory 1,542
Cash 54
Bank 2,657
Prepaid Rent (W-5) 100
4,427
6,399
WORKINGS
(W-1)
b/d - Bank 16,427
Debtor (Bal.) 19,505 Inventory 1,606
Wages 742
Sundry Expense 156
Drawings 520
c/d 54
(W-2)
Dr. Inventory Cr.
Bank 1,142 Cost of sale (Bal.) 16,376
Cash 1,606 c/d 1,542
(W-3)
Dr. Debtor A/c Cr.
b/d - Cash (W-1) 19,505
Sale (Bal.) 19,579 c/d 74
(W-4)
Dr. Creditor A/c Cr.
Bank 14,700
c/d 470 Inventory (Bal.) 15,170
(W-5)
Dr. Rent Expense Cr.
b/d - P and L (Bal.) 400
Bank (given) 500 c/d (500,000 / 15 x 3) 100
(W-6)
Dr. Rates Cr.
Bank (given) 84 P and L (Bal.) 114
c/d (120 / 12 x 3) 30
(W-7) Goodwill
Purchase of Business 3,192
Less: Fixtures and Fitting (1,500)
Less: Inventory (1,142)
550
433
Answer-5
Mr. Ijaz
Rs.
Sales (4,317,000 + (W-2) 1,560,000) 5,877,000
Expenses (W-4) 1,090,000
Depreciation on Van (900,000 x 20% x 4/12) 60,000
Provision for doubtful debt (W-5) 49,100
1,199,100
Mr. Ijaz
Balance Sheet
Capital
Opening capital (W-6) 1,652,000
Add: net profit for the year 1,857,900
Less: Drawings (100,000 + 600,000 + 400,000) (1,100,000)
2,409,900
Current Liabilities
Expense payable 103,000
1,017,000
3,426,900
Assets
Non-Current Assets
Delivery Van 900,000
840,000
Current Assets
Inventory 1,623,000
Cash 29,000
Bank 572,000
Receivables (W-2) 382,000
Less: Provision for doubtful debt (W-5) (19,100)
2,586,900
3,426,900
WORKINGS
(W-1)
b/d 1,310,000 Drawings 100,000
Creditors (W-3) 2,917,000 Cost of sale (Bal.) 2,820,000
Cash 316,000 c/d 1,623,000
434
(W-2)
Dr. Receivable account Cr.
b/d 268,000 Bank 1,416,000
Sale (Balance) 1,560,000 Bad debt 30,000
c/d (412,000 – 30,000) 382,000
(W-3)
Bank 2,715,000 b/d 712,000
c/d 914,000 Inventory (Bal.) 2,917,000
(W-4)
Dr. Expense account Cr.
Bank 519,000 b/d 116,000
Cash 584,000 P and L (Bal.) 1,090,000
c/d 103,000
(W-5)
Dr. Provision for doubtful debt Cr.
Bad Debt 30,000 b/d -
c/d (382,000 x 5%) 19,100 P and L (bal.) 49,100
(W-6) Opening Capital

Add: Cash 62,000
Bank 840,000
Inventory 1,310,00
Debtors 268,000
Less: Creditors (712,000)
Expense Payable (116,000)
1,652,000
Answer-6
Mr. Rashid
For the year ended September 30, 2015
Rs.
Sales (W-2) 142,850,000
Less: Cost of sale (107,137,500)
Wages (W-5) 19,182,000
Cleaning (10,000 x 52) 520,000
Sundries (15,000 x 52) 780,000
Telephone (W-9) 1,021,000
Rent and Rates 1,424,000
Repair (W-7) 4,022,000
Depreciation -Van (W-8) 1,500,000
-Lease hold premises (W-8) 3,000,000
(31,449,000)
435
Mr. Rashid
Balance Sheet
as on September 30, 2015
Capital
Capital 200,000,000
Add: Profit for the year 4,263,500
Drawings ((25,000 x 52) + 323,000 + 651,500) (2,274,500)
201,989,000
Liabilities
Creditors 29,957,000
Payable Telephone (W-9) 125,000
30,082,000
232,071,000
Assets
Non-Current Assets
Leased hold premises 150,000,000
Less: Accumulated Depreciation (W-8) (3,000,000)
Van 6,000,000
Less: Accumulated Depreciation (W-8) (1,500,000)
151,500,000
Current Assets
Cash 250,000
Bank (W-10) 61,313,000
Debtors 10,350,000
Prepaid Rent and Rates 258,000
Inventory 8,400,000
80,571,000
232,071,000
WORKINGS
(W-1)
b/d - Cost of sale (142,850,000/100 x 75) 107,137,500
Creditors (W-3) 116,189,000 Drawings (Bal.) 651,500
c/d 8,400,000
(W-2)
b/d - Cash (W-6) 132,500,000
Sale (Bal.) 142,850,000 c/d 10,350,000
(W-3)
Dr. Creditors Cr.
Bank 86,232,000 b/d -
c/d 29,957,000 Inventory (Bal.) 116,189,000
(W-4)
Dr. Rent and Rates expense Cr.
Bank 1,682,000 P and L (Bal.) 1,424,000
c/d 258,000
436
(W-5)
Dr. Wages Cr.
Cash (52 x 75,000) 3,900,000 P and L (Bal.) 19,182,000
Bank 15,282,000
(W-6)
b/d - Bank 125,750,000
Debtor (Bal.) 132,500,000 Wages (52 x 75,000) 3,900,000
Cleaning (52 x 10,000) 520,000
Sundries (52 x 15,000) 780,000
Drawings (52 x 25,000) 1,300,000
c/d 250,000
(W-7)
Dr. Repair Account Cr.
Bank (3,637,000 + 385,000) 3,637,000
P and L (Bal.) 4,022,000
(W-8) Depreciation Expenses:
Van (6,000,000 x 25%) 1,500,000
Lease hold premises (150,000,000/50) 3,000,000
(W-9)
Dr. Telephone Account Cr.
Bank 896,000 P and L (Bal.) 1,021,000
c/d 125,000
(W-10)
Balance as per Cash Book 61,313,000
Add: Un-presented Cheques 385,000
Balance as per Bank Statement 61,698,000
Answer-7 (All Amount in Rs.’000’ in this question)
Mr. Mudassar
Rs.
Sales (W-2) 21,910
Less: Cost of sales (13,810)
Gross Profit 8,100
Rent (W-7) 790
Rates 400
Insurance 200
Bank Charges 100
Depreciation -Motor Car (W-5) 400
-Fixtures (W-6) 600
Staff Wages 1,800
Sundry expense 250
Discount allowed 300
(4,840)
Add: Other income
Net Profit 3,460
437
Mr. Mudassar
Balance Sheet
Capital
Additional capital 1,000
Add: net profit for the year 3,460
Less: Drawings (2,500 + 2,400) (4,900)
8,720,000
Liabilities
current liabilities
Creditors 120
8,840
Assets
Non-Current Assets
Motor Cars 3,200
Fixture 3,400
6,600
Current Assets
Cash -
Bank 400
Inventory 1,200
Debtors 150
Prepaid Rent 30
Insurance Receivable 460
2,240
8,840
(Tax refund is personal receipt and it is transferred in business bank a/c therefore considered as
capital)
WORKINGS
(W-1)
b/d 380 Bank 16,720
Debtors 21,550 Wages 1,800
Sundry expenses 250
Inventory 300
Drawings 2,400
Misappropriation (Bal.) 460
c/d -
Dr. Cr.
Misappropriation Expense 460
Cash 460
Insurance claim receivable 460
Misappropriation Expense 460
438
(W-2)
b/d 90 Cash 21,550
Sale (Bal.) 21,910 Discount allowed 300
c/d 150
(W-3)
Dr. Creditor Account Cr.
Bank 13,600 b/d 110
Dis account received 200 Inventory (Bal.) 13,810
c/d 120
(W-4)
b/d 900 Cost of sale (Bal.) 13,810
Cash 300
Creditor (W-3) 13,810 c/d 1,200
(W-5)
Dr. Motor Car Account (N.B.V) Cr.
b/d 3,600 Depreciation (Bal.) 400
c/d 3,200
(W-6)
Dr. Fixtures Account (N.B.V) Cr.
c/d 3,400
(W-7)
Dr. Rent Cr.
b/d 20 P and L (Bal.) 790
Bank 800 c/d 30
(W-8) Opening Capital:

Rs.
Add: Bank 280
Cash 380
Debtor 90
Inventory 900
Motor Car 3,600
Fixtures 4,000
Prepaid Rent 20
Less Trade payable (110)
9,160
439
Answer-8
Mr. Aslam
Rs. ’000’
Revenue 13,066
Less: Direct Expenses
Materials used (W-1) 5,779
Wages (3,346 - 65) 3,281
(9,060)
Less: Admin. Expense:
Van Expenses (342 + 36) 378
Depreciation on van 108
Electricity Expenses 56
Depreciation of Cement mixer 50
Rent (2 x 52) 104
General expenses (14 + 110) 124
(820)
Net Profit for the year 3,186
Mr. Aslam
Balance Sheet
Capital and liabilities Rs. ’000’
Capital
New Capital 150
Add: Net profit 3,186
2,097
Liabilities
Loan from Mother 400
Current Liabilities
Trade Payables 149
Van Expense payable 36
Van installment payable ((W-7) 456 – 266) 190
375
2,872
Assets
Non-Current Assets
Van 856
Less: Accumulated Depreciation (108)
Cement Mixer 200
Less Accumulated Depreciation (50)
898
440
Current Assets:
Inventory (Material) 560
Trade receivable 1,200
Bank 204
Cash in hand 10
1,974
2,872
WORKINGS
(W-1)
b/d - Material used (Bal.) 5,779
Cash 1,400
Bank (W-6) 4,939 c/d 560
(W-3)
b/d - Wages (3,346 – 65) 3,281
Bank 3,100 Inventory 1,400
Trade Receivable (Bal.) 11,866 Electricity 56
Loan from Mother 400 General Expense 14
Drawings (18 – 2) x 52 832
Bank 9,204
Drawing (Social Security) 65
Rent (2 x 52) 104
Van 400
c/d 10
(W-4)
Dr. Drawings account Cr.
Cash (Social Security) 65
Cash (18- 2) x 52 832
Bank 342 c/d (Bal.) 1,239
(W-5)
Dr. Trade Receivable account Cr.
Revenue (Sale) (Bal.) 13,066 Cash (W-3) 11,866
c/d 1,200
(W-6)
Dr. Trade payable Account Cr.
Bank 4,790 b/d --
c/d 149 Inventory (Bal.) 4,939
(W-7)
Entries for Van
Dr. Cr.
Cash 400
Loan from Mother 400
Van 856
Cash 400
Payable 456
Payable (7 x 38) 266
Bank 266
441
Answer-9
(a)
Capital at 1 January 2015
Add: Assets Rs. ’000’
Cash (Remain fixed at any time) 20
Inventory 4,500
Fixtures 2,800
Rates in Advance 40
10,160
Less: Liabilities
Loan 4,000
Interest payable (4,000 x 3% x 3/12) 30
General expense payable 240
Payable for light and heat 80
Bank overdraft (W-11) 1,172
(7,322)
Opening Capital at 1-1-2013 2,838
(b)
Mr. Umar
Rs. ’000’
Sales (W-2) 39,156
Gross Profit 9,036
Wages 2,950
Rent and Rates (W-4) 465
Lighting and heating (W-7) 200
Depreciation of fixtures (W-5) 350
General Sundry expense (W-3) 890
Loan interest (W-8) 120
Bad Debt 200
Discount allowed 520
(5,695)
Add: Other income
Net Profit 3,821
442
(c) Mr. Umar

Balance Sheet
Capital Rs. ’000’
Capital (As per requirement (a)) 2,838
Add: Profit for the year (As per requirement (b)) 3,821
Less: Drawings (900+ 156) (1,056)
5,603
Liabilities
Loan from Brough 4,000
Current Liabilities
Loan interest payable (W-8) 30
Trade payable 2,200
General expense 190
2,490
12,093
Assets
Non-Current Assets
Fixtures 2,550
Current Assets
Inventory 5,800
Prepaid Rates 50
Bank (W-10) 673
Cash 20
9,543
12,093
WORKINGS
(W-1)
b/d 4,500 Cost of sale (Bal.) 30,120
Creditor (W-6) 31,420 c/d 5,800
(W-2)
Dr. Debtors Cr.
b/d 2,800 Bad Debt 200
Bank Dishonored Cheque 180 Discount allowed 520
Sale (Bal.) 39,156 Cash (W-9) 38,416
c/d (3,200 -200) 3,000
(W-3)
Dr. General Expense Cr.
Bank 800 b/d 240
Cash 140 P and L (Bal.) 890
c/d 190
443
(W-4)
Dr. Rates expense Cr.
b/d 40 P and L (Bal.) 465
Bank 475 c/d 50
(W-5)
Dr. Fixtures Account (N.B.V) Cr.
Bank 100 c/d 2,550
(W-6)
Dr. Trade Payable Cr.
Bank 30,540 b/d 1,800
Discount Received 480 Inventory (Bal.) 31,420
c/d 2,200
(W-7)
Dr. Lighting and Heating Cr.
Bank 210 b/d 80
c/d 70 P and L (Bal.) 200
(W-8)
Dr. Interest expense Cr.
Bank 120 b/d (4,000 x 3% x 3/12) 30
c/d (4,000 x 3% x 12/12) 30 P and L (Bal.) 120
(W-9)
b/d 20 Bank (Includes 250) 35,170
Debtor (Bal.) 38,416 Wages 2,950
Sundry expense 140
Drawing (3 x 52) 156
c/d 20
(W-10)
Dr. Bank Account Cr.
Cash 35,170 b/d (W-11) 1,172
Trade Payable 30,540
(30,500 + 320 – 280)
Rent and Rates 475
Fixtures 100
Lighting and Heating 210
General Expense 800
Loan interest 120
Drawing 900
Debtors (Dishonored) 180
c/d (W-11) 673
(W-11)
1.1.2013 31.12.2013
Balance as per Cash Book (Bal.) (1,172) 673
Add: Unpresented 280 320
Balance as per Bank Statement (892) 993
444
Answer-10
Mr. Yasin
For the year ended Dec. 31, 2015
Rs. ’000’
Sales (W-5) 25,965
Less: Cost of sale (W-1) (14,647)
Gross Profit 11,318
Wrapping Material (W-11) 472
Staff Wages 3,423
Petrol and Oil 236
Motor Expenses 728
Loss on disposal of fixture (W-12) 70
Interest expense (W-8) 150
General Expenses 625
Provision for Doubtful debt (W-9) 323
Accountancy fee (W-7) 100
Rates (W-3) 475
Depreciation -Van (1,200 x 20% x 9/12) 180
-Fixtures ((2,600 – 200) x 10%) 240
(7,300)
Net Profit 4,018
Mr. Yasin
Balance Sheet
as on Dec. 31, 2015
Capital Rs. ’000’
Capital 20,000
Add: Profit for the year 4,018
Drawings (1,040 + 104 + 1,329 + 36) (2,509)
21,509
Liabilities
Current Liabilities
Trade Payable 358
Electricity payable (W-4) 50
Accountancy fee payable (W-7) 100
Interest payable (W-8) 50
558
Non- Current Liabilities
Loan from Robin 2,000
24,067
Assets:
Non-Current Assets
Delivery Van 1,200
Less: Accumulated Depreciation (1,200 x 20% x 9/12) (180)
Free hold property 10,000
445
Fixtures (W-2) 2,400

Less: Accumulated Depreciation (2,400 x 10%) (240)
Good will 2,000
15,180
Current Assets
Bank (5,757 – 125) 5,632
Cash 180
Inventory 2,360
Debtors 637
Less: Provision for Doubtful debt (W-9) (100)
Repair Rates 125
Material Wrapped 53
8,887
24,067
WORKINGS
(W-1)
Capital 1,600 Cost of sale (Bal.) 14,647
Cash 165 Drawings (2 x 52) 104
Creditors 15,346 c/d 2,360
(W-2)
Dr. Shop Fixtures Cr.
Capital 2,600 Disposal 200
c/d (Bal.) 2,400
(W-3)
Dr. Rates Expense Cr.
Capital 100 P/L (Bal.) 475
Bank 500 c/d (500 x 3 /12) 125
(W-4)
Dr. Electricity Cr.
Bank 228 P and L (Bal.) 278
c/d 50
(W-5)
Dr. Trade Receivable Cr.
Capital 400 Cash 25,505
Sales (Bal.) 25,965 Bad debt 223
c/d 637
(W-6)
Dr. Creditors Cr.
Bank (14,863+ 125) 14,988 Inventory (Bal.) 15,346
c/d 358
(W-7)
Dr. Accountancy fee Cr.
P and L (Bal.) 100
c/d 100
(W-8)
Dr. Interest Expense Cr.
Bank 100 P and L (Bal.) 150
c/d (2,000x 10% x 3/12) 50
446
(W-9)
Dr. Provision for Doubtful debt Cr.
Bad Debt 223 b/d -
c/d 100 P and L (Bal.) 323
(W-10)
Dr. Cash Cr.
Trade Receivable 25,505 Wrapping Material 525
Staff Wages 3,423
Inventory 165
Petrol and Oil 236
Drawings (20x 52) 1040
Bank 19,900
Drawings (Bal.) 36
c/d 180
(W-11)
Dr. Wrapping Material Cr.
Cash 525 P and L 472
c/d 53
(W-12)
Dr. Disposal Cr.
Fixture 200 Bank 130
P and L 70
(W-13)
Balance as per Cash Book (Bal.) 5,632
Add: Un-presented 125
Balance as per Bank Statement 5,757
447

Q.1 Usuf does not keep a full set of business records, but the following information is available for
the month of June 2019.
Rs. 000
Accounts receivable, 1 June 2019 800
Accounts receivable, 30 June 2019 550
Credit sales 6,800
Cash received from customer (credit) 6,730
Irrecoverable debt written off 40
General allowance for doubtful debts at 30 June 2019 100
Assuming no other transactions, how much discount was allowed to customers during the month?
(a) Rs.240,000 (b) Rs.280,000
(c) Rs.340,000 (d) Rs.380,000
Q.2 Many of the records of Ghalib have been destroyed by fire. The following information is
available for the period under review.
(i) Sales totaled Rs.480,000
(ii) Inventory at cost was opening Rs.36,420, closing Rs.40,680
(iii) Trade payables were opening Rs.29,590, closing Rs.33,875 Gross profit for the period
should represent a margin of 50%
What was the total for the period of cash paid to suppliers?
(a) Rs.239,975 (b) Rs.315,715
(c) Rs.319,975 (d) Rs.328,545
Q.3 In the year to 31st April 2016, Abdullah’s sales were Rs.182,000. All of his sales were made at a
mark-up of 30%. His opening inventory value was Rs.11,800 and his closing inventory value was
Rs.9,700.
What was the value of Abdullah’s purchases in the year to 31 April 2016?
(a) Rs.125,300 (b) Rs.137,900
(c) Rs.140,000 (d) Rs.142,100
Q.4 The following information is relevant to the calculation of the sales figure for Arif, a sole trader
who does not keep proper accounting records:
Rs.
Opening accounts receivable 29,100
Cash received from credit customers and paid into the bank 381,600
Expenses paid out of cash received from credit customers before banking 6,800
Irrecoverable debts written off 7,200
Refunds to credit customers 2,100
Discounts allowed to credit customers 9,400
Cash sales 112,900
Closing accounts receivable 38,600
The figure which should appear in Arif’s statement of comprehensive income for sales is:
(a) Rs.525,300 (b) Rs.511,700
(c) Rs.529,500 (d) Rs.510,900
Q.5 A sole trader who does not keep full accounting records wishes to calculate her sales revenue for
the year.
The information available is:
448
Rs.
1 Opening inventory 17,000
2 Closing inventory 24,000
3 Purchases 91,000
4 Standard gross profit percentage on sales revenue 40%
Which of the following is the sales figure for the year calculated from these figures?
(a) Rs.117,600 (b) Rs.108,000
(c) Rs.210,000 (d) Rs.140,000
Q.6 Salman is a sole proprietor whose accounting records are incomplete. All the sales are cash sales
and during the year Rs.50,000 was banked, including Rs.5,000 from the sale of a business car. He
paid Rs.12,000 wages in cash from the till and withdrew Rs.2,000 as drawings. The cash in the
till at the beginning and end of the year was Rs.300 and Rs.400 respectively. There were no other
payments in the month.
What were the sales for the year?
(a) Rs.58,900 (b) Rs.59,100
(c) Rs.63,900 (d) Rs.64,100
Q.7 There is Rs. 100,000 in the cash till at the year end at F Ltd, but the accountant has discovered
that some cash has been stolen. At the beginning of the year there was Rs.50,000 in the cash till
and receivables were Rs.2,000,000. Total sales in the year were Rs. 230,000,000. Accounts
receivable at the end of the year were Rs.3,000,000. Cheques banked from credit sales were
Rs.160,000,000 and cash sales of Rs.50,000,000 have been banked.
How much cash was stolen during the year?
(a) Rs.21,050,000 (b) Rs.18,950,000
(c) Rs.19,050,000 (d) Rs.50,000
Q.8 A business operates on a gross margin of 33 ¼ %. Gross profit on a sale was Rs. 800,000 and
expenses were Rs.680,000.
The net profit percentage is
(a) 3.75% (b) 5%
(c) 11.25% (d) 22.67%
Q.9 A toyshop makes purchases of Rs.20,248,000 and sales of Rs.26,520,000. The proprietor’s
children take goods costing Rs.486,000 without paying for them. Closing stock was valued at its
cost of Rs.2,240,000 and the gross margin achieved was a constant 30% on sales.
What was the cost of the opening stock?
(a) Rs.556,000 (b) Rs.1,042,000
(c) Rs.2,392,000 (d) Rs.2,878,000
Q.10 Which of the following calculations could produce an acceptable figure for a trader's net profit for
a period if no accounting records had been kept?
(a) Closing net assets plus drawings minus capital introduced minus opening net assets
(b) Closing net assets minus drawings plus capital introduced minus opening net assets
(c) Closing net assets minus drawings minus capital introduced minus opening net assets
(d) Closing net assets minus drawings plus capital introduced plus opening net assets
449
Q.11 On 30 September 2018 part of the inventory of a company was completely destroyed by fire. The
following information is available:
Inventory at 1 September 2018 at cost Rs.49,800,000
Purchases for September 2018 Rs.88,600,000
Sales for September 2018 Rs.130,000,000
Inventory at 30 September 2018 undamaged items Rs.32,000,000
Standard gross profit percentage on sales 30%
Based on this information, what is the cost of the inventory destroyed?
(a) Rs.17,800,000 (b) Rs.47,400,000
(c) Rs.15,400,000 (d) Rs.6,400,000
Q.12 Sarim does not keep full accounting records. His last accounts show that his capital balance was
Rs.42,890,000. At the year end, he calculated that his assets and liabilities were:
Rs. 000
Inventory 9,860
Receivables 7,695
Payables 4,194
On reviewing his calculations, you note that he did not include Rs. 258,000 of unpaid invoices for
expenses.
What is the value of Sarim’s closing capital?
(a) Rs.49,266,000 (b) Rs.49,544,000
(c) Rs.60,360,000 (d) Rs.60,876,000
Q.13 During the year to 30th November 2015 Amna bought goods f 1or resale at a cost of
Rs.75,550,000. Her inventory at 1st December 2014 was valued at Rs.15,740,000. She did not
count her inventory at 30th November 2015, but she knows that her sales for the year to 30th
November 2015 were Rs.91,800,000. All sales were made at a mark-up of 20%.
Based on the information above, what was the value of Amna’s inventory at 31 November 2015?
(a) Rs.13,630,000 (b) Rs.14,790,000
(c) Rs.16,690,000 (d) Rs.17,850,000
Q.14 On 1 September 2018, Waris had inventory of Rs.380,000. During the month, sales totalled
Rs.650,000 and purchases Rs.480,000. On 30 September 2018 a fire destroyed some of the
inventory. The undamaged goods were valued at Rs 220,000. The business operates with a
standard gross profit margin of 30%.
Based on this information, what is the cost of the inventory destroyed in the fire?
(a) Rs.185,000 (b) Rs.140,000
(c) Rs.405,000 (d) Rs.360,000
Q.15 You are given the following incomplete and incorrect extract from the Statement of
comprehensive income of a company that trades at a markup of 25% on cost:
Rs. Rs.
Sales 174,258
Less: Cost of goods sold 12,274
Opening inventory 136,527
Purchases X
Closing inventory (X)
Gross profit X
1
c
450
Having discovered that the sales figure should have been Rs.174,825 and the purchase returns of
Rs.1,084 and sales returns of Rs.1,146 have been omitted, the closing inventory should be:
(a) Rs.8,662 (b) Rs.8,774
(c) Rs.17,349 (d) Rs.17,458
Q.16 Profit is Rs.1,051,000. Capital introduced is Rs.100,000. There is an increase in net assets of
Rs.733,000.
What are drawings?
Rs. ____________
Q.17 The bookkeeper of Lego has disappeared. There is no cash in the till and theft is suspected. It is
known that the cash balance at the beginning the year was Rs.240,000. Since then, total sales
have amounted to Rs.41,250,000. Credit customers owed Rs.2,100,000 at the beginning of the
year and owe Rs.875,000 now. Cheques banked from credit customers have totalled Rs.2,429,0.
Expenses paid from the till receipts amount to Rs.180,500 and cash receipts of Rs.9,300,000 have
been lodged in the bank.
What is the amount that bookkeeper stole during the period?
Rs. ___________
Q.18 Taiwan Tyres does not keep full accounting records, but the following information is
available in respect of accounting year ended 31st December 2018.
Rs.
Cash purchases in year 3,900,000
Cash paid for goods supplied on credit 27,850,000
Payables at 1st January 2018 970,000
Payable at 31st December 2018 720,000
In the statement of comprehensive income for 2018, figure for purchases will be?
Rs. ___________
Q.19 Deen has been trading for some time, but he neglected to maintain full accounting. He is able to
provide the following information.
He is owed Rs.7,900 by his customers.
He has lodged Rs.120,700 to his bank account since starting his business. This includes his initial
capital of Rs.22,000.
All his sales are made at cost plus 30%
The value of Deen’s sale since he began trading is?
Rs. ___________
Q.20 The diesel fuel included in the inventory at 1 November 2017 was Rs.12,500,000 and there were
invoices awaited for Rs.1,700,000. During the year to 31 October 2018, diesel fuel bills of
Rs.85,400,000 were paid, and a delivery worth Rs.1,300,000 had yet to be invoiced.
At 31 October 2018, the inventory of diesel fuel was valued at Rs.9,800,000.
The diesel fuel to be charged to the Statement of comprehensive income for the year to 31
October 2018 is:
Rs. ___________
Q.21 In which of the following systems of recording the financial statements reflect true and fair view
of an entity and accounting records are considered to be more accurate?
(a) Cash book system (b) Single entry system
(c) Double entry system (d) None of the above
451
Q.22 Statement of financial position produced from incomplete accounting record is commonly known
as
(a) Statement of financial position (b) Statement of affairs
(c) Statement of net assets (d) Statement of financial operations
Q.23 Which of the following businesses usually maintain incomplete accounting record of the business
activities?
(a) Large businesses (b) Companies
(c) Partnership firms (d) Small businesses
Q.24 In single entry system, it is not possible to prepare,
(a) Statement of financial position (b) Profit or loss account
(c) Trial balance from ledgers (d) Receipt and payment account
Q.25 The opening capital is ascertained by preparing:
(a) Cash book (b) Creditors A/c
(c) Debtors A/c (d) Opening statement of affairs
Q.26 Identify the correct formula used to ascertain the closing balance of capital?
(a) Closing capital = Opening capital + Net profit - Expenses
(b) Closing capital = Opening capital + Net profit + Drawings
(c) Closing capital = Opening capital + Net profit - Drawings
(d) Closing capital = Opening capital + Revenue - Expenses
Q.27 Net profit is calculated by:
(a) Closing capital + Drawings + Fresh capital injected - Opening capital
(b) Closing capital - Drawings + Fresh capital injected - Opening capital
(c) Closing capital + Drawings + Fresh capital injected + Opening capital
(d) None of the above
Q.28 If opening capital = Rs.10 million and closing capital = Rs.20 million. Assuming no drawings
during the accounting period, calculated the net profit or loss for the period?
(a) Net profit = Rs.20 million (b) Net loss = Rs.20 million
(c) Net profit = Rs.10 million (d) Net loss = Rs.10 million
Q.29 Which one of the following accounts is supposed to be used to get the figure of credit purchases
made during the current accounting period?
(a) Debtor account (b) Creditor account
(c) Revenue account (d) Expenses account
Q.30 To obtain the amount of credit sales made during an accounting period, which account is
generally used in single entry and incomplete records?
(a) Debtor account (b) Creditor account
(c) Revenue account (d) Expenses account
Q.31 If Plant (closing balance) = Rs.8 million, Land (opening balance) = Rs.5 million and Creditors
(opening balance) = Rs.1 million then opening capital balance is?
(a) Rs.3 million (b) Rs.4 million
(c) Rs.5 million (d) Rs.8 million
452
Q.32 Opening and closing debtors were Rs.412,800 and Rs.524,400 respectively. During the year
Rs.2,684,500 was received from sales after allowing a cash discount of Rs.17,420. Debts of
Rs.34,840 were written off as bad during the year. Find out the credit sales during the year?
(a) Rs.2,778,680 (b) Rs.2,813,520
(c) Rs.2,848,360 (d) Rs.2,753,670
Q.33 Opening and closing creditors were Rs.450,000 and Rs.700,000 respectively. During the year,
Rs.3,400,000 were paid to suppliers. Find out the credit purchases during the year?
(a) Rs.3,150,000 (b) Rs.3,400,000
(c) Rs.3,650,000 (d) None of the above
Q.34 Staff salary payable for the month end was Rs.74,540 and Rs.96,720 as its opening balance.
Salary paid during the period was Rs.856,420. Find out the accrued salary during the period?
(a) Rs.834,240 (b) Rs.856,420
(c) Rs.861,540 (d) Rs.878,600
453
ICAP MULTIPLE CHOICE QUESTIONS (MCQs) SOLUTIONS
A.1 (b)
Accounts receivables
Particulars Rs.000 Particulars Rs.000
Bal. b/d 1,700 Bad debts 40
Sales 6,800 Cash 6,730
Discount β 280
c/d 550
7,600 7,600
A.2 (a)
Accounts payable
Cash β 239,975 b/d 29,590
c/d 33,875 Purchases 244,260
237,850 237,850
Inventory
Bal. b/d 36,420 COS 480,000x0.5 240,000
Purchases β 244,260 c/d 40,680
280,680 280,680
A.3 (b)
Inventory
Bal. b/d 11,800 COS 182,000/130x100 140,000
Purchases β 137,900 c/d 9,700
149,700 149,700
A.4 (a) Total sales = Rs. 112,900 + Rs. 412,400 = 525,300
Bal. b/d 29,100 Bad debts 7,200
Sales β 412,400 Cash 381,600+6,800 388,400
Refunds 2,100
c/d 38,600
443,600 443,600
A.5 (d) Cost of sales = 17,000 + 91,000 – 24,000 = 84,000
Sales = 84,000/60 x 100 = Rs. 140,000
A.6 (b) Sales = 64,100 – 5,000 = 59,100

Cash a/c
Bal. b/d 300 Bank 50,000
Cash from sales 64,100 Wages 12,000
Drawings 2,000
c/d 400
64,400 64,400
454
A.7 (b)
Bal. b/d 2,000,000 Cash 179,000,000
Sales +230,000,000- 180,000,000 c/d 3,000,000
50,000,000
182,000,000 182,000,000
Cash a/c
Bal. b/d 50,000 Bank 210,000,000
160,000,000+50,000,000
Cash sales 50,000,000 Cash stolen 18,950,000
Receivables 179,000,000 c/d 100,000
229,050,000 229,050,000
A.8 (b) Sales = 800,000 /33.25 x 100 = 2,406,015
Net profit = 800,000 – 680,000 = 120,000
Net profit % = 120,000/2,406,015 x 100 = 5%
A.9 (b)
Inventory
Bal. b/d β 1,042,000 COS 26,520,000x0.7 18,564,000
Purchases 20,248,000 Drawings 486,000
c/d 2,240,000
21,290,000 21,290,000
A.10 (a) Profit = Closing net assets + drawings – capital introduced - opening net assets
A.11 (c)
Inventory
Bal. b/d 49,800 COS 130,000x70% 91,000
Purchases 88,600 Destroyed β 15,400
c/d 32,000
138,400 138,400
A.12 (a)
Rs.000
Inventory 9,860
Receivables 7,695
Payables (4,194)
Bank overdraft (5,537)
Expense payable (258)
49,266
A.13 (b)
Inventory
Bal. b/d 15,740 COS 91,800/120x100 76,500
Purchases 75,550 c/d β 14,790
91,290 91,290
455
A.14 (a)
Inventory
Bal. b/d 380,000 COS 650,000x70% 455,000
Purchases 480,000 Lost by fire β 185,000
c/d 220,000
A.15 (b)
Rs. Rs.
Sales 174,825 – 1,146 173,679
Less: Cost of goods sold
Opening inventory 12,274
Purchases 136,527 - 1,084 135,443
Closing inventory β (8,774)
Cost of sales β 38,943
Gross profit 173,679 /125 x 25 34,736
A.16 Rs. 418,000
Drawings = Opening capital + Profit + capital introduced – Closing capital
=1,051,000+100,000- 733,000 = Rs. 418,000
A.17 Rs.6,515,500
Cash a/c
Bal. b/d 240,000 Bank 9,300,000 + 2,429,000 11,729,000
Cash sales 9,300,000 Expenses 180,500
Receivables 8,885,000 Cash stolen β 6,515,500
18,425,000 18,425,000
Bal. b/d 2,100,000 Cash β 8,885,000
Bank 24,290,000
Sales 41,250,000-9,300,000 31,950,000 c/d 875,000
34,050,000 34,050,000
A.18 Rs. 31.5 million
Purchases = 27,600,000+3,900,000 = Rs. 31,500,000
Accounts payable
Cash 27,850,000 b/d 970,000
c/d 720,000 Purchases 27,600,000
28,570,000 28,570,000
A.19 Rs.106,600
Sales = Rs.7,900+ (120,700 - 22,000) = 106,600
A.20 Rs.87.7 million
Diesel Fuel
b/d 12,500,000 b/d 1,700,000
Cash 85,400,000 PL 87,700,000
c/d 1,300,000 c/d 9,800,000
99,200,000 99,200,000
456
A.21 (c)
A.22 (b)
A.23 (d)
A.24 (c)
A.25 (d)
A.26 (c)
A.27 (a)
A.28 (c)
A.29 (b)
A.30 (a)
A.31 (b)
A.32 (c)
Receivables
b/d 412,800 Cash 2,684,500
Sales 2,848,360 Discount allowed 17,420
Bad debts 34,840
c/d 524,400
3,261,160 3,261,160
A.33 (c)
Creditors
Cash 3,400,000 b/d 450,000
c/d 700,000 Purchases 3,650,000
4,100,000 4,100,000
A.34. (a)
Salaries
Cash 856,420 b/d 96,720
c/d 74,540 PL 834,240
930,960 930,960
457
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Topic Wise
i
TABLE OF CONTENTS
ICAP PAST
PAPER
Q A Q A Q A Q A

Statements

Incomplete Records
7 IAS 16: Property, Plant and Equipment 515 541 565 628 640 665 672 690 697

Standards

Customers
ii
IAS 16: Property, Plant &
Equipment
7
LO 1 DIFFERENCE BETWEEN CAPITAL AND REVENUE EXPENDITURE
LO 2 DETERMINING COST OF ASSET
LO 3 DEPRECIATION AND ITS METHODS
LO 4 RECORDING DEPRECIATION IN BOOKS OF ACCOUNTS
LO 5 CHANGE IN ACCOUNTING ESTIMATE DURING THE PERIOD OF USE
LO 6 DISPOSAL BY SALE/ DISPOSAL BECAUSE OF DESTROY
LO 7 DISPOSAL THROUGH EXCHANGE
LO 8 PREPARING FIXED ASSET ACCOUNT AT BOOK VALUE
LO 9 FIXED ASSET SCHEDULE/ DISCLOSURE NOTE
LO 10 REVALUATION OF PROPERTY PLANT AND EQUIPMENT
LO 11 DISCLOSURES / NOTE
LO 12 ALTERNATE NAMES FOR DIFFERENT TERMINOLOGIES
LO 13 TYPES OF QUESTIONS
CHAPTER-7 IAS 16: PROPERTY, PLANT AND EQUIPMENT
LO1: DIFFERENCE BETWEEN CAPITAL AND REVENUE EXPENDITURE

Capital expenditure
It is cost of buying fixed assets. It includes all expense incurred in bringing it in workable condition and
location.
Revenue expenditure
Expenditure which is incurred in running the business on a day-to-day basis and its benefit is not spread
over more than one year.
The difference between revenue expenditure and capital expenditure can be seen clearly with the total
cost of using a van for a business. To buy a van is capital expenditure. The van will be in use for several
years and is, therefore, a fixed asset. Paying for petrol to use in the van is revenue expenditure. To get the
van repaired is revenue expenditure.
Example
Expenditure Type of Expenditure
1. Buying van Capital
2. Petrol costs for van Revenue
3. Repairs of van Revenue
4. Buying machinery Capital
5. Electricity bill paid of using machinery Revenue
6. Painting outside of new building Capital
You already know that revenue expenditure is chargeable to the Profit and Loss Account by increasing
expense, while capital expenditure will result in increased figures for fixed assets in the Balance Sheet. It
is, therefore, important that this classification is correctly done.
Question-1
Some of the following items should be treated as capital and some as revenue. For each of them state
which classification applies:
(a) The purchase of machinery for use in the business.
(b) Carriage paid to bring the machinery in (i) above to the work.
(c) Complete redecoration of the premises at a cost of Rs. 1,500.
(d) A quarterly payment for heating.
(e) The purchase of a soft drinks vending machine for the canteen.
Question-2
Indicate which of the following would be revenue items and which would be capital items in a wholesale
bakery:
(a) Purchase of a new van.
(b) Cost of painting business's name on new van.
(c) Repair and maintenance of existing van.
Question-3
State the type of expenditure, capital or revenue, incurred in the following transactions
(a) Van purchased.
(b) Repairs to a fruiterer's van.
(c) The cost of installing a new machine.
(d) Cost of hiring refrigeration plant in a butcher's shop.
(e) Twelve dozen sets of cutlery, purchased by a catering firm for a new dining-room.
(f) A motor vehicle bought for re-sale by a motor dealer.
Question-4
State which of the following you would classify as capital expenditure.
(a) Cost of building extension to factory.
(b) Purchase of extra filing cabinets for sales office.
(c) Cost of repairs to accounting machine.
(d) Legal fees paid in connection with factory extension.
515
Question-5
For the business of J Charles, wholesale chemist, classify the following between 'capital' and 'revenue'
expenditure:
(a) Purchase of an extra van.
(b) Carriage costs on bricks for new warehouse extension.
(c) Carriage costs on purchases.
(d) Carriage costs on sales.
(e) Legal costs of collecting debts.
(f) Legal charges on acquiring new premises for office.
(g) Fire insurance premium.
(h) Costs of erecting new machine.
(i) Clearing agent charges
(j) Insurance in transit
Question-6
Classify the following items as either revenue or capital expenditure:
(a) An extension to an office building costing Rs. 24,000.
(b) Repairs to the warehouse roof.
(c) Annual service costs for a courier firm's fleet of vans.
(d) A new bicycle purchased by a news agent for use by the newspaper delivery boy.
(e) Wages paid to employees who worked on the construction of their company's new office
building.
Answer-1 Capital (a), (b), (e) Revenue (c), (d)

Answer-2 Capital (a), (b) Revenue (c)
Answer-3 Capital (a), (c), (e) Revenue (b), (d), (f)
Answer-4 Capital (a), (b), (d) Revenue (c)
Answer-5 Capital (a), (b), (f), (h), (i), (j) Revenue (c), (d), (e), (g)
Answer-6 Capital (a), (d), (e) Revenue (b), (c),
LO2: DETERMINING COST OF ASSET

Fair value is the amount for which an asset could be exchanged between:
 knowledgeable
 willing parties
 in an arm’s length transaction.
Property, plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b) are expected to be used during more than one period.
Recognition
The cost of an item of property, plant and equipment shall be recognized as an asset if and only if:
(a) It is probable that future economic benefits associated with the item will flow to the entity; and
(b) The cost of the item can be measured reliably.
516
INITIAL MEASUREMENT OR MEASUREMENT AT RECOGNITION

An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at
its cost.
Cost
Cost is the amount of:
 cash or cash equivalents paid or
 the fair value of the other consideration given to acquire an asset
at the time of its acquisition or construction.
Elements of Cost:
The cost of an item of property, plant and equipment comprises:
(a) Its purchase price, including import duties and non-refundable purchase taxes after deducting
trade discounts and rebates or subsidy.
(b) Any costs necessary to bring the asset into current location and condition which is intended by
management.
(c) The initial estimate of the costs of dismantling and removing the item and restoring the site.
Examples of directly attributable costs are:

(a) Costs of employee benefits arising directly from the construction or acquisition of an item of
property, plant and equipment.
(b) Costs of site preparation
(c) Initial delivery and handling charges.
(d) Installation and assembly cost.
(e) Cost of testing whether the asset is functioning properly, after deducting the net proceeds from
selling any items produced (such as samples produced when testing equipment); and
(f) Professional fees.
Examples of costs that are not costs of an item of property, plant and equipment are:
(a) Costs of opening a new facility.
(b) Cost of introducing a new product or service (including costs of advertising and promotional
activities);
(c) Costs of conducting business in a new location or with a new class of customer (including costs
of staff training); and
(d) Administration and other general overhead costs. e.g., staff training cost
Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the
item is ready for use (i.e. it is capable of operating in manner intended by management). Following
costs are not included in the carrying amount e.g.,
(a) Costs paid while an item is yet to be brought into use or is operated at less than full capacity.
(b) Initial operating losses while demand for the product’s output builds-up; and
(c) Costs of relocating/re-organizing part or all of entity’s operations.
Example
A new machine is purchased by Arman Enterprise. Relevant details are as follows:
List price 800,000
Trade discount 10%
Import duties 2,000
Cost of site preparation 1,000
Architect fee 1,000
Non-refundable taxes 6,300
Income tax adjustable (refundable) 5,000
517
Insurance in-transit 7,000

Fees paid to clearing agent 9,000
Octroi charges 4,600
Land preparation cost 8,300
Installation cost 7,800
Estimate of initial cost of dismantling which company is liable to pay 5,000
Cost of furniture broke down during handling the machine 7,000
Insurance for the year 9,000
License fee for the year 11,000
Initial operating losses 12,000
Trial production cost net of sale proceeds of prototype/sample (4,000 – 2,100) 1,900
Admin costs 10,000
Calculate the cost at which machine should be debited?
Answer
Cost of machine is calculated as below:
Rs.
List price 800,000
Less: Trade discount (80,000)
Import duties 2,000
Cost of site preparation 1,000
Architect fee 1,000
Insurance in-transit 7,000
Fees paid to clearing agent 9,000
Land preparation cost 8,300
Estimate of initial cost of dismantling 5,000
Trial production cost net of sale proceeds of prototype/sample (4,000 – 2,100) 1,900
Total 773,900
Cost of self constructed asset

The cost of a self-constructed asset is determined by adding up raw material, labour and overhead costs
incurred on that asset.
Example (Self-constructed Asset)

Roads International Limited constructed its own specially designed ‘road bulldozer’. Details of related
costs incurred are as follows:
Description of cost: Rs.
Cost of raw materials purchased 500,000
Cost of raw materials used in construction of road bulldozer 100,000
Over head costs incurred on building road bulldozer 40,000
Tests to ensure road bulldozer safe before brought into use 20,000
Factory labour costs 300,000
518
 80% of the total labour costs for the year were incurred on building roads and 20% thereof were
incurred in construction of the road bulldozer.
 The road bulldozer was first brought into use on a contract that started on 1 November 20X2,
although it was available for use from 1 October 20X2.
 The company uses the straight-line method to depreciate its road bulldozer. This vehicle is
expected to be sold for Rs. 7,000 at the end of its expected useful life of 5 years.
Required:
Journalise transactions related to tarring vehicle for the year ended 31 December 20X2.
Answer
(a)
Roads International Limited
Accounting entries
For the year ended 31 December, 20X2
Particulars Dr. Cr.
Raw materials 500,000
Bank 500,000
(Payment of raw material purchased)
Road bulldozer 100,000
Raw materials 100,000
(Raw material used in construction of Road bulldozer )
Bank/payable 40,000
(Overhead costs incurred on building road bulldozer)
Bank 20,000
(Safety test performed cost)
Labour cost 300,000
Bank/payable 300,000
(Labour cost paid over the year)
Road bulldozer ( 300,000 x 20%) 60,000
Labour cost 60,000
(Labour cost incurred on construction of Road bulldozer)
Depreciation expense 10,650
Accumulated dep. - Road bulldozer (220,000- 7,000)/5  3/12) 10,650
(Recording of depreciation on Road bulldozer)
Note: The Road bulldozer was available for use from 1 October 20X2, therefore depreciation shall
commence from that period.
Workings
Cost of bulldozer 100,000 + 40,000 + 20,000 + 60,000 220,000
SUBSEQUENT EXPENDITURE
Subsequent expenditure on non-current assets, after their initial acquisition, should be capitalized if it
meets the criteria for recognition of an asset.
Any subsequent expenditure is capitalized if it
o improves the asset (for example, by enhancing useful life, output or performance)
o is for a replacement part (provided that old part is disposed off)
Repairs and maintenance expenditure is revenue expenditure. It is recognized as an expense as it is
incurred.
519
LO 3: DEPRECIATION AND ITS METHODS
Depreciation of tangible fixed assets

Tangible fixed assets such as machinery, motor vehicles, fixtures and even buildings do not last forever.
If the value at which asset is expected to be sold at the end of its useful life is less than the cost of the
asset, the asset is said to have ‘depreciated in value’. For example, if a van was bought for Rs. 10,000 and
sold five years later for Rs. 2,000 then its value has depreciated over the period of its use by Rs. 8,000.
Depreciation is an expense
Depreciation is that part of the original cost of a fixed asset that is consumed during its period of use by
the business. It needs to be charged to profit and loss every year.
For example, if a PC cost Rs. 1,200 and was expected to be used for 3 years, it might be estimated at the
end of the first year that one-third of its overall usefulness had been consumed. Depreciation would then
be charged at an amount equal to one-third of the cost of the PC, i.e. Rs. 400. Profit would be reduced by
Rs. 400 and the value of the PC in the balance sheet would be reduced from Rs. 1,200 to Rs. 800.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.
Residual value of an asset is the estimated amount that an entity would currently obtain from disposal of
the asset, after deducting the estimated costs of disposal.
Note: If residual value is equal to or greater than cost than no depreciation is charged.
Carrying amount is the amount at which an asset is recognized after deducting any accumulated
depreciation and accumulated impairment losses. (Commonly known as book value).
Useful life is the period over which:
(a) an asset is expected to be available for use by an entity; or
(b) the number of production or similar units expected to be obtained from the asset by an entity.
DEPRECIATION
(a) Each part of an item of property, plant and equipment with a cost that is significant in relation to
the total cost shall be depreciated separately.
(b) The Depreciation charge for each period shall be recognized in profit or loss unless it is included
in the carrying amount of another asset.(e.g. the depreciation of manufacturing plant and
equipment is included in the costs of conversion of inventories)
(c) The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.
(d) The residual value and the useful life of an asset shall be reviewed at least at each financial year-
end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a
change in an accounting estimate.
(e) Commencement and cessation of deprecation
Depreciation of an asset begins when it is available for use, i.e. when it is in the location and
condition necessary for it to be capable of operating in the manner intended by management.
Depreciation of an asset ceases the date when the asset is disposed off. Therefore, depreciation
does not cease when the asset becomes idle or is retired from active use unless the asset is fully
depreciated. However, under usages methods of depreciation the depreciation charge can be zero
while there is no production.
(f) The following factors are considered in determining the useful life of an asset
(a) Expected usage of the asset. Usage is assessed by reference to asset’s expected capacity
or physical output
(b) Expected physical wear and tear,
(c) Technical or commercial obsolescence
(d) Legal or similar limits on the use of the asset,
520
(g) Land and Buildings are separable assets and are accounted for separately, even when they are
acquired together.
Land is not normally depreciated because it has indefinite life.
(h) The depreciation method used shall reflect the pattern in which the asset’s future economic
benefits are expected to be consumed by the entity.
The depreciation method applied to an asset shall be reviewed at least at each financial year-end
and, if there has been a significant change in the expected pattern of consumption of the future
economic benefits embodied in the asset, the method shall be changed to reflect the changed
pattern. Such a change shall be accounted for as a change in an accounting estimate.
Depreciation methods
Following are the depreciation methods to be used during the period an asset is used by an entity:
(a) Straight line method
It requires allocation of an equal amount to each period. Since this method assumes that the cost
of the asset expires at a steady (straight line) function of time, the cost less residual value is
divided by the estimated useful life. The rate of depreciation is the reciprocal of the estimated
useful life. If the useful life of an asset is 10 years, the depreciation rate will be 1/10 or 10%.
Depreciation = Cost – Residual value or (Cost - Residual value) x Rate of depreciation
useful life
(Whenever depreciation is charged "on cost" each year, it means the entity is following straight
line method assuming that residual value is nil).
This method is appropriate for those assets which give same benefit in each year e.g. building,
furniture etc. [Refer Q.1-5 of practice set]
(b) Diminishing balance method
Under this method, instead of a fixed amount, a fixed rate on the reduced balance of the asset is
charged as depreciation every year. Since a constant percentage rate is being applied to the
written down value, the amount of depreciation charged every year decreases over the life of the
asset.
This method is appropriate for those assets which give benefit on a reducing pattern each year e.g.
machines. [Refer Q. 19-24 of practice set]
Points of differences among straight line method and WDV method
Description Straight line method WDV method
Calculation of
Cost − Residual value
depreciation for 1st
useful life
OR Cost  Rate of depreciation
Year (Cost − Residual value) (Dep Rate)
Calculation of
Cost − Residual value
depreciation for
useful life
OR WDV  Rate of depreciation
Subsequent Years (Cost − Residual value) (Dep Rate)
Conversion of life Rate in % = 1 1 0
N/A
to rate Useful Life
Calculation of - On Cost of opening assets less - On WDV of opening assets at the start
depreciation for cost of disposals and fully of year less WDV of disposals at the
each year depreciated assets start of year
- On cost of additions - On cost of additions
- On cost of disposals - On WDV of disposals at the start of
- On cost of fully depreciated year
(In case assets have residual value it
will be deducted from the cost to
calculate depreciation)
521
If no rate is given n s
in WDV method Depreciation rate % = 1 − √
c
S = scrap value C = Cost
If scrap value is not cumulative period
WDV
given rather WDV r=1− √
or accumulated Cost
depreciation is cumulative period
Cost − Acc. Dep.
given r=1− √
Cost
Calculation of It can be calculated through a shortcut

accumulated working:
depreciation at the
time of disposal Accumulated depreciation at the time
It will be calculated through manual
of disposal =
working from the date of purchase till the
(Cost – RV)  Rate  No. of years
date of disposal. [Refer Q. 45-47 of
used
practice]
Number of years used will be counted
from date of purchase till date of
disposal. [Refer Q. 34-35 of practice]
Concept of fully Applicable Not applicable
depreciated assets *
*Example of fully depreciated

Mr. Asif purchased an asset on 01.01.08 for Rs. 900. Its life is 3 years and it sold on 30.06.12 for Rs. 30.
Method is straight line.
Required:
Prepare relevant accounts from the date of purchase till the date of disposal.
Answer
Dr. Asset a/c Cr.
01.01.08 Cash 900 31.12.08 c/d 900
01.01.09 b/d 900 31.12.09 c/d 900
01.01.10 b/d 900 31.12.10 c/d 900
01.01.11 b/d 900 31.12.11 c/d 900
01.01.12 b/d 900 30.06.12 Disposal 900
Dr. Accumulated Depreciation Cr.
31.12.09 c/d 300 31.12.08 Dep. (900/3) 300
01.01.09 b/d 300
31.12.09 c/d 600 31.12.09 Dep. (900/3) 300
01.01.10 b/d 600
31.12.10 c/d 900 31.12.10 Dep. (900/3) 300
31.12.11 c/d 900 01.01.11 b/d 900
30.06.12 Disposal 900 01.01.12 b/d 900
Dr. Disposal A/c Cr.

Asset 900 Accumulated Depreciation 900
P/L (Bal.) 30 Cash 300
522
(c) Output method

This is a method of providing depreciation on annual machine’s output in use compared with total
anticipated machine’s output over the life of the machine. [Refer Q. 30 of practice set]
Depreciation = Cost – Residual value  Units produced during the year
Total output expected over useful life
Example
Mr. Asif has acquired a machine on 1.Mar.2011. Its total capacity is to produce 50 units over 4
years. Year end is December 31.
Expected units to be produced are:
Year end Units
December 31, 2011 12
December 31, 2013 4
Cost of machine is Rs.70,000 with a residual value of Rs. 5,000.
Required:
Calculate depreciation for first 4 years using output method.
Answer
70,000−5,000
Depreciation - 2011 ( 50
) 12 = 15,600
70,000−5,000
- 2012 ( 50
) 24 = 31,200
70,000−5,000
- 2013 ( 50
) 4 = 5,200
70,000−5,000
- 2014 ( 50
) 10 = 13,000
(d) Sum of year digit method

This method assumes that the depreciation charge should be more in the early years of the life of
the asset. Under this method, the depreciation expense is calculated by multiplying the
depreciable amount by a fraction based on the sum of the number of periods of the useful
economic life. [Refer Q. 31 of practice set]
Cost − Residual value 𝐧(𝐧 + 𝟏)
Depreciation =  respective digit 𝐬𝐮𝐦 𝐨𝐟 𝐚𝐥𝐥 𝐝𝐢𝐠𝐢𝐭𝐬 = ( )
sum of all year′s digits 𝟐
Example
Mr. Akif purchased a machine for Rs. 100,000 on 1.1.2004. Its residual value is Rs. 5,000. Its useful life
is 4 years.
Calculate depreciation expense for first 4 years using sum of year digit method. Year end is December 31.
Answer
100,000−5,000
Depreciation - 2004 ( 10
) 4 = 38,000
100,000−5,000
- 2005 ( 10
) 3 = 28,500
100,000−5,000
- 2006 ( 10
) 2 = 19,000
100,000−5,000
- 2007 ( 10
) 1 = 9,500
523
Note:
(i) Diminishing balance method and year digit method are often termed as "accelerated depreciation
methods" because both of the methods give more depreciation in the earlier years than the later
one.
(ii) At the end of life of asset the written down value of asset will be equal to its residual value.
(iii) No depreciation will be charged on assets after they have completed their life whether in terms of
years, units, hours etc.
(iv) In the year of acquisition and disposal depreciation will be charged only for the months asset is
used.
Important issue regarding calculation of depreciation

It is not fair to assume that a fixed asset is always purchased on the very first day of a month. Assets are
generally purchased in the course of the accounting period whenever required. When an asset is
purchased in mid of a month, it is not necessary to compute the amount of depreciation to be charged to
the nearest day or week. As we know, the charge for depreciation is a mere estimate, therefore,
depreciation is calculated in whole months.
In this case you can give a note that:
“Full month’s depreciation is charged in the month of purchase while no depreciation is charged in
the month of disposal.”
Example
Assume year end is December 31st and following are the dates of additions and disposals.
Additions Date of purchase Number of months for which depreciation should be charged
Car-7 March 13, 2013 10
Car-8 July 3, 2013 6
Car-9 December 27, 2013 1
Disposals Date of Disposal Number of months for which depreciation should be charged
Car-2 April 9, 2013 3
Car-4 September 3, 2013 8
Car-1 October 26, 2013 9
COMPONENTS OF COST
Each part of an asset that has a cost that is significant in relation to the total cost must be depreciated
separately. This means that the cost of an asset might be split into several different assets and each
depreciated separately.
Example-1
A company has purchased a new aero plane for Rs.10 million.
The company has identified the following cost components and useful lives in respect of this jet.
Rs. million Useful life
Engines 3,000 5 years
Seats 1,000 3 years
Fittings 2,000 15 years
Other parts 4,000 20 years
10,000
524
Example-2 (Components of cost)

Ancient Waters Limited is a company involved in bottling spring water. The company purchased a
bottling plant on 2 January 20X2. The plant is made up of three significant components, the cost of which
is as follows:
Description of component Cost price Residual value Expected useful life
Rs. Rs.
Engine 1,500,000 500,000 5 years
Conveyor belt and fittings 2,000,000 0 8 years
Other structure 800,000 50,000 3 years
“Other costs” incurred in relation to the bottling plant are as follows:
Description of cost Rs. Transaction date
Delivery and installation 783,000 5 January 20X2
Staff training 60,000 16 January 20X2
Other information:
 The plant was available for use in production on 1 February 20X2, although production only
began on 1 March 20X2.
 The plant was temporarily idle during October 20X2 when the factory closed down for its annual
holiday period.
 The company uses the straight-line method when depreciating its bottling plant.
 All ‘other costs’ are considered to be incurred evenly between the three significant components of
the bottling plant (i.e. where appropriate, a third of the cost is allocated to each component).
Required:
Show all related journal entries relating to the bottling plant for the year ended 31 December 20X2 and 31
December 20X3.
Answer-2
Journal entries
Rs in ‘000’
2/1/20X2 Engine 1,500
Conveyor belt and fittings 2,000
Outer structure 800
Bank 4,300
(Purchase of bottling plant)
5/1/20X2 Engine (783  1/3) 261
Conveyor belt and fittings (783  1/3) 261
Outer structure (783  1/3) 261
Bank 783
(Delivery and installation charges)
16/1/20X2 Staff training expense 60
Bank 60
(Recording of staff training cost in P/L)
31/12/20X2 Depreciation expense (W-2) 799.2
Accumulated depreciation – Engines 231.2
Accumulated dep.- Conveyor belt and fittings 259.1
Accumulated depreciation - Outer structure 308.9
(Recording of depreciation)
525
31/12/20X3 Depreciation expense (W-3) 871.8

Accumulated depreciation – Engines 252.2
Accumulated dep.- Conveyor belt and fittings 282.6
Accumulated depreciation - Outer structure 337.0
(W-1) Calculation of cost and depreciable amount

Conveyor
Belt and Outer
Engines Fittings Structure Total
Cost price 1,500 2,000 800 4,300

Delivery and installation charges 261 261 261 783
1,761 2,261 1,061 5,083
Less: Residual value (500) - (50) (550)
Depreciable Amount 1,261 2,261 1,011 4,533
(W-2) Depreciation for the year ended 31 December, 20X2:

Engines ((W-1) 1,261/5  11/12 ) 231.2
Conveyor belt and fittings ((W-1) 2,261/8  11/12 ) 259.1
Outer structure ((W-1) 1,011/3  11/12 ) 308.9
799.2
(W-3) Depreciation for the year ended 31 December, 20X3:
Engines ((W-1) 1,261/5) 252.2
Conveyor belt and fittings ((W-1) 2,261/8) 282.6
Outer structure ((W-1) 1,011/3) 337
871.8
LO4: RECORDING DEPRECIATION IN BOOKS OF ACCOUNTS

The depreciation for the period is debited to Depreciation expense Account and credited to ‘Accumulated
Depreciation Account’. Instead of crediting asset account another account styled Accumulated
Depreciation Account is credited so that at any time during the life of an asset we can easily determine
what is the total deprecation of asset on a specific reporting date. In the Balance Sheet, asset appears at its
original cost and the accumulated depreciation is shown as a deduction from the Asset Account.
Entry Dr. Cr.

1. Recording depreciation expense Depreciation expense a/c xxx
Accumulated Depreciation a/c xxx
[Refer Q. 6-9 and 25-27 of practice set for presentation in ledger account]
LO5: CHANGE IN ACCOUNTING ESTIMATE DURING THE PERIOD OF USE

At the end of an accounting year an entity may estimate a change in following as compared to what was
expected at the time of purchase and may need to revise the following:
 Useful life
 Depreciation method
 Residual Value
 Depreciation rate
526

Scenarios Formula to be used in the year of change
i) If new method is WDV at time at the time the estimate is revised - New Residual value
straight line Remaining Useful Life
ii) If new method is WDV at the time the estimate is revised x New rate
WDV
Question-1
ABC Ltd. purchased an asset costing Rs. 20,000 on 1.1.2007. Its useful life is 10 years and its residual
value is Rs. 5,000. On 1.1.2009 it is decided that remaining life is 4 years with a new residual value of Rs.
6,000.
Calculate depreciation for 2007, 2008, 2009 and 2010.
Year end is December 31.
Answer-1
Depreciation – 2007 = Cost – RV = 20,000 – 5,000 = 1,500
Life 10
Depreciation – 2008 = 20,000 – 5,000 = 1,500
10
WDV at the time of change in estimate = 20,000 – 1,500 – 1,500 = 17,000
Depreciation – 2009 = WDV – new residual value = 17,000 – 6,000 = 2,750
Remaining life 4
Depreciation – 2010 = 17,000 – 6,000 = 2,750
4
Question-2
A company uses straight line method with a rate of 12.5% on an asset costing Rs. 50,000 which is
purchased on 1.1.2005. Its residual value is Rs. 10,000. On 1.1.2007, the company decided to change the
method to WDV using rate of 15%.
Required:
Calculate depreciation expense for 2005, 2006, 2007and 2008. Year end is December 31.
Answer-2
Depreciation – 2005 = (50,000 – 10,000)  12.5% = 5,000
Depreciation – 2006 = (50,000 – 10,000)  12.5% = 5,000
WDV of asset at the time the method is changed.
WDV = 50,000 – 5,000 – 5,000 = 40,000
WDV(1.1.2007) 40,000
Less: Depreciation (2007) (40,000  15%) (6,000)
WDV (1.1.2008) 34,000
Less: Depreciation (2008) (34,000  15%) (5,100)
28,900
Question-3
An entity owns an asset costing Rs. 50,000 which is purchased on 1.1.2010. Rate of depreciation is 28%
under written down value method. On 1.1.2012 entity decided new rate of 40% without changing method
of depreciation.
Calculate depreciation for 2010, 2011, 2012 and 2013. Year end is December 31.
527
Answer-3
Cost (1.1.2010) 50,000
Depreciation (2010) (50,000  28%) (14,000)
WDV (1.1.2011) 36,000
Depreciation (2011) (36,000  28%) (10,080)
WDV (1.1.2012) 25,920
Depreciation (2012) (25,920  40%) (10,368)
WDV (1.1.2013) 15,552
Depreciation (2013) (15,552  40%) (6,221)
WDV (31.12.2013) 9,331
LO6: DISPOSAL BY SALE/ DISPOSAL BECAUSE OF DESTROY
DERECOGNITION
The item of property, plant and equipment shall be derecognized
(a) On disposal; or
(b) When no future economic benefits are expected from its use or disposal.
The gain/(loss) arising from the derecognition of an item of properly, plant and equipment shall be
included in profit or loss when the item is derecognized. Gains shall not be classified as revenue.
The gain or loss arising from the derecognition of an item of property, plant and equipment shall be
determined as the difference between the disposal proceeds and the carrying amount of the item.
Disposal by sale/destroy
If a fixed asset is sold or it is destroyed because of accident, fire or flood, we have to remove it from our
ledger accounts. This means that the cost of that asset needs to be taken out of the asset account. In
addition, the accumulated depreciation on the asset which has been sold will have to be taken out of the
accumulated depreciation a/c. Finally, the profit and loss on sale, if any, will have to be calculated and
posted to the profit and loss account.
Entry Dr. Cr.
2. Entry for disposal of asset Accumulated Depreciation a/c xxx
Cash/Insurance claim receivable xxx
P/L a/c (balancing) xxx
Asset a/c – at cost xxx
(In case there is loss on disposal)
Disposal a/c appears as follows:

Asset a/c (cost) xxx Accumulated depreciation xxx
Cash/Insurance claim receivable xxx
P&L (Bal. fig.) xxx
Note: Insurance claim receivable will appear when an asset is destroyed and insurance company has
acknowledged the claim and money is still receivable.
Note: Insurance claim receivable will not be considered as “other income” rather a reduction in loss on
disposal.
Example-1
Mr. Zia has informed you that an asset costing Rs. 600,000 on 1.03.2004 is destroyed by fire on
30.09.2007. The insurance company acknowledged the claim at Rs. 35,000. Rate of depreciation is 20%
straight line. Year end is December 31.
Required:
Pass the journal entry for disposal and prepare disposal a/c.
528
Solution
Journal entry
Dr. Cr.
Accumulated Depreciation (W-1) 429,996
P/L (Bal.) 135,004
Asset a/c 600,000
(W-1) Accumulated Depreciation
Years used 3 years and 7 months
Accumulated Depreciation (600,000  20%  3.5833) 429,996
Dr. Disposal – A/c Cr.

Asset – cost 600,000 Accumulated Depreciation 429,996
P/L (Bal.) 135,004
Example-2
Mr. Latif has an asset costing Rs. 400,000 which was purchased on 1.04.2005. It was destroyed by fire on
30.06.2008 and he received Rs. 45,000 from insurance company in this respect. Year end is December 31.
Required:
Assuming depreciation rate to be 15% on straight line basis, prepare disposal entry. Also prepare disposal
a/c?
Solution
Journal entry
Dr. Cr.
Cash A/c 45,000
P/L (Bal.) 160,000
Asset a/c (Disposal of asset by fire) 400,000
(W-1) Accumulated Depreciation

Years used 3 years and 3 months

Asset 400,000 Accumulated Depreciation 195,000
Cash 45,000
P/L (Bal.) 160,000
Calculation of cost of disposals if book value of disposals is given [Reserve Back Working]
Sometimes in exam you might be given with the book value of assets sold and you may be required to
calculate the cost of disposals to be credited in asset account.
Example-1
On September 30, 2006 various items of plant and machinery having a book value of Rs. 300,000 were
sold for Rs. 70,000. These were purchased on 1.4.2004. Rate of depreciation is 10% on declining balance
method. Year end is December 31. Calculate cost of disposals?
529
Answer
Cost of items Rs.
Let the cost on 1.4.2004 be 100
Depreciation-2004 (100x10%  9/12) (7.50)
Book value 1.1.2005 92.50
Depreciation-2005 (92.5  10%) (9.25)
Book value on 1.1.2006 83.25
Depreciation-2006 (83.25  10%  9/12) (6.2438)
Book value on disposal 77.0062
If book value is 77.0062 then it can be grossed up as follows to arrive at cost.
Cost (300,000 / 77.0062  100) 389,579
% Amount
Cost 100 389,579
Accumulated depreciation (22.9938) (89,579)
Book value 77.0062 300,000
Example-2
On September 30, 2006 various items of plant and machinery having a book value of Rs. 300,000 were
sold for Rs. 70,000. These were purchased on 1.4.2004. Rate of depreciation is 10% on straight line
method. Year end is December 31. Calculate cost of disposals?
Answer
Cost of items
Number of years the asset is used (1.4.2004-30.9.2006) 2.5Y
Assume Cost (in percentage) 100%
Accumulated depreciation at the time of disposal (in percentage) (100  10% per year  2.5Y) 25%
Cost (300,000/75  100) 400,000
% Amount
Cost 100 400,000
Accumulated depreciation (25) (100,000)
Book value 75 300,000
LO7: DISPOSAL THROUGH EXCHANGE
Sometimes instead of selling we exchange the old asset with the new one. In this case normally we will
receive new asset and will hand over the old asset to the person from whom new asset is bought.
Obviously some cash will also be paid to settle the transaction. In this case following steps will be
performed while passing the journal entry.
Step 1 The old asset will be removed from books by crediting old asset and by debiting accumulated
depreciation a/c.
Step 2 The cash paid to settle the transaction will be credited.
Step 3 The cost of new asset will be debited in books.
Step 4 The balancing figure will be gain or loss.
Entry Dr. Cr.
3. Entry on exchange of asset Asset a/c (new) xxx
Accumulated Depreciation a/c xxx
Asset a/c (old) xxx
Cash xxx
530
T-accounts
Dr. Asset account Cr.
b/d xxx Disposal (cost old asset) xxx
Disposal (cost new asset) xxx
c/d xxx

Asset a/c (cost old asset) xxx Accumulated depreciation (old asset) xxx
Cash xxx Asset a/c (cost new asset) xxx
P&L (Bal. fig.) xxx
Example-1
Following details are provided as on December 31, 2009.
Cost of machine 32,000
Accumulated depreciation (8,000)
Book value 24,000
The above asset is exchanged with a new one on the same date:
Fair value of new asset 40,000
Cash paid to settle the transaction 22,000
Required: Pass the journal entry to record the transaction. (Source: ICAP )
Answer-1
Following entry will be passed: Dr. Cr.
Cost- New asset 40,000
Acc.dep. - old asset 8,000
Cost - old asset 32,000
Cash 22,000
Dr. Asset account Cr.

b/d 32,000
Disposal a/c 40,000 Disposal 32,000
c/d (bal.) 40,000

Asset a/c (old) 32,000 Acc. Dep. – old asset 8,000
Cash 22,000 Asset a/c (new) 40,000
P&L (Bal. fig.) 6,000
Example-2
Mr. Umer exchanged an old asset with a new one. Cost of old asset is Rs. 10,000 and accumulated
depreciation is Rs. 3,000. Cost of new asset is Rs. 50,000. Cash paid to settle the transaction is Rs.
22,000. Pass Journal entry?
Answer-2
Asset – new 50,000
Accumulated Depreciation 3,000
P/L (Bal.) 21,000
Asset – old 10,000
Cash 22,000
531
Example-3
Mr. Arif exchanged an old asset with a new one. Cost at old asset is Rs. 10,000 and accumulated
depreciation is Rs. 2,500. Cost of new asset is Rs. 30,000. Trade-in-allowance is Rs. 3,000. Pass journal
entry?
Answer -3
P/L (Bal.) 4,500
Cash 27,000
Cash paid = New asset cost – Trade-in-allowance
= 30,000 – 3,000 = 27,000
Example-4
Mr. Usman Elahi exchanged an old asset with new one. Cost of old asset is Rs. 30,000 and its written
down value is Rs. 12,000. List price of new asset is Rs. 40,000. Cash paid to settle the transaction is
Rs. 23,000. Pass journal entry?
Answer -4
Accumulated Depreciation (30,000 – 12,000) 18,000
P/L (Bal.) 5,000
Cash 23,000
Example-5
Mr. Nauman exchanged an old asset with new one. Cost of new asset is Rs. 100,000. Cost of old asset is
Rs. 70,000 and its accumulated depreciation is Rs. 30,000 on date of exchange. Trade-in-allowance (value
assigned to our old asset) is Rs. 10,000.
Answer -5
P/L (Bal.) 30,000
Cash (100,000 – 10,000) 90,000
Example-6
Mr. Anjum has provided following data:
Accumulated
Cost Depreciation
1.1.2011
Vehicle 400,000 150,000
(1) A vehicle costing Rs. 90,000 on 1.4.2009 is exchanged with a new vehicle costing Rs. 200,000.
Cash paid in the transaction amounted to Rs. 70,000. Date of exchange is 1.8.2011.
(2) A vehicle costing Rs. 60,000 is purchased on 1.3.2011.
Required:
Prepare Asset a/c, accumulated depreciation a/c and disposal a/c for the year ended 31.12.2011? Method
of depreciation is 5% S.L.
532
Answer-6
Dr. Vehicle a/c Cr.
1.1.11 b/d 400,000 1.8.11 Disposal 90,000
1.8.11 Disposal 200,000
1.3.11 Cash 60,000
31.12.11 c/d 570,000
Dr. Accumulated Depreciation a/c Cr.

1.8.11 Disposal (W-2) 10,500 1.1.11 b/d 150,000
31.12.11 Depreciation Exp. (W-1) 24,792
31.12.11 c/d 164,292
Dr. Disposal a/c Cr.

Vehicle 90,000 Accumulated Depreciation 10,500
Cash a/c 70,000 Vehicle 200,000
P/L (Bal.) 50,500
Disposal entry Dr. Cr.
Vehicle – new 200,000
Accumulated Dep. 10,500
Vehicle – old 90,000
Cash 70,000
P/L (Bal.) 50,500
(W-1) Depreciation Expense

- On opening assets excluding disposals
(400,000 – 90,000)  5% 15,500
- On additions
(200,000  5%  5/12) + (60,000  5%  10/12) 6,667
- On disposals
(90,000  5%  7/12) 2,625
24,792
(W-2) Accumulated Depreciation of Disposals
Years used (1.4.09 – 1.8.11) 2 years and 4 months 2.3333 years
Example-7
Mr. Ghafoor has provided following data:
Accumulated
Cost Depreciation
1.1.2012 1.1.2012
Building A/c 800,000 250,000
(1) A building costing Rs. 135,000 on 1.4.2009 is exchanged with a new building costing Rs.
400,000 and Rs. 320,000 is paid to settle the transaction. Transaction took place on 30.4.2012.
(2) A building costing Rs. 35,000 is purchased on 1.Dec.2012.
Required:
Prepare Asset a/c, accumulated depreciation a/c and disposal a/c for the year ended December 31, 2012?
Depreciation rate is 10% W.D.V
533
Answer-7
Dr. Building a/c Cr.
1.1.12 b/d 800,000 30.4.12 Disposal 135,000
30.4.12 Disposal 400,000
1.12.12 Cash 35,000
31.12.12 c/d 1,100,000
Disposals (W-2) 37,224 b/d 250,000
Depreciation Exp. (W-1) 75,216
c/d 287,992

Building 135,000 Building 400,000
Cash 320,000 Accumulated Depreciation (W-2) 37,224
Profit & Loss (Bal.) 17,776

WDV of opening assets as on 01.01.12 (800,000 – 250,000) 550,000
Less: WDV of disposal on 01.01.01 (W-2) (101,148)
448,852 x10% 44,885
- Additions
(400,000  10%  8/12) 26,667
(35,000  10%  1/12) 292 26,959
- Disposals (W-2) 3,372
Total 75,216

Cost (1.4.09) 135,000
Dep. Exp. (31.12.09) (135,000  10%  9/12) (10,125)
WDV at (31.12.09) 124,875
Dep. Exp. (31.12.10) 124,875  10%) (12,488)
WDV at (31.12.10) 112,387
Dep. Exp. (31.12.11) (112,387  10%) (11,239)
WDV at (31.12.11) 101,148
Dep. Exp. (31.12.12) (101,148  10%  4/12) (3,372)
WDV (30.04.12) 97,776
Accumulated Depreciation on Disposals (135,000 – 97,776) 37,224
Journal entry
Dr. Cr.
Building (New) 400,000
Profit & Loss (Bal.) 17,776
Building (old) 135,000
Cash 320,000
534
Note:
1. Sometimes cash paid to settle the transaction will not be given in the question rather you will be
provided with trade-in-allowance. Trade-in-allowance is the value assigned by the shopkeeper to
our old asset. In such case cash paid can be calculated through following equation:
Cash paid = Cost of new asset - Trade in allowance
2. Gain/ (loss) on exchange of asset can be calculated through shortcut way as follows:
Gain/ (loss) = Trade in allowance - Book value of asset disposed off
Cost of exchanged asset in certain circumstances

Sometimes the fair market value of new asset is not known in the exchange transaction, in this case cost
of new asset will be calculated in the following way.
Scenario Cost of new asset to be debited in exchange
entry
Only fair value of new asset is given Fair value of new asset
Fair value of new asset is not given but fair value of Fair value of old asset + cash paid
old asset is given Fair value of old asset  cash received
Fair value of old assets and fair value of new assets Fair value of old asset + cash paid
both known Fair value of old asset  cash received
Fair value of both new asset and old asset is not Book value of old asset + cash paid
given/ Transaction lack commercial substance Book value of old asset  cash received
Transaction lack commercial substance means that future cash flows from new asset change minimally.
Example
Mr. Umair has exchanged an asset with a new one. The cost of old asset and its accumulated depreciation
on date of disposal is Rs.40,000 and Rs.13,000 respectively. Cash paid to settle the transactions was
Rs.18,000.
Required:
Pass journal entries under 3 independent scenarios.
(1) Fair market value of new asset is Rs. 50,000.
(2) Fair market value of new asset is not known and fair market value of old asset is Rs. 25,000.
(3) Fair market value of old and new asset is not known.
Solution
(1) Dr. Cr.
Asset (new) 50,000
P/L (Bal.) 5,000
Asset (old) 40,000
Cash 18,000
(2) Dr. Cr.
Asset (new) (25,000 + 18,000) 43,000
P/L (Bal.) 2,000
Asset (old) 40,000
Cash 18,000
(3) Dr. Cr.
Asset (new) (27,000 + 18,000) 45,000
Asset (old) 40,000
Cash 18,000
535
LO8: PREPARING FIXED ASSET ACCOUNT AT BOOK VALUE

Under this method, depreciation is directly charged to an Asset Account by debiting Depreciation
Account and crediting the Asset Account. At the end of the accounting period, depreciation Account is
closed by transferring it to the Profit and Loss Account. In the Balance Sheet, the asset appears at its
written down value (cost less depreciation provided to-date). Here, actual cost of an asset and the total
amount of depreciation that has been provided (to-date) cannot be ascertained from the Balance Sheet.
Entry Dr. Cr.

4. Recording depreciation expense Depreciation expense a/c xxx
when asset a/c is prepared at book value Asset a/c – at book value xxx
Entry Dr. Cr.

5. Entry for disposal of asset when asset Cash xxx
a/c is prepared at book value P/L a/c (balancing) xxx
Asset a/c – at book value xxx
Entry Dr. Cr.

6. Entry on exchange of asset when asset Asset a/c – at book value (cost of new xxx
a/c is prepared at book value asset)
Asset a/c – at WDV (WDV xxx
of old asset)
Cash xxx
[Refer Q. 63-69 of practice set]
Example-1
Mr. Umer has provided the following data.
1.1.2008
Furniture – book value 700,000
(1) During the year on 1. April, 2008 a additions of Rs. 80,000 took place.
(2) On 30.06.08 an asset costing Rs. 120,000 on 1.7.06 is disposed off for Rs. 25,000 only.
(3) Method of depreciation is diminishing balance method and rate is 10%.
Required:
Calculate depreciation expense and prepare asset a/c and disposal a/c for year ended 31.12.08.
Answer
Dr. Furniture a/c – at book value Cr.
1.1.08 b/d 700,000 30.06.08 Disposal 97,470
1.4.08 Cash 80,000 31.12.08 Depreciation 70,870
31.12.08 c/d 611,600

Furniture – BV 97,470 Cash 25,000
P/L (Bal.) 72,470
536

- On opening assets excluding disposals (700,000 – 102,600)  10% 59,740
- On additions (80,000  10%  9/12) 6,000
- On disposals (W-2) 5,130
70,870
(W-2) Book value of Disposals
Cost (1.7.06) 120,000
Depreciation (31.12.06) (120,000  10%  6/12) (6,000)
WDV (31.12.06) 114,000
Depreciation (31.12.07) (114,000  10%) (11,400)
WDV (31.12.07) 102,600
Depreciation (30.06.08) (102,600  10%  6/12) (5,130)
WDV (30.06.08) 97,470
Disposal entry
Cash 25,000
P/L (Bal.) 72,470
Furniture – BV 97,470
Example-2
Mr. Atif has provided the following data.
1.1.2013
Building – book value 500,000
(1) On 1 October, 2013 a new building was purchased costing Rs. 60,000.
(2) On 31.3.13 an old building costing Rs. 90,000 on 1.1.11 is disposed off for Rs. 60,000.
(3) ON 30.06.13 another building having book value of Rs. 50,000 on 1.1.13 is disposed off for Rs.
4,200 only.
(4) Rate of depreciation is 15% WDV method.
Required:
Relevant a/c for year ended 31.12.13.
Answer
Dr. Building a/c – at book value Cr.
1.1.13 b/d 500,000 31.3.13 Disposal 62,587
1.1.13 Cash 60,000 30.06.13 Disposal 46,250
31.12.13 Depreciation 66,184
31.12.13 c/d (Bal.) 384,979
Building – BV 62,587 Cash 60,000
Building – BV 46,250 Cash 4,200
P/L (Bal.) 44,637
(500,000 – 65,025 – 50,000)  15% 57,746
- On additions
(60,000  15%  3/12) 2,250
- On disposals
(2,438 + 3,750) 6,188
66,184
537
(W-2) Book value of Disposal in point 2

Cost (1.1.11) 90,000
Depreciation (31.12.11) (90,000  15%) (13,500)
WDV (31.12.12) 76,500
Depreciation (31.12.12) (76,500  15%) (11,475)
WDV (31.12.12) 65,025
Depreciation (31.03.13) (65,025  15% 3/12) (2,438)
WDV (31.03.13) 62,587
(W-3) Book value of Disposals in point 3

Book value (1.113) 50,000
Depreciation (30.06.13) (50,000  15% 6/12) (3,750)
WDV (30.06.13) 46,250
LO9: FIXED ASSET SCHEDULE/ DISCLOSURE NOTE (SAMPLE)
Plant &
Particular Building Vehicle Furniture
Machinery
Cost
As on Jan.1.01
Addition during the year
Revaluation
Disposal
As on Dec. 31. 01
Depreciation
As on Jan.1.01
Depreciation for the year
Disposal
Revaluation
As on Dec. 31. 01
WDV on Dec. 31, 01
Rate %
Depreciation method
LO10: REVALUATION OF PROPERTY PLANT AND EQUIPMENT

Measurement after initial recognition
Two measurement models after acquisition of non-current asset are as follows:
(1) Cost model
After recognition as an asset, an item of property, plant and equipment shall be carried at its cost
less any accumulated depreciation and any accumulated impairment losses.
(2) Revaluation model
After recognition of an asset, an item of property, plant and equipment whose fair value can be
measured reliably shall be carried at a revalued amount which is its fair value at the date of the
revaluation less any subsequent accumulated depreciation and accumulated impairment losses.
The fair value of land and buildings is usually determined from market-based evidence by
appraisal that is normally undertaken by professionally qualified valuers.
If an item is revalued, the entire class of assets to which that asset belongs should be revalued.
Revalued assets are depreciated in the same way as under the cost model.
538
Frequency of revaluation
Under the revaluation model, revaluations should be carried out regularly, so that the carrying
amount of an asset does not differ materially from its fair value at the balance sheet date.
Accounting treatment of revaluation increase/decrease
Change in Carrying Initial Subsequent
Amount
Increase Included in Other Included in OCI and increases
comprehensive income revaluation surplus unless it reverses a
(heading “Revalution revaluation decrease of the same asset
surplus”) previously recognized in profit or loss.
Decrease Debited to Profit or loss Debited to profit or loss unless any credit
balance exists in the revaluation surplus
Accounting treatment of accumulated depreciation a/c at the time of revaluation

It is eliminated against the gross carrying amount of the asset and the net amount is restated to the
asset’s revalued amount.
Treatment of Revaluation surplus
Transfer revaluation surplus on yearly basis to retained earnings (it will be the difference between
depreciation based on the revalued carrying amount and depreciation based on original cost).
Treatment of Revaluation surplus on disposal of asset
Transfer full amount appearing in balance sheet to retained earnings
LO11: DISCLOSURES / NOTE
The financial statements shall disclose, for each class of property, plant and equipment:
(a) The measurement bases used (i.e. cost model or revaluation model); (Narrate)
(b) The depreciation methods used; (Narrate)
(c) The useful lives or the depreciation rates used; (Narrate)
(d) The gross carrying amount and the accumulated depreciation at the beginning and end of the
period; and (Table)
(e) A reconciliation of the carrying amount at the beginning and end of the period showing:
(i) Additions;
(ii) Acquisitions through business combinations; (Detail in CA Final)
(iii) Increases or decreases resulting from revaluations
(iv) Impairment losses
(v) Disposals;
(vi) Depreciation;
The financial statements must also disclose:
 the existence and amounts of restrictions on title, and property, plant and equipment pledged as
security for liabilities; (Narrate)
 the amount of expenditures recognised in the carrying amount in the course of its construction;
 the amount of contractual commitments for the acquisition of property, plant and equipment;
 if it is not disclosed separately in the statement of comprehensive income, the amount of
compensation from third parties for items of property, plant and equipment that were impaired,
lost or given up that is included in profit or loss. and
Disclosures for assets stated at revalued amounts
When items of property, plant and equipment are stated at revalued amounts following must be disclosed:
 the effective date of the revaluation;
 whether an independent valuer was involved;
539
 the extent to which the items’ fair values were determined directly by reference to observable
prices in an active market or recent market transactions on arm’s length terms or were estimated
using other valuation techniques
 for each revalued class of property, plant and equipment, the carrying amount that would have
been recognised had the assets been carried under the cost model; and
 the revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.
Additional disclosures encouraged by IAS 16

IAS 16 encourages disclosure of the following information as users of financial statements might find it to
be useful.
 the carrying amount of temporarily idle property, plant and equipment;
 the gross carrying amount of any fully depreciated property, plant and equipment that is still in
use;
 the carrying amount of property, plant and equipment retired from active use and held for
disposal; and
 when the cost model is used, the fair value of property, plant and equipment when this is
materially different from the carrying amount.
LO12: ALTERNATE NAMES FOR DIFFERENT TERMINOLOGIES

Main Name Alternate names
Residual value Scrap value, Salvage value
Diminishing Written down value method/ Book value method/ Carrying amount method/ Net
balance method book value Method/ Declining balance method/ Reducing balance method.
Output method Number of Units produced method/Units of production method/ Machine Hours
method/ Service hours method/ Usage method/ Mileage method
Trade-in-allowance Exchange allowance
LO13: TYPES OF QUESTIONS

Questions in Questions in
No. Scenario
Practice Set Past papers
1. Calculation of cost of asset - 1-3, 14
2. Questions in which opening balance of asset account is given and closing balance 17, 19, 26
is required (or only calculations are required)
2.1 Cost and accumulated dep. a/c are prepared:
- Straight line 6-17, 32-41,49 4, 9, 16
(including fully depreciated) 42,43
- WDV normal questions 25-29,44-48, 50 7
- Other methods of depreciation 30,31 5, 6
- Question of exchange of assets (Straight line or WDV) 58-61 12, 13, 14
(b), 15, 26)
2.2 Asset a/c is prepared at WDV 62-68 18
3. Change in accounting estimate 51-57 10, 11, 20
4. Typical questions in which closing balance of asset and accumulated depreciation 70 -
a/c is given in which adjusted a/c is required or only rectifying entries are required
5. Correction of past year error -
6. Disclosures -
7. Revaluation of non-current assets 71-80 21-25, 27.
540
PRACTICE QUESTIONS
Question-1
Mr. Atif has purchased a vehicle. Its cost on January 1, 2008 was Rs. 50,000. Its life is 4 years.
Calculate depreciation for 4 years using straight line method. Year end is December 31. (2)
Question-2
Mr. Latif has purchased a plant. Its cost on 1.4.2008 was Rs. 50,000. Its life is 4 years. Calculate
depreciation expense for year ended December 31, 2008, 2009 and 2010. (2)
Question-3
Mr. Arif has purchased a vehicle. Its cost on 1.5.2008 was Rs. 70,000. Its life is 5 years. Calculate
depreciation expense for 2008, 2009, 2010, 2011. Year end is December 31. (2)
Question-4
Mr. Atif has purchased an asset on 1.4.2004 for Rs. 50,000. Its residual value is 10,000 and rate of
depreciation is 25% straight line. Year end is 31 December. (3)
Required:
Calculate depreciation from 2004-2007.
Question-5
Mr. Zeeshan has purchased an asset on 1.7.2004 for Rs. 70,000. Its residual value is Rs. 20,000 and useful
life is 4 years. Method used is straight line.
Required:
Calculate depreciation from 2004-2006 assuming year end is December 31. (3)
Question-6
Mr. Anjum has started the business on January 1, 2009 of trading in shoes. He has disclosed the following
data for first three years of his business operations which relates to additions in fixed assets:
Date of Purchase Cost

Year end December 31, 2009
- Asset-1 1.1.2009 30,000
- Asset-2 1.7.2009 10,000

- Asset-3 1.4.2010 50,000

- Asset-4 1.7.2011 60,000
Useful life of all assets is 4 years.
Required:
Prepare an asset a/c, accumulated depreciation a/c and balance sheet extracts using above mentioned
information for first three years of operations. (5)
Question-7
Mr. Sultan has started the business on January 1, 2010 of trading in computers. He has disclosed the
following data for first two years of his business operations which relates to additions in fixed assets:
541

Asset – 1 1.1.2010 30,000
Asset – 2 1.4.2010 40,000
Asset – 3 1.6.2010 50,000
Asset – 4 1.3.2011 70,000
Rate of depreciation is 25% per annum using straight line method.
Required:
Prepare asset A/C, Accumulated Depreciation A/C for year ended December 31, 2010, 2011, 2012. (5)
Question-8
Mr. Waqar has started the business on January 1, 2013 of trading in chairs. He has disclosed the following
data for first two years of his business operations which relates to additions in fixed assets:
Building – 1 1.1.2013 10,000
Building – 2 1.5.2013 15,000
Building – 3 1.8.2014 13,000
Building – 4 1.9.2014 12,000
Useful life of all assets is 6 years and method used for depreciation is straight line.
Required:
Prepare asset a/c and accumulated depreciation a/c for year ended December 31, 2013 and 2014. (6)
Question-9
Mr. Asif has informed you that following balances are appearing on 1.1.2009 in his books of accounts:
Accumulated
Cost
Depreciation
Vehicles 300,000 113,000
Following is the detail of additions during the year ended December 31, 2009:
Date of
Cost
Purchase
Vehicle – ACT 1.3.2009 10,000
Vehicle – MGY 1.5.2009 15,000
Rate of depreciation is 20% per annum using straight line method.

Required:
Prepare relevant accounts for year ended December 31, 2009. (7)
Question-10
A company started a business on 1 January 20X5. You are to write up the van account and the provision
for depreciation account for the year ended 31 December 20X5 from the information given below.
Depreciation is at the rate of 25 per cent per annum, using the straight line basis of depreciation.
20X5 Bought two vans for Rs. 6,900 each on 1 January

Bought one van for Rs. 7,200 on 1 August (4)
542
Question-11
A company starts in business on 1 January 20X3, the financial year end being 31 December. You are to
show:
(a) The machinery account.
(b) The provision for depreciation account.
(c) The balance sheet extracts for each of the years 20X3, 20X4, 20X5, 20X6.
The machinery bought as follows:

20X3 1 January 1 machine costing Rs. 1,400
20X4 1 July 2 machines costing Rs. 600 each
1 October 1 machine costing Rs. 1,000
20X6 1 April 1 machine costing Rs. 400
Depreciation is over 10 years, using the straight line method, machines being depreciated for the
proportion of the year that they are owned. (8)
Question-12
Mr. Abubakar has provided you the following information.
Machine -1 purchased on 1.1.2007 80,000
Required:
Prepare machine account and accumulated depreciation A/C using straight line basis at 20% for year
ended December 2007 and December 2008 (6)
Question-13
Mr. Asim has started business on 12 February 2008. His year ends on each September 30th. He has
provided the following data.
Vans Purchased
Year ended Sep 30, 2008 Date of purchase Cost
Van 1 1 April 2008 10,000
Van-2 1 June 2008 20,000
Year ended Sep 30, 2009
Van-3 1 December 2008 40,000
Required:
Using straight line basis prepare Van A/C and accumulated depreciation account assuming useful life to
be 10 years. (6)
Question-14
Mr. Amjad has provided you the following data:
Year ended 2009 (31 December)
Date of
Cost Life
Purchase
Machine 1 1.1.09 20,000 5 years
Machine 2 1.7.09 80,000 5 years
Van 1.9.09 40,000 10 years
Residual value for machines and van is 10% of cost.
Required:
Prepare Asset Accounts and Accumulated Depreciation A/C for year ended December 31, 2009 and
December 31, 2010 using straight line method. (5)
543
Question-15
Mr. Baber provided you with following information:
Accumulated
Cost as on Rate
Depreciation
1.1.2009 as on 1.1.2009 S.L
Machinery 600,000 250,000 10%
Vehicle 700,000 90,000 20%
Following are the additions made during the year:
Machinery 1.3.2009 90,000
Vehicle 1.5.2009 80,000
Vehicle 1.6.2009 100,000
Required:
Prepare machinery A/C and vehicle A/C (cost and accumulated depreciation) for December 31, 2009 and
December 31, 2010. (6)
Question-16
Mr. Black has provided you with following information:
Accumulated
Cost as on Rate
Depreciation
1.1.2001 as on 1.1.2001 S.L
Plant and Machinery 600,000 200,000 20%
Furniture 700,000 130,000 10%
Vehicle 800,000 170,000 25%
Following are the additions made in year ended December 31, 2001.
Date Cost
Plant and Machinery 1.1.2001 60,000
Furniture 1.6.2001 80,000
Vehicle 1.9.2001 70,000
Required:
Prepare Assets Accounts and Accumulated Depreciation A/C for year ended December 31, 2001 only. (6)
Question-17
A company, which makes up its financial statements annually to 31 December, provides for depreciation
of its machinery at the rate of 15 per cent per annum using the straight line method. On 31 December
20X8, the machinery consisted of three items purchased as shown:
Rs.
On 1 January 20X6 Machine A Cost 2,000
On 1 September 20X7 Machine B Cost 4,000
On 1 May 20X8 Machine C Cost 3,000
Required:
Your calculations showing the depreciation provision for the year 20X8. (6)
Question-18
Mr. Moin has purchased a machine costing Rs. 600,000 on 1.1.2008. Calculate depreciation for first 4
years using WDV method. Rate is 10%. The year end is December 31. (5)
544
Question-19
Mr. Shaban has purchased a machine costing Rs. 60,000 on 1.4.2008. Calculate depreciation for first 3
years using WDV method. Rate is 10% and year end is 31 December. (3)
Question-20
Mr. Umair purchased a computer on 1 March 2007.
Calculate depreciation for first 3 years on WDV method @ 15%. Cost is Rs. 200,000. Year end is
December 31. (2)
Question-21
Mr. Aamir has purchased building on 1.7.2008. Calculate depreciation on WDV method for first three
years @ 20%. Cost is Rs. 300,000. Year end is September 30. (2)
Question-22
A Gill, purchased a notebook PC on 1.1.2005 for Rs. 2,600.lt has an estimated life of four years and a
scrap value of Rs. 200.
She is not certain whether she should use the straight line or the reducing balance basis for the purpose of
calculating depreciation on the computer.
Required:
Calculate the depreciation (to the nearest Rs.) using both methods for four years under each method.
(Assume that 45 per cent per annum is to be used for the reducing balance method). Year end is
December 31. (4)
Question-23
A machine costs Rs. 8,000 on 1.1.2005. It will be kept for five years, and then sold for an estimated figure
of Rs. 2,400. Show the calculations of the figures for depreciation (to nearest Rs.) for each of the five
years using (a) the straight line method, (b) the reducing balance method, for this method using a
depreciation rate of 20 per cent. Year end is December 31. (4)
Question-24
A photocopier costs Rs. 23,000 on 1.1.2005. It will be kept for four years, and then traded-in for Rs.
4,000. Show the calculations of the figures for depreciation for each year using (a) the straight line
method, (b) the reducing balance method, for this method using a depreciation rate of 35 per cent. Year
end is December 31. (6)
Question-25
Mr. Taimoor has started the business on January 1, 2009 of manufacturing cars. He has disclosed the
following data for first three years of his business operations which relates to additions in fixed assets:
Asset-1 1.1.2009 30,000
Asset-2 1.7.2009 10,000
Asset-3 1.4.2010 50,000
Asset-4 1.7.2011 60,000
Method is WDV for depreciation and rate is 10%.
Required:
Prepare relevant accounts for years ended December 31, 2009, 2010 and 2011. (6)
545
Question-26
Mr. Wasif has informed you that following balances are appearing on 1.1.2013 in his books of accounts:
Accumulated
Cost
Depreciation
Building 400,000 150,000
Date of
Cost
Purchase
Building – Defence 1.3.2013 300,000
Building – Green Town 1.8.2013 100,000
Method for depreciation is WDV and rate is 20%.
Required:
Question-27
Mr. Ali has informed you that following balances are appearing on 1.1.2013 in his books of accounts:
Accumulated
Cost
Depreciation
Machinery a/c 600,000 300,000
Date of
Cost
Purchase
Cutter machine 1.3.2013 500,000
Molding machine 1.8.2013 250,000
Required:
Question-28
Mr. Faiq has informed you that following balances are appearing on 1.1.2009 in his books of accounts:
Accumulated
Cost
Depreciation
Machinery a/c 600,000 200,000
Date of
Cost
Purchase
Machinery B 1.3.2009 10,000
Machinery C 1.5.2009 70,000

Required:
546
Question-29
A motor vehicle which cost Rs. 12,000 was bought on credit from Trucks Ltd on 1 January 20X6.
Financial statements are prepared annually to 31 December and depreciation of vehicles is provided at 20
per cent per annum under the reducing balance method.
Required:
Prepare the journal entries, the motor vehicle account and the accumulated provision for depreciation on
motor vehicles account for the first two years of the motor vehicle's working life. (6)
Question-30
Mr. A has purchased a machine costing Rs. 100,000 on 1.1.2004. Residual value is Rs. 2,000.
Total life in units 10,000
Units produced in 2004 2,000

Calculate depreciation for each year ending at 31 December under the output method. (3)
Question-31
Mr. B provided the following data:
Cost of machine 300,000
Date of purchase 1.1.2003
Useful life 4 years
Residual value 50,000
Calculate depreciation for each year ending at 31 December under year digit method. (3)
Question-32
Mr. Faiq has provided you with following information:
Accumulated
Cost as on
Depreciation
1.1.2009 as on 1.1.09
Plant and Machinery 500,000 170,000
Vehicle 900,000 300,000
(i) Both are being depreciated at 10% on S.L basis.
(ii) Following additions were made during the year ended 31.12.09:
1 May 09 Plant and machinery 90,000
1 Sep 09 Plant and machinery 120,000
(iii) Following were the disposals during year ended 31.12.09:
1 March 09 Plant and Machinery having cost of Rs. 190,000 purchased on 1 Aug 07 was sold
for Rs. 50,000.
1 June 09 Vehicle having cost of Rs. 40,000 purchased on 1 Sep 06 was sold for Rs. 7,500.
Required:
Write up the necessary ledger accounts to record these transactions for the year ended December 31,
2009. (8)
547
Question-33
The following detail is provided by Mr. Aamir on 1.1.2007
Accumulated
Cost as on
Depreciation as on
01.01.07
01.01.07
Vehicle 1,400,000 650,000
Rate of depreciation is 15% on straight line basis

Following is the further detail for year ended December 31, 2007
Additions
1.Mar.07 200,000
1.May.07 250,000
1.June.07 23,000
Disposals
Description Date of Purchase Date of Disposal Cost Sale proceeds

Vehicle – 1 1.July.05 31.Mar.07 40,000 2,300
Vehicle – 2 1.March.04 30.June.07 70,000 4,700
Vehicle – 3 1.Aug.06 30.Nov.07 90,000 6,600
Required:
Question-34
A company depreciates its plant at the rate of 25 % per annum using straight line method, for each month
of ownership. From the following details draw up the plant account and the provision for depreciation
account for each of the year 20X4, 20X5, 20X6 and 20X7.
20X4 Bought plant costing Rs. 2,600 on 1 January.

Bought plant costing Rs. 2,100 on 1 October.
20X6 Bought plant costing Rs. 2,800 on 1 September.
20X7 Sold plant which had been bought for Rs. 2,600 on 1 January 20X4 for the sum of Rs. 810 on 31
August 20X7.
You are also required to draw up the plant disposal account and the extracts from the balance sheet as at
the end of each year. (8)
Question-35
A company maintains its fixed assets at cost. Depreciation provision accounts for each asset are kept.
At 31 December 20X8 the position was as follows:
Total cost to date Total depreciation to date
Machinery 94,500 28,350
Office furniture 3,200 1,280
The following additions were made during the financial year ended 31 December 20X9.
 Machinery Rs. 16,000, office furniture Rs. 460. Both of the additions were made on 1 October
20X9.
548
 A machine bought on 1 July 20X5 for Rs. 1,600 was sold for Rs. 360 during the year on
31October 20X9.
 The rates of depreciation are:
Machinery 20 percent, office furniture 10 percent, using the straight line basis
You are required to show the asset and accumulated depreciation accounts for the year ended 31
December 20X9. (8)
Question-36
Mr. Ijaz has provided following data for year ended 31 December, 2013:
Accumulated
Cost
Depreciation
1.1.2013 1.1.2013
Machinery 600,000 200,000
- An asset costing Rs. 70,000 is purchased on 1.4.2013.
- An asset costing Rs. 90,000 on 1 November, 2010 is sold for Rs. 36,000 on 30.6.2013.
Required:
Prepare relevant accounts for year ended December 31, 2013 assuming the method is straight line and rate
of depreciation is 10%. (8)
Question-37
A company maintains its fixed assets at cost. Accumulated provision for depreciation accounts are kept
for each asset.
At 31 December 20X8 the position was as follows:
Total Cost To Date Total Depreciation To Date
Rs. Rs.
Machinery 52,950 28,350
Office furniture 2,860 1,490
The following transactions were made in the year ended 31 December 20X9:
(a) Purchased - machinery Rs. 2,480 and office furniture Rs. 320 both on 1 March 20X9
(b) Sold machinery for Rs. 800 on 31 January 20X9 which had cost Rs. 2,800 when purchased on 1
December 20X5.
Depreciation is charged, on a straight line basis, at 10% on machinery and at 5% on office furniture.
Required:
Show the asset and accumulated provision for depreciation accounts for the year 31 December 20X9. (8)
Question-38
Contractors Ltd was formed on 1 January 20X6 and the following purchases and sales of machinery were
made during the first 3 years of operations.
Date Asset Transaction Price

1 January 20X6 Machines 1 and 2 purchase Rs. 40,000 each
1 October 20X6 Machines 3 and 4 purchase Rs. 15,200 each
30 June 20X8 Machine 3 sale Rs. 12,640
1 July 20X8 Machine 5 purchase Rs. 20,000
Each machine was estimated to last 10 years and to have a residual value of 5% of its cost price.
Depreciation was charged by straight line method.
Required:
Calculate
(i) The total depreciation on Machinery for each of the years 20X6, 20X7, and 20X8;
(ii) The profit or loss on the sale of Machine 3 in 20X8. (9)
549
Question-39
A business with its financial year end being 31 December buys two motor vans, No. 1 for Rs. 800 and
No. 2 for Rs. 500, both on 1 January 1991. It also buys another motor van, No. 3, on 1 July 1993 for Rs.
900 and another, No. 4, on 1 October 1993 for Rs. 720. The first two motor vans are sold, No 1 for Rs.
229 on 30 September 1994, and the other, No. 2, was sold for scrap Rs. 5 on 30 June 1995.
Depreciation is on the straight-line basis, 20 percent per annum, ignoring scrap value in this particular
case when calculating depreciation per annum.
Required:
Show the extracts from the assets account, provision for depreciation account, disposal account for the
years ended 31 December 1991, 1992, 1993, 1994, and 1995. (8)
Question-40
Mr. Umer has provided the following data for the year ended Dec. 31, 2008.
Cost Accumulated
1.1.08 Depreciation
Assets 1,400,000 840,000
During the year an asset costing Rs. 370,000 on 1.1.06 is destroyed by fire on 31.5.2008.
Method of depreciation is 10% straight line.
Required:
Prepare relevant accounts and pass the entry for disposal (4)
Question-41 {Fully Depreciated}

Mr. Ali has informed you that following balances are appearing on 1.1.2008 in his books of accounts:
Accumulated
Cost
Depreciation
Vehicles 600,000 200,000
Following is the detail of addition during the year ended December 31, 2008:
Date of
Cost
Purchase
Vehicle 9 1.3.2008 50,000
Cost balance of Rs. 600,000 appearing on 1.1.2008 includes following two assets:
Date of
Cost
Purchase
Vehicle 1 1.4.2003 20,000
Vehicle 2 1.3.2004 30,000
Vehicle 5 which was purchased on 1.1.2006 is sold on 31.5.2008. Its cost was Rs. 40,000.
Required:
Using straight line method, calculate depreciation expense for year ended December 31, 2008. Rate of
depreciation is 20% per annum. Also prepare asset a/c and accumulated depreciation a/c for year ended
December 31, 2008. (8)
550
Question -42 {Fully Depreciated}

Asif has provided you with following data:
Accumulated
Cost as on
Depreciation
1.1.07 1.1.07
Vehicle 600,000 345,000
Following is the breakup of above Assets:
Purchased on 1.7.02 150,000
600,000
- Life of all assets is 5 years.
- Additions made during year ended amounted to Rs. 90,000 as on 1.Mar.07.
- An asset having cost of Rs. 70,000 on 1.7.05 is disposed of on 31.3.07 for Rs. 30,000.
Required:
(i) Prepare relevant accounts for year ended Dec. 31, 2007.
(ii) Calculate depreciation Expense for the year ended Dec. 31, 2007. (8)
Question-43
Arslan has provided you the following data:
Accumulated
Cost as on
Depreciation
1.1.09 1.1.09
Vehicle 700,000 350,000
- Rate of Depreciation is 20% p.a. on S.L basis.
- Above assets include assets purchased on 1.4.04 costing Rs. 200,000.
- Remaining were purchased in 2008.
Additions
Date Cost
1.4.09 200,000
1.7.09 300,000
1.7.10 250,000
Disposals
Cost Date of purchase Date of Sale
30,000 01.03.08 30.6.09
Required:
Calculate depreciation for year ended Dec. 31, 2009 and Dec. 31, 2010 (8)
Question-44
Mr. Ijaz has provided following data for year ended 31 December, 2013:
Accumulated
Cost
Depreciation
1.1.2013 1.1.2013
Machinery 600,000 200,000
- An asset costing Rs. 70,000 is purchased on 1.4.2013.
- An asset costing Rs. 90,000 on 1 November, 2010 is sold for Rs. 36,000 on 30.6.2013.
Required:
Prepare relevant accounts for year ended December 31, 2013 assuming the method is written down value
and rate of depreciation is 10%. (8)
551
Question-45
Mr. Zaki has provided the following details as on 1.1.2008:
Accumulated
Cost as on
Depreciation
1.1.08 as on 1.1.08
Motor Vehicles 830,000 250,000
(i) Detail of addition for year ended Dec. 31, 2008.

On March 01, 2008 150,000
On August 01, 2008 200,000
(ii) During the year on 30.6.08 an asset purchased on September 01, 2006 is sold for Rs. 30,000. Its
cost at the time of purchase was Rs. 150,000.
(iii) Rate of depreciation is 10% on WDV.
Required:
Prepare relevant accounts for the year ended December 31, 2008? (8)
Question-46
Mr. Sannan has provided you with following information:
Accumulated
Cost
Depreciation
1.1.07 1.1.07
Building 2,300,000 800,000
(i) Detail of addition for year ended Dec. 31, 2007

On February 01, 2007 400,000
On April 01, 2007 650,000
(ii) Details of Disposal for year ended Dec. 31, 2007
Date of sale Date of Purchase Cost Sale proceeds
31.08.07 1.1.04 550,000 450,000
31.05.07 1.9.05 700,000 300,000
(iii) Depreciation rate is 10% on diminishing balance method.
Required:
Question-47
Mr. Arslan has provided the following information.
Cost as Accumulated
on Depreciation
1.1.2003 as on 1.1.03
Vehicle 400,000 150,000
(i) Addition during the year ended December 31, 2003
1 Mar 2003 90,000
1 Dec 2003 200,000
(ii) Disposals during the year ended December 31,2003
Date of Purchase Date of Sale Cost Sale proceeds
1.2.2000 31.3.2003 60,000 34,000
(iii) Depreciation rate is 15% on WDV
Required:
552
Question-48
A business buys a fixed asset for Rs. 10,000 on January 1, in the year 1. The business estimates that the
asset will be used for 5 years. After exactly 2.5 years, however, the asset is suddenly sold for Rs. 3,000.
Required:
Write up relevant accounts (including disposal account but not profit and loss account) for each of Years
1, 2 and 3:
(i) Using the straight line depreciation method (assume 20% p.a.);
(ii) Using the reducing balance depreciation method (assume 40% p.a.). (5)
Question-48 (a)
Following balances are appearing in the financial statements of Ahmed & Co. on 1 January 2011:
Particulars Cost Accumulated Depreciation
Vehicle Rs. 500,000 Rs. 220,000
Following additions took place:

Particulars Date Cost (Rs.)
Vehicle-1 March 1, 2011 50,000
Vehicle-2 April 1, 2011 70,000
Vehicle-3 September 1, 2011 80,000
A vehicle costing Rs. 80,000 which was purchased on April, 1 2009 was sold for Rs. 60,000. Co. uses
reducing balance method for charging depreciation. The rate is 10%.
Required:
Prepare vehicle and accumulated depreciation account for the year ended December 31, 2011. Also
prepare disposal account for the disposals of vehicle. (7)
Question-48 (b)
Following balances are appearing in the financial statements of Hamid & Co. on 1 January 2015:
Particulars Cost Accumulated Depreciation
Building Rs. 80,000 Rs. 30,000
Following addition took place:

Particulars Date Cost (Rs.)
Building April 1, 2015 12,000
Following disposal took place:

Date of purchase Date of disposals Cost Sale proceeds
May 1, 2012 June 30, 2015 Rs. 20,000 Rs. 8,000
Required:
Prepare building and accumulated depreciation account for the year ended December 31, 2015. Also
prepare disposals account for disposals of building using straight line method at 10% p.a. (6)
Question-49 {Reverse Back}
Mr. Saad has provided you with following information:
Accumulated
Cost as on Rate
Depreciation
1.1.2012 as on 1.1.2012 S.L
553
Following is the addition made for year ended December 31, 2012.
Date Cost
During the year a plant purchased on 1.7.2009 having book value of Rs. 15,000 is sold on 31.3.2012 for
Rs. 15,800.
Required:
Prepare relevant accounts for year ended December 31, 2012 only. (6)
Question-50 {Reverse Back}
Mr. Umer has provided you with following information:
Accumulated
Cost as on Depreciation Rate
1.1.2012 as on 1.1.2012 W.D.V
Following is the addition made for year ended December 31, 2012.
Date Cost
During the year a plant purchased on 1.8.2009 having book value of Rs. 12,000 is sold on 31.3.2012 for
Rs. 16,300.
Required:
Prepare relevant accounts for year ended December 31, 2012 only. (6)
Question-51 {Change in Estimate}

Mr. Aamir purchased an asset on 1.1.2012 with a life of 10 years. Its cost is Rs. 50,000 and residual value
is Rs. 5,000. On 1.1.2014 he decided to change the life to a total of 4 years and a new residual value of
Rs. 2,000. Year end is December 31 and method is straight line.
Required:
Calculate depreciation expense for 2012, 2013, 2014 and 2015. (4)

Mr. Inzamam-ul-haq has purchased an asset on 1.1.2008 for Rs. 70,000 whose residual value is Rs.
10,000 at the end of useful life of six years. On 1.1.2010 he decided to change the method to WDV using
rate of 33.12%.
Required:
Calculate depreciation expense for the first 6 years of asset’s life? (4)
Question -53 {Change in Estimate}

Mr. Inam has purchased an asset on 1.1.2007 for Rs. 80,000 whose residual value is Rs. 10,000 and rate
of depreciation is 10% WDV. On 1.1.2009 it is decided to change the method to straight line with a
remaining life of 5 years and new residual value of Rs. 5,000.
Required:
Calculate depreciation expense for first 4 years. (3)
Question-54{Change in Estimate}
Mr. Omer purchased a plant costing Rs. 50,000 on 1.Jan.2009. Its expected useful life is 10 years with a
residual value of Rs. 6,000. At start of year 2011 company decided to change the life to 7 years in total
and having a residual value of Rs. 2,000 at the end of life.
Method used is S.L.
Required:
Calculate depreciation expense for year 2009, 2010, 2011 and 2012. Year end is December 31. (4)
554

Mr. Musa purchased a furniture costing Rs. 200,000 on 1.1.2011. Rate of Depreciation decided by
company is 20% using WDV method. The residual value estimated on 1.1.2011 is Rs. 10,000.
The company decided on 1.1.2013 that depreciation method should be S.L with a residual value of Rs.
6,000 at the end of its remaining useful life of 4 years.
Required:
Calculate depreciation expense for 2011, 2012, 2013 and 2014. Year end is 31 December. (4)

Mr. Urva purchased a vehicle costing Rs. 700,000 on 1.1.2012. Initially its life was expected to be 7 years
with a residual value of nil using straight line method. On 1.1.2015 it is decided that total life of asset will
end on 31.12.2016 with a residual value of Rs.15,000
Required:
(a) Calculate depreciation expense for 2012, 2013, 2014, 2015, 2016. Year end is December 31.
(b) Also calculate WDV on 31.12.2016. (4)

A vehicle bought on 1 January 20X0 at a cost of Rs. 16,000. Its useful economic life is estimated at 4
years and its trade-in value at that point is estimated as being Rs. 4,000.
During 20X2 a review of the vehicle's probable useful economic life suggested that it should be retained
until 1 January 20X5 and its residual value should be Rs. 2,500.
Required:
What is the amount of straight line depreciation charged in the profit and loss account in the year to 31
December 20X2 and the amount included in the balance sheet for accumulated depreciation at that date? (4)
Question-58 {Exchange of Assets}

A company has exchanged a car on 30.Sep.2010 with a new car. The cost of old car is Rs. 60,000 and its
accumulated depreciation on date of exchange is Rs. 37,000. The TIA is Rs. 40,000. Cash amounting to
Rs. 60,400 is paid to acquire the new one.
Required:
Prepare journal entry for exchange. (2)
Question-59
Mr. Asad has provided you following data:
Cost on Accumulated
1.1.2012 Depreciation
on 1.1.2012
Following transaction took place during the year ended 31.12.2012

- A plant costing Rs. 80,000 purchased on 1.4.2009 is exchanged with a new plant on 30.6.2012.
The cost of new plant is Rs. 130,000 and TIA of Rs. 17,000 is agreed and remaining amount is
paid in cash.
- Further additions amounting to Rs. 67,000 are made on 1.Sep.2012
Method used is S.L @ 10%.
Required:
a. Pass the journal entry for exchange.
b. Prepare relevant accounts for year ended December 31, 2012. (8)
555
Question-60
Diamond Ltd. is a trading company making up its account regularly to December 31, each year. At
January 1, 1995 the following balance existed in the records of the company.
Rs.
(i) Building– Cost 500,000
Aggregate depreciation up to 31-12-94 210,000
(ii) Office equipment – Cost 40,000
Aggregate depreciation up to 31-12-94 24,000
The company’s depreciation policies are as follows:
Buildings – depreciation provided at 2% p.a. on cost on straight-line basis.
Office Equipment – depreciation provided at 12.5% per annum on the straight-line basis.
During the two years to December 31, 1996 the following transactions took place:
1. Year ended December 31, 1995
(a) July 1 – Office equipment purchased for Rs. 16,000. This equipment was to replace some
old items, which were given in part exchange. Their agreed part exchange value was Rs.
4,000. They had originally cost Rs. 8,000 and their book value was Rs. 1,000 at the time
of disposal. The company paid the balance of Rs. 12,000 in cash.
(b) October 8, An extension was made to the building at a cost of Rs. 50,000.
2. Year ended December 31, 1996
March 1, office equipment which had cost Rs. 6,000 and with a written down value of Rs. 2,000
at the time of disposal was sold for Rs. 3,000.
Required:
Write up the necessary ledger accounts to record these transactions for the two years ended on December
31, 1996. Separate cost and aggregate depreciation account are required. (10)
Question-61
Distance Limited owned three lorries at 1 April 20X6:
A Purchased on 21 May 20X2 at a Cost of Rs. 31,200
B Purchased on 20 June 20X4 at a Cost of Rs. 19,600
C Purchased on 1 January 20X6 at a Cost of Rs. 48,800
Depreciation is charged annually at 20% on cost.
During the year ended 31 March 20X7, the following transactions occurred:
(i) 1 June 20X6 lorry B was involved in an accident and considered to be a write off by the insurance
company which paid Rs. 10,500 in settlement.
(ii) 7 June 20X6 lorry D was purchased for Rs. 32,800
(iii) 21 August 20X6 lorry A was sold for Rs. 7,000
(iv) 3 October 20X6 lorry E was purchased for Rs. 39,000
(v) 6 March 20X7 lorry E was considered not to be suitable for carrying the type of goods required
and was exchanged for lorry F. The value of lorry F was deemed to be Rs. 37,600.
Required:
Prepare the ledger T-accounts recording these transactions for the year ending 31 March 20X7 and bring
down the balances at 1 April. (12)
Question-62
Mr. Nasir has disclosed the following data:
1.1.2009
Furniture – book value 25,000
Following transactions took place during the year ended December 31, 2009.
Additions Cost Date of purchase
60,000 1.3.2009
90,000 1.6.2009
556
Disposals
Sale proceeds Cost Date of Purchase Date of Disposal
12,000 30,000 1.4.2007 30.9.2009
Required:
Prepare asset A/C and disposal A/C. Rate of depreciation is 20% W.D.V (5)
Question-63
Books of Mr. Amjad show a balance of Rs. 200,000 on 1.1.2011 which represents book value of assets on
that date. During the year following transactions took place
Rs.
Additions 1.3.2011 30,000
1.5.2011 70,000
Disposal Cost Date of sale Sale proceeds Date of purchase

90,000 30.4.2011 60,000 1.1.2008
Method is W.D.V @ 10%
Required:
Prepare asset account at BV and disposal A/C for the year ended December 31, 2011. (4)
Question-64
Mr. Sannan has provided you with following information:
Book value
1.1.07
Building 1,500,000
(i) Detail of addition for year ended Dec. 31, 2007

On February 01, 2007 400,000
On April 01, 2007 650,000
(ii) Details of Disposal for year ended Dec. 31, 2007
Date of sale Date of Purchase Cost Sale proceeds
31.08.07 1.1.04 550,000 450,000
31.05.07 1.9.05 700,000 300,000
(iii) Depreciation rate is 10% on diminishing balance method.
Prepare relevant accounts for the year ended December 31, 2007. (4)
Question-65
ABC Ltd. has a building A/c having book value of Rs. 700,000 on 1.1.2011. The depreciation is directly
credited to asset a/c and no separate accumulated depreciation account is maintained.
During the year ended 31.12.2011, following transactions took place:
Additions of Rs. 80,000 took place on 1.3.2011.
Disposals Date of disposals Book value on 1.1.2011 Sale proceeds

First disposal 31.3.11 95,000 77,000
Second disposal 30.11.11 33,000 35,000
Required:
Prepare relevant accounts assuming that rate is 30% WDV. (8)
557
Question -66
Mr. Waqar Younis has provided following data:
1.1.2010
Furniture – Book value 35,000
Following transactions took place during the year.
(1) Additions of Rs. 12,000 took place on 1.3.2010.

(2) During the year an old asset having book value of Rs. 7,000 on 1.1.2010 is exchanged with a new
asset costing Rs. 20,000. The exchange transaction took place on 31.3.2010. Cash paid was Rs.
7,500.
(3) Rate of depreciation is 15% W.D.V.
Required:
Prepare relevant accounts at book value (6)
Question-67
Mr. Arif has disclosed following information:
1.1.2008
Furniture – WDV 50,000
(1) Furniture costing Rs. 15,000 on 1.07.06 is exchanged with a new furniture costing Rs. 18,000 on
01.04.08. Net cash paid is Rs. 4,000.
(2) Another furniture having book value of Rs. 3,000 on 1.01.08 is sold on 01.06.08 for Rs. 1,200.
Required:
Prepare relevant account assuming 15% WDV. Year end is 31 December. (5)
Question-68
Mr. Umer has provided the following data
Building a/c at book value Rs.400,000
Following transactions took place during the year.
(1) Additions made Rs. 30,000 on 1.6.2008
(2) An asset having cost of Rs. 50,000 on 1.4.2006 is sold on 30.6.2008 for Rs. 12,000.
(3) An asset having book value of Rs. 70,000 on 1.1.2008 is exchanged with a new asset by paying
Rs. 80,000. The trade-in-allowance agreed was Rs. 12,000. The transactions date was
30.Nov.2008.
(4) Rate of depreciation is 20% W.D.V.
Required:
(1) Asset a/c for year ended December 31, 2008 and disposal a/c.
(2) Also prepare asset a/c for year ended December 31, 2009 assuming no additions and deletions
took palace. (8)
Question -69 {Reverse Back}

Following is the detail of fixed assets as on 1.1.2007 for MJE.
Accumulated
Description Method Cost
Depreciation
Furniture S.L 10% with R.V of 5 % of cost. 100,000 ?
Computer WDV 5% 200,000 ?
Vehicle WDV 10% 300,000 80,000
558
(i) 70% of furniture was bought on 1.3.2003 and 30% on 1.4.93. Furniture having book value of Rs.
5,000 purchased on 1.3.03 was sold on 30.9.2007 at a gain of Rs. 6,000.
(ii) All computers were purchased on 1.4.04. w.e.f 1.1.2007 it is decided to change the method of
depreciation for computer to S.L with remaining life of 3 years and residual value of Rs. 3,000.
(iii) A vehicle costing Rs. 20,000 purchased on 1.7.2005 was traded in with a new vehicle on 1.4.2007
by paying Rs. 9,000 and loss on transaction was Rs. 4,000.
(iv) A vehicle having book value of Rs. 5,000 purchased on 1.3.03 was sold on 30.11.2007 for Rs.
2,000.
(v) On October 1, 2007 MJE transferred to its factory a vehicle which had been included in its
trading stock and which bore a price label of Rs. 18,000 in the showroom. MJE makes a gross
profit of 40% of cost, on sale of such assets.
Required:
1. Prepare asset accounts on December 31, 2007.
2. Prepare accumulated depreciation accounts on December 31, 2007.
3. Calculate gain/(loss) on December 31, 2007. (25)
Question-70
Following account balances are appearing in the books of Amjad as on
Accumulated
Cost
Depreciation
31.12.2010
31.12.2010
Furniture 800,000 302,000
Following errors were identified by the auditors for the year ended December 31, 2010.
(i) Advance paid for purchase of furniture to be delivered on 31.3.2011 is debited to furniture
account on 1.7.2010. Amount is Rs. 30,000.
(ii) Asset (furniture) costing Rs. 70,000 purchased on 1.4.2008 is exchanged with new furniture
costing Rs. 100,000 on 31.3.2010. Cash of Rs. 12,000 is paid to settle the transaction. The
accountant has ignored the exchange transaction and has debited Rs. 12,000 to asset account
against cash paid.
(iii) Plant and machinery costing Rs. 80,000 purchased on 1.4.2009 was sold on 30.9.2010 for Rs.
33,000 and sale proceeds were credited to plant and machinery A/C.
Rate of Depreciation for both assets is 10% S.L.

Required:
(a) Prepare the journal entries to correct the above errors.
(b) Prepare adjusted Plant and Machinery A/C
Note: Ignore depreciation adjustments for the year while passing journal entries. (10)
Question-71 {Revaluation}
A company acquired a land for Rs. 600,000 on January 1, 2009. For land the revaluation model is used.
The value of land on respective dates is as follows:
Rs.
December 31, 2009 750,000
December 31, 2010 580,000
December 31, 2011 650,000
December 31, 2012 800,000
Prepare the journal entries and land account from year ended December 31, 2009 to December 31, 2012.(4)
(Prepare relevant ledger)
559
ABC Company acquired land for Rs. 700,000 on Jan. 1, 2005. The company uses revaluation model for
valuation of its assets. The value of land on respective dates is as follows:
Revalued
Revaluation date
amount
Dec. 31, 2005 800,000
Dec. 31, 2006 680,000
Dec. 31, 2007 750,000
Dec. 31, 2008 825,000
Required:
Prepare journal entries and also prepare Land account from year ended December 31, 2005 to December
31, 2008. (4)
Cost of plant at 1/1/20X1: 100,000
Depreciation: 10% per annum to a nil residual value
1/1/20X2 180,000
1/1/20X3 60,000
1/1/20X4 77,000
1/1/20X5 120,000
The company’s policy is to transfer the realised portion of the revaluation surplus to retained earnings as
the asset is used.
Required:
Show the journal entries and ledger accounts for each of the years ended 31 December 20X1 to 20X5 (14)
A company acquired a building for Rs. 500,000 on January 1, 2010. The building is depreciated over its
useful life of 20 years. For building the revaluation model is used. The value of building on respective
dates is as follows:
Revaluation date Fair value in Rs.

January 1, 2011 550,000
January 1, 2012 380,000
January 1, 2013 750,000
January 1, 2014 800,000
Show the journal entries and ledger accounts for each of the years ended 31 December 2010 to 2014.1(14)
Question-75{Revaluation}
XYZ Limited acquired a building for Rs. 100,000 on July 1, 2006. The following information relating to
the building is available:
(i) It is being depreciated on the straight line basis, over 10 years.
560
(ii) FPL uses the revaluation model for subsequent measurement of its property, plant and equipment
and accounts for revaluations on the net replacement value method. The details of revaluation
carried out by the independent values during the past years are as follows:
Revaluation date Fair value (Rs. In ‘000’)

June 30, 2007 150
June 30, 2008 70
June 30, 2009 120
(iii) FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on
an annual basis.
(iv) There is no change in the useful life of the building.
Required:
Prepare the journal entries to record the above transactions form the date of acquisition of the building to
the year ended June 30, 2009. (4)
ABC Limited purchased a plant for Rs. 350,000 on 1 July 2010. The plant has an estimated useful life of
20 years and no residual value.
ABC uses revaluation model for subsequent measurement of its property, plant and equipment and
accounts for revaluations on net replacement value method. The details of revaluations performed by an
independent firm of valuers are as follows:
Revaluation date Fair value

30 June 2011 Rs. 475,000
30 June 2012 Rs. 390,000
30 June 2013 Rs. 380,000
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the
year ended 30 June 2014. (3)
Cost of plant at 1/1/2001: 200,000
Depreciation: 10 years to a nil residual value
Details of revaluation performed by an independent valuer are as follows:

Date Fair Value
31/12/2002 280,000
31/12/2003 80,000
31/12/2004 60,000
31/12/2005 120,000
the asset is used.
Required:
year ended 31 December 2005. (Prepare relevant ledger) (10)
561
Mian Limited acquired a plant for Rs. 100 million on July 1, 2015. The following information relating to
the plant is available:
(ii) ML uses the revaluation model for subsequent measurement of its property, plant and equipment
Revaluation date Fair value (Rs. In ‘million’)
June 30, 2016 80
June 30, 2017 95
June 30, 2018 110
(iii) ML transfers the maximum possible amount from the revaluation surplus to retained earnings on an
annual basis.
Required:
Prepare the journal entries to record the above transactions form the date of acquisition of the Plant to the
year ended June 30, 2018. (Prepare relevant ledger) (10)
Alvi Limited purchased a plant for Rs. 500,000 on 1 July 2010. The plant has an estimated useful life of
20 years and no residual value.
AL uses revaluation model for subsequent measurement of its property, plant and equipment and accounts
for revaluations on net replacement value method. The details of revaluations performed by an

1 July 2011 Rs. 480,000
1 July 2012 Rs. 390,000
1 July 2013 Rs. 450,000
Required:
year ended 30 June 2014. (Prepare relevant ledger) (10)
Cost of plant at 1/1/2011: 600,000
Depreciation: 15 years to a nil residual value
Details of revaluation performed by an independent valuer are as follows:

Date Fair Value
31/12/2012 550,000
31/12/2015 100,000
the asset is used.
Required:
year ended 31 December 2015. (Prepare relevant ledger) (10)
562
Question-81 {Revaluation} {Disposal}

Moin purchased a plant for Rs.300 million on 1 January 2010. The plant has an estimated useful life of 10
years and no residual value.
1 January 2011 Rs.500 million
The plant is sold for Rs.750 million on March 31, 2011.

Required:
Prepare journal entries to record the above transactions.
Question-82 {Revaluation} {Disposal}

Abid Limited (AL) uses the revaluation model for subsequent measurement of its property, plant and
equipment and has a policy of revaluing its assets on an annual basis using the net replacement value
method.
The following information pertains to AL’s buildings:
(i) Four similar buildings were acquired in same vicinity on 1 January 2012 at a cost of Rs.300
million. The useful life of the buildings on the date of acquisition was 20 years.
(ii) AL depreciates buildings on the straight line basis over their useful life.
(iii) The result of revaluations earned out during the last three years by Premier Valuation Service, an
independent firm of valuers, are as follows:
Rs. In million
1 January 2013 323
1 January 2014 252
1 January 2015 272
(iv) On 30 June 2015, one of the buildings was sold for Rs.80 million.
Required:
(a) Prepare
Building account and accumulated depreciation account for the year ended December 31, 2012,
2013, 2014 and 2015.
(b) Journal Entries.
Question-83 {Revaluation with Disclosure}
The following information pertains to Akhtar Limited (AL).

(1) AL purchased a plant for Rs. 400 million on January 01, 2016 and installed at the cost of
Rs.34 million. The plant was acquired by obtaining a specific loan from Habib Bank Limited
(HBL) for the plant of 400 million at a markup of 12% . The remaining amount was paid
through running finance facility which carries markup at 12.5% . The specific loan is payable
by December 31, 2019. AL had mortgaged the plant to obtain the specific loan.
The plant has an estimated useful life of 7 years with no residual value.
AL uses revaluation model for subsequent measurement of its plant and machinery and
accounts for revaluations on net replacement value method. The details of revaluations
performed by an independent firm of valuers “Ghaznavi & Co” are as follows:
30 December 2016 Rs. 360 million
563
On account of mishandling the plant during December 2018 the plant needs some repairs.
The plant could be sold at its fair value as determined by valuer on 30 December 2018 after
incurring some repair and selling cost of Rs. 15 million. If plant is not sold the following net
cash inflows are expected from its use:
Year ended Cash flows
December 31, 2019 90 million
The proper discount rate to be used for these cash flows is 10%. (Assume that the cash flows
occur at the end of the year).
(2) To open a new factory premises near Multan, an expenditure of Rs. 30 million was spent of
the construction of the factory on 1 June 2018, financed by a loan obtained from the bank at
the rate of 12% per annum. The construction had not been completed at the end of the year.
Moreover, the directors also made a contract with M/s Shaheen Limited to purchase plant
and machinery worth Rs. 100 million once the construction of factory building is completed.
(3) AL purchased buildings, costing Rs. 160 million on 1 July 2014. It is to be depreciated using
the straight-line method, with Rs. 10 million residual value. On 31 December 2016 it has
accumulated depreciation of Rs. 25 million . About 80% buildings are occupied by factory
and remaining for admin purpose
On 1 January 2018, AL decided to change the depreciation method from straight line to
reducing balance method. There is no change in life, however the estimate of residual value
is Rs. 15
(4) AL purchased Cars for its administrative and selling departments, costing Rs. 30 million on
Jan 11, 2015. On January 21, 2018 AL purchased Cars for Rs. 10 million. These are
depreciated over 10 years using the straight-line method, with no residual value.
Required:
Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment in the
notes to the published accounts for the year ended 31 December, 2018
(Comparatives are Required)
Note: you may round off your workings to the nearest millions.
564
PRACTICE SOLUTIONS
Answer-1
Calculation of Depreciation
Rs.
Depreciation for 2008 = 50,000/4 = 12,500
Answer-2
Rs.
Depreciation for 2008 = (50,000/4)  9/12 = 9,375
Answer-3
Rs.
Depreciation for 2008 = (70,000/5)  8/12 = 9,334
Answer-4
Rs.
Depreciation = (Cost – residual value)  Rate per annum
Depreciation for 2004 = (50,000-10,000) 25%  9/12 = 7,500
Depreciation for 2005 = (50,000-10,000)  25% = 10,000
Answer-5
Rs.
Depreciation = (Cost – residual value)
Useful life
Depreciation for 2004 = (70,000 – 20,000)  6/12 = 6,250
4
Depreciation for 2005 = (70,000 – 20,000) = 12,500
4
Depreciation for 2006 = (70,000 – 20,000) = 12,500
4
Answer-6
Dr. Asset A/c Cr.
1.1.09 b/d -
1.1.09 Cash 30,000
1.7.09 Cash 10,000 31.12.09 c/d 40,000
1.1.10 b/d 40,000
1.4.10 Cash 50,000 31.12.10 c/d 90,000
1.1.11 b/d 90,000
1.7.11 Cash 60,000 31.12.11 c/d 150,000
565

1.1.09 b/d -
31.12.09 c/d 8,750 Depreciation expense 8,750
1.1.10 b/d 8,750
1.1.11 b/d 28,125
Mr. Anjum
Balance Sheet (extracts)
As on 31st December
2009 2010 2011
Asset a/c 40,000 90,000 150,000
Less: Accumulated Depreciation (8,750) (28,125) (58,125)
31,250 61,875 91,875
Workings
(W-1) Calculation of depreciation
For 2009
On additions (30,000/4) + (10,000/4  6/12) 8,750
For 2010
On opening assets (40,000/4) 10,000
On additions (50,000/4  9/12) 9,375
19,375
For 2011
On additions (60,000/4  6/12) 7,500
30,000
Answer-7
Dr. Asset A/c Cr.
1.1.10 b/d -
1.1.10 Cash 30,000
1.4.10 Cash 40,000
1.6.10 Cash 50,000 31.12.10 c/d 120,000
1.1.11 b/d 120,000
1.3.11 Cash 70,000 31.12.11 c/d 190,000
1.1.12 b/d 190,000
31.12.12 c/d 190,000

1.1.10 b/d -
1.1.11 b/d 22,292
1.1.12 b/d 66,876
566
Depreciation for 2010
On additions (30,000  25%) + (40,000  25%  9/12) + (50,000  25%  7/12) 22,292
On opening assets (120,000  25%) 30,000
On additions (70,000  25%  10/12) 14,584
44,584
Answer-8
1.1.13 b/d - -
1.1.13 Cash 10,000
1.5.13 Cash 15,000 31.12.13 c/d 25,000
1.1.14 b/d 25,000
1.8.14 Cash 13,000
1.9.14 Cash 12,000 31.12.14 c/d 50,000

1.1.13 b/d -
1.1.14 b/d 3,333
On additions during the year (10,000/6) + (15,000/6  8/12) 3,333

On additions during the year (13,000/6  5/12) + (12,000/6  4/12) 1,569
5,735
Answer-9
Dr. Vehicle a/c Cr.
1.1.09 b/d 300,000
1.3.09 Cash 10,000
1.5.09 Cash 15,000 31.12.09 c/d 325,000

1.1.09 b/d 113,000
On additions (10,000  20%  10/12) + (15,000  20%  8/12) 3,667
63,667
Answer-10
Dr. Van account - At cost Cr.
1.1.20X5 b/d -
1.1.20X5 Cash (6,900  2) 13,800
1.8.20X5 Cash 7,200 31.12.X5 c/d 21,000
567
Dr. Van account – Accumulated depreciation a/c Cr.

1.1.X5 b/d 0
31.12.X5 c/d 4,200 Depreciation 4,200
Depreciation
Vans bought on 1 January (13,800  25%) 3,450

Vans bought on 1 August (7,200  25%  5/12) 750
4,200
Answer-11
a)
Dr. Machinery account - At cost Cr.
1.1.20X3 Cash 1,400
31.12.X3 c/d 1,400
1.1.20X4 b/d 1,400
1.7.20X4 Cash (600  2) 1,200
1.10.20X4 Cash 1,000 31.12.X4 c/d 3,600
1.1.20X5 b/d 3,600
31.12.X5 c/d 3,600
1.1.20X6 b/d 3,600
1.4.20X6 Cash 400 31.12.X6 c/d 4,000
b)
Dr. Machinery account-Accumulated depreciation a/c Cr.
1.1.X3 b/d 0
31.12.X3 c/d 140 Depreciation 140
1.1.X4 b/d 140
1.1.X5 b/d 365
1.1.X6 b/d 725
31.12.X6 c/d 1,115 Depreciation 390
c)
Balance Sheet Extracts
20X3 20X4 20X5 20X6

Machinery account - at cost 1,400 3,600 3,600 4,000
Machinery - accumulated depreciation (140) (365) (725) (1,115)
Net book value 1,260 3,235 2,875 2,885
Depreciation
For 20X3
Machinery bought on 1 January (1,400  10%) 140
For 20X4
On opening assets (1,400  10%) 140
On additions
- Machinery bought on July 1 (1,200  10%  6/12) 60
- Machinery bought on October 1 (1,000  10%  3/12) 25
225
568
For 20X5
For 20X6
On additions
- Machinery bought on April 1 (400  10%  9/12) 30
390
Answer-12
Dr. Machinery Account Cr.
1.1.07 Cash 80,000
1.4.07 Cash 60,000 31.12.07 c/d 140,000
1.1.08 b/d 140,000
1.5.08 Cash 140,000 31.12.08 c/d 280,000
Dr. Accumulated Dep. a/c Cr.

31.12.07 c/d 25,000 31.12.07 Depreciation Exp (W-1) 25,000
1.1.08 b/d 25,000
31.12.08 c/d 71,667 31.12.08 Depreciation Exp (W-2) 46,667
(W-1) Depreciation -2007 (80,000  20%) + (60,000  20%  9/12) 25,000
(W-2) Depreciation -2008

On addition (140,000  20%  8/12) 18,667
46,667
Answer-13
Dr. Van a/c Cr.
1.4.08 Cash 10,000
1.6.08 Cash 20,000 30.9.08 c/d 30,000
1.10.08 b/d 30,000
1.12.08 Cash 40,000 30.9.09 c/d 70,000

30.9.08 c/d 1,167 30.9.08 Depreciation Expense 1,167
1.10.08 b/d 1,167
30.9.09 c/d 7,500 30.9.09 Depreciation Expense 6,333
Depreciation Expense for year ended September 30,2008

(10,000  10%  6/12) + (20,000  10%  4/12) 1,167
Depreciation Expense for year ended September 30,2009
On opening assets 30,000  10% 3,000
On addition 40,000  10%  10/12 3,333
6,333
Answer-14
Dr. Machine a/c Cr.
1.1.09 Cash 20,000
1.7.09 Cash 80,000 31.12.09 c/d 100,000
1.1.10 b/d 100,000
31.12.10 c/d 100,000
569
Dr. Accumulated Dep. Machine a/c Cr.

31.12.09 Depreciation Exp 10,800
31.12.09 c/d 10,800
1.1.10 b/d 10,800
31.12.10 Depreciation Exp 18,000
31.12.10 c/d 28,800
Depreciation – 2009 = (20,000 – 2,000) + (80,000 – 8,000)  6/12 =10,800

5 5
Depreciation – 2010 = (20,000 – 2,000) + (80,000 – 8,000) =18,000
5 5
Dr. Van Account Cr.

01.09.09 Cash 40,000
31.12.09 c/d 40,000
1.1.10 b/d 40,000
31.12.10 c/d 40,000
Dr. Accumulated Dep. a/c (Van) Cr.

31.12.09 Depreciation Expense 1,200
31.12.09 c/d 1,200 (40,000 – 4,000) 
4/12
10
1.1.10 b/d 1,200
31.12.10 Depreciation Expense
31.12.10 c/d 4,800 (40,000 – 4,000) 3,600
10
Answer-15
Dr. Machinery a/c Cr.
1.1.09 b/d 600,000
1.3.09 Cash 90,000 31.12.09 c/d 690,000
1.1.10 b/d 690,000
31.12.10 c/d 690,000
Dr. Accumulated Dep. a/c (Machinery) Cr.
1.1.09 b/d 250,000
31.12.09 c/d 317,500 31.12.09 Depreciation Exp 67,500
1.1.10 b/d 317,500
Depreciation Machinery – 2009

On addition (90,000  10% x 10/12) 7,500
67,500
Depreciation Machinery – 2010
Dr. Vehicle a/c Cr.

1.1.09 b/d 700,000
1.5.09 Cash 80,000
1.6.09 Cash 100,000 31.12.09 c/d 880,000
1.1.10 b/d 880,000 31.12.10 c/d 880,000
570

1.1.09 b/d 90,000
1.1.10 b/d 252,334
Depreciation - 2009 On opening (700,000  20%) 140,000

On addition (80,000  20%  8/12) + (100,000  20%  7/12) 22,334
162,334
Depreciation - 2010 On opening (880,000  20%) 176,000
Answer-16
Dr. Plant and Machinery - At Cost Cr.
1.1.01 b/d 600,000
1.1.01 Cash 60,000
31.12.01 c/d 660,000
Dr. Accumulated Depreciation - Plant and Machinery Cr.

1.1.01 b/d 200,000
31.12.01 Dep. Exp 132,000
31.12.01 c/d 332,000
Depreciation: On opening assets (600,000  20%) 120,000

On addition (60,000  20%) 12,000
132,000
Dr. Furniture – A/C Cr.

1.1.01 b/d 700,000
1.6.01 Cash 80,000
31.12.01 c/d 780,000
Dr. Accumulated Depreciation – Furniture Cr.

1.1.01 b/d 130,000
31.12.01 Dep. Exp 74,667
31.12.01 c/d 204,667
Depreciation: On opening assets (700,000  10%) 70,000

On addition (80,000  10%  7/12) 4,667
74,667
Dr. Vehicle a/c Cr.
1.1.01 b/d 800,000
1.9.01 Cash 70,000
31.12.01 c/d 870,000
Dr. Accumulated Depreciation – Vehicle a/c Cr.

1.1.01 b/d 170,000
31.12.01 Dep. Exp 205,833
31.12.01 c/d 375,833
Depreciation : On opening (800,000  25%) 200,000

On addition (70,000  25%  4/12) 5,833
205,833
571
Answer-17
Depreciation
Depreciation - on opening assets 6,000  15% 900
Depreciation - on additions (3,000  15%  8/12) 300
1,200
Note: The word depreciation provision means depreciation expense and the word provision
for depreciation account means accumulated depreciation account.
Working
Dr. Asset A/c Cr.
1.1.06 Cash 2,000
31.12.06 c/d 2,000
1.1.07 b/d 2,000
1.9.07 Cash 4,000 31.12.07 c/d 6,000
1.1.08 b/d 6,000
1.5.08 Cash 3,000 31.12.08 c/d 9,000
Answer-18
Rs.
Cost 600,000
Depreciation (31.12.2008) (600,000  10%) (60,000)
WDV (31.12.2008) 540,000
Depreciation (31.12.2009) (540,000  10%) (54,000)
WDV (31.12.2009) 486,000
Depreciation (31.12.2010) (486,000  10%) (48,600)
WDV (31.12.2010) 437,400
Depreciation (31.12.2011) (437,400  10%) (43,740)
WDV (31.12.2011) 393,660
Answer-19
Rs.
Cost 60,000
Depreciation (31.12.2008) (60,000  10%  9/12) (4,500)
WDV (31.12.2008) 55,500
Depreciation (31.12.2009) (55,500  10%) (5,550)
WDV (31.12.2009) 49,950
Depreciation (31.12.2010) (49,950  10%) (4,995)
WDV (31.12.2010) 44,955
Answer-20
Cost 200,000
Dep. (2007) (200,000  15%  10/12) (25,000)
WDV 175,000
Dep. (2008) (175,000  15%) (26,250)
WDV 148,750
Dep. (2009) (148,750  15%) (22,313)
126,437
572
Answer-21
Rs.
Cost 300,000
Dep. (2008) (300,000  20%  3/12) (15,000)
WDV 285,000
Dep. (2009) (285,000  20%) (57,000)
WDV 228,000
Dep. (2010) (228,000  20%) (45,600)
182,400
Answer-22
Calculation of Depreciation (Using straight line method)
Rs.
Depreciation for 2005 = (2,600 – 200)/4 = 600
Calculation of depreciation (Using write down value method)

Cost 2,600
Depreciation (2005) (2,600  45%) (1,170)
WDV 1,430
Depreciation (2006) (1,430  45%) (644)
WDV 786
Depreciation (2007) (786  45%) (354)
WDV 432
Depreciation (2008) (432  45%) (194)
WDV (31.12.2008) 238
Answer-23
Calculation of depreciation (Using straight line method)
Rs.
Depreciation for 2005 = (8,000 – 2,400)/5 = 1,120
Calculation of depreciation (Using write down value method)

Cost 8,000
Depreciation (2005) (8,000  20%) (1,600)
WDV 6,400
Depreciation (2006) (6,400  20%) (1,280)
WDV 5,120
Depreciation (2007) (5,120  20%) (1,024)
WDV 4,096
Depreciation (2008) (4,096  20%) (819)
WDV 3,277
Depreciation (2009) (3,277 x 20%) (655)
WDV (31.12.2009) 2,622
573
Answer-24
Calculation of depreciation (Using straight line method)
Rs.
Depreciation for 2005 = (23,000 – 4,000) / 4 = 4,750
Calculation of depreciation (Using write down value method) Rs.

Cost 23,000
Depreciation (2005) (23,000  35%) (8,050)
WDV 14,950
Depreciation (2006) (14,950  35%) (5,233)
WDV 9,717
Depreciation (2007) (9,717  35%) (3,401)
WDV 6,316
Depreciation (2008) (6,316  35%) (2,211)
WDV (31.12.2008) 4,105
Answer-25
Dr. Asset A/c Cr.
1.1.09 b/d -
1.1.09 Cash 30,000
1.7.09 Cash 10,000 31.12.09 c/d 40,000
1.1.10 b/d 40,000
1.4.10 Cash 50,000 31.12.10 c/d 90,000
1.1.11 b/d 90,000
1.7.11 Cash 60,000 31.12.11 c/d 150,000

1.1.09 b/d -
1.1.10 b/d 3,500
1.1.11 b/d 10,900
Calculation for Depreciation

On additions (30,000  10%) + (10,000  10%  6/12) 3,500

On opening assets (40,000 – 3,500)  10% 3,650
On additions (50,000  10%  9/12) 3,750
7,400
On additions (60,000  10%  6/12) 3,000
10,910
574
Answer-26
1.1.13 b/d 400,000
1.3.13 Cash 300,000
1.8.13 Cash 100,000 31.12.13 c/d 800,000

1.1.13 b/d 150,000

On additions during the year (300,000  20%  10/12) + (100,000  20%  5/12) 58,333
108,333
Answer-27
Dr. Asset a/c Cr.
1.1.13 b/d 600,000
1.3.13 Cash 500,000
1.8.13 Cash 250,000 31.12.13 c/d 1,350,000

1.1.13 b/d 300,000

- On opening assets (600,000 – 300,000)  20% 60,000
- On additions (500,000  20%  10/12) + (250,000  20%  5/1/2) 104,167
164,167
Answer-28
1.1.09 b/d 600,000
1.3.09 Cash 10,000
1.5.09 Cash 70,000 31.12.09 c/d 680,000

1.1.09 b/d 200,000
Calculation for Depreciation expense
- On opening assets (600,000 – 200,000)  30% 120,000
- On additions (10,000  30%  10/12) + (70,000  30%  8/12) 16,500
136,500
Answer-29
Dr. Depreciation expense a/c 2,400
Cr. Accumulated Depreciation a/c 2,400
(Depreciation charged on motor vehicles for 2006)
Dr. Depreciation expense a/c 1,920

Cr. Accumulated Depreciation a/c 1,920
(Depreciation charged on motor vehicles for 2007)
575
Dr. Motor Vehicle account - At cost Cr.

1.1.06 Payable to Trucks 12,000
31.12.06 c/d 12,000
1.1.07 b/d 12,000
31.12.07 c/d 12,000
Dr. Motor Vehicle account - At cost Cr.

1.1.06 b/d -
31.12.06 c/d 2,400 Depreciation (W-1) 2,400
1.1.07 b/d 2,400
31.12.07 c/d 4,320 Depreciation(W-1) 1,920
Workings
(W-1) Calculation of depreciation
Cost 12,000
Depreciation (2006) (12,000  20%) (2,400)
WDV 9,600
Depreciation (2007) (9,600  20%) (1,920)
WDV (31.12.2007) 7,680
Answer-30
Depreciation = (Cost – residual value)  No. of units produced in current year
Total units
Depreciation for 2004 = (100,0000 – 2,000)  2,000 = 19,600
10,000
10,000
10,000
Answer-31
Sum of digits = 4 + 3 + 2 + 1 = 10
Depreciation for 2003 = (300,0000 – 50,000) 4 = 100,000
10
10
10
10
Answer-32
Dr. Plant and Machinery A/C Cr.
1.1.09 b/d 500,000 1.3.09 Disposal 190,000
1.5.09 Cash 90,000
1.9.09 Cash 120,000 31.12.09 c/d 520,000
Dr. Accumulated Depreciation – P and M A/C Cr.

Disposal (W-2) 30,083 1.1.09 b/d 170,000
Depreciation Exp (W-1) 44,167
31.12.09 c/d 184,084
576
(W-1) Depreciation Expense – P and M

On opening assets excluding disposals (500,000 – 190,000)  10% 31,000
On additions (90,000  10%  8/12 + 120,000  10%  4/12) 10,000
On disposals (190,000  10%  2/12) 3,167
44,167

Period the asset is used 1 year and 7 months
Dr. Vehicle A/C Cr.
1.1.09 b/d 900,000 1.6.09 Disposal 40,000
31.12.09 c/d 860,000
Dr. Accumulated Dep. A/C - Vehicle Cr.

1.6.09 Disposal 11,000 1.1.09 b/d 300,000
Depreciation Exp 87,667
31.12.09 c/d 376,667
(W-1) Depreciation Expense – Vehicle

On disposals (40,000  10%  5/12) 1,667
87,667
Period asset was used 2 years and 9 months
Dr. Disposal – P and M A/C Cr.

P and M 190,000 Accumulated Depreciation 30,083
Cash 50,000
P/L 109,917
Dr. Disposal – Vehicle A/C Cr.

Cash 7,500
P/L 21,500
Answer-33
Dr. Vehicle A/C Cr.
1.1.07 b/d 1,400,000
1.3.07 Cash 200,000 31.3.07 Disposal 40,000
1.5.07 Cash 250,000 30.6.07 Disposal 70,000
1.6.07 Cash 23,000 30.11.07 Disposal 90,000
31.12.07 c/d 1,673,000
Dr. Accumulated Dep. A/c Cr.
31.3.07 Disposal (W-2) 10,500 1.1.07 b/d 650,000
30.6.07 Disposal(W-2) 35,000
30.11.07 Disposal(W-2) 18,000 Depreciation Exp (W-1) 251,138
31.12.07 c/d 837,638
(W-1)Depreciation Expense
On opening excluding disposals
(1,400,000 – 40,000 – 70,000 – 90,000)  15% 180,000
On additions
(200,000  15%  10/12)+
577
(250,000  15%  8/12) +

(23,000  15%  7/12) 52,013
On disposals
(40,000  15%  3/12) +
(70,000  15%  6/12) +
(90,000  15%  11/12) 19,125
251,138
(W-2) Accumulated Dep. Of Disposals
Disposal on 31.3.07 (1 year and 9 months) (40,000  15%  1.75) 10,500
Disposal on 30.6.07 (3 year and 4 months) (70,000  15 %  3.3333) 35,000
Disposal on 30.11.07 (1 year and 4 months) (90,000  15%  1.3333) 18,000
63,500
Dr. Disposal A/C Cr.
Vehicle 40,000 Accumulated Dep. 10,500
Cash 2,300
Cash 4,700
Cash 6,600
P/L (Bal.) 122,900
Answer-34
Dr. Plant account – At cost Cr.
1.1.20X4 Cash 2,600
1.10.20X4 Cash 2,100 31.12.X4 c/d 4,700
1.1.20X5 b/d 4,700
31.12.X5 c/d 4,700
1.1.20X6 b/d 4,700
1.9.20X6 Cash 2,800 31.12.X6 c/d 7,500
1.1.20X7 b/d 7,500 31.08.X7 Disposal account 2,600
31.12.X7 c/d 4,900
Dr. Plant account – Accumulated depreciation a/c Cr.

1.1.X4 b/d 0
31.12.X4 c/d 781 Depreciation (W-1) 781
1.1.X5 b/d 781
31.12.X5 c/d 1,956 Depreciation (W-1) 1,175
1.1.X6 b/d 1,956
31.08.X7 Disposals (W-2) 2,383 1.1.X7 b/d 3,364
Dr. Plant disposal account Cr.

31.08.X7 Plant account 2,600 31.08.X7 Accumulated dep. (W-2) 2,383
P/L 593 31.08.X7 Cash 810
(W-1) Depreciation
For 20X4
Plant bought on 1 January (2,600  25%) 650
Plant bought on 1 October (2,100  25%  3/12) 131
781
578
For 20X5
For 20X6
On additions
- Plant bought on September 1 (2,800  25%  4/12) 233
1,408
For 20X7
On disposals
- Plant sold on August 31st (2,600  25%  8/12) 433
1,658
(W-2) Accumulated depreciation of disposals

Number of period in use (1.1.20X4 – 31.8.20X7) 3 years and 8 months
Accumulated depreciation (2,600  25%  3.6666 Y) 2,383
Balance Sheet Extracts

20X4 20X5 20X6 20X7
Plant account - at cost 4,700 4,700 7,500 4,900
Plant - accumulated depreciation (781) (1,956) (3,364) (2,639)
Net book value 3,919 2,744 4,136 2,261
Answer-35
Dr. Machinery account – At cost Cr.
1.1.20X9 b/d 94,500 Disposal 1,600
1.10.20X9 Cash 16,000 31.12.X9 c/d 108,900
Dr. Machinery account – Accumulated depreciation a/c Cr.

Disposals (W-2) 1,387 1.1.X9 b/d 28,350
Dr. Office furniture account – At cost Cr.

1.1.20X9 b/d 3,200
1.10.20X9 Cash 460 31.12.X9 c/d 3,660
Dr. Office furniture account – Accumulated depreciation a/c Cr.

1.1.X9 b/d 1,280
31.12.X9 c/d 1,612 Depreciation (W-3) 332
(W-1) Depreciation – machinery

On additions (16,000  20%  3/12) 800
On disposals
- Machinery sold on October 31st (1,600  20%  10/12) 267
19,647
(W-2) Accumulated depreciation of disposals of machinery

Number of period in use (1.7.20X5 – 31.10.20X9) 4 Years and 4 months
Accumulated depreciation (1,600  20%  4.3333 Y) 1,387
579
(W-3) Depreciation - office furniture

On opening assets excluding disposals (3,200  10%) 320
On additions (460  10%  3/12) 12
332
Answer-36
Dr. Machinery – cost Cr.
1.1.13 b/d 600,000 30.6.13 Disposal 90,000
1.4.13 Cash 70,000
31.12.13 c/d 580,000

Disposal (W-2) 24,000 1.1.13 b/d 200,000
31.12.13 c/d 236,750
- On opening assets excluding disposals (600,000 – 90,000)  10% 51,000
- On additions (70,000  10%  9/12) 5,250
- On disposals (90,000  10%  6/12) 4,500
60,750
Years used (2y and 8 months) 2.6667 year
Accumulated Depreciation (90,000  10%  2.6667 years) 24,000

Machinery 90,000 Accumulated Depreciation 24,000
Cash 36,000
P/L (Bal.) 30,000
Answer-37
Dr. Machinery account – At cost Cr.
1.1.20X9 b/d 52,950 Disposal 2,800
1.3.20X9 Cash 2,480 31.12.X9 c/d 52,630
Dr. Machinery account – Accumulated depreciation a/c Cr.

Disposals (W-2) 887 1.1.X9 b/d 28,350
Dr. Office furniture account – At cost Cr.

1.1.20X9 b/d 2,860
1.3.20X9 Cash 320 31.12.X9 c/d 3,180
Dr. Office furniture account – Accumulated depreciation a/c Cr.

1.1.X9 b/d 1,490
31.12.X9 c/d 1,646 Depreciation (W-3) 156
(W-1) Depreciation – machinery

On additions (2,480  10%  10/12) 207
On disposals
- Machinery sold on January 31st (2,800  10%  1/12) 23
5,245
580

Number of period in use (1.12.20X5 – 31.1.20X9) 3 Years and 2 month
Accumulated depreciation (2,800  10%  3.1667 Y) 887
(W-3) Depreciation - office furniture

On opening assets excluding disposals (2,860  5%) 143
On additions (320  5%  10/12) 13
156
Answer-38
(i) Depreciation - 20X6
On additions
Machine 1 and 2 (80,000 – 5% of 80,000) / 10 years 7,600
Machine 3 and 4 (30,400 – 5% of 30,400) / 10 years  3/12 722
8,322
Depreciation - 20X7
On opening assets (110,400 – 5% of 110,400) / 10 years 10,488
Depreciation - 20X8 Rate

On opening assets excluding disposal
Opening assets 110,400
Less: disposals (15,200)
95,200
Less: Residual value (95,200  5%) (4,760)
Depreciable amount 90,440 10% 9,044
On additions (20,000 – 5% of 20,000) / 10 years  6/12 950

On disposals
- Machinery sold on June 30th (15,200 – 5% of 15,200) / 10 years  6/12 722
10,716
(ii) Profit/ (loss) on disposal
Consideration received 12,640

Less: Written down value at the time of disposal (12,673)
Loss on sale of machine (33)
WDV at the time of disposal

Cost 15,200
Less: Accumulated deprecation
Number of period in use (1.10.20X6 – 30.06.20X8) 1 Years and 9 month
Accumulated depreciation (15,200 – 5% of 15,200)  10%  1.75 Y)) (2,527)
12,673
T- account is not a part of question, it is only prepared for ease in calculating depreciation
581

1.1.20X6 Cash 80,000
1.10.20X6 Cash 30,400 31.12.X6 c/d 110,400
1.1.20X7 b/d 110,400
31.12.X7 c/d 110,400
1.1.20X8 b/d 110,400 30.06.X8 Disposal 15,200
1.7.20X8 Cash 20,000 31.12.X8 c/d 115,200
Answer-39
Dr. Motor Vehicle account – At cost Cr.
1.1.91 b/d -
1.1.91 Cash (Van-1) 800
1.1.91 Cash (Van-2) 500 31.12.91 c/d 1,300
1.1.92 b/d 1,300
31.12.92 c/d 1,300
1.1.93 b/d 1,300
1.7.93 Cash (Van-3) 900
1.10.93 Cash (Van-4) 720 31.12.93 c/d 2,920
1.1.94 b/d 2,920 30.09.94 Disposal (Van -1) 800
31.12.94 c/d 2,120
1.1.95 b/d 2,120 30.06.95 Disposal (Van -2) 500
31.12.95 c/d 1,620
Dr. Motor Vehicle – Accumulated depreciation a/c Cr.

1.1.91 b/d 0
31.12.91 c/d 260 Depreciation(W-1) 260
1.1.92 b/d 260
1.1.93 b/d 520
Disposals (W-2) 600 1.1.94 b/d 906
Disposals (W-2) 450 1.1.95 b/d 850
Dr. Motor Vehicle – Disposal a/c Cr.

30.09.94 Motor vehicle a/c 800 Accumulated dep. a/c 600
P/L (Bal.) 29 Cash 229
30.06.95 Motor vehicle a/c 500 Accumulated dep. a/c 450
Cash 5
P/L (Bal.) 45
WORKINGS
(W-1) Calculation of depreciation:
Year ended 1991
Van – 1 (800  20%) 160
Van – 2 (500  20%) 100
260
Year ended 1992
582
Year ended 1993

Depreciation - on opening assets (1,300  20%) 260
Depreciation - on additions
- Van – 3 (900  20%  6/12) 90
- Van – 4 (720  20%  3/12) 36
126
386
Year ended 1994

Depreciation – on opening
assets excluding disposal (2,920 – 800)  20% 424
Depreciation - on disposal (800  20%  9/12) 120
544
Year ended 1995
Depreciation - on opening
assets excluding disposal (2,120 – 500)  20% 324
Depreciation – on disposal (500  20%  6/12) 50
374
(W-2) Accumulated depreciation of assets disposed off
Van-1
Accumulated depreciation (800 x 20% x 3.75 Years) 600
Period used (3 Years and 9 months) 3.75Y
Van-2
Accumulated depreciation (500 x 20% x 4.5 Years) 450
Period used (4 Years and 6 months) 4.5Y
Answer-40
Dr. Asset a/c Cr.
1.1.08 b/d 1,400,000 31.5.08 Disposal 370,000
31.12.08 c/d 1,030,000
Dr. Accumulated Depreciation A/C Cr.

Disposal (370,000 x 10% x 2.4167) 89,418 1.1.08 b/d 840,000
c/d 868,999 Depreciation (W-1) 118,417

Cost 370,000 Acc. Depreciation 89,418
P/L (bal.) 280,582
Disposal Entry
Dr. Cr.
Cash 0
P/L (bal.) 280,582
Asset a/c (cost) 370,000
(Asset destroyed by fire)
- On opening assets excluding disposals (1,400,000 – 370,000) x 10% 103,000
- On disposals (370,000 x 10% x 5/12) 15,417
118,417
583
Answer-41
Dr. Vehicle a/c Cr.
1.1.08 b/d 600,000
1.3.08 Cash 50,000 31.5.08 Disposal 40,000
31.12.08 c/d 610,000

1.1.03 b/d 200,000
31.5.08 Disposal 19,334 Depreciation expense 120,666
(40,000 x 20% x 2.4167)
31.12.08 c/d 301,332
Calculation of Depreciation:
On opening assets excluding disposals and fully depreciated
(600,000 – 20,000 – 40,000) x 20% 108,000
On additions (50,000 x 20% x 10/12) 8,333
On fully depreciated assets (20,000 x 20% x 3/12) 1,000
On disposals (40,000 x 5/12 x 20%) 3,333
120,666
Answer-42
Dr. Vehicle A/C Cr.
1.1.07 b/d 600,000 31.3.07 Disposal 70,000
1.3.07 Cash 90,000 31.12.07 c/d 620,000
Dr. Accumulated Depreciation A/c Cr.

31.3.07 Disposals (W-2) 24,500 1.1.07 b/d 345,000
31.12.10 c/d 430,000

On opening assets excluding disposals and fully depreciated
(600,000 – 70,000 – 150,000) x 20% 76,000
On addition (90,000 x 20% x 10/12) 15,000
On disposals (70,000 x 20% 3/12) 3,500
On fully Depreciated (150,000 x 20% x 6/12) 15,000
109,500
(W-2)
Period in use (1 year and 9 months)
Accumulated Depreciation (70,000 x 20% x 1.75) 24,500
Answer-43
Depreciation – 2009 Rs.
On opening assets excluding disposals excluding fully depreciated
(700,000 – 30,000 – 200,000) x 20% 94,000
On additions (200,000 x 20% x9/12 + 300,000 x 20% x 6/12) 60,000
On disposals (30,000 x 20% x 6/12) 3,000
On fully depreciated (200,000 x 20% 3/12) 10,000
167,000
Depreciation – 2010
On opening assets excluding disposals excluding fully depreciated.
(W-1) (1,170,000 – 200,000) x 20% 194,000
On additions (250,000 x 20% 6/12) 25,000
Total 219,000
584
(W-1)
Dr. Asset a/c -2009 Cr.
b/d 700,000
Cash 200,000 Disposals 30,000
Cash 300,000
c/d 1,170,000
Answer-44
Dr. Machinery – cost Cr.

1.1.13 b/d 600,000 30.6.13 Disposal 90,000
1.4.13 Cash 70,000
31.12.13 c/d 580,000

Disposal (W-2) 21,899 1.1.13 b/d 200,000
31.12.13 c/d 219,767
- On opening WDV excluding WDV of disposals
{(600,000 – 20,000) – 71,685} x 10% 32,832
- On additions (70,000 x 10% x 9/12) 5,250
- On disposals (W-2) 3,584
41,666
(W-2) Accumulated depreciation of Disposals
Cost (01.11.10) 90,000
Less: Depreciation (31.12.10) (90,000 x 10% x 2/12) (1,500)
WDV (31.12.10) 88,500
Less: Depreciation (31.12.11) (88,500 x 10%) (8,850)
WDV (31.12.11) 79,650
WDV (31.12.12) 71,685
Less: Depreciation (30.06.13) (71,685 x 10% x 6/12) (3,584)
WDV (30.06.13) 68,101

Machinery 90,000 Accumulated Depreciation 21,899
Cash 36,000
P/L (Bal.) 32,101
Answer-45
Dr. Motor Vehicle Cr.

1.1.08 b/d 830,000 30.6.08 Disposal 150,000
1.3.08 Cash 150,000
1.8.08 Cash 200,000 31.12.08 c/d 1,030,000

Disposal (W-2) 26,025 b/d 250,000
c/d 296,283
585

Motor Vehicle 150,000 Accumulated Depreciation 26,025
Cash 30,000
P/L 93,975

On opening assets excluding Disposal Rate
WDV of opening assets as on 1.1.08 (830,000 – 250,000) 580,000
449,500 10% 44,950
On addition
 (150,000 x 10 % x 10/12) 12,500
 (200,000 x 10 % x 5/12) 8,333 20,833
On disposal (W-2) 6,525
Total 72,308
(W-2) Accumulated Depreciation of Disposal
Cost (1.09.2006) 150,000
Depreciation (2006) (150,000 x 10 % x 4/12) (5,000)
WDV (1.1.2007) 145,000
Depreciation (2007) (145,000 x 10 %) (14,500)
WDV (1.1.2008) 130,500
Depreciation (2008) (130,500 x 10% x 6/12) (6,525)
WDV on (30.6.2008) 123,975
Accumulated depreciation on disposal (150,000 – 123,975) 26,025
Answer-46
Dr. Building A/C Cr.
1.1.07 b/d 2,300,000 31.5.07 Disposal 700,000
1.2.07 Cash 400,000 31.8.07 Disposal 550,000
1.4.07 Cash 650,000 31.12.07 c/d 2,100,000

Disposal (w-2) 175,780 b/d 800,000
Disposal (w-2) 116,375 Depreciation Exp. (w-1) 186,527
c/d 694,372

Building A/C 550,000 Accumulated Dep. 175,780
Building A/C 700,000 Accumulated Dep. 116,375
Cash 450,000
Cash 300,000
P/L (Bal.) 207,845
On opening assets excluding disposal Rate
Opening WDV (2,300,000 – 800,000) 1,500,000
Less: WDV of Disposal as on 1.1.07 (W-2) (400,950 + 609,000) (1,009,950)
490,050 10% 49,005
On addition
 (400,000 x 10% x 11/12) 36,667
 (650,000 x 10% x 9/12) 48,750 85,417
On Disposal (W-2) (26,730 + 25,375) 52,105
Total 186,527
586
(W-2)Accumulated Depreciation of Disposal

Disposal on 31 Aug 07
Cost 550,000
Dep. (04) (550,000 x 10%) (55,000)
WDV (1.1.05) 495,000
Dep. (05) (495,000 x 10%) (49,500)
WDV (1.1.06) 445,500
Dep. (06) (445,500 x 10%) (44,550)
WDV (1.1.07) 400,950
Dep. (07) (400,950 x 10% x 8/12) (26,730)
WDV (as on 31.08.07) 374,220
Accumulated Depreciation (550,000-374,220) 175,780
Disposal on 31 May 07
Cost 700,000
Dep. (05) (700,000 x 10% x 4/12) (23,333)
WDV. (1.1.06) 676,667
Dep. (06) (676,667 x 10%) (67,667)
WDV (1.1.07) 609,000
Dep. (07) (609,000 x 10% x 5/12) (25,375)
WDV (as on 31.May.07) 583,625
Answer-47
Dr. Vehicle a/c Cr.
1.1.03 b/d 400,000 31.3.03 Disposal 60,000
1.3.03 Cash 90,000
1.12.03 Cash 200,000
31.12.08 c/d 630,000

Disposal A/C 24,013 b/d 150,000
Depreciation Exp. (w-1) 47,044
c/d 1730,31

31.3.2003 Vehicle A/C 60,000 31.3.2003 Acc.dep 24,013
31.3.2003 Cash 34,000
31.3.2003 P/L A/C 1,987

On opening assets excluding Disposal Rate
Opening WDV (400,000 - 150,000) 250,000
212,611 15% 31,892
On addition
(90,000 x 15% x 10/12) 11,250
(200,000 x 15% x 1/12) 2500 13,750
On disposal (W-2) 1,402
Total 47,044
587
(W-2) Accumulated Depreciation on Disposals

Cost 60,000
Dep. (2000) (60,000 x 15% x 11/12) (8,250)
WDV 51,750
Dep. (2001) (51,750 x 15%) (7,763)
WDV 43,987
Dep. (2002) (43,987 x 15%) (6,598)
WDV 37,389
Dep. (2003) (37,389 x 15% x 3/12) (1,402)
WDV 35,987
Answer-48
Straight Line Method
Dr. Fixed asset account – At cost Cr.

Yr 1 Cash 10,000
c/d 10,000
Yr 2 b/d 10,000
c/d 10,000
Yr 3 b/d 10,000 Disposal a/c 10,000
c/d -
Dr. Accumulated depreciation a/c Cr.

Yr 1 b/d 0
Yr 2 b/d 2,000
c/d 4,000 Depreciation(W-1) 2,000
Disposal a/c 5,000 Yr 3 b/d 4,000
c/d - Depreciation(W-1) 1,000
Dr. Disposal Account Cr.

Fixed asset a/c 10,000 Accumulated dep. 5,000
Cash 3,000
P/L (bal.) 2,000
(W-1) Calculation of depreciation (Using straight line method)

Cost 10,000
Depreciation (Yr 1) 10,000 / 5 (2,000)
WDV 8,000
Depreciation (Yr 2) 10,000 / 5 (2,000)
WDV 6,000
Depreciation (Yr 3) (10,000 / 5) x 6/12 (1,000)
WDV 5,000
Accumulated depreciation (10,000 - 5,000) 5,000
588
Written down value
Dr. Fixed asset account – At cost Cr.

Yr 1 Cash 10,000
c/d 10,000
Yr 2 b/d 10,000
c/d 10,000
Yr 3 b/d 10,000 Disposal a/c 10,000
c/d -

Yr 1 b/d 0
Yr 2 b/d 4,000
c/d 6,400 Depreciation(W-1) 2,400
Disposal a/c 7,120 Yr 3 b/d 6,400
c/d - Depreciation(W-1) 720
Fixed asset a/c 10,000 Accumulated dep. 7,120
P/L 120 Cash 3,000
(W-1) Calculation of depreciation (Using WDV method)
Cost 10,000
Depreciation (Yr 1) (10,000 x 40%) (4,000)
WDV 6,000
Depreciation (Yr 2) (6,000 x 40%) (2,400)
WDV 3,600
Depreciation (Yr 3) (3,600 x 40%) x 6/12 (720)
WDV 2,880
Accumulated depreciation (10,000 - 2,880) 7,120
Answer-49
Dr. Plant and machinery - At cost Cr.
b/d 600,000 Disposal (W-1) 33,333
Cash 70,000 c/d 636,667

Disposal (W-1) 18,333 b/d 200,000

Plant account 33,333 Accumulated depreciation 18,333
P/L 800 Cash 15,800
Workings
Number of years the asset is used (1.7.2009 - 31.3.2012) 2 years and 9 months
Cost (in percentage) 100%
Accumulated depreciation (in percentage) (20% per year x 2.75Y) 55%
Book value at time of disposal (in percentage) (100% - 55%) 45%
Cost on 1.7.2009 (in rupees) (15,000/45 x 100) 33,333

Accumulated depreciation on 30.03.2012 (in rupees) (33,333 - 15,000) 18,333
589
(W-2) Depreciation
Depreciation - on opening assets excluding disposals
Disposals (33,333)
566,667 x 20% 113,333
Depreciation - on additions (70,000 x 20% x 11/12) 12,833

Depreciation - on disposals (33,333 x 20% x 3/12) 1,667
127,833
Answer –50
Dr. Plant and machinery - At cost Cr.
b/d 500,000 Disposal (W-1) 21,531
Cash 77,000 c/d 555,469

Disposal (W-1) 9,531 b/d 150,000

Plant account 21,531 Accumulated depreciation 9,531
P/L 4,300 Cash 16,300
Workings
Assume cost to be 100
Cost (1.08.2009) 100
Depreciation (2009) (100 x 20% x 5/12) (8.3333)
WDV 91.6667
Depreciation (2010) (91.6667 x 20%) (18.3333)
WDV 73.3334
Depreciation (2011) (73.3334 x 20%) (14.6667)
WDV 58.6667
Depreciation (2012) (58.6667 x 20% x 3/12) (2.9333)
WDV (31.03.2012) 55.7334
Cost of disposals (12,000 / 55.7334 x 100) 21,531

Accumulated depreciation of disposals (21,531 – 12,000) 9,531
(W-2) Depreciation
Opening assets WDV (500,000 - 150,000) 350,000
Disposals WDV (21,531 / 100 x 58.6667) (12,632)
337,368x 20% 67,474
Depreciation - on additions (77,000 x 20% x 11/12) 14,117

Depreciation - on disposals (12,000 / 55.7334 x 2.9333) 632
82,223
590
Answer-51
Depreciation 2012 = Cost – Residual value = 50,000 – 5,000 = 4,500
Life 10
2013 = Cost – Residual value = 50,000 – 5,000 = 4,500
Life 10
Depreciation 2014 = WDV – new residual value = 41,000 – 2,000 = 19,500
Remaining life 2
2015 = WDV – new residual value = 41,000 – 2,000 = 19,500
Remaining life 2
WDV at the time of change in estimate = 50,000 – 4,500 – 4,500
= 41,000
Answer-52
Depreciation 2008 = Cost – Residual value = 70,000 – 10,000 = 10,000
Life 6
2009 = Cost – Residual value = 70,000 – 10,000 = 10,000
Life 6
WDV of asset at the time of change in estimate = 70,000 – 10,000 – 10,000
= 50,000
Calculation of WDV Rs.
WDV (1.1.2010) 50,000
Less: Depreciation (31.12.10) (50,000 x 33.12 %) (16,560)
WDV (1.1.2011) 33,440
Less: Depreciation (31.12.11) (33,440 x 33.12%) (11,075)
WDV (1.1.2012) 22,365
WDV (1.1.2013) 14,958
WDV (31.12.13) 10,004
Answer-53
Cost (1.1.07) 80,000
WDV (31.12.07) 72,000
WDV (31.12.08) 64,800
Depreciation 2009 = 64,800 – 5,000 = 11,960
5
Depreciation 2010 = 64,800 – 5,000 = 11,960
5
Answer-54
Life 10
Life 10
Depreciation – 2011 = Book value – new residual value = 41,200 (W-1) – 2,000 = 7,840
Remaining life 5
Depreciation – 2012 = Book value – new residual value = 41,200 – 2,000 = 7,840
Remaining life 5
(W-1) Book value at the time estimate is changed = 50,000 – 4,400 – 4,400
= 41,200
591
Answer-55
Cost 200,000
Depreciation (31.12.2011) (200,000 x 20%) (40,000)
WDV (31.12.2011) 160,000
Depreciation (31.12.2012) (160,000 x 20%) (32,000)
WDV (31.12.2012) 128,000
Depreciation – 2013 = Book value – new RV = 128,000- 6,000 = 30,500
Remaining life 4
Depreciation – 2014 = Book value – new RV = 128,000 – 6,000 = 30,500
Remaining life 4
Answer-56
(a)
Depreciation expense
Depreciation – 2012 = Cost – RV = 700,000 – 0 = 100,000
Life 7
Life 7
Life 7
Depreciation – 2015 = Book value – new residual value = 400,000 (W-1) – 15,000 = 192,500
Remaining life 2
Depreciation – 2016 = Book value – new residual value = 400,000 – 15,000 = 192,500
Remaining life 2
(W-1) WDV at time of change in estimate = Cost – accumulated depreciation

= 700,000 – 100,000 – 100,000 – 100,000
= 400,000
(b)
WDV as on 31.12.2016
WDV = Cost – Accumulated Depreciation
= 700,000 – 100,000 – 100,000 – 100,000 – 192,500 – 192,500 = 15,000
Remember that WDV at the end of life will always be equal to RV.
Answer-57
Depreciation for the year ended December 31, 20X2 (W-2) 2,500
Accumulated depreciation as on December 31, 20X2

Depreciation charged till December 31, 20X1 (W-1) 6,000
Depreciation, b/d (W-2) 2,500
8,500
(W-1) WDV of vehicle at the time of change in estimate i.e. 1.1.20X2
Cost 16,000
Less: Accumulated depreciation
Number of period in use (1.1.20X0 - 31.12.20X1)
Accumulated depreciation (6,000)
WDV as on 1.2.20X2 10,000
592
(W-2) Calculation of depreciation for the year ended December 31, 20X2
Depreciation = (WDV at time of change - residual value) / remaining life

= ((W-1) 10,000 - 2,500)/ 3years 2,500
The remaining life from 1.1.20X2 to 1.1.20X5 is three years
Answer-58
Journal entry
Dr. Cr.
Car (new)(W-1) 100,400
Accumulated Depreciation (old) 37,000
P/L (Bal.) 17,000
Car A/c (old) 60,000
Cash A/C 60,400
(W-1) Cost of new car

Cost of new asset – TIA = Cash paid
Cost of new asset = cash paid + TIA
= 60,400 + 40,000
= 100,400
Answer-59
(a) Journal entry
Plant and Machinery (New) 130,000
Accumulated depreciation (Old) (W-1) 26,000
P/L (Bal.) 37,000
Plant and Machinery (Old) 80,000
Cash A/C (W-2) 113,000

Period asset is used (1.4.2009-30.6.2012) 3 years and 3 months
Accumulated Depreciation (80,000 x 10% x 3.25) 26,000
(W-2) Cash paid

New asset cost – TIA = 130,000 – 17,000 = 113,000
(b) Dr. Plant and Machinery A/c Cr.

b/d 600,000 Disposal (old) 80,000
Disposals (New) 130,000
Cash 67,000
c/d 717,000
Dr. Accumulated Depreciation A/C Cr.

Disposal (part-a) 26,000 b/d 200,000
Depreciation Expense (W-1) 64,733
c/d 238,733

Plant and Machinery (old) 80,000 Accumulated Depreciation 26,000
Plant and Mach. (new) 130,000
Cash 113,000
P/L (Bal.) 37,000
593

(600,000-80,000) x 10% 52,000
- On additions (130,000 x 10% x 6/12 + 67,000 x 10% x 4/12) 8,733
- On disposals (80,000 x 10% x 6/12) 4,000
64,733
Answer-60
Dr. Building account – At cost Cr.
1.1.95 b/d 500,000
8.10.95 Cash (extension) 50,000 31.12.95 c/d 550,000
1.1.96 b/d 550,000
31.12.96 c/d 550,000
Dr. Building – Accumulated depreciation a/c Cr.
1.1.95 b/d 210,000
1.1.96 b/d 220,250
(W-1) Depreciation - Year ended 1995
Depreciation - on opening assets (500,000 x 2%) 10,000
Depreciation - on additions (50,000 x 2% x 3/12) 250
10,250
Depreciation - Year ended 1996

Depreciation - on opening assets (550,000 x 2%) 11,000
Dr. Office equipment account – At cost Cr.

b/d 40,000 Disposal 8,000
Disposal 16,000 c/d 48,000
b/d 48,000 Disposal 6,000
c/d 42,000
Dr. Office equipment- Accumulated depreciation a/c Cr.

Disposals (W-5) 7,000 b/d 24,000
Disposals (W-6) 4,000 b/d 22,500
Dr. Office Equipment disposal account-95 Cr.

Office equipment (old) 8,000 Office equipment (new) 16,000
Cash 12,000 Accumulated depreciation 7,000
P/L (bal.) 3,000
Dr. Office Equipment disposal account- 96 Cr.

Office equipment (old) 6,000 Accumulated depreciation 4,000
P/L (bal.) 1,000 Cash 3,000

Disposals (8,000)
32,000 x 12.5% 4,000
594
Depreciation - on additions (16,000 x 12.5% x 6/12) 1,000

Depreciation - on disposals (8,000 x 12.5% x 6/12) 500
5,500

Disposals (6,000)
42,000 x 12.5% 5,250
Depreciation - on disposals (6,000 x 12.5% x 2/12) 125
5,375
(W-5) Accumulated depreciation of disposals made in 1995

Accumulated depreciation of disposals = Cost - WDV = 8,000 - 1,000 7,000
(W-6) Accumulated depreciation of disposals made in 1996

Accumulated depreciation of disposals = Cost - WDV = 6,000 - 2,000 4,000
Answer-61
Dr. Lorries account - At cost Cr.
1.4.20X6 b/d (W-1) 99,600 1.06.20X6 Disposal (B) 19,600
7.6.20X6 Cash (D) 32,800 21.08.20X6 Disposal (A) 31,200
3.10.20X6 Cash (E) 39,000 6.03.20X7 Disposal (E) 39,000
6.3.20X7 Disposal (F) 37,600 31.03.X7 c/d 119,200

1.6.X6 Disposals (W-4) B 7,840 1.4.X6 b/d (W-2) 34,067
21.8.X6 Disposals (W-4) A 26,520
6.3.X7 Disposals (W-4) E 3,250
(W-1) Cost of assets as on 1.4.20X6

31,200
A 19,600
B 48,800
C 99,600
(W-2) Accumulated depreciation as on 1.4.20X6

A Number of period in use 3 Years and 11 months
Accumulated depreciation (31,200 x 20% x 3.9167 years) 24,440
B Number of period in use 1 Year and 10 months

C Number of period in use 3 months
34,067
(W-3) Depreciation expense for the year

On opening assets excluding disposal
Less: disposals (19,600+31,200) (50,800)
48,800 20% 9,760
595
On additions
D (32,800 x 20% x 10/12) 5,467
E (39,000 x 20% x 5/12) (disposed in March) 3,250
F (37,600 x 20% x 1/12) 627
9,344
On disposals
B (19,600 x 20% x 2/12) 653
A (31,200 x 20% x 4/12) 2,080
21,837
B Accumulated depreciation till 1.04.20X6 (W-2) 7,187

Depreciation expense in the year of disposal (W-3) 653
7,840
A Accumulated depreciation till 1.04.20X6 (W-2) 24,440

Depreciation expense in the year of disposal (W-3) 2,080
26,520
E (W-3) 3,250
Dr. Lorries disposal account Cr.
Lorries account (B) 19,600 Accumulated dep. (B) (W-4) 7,840
Lorries account (A) 31,200 Accumulated dep. (A) (W-4) 26,520
Lorries account (E) 39,000 Accumulated dep. (E) (W-4) 3,250
Cash (B) 10,500

Cash (A) 7,000
Lorries a/c (F) 37,600
P/L (bal.) 2,910
Answer-62
Dr. Furniture – Book value Cr.
1.1.09 b/d 25,000 30.9.09 Disposals (W-2) 17,340
1.3.09 Cash 60,000 Depreciation (W-1) 24,480
1.6.09 Cash 90,000 c/d 133,180
P/L (bal.) 5,340
- Opening excluding disposal (25,000 – 20,400) x 20% 920
- On addition (60,000 x 20% x 10/12) + (90,000 x 20% x 7/12) 20,500
- On disposals 3,060
24,480
(W-2) WDV of Disposals
Cost (1.04.2007) 30,000
Depreciation (2007) (30,000 x 20% x 9/12) (4,500)
WDV 25,500
Depreciation (2008) (25,500 x 20%) (5,100)
WDV 20,400
Depreciation (2009) (20,400 x 20% x 9/12) (3,060)
WDV 17,340
596
Answer-63
Dr. Asset – BV Cr.
b/d 200,000 Disposals (BV)(W-2) 63,423
Cash 30,000 Depreciation Exp.(W-1) 22,793
Cash 70,000 c/d (Bal.) 213,784
300,000 300,000

Asset 63,423 Cash 60,000
P/L (Bal.) 3,423
(W-1) Depreciation
- On opening excluding disposals(200,000 – (W-2) 65,610) x 10% 13,439
- On disposals 2,187
- On addition (30,000 x 10% x 10/12) + (70,000 x 10% x 8/12) 7,167
22,793

Cost 90,000
Depreciation (90,000 x 10%) – 2008 (9,000)
WDV 81,000
Depreciation (81,000 x 10%) – 2009 (8,100)
WDV 72,900
Depreciation (72,900 x 10%) – 2010 (7,290)
WDV (31.12.2010) 65,610
Depreciation (65,610 x 10% x 4/12) – 2011 (2,187)
WDV (30.4.2011) 63,423
Answer-64
Dr. Building – BV Cr.
b/d 1,500,000 Disposals (BV) (W-2) 374,220
Cash 400,000 Disposals (BV) (W-2) 583,625
Cash 650,000 Depreciation Expense(W-1) 186,527
c/d 1,405,628

Asset 374,220 Cash 450,000
Asset 583,625 Cash 300,000
P/L (Bal.) 207,845
Workings
(1,500,000 – 400,950(W-2) – 609,000 (W-2)) x 10% 49,005
- On addition (400,000 x 10% x 11/12) + (650,000 x 10% x 9/12) 85,417
- On disposal (W-2) (26,730 + 25,375) 52,105
186,527
(W-2) WDV of disposals Rs.

Disposal on 31.08.09
Cost 550,000
Depreciation (2004) (550,000 x 10%) (55,000)
WDV 495,000
Depreciation (2005) (495,000 x 10%) (49,500)
WDV 445,500
597
Depreciation (2006) (445,000 x 10%) (44,550)

WDV 400,950
Depreciation (2007) (400,950 x 10% x 8/12) (26,730)
WDV (31.08.07) 374,220
Disposed on 31.May.07
Cost 700,000
Depreciation (2005) (700,000 x 10% x 4/12) (23,333)
WDV 676,667
Depreciation (2006) (676,667 x 10%) (67,667)
WDV 609,000
Depreciation (2007) (609,000 x 10% x 5/12) (25,375)
WDV (31.May.07) 583,625
Answer-65
Dr. Building A/c – at BV Cr.
1.1.11 b/d 700,000 Disposals (W-2) 87,875
1.3.11 Cash 80,000 Disposals (W-2) 23,925
c/d (bal.) 460,400

Building A/c 87,875 Cash 77,000
Building A/c 23,925 Cash 35,000
P/L (Bal.) 200

- Opening excluding disposal (700,000 – 95,000 – 33,000) x 30% 171,600
- On addition (80,000 x 30% x 10/12) 20,000
- On disposals (7,125 + 9,075) 16,200
- 207,800

Book value (1.1.11) 95,000 Book value (1.1.11) 33,000
Dep. (95,000 x 30% x 3/12) (7,125) Dep. (33,000 x 30% x 11/12) (9,075)
Book value (31.3.11) 87,875 Book value (31.11.11) 23,925
Answer-66
Dr. Building A/c – at BV Cr.
1.1.2010 b/d 35,000 31.3.2010 Disposals (W-2) 6,737
31.3.2010 Disposals (new) 20,000 Depreciation (W-1) 8,213
1.3.2010 Cash 12,000 31.3.2010 c/d 52,050

Furniture (old) 6,737 Furniture 20,000
Cash a/c 7,500
P/L (bal.) 5,763

- On opening excluding disposals (35,000 – 7,000) x 15% 4,200
- On additions (20,000 x 15% x 9/12) 2,250
(12,000 x 15% x 10/12) 1,500
- On disposals (W-2) 263
8,213
598
(W-2) WDV of disposals

WDV on 01.01.2010 7,000
Depreciation (7,000 x 15% x 3/12) (263)
6,737
Answer-67
Dr. Furniture – WDV Cr.
b/d – BV 50,000 Disposals – BV (W-1) 11,352
Disposal – cost 18,000 Disposals – BV (W-2) 2,812
Depreciation Expense (W-3) 7,936
c/d – BV 45,900

Furniture – BV 11,352 Additions 18,000
Cash 4,000
P and L (Bal.) 2,648

P/L (Bal.) 1,612
Journal Entry:
Dr. Cr.
Furniture 18,000
P/L 2,648
Furniture 11,352
Cash 4,000
Cash 1,200
Furniture 2,182
(W-1) WDV of Disposals -1
Cost 15,000
Depreciation (31.12.06) (15,000 x 15% x 6/12) (1,125)
WDV 13,875
Depreciation (31.12.07) (13,875 x 15%) (2,081)
WDV 11,794
Depreciation (31.03.08) (11,794 x 15% x 3/12) (442)
11,352
(W-2) WDV of Disposals-2
Depreciation (31.05.08) (3,000 x 15% x 5/12) (188)
2,812
- On opening excluding disposals (50,000 – 11,794 – 3,000) x 15% 5,281
- On additions (18,000 x 15% x 9/12) 2,025
- On disposals (442 + 188) 630
7,936
Answer-68
Dr. Building a/c-at Book value – 2008 Cr.
01.01.08 Opening BV 400,000 30.06.08 Disposals –BV (W-2) 30,600
01.06.08 Additions-cost 30,000 30.11.08 Disposals-BV (W.2.2) 57,167
30.11.08 Disposal 92,000 Depreciation Expense (W-1) 80,466
31.12.08 Closing B.V 353,767
599

Building (adj. # 2) 30,600 Cash 12,000
Building (adj. # 3) 57,167 Building (New) – cost 92,000
Cash 80,000 P/L (Bal.) 63,767
Dr. Building a/c-at Book value – 2009 Cr.

01.01.09 Opening BV 353,767 Depreciation 70,753
(353,767 x 20%)
31.12.09 Closing B.V 283,014

Adj. # 3
Asset a/c (New) 92,000
P/L (bal.) 45,167
Asset old – at BV 57,167
Cash 80,000
- On opening excluding disposals (400,000 – 34,000 – 70,000) x 20% 59,200
- On addition (30,000 x 20% x 7/12) + (92,000 x 20% x 1/12) 5,033
- On disposal (3,400 + 12,833) 16,233
80,466
(W-2) WDV of Disposals (adj. # 2)

(01.04.06) Cost 50,000
(31.12.06) Less: Depreciation (50,000 x 20% 9/12) (7,500)
(31.12.06) WDV 42,500
(31.12.07) Less: Depreciation (42,500 x 20%) (8,500)
(31.12.07) WDV 34,000
Less: Depreciation (34,000 x 20% x 6/12) (3,400)
(30.06.08) WDV 30,600
(W-2.2) WDV of Disposals (adj. # 3)

WDV of disposals (01.01.08) 70,000
Less: Depreciation (70,000 x 20% x 11/12) (12,833)
WDV (30.11.08) 57,167
Answer-69
Dr. Furniture Cr.
b/d 100,000 Disposal (W-2) 8,856
c/d 91,144

b/d (W-1) 53,992
Disposal (W-2) 3,856
c/d (Bal.) 56,576
(W-1) Opening accumulated depreciation:

70,000−(70,000 𝑥 0.05)
70% furniture = x 3.8333 25,492
10
30,000−(30,000 𝑥 0.05)
30 % furniture = x 10 years 28,500
10
53,992
600
(W-2) Cost of Disposal and their Accumulated Depreciation:

Let Cost 100
100−5
Accumulated Depreciation = [ 10 x 4.5833] (43.5417)
WDV 56.4583
5,000
Cost in rupees = 56.4583 x 100 8,856

Furniture (W-2) 8,856 Acc. Depreciation (W-2) 3,856
P and L 6,000 Cash (Bal.) 11,000
(W-3) Depreciation Expense:

- On opening cost less cost of Disposal less cost of fully depreciated assets:
Cost (100,000 – 8,856 – 30,000) 61,144

Less: Residual value (61,144 x 5%) (3,057)
58,087 x 10% 5,809
8,856−5% of 8,856 631

- On disposals x 9/12
10
6,440
Dr. Computer account Cr.

b/d 200,000
c/d 200,000
Dr. Acc. Depreciation a/c Cr.

b/d (W-1) 26,269
c/d 83,179
(W-1) Accumulated Depreciation: Rs.

Cost (1.04.04) 200,000
Depreciation (31.12.04) (200,000 x 5% x 9/12) (7,500)
WDV 192,500
Depreciation (31.12.05) (192,500 x 5%) (9,625)
WDV 182,875
Depreciation (31.12.06) (182,875 x 5%) (9,144)
W.D.V on 01.01.07 173,731

(W-2) Depreciation expense for the year using straight line
WDV−New Residual Value 173,731−3,000 56,910
= remaining life
= 3 years
Dr. Vehicle a/c Cr.

b/d 300,000 Disposal (old) (iii) 20,000
Disposal (new) (W-1) 21,672 Disposal (iv) (W-3) 8,237
Purchases (18,000/140x100) 12,857 c/d (Bal.) 306,292
601

b/d 80,000
Disposal (iii) (W-2) 3,328
Disposal (iv) (W-3) 3,237
Dep. Expense (W-4) 22,619
c/d 96,054

Vehicle (old) 20,000 Vehicle (new) 21,673
Acc. Depreciation (W-2) 3,328
Cash 9,000 P and L 4,000

Cost (W-3) 8,237 Acc. Depreciation (W-3) 3,237
Cash 2,000
Alternatively a combined disposal account can be prepared.
(W-1) Disposal Entry
Dr. Cr.
Vehicle (new) (Bal.) 21,673
Acc. Depreciation (old) 3,327
Profit and Loss 4,000
Vehicle (old) 20,000
Cash a/c 9,000
(W-2)Accumulated Depreciation of Disposals (iii)

Cost 20,000
Depreciation (2005) (20,000 x 10% x 6/12) (1,000)
WDV 19,000
Depreciation (2006) (19,000 x 10%) (1,900)
WDV 17,100
Depreciation (2007) (17,100 x 10% x 3/12) (428)
WDV 16,672
(W-3) Cost and Accumulated Depreciation of Disposals (iv)

Let Cost 100
Dep. (2003) (100 x 10% x 10/12) (8.3333)
WDV 91.6667
Dep. (2004) (91.6667 x 10%) (9.1667)
WDV 82.5
Dep. (2005) (82.5001 x 10%) (8.25)
WDV 74.25
Dep. (2006) (74.2501 x 10%) (7.425)
WDV 66.825
Dep. (2007) (66.825 x 10% x 11/12) (6.1256)
WDV 60.6994
5,000 8,237
Cost = 60.6994 x 100%
Acc. Dep. = 8,237 – 5,000 3,237
602
(W-4)Depreciation Expense:
- On opening WDV excluding disposals:
Op. WDV (300,000 – 80,000) 220,000
Less: WDV of disposals:
- Adj. (iii) (17,100)
8,237 (5,504)
- Adj. (iv) ( 100 x 66.825)
197,396 x 10% 19,740
- On disposals
- Adj. (iii) 428
8,237
- Adj. (iv) 100
x 6.1256 505
- On additions (21,672 x 10% x 9/12 + 12,857 x 10% x 3/12) 1,946

22,619
Answer-70
Rectifying Original Wrong

i) Advance – 30,000 Advance –Furniture 30,000 Furniture A/C 30,000
Furniture
Furniture 30,000 Cash 30,000 Cash 30,000
ii) Furniture 18,000 Furniture 100,000 Furniture A/C 12,000

Acc. Dep. 14,000 Acc. Dep.(W-1) 14,000 Cash 12,000
P/L (Bal.) 32,000 P/L (Bal.) 32,000
Furniture 70,000
Cash 12,000
iii) Acc. Dep. 12,000 Acc. Dep. (W-2) 12,000 Cash 33,000
P/L 35,000 Cash 33,000 Plant and 33,000
Mach.
Plant and 47,000 P/L (Bal.) 35,000
Mach.
Plant and Mach. 80,000
(W-1) Accumulated Dep. for adj. (ii)

Period used 2 years
Accumulated Depreciation (70,000 x 10% x 2 years) 14,000
(W-2) Accumulated Dep. of adj. (iii)

Period used 1 year and 6 months
Accumulated Dep. (80,000 x 10% x 1.5 years) 12,000
b) Dr. Furniture a/c Cr.

Un adj. Cl. 800,000 Adj. (i) 30,000
Adj. (ii) 18,000
c/d 788,000
Dr. Plant and Machinery a/c Cr.

Un adj. cl. 300,000 Adj. (iii) 47,000
c/d 253,000
603
Answer-71
Date Description Dr. Cr.
Jan. 1, 2009 Land 600,000
Cash 600,000
Dec. 31, 2009 Land 150,000
Revaluation surplus 150,000
Dec. 31, 2010 Revaluation surplus 150,000
P/L (SOCI) 20,000
Land 170,000
Dec. 31, 2011 Land 70,000
P/L (SOCI) 20,000
Dec. 31, 2012 Land 150,000
(W-1) Calculation of revaluation surplus on land

Date Description Land R. Surplus SOCI(P/L)
1/1/09 Cost 600,000
31/12/09 Revaluation surplus (bal.) 150,000 150,000
31/12/09 Revalued amount 750,000
31/12/10 Revaluation surplus (bal.) (170,000) (150,000) (20,000)
31/12/10 Revalued amount 580,000 - (20,000)
31/12/11 Revaluation surplus (bal.) 70,000 50,000 20,000
31/12/11 Revalued amount 650,000 50,000 -
31/12/12 Revalued amount 800,000 200,000
(W-2)
Dr. Land A/c Cr.
1.1.09 Cash 600,000
31.12.09 Revaluation surplus 150,000 31.12.09 c/d 750,000
1.1.10 b/d 750,000 31.12.10 Revaluation surplus 150,000
31.12.10 P/L (SOCI) 20,000
31.12.10 c/d 580,000
1.1.11 b/d 580,000
31.12.11 Revaluation Surplus 50,000
31.12.11 P/L 20,000 31.12.11 c/d 650,000
1.1.12 b/d 650,000
31.12.12 Revaluation Surplus 150,000 31.12.12 c/d 800,000
Dr Revaluation surplus Cr.

Rs Rs
31-12-09 Bal c/d 150,000 31-12-09 Land 150,000
31-12-10 Land 150,000 1-01-10 Bal b/d 150,000
31-12-11 Bal c/d 50,000 31-12-11 Land 50,000
01-01-12 Bal b/d 50,000
31-12-12 Bal c/d 200,000 31-12-12 Land 150,000
200,000 200,000
604
Answer-72
Jan, 1, 2005 Land 700,000
Bank 700,000
Dec, 31, 2005 Land 100,000
Revaluation Surplus 100,000
Dec, 31, 2006 Revaluation Surplus 100,000
P/L 20,000
Land 120,000
Dec, 31, 2007 Land 70,000
P/L 20,000
Dec, 31, 2008 Land 75,000
(W-l) Calculation of revaluation surplus on land

Date Description Land R. Surplus SOCI(P/L)
1/1/05 Cost 700,000
31/12/05 Revalued amount 800,000
31/12/06 Revalued amount 680,000 - (20,000)
31/12/07 Revalued amount 750,000 50,000 -
31/12/08 Revalued amount 825,000 125,000
(W-2)
Dr. Land a/c Cr.

1-1-2005 Bank 700,000
31-12-2005 Revaluation Surplus 100,000 31-12-2005 c/d 800,000
1-1-2006 b/d 800,000 31-12-2006 Revaluation Surplus 100,000
31-12-2006 P/L 20,000
31-12-2006 c/d 680,000
1-1-2007 b/d 680,000
31-12-2007 Revaluation Surplus 50,000
31-12-2007 P/L 20,000 31-12-2007 c/d 750,000
1-1-2008 b/d 750,000
Dr. Revaluation surplus Cr.

Rs. Rs.
31-12-05 Bal c/d 100,000 31-12-05 Land 100,000
31-12-06 Land 100,000 01-01-06 Bal b/d 100,000
31-12-07 Bal c/d 50,000 31-12-07 Land 50,000
01-01-08 Bal b/d 50,000
31-12-08 Bal c/d 125,000 31-12-08 Land 75,000
125,000 125,000
605
Answer-73
Journal entries
Date Particular Dr. Cr.
1/1/2001 Plant 100,000
Cash 100,000
31/12/2001 Depreciation 10,000
Accumulated depreciation 10,000
1/1/2002 Accumulated depreciation 10,000
Plant 10,000
1/1/2002 Plant 90,000
31/12/2002 Revaluation surplus (90,000/9) 10,000
Retained earnings 10,000
Plant 20,000
1/1/2003 Revaluation surplus 80,000
P/L 20,000
Plant 100,000
Plant 7,500
1/1/2004 Plant 24,500
P/L 17,500
31/12/2004 Revaluation surplus (7,000/7) 1,000
Plant 11,000
1/1/2005 Plant 54,000
(W-1) Calculation of revaluation surplus and depreciation on plant

Date Description Plant R. Surplus SOCI(P/L)
01/1/01 Cost 100,000
31/12/01 Depreciation (100,000/10) (10,000)
31/12/01 WDV 90,000
606
1/1/02 Revalued amount 180,000 90,000

31/12/02 Depreciation (180,000/9) : (90,000/9) (20,000) (10,000) -
31/12/02 WDV 160,000 80,000 -
1/1/03 Revalued amount 60,000 - (20,000)
31/12/03 Depreciation (60,000/8) : (20,000/8) (7,500) 2,500
31/12/03 WDV 52,500 (17,500)
1/1/04 Revalued amount 77,000 7,000 -
31/12/04 Depreciation (77,000/7):(7,000/7) (11,000) (1,000)
31/12/04 WDV 66,000 6,000
1/1/05 Revalued amount 120,000 60,000
31/12/05 Depreciation (120,000/6):(60,000/6) (20,000) (10,000)
31/12/05 WDV 100,000 50,000
(W-2)
Dr. . Plant account Cr
1-1-2001 Cash 100,000
31-12-2001 c/d 100,000
1-1-2002 b/d 100,000 1-1-2002 Acc. Depreciation 10,000
1-1-2002 Rev. Surplus 90,000 31-12-2002 c/d 180,000
1-1-2003 Rev. Surplus 80,000
1-1-2003 P/L 20,000
31-12-2003 c/d 60,000
1-1-2004 Rev. Surplus 7,000
1-1-2004 P/L 17,500 31-12-2004 c/d 77,000

31-12-2001 c/d 10,000 31-12-2001 Depreciation 10,000
1-1-2002 Plant 10,000 1-1-2002 b/d 10,000
31-12-2002 c/d 20,000 31-12-2002 Dep. Expense 20,000
1-1-2003 Plant 20,000 1-1-2003 b/d 20,000
31-12-2003 c/d 7,500 31-12-2003 Depreciation 7,500
1-1-2004 Plant 7,500 1-1-2004 b/d 7,500
31-12-2004 c/d 11,000 31-12-2004 Depreciation 11,000
1-1-2005 Plant 11,000 1-1-2005 b/d 11,000
31-12-2005 c/d 20,000 31-12-2005 Depreciation 20,000
Dr. Revaluation Surplus account Cr.

31-12-2002 Retained Earnings 10,000 1-1-2002 Plant. 90,000
31-12-2002 c/d 80,000
1-1-2003 Plant 80,000 1-1-2003 b/d 80,000
31-12-2003 c/d --
31-12-2004 Retained Earning 1,000 1-1-2004 Plant 7,000
31-12-2004 c/d 6,000
31-12-2005 Retained Earning 10,000 1-1-2005 b/d 6,000
31-12-2005 c/d 50,000 1-1-2005 Plant 54,000
607
Dr Retained earnings Cr
Rs Rs
31-12-02 Bal c/d 10,000 31-12-02 Rev. surplus 10,000
31-12-03 Bal c/d 10,000 01-01-03 Bal b/d 10,000
01-01-04 Bal b/d 10,000
11,000 11,000
01-01-05 Bal b/d 11,000
31-12-05 Bal c/d 21,000 31.12.05 Rev. surplus 10,000
21,000 21,000
Answer-74
Entries:
1-1-2010 Building 500,000
Cash 500,000
31-12-2010 Depreciation expenses 25,000
1-1-2011 Accumulated Depreciation 25,000
Building 25,000
1-1-2011 Building 75,000
31-12-2011 Depreciation Expense 28,947
31-12-2011 Revaluation Surplus (75,000/19) 3,947
Retained Earnings 3,947
Building 28,947
P/L 70,000
Building 141,053
Accumulated Expenses 21,111
Building 21,111
1-1-2013 Building 391,111
P/L 66,111
31-12-2013 Revaluation Surplus (325,000/17) 19,118
Retain Earnings 19,118
Building 44,118
1-1-2014 Building 94,118
Retained Earnings 25,000
608
(W-l) Calculation of revaluation surplus and depreciation on building

Date Description Building R. Surplus SOCI(P/L)
1/1/10 Cost 500,000
31/12/10 Depreciation (500,000/20) (25,000)
31/12/10 WDV 475,000
1/1/11 Revalued amount 550,000 75,000
31/12/11 Depreciation (550,000/19):(75,000/19) (28,947) (3,947) -
31/12/11 WDV 521,053 71,053 -
1/1/12 Revalued amount 380,000 - (70,000)
31/12/12 Depreciation (380,000/18):(70,000/l8) (21,111) 3,889
31/12/12 WDV 358,889 (66,111)
1/1/13 Revalued amount 750,000 325,000
31/12/13 Depreciation (750,000/17):(325,000/17) (44,118) (19,118)
31/12/13 WDV 705,882 305,882
1/1/14 Revalued amount 800,000 400,000
31/12/14 Depreciation (800,000/16):(400,000/16) (50,000) (25,000)
31/12/14 WDV 750,000 375,000
(W-2)
Dr. Building Account Cr.

1-1-2010 Cash 500,000
31-12-2010 c/d 500,000
1-1-2012 Rev. surplus 71,053
1-1-2012 P/L 70,000
31-12-2012 c/d 380,000
1-1-2013 Revaluation surplus 325,000
1-1-2013 P/L 66,111 31-12-2013 c/d 750,000

1-1-2014 Revaluation surplus 94,118 31-12-2014 c/d 80,000
(W-3)
Dr. Accumulated Depreciation Account Cr.
31-12-2010 Dep. Expense 25,000
31-12-2010 c/d 25,000
1-1-2011 Building 25,000 1-1-2011 b/d 25,000
31-12-2011 c/d 28,947 31-12-2011 Dep. Expense 28,947
1-1-2012 Building 28,947 1-1-2012 b/d 28,947
31-12-2012 c/d 21,111 31-12-2012 Dep. Expense 21,111
1-1-2013 Building 21,111 1-1-2013 b/d 21,111
31-12-2013 c/d 44,118 31-12-2013 Dep. Expense 44,118
1-1-2014 Building 44,118 1-1-2014 b/d 44,118
31-12-2014 c/d 50,000 31-12-2014 Dep. Expense 50,000
609
(W-4)
Dr. Revaluation Surplus Account Cr.

31-12-2011 Retained Earnings 3,947 1-1-2011 Building 75,000
31-12-2011 c/d 71,053
1-1-2012 Building 71,053 1-1-2012 b/d 71,053
C/d
31-12-2013 Retained Earnings 19,118 1-1-2013 Building 325,000
31-12-2013 c/d 305,882
31-12-2014 Retained Earnings 25,000 1-1-2014 b/d 305,882
31-12-2014 c/d 375,000 1-1-2014 Building 94,118
Rs Rs
31-12-11 Bal c/d 3,947 31-12-11 Revaluation surplus 3,947
31-12-12 Bal c/d 3,947 01-01-12 Bal b/d 3,947
01-01-13 Bal b/d 3,947
31-12-13 Bal c/d 23,065 Revaluation surplus 19,118
23,065 23,065
01-01-14 Bal b/d 23,068
48,065 48,065
Answer-75
Journal entries
1/7/06 Building 100,000
Bank 100,000
(Purchase of building)
30/6/07 Depreciation expense 10,000
(Recording of depreciation on building)
Building 10,000
(Transfer of accumulated depreciation to building)
30/6/07 Building 60,000
(Recording of revaluation surplus)
Retained earning 6,667
(Transfer of revaluation surplus to retained earnings)
Building 16,667
P/L 10,000
Building 63,333
(Recording of revaluation loss)
610

Building 8,750
30/6/09 Building 58,750
P/L 8,750
(W-1) Calculation of revaluation surplus and depreciation

Rev.
Date Description Building SOCI(P/L)
Surplus
1/7/06 Cost 100,000
30/6/07 Depreciation (100,000/10) (10,000)
30/6/07 WDV 90,000
30/6/07 Revalued amount 150,000 60,000
30/6/08 Depreciation (150,000/9):(60,000/9) (16,667) (6,667)
30/6/08 WDV 133,333 53,333
30/6/08 Revalued amount 70,000 - (10,000)
30/6/09 Depreciation (70,000/8):(10,000/8) (8,750) 1,250
30/6/09 WDV 61,250 (8,750)
30/6/09 Revalued amount 120,000 58,750 -
Dr Building account Cr
Rs Rs
01-07-06 Bank 100,000 30-06-07 Acc. dep 10,000
30-07-07 Rev. surplus 60,000 30-06-07 Bal c/d 150,000
160,000 160,000
01-07-07 Bal b/d 150,000 30-06-08 Acc. dep 16,667
30-06-08 Rev. surplus 53,333
30-06-08 P/L 10,000
30-06-08 Bal c/d 70,000
150,000 150,000
01-07-08 Bal b/d 70,000
30-06-09 Rev. surplus 50,000
30-06-09 P/L 8,750 30.6.09 c/d 128,750
128,750 128,750
Dr Accumulated depreciation account Cr

Rs Rs
30-06-07 Building 10,000 30-06-07 Depreciation 10,000
30-06-08 Building 16,667 30-06-8 Depreciation 16,667
30-06-08 Bal c/d -
16,667 16,667
30-06-09 Building 8,750 01-07-08 Bal b/d -
30-06-09 Bal c/d - 30-06-09 depreciation 8,750
8,750 8,750
611
Dr Revaluation surplus Cr
Rs Rs
30-06-07 Bal c/d 60,000 30-06-07 Building 60,000
30-06-08 Retained earning 6,667 01-07-07 Bal b/d 60,000
30-06-08 Building 53,333
30-06-08 Bal c/d -
60,000 60,000
01-07-08 Bal b/d -
30-06-09 Bal c/d 50,000 30-06-09 Building 50,000
50,000 50,000
Rs Rs
30-06-09 Bal c/d 6,667 01-07-08 Bal b/d 6,667
Answer-76
Journal entries
1/7/10 Plant 350,000
Bank 350,000
(Purchase of plant)
(Recording of depreciation on plant)
Plant 17,500
(Transfer of accumulated depreciation to plant)
30/6/11 Plant 142,500

Plant 25,000
Plant 60,000
Plant 21,667
612
30/6/13 Plant 11,667


R.
Surplus
1/7/10 Cost 350,000
30/6/11 Depreciation (350,000/20) (17,500)
30/6/11 WDV 332,500
30/6/11 Revalued amount 475,000 142,500
30/6/12 Depreciation (25,000) (7,500)
(475,000/19):(142,500/19)
30/6/12 WDV 450,000 135,000
30/6/12 Revaluation surplus (bal.) (60,000) (60,000)
30/6/12 Revalued amount 390,000 75,000
30/6/13 Depreciation (390,000/18):(75,000/18) (21,667) (4,167)
30/6/13 WDV 368,333 70,833
30/6/13 Revalued amount 380,000 82,500
Dr Plant account Cr
Rs Rs
01-01-11 Bank 350,000 30-06-11 Acc. dep 17,500
492,500 492,500
01-07-11 Bal b/d 475,000 30-06-12 Acc. Dep 7,500
30-06-12 Rev. surplus 60,000
30-06-12 Bal c/d 407,500
475,000 475,000
01-07-12 Bal b/d 407,500 30-06-13 Acc. dep 21,667
419,167 419,167

Rs Rs
30-06-11 Plant 17,500 30-06-11 Depreciation 17,500
30-06-12 Plant 25,000 01-07-11 Bal b/d -
30-06-12 Bal c/d - 30-06-12 Depreciation 25,000
25,000 25,000
30-06-13 Plant 21,667 01-07-12 Bal b/d -
21,667 21,667
Rs Rs
01-07-12 Bal b/d 7,500
11,667 11,667
613
Rs Rs
30-06-11 Bal c/d 142,500 30-06-11 Plant 142,500
30-06-12 Retained earnings 7,500 01-07-11 Bal b/d 142,500
30-06-12 Plant 60,000
30-06-12 Bal c/d 75,000
142,500 142,500
30-06-13 Bal c/d 70,833
75,000 75,000
Answer-77
Journal entries
1/1/01 Plant 200,000
Bank 200,000
(Purchase of plant)
31/12/02 Accumulated depreciation (20,000 + 20,000) 40,000
Plant 40,000
31/12/02 Plant 120,000
Plant 35,000
P/L 60,000
Plant 165,000
Plant 11,429
31/12/04 P/L 8,571
Plant 8,571
614

Plant 10,000
31/12/05 Plant 70,000
Revaluation loss 50,000

1/1/01 Cost 200,000
31/12/01 Depreciation (200,000/10) (20,000)
31/12/01 WDV 180,000
31/12/02 Depreciation (200,000/10) (20,000)
31/12/02 WDV 160,000
31/12/02 Revalued amount 280,000 120,000
31/12/03 Depreciation (280,000/8):(120,000/8) (35,000) (15,000)
31/12/03 WDV 245,000 105,000
31/12/03 Revalued amount 80,000 - (60,000)
31/12/04 Depreciation (80,000/7):(60,000/7) (11,429) 8,571
31/12/04 WDV 68,571 - (51,429)
31/12/04 Revaluation surplus (bal.) (8,571) (8,571)
31/12/04 Revalued amount 60,000 - (60,000)
31/12/05 Depreciation (60,000/6):(60,000/6) (10,000) 10,000
31/12/05 WDV 50,000 (50,000)
31/12/05 Revalued amount 120,000 20,000 -
Dr Plant account Cr
Rs Rs
01-01-01 Bank 200,000 31-12-01 Bal c/d 200,000
01-01-02 Bal b/d 200,000 31-12-02 Acc. dep 40,000
31-12-02 Revaluation surplus 120,000 31-12-02 Bal c/d 280,000
320,000 320,000
01-01-03 Bal b/d 280,000 31-12-03 Acc. dep 35,000
31-12-03 Rev. surplus 105,000
31-12-03 P/L 60,000
31-12-03 Bal c/d 80,000
280,000 280,000
01-01-04 Bal b/d 80,000 31-12-04 Acc. dep 11,429
31-12-04 P/L 8,751
31-12-04 Bal c/d 60,000
80,000 80,000
01-01-05 Bal b/d 60,000 31-12-05 Acc. dep 10,000
31-12-05 P/L 50,000
130,000 130,000
Rs Rs
31-12-04 Bal c/d 15,000 01-01-04 Bal b/d 15,000
31-12-05 Bal c/d 15,000 01-01-05 Bal b/d 15,000
615

Rs Rs
31-12-01 Bal c/d 20,000 31-12-01 Depreciation 20,000
31-12-02 Plant 40,000 01-01-02 Bal b/d 20,000
40,000 40,000
31-12-03 Plant 35,000 01-01-03 Bal b/d -
35,000 35,000
31-12-04 Plant 11,429 01-01-04 Bal b/d -
11,429 11,429
31-12-05 Plant 10,000 01-01-05 Bal b/d -
10,000 10,000
Answer-78
Journal entries Rs. million
1/7/15 Plant 100
Bank 100
(Purchase of plant)
30/6/16 Depreciation expense 10
Accumulated depreciation 10
30/6/16 Accumulated depreciation 10
Plant 10
30/6/16 P/L (Revaluation loss) 10
Plant 10
(Recording of revaluation deficit)
30/6/17 Depreciation expense 8.89
Accumulated depreciation 8.89
30/6/17 Accumulated depreciation 8.89
Plant 8.89
30/6/17 Plant 23.89
Revaluation surplus 15
P/L 8.89
30/6/18 Revaluation Surplus 1.875
Retained earnings 1.875
(transfer of remaining revaluation surplus to retained earnings)
Plant 11.875
616
30/6/18 Plant 26.875

Revaluation surplus 26.875
Plant Rs. R. Surplus SOCI(P/L)
Date Description
Million Rs. Million Rs. Million
1/7/15 Cost 100
30/6/16 Depreciation (100/10) (10)
30/6/16 WDV 90
30/6/16 Revaluation surplus/ (loss) (bal.) (10) (10)
30/6/16 Revalued amount 80 (10)
30/6/17 Depreciation (80/9):(10/9) (8.89) 1.11
30/6/17 WDV 71.11 (8.89)
30/6/17 Revaluation surplus (bal.) 23.89 15 8.89
30/6/17 Revalued amount 95 15 0
30/6/18 Depreciation (95/8):(15/8) (11.875) (1.875)
30/6/18 WDV 83.125 13.125
30/6/18 Revaluation surplus (bal.) 26.875 26.875
30/6/18 Revalued amount 110 40
Dr Plant account Cr
Rs Rs
01-07-15 Bank 100,000 30-06-16 Acc. dep 10,000
30-06-16 P/L 10,000
30-06-16 Bal c/d 80,000
100,000 100,000
01-07-16 Bal b/d 80,000 30-06-17 Acc. dep 8,889
30-06-17 P/L 8,889
103,889 103,889
01-07-17 Bal b/d 95,000 30-06-18 Acc. Dep 11,875
121,875 121,875
Rs Rs
30-06-16 Bal c/d - 01-07-15 Bal b/d -
01-07-16 Bal b/d -
30-06-17 Bal c/d 15,000 30-06-17 Plant 15,000
15,000 15,000
30-06-18 Bal c/d 40,000 30-06-18 Plant 26,875
41,875 41,875

Rs Rs
30-06-16 Plant 10,000 01-07-15 Bal b/d -
10,000 10,000
30-06-17 Plant 8,889 01-07-16 Bal b/d -
617

8,889 8,889
30-06-18 Plant 11,875 01-07-17 Bal b/d -
11,875 11,875
Rs Rs
1,875 1,875
Answer-79
Journal entries Rs.
1/7/10 Plant 500,000
Bank 500,000
(Purchase of plant)
Plant 25,000
1/7/11 Plant 5,000
30/6/12 Revaluation surplus 263
Retained earning 263
Plant 25,263
P/L (bal.) 60,000
Plant 64,737
Plant 21,667
1/7/13 Plant 81,667
P/L 56,667
618

(W-1) Calculation of revaluation surplus and depreciation Rs.

1/7/10 Cost 500,000
30/6/11 Depreciation (500,000/20) (25,000)
30/6/11 WDV 475,000
1/7/11 Revalued amount 480,000 5,000
30/6/12 Depreciation (480,000/19):(5,000/19) (25,263) (263)
30/6/12 WDV 454,737 4,737
1/7/12 Revalued amount 390,000 (60,000)
30/6/13 Depreciation(390,000/18):(60,000/18) (21,667) 3,333
30/6/13 WDV 368,333 (56,667)
1/7/13 Revalued amount 450,000 25,000 -
30/6/14 Depreciation (450,000/17):(25,000/17) (26,471) (1,471)
30/6/14 WDV 423,529 23,529
Dr Plant account Cr
Rs Rs
01-07-10 Bank 500,000 30-06-11 Bal c/d 500,000
01-07-11 Bal b/d 500,000 01-07-11 Acc. dep 25,000
505,000 505,000
01-07-12 Bal b/d 480,000 01-07-12 Acc. dep 25,263
01-07-12 Rev. surplus 4,737
01-07-12 P/L 60,000
30-06-13 Bal c/d 390,000
480,000 480,000
01-07-13 Bal b/d 390,000 01-07-13 Acc. dep 21,667
471,667 471,667
619

Rs Rs
01-07-10 Bal b/d -
30-06-11 Bal c/d 25,000 30-06-11 Depreciation 25000
25,000 25,000
01-07-11 Plant 25,000 01-07-11 Bal b/d 25,000
50,263 50,263
01-07-12 Plant 25,263 01-07-12 Bal b/d 25,263
46,930 46,930
01-07-13 Plant 21,667 01-07-13 Bal b/d 21,667
30-06014 Bal c/d 26,471 30-06-14 Depreciation 26,471
48,138 48,138
Rs Rs
30-06-12 Retained earnings 263 01-07-11 Plant 5,000
30-06-12 Bal c/d 4,737
5,000 5,000
01-07-12 Plant 4,737 01-07-12 Bal b/d 4,737
30-06-14 Retained earning 1,471 01-07-13 Bal b/d -
30-06-14 Bal c/d 23,529 0107-13 plant 25,000
25,000 25,000
Rs Rs
30-06-12 Bal c/d 263 30-06-12 Revaluation surplus 263
30-06-13 Bal c/d 263 01-07-12 Bal b/d 263
01-07-13 Bal b/d 263
1,734 1,734
Answer-80
Journal entries Rs.
1/1/11 Plant 600,000
Bank 600,000
(Purchase of plant)
31/12/12 Accumulated depreciation (40,000 + 40,000) 80,000
Plant 80,000
31/12/12 Plant 30,000
620

31/12/15 Accumulated depreciation (42,308 x 3) 126,924
Plant 126,924
31/12/15 P/L (bal.) 300,000
Plant 323,076
W-1) Calculation of revaluation surplus and depreciation Rs.

Date Description Plant R. SOCI(P/L)
Surplus
1/1/11 Cost 600,000
31/12/11 Depreciation (600,000/15) (40,000)
31/12/11 WDV 560,000
31/12/12 Depreciation (600,000/15) (40,000)
31/12/12 WDV 520,000
31/12/12 Revalued amount 550,000 30,000
31/12/13 Depreciation (550,000/13):(30,000/13) (42,308) (2,308)
31/12/13 WDV 507,692 27,692
31/12/14 Depreciation (550,000/13):(30,000/13) (42,308) (2,308)
31/12/14 WDV 465,384 25,384
31/12/15 Depreciation (550,000/13):(30,000/13) (42,308) (2,308)
31/12/15 WDV 423,076 23,076
31/12/15 Revaluation surplus/loss (bal.) (323,076) (23,076) (300,000)
31/12/15 Revalued amount 100,000 - (300,000)
621
Answer-81
Journal Entries
Rs. In million
1.1.10 Plant 300
Bank 300
31-12-10 Depreciation 30
1.1.11 Accumulated depreciation 30
Plant 30
1.1.11 Plant 230
31.3.11 Depreciation 13.89
31.3.11 Revaluation surplus 6.39
31.3.11 Bank 750
Plant 500
Gain on disposal 263.89
WORKING
(W-1)
Profit /
Revaluati
Date Particulars Plant Loss
on surplus
(SOCI)
1.1.10 Cost 300
31.12.10 Depreciation (300/10) (30)
31.12.10 W.D.V 270
1.1.11 Revaluation surplus 230 230 -
1.1.11 Revalued amount 500 230 -
500 3 230 3
31.3.11 Depreciation [ 9
× 12
]∶ [ 9
× 12
] (13.89) (6.39) -
31.3.11 W.DV 486.11 223.61
31.3.11 Disposal (486.11) (223.61)
Answer-82
Journal Entries
Rs. In million
1.1.12 Building 300
Bank 300
31.12.12 Depreciation 15
Building 15
1.1.13 Building 38
622
31.12.13 Revaluation surplus 2

Retained earnings 2
Building 17
Profit & loss 18
Building 54
Building 14
1.1.13 Building 34
Profit and loss 17
30.6.13 Bank 80
Building 68
Gain 14
Retained earning 4.125
Building Account
Rs. Rs.
1.1.10 b/d -
1.1.12 bank 300 31.12.12 c/d 300
300 300
1.1.13 b/d 300 1/1/13 Accumulated depreciation 15
31.12.13 c/d 323
338 338
1.1.14 b/d 323 1/1/14 Accumulated depreciation 17
1.1.14 Profit & loss 18
31.12.14 c/d 252
323 323
1.1.13 b/d 252 1.1.13 Accumulated depreciation 14
1.1.15 Revaluation surplus 17 30.6.15 disposal 68
1.1.15 profit & loss 17
31.12.15 c/d 204
286 286
623
Accumulated Depreciation
Rs. Rs.
1.1.12 b/d -
31.12.12 c/d 15 31.12.12 Depreciation 15
15 15
1.1.13 Building 15 1.1.13 b/d 15
c/d 17 31.12.13 Depreciation 17
32 32
1.1.14 Building 17 1.1.14 b/d 17
31 31
1.1.13 Build 14 1.1.13 b/d 14
30.6.18 Disposal 2 30.6.13 Depreciation 2
28 28
Revaluation Surplus
Rs. Rs.
1.1.13 Building 38
31.12.13 Retained earning 2
c/d 36
38 38
1.1.14 Building 36 1.1.14 b/d 36
c/d -
36 36
30.6.15 Retained earning 0.125 1.1.15 b/d -
30.6.15 Retained earning 4.125 1.1.15 Building 17
31.12.15 Retained earning 0.75
c/d 12
17 17
Retained Earnings
Rs. Rs.
31.12.13 c/d 2
2 2
1.1.14 b/d 2
31.12.14 c/d 2
2 2
1.1.15 b/d 2
30.6.15 Revaluation depreciation 4.125
31.12.13 c/d 7
7 7
Disposal Account
Rs. Rs.
Building 68 Bank 80
Gain 14 Accoumulated depreciation 2
82 82
624
WORKING
(W-1)
Profit /
Revaluati
Date Particulars Plant Loss
on surplus
(SOCI)
1.1.12 cost 300
31.12.12 Depreciation 300/20 (15)
31.12.12 W.D.V 285
1.1.13 Revaluated amount 323 38 -
31.12.13 Depreciation [323/19] : [38/19] (17) (2)
31.12.13 W.D.V 306 36
1.1.14 Revaluation surplus (54) (36) (18)
1.1.14 Revalued amount 252 - (18)
31.12.14 Depreciation [252/18] : [18/18] (14)
31.12.14 W.D.V 238 (17)
1.1.13 Revaluation surplus 34 17 17
1.1.15 Revaluated amount 272 17 -
30.6.15 68 6 17 4.25 6 (2) (0.125)
Depreciation [ × ] = [ 17 × ]
17 12 4 12
30.6.15 W.D.V of depreciation (66) (4.125)
31.12.15 W.D.V of retained 204 12.75
31.12.15 Depreciation 204/17 : 12.75/17 (12) (0.75)
31.11.15 W.D.V 192 12
Answer-83
Akhtar Limited
Notes to the Financial Statement
2018 2017
10. Property Plant & Equipment -------------------------------------------Rs. in millions-------------------------------------
Plant Building Vehicles Total Plant Building Vehicles Total
Gross Carrying Amount
Balance 01.Jan 320 160 30 510 360 160 30 550
+Addition 10 10 -
-Transfer (64) (64) (60) (60)
+Revaluation Surplus/(Rev. Loss) (36) (36) 20 20
Balance 31.Dec 220 160 40 420 320 160 30 510
Accumulated Depreciation & Impairment Losses
Balance 01.Jan - 35 9 44 - 25 6 31
+Depreciation for the year * 64 21 4 89 60 10 3 73
-Transfer (64) (64) (60) (60)
+Impairment Loss 11 11 - -
Balance 31.Dec (11) (56) (13) (80) - (35) (9) (44)
WDV 31.Dec 209 104 27 340 320 125 21 466
Revalu- Cost Revalu

10.1 Measurement Basis Cost Cost Cost
ation Reducing ation
Straight Balance Straight Straigh Straight Straight
Depreciation Method
Line Method Line t Line Line Line
Useful Life/Depreciation 15 years 10 years
7 years 16.84% 10 years 7 years
Rate W-3
625
+Depreciation for the year*

*1 Plant Dep 2017 = 360/6 = 60
*2 Plant Dep 2018 = 320/5 = 64
*3 Building Dep 2017 = (160-10)/15 = 10
*4 Building Dep 2018 = 125x16.8373% = 21.05 = 21
*5 Cars Dep 2017 = 30/10 = 3
*6 Cars Dep 2018 = (30/10)+(10/10) = 3+1 = 4
10.2 The last revaluation of plant was perfomed by an independent valuer "Ghaznavi & Co" on
31.12.2018
10.3 Had there been no revaluation the carrying amount of plant would have been
2018 2017
Cost 434 434
Accumulated Depreciation (434/7 = 62 × 3, 62 × 2) (186) (124)
Carrying Amount 248 310
10.4 The entire plant was mortgage with the Habib Bank Limited for obtaining loan of 400 million
for the plant acquisition. The loan is repayable by 31-Dec-2019
10.5 During the year plant was impaired by Rs.11 million and charged as expense.
10.6 Reversal of revaluation loss of Rs. Nil (2017: Rs.10 million) was reversed during the year.
10.7 An amount of expenditure of Rs.30 million was incurred on the construction of a factory. This
amount was captialised as capital workin-progress.
A further borrowing costs of Rs.2.1 million (30×12%×7/12) were capitalised in respect of
interest on loan obtained from the bank to finance this project.
Note: Alternatively you may make movement of Capital work in progress (WIP)
10.8 A contract was made to purchase plant and machinery worth Rs.100 million with M/s
Shaheen Limited once the construction of factory building is completed.
10.9 During the year 2018 company has changed the depreciation method of buildings from
straight line to reducing balance method. Had the method not changed, profit for the year
would have been higher by Rs. 11 million.
10.10 Depreciation is charged as Follows
2018 2017
Cost of Sales (64+21×80%) (60+10×80%) 80.8 68.0
Admin & Selling Expenses (4+21×20%) (3+10×20%) 8.2 5.0
Total Depreciation 89 73
WORKINGS
(W-1) Calculation of revaluation surplus & depreciation on plant.
Date Description Plant R. Surplus SOCI (P/L)
1-Jan-16 Cost 434
Depreciation (434÷7) (62)
31-Dec-16 WDV 372
Revaluation loss (bal) (12) - (12)
31-Dec-16 Revalued amount 360 - (12)
Depreciation (360÷6) (12÷6) (60) 2
31-Dec-17 WDV 300 - (10)
Revaluation surplus (bal.) 20 10 10
31-Dec-17 Revalued amount 320 10
Depreciation (320/5) (10/5) (64) (2)
31-Dec-18 WDV 256 8
Revaluation loss (reversal) (36) (8) (28)
31-Dec-18 Revalued amount 220 - (28)
Impairment Loss (11) 11
31-Dec-18 Impaired Value 209 - (17)
626
W-2 Calculation of Impairment Loss

Carrying Value on 31-12-2018 220
Recoverable Amount (Higher of)
'-Fair Value less cost to sell (220-15) 205
'-Value in use
90(1+0.1)-1+70(1+0.1)-2+65(1+0.1)-3+30(1+0.1)-4 209 209
Impairment Loss 11
W-3 Life of Building
Acc Dep= Cost - RV/Life x Cumulative Period
25=(160-10)/LIFE x 2.5 years
LIFE = 15 YEARS
11.5 15
W-4 Building Dep Rate-WDV method 1 − √ = 0.168373
125
627

QUESTION-1 {Calculation Cost of Assets}
(a) Nippon Ltd. took delivery of a LAN server on the first day of July 2001. The list price of the
equipment was Rs. 150,000 but Nippon Ltd. was able to negotiate a price of Rs. 100,000 with the
supplier. However,, the supplier charged an additional Rs.3,400 to install and test the equipment.
The supplier offered a 5% discount if Nippon Ltd. paid for the equipment and additional
installation cost within seven days. Nippon Ltd. was able to take advantage of this additional
discount.
The installation of special electrical wiring for the server cost Rs. 1,100. After initial testing
certain modifications costing Rs.1,900 proved necessary.
MIS staff was sent on special training courses to operate the server which costed Rs. 9,900 to
Nippon Ltd. The equipment was insured against fire and theft at a premium of 4% per annum of
cost.
A maintenance agreement was entered into with a company, which promised to provide 24 hours
breakdown cover for one year at the cost of Rs. 3,500.
Required: Calculate acquisition cost of server to Nippon Ltd. (05)
(b) The following transactions were also executed by Nippon Ltd, during the financial year ended
June 30, 2002:
(i) Interest on loan to purchase LAN server.
(ii) Cost of software for use with the server.
(iii) Cost of customizing the software for use in Nippon Ltd.'s business.
(iv) Cost of paper used by the computer printer.
(v) Wages of server operators.
(vi) Cost of cartridge used by the computer printer.
(vii) Cost of adding extra Ram to the server.
(viii) Cost of CDs used during the year.
(ix) Cost of adding a manufacturer's upgrade to the LAN Server.
(x) Cost of adding air conditioning to the computer room.
Required: Classify each of the above as Capital or Revenue Expenditure. (05)
{Autumn 2002, Q # 2}
Chase Company purchased a new computer from Analog Computers. The following costs were incurred:
List price of the computer. Rs. 100,000
Trade discount allowed to Chase 10%
Cash discount allowed for payment within 30 days 3%
Insurance on the computer. The policy covers damage from vandalism, fire, flood and Rs. 360
certain other natural disasters (3-years premium)
Cost of 1-year maintenance contract. The computer will be serviced weekly by Analog Rs. 2,080
technicians.
Cost of *rewiring needed to provide proper electric power. Rs. 420
Required: Prepare schedule that shows the calculation of the cost of the computer to Chase Company.
(08)
{November 1994, BAC - Part-I, Q # 4(c)}
* If we assume normal rewiring, ignore it
If we assume especial rewiring, add it
628
QUESTION-3 {Calculation Cost of Assets} {Straight Line}

Ammar is a manufacturer of personal products and has factories in two different cities. On 1 November
2011, he bought a new state-of-the-art plant from Krones Inc. USA. The invoice value of the plant was
Rs. 250 million. Other relevant details are as follows:
(i) Costs of import:

Rs. in million
LC opening charges 1.00
Import duty 25.00
Sales tax paid, recoverable against production output 40.00
Clearing & transportation 5.00
(ii) Costs incurred on SITE preparation:
Amount paid to consultants 2.00
Civil and electrical works 3.00
The above includes cost of equipment damaged due to mishandling 0.80
(iii) The plant was received at the SITE on 1 February 2012. The installation and test run were
successfully completed in three months time at a cost of Rs. 6 million. The net sale proceeds of
test production were Rs. 1.2 million.
(iv) Commercial production commenced on 1 May 2012. During the period in which the plant was
installed, administration and general overheads increased by Rs. 1 million as compared to the
previous period.
(v) Salary of factory manager is Rs. 250,000 per month. He contributed 30% of his time in
supervising the installation.
(vi) Staff training cost amounted to Rs. 0.25 million.
(vii) The plant is expected to last fifteen years with no residual value.
Required:
In accordance with IAS-16 calculate:
 Cost at which the plant would be capitalised.
 Depreciation for the year ended 31 December 2012 under the straight line method. (08)
{Spring 2013, Q.1 (b)}
QUESTION-4 {Straight Line}

On July 1, 1997, A Co. Ltd. purchased second hand machinery for Rs. 60,000 and spent Rs. 9,000 on
reconditioning and installing it. On January 1, 1998 the firm purchased new machinery worth Rs. 36,000.
On June 30, 1999 the machinery purchased on January 1, 1998 was sold for Rs. 24,000. On July 1, 1999
fresh plant was installed at a cost of Rs. 45,000. The company provides depreciation at 10% of the
original cost. The accounts are closed on 31 March.
Required: You are required to prepare machinery account for three years ended March 31, 2000. (06)
{Autumn 2001, Module - B)
QUESTION-5 {Different methods}
The cost of a machine purchased by S. Yaseer Trading Company (Private) Limited on 1st April, 1992 is
Rs. 750,000. It is estimated that the machine will have a Rs. 30,000 trade-in value at the end of its service
life. Its life is estimated at 6 years. Its working hours are estimated at 25,000, its production is estimated
at 400,000 units. During 1992, the machine was operated for 4200 hours and produced 80,000 units.
Compute the depreciation on the machine for 1992 by:
(a) Service hours method;
(b) The productive-output method; and
(c) The sum of the year's digits method (10)
{October 1993, CA Inter - II}
629
QUESTION-6 {Different Methods}

A business purchased a machine costing Rs. 1,120,000 on April 01, 2002. The machine can be used for a
total of 20,000 hours over an estimated life of 48 months. At the end of that time the machine is expected
to have a trade in value of Rs. 112,000.
The financial year of the business ends on December 31st each year. It is expected that the machine will
be used for:
4,000 hours during the financial year ending December 31, 2002.
Required:
(a) Calculate the annual depreciation charges on the machine on each of the following bases for each
of the financial years ending on December 31, 2002, 2003, 2004, 2005 and 2006:
(i) the straight line method applied on monthly basis and
(ii) the usage method. (04)
(b) Suppose that during the financial year ending December 31, 2003 the machine was used for only
1,500 hours before being sold for Rs. 800,000 on June 30, 2003.
Assuring that the business has chosen to apply the straight line method on a month for month
basis, show the following accounts for 2003 only;
(i) the machine account
(ii) the provision for depreciation machine account; and
(iii) the assets disposals account (05)
{Autumn 2002, Q # 8}
QUESTION-7 {WDV Method}

The machinery account (at cost) of a firm for the three years ended December 31, 1988 appeared as
follows:-
1986 Rupees 1986 Rupees
Jan.01 Cash (No. 1) 50,000 Dec.31 Balance c/d 50,000
1987 1987
Jan.01 Balance b/d 50,000
July.01 Cash (No. 2) 20,000 Dec.31 Balance c/d 70,000
70,000 70,000
1988 1988
Jan.01 Balance b/d 70,000
Jul.01 Cash (No. 3) 15,000 Dec.31 Balance c/d 85,000
85,000 85,000
Depreciation @ 20% on the diminishing value basis was accumulated in Provision for Depreciation
Account.
On October 1, 1989 machine no. 2 was damaged and had to be replaced by a new machine costing Rs.
25,000. The machine was insured and an insurance claim of Rs. 12,400 was admitted by the insurers.
Show the 1989 Machinery Account, Provision for Depreciation Account and Machinery Disposal
Account. All workings have to be submitted. Depreciation during a year is provided for the period for
which each machine is in use. (15)
{November 1990, CA Inter - II}
630
QUESTION-8
Following is the extract from the Balance Sheet of Tayab Limited:
Rupees Rupees
2004 2003
Fixed Assets (at cost) 684,500 518,000
Less: Accumulated depreciation (249,750) (277,500)
Net Book Value 434,750 240,500
During the year 2004:

Rupees
(i) Expenditure on new fixed assets was 481,000
(ii) Loss on sale of old fixed assets was 92,500
(iii) Depreciation provided for the year was 138,750
Required: Determine the amount of sale proceeds received on the disposal of fixed assets during the year
2004. (06)
{Spring 2005, Q # 6(a)}
QUESTION-9 {Fully Depreciated}
Upon merger on January 1, 1999, Highest Ltd., took over assets and liabilities of Smallest Ltd. The taken
over assets include certain fixed assets which are acquired at the book value. Details of certain fixed
assets in Smallest Ltd. are as under:
Item Month of purchase Useful life Purchase price
Years Rupees
Motor Car March 1995 5 350,000
Jeep September 1996 5 650,000
Furniture December 1997 10 150,000
Computers August 1995 3 500,000
Depreciation is charged on straight-line basis at monthly rate from the month of purchase by both
companies.
Required:
(a) Written down value as at December 31, 1998 in the books of Smallest Ltd., and
(b) Depreciation charge for the month of January 1999 of Highest Ltd. (08)
{Spring 1999, FE-I, Q#3}
QUESTION-10 {Change in Estimate}
ABC Limited imported technical equipment costing Rs. 3 millions on July 1, 2003. It further incurred the
following expenses on the equipment:
 Import duty Rs. 1,000,000
 Income tax Rs. 276,000 adjustable against company's income tax liability
 Other non-refundable taxes Rs. 60,000
 Transportation cost Rs. 10,000 to bring the equipment to factory premises
 Insurance in transit Rs. 4,000
 Fire insurance Rs. 10,000
Initially the useful life was estimated to be 5 years and depreciation was provided on straight-line basis.
The estimated salvage value was Rs. 350,000.
During the year 2004-05 the company estimated the remaining life of the equipment to be five years
instead of four years. The salvage value was re-estimated at Rs. 400,000.
The machine was sold on July 1, 2006 for Rs. 2,800,000.
Required:
(a) Calculate depreciation expense for the years ended June 30, 2004, 2005 and 2006.
(b) Pass journal entry to record the sale of machine.
(c) Calculate cost of equipment at which it should be initially recognised (08)
{Autumn 2006, Q # 3}
631
QUESTION-11 {Change in Estimate}

Unique Chemicals depreciated its assets by using the straight-line method. The useful life of each asset
was reviewed in 1998 and it was decided to revise the useful life of following assets effective from
January 1, 1998.
Existing Remaining Year of Cost
Category useful life useful life Purchase (Rs.'000')
Building 50 40 1996 10,000
Plant & Machinery 10 15 1996 20,000
IT equipment 5 3 1997 3,000
Vehicles 4 5 1996 2,800
Furniture 10 7 1996 1,200
Office equipment 10 5 1996 1,500
It was also decided to depreciate the carrying values as at January 1, 1998 over the remaining useful life
of each asset. You are required to calculate:
(a) Carrying values as at January 1, 1998.
(b) Depreciation for the year 1998. (08)
{Autumn 1999, FE-I, Q#5)
QUESTION-12 {Exchange of Assets}
Faraz Brothers Transport Company exchanged a number of used trucks and cash for a vacant plot of
industrial land. The trucks have a combined book value of Rs 126,000 (Cost 192,000 and Accumulated
Depreciation Rs 66,000). Faiz Ahmad, a purchasing agent for Faraz Brothers, who has had previous
dealings in the second hand market indicates that the trucks have a fair Market value of Rs. 147,000. In
addition to trucks Faraz Brothers is also required to pay Rs. 51,000 cash for the plot of land.
Required: Taking into account the requirements of IAS, 16 calculate the following:
(i) Cost of land. (01)
(ii) Gain on disposal of used trucks. (02)
(iii) Prepare journal entry to record the aforesaid exchange transaction. (02)
{Autumn 2003, Q# 2(a)}
QUESTION-13 {Exchange of Assets}
Jubilee processing (Pvt.) Limited, traded off its used plant and Machinery for a new model. The machine
given up has a book value of Rs. 16,000 (original cost Rs. 24,000 and accumulated depreciation Rs.
8,000) and a fair value of Rs. 12,000. It is traded for a new model that has a list price of Rs. 32,000. In
negotiations with the seller, a trade-in allowance of Rs. 18,000 is finally agreed on for the used machine.
Required: In the light of IAS-16:
(i) Calculate the cost of new Machine. (03)
(ii) Compute Gain/(loss) occurred in exchange transaction. (02)
(iii) Record the transaction in the books of Jubilee Processing (Pvt.) Ltd. (02)
{Spring 2003, Q # 4(a)}
(a) Following is the data relating to import of machinery:
Rupees
 Letter of Credit opening charges 50,500
 Payment made to bank towards release of documents 2,560,000
 Import duty 690,000
 Income tax (Adjustable) 195,000
 Octroi charges 24,500
 Demurrage charges (Penalty charges) 70,800
 Sundry expenses (Necessary to bring in workable condition) 5,600
 Clearing Agent fees 20,000
 Machinery transport charges to factory 31,500
Required: Calculate the amount of addition to Fixed Assets. (05)
632
(b) A company replaced its old machinery with new machinery. List price of new machinery is
Rs. 1,800,000. Trade in allowance for used machinery is Rs. 900,000. Cost of old machinery is
Rs. 1,400,000 and accumulated depreciation was Rs. 750,000. Fair value of old machinery is Rs.
500,000.
Required: Calculate cost of new machinery to be recorded in Company's account, cash payment
and profit / loss on trade in of old machinery and pass entry for exchange of asset. (05)
{Spring 2001, SM -1, Q# 4}
QUESTION-15
In the accounts of King Kong Limited the schedule of fixed assets for the year ended May 31, 1996
appeared as follows:
Rs in ‘000’
Accumulated
Particular Cost
Depreciation
Equipment 830 292
Vehicles 570 220
During the year to May 31, 1997 the following changes in fixed assets occurred:
1. New equipment was purchased for Rs. 175,000 and Rs. 200,000 on October 1, 1996 and
December 1, 1996 respectively. A machine purchased for Rs. 60,000 on April 1, 1993 was sold
on September 30, 1996 for Rs. 32,000. A machine purchased on October 1, 1990 for Rs. 25,000
was sold for scrap on May 1,1997realising Rs. 2,000.
2. On January 1, 1997 four new vehicles were purchased costing Rs. 20,000 each. A part exchange
allowance of Rs. 5,000 per vehicle was received for two vehicles which cost Rs. 15,000 each on
January 1, 1994. Following an accident on 1 May 1997 a vehicle which cost Rs. 10,000 on April
1, 1993 was declared a 'total loss' by the insurers. A claim for compensation of Rs. 3,000 has been
agreed by the insurance Company but the amount have not yet been received by King Kong
Limited.
3. The Company's Policy is to depreciate assets on straight line basis. The rate of depreciation for
vehicles is 20% and for equipment is 10%.
Required: Prepare:
(a) Prepare asset a/c, accumulated depreciation a/c and disposal of equipment and vehicles. (15)
(b) A schedule of fixed asset for the year ended May 31, 1997. (05)
(April 1997, FE-I}
QUESTION-16 {Transfer of Stock to Fixed Assets} {Straight Line}
The following information is available in respect of fixed assets of MJ Enterprises (MJE):
(i) The opening balances of cost and accumulated depreciation of fixed assets as on January 1, 2009
were Rs. 100,000 and Rs. 33,000 respectively.
(ii) Assets costing Rs. 20,000 were acquired on July 1, 2008. The remaining fixed assets were
acquired when MJE commenced business on January 1, 2005. There were no disposals of fixed
assets up to January 1, 2009.
(iii) MJE provides for depreciation on the cost of assets at the rate of 10% per annum using the
straight line basis. Depreciation is calculated on a monthly basis.
(iv) Assets acquired on January 1, 2005 whose net book value on June 30, 2009 was Rs. 2,750 were
sold for Rs. 1,500.
(v) On July 1, 2009, an asset which was acquired at a cost of Rs. 2,000 when MJE commenced
business, was exchanged for a new asset. The balance of the purchase price was settled with a
cheque for Rs. 800. The list price of the new asset was Rs. 1,200.
(vi) On October 1, 2009 MJE transferred to its factory an asset which had been included in its trading
stock and which bore a price label of Rs. 15,400 in the showroom. MJE makes a gross profit of
40% of cost, on sale of such assets.
633
Required:
Prepare the following ledger accounts for the year ended December 31, 2009:
(a) Fixed assets
(b) Accumulated depreciation
(c) Profit/loss on sale of fixed assets (09)
{Spring 2010, Q# 2}
QUESTION-17 {Subsequent Expenditure}
Following information has been extracted from the financial statements of Full Speed Enterprises (FSE)
for the year ended 30 June 2013:
Rupees
Vehicles – cost 65,201,300
Less: Accumulated depreciation (24,450,500)
WDV of vehicles 40,750,800
FSE provides depreciation on vehicles @ 15% per annum on written down values. Depreciation on
addition/deletion is provided in proportion to the period of use.
Other related information is as follows:
(i) On 1 August 2013, a vehicle which was acquired at a cost of Rs. 850,000 on 1 July 2011 was
exchanged for a new vehicle. The balance was settled with a cheque for Rs. 350,000. The list
price of the new vehicle was Rs. 900,000.
(ii) Three new vehicles were purchased on 1 December 2013 for Rs. 1,250,000 each.
(iii) On 1 February 2014, a vehicle having written down value of Rs. 550,000 was repaired at a cost of
Rs. 250,000. It is expected that the repairs would improve the efficiency of the vehicle
significantly.
(iv) On 30 June 2014, a vehicle purchased on 1 January 2012 at a cost of Rs. 1,500,000 was sold for
Rs.1,350,000.
Required:
Prepare the following ledger accounts for the year ended 30 June 2014:
(a) Vehicles account
(b) Accumulated depreciation on vehicles
(c) Loss/gain on sale of vehicles (10)
{Autumn 2014, Q# 6, CAF-05}
QUESTION-18 {Assets Account Prepaid on Book Value}
A trading organisation charges depreciation on its plant and machinery on a reducing balance method @
15% per annum. On 1 July 2011, the net book value in the ledger stood at Rs. 5,660,000. Movements in
the plant and machinery account during the two years ended 30 June 2013 were as follows:
Date Particulars
1 October 2011 A new machine costing Rs. 80,000 was purchased. A sum of Rs. 30,000 was paid
on the same date and the balance was paid on 31 March 2012.
1 December 2011 A machine that was purchased for Rs.200,000 and installed at a cost of Rs.10,000
on 1 August 2009 was fully destroyed in an accident.
1 February 2012 Some old machinery (book value on 1 July 2011 Rs. 20,000) was sold for
Rs.8,000.
30 November 2012 A machine imported on 1 July 2010 was disposed of for Rs. 63,000. The value of
machine was Rs. 70,000 whereas import levies amounted to Rs. 5,000.
Required:
Prepare the plant and machinery account for the years ended 30 June 2012 and 2013. (19)
{Autumn 2013, Q# 6}
634
QUESTION-19
Kamran Enterprises (KE) provides depreciation on plant and machines at 10% on written-down value.
Depreciation is charged from the month the asset is available for use in operations up to the month prior
to its disposal. Cost of its plant & machines and the accumulated depreciation as on 1 July 2015 were
Rs. 75 million and Rs. 17 million respectively.
The following information is available in respect of its plant & machines, for the year ended 30 June
2016:
(i) On 1 October 2015, a second-hand machine was acquired from a Chinese company for
Rs. 15 million. The machine was renovated and overhauled at a cost of Rs. 3 million. 25% of this
expenditure was in respect of purchase of consumables.
(ii) On 1 November 2015, KE transferred a machine having a list price of Rs. 10 million from its
stock-in-trade to its Engineering Department. KE sells such machines at cost plus 25%.
(iii) On 1 January 2016, certain worn-out parts of a plant were replaced at a cost of Rs. 4 million. The
replaced parts neither enhanced the useful life of the plant nor its operating efficiency. The old
parts were sold for Rs. 0.75 million. The plant was purchased for Rs. 25 million on 1 January
2015.
On 1 May 2016, the plant was damaged and remained in-operative for one month. KE spent an
amount of Rs. 3 million on repairs to restore the plant in working condition.
(iv) On 1 April 2016, a machine which was purchased on 1 July 2012 for Rs. 12 million was
completely damaged and was sold for Rs. 1.2 million.
Required:
Prepare accounting entries to record the above transactions in KE’s books for the year ended
30 June 2016. (17)
{Autumn 2016, Q# 7}
QUESTION-20 {Calculation Cost of Assets & Change in Estimate}
(a) What conditions must be satisfied if an item has to be recognized as property, plant and
equipment? Also state at what amount such item shall be carried after the initial recognition if the
entity is following the revaluation model.
(b) On 1 January 2013 Delta acquired a specialized machine for its production department. The
available information is as follows:
Rupees
List price of machine 9,200,000
Freight charges 263,000
Electrical installation cost 245,000
Staff training for use of machine 351,000
Pre-production testing 193,000
Purchase of a three year maintenance contract 528,000
Estimated residual value 175,000
Trade discount on list price 5%

Early settlement discount taken 3%
Estimated life (in machine hours) 12,000
Machine hours used during the years ended 31 December 2013, 2014 and 2015 were 2,000, 3,200
and 1,400 respectively.
On 1 January 2015 Delta decided to upgrade the machine by adding new components at a cost of
Rs.1,753,000. This upgrade led to a reduction in the production time per unit or goods being
manufactured by the machine. The upgrade also increased the estimated remaining life of the
machine at 1 January 2015 to 8,000 machine hours and its estimated residual value to Rs.350,000.
635
Required:
For the years ended 31 December 2013, 2014 and 2015, compute the relevant amounts to be
included (under each head) in the income statement and statement of financial position.
Notes to the financial statements are not required. (10)
(Spring-16 Q.4 CAF-05)
QUESTION-21 {Revaluation}
Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July 2010. The plant
has an estimated useful life of 10 years and no residual value.
STML uses revaluation model for subsequent measurement of its property, plant and equipment and
accounts for revaluations on net replacement value method. The details of revaluations performed by an

1 July 2011 Rs. 575 million
Required:
year ended 30 June 2014. (Ignore tax implications) (15)
{Autumn 2014, Q# 4, CAF-05}
Faraday Pharmaceutical Limited (FPL) acquired a building for Rs. 200 million on July 1, 2005. The
following information relating to the building is available:
(ii) FPL uses the revaluation model for subsequent measurement of its property, plant and equipment
Revaluation date Fair value (Rs. In million)
July 1, 2006 230
July 1, 2007 170
July 1, 2008 180
(iii) FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on
an annual basis.
Required:
Prepare the journal entries to record the above transactions from the date of acquisition of the building to
the year ended June 30, 2009. ()
{Autumn 2009, Q # 3, Module C}
PQR Enterprises was incorporated on 1 July 2012. The company depreciates its property, plant and
equipment on straight line basis over their useful life. It uses revaluation model for subsequent
measurement of the property, plant and equipment and has a policy of revaluing these after every two
years.
636
Following information pertains to its property, plant and equipment:

Useful life in years
Remaining
Value as determined by
Cost as on WDV as on Original at as
Assets professional valuer
01-07-2013 01-07-2013 acquisition determined
on 30-06-2014
by valuer
-------Rs. in million-------
Office building 6,000 5,500 5,750 12 8
Factory building 4,400 3,960 3,320 10 9
Warehouse 4,500 4,050 3,350 10 8
During the year there were no addition or deletion in the above assets.
As per policy, PQR transfers the maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015. (12)
(Autumn-15, CAF-05 Q-3)
The following information pertains to Sherdil Limited (SL):
(i) Buildings and equipment were acquired on 1 January 2014 for Rs. 450 million and Rs. 50 million
respectively.
(ii) The relevant information relating to both assets is summarised below:
Depreciation Subsequent
Assets Life /rate
method measurement
Buildings Straight line 20 years Annual revaluation
Equipment Reducing balance 10% Cost
SL transfers the maximum possible amount from revaluation surplus to retained earnings on an
annual basis.
(iii) The revalued amount of buildings as determined by Accurate Valuers (Private) Limited, an
independent valuation company, on 1 January 2015 and 2016 was Rs. 456 million and Rs. 378
million respectively.
(iv) Equipment costing Rs. 35 million was purchased on 1 August 2015. Half of the equipment
purchased on 1 January 2014 was disposed off on 30 June 2016.
Required:
In accordance with International Financial Reporting Standards, prepare a note on ‘Property plant &
equipment’ (including comparative figures) for inclusion in SL’s financial statements for the year ended
31 December 2016. (18)
{Autumn 2017, Q # 2}
(a) Following information pertains to a building acquired by SK Limited (SKL) on 1 July 2012 for
Rs. 360 million:
(i) The building is being depreciated on straight-line basis over 10 years.
(ii) SKL uses revaluation model for subsequent measurement of buildings. It accounts for
revaluation on net replacement value method. The details of revaluations as carried out
by independent value are as follows:

(Rs. in million)
31 December 2013 323
637
(iii) There is no change in useful life of the building.

(iv) SKL transfers the maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
(v) SKL’s financial year ends on 31 December.
Required:
Prepare entries to record revaluation surplus/loss on each of the above revaluation date. (Entries to record
depreciation expense, incremental depreciation and elimination of accumulated depreciation are not
required) (11)
(b) Following information pertains to three exchange transactions relating to fixed assets:
(i) (ii) (iii)
--------- Rs. in million ---------
Cash received/(paid) 1.1 (2.1) -
Assets given-up:
Original cost 10.3 12.4 14.5
Book value 6.4 7.3 3.4
Estimated fair value 8.5 6.6 4.6
Assets received:
Estimated fair value 7.1 9.0 4.1
 In case of transaction (i), fair values of both assets are reliably measurable.
 In case of transaction (ii), fair value of the asset received is clearly more evident.
 In case of transaction (iii), fair value of neither asset is reliably measurable.
Required:
Compute gain or loss on disposal of fixed assets in each of the above transactions. (06)
{Spring 2018, Q # 6}
QUESTION-26
The following information is available in respect of machines of Akmal Brothers:
(i) The balances of cost and accumulated depreciation of machines as on 1 January
2017 were Rs.800,000 and Rs.333,000 respectively.
(ii) A machine acquired on 1 January 2014 having net book value of Rs.31,935 on
1 January 2017 was sold for Rs.34,000 on 30 April 2017. Cost of disposal
incurred was Rs.5,000.
(iii) On 1 July 2017, a machine having fair value of Rs.40,000 on that date was
exchanged for a new machine. The balance of the purchase price was paid
through a cheque of Rs.80,000. The list price of the new machine was
Rs.130,000. The old machine had been acquired at a cost of Rs. 65,000 on
1 October 2015.
(iv) Machines are depreciated at 15% per annum using the reducing balance method.
Required:
Prepare the following ledger accounts pertaining to the machines for the year ended
31 December 2017:
(a) Cost (03)
(b) Accumulated depreciation (05)
(c) Gain/loss on disposal (04)
{Autumn 2018, Q # 5}
638
QUESTION-27
The following information pertains to Piano Limited (PL):
Plant Equipment
Acquisition
 Date of acquisition 1 January 2015 1 July 2015
 Cost Rs. 500 million Rs. 360 million
 Estimated useful life 10 years 12 years
 Residual value Rs. 60 million Nil
 Depreciation method Straight line method Straight line method
Revaluation on 31 December 2016

 Fair value Rs. 526 million Rs. 280 million
Revaluation on 31 December 2018

 Fair value Rs. 310 million Rs. 275 million
(i) PL uses revaluation model for subsequent measurement and accounts for revaluation on
net replacement value method.
(ii) There is no change in useful life of plant. The remaining useful life of equipment was
estimated as 15 years and 10 years in 2016 and 2018 respectively.
(iii) PL transfers maximum possible amount from the revaluation surplus to retained earnings
on an annual basis.
(iv) PL’s financial year ends on 31 December.
Required:
(a) Calculate depreciation on each asset for 2015 to 2018. (08)
(b) Prepare entries to record revaluation in 2018. (Entries to record depreciation expense,
incremental depreciation and elimination of accumulated depreciation are not
required. Further, entries prior to 2018 are also not required.) (08)
{Spring 2019, Q # 5}
639

Answer 1
(a) Cost of asset
Rupees
List price net of trade discount 100,000
Installation and testing cost 3,400
Special electrical wiring 1,100
Modifications 1,900
Total 106,400
Notes:-
1. As modifications are necessary here to bring the asset into its present condition and location so
they are being capitalized.
2. Insurance against fire and theft covers the risk of a single period so it is a revenue expenditure.
3. Staff training cost is not a part of cost of asset because we have no control over the employees
after being they are trained.
(b)
(i) Revenue
(ii) Capital
(iii) Capital
(iv) Revenue
(v) Revenue
(vi) Revenue
(vii) Capital
(viii) Revenue
(ix) Capital
(x) Capital
Answer-2
Cost of asset
Rupees
List price of the computer net of trade discount (100,000 -10% of 100,000) 90,000
Total 90,000
Notes:
1. Cash discount is recorded as an income not a reduction in cost.
2. Insurance and maintenance expense is a revenue expenditure.
3. Cost of re-wiring is not a capital expenditure.
Answer-3
Plant will be capitalized at cost of Rs. 290.9 Million. Rs in million
Invoice value 250
LC opening charges 1
Import duty 25
Clearing & transportation 5
Site preparation (2 + 3 – 0.8) 4.2
Test run cost (6 – 1.2) 4.8
Factory manger salary (250,000 x 3 x 30%) 0.225
290.225
(i) Sales tax recoverable is not a part of cost of asset.
(ii) It is not necessary to damage equipment for plant installation so it is excluded from cost.
(iii) Admin and general overheads are not a part of cost of asset.
(iv) Staff training cost is not a part of cost of asset because we do not have control over it.
Depreciation Expense = (290.225 /15 years) x 8/12 = 12.89 Million.
640
Answer-4
Dr. Machinery account Cr.
1/7/97 Cash (60,000 + 9,000) 69,000
1/1/98 Cash 36,000 31/3/98 Closing balance (c/d) 105,000
31/3/98 b/d 105,000 31/3/99 Closing balance (c/d) 105,000
31/3/98 b/d 105,000 30/6/99 Disposal 36,000
1/7/98 Cash 45,000 31/3/00 Closing balance (c/d) 114,000
Answer-5
(a) Service hour method
Depreciation expense = Cost - Residual Value x Hours in current year
Total hours expected
Depreciation-1992 = (750,000 - 30,000) x 4,200 120,960
25,000
(b) Productive output method
Depreciation expense = Cost - Residual Value x Units in current year
Total units expected
Depreciation-1992 = (750,000-30,000) x 80,000 = 144,000
400,000
(c) Sum of year's digit method
Depreciation expense = Cost - Residual Value x 6
(6+5+4+3+2+1)
Depreciation-1992 = (750,000-30,000) x6 = 205,714
21
Answer-6
(a)(i) Calculation of depreciation expense using straight line method
Depreciation expense = Cost - Residual Value X No. of months in use
Useful life 12
Depreciation - 2002 = (1,120,000-112,000) X 9 = 189,000
(April - December) 4 12
Depreciation - 2003 = (1,120,000-112,000) X 12 = 252,000
4 12
Depreciation - 2004 = (1,120,000-112,000) X 12 = 252,000
4 12
Depreciation - 2005 = (1,120,000-112,000) X 12 = 252,000
4 12
Depreciation - 2006 = (1,120,000-112,000) X 3 = 63,000
(January - March) 4 12
(ii) Calculation of depreciation expense using usage method
Depreciation expense = Cost - Residual Value x Hours in current year
Total hours expected
Total expected hours = 4,000 + 5,000 + 5,000 + 5,000 + 1,000 = 20,000
Depreciation - 2002 = (1,120,000-112,000) x 4,000 = 201,600
20,000
Depreciation - 2003 = (1,120,000-112,000) x 5,000 = 252,000
20,000
Depreciation - 2004 = (1,120,000-112,000) x 5,000 = 252,000
20,000
Depreciation - 2005 = (1,120,000-112,000) x 5,000 = 252,000
20,000
Depriciation-2006 = (1,120,000-112,000) x 1,000 = 50,400
20,000
641
(b)
Dr. Machine a/c Cr.
b/d 1,120,000 Disposals (bal.) 1,120,000
Closing balance (c/d) -
1,120,000 1,120,000
Dr. Provision for depreciation-machine account Cr.

Disposals 315,000 b/d (part – (i) solution) 189,000
(1,120,000 – 112,000) x 1.25
4 years
Closing - Depreciation (as below) 126,000
315,000 315,000
Depreciation – 2003 = (1,120,000 - 112,000) x 6 = 126,000

4 12
Dr. Machinery Disposal account Cr.

Machine – cost 1,120,000 Accumulated depreciation 315,000
Cash 800,000
1,120,000 1,120,000
Answer-7
Dr. Machinery account Cr.
b/d 85,000 Disposals 20,000
Cash 25,000
Closing balance (c/d) (bal.) 90,000
110,000 110,000
Dr. Accumulated depreciation Cr.

Disposals 7,760 Opening 31,500
((W-4)5,600+(W-1) 2,160) Depreciation (W-1) 11,230
closing (bal.) 34,970
42,730 42,730
Dr. Machinery Disposal account Cr.

Fixed asset – cost 20,000 Accumulated depreciation 7,760
P and L (Bal.) 160 Insurance claim receivable 12,400
20,160 20,160
Workings
(W-1) Depreciation expense for the year
On opening assets excluding disposals (25,600 + 13,500) x 20% 7,820
On additions (25,000 x 20% x 3/12) 1,250
On disposals (14,400 x 20% x 9/12) 2,160
11,230
(W-2) Accumulated depreciation on 1-1-1989
Purchased on 1986 (W-3) 24,400
31,500
642
(W-3) Calculation of accumulated depreciation of asset purchased in 1986

Cost (01-01-86) 50,000
Depreciation expense (31-12-86) (50,000 x 20%) (10,000)
WDV (01-01-87) 40,000
WDV (01-01-88) 32,000
WDV (01-01-89) 25,600
Accumulated depreciation (Cost - WDV) (50,000-25,600) 24,400

Cost (01-07-87) 20,000
Depreciation expense (31-12-87) (20,000 x20%x6/12) (2,000)
WDV (01-01-88) 18,000
Depreciation expense (31-12-88) (18,000x20%) (3,600)
WDV (01-01-89) 14,400

Cost (01-07-88) 15,000
Depreciation expense (31-12-88) (15,000 x 20%x6/12) (1,500)
WDV (01-01-89) 13,500
Answer-8
Sale proceeds received on the disposal are Rs.55,500.
(Workings)
Dr. Fixed asset - at cost Cr.
b/d 518,000 Disposals (bal.) 314,500
Cash (Additions) 481,000
Closing balance (c/d) 684,500
999,000 999,000
Dr. Accumulated depreciation Cr.

Disposals (bal.) 166,500 b/d 277,500
Depreciation 138,750
Closing 249,750
416,250 416,250

Fixed asset – cost 314,500 Accumulated depreciation 166,500
Cash (bal.) 55,500
P and L 92,500
314,500 314,500
643
Answer-9
(a)
Number of months asset is Total life in Accumulated
Particulars Cost WDV
Used Months Depreciation
(A) (B) (C) (D=A/CxB) (E=A-D)
Motor Car 350,000 (3x12+10 months) 46 (5x12) 60 268,333 81,667
Jeep 650,000 (2x12+4 month) 28 (5x12) 60 303,333 346,667
Furniture 150,000 (1x12+ I month) 13 (10x12) 120 16,250 133,750
Computers 500,000 (3x12+ 5month) 41 (3x12) 36 *500,000 -
562,084
* Computers are fully depreciated.
(b)
Total life in Month Depreciation for
Particular Cost
months used January
(A) (B) (C) (D=A/BxC)
Motor Car 350,000 (5x12) 60 1 5,833
Jeep 650,000 (5x12) 60 1 10,833
Furniture 150,000 (10x12) 120 1 1,250
17,916
Try to solve this question by assuming that residual value is 10% for each of the asset.
Also try to solve this question by assuming that WDV method is used. For this ignore the life given in the
question.
Answer-10
(a)
Calculation of depreciation expense
Depreciation – 2004 = Cost (W-1) - Residual Value = (4,074,000 - 350,000)
Useful life 5
= 744,800
Depreciation - 2005 = Book value (W-2) - New Residual Value = (3,329,200 - 400,000)
Remaining useful life 5
= 585,840
Depreciation - 2006 = Book value (W-2) - New Residual Value = (3,329,200 – 400,000)
Remaining useful life 5
= 585,840
(W-l) Cost of asset
Rupees
Purchase price 3,000,000
Import duty 1,000,000
Insurance in transit 4,000
Cost of asset 4,074,000
(W-2) Book value at the time the life is revised = (4,074,000 - 744,800) 3,329,200
644
(b) Dr. Cr.

Cash 2,800,000
Accumulated depreciation (744,800+585,840+585,840) 1,916,480
P and L (Bal.) 642,480
Equipment - cost 4,074,000
(Asset disposed off)
Answer-11
(a)
Year of Life asset Useful Accumulated WDV as on
Description Cost
Purchase is used life Depreciation 1-1-1998
(A) (B) (C) (D=A/CxB) (E=A-D)
Building 1996 10,000 2 50 400 9,600
Plant & Machinery 1996 20,000 2 10 4,000 16,000
IT equipment 1997 3,000 1 5 600 2,400
Vehicles 1996 2,800 2 4 1,400 1,400
Furniture 1996 1,200 2 10 240 960
Office equipment 1996 1,500 2 10 300 1,200
31,560
(b) Book value Remaining life Depreciation

(A) (B) (C=A/B)
Building 9,600 40 240
Plant & Machinery 16,000 15 1,067
IT equipment 2,400 3 800
Vehicles 1,400 5 280
Furniture 960 7 137
Office equipment 1,200 5 240
2,764
Following formula is used for calculating depreciation for 1998
Depreciation - 2005 = Book value(l-l-98) - New Residual Value
Remaining useful life
New residual value in all cases is zero.
Try to solve this question by assuming that new residual value is 10% of original cost of the asset.
Answer-12
(i) Cost of land
Rupees
Fair market value of trucks 147,000
Add: Cash paid 51,000
198,000
(ii) Gain on disposal of used trucks
Trade in allowance 147,000
Less: Book value of trucks (126,000)
Gain 21,000
Note: In the given question the fair market value of trucks is equal to trade in allowance as this is
the value assigned to our assets by the purchaser Faiz Ahmed.
645
(iii) Journal entry Dr. Cr.

Land 198,000
Accumulated depreciation – trucks 66,000
Trucks – cost 192,000
Cash 51,000
P and L (as in part (ii)) 21,000
(A piece of land exchanged against trucks by paying some additional cash)
Answer-13
Rupees
(i) Cost of new machine 32,000
(ii) Gain on disposal of used trucks
2,000
(iii) Journal entry Dr. Cr.
Plant and machinery (New) 32,000
Plant and machinery (Old) 24,000
P and L (as in part (ii)) 2,000
Cash (bal.) 14,000
(Old machinery exchanged against new machinery by paying some additional cash)
Answer-14
(a) Cost of asset
Rupees
Letter of Credit opening charges 50,500
Payment made to bank towards release of documents 2,560,000
Import duty 690,000
Clearing Agent fees 20,000
Machinery transport charges to factory 31,500
Total 3,382,100
Notes:
1. It is assumed that sundry expenses are necessary to bring the asset into its present condition and
location.
2. Income tax is assumed to be adjustable.
3. Demurrage charges is a penalty charged for picking the items late from port, so these are not
added to asset's cost because of not being necessary cost.
(i) Cost of machinery
Rupees
List price 1,800,000
(ii) Cash payment
Less: Trade in allowance (900,000)
900,000
(iii) Gain/ (loss) on disposal
Gain 250,000
646
Journal entry for exchange of asset

Dr. Cr.
Machinery 1,800,000
Machinery 1,400,000
Cash 900,000
P and L (as in part (iii)) 250,000
Answer-15
Vehicle
Dr. Vehicle a/c Cr.
01.06.96 b/d 570,000 01.01.97 Disposal (15,000 x 2) 30,000
01.01.97 Disposal (20,000 x 4) 80,000 01.05.97 Disposal 10,000
31.05.97 c/d 610,000

Disposal (W-2) 18,000 1.5.96 b/d 220,000
Disposal (W-3) 8,167 Depreciation (W-1) 118,000
c/d (bal.) 311,833
Dr. Disposal A/c (Exchange) Cr.

Vehicle (old) 30,000 Accumulated Depreciation 18,000
Cash (Note) (80,000 – 5,000 x 2) 70,000 Vehicle – new 80,000
P/L (Bal.) 2,000
Note: Cash paid = Cost of new asset – Trade in allowance
Dr. Disposal A/c (Destroy) Cr.

P/L (bal.) (bal.) 1,167 Insurance claim receivable 3,000

- On Opening excluding disposal (570,000 – 30,000 – 10,000) x 20% 106,000
- On additions (80,000 x 20% x 5/12) 6,667
- On disposals (30,000 x 20% x 7/12) + (10,000 x 20% x 11/12) 5,333
118,000
(W-2) Accumulated Depreciation of assets exchanged (30,000 x 20% x 3Y) 18,000
(W-3) Accumulated Depreciation of assets destroyed (10,000 x 20% x 4.0833Y) 8,167
Journal entries for understanding only

Entry of Exchange Entry of Destroy
Vehicle – new 80,000 Accumulated Depreciation 8,167
Accumulated Depreciation 18,000 Insurance claim receivable 3,000
P/L (Bal.) 2,000 P/L (Bal.) 1,167
Vehicle – old 30,000 Vehicle 10,000
Cash 70,000
647
Equipment
Dr. Equipment a/c Cr.

01.05.96 b/d 830,000 30.09.96 Disposal 60,000
01.10.96 Cash 175,000 01.05.97 Disposal 25,000
01.12.96 Cash 200,000 31.05.97 c/d (bal.) 1,120,000

Disposal (W-2) 21,000 01.05.96 b/d 292,000
Disposal (W-3) 16,458 Depreciation (W-1) 100,459
c/d (bal.) 355,001

Equipment 60,000 Accumulated Depreciation 21,000
Cash 32,000
P/L (Bal.) 7,000

Equipment 25,000 Accumulated Depreciation 16,458
Cash 2,000
P/L (Bal.) 6,542

- On Opening excluding disposal(830,000 – 60,000 – 25,000) x 10% 74,500
- On additions (175,000 x 10% x 8/12) + (200,000 x 10% x6/12) 21,667
- On disposals (60,000 x 10% x 4/12) + (25,000 x 10% x 11/12) 4,292
100,459
(W-2) Accumulated Depreciation of Disposals made on 30.09.96 (60,000 x10% x 3.5) 21,000
(W-3) Accumulated Depreciation of Disposals made on 01.05.97 (25,000 x 10% x 6.5833) 16,458
(b)
Cost Equipment Vehicle Total
-----------------------Rs. 000-----------------------
Opening 830 570 1,400
Addition 375 80 455
Disposal (85) (40) (125)
Closing 1,120 610 1,730
Depreciation
Opening 292 220 512
Addition 101 119 239
Disposal (37) (26) (63)
Closing (356) (313) (688)
WDV 764 297 1,042

Rate 10% 20% -
648
Answer-16
(a) Dr. Fixed assets Cr.
b/d 100,000 Disposal (W-1) 5,000
Disposal account 1,200 Disposals 2,000
Stock (15,400/140x100) 11,000
c/d 105,200
112,200 112,200
(b) Dr. Accumulated Depreciation Cr.
Disposal account (W-1) 2,250 b/d 33,000
Disposal account (W-2.1) 900
Depreciation for the year (W-3) 9,985
c/d 39,835
42,985 42,985
(c) Dr. Profit/loss on sale of fixed asset Cr.

Fixed Asset 5,000 Accumulated depreciation (W-1) 2,250
Cash 1,500
5,000 5,000
Dr. Profit/loss on sale of fixed asset Cr.

Fixed Asset (old) 2,000 Fixed Asset (new) 1,200
Bank 800 Accumulated depreciation (W-2.1) 900
P and L (Bal.) 700
2,800 2,800
(W-1) Cost and accumulated depreciation of asset disposed on June 30, 2009
Number of years the asset is used (1.1.2005-30.6.2009) 4.5Y
Cost (in percentage) 100%
Accumulated depreciation (in percentage) (10% per year x 4.5Y) 45%
Book value at time of disposal (in percentage) (100% - 45%) 55%
Cost on 1.1.2005 (in rupees) (2,750/55 x 100) 5,000
Accumulated depreciation on 30.06.2009 (in rupees) (5,000-2,750) 2,250
(W-2) Journal entry for asset exchanged

Dr. Cr.
Fixed Asset (New) 1,200
Accumulated depreciation (W-2.1) 900
P and L (bal.) 700
Fixed Asset (Old) 2,000
Bank 800
(Assets exchanged)
(W-2.1) Accumulated depreciation of asset disposed on July 1, 2009

Number of years the asset is used (1.1.2005 - 30.6.2009) 4.5Y
Accumulated depreciation on 1.07.2009 (in rupees) (2,000 x 10% x 4.5Y) 900
649
(W-3) Depreciation calculation for the year

Depreciation on opening assets excluding disposals
Less: Disposals (5,000+2,000) (7,000)
Remaining assets on which full year depreciation is to be charged 93,000
Depreciation there on (93,000x10%) 9,300
Depreciation on additions
(v) Asset acquired through exchange (1,200x10%x6/12) 60
(vi) Asset transferred from stock (11,000x10%x3/12) 275
Depreciation on disposals
(iv) Asset disposed off (5,000x10%x6/12) 250
(v) Asset exchanged (2,000x10%x6/12) 100
9,985
Answer-17
(a) Dr. Vehicle Cr.
1-Jul-13 b/d 65,201,300 1-Aug-13 Disposals (W-1) 850,000
1-Aug-13 Disposal account 900,000 30-Jun-14 Disposals 1,500,000
1-Dec-13 Cash (1,250,000 x 3) 3,750,000
1-Feb-14 Cash 250,000
30-Jun-14 c/d 67,751,300
(b) Dr. Accumulated depreciation Cr.

1-Aug-13 Disposal account (W-2) 243,552 1-Jul-13 b/d 24,450,500
30-Jun-14 Disposal account (W-3) 497,531 Depreciation Exp. (W-1) 6,495,678
30-Jun-14 c/d 30,205,095
(c) Dr. Profit/loss on exchange of vehicle Cr.

Vehicle (old) 850,000 Vehicle (new) 900,000
Bank 350,000 Accumulated dep. (W-2) 243,552
P and L (Bal.) 56,448
Dr. Profit/loss on sale of vehicle Cr.

Vehicle 1,500,000 Accumulated dep. (W-3) 497,531
P and L (bal.) 347,531 Cash 1,350,000
(W-1) Depreciation calculation
Opening WDV (65,201,300 - 24,450,500) 40,750,800
((W-2) 614,125 + (W-3)
Less: WDV of Disposals 1,179,375) (1,793,500)
38,957,300
Depreciation there on (38,957,300 x 15%) 5,843,595
Depreciation on additions
(i) Asset acquired through exchange (900,000 x 15% x 11/12) 123,750
(ii) Asset acquired on 1-Dec. (3,750,00 x 15% x 7/12) 328,125
(iii) Asset acquired on 1-Feb. (250,000 x 15% x 5/12) 15,625
Depreciation on disposals
(i) Asset exchanged (W-2) 7,677
(iv) Asset disposed off (W-3) 176,906
6,495,678
650
(W-2) Accumulated depreciation of asset exchanged

Cost (1.7.11) 850,000
Depreciation (30.06.12) (850,000 x 15%) (127,500)
WDV (30.06.12) 722,500
Depreciation (30.06.13) (722,500 x 15%) (108,375)
WDV (30.06.13) 614,125
Depreciation (1.08.2013) (614,125 x 15% x 1/12) (7,677)
WDV (1.08.13) 606,448
Accumulated depreciation of disposal (850,000 - 606,448) 243,552
(W-3) Accumulated depreciation of asset disposed off

Cost (1.1.12) 1,500,000
Depreciation (30.06.12) (1,500,000 x 15% x 6/12) (112,500)
WDV (30.06.12) 1,387,500
Depreciation (30.06.13) (1,387,500 x 15%) (208,125)
WDV (30.06.13) 1,179,375
Depreciation (30.06.14) (1,179,375 x 15%) (176,906)
WDV (30.06.14) 1,002,469
Accumulated depreciation of disposal (1,500,000 - 1,002,469) 497,531
Answer-18
Dr. Plant and Machinery a/c – WDV Cr.
1.7.11 b/d 5,660,000 Disposals (W-1) 144,334
1.10.11 Additions 80,000 Disposals (W-2) 18,250
30.06.12 c/d (bal.) 4,734,137
1.7.12 b/d 4,734,137 Disposals (W-4) 50,801
30.06.13 c/d (bal.) 3,977,957
(W-1) WDV of disposals made on 1.Dec.2011
Cost (1.08.09) (200,000 + 10,000) 210,000
Depreciation (30.06.10) (210,000 x 15%x 11/12) (28,875)
WDV 181,125
Depreciation (30.06.11) (181,125 x 15%) (27,169)
WDV 153,956
Depreciation (01.12.11) (153,956 x 15% x 5/12) (9,622)
WDV (1.12.11) 144,334
(W-2) WDV of disposals made on 1.Feb.2012
WDV 20,000
Depreciation (1.02.12) (20,000 x 15% x 7/12) (1,750)
WDV (30.06.12) 18,250
(W-3) Depreciation expense for year ended 30.06.2012
Opening WDV of all assets (W-3) 5,660,000
Less: Opening WDV of disposals (153,956 + 20,000) (173,956)
5,486,044 15% 822,907
Depreciation on additions (80,000 x 15% x 9/12) 9,000
Depreciation on disposals during the year (9,622 + 1,750) 11,372
843,279
651
(W-4) WDV of disposals made on 30.Nov.2012

Cost (1.07.10) (70,000 + 5,000) 75,000
Depreciation (30.06.11) (75,000 x 15%) (11,250)
WDV 63,750
Depreciation (30.06.12) (63,750 x 15%) (9,563)
WDV 54,188
Depreciation (30.11.12) (54,188 x 15% x 5/12) (3,387)
WDV (30.11.12) 50,801
(W-5) Depreciation expense for year ended 30.06.2013

Opening WDV of all assets (W-5) 4,734,137
Less: Opening WDV of disposals (W-1) (54,188)
4,679,949 15% 701,992
Depreciation on disposals during the year (W-4) 3,387
705,379
Answer-19
Journal Entries
Date Particular Debit Credit
1/10/2015 Machine B (15,000+ (3,000 x 75%)) 17,250
P/L (consumable expense) 750
Bank 18,000
1/11/2015 Machine (10,000/125 x 100) 8,000
Inventory 8,000
1/1/2016 Plant and machine 4,000
Bank 4,000
1/1/2016 Bank 750
Other income 750
1/5/2016 Repair expense 3,000 3,000
Bank
1/4/2016 Bank 1,200
Accumulated depreciation (W-2) 3,908
Loss on disposal (Bal.) 6,892
Machine 12,000
30/6/2016 Depreciation expense (W-1) 7,408
(W-1) Depreciation for the year

On opening excluding disposals
[(75,000 – 17,000) – 8,748 (W-2)] x 10% 4,925
On additions
- (17,250 x 10% x 9/12) 1,294
- (8,000 x 10% x 8/12) 533
- (4,000 x 10% x 6/12) 200
2,027
On disposals (W-2) 656
7,608
652
(W-2) Accumulated Depreciation of disposals

Cost 12,000
Depreciation (30.6.13) (12,000 x 10%) (1,200)
10,800
Depreciation (30.6.14) (10,800 x 10%) (1,080)
9,720
Depreciation (30.6.15) (9,720 x 10%) (972)
8,748
Depreciation (1.4.16) (8,748 x 10% x 9/12) (656)
8,092
Accumulated Depreciation of disposal (12,000 – 8,092) 3,908
Answer-20
(a)
The cost of an item of property, plant and equipment shall be recognized as an asset if and only if:
(a) It is probable that future economic benefits associated with the item will flow to the entity; and
(b) The cost of the item can be measured reliably.
An item which is revalued shall be carried at a revalued amount which is its fair value at the date of the
revaluation less any subsequent accumulated depreciation and accumulated impairment losses.
(b)
Statement of Financial position (Extracts)
Rs.
2015 2014 2013
Machinery *11,194,000 9,441,000 9,441,000
Less: Accumulated Depreciation (5,210,294) (4,015,266) (1,544,333)
5,983,706 5,425,734 7,896,667
* 9,441,000 + 1,753,000 = 11,194,000
Income Statement (Extracts) 2015 2014 2013
Expenses
Depreciation 1,195,028 2,470,933 1,544,333
Staff training expense 351,000
Maintenance contract expense (528/3) 176,000 176,000 176,000
Other income
Discount received ((W-2) 8,740,000 × 3%) 262,200
Workings
2013 ((9,441,000 - 175,000) x 2,000/12,000) 1,544,333
2014 ((9,441,000 - 175,000) x 3,200/12,000) 2,470,933
2015 [(5,425,734 + 1,753,000) - 350,000] x 1,400 /8,000 1,195,028
Written down value at the time estimate is changed (9,441,000 - 1,544,333 - 2,470,933) 5,425,734
(W-2) Cost of asset
Less: Trade discount (9,200,000 x 5%) (460,000)
8,740,000
Freight charges 263,000
Electrical installation 245,000
Pre-production testing 193,000
9,441,000
653
Answer-21
Entries
July 1, 2010 Plant 500
Cash 500
Jun. 30, 2011 Depreciation (500/10) 50
July 1, 2011 Accumulated depreciation 50
Plant 50
July 1, 2011 Plant 125
Jun. 30, 2012 Depreciation (575/9) 63.89
Jun. 30, 2012 Revaluation surplus (125/9) 13.89
July 1, 2012 Accumulated depreciation 63.89
Plant 63.89
July 1, 2012 Revaluation surplus (125 - 13.89 ) 111.11
P/L 10
Plant 121.11
July 1, 2013 Accumulated depreciation 48.75
Plant 48.75
July 1, 2013 Plant 38.75
P/L (SOCI) 8.75
Jun. 30, 2014 Revaluation surplus (30/7) 4.29
(W-1) Calculation of revaluation surplus and depreciation on plant
-----------Rs. in ‘million-----------
1/7/10 Cost 500.00
30/06/11 Depreciation (500/10) (50.00)
30/06/11 WDV 450.00
1/7/11 Revalued amount 575.00 125.00
30/06/12 Depreciation (575/9):( 125/9) (63.89) (13.89) -
30/06/12 WDV 511.11 111.11 -
1/7/12 Revaluation surplus (bal.) (121.11) (111.11) (10.00)
1/7/12 Revalued amount 390.00 - (10.00)
30/06/13 Depreciation (390/8):( 10/8) (48.75) 1.25
30/06/13 WDV 341.25 (8.75)
1/7/13 Revaluation surplus (bal.) 38.75 30.00 8.75
1/7/13 Revalued amount 380.00 30.00
30/06/14 Depreciation (380/7):(30/7) (54.29) (4.29)
30/06/14 WDV 325.71 25.71
654
Answer-22
Entries

1/7/2005 Plant 200.00
Cash 200.00
30/6/2006 Depreciation 10.00
Plant 10.00
1/7/2006 Plant 40.00
Revaluation surplus (OCI) 40.00
30/6/2007 Revaluation surplus (40.00/19) 2.11
Plant 12.11
1/7/2007 Revaluation surplus 37.89
P/L 10.00
Plant 47.89
Plant 9.44
1/7/2008 Plant 19.44
P/L 9.44
655

Date Description Plant Rev. Surplus SOCI(P/L)
-----------Rs. in ‘million-----------
1/7/05 Cost 200.00
30/06/06 Depreciation (200/20) (10.00)
30/06/06 WDV 190.00
30/06/07 Depreciation (230/19):(40/19) (12.11) (2.11) -
30/06/07 WDV 217.89 37.89 -
1/7/07 Revaluation surplus (bal.) (47.89) (37.89) (10.00)
1/7/07 Revalued amount 170.00 - (10.00)
30/06/08 Depreciation (170/18):(10/18) (9.44) 0.56
30/06/08 WDV 160.56 (9.44)
1/7/08 Revaluation surplus (bal.) 19.44 10.00 9.44
30/06/09 Depreciation (180/17):( 10/17) (10.59) (0.59)
30/06/09 WDV 169.41 9.41
(W-2)
T- account are not a part of requirement, these are only prepared for understanding purpose of students.
Dr. Plant Account Cr.
1-7-2005 Cash 200.00
30-6-2006 c/d 200.00
1-7-2006 b/d 200.00 1-7-2006 Acc. depreciation 10.00
1-7-2006 Rev. surplus 40.00 30-6-2007 c/d 230.00
1-7-2007 Rev. surplus 37.89
1-7-2007 P/L 10.00
30-6-2008 c/d 170.00
1-7-2008 Rev. surplus 10.00
1-7-2008 P/L 9.44 30-6-2009 c/d 180.00
(W-3)
Dr. Accumulated Depreciation account Cr.
30-6-2006 Dep. Expense 10.00
30-6-2006 c/d 10.00
1-7-2006 Plant 10.00 1-7-2006 b/d 10
30-6-2007 c/d 12.11 30-6-2007 Dep. Expense 12.11
1-7-2007 Plant 12.11 1-7-2007 b/d 12.11
30-6-2008 c/d 9.44 30-6-2008 Dep. Expense 9.44
1-7-2008 Plant 9.44 1-7-2008 b/d 9.44
30-6-2009 c/d 10.59 30-6-2009 Dep. Expense 10.59
(W-4)
Dr. Revaluation Surplus account Cr.
30-6-2007 Retained Earnings 2.11 1-7-2006 Plant 40.00
30-6-2007 c/d 37.89
1-7-2007 Plant 37.89 1-7-2007 b/d 37.89
30-6-2008 c/d --
30-6-2009 Retained Earnings 0.59 1-7-2008 Plant 10.00
30-6-2009 c/d (Bal. Fig.) 9.41
656
Answer-23
Office building Rs. in ‘000’
Rev.
Surplus
1/7/13 Opening book value 5,500
30/6/14 Depreciation (6,000/12) (500)
30/6/14 WDV 5,000
30/6/14 Revaluation surplus (bal.) 750 750
30/6/14 Revalued amount 5,750 750
30/6/15 Depreciation (5,750/8) : (750/8) (719) (94)
30/6/15 WDV 5,031 656
Factory building
Rev.
Surplus
30/6/14 Depreciation (4,400/10) (440)
30/6/14 WDV 3,520
30/6/14 Revaluation surplus (bal.) (200) (200)
30/6/14 Revalued amount 3,320 (200)
30/6/15 Depreciation (3,320/9) : (200/9) (369) 22
30/6/15 WDV 2,951 (178)
Warehouse
Rev.
Surplus
30/6/14 Depreciation (4,500/10) (450)
30/6/14 WDV 3,600
30/6/14 Revaluation surplus (bal.) (250) (250)
30/6/14 Revalued amount 3,350 (250)
30/6/15 Depreciation (3,350/8) : (250/8) (419) 31
30/6/15 WDV 2,931 (219)
PQR Enterprise
Journal entries for the year ended June 30, 2014 & 2015
Office Building Rs. in ‘000’
(Recording of depreciation on office building)
30/6/14 Accumulated depreciation (500+500) 1,000
Office Building 1,000
(Transfer of accumulated depreciation to office building)
30/6/14 Office Building 750
(Recording of depreciation on office building)
30/6/15 Revaluation Surplus 94
Retained earnings 94
(Transfer of remaining revaluation surplus to retained earnings)
657
Factory Building
(Recording of depreciation on factory building)
30/6/14 Accumulated depreciation (440 + 440) 880
Factory Building 880
(Transfer of accumulated depreciation to factory building)
30/6/14 P/L account 200
Factory Building 200
(Recording of revaluation deficit )
(Recording of depreciation on factory building)
Warehouse
(Recording of depreciation on warehouse)
30/6/14 Accumulated depreciation (450 + 450) 900
Warehouse 900
(Transfer of accumulated depreciation to warehouse)
30/6/14 P/L account 250
Warehouse 250
(Recording of revaluation deficit )
(Recording of depreciation on warehouse)
Answer-24
Property Plant & Equipment
Note:
2016 2015
Building EQ Building EQP
Cost
Opening balance 456 85 450 50
Add: Addition/revered (24) - (22.5) 35
Add: Rev/(Rev) (54) - 28.5 -
Less: Disposal - (25) - -
Closing balance 378 60 456 85
Depreciation
Opening balance 24 10.96 22.5 5
Dep expense for year 21 6.3915 24 5.96
Disposal - (5.7625) - -
Rev Surplus (24) - (22.5) -
Closing balance 21 11.589 24 10.96
WDV 357 48.411 432 74.04
658
Dep rate 5% 10% 5% 10%

(20 year) (10 year) (20 year) (10 year)
Rev model Cost model Rev model Cost model

S.L Method WDV Method S.L Method WDV Method
(W-1)
Date Description Building Rev Sur P/L
01/01/14 Cost 450
31/12/14 Dep 450/20 (22.5)
31/12/14 WDV 427.5
01/01/15 Rev Surplus 28.5 28.5
01/01/15 Rev Amount 456 28.5
31/12/15 Dep (24) (1.5)
31/12/15 WDV 432 27
01/01/16 Rev Surplus (54) (27) (27)
01/01/16 Rev Amount 378 (27)
31/12/16 Dep (21) 1.5
31/12/16 WDV 357 (25.5)
Building A/C
Rs. Rs.
01/01/14 Cash 450 31/12/14 bal c/d 450
01/01/15 bal b/d 450 01/01/15 ACC dep 22.5

01/01/15 Rev Sur 28.5 31/12/15 c/d 456
478.5 478.5
01/01/16 bal b/d 456 01/01/16 Revaluation Surplus 27
01/01/16 P/L 27
01/01/16 Acc Dep 24
31/12/16 Bal c/d 378
456 456
Acc dep A/C

Rs. Rs.
01/01/14 b/d -
31/12/14 c/d 22.5 31/12/14 Depreciation 22.5
22.5 22.5
01/01/15 Building 22.5 01/01/15 bal b/d 22.5
31/12/15 bal c/d 24 31/12/15 Depreciation 24
46.5 46.5
01/01/16 Building 24 01/01/16 bal b/d 24
31/12/16 bal c/d 21 31/12/16 Depreciation 21
45 45
659
Revaluation Surplus A/C

Rs. Rs.
31.12.15 Retained earning 1.5 01.1.15 Building 28.5
31/12/15 bal c/d 27
28.5 28.5
01.01.16 Building 27 01.01.16 bal b/d 27
31/12/16 bal c/d -
27 27
Retained earnings A/C
Rs. Rs.
31/12/15 bal c/d 1.5 31/12/15 Rev Sur 1.5
31/12/16 bal c/d 1.5 01/01/16 bal b/d 1.5
1.5 1.5
(W-2)
Equipment A/C
Rs. Rs.
01/01/14 cash 50 31/12/14 c/d 50
01/01/15 b/d 50
01/08/15 cash 35 31/12/15 c/d 85
85 85
01/01/16 b/d 85 30/06/16 Disposal 25
31/12/16 c/d 60
85 85
(W-3)
Accumulated dep A/C
Rs. Rs.
01/01/14 b/d -
31/12/14 bal c/d 5 31/12/14 c/d 5
5 5
01/01/15 b/d 5
31/12/15 bal c/d 10.96 31/12/15 dep 5.96
10.96 10.96
30/06/16 Disposal (w-4) 5.7625 01/01/16 b/d 10.96
31/12/15 c/d 11.589 31/12/16 dep 6.3915
17.3515 17.3515
(W-4) Accumulated Depreciation of disposal asset
Date Dep exp Dep exp

01/01/14 25 25
31/12/14 (2.5) (2.5)
22.5 22.5
31/12/15 (2.25) (2.25)
20.25 20.25
30/06/16 (1.10125)
19.2375
31/12/16 (2.025)
18.225
Acc dep= Cost-WDV =25-19.2375 =5.7625
660
(W-5) Addition of Equipment

01/08/15 Cost 35
31/12/15 Dep x 10% x 5/12 (1.46)
31/12/15 WDV 33.54
31/12/16 Dep x 10% (3.354)
31/12/16 WDV 30.186
Answer-25
(a)
31-12-13 Building 17
31-12-15 Revaluation surplus 13
P/L 26
Building 39
31-12-17 Building 23
P/L 18
(Recording of revaluation surplus )
(W-1)
Date Description Building Rev surplus P/L

1-7-12 Cost 360
31-12-12 Dep (360/10×6/12) (18)
31-12-12 WDV 342
31-12-13 Dep (342/9.5) (36)
31-12-13 WDV 306
31-12-13 Rev surplus 17 17
31-12-13 Rev amount 323 17
31-12-14 Dep(323/8.5)/(17/8.5) (38) (2)
31-12-14 WDV 285 15
31-12-15 Dep (285/7.5)/(15/7.5) (38) (2)
31-12-15 WDV 247 13
31-12-15 Rev surplus (39) (13) (26)
31-12-15 Rev amount 208 (26)
31-12-16 Dep (208/6.5)/(26/6.5) (32) 4
31-12-16 WDV 176 (22)
31-12-17 Dep (176/5.5)/(22/5.5) (32) 4
31-12-17 WDV 144 (18)
31-12-17 Rev surplus 23 5 18
31-12-17 Rev amount 167 5 -
Particulars Dr. Cr.

(1) Asset (new)(8.5 - 1.1) 7.4
Cash 1.1
Acc. Dep. 3.9
Asset(old) 10.3
661
Gain(bal) 2.1
(2) Asset(new) 9
Acc.dep(12.4 - 7.3) 5.1
P/L bal 0.4
Asset(old) 12.4
Cash 2.1
(3) Asset(new) 3.4
Acc dep 11.1
Asset (old) 14.5
Answer-26
Machine Account - Cost
Rs. Rs.
1-1-17 Balance b/d 800,000 30-4-17 Disposal (W-1.1) 52,000
1-1-17 Bank (W-2) 80,000 30-6-17 Disposal 65,000
1-1-17 Disposal. (TIA) (W-2) 40,000 31-12-17 Balance c/d 803,000
920,000 920,000
Accumulated Depreciation Account
Rs. Rs.
30-4-17 Disposal (W-1.2) 21,662 1-1-17 Balance b/d 333,000
30-6-17 Disposal (W-3) 15,810 31-12-17 Depreciation(W-4) 71,868
31-12-17 Balance c/d 367,396
404,868 404,868
Disposal Account
Rs. Rs.
Machine 52,000 Acc. depreciation 21,662
Bank 5,000 Bank 34,000
Machine 65,000 Acc. depreciation 15,810
Machine 40,000
Loss on disposal 10,528
122,000 122,000
WORKINGs
(W-1)
1-1-14 Cost 100
31-12-14 Dep 100  15% (15)
31-12-14 WDV 85
31-12-15 Dep 85  15% (12.75)
31-12-15 WDV 72.25
31-12-16 Dep 72.25  15% (10.84)
31-12-16 WDV 61.4125 WDV (Given) 31,935
30-4-17 Dep 61.4125  15%  4/12 (3.07) Dep 31935 x 15%  4/12 (1,597)
30-4-17 WDV 58.34 WDV 30,338
662
(W – 1.1)
Rs. %
1-1-17 Cost 52,000 100
Less Accumulated Depreciation (20,065) (38.5875)
WDV 31,935 61.4125
61.4125 – 31,935
31,935
1− × 100 = 52,000
61.4125
(W – 1.2)
Accumulative depreciation = Cost WDV
= 52,000 – 30,338 = 21,662
(W-2)
Cost of New Asset = Cash paid + Trade In Allowance (TIA)
= 80,000 + 40,000 = 120,000
(W-3)
1-10-15 Cost 65,000
31-12-15 Depreciation 65,000  15%  3/12 (2,438)
31-12-15 WDV 62,562
31-12-16 Depreciation 62,562  15% (9,384)
31-12-16 WDV 53,178
31-12-17 Depreciation 53,178  15%  6/12 (3,988)
31-6-17 WDV 49,190
(W – 3.1)
Accumulative depreciation = Cost WDV
= 65,000 – 49,190 = 15,810
(W-4)
Depreciation Expenses
Depreciation on opening asset excluding disposal
= (800,00 – 333,000) – 53,178 – 31,935 = 381,887  15% 57,283
Depreciation on addition
= 120,000  15%  6/12 9,000
Depreciation on disposal W-1 1,597
W-3 3,988
71,868
663
Answer-27
(a) Depreciation of plant
Date Description Plant Rev. surplus P/L
------------Rs. in million------------
1-1-15 Cost 500
31-12-15 Dep (
500 – 60
) (44)
10
31-12-15 WDV 456
31-12-16 Dep
456 – 78
( 9 ) (42)
31-12-16 WDV 414
31-12-16 Rev surplus 112 112
31-12-16 Rev amount 526 112
526 –780 112
31-12-17 Dep ( ) ( ) (56) (14)
8 8
31-12-17 WDV 470 98
31-12-18 Dep (
470 – 64
) (58) (14)
7
31-12-18 WDV 412 84
31-12-18 Rev surplus (102) (84) (18)
31-12-18 Rev amount 310 0 (18)
Depreciation of equipment
Date Description Equipment Rev. surplus P/L
------------Rs. in million------------
1-7-15 Cost 360
31-12-15 Dep (
360 – 0
×
6
) (15)
12 12
31-12-15 WDV 345
31-12-16 Dep
345 – 0
( 15 ) (23)
31-12-16 WDV 322
31-12-16 Rev surplus (42) (42)
31-12-16 Rev amount 280 (42)
280 –0 42
31-12-17 Dep ( ) ( 14 ) (20) 3
14
31-12-17 WDV 260 (39)
260 – 0
31-12-18 Dep ( 10 ) (26) 3.9
31-12-18 WDV 234 (35.1)
31-12-18 Rev surplus 41 5.9 35.1
31-12-18 Rev amount 275 5.9 -
(b) Journal Entry
Rs. million Rs. million
31-12-18 Revaluation loss (P & L account) 18.00
Plant 102.00
31-12-18 Equipment 41.00
Revaluation gain (P & L account) 35.10
664

Question-1
1 A business purchased some land and buildings on 1 January 2011 for Rs.800million (land
Rs.250 million and buildings Rs.550 million). The buildings are to be depreciated over a
period of 50 years.
On 1 January 2015 the land and buildings were revalued to Rs.1,500 million (land Rs.400
million and buildings Rs.1,100 million). At this date the buildings were believed to have
a remaining useful life of 40 years.
What is the original depreciation charge for the buildings and the revised charge from 1
January 2015?
2 A business purchased land for Rs.250 million and buildings for Rs.400 million on 1
January 2011. The buildings were to be depreciated over a period of 50 years. On 1
January 2015 the land was revalued to Rs.520 million and the buildings were revalued at
Rs.750 million. What amount is to be taken to the revaluation reserve on 1 January 2015?
Question-2
Rooney has recently finished building a new item of plant for its own use. The item is a press for
use in the manufacture of industrial diamonds. Rooney commenced construction of the asset on
1st April 2013 and completed it on 1st April 2015. At a total cost of Rs.30.8 million.
The press comprises two significant parts, the hydraulic system and the ‘frame’. The hydraulic
system has a three-year life and the ‘frame’ has an eight-year life. Rooney depreciates plant on a
straight line basis. The cost of the hydraulic system is 30% of the total cost of manufacture.
Rooney uses the IAS 16 revaluation model in accounting for diamond presses and revalues these
assets on an annual basis.
Revaluation surpluses or deficits are apportioned between the hydraulic system and the ‘frame’
on the basis of their year-end book values before the revaluation.
Required
(a) Explain the IAS 16 rules on accounting for significant parts of property, plant and
equipment and
(b) Show the accounting treatment of the diamond press in the financial statements for the
financial years ending:
(i) 31st March 2016 (assume that the press has a fair value of Rs.21 million)
(ii) 31st March 2017 (assume that the press has a fair value of Rs.19.6 million).
Question-3
The following information relates to the financial statements of Ehtisham for the year to 31
March 2015.
The head office of Ehtisham was acquired on 1 April 2012 for Rs.1 million. Ehtisham intend to
occupy the building for 25 years. On 31 March 2014 it was revalued to Rs.1.15 million. On 31
March 2015, a surplus of vacant commercial property in the area had led to a fall in property
prices and the fair value was now only Rs.0.8 million.
Required
Explain the correct accounting treatment for the above (with calculations).
665
Question-4
The following is an extract from the financial statements of Carly on 31 December 2014.
Property, plant and equipment
Land and Plant and Computers Total
buildings equipment
Rs. Rs. Rs. Rs.
Cost
On 31 December 2014 1,500,000 340,500 617,800 2,458,300
Accumulated depreciation
On 31 December 2014 600,000 125,900 505,800 1,231,700
Carrying amount
On 31 December 2014 900,000 214,600 112,000 1,226,600
Accounting policies
Depreciation
Depreciation is provided at the following rates.
On land and buildings Over 50 years on straight line basis on buildings only
On plant and equipment 25% reducing balance
On computers 33.33% per annum straight line
During 2015 the following transactions took place.
(1) On 31 December the land and buildings were revalued to Rs. 1,750,000. Of this amount,
Rs.650,000 related to the land (which had originally cost Rs. 500,000). The remaining
useful life of the buildings was assessed as 40 years.
(2) A machine which had cost Rs. 80,000 and had accumulated depreciation of Rs. 57,000 at
the start of the year was sold for Rs. 25,000 in the first week of the year.
(3) A new machine was purchased on 31 March 2015. The following costs were incurred:
Rs.
Purchase price, before discount, inclusive of reclaimable sales tax of Rs.3,000 20,000
Trade Discount 1,000
Delivery costs 500
Installation costs 750
Interest on loan taken out to finance the purchase 300
(4) On 1 January it was decided to change the method of providing depreciation on computer
equipment from the existing method to 40% reducing balance.
Required:
Produce the analysis of property, plant and equipment as it would appear in the financial
statements of Carly for the year ended 31 December 2015. (ICAP Question bank 7.4)
Question-5
Adjustments Limited has carried out a review of its non-current assets.
(a) A grinder was purchased on 1 January 2012 for Rs.100,000. The plant had an estimated
useful life of ten years and a residual value of nil. Depreciation is charged on the straight
line basis. On 1 January 2015, when the asset’s net book value is Rs.70,000, the directors
decide that it would be more appropriate to depreciate this asset using the sum of digits
approach. The remaining useful life is unchanged.
666
(b) The company purchased a fifty year lease some years ago for Rs.1,000,000. This was
being depreciated over its life on a straight line basis. On 1 January 2015, when the net
book value is Rs.480,000 and twenty-four years of the lease are remaining, the asset is
revalued to Rs.1,500,000. This revised value is being incorporated into the accounts.
Required:
Explain the effects of these changes on the depreciation for the year to 31 December 2015.
Question-6
FAM had the following tangible fixed assets at 31 December 2014.
Cost Depreciation NBV
Rs. 000 Rs. 000 Rs. 000
Land 500 - 500
Buildings 400 80 320
Plant and machinery 1,613 458 1,155
Fixtures and fittings 390 140 250
Assets under construction 91 - 91
2,994 678 2,316
In the year ended 31 December 2015 the following transactions occur.
(1) Further costs of Rs.53,000 are incurred on buildings being constructed by the company.
A building costing Rs.100,000 is completed during the year.
(2) A deposit of Rs.20,000 is paid for a new computer system which is undelivered at the
year end.
(3) Additions to plant are Rs.154,000.
(4) Additions to fixtures, excluding the deposit on the new computer system, are Rs.40,000.
(5) The following assets are sold.
Depreciation
Cost Proceeds
brought forward
Rs. 000 Rs. 000 Rs. 000
Plant 277 195 86
Fixtures 41 31 2
(6) Land and buildings were revalued at 1 January 2015 to Rs. 1,500,000, of which land is
worth Rs. 900,000. The revaluation was performed by Messrs Jackson & Co, Chartered
Surveyors, on the basis of existing use value on the open market.
(7) The useful economic life of the buildings is unchanged. The buildings were purchased ten
years before the revaluation.
(8) Depreciation is provided on all assets in use at the year end at the following rates.
Buildings 2% per annum straight line
Plant 20% per annum straight line
Fixtures 25% per annum reducing balance
Required:
Show the disclosure under IAS 16 in relation to fixed assets in the notes to the published
accounts for the year ended 31 December 2015. (ICAP Question bank 7.6)
667
Question-7
The following information pertains to property, plant and equipment of Orchid Limited (OL), a
listed company:
Subsequent
Date of Cost Rs. in Original Depreciation
Description measurement
purchase million useful life method
model
Buildings 1-Jan-15 600 30 years Straight line Revaluation
Plant 1-Jan-15 475 25 years Straight line Cost
Buildings
The revalued amount of buildings as determined by Shabbir Associates, an independent valuer,
on 31 December 2015 and 2017 was Rs.700 million and Rs.463 million respectively.
On 30 June 2017 a building having original cost of Rs.66 million was sold to Baqir Limited for
Rs.85 million. It was last revalued at Rs.87 million. OL incurred a cost of Rs.2 million on
disposal.
OL transfers the maximum possible amount from revaluation surplus to retained earnings on an
annual basis.
Plant
On 31 December 2016 the recoverable amount of the plant was assessed at Rs.360 million with
no change in useful life.
During 2017, OL has decided to change the depreciation method for plant from straight line to
reducing balance. The new depreciation rate would be 10%.
Required:
Prepare following notes (along with comparative figures) to be presented in the financial
statements of OL for the year ended 31 December 2017 in accordance with the requirements of
relevant IFRSs and Companies Act, 2017:
(a) Property, plant and equipment
(b) Change in depreciation method (ICAP Question bank 7.7)
Question-8
Abid Limited (AL) uses the revaluation model for subsequent measurement of its property, plant
and equipment and has a policy of revaluing its assets on an annual basis using the net
replacement value method.
The following information pertains to AL’s buildings:
i. Four buildings were acquired in same vicinity on 1 January 2012 at a cost of Rs.300
million.
The useful life of the buildings on the date of acquisition was 20 years.
ii. AL depreciates buildings on the straight line basis over their useful life.
iii. The results of revaluations carried out during the last three years by Premier Valuation
Service, an independent firm of valuers, are as follows:
Revaluation date Fair value Rs. in million
1 January 2013 323
1 January 2014 252
1 January 2015 272
iv. On 30 June 2015, one of the buildings was sold for Rs. 80 million.
668
Required:
Prepare a note on “Property, plant and equipment” (including comparative figures) for inclusion
in AL’s financial statements for the year ended 31 December 2015 in accordance with
International Financial Reporting Standards. (Ignore taxation) (ICAP Question bank 7.8)
Question-9
Shahwez Limited (SL) revalued its property on 1 April 20X1 to Rs.20 million (Rs.8 million for
the land). The property originally cost Rs.10 million (Rs.2 million for the land) 10 years ago. The
original useful life of 40 years is unchanged. SL’s policy is to make a transfer to realised profits
in respect of excess depreciation.
Required:
How will the property be accounted for in the year ended 31 March 20X2?
Question-10
Hamza Limited (HL) acquired a building on 1 April 20X1 for Rs.100,000 at which point it was
considered to have a useful life of 40 years. At the year end 31 March 20X6, HL decided to
revalue the building to its current value of Rs.98,000.
Required:
How will the building be accounted for in the year ended 31 March 20X6?
Question-11
1. When the asset should be derecognised from the balance sheet? What is the accounting
treatment for gain or loss on disposal for revaluation model?
2. What is the disclosure requirement of asset carried at revalued amount?
Question 12
Abbas Limited (AL) is engaged in the business of manufacturing near the Karachi-Hyderabad
Motorway. Its Property, Plant and Equipment comprises of land and buildings, plant and
machinery, and equipment and fittings.
Details for the period up to 30 June 2018 are as follows:
1. The balances of the Property, Plant and Equipment as at 30 June 2018 are given below:
Gross Carrying Amount Accumulated
Assets
(Rs. Million) Depreciation (Rs. Million)
Land 12 N/A
Buildings 125 38
Plant and Machinery 500 300
Equipment 100 36
2. The relevant information pertaining these assets is given below:
Subsequent Measurement
Assets Depreciation Method
Model
Land N/A Fair Value
Buildings Straight-line Cost
Plant and Machinery Units of Production Cost
Equipment Written down value Cost
669
3. Abbas Limited uses proportionate policy to depreciate its Property, Plant and Equipment.
4. All of the plant and machinery pertains to factory use whereas all the equipment pertains
to office use. However floor areas occupied by factory and office are in the ratio 60:40
respectively.
5. The equipment was purchased on 1 July 2016. No disposals and acquisitions took place
in the period up to 30 June 2018.
6. Until 30 June 2018, 12,000 units had been produced by Abbas Limited in its factory. The
plant and machinery does not have any residual value. No additions or disposals of plant
and machinery took place till this date.
7. The buildings were acquired on 1 July 2014 with a residual value of Rs. 11 million. No
additions and disposals took place till 30 June 2018.
8. The land had actually cost Rs. 15 million on the date of its acquisition.
9. It is assumed that value of land and buildings is spread evenly across the area occupied.
The following information pertains to the year ended 30 June 2019:
1. On 1 July 2018, land was revalued to Rs. 20 million on 1 July 2018. The value was
determined by an independent firm M/s Ashfaq & Co. Chartered Accountants.
2. This year, 5,000 units were produced in the factory of AL.
3. On January 1, 2019, AL disposed 25% of its area comprising of land and buildings at a
price of Rs. 90 million. The portion of land was sold at its fair value as determined on 1
July 2018. The legal costs of drafting transfer agreements were Rs. 0.1 million. It is
assumed that this disposal will not affect the proportion of areas occupied by factory and
office.
4. Further equipment costing Rs. 60 million was acquired on 1 November 2018.
5. In the meeting of its board of directors, it was decided to open a new factory premises
near Lahore-Islamabad motorway. An expenditure of Rs. 20 million was spent on the
construction of the factory on 1 December 2018, financed by a loan obtained from the
bank at the rate of 12% per annum. The construction had not been completed at the end
of the year.
6. Moreover, the directors also made a contract with M/s UniPower& Co. to purchase plant
and machinery worth Rs. 35 million once the construction of factory building is
completed.
Required:
(a) Prepare journal entries to record the revaluation of land and disposal of land and
buildings.
(b) Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment in the
notes to the published accounts for the year ended 30 June 2019.
670
Question 13
Games Limited (GL) commenced a business of preparing and burning video game CDs on 1 July
2015.
The following information pertains to the year ended 31 March 2016:
(1) GL purchased 30 computers on the date of commencement of business at a cost of
Rs.20,000 each, purely for the task of burning CDs. The management of GL estimates
that since the computers are subject to obsolescence, more of its benefit can derived in its
early life. The total useful life at the date of acquisition was estimated to be 4 years and
residual value was estimated to be Rs. 4,802 for each computer.GL decided to adopt
historical cost model for subsequently measurement of computers.
(2) GL purchased an office building at the date of start of business worth Rs.3 million. GL
decided to adopt fair value model due to fluctuations in property prices. 80% of the
building is occupied by computer labs, whereas 20% is used by administrative and selling
departments. The useful life is estimated to be 10 years at the date of acquisition with no
residual value, and the economic benefits are expected to be derived evenly over its
useful life. At the end of the year, the fair value of office buildings was assessed to be
Rs.3,237,500.
(3) GL also purchased fittings for its administrative and selling departments, costing
Rs.120,000 on 1 July 2015. It is to be depreciated over 10 years using the straight-line
method, with no residual value.
(4) GL made a contractual commitment with Al-Karim Computers to purchase 6 computers
of Rs. 20,000 each to be delivered at GL’s premises on 1 May 2016.
The following information pertains to the year ended 31 March 2017:
(1) The computers were delivered at the GL’s premises by Al-Karim Computers at the said
date. It was decided to use the same method and same rate to depreciate these computers.
However, no further space was utilised by the computer labs.
(2) At the end of the year, the fair value of office building was assessed to be Rs. 2 million.
At the year-end GL mortgaged entire building with JS Bank to obtain a loan worth
Rs.1.75 million for prospective investments in other divisions.
(3) Fittings with a cost of Rs. 30,000 were disposed of for Rs. 22,000 on 1 January 2017.
The Suzuki Driver was paid Rs. 1,000 to transfer the fittings to customer’s premises.
The fair values of the office building were determined byan independent firm M/s Hafeez
Yasir Chartered Accountants& Co. Moreover, GL uses proportionate policy to depreciate
its assets.
Required:
(a) Prepare the disposal account to record the sale of fittings on 1 January 2017.
(b) Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment
in the notes to the published accounts for the year ended 31 March 2017
(comparatives are required).
671

Answer-1
Rs.550 million
(1) Original depreciation = 50 years
= Rs. 11 million
Rs.1,100 million
Revised depreciation = 40 years
= Rs. 27 million
(2) The total amount taken to the revaluation reserve is Rs.652 million
(W-1)
Profit &
Revaluation
Date Particulars Land Building Loss /
surplus
(SOCI)
--------------Rs. Million--------------
1.1.11 Cost 250 400 -
31.12.14 Accumulated depreciation (400/50  4) (32) -
31.12.14 W.D.V 250 368 -
1.1.15 Revaluation surplus 270 382 652 -
1.1.15 Revaluated amount 520 750 652 -
Answer 2
(a) IAS 16 requires that each part of an item (that has a cost that is significant in relation to the total
cost) is depreciated separately. Therefore, the cost recognised at initial recognition must be
allocated to each part accordingly
(b)
Rev. Profit &
Hydrauli
Date Particulars Frames Total Loss /
c system Surplus (SOCI)
--------------Rs. 000’s--------------
1.4.15 Cost (30,800  30%) (30,800  70%) 9,240 21,560 -
31.3.16 9240 21560 -
Dep. ( ),( ) (3080) (2695)
3 8
31.3.16 W.D.V 6,160 18,865 25,025 -
31.3.16 Revaluation loss (991) (3,034) (4,025) (4025)
31.3.16 Revaluated amount
21,000 21,000
( × 6,160) , ( × 18,865) 5,169 15,831 21,000 (4025)
25025 25025
The carrying value of the assets should be written down by a factor of 21,000/25025. This gives a
carrying value for the hydraulic system (in Rs.000) of 5,169 and for the ‘frame’ 15,831.
The hydraulic plant should be depreciated over remaining life of two more years and the ‘frame’
over 7 more years.
672
R/S P & L/ P & L/

R/S
Date Particulars HS Frames Total (SOCI) (SOCI)
HS Frame HSc Frames
------------------------------Rs. 000’s------------------------------
1.4.15 Cost (30,800  30%) (30,800  70%) 9,240 21,560 -
31.3.16 9240 21560 -
Dep. ( ),( ) (3080) (2695)
3 8
31.3.16 W.D.V 6,160 18,865 25,025 -
31.3.16 Revaluation loss (991) (3,034) (4,025) (991) (3,034)
21,000 21,000
( × 6,160) , ( × 18,865) 5,169 15,831 21,000 (991) (3,034)
25025 25025
31.3.17 5169 991 15831 3,034
Depreciation ( ),( )( )( ) (2,585) (2,262) 496 433
2 2 7 7
31.3.17 W.D.V 2,584 13,569 16,153 (495) (2,601)
31.3.16 Revaluation surplus 551 2,896 3,447 56 295 495 2,601
19,600 19,600
( × 2,584) , ( × 13,569) 3,135 16,465 19,600 56 295
16153 16153
Hydraulic system = HS
Revalued surplus
The total revaluation gain is 3,447. Of this total amount, 3096 (495 + 2,601) reverses the loss in
the previous year net of the benefit obtained through reduced depreciation and is therefore
reported in profit and loss for the year. The remaining 351 (56 + 295) is reported as other
comprehensive income.
Answer 3
IAS 16 permits assets to be carried at cost or revaluation. Where the latter is chosen, the asset must be
stated at its fair value.
The original depreciation was Rs.40,000 (Rs.1,000,000/25 years) per annum.
On 31st March 2014 the asset is two years old. Its carrying value before revaluation was Rs.920,000.
In order to effect the revaluation, the cost is uplifted to fair value of Rs.1.15m, the accumulated
depreciation is eliminated, and the uplift to the net book value is credited to a revaluation surplus account.
Following are the journal entries
31.3.14 Accumulated depreciation 80,000
Building 80,000
(The accumulated depreciation is eliminated)
31.3.14 Building 230,000
(The uplift to the net book value is credited to a revaluation surplus account.)
The asset is depreciated over its remaining useful economic life of 23 years giving a charge of Rs.50,000
(Rs.1,150,000/23 years) per annum in the year to 31st March 2015.
31.3.15 Depreciation 50,000
(Depreciation charge)
Transfer from revaluation surplus to retained earnings
As a result of the revaluation, the annual depreciation has increased from Rs.40,000 to Rs.50,000. This
extra depreciation of Rs.10,000 is transferred from the revaluation reserve to accumulated profits each
year.
31.3.15 Revalue surplus 10,000
(Transfer of incremental depreciation)
673
By the 31st March 2015, the balance remaining on the revaluation reserve will be Rs.220,000.
The fall in property values at the year-end. The asset must be revalued downwards to Rs.0.8million, a
write-down of Rs.300,000.
Rs.220,000 of this is charged against the revaluation reserve relating to this asset, and the remaining
Rs.80,000 must be charged against profits.
The reduction of the carrying amount of the asset is achieved by removing the accumulated depreciation
and adjusting the asset account as follows.
31.3.15 Accumulated depreciation 50,000
Building 50,000
(The accumulated depreciation is eliminated)
31.3.15 Revaluation surplus 220,000
Profit and loss 80,000
Building 300,000
(Revaluation adjustment)
From 31.3.15 the Rs.800,000 will be depreciated over the remaining useful life of the asset (22 years).
(W-1)
Head office Rev. Profit & Loss /
Date Particulars (SOCI)
building Surplus
----------Rs. 000----------
1.4.12 Cost 1,000 -
1000 -
31.3.14 Acc. Dep. ( × 2) (80)
25
31.3.14 W.D.V 920 -
31.3.14 Revaluated amount 1,150 230 -
1,150 230
31.3.15 Dep. ( ) ,( ) (50) (10)
23 23
31.3.15 W.D.V 1,100 220 -
31.3.15 Revaluation loss (300) (220) (80)
31.3.15 Revaluated amount 800 0 (80)
Answer 4
Land & Plant & Computer
Total
building machinery equipment’s
Balance 01.January 2015 1,500,000 340,500 617,800 2,458,300
+Addition 17,250 - (620,000)
-Transfer (620,000) - - 870,000
+Revaluation Surplus/(Rev. Loss) 870,000 - 17,150
- Disposal - (80,000) - (80,000)
Balance 31.December 2015 1,750,000 277,750 617,800 2,645,550
Balance 01.January 2015 600,000 125,900 505,800 1,231,700
+Depreciation for the year * 20,000 50,775 44,800 115,575
-Transfer (620,000) (620,000)
- Disposal (57,000) - (57,000)
Balance 31.December 2015 - 119,675 550,600 670,275
WDV 31.December 2015 1,750,000 158,075 67,200 1,975,275
WDV 31.December 2014 900,000 214,600 112,000 1,226,600
674
WORKINGS
(W-1) Depreciation charges for the year 2015
20,000
Rs.
(1,500,000 – 500,000)
Buildings = 50 𝑦𝑒𝑎𝑟𝑠
= 20,000
Plant and machinery:
On opening plant (((340,500 – 80,000) – (125,900 – 57,000))  25%) 47,900
8
Addition (17,250  25%  12) 2875
50775
Computer equipment = 112,000  40% = Rs.44,800
(2) Cost of new machine
Rs.
Purchase price (20,000 – 3,000 – 1,000) 16,000
Delivery costs 500
Installation costs 750
17,250
Answer 5
(a) Grinder
The grinder was purchased in 2012 and was originally being depreciated on a straight line basis.
It has now been decided to depreciate this on the sum of digits basis.
IAS 16 requires that depreciation methods be reviewed periodically and if there is a significant
change in the expected pattern of economic benefits, the method should be changed. Depreciation
adjustments should be made in current and future periods. This change might be appropriate if,
for instance, usage of the machine is greater in the early years of an asset’s life when it is still
new and consequently it is appropriate to have a higher depreciation charge.
If the change is implemented, the unamortised cost (the net book value) of the asset should be
depreciation over the remaining useful life commencing with the period in which the change is
made. The depreciation charge for the remaining life of the asset will therefore be as follows.
Sr. # Year Digits Depreciation
Rs.
7
1 2015 7 Rs. 70,000  17,500
28
6
2 2016 6 Rs. 70,000  15,000
28
3 2017 5 12,500
4 2018 4 10,000
5 2019 3 7,500
6 2020 2 5,000
7 2021 1 2,500
7 (7 + 1)
2
= 28 Rs.70,000
Disclosure will need to be made in the accounts of:

(i) The details of the change, including
(ii) The effect on the charge in the year.
675
The reassessment of the depreciation method is NOT a change in accounting policy and neither
rectification of a fundamental error so the effects of the change will not affect the previously
reported financial statements (opening retained earnings)
(b) Leasehold land
IAS 16 requires that the subsequent charge for depreciation should be based on the revalued
Rs.1,500,000
amount. The annual depreciation will therefore be Rs.62,500, i.e. 24 years (Remaing life)
There will then be a difference between the revalued depreciation charge and the historical
depreciation charge.
The resulting excess depreciation may be dealt with by a movement in reserves, i.e. by
transferring from the revaluation reserve to retained earnings a figure equal to the depreciation
charged on the revaluation surplus each year. For this amount following journal entry will be
made
Revalue surplus
Retained earning
Answer 6
FAM
Notes to financial statement
For the year ended 31 December 2015
Note No. 2: Accounting policies
(a) Property, plant and equipment is stated at historical cost less accumulated depreciation
depreciation, except land and building which is stated at revalued amount less accumulated
depreciation.
(b) Depreciation is provided on all assets, except land, and is calculated to write down the cost or
valuation over the estimated useful life of the asset.
Note No. 12: Property Plant and Equipment
Fixtures,
Plant and
Fixed asset movements Land Buildings fittings, Total
machinery
etc.,
Cost/valuation Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Cost at 1 January 2015 500 400 1,613 390 2,903
Additions 100 154 40 294
Transfers (80)
Revaluation adjustment 400 280 - - 600
Disposals (277) (41) (318)
Value at 31 December 2015 900 700 1,490 389 1,979
At 1 January 2015 - 80 458 140 678
Transfers - (80) - - (80)
Depreciation for year (W2) - 17 298 70 385
Disposals - - (195) (31) (226)
At 31 December 2015 (17) (561) (179) (757)
Net book value
At 31 December 2015 900 683 929 210 2,722
At 31 December 2014 500 320 1,155 250 2,225
676
12.1
Measurement basis Revaluation Revaluation Cost Cost
Depreciation method S.L S.L RBM
Depreciation rate 2% 20% 25%
12.2 Land and buildings have been revalued during the year 2015 by Messrs Jackson & Co on the
basis of a existing use value on the open market.
12.3 Had there been no revaluation the land and building would be shown at following values (The
corresponding historical cost information is as follows).
Land &
buildings
Cost Rs.000
Opening 900
Reclassification (Transfer from capital WIP) 100
Closing 1,000
Accumulation Depreciation
Opening 80
Depreciation for the year 10
Closing 90
Net book value 910
12.4 Movement of capital work in progress
Cost at 1 January 2015 91
Additions (W1) 73
Reclassifications (Transfer to building account) (100)
As at 31 December 2015 64
At 31 December 2014 91
WORKINGS Rs. 000

(W-1) Additions to assets under construction 53
Deposit on computer 20
73
600 100 17
(W-2) Depreciation on buildings 40 + ( 50 )
2% straight line depreciation is equivalent to a 50 year life.
The buildings are ten years old at valuation and therefore have 40
years remaining.
(W-3) Depreciation on plant (1490  20%) 298
(W-4) Depreciation on fixtures {(390 -140 ) – (41 – 31)}  25% 70

(W-5)
Capital work in progress (CWIP)
Rs. Rs.
B/d 91 Building account 100
Cash (Building) 53
Cash (For computer) 20 C/d 64
677
Answer 7
Orchid Limited
Notes to Financial statements
For the year ended 31 December 2017
10. Property, plant and equipment 2017 2016
Building Plant Building Plant
Rs. Rs. Rs. Rs.
Cost
Opening 700 475 700 475
Additions - - - -
Revaluation (W-2) (108) - - -
Disposal (87) - - -
Transfer of Acc. depreciation (42) - - -
Closing 463 475 700 475
Acc. Depreciation & Impairment

Opening 24 115 - 19
Dep. For the year (W-2) : (W-1) 22.5 36 24 19
Disposal (4.5)
Impairment (W-1) 77
Transfer to asset account (42) - -
Closing - (151) (24) (115)
Carrying amount as on 31/12/2016 463 324 676 360
Building Plant
10.1 Measurement Basis Revaluation model Cost model
Depreciation Method Straight line Reducing balance
Dep. Rate/Useful life 30 years 10%
10.2 The last revaluation on 31 December 2017 by Shabbir Associates, an independent firm of valuers.
10.3 Had there been no revaluation, the buildings would have appeared as follows
2017 2016
Cost (600-66) 534 600
Less: Accumulated depreciation 600−66 600
( 30 𝑥3):( 30 𝑥2) (53.4) (40)
WDV as on 31.12.15 480.6 560
10.4 Details of property, plant and equipment disposed of during the year
Cost/Revalued Accumulated Carrying Sale *Gain Mode of Particulars
amount depreciation amount proceeds disposal of buyers
Building 87 4.5 82.5 85 0.5 Tender Baqir
87 Limited
( 𝑥1.5)
29
*Gain/(loss)= (Sale price- cost to sell) – W.D.V = (85-2) – 82.5 = 0.5
678
10.5 Change in Estimate:

During the year 2017, depreciation method of plant was changed from straight line to reducing balance.
The new depreciation rate would be 10%. Due to above change, Depreciation for the year has increased
𝟑𝟔𝟎
whereas, Profit for the year has decreased by Rs. 20 million. {𝟑𝟔(𝟑𝟔𝟎 × 𝟏𝟎%) − 𝟏𝟔 ( 𝟐𝟑 )}
(W-1) Plant W.D.V

1/1/2015 Cost 475
31/12/2015 Dep. (475/25) (19)
31/12/2016 Dep. (475/25) (19)
31/12/2016 W.D.V 437
Impairment Loss (77)
31/12/2016 Recoverable amount 360
31/12/2017 Dep (360*10%) (36)
WDV 324
(W-2) Revaluation schedule

Rev.
Date Description Building SOCI (P/l)
surplus
1/1/15 Cost 600
31/12/2015 Dep. (600/30) (20)
31/12/2015 W.D.V 580
31/12/2015 Rev. surplus 120 120 -
31/12/2015 Revalued amount 700 120 -
31/12/2016 Dep (700/29) (24) (4) -
31/12/2016 WDV 676 116 -
30/06/2017 Dep. Of 1 building for 6 months (W-5) (1.5) (0.4) -
30/06/2017 WDV of 1 building (W-6) (82.5) (22) -
31/12/2017 Depreciation of remaining buildings (21) (3.3) -
31/12/2017 WDV 571 90.3 -
31/12/2017 Revaluation loss (108) (90.3) (17.7)
31/12/2017 Revalued Amount 463 - (17.7)
(2.1) Total Depreciation on buildings for the year 2017

Dep. Of 1 building for 6 months (W-3) 1.5
Depreciation of remaining buildings (W-5) 21
22.5
(W-3) Depreciation of 1 building for 6 months
Cost = 87/29 × 6/12 = 1.5 : Surplus = (23.2)/29 × 6/12 = 0.4
(W-4) WDV of 1 building
Rs. ‘millions’ Rs. ‘ millions’

Building Cost Surplus
Balance 87 23.2
Acc. Depreciation (87/29 × 1.5) : (23.2/29 × 1.5) (4.5) (1.2)
82.5 22
679
(W-5) Depreciation of remaining buildings for the year

Rs. ‘millions’ Rs. ‘millions’
Building cost Surplus
Opening 700 120
Disposal (87) (23.2)
Balance 613 96.8
÷ Remaining Life ÷29 ÷29
21 3.3
Answer 8
Abid Limited
Notes to the Financial Statements
For year ended December 31, 2015
N-1 Property, plant and equipment

Rs. in million
2015 2014
Cost
Opening 252 323
Transfer from accumulated depreciation (14) (17)
Revaluation Surplus/(loss) 34 (54)
Disposals (68) -
Closing 204 252.00
Opening 14 17
Transfer to asset a/c (14) (17)
Depreciation expense 14 14
Disposals (2) -
Closing (12) (14)
Book value 192 238.00
- The last revaluation was performed on 1 January 2015 by M/s Premier Valuation Services, an
independent firm of valuers. Revaluation are performed annually.
- Had there been no revaluation, the 3 buildings would have appeared at Rs.180 million (as
calculated below) on 31.12.15.
Rs. in million
2015 2014
Cost of 3 buildings (300/4 buildings x 3 buildings) 225 300
Less: Accumulated depreciation on 31.12.15 (225/20 years x 4 years) (45) *(45)
180 255
* 300/20x3 = 45
Details of property, plant and equipment disposed of during the year
Cost/Revalued Accumulated Carrying Sale Mode of Particulars
amount depreciation amount proceeds disposal of buyers
--------------Rs. in million--------------
Building 68 2 66 80
680
WORKING
Rs in million
1/1/12 Cost 300
31/12/12 Depreciation (300/20) (15)
1/1/13 WDV 285
31/12/13 Depreciation (323/19) : (38/19) (17) (2)
1/1/14 WDV 306 36
1/1/14 Revaluation loss (bal.) (54) (36) (18)
1/1/14 Revalued amount 252 (18)
31/12/14 Depreciation (252/18) : (18/18) (14) - 1
1/1/15 WDV 238 - (17)
1/1/15 Revaluation surplus (bal.) 34 17 17
1/1/15 Revalued amount 272 17.00 -
30/6/15 Deprecation on Disposal (2) (0.125)
(*68/17 x 6/12) : (*4.25/17 x 6/12)
30/6/15 WDV of disposal (68 - 2) (66.00) (4.125)
31/12/15 Depreciation (12.00) (0.75)
(272-68)/17:(17-4.25)/17
31/12/15 WDV 192.00 12.00 -
* 272/4 buildings = 68 and 17/4 buildings = 4.25
Following T-accounts are prepared for better understanding of students. These are not a part of solution.
2012 Cash 300 c/d 300
2013 b/d 300 Accumulated Depreciation 15
Revaluation surplus 38 c/d 323
Revaluation loss 54
c/d 252
Revaluation surplus 34 Disposal 68.00
c/d 204.00
Dr. Accumulated depreciation account Cr.

2012 c/d 15 Depreciation 15
2013 Asset 15 b/d 15
c/d 17 Depreciation 17
2014 Asset 17 b/d 17
c/d 14 Depreciation 14
2015 Asset 14 b/d 14
Disposal 2 Depreciation (1 building) 2.0
c/d 12.00 Depreciation (3 buildings) 12.00
681
Answer 9
Statement of comprehensive income extract for the year ended 31 March 20X2
Rs. 000
Depreciation expenses 400
Other comprehensive income:
Revaluation surplus (6,000 + 6,000) (W-1) 12,000
Statement of financial position extract as at 31 March 20X2

Rs. 000
Non-current assets
Property {8,000 + (12,000 – 400)} 19,600
Equity
Revaluation surplus {6,000 + (6,000 - 200)} (W-1) 11,800
Statement of changes in equity extracts
Retained Revaluation
earning surplus
Rs. 000 Rs. 000
Total comprehensive income 12,000
Transfer 200 (200)
Closing 11,800
(W-1)
R/S SOCI
Date Description Land Building R/S land
Building (P/L)
Cost 2,000 8,000
Acc. Dep. (8,000/40  10) (2,000)
1/4/X1 WDV 2,000 6,000
1/4/X1 Revaluation surplus (bal.) 6,000 6,000 6,000 6,000
1/4/X1 Revalued amount 8,000 12,000 6,000 6,000
31/3/X2 Dep. (12,000/30) (400) (200)
31/3/X2 WDV 8,000 11,600 6,000 5,800
Answer 10
Statement of comprehensive income extract for the year ended 31 March 20X6
Rs. 000
Depreciation expenses (100,000/40) 2,500
Other comprehensive income:
Revaluation surplus (W-1) 10,500
Statement of financial position extract as at 31 March 20X6

Rs. 000
Non-current assets
Property 98,000
Equity
682
Statement of changes in equity extracts

Retained Revaluation
earning surplus
Rs. 000 Rs. 000
Total comprehensive income 10,500
Transfer - -
Closing 10,500
(W-1)
Date Description Building R/S Building SOCI (P/L)
1/4/X1 Cost 100,000 -
31/3/X6 Acc. Dep. (100,000/40  5) (12,500) -
31/3/X6 WDV 87,500 -
31/3/X6 Revaluation surplus (bal.) 10,500 10,500 -
31/3/X6 Revalued amount 98,000 10,500 -
Answer 11
1. Property, Plant and Equipment should be derecognised (removed from PPE) either;
(i) on disposal (sold or exchanged etc. by cash for asset given up) or
(ii) when it is withdrawn from use and no future economic benefits are expected from the
asset (in other words, it is effectively scrapped).
A gain or loss on disposal is recognised as the difference between the disposal proceeds (gross
proceeds received minus cost of making sale) and the carrying value of the asset (using the cost
or revaluation model) at the date of disposal. This net gain is included in the income
statement. The sales proceeds should not be recognised as revenue.
Where assets are measured using the revaluation model, any remaining balance in the
revaluation reserve relating to the asset disposed of is transferred directly to retained earnings. No
recycling of this balance into the income statement is permitted.
2. General disclosures
The financial statements shall disclose, for each class of property, plant and equipment:
(a) the measurement bases used for determining the gross carrying amount;
(b) the depreciation methods used;
(c) the useful lives or the depreciation rates used;
(d) the gross carrying amount and the accumulated depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period; and
(e) a reconciliation of the carrying amount at the beginning and end of the period showing
increases or decreases resulting from revaluations from comparing its revalued amount to
the book value and recognize in other comprehensive income and accumulated in equity
under the heading of revaluation surplus. However, the revaluation increase shall be
recognised in profit or loss to the extent that it reverses a revaluation decrease of the same
asset previously recognised in profit or loss.
Specific disclosures
If items of property, plant and equipment are stated at revalued amounts, the following shall be
disclosed:
(i) The effective date of the revaluation;
(ii) Whether an independent valuer was involved;
683
(iii) For each revalued class of property, plant and equipment, the carrying amount that would
have been recognised had the assets been carried under the cost model; and
(iv) The revaluation surplus, indicating the change for the period and any restrictions on the
Answer 12
(a)
Debit Credit
Date Description
(Rs.,000) (Rs.,000)
1.7.18 Land 8,000
Profit and loss (Other income) 3,000
(Revaluation of land)
1.1.19 Cash (90,000 – 100) 89,900
Accumulated depreciation (W-4) 10,687.5
Building (125,000  25%) 31,250
Land (20,000  25%) 5,000
Gain on disposal (Other income) 64,337.5
(Disposal of 25% of land & building)
1.1.19 Revaluation surplus (5,000  25%) 1,250
(Transfer of R/S to R/E on account of Disposal of 25%
of land)
(b) Abbas Limited
Notes to the financial statement
For the year ended 30 June 2019
10.1 Property plant & equipment
Plant and Fixtures,
Fixed asset movements Land Buildings Total
machinery fittings, etc.,
Cost/valuation / Gross --------------------Rs. ‘000--------------------
carrying amount
Cost at 1 July 2018 12,000 125,000 500,000 100,000 737,000
Additions 60,000 60,000
Revaluation adjustment 8,000 8,000
Disposals (5,000) (31,250) (36,250)
Value at 30 June 2019 15,000 93,750 500,000 160,000 768,750
At 1 July 2018 - 38,000 300,000 36,000 374,000
Depreciation for year 8,312.5 125,000 20,800 (W- 154,112.5
(W-3) (W-6) 8)
Disposals (10,687.5) (10,687.5)
(W-4)
At 30 June 2019 35,625 425,000 56,800 517,425
Net book value
At 30 June 2019 15,000 58,125 75,000 103,200 251,325
At 30 June 2018 12,000 87,000 200,000 64,000
684
10.1
Revaluation Cost less Acc. Cost less Cost less Acc.
Measurement basis
Dep. Acc. Dep. Dep.
Starlight line Units of Written down
Depreciation method
production value
12 years with
redual value of 20 million 20%
Depreciation rate / useful life
8.8% of cost units (W-5) (W-7)
(W-2)
10.2 The land was previously revalued on 1 July 2018 by M/s Ashfaq & Co. Chartered
Accountants, and independent valuer.
10.3 Had the land been not revalued the carrying amount of land would have been as follows:
Rs. 000
Cost {Cost 15,000 – Disposal 15,000  25%} 11,250
10.4
Cost/Revalued Accumulated Carrying Sale Gain / Mode of Particulars
amount depreciation amount proceeds (Loss) disposal of buyers
Land & Building 36,200 10,687.5 25,562.5 89,900 64,337.5 N/A ABC
10.5 Depreciation is charged as follows:
Rs. 000
Cost of sales (Part of inventory) (125,000 + 8,312.5  60%) 129,987.5
Admin and selling expenses (20,800 + 10687.5  40%) 24125
Total 154,112.5
10.6 Movement of revaluation surplus
Rs. 000
Opening Balance 0
Transfer to retained earning (Disposal) (1,250)
Reversal of revaluation loss of Rs. 3 million was reversed during the year.
10.7 An amount of expenditure of Rs.20 million was incurred on the construction of a factory
near Lahore-Islamabad Motorway on 1 December 2018. This amount was capitalised as
capital work-in-progress.
7
A further borrowing costs of Rs.1.4 million (20 million12% × ) were capitalised in
12
respect of interest on loan obtained from the bank to finance this project.
10.8 A contract was made with M/s UniPower & Co. to purchase plant and machinery worth
Rs.35 million once the construction of factory building is completed.
(W-1)
Date Description Land R/S land SOCI (P/L)
Cost 15,000
Revaluation loss (3,000) (3,000)
1/7/18 WDV 12,000 (3,000)
1/7/18 Revalued amount 20,000 5,000 -
685
(W-2) Useful life of building

Cost − R. V
Accumulated Depreciation =  (Cumulative Period)
Useful life
125,000 − 11,000
38,000 = 4
Useful life
125,000 − 11,000
Useful life =  4 = 12 years
38,000
(W-3)
Depreciation on Building
Rs. 000
125,000 – 11,000
On opening assets excluding disposal ( )  75% 7,125
12
125,000 – 11,000 6
On disposal ( 12
)  12  25% = 1187.5
Total 8,312.5
(W-4)
Accumulated depreciation on disposal of building
Rs. 000
125,000 – 11,000
( )  4.5  25% = 10,687.5
12
(W-5) production units of plant

Cost − R. V
Accumulated Depreciation =  (Cumulative units produced)
total units
500,000 − 0
300,000 =  12,000
Total units
500,000−0
Useful life = 300,000
 12,000 = 20,000 units (in thousands)(i.e.,20 million units)
(W-6) Depreciation on Plant
Rs. 000
500,000 – 0
On opening assets excluding disposal ( )  5,000 units 125,000
20,000 units
(W-7)
Depreciation rate
cumulative period WDV
rate = 1 − √
Cost
2 100,000 − 36,000
rate = 1 − √ = 20%
100,000
686
(W-8)
Depreciation on equipment
Rs. 000
On opening assets excluding disposal (100,000 – 36,000 ) × 20% 12,800
8
On addition 60,000  20%  8,000
12
Total 20,800
Answer 13
GamesLimited
Notes to the Financial Statement
For the year ended March 31, 2017
2017 2016
10. Property Plant & Equipment -------------------------------------------Rs. -------------------------------------
Building Computers Fittings Building Computers Fittings
Balance 01 April 3,237,500 600,000 120,000 - - -
+Addition - 120,000 - 3,000,000 600,000 120,000
-Transfer (350,000) - - (225,000) - -
+Revaluation Surplus/(Rev. Loss) (887,500) - - 462,500 - -
- Disposal - (30,000) - -
Balance 31. March 2,000,000 720,000 90,000 3,237,500 600,000 120,000
Accumulated Depreciation & Impairment Losses
Balance 01 April - 135,000 9,000 - - -
+Depreciation for the year (W-3) 350,000 172,500 11,250 225,000 135,000 9,000
-Transfer (350,000) - - (225,000) - -
- Disposal - - (4,500) - - -
+Impairment Loss - - - - - -
Balance 31. March - (307,500) (15,750) - (135,000) (9,000)
WDV 31.March 2,000,000 412,500 74,250 3,237,500 465,000 111,000
10.1 Measurement Basis

Revaluation Cost less Acc. Dep. Cost less Acc. Dep.
Depreciation Method Straight Line Reducing Balance Method Straight Line
Useful Life/Depreciation
10% 30% (W-2) 10%
Rate
10.2 Depreciation is charged as Follows
2017 2016
Cost of Sales (181,000 + 350,000 × 80%) (135,000 + 225,000 × 80%) 461,000 315,000
Admin & Selling Expenses (11,250 + 350,000 × 20%) (9,000 + 225,000 × (81,250) (54,000)
20%)
Total Depreciation
10.3 Revaluation disclosure
10.3.1 The last revaluation of building was performed by an independent valuer "M/S Hafeez Yasir
Chartered Accountants & Co." on 31.March.2017. It was previously revalued on 31 March 2016.
10.3.2 Had there been no revaluation the carrying amount of building would have been
2017 2016
Cost 3,000,000 3,000,000
Accumulated Depreciation 525,000 225,000
9+12 9
(3,000,000  10%  ) (3,000,000  10%  )
12 12
Carrying Amount 2,475,000 2,775,000
687
10.3.3 Movement of revaluation surplus

2017 2016
Opening Balance 462,500 -
Revaluation surplus / (loss) (412,500) 462,500
Transfer to retained earnings (incremental depreciation) (50,000)
Closing balance - 462,500
Further more a revaluation loss of Rs. 475,000 was charged in profit and loss at 31 March 2017
10.4 The entire office building was mortgage with the JS Bank on 31 March 2017, for obtaining loan
of 1.75 million for the prospective investment in other division
10.5 No contractual commitments were made during the year ended 31 March 2017 to purchase
Property, Plant and Equipment.
A contract was made with Al-Karim Computers during the year ended 31 March 2016 to
purchase 6 computers of Rs. 20,000 each to be delivered on 1 May 2017.
10.6
Cost/Revalued Accumulated Carrying Net Sale Mode of Gain / Particulars
amount depreciation amount proceeds disposal (Loss) of buyers
Fittings 30,000 4,500 26,500 *21,000 N/A (5,500) ABC
* (22,000 – 1,000)
WORKINGS
(W-1) Calculation of revaluation surplus & depreciation on building.
Date Description Building R. Surplus
1-July-15 Cost 3,000,000
3,000,000 9
31-Mar-16 Depreciation (
10
 12) (225,000)
31-Mar-16 WDV 2,775,000
31-Mar-16 Revaluation surplus (bal) 462,500 462,500
31-Mar-16 Revalued amount 3,237,500 462,500
3,237,500 462,500
31-Mar-17 Depreciation ( ) ( ) (350,000) (50,000)
9.25 9.25
31-Mar-17 WDV 2,887,500 412,500
31-Mar-17 Revaluation surplus (bal.) (887,500) (412,500) (475,000)
31-Mar-17 Revalued amount 2,000,000 - (475,000)
(W-2) Depreciation Rate of Computers
life Resdual value
rate = 1 − √
Cost
4 4802
rate = 1 − √ = 30%
20,000
(W-3) Depreciation for the year for 2016 and 2017
Rs. Rs.
1 Building Depreciation 2016 = refer (W-1) 225,000
2 Building Depreciation 2017 = = refer (W-1) 350,000
9
3 Computers Depreciation 2016 = 630,00030% 12 135,000
4 Computers Depreciation 2017
688
Depreciation on opening (600,000 – 135,000)  30% 139,500

11
Depreciation on addition 120,000  30% 12 33,000 172,500
120,000 9
5 Fittings Depreciation 2016 =( 10  12) 9,000
6 Fittings Depreciation 2017
Depreciation on opening excluding disposal (120,000 – 30,000) 
9,000
10%
30,000 9
Depreciation on disposal ( 10  12) 2,250 11,250
689
Q.1 An entity purchased a property 15 years ago at a cost of Rs.100,000 and have been depreciating it
at a rate of 2% per annum, on the straight-line basis. The entity has had the property
professionally revalued at Rs.500,000.
What is the revaluation surplus that will be recorded in the financial statements in respect of this
property?
(a) Rs.400,000 (b) Rs.500,000
(c) Rs.530,000 (d) Rs.430,000
Q.2 An entity owns two buildings, A and B, which are currently recorded in the books at carrying
amounts of Rs.170,000 and Rs.330,000 respectively. Both buildings have recently been valued as
follows:
Building A Rs.400,000
Building B Rs.250,000
The entity currently has a balance on the revaluation surplus of Rs. 50,000 which arose when
building A was revalued several years ago. Building B has not previously been revalued.
What double entry will need to be made to record the revaluations of buildings A and B?
(a) Dr Non-current assets Rs.150,000
Dr Statement of profit or loss Rs.80,000
Cr Other comprehensive income (revaluation surplus) Rs.230,000
(b) Dr Non-current assets Rs.150,000
(c) Dr Non-current assets Rs.150,000
(d) Dr Non-current assets Rs.150,000
Q.3 An entity purchased property for Rs.6 million on 1 July 2013. The land element of the purchase
was Rs.1 million. The expected life of the building was 50 years and its residual value nil. On 30
June 2015 the property was revalued to Rs.7 million, of which the land element was Rs.1.24
million and the buildings Rs.5.76 million. On 30 June 2017, the property was sold for Rs.6.8
million.
What is the gain on disposal of the property that would be reported in the statement of profit or
loss for the year to 30 June 2017?
(a) Gain Rs.40,000 (b) Loss Rs.200,000
(c) Gain Rs.1,000,000 (d) Gain Rs.1,240,000
Q.4 Which of the following statements are correct?
1. If the revaluation model is used for property, plant and equipment, revaluations must
subsequently be made with sufficient regularity to ensure that the carrying amount does
not differ materially from the fair value at each reporting date.
2. When an item of property, plant and equipment is revalued, there is no requirement that
the entire class of assets to which the item belongs must be revalued.
690
(a) Only statement 1 is correct (b) Only statement 2 is correct

(c) Both statements are correct (d) None of the statement is correct
Q.5 The following trial balance extract relates to a property which is owned by Maira Limited as at 1
April 2014.
Dr Cr
Rs. 000 Rs. 000
Property at cost (20 year original life) 12,000
Accumulated depreciation as at 1 April 2014 3,600
On 1 October 2014, following a sustained increase in property prices, Maira Limited revalued its
property to Rs.10.8 million.
What will be the depreciation charge in Maira Limited’s statement of comprehensive income for
the year ended 31 March 2015?
(a) Rs.540,000 (b) Rs.570,000
(c) Rs.700,000 (d) Rs.800,000
Q.6 A company purchased a building on 1 April 2007 for Rs.10,000,000. The asset had a useful
economic life at that date of 40 years. On 1 April 2009 the company revalued the building to its
current fair value of Rs.12,000,000.
What is the double entry to record the revaluation?
(a) Dr. Building 1,500,000
Dr. Accumulated depreciation 500,000
Cr. Other comprehensive income 2,000,000
(b) Dr. Building 2,000,000
Dr. Accumulated depreciation 500,000 Cr. Profit or loss 2,500,000
(c) Dr. Building 2,000,000
Dr. Accumulated depreciation 500,000 Cr. Other comprehensive income 2,500,000
(d) Dr. Building 1,500,000
Dr. Accumulated depreciation 500,000 Cr. Profit or loss 2,000,000
Q.7 The carrying value of property at the end of the year amounted to Rs.108 million. On this date the
property was revalued and was deemed to have a fair value of Rs.95 million. The balance on the
revaluation reserve relating to the original gain of the property was Rs.10 million.
What is the double entry to record the revaluation?
(a) Dr. Profit or loss 3 million
Dr. Other comprehensive income 10 million
Cr. Property 13 million
(b) Dr. Profit or loss 10 million
(c) Dr. Profit or loss 13 million
(d) Dr. Profit or loss 13 million
691
Q.8 A company revalued its property on 1 April 2009 to Rs.20m (Rs.8m for the land). The property
originally cost Rs.10m (Rs.2m for the land) 10 years ago. The original useful economic life of 40
years is unchanged. The company’s policy is to make a transfer to realized profits in respect of
excess depreciation.
At which amount the property be presented at as at 31 March 2010?
(a) Rs.20 million (b) Rs.19.6 million
(c) Rs.12 million (d) Rs.11.6 million
Q.9 A company revalued its property on 1 April 2009 to Rs.20m (Rs.8m for the land). The property
originally cost Rs.10m (Rs.2m for the land) 10 years ago. The original useful economic life of 40
years is unchanged. The company’s policy is to make a transfer to realized profits in respect of
excess depreciation.
What is amount of balance in revaluation surplus account as at 31 March 2010?
(a) Rs.12 million (b) Rs.10 million
(c) Rs.9.8 million (d) Rs.11.8 million
Q.10 Which of the following is an optional disclosure requirement of IAS 16?
(a) Measurement bases for determining gross carrying amount
(b) Depreciation method
(c) Useful lives or depreciation rates
(d) The carrying amount of temporarily idle PPE
Q.11 Following information is available for equipment account of a business on 1st January 2018:
Opening balance of equipment a/c (Revalued amount) Rs.7,500,000
Surplus on revaluation of equipment a/c Rs.2,000,000
At start of year company sold equipment for Rs.90,000,000.
Company has a policy of charging 20% depreciation on straight line basis.
What will be treatment of revaluation surplus at disposal of asset?
(a) Dr Surplus on revaluation Rs.2,000,000
Cr Retained earnings Rs.2,000,000
(b) Dr Retained earnings Rs.2,000,000,
Cr Surplus on revaluation Rs.2,000,000
(c) Dr Surplus on revaluation Rs.3,500,000
Cr Retained earnings Rs.3,500,000
(d) Dr Surplus on revaluation Rs.2,0000,000
Cr Equipment account Rs.2,000,000
Q.12 A non-current asset costing Rs.216,000 and carrying value Rs.145,000 is revalued to Rs.291,000.
How should revaluation be recorded?
(a) Dr Asset a/c Rs.75,000,
Cr Surplus on revaluation Rs.75,000
(b) Dr Asset a/c Rs.75,000,
Dr Accumulated Depreciation Rs.71,000,
692
(c) Dr Surplus on revaluation Rs.146,000,

Cr Asset a/c Rs.75,000,
Cr Accumulated Depreciation Rs.71,000
(d) Dr Accumulated depreciation Rs.146,000,
Q.13 When items of property, plant and equipment are stated at revalued amounts the following must
be disclosed:
(i) The effective date of the revaluation
(ii) Whether an independent valuer was involved
(iii) The methods and significant assumptions applied in estimating the items’ fair values
(iv) The extent to which the items’ fair values were determined directly by reference to
observable prices in an active market or recent market transactions on arm’s length terms
or were estimated using other valuation techniques
(v) For each revalued class of property, plant and equipment, the carrying amount that would
have been recognised had the assets been carried under the cost model;
(vi) The revaluation surplus, indicating the change for the period and any restrictions on the
(a) (i), (ii) and (vi) only (b) (i), (ii), (v) and (vi) only
(c) (i), (ii), (iii) and (iv) only (d) (i) to (vi) all
Q.14 IAS 16 encourages disclosure of the following information as users of financial statements might
find it to be useful.
(i) The carrying amount of temporarily idle property, plant and equipment
(ii) The gross carrying amount of any fully depreciated property, plant and equipment that is
still in use
(iii) The carrying amount of property, plant and equipment retired from active use and held
for disposal
(iv) When the cost model is used, the fair value of property, plant and equipment when this is
materially different from the carrying amount
(a) (i), (ii) and (iii) only (b) (i), (ii) and (iv) only
(c) (i), (iii) and (iv) only (d) (i) to (iv) all
Q.15 Which of the following statements is correct?
(a) An entity may present PPE at gross carrying amount or net carrying amount under IAS
16
(b) Either useful lives or depreciation rates are to be disclosed, both are not required.
(c) Under revaluation model, PPE are revalued at end of each year
(d) If an entity chooses revaluation model, it must apply revaluation model to all of its PPE.
Q.16 Waqas Limited purchased a machine for Rs.30,000 on 1 January 2015 and assigned it a useful life
of 12 years. On 31 March 2017 it was revalued to Rs.32,000 with no change in useful life.
What will be depreciation charge in relation to this machine in the financial statements for the
year ending 31 December 2017?
Rs. ___________
693
Q.17 A business purchased building costing Rs.7,500,000 on 1 January 2018.

The policy of business is to charge straight line depreciation over its useful life of 20 years.
On 31 December 2020, building was revalued to Rs.7,650,000.
What is the amount of incremental depreciation to be transferred to retained earnings at year
ending 31 December 2021?
Rs. _________
Q.18 A business purchased an asset on 1 January 2016 costing Rs.5,000,000 having a useful life of 10
years with nil residual value. On 1 January 2018 balance of accumulated depreciation was
Rs.1,000,000. Asset is revalued to Rs.4,500,000 on 1 January 2018 (start of the year).
Business has a policy to charge straight line depreciation.
What is the depreciation charge for the year ended 31 December 2018?
Rs. ______________
What is the amount of revaluation surplus at the date of revaluation?
Rs. _______________
What is the amount of incremental depreciation for the year ended 31 December 2018?
Rs. ____________
Q.21 A revaluation gain is credited into?
(a) Revaluation reserve (b) Capital reserve
(c) Profit and loss (d) Any of the above
Q.22 After initial recognition, an entity has a choice to choose cost and?
(a) Realizable model (b) Replacement model
(c) Revaluation model (d) Carrying value model
Q.23 When an item of property, plant and equipment is revalued, what should be revalued?
(a) A selection of assets decided by management
(b) The whole class of assets to which it belongs
(c) The individual asset
(d) A selection of assets picked at random
Q.24 If an asset increases in value, the increase is noted as?
(a) An increase in net profit in the SOCI
(b) An increase in retained earnings in SOFP
(c) An increase in revaluation surplus in the SOFP and other comprehensive income in the
SOCI
(d) An increase in “other profit” in SOCI
694
Q.25 Which of the following is not a valid reason for reporting non-current assets at revaluation
amount rather than cost?
(a) To prevent long life assets from being reported at out of date historical costs
(b) To keep owners of the business better informed of their equity in the business.
(c) To report performance correctly by matching earnings with the proper costs of assets
used.
(d) To avoid having to pay higher taxes
Q.26 An entity has a policy of revaluing its PPE. An asset cost Rs.5m on 1 January 2020 and has a
useful life of five years and is depreciated on a straight-line basis to a zero residual value. The
value of the asset at 31 December 2020 was Rs.3.8m. The fall in value will be accounted for as
follows?
(a) Depreciation Rs.1m and fall in value of Rs.200,000 both to the reserves
(b) Depreciation Rs.1m to the income statement and fall in value of Rs.200,000 ignored until
there is a revaluation surplus
(c) Depreciation Rs.1m to income statement and fall in value of Rs.200,000 to the reserves
(d) Depreciation Rs.1m and fall in value of Rs.200,000 both to the income statement
Q.27 During the financial year, Akmal Ltd had the following increases in reserves:
i. Rs.5 million from a revaluation of freehold premises
ii. Rs.10 million in share premium
iii. Rs.25 million from trading profit retained
Which of these are increases in capital reserves?
(a) I only (b) II only
(c) I. and ii. Only (d) III. only
Q.28 The following gains may legally be withdrawn from the company by shareholders:
i. gains that arise from the upward revaluation of non-current assets
ii. gains that arise from the sale of non-current assets
What is the validity of each statement?
(a) Both i. and ii are true (b) i. is true and ii. is false
(c) Both i. and ii are false (d) ii. is true and i. is false
Q.29 The financial statements of Saadi Limited for the most recent year indicated the following:
i. a bonus issue of shares
ii. a transfer of profit retained to retained earnings
iii. an increase in the revaluation reserve due non-current assets
iv. a rights issue of shares
Which of the above involved a movement of cash?
(a) i. and ii (b) ii. and iii.
(c) iii only (d) iv only
695
Q.30 An apartment is revalued upwards by Rs. 1 million. It was acquired 5 years ago for Rs. 5 million.
Its useful life remains same as 10 years.
What is the revised depreciation charge for the year after revaluation?
(a) Rs.500,000 (b) Rs.600,000
(c) Rs.700,000 (d) Rs.800,000
Q.31 A building is revalued upwards by Rs.2 million. It was acquired five years ago for Rs.10 million.
Its useful life remains same as 20 years. What is the incremental depreciation charge for the year?
(a) Rs.100,000 (b) Rs.133,333
(c) Rs.166,667 (d) Rs.200,000
Q.32 An IT equipment being carried at revaluation model has revaluation reserve balance of Rs.50,000.
During the year, it reduces its value due to technological obsolescence. It has Rs.70,000 decrease
in value. What would be the impact of this revaluation decrease?
(a) The decrease of Rs.50,000 is debited to revaluation reserve and Rs.20,000 to profit or
loss for the year
(b) The decrease of Rs.50,000 is debited to profit and loss account and Rs.20,000 to
revaluation reserve for the year
(c) The whole decrease is debited to revaluation reserve
(d) The whole decrease is debited to profit or loss for the year
696
A.1 (d)
Rs.
Current value 500,000
Carrying amount
(100,000 – (100,000 × 2% × 15 yrs)) (70,000)
Revaluation gain 430,000
A.2 (a)
Building A Building B
Current value 400,000 250,000
Carrying amount (170,000) (330,000)
Revaluation gain/(loss) 230,000 (80,000)
The gain on Building A will be credited to other comprehensive income and the revaluation
surplus.
The loss on Building B will be debited to the statement of profit or loss expenses because we do
not have a balance on the revaluation surplus in respect of building B to offset the loss.
We make an overall debit to non-current assets of Rs.230,000 – Rs.80,000 = Rs.150,000
A.3 (a)
Land Buildings Total
Rs. Rs.m Rs.m
Cost 1 July 2013 1.00 5.00 6.00
Building depreciation
Rs. 5 million/50 years x 2 years (0.2) (0.2)
Carrying amount 30 June 2015 1.00 4.80 5.80
Revaluation gain 0.24 1.96 1.20
Revalued amount 1.24 5.76 7.00
Building depreciation
Rs. 5.76m/48 years x 2 years (0.24) (0.24)
Carrying amount 30 June 2017 1.24 5.52 6.76
Disposal proceeds 6.80
Gain on disposal 0.04
The gain on disposal is Rs. 40,000. The Rs. 1.2 million balance on the revaluation reserve is
transferred from the revaluation reserve to another reserve account (probably retained earnings)
but is not reported through the statement of profit or loss for the year.
A.4 (a) IAS 16 (para 31) states that when the revaluation model is used, revaluations should be
made with sufficient regularity to ensure that the carrying value of the assets remains
close to fair value. IAS 16 also states (para 36) that, if one item in a class of assets is
revalued, all the assets in that class must be revalued.
A.5 (c) Six months’ depreciation to the date of the revaluation will be Rs.300,000 (12,000/20
years × 6/12). Six months’ depreciation from the date of revaluation to 31 March 2015
would be Rs.400,000 (10,800/13.5 years remaining life × 6/12). Total depreciation is
Rs.700,000.
697
A.6 (c)
Building a/c
b/d 10,000,000 Acc. Dep 500,000
Surplus 2,500,000 c/d 12,000,000
12,500,000 12,500,000
Building net debited by Rs.2,000,000 (2,500,000 – 500,000)
A.7 (a) Total loss Rs.13 million, Rs.10 will be charged to revaluation surplus and remaining to
profit or loss.
A.8 (b) Depreciation (20 – 8) / 30 years = Rs.0.4 million
Carrying amount Rs.20 million less 0.4 million = Rs.19.6 million
A.9 (c) Depreciation Now (20 – 8) / 30 years = Rs.0.4 million
Depreciation Cost (10 – 2) / 40 years = Rs.0.2 million
Revaluation surplus
= Land Rs.6 million + Building Rs.4 million - incremental depreciation 0.2 million =
Rs.9.8 million
A.10 (d)
A.11 (a) On disposal of a revalued asset, the full balance of surplus on revaluation is transferred to
retained earnings.
A.12 (b)
Asset
b/d 216,000 Acc. Dep (216,000-145,000) 71,000
Surplus (bal) 146,000 c/d 291,000
362,000 362,000
Net amount debited to asset = Rs.146,000 - Rs.71,000 = Rs.75,000

A.13 (d)
A.14 (d)
A.15 (b)
A.16 Rs.3,087 (625+2,462)
Date Land Rev. surplus P/l
Rs. Rs. Rs.
1.1.15 Cost 30,000
31.2.15&16 Depreciation (30,000/122) (5,000)
31.12.16 Carrying amount 25,000
31.3.17 Depreciation (25,000/103/12) (625)
31.3.17 Revaluation surplus 7625 7,625
31.3.17 Revalued Amount 32,000 7,625
31.12.17 Depreciation (32,000/9.75)9/12 (2,462)
698
A.17 Rs.75,000
Incremental depreciation = depreciation on revalued amount – depreciation at cost
Dep. before revaluation = Rs.7,500,000 / 20 years = Rs.375,000
Dep. after revaluation = Rs.7,650,000 / 17 years = Rs.450,000
Incremental depreciation = Rs.75,000
A.18 Rs.562,500
Depreciation = Rs.4,500,000/8 = Rs.562,500
A.19 Rs.500,000
Revaluation surplus = Rs.4,000,000 – 4,500,000= Rs.500,000
A.20 Rs.62,500
Incremental depreciation = Dep on revalued amount – Dep on cost
= (4,500,000/8)– (5,000,000/10)
= Rs. 562,500 – 500,000 = 62,500
Alternatively, Rs.500,000 surplus / 8 years = Rs.62,500
A.21. (a)
A.22. (c)
A.23. (b)
A.24. (c)
A.25. (d)
A.26. (d)
A.27. (c)
A.28. (d)
A.29. (d)
A.30. (c)
A.31. (b)
A.32. (a)
699
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Topic Wise
i
TABLE OF CONTENTS
ICAP PAST
PAPER
Q A Q A Q A Q A

Statements

Incomplete Records
8 IAS 23: Borrowing Cost 722 735 743 755 761 768 771 774 777

Standards

Customers
ii
IAS 20, IAS 23 and IAS 40 Non-
Current Assets: Sundry Standards
8
IAS 20
LO 1
LO 2
LO 3
LO 4
LO 5
IAS 23
LO 1 BORROWING COST
LO 2 QUALIFYING ASSETS
LO 3 SPECIFIC BORROWINGS
LO 4 GENERAL BORROWINGS
LO 5 COMMENCEMENT, SUSPENSION AND CESSATION OF CAPITALIZATION
LO 6 DISCLOSURES
LO 7 BASIC PRACTICE
LO 8 SOME TERMINOLOGIES
LO 9 SUMMARY
IAS 40
LO 1
LO 2
LO 3
LO 4
LO 5
CHAPTER-8 IAS 23 BORROWING COST
BORROWING COSTS IAS - 23

LO1: BORROWING COST
Borrowing costs are interest and other costs that an entity incurs against borrowing of funds.
Other costs include arrangement fee, bank charges, loan processing charges, commitment fees etc.
Exam note:
Borrowing
In exam following different names for borrowings are normally tested on which we pay interest:
 Loan
 Redeemable preference shares
 Debentures
 Bond
 Loan notes
 Term finance certificate
 Bank Overdraft
 Running finance facility used
Not a Borrowing
1. Issue of share capital (We pay dividend on it which is not a borrowing cost)
2. Issue of right shares (We pay dividend on it which is not a borrowing cost)
3. Down payment received from customer for whom, say a building is constructed
LO2:QUALIFYING ASSETS
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale. They are usually self-constructed non-current assets.
Assets that are ready for their intended use when acquired are not qualifying assets.
Any of the following may be a qualifying asset:

(a) items of property, plant and equipment
(b) intangible assets
(c) inventory
Example 1: expensing borrowing costs

Yay Limited incurred Rs. 100,000 interest (during the year ended 31 December 20X5) on a loan that was
used to finance the construction of a factory plant.
The factory plant was not considered to be a qualifying asset.
Required:
Provided the necessary journal entries for expensing the interest in Yay Limited’s books for the year
ended 31 December 20X5.
Answer-1
31/12/20X5 Financed charges 100,000
Finance charges payable 100,000
(Interest incurred on loan )
Interest is not capitalized as the asset is not a qualifying asset.
722
Example 2: capitalization of borrowing costs - all criteria met at same time

Yippee Limited incurred Rs. 100,000 interest on a loan used to finance the construction of a building
during the year ended 31 December 20X5:
 The building was considered to be a qualifying asset.
 Construction of the building began on 1 January 20X5, when the loan was raised.
 It is probable that the building would result in future economic benefits and the borrowing costs are
reliably measurable.
 The construction of the building began as soon as the loan was raised.
Required:
Provide the necessary journal entries to capitalise the borrowing costs in Yippee Limited’s books for the
year ended 31 December 20X5.
Answer-2
31/12/20X5 Capital work in progress 100,000
(Capitalization of interest on loan)
As it is a qualifying asset so borrowing cost will be capitalized.
The borrowing costs capitalized are those that would have been avoided if the expenditure on the
qualifying asset had not been made.
LO3: SPECIFIC BORROWINGS

If an entity borrows funds specifically for the purpose of obtaining a qualifying asset, the entity shall
determine borrowing costs eligible for capitalisation as the actual borrowing costs incurred on that
borrowing during the period less any investment income on the temporary investment of those
borrowings.
Specific Borrowing cost to be capitalized

Interest incurred on specific borrowing (Loan outstanding x rate x months outstanding*/12) Xxx
Less: Investment income (Investment made x rate x months outstanding*/12) (xxx)
Xxx
* Months outstanding shall exclude suspension period and will stop when project will cease.
Journal Entry
Particulars Dr. Cr.
Capital work in process xx
Cash Xx
Example-3
Baba Limited borrowed Rs. 700,000 from the bank on 1 March 20X9 to begin the construction of a
building (a qualifying asset). Construction began on 1 March 20X9. The interest rate payable on the loan
was 9%. The company paid construction costs of Rs. 500,000 on 1June 20X9. Surplus funds were
invested in a fixed deposit and earned interest at 5% per annum. No capital portion of the loan was repaid
during the year ended 31 December 20X9.
Required:
Pass the entry for capitalization.
723
Answer-3
Cost of capital work in process
Interest incurred on specific borrowing (700,000 x 9% x 7/12) 36,750
Less: Investment income during construction
(200,000 x 5% x 7/12) (5,833)
30,917
Date Description Specific Balance

1-Jun-09 Loan already raised 700,000
1-Jun-09 Construction payment (500,000)
200,000 200,000
Particulars Dr. Cr.

Capital work in process (500,000 + 30,917) 530,917
Cash 530,917
LO4: GENERAL BORROWINGS

If an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the
entity shall determine the amount of borrowing costs eligible for capitalisation by applying a
capitalisation rate to the expenditures on that asset.
The capitalisation rate shall be the weighted average of the borrowing costs applicable to the borrowings
of the entity that are outstanding during the period.
General Borrowing cost to be capitalized
Interest incurred on general borrowing
(Construction payment x capitalisation rate x months outstanding*/12) Xxx
* Months outstanding shall exclude suspension period and will stop when project will cease.
LO 4.1:Calculation of Capitalisation rate
Loan Period Loan
Loan outstanding outstanding / Rate Interest
Weighted
loan
Loan 1 XXX xx/12 XXX 18.0% XXX
XXX XXX
Capitalisation rate = Total Interest / Total Loan outstanding x 100
Example-4
Calculate capitalization rate in the following cases:
Borrowings made Date of borrowing Amount Rate of interest
From HBL 01.07.00 Rs. 10 million 13%
From NBP 01.10.00 Rs. 15 million 12%
From PICIC 01.11.00 Rs. 20 million 15%
Year-end is 31 December 2000.
724
Answer-4
Capitalisation Rate of general borrowing
Period Loan
Loan outstanding outstanding Rate Interest
HBL 10 x 6/12 5.00 13% 0.65
NBP 15 x 3/12 3.75 12% 0.45
PICIC 20 x 2/12 3.33 15% 0.50
12.08 1.60
Rate for general borrowing (1.60/12.08) 13.25%
Example-5
Wisegroup Ltd borrowed the following amounts from various financial institution/banks for their
business:
Date of borrowing Rate Loan (Rs.) Borrowing cost (Rs.)
PLCIC 01.07.00 10% 15 million 1.5 million
HBL 01.10.00 12% 10 million 0.9 million
MCB 01.11.00 16% 8 million 0.85 million
During the year they spent Rs. 13 million (paid to contractor at the start) on construction of office
building. The construction was commenced on 1st August 2000.
Some cash out of amount borrowed was temporarily invested in short term deposits and an income of Rs.
0.2 million was earned from there:
They prepare their financial statements on 30 June.
Required: Calculate the borrowing cost to be capitalized for the year ended 30 June, 2001.
Answer-5
Interest accrued on general borrowings

1-Aug (13 x 11.68% x 11/12) 1.40

Period Loan
PICIC 15 x 12/12 15.00 10% 1.50
HBL 10 x 9/12 7.50 12% 0.90
MCB 8 x 8/12 5.33 16% 0.85
27.83 3.25
Investment income is ignored as the borrowings are general.
725
LO5:COMMENCEMENT, SUSPENSION AND CESSATION OF CAPITALIZATION
Commencement An entity shall begin capitalising borrowing costs on the commencement date. The
of capitalization commencement date is the date when the entity first meets all of the following
conditions:
(a) it incurs expenditures for the asset;
(b) it incurs borrowing costs; and
(c) it undertakes activities necessary to prepare the asset for its intended use.
Suspension of An entity shall suspend capitalisation during periods in which it suspends active
capitalization development of a qualifying asset. However if suspension is a necessary part of the
process of getting the asset ready then borrowing cost will be capitalized.
Cessation of An entity shall cease capitalisation when all the activities necessary to prepare the
capitalization qualifying asset for its intended use are complete.
Example-6: commencement of capitalisation - criteria met at different times

Dawdle Limited borrowed Rs.100,000 on the 30 June 20X5 to build a factory to store its goods. The
necessary building materials were only available on 31 August 20X5 and it was then that Dawdle
Limited began construction. The building is considered to be a qualifying asset.
Required:
Discuss when Dawdle Limited may begin capitalising the interest incurred.
Answer-6
Dawdle Limited shall began capitalisation of interest when all the three conditions are met. Dawdle
Limited borrowed the loan on 30 June, 20X5 but began construction when raw materials are available
i.e.
31 August, 20X5
Therefore, Dawdle Limited shall began capitalisation of interest from 31 August, 20X5
Example-7: commencement of capitalisation - criteria met at different times

Hoorah Limited incurred Rs.100,000 interest for the year ended 31 December 20X5 on a loan of
Rs.1,000,000, raised on 1 January 20X5. The loan was raised to finance the construction of a building
during the year ended 31 December 20X5. The building is a qualifying asset. Construction began on
1 February 20X5.
Required:
Provide the necessary journal entries for finance charges incurred in Hoorah Limited’s books for the
year ended 31 December 20X5.
Answer-7
31/12/20X5 Capital work in process ( 100,000 x 11/12) 91,667
Finance charges(interest expense)(100,000 x 1/12) 8,333
(Interest cost charged to expenses as well as capitalized)
726
Example-8: Suspension of capitalization

Haha Limited borrowed Rs. 500,000 from the bank on 1 January 20X5 to begin the construction of a
building (a qualifying asset). Construction began on 1 January 20X5. The interest rate payable on the
loan was 10%. The company paid construction costs of Rs. 400,000 on 1 March 20X5. Surplus funds
were invested in a fixed deposit and earned interest at 6% per annum. No capital portion of the loan was
repaid during the year ended 31 December 20X5. There was an un-routine stoppage in the work in the
month of June.
Required
Answer-8
Cost of capital work in process
Interest incurred during construction on specific borrowing
[ 500,000 x 10% x (10 – 1)/12] 37,500
[100,000 x 6% x (10 -1)/12] (4,500)
33,000

1-Mar-05 Loan already raised 500,000
1-Mar-05 Construction payment (400,000)
100,000 100,000
Particulars Dr. Cr.

Capital work in process (400,000 + 33,000) 433,000
Cash 433,000
Example 9: delays in construction

A hotel is under construction in 20X5. Borrowing costs of Rs.300,000 are incurred on a loan during
20X5. The loan was specifically raised on 1 January 20X5 for the sole purpose of the construction of the
hotel.
Required:
Discuss how much of the interest may be capitalised assuming two independent scenarios:
A. The builders go on strike for a period of two months, during which no progress is made.
B. The builders of the hotel had to wait for five days for the cement in the foundations to dry.
Answer-9
(a) During these two months, the interest incurred will not be capitalised as it is unnecessary
interruption to the construction process. The interest to be capitalised is (300,000 x 10/12) = 250,000
(b) The borrowing cost will be capitalised with interest incurred during 5 days, as it is necessary part of
completion process. The interest is capitalised with 300,000
LO6: DISCLOSURES
An entity shall disclose:
(a) the amount of borrowing costs capitalised during the period; and
(b) the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.
727
LO7: BASIC PRACTICE

Question-1
Mr. X borrowed a loan of Rs. 600,000 on 1 Jan 2016 at the rate of 12% p.a for construction of a building.
Interest is payable at the end of each year.
On 1 Jan 2016 he started the construction work. Following payments were made to the contractor;
Date Amount
st
1 January 2016 100,000
30 June 2016 200,000
30 September 2016 300,000
The construction was completed on 30 September 2016. The estimated life of building is 5 years.
The entire loan is repayable on 31 December 2020.
The building is a qualifying asset for the purposes of IAS 23.
Required:
Assuming year end is 31 December, you are required to prepare the extracts from the statement of
comprehensive income and statement of financial position for the year ended December 31, 2016.
Question-2
Mr. A obtained loan of Rs. 1,000,000 on 1 Jan 2012 at the rate of 15% p.a. for construction of a building.
On 1 March 2012 he started construction work on which date he also made first payment for construction.
Construction work was completed on 31 Oct 2012.
Required:
For the year ended 31 December 2012, Calculate:
1 Total borrowing cost
2 Borrowing cost to be capitalized
3 Borrowing cost to be expensed out
Question-3
Mr. B started construction of a building on 1 Feb 2012. To finance the outlay he obtained a loan of Rs.
300,000 on 1 April 2012 at the rate of 12% p.a. Construction work was completed on 31 July 2012.
Required:
For the year ended 31 December 2012. Calculate;
1 Total borrowing cost
2 Borrowing cost to be capitalized
3 Borrowing cost to be expensed out
Question -4
Mr. J has obtained a loan of Rs. 10 million on 1 Jan 2010 at the rate of 12% p.a. for construction of a
qualifying asset. Construction work started on the same date. The payments made to the contractor were
as follows:
Date Rs. m
st
1 January 2010 4
31st July 2010 2
st
31 August 2010 4
The project was complete on 30 Sep 2010.
The surplus funds were invested @ 6% p.a.
Required:
Calculate the borrowing cost to be capitalized and cost of building for the year ended December 31, 2010.
728
Question-5
On July 1, 2016 a medium term loan of Rs. 2 million was obtained specifically for the construction of the
building. The construction work started on 01-07-2016. The loan carried mark up of 10% per annum. The
payments made to the contractor were as follows:
Date Rs. m
1 Jul 2016 0.8
1 Nov 2016 0.6
1 Jan 2017 0.2
1 Mar 2017 0.4
Project completed on 31 March 2017. Surplus funds are invested @ 4% p.a.
Required:
Calculate the total borrowing cost to be capitalized and cost of the project for year ended June 30, 2017.
Question-6
The following is the information regarding general loans available to Power limited:
Type of Loan Amount Interest rate Loan taken on Load repaid on

A 200,000 20% 1-March-2013 30-June-2016
B 500,000 25% 1-March-2015 30-June-2018
C 100,000 18% 1-March-2016 30-September-2016
D 70,000 12% 1-Feb-2016 28-February-2019
Required:
Calculate capitalization rate for year ended 31December 2016?
Question-7
Continuing from question 6 following construction data is provided for year ended 31 December 2016:
Commencement of project 1 April 2016
Cessation of project 30 November 2016
The payments made to the contractor were as follows:

1 April 2016 300,000
1 June 2016 100,000
1 November 2016 30,000
Surplus funds are invested @ 5% per annum.
Required:
Calculate borrowing cost to be capitalized for year ended December 31, 2016?
Question-8
Continuing from question 6 we constructed another new building in 2017.
Commencement of project 1 Feb 2017
Cessation of project 30 Sep 2017
The payments made to the contractor were as follows:
1 March 2017 20,000
1 April 2017 30,000
30 September 2017 10,000
Required:
729
Calculate borrowing cost to be capitalized for year ended December 31, 2017?
Question-9
Commencement of project 1 Feb 2012
Cessation of project 30 Sep 2015
General Borrowing’s capitalization rate is 13.48%
Construction payments for year ended 30 September 2012:

1 February 2012 200,000
1 April 2012 300,000
1 July 2012 100,000
The project remained stopped for the month of July and August due to delay in receipt of raw material.
Required:
Calculate borrowing cost to be capitalized?
Answer-1
Mr. X
Statement of financial position (Extracts)
As at 31st December, 2016
Rs.
Non-Current Assets
Building((W-1) 654,000 – 32,700) 621,300
Bank loan 600,000
Mr. X
Statement of comprehensive income (Extracts)
For the year ended 31st December, 2016
Rs.
Interest expense (600,000 x 12% x 3/12) 18,000
Depreciation (654,000/5 x 3 / 12 ) 32,700
(W-1) Cost of building

Rs.
Construction cost (100,000 + 200,000 + 300,000) 600,000
Interest /Borrowing Cost (W-2) 54,000
654,000
(W-2)
Borrowing cost to be capitalized
Interest incurred on specific loan (600,000 x 12% x 9/12)
54,000
730
Answer-2
1. Total borrowing Cost ( 1,000,000 x 15% ) 150,000
2. Borrowing cost to be capitalized

Interest on specific borrowing from 1-Mar to31-Oct (1,000,000 x 15% x 8/12) 100,000
3. Borrowing cost to be expensed out

Interest (Jan , Feb , Nov , and Dec ) (1,000,000 x 15% x 4 / 12 ) 50,000
Answer-3
1. Total borrowing Cost
Rs.
April – December (300,000 x 12% x 9 / 12) 27,000
2. Borrowing cost to be capitalized

Interest on specific borrowing from April to July (300,000 x 12% x 4/12) 12,000
3. Borrowing cost to be expensed out

August to December (300,000 x 12% x 5 / 12) 15,000
Answer-4
Interest incurred on specific borrowing from 1-Jan to31-Sep
(10x 12% x 9/12) 0.9
Less: Investment income
- ( 6 x 6% x 7 / 12) 0.21
- ( 4 x 6% x 1 / 12 ) 0.02
(0.23)
0.67
(W-1)Receipts and payments schedule
1-Jan-10 Loan raised 10
1-Jan-10 Construction payment (4)
6 6
31-Jul-10 Construction payment (2) 4
31-Aug-10 Construction payment (4) -
Answer-5
Interest on specific borrowing from 1-jul to30-Sep
(2x 10% x 9/12) 0.15
- ( 1.2 x 4% x 4 /12) (0.016)
- ( 0.6 x 4% x 2 / 12) (0.004)
- ( 0.4 x 4% x 2 / 12 ) (0.003) (0.023)
0.127
731
(W-1)Receipt and payment schedule

1-Jul-16 Loan raised 2
1-Jul-16 Construction payment (0.8)
1.2 1.2
1-Nov-16 Construction payment (0.6) 0.6
1-Jan-17 Construction payment (0.2) 0.4
1-Mar-17 Construction payment (0.4) -
Answer-6
Capitalization Rate
(W-1)
163,200
Capitalization rate (Average rate) = 722,500
x 100
= 22.6 %
Loan Amount Months Loan Rate Interest

outstanding outstanding
A 200,000 x 6/12 100,000 20 % 20,000
B 500,000 x12/12 500,000 25 % 125,000
C 100,000 x 7/12 58,333 18 % 10,500
D 70,000 x 11/12 64,167 12 % 7,700
722,500 163,200
Answer-7
Answer-8
Answer-9
LO8: SOME TERMINOLOGIES

1) Progress billings
Billings made by the contractor in response to the work performed by him.
2) Retention money
The amount deducted by the customer from progress billings, this is deducted for the satisfaction of
the customer.
3) Mobilization Advance
Advance given by the customer to start the contract. It is normally adjusted with each progress bill.
4) Right issues
A rights issue is an invitation to existing shareholders to purchase additional new shares in the
company.
732
Question
Mr. Imam commenced the construction of project on 1 January 2016 and will end on 31December 2016.
The cost of the project is estimated amounting to Rs. 200 million. The following terms of the contract are
agreed with contractor:
10% of the cost of project will be paid at the time of agreement (i.e. 1 January 2016) as down payment.
This amount will be adjusted against the quarterly progress bills.
5% of the cost of project will be retained and shall be paid 6 months after the completion of project
The details of bills submitted by the contractor, during the year are as follows:
Particulars Date of payment Rs .m
st
On completion of 1 phase 31 March 2016 50
On completion of 2nd phase 30 June 2016 50
On completion of 3rd phase 30 September 2016 50
th
On completion of 4 phase 31 December 2016 50
The bill will immediately be paid on receipt.
Required:
Assuming year end is 31 December you are required to pass journal entries and extracts from statement of
financial position for the year 2016.
Answer
1 Jan 2016 Advance 20
Bank 20
(Payment of advance)
31 Mar 2016 CWIP 50
Advance 5
Retention money payable 2.5
Bank 42.5
(Payment of first progress bill)
30 June 2016 CWIP 50
Advance 5
Bank 42.5
(Payment of second progress bill)
30 Sep 2016 CWIP 50
Advance 5
Bank 42.5
31Dec 2016 CWIP 50
Advance 5
Bank 42.5
31Dec 2016 Building 200
CWIP 200
733
LO9: SUMMARY
Asset is qualifying asset No Expense out interest
Yes
Capitalize borrowing cost
Specific borrowings General borrowings
Calculate interest based Step1 : Calculate capitalization rate

on loan outstanding less Step2 : Apply this rate on expenditure
investment income
Investment income will be ignored in General borrowings
734
PRACTICE QUESTIONS
Question-1 [Identification of qualifying asset]
Umer obtained following loans for reasons specified below:
Rs. in million
Amount Interest Purposes
Allied Bank 10 3 Building in process
MPL Bank 6 0.5 Purchase of ready to use air conditioners
Debentures 2.5 0.6 Construction of office building
From Private Placing 7 1.25 Plant installation
Expenses incurred on issue of debentures 0.75 million

Expenses incurred for arranging loan from Private Placing 0.35 million
Required:
Borrowing cost eligible for capitalization
Question-2 [Identification of qualifying asset]

Umair & Co. obtained the following loans for the purposes specified against each along with interest
thereon:
Rs. in million
Amount Interest Purposes
From Faysal Bank 12 2 For purchase of stock
From ILI Bank 15 3 For construction of building
Loan from Directors 4.5 0.25 For purchase of land
Required:
Borrowing cost eligible for capitalization
Question-3 [Specific borrowing with investment income]
Haha Limited borrowed Rs. 500,000 from the bank on 1 January 20X5 to begin the construction of a
building (a qualifying asset). Construction began on 1 January 20X5 (i.e. all criteria for capitalisation of
borrowing costs were met). The interest rate payable on the loan was 10%. The company paid
construction costs of Rs. 400,000 on 1 January 20X5. Surplus funds were invested in a fixed deposit and
earned interest at 6% per annum. No capital portion of the loan was repaid during the year ended
31 December 20X5.
Required:
Question-4[Specific borrowing with investment income]

Money Limited began the construction of a new building on the 1 February 20X5. Construction costs
incurred in 20X5 were paid for as follows:
Rs.
On 1 February 500,000
On 1 July 600,000
On 1 November 800,000
735
The construction of the building ended on the 1 December 20X5 when the building was complete and
ready for its intended use. This building is to be depreciated over 10 years to a nil residual value using the
straight-line method.
The construction was financed by a loan of Rs. 1,900,000 from Cash Limited. The loan was raised on
1 January 20X5 specifically to facilitate the construction of the building. The interest rate is 25% per
annum. There were no loan repayments during the year. Surplus funds were invested at 20% per annum.
The interest is compounded annually.
The building is a qualifying asset for the purposes of IAS 23.
Required:
a) Calculate the amount of borrowing costs that are eligible for capitalization during the year ended
31 December 20X5.
b) Calculate the depreciation for the year ended 31 December 20X5.
c) Calculate the carrying amount of the buildings as at 31 December 20X5.

Hockey Limited borrowed Rs. 2,000,000 (at an interest rate of 14%) from the Bank of Ball on 1 January
20X5. These funds have been borrowed in order to build a hockey stadium.
Progress payments made in 20X5 are as follows:
Rs.
On 1 January 600,000
On 1 July 1,200,000
On 1 September 200,000
The surplus funds were invested in a fixed deposit earning interest at 10% per annum.
Construction began on 1 January 20X5 and was still incomplete on 31 December 20X5. Between 1 June
and 20 June, construction ceased while concrete cured (a necessary part of the construction process).
The stadium is a qualifying asset as defined by IAS 23.
Required:
a) Calculate the amount of borrowing costs that may be capitalized to the hockey stadium cost
account in the year ended 31 December 20X5.
b) Calculate the amount of borrowing costs that may be capitalized to the hockey stadium cost
account in the year ended 31 December 20X5 assuming that construction could not begin due to
the building plans not meeting municipal standards. The plans have been resubmitted and it is
expected that the municipality will give the go-ahead to begin construction in early 20X6.

Loans raised specifically to fund the construction of a building (a qualifying asset):
 Loan A (10%) raised 1 January 20X5: Rs. 500,000
 Loan B (15%) raised 1 June 20X5: Rs. 400,000
Rs. 100,000 of the loan B capital was repaid on 31 July 20X5. No other loan was repaid. Interest was
payable (compounded) annually on 31 December.
The only interest income earned during the year was interest income earned on the investment of surplus
funds from the specific loans in a 6% interest account.
Construction costs paid for as follows:
 31 March 20X5: Rs. 300,000
 30 April 20X5: Rs. 100,000
 31 July 20X5: Rs. 220,000
Commencement date of capitalization of borrowing cost: 1 March 20X5
Cessation date of capitalization: 31 August 20X5
Required:
Calculate the amount of borrowing costs that must be capitalized in terms of IAS 23.
736
Question-7
For the purpose of construction of qualifying asset during the year ending December 2014, Ahmed
limited decided to utilize various funds available to them. The details of funds available to Ahmed ltd. are
as follows:
Type of loan Amount Interest rate Loan taken on Loan repaid on
General purpose loan A 900,000 12% 01-01-2013 31-12-2014
General purpose loan B 560,000 15% 01-01-2014 30-09-2014
General purpose loan C 780,000 10% 01-01-2014 30-11-2014
General purpose loan D 690,000 17% 01-01-2012 30-07-2014
Shareholders’ equity 1,000,000 20% 01-07-2005 Not repaid up to 31-12-2014
Required:
You are required to calculate the capitalization rate to be used for calculating the amount of borrowing
cost to be capitalized.
Question-8
Calculate capitalization rate in the following case:
Borrowings made Date of borrowing Amount Rate of interest
From HBL 01.05.00 9 million 15%
From NBP 01.09.00 17 million 13%
From ICI 01.07.00 25 million 17%
From Allied Bank 01.11.00 32 million 20%
Year-end is 31 December 2000.
Question-9
Wisegroup Ltd borrowed the following amounts from various financial institution/banks for their
business:
Date of borrowing Rate Loan (Rs.) Borrowing cost (Rs.)
PLCIC 01.07.00 10% 15 million 1.5 million
HBL 01.10.00 12% 10 million 0.9 million
MCB 01.11.00 16% 8 million 0.85 million
During the year they spent Rs. 13 million (paid to contractor at the start) on construction of office
building. The construction was commenced on 1st August 2000 and continued upto 31 January 2001.
From 1st February 2001 the construction remained suspended due to non-availability of required quality
of marble. The marble could be procured only at the end of March 2001.
Some cash out of amount borrowed was temporarily invested in short term deposits and an income of Rs.
0.2 million was earned from there:
They prepare their financial statements on 30 June.
Required: Calculate the borrowing cost to be capitalized for the year ended 30 June, 2001.
Question-10
Ammar Corporation has following loans in place at the beginning of 2014.
1 January 2014
12 % MCB loan repayable 50,000
8.5 % Debentures repayable 70,000
10.5 % Silk Bank loan repayable 60,000
On 1 January 2014, the construction of a qualifying asset started using existing borrowings. Expenditure
incurred on the construction was incurred on:-
Rs.
1 Jan 2014 30,000
1 June 2014 40,000
1 November 2014 20,000
90,000
737
The construction will complete on March 31, 2015.

Required:
Calculate the borrowing cost to be capitalized for year ended December 31, 2014.
Question-11
Nasir Corporation has following loans in place at the beginning of 2015.
1 January 2015
12 % MCB loan 50,000
8.5 % Debentures 80,000
It further borrowed following loans not specifically for the project:
13 % Silk Bank loan obtained on 1-4-2015 6,000

15 % HBL loan obtained on 1-9-2015 90,000
On 1 January 2015, the construction of a qualifying asset started. Expenditure incurred on the
construction was incurred on:-
Rs.
1 Jan 2015 30,000
1 June 2015 50,000
1 December 2015 70,000
150,000
The construction will complete on March 31, 2016.
Required:
Calculate the borrowing cost to be capitalized for year ended December 31, 2015.
Question-12
Soccer Limited began the construction of a new stadium on 1 January 20X5. Details of the progress
payments made during 20X5 are as follows:
Rs.
On 1 January 300,000
On 1 April 200,000
On 1 July 250,000
On 1 September 150,000
On 1 October 200,000
The stadium was still under construction at 31 December 20X5.
The construction was financed by general borrowings within the company. General loans outstanding at
any one time during 20X5 averaged Rs. 20,000,000. The interest expense incurred on these loans during
20X5 was Rs. 2,600,000.
The stadium is a qualifying asset as defined by IAS 23. Interest is payable (compounded) annually.
Required:
a) Calculate the amount of borrowing costs that may be capitalized to the stadium during the year
ended 31 December 20X5.
b) Calculate the depreciation for the year ended 31 December 20X5.
c) Calculate the carrying amount of the stadium as at 31 December 20X5.
Question-13
A socially responsible multinational corporation (MNC) decided to construct a tunnel that will link two
sides of the village that were separated by a natural disaster years ago. Realizing its role as a good
corporate citizen, the MNC has been in this village for a couple of years exploring oil and gas in the
nearby offshore area. The tunnel would take two years to build and the total capital outlay needed for the
construction is Rs. 20 million. General loans were arranged in this way:
738
• Bank term loans: Rs. 5 million at 7% per annum

• Institutional borrowings: Rs. 7 million at 8% per annum
• Corporate bonds: Rs. 10 million at 9% per annum
Required
When MNC capitalizes borrowing costs under IAS 23, how would it treat the borrowing costs? How
would it capitalize the borrowing costs?
Question-14
Rise Co had the following loans
1 January
10 % Bank loan repayable – Repayable 2016(General) 100,000,000
8 % Bank loan repayable – Repayable 2018(General) 40,000,000
7 % Specific loan obtained on 1.1.2014 20,000,000
Construction of Plant began on 1 Jan 2014.
Expenditure incurred on the construction was given below. Surplus funds were invested at 4 %.
Incurred on Rs.”000”
1 Jan 2014 50,000
1 Oct 2014 30,000
80,000
Required:
Calculate the borrowing cost to be capitalized for the factory plant for the year ended
31 December, 2014.
Question-15
On 1 July 2006, entity A entered into a Rs. 2.2 million contract for the construction of a building . The
building was completed at the end of June 2007. During the period, the following payments were made to
the contractor:
Payment date Rs. In ’000’

1 July 2006 200
30 September 2006 600
31 March 2007 1,200
30 June 2007 200
Total 2,200
Entity A’s borrowings as at its year end of 30 June 2007 were as follows:
i) 10% four-year loan obtained on 1 July, 2006 with simple interest payable annually, which relates
specifically to the project; debt outstanding at 30 June 2007 amounted to Rs. 700,000. Interest of
Rs. 70,000 was incurred on these borrowings during the year, and interest income of Rs. 20,000
was earned on these funds while they were held in anticipation of payments.
ii) 12.5% 10-year general loan with simple interest payable annually; debt outstanding at 1 July
2006 amounted to Rs. 1,000,000 and remained unchanged during the year.
iii) 10% 10-year general loan with simple interest payable annually; debt outstanding at 1 July 2006
amounted to Rs. 1,500,000 and remained unchanged during the year.
Required:
Calculate the borrowing cost to be capitalized for year ended June 30,2007.
739
Question-16 [Specific + General + mix]

Milo enterprise was working on a project to construct a building. Project started on January 01, 2014.
Costs incurred on the project are as follows:
1 January, 2014 7,500,000
1 Sep, 2014 9,500,000
The following amounts were utilized for payment:

1. 10% debentures issued on January 1, 2014 specifically for construction Rs. 5,500,000.
2. 15% bank loan outstanding since 2013 Rs. 6,500,000
3. 12% bank loan was obtained solely for the project July 1, 2014 Rs. 3,250,000
4. 10% bank loan outstanding since December 1, 2014 Rs. 1,000,000
All the above loans and debentures are outstanding till 31st December 2014. Construction of building was
still in progress at 31st December 2014.
Required:
Determine the total amount of capital work in process.
Question-17
In the board meeting held on 15th December 2006, management of Power limited decided to construct a
qualifying asset amounting to Rs. 1,000,000. The management of Power limited approached to a bank to
finance the project but the bank agreed to finance only the 50% of the estimated cost i.e. Rs. 500,000 @
15% p.a. The loan was sanctioned on 28th December 2006 and was immediately put into the bank account
of company. Management of the company decided to utilize other general purpose loans to finance the
remaining balance of Rs. 500,000.
The construction of qualifying asset started on 1st January 2007. Following is the schedule of payments
made by Power limited in connection with the construction of qualifying asset.
Date of installment Amount of installment (Rs.)

January 1, 2007 200,000
April 1, 2007 200,000
July 1,2007 200,000
October 1,2007 200,000
Management decided to invest the unutilized portion of specific loan in the government securities
fetching an income @ 8% p.a. There was an un-routine stoppage in the work from 1st June 2007 to 31st
July 2007.
The following is the information regarding all the loans available to Power limited:
Description Amount Rate Loan taken On

Specific loan 500,000 15% 28-12-2006
General purpose loan 1 600,000 12% 01-02-2007
The general purpose loan 2 was repaid in full on 30-11-2007 and general purpose loan 3 was repaid in full
on 31-10-2007. Remaining loans were outstanding till 31st December 2007.
The construction of qualifying asset was not completed up to 31st December 2007. The accounting year
ends on 31st December 2007.
Required:
Calculate portion of borrowing cost eligible for capitalization for the year ended December 2007.
740
Question-18
A company started construction of a qualifying asset. It received loan specifically for qualifying asset on
1 August, 2007 of Rs. 400,000 @ 12%. Project started on 15 August, 2007 following is the detail of
construction payments.
Construction payments
Date Rs.
15.8.07 150,000
1.11.07 200,000
1.03.08 300,000
1.09.08 150,000
The rate of capitalization for general borrowing is 18%. Surplus funds are invested at rate of 3%. Project
was stopped for month of December due to flood. The project was completed on May 31, 2008
Required:
Calculate borrowing cost to be capitalized for year ended June 30, 2008.
Question-19
A company started project of construction of a qualifying asset on 1 February 2012. It is financed through
following sources:
1. Right issue of shares Rs.3,000,000 on 1 February 2012. Dividend rate is 10%.
2. Specific loan was obtained on 1 April 2012 of Rs.5,000,000 @ 12%.
3. The surplus funds are invested @ 3%.
4. General borrowing capitalisation rate is 14%.
Construction payment
Date Rs.
1.2.12 2,000,000
1.3.12 500,000
1.4.12 3,000,000
1.8.12 6,000,000
Project was still in process on 31.12.12.
Required:
Calculate borrowing cost to be capitalized for year ended December 31, 2012.
Question-20
On 1st Jan 2014, Ghani Co borrowed Rs. 2.5 million to finance the construction of two buildings both of
which were expected to take a year to build. Construction started during 2014. The loan facility was
drawn down on 1 Jan 2014 and was utilized as follows, with the remaining funds invested temporarily.
Asset A Asset B
1 Jan 2014 500,000 750,000
1 Jul 2014 500,000 750,000
1,000,000 1,500,000
The loan rate was 7 % and Sparkle Co can invest surplus funds at 4 %.
Required:
Calculate the borrowing costs which may be capitalized for each of the asset and consequently the cost of
each asset as at 31 Dec 2014.
741
Question-21
Loan worth of Rs. 400,000 taken on 1st January 2014 for the construction of A and B plants. Interest Rate
is 10% per annum and surplus funds are invested @ 7% per annum.
Details of expenditures is:
Year 2014 A B
1st January 200,000 60,000
30th June 0 70,000
200,000 130,000
Plant A was completed on June 30, 2014.
Required:
Calculate borrowing cost to be capitalized on A and B Plants as on December 31, 2014, if IAS-23 is
adopted.
Question-22
Mr. Tipu obtained loan amounting to Rs. 90 million from HBL on January 1, 2015. It carries markup @
12% per annum. The loan is repayable in semi-annual installments of Rs. 10 million each starting from
June 30, 2015 along with interest.
Required:
i) Calculate interest expense for the year ended December 31, 2015 and
ii) Prepare relevant extracts from statement of financial position for year ended December 31,2015.
Question-23
Mr. Atif obtained loan amounting to Rs. 70 million from UBL on July 1, 2014. It carries markup @ 15%
per annum. The loan is repayable in semi-annual installments of Rs. 5 million each starting from January
1, 2015 along with interest.
Required:
ii) Prepare relevant extracts from statement of financial position for year ended December 31,2015.
Question-24
Mr. Taimoor obtained loan amounting to Rs. 150 million from Faysal bank on April 1, 2015. It carries
markup @ 13% per annum. The loan is repayable in quarterly installments of Rs. 15 million each starting
from June 30, 2015 along with interest.
Required:
ii) Prepare relevant extracts from statement of financial position for year ended December 31, 2015.
Question-25
Mr. Mouse obtained loan amounting to Rs. 80 million from HBL on October 1, 2015. It carries interest @
0.25 per thousand per day. The loan is repayable in monthly installments of Rs. 10 million each starting
from November 1, 2015 along with interest.
Required:
ii) Prepare relevant extracts from statement of financial position for year ended December 31, 2015.
742
PRACTICE SOLUTIONS
Answer-1
Rs in ‘million’
Borrowing cost eligible for capitalisation [3 + (0.6 + 0.75) + (1.25 + 0.35)] 5.95
Note: As purchase of ready to use air conditioners is not a qualifying asset transaction therefore
borrowing cost associated with it will be expensed out.
Answer-2
Rs in ‘million’
Borrowing cost eligible for capitalisation 3
Note: As purchase of stock and land is not a qualifying asset transaction therefore borrowing
cost associated with them will be expensed out.
Answer-3
Particulars Dr. Cr.

Capital work in process(400,000 + 44,000) 444,000
Cash 444,000
(W-1)
Interest incurred during construction on specific borrowing (500,000 x 10%) 50,000
(100,000 x 6% x 12/12) (6,000)
44,000
(W-2)
1-Jan-05 Loan raised 500,000
1-Jan-05 Construction payment (400,000)
100,000 100,000
Answer-4
All figure in Rs. in '000'
a) Borrowing cost to be capitalized
Interest incurred during construction on specific borrowing from 1-Feb to 1-Dec
(1,900 x 25% x 10/12) 396
Less: Investment income during construction (W-2) (170)
226
(W-1)
1-Feb-05 Balance in loan a/c on commencement of project 1,900 1,900
1-Feb-05 Construction payment (500) 1,400
1-July-05 Construction payment (600) 800
1-Nov-05 Construction payment (800) -
743
(W-2) Investment Income

1-Feb-05 (1,400 x 20% x 5/12) 117
1-Jul-05 (800 x 20% x 4/12) 53
170
b) Depreciation (2,126)/10 x 1/12) 18

(W-1) Cost of asset
Construction (500 + 600 + 800) 1,900
Add: Borrowing cost to be capitalized 226
2,126
c) Net book value

Cost 2,126
Less: Accumulated depreciation (18)
2,108
Answer-5
All figure in Rs. in '000'
Interest incurred during construction on specific borrowing (2,000 x 14%) 280
Less: Investment income during construction (W-2) (73)
207
(W-1)
1-Jan-05 Loan 2,000 2,000
1-Jan-05 Construction payment (600) 1,400
1-July-05 Construction payment (1,200) 200
1-Sep-05 Construction payment (200) -
1-Jan-05 (1,400 x 10% x 6/12) 70
1-Jul-05 (200 x 10% x 2/12) 3
73
b) No borrowing cost will be capitalised because amongst the 3 criteria of capitalisation, one is that
we have started the project which is not the case here.
Answer-6
Interest incurred during construction on specific borrowing (W-3) 38,750
Less: Investment income during construction (W-2) (9,900)
28,850
(W-1)
1-Mar-05 Balance in loan A a/c on commencement of project 500,000 500,000
31-Mar-05 Construction payment (300,000) 200,000
30-Apr-05 Construction payment (100,000) 100,000
1-Jun-05 Loan B raised 400,000 500,000
31-Jul-05 Construction payment (220,000)
31-Jul-05 Loan repayment (100,000)
(320,000) 180,000
744

1-Mar-05 (500,000 x 6% x 1/12) 2,500
31-Mar-05 (200,000 x 6% x 1/12) 1,000
30-Apr-05 (100,000 x 6% x 1/12) 500
1-Jun-05 (500,000 x 6% x 2/12) 5,000
31-Jul-05 (180,000 x 6% x 1/12) 900
9,900
(W-3) Interest accrued on specific borrowing

Loan A (500,000 x 10% x 6/12) 25,000
Loan B
1-Jun-05 Loan received 400,000 x 15% x 2/12 10,000
31-Jul-05 Less: Principal repaid (100,000)
300,000 x 15% x 1/12 3,750
38,750
Answer-7
Period Loan
Loan outstanding Outstanding Rate Interest
Loan A 900,000 x 12/12 900,000 12% 108,000
Loan B 560,000 x 9/12 420,000 15% 63,000
Loan C 780,000 x 11/12 715,000 10% 71,500
Loan D 690,000 x 7/12 402,500 17% 68,425
2,437,500 310,925
Rate for general borrowing (310,925/2,437,500) 12.76%
Answer-8
Capitalisation Rate of general borrowing Rs. in million
Period Loan
HBL 9 x 8/12 6 15% 0.9
NBP 17 x 4/12 5.67 13% 0.737
ICI 25 x 6/12 12.5 17% 2.125
Allied Bank 32 x 2/12 5.33 20% 1.067
29.5 4.829
Answer-9
Rs in ‘million’

1-Aug-14 (13 x 11.68% x (11-2)/12) 1.14
Capitlisation will be suspended for the month of February and March.
745

Period Loan
PICIC 15 x 12/12 15.00 10% 1.50
HBL 10 x 9/12 7.50 12% 0.90
MCB 8 x 8/12 5.33 16% 0.85
27.83 3.25

Investment income is ignored as the borrowings are general.
Answer-10
1-Jan-14 (30,000 x 10.14% x 12/12) 3,042
1-Jun-14 (40,000 x 10.14% x 7/12) 2,366
1-Nov-14 ( 20,000 x 10.14% x 2/12) 338
5,746
(W-1) Capitalisation Rate of general borrowing

Period Loan
MCB 50,000 x 12/12 50,000 12% 6,000
Debenture 70,000 x 12/12 70,000 8.5% 5,950
Silk 60,000 x 12/12 60,000 10.5% 6,300
180,000 18,250
Rate for general borrowing (18,250/180,000) 10.14%
Answer-11
1-Jan-15 (30,000 x 10.87% x 12/12) 3,261
1-Jun-15 (50,000 x 10.87% x 7/12) 3,170
1-Dec-15 (70,000 x 10.87% x 1/12) 634
7,065

Period Loan
MCB 50,000 x 12/12 50,000 12% 6,000
Debenture 80,000 x 12/12 80,000 8.5% 6,800
Silk 6,000 x 9/12 4,500 13.0% 585
HBL 90,000 x 4/12 30,000 15.0% 4,500
164,500 17,885
746
Answer-12
Capitalisation rate on general borrowing (2,600,000/20,000,000) 13%

General borrowings 1-Jan-20X5 (300,000 x 13% x 12/12) 39,000
1-Apr-20X5 (200,000 x 13% x 9/12) 19,500
1-Jul-20X5 (250,000 x 13% x 6/12) 16,250
1-Sep-20X5 (150,000 x 13% x 4/12) 6,500
1-Oct-20X5 (200,000 x 13% x 3/12) 6,500
87,750
b) Depreciation is not charged as asset is yet not complete.
Cost of asset
Construction cost paid (300,000 + 200,000 + 250,000 + 150,000 +200,000) 1,100,000
Add: Borrowing cost to be capitalized 87,750
1,187,750
c) Net book value

Cost 1,187,750
Less: Accumulated depreciation -
1,187,750
Answer-13
Interest incurred during construction on general borrowing
( 20,000,000 x 8.23% x 12/12 ) 1,646,000
Period Loan
Bank loan 5,000,000 x 12/12 5,000,000 7% 350,000
Institutional loan 7,000,000 x 12/12 7,000,000 8% 560,000
Corporate bonds 10,000,000 x 12/12 10,000,000 9% 900,000
22,000,000 1,810,000
Rate for general borrowing (1,810,000/22,000,000) 8.23%
Answer-14 Rs. In ‘000’

a) Borrowing costs to be capitalized
Interest incurred during construction on specific borrowing 1,400
(20,000 x 7%)
Interest incurred during construction on general borrowing (W-2) 3,536
4,936
(W-1)
Date Description Specific General Balance
1/1/2014 Loan raised 20,000 -
1/1/2014 Construction cost of Rs. 50,000 (20,000) (30,000)
1/10/2014 Construction cost of Rs. 30,000 (30,000)
747
As there are no surplus funds, so investment income is not calculated.

Loan
Loan Loan amount Period outstanding Rate Interest
outstanding
Loan 1 100,000 x 12/12 100,000 10% 10,000
Loan 2 40,000 x 12/12 40,000 8% 3,200
140,000 13,200
(W-2) Interest incurred during construction on general borrowing

( 30,000 (W-1) x 9.43% x 12/12 ) 2,829
( 30,000 (W-1) x 9.43% x 3/12 ) 707
3,536
Answer-15
Interest on specific loan net of investment income (W-3) 50,000
Interest on general loan 41,250
91,250
(W-1)
1/7/06 Loan obtained 700,000
1/7/06 Construction cost (200,000) 500,000
30/9/06 Construction cost of 600,000 (500,000) (100,000) -
31/3/07 Construction cost (1,200,000)
30/6/07 Construction cost (200,000)
Period Loan
(W-2) Loan outstanding outstanding Rate Interest
12.5% loan 1,000,000 x 12/12 1,000,000 12.5% 125,000
10% loan 1,500,000 x 12/12 1,500,000 10.0% 150,000
2,500,000 275,000
(W-3)
Specific borrowing interest
Interest incurred during construction on specific borrowing 70,000
Less: Investment income (20,000)
50,000
(W-4)
Interest incurred during construction on general borrowing
( 100,000 x 11% x 9/12 ) 8,250
( 1,200,000 x 11% x 3/12 ) 33,000
( 200,000 x 11% x 0/12 ) -
41,250
748
Answer-16
Expenditure incurred (7,500,000 + 9,500,000) 17,000,000
Specific Borrowing (W-1) 745,000
18,355,050
Date Description Specific General
1/1/2014 Loan raised 5,500,000
1/1/2014 Construction cost of 7,500,000 (5,500,000) (2,000,000)
1/7/2014 Loan raised 3,250,000

1/9/2014 Construction cost of 9,500,000 (3,250,000) (6,250,000)
(W-1)
Interest incurred during construction on specific loan
(5,500,000 x 10%) 550,000
(3,250,000 x 12% x 6/12) 195,000
745,000
(W-2) Period Loan

Loan outstanding Outstanding Rate Interest
15% Bank loan 6,500,000 x 12/12 6,500,000 15% 975,000
10% Bank loan 1,000,000 x 1/12 83,333 10% 8,333
6,583,333 983,333
(W-3) Interest incurred during construction on general borrowing

(2,000,000 x 14.94% x 12/12) 298,800
(6,250,000 x 14.94% x 4/12) 311,250
610,050
Answer-17 Rs. In ‘000’
Interest incurred during construction on specific borr. (500 x 15% x (12-2)/12 62.50
Less: Investment income during construction (W-2) (7.33) 55.17
Interest incurred during construction on general borrowing (W-3) 11.92
67.09
(W-1)
1-Jan-07 Opening balance of loan 500
1-Jan-07 Construction payment of 200 (200) 300
1-Apr-07 Construction payment of 200 (200) 100
1-Jul-07 Construction payment of 200 (100) (100)
1-Oct-07 Construction payment of 200 (200)
(W-2) Investment income

1-Jan-07 (300 x 8% x 3/12) 6.00
1-Apr-07 (100 x 8% x (3-1)/12) 1.33
7.33
749
(W-3) Interest accrued on general borrowings

1-Jul-07 (100 x 13% x (6-1)/12) 5.42
1-Oct-07 (200 x 13% x 3/12) 6.50
11.92

Loan Period Loan
Loan Rate Interest
amount outstanding outstanding
Loan 1 600 x 11/12 550.00 12% 66.00
Loan 2 400 x 9/12 300.00 14% 42.00
Loan 3 300 x 10/12 250.00 14% 35.00
1,100.00 143.00
Rate for general borrowing (143/1,100) 13.00%
Answer-18
Borrowing costs to be capitalized
43,312
(W-1)
15/8/07 Opening balance 400,000
15/8/07 Construction cost of Rs. 150,000 (150,000) 250,000
1/11/07 Construction cost of Rs. 200,000 (200,000) 50,000
1/3/08 Construction cost of Rs. 300,000 (50,000) (250,000)
(W-2)Specific borrowing interest

Interest incurred during construction on specific borrowing [(400,000 x 12%) x( 9.5-1/12)] 34,000
Less: Investment income (W-3) (1,938)
32,062
15/8/07 (250,000 x 3% x 2.5/12) 1,563
1/11/07 [(50,000 x 3%) x (4-1/12)] 375
1,938
(W-4) Interest on general borrowing
(250,000 (W-1) x 18% x 3/12) 11,250
Answer-19
629,167
(W-1)
Date Description Equity Specific General Balance
1/2/12 Right issues 3,000,000
1/2/12 Construction cost of Rs. (2,000,000)
2,000,000
1/3/12 Construction cost of Rs. (500,000)
500,000
750
1/4/12 Specific loan raised 5,000,000

1/4/12 Construction cost of Rs. (500,000) (2,500,000) 2,500,000
3,000,000
Construction cost of Rs. (2,500,000) (3,500,000)
1/8/12 6,000,000
(W-2)Specific borrowing interest

Interest incurred during construction on specific borrowing (5,000,000 x 12% x 9/12) 450,000
425,000

1/4/12 (2,500,000 x 3% x 4/12) 25,000
(W-4) Interest on general borrowing

(3,500,000 (W-1) x 14% x 5/12) 204,167
Answer-20
Asset A Asset B
(1,000,000 x 7%) 70,000
(1,500,000 x 7%) 105,000
(500,000 x 4% x 6/12) (10,000)
(750,000 x 4% x 6/12) (15,000)
60,000 90,000
(W-1) Asset A
1/1/2014 Loan raised 1,000,000
1/7/2014 Construction cost (500,000) -
(W-2) Asset B
1/1/2014 Loan raised 1,500,000
Answer-21
Plant A Plant B
(200,000 x 10% x 6/12) 10,000
(200,000 x 10%) 20,000
10,000 12,650
We will stop capitalization on plant A on 30/06/14 as the construction has ceased.
751
(W-1) Plant A
1/1/2014 Loan raised ( Note ) 200,000
(W-2) Plant B
1/1/2014 Loan raised ( Note ) 200,000
(W-3) Investment income on plant B

(140,000 x 7% x 6/12 ) 4,900
( 70,000 x 7% x 6/12 ) 2,450
7,350
Note: Plant A got completed for Rs. 200,000, therefore the remaining loan of Rs. 200,000 (400,000 -
200,000 ) will be used for plant B.
Answer-22
Interest expense for the year Rs. in 'm'

1-Jan-15 Loan received 90 x 12% x 6/12 5.40
30-Jun-15 Less: Principal repaid (10)
80 x 12% x 6/12 4.80
31-Dec-15 Less: Principal repaid (10)
31-Dec-15 Balance 70
10.20
Mr. Tipu
Statement of Financial Position (Extracts)
Rs. in 'm.'
Loan payable (70 - 10 - 10) 50
Current Liabilities
Current portion of long term loan (10 + 10) 20
Note: Current portion is payable on June 30, 2016 and December 31, 2016.
752
Answer-23
Interest expense for the year Rs. in 'm.'

1-Jan-15 Opening balance 70
1-Jan-15 Less: Principal repaid (5)
65 x 15% x 6/12 4.88
1-Jul-15 Less: Principal repaid (5)
31-Dec-15 Balance 60 x 15% x 6/12 4.50
9.38
Mr. Atif
Rs in 'm.'
Loan payable (60 - 5 - 5) 50
Current Liabilities
Current portion of long term loan (5 + 5) 10
Interest payable 4.5
Note: Current portion is payable on January 1, 2016 and July 1, 2016.
Answer-24
1-Apr-15 Loan received 150 x 13% x 3/12 4.88
30-Jun-15 Less: Principal repaid (15)
135 x 13% x 3/12 4.39
30-Sep-15 Less: Principal repaid (15)
120 x 13% x 3/12 3.90
31-Dec-15 Balance 105
13.17
753
Mr. Taimoor
Rs in 'm.'
Loan payable (105 - 15 - 15 - 15 -15) 45
Current Liabilities
Current portion of long term loan (15 + 15 + 15 +15) 60
Note: Current portion is payable on March 31, 2016, June 30, 2016, September 30, 2016 and December
31, 2016.
Answer-25
1-Oct-15 Loan received 80 x 9.125% x 1/12 0.61
1-Nov-15 Less: Principal repaid (10)
70 x 9.125% x 1/12 0.53
31-Dec-15 Closing balance of loan 60 x 9.125% x 1/12 0.46
1.60
Annual rate of interest (0.25/Rs. 1,000) x 365 days 9.125%
Mr. Mouse
Rs. in 'm.'
Loan payable -
Current Liabilities (80-10-10)
Current portion of long term loan 60
Interest payable 0.46
Note: Current portion is payable in remaining 6 installments starting from January 1, 2016.
754

Question-1
Gemex Communication Ltd, are sole distributors of GSM mobile telephones in Rawalpindi. Mobile cases
are imported by the company and after assembling and packing, mobiles are sold out from their show
room, located in Sadder. The company decided to introduce a latest brand of mobile set in the local
market. However, local assembling of such sets would cost Rs. 20 million. The Directors decided to
finance this project by obtaining loan equivalent to 70% of the project cost @ 20% per annum for a
period of six months. Inventory meets the definition of qualifying asset.
The loan was sanctioned on 01 July, 2000. Due to certain internal delays, the company started project
from 01 August, 2000. The entire loan was paid off on 31 December 2000.
Required: Compute the amount of borrowing cost eligible for capitalization in accordance with IAS 23.
(03)
{Autumn 2001, Q # 2}
Question-2
On January 1, 2007, Imran Limited started the construction of its new factory. The construction period is
approximately 15 months and the cost is estimated at Rs. 80 million. The work has been divided into 5
phases and payment to contractor shall be made on completion of each phase. In the year 2007, the
project has been financed through the following sources:
(i) Right shares amounting to Rs. 15 million were issued on January 1, 2007. The company usually
pays a dividend of 10% each year.
(ii) Bank loan of Rs. 32 million carrying a mark up of 13% was raised on March 1, 2007.
(iii) On August 1, 2007, Rs. 10 million were borrowed from the bank. Interest thereon, is payable at
the rate of 11%.
The details of bills submitted by the contractor, during the year are as follows:
Particulars Date of payment Rupees
On completion of 1st phase March 1, 2007 20,000,000
On completion of 2nd phase April 1, 2007 18,000,000
rd
On completion of 3 phase October 1,2007 16,000,000
On completion of 4th phase Payment not yet made 17,000,000
The unutilized portion of the loan was invested in the money market. The interest received on such
investment amounted to Rs. 0.5 million.
On June 1, 2007, Building Control Authority issued instructions for stoppage of work on account of
certain discrepancies in the completion plan. The company filed a petition in the Court and the matter was
decided in the company’s favour on July 31, 2007. During this interim period, construction work
remained suspended.
Required:
Calculate the amount of borrowing costs that may be capitalised as on December 31, 2007 in accordance
with the requirements of IAS-23 “Borrowing Costs”. (17)
{Spring 2008, Q # 3}
755
Question-3
White Limited is engaged in the construction of small townships. It announced a new township with a
name and style of ‘Ashiyana’.
The estimated cost of the project is as under:
Land Rs. 180 million
Construction Rs. 100 million
The company planned to finance the project through shareholders’ equity, bank loan and down payments
to be received from buyers. The land required for the project was in the possession of the company and
had been acquired in 2003. The construction started on January 01, 2006 and completed on November 30,
2006.
Details of costs incurred are as follows:
Date of Bills Particulars Rs. in million
Feb 16. 06 Documentation 2.50
Mar 16. 06 Land preparation 13.50
May 16. 06 Structure 50.00
Dec 16. 06 Finishing 38.50
All the above bills were paid on the same dates except for Rs. 15 million included in finishing cost, which
was paid in January, 2007.
Funds were arranged as under:
Date Source Rs. in million Finance cost
Mar 01. 06 Shareholders equity 10.00 Yield required is 30%
Mar 01. 06 Bank Loan-A 30.00 Carry markup @ 12% p.a.
Mar 01. 06 Bank Loan-B 40.00 Carry markup @ 18% p.a.
Dec 16. 06 Down payments 24.50 No financial cost
Required:
Determine the amount of borrowing cost that can be capitalized as on December 31, 2006 by the company
under IAS 23 (Borrowing Costs). (15)
{Spring 2007, Q # 5}
Question-4
ABC Company contracted with XYZ Company to build additional factory building of Rs.50,000,000 on
existing land of the company. The work was completed on June 30, 2004. ABC Company made first
payment of Rs.5,000,000 on January 1, 2004. During the period of construction, ABC Company had
availed general bank loan. The rate of interest was Re.0.23 per day per rupees thousand. The amount
outstanding was Rs.138,000,000 as on June 30, 2004. Following is the further information regarding
contract payments:
Date of payment Rupees
25.01.2004 10,000,000
05.02.2004 5,000,000
03.03.2004 20,000,000
06.06.2004 10,000,000
Required:
Calculate the borrowing cost to be capitalized in the accounts of ABC Company for the year ended June
30, 2004 in accordance with IAS-23. (09)
{Spring 2005, Q # 8}
756
Question-5
The balance sheet (extracts) of a company at year end December 2001 reflects following status:
Rs. in 000
Plant under installation 2,000
Other assets 8,000
10,000
General Loans
Bank loan 18% 2,000
Bank loan 20% 2,500
Bank loan 22% 1,500
6,000
Other liabilities 4,000
10,000
Bank loan of 20% was taken on April 30, 2001 other loans were brought forward from the year 2000.
All of the borrowings are general.
Expenditure incurred on plant under installation
May l, 2001 1,000
July 1, 2001 700
Nov 1, 2001 300
2,000
Required:
(a) Capitalization rate of the company
(b) Total borrowing cost to be capitalized during the year 2001. (10)
{Autumn 2002, Q # 5}
Question-6
Absolute Projects Limited is a public limited company listed on stock exchange. Company has a capital
project in process. It has obtained a loan specifically for this project. In addition to this the company has
various financings obtained from various banks. The details of the financing obtained by the company as
at 30 June 2003 are as follows.
Amount in Mark-up rate
Rupees ‘000’
Specific Loan for the Project 10,000 9%
General purpose loan 1 50,000 9.5%
General purpose loan 2 25,000 7.5%
General purpose loan 3 15,000 8%
All the loans have remained outstanding throughout the year. Cost incurred on the project on July 01,
2002 is Rs 12.5 million.
Kindly calculate the amount of interest to be capitalized on the Project for the year ended 30 June, 2003.
(05)
{Spring 2004, Q # 6}
757
Question-7
On November 01, 2001 Jamal Nasir & Company contracted Wardah Construction Company to have a
building constructed for Rs 2.8 millions. Jamal Nasir & Company made the following payments to the
construction company during 2002:
January 1 March 1 May 1 December 31 Total

Rs 420,000 Rs 600,000 Rs 1,080,000 Rs 900,000 Rs 3,000,000
Construction was completed and the building was ready for occupancy on December 31, 2002. Jamal
Nasir & Company had the following debt outstanding at December 31, 2002:
Specific Construction Debt

i. 15%, 3-year loan obtained to finance purchase of land and construction of the building, dated
December 31, 2001, with interest payable annually on December 31 - Rs. 1.5 million
Other Debts
ii. 10%, 5-year loan payable, dated December 31, 1998, with interest payable annually on December
31 - Rs.1.1 million
iii. 12%, 10-year bonds issued on December 31, 1997, with interest payable annually on December
31 - Rs. 1.2 million
Required
Keeping in view the requirement of IAS 23, calculate the following:
a) Total actual interest cost for the year (03)
b) Capitalization rate of borrowing cost (05)
c) Interest cost to be capitalized (07)
{Spring 2003, Q # 5}
Question-8
On 1 July 2014, Alpha Trading Limited (ATL) signed an agreement with Quality Builders Limited for
construction of an office building at a cost of Rs. 500 million. Construction commenced on 1 July 2014
and is planned to complete on 30 June 2016. The payments made to the builders were as follows:
Net payment
Invoice date Payment date Description (Rs. In million)
20-Jun-2014 1-Jul-2014 Advance 50.00
10-Sep-2014 31-Oct-2014 1st progress bill 79.90
30-Dec-2014 31-Jan-2015 2nd progress bill 100.30
The progress bills were paid after deduction of advance and retention money at 10% and 5% of the gross
amount of the bills respectively. Retention money is to be refunded on completion of warranty period of
one year from the date of completion of the building.
On 1 September 2014, the construction work was stopped for one month to resolve geological
complications pertaining to foundation of the building.
The construction cost has been financed from the following sources:
(i) Bank loan of Rs. 100 million was obtained on 1 July 2014. The loan carries a mark-up of 11%
payable semi-annually on 31 December and 30 June each year. The principal is repayable in four
equal annual instalments, commencing from 1 April 2015.
758
(ii) Existing finance facility was used for balance payments. Average running finance
balance for the year ended 31 December 2014 was Rs. 190 million. Mark-up charges for the year
ended 31 December 2014 amounted to Rs. 24.70 million.
(iii) Surplus funds available were invested in a saving account @ 7% per annum.
ATL computes finance cost on a monthly basis.
Required:
From the above information, compute the related amounts and disclose them under appropriate heads in
ATL’s Statement of Financial Position as at 31 December 2014 in accordance with the International
Financial Reporting Standards (12)
{Spring 2015, Q # 7}
Question-9
On September 1, 2008, Spin Industries Limited (SIL) started construction of its new office building and
completed it on May 31, 2009. The payments made to the contractor were as follows:
Date of Payment Rupees
September 1, 2008 10,000,000
December 1, 2008 15,000,000
February 1, 2009 12,000,000
June 1, 2009 9,000,000
In addition to the above payments, SIL paid a fee of Rs. 8 million on September 1, 2008 for obtaining a
permit fee allowing the construction of the building.
The project was financed through the following sources:
(i) On August 1, 2008 a medium term loan of Rs. 25 million was obtained specifically for the
construction of the building. The loan carried mark up of 12% per annum payable semi-annually.
A commitment fee @ 0.5% of the amount of loan was charged by the bank.
Surplus funds were invested in savings account @ 8% per annum. On February 1, 2009 SIL paid
the six monthly interest plus Rs. 5 million towards the principal.
(ii) Existing running finance facilities of SIL
 Running finance facility of Rs. 28 million from Bank A carrying mark up of 13% payable
annually. The average outstanding balance during the period of construction was Rs. 25
million.
 Running finance facility of Rs. 25 million from Bank B. The mark up accrued during the
period of construction was Rs. 3 million and the average running finance balance during
that period was Rs. 20 million.
Required:
Calculate the amount of borrowing costs to be capitalized on June 30, 2009 in accordance with the
requirements of International Accounting Standards. (Borrowing cost calculations should be based on
number of months). (18)
{Autumn 2009, Q # 4}
Question-10
On 01 January 2012, Marvellous Engineering Limited (MEL) started construction of its new factory. The
construction work was completed on 30 November 2012. The payments made to the contractor were as
follows:
Date of payment Rs. in million
01-Jan-12 100
01-Apr-12 310
15-Dec-12 90
759
The construction work was financed through the following sources:

Date Description Rs. in million
01-Jan-12 12% Redeemable preference shares 150
01-Apr-12 14% TFCs for four years 300
01-Jul-12 Issue of right shares (estimated return is 22%) 50
The following additional information is also available:
(i) The preference shares would be redeemed on 31 December 2016.
(ii) Surplus funds were invested in a savings scheme @ 9% per annum.
(iii) Due to delay in supply of construction material, the construction work was suspended from 01
June 2012 to 30 June 2012.
Required:
Calculate the amount of borrowing costs that may be capitalized during the year ended 31 December 2012
in accordance with the requirements of International Financial Reporting Standards. (Assume that
calculations of borrowing costs are based on number of months) (10)
{Spring 2013, Q # 6}
Question-11
On 1 March 2010, Granite Corporation (GC) started the construction of a new plant to meet the growing
demand for its products. The new plant was completed at a cost of Rs. 100 million on 31 May 2011.
GC financed the cost of the project from the following sources:
(i) On 1 March 2010, a 7-year loan of Rs. 70 million was obtained specifically for the construction
of the plant. The loan earned markup @ 13% per annum payable semiannually. An arrangement
fee @ 1% of the loan amount was paid to the bank.
Two installments, each comprising of repayment of principal of Rs. 5 million with interest, were
paid on 31 August 2010 and 28 February 2011.
(ii) GC also has a running finance facility of Rs. 100 million carrying mark-up @ 14% per annum.
Any additional amount required for the project was provided through this facility.
(iii) Surplus funds were invested in savings account @ 8% per annum.
Payments made to the contractor were as follows:
Payment date Rs. in million
01 March 2010 25
31 January 2011 65
30 September 2011 10
The construction work was suspended from 1 February 2011 to 28 February 2011. The suspension was
caused due to delay in shipment of essential components for the installation of the plant.
Required:
Calculate the amount of borrowing costs that may be capitalized during the years ended 30 June 2010 and
2011 in accordance with the requirements of International Financial Reporting Standards. (20)
{Autumn 2011, Q # 2}
760

Answer-1
Interest incurred during construction on specific borrowing (14 x 20% x 5/12) 1.17
(From 1-Aug to 31-Dec)
Specific loan obtained (20 x 70%) 14
Answer-2
All figure in Rs. in ‘000’
Less: Investment income excluding suspension period (500/10 x 8) (400)
2,831
(W-1) Interest accrued on specific loan
1-Mar-07 First loan 32,000 x 13% x (10-2)/12 2,773
1-Aug-07 Second loan 10,000 x 11% x 5/12 458
3,231
Answer-3
All figure in Rs. in ‘000’
1-Mar-06 Loan A 30,000 x 12% x 9/12 2,700
1-Mar-06 Loan B 40,000 x 18% x 9/12 5,400
8,100
We will start capitalisation from March 1 because it is the date on which we started incurring borrowing
cost.
Answer-4
Interest accrued on general borrowings Rs. in ‘000’
25-Jan-04 (10,000 x 8.42% x 158/366) 363
5-Feb04 (5,000 x 8.42% x 147/366) 169
3-Mar-04 (20,000 x 8.42% x 120/366) 552
6-Jun-04 (10,000 x 8.42% x 25/366) 58
1,142
Calculation of days
Period Counting of days Days
25-Jan-04 to 30-Jun-04 7+29+31+30+31+30 158
5-Feb-04 to 30-Jun-04 25+31+30+31+30 147
3-Mar-04 to 30-Jun-04 29+30+31+30 120
6-Jun-04 to 30-Jun-04 25 25
Annual rate of interest (0.23/Rs. 1,000) x 366 days 8.42%
761
Answer-5 All figure in Rs. ‘000’

a) Capitalisation Rate of general borrowing
Period Loan
Loan @ 18% 2,000 x 12/12 2,000 18.0% 360
Loan @ 20% 2,500 x 8/12 1,667 20.0% 333
Loan @ 22% 1,500 x 12/12 1,500 22.0% 330
5,167 1,023
Rate ( 1,023/5,167 ) 19.80%
b) Borrowing costs to be capitalized

Interest incurred during construction on general borrowing (W-1) 211
(W-1)
1/5/2001 (1,000 x 19.80% x 8/12) 132
1/7/2001 (700 x 19.80% x 6/12) 69
1/11/2001 (300 x 19.80% x 2/12) 10
211
Answer-6
All figure in Rs. ‘000’
Borrowings costs to be capitalized
Interest incurred during construction on general borrowing (2,500 x 8.69%) 217
1,117
(W-1)
1-Jul-02 Opening balance of specific 10,000
1-Jul-02 Construction payment of Rs. 12,500 (10,000) (2,500)

Period Loan
General purpose-1 50,000 x 12/12 50,000 9.5% 4,750
90,000 7,825
Answer-7
All figure in Rs. ‘000’
a) Actual interest cost
Interest incurred on specific borrowing (1,500 x 15%) 225
Interest incurred on general borrowing (1,100 x 10%) + (1,200 x 12%) 254
479
762
b) Capitalisation Rate of general borrowing

Period Loan
Loan payable 1,100 x 12/12 1,100 10.0% 110
Bonds issued 1,200 x 12/12 1,200 12.0% 144
2,300 254
Rate for general borrowing (254/2,300) 11.04%
c) Borrowing costs to be capitalized

Interest incurred during construction on general borrowing (W-1) 44
269
(W-1) Interest accrued on general borrowings

1-May-02 (600 x 11.04% x 8/12) 44
(W-2)
1/1/2002 Opening balance of specific 1,500
1/1/2002 Construction payment of Rs. 420 (420)
1/5/2002 Construction payment of Rs. 1,080 (480) (600)
Answer-8
Alpha Trading Limited
as on 31 December 2014
Assets Rs in
‘million’
Non-current assets
Capital work in progress (W-1) 216.358
Non-current liability
Bank loan (100 x 3/4) 75
Retention money payable (W-6) (4.7 + 5.9) 10.6
Current liability
Current portion of bank loan (100 x 1/4) 25
Payable for construction (W-6) 100.3
Note: “Advance” is not shown in SOFP because no bifurcation can be made between its current and non-
current portion as future progress bill details is not available.
(W-1) Cost of capital work in process
Interest on Specific borrowing (W-3) 3.708
Interest on general borrowing (W-4) 0.65
Gross payments (W-5) 212.00
216.358
763
(W-2) Receipt and payment schedule

Year ended 31 December 2014
Specific General loan
Date Description loan Balance
1-July-14 Receipt 100
1-July-14 Advance payment (50) 50
31-Oct-14 1st progress bill of 79.90 (50) (29.9)
*As interest payment is on 31 December so it will not effect any of the calculation.
(W-3) Specific Borrowing
Interest incurred on specific loan
1-Jul-14 Loan received (100 x 11% x (6 - 1) /12) 4.583
Less: Investment Income
1-July-14 (W-2) (50 x 7% x (4 – 1) /12) (0.875)
3.708
(W-4) General Borrowing

Interest incurred on general loan
General (W-2) (29.9 x 13% x 2/12) 0.65
0.65
Rate on general (24.7 / 190) 13%
(W-5) Payments detail

Retention Advance
Gross Amount money adj. Net payment
(Net (Gross x (Gross x
payment/85x100) 5%) 10%)
1-Jul-14 Advance 50.0
31-Oct-14 1stProgress bill 94.0 4.7 9.4 79.9
31-Jan-15 2nd Progress 118.0 5.9 11.8 100.3
bill
212
(W-6) Entries for construction related payments only (for understanding of students only)
1-Jul-14 Advance 50
Bank 50
10-Sep-14 CWIP 94
Advance 9.4
Payable for construction 79.9
(Recording of first progress bill)
31-Oct-14 Payable for construction 79.9
Bank 79.9
(Payment of first progress bill)
30-Dec-14 CWIP 118
Advance 11.8
Payable for construction 100.3
(Recording of second progress bill)
764
Answer-9
All figure in Rs in ‘000’
Commitment fee (25,000 x 0.5%) 125
Less: Investment income during construction (W-4) (138) 1,912
3,458
(W-1) Receipt and payment schedule

1-Sep-08 Opening balance of specific loan 25,000
1-Sep-08 Commitment fee ( 25,000 x 0.5% ) (125)
1-Sep-08 Construction payment (10,000)
1-Sep-08 Permit fee (8,000)
(18,125) 6,875
1-Dec-08 Construction payment of Rs. 15,000 (6,875) (8,125)
1-Feb-09 Principal payment of loan (5,000)
Interest on loan (25,000 x 12% x 6/12) (1,500)
Construction payment of Rs. 12,000 (12,000)
(18,500)
Although these 2 amounts relate to 1 -Aug but the project is started on 1-Sep therefore this date is written.

1-Sep-08 Opening balance of loan 25,000 x 12% x 5/12 1,250
1-Feb-09 Less: Principal repaid (5,000)
20,000 x 12% x 4/12 800
2,050
(W-3) Interest accrued on general borrowing

General (8,125 x (W-5) 13.89 x 6/12) 564
General (18,500 x (W-5) 13.89 x 4/12) 857
1,421
On 31-5-09 building is complete, so we will stop capitalisation.
1-Sep-08 Onwards (6,875 x 8% x 3/12) 138
(W-5) Rate of general borrowing
Weighted
Rate Interest
loan
Bank A 25,000 13% 3,250
Bank B 20,000 3,000
45,000 6,250
Rate of general loan (6,250/45,000) 13.89%
765
Answer-10
All figures in Rs in ‘000’
Less: Investment income during construction (W-3) (3,225)
36,275
(W-1)
Date Description Equity Specific General Balance
1-Jan-12 Preference shares 150,000
1-Jan-12 Construction payment (100,000) 50,000
1-Apr-12 TFC loan 300,000
1-Apr-12 Construction payment (310,000) 40,000
1-Jul-12 Right shares 50,000

1-Jan-12 Preference shares 150,000 x 12% x (11-1)/12 15,000
1-Apr-12 TFC 300,000 x 14% x (8-1)/12 24,500
39,500

1-Jan-12 (50,000 x 9% x 3/12) 1,125
1-Apr-12 (40,000 x 9% x (8-1)/12) 2,100
3,225
Answer-11
All figure in Rs in '000'
Year ended 30 June 2010
Commitment fee (7,000 x 1%) 700
Interest incurred during construction on specific loan (W-2) 3,033
Less: Investment income during construction (W-3) (1,181) 1,852
2,552
(W-1)
1-Mar-10 Loan receipt 70,000
1-Mar-10 Commitment fee ( 70,000 x 1% ) (700)
1-Mar-10 Construction payment (25,000)
(25,700) 44,300
1-Mar-10 (70,000 x 13% x 4/12 ) 3,033

1-Mar-10 Onwards (44,300 x 8% x 4/12) 1,181
766
Year ended 30 June 2011
Borrowing costs to be capitalised

Less: Investment income during construction (W-7) (1,749) 5,239
6,621

1-Jul-10 Opening balance available for investment 44,300
31-Aug-10 Principal payment (5,000)
31-Aug-10 Interest (70,000 x 13% x 6/12) (4,550)
(9,550) 34,750
31-Jan-11 Construction payment of 65,000 (34,750) (30,250)
28-Feb-11 Principal payment (5,000)
28-Feb-11 Interest (65,000 x 13% x 6/12) (4,225)
(9,225)

1-Jul-10 Opening payable 70,000 x 13% x 2/12 1,517
31-Aug-10 Less: Principal repaid (5,000)
65,000 x 13% x (6-1)/12 3,521
28-Feb-11 Less: Principal repaid (5,000)
60,000 x 13% x 3/12 1,950
6,988
- Instead of 6 months, 5 months are used in calculation as work was suspended for 1 month.
- On 31-5-11 plant is complete, so will stop capitalisation.
(W-6) Interest accrued on general borrowing

General (30,250 x 14% x (4-1) /12) 1,059
General (9,225 x 14% x 3/12) 323
1,382
- Instead of 4 months, 3 months are used in calculation as work was suspended for 1 month.
1-Jul-10 Brought forward (44,300 x 8% x 2/12) 591
31-Aug-10 Onwards (34,750 x 8% x 5/12) 1,158
1,749
767

Question 1
Shayan Limited (SL) started the construction of its new factory on 1 January 2018 with a loan of
5,000,000 borrowed at an interest rate of 8% per annum.
The loan was used on the factory as follows:
Date of Payment Rs. in million
Jan 1, 2018 15
May 1, 2018 20
Oct 1, 2018 10
The construction of the asset was completed on 31 December 2018. However, during the accounting
period SL invested the surplus funds at an interest rate of 3%.
Required
How much the amount of borrowing cost eligible for capitalization at 31.12.2018
Question 2
On January 1, 2018 Sara Limited (SL) started the construction of an asset. To meet the financing
requirements, borrowing was made from three different banks at the start of the year as follows:
Banks Amount Interest Rate p.a
A 70,000 10%
B 60,000 8%
C 50,000 12%
The funds were used on the assets as follows:
Date of Payment Rs.in million
Jan 1, 2018 30,000
May 1, 2018 20,000
Oct 1, 2018 15,000
The construction of asset was completed on 31 December 2018.
Required
Calculate the general weighted average borrowing rate and eligible borrowing cost
Question-3
Rooney has recently finished building a new item of plant for its own use. The item is a press for use in
the manufacture of industrial diamonds. Rooney commenced construction of the asset on 1st April 2013
and completed it on 1st April 2015.
1st January 2013, Rooney took out a loan to finance the construction of the asset. Interest is charged on
the loan at the rate of 5% per annum. The annual interest must be paid in four equal instalments at the end
of each quarter. Rooney capitalises interest on manufactured assets in accordance with the rules in IAS 23
Borrowing costs.
The costs (excluding finance costs) of manufacturing the asset were Rs. 28 million.
Required
State the IAS 23 rules on the capitalisation of borrowing costs, calculate the cost of the asset on initial
recognition and explain the amount of borrowing cost capitalised. (6)
(ICAP-Question Bank, 8.3 (a))
768
Question 4
On 1 January 20X6 Googly Industries Limited (GIL) borrowed Rs.15 million to finance the production of
two assets, both of which were expected to take a year to build. Work started during 20X6. The loan
facility was drawn down and incurred on 1 January 20X6, and was utilised as follows, with the
remaining funds invested temporarily.
Asset A Asset B
----------- Rs. in million ---------
1 January 20X6 2.5 5
1 July 20X6 2.5 5
The loan rate was 9% and GIL can invest surplus funds at 7%.
Required
Ignoring compound interest, calculate the borrowing costs which may be capitalised for each of the
assets and consequently the cost of each asset as at 31 December 20X6. (ICAP Question bank 8.4)
Question 5
Khan Limited (KL) has the following loan arrangements as at 1 January 2020:
7% Debentures 55
8% Loan notes 110
12% Line of credit 85
10% Running finance arrangement 150
On the 1 January 2020, KL commenced the construction of a new factory. The construction of the factory
will cost Rs.100 million and the company funded the construction with the existing borrowings.
The factory was completed on 31 August 2020 but was not available for use until 31 January 2021 as a
result of minor modification. During the construction period, active work was interrupted and the building
construction was stopped for two months as a result of adverse weather conditions.
Required
Calculate the borrowing cost to be capitalised and the cost of the building to be recognised upon initial
recognition. (ICAP Question bank 8.5)
Question 6
On September 1, 2015, Spin Industries Limited (SIL) started construction of its new office building and
completed it on May 31, 2016. The payments made to the contractor were as follows:
Date of Payment Rs. in million

September 1, 2015 10
December 1, 2015 15
February 1, 2016 12
June 1, 2016 9
In addition to the above payments, SIL paid a fee of Rs. 8 million on September 1, 2015 for obtaining a
permit allowing the construction of the building.
The project was financed through the following sources:
(i) On August 1, 2015 a medium term loan of Rs. 25 million was obtained specifically for the
construction of the building. The loan carried mark up of 12% per annum payable semi-annually.
A commitment fee @ 0.5% of the amount of loan was charged by the bank.
769
Surplus funds were invested in savings account @ 8% per annum. On February 1, 2016 SIL paid
the six monthly interest plus Rs. 5 million towards the principal.
(ii) Existing running finance facilities of SIL
 Running finance facility of Rs. 28 million from Bank A carrying mark up of 13% payable
annually. The average outstanding balance during the period of construction was Rs.25
million.
 Running finance facility of Rs. 25 million from Bank B. The mark up accrued during the
period of construction was Rs. 3 million and the average running finance balance during
that period was Rs. 20 million.
Required
Calculate the amount of borrowing costs to be capitalised on June 30, 2016 in accordance with the
requirements of International Accounting Standards. (Borrowing cost calculations should be based on
number of months). (ICAP Question bank 8.6)
770

Answer-1
Eligible Borrowing Cost = Actual Borrowing Cost – Income from temporary investment of funds =
(50,000,000  8%) less 375,000
Eligible Borrowing Cost = 3,625,000
Income from investment of Surplus funds:
(25,000,000  3%)  4/12 + (1,000,000  3%)  5/12 = 375,000
Answer 2
Calculation of Eligible Borrowing Cost:

Period Loan Interest
Loan Amount Rate %
outstanding outstanding amount
A 70,000 12/12 70,000 10% 7,000
B 60,000 12/12 60,000 8% 4,800
C 50,000 12/12 50,000 12% 6,000
180,000 17,800
17,800
Capitalization rate = 180,000 × 100 = 9.89%
Eligible borrowing cost = Rs.4,657
(W-1) Expenditure  Rate  Period outstanding Rs. in million

12
30,000  9.89%  = 2,967
12
8
20,000  9.89%  = 1,319
12
3
15,000  9.89%  = 371
12
4,657
Answer 3
IAS-23 should be applied in accounting for borrowing costs.
Borrowing costs are recognized as an expense in the period in which they are incurred unless they are
capitalized in accordance with IAS-23 which says that borrowing costs are directly attributable to the
acquisition, construction or production of a qualifying asset can be capitalized as a part of the cost of that
asset.
1) A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale.
2) Borrowing costs that are directly attributable to acquisition, construction or production are taken
to mean those borrowing costs that would have been avoided if the expenditure on the qualifying
asset had not been made.
771
When an enterprise borrows specifically for the purpose of funding an asset, the identification of the
borrowing costs presents no problem as the amount capitalized is the actual borrowing costs net of any
income earned on the temporary investment of those borrowings.
If funds are borrowed, generally, the amount of borrowing costs eligible for capitalisation is determined
by applying a capitalisation rate to the expenditure on that asset calculated as weighted average of the
borrowing costs applicable to general borrowings.
Cost of capital work in process Rs in ‘000’

Construction cost 28,000
Add: Interest incurred during construction on specific borrowing (20,000 x 5% x 2 years) 2,000
30,000
Answer-4
Asset A Asset B
Rs. in m Rate Months Rs. in m Rs. in m Rate Months Rs. in m
Borrowing cost (31 Dec) 5 9% 12 0.45 10 9% 12 0.9
Investment income (30 June) 2.5 7% 6 (0.0875) 5 7% 6 (0.175)
Total Borrowing Cost 0.3625 0.725
Expenditure incurred 5 10
Cost of Assets 5.3625 10.725
Answer 5
General
Rs. in
Rs. 000 Capitalization Months
million
Rate
Borrowing cost 100 9.4625% (W1) 6 4.731
Cost of factory 100
Total cost to be capitalized 104.731
(W-1)
Loan Interest
Loan Rate %
Amount amount
Debentures 55 7% 2.85
Loan notes 110 8% 8.80
Line of credit 85 12% 10.20
Running finance 150 105 15.00
400 37.85
37.85
Capitalization rate = 400
× 100 = 9.4625%
Borrowing cost to be capitalized Rs. in million
8−2
100  9.4625%  = 4.73125
12
772
Answer 6
Rs. in ‘000’
Commitment fee (25,000  0.5%) 125
Add: Actual borrowing costs of specific loan (W-4) 2,050
Less: Investment income (W-5) (138) 1,912
General borrowing costs (W-3) 1,421
Interest costs to be capitalized 3,458
W-1:
Expenditure Specific General
………………..Rs. In ‘000’………………
25,000 -
1.9.15 125 -
10,000 -
8,000 (18,125) -
6875
1.12.15 15,000 (6875) 8,125
1.2.16 12,000
5,000
1,500 18,500
(25,000  12%  6/12)
26,625
W-2: Capitalization rate of general borrowings

Loan Loan Amount Loan outstanding Interest rate % Interest amount
A 28,000,000 25,000,000 13% 3,250,000
B 25,000,000 20,000,000 - 3,000,000
45,000,000 6,250,000
6,250,000
Rate = 45,000,000 × 100 = 13.89%.
W-3: Interst on general borrowing Rs. in ‘000’

8,125 × 13.89% × 6/12 564.28
18,500 × 13.89% × 4/12 857.00
1,421.00
W-4: Interst expense on specific borrowing Rs. in ‘000’

25,000 × 12% × 5/12 1,250
20,000 × 12% × 4/12 800
2,050
W5: Investment income Rs. in ‘000’

6,875 (w-1) × 8% × 3/12 138
773
Q.1 Which TWO of the statements below regarding IAS 23 Borrowing Costs are correct?
(a) Borrowing costs must be capitalised if they are directly attributable to qualifying assets
(b) Borrowing costs should cease to be capitalised once the related asset is substantially
complete
(c) Borrowing costs must be capitalised if they are directly attributable to non-current assets
(d) Borrowing costs may be capitalised if they are directly attributable to qualifying assets
Q.2 Fine Limited (FL) received a Rs.10 million loan at 7.5% on 1 April 2017. The loan was
specifically issued to finance the building of a new store.
Construction of the store commenced on 1 May 2017 and it was completed and ready for use on
28 February 2018 but did not open for trading until 1 April 2018.
How much should be recorded as finance costs in the statement of profit or loss for the year
ended 31 March 2018?
(a) Rs.250,000 (b) Rs.750,000
(c) Rs.125,000 (d) Rs.625,000
Q.3 Fine Limited (FL) received a Rs.10 million loan at 7.5% on 1 April 2017. The loan was
specifically issued to finance the building of a new store.
Construction of the store commenced on 1 May 2017 and it was completed and ready for use on
28 February 2018 but did not open for trading until 1 April 2018.
How much interest should be capitalised as part of property, plant and equipment as at 31 March
Q.4 An entity decided that not all of the funds raised were needed immediately and temporarily
invested some of the funds for one month before the construction started, earning Rs.40,000
interest.
How should the Rs.40,000 be accounted for in the financial statements?
(a) Net off the amount capitalised in property, plant and equipment
(b) Taken to the statement of profit or loss as investment income
(c) Taken as other comprehensive income
(d) Deducted from the outstanding loan amount in the statement of financial position
Q.5 Shine Limited (SL) had the following bank loans outstanding during the whole of 2018:
Rs. m
9% loan repayable 2019 15
11 % loan repayable 2022 24
SL began construction of a qualifying asset on 1 April 2018 and withdrew funds of Rs. 6 million
on that date to fund construction. On 1 August 2018 an additional Rs. 2 million was withdrawn
for the same purpose.
Calculate the borrowing costs which can be capitalised in respect of this project for the year
ended 31 December 2018.
(a) Rs.545,600 (b) Rs.472,350
(c) Rs.750,600 (d) Rs.350,350
774
Q.6 Jazz Limited (JL) has borrowed Rs.24 million to finance the building of a factory. Construction is
expected to take two years.
The loan was drawn down and incurred on 1 January 2019 and work began on 1 March 2019.
Rs.10 million of the loan was not utilized until 1 July 2019 so JL was able to invest it until
needed. JL is paying 8% on the loan and can invest surplus funds at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 December 2019 in respect of
(a) Rs.1,400,000 (b) Rs.1,920,000
(c) Rs.1,300,000 (d) Rs.1,620,000
Q.7 A company has the following loans in place throughout the year ended 31 December 2018.
Rs. m
10% bank loan 140
8% bank loan 200
On 1 July 2018 Rs.50 million was drawn down for construction of a qualifying asset which was
completed during 2019.
What amount should be capitalised as borrowing costs at 31 December 2018 in respect of this
(a) Rs. 5.6 million (b) Rs. 2.8 million
(c) Rs. 4.4 million (d) Rs. 2.2 million
Q.8 An entity uses funds from its general borrowings to build a new production facility. Details of the
entity's borrowings are shown below:
Rs.10 million 6% loan
Rs.6 million 8% loan
The entity used Rs.12 million of these funds to construct the facility, which was under
construction for the entire year.
How much interest should be capitalised as part of the cost of the asset?
Rs. ____________
Q.9 Which of the following is not considered a “borrowing cost” under IAS 23?
(a) Interest expense calculated by the effective interest method
(b) Finance charges in respect of loan
(c) Exchange differences arising from foreign currency borrowings to the extent that they are
regarded as an adjustment to interest costs
(d) Principal repayments on a loan for property, plant and equipment
Q.10 When activities to prepare an asset for its sale or use are suspended, borrowing costs must be?
(a) Capitalized (b) Expensed
(c) Ignored (d) Charged to equity
Q.11 Which of the following is not a condition to commence capitalisation of borrowing costs?
(a) Expenditures are being incurred
(b) Borrowing costs are being incurred
(c) Repayment of borrowings has commenced
(d) Activities to produce the asset for its intended use or sale have commenced
775
Q.12 Ghazi Limited (GL) is constructing an office building and is capitalising borrowing costs in
accordance with IAS 23. The office is almost complete; the only remaining work is to install
furniture. Is GL allowed to continue capitalising the borrowing costs?
(a) Yes (b) No
(c) Don’t know (d) None of the above
Q.13 Which of the following is not a “qualifying asset” under IAS 23?
(a) Mass produced inventory (b) Manufacturing plants
(c) Made to order inventory (d) Investment property
776

A.1 (a, b) Borrowing costs must be capitalised if they are directly attributable to qualifying assets,
which are assets that take a substantial time to complete. Capitalisation should cease once
substantially all the activities to prepare the asset are complete.
A.2 (c) Rs.10 million x 7.5% x 2/12 = Rs.125,000
A.3 (d) Rs.10 million x 7.5% x 10/12 = Rs.625,000
A.4 (b) Temporary investment income earned during the construction period should be netted off
the amount capitalised.
However, the interest was earned prior to the period of construction. Therefore the
investment income earned should be taken to the statement of profit or loss as investment
income.
3.99m
A.5 (a) Capitalisation rate = 39
× 100 = 10.23%
Loan Rate Interest
Loan A 15 9% 1.35
Loan B 24 11% 2.64
39 3.99
Rs.6m × 10.23% × 9/12 = Rs.460,350
Rs.2m × 10.23% × 5/12 = Rs.85,250
Total Rs.545,600
A.6 (a)
Rs.
March – December (Rs.24m × 8% × 10/ 12) 1,600,000
Less investment income (Rs.10m × 6% × 4/12) (200,000)
1,400,000
Temporary investment income before commencement would be recognised as finance
income in profit or loss.
30
A.7 (d) Capitalisation rate = 340 × 100 = 8.8%
Loan Rate Interest
Loan A 140 10% 14
Loan B 200 8% 16
340 30
Rs.50 million × 8.8% × 6/12 = Rs.2.2 million

A.8 Rs.810,000
Rs.12m × 6.75% = Rs. 810,000
Capitalisation rate
= ((Rs.10m × 6%) + (Rs.6m × 8%))/Rs.16m = 6.75%.
A.9 (d)
A.10 (b)
A.11 (c)
A.12 (b)
A.13 (a)
777
CA CAF-05
FINANCIAL
ACCOUNTING AND
REPORTING - 1
Study Text
Topic Wise
i
TABLE OF CONTENTS
ICAP PAST
PAPER
Q A Q A Q A Q A

Statements

Incomplete Records

Standards
9 IAS 36: Impairment of Assets 794 800 803 810 812 815 816 819 825

Customers
ii
IAS 36: Impairment of Assets
9
LO 1 INTRODUCTION
LO 2 MEASURING RECOVERABLE AMOUNT
LO 3 ACCOUNTING FOR IMPAIRMENT
CHAPTER-9 IAS 36: IMPAIRMENT OF ASSET
IMPAIRMENT OF ASSETS IAS - 36
LO 1: INTRODUCTION
An asset is said to be impaired when its recoverable amount is less than its carrying amount in the statement
of financial position.
Impairment means that the asset has suffered a permanent loss in value.
Definitions
The recoverable amount of an asset is defined as the higher of:
 its fair value minus costs of disposal, and
 its value in use.
Fair value is the price that would be received to sell an asset at the measurement date.
Value in use is the present value of future cash flows from using an asset, including its eventual disposal.
Identifying impairment or possible impairment

An entity must carry out an impairment review when there is evidence or an indication that impairment may
have occurred. If such an indication exists, the entity must estimate the recoverable amount.
Indicators of impairment
External sources Internal sources
An unexpected decline in the asset’s market Evidence that the asset is damaged or no longer of use to
value. the entity.
Significant changes in technology, markets, There are plans to discontinue or restructure the operation
economic factors or laws and regulations that for which the asset is currently used.
have an adverse effect on the company.
An increase in interest rates, affecting the value There is a reduction in the asset’s expected remaining
in use of the asset. useful life.
There is evidence that the entity’s actual performance is
worse than expected.
LO 2: MEASURING RECOVERABLE AMOUNT

Remember recoverable amount of an asset is defined as the higher of:
 its fair value minus costs of disposal, and
 its value in use.
Fair value less Fair value is normally market value. If no active market exists, it may be possible to
costs of disposal estimate the amount that the entity could obtain from the disposal.
Direct selling costs normally include:

 legal costs,
 Cost of removing asset
 taxes paid and
 costs necessary to bring the asset into a condition to be sold.
However, redundancy and similar costs (for example, where a business is reorganised
following the disposal of an asset) are not direct selling costs.
Value in use It is the present value of the expected future cash flows from use of the asset,
discounted at a suitable discount rate.
794
Example-1 (Measurement of recoverable amount)

A company has a machine in its statement of financial position at a carrying amount of Rs.300,000.
The machine is used to manufacture the company’s best-selling product range, but the entry of a new
competitor to the market has severely affected sales.
As a result, the company believes that the future sales of the product over the next three years will be only
Rs.150,000, Rs.100,000 and Rs.50,000.
The asset will then be sold for Rs.25,000.
An offer has been received to buy the machine immediately for Rs.240,000, but the company would have to
pay shipping costs of Rs.5,000.The risk-free market rate of interest is 10%.
Required:
Calculate the impairment loss.
Solution-1
Calculation of impairment loss
Carrying Amount 300,000

Recoverable Amount (higher of:
- Fair value less cost to sell(W-2) 235,000
- Value in use (W-1) 275,357 (275,357)
Impairment loss 24,643
(W-1) Calculation of Value in Use

[150,000 x (1.1)-1 + 100,000 x (1.1)-2 + (50,000 + 25,000) x (1.1)-3] 275,357
(W-2) Fair value less cost to sell

Fair value less cost to sell (240,000-5,000) 235,000
Example-2: (recoverable amount – fair value less costs to sell)

A company has an asset with the following details at 31 December 20X3:
Expected selling price 200,000
Costs of delivery to potential customer 20,000
Legal costs involved in sale agreement 10,000
Required:
Calculate the fair value less costs to sell of the asset at 31 December 20X3
Solution -2
Fair value less costs to sell
Rs.
Expected selling price 200,000
Less the costs of disposal (20 000 + 10 000) (30,000)
170,000
795
Future cash flow in value in use
Include Does not include

1.Cash inflows from the continuing use of the 1.Cash inflows or outflows from financing activities;
asset;  Lease payment their interest
 Loan receipts/repayments and their interest
2.Cash outflows that will be necessarily incurred 2.Income tax receipts or payments.
to generate inflows from use of
asset; and
3.Net disposal proceeds at the end of the asset’s 3.Cash flow from a future restructuring to which an
useful life. entity is not yet committed; or
4.Cash flow improving or enhancing the asset’s
performance.
5.Cash outflows that have already been recognized as
liabilities (for example, a payment of an accounts
payable)
Example-3: (recoverable amount - value in use – cash flows)

A machine has the following future cash flows, based on management’s most recently approved budgets:
20X4 20X5 20X6
Outflows: ‘000’ ‘000’ ‘000’
Maintenance costs 100 120 80
Operational costs (electricity, water, labour etc.) 200 220 240
Interest on lease 60 50 40
Tax payments on profits 16 20 28
Cost of increasing the machine’s capacity 0 220 0
Depreciation 80 80 80
Expenses to be paid in respect of 20X3 accruals 30 0 0
Inflows:
Basic inflows: see note 1 1,000 1,200 1,400
Extra profits resulting from the upgrade 0 20 50
Note 1: Machine Plant

Cash inflows stem from 40% 60%
The useful life of the machine is expected to last for 5 years. The growth rate in the business in 20X3 was an
unusual 15% whereas the average growth rate over the last 7 years is:
In the industry 10%
In the business 8%
Required:
Calculate the future net cash flows to be used in the calculation of the value in use of the machine at 31
December 20X3 assuming that a 5-year projection is considered to be appropriate.
796
Solution -3
Future cash flows – Machine 20X4 20X5 20X6 20X7 20X8
Outflows: Rs. 000 Rs. 000 Rs .000 Rs. 000 Rs. 000
Maintenance costs (direct cost) (100) (120) (80)
Operational costs (allocated indirect costs) (200) (220) (240)
Interest on lease (financing always excluded) - - -
Tax payments (tax always excluded) - - -
Cost of upgrading machine (upgrades always - - -
excluded)
Depreciation (not a cash flow – a ‘sunk’ cost) - - -
Expenses to be paid in 20X3 accruals (not a future - - -
expense - already recognized in 20X3 financial
statements)
Inflows:
Basic inflows: (only 40% relates to machine) 400 480 560
Extra profits from the upgrade (always exclude) - - -
Net cash inflows (20X7:240 x 1.08) (20X8: 259 x 100 140 240 259* 280*
1.08)
* Rounded
 The net cash inflows per year would still need to be present valued and the total of the present
values per year would then be totaled to give the ‘net present value’ or ‘value in use’.
 It was assumed in this question that the machine would not be able to be sold at the end of its
Useful life and the disposal thereof would not result in any disposal costs.
 The current year growth rate of 15% seems unusual given the company’s average growth rate was
only 8%. The industry average of 10% is also greater than the business average of 8%. Prudence
dictates that we should therefore use 8%.
LO 3: ACCOUNTING FOR IMPAIRMENT
Valuation model Treatment

used
Asset carried at cost The impairment loss is normally recognised immediately in profit or loss.
model
Asset carried at Impairment loss is recognised in revaluation surplus to the extent that it is
revaluation model covered by that surplus.
Impairment not covered by a previously recognised surplus on the same asset is
recognised in profit or loss.
Impairment of an asset should be identified and accounted for as follows:
Step Description
1 At the end of each reporting period, the entity should assess whether there are any indications that
an asset may be impaired.
2 If there are such indications, the entity should estimate the asset’s recoverable amount.
797
3 When the recoverable amount is less than the carrying value of the asset, the entity should reduce
the asset’s carrying value to its recoverable amount. The amount by which the value of the asset
is written down is an impairment loss.
4 Accounting for impairment is done as discussed above
5 Depreciation charges for the impaired asset in future periods should be adjusted to allocate the
asset’s revised carrying amount, minus any new residual value, over its remaining useful life.
Example-4
On 1 January Year 1 Entity Q purchased for Rs.240,000 a machine with an estimated useful life of 20 years
and an estimated zero residual value.
Depreciation is on a straight-line basis.
On 1 January Year 4 an impairment review showed the machine’s recoverable amount to be Rs.100,000 and
its remaining useful life to be 10 years.
Calculate:
(a) The carrying amount of the machine on 31 December Year 3 (immediately before the impairment).
(b) The impairment loss recognised in the year to 31 December Year 4.
(c) The depreciation charge in the year to 31 December Year 4.
Solution-4
(a) Carrying Amount(Year 3)

Carrying Amount = 240,000 – 36,000 = 204,000
Acc. Dep. = 240,000 x 3 = 36,000
20
(b) Impairment Loss( Year 4)

1/1/Y4 Book value 204,000
1/1/Y4 Recoverable amount (100,000)
1/1/Y4 Impairment loss 104,000
(c) Depreciation Expense(Year 4)

31.12.Y4 Dep. Exp 10,000
Acc. Dep. 10,000
(100,000/10)
Example-5
On 1 January Year 1 Entity Q purchased for Rs.240,000 a machine with an estimated useful life of 20 years
and an estimated zero residual value.
Depreciation is on a straight-line basis.
The asset had been re-valued on 1 January Year 3 to Rs.250,000, but with no change in useful life at that
date.
On 1 January Year 4 an impairment review showed the machine’s recoverable amount to be Rs.100,000 and
its remaining useful life to be 10 years.
798
Calculate:
(a) The carrying amount of the machine on 31 December Year 2 and hence the revaluation surplus
arising on 1 January Year 3.
(b) The carrying amount of the machine on 31 December Year 3 (immediately before the impairment).
(c) Journal entry for the impairment loss recognised in the year to 31 December Year 4.
(d) Journal entry for the depreciation charge in the year to 31 December Year 4.
Solution-5
(a)
Carrying Amount (31/12/02) (W-1) 216,000
Revaluation Surplus (1/1/03) (W-1) 34,000
(b)
Carrying Amount (31/12/03) (W-1) 236,111
(c) Impairment loss (1/1/Y4):

1/1/04 Revaluation Surplus (W-1) 32,111
Impairment Loss(bal.) 104,000
Accumulated Impairment (W-2) 136,111
(Recording of Impairment loss)
(d) Depreciation Expense(Year 4)

31.12.04 Depreciation Expense 10,000

Date Description Machine R. Surplus SOCI(P/L)
1/1/01 Cost 240,000
01 + 02 Depreciation (240,000/20) x 2 (24,000)
31/12/02 WDV 216,000
1/1/03 Revalued amount 250,000 34,000
31/12/03 Depreciation (250,000/18):(34,000/18) (13,889) (1,889)
31/12/03 WDV 236,111 32,111
1/1/04 Impairment Loss (bal.) (136,111) (32,111)
1/1/04 Recoverable amount 100,000 -
31/12/04 Depreciation (100,000/10) (10,000)
31/12/04 WDV 90,000 -
799
PRACTICE QUESTIONS
Question-1
Figs Limited (FL) purchased a machine for Rs. 2,500,000 on 01 January, 2014. The machine has an
estimated useful life of 10 years. On 31 December, 2014, the machine is now become obsolete and
therefore the value in use and fair value less cost to sell are Rs. 1,500,000 and Rs. 1,700,000 respectively.
Required:
year ended 31 December 2014.
Question-2
Awesome Limited (AL) purchased a machine for Rs. 300,000 on 01 January, 2015. The machine has an
estimated useful life of 8 years. On 31 December, 2017, the machine is now become obsolete and
therefore the value in use and fair value less cost to sell are Rs. 50,000 and Rs. 70,000 respectively.
Required:
Question-3
Walnut Limited (WL) purchased an vehicle for Rs. 5,000 on July 01, 2015. The asset has an estimated
useful life of 4 years with no residual value. On June 30, 2016 the vehicle has a fair value less cost to sell
and value in use is Rs. 2,800 and Rs. 2,250 respectively. There was no indication of impairment on
30June, 2017.
Required:
year ended 30 June, 2017.
Question-4
Giggly Jelly (GJ) purchased a machine for Rs. 500,000 on July 01, 2005. The vehicle has an estimated
useful life of 5 years with no residual value. On June 30, 2007 the vehicle has a fair value less cost to sell
and value in use is Rs. 150,000 and Rs. 100,000 respectively.
Required:
year ended 30 June, 2008.
Question-5
Friends & Co. purchased a machine for Rs. 800,000 on January 01, 2012. The machine has an estimated
useful life of 5 years with no residual value. On December 31, 2012 the machine has a fair value less cost
to sell of Rs. 548,000. If machine is not sold the following net cash inflows are expected from its use:
Year ended Cash flows
December 31, 2013 200,000
December 31, 2014 200,000
December 31, 2015 100,000
December 31, 2016 100,000
The proper discount rate to be used for these flows is 10%. (Assume that the cash flows occur at the end
of the year).
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the machine to the
year ended 31 December, 2012.
Question-6
Fabian Limited (FL) purchased an asset on Rs. 45,000 on January 01, 2003. The asset has an estimated
useful life 10 years. On January 01, 2005 the asset has a fair value less cost to sell and value in use are Rs.
50,000 and 40,000 respectively.
800
Required:
year ended 31 December, 2005.
Question-7
Shahzad Textiles Limited (STL) purchased a plant for Rs. 1,000,000 on January 01, 2007. The plant has
an estimated useful life of 20 years with no salvage value.
STL uses revaluation model for subsequent measurement of its P,P&E. The detail of revaluation
performed by an independent valuer is:
Revaluation Date Fair Value
31 December, 2007 1,500,000
On 31 December, 2010 the plant is now obsolete and therefore the value in use and fair value less cost to
sell are Rs. 700,000 and Rs. 600,000 respectively.
Required:
Question-8
Salamat industries purchased a machine for Rs. 1,570,000 on January 01, 2010. The machine has a useful
life of 16 years with no salvage value.
Salamat industries performed revaluation. Details are as follows:
Revaluation Date Fair value
January 1, 2011 1,700,000
January 1, 2012 1,750,000
On 31 December, 2012 fire broke out due to which value of machine fell down. Fair value of machine
reduced to Rs. 800,000. The value in use is Rs. 1,000,000.
Required:
Prepare journal entries to record the above transaction from the date of acquisition of plant to the year
ended December 31, 2012.
Question-9
As part of annual routine, PQR & Company is testing the value of its assets to ascertain the impairment
(if any) Following information is available in respect of the assets:
----------Rs. in thousand----------
Asset WDV Value in use Fair value
A 3,200 3,100 2,500
B 1,500 1,200 1,400
C 1,700 1,500 2,000
Every asset is sold through public tender, which costs around Rs. 50,000. Assets A and C are required to
be dismantled at the time of sales and the cost of dismantling is Rs. 100 thousand and Rs. 200 thousand
respectively and these costs are already included in the cost of asset. Sale agreements of the assets are
prepared by the company's legal advisor whose annual fee is Rs. 365 thousand. It takes about 4 days to
draft a sale agreement.
Required:
Compute impairment (if any) on each asset. (02)
801
Question-10
We purchase an asset costing Rs. 100 on 01-01-2010. Life is 10 years. Entity uses revaluation model.
Following details are available on 31-12-2012:
-Fair value 90
-Cost to sell 15
-Value in use 82
Required:
Pass journal entries for the year ended 31-12-2010, 2011,2012.
802
PRACTICE SOLUTIONS
Answer-1
Entries in the books of FL
1/1/14 Machine 2,500,000
Bank 2,500,000
(Purchase of machine)
31/12/14 Depreciation Expense (2,500,000/10years) 250,000
31/12/14 Impairment loss 550,000
Accumulated impairment loss 550,000
(Recording of impairment loss)
(W-1) Calculation of impairment loss:
Book value on 31/12/14 (2,500,000 – 250,000) 2,250,000

Recoverable Amount (higher of:)
- Fair value 1,700,000
- Value in use 1,500,000 (1,700,000)
Answer-2
Entries in the books of AL
1/1/15 Machine 300,000
Bank 300,000
31/12/15 Depreciation Expense (300,000/8years) 37,500
31/12/16 Depreciation expense (300,000/8years) 37,500
Book value on 31/12/17 (300,000 – (37,500 x 3)) 187,500

- Fair value 70,000
- Value in use 50,000 (70,000)
803
Answer-3
Entries in the books of Walnut Limited
1/7/15 Vehicle 5,000
Bank 5,000
(Purchase of plant)
30/6/16 Impairment loss (W-1) 950
Accumulated impairment 950
30/6/17 Depreciation expense ((5,000 – 1,250 – 950)/3years) 933
Accumulated Depreciation 933
Book value on 30/6/16 (5,000 – 1,250) 3,750

- Fair value 2,800
- Value in use 2,250 (2,800)
Impairment loss 950
Answer-4
Entries in the books of Giggly Jelly
1/7/05 Vehicle 500,000
Bank 500,000
(Purchase of vehicle)
30/6/08 Depreciation expense ((500,000 – 200,000 – 150,000)/3years) 50,000
Book value on 30/6/07 (500,000 – 100,000 – 100,000) 300,000

- Fair value 150,000
- Value in use 100,000 (150,000)
804
Answer-5
Entries in the books of Friends & Co.
1/1/12 Machine 800,000
Bank 800,000
(Recording of depreciation of machine)
(W-1) Calculation of impairment loss
Book value on 31/12/12 (800,000 – 160,000) 640,000

- Fair value 548,000
- Value in use (W-2) 490,530 (548,000)
(W-2) Calculation of Value in Use

Year Cash flows Discount factor @ 10% Present value
1 200,000 0.9091 181,820
2 200,000 0.8264 165,280
3 100,000 0.7513 75,130
4 100,000 0.6830 68,300
490,530
Answer-6
Entries in the books of Fabian Limited
1/1/03 Asset 45,000
Bank 45,000
(Purchase of asset)
Note: No impairment loss is recognized as carrying amount is less than recoverable amount.
805
Book value on 1/1/05 (45,000 – 4,500 – 4,500) 36,000

- Fair value 50,000
- Value in use 40,000 (50,000)
Impairment loss -
Answer-7
Entries in the books of STL
Rs. in ‘000’
1/1/07 Plant 1,000
Bank 1,000
(Purchase of plant)
31/12/07 Depreciation Expense 50
31/12/07 Accumulated Depreciation 50
Plant 50
31/12/07 Plant 550
Accumulated Depreciation 78.95
31/12/10 Impairment loss (bal.) 100
Accumulated Impairments loss 563.15
806
(W-1)
Rs in ‘000’
Rev. SOCI
Date Description Plant
Surplus (P/L)
1/1/07 Cost 1,000
31/12/07 Depreciation (1,000/20) (50)
31/12/07 WDV 950
31/12/07 Revaluation surplus (Bal.) 550 550
31/12/07 Revalued amount 1,500 550
31/12/08 Depreciation (1,500/19) : (550/19) (78.95) (28.95)
31/12/08 WDV 1,421.05 521.05
31/12/09 Depreciation (1,500/19):(550/19) (78.95) (28.95)
31/12/09 WDV 1,342.1 492.1
31/12/10 Depreciation (1,500/19):(550/19) (78.95) (28.95)
31/12/10 WDV 1,263.15 463.15

31/12/10 Book value 1,263.15
31/12/10 Recoverable amount
(Higher of:)
- Fair value less cost to sell 600
- Value in use 700 (700)
31/12/10 Impairment loss 563.15
Answer-8
Entries in the books of Salamat industries
Rs. in ‘000’
1/1/10 Machine 1,570
Bank 1,570
31/12/10 Depreciation Expense 98.13
1/1/11 Accumulated Depreciation 98.13
Machine 98.13
(Transfer of accumulated depreciation to machine)
1/1/11 Machine 228.13
Machine 113.3
(Transfer of accumulated depreciation to machine)
1/1/12 Machine 163.3
807

31/12/12 Impairment loss (bal.) 275.65
Accumulated Impairments loss 625
(W-1)
Rs in ‘000’
Rev. SOCI
Date Description Machine
Surplus (P/L)
1/1/10 Cost 1,570
31/12/10 Depreciation (1,570/16) (98.13)
31/12/10 WDV 1,471.87
1/1/11 Revaluation surplus (Bal.) 228.13 228.13
1/1/11 Revalued amount 1,700 228.13
31/12/11 Depreciation (1,700/15) : (228.13/15) (113.3) (15.21)
31/12/11 WDV 1,586.7 212.92
1/1/12 Revaluation Surplus (bal.) 163.3 163.3
1/1/12 Revalued Amount 1,750 376.22
31/12/12 Depreciation (1,750/14) : (376.22/14) (125) (26.87)
31/12/12 WDV 1,625 349.35

31/12/12 Book value 1,625
31/12/12 Recoverable amount
(Higher of:)
- Fair value less cost to sell 800
- Value in use 1,000 (1,000)
31/12/12 Impairment loss 625
Answer-9
A B C
Impairment loss
Carrying amount 3,200 1,500 1,700
Recoverable amount (Higher of) A B C
- value in use 3,100 1,200 1,500
- fair value less cost to sell (W-1) 2,450 1,350 1,950 (3,100) (1,350) (1,950)
Impairment 100 150 -
WORKINGS
(W-1) Fair value less cost to sell
A (2,500 – 50) 2,450
B (1,400 – 50) 1,350
C (2,000 – 50) 1,950
Company's legal advisor cost is not an incremental cost, so ignored.
808
Answer-10
Journal entries
01-01-10 Asset 100
Cash 100
31-12-12 Accumulated depreciation (10 + 10 + 10 ) 30
Asset 30
31-12-12 Asset 20
31-12-12 Impairment loss expense 0
Accumulated impairment loss 8

Date Description Asset R. Surplus SOCI(P/L)
1/1/10 Cost 100
31/12/10 Depreciation (100/10) (10)
31/12/10 WDV 90
31/12/11 Depreciation (10)
31/12/11 WDV 80
31/12/12 Depreciation (10) -
31/12/12 WDV 70 -
31/12/12 Impairment loss (bal.) (8) (8)
31/12/12 Recoverable amount 82 12
809
ICAP PAST PAPERS QUESTION

Question-1
Dominant Fertilizers has two plants. Following Information is available for the purpose of impairment
testing:
(i) The remaining useful life of both plants is expected to be 3 years.
(ii) The fair values and written down values of the plants as on 31 December 2012 were as follows:
Cost Accumulated WDV Incremental
Fair value
Plants Depreciation selling cost
--------------Rs. in million--------------
P-1 300 80 220 210 7
P-2 200 40 160 150 4
(iii) Expected cash flows from each plant in next 3 years are as follows:
P-1 P-2
------Rs. in million------
Annual inflows 105 55
Annual outflows 11 5
Sale proceeds at end of year 3 8 3
Disposal costs at end of year 3 2 1
(iv) Present value factor, based on a pre tax discount factor of 10%, for year 1, year 2 and year 3 are
0.909, 0.826 and 0.751 respectively.
Required:
Compute impairment (if any) on each plant as on 31 December 2012. (11)
{Spring 2013, Q#5)
Question-2
On October 01, 2004 ARC Limited, in the course of improvement and enhancement of its production
facility bought a plant having invoice value of Rs. 25 million for the production of its popular brand of
electrical goods. Mr. Aslam, one of the directors, was assigned the duty of supervising the installation of
the plant. Other information is given below:
(a) A special trade discount of 25% was allowed by the supplier due to efforts of the agent involved
in the deal, who had close association with Mr. Aslam. Normally the supplier allows only 10%
trade discount to his customers.
(b) The following costs were incurred on site preparation:
Rs. in '000'
i. Salary of civil engineers and labour 1,200
ii. Civil and electrical work (refer (c) below) 2,800
iii. Electrical item received from the company's own production
department at cost plus 10% profit (similar items are sold to customers 330
at cost plus 30% profit)
iv. Remuneration of employees during site preparation 600
(c) Civil and electrical work includes cost of certain instruments amounting to Rs. 150,000, which
were poorly handled by the workers and were totally damaged. Now they carry no value.
(d) On January 01, 2005 test run was started and successfully completed on January 31, 2005 at a
cost of Rs. 550,000. The sale proceeds of test production were Rs. 320,000.
810
(e) The company is presently obliged to dismantle plant at end of life and present value of
dismantling cost is Rs. 250.
(f) The plant went into normal production from February 01, 2005 and attained 45% capacity during
the period ended on June 30, 2005. The company, at this stage, discovered that the actual capacity
of the plant is about 85% of the capacity declared by the supplier. The matter was discussed with
the supplier and his agent. The agent finally agreed to pay a compensation of 3% on invoice value
and issued his credit note to this effect on June 30, 2005.
(g) The company accounts for its assets under cost model and on June 30, 2005 it estimated
Rs. 21 million as the fair value of the plant. It is further estimated that in case of disposal the
following expenditure will have to be incurred:
Rs. ‘000’
- Cost of transportation 100
- Terminal benefits of labour to be laid off 300
- Legal costs 100
- Stamp duty 50
(g) Depreciation is to be charged at 10% on straight-line basis from the commencement of normal
production.
Required:
Calculate the following, also submit your explanation if necessary:
(a) Initial recognition of the cost of plant. (05)
(b) Impairment loss, if any, as at June 30, 2005 and accounting treatment thereof. (06)
(Autumn 2005, Q# 2)
QUESTION-3
Scientific Pharma Limited (SPL) is a manufacturer of pharmaceutical products. In January 2015, one of
its plants suffered a major break down. It was repaired at a cost of Rs. 1.5 million but the production
capacity was reduced significantly. The plant was ready for production on June 30, 2015. At that time the
company’s engineers advised that the plant could be used at a reduced level for 3 years only. The plant
was estimated to have a recoverable amount of Rs. 19,277,000 at June 30, 2015.
Other related information is as under:
(i) The plant was imported at FOB price of US$ 800,000. The payment was made at the time of
shipment on July 1, 2005 at Rs. 52 per US$. Other charges including installation cost
amounted to Rs. 7 million. Installation of the plant was completed on December 31, 2005
and commercial production commenced from April 1, 2006.
(ii) The company uses straight line method of deprecation. Depreciation is charged from the month
the asset is available for use upto the month prior to disposal. At the time of purchase, the
estimated useful life of the plant was estimated at 15 years whereas the salvage value was
estimated at Rs. 2.0 million.
(iii) Based on the report of a professional independent valuer, the plant was revalued on July 1, 2010
at Rs. 45 million. There was however, no change in estimated useful life of the plant.
(iv) The factory remained closed from April 1, to June 30, 2012 due to law and order situation.
(v) The salvage value has not changed since it was first estimated at the time of purchase.
Required:
Prepare accounting entries for the year ended June 30, 2015. Give all the necessary calculations. (20)
(Autumn-10, Q.2)
811
ICAP PAST PAPERS SOLUTIONS

Answer-1
P-1 P-2
Impairment loss
Carrying amount 220 160
Recoverable amount (Higher of) P-1 P-2
- value in use (W-1) 238.19 126.71
- fair value less cost to sell (W-2) 203 146 (238.19) (146)
Impairment - 14
WORKINGS
(W-1) Value in Use
P-1 = (105 – 11) x 0.909 + (105 – 11) x 0.826 + (105 – 11 + 8 – 2) x 0.751 = 238.19
OR
P-1 = (105 – 11) x [1- (1.1) ] + (8-2) x (1.1)-3
-3
= 238.19
0.1
P-2 = (55 – 5) x 0.909 + (55 – 5) x 0.826 + (55 – 5 + 3 – 1) x0.751 = 126.71

OR
P-2 = (55 – 5) x [1- (1.1)-3] + (3-1) x (1.1)-3 = 126.71
0.1
(W-2)
P-1 P-2
Rs in million
Fair value less cost to sell (210 – 7) : (150 – 4) 203.00 146.00
Answer-2
(a) Cost of plant is calculated as below:
Rs. ‘000’
Invoice value 25,000
Less: Trade discount @ 25% (6,250)
Salary of civil engineer 1,200
Civil & electrical work (2,800 -150) 2,650
Cost of electrical items (330/110 x 100) 300
Remuneration 600
Trial production cost net of sale proceeds of prototype/sample (550 – 320) 230
Cost of dismantling 350
Less: Compensation (2,500 x 3%) (750)
Total 23,330
(b) Calculation of impairment loss

Total carrying amount [23,330 - (23,330 x 10%) x 5/12] 22,358
Recoverable amount (Higher of)
- Value in use Not available
- Fair value less cost to sell 20,750 20,750
812
WORKINGS
(W-1) Calculation of fair value less cost to sell
Rs. ‘000’ Rs. ‘000’
Fair market value 21,000
Less: legal costs 100
Stamp duty 50
Transportation cost 100 (250)
Net selling price 20,750
Note: Termination benefits are ignored as it is not a part of cost to sell. As dismantling cost is already
included as a part of cost of asset so it is ignored in “fair value less cost to sell” calculation.
Answer-3
Scientific Pharma
Entries
Rs in ‘000’
Particulars Dr. Cr.
Repair expense 1,500
Bank 1,500
(Repair incurred)
Depreciation expense (45,000-2,000)/10.5 (W-3) 4,095
(Calculation of depreciation for the year)
Revaluation surplus ((W-3) 10,380/10.5) 989
Retained earnings 989
(Transfer of revaluation surplus for the year)
Revaluation surplus (W-4) 5,297
(W-1) Cost of asset
FOB price (800 x 52) 41,600
48,600
(W-2) WDV of asset on date of revaluation on 30.06.10
Number of years used till revaluation date (1-1-2006 to 30-6-10) 4.5 Years
Cost 48,600
Accumulated depreciation on 30.6.10 ((W-1) 48,600 - 2,000)/15 x 4.5) (13,980)
34,620
(W-3) Calculation of WDV on 30.6.2015
Rev.
Plant Sur.
1/7/10 WDV on the date of revaluation (W-2) 34,620
1/7/10 Revalued amount 45,000 10,380
1/7/10-30/6/15 Less: Accumulated Dep (45,000-2,000)/10.5x5):(10,380/10.5x5) (20,476) (4,943)
30/6/15 WDV 24,524 5,437
Remaining life on date of revaluation (15 – 4.5) 10.5
813
(W-4) Calculation of impairment loss

Recoverable amount 19,227
WDV on 30.6.2015 (24,524)
(5,297)
The impairment loss is less than revaluation surplus, therefore whole of loss will be debited to revaluation
surplus account instead of SOCI.
The following table is not a part of solution. It is only prepared for understanding that how revaluation
surplus will be shifted on yearly basis to retained earnings. The difference between this table and (W-3) is
that this table shows each year depreciation charge separately. The results of this table and (W-3) are
same with a difference of 2 due to decimals.
Rev.
Plant Sur.
1/7/10 WDV 34,620
1/7/10 Revalued amount 45,000 10,380
30/6/11 Depreciation (45,000-2,000/10.5) : (10,380/10.5) (4,095) (989)
30/6/11 WDV 40,905 9,391
30/6/12 Depreciation (45,000-2,000/10.5) : (10,380/10.5) (4,095) (989)
30/6/12 WDV 36,810 8,402
30/6/13 Depreciation (45,000-2,000/10.5) : (10,380/10.5) (4,095) (989)
30/6/13 WDV 32,715 7,413
30/6/14 Depreciation (45,000-2,000/10.5) : (10,380/10.5) (4,095) (989)
30/6/14 WDV 28,620 6,424
30/6/15 Depreciation (45,000-2,000/10.5) : (10,380/10.5) (4,095) (989)
30/6/15 WDV 24,525 5,435
814

Question-1
Aba Limited conducts its activities from two properties, a head office in the city centre and a property in
the countryside where staff training is conducted. Both properties were acquired on 1 April 2013 and had
estimated lives of 25 years with no residual value. The company has a policy of carrying its land and
buildings at current values. However, until recently property prices had not changed for some years. On 1
October 2015 the properties were revalued by a firm of surveyors. Details of this and the original costs
are:
Land Buildings
Rs. Rs.
Head office – cost 1 April 2013 500,000 1,200,000
– revalued 1 October 2015 700,000 1,350,000
Training premises – cost 1 April 2013 300,000 900,000
– revalued 1 October 2015 350,000 600,000
The fall in the value of the training premises is due mainly to damage done by the use of heavy equipment
during training. The surveyors have also reported that the expected life of the training property in its
current use will only be a further 10 years from the date of valuation. The estimated life of the head office
remained unaltered.
Note: Aba Limited treats its land and its buildings as separate assets. Depreciation is based on the
straight-line method from the date of purchase or subsequent revaluation.
Required
Prepare extracts of the financial statements of Aba Limited in respect of the above properties for the year
to 31 March 2016. (ICAP Question bank 9.1)
Question-2
The assistant financial controller of the Hussain Associates Ltd group has identified the matters below
which she believes may indicate impairment of one or more assets:
Hussain Associates Ltd owns and operates an item of plant that cost Rs.640,000 and had accumulated
depreciation of Rs.400,000 at 1 October 2015. It is being depreciated at 12½% on cost.
On 1 April 2016 (exactly half way through the year) the plant was damaged when a factory vehicle
collided into it. Due to the unavailability of replacement parts, it is not possible to repair the plant, but it
still operates, albeit at a reduced capacity. It is also expected that as a result of the damage the remaining
life of the plant from the date of the damage will be only two years.
Based on its reduced capacity, the estimated present value of the plant in use is Rs.150,000. The plant has
a current disposal value of Rs.20,000 (which will be nil in two years’ time), but Hussain Associates Ltd
has been offered a trade-in value of Rs.180,000 against a replacement machine which has a cost of Rs.1
million (there would be no disposal costs for the replaced plant). Hussain Associates Ltd is reluctant to
replace the plant as it is worried about the long-term demand for the product produced by the plant. The
trade-in value is only available if the plant is replaced.
Required
Prepare extracts from the statement of financial position and statement of profit or loss of Hussain
Associates Ltd in respect of the plant for the year ended 30 September 2016. Your answer should explain
how you arrived at your figures.
815

Answer-1
ABA Limited
Equity
Revaluation Surplus
 Head office (200,000(W-1) + 264,000(W-2)) 464,000
 Training premises (W-3) 50,000
514,000
Assets
Non-Current Assets
Property, Plant and Equipment
 Head office (700,000(W-1) + 1,320,000(W-2)) 2,020,000
 Training premises (350,000(W-3) + 570,000(W-4)) 920,000
2,940,000
ABA Limited
Statement of Comprehensive Income (Extracts)
Expenses:
Depreciation
 Head office (W-2) (24,000 + 30,000) 54,000
 Training premises (W-4) (18,000 + 30,000) 48,000
102,000
Revaluation Loss
 Training premises (W-4) 210,000
(W-1) Head Office - Land
Date Description Land
Asset R. Surplus
30/9/15 WDV 500,000
1/10/15 Revaluation surplus(bal.) 200,000 200,000
1/10/15 Revalued Amount 7000,000 200,000
(W-2): Head Office Building

1/4/13 Cost 1,200,000
31/3/15 Depreciation (1,200,000/25) x 2 (96,000)
31/3/15 WDV 1,104,000
30/9/15 Depreciation (1,200,000/25) x 6/12 (24,000)
30/9/15 WDV 1,080,000
1/10/15 Revalued amount 1,350,000 270,000
31/3/16 Depreciation ((1,350,000/22.5) x 6/12) (30,000) (6,000)
((270,000/22.5) x 6/12)
31/3/16 WDV 1,320,000 264,000 -
816
(W-3) Training premises: Land

Date Description Land
Asset R. Surplus
30/9/15 WDV 300,000
1/10/15 Revaluation surplus(bal.) 50,000 50,000
1/10/15 Revalued Amount 350,000 50,000
(W-4) Training premises - Building

1/4/13 Cost 900,000
31/3/15 Depreciation (900,000/25) x 2 (72,000)
31/3/15 WDV 828,000
30/9/15 Depreciation (900,000/25) x 6/12 (18,000)
30/9/15 WDV 810,000
30/9/15 Revaluation Loss (bal.) (210,000) (210,000)
30/9/15 Revalued Amount 600,000 (210,000)
31/3/16 Depreciation (600,000/10) x 6/12 (30,000)
31/3/16 WDV 570,000 - -
Answer-2
The accident that may have caused impairment occurred on 1 April 2016 and an impairment test would be
done at this date. An impairment test requires the plant’s carrying amount to be compared with its
recoverable amount.
The recoverable amount of the plant is the higher of its value in use of Rs.150,000 or its fair value less
costs to sell. If Hussain Associates Ltd trades in the plant it would receive Rs.180,000 by way of a part
exchange, but this is conditional on buying new plant which Hussain Associates Ltd is reluctant to
do. A more realistic amount of the fair value of the plant is its current disposal value of only Rs.20,000.
Thus the recoverable amount would be its value in use of Rs.150,000.
Extracts are as follows:
Hussain Associate
Statement of Comprehensive Income
for the year ended 30.09.2016
Expenses :
Depreciation (W-1) (40,000 + 37,500) 77,500
Impairment loss (W-2) 50,000
Hussain Associate
as on 30.09.2016
Assets
Non-Current Assets
Property, Plant and Equipment (W-1) 112,500
817
(W-1)
1/10/15 WDV (640,000 – 400,000) 240,000
31/3/16 Depreciation (640,000 x 12.5%) x 6/12 40,000
1/4/16 WDV 200,000
1/4/16 Impairment loss (W-2) (50,000)
1/4/16 Recoverable amount (W-2) 150,000
30/9/16 Depreciation (150,000/2) x 6/12 (37,500)
30/9/16 WDV 112,500 - -
(W-2) Impairment loss
1/4/16 Book value 200,000
1/4/16 Recoverable amount (Higher of:)
- Fair value less cost to sell 20,000
- Value in use 150,000
(150,000)
818
Q.1 If the fair value less costs to sell cannot be determined

(a) The asset is not impaired.
(b) The recoverable amount is the value-in-use.
(c) The net realizable value is used.
(d) The carrying value of the asset remains the same.
Q.2 Which TWO of the following could be an indication that an asset may be impaired according to
IAS 36 Impairment of Assets?
(a) Decrease in market interest rates
(b) Increase in market values for the asset
(c) Damage caused to the asset
(d) Management intention to reorganise the business
Q.3 IAS 36 Impairment of Assets contains a number of examples of internal and external events
which may indicate the impairment of an asset.
In accordance with IAS 36, which of the following would definitely NOT be an indicator of the
potential impairment of an asset (or group of assets)?
(a) An unexpected fall in the market value of one or more assets
(b) Adverse changes in the economic performance of one or more assets
(c) A significant change in the technological environment in which an asset is employed
making its software effectively obsolete
(d) The carrying amount of an entity’s net assets being below the entity’s market
capitalisation
Q.4 A fire at the factory on 1 October 2016 damaged the machine, leaving it with a lower operating
capacity. The accountant considers that entity will need to recognise an impairment loss in
relation to this damage. The accountant has ascertained the following information at 1 October
2016:
 The carrying amount of the machine is Rs.60,750.
 An equivalent new machine would cost Rs.90,000.
 The machine could be sold in its current condition for a gross amount of Rs.45,000.
Dismantling costs would amount to Rs.2,000.
 In its current condition, the machine could operate for three more years which gives it a
value in use figure of Rs.38,685.
What is the total impairment loss associated with the above machine at 1 October 2016?
(a) Rs.nil (b) Rs.17,750
(c) Rs.22,065 (d) Rs.15,750
819
Q.5 Which of the following is NOT an indicator of impairment?

(a) Advances in the technological environment in which an asset is employed have an
adverse impact on its future use.
(b) An increase in interest rates which increases the discount rate an entity uses.
(c) The carrying amount of an entity’s net assets is higher than the entity’s number of shares
in issue multiplied by its share price.
(d) The estimated net realisable value of inventory has been reduced due to fire damage
although this value is greater than its carrying amount.
Q.6 Cost of disposal are
(a) Incremental costs, directly attributable to the disposal of an asset, excluding finance costs
and income tax expense
(b) Incremental costs, directly attributable to the disposal of an asset, plus finance costs, but
excluding income tax expense
(c) Incremental costs, directly attributable to the disposal of an asset, plus finance costs and
income tax expense
(d) Incremental costs, directly attributable to the disposal of an asset, plus tax expense, but
excluding finance costs
Q.7 An asset is impaired if:
(a) Its carrying amount equals the amount to be recovered through use (or sale) of the asset
(b) Its carrying amount exceeds the amount to be recovered through use (or sale) of the asset
(c) The amount to be recovered through use (or sale) of the asset exceeds its carrying amount
(d) If it has been damaged
Q.8 Value in use is:
(a) The market value
(b) The discounted present value of future cash flows arising from use of the asset and from
its disposal.
(c) The higher of an asset’s fair value less cost to sell and its market value.
(d) The amount at which an asset is recognized in the statement of financial position.
Q.9 IAS 36 applied to which of the following assets:
(a) Inventories.
(b) Financial assets including property plant and equipment and intangible assets
(c) Assets held for sale.
(d) Property, plant, and equipment and intangible assets
Q.10 In accordance with IAS 36 Impairment of Assets which of the following statements are true?
1. An impairment review must be carried out annually on all intangible assets.
2. If the fair value less costs to sell of an asset exceed the carrying amount there is no need
to calculate a value in use.
3. Impairment is charged to the statement of profit or loss unless it reverses a gain that has
been recognised in equity in which case it is offset against the revaluation surplus.
(a) All three (b) 1 and 2 only
(c) 1 and 3 only (d) 2 & 3 only
820
Q.11 What is the recoverable amount of an asset?

(a) Its current market value less costs of disposal
(b) The lower of carrying amount and value in use
(c) The higher of fair value less costs of disposal and value in use
(d) The higher of carrying amount and market value
Q.12 A machine has a carrying amount of Rs. 850,000 at the year end of 31 March 2019. Its market
value is Rs. 780,000 and costs of disposal are estimated at Rs. 25,000. A new machine would cost
Rs. 1,500,000. The company which owns the machine expects it to produce net cash flows of Rs.
300,000 per annum for the next three years. The company has a cost of capital of 8%.
What is the impairment loss on the machine to be recognised in the financial statements at 31
March
(a) Rs.76,870 (b) Rs.95,000
(c) Rs.1,66,700 (d) Rs.220,000
Q.13 IAS 36 Impairment of Assets suggests how indications of impairment might be recognised.
Which TWO of the following would be external indicators that one or more of an entity's assets
may be impaired?
(a) An unusually significant fall in the market value of one or more assets
(b) Evidence of obsolescence of one or more assets
(c) A decline in the economic performance of one or more assets
(d) An increase in market interest rates used to calculate value in use of the assets
Q.14 The following information relates to an item of plant.
 Its carrying amount in the statement of the financial position is Rs. 3 million.
 The company has received an offer of Rs. 2.7 million from a company in Karachi
interested in buying the plant.
 The present value of the estimated cash flows from continued use of the plant is Rs. 2.6
million.
 The estimated cost of transport the plant to Karachi is Rs. 50,000.
What is the amount of the impairment loss that should be recognised on the plant?
(a) Rs.300,000 (b) Rs.400,000
(c) Rs.350,000 (d) Rs.250,000
Q.15 When calculating the estimates of the future cash flows, which of the following cash flows should
not be included?
(a) Cash flows from disposal.
(b) Income tax payments.
(c) Cash flows from the sale of assets produced by the asset.
(d) Cash outflows on the maintenance of the asset.
RegardRegards:Awais Alis:Awais Ali
821
Q.16 The following information relates to three assets held by a company:

Asset A Asset B Asset C
Rs.m Rs.m Rs.m
Carrying amount 200 100 80
Value in use 160 120 70
Fair value less cost to sell 180 130 60
What is the total impairment loss?
Rs. __________
Q.17 The following information relates to four assets held by the company:
A B C D
Rs.m Rs.m Rs.m
Carrying amount 240 60 80 140
Value in use 160 140 160 40
Fair value less costs to sell 180 80 140 60
What is the total impairment loss?

Rs. ___________
Q.18 A vehicle was involved in an accident exactly halfway through the year. The vehicle cost Rs.10
million and had a remaining life of 10 years at the start of the year. Following the accident, the
expected present value of cash flows associated with the vehicle was Rs.3.4 million and the fair
value less costs to sell was Rs.6.5 million.
What is the recoverable amount of the vehicle following the accident?
Rs. ___________
Q.19 Radium Limited (RL) acquired a non-current asset on 1 October 2019 at a cost of Rs.100 million
which had a useful life of ten years and a nil residual value. The asset had been correctly
depreciated up to 30 September 2024.
At that date the asset was damaged and an impairment review was performed. On 30 September
2024, the fair value of the asset less costs to sell was Rs.30 million and the expected future cash
flows were Rs.8.5 million per annum for the next five years.
The current cost of capital is 10% and a five year annuity of Rs.1 per annum at 10% would have a
present value of Rs.3.79.
What amount would be charged to profit or loss for the impairment of this asset for the year
ended 30 September 2024?
Rs. ___________
Q.20 Metal Limited (ML) owns an item of plant which has a carrying amount of Rs. 248 million as at 1
April 2013. It is being depreciated at 12.5% per annum on a reducing balance basis.
The plant is used to manufacture a specific product which has been suffering a slow decline in
sales. ML has estimated that the plant will be retired from use on 31 March 2017.
The estimated net cash flows from the use of the plant and their present values are:
Net cash flows Present values
Rs.000 Rs.000
Year to 31 March 2015 120,000 109,200
Year to 31 March 2016 80,000 66,400
Year to 31 March 2017 52,000 39,000
252,000 214,600
822
On 1 April 2014, Metric had an offer from a rival to purchase the plant for Rs. 200 million
At what value should the plant appear in Metric’s statement of financial position as at 31 March
2014?
Rs. ___________
Q.21 Which of the following is covered by IAS 36 - Impairment?
(a) Non-current assets held for sale (b) Investment property carried at cost
(c) Investment property carried at fair value
(d) Inventories
Q.22 Which of the following is not covered by IAS 36 - Impairment?
(a) Goodwill (b) Investment property carried at cost
(c) Investment property carried at fair value
(d) Intangible assets
Q.23 When should an impairment loss be recognised?
(a) Immediately (b) Over a number of accounting periods
(c) At management’s discretion
(d) When requested by the entity’s auditors
Q.24 Value in use is?
(a) The undiscounted present value of future cash flows expected to arise from continuing
use of asset, and from its disposal at the end of its useful life.
(b) The undiscounted future value of present cash flows expected to arise from continuing
(c) The discounted present value of future cash flows expected to arise from continuing use
of asset, and from its disposal at the end of its useful life.
(d) The discounted present value of historical cash flows expected to arise from continuing
Q.25 Which of the following element is not considered while computing value in use?
(a) expectations about possible variations in the amount or timing of those future cash flows
(b) the time value of money, represented by the current market risk-free rate of interest
(c) the price for bearing the uncertainty inherent in the asset
(d) estimated future restructuring cost
Q.26 In measuring value in use, the discount rate used for discounting the cash flows should be the?
(a) Pre-tax rate that reflects the market assessment of time value of money and risks specific
to the asset
(b) Pre-tax rate that reflects the market assessment of time value of money and risks specific
to the entity’s competitors
(c) Post-tax rate that reflects the entity’s assessment of time value of money and risks
specific to the asset
(d) Pre-tax rate that reflects the entity’s assessment of time value of money and risks specific
to the asset
Q.27 When the recoverable amount of an asset is less than its carrying value in the Statement of
Financial Position, the asset is?
(a) in a revaluation deficit (b) Flawed
(c) In negative equity (d) Impaired
823
Q.28 Which of the following is an internal indication of impairment?

(a) Decline in market value
(b) Worse economic performance than expected
(c) Increase in market interest rates (d) Technological obsolescence
Q.29 Which of the following is an external indication of impairment?
(a) Physical damage
(b) Worse economic performance than expected
(c) Increase in market interest rates
(d) Asset is part of a restructuring program
Q.30 Under IAS 36, what is the recoverable amount of an asset?
(a) The lower of its cost and net realisable value
(b) The higher of fair value less costs of disposal and value in use
(c) The lower of net present value and cost
(d) The higher of net present value and cost
Q.31 Which of the following is not permitted as a cost to sell under IAS 36?
(a) Cost to dismantle machine (b) Auctioneers fees
(c) Standard wages for employees (d) Transport costs for machine
Q.32 If the fair value less costs to sell for an asset cannot be determined, then recoverable amount is
its?
(a) Market value (b) Fair value
(c) Value in use (d) Replacement value
Q.33 Which of the following is the best evidence of an asset's fair value less costs to sell?
(a) The carrying value of the asset
(b) The price in a binding sale agreement
(c) The disposal value of the asset in an arm's length transaction
(d) An asset that is traded in an active market
Q.34 When calculating the estimates of future cash flows which of the following cash flows should not
be included?
(a) Cash out flows on the maintenance of the asset
(b) Cash flows from disposal
(c) Cash flows from the sale of inventory produced by the asset
(d) Benefits from future restructuring
824

A.1 (b) The recoverable amount is higher of value in use and fair value less cost to sell and in
case fair value cannot be measured reliably, the recoverable amount is value in use.
A.2 (c)&(d) A decrease in interest rates would reduce the discount applied to future cash flows in
calculating the value in use, therefore increasing the value in use. An increase in market
values will lead to the asset value increasing rather than being impaired.
A.3 (d) The entity’s market capitalisation would not be reflected within the values on the
statement of financial position.
A.4 (b)
Calculation of Impairment Loss Rs. Rs.
Carrying Value (1.10.16 60750
Fair Value less cost to sell (45,000  2,000) 43,000
Value in use 38,685 43,000
Impairment Loss 17,750
A.5 (d) Although the estimated net realisable value is lower than it was (due to fire damage), the
entity will still make a profit on the inventory and thus it is not an indicator of
impairment.
A.6 (a) Tax and finance costs are not cost of disposal.
A.7 (b) Asset may not be impaired even after damage. Impairment loss is excess of carrying
amount over recoverable amount.
A.8 (b) This is definition of value in use
A.9 (d) (a), (b) and (c) are excluded from scope of IAS 36 as the prudence mechanism is already
incorporated in the relevant standards of these items.
A.10 (d) Item 1 is untrue. An annual impairment review is only required for intangible assets with
an indefinite life.
A.11 (c) The higher of fair value less costs of disposal and value in use.
A.12 (a)
Carrying Value (31.3.19) 850,000
Fair Value less cost to sell (780,000  25,000) 755,000
Value in use 773,130 773,130
300,000 (1.08)-1+300,000 (1.08)-2+300,000 (1.08)-3
A.13 (a&d) The other options are internal indicators of impairment.

A.14 (c)
Carrying Value 3,000,000
(2,700,000 
Fair Value less cost to sell 50,000) 2,650,000
Value in use 2,600,000 2,650,000
825
A.15 (b) Cash flows related to taxations are ignored while calculating value in use.
A.16 Rs.30 million
Calculation of Impairment Loss A B C Total
Carrying Value 200 100 80
Recoverable Amount (Higher of) (180) (130) (70)
Impairment Loss 20 - 10 30

Fair Value less cost to sell 180 130 60
Value in use 160 120 70
A.17 Rs.140 million

60 + Nil + Nil +80 = Rs.140 million
A.18 Rs. 6.5 million
The recoverable amount of an asset is the higher of its value in use (being the present
value of future cash flows) and fair value less costs to sell. Therefore the recoverable
amount is Rs.6.5 million.
A.19 Rs.17.785 million
Rs.m
Cost 1 October 2019 100
Depreciation (100 /10 x 5 years) (50)
Carrying amount 50
The recoverable amount is the higher of fair value less costs to sell (Rs.30 million) and
the value in use (Rs.8.,5 x 3.79 = Rs.32.215). Recoverable amount is therefore Rs.32.215.
Rs. m
Carrying amount 50
Recoverable amount (32.215)
Impairment to statement of profit or loss 17.785
A.20 Rs.214,600,000
Is the lower of its carrying amount (Rs.217 million) and recoverable amount (Rs.214.6
million) at 31 March 2015.
Recoverable amount is the higher of value in use (Rs.214.6 million) and fair value less
costs to (Rs.200 million).
Carrying amount = Rs.217 million (248 million – (248 million × 12.5%)) Value in use is
based on present values = Rs.214.6 million
826
A.21 (b)
A.22 (c)
A.23 (a)
A.24 (c)
A.25 (d)
A.26 (a)
A.27 (d)
A.28 (b)
A.29 (c)
A.30 (b)
A.31 (c)
A.32 (c)
A.33 (b)
A.34 (d)
827

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Regards:Awais Ali

1 Accounting and Reporting Concepts

2 IAS 1: Preparation of Financial

3 IAS 7: Statement of Cash Flows

5 Preparation of Accounts From

6 Introduction to Cost of Production

7 IAS 16: Property, Plant and Equipment

IAS 20: Govt. Grants

8 IAS 23: Borrowing Cost

IAS 40: Non-Current Assets: Sundry

9 IAS 36: Impairment of Assets

10 IFRS 15: Revenue from Contracts with

11 Interpretation of Financial Statements

12 Revision of some concepts

fLO1: OBJECTIVE OF NON-PROFIT ORGANIZATION AND DIFFERENCES WITH PROFIT

Differences among profit and non-profit organization

Profit making Organisation Non-profit Organisation

LO2: PREPARATION OF INCOME AND EXPENDITURE ACCOUNT

LO3: PREPARATION OF RECEIPT AND PAYMENT ACCOUNT

LO4: MAIN SOURCES OF REVENUE

b) For Specific Purpose

i) Donations to purchase/construct fixed assets

Dr. Building Fund Account Cr.

Dr. Welfare Fund Account Cr.

Specific fund from own sources

Practice Questions for subscription account

LO5: OTHER SOURCES OF REVENUE

v) Interest or gain on disposal of investments

Common mistake by students

Conversion expenses 1,000

Consider the following information relevant to the year 2002-03:

Gulshan Joy Club

(W-2) Dr. Sports equipment Cr.

(W-3) Dr. Furniture Cr.

(W-4) Dr. Electricity Cr.

(W-5) Opening fund Rs.

Depreciation on Furniture (1,500 x 10%) 150

(W-2) Dr. Salaries expense Cr.

(W-3) Dr. Rent expense Cr.

(W-2) Dr. Locker rent account Cr.

(W-2) Dr. Subscription account Cr.

Medical Aid Society

(W-2) Dr. Subscription account Cr.

(W-3) Dr. Suppliers for restaurants Cr.

(W-4) Dr. Prizes account Cr.

(W-5) Opening fund Rs.

Answer-7 New Murree Recreation Club

(W-2) Dr. Petty cash Cr.

(W-2) Dr. Subscription account Cr.

(W-6) Opening fund Rs.

WORKINGS Rs. Rs.

(W-6) Calculation of gross profit at bar

Electricity Charges 1,800

WORKINGS Rs. Rs.

(W-2) Dr. Subscription account Cr.

(W-3) Dr. Creditor for purchases Cr.

(W-4) Dr. Insurance expense Cr.

(W-5) Dr. Rent expense Cr.

(W-2) Dr. Rent and Rates expense Cr.

Answer-12 Universal Brotherhood Club

Universal Brotherhood Club

Universal Brotherhood Club

(W-4) Opening fund Rs.