University of Delhi

Name of the Paper : Financial Accounting

Name of the Course : B.Com (Hons.)/CBCS
Semester : I
Duration : 3 Hours Maximum Marks 90
Instructions for Candidates:
1. Attempt ALL Five Questions.
2. Simple Calculators are allowed to be used.
3. Working Notes should form part of the answer.
4. Answers to theory questions should be brief and to the point.

1(a).State whether the following transactions will be treated as change in Accounting Policy or not for the year ended 31st
March, 2022 in accordance with the provisions of relevant Accounting Standard: [4 x 1/2 = 2 Marks]
(i) Change in rate of provision of doubtful debt
(ii) Change in useful life of a Machine
(iii) Change in cost formula used in measurement of cost of inventories
(iv) Exclusion of Interest from the valuation of Stock
1(b).Classify the following as Extraordinary Items or Prior period items: [4 x 1/2 = 2 Marks]
(i) Loss due to earthquakes/fire/strike
(ii) Attachment of property of the enterprise by government
(iii) Applying incorrect Rate of Depreciation in one or more prior periods.
(iv) Omission to account for Income or Expenditure in one or more prior periods.
1(c). Which of the following events should be taken into account while finalizing (on 30th September, 2022) the annual accounts
for the year ending March 31, 2022: [4 x 1/2 = 2 Marks]
(a) The wages of the employees are revised retrospectively from January 1, 2022 vide agreement with the trade union signed on
August 1, 2022.
(b) A debtor against whom insolvency proceedings were instituted prior to March 31, 2022 is declared insolvent on July 21, 2022.
(c) A theft of cash of ` 1 crore by the Cashier in Jan. 2022 was detected on 17th May 2022.
(d) A major production plant destroyed by fire on August 28, 2022.
1(d).While finalizing the Financial Statements for the year ending 31/03/2022, X Limited finds that the stock sheets as on 31.3.2021 had
included twice an item the cost of which was ` 20,000. Pass the necessary Journal Entries to rectify this error. [ 2 Marks]
1(e).Write one basic difference between the following : [6 x 1= 6 Marks ]
(a) Capital Expenditure and Revenue Expenditure
(b) Ordinary Activities and Extraordinary Items
(c) Adjusting Events and Non-Adjusting Events
(d) Accounting Estimate and Accounting Policies
(e) Provision and Contingent Liability
(f) Ind AS and IFRS
1(f).What are the major considerations in the Selection of Accounting Policies ?[ 4 Marks]

OR

1(a).State whether the following transactions will be treated as change in Accounting Policy or not for the year ended 31st
March, 2022 in accordance with the provisions of relevant Accounting Standard: [4 x 1/2 = 2 Marks]
(i) An introduction of new pension scheme
(ii) Change in the method of depreciation
(iii) Change in method of Valuation of Investments.
(iv) Change in method of making provision
1(b).Classify the following as Extraordinary Items or Prior period items: [4 x 1/2 = 2 Marks]
(i) Omission to include Stock Sheets containing inventory costing ` 20 lacs while valuing closing stock of previous year.
(ii) Omission to pass an entry for receipt of insurance claim received during previous year.
(iii) Theft of stock during previous year but detected during current year.
(iv) Insurance proceeds from earthquake disaster settlement
1(c). Which of the following events should be taken into account while finalizing (on 30th September, 2022) the annual accounts
for the year ending March 31, 2022:[4 x 1/2 = 2 Marks]
(a) In the Finance Act passed in May 2022, the surcharge on income tax applicable for the assessment year 2022–2023 is increased
by 5%.
(b) A major debtor died along with his family in Gujarat earthquake on May 13,2022.
(c) During Aug. 2022 it was estimated that the total cost of project shall be inflated by ` 50 crores which would not be recoverable
from contractee.
(d) The factory of the entrepreneur is permanently sealed under Supreme Court order since it was polluting industry on September
20, 2022.
1(d).While finalizing the Financial Statements for the year ending 31/03/2022, Y Limited finds that the stock sheets of 31/03/2021 did not
include two pages containing details of inventory worth ` 25 lakhs. Pass the necessary Journal Entries to rectify this error. [ 2
Marks]
1(e).Write one basic difference between the following : [6 x 1= 6 Marks ]
(a) Capital Receipts and Revenue Receipts
(b) Extraordinary Items and Prior Period Items
(c) Fair Value and Market Value
(d) Fundamental Accounting Assumptions and Accounting Policies
(e) Contingent Asset and Contingent Liability
(f) AS and Ind AS
1(f). When is the Change in Accounting Policy recommended? [ 4 Marks]

2. (a) AATMA Ltd. manufactures a product ‘OM’ using a raw material M1.The company took Bank Overdraft at an interest rate of 15%
p.a. specifically for the purpose of purchasing 2,000 kg. of material M1 at ` 177 per kg.( including 18% GST in respect of which full credit
is admissible). Freight, loading and unloading charges incurred ` 60,000. Interest on such Bank Overdraft ` 15,000. Storage Costs `
12,000. Normal Transit Loss is 10%. The company actually received 1700 kg. and consumed 1000 kg. One unit of Finished product
requires five units of Raw Material.Direct Labour Cost ` 1,80,000, Direct Overheads Cost ` 1,60,000.Total Fixed Overheads for the year
were ` 7,00,000 on normal capacity of 1,000 units of Finished Goods. During the year Sales of product ‘OM’ were ` 6,00,000 @ `
4,000.There were no opening inventories.Calculate the amount of Closing Inventory of Raw Material and Finished Goods if Finished
units can be sold @ ` 4,000 subject to payment of 10% commission on selling price and Replacement Cost of Raw Material is ` 180 per
kg.[ 4 Marks]
2. (b) Historical Cost already incurred per unit of WIP Rs 1,400.Estimated Additional Cost required to convert WIP into Finished Goods
Rs 2,000.Historical Cost per unit of Finished Goods Rs 3,400. Finished units can be sold @ ` 3,700 subject to payment of 10%
commission on selling price. Calculate the amount of Closing Inventory of WIP (100 units.[ 2 Marks]
2. (c) Calculate the amount to be recognized as revenue for the year ended 31st March, 2023 in the following transactions:
(i) On 31st March 2023, goods worth Rs 5,00,000 were sold to JAL Ltd. but due to refurnishing of their show–room being underway, on
their request, goods were delivered on 10th April, 2023.On 1st Jan, 2023 goods of Rs 5,00,000 were sent on consignment basis of which
40% of the goods unsold are lying with the consignee at the year–end on 31st March, 2023.
(ii) On 15th Mar, 2023 goods worth Rs 5,00,000 were sent to AGNI Ltd. on approval basis. The period of approval was 1 month. AGNI
Ltd. in turn sent 60% goods on approval basis to VAYU Ltd. and pledged 40% of remaining goods to get financial help for 15 days.
(iii) Interim Dividend of Rs 5 lakhs declared by the Board of Directors on 31st March,2023, for the year 2022–2023, received on 30–4–
2023. [ 3 Marks]
2(d) TULSIAN group had Property, Plant & Equipment with a book value of Rs 25,00,000 on 31st March 2022. Last year the property
was revalued downwards by Rs 3,00,000 and decrease of that asset was recognized in the Profit and Loss Account. Fair Value as a
result of Revaluation done on 31st March 2022 is Rs 29,00,000. Pass the necessary Journal entry.[ 1 Mark]
2(e)How will you deal with Rs 23,00,000 incurred for coding and testing to establish technological feasibility of a software?[ 1 Mark]
2. (f) Tulsian Ltd provides you the following information:

01.04.2014 Borrowed Rs 5,00,000 @12% p.a. to construct 10 Machines and incurred Rs

8,00,000 on Materials, Rs 2,00,000 on Labour, Rs 50,000 towards freight &
insurance, Rs 20,000 towards carriage inward, Rs 10,000 on site preparation &
installation. Estimated total physical life is 10 years but the company considers it is
likely that it will sell the property after 4 years.

01.10.2015 Machines became ready for trial run production after incurring Expenses on Trial
Run Rs 20,000. Sale Proceeds of Goods produced during the trial run Rs 5,000.

01.01.2016 Machines became ready for commercial production. The estimated residual value
is Rs 2,00,000. Govt Grant received for these machines Rs 2,00,000.
 01.04.2016 The company does not begin using the machine until 1st April, 2016. Put the
machines to commence the commercial production.

01.10.2016 Sold one machine for Rs 93,500.

31.03.2018 The remaining useful life of the property is reassessed as 4 years and the residual
value is re-estimated at Rs 2,20,000 and the property is revalued upwards by Rs
45,000.

31.03.2019 The company decides to adopt written down value method by charging depreciation
@ 20%.

31.03.2020 Machines became idle and are retired from active use (but not held for disposal).

31.03.2021 The Idle Machines are held for disposal but the Machines could not be disposed
off till the end of the year when Realizable Value of Machines is Rs 2,00,000
subject to 10% Realizable Expenses.

31.03.2022 The Idle Machines held for disposal during year are actually disposed off for 75%
of carrying amount.

Required: Prepare Machinery Account upto 31.03.2022. [ 7 Marks]

OR

2. (a) AATMA Ltd. manufactures a product ‘OM’ using a raw material M1.The company took Bank Overdraft at an interest rate of 15%
p.a. specifically for the purpose of purchasing 2,000 kg. of material M1 at ` 177 per kg.( including 18% GST in respect of which full credit
is admissible). Freight, loading and unloading charges incurred ` 60,000. Interest on such Bank Overdraft ` 15,000. Storage Costs `
12,000. Normal Transit Loss is 10%. The company actually received 1700 kg. and consumed 1000 kg. One unit of Finished product
requires five units of Raw Material.Direct Labour Cost ` 1,80,000, Direct Overheads Cost ` 1,60,000.Total Fixed Overheads for the year
were ` 7,00,000 on normal capacity of 1,000 units of Finished Goods. During the year Sales of product ‘OM’ were ` 6,00,000 @ `
4,000.There were no opening inventories. Calculate the amount of Closing Inventory of Raw Material and Finished Goods if Finished
units can be sold @ ` 3,700 subject to payment of 10% commission on selling price and Replacement Cost of Raw Material is ` 180 per
kg.[ 4 Marks]
2. (b) Historical Cost already incurred per unit of WIP Rs 1,400.Estimated Additional Cost required to convert WIP into Finished Goods
Rs 2,000.Historical Cost per unit of Finished Goods Rs 3,400. Finished units can be sold @ ` 4,000 subject to payment of 10%
commission on selling price. Calculate the amount of Closing Inventory of WIP(100 units.[ 2 Marks]
2. (c) Calculate the amount to be recognized as revenue for the year ended 31st March, 2023 in the following transactions:
(i) On 1st Jan, 2023. PRITHVI Ltd. entered into an agreement with AAKASH Ltd. for sale of goods costing Rs 5,00,000 at a profit of 20 %
on sale and on the same day PRITHVI Ltd. entered into another agreement with AAKASH Ltd. for repurchasing the same goods at Rs
5,50,000 on 1st April, 2023.
(ii) Obtained advertisement rights for Rs 100 lakhs in February 2023 and procured advertisement for Rs 600 lakhs. 40 % of the
advertisements appeared before the public in March 2023 and balance appeared in April 2023.
(iii) Final Dividend of Rs 5 lakhs proposed on 31st March,2023 for the year 2022–2023 was approved by the shareholders at AGM on
30th Sept 2023 and received on 15th Oct 2023.[ 3 Marks]

2(d) TULSIAN group had Property, Plant & Equipment with a book value of Rs 25,00,000 on 31st March 2022. Last year the property
was revalued upwards by Rs 1,00,000 and increase of that asset was recognized in the Revaluation Surplus Account. Fair Value as a
result of Revaluation done on 31st March 2022 was Rs 21,00,000. Pass the necessary Journal entry.[ 1 Mark]
2(e) How will you deal with Rs 10,70,000 incurred for coding and testing after establishment of technological feasibility of a software?
[ 1 Mark]
2(f).BVM Ltd. acquired a patent at a cost of Rs 80,00,000 on April 1,2019. The company started amortizing the asset at Rs 5,00,000 per
annum since 31st March,2021. Since 31st March,2022, the company started amortizing the asset as per AS -26. On 31st March,2023, it
was found that the product life-cycle may continue for another 5 years from then. The net cash flows from the product during another 5
years are expected to be Rs 36,00,000, Rs 46,00,000, Rs 44,00,000, Rs 40,00,000 and Rs 34,00,000. On 31st March,2025 it is felt that
no further benefit will accrue in the future. Pass the necessary Journal entries upto 31st March,2025. [ 7 Marks]
3. Following are the extracts from the Trial Balance of BHARAT TUSHAR as at 31st March, 2022:

Particulars ` Particulars `

Purchases 5,70,000 Sales 7,77,500

12% Investments (purchased on 1,00,000 Capital 7,98,100

01.07.2021)

Bad Debts [after recovery of bad debts of ` 500 Provision for Doubtful Debts 10,000
2,500 w/o during 2020-2021] (01.04.2021)

Trade Debtors 2,93,500 Provision for Discount on 1,800

Debtors (01.04.2021)

Plant and Machinery 4,88,200 Outstanding Liabilities for 55,000

Expenses (Dr)

Discount Allowed 2,000 Income Tax paid 10,000

Additional Information:
1. Stock in hand was not taken on 31st March but only on 7th April. Following transactions had taken place during the period from
1st April to 7th April.
Sales ` 2,50,000, Purchases 1,50,000, Stock on 7th April, was ` 1,80,000.Goods are normally sold at 25% profit on cost. Market
Price on 31st March,2022 was 64% of Selling Price, Estimated Realisable Expenses 5%.
2. Goods (Sale Price ` 25,000) were taken by the proprietor for his personal use but not recorded. Goods (Sale Price ` 37,500) were
given away as free samples to Mahesh, a customer recorded in the sales book. On 31st March Goods (Sale Price ` 12,500) were
destroyed by fire it was fully insured but the insurance company admitted the claim to the extent of 60% of cost only and paid the
claim money on 10th April, 2022. On 31st March, Goods for ` 50,000 were sent to a customer on ‘Sale or Return’ basis and
recorded as actual sales. Goods are normally sold at 25% profit on cost. On 1st Jan. 2022 Investments were sold at 10% profit,
but the entire sales proceeds have been taken as Sales.
3. Write off further ` 4,000 as bad. Additional discount of ` 1,000 given to debtors. Maintain Provision for Discount on Debtors@ 2%.
Maintain a Provision for Doubtful Debts @ 10%. Included amongst the Debtors is ` 3,000 due from Z and included among the
Creditors ` 1,000 due to him.
3. It was discovered during 2021-2022 that ` 25,000 being repairs to Machinery incurred on 1st July, 2019 had been capitalized and
` 45,000 being the cost of Machinery purchased on 1st Oct, 2018 had been written off to Stores and Wages ` 5,000 paid for its
Installation had been debited to Wages Account. A Machine costing ` 1,90,000 was purchased on 1st July 2021. Wages `10,000
paid for its Installation have been debited to Wages Account. Rate of depreciation on Plant & Machinery is 20% p.a. on reducing
balances basis.
4. Printing and Stationery expenses of ` 55,000 relating to previous year had not been provided in that year but was paid in current
year by debiting Outstanding Liabilities for Expenses.
Answer the following:
(a) Calculate the amount of Net Purchases to be shown in the Trading Account.
(b) Calculate the amount of Net Sales to be shown in the Trading Account.
(c) Calculate the amount of Closing Stock to be shown in the Trading Account.
(d) Calculate the total amount to be debited to the Profit & Loss Account in respect of Bad Debts, Discount on Debtors and Provision for
Doubtful Debts & Discount on Debtors.
(e) Calculate the amount of Closing Balance of Debtors to be shown in the Balance Sheet.
(f) Calculate the amount of Closing Balance of Plant and Machinery to be shown in the Balance Sheet.
(g) Calculate the amount of Closing Capital (before making an adjustment for current year’s Net Profit/Loss)to be shown in the Balance
Sheet. [ 18 Marks]
 OR

3. RAJASTHAN RATNAKAR CLUB provides you the following information for the year ending on March 31, 2022:

Receipts ` Payments `

To Bank Balance (as per Pass 7,34,300 By Rent (including ` 15,000 for 60,000
Book) 2020–2021)

To Entrance Fees: 60,000 By Insurance Premium for the year 6,000

(including ` 10,000 for 2020–2021) ending 30th June,2022

To Life Membership Subscription 2,00,000 By Tournament Expenses 1,20,000

To Subscriptions 1,48,900 By Expenditure on Building 2,00,000

(including ` 8,500 for 2020–2021 construction
and ` 5,200 for 2022–2023)

To General Donations & Legacies 1,20,000 By Supplier of Sports Materials 44,000

To Donation for Tournament 28,000 By Purchase of Sports Materials 10,000

To Proceeds from Sale of Tournament 1,10,000 By Purchase of Books & Periodicals 29,000
Tickets (including ` 19,000 for Books)

To Donation for Building 2,80,000 By Purchase of Sports Equipments 60,000

(on 1.10.2021)

To Interest on 8% Investments 2,400 By 8% Investments 1,20,000

(made on 1.10.2021)

To Sale of Old Sports Materials (Book 100 By Rates & Taxes 3,000
Value ` 500)

To Sale of Old Sports Equipment 8,400 By Telephone charges 15,000

on 1.4.2021 (Book Value
` 12,000)

To Sale of Old Newspapers & 1,800 By Honorarium 12,000

Periodicals

To Locker Rents 50,000 By Glass Cutlery etc. 10,000

(including ` 6,000 for 2020–2021)

By Bank Balance (as per Pass 10,54,900

Book)

17,43,900 17,43,900
Additional Information:

Particulars As at 1.4.2021 As at 31.3.2022

` `

Outstanding Subscription 9,500 6,400

Advance Subscription 2,800 ?

Amount due to Suppliers of Sports Materials 15,000 9,000

Advances to Suppliers of Sports Materials 5,000 3,000

Stock of Sports Materials 15,000 1,500

Tournament Fund 12,000 ?

Building Fund 2,20,000 ?

Cheques issued but not presented for Tournament Expenses 27,000 67,000

Glass, Cutlery etc. 20,000 ?

Three Members died without paying annual subscription of ` 100 each p.a. for the previous year and current year.Cash Purchases of
Sports Materials amounted to 20% of Total Purchases. Depreciate Sports Equipments@10% p.a.At 31.3.2022, Rates & taxes were
prepaid to the following 31 Jan., yearly charge ` 3,000. A quarter charge for telephone is outstanding, the amount accrued ` 3,000. The
charge for each quarter is same.1/5 of the value of Glass, Cutlery etc.is to be written off in the year of purchases and 1/2 of the balance
in each of the next two years. Of the stock of Glass, Cutlery etc. as on 1.4.2021 one half was a year old and the other half two years old.
Half of Entrance Fees is to be treated as of capital nature. Depreciate Books by 10%.
(a) Calculate the amount of Subscription to be credited to Income and Expenditure Account for the year ending on March 31, 2022.
(b) Calculate the amount of Sports Materials to be debited to Income and Expenditure Account for the year ending on March 31, 2022
(c) Calculate the amount of Depreciation on Glass, Cutlery etc.
(d) Calculate the amount of Surplus/Deficit as per Income and Expenditure Account for the year ending on March 31, 2022.
(e) Calculate the Bank Balance to be shown in the Closing Balance Sheet as at 31st March,2022. [ 18 MARKS]

4. TULSIAN(9) Ltd. Delhi invoices goods to its Mumbai and Kolkata offices at 20% less than the list price which is cost plus 50% with
instructions that cash sales are to be made at invoice price and credit sales at list price. Prepare the necessary ledger account under
Debtors Method or Stock & Debtors Method: [ 18 Marks]

Opening Stock at Mumbai at its cost ` 1,80,000

Computer at Mumbai ` 20,000

Goods Sent to Mumbai ` 8,64,000

Goods received by Mumbai Branch till close of the year ` 8,34,000

Cash Sales 60 % of Net Credit

Sales

Credit Sales ?
 Goods returned by Credit Customers to Mumbai Branch ` 2,25,000

Goods returned by Mumbai Branch to HO ` 39,000

Loss of Goods by fire at Mumbai (` 6,000 at invoice price) against which 80%
of cost was recovered by Mumbai office from the insurance Company.

Loss of Goods at Mumbai through normal pilferage (` 4,800 at invoice price)

Opening Debtors at Mumbai Branch ` 1,75,000

Closing Debtors at Mumbai Branch ` 2,25,000

Discount allowed to Mumbai Branch Credit Customers ` 75,000

Mumbai Branch Expenses paid by Delhi HO (including Insurance Premium of ` 12,000

` 4,000 paid for the year ending on 30th June,2022)

Outstanding Mumbai Branch Expenses ` 2,500

Cash remitted by Mumbai Branch to HO ` 9,59,000

Provision is to be made for discount on Debtors @ 15% on prompt payments at year end on the
basis of year’s trend of prompt payments.

Mumbai Branch Manager is entitled to a commission @ 5% of net profits after charging such
commission. Computer is to be depreciated @20% p.a.

OR

4.BHARAT & SHEENA provides you the following information for the year ending 31st March, 2022:

Particulars Dr. (`) Cr. (`)

Capital 18,08,000

Fixed Assets 3,00,000

Opening Stock:

Department A 60,000

Department B 80,000

Purchases:

Department A 15,20,000

Department B 26,80,000

Sales:

Department A 36,80,000

Department B 59,20,000

General Expenses 36,24,000

 Debtors 22,00,000

Bank 6,10,000

Creditors 4,00,000

Drawings 5,60,000

Discount Received — 42,000

Discount Allowed 96,000 —

Rent & Rates 1,20,000 —

118,50,000 118,50,000

Additional Information:
(a) Closing Stock: Department A ` 2,60,000, Department B ` 5,20,000. 30% of the Opening and Closing Stocks at each department
represented goods received from the other department.
(b) Goods of ` 5,00,000 were transferred by A Department to B Department at selling price. Goods of ` 7,50,000 were transferred by B
Department to A Department at selling price. 20% of such transferred goods were returned by transferring department to transferee
department. 80% of these transfers and returns have not yet been recorded.
(c) Depreciate Fixed Assets @ 10% p.a. The Area occupied by Deptt. A and Deptt. B is 6000 square feet and 4000 square feet
respectively. Share of Departments in General Expenses is half of the share of General Office and is to be charged to Department
A and Department B in the ratio of departmental Gross Profit.
Answer the following:
(a) Calculate the Gross Profit of each Department.
(b) Calculate the Gross Profit Ratio of each Department.
(c) Calculate the Stock Reserve on Closing Stock and Opening Stock of each Department.
(d) Calculate the Net Profit of each Department.
(e) Prepare Trading & Profit & Loss Account of each Department and Prepare an Overall Profit & Loss Account. [ 18 Marks]

5.B Ltd acquired machinery on lease from A Ltd on the following terms:
Lease Term 5 Years

Fair Value of Machinery ` 20 lakhs

Annual Lease Rental at the end of each year ` 5 lakhs

Guaranteed Residual Value (GRV) ` 1 lakh

Expected Residual Value ` 2 lakhs

Implicit Rate of Return (IRR) 15%

Required:
(a) Calculate the Value of machine to be recognized by B Ltd
(b) Calculate the Net Investment in lease from the point of view of A Ltd.
(c) Calculate the Unearned Finance Income
(d) Calculate the Finance Charges for each year in the books of the Lessee.
(e) Pass the necessary entries in the books of the Lessee & Lessor for the First year. Also prepare their Balance Sheets at the end of First
year.. Depreciation @ 10% per annum is provided on straight line basis .[Present Value of ` 1 at 15% rate of Interest at the end of 1st
year, 2nd year, 3rd year, 4th year and 5th year are 0.8696, 0.7561, 0.6575, 0.5718 and 0.4972 respectively.]
[ 18 Marks]
 OR

5(a). A Ltd acquired machinery on lease from B Ltd on the following terms:

Lease Term 5 Years

Fair Value of Machinery ` 30 lakhs (useful life 15 years)

Annual Lease Rental payable at the end ` 5 lakhs, ` 4 lakhs, ` 3 lakhs, 2 lakhs,
of each year `1 lakh.

Implicit Rate of Return (IRR) 15%

Required:
(a) State whether the Lease is Operating Lease or Finance Lease.
(b) Pass the necessary entries in the books of the Lessee & Lessor for the First year. Also prepare their Balance Sheets.

5(b).Calculate Annual Lease Rental at the end of each year if Cost of Machinery = Rs 17,75,540, Unguaranteed Residual Value = ` 1
00,000 ,Implicit Rate of Return =15% and Lease Term = 5 years.
[ 15 + 3 =18 Marks]