VSMART ACADEMY

CA INTER ACCONTS

SUPER 20 QUESTIONS
(FOR EXAMS)

S.NO. TOPIC NAME NO. OF. PAGE. NO.

QUESTIONS
1 ACCOUNTING STANDARDS 7 2-10
(AS 2,10,11,16)
2 INVESTMENT ACCOUNTS 2 11-15
3 PROFIT OR LOSS PRE AND POST 1 16-17
INCORPORATION
4 BONUS AND RIGHT ISSUE 1 18-20
5 FINANICIAL STATEMENTS 1 21-22
6 HIRE PURCHASE 1 23-23
7 BRANCH ACCOUNTS 2 24-28
8 CASH FLOW STATEMENT 1 29-32
9 DEPARTMENTAL ACCOUNTS 1 33-34
10 INSURANCE CLAIMS 1 35-36
11 INCOMPLETE RECORDS 1 37-39
12 REDEMPTION OF DEBENTURES 1 39-41

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AS 2 – VALUATION OF INVENTORIES

QUESTION 1: (RTP Nov18)

A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is required. The

company provides you following information for the year ended 31st March, 2017.
Rs Per unit
Raw Material X
Cost price 380
Unloading Charges 20
Freight Inward 40
Replacement cost 300
Chemical Y
Material consumed 440
Direct Labour 120
Variable Overheads 80
Fixed Overheads 20
Additional Information:
(i) Total fixed overhead for the year was Rs. 4,00,000onnormal capacity of 20,000 units.
(ii) Closing balance of Raw Material X was 1,000 units and Chemical Y was Rs. 2,400 units.
You are required to calculate the total value of closing stock of Raw Material X and Chemical Y
according to AS 2, when
(i) Net realizable value of Chemical Y is Rs. 800 per unit
(ii) Net realizable value of Chemical Y is Rs. 600 per unit
SOLUTION
(i) When Net Realizable Value of the Chemical Y is Rs. 800 per unit
NRV is greater than the cost of Finished Goods Y i.e., Rs 660 (Refer W.N.) Hence, Raw Material
and Finished Goods are to be valued at cost.
Value of Closing Stock:
Qty. Rate (Rs) Amount (Rs)
Raw Material X 1,000 440 4,40,000
Finished Goods Y 2,400 660 15,84,000
Total Value of Closing Stock 20,24,000
(ii) When Net Realizable Value of the Chemical Y is Rs 600 per unit
NRV is less than the cost of Finished Goods Y i.e., Rs. 660. Hence, Raw Material is to be valued
at replacement cost and Finished Goods are to be valued at NRV since NRV is less than the cost.
Value of Closing Stock:
Qty. Rate (Rs) Amount (Rs)
Raw Material X 1,000 300 3,00,000
Finished Goods Y 2,400 600 14,40,000
Total Value of Closing Stock 17,40,000
Working Note:
Statement showing cost calculation of Raw material X and Chemical Y

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Raw Material X Rs
Cost Price 380
Add: Freight Inward 40
Unloading charges 20
Cost 440
Chemical Y Rs
Materials consumed 440
Direct Labour 120
Variable overheads 80
Fixed overheads (Rs 4,00,000/20,000 units) 20
Cost 660

AS 10 – PROPERTY, PLANT & EQUIPMENT

QUESTION 2:
On 1 April 20X1, Sun Ltd purchased some Land for Rs. 10000 (including legal costs of Rs. 1000)
in order to construct a new factory. Construction work commenced on 1 May 20X1. Sun ltd
incurred the following costs in relation with its construction:
– Preparation and leveling of the land – Rs. 300
– Purchase of materials for the construction – Rs. 6080 in total.
– Employment costs of the construction workers – Rs. 200 per month.
– Overhead costs incurred directly on the construction of the factory – Rs. 100 per month.
– Ongoing overhead costs allocated to the construction project using the company’s normal
overhead allocation model – Rs. 50 per month.
– Income received during the temporary use of the factory premises as a car park during the
construction period – Rs. 50.
– Costs of relocating employees to work at the new factory – Rs. 300
– Costs of the opening ceremony on 31 January 20X1 – Rs. 150
The factory was completed on 30 November 20X1 and production began on 1 February 20X2.
At the end of the 40-year period, Sun Ltd has a legally enforceable obligation to demolish the factory
and restore the site to its original condition. The directors estimate that the cost of demolition in
40 years’ time (based on prices prevailing at that time) will be Rs. 20000. An annual risk adjusted
discount rate which is appropriate to this project is 8%. The present value of Rs. 1 payable in 40
years’ time at an annual discount rate of 8% is Rs. 0.046
The construction of the factory was partly financed by a loan of Rs. 17500 taken out on 1 April
20X1. The loan was at an annual rate of interest of 6%. During the period 1 April 20X1 to 31 August
20X1 (when the loan proceeds had been fully utilised to finance the construction), Sun Ltd received
investment income of Rs. 100 on the temporary investment of the proceeds.
Required:

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Compute the Cost of the factory to be capitalised in the Balance Sheet of Sun Ltd at 31 March
20X2.
SOLUTION
Computation of the cost of the factory
Description Included in Explanation
P.P.E.
Purchase of land 10,000 Both the purchase of the land and the
associated legal costs are direct costs of
constructing the factory.
Preparation and leveling 300 A direct cost of constructing the factory
Materials 6,080 A direct cost of constructing the factory
Employment costs of 1,400 A direct cost of constructing the factory for a
construction workers seven-month period
Direct overhead costs 700 A direct cost of constructing the factory for a
seven-month period
Allocated overhead costs Nil Not a direct cost of construction
Income from use as a car Nil Not essential to the construction so recognised
park directly in profit or loss
Relocation costs Nil Not a direct cost of construction
Opening ceremony Nil Not a direct cost of construction
Finance costs 612.50 Capitalise the interest cost incurred in a seven
months period (purchase of land would not
trigger off capitalisation, since land is not
qualifying Asset. Infact, the construction
started from 1st May 20X1)
Investment income on (100) offset against the amount capitalized
temporary investment of
the loan proceeds
Demolition cost 920 Where an obligation must recognise as part of
recognised as a provision the initial cost
Total 19,912.50

AS 11 – THE EFFECTS OF CHANGES IN FOREIGN CURRENCY RATE

QUESTION 3A:
Vsmart Ltd. took a Foreign Currency Loan of $1,00,000 to purchase machine of the same amount.
On 1st April, 2022 Loan is of 5Years. To be repaid in lumpsum after 5 Years.
Depreciation Rate is 10%
Exchange rates are as follows:
On 1/4/22 - $1 = ₹ 78
On 31/3/23 - $1 = ₹ 82
On 31/3/24 - $1 = ₹ 80.5
Show A/c as per AS 11 in following cases:
(a) Without PARA 46
(b) With PARA 46

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Solution:
1) Initial Recognition:
Foreign Currency should recognise at the rate prevailing on transaction Date (i.e. SPOT Rate)
i.e. $1 = ₹ 78
Transaction Value = $1,00,000 x 78 = 78,00,000
1/4/22
Machine A/c Dr. 78,00,000
To Foreign Currency Loan A/c 78,00,000
(Note: assuming machine is measured at cost always)
(Note: Foreign Currency Loan is a LTFCMI)
2) Subsequent measurement:
Case 1: without PARA 46
Exchange Difference due to Subsequent measurement shall be transfer to Profit & Loss A/c
1st Year end: 31/3/23
Foreign Currency Loan Should be = $1,00,000 x 82 = 82,00,000
Exchange Difference (Loss) = 4,00,000
31/3/23
Exchange Difference (P&L) A/c 4,00,000
Dr. 4,00,000
To Foreign Currency Loan A/c
Profit & Loss A/c Dr. 4,00,000
To Exchange Difference A/c 4,00,000

2nd Year end: 31/3/24

Foreign Currency Loan Should be = $1,00,000 x 80.5 = 80,50,000
Exchange Difference (Gain) = 82 – 80.5 = 1,50,000
Foreign Currency Loan A/c Dr. 1,50,000
To Exchange Difference (P&L) A/c 1,50,000
Exchange Difference (Gain) A/c 1,50,000
Dr. 1,50,000
To Profit & Loss A/c

Case 2: with PARA 46

Exchange Difference should be adjusted to the cost of machine
31/3/23
Exchange Difference (Loss) = 4,00,000
Machine A/c Dr. 4,00,000
To Foreign Currency Loan A/c 4,00,000

Depreciation @10& = 82,00,000 x 10% = 8,20,000

Remaining Balance of Machine = 73,80,000
31/3/24

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Exchange Difference (Gain) = 1,50,000
Deduct From Machines Book Value
Foreign Currency Loan A/c Dr. 1,50,000
To Machine A/c 1,50,000
Depreciation @10% on (73,80,000 – 1,50,000) = 72,30,000 x 10% = 7,23,000

QUESTION 3B:
Vsmart Ltd. took a loan of $75,000 on 1/4/22 when $1 = ₹ 78. Loan is utilized for working capital
requirement loan is of 6 Years. Principal repayment equally every year.
1st year end - $1 = ₹ 81.30
2nd year end - $1 = ₹ 82.15
3rd year end - $1 = ₹ 82
4th year end - $1 = ₹ 81.50
5th year end - $1 = ₹ 81.90
6th year end - $1 = ₹ 82
Apply PARA 46 of AS 11:
Solution:
1) Initial Recognition:
Bank A/c Dr. 58,50,000
To Foreign Currency Loan A/c 58,50,000

2) Subsequent Measurement:
31/3/23 (Fist remeasure then pat installment)
FCMIT Difference A/c 2,47,500
Dr. 2,47,500
To FC Loan A/c ($75,000 x 3.30)
FC Loan A/c Dr. 10,16,250
To Bank A/c ($12,500 x 81.30) 10,16,250

Foreign Currency Book Value = 50,81,250

Amortize FCMIT Difference in 6 Years = 2,47,500 / 6 = 41,250
Profit & Loss A/c Dr. 41,250
To FCMIT Difference A/c 41,250

Balance unamortised FCMIT = 2,06,250 (Dr. Balance)

31/3/25 31/3/25 31/3/26 31/3/27 31/3/28

$1 = ₹ 82.15 $1 = ₹ 82 $1 = ₹ 81.50 $1 = ₹ 81.90 $1 = ₹ 82

Prev. rate = 81.30 Prev. rate = 81.25 Prev. rate = 82 Prev. rate = 81.50 Prev. rate = 81.90

Loss = 0.85 x Gain = 0.15 x Gain = 0.5 x Loss = 0.4 x Loss = 0.10 x
$62,500 $50,000 $37,500 $12,500 $12,500

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Total Loss = Total Gain = 7,500 Total Gain = Total Loss = Total Loss = 1,250
53,125 18,750 10,000
Loss added to Deduct from Deduct from Added to FCMIT Added to FCMIT
FCMIT Difference FCMIT Difference FCMIT Difference Difference Difference

Revised FCMIT Revised FCMIT Revised FCMIT Revised FCMIT Revised FCMIT
Difference = Difference = Difference = Difference = 97,500 Difference = 50,000
2,59,375 2,00,000 1,31,250
Year = 5 Year = 4 Year = 3 Year = 2 Year = 1

P&L A/c = 51,875 P&L A/c amortised P&L A/c amortised P&L A/c amortised Fully amortised to
= 50,000 = 43,750 = 48,750 P&L A/c = 50,000

Closing Balance of Closing Balance of Closing Balance of Closing Balance of

FCMIT = 2,07,500 FCMIT = 1,50,000 FCMIT = 87,500 FCMIT = 48,750

AS 16 – BORROWING COSTS

QUESTION 4: - (Foreign Exchange Difference)

Vsmart took FC Loan of $50,000 on 1/4/22 @4% interest p.a.
Same loan Could have neem borrowed in ₹ @10.5% p.a.
Exchange Rate 1/4/22 = $1 = 81.26/- & 31/3/23 = 84.57/-
Calculate Total Borrowing Cost.
Solution:
Step 1: Calculate Borrowing Cost on FC Loan: -
$50,000 x 4% = $2,000 x 84.57 = 1,69,140
Step 2: Calculate interest on Indian Loan
Loan Amount in ₹ = $50,000 x 81.26 = 40,63,000
Interest @10.5% = 4,26,615
Step 3:
Saving Interest = 4,26,615 – 1,69,140 = 2,57,475
Step 4: Calculate Exchange Loss:
$50,000 x (84.57 – 81.26) = 1,65,500
Borrowing Cost Should be Lower of: -
(a) Saving in Interest – 2,57,475/-
(Or)
(b) Exchange Loss – 1,65,000/-
Total Borrowing Cost = 1,69,140 + 1,65,500 = 3,34,640

QUESTION 5A:
Financial Year 22 – 23

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1st April SBO Loan @10% 20 lakhs
1st June HDFC Loan @12% 25 lakhs
1st Dec ICICI Loan @10.5% 30 lakhs
75 lakhs
Calculate Weightage Average Borrowing Rate.
SOLUTION:
Interest on SBI 20,00,000 x 10% 2,00,000
Interest on HDFC 25,00,000 x 12% x 10/12 2,50,000
Interest on ICICI 30,00,000 x 10.5% x 4/12 1,05,000
Total BC 5,55,000

Weighted Average Borrowing Rate (or) Weighted Average Capital Rate.

20,00,000𝑥12 25,00,000𝑥10 30,00,000𝑥4
= (5,55,000)/ ( 12
)+( 12
)+ 12
) x 100

= 5,55,000 / 50,83,333 x 100

= 10.918%

QUESTION 5B:
Continuing with Example 5A above with following Information:
Out of above Borrowings, entity has incurred following Capital Expenditure as Qualifying Asset: -
Date Qualifying Asset Expenditure
1/4/22 Machine A 6,50,000
1st June Machine B 20,00,000
1st July Building A 18,00,000
1st Jan Building A 21,00,000
65,50,000
How Much Borrowing Cost to be Capitalised in Qualifying Asset & How Much Transfer to Profit &
Loss A/c.
SOLUTION
Weighted Average Capital Rate = 10.918% p.a.
This Rate shall be applied to the Expenditure Amount
1) Machine A: 6,50,000 x 10.918% x 12/12 = 70,967/-
2) Machine B: 20,00,000 x 10.918% x 10/12 = 1,81,967/-
3) Building A: 1/7 = 18,00,000 x 10.918% x 9/12 = 1,47,393/-
4) Building A: 1/Jan = 21,00,000 x 10.918% x 3/12 = 57,320/-
Total on Building A = 2,04,713/-
Total BC Capitalised on all Qualifying Assets = 4,57,647/-
Total BC Transfer to P&L = 5,55,000 – 4,57,647 = 97,353/-

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QUESTION 6:
FY 22-23 Entity is in Construction of Office Building out of general borrowings.
Date of Expenditure
1/Dec/22 = 1,00,000; 1/Jan/23 = 2,50,000; 1/Feb/23 = 2,50,000 & 1/March/23 = 2,50,000
Following are General Borrowings:
(a) 10% Debentures issued during the year = 20 lakhs
(b) One Over Draft Facility availed as under: -
5,00,000 during Dec to Feb & 7,50,000 in March
Interest on Over Draft is 15% in Dec & 16% from Jan to March
Calculate Weighted Average Capital Rate.
SOLUTION:
Working Note 1: Calculation of Total Borrowing Cost
Particular Amount
10% Debentures for Full Year (20,00,000 x 10%) 2,00,000
5,00,000 Over Draft @15% on Dec (5,00,000 x 15% x 1/12) 6,250
5,00,000 Over Draft @16% in Jan & Feb (5,00,000 x 16% x 2/12) 13,333
7,50,000 Over Draft @16% in March (7,50,000 x 16% x 1/12) 10,000
2,29,583

Working Note 2:
Total Borrowing Outstanding During the Year.
1 20,00,000 x 12/12 20,00,000
OD 5,00,000 x 3/12 1,25,000
7,50,000 x 3/12 62,500
21,87,500

Weighted Average Capital Rate = 2,29,583 / 21,87,500 x 100 = 10.495%

1/Dec/22 1,00,000 x 10.495% x 4/12 3,498
1/Jan/23 2,50,000 x 10.495% x 3/12 6,559
1/Feb/23 2,50,000 x 10.495% x 2/12 4,373
1/March/23 2,50,000 x 10.495% x 1/12 2,186
Borrowing Cost Capitalised 16,616

QUESTION 7:
Entity Borrowed on 1/4/22 9%, 30 lakhs for Construction of two Qualifying assets. Construction
Begins from 1/4/22. The loan was availed on 1/4/22 & started utilizing in Qualifying Asset.
Remaining funds were temporarily invested @7% p.a.
QA 1 QA 2
Expenditure on 1/4/22 5,00,000 10,00,000
Expenditure on 1/10/22 5,00,000 10,00,000
Calculate Total Borrowing Cost & Capitalised Borrowing Cost.
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SOLUTION:
Particulars QA 1 QA 2
Borrowing Cost 10,00,000 x 9% = 90,000 20,00,000 x 9% = 1,80,000
(-) Investment Income 5,00,000 x 7% x6/12 = (17,500) 10,00,000 x 7% x 6/12 =
(35,000)
Net Borrowing Cost to be Capitalised 72,500 1,45,000
Total Cost of QA 10,72,500 21,45,000
(After Capitalisation)

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INVESTMENT ACCOUNTS
RULES TO SOLVE QUESTIONS OF INVESTMENT ACCOUNTS

RULE – 1:
When same Shares or Debentures are purchased on different dates at different prices then we shall
calculate average cost per share/debenture to calculate gain/loss on sale.

RULE – 2:
When investor gets bonus equity shares at free of cost, the quantity of shares would get increased.
However, the carrying value of investments (Book Value) will not be Increased.
While selling the shares after getting bonus, the gain/loss shall be difference between Selling Price
of Share and Average cost per Share.

RULE – 3:
When Investor is Eligible for Right Issue shares:
Then there are two possibilities.
1) If Investor Subscribes the Right Issue:
a) Carrying Amount of Investment would get Increased by cost of acquisition.
b) Quantity of Shares would also be Increased.
c) Therefore, we need to calculate Weighted Average Cost per share after Right Issue.
OR
2) If Investors are not subscribing the Right Issue and Selling the Right:
A) GENERAL RULE: Sale Proceeds are Transferred to Profit & Loss Account
Bank A/c Dr.
To Profit & Loss Account
B) If Original shares were acquired at Cum Right Price & after the Right Issue, Market Price
is Lower than above Cum Right Price (i.e., Cost) then treat the sale proceeds as recovery
towards Cost and it will be Credited to Investment Account.
Bank A/c Dr.
To Investment A/c
Note: Two Conditions must be fulfilled:
1) Original Shares must have been Purchased @ Cum Right Basis.
2) Market Price per Share after the Right Issue must be lower than above Cum Right
Price, (i.e., Cost of Original Shares).

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RULE – 4:
Interest Income Shall always be Calculated on Time Proportion Basis (i.e., Month Wise)
But Dividend Income shall always be calculated on Annual Basis only unless it is Interim Dividend.

RULE – 5:
If Annual Dividend is Declared and Paid then it must be calculated on the total no. of shares held
on the date of receipt of Dividend (Except Bonus Issue and Right Issue Received in Current Year).
If Interim Dividend is Declared in current year in which Bonus & Right issue made and Dividend
is Declared after Bonus and Right Issue then it shall be calculated on total share Held on the date
of Dividend Including Bonus & Right.
Example:
Vikas holds 5,000 Shares as on 1/4/23 (FV = 10/-). On 1/5/23 Vikas purchased same shares (2,000
no.), again on 1/6/23, Vikas got 1000 no. of same shares as Bonus. On 1/7/23, Vikas got 1500 no
as Right issue. On 1/8/23 Company paid Dividend @12%
How much Dividend Vikas received?

Example
Taking details from the above example company paid interim dividend on 15th oct @6%
How much Dividend does Vikas received?

RULE – 6: Dividend received on Investment in Equity Shares

1) Pre-Acquisition dividend (It is of Pre-Acquisition Period)
Reduce Investment because it is treated as recovery of cost
Bank A/c Dr.
To Investment A/c
2) Post-Acquisition dividend (It is of Post-Acquisition Period)
Transfer to Profit and Loss Account
Bank A/c Dr.
To Profit & Loss A/c

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Example:
Nikhil purchased shares of company on 1/5/23 from market @140/- per share (500 no). On
1/7/23 Nikhil received Dividend from Company @ 15% Face value is 100/-
Show journal entries in the Books of Investor (Nikhil).

Example:
From the above example, Nikhil again received dividend on 1/7/24 @20%.

RULE – 7:
Interest and Dividend shall always be calculated on Nominal value (Face Value) and Not on Cost
Price.

RULE – 8:
If in any question Cum Interest price and Ex Interest price is given, we shall always record investment
at Ex Interest Price. Because Ex Interest Price is real Market Price. We should record the Interest
paid separately through Profit & Loss Account.
Example:
Purchased 1200 no of debentures @99/- (Ex-interest) as 1/11. Last interest was due on 30/-.
Rate of Interest is 9% p.a. Face Value is 100/-

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RULE – 9:
Brokerage paid at the time of Purchase shall be added to cost of Investment. Brokerage paid at the
time of sale shall be deducted from sale proceeds.

RULE – 10:
We should always record the Investment (at the time of purchase) at Acquisition cost and Not at Face
value.

RULE – 11:
Whenever the Pre-Acquisition dividend is received and credited to Investment account and then the
shares are sold then to calculate Gain/Loss on sale, the average cost per share will be calculated
after deducting the pre-acquisition dividend from cost.

RULE – 12:
To calculate Brokerage, we have to make calculation on Actual Cost always (Not on Face Value) if
nothing is mentioned in Question.

RULE – 13:
In case of Debentures/Bonds, while sale of these securities to calculate Gain/Loss on sale Always
compare Ex Interest Purchase with Ex Interest Sale after adjusting Brokerage if any.
Gain/Loss – [(Ex-interest sale value) – (Brokerage)] – [(Ex-interest purchase value) + (Brokerage)]

QUESTION 8:
Mr. Jai invested in Equity Shares of V’Smart Ltd having face value Rs. 10
Date Particulars
01-04-2020 Opening balance 5,000 equity shares at a book value of Rs. 175 per share
01-05-2020 Purchased 6,000 equity shares@ Rs. 215 on cum right basis; Brokerage of
1% was paid in addition.
15-06-2020 The company announced a bonus issue of 3 shares for every 11 shares held
01-08-2020 The company made a rights issue of 1 share for every 7 shares held at Rs.
230 per share. The entire money was payable by 31.08.2020
25-08-2020 Rights to the extent of 30% of his entitlements was sold @ Rs. 75 per share.
The remaining rights were subscribed. Ex-right price after Right issue
becomes Rs. 170

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16-09-2020 Dividend of 9% for the year ended 31.03.2020 was received on 16.09.2020.

01-12-2020 Sold 6,000 shares @ 180 per share. Brokerage of 1% was incurred extra.
25-01-2021 Received interim dividend @ Rs. 3 per share for the year 2020-21.
31-03-2021 The shares were quoted in the stock exchange @ Rs. 160.
These Investments have been classified as Current investment in the books of Mr. Jai.
On 15th May 2021, Mr. Jai decides to reclassify investment in equity shares of V’Smart Ltd. as Long
term Investment. On 15th May 2021, the shares were quoted in the stock exchange @ Rs. 150.
You are required to Prepare Investment Accounts in the books of Mr. Jai for the year 2020-21,
assuming that the average cost method is followed.

QUESTION 9:
Ms. Suzi provides the following details relating to his holding in 10% Covertible Debentures (face
value of Rs. 100 each) of Maggi Ltd. held as current assets:
1.4.2018 Opening balance - 20,000 debentures, cost Rs. 19,50,000
1.6.2018 Purchased 12,000 debentures @ Rs. 98.5 each Ex-Interest
1.11.2018 Purchased 6,000 debentures @ Rs. 110 each Cum Interest
31.1.2019 Sold 18,000 debentures @ Rs. 115 each Cum-Interest
28.2.2019 Conversion of 5000 debentures into Equity Shares in the ratio of 3:1.
Interest on convertible debentures was also received on the same date
31.3.2019 Market value of debentures Rs. 105 each and Equity Shares Rs. 9
th st
Due dates of interest are 30 June and 31 December.
Brokerage at 1% is to be paid for each transaction. Ms. Suzi closes his books on 31.3.2019. Show
investment account as it would appear in his books assuming FIFO method is followed.

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PROFIT AND LOSS PRE AND POST INCORPORATION

QUESTION 10:
Hot Limited was formed to take over a running business of Awesome Enterprises with effect from
1st April, 2021. The company was incorporated in 1st July, 2021 and the certificate of
commencement of business was received on 1st August 2021. No entries relating to the transfer of
the business were entered in the books which were continued until 31st march, 2022. The following
trail balance was extracted from the books as on 31st march, 2022.
Particulars Dr (Rs.) Cr (Rs.)
Sales - 30,00,000
Cost of Goods sold 21,00,000
Rent 3,00,000
Salaries 1,50,000
Travelling expenses 20,000
Depreciation 9,000
Carriage outward 8,000
Printing & Stationary 50,000
Advertisement 15,000
Miscellaneous expenses 25,000
Directors’ fees 1,000
Managing Director’s Remuneration 8,000
Bad debts (net of recovery) 30,000
Commission & Brokerage to Selling Agents 70,000
Audit fee 60,000
Interest on debentures 12,000
Interest on vendors 14,000
Selling and distribution expenses 24,000
Preliminary expenses 13,000
Underwriting commission 18,000
Fixed assets 12,50,000
Current assets 5,50,000
Cool Limited’s capital as on 1st April, 2021 9,00,000
Current liabilities 2,00,000
Debentures 6,00,000
Interest on Investment 27,000
Total 47,00,000 47,00,000
Addition information:
(a) Total sales for the year arose evenly up to the date of the certificate of commencement, after that
date there is an increase of 25% during the rest of the year.
(b) The company delas with one type of product. The unit cost of goods sold was reduced by 10%

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since 1st august, 2021 as compared to the pre-incorporation period.
(c) Rent of old office building was increased by 20% since 1st November, 2021. It had to also occupy
additional space from 1st July, 2021 for which rent was Rs. 15,000 p.m.
(d) The salaries were tripled from 1st August, 2021.
(e) Travelling expenses include Rs. 7,500 towards sales promotion.
(f) Depreciation includes Rs. 3,000 for new assets acquired in august 2021.
(g) Purchase consideration was discharged by the company on 30t Nov., 2021 by issuing 60,000
equity shares of Rs. 10 each.
(h) Bad debts recovered Rs. 10,000 relating to Last Year.
(i) Hot Ltd. initiated advertisement campaign which resulted in increase in Post Period Sales.\
(j) Investments were sold on 30th September.
you are required to prepare Profit & Loss Statement in a columnar form for the year ended 31 st
March, 2022 showing the allocation of profits pre-incorporation and post-incorporation periods
including the basis of apportionment.

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BONUS AND RIGHT

JOURNAL ENTRIES
Upon the sanction of an issue
of bonus shares
Upon issue of bonus shares
Upon the sanction of bonus
by converting partly
shares into fully paid shares
On making the final call due
On adjustment of final call
Capital Redemption Reserve Account Dr.
Securities Premium Account Dr.
General Reserve Account Dr.
Profit & Loss Account Dr.
To Bonus to Shareholders Account
Bonus to Shareholders Account Dr.
To Share Capital Account
General Reserve Account Dr.
paid Profit & Loss Account Dr.
To Bonus to Shareholders Account
Share Final Call Account Dr.
To Share Capital Account
Bonus to Shareholders Account Dr.
To Share Final Call Account

RIGHT ISSUE
1) Right Issue is allowed to Existing shareholders @ Concessional Price.
2) For e.g.: Face Value of share is Rs. 10 Each and market value is Rs. 80 each.
Company announced Right issue @ 50/- each in the ratio of 1:3
3) In the above example Following Journal entries company has to pass:
Bank A/c Dr. 50
To Equity Share Capital A/c 10
To Securities Premium A/c 40
4) When Right Issue is announced, the Market Value of Shares may get increased due to Demand
& Supply effect.
Such increase in market value after announcement of Right issue is known as “Cum Right
Price”.
Cum Right Price has two Elements: -
1) Price towards Share Acquisition
2) Price for getting Right advantage
5) Ex-Right Price: - Ex-Right Price means a genuine price of a share without any Right Advantage
6) How to Calculate Ex-Right Price?
((Total No. of share before Right issue x Cum Right Price) + (No. of Right Issue x Right Issue Price))
Total No. of share after Right Issue

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7) Example: - Outstanding issued shares in a company are 5,00,000 No. Company announced
right issue 1:4. Market price of share becomes 180/-. Right issue price is 120/-.
Calculate Ex-Right Price per share.
((5,00,000 x 180) + (1,25,000 x 120)) / 6,25,000
Theoretical Ex-Right Price = 168/-
8) What is Value of Right in Case of Transfer of Right to Other Party?
Value of Right = Cum Right Price – Ex Right Price
9) What should be the value of Right in Above Example?
Cum Right Price = 180
(-) Ex Right Price = 168
Value of Right = 12
If existing Shareholders wants to transfer the Right advantage to third party. How much he
should recover as transfer of Right?
Value of Right x No. of Shares
= 12 x 4
Rs. 48 for every 1 share of Right.
10) What will be the actual cost for Third party if he purchased Right Advantage?
Payment to Company = 120/-
Payment to transferor = 48/-
= 168/-
It is Equal to Ex Right issue.

QUESTION 11:
Following is the balance sheet of V’Smart Limited as at 31st March, 2021:

Authorized capital
5,00,000 12% Preference shares of Rs. 10 each 50,00,000
15,00,000 Equity shares of Rs. 10 each 1,50,00,000
2,00,00,000
Issued and Subscribed capital
4,00,000 12% Preference shares of Rs. 10 each fully 40,00,000
paid
13,00,000 Equity shares of Rs. 10 each, Rs. 8 paid 1,04,00,000
up

Reserves and Surplus

General Reserve 60,00,000
Capital Redemption Reserve 7,50,000
Securities Premium (Unrealised Portion 50,000) 2,50,000

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Profit and Loss Account 20,00,000
Revaluation Reserve 8,00,000
On 1st April 2021, the company has made final call @ Rs. 2 each on 13 LACS equity shares. The call
money was received by 15th April, 2021, Thereafter, the company decided to capitalize its reserves
by way of bonus at the rate of one share for every four shares held, it also decided that there should
be minimum reduction in free reserves.
On 1st June 2021, the company issued Rights shares at the rate of two share for every five shares
held on that date at issue price of Rs. 12 per share. All the rights shares were accepted by the existing
shareholders and the money was duly received by 20th June, 2021.
You are required to pass necessary journal entries in the books of the Sujata Food Limited for bonus
issue and right issue.

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FINANCIAL STATEMENTS

QUESTION 12:
The following is the Trial Balance of Holding Ltd., as on 31st March, 20X2:

PARTICULARS DR. CR.

Equity Share Capital - 16,25,000
3000, 9% Cumulative Pref. Share Capital - 3,00,000
10% Debentures - 4,80,000
Security Premium - 1,55,000
General Reserves - 15,00,000
Profit and Loss A/c (PY) - 1,50,000
Sales - 90,00,000
Trade Payables - 11,50,000
Provision for Depreciation on P&M - 3,50,000
Suspense A/c - 1,40,000
Land at Cost 40,00,000 -
Plant and Machine at Cost 12,50,000 -
Sundry Debtors 15,00,000 -
Bills Receivables 4,00,000 -
Inventories Closing (Stock in Trade) 7,50,000 -
Bank Balance 4,30,000 -
Adjusted Purchase of Stock in Trade 21,30,000 -
Factory Expenses 12,00,000 -
Administration Exp 4,00,000 -
Selling Exp 9,00,000 -
Debenture Interest Paid till 30th Sep 35,000 -
Goodwill 10,00,000 -
Interim Dividend Paid 90,000 -
Bad Debts 45,000 -
Provision for Doubtful Debts - 67,000
Directors Fees 51,000
Loose Tools 25,000
Consumables 18,000
Unclaimed Dividend of Last Year - 12,000
Long Term Investments (7.5%) 16,00,000 -
Interest received on above Investments - 90,000
Preliminary Expenses 40,000 -
Opening Raw Material 2,10,000 -
Purchase of Raw Material 8,10,000 -
Long Term Loan from Bank - 13,20,000
Long Term Laon from Other Parties - 3,00,000
Short Term Loan from Bank - 5,00,000
Govt. Grant Received (Revenue Nature) - 1,75,000
Managerial Remuneration Paid 1,00,000 -
Income Tax Paid 9,50,000 -
Provision for Income Tax (as on 1/04/20X1) - 5,20,000
Deferred Tax Liability - 1,00,000
1,79,34,000 1,79,34,000

Additional Information:
1. The authorised share capital of the company is:
3,000, 9% preference shares of Rs. 100 each 3,00,000
20,000, Equity shares of Rs. 100 each 20,00,000

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2. Issued equity capital as on 1st April 20X1 stood at Rs. 14,40,000, that is 12,000 shares fully
paid and 4,000 shares of Rs. 60 paid. The directors made a call of Rs. 40 per share on 1st
October. A shareholder could not pay the call on 500 shares and his shares were then forfeited
and reissued @ Rs. 90 per share as fully paid.
3. On 31st March 20X2, the Directors declared a dividend of 12% on equity shares, transferring
any amount that may be required from General Reserve.
4. The company on the advice of independent valuer wishes to revalue the land by 10%
5. Suspense account of Rs. 1,40,000 represents amount received for the sale of some of the
machinery on 1-4-20X1. The cost of the machinery was Rs. 3,00,000 and the accumulated
depreciation thereon being Rs. 1,80,000.
6. Depreciation is to be provided on plant and machinery at 10% on diminishing balance.
7. Amortize 1/5th of Goodwill.
8. Rs. 2,00,000 of Debentures were redeemed on 1st Oct at 10% Premium but premium amount
not yet credited to Security Premium A/c. Full Amount wrongly debited to Debentures A/c.
9. Maintain a Provision of 7% on Debtors as on 31st March 20X2.
10. Provision for Income Tax as on 31st March should be Rs. 8,00,000
11. Closing Raw Material is Rs. 2,45,000
12. Adjusted Purchase of Stock in Trade includes 16,000 distributed among valued customers
13. Long Term loan from Bank includes Interest Accrued but not due Rs. 50,000 and Rs. 1,20,000
To be payable within 1 Year.
14. Bills receivables discounted not yet matured Rs. 15,000
15. Outstanding expenses Rs. 21,000
16. Directors are eligible for Managerial remuneration of 11% of NP before Tax
17. Transfer 20% of NPAT to General Reserve.

You are required to prepare Holding Limited's Balance Sheet as on 31-3-20X2 and Statement of
Profit and Loss with notes to accounts for the year ended 31-3-20X2 as per Schedule III of the
Companies Act, 2013.

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HIRE PURCHASE

QUESTION 13:
A acquired on 1st January, 20X1 3 Machines under a Hire-Purchase agreement which provides for
10 half-yearly installments (principal and interest) of Rs. 60,000 each (for every machine), the first
installment being due on 1st July, 20X1. Down payment is Rs. 30000 per machine. Assuming that
the applicable rate of interest is 10% per annum. Depreciation charged by Hire Purchaser is 15%
diminishing balance method.
It paid 3 installments on time, but couldn’t pay 4 th.
Vendor agreed to leave one Machine with the purchaser, adjusting the value of the other two
machines against the amount due. The machines taken over were valued on the basis of 20%
depreciation annually on written down value basis. Hire Purchaser settled the seller’s dues after
three months with Interest.
The hire vendor spent Rs.20,000 on repairs of the machines and then sold them at 10% margin.
Calculate the cash values of the machines and Prepare the necessary accounts showing
repossession. Also calculate the Gain in the books of Vendor.
All working should form part of the answer.

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BRANCH ACCOUNTS

QUESTION 14: (Final A/c System Cost and Stock & Debtors Methods)
Delhi HO sends goods to its Pune branch at 20% above cost. Branch has been instructed by HO to sell
goods as under: -
Cash sales at IP
Credit sales at SP (Which is 50% above cost)
1) Opening stock = Rs. 75,000 (IP)
2) Goods sent to branch = Rs. 5,40,000 (IP)
3) Cash sales = Rs. 1,08,000 (IP)
4) Credit sales = Rs. 4,65,000 (SP)
5) Sales return by credit customer = Rs. 22,500 (SP)
6) Sales return by cash customer =Rs. 12,000 (IP)
7) Goods return by branch to HO = Rs. 48,000 (IP)
8) Goods received by branch till year end = Rs. 5,10,000 (IP)
9) Closing stock at the end = Rs. 72,000 (IP)
Solution of Final A/c System Cost Method
Opening Stock (Cost) – 62,500
+ Net Goods Sent to Branch – 4,10,000
((5,40,000 – 48,000) / 120 x 100)
Total (IP) – 4,72,500
COGS (IP) Closing Goods in Shortage Gross
1) Cash Sales: Stock Transit (b/f) Profit
Net Sales = 96,000 / 120 x 100 60,000 25,000 12,500 1,63,500
COGS (Cash) = 80,000
2) Net Credit Sales = 4,42,500 (SP)
COGS = 4,42,500 / 150 x 100 =
2,95,000

Total COGS = 3,75,000

Memorandum Branch Trading and P&L A/c

To Opening Stock 62,500 By Sales
Net Cash 96,000
Net Credit 4,42,500
To Net Goods sent to Branch 4,10,000 By Shortage 12,500
To Gross Profit 1,63,500 By Closing Stock
In Hand 60,000
In Transit 25,000
6,36,000 6,36,000

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To Abnormal Loss 12,500 By Gross Profit 1,63,500
To Net Profit 1,51,000
1,63,500 1,63,500

Solution of Stock & Debtors Method

Opening Stock (Cost) – 62,500
+ Net Goods Sent to Branch – 4,10,000
((5,40,000 – 48,000) / 120 x 100)
Total (IP) – 4,72,500
COGS (IP) Closing Goods in Shortage Gross
1) Cash Sales: Stock Transit (b/f) Profit
Net Sales = 96,000 / 120 x 100 60,000 25,000 12,500 1,63,500
COGS (Cash) = 80,000
2) Net Credit Sales = 4,42,500 (SP)
COGS = 4,42,500 / 150 x 100 =
2,95,000

Total COGS = 3,75,000

Memorandum Branch Trading and P&L A/c

To Opening Stock 62,500 By Sales
Net Cash 96,000
Net Credit 4,42,500
To Net Goods sent to Branch 4,10,000 By Shortage 12,500
To Gross Profit 1,63,500 By Closing Stock
In Hand 60,000
In Transit 25,000
6,36,000 6,36,000
To Abnormal Loss 12,500 By Gross Profit 1,63,500
To Net Profit 1,51,000
1,63,500 1,63,500

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QUESTION 15: (Debtors Method)
Widespread invoices goods to its branch at cost plus 20%. The branch sells goods for cash as well
as on credit. The branch meets its expenses out of cash collected from its debtors and cash sales
and remits the balance of cash to head office after with-holding Rs. 10,000 necessary for meeting
immediate requirements of cash. On 31st March, 20X1 the assets at the branch were as follows:
Rs. (‘000)
Cash in Hand 10
Trade Debtors 384
Stock, at Invoice Price 1,080
Furniture and Fittings 500
During the accounting year ended 31st March, 20X2 the invoice price of goods dispatched by the
head office to the branch amounted to Rs. 1 crore 32 lakhs. Out of the goods received by it, the
branch sent back to head office goods invoiced at Rs. 72,000. Other transactions at the branch
during the year were as follows:
(Rs. ‘000)
Cash Sales 9,700
Credit Sales 3,140
Cash collected by Branch from Credit Customers 2,842
Cash Discount allowed to Debtors 58
Returns by Customers 102
Bad Debts written off 37
Expenses paid by Branch 842

On 1st January, 20X2 the branch purchased new furniture for 1 lakh for which payment was made
by head office through a cheque.
On 31st March, 20X2 branch expenses amounting to Rs. 6,000 were outstanding and cash in hand
was again Rs. 10,000. Furniture is subject to depreciation @ 16% per annum on diminishing balance
method.
Prepare Branch Account in the books of head office for the year ended 31st March, 20X2.

Solution
In the Head Office Books
Branch Account
for the year ended 31st March, 20X2
Rs.’000 Rs.’000
To Balance b/d By Balance b/d
Cash in hand 10 Stock reserve Rs. 1,080 × 1/6 180
Trade debtors 384 By Goods sent to branch A/c 72
(Returns to H.O.)

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Stock 1,080 By Goods sent to branch A/c 2,188
(Loading on net goods sent to
branch – 13,128X1/6
Furniture and fittings 500
To Goods sent to branch A/c 13,200 Bank A/c (Remittance from 11,700
branch to H.O.) (W.N.5)
To Bank A/c (Payment for 100 By Balance c/d
furniture)
To balance c/d stock reserve 245 Cash in hand 10
1,470 x 1/6
To Outstanding expenses 6 Trade debtors (W.N.3) 485
To Net profit transferred to 1,096 Stock (W.N.1) 1,470
General P/L account
Furniture & fittings (W.N.4) 516
16,621 16,621

Working Notes:
1. Invoice price and cost
Let cost be 100
So, invoice price 120
Loading 20
Loading: Invoice price = 20 : 120 = 1 :6

2. Invoice price of closing stock in branch

Branch Stock Account
Rs. ‘000 Rs. ‘000
To Balance b/d 1,080 By Goods sent to branch 72
To Goods sent to branch 13,200 By Branch Cash 9,700
To Branch debtors 102 By Branch debtors 3,140
By Balance c/d 1,470
14,382 14,382

3. Closing balance of branch debtors

Branch Debtors Account
Rs. ‘000 Rs. ‘000
To Balance b/d 384 By Branch cash 2,842
To Branch stock 3,140 By Branch expenses discount 58
By branch stock (Returns) 102
By Branch expenses (Bad debts) 37
By Balance b/d 485

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3,524 3,524

4. Closing balance of furniture and fittings

Branch Furniture and Fittings Account
Rs. ‘000 Rs. ‘000
To Balance b/d 500 By depreciation [(500x16%) + 84
(100x16%x3/12)]
To Bank 100 By Balance c/d 516
600 600
Note: Since the new furniture was purchased on 1st Jan 20X2 depreciation will be for 3 months.

5. Remittance by branch to head office

Branch Cash Account
Rs. ‘000 Rs. ‘000
To Balance b/d 10 By Branch expenses 842
To Branch stock 9,700 By Remittances to H.O. (b.f) 11,700
To Branch debtors 2,842 By Balance b/d 10
12,552 12,552

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CASH FLOW STATEMENT

QUESTION 16:
The Balance Sheet of New Light Ltd. for the years ended 31st March, 20X0 and 20X1 are as follows:
Notes 31st March, 31st March,
20X0 (Rs.) 20X1 (Rs.)
Equity and liabilities
1 Shareholders’ funds
A Share capital 1 16,00,000 18,80,000
B Reserves and Surplus 2 8,40,000 11,00,000
2 Non-current liabilities
A Long term borrowings 3 4,00,000 2,80,000
3 Current liabilities
A Other current liabilities 4 6,00,000 5,20,000
B Short term provision (Provision for tax) 3,60,000 3,40,000
Total 38,00,000 41,20,000
Assets
1 non-current assets
A Property, plant and Equipment 5 22,80,000 26,40,000
B Non-Current investment 3,20,000
2 Current assets
A Cash and Cash equivalents 10,000 10,000
B Inventory 2,16,000 3,00,000
C Other current assets 8,94,000 8,50,000
Total 38,00,000 41,20,000

Notes to accounts
No. Particular 31st March, 31st March,
20X0 20X1
1 Share capital
Equity share capital 12,00,000 16,00,000
10% Preference share capital 4,00,000 2,80,000
Total 16,00,000 18,80,000
2 Reserves and Surplus
General reserve 6,00,000 7,60,000
Profit and Loss account 2,40,000 3,40,000
Total 8,40,000 11,00,000
3 Long term borrowings
9% Debentures 4,00,000 2,80,000

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Total 4,00,000 2,80,000
4 Other current liabilities
Dividend payable 1,20,000 -
Current Liabilities 4,80,000 5,20,000
Total 6,00,000 5,20,000
5 Property, plant and equipment
Property, plant and equipment 32,00,000 38,00,000
Less: Depreciation (9,20,000) (11,60,000)
Net carrying value 22,80,000 26,40,000

Additional information:
(i) The company sold one fixed asset for Rs 1,00,000, the cost of which was Rs 2,00,000 and the
depreciation provided on it was Rs 80,000.
(ii) The company also decided to write off another fixed asset costing Rs 56,000 on which
depreciation amounting to Rs 40,000 has been provided.
(iii) Depreciation on fixed assets provided Rs 3,60,000.
(iv) Company sold some investment at a profit of Rs 40,000.
(v) Debentures and preference share capital redeemed at 5% premium. Debentures were redeemed
at the year end.
(vi) Company decided to value inventory at cost, whereas previously the practice was to value
inventory at cost less 10%. The inventory according to books on 31.3.20X0 was Rs 2,16,000.
The inventory on 31.3.20X1 was correctly valued at Rs 3,00,000.
Prepare Cash Flow Statement as per revised Accounting Standard 3 by indirect method.
SOLUTION
New Light Ltd.
Cash Flow Statement for the year ended 31st March, 20X1
A. Cash Flow from operating activities Rs.
Profit after appropriation
Increase in profit and loss A/c after inventory adjustment
[Rs. 3,40,000 – (Rs. 2,40,000 + Rs. 24,000)] 76,000
Transfer to general reserve 1,60,000
Dividend payable 1,60,000
Provision for tax 3,40,000
Net profit before taxation and extraordinary Item 5,76,000
Adjustments for:
Depreciation 3,60,000
Loss on sale of fixed assets 20,000
Decrease in value of fixed assets 16,000
Profit on sale of investment (40,000)

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Premium on redemption of preference share capital 6,000
Interest on debentures 36,000
Premium on redemption of debentures 6,000
Operating profit before working capital changes 9,80,000
Increase in current liabilities (Rs. 5,20,000 – Rs. 40,000
4,80,000)
Increase in other current assets (16,000)
[Rs. 11,50,000 – (Rs. 11,10,000 + Rs. 24,000)]
Cash generated from operations 10,04,000
Income taxes paid (3,60,000)
Net Cash generated from operating activities 6,44,000
B. CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (W.N.3) (8,56,000)
Proceeds from sale of fixed assets (W.N.3) 1,00,000
Proceeds from sale of investments (W.N.2) 1,20,000
Net Cash from investing activities (6,36,000)
C. CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of share capital 4,00,000
Redemption of preference share capital (1,26,000)
(Rs. 1,20,000 + Rs. 6,000)
Redemption of debentures (Rs. 1,20,000 + Rs. 6,000) (1,26,000)
Dividend paid (1,20,000)
Interest on debentures (36,000)
Net Cash from financing activities (8,000)
Net increase/decrease in cash and cash equivalent Nil
during the year
Cash and cash equivalent at the beginning of the year 10,000
Cash and cash equivalent at the end of the year 10,000

Working Notes:
1. Revaluation of inventory will increase opening inventory by Rs. 24,000. 2,16,000/90 x 100 = Rs.
24,000
Therefore, opening balance of other current assets would be as follows:
Rs. 11,10,000 + Rs. 24,000 = Rs. 11,34,000
Due to under valuation of inventory, the opening balance of profit and loss account be increased
by Rs. 24,000.
The opening balance of profit and loss account after revaluation of inventory will be Rs. 2,40,000 +
Rs. 24,000 = Rs. 2,64,000

2. Investment Account

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Particulars Rs Particulars Rs
To Balance b/d 4,00,000 By Bank A/c 1,20,000
To Capital reserve A/c (balancing figure being
(Profit on sale of 40,000 investment sold)
investment) By Balance c/d 3,20,000
4,40,000 4,40,000

3. Fixed Assets Account

Particulars Rs Particulars Rs
To Balance b/d 32,00,000 By Bank A/c (sale of assets) 1,00,000
To Bank A/c 8,56,000 By Accumulated 80,000
(Balancing figure being depreciation A/c
assets purchased)
By Profit and loss A/c (loss
on sale of assets) 20,000
By Accumulated depreciation 40000
A/c
By Profit and loss A/c 16000
(assets written off)
By Balance c/d 38,00,000
40,56,000 40,56,000

4. Accumulated Depreciation Account

Particulars Rs Particulars Rs
To Fixed assets A/c 80,000 By Balance b/d 9,20,000
To Fixed assets A/c 40,000 By Profit and loss A/c 3,60,000
To Balance c/d 11,60,000 (depreciation for the
period)
12,80,000 12,80,000

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DEPARTMENTAL ACCOUNTS

QUESTION 17:
Gram Udyog, a retail store, has two departments, ‘Khadi and Silks’ for each of which stock account
and memorandum ‘mark-up’ accounts are kept. All the goods supplied to each department are
debited to the stock account at cost plus a ‘mark-up’, which together make-up the selling-price of
the goods and in the account of the sale proceeds of the goods are credited. The amount of ‘mark-
up’ is credited to the Departmental Mark-up Account. If the selling price of any goods is reduced
below its normal selling price, the reduction ‘marked down’ is adjusted both in the Stock Account
and the Departmental ‘Mark-up’ Account. The rate of ‘Mark-up’ for Khadi Department is 33- 1/3%
of the cost and for Silks Department it is 50% of the cost.
The following figures have been taken from the books for the year ended December 31,20X1:
Khadi Deptt. Silks Deptt.
Rs. Rs.
Stock as on January 1st at cost 10,500 18,600
Purchases 75,900 93,400
Sales 95,600 1,25,000
(1) The stock of Khadi on January 1, 20X1 included goods the selling price of which had been
marked down by Rs. 1,260. These goods were sold during the year at the reduced prices.
(2) Certain stock of the value of Rs. 6,900 purchased for the Khadi Department were later in the
year transferred to the Silks department and sold for Rs. 10,350. As a result, though cost of
the goods is included in the Khadi Department the sale proceeds have been credited to the
Silks Department.
(3) During the year 20X1 to promote sales the goods were marked down as follows:
Cost (Rs.) Marked Down (Rs.)
Khadi 5,600 360
Silk 10,000 2,000
All the goods marked down, were sold except Silks of the value of Rs. 5,000 marked down by
Rs. 1,000.
(4) At the time of stock-taking on December 31, 20X1 it was discovered that Khadi cloth of the
cost of Rs. 390 was missing and it was decided that the amount be written off.
You are required to prepare for both the departments for the year 20X1.
(a) The Memorandum Stock Account;
(b) The Memorandum Mark-up Account:
(c) Extract of Profit and Loss Account.
Solution
Silk Stock Account
20X1 Rs. 20X1 Rs.
To Balance b/d By Sales A/c 1,25,000
To Cost 18,600 By Mark-up A/c 2,000
Mark-up @50% 9,300 27,900 By Balance c/d (b.f.) 51,350
To Purchases 93,400
Mark-up @50% 46,700 1,40,100
To Khadi A/c 6,900
Mark-up@50% 3,450 10,350
1,78,350 1,78,350

Silk Mark-up Account

20X1 Rs. 20X1 Rs.
To Stock A/c 2,000 By Balance b/d 9,300
To Profit & Loss A/c (b.f.) 41,000 By Stock A/c 46,700
To Balance c/d 16,450 By Stock A/c 3,450
[(1/3* of {51,350 + 1,000}) – 1,000]
59,450 59,450
* 1/2 on cost is equal to 1/3 on sales

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Khadi Stock Account
20X1 20X1
To Balance b/d 12,740 By Sales 95,600
Cost Mark-up @ 10,500 14,000 Mark-up A/c @33- 2,300 9,200
33- 1/3% 3,500 1/3%
To Purchases 75,900 1,01,200 By Loss of Stock A/c 390
Mark-up @ 33- 25,300
1/3%
Mark-up A/c @ 33- 130 520
1/3%
By P&L A/c 1,620
By Balance c/d (b.f.) 8,260
1,13,940 1,13,940
# [(10,500 x 33-1/3%) – 1,260] = Rs.2,240
Khadi Mark-up Account
20X1 Rs. 20X1 Rs.
To Stock A/c (transfer) 2,300 By Balance b/d
To Stock A/c (re-sale) 130 (3,500 – 1,260) 2,240
To Profit & Loss A/c 22,685 By Khadi Stock 25,300
A/c
To Balance (1/4 of Rs. 2,065
8,260)
27,540 27,540

Profit and Loss Account (Extract)

20X1 Rs. 20X1 Rs.
To Khadi Stock A/c 1,620 By Khadi Mark-up A/c 24,305
To Silk Stock A/c 1,000 By Silk Mark-up A/c 42,000

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VSMART ACADEMY
INSURANCE CLAIM

QUESTION 18:
From the following particulars, you are required to calculate the amount of claim for Buildwell Ltd.,
whose business premises was partly destroyed by fire:
Sum insured (from 31st December 20X1) Rs. 4,00,000
Period of indemnity 12 months
Date of damage 1 st January, 20X2
Date on which disruption of business ceased 31st October, 20X2
The subject matter of the policy was gross profit but only net profit and insured standing charges
are included.
The books of account revealed:
(a) The gross profit for the financial year 20X1 was Rs. 3,60,000.
(b) The actual turnover for financial year 20X1 was Rs. 12,00,000 which was also the turnover in
this case.
(c) The turnover for the period 1st January to 31st October, in the year preceding the loss, was Rs.
10,00,000.
During dislocation of the position, it was learnt that in November-December 20X1, there has been
an upward trend in business done (compared with the figure of the previous years) and it was stated
that had the loss not occurred, the trading results for 20X2 would have been better than those of
the previous years.
The Insurance company official appointed to assess the loss accepted this view and adjustments
were made to the pre-damaged figures to bring them up to the estimated amounts which would have
resulted in 20X2.
The pre-damaged figures together with agreed adjustments were:
Period Pre-damaged Adjustment Adjusted
figures Rs. to be added standard
Rs. turnover
Rs.
January 90,000 10,000 1,00,000
Feb. to October 9,10,000 50,000 9,60,000
November to December 2,00,000 10,000 2,10,000
12,00,000 70,000 12,70,000
Gross Profit 3,60,000 46,400 4,06,400
Rate of Gross Profit 30% (actual for 20X1), 32% (adjusted for 20X2).
Increased cost of working amounted to Rs. 1,80,000
There was a clause in the policy relating to savings in insured standard charges during the indemnity
period and this amounted to Rs. 28,000.
Standing Charges not covered by insurance amounted to Rs. 20,000 p.a. The annual turnover for
January was nil and for the period February to October 20X2 Rs. 8,00,000
SOLUTION
1. Short sales
period Adjusted Actual Shortage Rs.
Standing turnover Rs.
turnover Rs.
January 1,00,000 - 1,00,000
Feb. to October 9,60,000 8,00,000 1,60,000
10,60,000 8,00,000 2,60,000

2. Gross profit ratio for the purpose of insurance claim on loss of profit
Gross profit - Insured Standing Charges - Uninsured standing charges = Net profit
Or
Gross profit - Uninsured standing charges = Net profit +Insured Standing Charges = 4,06,400 –
20,000 = 3,86,400
Rs.3,86,400
Rs.12,70,000
× 100 = 30.425%

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VSMART ACADEMY
3. Least of the following:
(i) Actual expenses = 1,80,000
(ii) Gross profit on sales during 10 months period = 8,00,000 × 30.425% =2,43,400
(gross profit on annual adjusted turnover)
(iii) × additional expenses
gross profit on annual adjusted turnover+uninsured standing charges
3,86,400
× 1,80,000 = 1,71,142 (approx.)
3,86,400+20,000
Least i.e. = Rs. 1,71,142 is admissible.

4. Amount of claim
Rs.
Gross profit on short sales = Rs. 2,60,000 × 30.425/100 79,105
Add: Amount available in respect of additional expense 1,71,142
2,50,247
Less: Savings in Insured Standing Charges (28,000)
2,22,247

On the amount of final claim, the average clause will not apply since the amount of the policy Rs.
4,00,000 is higher than the gross profit on annual adjusted turnover Rs. 3,86,400.
Therefore, insurance claim will be for Rs. 2,22,247.

COMPILED BY CA. JAI CHAWLA 36

VSMART ACADEMY
INCOMPLETE RECORDS
QUESTION 19:
Ms. Rashmi furnishes you with the following information relating to her business:
a.
Assets and liabilities as on 1.1.2016 31.12.2016
Rs. Rs.
Furniture (w.d.v) 12,000 12,700
Inventory at cost 16,000 14,000
Sundry Debtors 32,000 ?
Sundry Creditors 22,000 30,000
Prepaid expenses 1,200 1,400
Unpaid expenses 4,000 3,600
Cash in hand and at bank 2,400 1,250
b. Receipts and payments during 2016:
• Collections from debtors, after allowing discount of Rs. 3,000 amounted to Rs. 1,17,000.
• Collections on discounting of bills of exchange, after deduction of discount of Rs. 250 by the
bank, totalled to Rs. 12,250.
• Creditors of Rs. 80,000 were paid Rs. 78,400 in full settlement of their dues. Payment for
freight inwards Rs.6,000.
• Amount withdrawn for personal use Rs. 14,000. Payment for office furniture Rs.2,000.
• Investment carrying annual interest of 4% were purchased at Rs.192 (face value Rs. 200) on
1st July, 2016and payment made there for. Expenses including salaries paid Rs. 29,000.
• Miscellaneous receipts Rs. 1,000.
c. Bills of exchange drawn on and accepted by customers during the year amounted to Rs. 20,000.
Of these, bills of exchange of Rs. 4,000 were endorsed in favour of creditors. An endorsed bill of
exchange of Rs.800 was dishonored.
d. Goods costing Rs. 1,800 were used as advertising materials.
e. Goodsareinvariablysoldtoshowagrossprofitof33-1/3%onsales.
f. Difference in cash book, if any, is to be treated as further drawing or introduction of capital by
Ms. Rashmi.
g. Provide at 2.5% for doubtful debts on closing debtors.
Rashmi asks you to prepare trading and profit and loss account for the year ended 31st
December, 2016 and the balance sheet as on that date.
SOLUTION
Trading and Profit and Loss Account of
Ms. Rashmi for the year ended 31st December,2016
Rs. Rs.
To Opening Inventory 16,000 By Sales (W.N.3) 1,46,100
To Purchases (W.N.2) 91,200 By Closing inventory 14,000
Less: For advertising (1,800) 89,400
To Freight inwards 6,000
To Gross profit c/d @ 48,700
33-1/3%
1,60,100 1,60,100
To Sundry expenses 28,400 By Gross profit b/d 48,700
(W.N.6)
To Advertisement 1,800 By Interest on investment 4
(200x 4/100 x½)
To Discount allowed By Discount received 1,600
Debtors 3,000 By Miscellaneous income 1,000
Bills Receivable 250 3,250
To Depreciation on 1,300
furniture (12,000 +
2,000 – 12,700)
To Provision for 972
doubtful debts
To Net Profit (b.f.) 15,582

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51,304 51,304

Balance Sheet as on 31st December, 2016

Liabilities Amount Assets Amount
Rs. Rs. Rs. Rs.
Capital as on 37,600 Furniture(w.d.v.) 12,000 12,700
1.1.2016 (W.N.1) Additions during the 2,000
Year (1,300)
Less: Depreciation (b.f.)
Less: Drawings (15,808) Investment 192
21,792 Interest accrued (200 4
x 4% x 6/12)
Add: Net Profit 15,582 37,374 Closing Inventory 14,000
Sundry creditors 30,000 Sundry debtors 38,900 37,928
Less: Provision for 972
doubtful debts @ 2.5%
Outstanding 3,600 Bills receivable (W.N.7) 3,500
expenses
Cash in hand and at 1,250
bank
Prepaid expenses 1,400
70,974 70,974

Working Notes:
(1) Capital on 1st January,2016
Balance Sheet as on 1st January, 2016
Liabilities Rs. Assets Rs.
Capital (Bal. fig.) 37,600 Furniture (w.d.v.) 12,000
Creditors 22,000 Inventory at cost 16,000
Outstanding expenses 4,000 Sundry debtors 32,000
Cash in hand and at bank 2,400
Prepaid expenses 1,200
63,600 63,600

(2) Purchases made during the year

Sundry Creditors Account
Rs. Rs.
To Cash and Bank A/c 78,400 By Balance b/d 22,000
To Discount received A/c 1,600 By Sundry debtors A/c 800
(80,000 –78,400)
To Bills Receivable A/c 4,000 By Purchases A/c 91,200
To Balance c/d 30,000 (Balancing figure)
1,14,000 1,14,000

(3) Sales made during the year

Rs.
Opening inventory 16,000
Purchases 91,200
Less: For advertising (1,800) 89,400
Freight inwards 6,000
1,11,400
Less: Closing inventory (14,000)
Cost of goods sold 97,400
Add: Gross profit (@ 50% on cost) 48,700
1,46,100

(4) Debtors on 31st December,2016

Sundry Debtors Account
Rs. Rs.
To Balance b/d 32,000 By Cash and Bank A/c 1,17,000

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VSMART ACADEMY
To Sales A/c (W.N.3) 1,46,100 By Discount allowed A/c 3,000
To Sundry creditors A/c By Bills receivable A/c 20,000
(bill dishonored) 800 By Balance c/d (Bal. fig.) 38,900
1,78,900 1,78,900

(5) Additional drawings by Ms.Rashmi

Cash and Bank Account
Rs. Rs.
To Balance b/d 2,400 By Freight inwards A/c 6,000
To Sundry debtors A/c 1,17,000 By Furniture A/c 2,000
To Bills Receivable A/c 12,250 By Investment A/c 192
To Miscellaneous income A/c 1,000 By Expenses A/c 29,000
By Creditors A/c 78,400
By Drawings A/c 15,808
[Rs. 14,000 + Rs. 1,808 (b.f.)
(Additional drawings)]
By Balance c/d 1,250
1,32,650 1,32,650

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

Sundry Expenses Account
Rs. Rs.
To Prepaid expenses A/c (on 1,200 By Outstanding expenses A/c (on 4,000
1.1.2016) 1.1.2014)
To Bank A/c 29,000 By Profit and Loss A/c (Balancing 28,400
figure)
To Outstanding expenses A/c 3,600 By Prepaid expenses A/c 1,400
(on 31.12.2016)
33,800 33,800

(7) Bills Receivable on 31st December, 2016

Bills Receivable Account
Rs. Rs.
To Debtors A/c 20,000 By Creditors A/c 4,000
By Bank A/c 12,250
By Discount on bills receivable A/c 250
By Balance c/d (Balancing figure) 3,500
20,000 20,000

COMPILED BY CA. JAI CHAWLA 39

VSMART ACADEMY
REDEMPTION OF DEBENTURES

QUESTION 20:
The following balances appeared in the books of Paradise Ltd as on 1-4-20X1:
• 12 % Debentures Rs. 7,50,000
• Balance of DRR Rs. 25,000
• DRR Investment 1,12,500 represented by 10%, 1,125 Secured Bonds of the Government of India
of Rs. 100 each.
Annual contribution to the DRR was made on 31st March every year. On 31-3-20X2, balance at bank
was Rs 7,50,000 before receipt of interest. The investment were realised at par for redemption of
debentures at a premium of 10% on the above date.
You are required to prepare the following accounts for the year ended 31st March, 20X2:
(1) Debentures Account
(2) DRR Account
(3) DRR Investment Account
(4) Bank Account
(5) Debenture Holders Account.
SOLUTION
1. 12% Debentures Account
Date Particulars Rs Date Particulars Rs
31 March, To Debenture holder’s 7,50,000
st 1stApril, By Balance b/d 7,50,000
20X2 A/c 20X1
7,50,000 7,50,000
2. DRR Account
Date Particulars Rs Date Particulars Rs
1st April, By Balance b/d 25,000
20X1
31st March, To General reserve 75,000 1st April, By Profit and loss 50,000
20X2 A/c note 1 20X1 A/c (Refer Note 1)

1,87,500 1,87,500

3. 10% Secured Bonds of Govt. (DRR Investment) A/c

Date Particulars Rs Date Particulars Rs
1 st To Balance b/d 1,12,500 31 March, By Bank A/c
st 1,12,500
April, 20X2
20X1
1,12,500 1,12,500

4. Bank A/c
Date Particulars Rs Date Particulars Rs
31st To Balance b/d 7,50,000 31st B 12% 8,25,000
March, March Debenture
20X2 To Interest on DRR 11,250
Investment
20X2 To DRR Investment A/c 1,12,500 By Balance c/d 48,750
8,73,750 8,73,750

5. Debenture holder’s A/c

Date Particulars Rs Date Particulars Rs
31st To Bank A/c 8,25,000 31st By 12% Debentures 7,50,000
March, March, By Premium on redemption 75,000
20X2 20X2 of debentures @ 10%

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VSMART ACADEMY
8,25,000 8,25,000

Note 1 –
Calculation of DRR before redemption = 10% of Rs 7,50,000 =
75,000 Available balance = Rs 25,000
DRR required = 75,000 – 25,000 = Rs 50,000.

COMPILED BY CA. JAI CHAWLA 41