PAPER – 1 : ADVANCED ACCOUNTING Answer all questions Wherever applicable appropriate, suitable assumptions should be made by the candidate. Working notes should form part of the answer. Question 1 A, B and C are partners of the firm ABC & Co., sharing profits and losses in the ratio of 5:3:2. Following is the Balance Sheet of the firm as at 31.3.2008: Balance Sheet as at 31.3.2008 Liabilities Partners’ capital accounts: A B C Investment fluctuation reserve Contingency reserve Long-term loan Bank overdraft Sundry creditors Rs. Assets Goodwill 4,50,000 Building 1,30,000 Machinery 1,70,000 Furniture 1,00,000 Investments (market value Rs.75,000) 75,000 Stock 15,00,000 Sundry debtors 2,20,000 Advertisement suspense 8,00,000 34,45,000 Rs. 1,00,000 10,50,000 6,50,000 2,15,000 60,000 6,50,000 6,95,000 25,000 34,45,000 It was decided that B would retire from the partnership on 1.4.2008 and D would be admitted as a partner on the same date. Following adjustments are agreed amongst the partners for the retirement/admission: (i) Goodwill is to be valued at Rs.5,00,000, but the same will not appear as an asset in the books of the firm. (ii) Building and machinery are to be revalued at Rs.10,00,000 and Rs.5,20,000 respectively. (iii) Investments are to be taken over by B at the market value. (iv) Provision for doubtful debts to be maintained at 20% on sundry debtors. (v) The capital of the reconstituted firm will be Rs.10,00,000 to be contributed by the partners A, C and D in their new profit sharing ratio of 2 :2 : 1. (vi) Surplus funds if any will be used to pay the bank overdraft. 2 PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2008 (vii) Amount due to retiring partner B will be transferred to his loan account. Prepare: (i) Revaluation Account; (20 Marks) (ii) Capital Accounts of the partners; and (iii) Balance Sheet of the firm after reconstitution. Answer (i) To To To Building Machinery Provision for doubtful debts Revaluation Account Rs. 50,000 By 1,30,000 By Investments Partners’ capital A/cs (Loss on revaluation) A B C (ii) A Rs. To Revaluation A/c To Goodwill (W.N.2) To A and B 1,00,000 1,00,000 By 50,000 30,000 20,000 - By Contingency Reserve Investment fluctuation Reserve To To Investments Advertisement suspense To B’s Loan A/c (Bal. fig.) To Balance (W.N.4) c/d 4,00,000 6,14,500 3,32,500 4,00,000 5,85,800 2,00,000 3,00,000 6,14,500 3,32,500 5,85,800 3,00,000 1,28,800 - By 12,500 75,000 7,500 5,000 - By C and D 50,000 1,50,000 50,000 30,000 20,000 37,500 22,500 15,000 1,52,000 B Rs. 91,200 Rs. 15,000 1,39,000 1,52,000 91,200 60,800 3,04,000 3,19,000 A Rs. B Rs. C Rs. D Rs. - 3,19,000 Partners’ Capital Accounts C Rs. 60,800 D Rs. - By Balance b/d 4,50,000 1,30,000 1,70,000 (W.N.3) (W.N.3) Bank (Bal.fig.) 27,000 - 3,80,800 3,00,000 Share Sacrificed 2 5 .28.PAPER – 1 : ADVANCED ACCOUNTING 3 (iii) Liabilities Partners’ capital accounts (W.800 Balance (Overdraft) Balance (Bal.000 6. 2.39. To To To 2.N.) b/d c/d Rs.000 5.15. which states that goodwill should be recorded in the books only when some consideration in money or money’s worth has been paid for it.87. is firstly written off and then an adjusting entry is passed for revalued goodwill of Rs. fig. already shown in the Balance Sheet of Rs.00.00.000 Stock 15.2008 (After retirement of B and admission of D) Rs. 1.000 Cash at bank (W.000 5. Calculation of sacrificing and gaining ratio Partners A B New share Old share 5 10 3 10 3.00.00.000 By 3.000 Machinery 4.50.800 Rs.07. 5.56. Assets Building 4.000 8.000 4. A’s capital A/c C’s capital A/c D’s capital A/c 27.00. This treatment is given based on the para 36 of AS 10. 10.04.000 7.80.800 for 6.00.N.800 34.000 4.000 2.95.1) Goodwill.800 7.00.000 Furniture 2. 5 10 1 10 3 10 Share Gained 2 5 .000 Debtors 1.800 Less: Provision doubtful debts 34.00.28.07.800 Bank Account Rs.4) A C D Long term loan B’s loan Sundry creditors Working Notes: 1.000 in sacrificing and gaining ratio of partners.87.000 1. Balance Sheet as at 01.800 By 3.000.28.00.20.20. 00.000 4.000 Rs.000 50.000 3. as at 31.000 5. and B Ltd.00.00. Capitals of A. 2008 C D Adjusting Entry 2 5 1 5 2 10 2 2 5 10 1 5 1 5 Rs.000 shares of B Ltd.00.00. Dr.00.00.00.60.000 1.000 3.00.000 10.4 PROFESSIONAL COMPETENCE EXAMINATION : MAY. C’s Capital A/c D’s Capital A/c To A’s Capital A/c To B’s Capital A/c 4.00.000 24.00.80.000 4.000 9.000 1.000 - .000 14.80. 6.40.) A Ltd.000 2.000 1.60.3.000 B Ltd.000 80.2008: Particulars Share capital: Equity shares 10 each (fully paid up) Securities premium General reserve Profit and loss account 10% Debentures Secured loan Sundry creditors Land and building Plant and machinery Investment (5. 1.50.000 10.00.000 1.000 2. 10.000 4.70.80.50.000 10.000 1.00.000 3.000 2 5 2 5 1 5 Rs. 10.00.50.000 5.00. C and D as per new ratio Total Capital of the firm after admission A’s share = C’s share = D’s share = Question 2 Following are the summarised Balance Sheets of A Ltd.00.000 2.000 2. Dr.00. 000 Value per share Total value No. (vi) The face value of shares of AB Ltd.18 Rs.e.20 Rs. (ii) Pass journal entries in the books of A Ltd.18. of Rs.40. are to be paid by issuing sufficient number of shares of AB Ltd. 60.000 30. (v) The shareholders of A Ltd. = Rs.000 1. are to be of Rs.18 per share B Ltd. number of shares to be issued to A Ltd.000 2.000 5. (iii) Pass journal entries in the books of AB Ltd. at a premium of Rs.500 shares 1.000 is to be treated as actual existing liability.20.6 per share i.000 24.80. and B Ltd. (ii) AB Ltd.60.10..e.20 per share (iv) A contingent liability of A Ltd.PAPER – 1 : ADVANCED ACCOUNTING 5 Stock Debtors Cash at bank 5. Ltd.12. Existing shares Less:Shares held by A Ltd.50. and B Ltd.16 (10+6) Rs. Rs. You are required to: (i) Calculate the purchase consideration (i.000 55.000 Rs. (iii) For the purpose of amalgamation.11.000 40.000 14.000 4. for the transfer of assets and liabilities. 1. for acquisition of A Ltd.). and B Ltd. the shares of the existing companies are to be valued as under: A Ltd. of shares to be issued at a premium of Rs.00.10 each.00. = Rs. to take over all the assets and liabilities of the existing companies. (iv) Prepare the Balance Sheet of AB Ltd.60.000 The companies agree on a scheme of amalgamation on the following terms: (i) A new company is to be formed by name AB Ltd.000 68.00.750 shares (16 Marks) .000 B.00. Answer (i) Statement showing calculation of purchase consideration (Number of shares) A Ltd.000 3.6 per share. 500 4.000 4.000 18.000 Dr.12.000 18.000 Dr.000 5.00.000 .00.87.000 18. Dr.00.000 Dr. 9.10.000 Rs.20.000 30.00.000 Rs.000 6. To Realisation A/c (Being the purchase consideration accounted for) Share in AB Ltd.000 2. 2008 Rs. Dr.00. Dr.000 8.00.75.000 Journal Entries in the books of A Ltd.25. 5. Realisation A/c To Land & building A/c To Plant & machinery A/c To Stock A/c To Sundry debtors A/c To Investments A/c To Bank A/c (Being assets transferred to Realisation A/c) Profit and loss A/c To Creditors A/c (Being contingent liability treated as real liability) 10% Debentures A/c Creditors A/c To Realisation A/c (Being transfer of liabilities to Realisation A/c) AB Ltd.00. A/c To AB Ltd. Rs. 24.000 80. 6. 18. Dr.00.00.000 Dr.000 3. Share capital Add: Securities premium Total purchase consideration (ii) 11.000 60.00.000 Dr.500 11.000 5.00.000 3. 18.00.000 1.20. 10.20. 60.6 PROFESSIONAL COMPETENCE EXAMINATION : MAY.20. (Being purchase consideration received) Share Capital A/c Securities premium A/c General Reserve A/c Profit and Loss A/c Dr.40. 00. A/c To Equity share capital A/c To Securities premium A/c (Being shares issued to Liquidator of A Ltd.000 .70.000 11.000 6.50.60.000 18.20.60.000 3. Dr. Dr.000 2. 4.00.00.75.50.00.PAPER – 1 : ADVANCED ACCOUNTING 7 Realisation A/c To Shareholders A/c Dr. (Being closure of shareholders a/c) (iii) Journal Entries in the Books of AB Ltd.000 90.000 18. accounted for) Land & building A/c Plant & machinery A/c Stock A/c Debtors A/c Bank A/c Goodwill A/c To Secured loan A/c To Sundry creditors A/c To Liquidator of B Ltd. Rs.000 Rs.000 3.00. A/c (Being the purchase consideration of A Ltd. Dr.000 3. Dr.000 30. Dr.000 2.80. 18.000 5.000 11. A/c (Being purchase consideration of B Ltd.80. Dr.20. Dr. Dr. 9.000 (Being transfer of balances to shareholders’ account) Shareholders A/c To Shares in AB Ltd.000 5.) Dr.00.000 Dr. accounted for) Liquidator of A Ltd.000 3. 1. Land & building A/c Plant & machinery A/c Stock A/c Debtors A/c Bank A/c Goodwill A/c To 10% Debentures A/c To Sundry creditors A/c To Liquidator of A Ltd.000 1.00. Dr. Dr.000 Dr.00.25.000 18.10.000 5.00. Dr.000 4. 18.000 40.00. A/c To Equity share capital A/c To Securities premium A/c Dr.70.75..2007 Sales from 1.500 Balance Sheet of AB Ltd.000 41.) Rs.2007 to 11.500 Sundry debtors 5.12.81. 50% of the original cost). information is made available: Stock as on 1.000 6.3.000 2.000 Rs.250 Equity shares of Rs.000 70.000) 18.4.000 8.00.2006 Purchases from 1. 2007 about 50% of this stock was sold for Rs.12.2006 to 31.00. 2008 Liquidator of B Ltd.000 8.50.e.20.000 6.500 and the balance of obsolete stock is expected to realize the same price (i.500 4.000 41.90.2007 Stock as on 31.55.3. In June. 3.70.10 each fully paid up (above shares have been issued for consideration other than cash) Securities premium 10% Debentures Secured loan Sundry creditors Question 3 (a) On 11.000 was written off.4.000 + 90.87.2007 Purchases from 1.000 5. 11.5.500 Land & building Plant & machinery Stock 10.2006 to 31.50. 3.22.4.4.3.2007.00.000 3.2007 The following Rs.) (iv) Liabilities Share capital: 1. due to damage 50% of the value of the stock which originally cost Rs.3.2007 Sales from 1.2007 the premises of Rocky Ltd.80.41.11.000 8.11.000 4.11.8 PROFESSIONAL COMPETENCE EXAMINATION : MAY. (After amalgamation of A Ltd.90.500 (Being shares issued to Liquidator of B Ltd.000 In valuing the stock on 31.4. was destroyed by fire.87.00. & B Ltd. .90.000 4.35.000 Cash at bank 3.60. Assets Goodwill (2.2007 to 11.000 13. 4.500 27.66.74.2008 Debit balances in Debtors ledger Credit balances in Debtors ledger Transactions during the month of April. 2008 Credit sales Sales return Cash received from debtors Discount allowed to debtors Bills receivable received from debtors Bills receivable dishonoured Bills payable given to suppliers Credit balance in Debtors ledger on 30.000 20% .8.000 Gross profit ratio of 2006-2007 = = = 10.400 9.55.11. To To To Opening stock Purchases Gross profit (Bal.900 21.62.20.66.11.55.200 3.100 39. Stock salvaged from fire amounts to Rs.500.000 100 Rs.000 By Sales 5.000 Gross profit 100 Sales Rs.000 10.000 5. 8.46. Balance as on 1. (b) From the following prepare General Ledger Adjustment account in Debtors Ledger and Debtors Ledger Adjustment account in General Ledger: Rs.71. Compute the value of stock lost in fire. Trading Account for the year ended 31.3.N.) 1.1. fig.200 3.) 3.2008 Answer (a) In the books of Rocky Ltd.700 8.PAPER – 1 : ADVANCED ACCOUNTING 9 The gross profit ratio is to be assumed as uniform in respect of other sales.2007 Rs.71.000 2.4.000 2.200 51.200 (8+8=16 Marks) Rs.75.000 By Closing stock (W. 4.2007 to 11. 1.2008 1. 11. 11.200 30.41.2007 Normal Rs. 2.000 Abnormal Rs.89.400 1.2008 to 30.500 Computation of stock lost in fire: In Debtors Ledger General Ledger Adjustment Account Rs.4. 1.000 11.16.4.000 Normal stock + Abnormal stock Rs.500 5.000 1.86.2.000 3. To To To Opening stock Purchases Gross profit @ 20% 1.000 +Rs.200 .4. 11.4. 4.2008 Particulars By Balance b/d By Debtors ledger adjustment A/c: Sales B/R dishonoured By Balance c/d 9.62.1.2.16.000 Abnormal Rs.2008 to 30. 5.10 PROFESSIONAL COMPETENCE EXAMINATION : MAY.2008 1.46.2008 Closing stock as given + Amount written off Rs.000 6.00. 5500 Rs.000 By By Sales Closing stock Normal Rs.4.11.000 = = = Less:Stock salvaged Stock lost in fire Working Note: Closing stock = = = (b) Date 1.2008 Particulars To Balance b/d To Debtors ledger adjustment A/c: Sales return Cash received Discount allowed 21.000 86.000 6.000 +Rs.500 Rs.80.91.30.4.4.000 Closing stock 11.200 Rs.700 8.000 Rs.500 Rs.74.900 3. 2008 Memorandum Trading Account for the period 1.100 39.11. Date 3.500 5.86. 48.4.) 12.PAPER – 1 : ADVANCED ACCOUNTING 11 B/R received 30.900 3.04.08 1.29.08 Particulars Balance b/d General ledger adjustment A/c: Sales return Cash received Discount allowed B/R received By 12.08 To To Particulars Balance b/d General ledger adjustment A/c: Sales B/R dishonoured 30.200 Rs.100 39.200 30.2008 18.29.000 1.2008 to 30.2008 By to 30.08 By 1.800 21.4.74.) 51.4.200 12.000 Ground maintenance Rs.2007) Cash on hand Cash at bank Receipts: Subscriptions For the year 2006-07 For the year 2007-08 Rs. fig.4.500 5.100 Sports materials 50.46.29.15.4.000 Rent 9.000 60. 2008: Receipts Opening balance (1.52.62.200 1.50.52.10. 3. Payments Payments: 39.000 1.29.200 2.08 To Balance c/d 9.3.08 Rs.700 8.fig.800 Question 4 Following is the Receipts and Payments Account of Mayur Club for the year ended 31 st March.800 In General Ledger 12.200 2. Balance c/d (Bal.400 3.800 Debtors Ledger Adjustment A/c Date 1.63.4.200 51.4.500 3.2008 To Balance c/d (Bal.4.120 .4.2007 Bank fixed deposits on 31.4. Date 2.500 22.000 Salaries Equipment purchased on 1. 2) Interest on fixed deposit Rs.000 1.50.000 4.500 Rs.80. (16 Marks) Rs.000 45. and (ii) Answer Mayur Club (i) To Income and Expenditure Account for the year ended 31.600.000 Sundry expenses Closing balance as on 31.500 8.600 Following additional information is provided to you: (i) The club has 220 members.9.19.4. 2008.500 73. 2008 For the year 2008-09 Interest on bank Fixed deposits @10% 4.2008 Expenditure Sports Material used Opening stock 73.a. Rs. Rs. Unexpired insurance amounts to Rs. 2007 the club had the following assets: Furniture Sports equipment Bank fixed deposit Stock of stationery Stock of sports material Unexpired insurance Subscription in arrear Note:There was no liability on 31.600 38. and on sports equipment at 15% p.2007. (iv) On 31st March. You are required to prepare: (i) Income and Expenditure Account. (ii) Depreciation to be provided on furniture at 10% p.70.500 . By By Income Subscription (W.3.000 11.N.12 PROFESSIONAL COMPETENCE EXAMINATION : MAY. stock of sports material in hand (after members use during the year) is valued at Rs.90.000 Balance Sheet as at 31st March.400 22. Rs.3. Rs.19. 2008.450 5.150. Rs.78.a. 9.500 Insurance Stationery 45.3. Rent for 1 month is outstanding.750 40.000 1. (iii) On 31st March.2008 Cash on hand Cash at bank 11.500 per member. 2.000 and stock of stationery at Rs. Rs. The annual subscription is Rs.3.400 3.880 31. 400 9.000 22.000 Rs.500 3.6) To To Ground maintenance Insurance Less: Unexpired on 31.48.N.3.000 Rs.500 1.800 8.400 1.000 60.80.000 Closing 78.1) balance 10.600 28.00.950 3.35.500 13.000 3.62. Assets Equipments: Opening balance Add: Addition 1.500 1.150 1.000 1.200 10.35.800 5.000 Balance Sheet as at 31 st March.04.PAPER – 1 : ADVANCED ACCOUNTING 13 deposit Add: Purchases Less: stock To To Salaries Rent Add: Outstanding (W.500 58.500 10.450 4.95.15. .000 3.78.000 45. 2008 Liabilities Capital fund: Opening (W.4.880 37.120 38.500 3.07 To Stationery used Opening stock Add: Purchases Less: Closing Stock To To Sundry expenses Depreciation on Furniture Sports equipment To Excess of income over expenditure 27.N.000 31.000 3.08 Add: Unexpired on 1.32. 000 + 1.32.45.N.000) Subscription in arrears: For 2006-07 (W.) Balance Sheet as at 31.000 27.000 3.000 31.500 4.00.500 9.95.2007 Rs.3.50.70. Liabilities Capital fund (Bal.08.50.45.000 22.500 12.4) Prepaid insurance (unexpired) Cash on hand Cash at bank 12.600 31.500 1. 1.150 6.500 2.500 2.500 2.500 13.N.000 insurance Rs.70.000 31.000 73.000 .000 2.N.000 4.400 39.500 8.100 50.500 Sports material Stock of stationery Fixed deposit in bank (4.5) Furniture: Less: Depreciation 4.500 income expenditure Rent outstanding (W.14 PROFESSIONAL COMPETENCE EXAMINATION : MAY.43. fig.50.000 78.6) Subscription received in advance for 2008-09 Working Notes: 1.500 27.95.80. 2008 Add: Excess of over 1.000 Sports equipment Furniture Sports materials Stock of stationery Fixed deposits in bank Subscription in arrears Prepaid (unexpired) Cash on hand Cash at bank 10.N.000 12.27.40. Assets 10.750 40.000 2.95.000 10.500 Less: Depreciation (W.3) For 2007-08 (W. 1.2008.30. Compute the average due date for the loan.000 @ 15% for 6 months Total 27.5.2008 is Rs. Depreciation on sports equipment On Rs. Subscription still in arrears of 2006-2007 Opening balance of subscription in arrears (as on 1.1.63.500 4.000.PAPER – 1 : ADVANCED ACCOUNTING 15 2.000 4.000 27.90.3. B on 1.2007) Less:Arrears subscription of 2006-07 received during the year 200708 Subscription of 2006-07 still in arrears as on 31.2008. . Income on account of subscription 220 members @ Rs.90.4.500 31. 9.4.500 18.3.3. (ii) A company sold 25% of the goods on cash basis and the balance on credit basis.80.000 9.500 each Rs. A advanced Rs. The amount is repayable in 6 equal monthly instalments commencing from 1.000 to Mr.2008 Subscription for the year 2007-08 Less: Subscription received for the year Subscription in arrears for 2007-08 9. Assume that the sale is uniform through out the year.1.2008 22. Outstanding rent of 2007-2008 Outstanding rent = Rs.40. Subscription in arrear on 31.500 1 month 11 months 13.3.000 4.60.000 @ 15% for full year On Rs.000 3.4.2008.500 6.500 Question 5 Answer any eight out of the following: (i) Mr. Debtors are allowed 2 months credit and their balance as on 31.000 5. Calculate the total sales of the company for the year ended 31.48. 000 was written off as bad debt.2008 to record the borrowing cost of loan as per AS 16.6.16 PROFESSIONAL COMPETENCE EXAMINATION : MAY.5.000 2 months i. Calculate the closing balance towards provision for doubtful debts and pass journal entry for giving effect to the provision maintained.50.2007.90.4.000 has DICGC cover.30.000 towards reinsurance accepted and paid Rs. The closing balance of sundry debtors amounts to Rs.000 on account of revaluation.000 on account of revaluation. The machinery was put to use from 1. 2008 (iii) In a concern.e.3. (b) Decrease in the value of fixed asset by Rs.51. the opening provision for doubtful debts is Rs.000. (vi) “One of the characteristics of financial statements is neutrality”.000.2008 + 3. (iv) How would you record a non-monetary grant received from the Government as per AS 12? (v) What is the accounting entry to be passed as per AS 10 for the following situations: (a) Increase in value of fixed asset by Rs.00.5 months = 16th July 2008 (ii) Debtors as on 31. Debtors as on 31.000 for purchase of machinery on 1. It was decided that 10% of the debtors is to be maintained as provision. How much will be credited to Revenue Account towards premium? (x) A loan outstanding of Rs.20.6. of instalments = 1. Interest on loan is 9% per annum.1.40.40.000 as renewal premium.10.1.00. The loan guaranteed by DICGC is assigned a risk weight of 50%.90.3.00. received Rs. (viii) What is Account current? (ix) Domestic Assurance Co.000 towards reinsurance ceded. The company received Rs.30.2008 Credit period allowed = = Rs. During the year a sum of Rs.2008 is standing for credit sales of February and March 2008 .00.2008 + (1 2 3 4 5 6) 6 = 1.1.70.Do you agree with this statement? (vii) An industry borrowed Rs. Ltd. What is the value of Risk-adjusted asset? (8 x 2 = 16 Marks) Answer (i) Average due date = Date of loan Sum of months from the date of lending to repayment No.50.4. Pass journal entry for the year ended 31.2008.000 as premium on new policies and Rs.3. . Dr.30.000 50. Non-monetary grants given free of cost are recorded at a nominal value.000 (iii) Closing balance of Sundry Debtors = Rs.00.51.40. In these circumstances. 50.PAPER – 1 : ADVANCED ACCOUNTING 17 Credit sales per month Credit sales for the year 2007-2008 25 75 Total sales of the company for the year ended 31.2008 = = = = = Rs.000 Rs.8.000 Add: Cash sales 8.000 Rs.000 Rs.000 × 12 Rs. Government grants may take the form of non-monetary assets such as land or other resources.1. (v) (a) Fixed asset A/c To Revaluation reserve A/c (Being the increase in value of fixed asset due to upward revaluation) Journal entries Rs.70.000 (iv) According to para 7.1 of AS 12 ‘Accounting for Government Grants’.2.6.11. 12.000 Closing provision for doubtful debts to be = maintained @ 10% Less:Opening Provision for doubtful debts Additional provision to be maintained = = Journal Entry Profit and Loss A/c To Provision for doubtful debts (Being additional provision on doubtful debts maintained @ 10%) Dr.12.40. it is usual to account for such assets at their acquisition cost.000 Rs.80.000 Rs.000 Rs.3. given at concessional rates.70. The journal entries given are on the assumption that the revaluation is done for the first time.00.40.000/2 Rs.000 12.63.000 Rs.20. for that particular fixed asset. they influence the making of a decision or judgement in order to achieve a predetermined result or outcome. Dr.000 30.000 Account current is a running statement of transactions between parties. 2008 (b) Profit and loss A/c To Fixed asset A/c (Being the decrease in net book value of fixed asset due to downward revaluation) Dr. Financial statements are said to depict the true and fair view of the business of the organization by virtue of neutrality.10. Financial Statements are not neutral if by the selection or presentation of information. (vii) 10 months) 12 Less:Interest relating to pre-operative period 3. that is free from bias.000 90.000 2.3. Dr.10.000 90.2008 (40.10.000 × 9% × = 7 Rs.00. To be reliable. one of the characteristics of financial statements is neutrality.000 10 = = = 2. for a given period of time and includes interest allowed or charged on various items.18 PROFESSIONAL COMPETENCE EXAMINATION : MAY.00.00.000 90. 3. 30.000 2. . 2. It is prepared when transactions regularly take place between two parties. maintained in the form of a ledger account. the information contained in financial statement must be neutral.000 × Interest upto 31.000 90.00. An account current has two parties – one who renders the account and the other to whom the account is rendered.000 90.10.000 (vi) Yes.00.000 Amount to be charged to P&L A/c Pre-operative interest to be capitalized Journal Entry Machinery A/c To Loan A/c (Being interest on loan for pre-operative period capitalized) Interest on loan A/c To Loan A/c (Being the interest on loan for the post-operative period) Profit and Loss A/c To Interest on loan A/c (Being interest on loan transferred to P&L A/c) (viii) Dr. 00.00. acquired a motor lorry on hire-purchase basis. Calculate the cost price of motor lorry and interest paid in each instalment.14. The whole issue was underwritten by A.10 each. B and C as below: A 15.000 8. (c) Explain Garner v/s Murray rule applicable in the case of partnership firms.000 × 50% = Question 6 Answer any four out of the following: (a) When can an item qualify to be a prior period item as per AS 5? (b) Ram & Co.000 and Rs. (d) Albert Ltd.000 70. Rs. .25.50. second year and third year respectively. Interest charged is @ 14% per annum.000 shares C 8.000 Rs.10.20.000 Equity shares of Rs.000 shares Calculate the number of shares to be taken up by the underwriters.000 7.000 7.00. issued 50.1.00.00.1.2.000.00.50. when is this rule not applicable.00.000 Premium amount to be credited to Revenue A/c (x) Loan outstanding Guaranteed by DICGC – Risk weight Value of risk adjusted asset Rs.000 shares Applications were received for 48.000 shares of which the marked applications were as follows: A B 12. It has to make cash down payment of Rs. 5.50.000 50% Rs.000 at the beginning.000 90.63.85.00.00.000 1.PAPER – 1 : ADVANCED ACCOUNTING 19 (ix) Premium received in respect of new policies Add: Renewal premium Add: Less: Re-insurance premium accepted Re-insurance ceded Rs. The payments to be made subsequently are Rs.90.000 shares B 25.50.000 at the end of first year.00.00. State.000 shares 25.30.1.000 shares C 10. 12.000 * 1.000* × 14 = 14.000 5.g. remuneration to partners etc.00. That the solvent partners should bear the loss arising due to insolvency of a partner in their capital ratio after making adjustments for past accumulated reserves.000.000 5.000.63. (b) Calculation of cost price and total interest to be paid on motor lorry No. drawings.000** × 2.14.50. Garner vs Murray rule is applicable at the time of any partner becoming insolvent.000 114 Cash Price in each instalment 1.000 114 14 63. It requires 1.50.000 + 1. (f) What are the items that are to be excluded in determination of the cost of inventories as per AS-2? (4 x 4 =16 Marks) Answer (a) According to para 16 of AS 5 on ‘Net Profit or Loss for the Period. which arise in the current period as a result of errors or omissions in the preparation of financial statements of one or more prior periods.000 114 14 = 35. to the date of dissolution but before making adjustment for profit or loss on realization in case of fluctuating capital.13.00.000 + 1.85.000 1.000 + 1.85. The term does not include other adjustments necessitated by circumstances.20 PROFESSIONAL COMPETENCE EXAMINATION : MAY. In case of fixed capital no such adjustments are required.000 × 2. prior period items refers to those income or expenses.000 1. which though related to prior periods. profits or losses. Prior Period Items and Changes in Accounting Policies’.000 = 2.000 Interest on cumulative instalment 1.13. . are determined in the current period e.000 1.00.000 = 5.50. arrears payable to workers in current period as a result of revision of wages with retrospective effect.00. interest on drawings/capitals... of instalment III II Amount due at the time of instalment 1.85.000 1. (c) In the case of dissolution of a partnership firm due to insolvency.000 I Cash down payment Total 2.63.14.85. **2.00. 2008 (e) Explain the factors to be considered before selecting the pre-packaged accounting software. The partnership deed provides for a specific method to be followed in case of insolvency of a partner.000 60.000 2.000 30. 5.00.000 Surplus of B allocated to A & C in 3:2 ratio 90. 48. then the conditions given in the deed would prevail.000 25.00. 2. Completeness of reports: Some packages might provide extra reports or the reports match the requirements more than the others.000 + 8.00.000 in 90.000 Nil C 10. .00. Ease of Use: Some packages could be very detailed and cumbersome compare to the others.000) 1. 3.50. Fulfillment of business requirements : Some packages have few functionalities more than the others. 3.000 1.00.50.20. All partners are insolvent.000 12. Reputation of vendor: Vendor support is essential for any software.000 This rule is not applicable when: 1.00.000 1.000 8.00.50. A package having more features cannot be opted because of the prohibitive costs. (Number of shares) A B 25. Cost: The budgetary constraints could be an important deciding factor. 4.000 shares.50.000 shares – (12. 2.50.000) =3.PAPER – 1 : ADVANCED ACCOUNTING 21 2.000 + 25.00.000 90. To choose the accounting software appropriate to the need of the organization is a difficult task. some of the criteria for selection could be the following: 1.000 Nil 1. The purchaser may try to match his requirement with the available solutions.000 3.000 (1. Only one partner is solvent.50. A stable vendor with good reputation and track records will always be preferred. (d) Gross Liability (3:5:2) Less:Marked applications Less:Unmarked applications 3:5:2 ratio Less: 15. That the solvent partners should bring in cash equal to their respective shares of the loss on realization.00.10.50.000 60.000 Number of shares to be taken up by the underwriters (e) There are many accounting softwares available in the market. . labour or other production costs. (f) Regular updates : Law is changing frequently. (ii) Storage costs unless those costs are necessary in the production process prior to a further production stage. and (iv) Selling and distribution costs. Items that are to be excluded in determination of the cost of inventories as per para 13 of AS 2 on ‘Valuation of Inventories’ are: (i) Abnormal amounts of wasted materials. (iii) Administrative overheads that do not contribute to bringing the inventories to their present location and condition. 2008 6. A vendor who is prepared to give updates will be preferred to a vendor unwilling to give updates.22 PROFESSIONAL COMPETENCE EXAMINATION : MAY.