Gurukripa's Guide to Nov 2013 CA Inter Accounting Answers

Gurukripas Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting
Nov 2013.1

Gurukripas Guideline Answers to Nov 2013 Exam Questions
CA Inter (IPC) Group I Accounting

Question No.1 is compulsory (4 X 5 = 20 Marks).
Answer any five questions from the remaining six questions (16 X 5 = 80 Marks). [Answer any 4 out of 5 in Q.7]
Working Notes should form part of the answer.
Wherever necessary, suitable assumptions should be made and indicated in answer by the Candidates.

Question 1(a): AS 10 (5 Marks)
Amna Ltd contracted with a Supplier to purchase a specific Machinery to be installed in Department A in two months time.
Special Foundations were required for the Plant, which were to be prepared within this supply lead time. The cost of site
preparation and laying foundations were ` 47,290. These activities were supervised by a Technician during the entire period,
who is employed for this purpose of ` 15,000 per month. The Technicians Services were given to Department A by Department
B, which billed the services at ` 16,500 per month after adding 10% profit margin.

The Machine was purchased at ` 52,78,000. Sales Tax was charged at 4% on the Invoice. ` 18,590 Transportation Charges were
incurred to bring the Machine to the Factory. An Architect was engaged at a fee of ` 10,000 to supervise machinery installation
at the Factory Premises. Also, payment under the invoice was due in 3 months. However, the Company made the payment in
the 2
nd
month. The Company operates on Bank Overdraft @ 11%.

Ascertain the amount at which the asset should be capitalized under AS 10.

Solution: Similar to Page No.B.7.5, Q.No.17
Cost of Fixed Asset (i.e. Machine) is calculated as under
Particulars `
Purchase Price Given 52,78,000
Add: Sales Tax at 4% ` 52,78,000 4% (See Note 1) 2,11,120
Site Preparation Cost Given 47,290
Technicians Salary Specific / Attributable AOH for 2 months (See Note 2) 30,000
Initial Delivery Cost Transportation 18,590
Professional Fees for Installation Architects Fees 10,000
Total Cost of Asset 55,95,000
Note: 1. It is assumed that Sales Tax is not subject to VAT Credit / Refund / Rebate.
2. Internally Booked Profits should be eliminated in arriving at the cost of Fixed Assets.
3. Interest on Bank Overdraft for earlier payment of invoice is not relevant under AS 10 or AS 16.

Question 1(b): AS 6 (5 Marks)
Narmada Ltd purchased an existing Bottling Unit from Kaveri Ltd. Kaveri Ltd followed Straight Line Method of charging
depreciation on machinery of the sold unit whereas Narmada Ltd followed Written Down Value Method on its other units. The
Directors of Narmada Ltd want to continue to charge depreciation for the acquired unit in Straight Line Method which is not
consistent with the WDV Method followed in other units. Discuss the contention of the Directors with reference to the AS 6.
Further during the year, Narmada Ltd set up a new plant on coastal land. In view of the corrosive climate, the Company felt that
its machine life is reducing faster. Can the Company charge a higher rate of depreciation?

Solution: Similar to Page No.B.4.4, B.4.5 Q.No.18, 21 F (Aud) N 97, N 94
CASE A
1. Principle: The ICAIs Guidance Note on Accounting for Depreciation in Companies provides that a Company may adopt
or follow different methods of depreciation, for different types of assets, provided the same methods are consistently
adopted every year in terms of Sec.205 (2) of the Companies Act.
2. Selection of method: The factors to be considered while selecting a method of depreciation are (a) Type of
asset, (b) Nature of its use, and (c) Circumstances prevailing in the business. Under AS 6, a combination of
more than one method may be used. So, Business Units in different geographical locations can follow different
methods of depreciation on machinery provided the same are consistently followed.
3. Conclusion: The Company can continue to follow the previous method of charging depreciation for the acquired bottling
unit, even if it is not in agreement with the method presently followed in its other units. However, it is advisable to disclose
this Accounting Policy separately, to understand and appreciate the Financial Statements better.

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Nov 2013.2
CASE B
1. Where the Statute has prescribed a certain rate of depreciation and the Managements assessment of Useful Life is
shorter than that envisaged by the Statute, the Company can adopt a higher rate of depreciation.
2. In the given case, the Company can charge depreciation based on its estimate of the useful life of machinery, provided
that such estimate is not less than the rate prescribed by the Companies Act, for that class of assets.
3. Such higher depreciation rates and / or the reduced useful lives of the assets should be disclosed by way of Notes to
the accounts in the Financial Statements.

Question 1(c): AS 9 (5 Marks)
A Ltd entered into a contract with B Ltd to despatch goods valuing ` 25,000 every month for 4 months upon receipt of entire
payment. B Ltd accordingly made the payment of ` 1,00,000 and A Ltd started despatching the goods. In third month, due to a
natural calamity, B Ltd requested A Ltd. not to despatch goods until further notice, though A Ltd is holding the remaining
goods worth ` 50,000 ready for despatch. A Ltd accounted ` 50,000 as Sales and transferred the balance to Advance Received
against Sales. Comment upon the treatment of balanced amount with reference to the provisions of AS9.

Solution: Similar to Page No.B.6.8, Q.No.23, P (Aud) N 06, F (Aud) N 01

1. Analysis: The transfer of property in goods results in or coincides with the transfer of significant risks and rewards of
ownership to the Buyer. Also, the sale price has been recovered by the Seller. Hence, the sale is complete in the given
case, but delivery has been postponed at Buyers request.

2. Conclusion: The Seller Company should recognise the entire income of ` 1 Lakh as Income (` 25,000 p.m. for 4
months) and no part of the same is to be treated as Advance Receipt against Sales.

Question 1(d): AS 14 (5 Marks)
A Ltd is amalgamating with B Ltd. They are undecided on the method of accounting to be followed. You are required to advice
the management of B Ltd, on the method of accounting that can be adopted under AS14.

Solution: Refer Page No.A.11.3 Q.No.7
Method Pooling of Interests Method Purchase Method
1. Used in
Generally used in amalgamations in the nature of
Merger.
Normally used in amalgamations in the nature of
Purchase.
2. Recording of
Assets and
Liabilities
Assets, Liabilities and Reserves of the Transferor
Company are recorded at their existing
Carrying Amounts, subject to adjustments for
uniformity in accounting policies.
Assets and Liabilities are recorded either at their
(a) existing Carrying Amounts, or (b) by allocating
the consideration to individual assets on the basis of
their Fair Values.
3. Profit & Loss
Account of the
Transferor
Company
Balance of the Profit & Loss Account of the
Transferor Company should be
aggregated with the corresponding balance
in P&L A/c of the Transferee Company, OR
transferred to the General Reserve, if any, of
the Transferee Company.
Balance in the Profit & Loss Account appearing in the
Financial Statements of the Transferor Company,
whether debit or credit, loses its identity.
4. Treatment of
NonStatutory
Reserves
Capital or Revenue Reserves should be recorded
at their existing Carrying Amounts and in the
same form as at the date of amalgamation.
Capital or Revenue Reserves (other than
Statutory Reserves) should not be included in the
Financial Statements of the Transferee Company.
5. Treatment of
Statutory
Reserves
Statutory Reserves are retained at the existing
Carrying Amount, in the books of the Transferee
Company.
Statutory Reserves are retained at the existing
Carrying Amount by the entry
Amalgamation Adjustment Account Dr.
To Statutory Reserve (by name) A/c
When the Statutory Reserve is no longer required to
be maintained, the above entry should be reversed.
6. Goodwill /
Capital
Reserve
Difference between the amount recorded as
Share Capital issued (plus any additional
consideration in the form of cash or other
assets), and the amount of Share Capital of the
Transferor Company should be adjusted in
Reserves, in the Financial Statements of the
Transferee Company.

Excess Consideration over the value of the net assets
of the Transferor Company should be recognised in
the Transferee Companys Financial Statements as
Goodwill, which should be amortised to income on a
systematic basis over its useful life. (normally 5 yrs.)
If the consideration is lower than the value of the
Net Assets acquired, the difference should be treated
as Capital Reserve.
Nov 2013.3
Method Pooling of Interests Method Purchase Method

7. Adjustments
to Assets and
Liabilities
Adjustments become necessary only when both
Companies have conflicting accounting policies.
The effect of changes in accounting policies must
be disclosed, as per AS 4.
Adjustments become necessary to
(a) ensure uniformity in accounting policies, or,
(b) record assets not recorded in the books of the
Transferor Company, e.g. Knowhow or other
Intangible Asset, or,
(c) record liability not recorded in the books of the
Transferor Company, e.g. provision for planned
employee termination or plant relocation costs.
8. Management
Intervention
There is no domination by the Management of
either of the amalgamating Companies in
recording Assets and Liabilities.
The Management of the Transferee Company may
influence the determination of Fair Values for Assets
and Liabilities.

Question 2: Partnership Retirement cum Admission (16 Marks)
Pathak, Quereshi and Ranjeet were Partners sharing Profits in the ratio of 7 : 5 : 3 respectively. On 31
st
March 2013, Quereshi
retired when the Firms Balance Sheet was as follows:
Capital and Liabilities ` Properties and Assets `
Capital Account: Land & Building 10,00,000
Pathak 8,50,000 Plant & Machinery 4,65,000
Quereshi 6,20,000 Furniture, Fixture & Fittings 2,30,100
Ranjeet 3,70,000 Stock 1,82,200
General Reserve 2,25,000 Trade Debtors 2,00,000
Trade Creditors 1,13,000 Less: Provision for Bad Debts 6,000 1,94,000
Cash at Bank 1,06,700
Total 21,78,000 Total 21,78,000
It was agreed that:
(i) Land & Buildings be appreciated by 20%.
(ii) Plant & Machinery be depreciated by 10%.
(iii) Provision for Bad Debts be made equal to 4% of Trade Debtors.
(iv) Outstanding Repairs Bill amounting to ` 1,500 be recorded in the books of account.
(v) Goodwill of the Firm be valued at ` 3,00,000, and Quereshis Capital Account be credited with his share of goodwill
without raising Goodwill Account.
(vi) Half of the amount due to Quereshi be immediately paid to him by means of a cheque, and the balance be treated as a
Loan bearing interest @ 12% per annum.

After Quereshis retirement, Pathak and Ranjeet admitted Swamy as new Partner with effect from 1
st
April 2013. Pathak, Ranjeet
and Swamy agreed to share profits in the ratio of 2 : 1 : 1 respectively. Swamy brought Patents valued at ` 20,000 and ` 3,80,000 in
cash including payment for his share of Goodwill as valued by the Old Firm. The entire amount of ` 4,00,000 was credited to
Swamys Capital Account. Adjustments were made in the Capital Account for Swamys share of goodwill.
(a) Pass Journal Entries for all the above transactions without any narration, and
(b) Prepare the Capital Account of all the Partners.

Solution: Similar to I llustration 24, 25 Page A.6.35 and A.6.37
J ournal Entries
S.No Particulars Dr. (`) Cr. (`)
1. Land and Building A/c (10,00,000 20%) Dr. 2,00,000
To Revaluation A/c 2,00,000
(Being Land and Buildings appreciated by 20%)
2. Revaluation A/c Dr. 46,500
To Plant & Machinery A/c (4,65,000 10%) 46,500
(Being Plant and Machinery depreciated by 10%)
To Provision for Bad Debts A/c (4% of ` 2,00,000 6,000) 2,000
(Being Provision for Bad Debts made equal to 4% of Debtors)
Nov 2013.4

To Outstanding Repair Bills A/c 1,500
(Being Outstanding Repair Bills recorded in the Books of Accounts)
5. Revaluation A/c (WN 2) Dr. 1,50,000
To Pathaks Capital A/c 70,000
To Quereshis Capital A/c 50,000
To Ranjeets Capital A/c 30,000
(Being Gain on Revaluation transferred to Partners Capital A/c)
Note: Net Gain on Revaluation as per Effect of J ournal Entries 1,2,3 & 4 =
2,00,000 () 46,500 () 2,000 () 1,500 = ` 1,50,000. Alternatively, Revaluation
Account can be prepared to ascertain the Net Gain.

6. Pathaks Capital A/c Dr. 10,000
Ranjeets Capital A/c Dr. 15,000
Swamys Capital A/c Dr. 75,000
To Quereshis Capital A/c (WN 1) 1,00,000
(Being Adjustment made for Goodwill)
7. General Reserve A/c (Distribution in 7:5:3) Dr. 2,25,000
To Pathaks Capital A/c 1,05,000
To Quereshis Capital A/c 75,000
To Ranjeets Capital A/c 45,000
(General Reserve transferred to the Old Partners in Old Profit Sharing Ratio)
8. Quereshis Capital A/c Dr. 8,45,000
To Bank A/c 4,22,500
To Quereshis Loan A/c 4,22,500
(Being settlement made to Quereshi and Balance treated as Loan)
9. Patents A/c Dr. 20,000
Cash A/c Dr. 3,80,000
To Swamys Capital A/c 4,00,000
(Being Capital Brought in by the new Partner)

Partners Capital Accounts
Details Pathak Quereshi Ranjeet Swamy Details Pathak Quereshi Ranjeet Swamy
To
Quereshis
10,000 15,000 75,000
By bal.b/d
By General
8,50,000 6,20,000 3,70,000
Capital A/c Reserve 1,05,000 75,000 45,000

To Bank A/c

4,22,500
By Cap A/c
Pathak

10,000

To Ranjeet 15,000
Quereshis Swamy 75,000
Loan A/c 4,22,500 By Revln. 70,000 50,000 30,000
To bal c/d 10,15,000 4,30,000 3,25,000 By Patents 20,000
By Cash A/c 3,80,000
Total 10,25,000 8,45,000 4,45,000 4,00,000 Total 10,25,000 8,45,000 4,45,000 4,00,000

Working Notes 1. Adjustment for Goodwill
Particulars Pathak Quereshi Ranjeet Swamy
Creation of Goodwill (7:5:3) 1,40,000 Cr. 1,00,000 Cr. 60,000 Cr.
Goodwill Written Off (2:1:1) 1,50,000 Dr. 75,000 Dr. 75,000 Dr.
Net Effect 10,000 Dr. 1,00,000 Cr. 15,000 Dr. 75,000 Dr.

Question 3(a): Single Entry Statement of Affairs (8 Marks)
The details of Assets and Liabilities of Mr. A as on 3132012 and 3132013 are as follows:

Nov 2013.5
Particulars 3132012 ` 3132013 `

Assets: Furniture 50,000
Building 1,00,000
Stock 1,00,000 2,50,000
Sundry Debtors 60,000 1,10,000
Cash in hand 11,200 13,200
Cash at Bank 60,000 75,000
Liabilities: Loans 90,000 70,000
Sundry Creditors 50,000 80,000
Mr. A decided to provide depreciation on Buildings by 2.5% and Furniture by 10% for the period ended on 3132013.
Mr. A purchased jewellery for ` 24,000 for his daughter in December 2012. He sold his car on 3032013 and the amount
of ` 40,000 is retained in the business. You are required to:
(i) Prepare Statement of Affairs as on 3132012 & 3132013.
(ii) Calculate the Profit received by A during the year ended 3132013.

Solution: Similar to I llus 10 Page A.3.9 1. Statement of Affairs (amts in `)
Capital and Liabilities 31.03.2012 31.03.2013 Properties and Assets 31.03.2012 31.03.2013
Capital (bal.fig) 2,41,200 4,40,700 Fixed Assets: Furniture 50,000 45,000
NonCurrent Liabilities: Building 1,00,000 97,500
Loan 90,000 70,000 Current Assets:
Current Liabilities: Stock in Trade 1,00,000 2,50,000
Sundry Creditors 50,000 80,000 Sundry Debtors 60,000 1,10,000
Cash in Hand 11,200 13,200
Cash at Bank 60,000 75,000
Total 3,81,200 5,90,700 Total 3,81,200 5,90,700

2. Computation of Profit (balancing figure in Capital A/ c of A)
Particulars ` Particulars `
To Drawings (J ewellery) 24,000 By Balance b/d 2,41,200
To balance c/d 4,40,700 By Additional Capital (Sale Proceeds of Car) 40,000
By Profits for the year (bal.fig) 1,83,500
Total 4,64,700 4,64,700

Question 3(b): Cash Flow from Operating Activities (8 Marks)
Surya Ltd has provided you the following details. Prepare Cash Flow from Operating Activities by Indirect Method in
accordance with AS 3: Profit & Loss Account of Surya Ltd for the year ended 31
st
March, 2013
To Depreciation 86,700 By Operating Profit before depreciation 11,01,600
To Patents written off 35,000 By Profit on Sale on Investments 10,000
To Provision for Tax 1,25,000 By Refund of Tax 3,000
To Proposed dividend 72,000 By Insurance ClaimMajor Fire Settlement 1,00,000
To Transfer to Reserve 87,000
To Net Profit 8,08,900
Total 12,14,600 Total 12,14,600
Additional Information: (in `)
Particulars 3132012 3132013
Stock 1,20,000 1,60,000
Trade Debtors 7,500 75,000
Trade Creditors 23,735 87,525
Provision for Tax 1,18,775 1,25,000
Prepaid Expenses 15,325 12,475
Marketable Securities 11,775 29,325
Cash Balance 25,325 35,340

Nov 2013.6
Solution: Cash Flow Statement (Extract) of Surya Ltd for the year ending 31.3.2013
Particulars `
A. CASH FLOWS FROM OPERATI NG ACTI VI TI ES

Net Profit before Tax & Extraordinary Items (WN 1) 9,89,900
Adjustments for: Depreciation 86,700
Patents written off 35,000
Profit on Sale of Investments (Non Operating Income) (10,000)
Cash Flow before Working Capital Changes 11,01,600
Adjustments for Working Capital Changes
Increase in Creditors [87,525 23,735] 63,790
Decrease in Prepaid Expenses [15,325 12,475] 2,850
Increase in Trade Debtors [7,500 75,000] (67,500)
Increase in Stock [1,20,000 1,60,000] (40,000)
Cash Generated from Operations Before Income Tax & Extraordinary Items 10,60,740
Less: Income Tax Paid (WN 2) [1,18,775 Refund of Tax 3,000] (1,15,775)
Cash Flow Before Extraordinary Items 9,44,965
Add: Extraordinary Items (Insurance Claim Major Fire Settlement) 1,00,000
Net Cash Flow from / (used in) Operating Activities 10,44,965
Note: Marketable Securities are classifiable under Cash Equivalents and hence not considered for Working Capital Changes.

Working Note 1:
Particulars `
Net Profit after Taxation & Extraordinary items 8,08,900
Add: Transfer to General Reserve 87,000
Proposed Dividend 72,000
Provision for Taxation 1,25,000
Less: Extraordinary Item Income (Insurance Claim)
(1,00,000)
Refund of Tax (3,000)
Net Profit before Taxation & Extraordinary Items 9,89,900

Working Note 2: Provision for Taxation A/ c
To Cash / Bank (B/ F) (Tax paid during the year) 1,18,775 By balance b/d 1,18,775
To balance c/d 1,25,000 By P & L A/c (Provision made during the year) 1,25,000
Total 2,43,775 Total 2,43,775

Question 4: NPOs Corrected R & P A/c, Income 7 Expenditure A/c & Balance Sheet (16 Marks)
Highend Club appointed a new Accountant for maintaining books of account. He prepared following Receipts and Payments
A/c for the year ended as on 31
st
March 2013.
Receipts and Payments Account
Receipts ` Payments `
To balance b/d 9,000 By Printing & Stationery 21,000
To Annual Subscription for current yr 9,18,000 By Telephone Expenses 45,000
Add: Outstanding of last year received this yr 36,000
9,54,000
By Repair & Maintenance Expenses (incl
Payment for Sports Material ` 54,000)
1,26,000
Less: Subscription received in Advance as By Garden Upkeep 55,000
on 31032012 18,000 9,36,000 By Electricity Charges 36,000
To Sale of Old Newspaper 36,000 By Loss on Sale of Furniture 36,000
To 5% Interest on Investments 27,000 (Cost as per Books ` 90,000)
To Entrance Fees 68,000
To Donation for Building 18,00,000 By balance c/d 25,57,000
Total 28,76,000 Total 28,76,000

Nov 2013.7
Additional Information:
Highend Club had balances 01042012 ` 01042013 `
Furniture 3,60,000
Stock of Sports Material 1,33,200 36,000
Subscription Receivable 54,000
Subscription Received in Advance 18,000
Outstanding Printing & Stationery Expenses 1,500 2,500
Outstanding Electricity Charges 3,200
50% Entrance Fees is to be capitalized.

Do you agree with above Receipts and Payment Account? If not, prepare correct Receipts and Payments Account and Income
and Expenditure Account for the year ended 31
st
March 2013, and Balance Sheet as on that date.

Solution: Similar to Page No.A.4.41, Q.No.25

A. Receipts & Payments Account for the year ended 31
st
March 2013
Receipts ` Payments `
To balance b/d 9,000 By Printing & Stationery Expenses 21,000
To Subscription Received (WN 2) 9,00,000 By Telephone Expenses 45,000
To Sale of Old Newspaper 36,000 By Garden Upkeep 55,000
To 5% Interest on Investments 27,000 By Repairs & Maint. (1,26,000 54,000) 72,000
To Entrance Fees 68,000 By Sports Material 54,000
To Donation for Building 18,00,000 By Electricity Charges 36,000
To Sale Proceeds of Furniture (90,000 36,000) 54,000 By balance c/d (bal. fig) 26,11,000
Total 28,94,000 Total 28,94,000

2. Subscription Account
To balance b/d (Subscription recble opg Bal) 36,000 By balance b/d (Opg Bal of Subs. Recd in Adv.) 18,000
To Income and Expenditure A/c (for the yr given) 9,18,000 By Cash / Bank (balancing figure) (received) 9,00,000
To balance c/d (Clg Bal of Subs. Recd in Adv) 18,000 By balance c/d (Subs. Recble at the yearend) 54,000
Total 9,72,000 Total 9,72,000

3. Printing & Stationery Expenses
To Cash / Bank A/c (paid given) 21,000 By Opening Balance (Opg O/s Exps) 1,500
To Closing Balance (Closing o/s Exps) 2,500 By P & L A/c (bal. fig) Exps for the year 22,000
Total 23,500 Total 23,500

4. Sports Material Consumed = Opening Stock + Purchases Closing Stock
= 1,33,200 + 54,000 36,000 = ` 1,51,200.

B. Income & Expenditure Account for the year ended 31
st
March 2013
Expenditure ` I ncome `
To Printing & Stationery (WN 3) 22,000 By Subscription for the year (given) 9,18,000
To Telephone Expenses 45,000 By Sale of Old Newspapers 36,000
To Garden Upkeep 55,000 By 5% Interest on Investments 27,000
To Repairs & Maintenance 72,000 By Entrance Fees (50% of 68,000) 34,000
To Loss on Sale of Furniture 36,000
To Electricity Charges (paid + pble) = 36,000 + 3,200 39,200
To Sports Material Consumed (WN 4) 1,51,200
To Surplus (excess of Income over Expenditure) 5,94,600
Total 10,15,000 Total 10,15,000

Nov 2013.8
Working Note 1. Balance Sheet as on 1

st
April 2012 (to ascertain OB of Capital Fund)
Capital Fund (balancing figure) 10,58,700 NonCurrent Assets:
Current Liabilities: A. Fixed Assets Furniture (given) 3,60,000
Subscription received in Advance 18,000 B. Investments (27,000 5%) 5,40,000
Printing & Stationery Expenses o/s 1,500 Current Assets:
Stock of Sports Material (given) 1,33,200
Subscription Receivable 36,000
Cash and Bank Balances 9,000
Total 10,78,200 Total 10,78,200

C. Balance Sheet as @ 31
st
March 2013
Capital Fund NonCurrent Assets:
Capital Fund 10,58,700 A. Fixed Assets 2,70,000
Add: Surplus 5,94,600 Furniture (3,60,000 90,000)
Entrance Fees 50% 34,000 16,87,300 B. Investments (same as OB) 5,40,000
Building Fund (Donation for Building) 18,00,000 Current Assets:
Current Liabilities: Stock of Sports Materials (given) 36,000
Subscription Received in Advance 18,000 Subscription Receivable (given) 54,000
Expenses Payable Cash and Bank Balances 26,11,000
Printing & Stationery Expenses 2,500
Electricity Charges 3,200 5,700
Total 35,11,000 Total 35,11,000

Question 5: Balance Sheet as per Revised Schedule VI (16 Marks)
On 31
st
March 2013 Bose and Sen Ltd provides to you the following Ledger Balances after preparing its Profit and Loss
Account for the year ended 31
st
March 2013:
Credit Balances ` Debit Balances `
Equity Share Capital, fully paid Shares of ` 10 each 70,00,000 Calls in Arrears 7,000
General Reserve 15,49,100 Land 14,00,000
Loan from State Finance Corporation 10,50,000 Buildings 20,50,000
Secured by hypothecation of P & M (repayable within 1 yr ` 2,00,000) Plant & Machinery 36,75,000
Loans: Unsecured (Long Term) 8,47,000 Furniture & Fixtures 3,50,000
Sundry Creditors for Goods & Expenses (Payable within 6 months) 14,00,000 Stocks: Finished Goods 14,00,000
Profit & Loss Account 7,00,000 Raw Materials 3,50,000
Provision for Taxation 3,25,500 Sundry Debtors 14,00,000
Proposed Dividend 4,20,000 Advances: ShortTerm 2,98,900
Provision for Dividend Distribution Tax 71,400 Cash in Hand 2,10,000
Balances with Banks 17,29,000
Preliminary Expenses 93,100
Patents & Trade Marks 4,00,000
Total 1,33,63,000 Total 1,33,63,000
The following additional information is also provided:
(i) 4,20,000 fully paid Equity Shares were allotted as consideration for Land & Buildings.
(ii) Cost of Building ` 28,00,000
Cost of Plant & Machinery ` 49,00,000
Cost of Furniture & Fixtures ` 4,37,500
(iii) Sundry Debtors for ` 3,80,000 are due for more than 6 months.
(iv) The amount of Balances with Bank includes ` 18,000 with a Bank which is not a Scheduled Bank, and the deposits of ` 5
Lakhs are for a period of 9 months.
(v) Unsecured Loan includes ` 2,00,000 from a Bank and ` 1,00,000 from Related Parties.

Nov 2013.9
You are not required to give previous year figures. You are required to prepare the Balance Sheet of the Company as on 31
st

March 2013, as required under Revised Schedule VI of the Companies Act, 1956.

Solution: Similar to I llustration 1 Page A.8.23

Balance Sheet of Bose and Sen Ltd as on 31
st
March 2013
Particulars as at 31
st
March Note This Year Prev. Yr
I EQUI TY AND LI ABI LI TI ES:
(1) Shareholders Funds:
(a) Share Capital 1 69,93,000
(b) Reserves and Surplus 2 22,49,100
(2) NonCurrent Liabilities: Long Term Borrowings 3 16,97,000
(3) Current Liabilities:
(a) Trade Payables 14,00,000
(b) Other Current Liabilities 4 2,00,000
(c) Short Term Provisions 5 8,16,900
Total 1,33,56,000
I I ASSETS
(1) NonCurrent Assets
Fixed Assets: Tangible Assets 6 74,75,000
Intangible Assets Patents and Trade Marks 4,00,000
Other Non Current Assets Preliminary Expenses 7 93,100
(2) Current Assets:
(a) Inventories 8 17,50,000
(b) Trade Receivables 9 14,00,000
(c) Cash and Cash Equivalents 10 19,39,000
(d) Short Term Loans and Advances 2,98,900
Total 1,33,56,000

Note 1: Share Capital
Particulars This Year Prev. Yr
Authorised: Equity Shares of each
Preference Shares of each
Issued, Subscribed & Paid up: 7,00,000 Equity Shares of ` 10 each 70,00,000
Out of the above, 4,20,000 Shares of `10 each are allotted for Non Cash Consideration
Less: Calls in Arrears (7,000)
Total 69,93,000

Note 2: Reserves and Surplus (showing appropriations and transfers) (all figures for this year)
Particulars Opg. Bal. Additions Deductions Clg. Bal
General Reserve 15,49,100
Surplus (P & L A/c) 7,00,000
Total 22,49,100

Note 3: Long Term Borrowings
(a) Term Loans from Banks: Secured against Hypothecation of Plant and Machinery
(10,50,000 less Amount Repayable within one year shown under Other Current Liabilities
= (10,50,000 2,00,000)
8,50,000
Unsecured 2,00,000
(b) Loans from Related Parties Unsecured 1,00,000
(c) Loans from Other Parties Unsecured 5,47,000
Total 16,97,000

Nov 2013.10
Note 4: Other Current Liabilities

Current Maturities of Long Term Debt Loan from State Finance Corporation 2,00,000
Total 2,00,000

Note 5: Short Term Provisions
Provision for Taxation 3,25,500
Proposed Dividend 4,20,000
Provision for Dividend Distribution Tax 71,400
Total 8,16,900

Note 6: Tangible Fixed Assets (Note: In the absence of data, Other Columns are not filled up in this Table).
Item Gross Block / Cost Depreciation Net Block / WDV
Opg
Bal.
Addns /
(Dedns)
Clg Bal
Opg
Bal.
Addns /
(Dedns)
Clg Bal
As at Yr
Beginning
As at Yr
End
Tangible Assets
Land 14,00,000 0 14,00,000
Building 28,00,000 (b/f) 7,50,000 20,50,000
Furniture 4,37,500 (b/f) 87,500 3,50,000
Plant & M/c 49,00,000 (b/f) 12,25,000 36,75,000
Total 95,37,500 20,62,500 74,75,000
I ntangible Assets
Patents &
Trademarks

4,00,000

4,00,000

Note 7: Other Non Current Assets
As per AS 26 on Intangible Assets, Intangible Assets can be recognized in the Balance Sheet only when there is a future
economic benefit expected out of the Assets. Considering this view point, Preliminary Expenses cannot be retained in the
Balance Sheet as an Asset and can be adjusted against P&L A/c [Reserves and Surplus Schedule].

However, as per Guidance Note on Revised Schedule VI, Share Issue Expenses, Discount on Issue of Shares, Borrowing
Costs can be retained in the Balance Sheet and can be amortised over a period of time. Till such time, the same shall be
disclosed either as Other Non Current Assets or Other Current Assets, as the case may be.

Note 8: Inventories
Raw Materials 3,50,000
Finished Goods 14,00,000
Total 17,50,000

Note 9: Trade Receivables (assumed as Secured and considered good)
Sundry Debtors
(a) Debt Outstanding for a period exceeding 6 months from the date they are due for payment 3,80,000
(b) Other Debts (balancing figure) 10,20,000
Total 14,00,000

Note 10: Cash and Cash Equivalents
Balances with Banks
Scheduled Banks (17,29,000 18,000) 17,11,000
Other Banks 18,000 17,29,000
Cash on Hand 2,10,000
Total 19,39,000
Out of the above, Bank Balances to the extent of ` 5,00,000 have Maturity Period less than 12 Months, and Bank Balances
to the extent of `12,29,000 have Maturity Period more than 12 Months.

Nov 2013.11

Question 6: Insurance Claim Loss of Profit (16 Marks)
Monalisa & Co runs plastic goods shop. Following details are available from quarterly sales tax return filed. (`)
Sales 2009 2010 2011 2012
From 1
st
January to 31
st
March 1,80,000 1,70,000 2,05,950 1,62,000
From 1
st
April to 30
th
June 1,28,000 1,86,000 1,93,000 2,21,000
From 1
st
July to 30
th
September 1,53,000 2,10,000 2,31,000 1,75,000
From 1
st
October to 31
st
December 1,59,000 1,47,000 1,90,000 1,48,000
Total 6,20,000 7,13,000 8,19,950 7,06,000

Period `
Sales from 16.09.2011 to 30.09.2011 34,000
Sales from 16.09.2012 to 30.09.2012 Nil
Sales from 16.12.2011 to 31.12.2011 60,000
Sales from 16.12.2012 to 31.12.2012 20,000

A Loss of Profit Policy was taken for ` 1,00,000. Fire occurred on 15
st
September 2012. Indemnity Period was for 3 months. Net
Profit was ` 1,20,000 and Standing charges (all insured) amounted to ` 43,990 for year ending 2011.

Determine the Insurance Claim.


1. Period of Indemnity (given) = 3 months (15.09.2012 to 15.12.2012)

2. Computation of GP Ratio
GP Rate for Claim purposes =
Sales
Charges Standing Insured + Profit Net
100 =
8,19,950
43,990 + 1,20,000

20%

3. Computation of Insurable Amount
Particulars `
Annual Turnover, i.e. Turnover for 12 months preceding the date of Fire (Note 1 below) 7,82,000
Add: Adjustment for Increase in Turnover (15% of ` 7,82,000) (Note 2 below) 1,17,300
Adjusted Annual Turnover 8,99,300
GP on Adjusted Annual Turnover at 20% on ` 8,99,300 = I nsurable Amount 1,79,860

Note 1: Computation of Turnover for 12 months preceding the date of Fire (from 15.09.2011 to 15.09.2012)
Particulars `
Sales from 16.09.2011 to 31.09.2011 (Given) 34,000
Sales from 01.10.2011 to 31.12.2011 (Given) 1,90,000
Sales from 16.09.2012 to 30.09.2012 Nil
Turnover for 12 months preceding the date of Fire 7,82,000

Note 2: Trend Increase in Sales
Year ending 31
st
Dec 2009 31
st
Dec 2010 31
st
Dec 2011
Sales for the year 6,20,000 7,13,000 8,19,950

Percentage Increase in Sales
6,20,000
6,20,000 - 7,13,000
= 15%
7,13,000
7,13,000 - 8,19,950
= 15%

Observation: Average Trend Increase in Sales is taken as 15%

Nov 2013.12
4. Computation of Short Sales

Particulars `
Std Turnover from 16.09.2011 to 15.12.2011 (previous year corresponding to Indemnity Period) (A) 1,64,000
Add: Adjustment for Increase in Turnover (` 1,64,000 15%) 24,600
Adjusted / Expected Turnover during Indemnity Period 1,88,600
Less: Actual Turnover during Indemnity Period, i.e. for the period 16.09.2012 to 15.12.2012
Sales for the period 16.09.2012 to 30.09.2012 (Given) Nil
Sales for the period 01.10.2012 to 31.12.2012 (Given) 1,48,000
Less: Sales for the period 16.12.2012 to 31.12.2012 (Given) (20,000) (1,28,000)
Short Sales 60,600

(A) Computation of Actual Sales for the period 16.09.2011 to 15.12.2011
Particulars `
Sales for the period 16.09.2011 to 30.09.2011 (Given) 34,000
Sales for the period 01.10.2011 to 31.12.2011 (Given) 1,90,000
Sales for the period 16.12.2011 to 31.12.2011 (Given) (60,000)
Total 1,64,000

5. Computation of Allowable Additional Expenses = Not Applicable in this Question.

6. Computation of Claim
Particulars `
Net Claim for Loss of Profit = Gross Profit on Short Sales = 20% on ` 60,600 12,120
Admissible Claim (based on Average Clause) = Net Claim
Amount Insurable
Amount Policy
= ` 12,120
1,79,860
1,00,000

6,739

Question 7(a): Investment A/cs Equity Shares (4 Marks)
On 01.05.2012, Mr. Mishra purchased 800 Equity Shares of ` 10 each in Fillco Ltd at ` 50 each from a Broker who charged 5%.
He incurred 20 paisa per ` 100 as Cost of Share Transfer Stamps. On 31.10.2012, Bonus was declared in the ratio 1 : 4. The
Shares were quoted at ` 110 and ` 60 per share before and after the record date of Bonus Shares respectively. On 30.11.2012,
Mr. Mishra sold the Bonus Shares to a Broker who charged 5%. Prepare Investment A/c in the books of Mr. Mishra for the year
ending 31.12.2012, and Closing Value of Investment shall be made at Cost or Market Value whichever is lower.

1. Basic Computations
Particulars Computation
`
(a) Cost of Shares purchased on 01.05.2012 (800 50 = 40,000) + (5% of 40,000) + 0.2% of 40,000 42,080
(b) Sale Proceeds of Shares sold on 30.11.2012 (200 ` 60) 5% Brokerage 11,400
(c) Profit on Sale of Bonus Shares on 30.11.2012
Sale Proceeds = 11,400
Less: Average Cost 42,080
1,000
200
= (8,416)

2,984
(d) Valuation of Equity Shares of 31.12.2012
Cost: 42,080
1,000
800
= 33,664
Market Value: 800 Shares of ` 60 = 48,000
Least of
the two
33,664

2. I nvestment (Equity Shares of Fillco Limited) Account (in Mishras Books)
Date Particulars FV Cost Date Particulars FV Cost
01.05.2012 To Bank 8,000 42,080 30.11.2012 By Bank 2,000 11,400
31.10.2012 To Bonus Issue (1:4) 2,000 31.12.2012 By balance c/d 6,000 (b/f) 33,664
31.12.2012 To P&L (Profit) 2,984
Total 45,064 Total 1,50,000 45,064

Nov 2013.13
Question 7(b): Internal Reconstruction Journal Entries (4 Marks)

Pass Journal Entries for the following transactions:
(i) Conversion of 2 Lakh fully paid Equity Shares of ` 10 each into Stock of ` 1,00,000 and balance as 12% Fully Convertible
Debenture.
(ii) Consolidation of 40 Lakh fully paid Equity Shares of ` 2.50 each into 10 Lakh fully paid Equity Share of `10 each.
(iii) SubDivision of 10 Lakh fully paid 11% Preference Shares of ` 50 each into 50 Lakh fully paid 11% Preference Shares
of ` 10 each.
(iv) Conversion of 12% Preference Shares of ` 5,00,000 into 14% Preference Shares ` 3,00,000 and remaining balance as 12%
NonCumulative Preference Shares.

Solution: Similar to I llustration 1 and 2, Page A.10.4
J ournal Entries
1. Equity Share Capital A/c (` 10 each) Dr. 20,00,000
To Equity Stock A/c 1,00,000
To 12% Fully Convertible Debentures A/c 19,00,000
(Being Equity Shares of ` 10 each fully paid converted into Stock, and 12% fully
Convertible Debentures)

2. Equity Share Capital A/c (` 25 each) Dr. 1,00,00,000
To Equity Share Capital A/c (` 10 each) 1,00,00,000
(Being 40 Lakh Equity Shares of Face Value ` 2.50 each converted into Equity
Shares of face value ` 10 each)

3. 11% Preference Share Capital A/c (11% Preference Shares ` 50 each) Dr. 5,00,00,000
To Preference Share Capital A/c (11% Preference Shares of ` 10 each) 5,00,00,000
(Being 10 Lakh 11% Preference Shares of ` 50 each converted into 50 Lakh 11%
Preference Shares of ` 10 each)

4. 12% Preference Share Capital A/c Dr. 5,00,000
To 14% Preference Share Capital A/c 3,00,000
To 12% Non Cumulative Preference Share Capital A/c 2,00,000
(Being 12% Preference Share Capital of ` 5,00,000 converted into 14%
Preference Shares of ` 3,00,000 and remaining into 12% Non Cumulative
Preference Shares)

Question 7(c): Account Current Partnership Firm (4 Marks)
Roshan has a Current Account with Partnership Firm. It has a Debit Balance of ` 75,000 as on 01.07.2012. He has further
deposited the following amounts:
Date Amount (`)
14.07.2012 1,38,000
18.08.2012 22,000

He withdrew the following amounts:
Date Amount (`)
29.07.2012 97,000
09.09.2012 11,000
Show Roshans A/c in the Ledger of the Firm. Interest is to be calculated at 10% on Debit Balance and 8% on Credit Balance.
You are required to prepare Current Account as on 30
th
September 2012.

Solution: Roshan Current Account with Partnership Firm
Date Particulars Dr. Cr.
Dr. /
Cr.
Net Cum
Balance
Days
Debit
Product
Credit
Product
01072012 To Balance b/d 75,000 Dr. 75,000 14 10,50,000
14072012 By Cash / Bank 1,38,000 Cr. 63,000 15 9,45,000
29072012 To Cash / Bank 97,000 Dr. 34,000 20 6,80,000
18082012 By Cash / Bank 22,000 Dr. 12,000 22 2,64,000
09092012 To Cash / Bank 11,000 Dr. 23,000 21 4,83,000
Nov 2013.14
Date Particulars Dr. Cr.

Dr. /
Cr.
Net Cum
Balance
Days
Debit
Product
Credit
Product
30092012 To Interest 472 Dr. 23,472
24,77,000 9,45,000
Note: Interest is computed as follows:
On Credit Products: ` 9,45,000 8%
365
1
= 207 On Debit Products = ` 24,77,000 10%
365
1
= 679
So, Net Interest Debit = 679 207 = 472

Question 7(d): Average Due Date (4 Marks)
The following transactions took place between Thick and Thin. They desire to settle their account on Average Due Date.
Purchases by Thick from Thin Sales by Thick to Thin
9
th
July, 2013 7,200 15
th
July, 2013 18,000
14
th
August, 2013 12,200 31
st
August, 2013 16,500
Calculate Average Due Date and the amount to be paid or received by Thick.

Solution: 1. Computation of Products for Thicks payment (Base Date = 9
th
J uly)
Due Date No. of Days from Base Date Amount (`) Product (Rs.)
(1) (2) (3) (4) = (2) (3)
9
th
J uly 0 7,200 0
14
th
Aug 36 (22+14) 12,200 4,39,200
19,400 4,39,200

2. Computation of Products for Thins payment (Base Date = 9
th
J uly)
Due Date No. of Days from Base Date Amount (`) Product (Rs.)
(1) (2) (3) (4) = (2) (3)
15
th
J uly 6 18,000 1,08,000
31
st
Aug 53 (22+31) 16,500 8,74,500
24,500 9,82,500
Average Due Date = Base Date +
Amounts in Difference
Products in Difference
= 9
th
J uly +
19,400 - 34,500
4,39,200 - 9,82,500
= 9
th
J uly +
15,100
5,43,300

= 9
th
J uly + 36 days = 14
th
Aug 2013. Note: Thick has to receive `15,100 from Thin on 14.8.2013.

Question 7(e): Accounting in eenvironment (4 Marks)
Explain the reasons due to which the manual accounting system was replaced by the computerized accounting system in
modern time.

Solution: Refer Page No.A.1.5, Q.No.2, Point A.


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Gurukripas Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting

Method Pooling of Interests Method Purchase Method

S.No Particulars Dr. (`) Cr. (`)

Particulars 3132012 ` 3132013 `

Working Note 1. Balance Sheet as on 1

Note 4: Other Current Liabilities

4. Computation of Short Sales

Question 7(b): Internal Reconstruction Journal Entries (4 Marks)

Date Particulars Dr. Cr.

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