Accounts Nov 2012

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The Institute of Chartered Accountants of India
PAPER 1 : ACCOUNTING
Question No. 1 is compulsory
Candidates are also required to answer any five questions from the remaining six questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Question 1
(a) A business concern maintains self-balancing ledgers. On the basis of following
information, prepare General Ledger Adjustment Account in Debtors Ledger for the
month of April, 2012:
(` )
Debit balances in Debtors Ledger on 01-04-2012
3,58,200
Credit balances in Debtors Ledger on 01-04-2012
9,400
Transactions during the month of April, 2012 are:

Total Sales (including Cash Sales, ` 1,00,000)
Sales Returns
Cash received from credit customers
Bills Receivable received from customers
20,95,400
33,100
17,25,700
95,000
Bills Receivable dishonoured
7,500
Cash paid to customers for returns
6,000
Transfers to Creditors Ledger

Credit balances in Debtors Ledger on 30-04-2012
16,000
9,800
(b) Arun and Varun were partners sharing profits in the ratio of 13 : 11 respectively. On
1st April, 2012 they admitted Tarun as a new partner on the following conditions:
(i)
All partners would share profits equally in the new firm.
(ii) Tarun would bring in ` 52,000 as his capital and ` 36,000 as his share of goodwill.
No goodwill account appeared in the books of the firm at the time of Tarun's
admission and it was decided not to open any goodwill account. Adjustment for
Tarun's goodwill being made through capital accounts.
Pass journal entries to record all the transactions on Tarun's admission.
Clearly show the calculation of ratio of sacrifice.
(c) On 1st April, 2012, Fastrack Motors Co. sells a truck on hire purchase basis to Teja
Transport Co. for a total hire purchase price of ` 9,00,000 payable as to ` 2,40,000 as
The
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Accountants of
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INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012
down payment and the balance in three equal annual instalments of ` 2,20,000 each
payable on 31st March 2013, 2014 and 2015.
The hire vendor charges interest @ 10% per annum.
You are required to ascertain the cash price of the truck for Teja Transport Co.
Calculations may be made to the nearest rupee.
(d) During the year ended 31st March, 2012, Sachin Cricket Club received subscriptions as
follows :
`
31st
For year ending

March, 2011
12,000
For year ending 31st March, 2012
6,15,000
For year ending 31st March, 2013
18,000
Total
6,45,000
There are 500 members and annual subscription is ` 1,500 per member.
On 31st March, 2012, a sum of ` 15,000 was still in arrears for subscriptions for the year
ended 31st March, 2011.
Ascertain the amount of subscriptions that will appear on the credit side of Income and
Expenditure Account for the year ended 31 st March, 2012. Also show how the items
would appear in the Balance Sheet as on 31st March, 2011 and the Balance Sheet as on
31st March, 2012.
(4 x 5 = 20 Marks)
Answer
(a)
General Ledger Adjustment Account in Debtors Ledger

Date
Particulars
01.04.2012 To Balance b/d
` Date
9,400 1.4.2012
01.04.2012 To Debtors ledger

to
30.4.2012
Sales Returns
Bills receivable
received
Transfer to
creditors ledger
30.04.2012 To Balance c/d
(bal.fig)
By Balance b/d
`
3,58,200
01.04.2012 By Debtors ledger
adjustment A/c :
Cash received
Particulars
to
17,25,700 30.4.2012
adjustment A/c :
Credit sales
19,95,400
33,100
Cash paid for returns
6,000
95,000
Bills receivable
dishonoured
7,500
16,000 30.04.2012 By Balance c/d
9,800
4,97,700
23,76,900
The
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23,76,900
(b)
Journal Entries on Taruns admission

Year
2012
1st April Bank A/c
Dr.
To Taruns Capital A/c (52,000 + 36,000)
(Being amount brought by Tarun towards his capital
and share of goodwill)
Taruns Capital A/c
Dr.
To Aruns Capital A/c
To Varuns Capital A/c
(Being Taruns share of goodwill in the firm ` 36,000, has
been credited to the old partners in the sacrificing ratio 5:3)
Dr.
Cr.
88,000
36,000
88,000
22,500
13,500
Note: In place of above entries, Premium on goodwill or Goodwill A/c may also be
opened instead of Taruns capital A/c, for share of goodwill brought by him in cash.
Working Note:
Calculation of Sacrificing Ratio
Arun
Varun
Tarun
Old Ratio
13/24
11/24
--
New Ratio
1/3
1/3
1/3
Sacrificing Ratio (Old new)

(13/24 1/3) = 5/24
(11/24 1/3) = 3/24
--
Therefore, sacrificing ratio is 5:3.

(c) Ratio of interest and amount due =
Rate of int erest

10
= = 1
11
100 + Rate of int erest 110
There is no interest element in the down payment as it is paid on the date of the
transaction. Instalments paid after certain period includes interest portion also.
Therefore, to ascertain cash price, interest will be calculated from last instalment to first
instalment as follows:
Calculation of Interest and Cash Price
No. of
instalments
[1]
3rd
2nd
Amount due at the

time of instalment
[2]
2,20,000
4,20,000 [W.N.1]
[3]
1/11 of ` 2,20,000 =` 20,000
1/11 of ` 4,20,000= ` 38,182
Cumulative
Cash price
(2-3) = [4]
2,00,000
3,81,818
1st
6,01,818 [W.N.2]
1/11of ` 6,01,818= ` 54,711
5,47,107
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Interest
Total cash price = ` 5,47,107+ 2,40,000 (down payment) =` 7,87,107.

Working Notes:
1.
` 2,00,000+ 2nd instalment of ` 2,20,000= ` 4,20,000.
2.
` 3,81,818+ 1st instalment of ` 2,20,000= ` 6,01,818.
(d) Amount of subscription for the year 2011-12

Income & Expenditure Account (An extract) of Sachin Cricket Club
For the year ended 31st March, 2012
`
7,50,000
By Subscription
(500 members ` 1,500 per
member)
Balance Sheet of Sachin Cricket Club as on 31st March 2011 (An extract)
Liabilities
Rs` Assets
Rs`
Subscription Receivable (15,000 + 12,000)
27,000
Balance Sheet of Sachin Cricket Club as on 31st March 2012 (An extract)
Liabilities
Unearned Subscription
Rs` Assets
18,000 Outstanding Subscription

of 2010-11
Rs`
15,000
of 2011-12
` (7,50,000 6,15,000)
1,35,000
1,50,000
Question 2
The following was the Balance Sheet of V Ltd. as on 31st March, 2012:
Particulars
Note No.
Equity and Liabilities

(1) Shareholders' Funds
(a) Share Capital
(b) Reserves and Surplus
(2) Non-current Liabilities
(a) Long-term Borrowings
(3) Current Liabilities
Trade Parables
Total
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Amount
(` in lakhs)
1
2
1,150
(87)
630
170
1,863
Assets
(1) Non-current Assets
Tangible Assets
(2) Current Assets
Inventories
Trade Receivables
Cash and Cash equivalents
5
Total
1,152
380
256
75
1,863
Notes:
(1) Share Capital
Authorised :
Issued, Subscribed and Paid up :
80 lakhs Equity Shares of ` 10 each, fully paid up
800
35 lakhs 12% Cumulative Preference Shares of ` 10 each, fully paid
350
Total
1,150
(2) Reserves and Surplus

Profit & Loss Account
(87)
Total
(87)
(3) Long-term Borrowings

10% Secured Cumulative Debentures of ` 100 each, fully paid up
Outstanding Debenture Interest
600
30
Total
630
(4) Tangible Assets

Land and Buildings
445
Plant and Machinery
593
Furniture, Fixtures and Fittings
114
Total
1,152
(5) Cash and Cash Equivalents

Balance at Bank
69
Cash in hand
6
Total
The
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75
On 1st April, 2012, P Ltd. took over the entire business of V Ltd. on the following terms:
V Ltd.'s equity shareholders would receive 4 fully paid equity shares of P Ltd. of ` 10 each
issued at a premium of ` 2.50 each for every five shares held by them in V Ltd.
Preference shareholders of V Ltd. would get 35 lakh 13% Cumulative Preference Shares of
` 10 each fully paid up in P Ltd., in lieu of their present holding.
All the debentures of V Ltd. would be converted into equal number of 10.5% Secured
Cumulative Debentures of ` 100 each, fully paid up after the take over by P Ltd., which would
also pay outstanding debenture interest in cash.
Expenses of amalgamation would be borne by P Ltd. Expenses came to be ` 2 lakhs. P Ltd.
discovered that its creditors included ` 7 lakhs due to V Ltd. for goods purchased.
Also P Ltd.'s stock included goods of the invoice price of ` 5 lakhs earlier purchased from
V Ltd., which had charged profit @ 20% of the invoice price.
You are required to :
(i)
Prepare Realisation A/c in the books of V Ltd.
(ii) Pass journal entries in the books of P Ltd. assuming it to be an amalgamation in the
nature of merger.
(16 Marks)
Answer
(i)
In the books of V Ltd.

Realisation Account
` in
lakhs
` in
lakhs
To Land and Buildings A/c
445 By 10%
Secured
Debentures A/c
Cumulative
600
To Plant and Machinery A/c
593 By Outstanding Debenture interest A/c
30
To Furniture, Fixtures & Fittings A/c
114 By Trade payables A/c
To Inventories A/c
380 By P Ltd. A/c
To Trade Receivables A/c
256
To Bank A/c
170
1,150
(purchase consideration - Refer

working note)
69
To Cash in Hand A/c
To Equity Shareholders A/c
87
(Profit on Realisation)
1,950
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1,950
(ii)
1.
In the books of P Ltd.

Journal Entries
Business Purchase A/c
Dr.
Dr.
Cr.
` in
lakhs
` in
lakhs
1,150
To Liquidator of V Ltd. A/c
1,150
(Being purchase consideration due)

2.
Land and Buildings A/c
Dr.
445
Plant and Machinery A/c

Furniture, Fixtures & Fittings A/c
Dr.
Dr.
593
114
Inventories A/c
Trade Receivables A/c
Dr.
Dr.
380
256
Bank A/c
Cash in Hand A/c
Dr.
Dr.
69
6
Profit and Loss A/c

To 10% Debentures A/c
Dr.
87
600
To Outstanding Debenture interest A/c

To Trade payables A/c
30
170
To Business Purchase A/c
1,150
(Being assets and liabilities taken over from V Ltd. under the
scheme of amalgamation in the nature of merger)
3.
Liquidators of V Ltd. A/c
Dr.
1,150
To Equity Share Capital A/c
640
To 13% Cumulative Preference Shares A/c
350
To Securities Premium A/c
160
(Being discharge of consideration, by allotment of 64 lakhs equity

shares of ` 10 each at a premium of ` 2.50 per share and 35
lakhs 13% cumulative preference shares of ` 10 each at par)
4.
10% Secured Cumulative Debentures A/c

To 10.5% Secured Cumulative Debentures A/c
(Being 10% Secured Cumulative Debentures of V Ltd.
converted into 10.5% Secured Cumulative Debentures of P
Ltd.)
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Dr.
600
600
5.
Outstanding Debenture interest A/c
Dr.
30
To Bank A/c
30
(Being outstanding debenture interest paid in cash by P Ltd.)

6.
Dr.
Goodwill A/c
To Bank A/c
2
2
(Being amalgamation expenses met by P Ltd.)

7.
Trade Payables A/c
Dr.
To Trade Receivables A/c
(Being settlement of mutual liability)

8.
Profit and Loss A/c
Dr.
To Inventories A/c (5 x 20%)

(Being unrealized profit on stock eliminated from the inventories
of P Ltd.)
Working Note:
Calculation of Purchase Consideration payable by P Ltd.
` in lakhs
Payment to preference shareholders:
13% Cumulative Preference Shares of ` 10 each (35 lakhs shares ` 10)
Payment to equity shareholders:
350
(80 lakhs shares x 4/5)= 64 lakhs equity shares @ ` 10
640
Securities Premium (64 lakhs equity shares @ ` 2.5)

Total purchase consideration
160
1,150
Question 3
(a) A Trader sold out goods on hire purchase at a profit of 25% on cost price.
Prepare (i) Hire Purchase Stock A/c (ii) Shop Stock A/c (iii) Hire Purchase Debtors' A/c
and (iv) Hire Purchase Adjustment A/c in the books of the trader from the following
details :
(` )
Stock in Godown on 01-04-2011
6,00,000
on 31-03-2012
5,00,000
However, amalgamation expenses should be recognized as expenses when they are incurred
because no asset is acquired from the expenditure incurred.
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Overdue Instalments :
on 01-04-2011
on 31-03-2012
40,000
60,000
Goods with Customer on Hire Purchase on 01-04-2011
7,20,000
Purchases
12,92,000
Instalments received
12,00,000
(8 Marks)
(b) The following notes pertain to Brite Ltd.'s Balance Sheet as on
31st
March, 2012:
Notes
` in Lakhs
(1) Share Capital

Authorised :
20 crore shares of ` 10 each
Issued and Subscribed :
10 crore Equity Shares of ` 10 each
20,000
10,000
2 crore 11% Cumulative Preference Shares of ` 10 each

Total
2,000
12,000
Called and paid up:

10 crore Equity Shares of ` 10 each, ` 8 per share called
and paid up
8,000
2 crore 11% Cumulative Preference Shares of ` 10 each,

fully called and paid up
2,000
Total
10,000
(2) Reserves and Surplus :

Capital Reserve
485
Capital Redemption Reserve
1,000
Securities Premium
General Reserve
Surplus i.e. credit balance of Profit & Loss (Appropriation) Account
Total
2,000
1,040
273
4,798
On 2nd April 2012, the company made the final call on equity shares @ ` 2 per share.
The entire money was received in the month of April, 2012.
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10
On 1st June 2012, the company decided to issue to equity shareholders bonus shares at
the rate of 2 shares for every 5 shares held and for this purpose, it decided to utilize the
capital reserves to the maximum possible extent.
Pass journal entries for all the above mentioned transactions. Also prepare the notes on
Share Capital and Reserves and Surplus relevant to the Balance Sheet of the company
immediately after the issue of bonus shares.
(8 Marks)
Answer
(a) (i)
Hire Purchase Stock Account

`
1.4. 11
To Balance b/d
7,20,000 1.4.11 to
31.3.12
1.4.11 to To Shop stock A/c

31.3.12 To H.P Adjustment A/c
13,92,000 31.3.12
3,48,000
By H.P. Debtors 12,20,000

A/c
By Balance c/d 12,40,000
(bal.fig.)
25
17, 40,000
125
24,60,000
(ii)
24,60,000
Shop Stock Account

`
1.4.11
To
1.4.11 to To
31.3.12
Balance b/d
Purchases
6,00,000 1.4.11 By Hire

Purchase 13,92,000
to
Stock
Account
(Cost of Goods
31.3.12
sold) (bal.fig.)
12,92,000 31.3.12 By Balance c/d
18,92,000
(iii)
5,00,000
18,92,000
Hire Purchase Debtors Account

`
1.4.11
To Balance b/d
1.4.11
to
31.3.12
To Hire
Purchase
Stock
Account
(bal.fig.)
40,000 1.4.11 to
31.3.12
31.3.12
By Bank A/c
By Balance c/d
12,00,000
60,000
12,20,000
12,60,000
The
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12,60,000
(iv)
11
Hire Purchase Adjustment Account

`
31.3.12 To
31.3.12
To
Stock reserve on
closing H.P.Stock A/c
25
12,40,000
125
Profit and Loss Account

(bal.fig.)
`
1.4.11
2,48,000
By Stock reserve on
opening H.P. Stock A/c
25
7,20,000
1,44,000
125
1.4.11 By
2,44,000 to
31.3.12
3,48,000
H.P. Stock
4,92,000
(b)
4,92,000
In the books of Brite Ltd.

Journal Entries
2012
April 2 Equity Share Final Call A/c
Dr.
Dr.
Cr.
` in
lakhs
` in
lakhs
2,000
2,000
(Final call of ` 2 per share on 10 crore equity shares

made due)
Bank A/c
Dr.
2,000
To Equity Share Final Call A/c

(Final call money on 10 crore equity shares received)
2,000
June 1 Capital Reserve A/c

Capital Redemption Reserve A/c
Dr.
Dr.
485
1,000
Securities Premium A/c

General Reserve A/c
Dr.
Dr.
2,000
515
To Bonus to Shareholders A/c

(Bonus issue of two shares for every five shares held,
by utilising various reserves as per Boards resolution
dated.)
Bonus to Shareholders A/c
(Capitalisation of profit)
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4,000
Dr.
4,000
4,000
12
Notes to Accounts
` in lakhs
1. Share Capital
Authorised share capital
20 crore shares of ` 10 each
Issued, subscribed and fully paid up share capital
14 crore Equity shares of ` 10 each, fully paid up
(Out of the above, 4 crore equity shares @ ` 10 each were
issued by way of bonus)
2 crore, 11% Cumulative Preference share capital of
` 10 each, fully paid up
2.
Reserves and Surplus

Capital Reserves
Less: Utilized for bonus issue
Capital Redemption reserve
Securities Premium
General Reserve
Surplus (Profit and Loss Account)
20,000
14,000
2,000
16,000
485
(485)
1,000
(1,000)
2,000
(2,000)
1,040
(515)
Total
525
273
798
Notes: As per SEBI Guidelines, Capital reserve and Securities premium have been
assumed as realized in cash and hence can be used for issue of fully paid bonus shares.
Question 4
Following information of the Final Accounts of Kumaran Ltd. are missing as shown below:
Trading and Profit & Loss A/c for the year ended 31-03-2012
(`000)
To Opening Stock
To Purchases
7,000 By Sales
? By Closing Stock
To Manufacturing Expenses
1,750
To Gross Profit c/d
(`000)
?
?
?
Total
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Total
To Office and Administration
13
By Gross Profit b/d
Expenses
7,400 By Commission Received
To Interest on Debentures
1,000
600
To Provision for Taxation

To Net Profit for the year c/d
?
?
Total
Total
To Proposed Dividends
? By Balance b/d
To Transfer to General Reserves
? By Net Profit for the year b/d
To Balance Transfer to Balance Sheet
Total
?
1,400
Total
?
?
Balance Sheet as on 31-03-2012

Liabilities
(` 000) Assets
(` 000)
Paid up Capital
General Reserves:
10,000 Fixed Assets:

Plant and Machinery
14,000
Balance at the beginning of

the year
Other Fixed Assets

? Current Assets:
Proposed addition
Profit and Loss Appropriation A/c
?
?
Stock in Trade
Sundry Debtors
10% Debentures
Current Liabilities
?
?
Bank Balance
Total
Total
You are required to provide the missing figures with the help of following information:
(i)
Current ratio 2 :1.
(ii) Closing stock is 25% of sales.

(iii) Proposed dividends are 40% of the paid up capital.
(iv) Gross profit ratio is 60%.
(v) Ratio of Current Liabilities to Debentures is 2 : 1.
(vi) Transfer to General Reserves is equal to proposed dividends.
(vii) Profit carried forward are 10% of the proposed dividends.
(viii) Provision for taxation is 50% of profits.
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?
?
1,250
?
14
(ix) Balance to the credit of General Reserves at the beginning of the year is twice the
amount transferred to that account from the current profits.
(16 Marks)
Answer
` 000
1.
Amount of debentures
Interest on debentures
=
100
Rate of interest
600
=
100 = 6,000
10
2.
Amount of proposed dividend

= Paid up share capital x 40%= 10,000 x 40% = 4,000
3.
Transfer to general reserves

= Amount of proposed dividend i.e. 4,000
4.
Profit carried forward

= 10% of proposed dividend = 10% of 4,000 = 400
5.
Net profit for the year

= Proposed dividend + Transfer to general reserve + Profit carried forward Net profit
carried forward
= (4,000 + 4,000 + 400) 1,400 = 7,000
6.
Provision for taxation

Provision for taxation = 50% of profit (i.e. before net profit)
It means that net profit is 50% and provision for tax is 50%.
Therefore, if net profit is 7,000 then, Provision for taxation is also 7,000
7.
Gross profit
= Net profit + All expenses Commission received
= (7,000 + 7,000 + 600 + 7,400) 1,000 = 21,000
8.
Sales
Gross profit
=
100
Rate of profit
21,000
=
100 = 35,000
60
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9.
15
Closing stock
= 25% of sales
= 25% x 35,000 = 8,750
10. Purchases
= (Sales + Closing stock) (Opening stock + Manufacturing expenses + Gross profit)
= (35,000 + 8,750) (7,000 + 1,750 + 21,000)
= 43,750 - 29,750 = 14,000
11. Balance of General Reserve as on 1.4.2011
= Twice the amount transferred to general reserve during the year
= 2 x 4,000 = 8,000
12. Current Liabilities
= Current liabilities is twice of amount of debentures
= 2 x 6,000 = 12,000
13. Current Assets
Current Assets = Current ratio x Current liabilities
= 2 x 12,000 = 24,000
14. Sundry Debtors
Sundry Debtors = Current assets Stock in trade Bank balance
= 24,000 8,750 1,250 = 14,000
15. Total of Liabilities part of the balance sheet
= Shareholders capital + Non-current liabilities + Current liabilities
= (10,000 + 12,000 + 400) + 6,000+ 12,000 = 40,400
16. Other Fixed Assets
= Total of Liabilities part of the balance sheet (Current assets + Plant and Machinery)
= 40,400 (24,000 + 14,000) = 2,400.
Question 5
(a) On 01-04-2011, Mr. T. Shekharan purchased 5,000 equity shares of ` 100 each in V Ltd.
@ ` 120 each from a broker, who charged 2% brokerage. He incurred 50 paisa per
` 100 as cost of shares transfer stamps. On 31-01-2012 bonus was declared in the ratio
of 1 : 2. Before and after the record date of bonus shares, the shares were quoted at
` 175 per share and ` 90 per share respectively. On 31-03-2012, Mr. T. Shekharan sold
bonus shares to a broker, who charged 2% brokerage.
The
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Show the Investment Account in the books of T. Shekharan, who held the shares as
Current Assets and closing value of investments shall be made at cost or market value
whichever is lower.
(8 Marks)
(b) On 29th August, 2012, the godown of a trader caught fire and a large part of the stock of
goods was destroyed. However, goods costing ` 1,08,000 could be salvaged incurring
fire fighting expenses amounting to ` 4,700.
The trader provides you the following additional information:
`
Cost of stock on 1st April, 2011
Cost of stock on
31st
7,10,500
March, 2012
7,90,100
31st
Purchases during the year ended

March, 2012
st
Purchases from 1 April, 2012 to the date of fire
56,79,600
33,10,700
Cost of goods distributed as samples for advertising from 1st April, 2012
to the date of fire
41,000
Cost of goods withdrawn by trader for personal use from 1st April, 2012
to the date of fire
Sales for the year ended 31st March, 2012
2,000
80,00,000
Sales from 1st April, 2012 to the date of fire
45,36,000
The insurance company also admitted firefighting expenses. The trader had taken the fire
insurance policy for ` 9,00,000 with an average clause.
Calculate the amount of the claim that will be admitted by the insurance company.
(8 Marks)
Answer
(a)
In the books of T. Shekharan

Investment Account
for the year ended 31st March, 2012
(Script: Equity Shares of V Ltd.)
Date
Particulars
Cost Date
Nominal
Value
(` )
1.4.2011
To Bank
(W.N.1)
A/c 5,00,000
31.1.2012
31.3.2012
To Bonus shares 2,50,000

To Profit and
Particulars
(` )
6,15,000 31.3.2012 By Bank A/c
(W.N.2)
The
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31.3.2012 By Balance
c/d
Nominal
Value
(` )
Cost
(` )
2,50,000 2,20,500
5,00,000 4,10,000
Loss
(W.N.3)
A/c
(W.N.4)
15,500
7,50,000
17
6,30,500
7,50,000 6,30,500
Working Notes:
1.
Cost of equity shares purchased on 1st April, 2011
2.
= Cost + Brokerage + Cost of transfer stamps

= 5,000 ` 120 + 2% of ` 6,00,000 + % of ` 6,00,000
= ` 6,15,000
Sale proceeds of equity shares sold on 31st March, 2012
3.
= Sale price Brokerage

= 2,500 ` 90 2% of ` 2,25,000
= ` 2,20,500.
Profit on sale of bonus shares on 31st March, 2012
= Sales proceeds Average cost
Sales proceeds =
Average cost
Profit
4.
` 2,20,500
` [6,15,000 2,50,000/7,50,000]
` 2,05,000
` 2,20,500 ` 2,05,000= ` 15,500.
Valuation of equity shares on 31st March, 2012

Cost = ` [6,15,000 5,00,000/7,50,000]= ` 4,10,000 i.e ` 82 per share
Market Value = 5,000 shares ` 90 = ` 4,50,000
Closing stock of equity shares has been valued at ` 4,10,000 i.e. cost being lower
than the market value.
(b)
Memorandum Trading Account for the period 1st April, 2012 to 29th August 2012
`
To Opening Stock
To Purchases
Less: Advertisement
Drawings
7,90,100 By Sales
33,10,700
By Closing stock (Bal. fig.)
45,36,000
8,82,600
(41,000)
(2,000) 32,67,700
To Gross Profit [30% of Sales Refer Working Note]
13,60,800
54,18,600
The
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54,18,600
18
Statement of Insurance Claim
`
Value of stock destroyed by fire
8,82,600
Less: Salvaged Stock
(1,08,000)
Add: Fire Fighting Expenses
4,700
Insurance Claim
7,79,300
Note: Since policy amount is more than claim amount, average clause will not apply.
Therefore, claim amount of ` 7,79,300 will be admitted by the Insurance Company.
Working Note:
Trading Account for the year ended 31st March, 2012
`
To Opening Stock
7,10,500 By Sales
To Purchases
56,79,600 By Closing stock
To Gross Profit
24,00,000
80,00,000
7,90,100
87,90,100
87,90,100
Rate of Gross Profit in 2011-12

24,00,000
Gross Pr ofit
100 = 30%
100 =
80,00,000
Sales
Question 6
Atul, Balbir and Chatur were carrying on a business in partnership sharing profits in the ratio
of 5 : 3 : 2 respectively. On 31st March, 2012 their Balance Sheet stood as follows:
Liabilities
` Assets
Atul's Capital
6,25,000
Goodwill
Balbir's Capital
3,75,000
Land and Buildings
7,00,000
Chatur's Capital
2,50,000
Furniture
1,65,000
General Reserve
1,00,000
Stock
2,86,000
Trade Creditors
2,10,000
Trade Debtors
Less: Provision for
Doubtful Debts
Cash at Bank
Total
15,60,000
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80,000
1,80,000
3,600
1,76,400
1,52,600
15,60,000
19
Atul retired on the above mentioned date and partners agreed that :
(i)
The current value of goodwill be taken to be equal to the book value of the asset.
(ii) Land and Buildings be considered worth ` 9,00,000.

(iii) The provision for bad debts on trade debtors be raised to 5%.
(iv) Provision be made for compensation of ` 5,000 to an ex-employee.
(v) Half of the amount due to Atul be paid immediately in cash and the balance be treated as
10% loan, repayable within 3 years.
In order to facilitate cash payment to Atul, Balbir and Chatur brought in ` 3,00,000 in the ratio
of 3 : 2 respectively.
Prepare Revaluation Account, the Capital Accounts of all the partners and Bank Account.
Also draw the Initial Balance Sheet of Balbir and Chatur, immediately after Atul's retirement.
(16 Marks)
Answer
Revaluation Account
To Provision for doubtful debts

[(5% of 1,80,000) 3,600]
5,400 By Land and Buildings
To Provision for compensation
5,000
2,00,000
To Partners Capital Accounts

(Profit)
Atul
Balbir
94,800
56,880
Chatur
37,920
1,89,600
2,00,000
2,00,000
Partners Capital Accounts

Particulars
Atul
Balbir
Chatur
To Goodwill
(5:3:2)
40,000
24,000
16,000
To Cash A/c
3,84,900
By General
Reserve
To 10% Loan
3,84,900
By Revaluation
A/c
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Particulars
Atul
Balbir
Chatur
By Balance b/d 6,25,000 3,75,000 2,50,000

50,000
30,000
20,000
94,800
56,880
37,920
20

To Atuls
Capital A/c
To Balance
c/d
24,000
By Balbirs &
Chaturs
Capital
Accounts
16,000
40,000
By Cash A/c
5,93,880 3,95,920
8,09,800 6,41,880 4,27,920
1,80,000 1,20,000
8,09,800 6,41,880 4,27,920
Bank Account
To Balance b/d
1,52,600 By Atuls Capital A/c
To Balbirs capital A/c

To Chaturs capital A/c
1,80,000 By Balance c/d

1,20,000
3,84,900
67,700
4,52,600
4,52,600
Balance Sheet of Balbir and Chatur

as at 31.03.2012 (after Atuls retirement)
Liabilities
` Assets
Capital Accounts:
Balbir
Land and Buildings

5,93,880 Furniture
9,00,000
1,65,000
Chatur
10% Loan from Atul
3,95,920 Stock
3,84,900 Trade Debtors
2,86,000
Trade Creditors
Provision for
2,10,000 Less:
Provision
doubtful debts
Compensation
5,000 Cash at Bank

15,89,700
1,80,000
for
(9,000)
1,71,000
67,700
15,89,700
Note:
Goodwill appearing in the given balance sheet as on 31st March, 2012 has been
written off in line with the provisions of Accounting Standard 10. Alternatively, it may not be
written off since no information in this regard has been given in the question.
Question 7
Answer any four out of the following:
(a) T owes to K the following amounts:
` 7,000 due on 15th March, 2012

` 12,000 due on 5th April, 2012
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21
` 30,000 due on 25th April, 2012

` 20,000 due on 11th June, 2012
He desires to make the full payment on 30th June, 2012 along with interest @ 10% per
annum from the average due date. Find out the average due date and the amount of
interest. Amount of interest may be rounded off to the nearest rupee.
(b) From the following information, ascertain the value of stock as on 31st March, 2012:
`
Stock as on 01-04-2011
Purchases
28,500
1,52,500
Manufacturing Expenses
Selling Expenses
30,000
12,100
Administration Expenses
Financial Expenses
6,000
4,300
Sales
2,49,000
At the time of valuing stock as on 31st March, 2011, a sum of ` 3,500 was written off on a
particular item, which was originally purchased for ` 10,000 and was sold during the year
for ` 9,000. Barring the transaction relating to this item, the gross profit earned during
the year was 20% on sales.
(c) PQR Ltd. constructed a fixed asset and incurred the following expenses on its
construction:
`
Materials
Direct Expenses
Total Direct Labour
16,00,000
3,00,000
6,00,000
(1/15th of the total labour time was chargeable to the construction)

Total Office & Administrative Expenses
(4% is chargeable to the construction)
Depreciation on assets used for the construction of this asset
9,00,000
15,000
Calculate the cost of the fixed asset.

(d) "In determining the cost of inventories, it is appropriate to exclude certain costs and
recognize them as expenses in the period in which they are incurred. Provide examples
of such costs as per AS 2 Valuation of Inventories.
(e) Write any four disadvantages of Pre-packaged Accounting Software.
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(4 4 = 16 Marks)
22
Answer
(a) Calculation of Average Due Date taking 15th March, 2012 as the base date
Due date
Amount
No. of days from the base

date i.e. 15th March, 2012
Product
`
15th March, 2012
7,000
5th April, 2012
12,000
21
2,52,000
25th April, 2012
30,000
41
12,30,000
11th June 2012
20,000
88
17,60,000
69,000
Average due date
32,42,000
= Base date + Days equal to

= 15th March, 2012 +
Total of products
Total amount
32,42,000
69,000
= 15th March, 2012 + 47 days (approx.) =1st May, 2012

Interest amount: Interest can be calculated on ` 69,000 from 1st May, 2012 to 30th June,
2012 at 10% p.a. i.e. interest on ` 69,000 for 60 days at 10% p.a. =` 69,000 x 10/100 x
60/366 = ` 1,131 (approx.)
Note:
Alternatively, interest can be calculated on the basis of 365 days instead of
366 days. In such a case, interest amount will be Rs. 1,134 (approx.) instead of Rs.1,131.
(b)
Statement showing valuation of stock as on 31.3.2012

`
Stock as on 01.04.2011
Less: Book value of abnormal stock (` 10,000 ` 3,500)
28,500
6,500
Add: Purchases
22,000
1,52,500
Manufacturing Expenses
30,000
2,04,500
Less: Cost of Sales:

Sales as per Books
Less: Sales of Abnormal item
The
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2,49,000
(9,000)
23
2,40,000
Less: Gross Profit @ 20%
(48,000)
(1,92,000)
Value of Stock as on 31st March, 2012
12,500
(c) Calculation of cost of fixed assets

`
Materials
Direct expenses
16,00,000
3,00,000
Direct labour (1/15th of ` 6,00,000)
40,000
Office and administrative expenses (4% ` 9,00,000)
36,000
Depreciation on assets
15,000
Cost of fixed asset
19,91,000
Note:
It is assumed that 4% of office and administrative expenses are specifically
attributable to construction of a fixed asset. Alternatively, it may be assumed that 4% of
office and administrative expenses are only allocated to construction project and is not
specifically attributable to it. In such a case, the cost of fixed assets will be ` 19,55,000.
(d) As per AS 2 Valuation of Inventories, certain costs are excluded from the cost of the
inventories and are recognised as expenses in the period in which incurred. Examples of
such costs are:
(a) abnormal amount of wasted materials, labour, or other production costs;
(b) storage costs, unless those costs are necessary in the production process prior to a
further production stage;
(c) administrative overheads that do not contribute to bringing the inventories to their
present location and condition; and
(d) selling and distribution costs.
(e) Disadvantage of Pre-packaged Accounting Software:
1.
Lesser Flexibility: Business today is becoming more and more complex. A

standard package may not be able to take care of these complexities i.e. it does not
cover peculiarities of specific business. Therefore, customization may not be
possible in such softwares.
2.
Covers only few functional areas and only main reports are covered: Many prepackaged accounting softwares do not cover all functional areas. For example,
production process may not be covered by most pre-packaged accounting
softwares. The demands for modern day business may make the management
The
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24
desire for several other reports for exercising management control. These reports
may not be available in a standard package.
3.
Lack of security: Any person can view data of all companies with common access
password. Levels of access control as we find in many customised accounting
software packages are generally missing in a pre-packaged accounting package.
4.
Bugs in the software: Certain bugs may remain in the software which takes long
time to be rectified by the vendor and is common in the initial years of the software.
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DISCLAIMER

The Council of the Institute is not in anyway

responsible for the correctness or otherwise of the answers published herein.

The Institute of Chartered Accountants of India

Credit balances in Debtors Ledger on 01-04-2012

Transactions during the month of April, 2012 are:

Bills Receivable dishonoured

Cash paid to customers for returns

Transfers to Creditors Ledger

All partners would share profits equally in the new firm.

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012

For year ending

General Ledger Adjustment Account in Debtors Ledger

01.04.2012 To Balance b/d

01.04.2012 To Debtors ledger

01.04.2012 By Debtors ledger

Cash paid for returns

16,000 30.04.2012 By Balance c/d

Journal Entries on Taruns admission

Sacrificing Ratio (Old new)

Therefore, sacrificing ratio is 5:3.

Rate of int erest

Amount due at the

1/11of ` 6,01,818= ` 54,711

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012

Total cash price = ` 5,47,107+ 2,40,000 (down payment) =` 7,87,107.

` 2,00,000+ 2nd instalment of ` 2,20,000= ` 4,20,000.

` 3,81,818+ 1st instalment of ` 2,20,000= ` 6,01,818.

(d) Amount of subscription for the year 2011-12

Subscription Receivable (15,000 + 12,000)

18,000 Outstanding Subscription

Equity and Liabilities

80 lakhs Equity Shares of ` 10 each, fully paid up

35 lakhs 12% Cumulative Preference Shares of ` 10 each, fully paid

(2) Reserves and Surplus

(3) Long-term Borrowings

(4) Tangible Assets

Plant and Machinery

Furniture, Fixtures and Fittings

(5) Cash and Cash Equivalents

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012

Prepare Realisation A/c in the books of V Ltd.

In the books of V Ltd.

To Land and Buildings A/c

To Plant and Machinery A/c

593 By Outstanding Debenture interest A/c

To Furniture, Fixtures & Fittings A/c

114 By Trade payables A/c

380 By P Ltd. A/c

To Trade Receivables A/c

(purchase consideration - Refer

To Cash in Hand A/c

To Equity Shareholders A/c

In the books of P Ltd.

Business Purchase A/c

To Liquidator of V Ltd. A/c

(Being purchase consideration due)

Land and Buildings A/c

Plant and Machinery A/c

Profit and Loss A/c

To Outstanding Debenture interest A/c

To Business Purchase A/c

Liquidators of V Ltd. A/c

To Equity Share Capital A/c