DEPARTMENTAL ACCOUNTS

DEPARTMENTAL ACCOUNTS
QUESTION NO 1 (CROSS TRANSFERS)
Telarad & co. has two Departments A and B. From the following particulars prepare
Departmental trading account and consolidated trading account for the year ending 31st
march 1993:
Department A Department B
Rs. Rs.
Opening stock (at cost) 1,00,000 60,000
Purchases 4,60,000 3,40,000
Carriage 10,000 10,000
Wages 60,000 40,000
Sale (excluding inter-transfers) 7,00,000 5,60,000
Purchased goods transferred:
By B to A 50,000
By A to B 40,000
Finished goods transferred:
By B to A 1,75,000
By A to B 2,00,000
Return of finished goods:
By B to A 50,000
By A to B 35,000
Closing stock:
Purchased goods 22,500 30,000
Finished goods 1,20,000 70,000
Purchased goods have been transferred at their respective Departmental purchase cost and
finished goods at Departmental market price. 20% of the finished stock (closing) at each
Department represented finished goods received from the other Department.

QUESTION NO 2 (SIMPLE CASE OF CONTENT RATIO)

Green & co. has two Departments P & Q. Department P sells goods to Department Q at
normal selling prices. From the following particulars prepare Departmental trading and Profit
and Loss account for the year ended 31.3.1994 and also ascertain the net Profit to be
transferred to the Balance Sheet:

Particulars Department P Department Q

Rs. Rs.
Opening stock 1,00,000 NIL
Purchases 23,00,000 2,00,000
Goods from department P -- 7,00,000
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Wages 1,00,000 1,60,000

Traveling expenses 10,000 1,40,000
Closing stock at cost to the 5,00,000 1,80,000
department 23,00,000 15,00,000
Sales 20,000 16,000
Printing and stationary
The following expenses incurred for both the Departments were not apportioned
between the Departments:
(a) Salaries Rs.270000.
(b) Advertisement expenses Rs. 90000.
(c) General expenses Rs.800000
(d) Depreciation @ 25 % on the machinery value of Rs.48000.
Advertisement expenses are to be apportioned in the turnover ratio; Salaries in 2:1
ratio and Depreciation in 1:3 ratio between the Departments P and Q. General expenses are
to be apportioned in 3:1 ratio.

QUESTION NO 3 (MANAGER COMMISSION)

Department X sells goods to Department Y at a Profit of 25% on cost and to
Department Z at 10% Profit on cost. Department Y sells goods to X and Z at a Profit of 15%
and 20% on sales, respectively. Department z charges 20% and 25% Profit on cost to
Department X and Y respectively.
Department Managers are entitled to 10 % commission on net Profit subject to
unrealized Profit on Departmental sales being eliminated. Departmental Profits after
charging managers commission, but before adjustment of unrealized Profit are as under:
Department X 36000
Department Y 27000
Department Z 18000
Stocks lying at different Departments at the end of the year are as under:
Department Department Y Department
X Rs. Z
Rs. Rs.
Transfer from Department X -- 15,000 11,000
Transfer from Department Y 14,000 -- 12,000
Transfer from department Z 6,000 5,000 --
Find out the correct Departmental Profits after charging managers commission.
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QUESTION NO 4
A firm has two Departments, Timber and Furniture. Furniture was made by the firm itself
out of timber supplied by Timber Department at its usual selling price. From the following
figures, prepare Departmental trading and profit and loss account for the year 2002:
Timber Furniture
Opening stock (1.1.2002) 3,00,000 50,000
Purchases 20,00,000 15,000
Sales 22,00,000 4,50,000
Transfer to furniture Department 3,00,000 -
Expenses: Manufacturing - 60,000
Selling 20,000 6,000
Closing stock 2,00,000 60,000
The stocks in the furniture Department may be considered as consisting 75% of timber and
25% other expenses. Timber Department earned gross profit at the rate of 20% in 2001.
General expenses of the business as a whole came to Rs.1,00,000.

ANSWER:
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING ON
31.12.2002
Particulars Timber Furniture Particulars Timber Furniture
Department Department Department Department
To opening 3,00,000 50,000 By sales 22,00,000 4,50,000
stock By trans. 3,00,000 -
To purch. 20,00,000 15,000 By closing 2,00,000 60,000
To trans. - 3,00,000 stock
To manuf. - 60,000
exp.
To gross 4,00,000 85,000
profit
27,00,000 5,10,000 27,00,000 5,10,000
To selling 20,000 6,000 By gross 4,00,000 85,000
exp. profit
To net 3,80,000 79,000
profit
4,00,000 85,000 4,00,000 85,000
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GENERAL PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.12.2002
Particulars Rs. Particulars Rs
To stock reserve 7,200 By net profit:
(closing stock) (3,80,000+79,000) 4,59,000
To general expenses 1,00,000 By stock reserve 7,500
To net profit 3,59,300 (opening stock)

------------- ---------------
4,66,500 4,66,500
Working notes:
Calculation of stock reserve:
(on opening stock of furniture)

75% of stock is Timber i.e, portion of timber included in furniture= 50,000*75/100=37,500

stock reserve=37500*20/100=7500
(on closing stock of furniture)

G.P.ratio of timber Department:= 4,00,000/25,00,000*100=16%

Stock reserve=60,000*75%*16%=7,200

QUESTION NO 5 (PARTNERSHIP MIXED WITH DEPARTMENTAL)

Messrs D, B and R carried on a business of Drapers and Tailors in Delhi; D was in-
charge of Department “A” dealing in cloth, B of Department “B” for selling garments and R of
Department “C” the tailoring section. It had been agreed that each of the three partners
would receive 75% of the Profits disclosed by the accounts of the Department of which he
was in charge and he balance of the Profits would be shared in the proportion: D ½, B ¼ and
R ¼ . The following is the Trading and Profit and Loss Account of the firms for the six months
ended March 31, 1999.
Trading and Profit and Loss Account
Rs. Rs. Rs. Rs.
To Opening By Sales:
stock: Cloth (A) 1,80,000
Cloth (A) 37,890 Ready-made
Ready-made Garments (B) 1,30,000
Garments (B) 24,000 Tailoring Jobs 90,000 4,00,000
Tailoring Jobs 20,000 81,890 (C)
(C) By Discount 800
To Purchase: received
Cloth (A) 1,40,700 By Closing stock:
Ready-made Cloth (A)
Garments (B) 80,600 45,100
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Tailoring Jobs 44,400 2,65,700 Ready-made

(C) Garments (B) 22,300
To Salaries & 48,000 Tailoring Jobs 21,600 89,000
Wages (C)
To Advertising 2,400 [Including
To Rent 10,800 Rs.5,700 for
To Discount 1,200 goods
allowed transferred
To Sundry exp. 12,000 from department
To Depreciation 750 (A)]
on Furniture and
Fittings
Net profit 67,060

4,89,800 4,89,800
After consideration of the following prepare Departmental accounts and Profit and Loss
appropriation account:
(i) Cloth of the value of Rs.10700 and other goods of the value of Rs.600 were
transferred at selling price by Departments A and B respectively to Department C.
(ii) Cloth and garments are sold in the show- room. Tailoring work is carried out in the
workshop.
(iii) The details of salaries and wages were as follows:
(a) General office 50%, show room 25% and 25 % for the workshop, which is for
tailoring.
(b) Allocate general office Expenses, in the proportion of 3:2:1 among the
Departments A, B, C.
(c) Distribute show-room expenses in the proportion of 1:2 between Departments
A and B.
(iv) The workshop rent is Rs.1000 per month. The rent of the general office and show
room is to be divided equally between Department A and B.
(v) Depreciation charges are to be allocated equally amongst the three Departments.
(vi) All other expenses are to be allocated on the basis of turnover.
(vii) Discounts received are to be credited to the three Departments as follows: A:
Rs.400; B: Rs.250; C: Rs.150.
(viii) The opening stock of Department C does not include any goods transferred from
Department A.
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QUESTION NO 6 (MARK UP ACCOUNTS)

Southern store Limited is a retail store operating two Departments. The company
maintains a memorandum stock account and memorandum mark up account for each of the
Departments. Supplies issued to the Departments are debited to the memorandum stock
account of the Department at cost plus the mark up and Departmental sales are credited to
this account. The mark up on supplies issued to the Departments is credited to the mark up
account for the Department. When it is necessary; to reduce the selling price below the
normal selling price, i.e., cost plus mark up, the reduction (mark down) is entered in the
memorandum stock account and in the mark up account. Department Y has a mark up of 33-
1/3 % on cost and Department Z 50% on cost.
The following information has been extracted from the records of southern store LTD.
for the year ended 31st December 1988:
Department Department
Y Z
st
Stock 1 January 1988, at cost 24,000 36,000
Purchases 1,62,000 1,90,000
Sales 2,10,000 2,85,000

(i) The stock of Department Y at 1st January 1988 includes goods, on which the selling
price has been marked down by Rs.510. These goods were sold in January 1988 at
the reduced price.
(ii) Certain goods purchased in 1988 for Rs.2700 for Department Y, were transferred
during the year to Department Z, and sold for Rs.4050. Purchases and sales are
recorded in the purchases of Department Y and the sales of Department Z
respectively, but no entries in respect of the transfer have been made.
(iii) Goods purchased in 1988 were marked down as follows:
Department Y Department Z
Cost 8,000 21,000
Mark down 800 4,100
At the end of the year there were some items in the stock of Department Z, which
had been marked down to Rs.2300. With this exception all goods marked down in
1988 were sold during the year at the reduced prices.
(iv) During stock taking at 31st December 1988 goods, which had cost Rs.240 were found
to be missing in Department Y. It was determined that the Loss should be regarded
as irrecoverable.
(v) The closing stock in both Departments is to be valued at cost for the purpose of
the annual accounts.
You are requested to prepare for each Department for the year ended 31st December 1988:
(a) A Trading Account
(b) A Memorandum stock Account and,
(c) A Memorandum Mark up Account.
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QUESTION NO 7 (UNIFORM GP RATIO)

The following purchases were made during the year 1989 by a business house having
three Departments:
Department A 1000 units
Department B 2000 units
Department C 2400 units
At a total cost of Rs.1,00,000
Stock on 1st January 1989 were:
Department A 120 units
Department B 80 units
Department C 152 units
The sales during, 1989 were:
Department A 1020 units at Rs.20 each
Department B 1920 units at Rs.22.50 each
Department C 2496 units at Rs.25 each
The rate of gross Profit is the same in each case. Prepare Departmental Trading account for
the year 1989.

QUESTION NO 8 (CHAIN TRANSFERS)

Complex Limited has 3 departments A, B, and C. the following information is provided:
A B C
Rs. Rs. Rs.
Opening stock 3,000 4,000 6,000
Consumption of direct
materials 8,000 12,000 -
Wages 5,000 10,000 -
Closing stock 4,000 14,000 8,000
Sales - - 34,000

Stock of each department is valued at cost to the department concerned, stocks of A

department are transferred to B at a margin of 50% above departmental cost, stocks of B
department are transferred to C department at a margin of 10% above departmental cost.
Other expenses were:
Salaries 2,000
Printing and stationary 1,000
Rent 6,000
Interest paid 4,000
Depreciation 3,000
Allocate expenses in the ratio of departmental gross profit. Opening figures of
reserves for unrealized profits on departmental stock were:
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Department B Rs.1,000
Department C Rs.2,000
Prepare departmental trading and Profit and Loss account for the year ending March 31,
1999.

QUESTION NO 9 (UNIFORM GP RATIO)

Shankar is earning uniform rate of gross profit in all the three departments he is handling.
Following are the relevant details:-
Department A 15000 packets
Department B 20000 packets
Department C 15000 packets
The total cost to purchases came to Rs.6,00,000.
Sales:-
Department A 16,000 packets at Rs.20 per packet
Department B 22,000 packets at Rs.15 per packet
Department C 17,000 packets at Rs.10 per packet
Details of opening stock:
Department A 4,000 packets
Department B 5,000 ,,
Department C 4,000 ,,
You are required to prepare the trading account for the three departments in a columnar
form. Working required:
(i) Calculation of gross profit for each department assuming no stock situations.
(ii) Department wise purchase price and value and
(iii) Valuation of opening and closing stocks.

QUESTION NO 10 (APPLICATION OF GP RATIO ON NORMAL SELLING PRICE)

A Limited has three departments X, Y, and Z. from the following particulars given by A
Limited, compute:-
(i) The value of stock as on 31st March 1999 and
(ii) The departmental results
1. X Y Z
Rs. Rs. Rs.
Stock (opening) 12,000 18,000 6,000
Purchases 73,000 62,000 24,000
Actual sales 86,250 79,700 37,300
Gross profit on normal selling price20% 25% 33.333%

2. During the year certain goods were sold at a discount given below and these discounts were
reflected in the values of sale stated above:-
X Y Z
Sales at normal selling price 5,000 1,500 500
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Sales at actual price 3,750 1,200 300

(Ans:- closing stock: X=15,000, Y= 20,000, Z= 5,000)

profit of X=16,250, Y=19,700, Z=12,300)

QUESTION NO 11(CHAIN TRANSFER) (same question 8)

FGH Ltd. has three departments I.K.J. The following information is provided for the
year ended 31.3.2004:
I J K
Rs Rs Rs
Opening stock 5,000 8,000 19,000
Opening reserve for unrealized profit -- 2,000 3,000
Material consumed 16,000 20,000 --
Direct Labour 9,000 10,000 --
Closing stock 5,000 20,000 5,000
Sales -- -- 80,000
Area occupied (Sq. mtr.) 2,500 1,500 1,000
No. of employees 30 20 10
Stocks of each department are cost to the department concerned. Stocks of I are
transferred to J at cost plus 20% and stocks of J are transferred to K at a Gross Profit of
20% on sales. Other common expenses are Salaries and Staff Welfare Rs18,000 Rent
Rs6,000.
Prepare Departmental Trading, Profit and Loss Account for the year ending 31.3.2004.
ANSWER:
DEPARTMENTAL TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR
ENDED 31.3.2004
PARTICULRS I (Rs.) J (Rs.) K(Rs.) PARTICULRS I (Rs.) J (Rs.) K(Rs.)
To opening By internal
stock 5,000 8,000 19,000 transfer 30,000 60,000 -
To materials 16,000 20,000 - By sales - - 80,000
To D.Labour 9,000 10,000 - By closing
To Internal - 30,000 60,000 stock 5,000 20,000 5,000
trans.
To gross 5,000 12,000 6,000 35,000 70,000 85,000
profits 35,000 70,000 85,000
PARTICULRS I (Rs.) J (Rs.) K(Rs.) PARTICULRS I (Rs.) J (Rs.) K(Rs.)
To salaries 9,000 6,000 3,000 By gross 5,000 12,000 6,000
(30:20:10) profits
To Rent 3,000 1,800 1,200 By net loss 7,000 - -
(Area)
To net profits 4,200 1,800

12,000 12,000 6,000 12,000 12,000 6,000

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GENERAL P & L ACCOUNT

Particulars Rs Particulars Rs
To net loss 7,000 By net profit (J+K) 6,000
To stock reserve By stock reserve 5,000
J 1,667 (J+K)
K 1,333
To net profit 1,000
------------- ---------------
11,000 11,000

WORKING NOTES:
(1) Calculation of gross profit:
Department I Department J
Opening stock 5,000 8,000
Materials and labours 25,000 30,000
------------------- -----------------
30,000 38,000
Less: Closing Stock (5,000) (20,000)
Add transfer - 30,000
------------------ ----------------
Total cost of sales 25,000 48,000
Gross profit:
25,000*1/5 5,000 -
48,000*1/4 - 12,000
(2) Stock Reserve J
Cost 30,000
Transfer from I 30,000
Closing stock 20,000
Proportion of stock 20,000*30,000/60,000=10,000
Stock reserve 10,000*20/120=1,667
(3) Stock reserve K
Stock transferred from J 5,000
Less: profit 20% (1,000)
----------
Cost of J 4,000
Proportion of stock 4000*30,000/60,000=2,000
Stock reserve 2,000*20/120=333
Total reserve = 1,000+333=1333
(4) Salaries and welfare exp have been allocated on the basis of number of employees and
rent has been allocated on the basis of area occupied.

(STOCK RESERVE CAN ALSO BE COMPUTED ALTERNATIVELY 1000 & 2000)

 DEPARTMENTAL ACCOUNTS
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AS WE DISCUSSED IN CLASS IN QUESTION 8.

QUESTION NO 12 (PREVIOUS YEAR GP RATIO)

Snow white Ltd. has two departments- cloth and Readymade clothes. Ready made lothes are
made by the firm itself out of cloth supplied by the cloth department iat its usual selling
price. From the following figures, prepare departmental trading and profit and loss account
for the year ended 31st March:
Cloth Readymade
department clothes
st
Opening stock on 1 April 3,00,000 50,000
Purchases 20,00,000 15,000
Sales 22,00,000 4,50,000
Transfer to readymade clothes 3,00,000 -
department
Manufacturing expenses - 60,000
Selling expenses 20,000 6,000
st
Closing stock on 31 March 2,00,000 60,000
The stock in the readymade clothes department may be considered as consisting of 75% cloth
and 25% other expenses. The cloth department earned gross profit at the rate of 15% during
the previous year. General expenses of the business as a whole came to Rs.1,10,000.

QUESTION NO 13
THE trading and profit and loss account of Gopa kishore for the year ending 31st March is as
under:
Purchases Rs. Sales Rs.
-Transistors 1,60,000 -Transistors 1,75,000
-Tape recorders 1,25,000 -Tape recorders 1,40,000
-Spare parts for repairs 80,000 -Spare parts for 35,000
Salaries and wages 48,000 repairs
Rent 10,800 stock on 31st March:
Sundry expenses 11,000 transistors 60,100
Net profit 40,200 tape recorders 20,300
4,75,000 spare parts for repairs 44,600
4,75,000
Prepare departmental accounts for each of the three departments A, B and C mentioned
above after taking into consideration the following :
(a) transistors and tape recorders are sold at the showroom. Servicing and repairs
are carried out at workshop.
(b) Salaries and wages comprise as follows:
i. Show room 3/4th and
ii. Workshop 1/4th
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iii. It was decided to allocate the showroom salaries and wages in ratio 1:2
between department A and B.
(c) Workshop rent is Rs.500 per month. Showroom rent is to be divided equally
between departments A and B.
(d) Sundry expenses are to be allocated on the basis of the turnover of each
department.

QUESTION NO 14 (SAME TO SAME AS QUESTION NO.5)

Samsare co, a firm has three departments L, M, and N which are under the charge of the
partners X, Y and Z respectively. The following consolidated profit and loss account is given
below:
Particulars Rs. Particulars Rs.
To opening stocks (note 1) 81,890 By sales (note 7) 4,00,000
To purchases (note 2) 2,65,700 By closing stocks(note 89,000
To salaries and wages 48,000 8)
(note 3) By discounts received 800
To rent expenses(note 4) 10,800 (note10)
To selling expenses(note
5) 14,400
To discount allowed(note
5) 1,200
To depreciation (note 6)
To net profit for the year 750
67,060
4,89,800 4,89,800
From the above account and following additional information, prepare the departmental profit
and loss account for the year ended 31st march:
(a) Break up of opening stock departmentwise is : L Rs.37890, M Rs.24000 and N Rs.20000
(b) Total purchases were as under : L Rs.140,700, M Rs.80,600 and N Rs.44,400
(c) Salaries and wages include Rs.12,000 wages of department N. The balances salaries
should be apportioned to the three departments as 4:4:1
(d) Rent is to be apportioned in the ratio of floor space which as to 2:2:5
(e) Selling expenses and discount allowed are to be apportioned in the ratio of turnover.
(f) Depreciation on assets should be equally charged to the three departments.
(g) Sales made by three departments were: L Rs.1,80,000, M Rs.1,30,000 and N Rs.90,000.
(h) Break up of closing stock department wise is : L Rs.45,100, M Rs.22,300 and N
Rs.21,600. The closing stock of department N includes Rs.5700 goods transferred
from department L. however , opening stock does not include any goods transferred
from other departments.
(i) Departments L and M sold goods worth Rs.10,700 and Rs.600 respectively to
department N.
(j) Discounts received are traceable to departments :L Rs.400, M Rs.250 and N Rs.150.
 DEPARTMENTAL ACCOUNTS
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(k) Partners are to share profits as under :

a. 75% of the profits of the departments L, M and N to the respective partner
incharge
b. balance profits tobe credited as 2:1:1.

QUESTION NO15 (MARK UP ACCOUNTS)

Fairways Ltd. is a retail organization with several departments. Goods supplied to each
department are debited to a memorandum, departmental stock account at cost plus a fixed
percentage (mark up) to give the normal selling price. The mark up is credited to memorandum
departmental mark up account. Any reduction in selling prices (mark down) required
adjustment in the stock account and in mark up account. The mark up for department A for
the last three years has been 40%.
Figures relevant to Department A for the year ended 30th june 2002 were as follows:
Stock on 1st July,2001 at cost Rs.80,000
Purchases at cost Rs.1,80,000
Sales Rs.3,20,000
It is further ascertained that:
(a) The goods purchased in the period were marked down by Rs.1400 from a cost of
Rs.16000. Marked down stock costing Rs.4000 remained unsold on 30th June 2002.
(b) Stock shortages at the year end, which had cost Rs.1200 were to be written off.
(c) Stock at 1st July 2001 including goods costing Rs.8200 had been sold during the year
and had been marked down in the selling price by Rs.740. the remained stock had been
sold during the year.
(d) The departmental closing stock is to be valued at cost subject to adjustments for
markup and markdown.
You are required to prepare:
(a) A departmental trading account for A department for the year ended june 2002 in
head office books.
(b) A memorandum stock for the year
(c) A memorandum mark up account for the year

QUESTION NO 16 (PRODUCTION DEPARTMENTS WITH SERVICE DEPTT.)

MOON Ltd. has three departments. They are “cloth stitching department” “selling
department “ and “General administration deparments”. Cloth department transfer its goods
to selling department 20% profit on cost. From the following details, prepare departmental
trading account and profit and loss account for the year ended 31st December 2002;
Cloth stitching Selling
department department
Opening stock 1.,20,000 80,000
Purchases 5,00,000 -
Wages and other expenses 1,25,000 25,000
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Closing stock 45,000 95,000

Sales - 11,05,000
The expenses of general administration department are as follows:
Manager salary @ 1000 per month
Clerk`s salary (2 no.) Rs.600 per month each
Maintenance expenses Rs 9600
Apportioned general department expenses equally to the cloth stitching and selling
department.

QUESTION NO 17 (CHAIN TRANSFERS)

Calculate stock reserve A,B and C are three departments:
Content Ratio Profit Ratio Closing Stock
A Nil ¼ of sales 15,000
B 2/10 1/5 of cost 22,000
C 5/15 not available 40,000
Assume A sales to B sales to C.

QUESTION NO 18 (PROBLEM WITHOUT STOCK RESERVE)

From the following trial balance prepare departmental trading and profit and loss account for
the year ending 31.03.2004:
Rs (in
`000)
st
Stock 1 April 2003 Department A 1,700
Department B 1,450
Purchases Department A 3,540
Department B 3,020
Sales Department A 6,080
Department B 5,125
Wages Department A 820
Department B 270
Rent, Rates and taxes and -
Insurance - 939
Sundry expenses - 360
Salaries - 300
Lighting and Heating - 210
Discounts allowed - 222
Discounts received - 65
Advertising - 368
Carriage inward - 234
Furniture and fitting - 300
Machinery - 2100
Sundry Debtors - 606
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Sundry creditors - 1,860

Capital accounts - 4,766
Drawings - 450
Cash at bank 1,007
The following further information is available:
a. Internal Transfer of goods from A to B Department Rs.42,000.
b. The items rent, rates and taxes and insurance, sundry expenses, lighting and
heating, salaries and carriage are to be apportioned 2/3 to A department and
1/3 to B Department.
c. Advertising is to be apportioned equally.
d. Discount allowed and received are to apportioned on the basis of Departmental
sales and purchases excluding transfers
e. Depreciation @ 10% per annum on furniture and on machinery is to be charged
(3/4th to A Department and 1/4th to B Department)
f. Services rendered by B Department to A Department are included in wages
Rs.50,000.
g. Stock on 31.3.2004 in A Department was worth Rs.16,74,000 and in B
Department was worth Rs.12,05,000.
ANSWER:
DEPARTMENTAL TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR
ENDING 31.3.2004
Particulars A Dept. B Dept. A Dept. B Dept.
To opening 1,700 1,450 By sales 6,080 5,125
stock By tran. 42 50
To purchases 3,540 3,020 By closing stock 1,674 1,205
To wages 820 270
To transfer 50 42
To carriage 156 78
inward
To gross profit 1,530 1,520
7,796 6,380 7,796 6,380
To salaries 200 100 By gross profit 1,530 1,520
To rent, rates, By discount 35 30
taxes and insu. 626 313 By net loss 126 nil
To sundry exp. 240 120
To lighting,
heat. 140 70
To advertising 184 184
To
depreciation:
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Machinery 158 52
Furniture 22 8
To discount 121 101
To net profit nil 602

1,691 1,550 1,691 1,550

QUESTION NO 19 (PROBLEM WITHOUT STOCK RESERVE)

From the following figures prepare accounts to disclose total profit and the profit of the two
Departments, A and B:
Rs
st
Stock 1 April 2003 Department A 15,200
Department B 10,800
Purchases Department A 75,100
Department B 69,800
Sales Department A 1,00,000
Department B 80,000
Salaries Department A 9,000
Department B 8,500
Purchase Returns Department A 1,100
Department B 800
Carriage inward - 2,860
Discounts received - 1,430
General salaries - 11,600
Rent, Rates - 6,000
Advertising - 8,100
Insurance - 1,000
General expenses - 5,400
Discounts allowed - 1,800
Accounting charges 500
The following further information is supplied:
1. Goods Transferred from Department A to Department B were Rs.5,000 this has
not yet been recorded.
2. General salaries are to be allocated Equally.
3. Allocate carriage inward and discount received on suitable basis
4. The area occupied is in the ratio of 3:2
5. Insurance premium is for a comprehensive policy, allocation being inconvenient
6. the closing stock of the two Department were A:17,800 and B 15,600
7. Allocate advertising, general expenses and discount allowed in the ratio of sales
 DEPARTMENTAL ACCOUNTS
17

ANSWER:

DEPARTMENTAL TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR
ENDING 31.3.2004
Particulars A B A B
Depart. Depart. Depart. Depart.
To opening 15,200 10,800 By sales 1,00,000 80,000
stock By transfer 5,000 -
To purchases 74,000 69,000 By closing stock 17,800 15,600
less returns
To carriage 1,480 1,380
inward
To transfer - 5,000
To gross profit 32,120 9,420
1,22,800 95,600 1,22,800 95,600
To salaries : By gross profit 32,120 9,420
Departmental 9,000 8,500 By discount 740 690
General 5,800 5,800 By net loss - 13,390
To rent,rates 3,600 2,400
To advertising 4,500 3,600
To general exp. 3,000 2,400
To discount 1,000 800
To net profit 5,960 -
32,860 23,500 32,860 23,500
To net loss 13,390 By net profit 5,960
To insurance 1,000 By net loss to -
To accout.cha. 500 balance sheet 8,930
----------------------- ----------------------
14,890 14,890
----------------------- -----------------------
Notes:
1. Carriage inward and discount received have been allocated in the ratio of net
purchase
2. Rent and taxes have been allocated in the ratio of area occupied.

QUESTION NO 20
A firm has two Departments, Timber and Furniture. Furniture was made by the firm itself
out of timber supplied by Timber Department at its usual selling price. From the following
figures, prepare Departmental trading and profit and loss account for the year 2002:
 ACCOUNTS
18

Timber Furniture
Opening stock (1.1.2002) 3,00,000 50,000
Purchases 20,00,000 15,000
Sales 22,00,000 4,50,000
Transfer to furniture Department 3,00,000 -
Expenses: Manufacturing - 60,000
Selling 20,000 6,000
Closing stock 2,00,000 60,000
The stocks in the furniture Department may be considered as consisting 75% of timber and
25% other expenses. Timber Department earned gross profit at the rate of 20% in 2001.
General expenses of the business as a whole came to Rs.1,00,000.

ANSWER:
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING ON
31.12.2002
Particulars Timber Furniture Particulars Timber Furniture
Depart. Depart. Depart. Depart.
To O. stock 3,00,000 50,000 By sales 22,00,000 4,50,000
To purchases 20,00,000 15,000 By transfer 3,00,000 -
To transfer - 3,00,000 By closing stock 2,00,000 60,000
To manu.exp. - 60,000
To gross profit 4,00,000 85,000
27,00,000 5,10,000 27,00,000 5,10,000
To selling exp. 20,000 6,000 By gross profit 4,00,000 85,000
To net profit 3,80,000 79,000
4,00,000 85,000 4,00,000 85,000

GENERAL PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.12.2002
Particulars Rs. Particulars Rs
To stock reserve 7,200 By net profit:
(closing stock) (3,80,000+79,000) 4,59,000
To general expenses 1,00,000 By stock reserve 7,500
To net profit 3,59,300 (opening stock)

-------------- ---------------
4,66,500 4,66,500
Working notes:
Calculation of stock reserve:
(on opening stock of furniture)

75% of stock is Timber i.e, portion of timber included in furniture= 50,000*75/100=37,500

stock reserve=37500*20/100=7500
 DEPARTMENTAL ACCOUNTS
19

(on closing stock of furniture)

G.P.ratio of timber Department:= 4,00,000/25,00,000*100=16%

Stock reserve=60,000*75%*16%=7,200

QUESTION NO 21 (CA IPCC NOV 2009)

Goods are transferred from Department P to Department Q at a price 50% above cost. If

closing stock of Department Q is Rs. 27,000, compute the amount of stock reserve.

(ANS:9000)

QUESTION NO 22 (CA IPCC MAY 2010) (CROSS TRANSFERS)

Siva Ltd. Has two departments X and Y. from the following particulars prepare
departmental trading accounts and general profit and loss account for the year ending 31st
March, 2009.
Dept. X Dept.
Opening stock (at cost) 80,000 48,000
Purchase 3,68,000 2,72,000
Carriage inward 8,000 8,000
Wages 48,000 32,000
Sales 5,60,000 4,48,000
Purchase goods transferred
By Dept. Y to X 40,000 -
By Dept. X to Y - 32,000
Finished goods transferred
By Dept. Y to X 1,40,000 -
By Dept. X toY - 1,60,000
Return of finished goods
By Dept. Y to X 40,000 -
By Dept. X to Y - 28,000
Closing stock
Purchased goods 18,000 24,000
Finished goods 96,000 56,000
 ACCOUNTS
20

Purchased goods have been transferred mutually at their respective departmental purchase
cost and finished goods at departmental market price and that 25% of the closing finished
stock with each departmental represents finished goods received from the other
department.

ANSWER:

GROSS PROFIT: X 1,70,000 Y 1,68,000

QUESTION NO 23 (CA NOV 2010 IPCC) (COMMISSION)

Department X sells goods to Department Y at a profit of 25% on cost and to Department Z
at 10% profit on cost. Department Y sell goods to X and Z at a profit 15% and 20% on
sales, respectively. Department Z charges 20% and 25% profit on cost to Department X
and Y, respectively.
Department Managers are entitled to 10% commission on net profit of before charging such
commission, subject to unrealized profit on departmental sales being eliminated.
Departmental profits after charging Managers` commission, but before adjustment of
unrealized profit are as under; -

Department X Rs. 54,000

Department Y Rs. 40,500

Department Z Rs. 27,000

Stock lying at different departmental at the end of the year are as under;
Dept. X Dept. Y Dept. Z

Rs. Rs. Rs.

Transfer from Department X 22,500 16,500

Transfer from Department Y 21,000 18,000

Transfer from Department Z 9,000 7,500

Find out the correct department Profits after charging Manager`s Commission.

ANSWER:

Deptt. X 48,600

Deptt. Y 34,425

Deptt. Z 24,300
 DEPARTMENTAL ACCOUNTS
21

Examiner Comments: Most of the Candidates failed to give the correct treatment for the

unrealized profit in the concerned department . as a result, department profit and

manager`s commission after unrealized profit was calculated incorrectly.

QUESTION NO 24 (CA MAY 2011)

The Z Ltd has three departments and submits the following information for the year ending

on 31st march, 2009.

A B C Total

Rs.

Purchases (Units 5,000 10,000 15,000

Purchases (Amounts) 8,40,000

Sales (Units) 5,200 9,800 15,300

Selling price (per unit) Rs 40 Rs 45 Rs 50

Closing stock (units) 400 600 700

You are required to prepare department trading account of Z Ltd. Assuming that the rate

of Profit on sale is the uniform in each case.

ANSWER: UNIFORM GP RATIO 40%

QUESTION 25 (C A IPCC NOV.11)(8MARKS)

M/s AM Enterprises had two departments. Cloth and Read/made Clothes. The Readymade

clothes were made by the firm itself out of the cloth supplied by the Cloth Department at

its usual selling price. From the following figures, prepare Departmental Trading and Profit

and Loss Account for the year ended 31st March, 2011:

Cloth Readymade Clothes

Department Department Rs.

Rs.

Opening Stock on 1st April, 2010 31,50,000 5,32,000

 ACCOUNTS
22

Purchases 2,10,00,000 1,68,000

Sales 2,31,00,000 47,25,000

Transfer to Readymade Clothes 31,50,000 --

Department

Manufacturing Expenses -- 6,30,000

Selling Expenses 2,10,000 73,500

Rent & Warehousing 8,40,000 5,60,000

Stock on 31st March, 2011 21,00,000 6,72,000

In addition to the above, the following information is made available for necessary

consideration:

(i) The stock in the Readymade Clothes Department may be considered as consisting

of 75% cloth and 25% other expenses.

(ii) The Cloth Department earned a gross profit at the rate of 15% in 2009-10.

(iii) General Expenses of the business as a whole amount to Rs. 10,85,000.

Answer :
M/s AM Enterprises
Trading and Profit and Loss Account
For the year ended 31st March, 2011
Particulars Cloth Ready Particulars Cloth Ready
Rs. Rs. Rs. Rs.

To Opening stock 31,50,000 5,32,000 By Sales 2,31,00,000 47,25,000

To Purchases 2,10,00,000 1,68,000 By Transfer 31,50,000 ---

To Transfer ` -- 31,50,000 By Closing stock 21,00,000 6,72,000

To Mfg. Expenses -- 6,30,000

To Gross profit c/d 42,00,000 9,17,000

2,83,50,000 53,97,000 2,83,50,000 53,97,000

To Selling Expenses 2,10,000 73,500 By Gross Profit 42,00,000 9,17,000

b/d
 DEPARTMENTAL ACCOUNTS
23

To Rent & 8,40,000 5,60,000

Warehousing

To Net Profit 31,50,000 2,83,500

42,00,000 9,17,000 42,00,000 9,17,000

GENERAL PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.03.2011
Particulars Rs. Particulars Rs
To stock reserve 80,640 By net profit:
(closing stock) (3150000+283500) 34,33,500
To general expenses 10,85,000 By stock reserve 59,850
To net profit 23,27,710 (opening stock)

-------------- ---------------
34,93,350 34,93,350
Working Notes :

1. Calculation of Stock Reserve

Opening Closing

Total 5,32,000 6,72,000

Break Up

75% cloth 3,99,000 5,04,000

25% Other expenses 1,33,000 1,68,000

Stock reserve

@ 15% on opening stock 59,850 --

@ 16% on closing stock (refer WN 12) -- 80,640

2. Calculation of Gross Profit %

Opening (given) 0.15 --

Closing
ୋ୰୭ୱୱ୔୰୭୤୧୲ ସଶǡ଴଴ǡ଴଴଴
ൌ (including dept. trf.) ---- 0.16
୘୭୲ୟ୪ୗୟ୪ୣୱ ଶǡ଺ଶǡହ଴ǡ଴଴଴
 ACCOUNTS
24

QUESTION NO 26 ( NOV 2012 8MARKS)

Department A sells goods to Department B at a Profit of 20% on cost and to
Department C at 15% Profit on cost. Department B sells goods to A and C at a Profit of 10%
and 20% on sales, respectively. Department C charges 15% and 10% Profit on cost to
Department A and B respectively.
Department Managers are entitled to 10 % commission on net Profit subject to
unrealized Profit on Departmental sales being eliminated. Departmental Profits after
charging managers commission, but before adjustment of unrealized Profit are as under:
Department A 36000
Department B 27000
Department C 18000
Stocks lying at different Departments at the end of the year are as under:
Department Department B Department
A Rs. C
Rs. Rs.
Transfer from Department A -- 7,200 5,750
Transfer from Department B 19,000 -- 15,000
Transfer from department C 46,00 3,300 --
Find out the correct Departmental Profits after charging managers commission.
ANSWER:COMMISSION=A,B,C=3805,2510,1910

ACCURATE PROFITS=A,B,C=34245,22590,17190

QUESTION NO 27(MAY 2013 4MARKS)

Department A sells goods to Department B at a Profit of 50% on cost and to
Department C at 20% Profit on cost. Department B sells goods to A and C at a Profit of 25%
and 15% on sales, respectively. Department C charges 30% and 40% Profit on cost to
Department A and B respectively.

Stocks lying at different Departments at the end of the year are as under:
Department Department B Department
A Rs. C
Rs. Rs.
Transfer from Department A -- 45,000 42,000
Transfer from Department B 40,000 -- 72,000
Transfer from department C 39,000 42,000 --
Find out the correct Departmental Profits after charging managers commission.

ANSWER: STOCK RESERVE=A,B,C=22000,20800,21000

 DEPARTMENTAL ACCOUNTS
25

QUESTION NO 28 (MAY 2014 8MARKS)

Department P sells goods to Department S at a Profit of 25% on cost and to

Department Q at 15% Profit on cost. Department S sells goods to P and Q at a Profit of 20%
and 30% on sales, respectively. Department Q charges 20% and 10% Profit on cost to
Department P and S respectively.
Department Managers are entitled to 10 % commission on net Profit subject to
unrealized Profit on Departmental sales being eliminated. Departmental Profits after
charging managers commission, but before adjustment of unrealized Profit are as under:
Department P 90000
Department S 60000
Department Q 45000
Stocks lying at different Departments at the end of the year are as under:
Department Department B Department
A Rs. C
Rs. Rs.
Transfer from Department P -- 18000 14000
Transfer from Department S 48000 -- 38000
Transfer from department Q 12000 8000 --
Find out the correct Departmental Profits after charging managers commission.

QUESTION 29
M/s Omega is a departmental store having tree departments X,Y and Z. The information
regarding three departments for the year ended 31st March, 2013 are given below :
X Y Z
Rs Rs Rs
Opening Stock 36000 24000 20000
Purchases 132000 88000 44000
Debtors at end 15000 10000 10000
Sales 180000 135000 90000
Closing stock 45000 17500 21000
Value of furniture in each department 20000 20000 10000
Floor space occupied by each department (in sq. ft.) 3000 2500 2000
Number of employees in each Department 25 20 15
Electricity consumed by each department (in units) 300 200 100

The balances of other revenue items in the books for the year are given below:

Amount (Rs)
Carriage inwards 3000
Carriage outwards 2700
Salaries 48000
 ACCOUNTS
26

Advertisement 2700
Discount allowed 2250
Discount received 1800
Rent, Rates and taxes 7500
Depreciation on furniture 1000
Electricity expenses 3000
Labour welfare expenses 2400

You are required to prepare Departmental Trading and Profit and Loss Account for the year
ended 31st March, 2013 after providing provision for Bad Debts
DEPARTMENTAL ACCOUNTS
27
 ACCOUNTS
28
 DEPARTMENTAL ACCOUNTS
29

Working Note:

Basis of allocation of expenses

Carriage inwards Purchases (3:2:1)

Carriage outwards Turnover (4:3:2)
Salaries No. of Employees (5:4:3)
Advertisement Turnover (4:3:2)
Discount allowed Turnover (4:3:2)
Discount received Purchases (3:2:1)
Rent, Rates and Taxes Floor Space occupied (6:5:4)
Depreciation on furniture Value of furniture (2:2:1)
Labor welfare expenses No. of Employees (5:4:3)
Electricity expense Units consumed (3:2:1)
Debtors balances (3:2:2)
Provision for bad debts

QUESTION 30
M/s X has two departments, A and B. From the following particulars prepare the consolidated
Trading Account and Departmental Trading Account for the year ending 31st December, 2012:
A B
Rs Rs

Opening Stock (at cost) 20,000 12,000

Purchases 92,000 68,000
Sales 1,40,000 1,12,000
Wages 12000 8000
Carriage 2000 2000
Closing Stock:
i,) Purchased goods 4500 6000
(ii) Finished goods 24000 14000
Purchased goods transferred.
by B to A 10000
by A to B 8000
Return of finished goods:
by A to B 1000
by B to A 7000
Finished goods transferred:
BY A TO B 35,000
BY B TO A 40,000
 ACCOUNTS
30

You are informed that purchased goods have been transferred mutually at their respective

departmental purchase cost and finished goods at departmental market price and that 20% of the

finished stock (closing) at each department represented finished goods received from the other

department.

Solution
M/s X

Departmental Trading A/c for the year ending 31st December, 2012

Deptt.A Deptt.B. Deptt.A Deptt.B.

Rs. Rs Rs. Rs

To Stock 20,000 12,000 By Sales 1,40,000 1,12,000

92,000 68,000 By Purchased Goods 8,000 10,000
To Purchases
transferred

To 12,00 8,000 By Finished goods 35,000 40,000

wages 2,000 2,000 transferred
To Carriage Return of finished 10,000 7,000
To Purchased 10,000 8,000 Goods
Goods transferred 40,000 35,000 By Closing Stock :
To F.G. transferred 7,000 10,000 Purchased Goods 4,500 6,000
To Ret. of finished Finished Goods 24,000 14,000
Goods 38,500 46,000
To Gross profit

2,21,500 1,89,000 2,21,500 1,89,000

Consolidated Trading Account for the year ending 31st December, 2012

To Opening stock 32,000 By Sales 2,52,000

To Purchase 1,60,000
20,000 By Closing Stock:
To Wages
4,000 10,500
To Carriage Purchased Goods
To Stock Reserve
2,196 38,000
To Gross Profit c/d Finished Goods
82,304

3,00,500 3,00,500
 DEPARTMENTAL ACCOUNTS
31

Working note :

Deptt. A Deptt. B.
Closing Stock out of transfer 4,800 2,800
sale 1,40,000 1,12,000
Add: Transfer 35,000 40,000
1,75,000 1,52,000
Less: Returns (7,000) (10,000)
Net Sales Plus Transfer 1,68,000 1,42,000

ଷ଼ǡହ଴଴ ସ଺ǡ଴଴଴
Rate of Gross profit šͳͲͲ ൌ ʹʹǤͻͳ͸Ψ x 100 = 32.394%
ଵǡ଺଼ǡ଴଴଴ ଵǡସଶǡ଴଴଴

Unrealised Proift 4,800 x 32.394% = 1,555 2,800 x 22.916% = 641

QUESTION 31 (BEST QUESTION ON DEPARTMENTAL COVERING ALL CONCEPTS)

M/s Alpha, has a factory with two manufacturing department `X` and `Y` part of the output
of department X is transferred to department Y for further processing and the balance is
directly transferred to selling department. The entire production of department Y is directly
transferred to the selling department. Inter-department stock transfers are made as
follows:
X department to Y department at 33-1/3% over department cost.
X department to selling department at 50% over department cost.
Y department to selling department at 25% over departmental cost.
The following information is given for the year ending 31st March, 2013.
Department X Department Y Selling Department
Units Rs Units Rs Units Rs
Opening stock
Finished Goods 60 60,000 20 40000 50 1,28,000
Raw materials - - - - - -
Raw material consumed - 1,82,000 - 20,000 - -
Labour charges - 70,000 - 32,000 - -
Sales - - - - 120 4,80,000
Closing stock
Finished 40 - 50 - 60 -
Out of the total transfer by X department 30 units were transferred to selling
department, while the remaining to department Y. per unit material and labour consumption
of X department on production to be transferred directly to the selling department is 300
per cent of the labour and material consumption on units transferred to Y department.
General Administration expenses Rs 1,80,000.

Prepare Department Profit and Loss Account and General Profit and Loss Account.
 ACCOUNTS
32

QUESTION 32 (MARK UP ACCOUNTS)

Gram Udyog, a retail store, has two department, `Khadi and Silks` for each of which
stock account and memorandum `mark up` accounts are kept. All the goods supplied to each
department are debited to the stock account at cost plus a `Mark-up`, which together make-
up the selling price of the goods and in the account of the sale proceeds of the goods are
credited. The amount of `mark-up` is credited to the departmental mark up account. if the
selling price of any goods is reduced below its normal selling price, the reduction `marked
down` is adjusted both in the stock account and the departmental `Mark up` account. The
rate of `Mark-up` for Khadi Department is 33-1/3% of the cost and for Silks Department
it is 50% of the cost.
The following figures have been taken from the books:

Particulars Khadi Silk

Opening stock at cost 10,500 18,600
Purchases 75,900 93400
Sales 95,600 1,25,000
The following figures have been taken from the books for the year ended December 31, 2012:

(1) The stock of Khadi on January 1, 2012 included goods the selling price of which
had been marked down by Rs 1,260. These goods were sold during the year at the reduced
prices.
(2) Certain stock of the value of Rs 6,900 purchased for the Khadi Department were
later in the year transferred to the Silks department and sold for Rs
10,350. As a result though cost of the goods is included in the Khadi Department the sale
proceeds have been credited to the silks Department.
(3) During the year 2012 to promote sale the goods were marked down as follow :
Cost Marked down
Khadi 5,600 360
Silk 10,000 2,000

Al the goods marked down, were sold except Silks of the value of Rs 5,000 marked down by
Rs 1,000.
(4) At the time of stock-taking on December 31, 2012 it was discovered that Khadi cloth
of the cost of Rs 390 was missing and it was decided that the amount be written off.
You are required to prepare for both the departments for the year 2012.
(a) The Memorandum stock Account ; and
(b) The Memorandum mark up Account
 DEPARTMENTAL ACCOUNTS
33

Solution
Silk Stock Account
2012 Rs 2012 Rs
To balance b/d By Sales A/c 1,25,000
To Cost 18,600 By Mark-up A/c 2,000
Mark-up 9,300 27,900 By Balance c/d 51,350
To Purchase 93,400
Mark-up 46,700 1,40,100
To Khadi A/c 6,900
Mark-up 3,450 10,350
1,78,350 1,78,3500

Silk Mark-up Account

2012 Rs 2012 Rs
To stock A/c 2,000 By Balance b/d 9,300
To Profit & Loss A/c 41,000 By Stock A/c 46,700
To balance c/d [ 1/3 of 52, 350) - 1000] 16,450 By Stock A/c 3,450
59,450 59450
Working Notes:

Verification of Profit Rs

Sale Rs 1,25,000
Add: Mark down in goods sold 1,000
Gross Profit 1/3 1,26,000
Less: Mark down 42,000
Gross profit as per books ( 1,000)
41,000
Khadi stock Account
2012 Rs Rs 2012 Rs Rs
To Balance b/d By Sales 95,600
( 10, 500+2,240) 12,740 Silks Deptt. 6900
To Purchase 75,900 Mark-up A/c 2300 9,200
Markup 25,300 1,01,200 By Loss of 390
stock A/c
Mark-up A/c 130 520
By Mark-u/s A/c 360
By Balance c/d 8260
1,13,940 1,13,940
 ACCOUNTS
34

Khadi Mark-up Account

2012 Rs 2012 Rs
To Stock A/c (transfer) 2,3000 By Balance b/d
To Stock A/c (Re-sale) 130 ( 3,500-1,260) 2240
To Stock A/c (mark down) 360 By Stock A/c 25300
22,685
To Profit & Loss A/c
2,065
To Balance ( 1/4 of Rs 8,260)
27,540 27,540
Working Note:

Rs
Verification of Profit

95,600
Sales as per books 1,620
Add: Mark-down ( 1260+360) 97, 220
Gross profit on fixed selling price @ 25@ on Rs 97, 24,305
220 (1,620)
22,685
 DEPARTMENTAL ACCOUNTS
35

CONCEPT 15: LATEST EXAMINATION PROBLEMS

QUESTION NO 33 (CA NOV.2016) (8 MARKS) (MARK UP QUESTION)

M/s. Shyam Udyog, a retail store, has two departments, Department X and Department Y for
each of which stock account and memorandum `mark-up` account are kept. All the goods
supplied to each department are debited to the stock account at cost plus a `mark-up`, which
together make up the selling price of the goods and in the account the sale proceeds of the
goods are credited. The amount of `mark-up` is credited to the Departmental Mark-up
Account. If the selling price of any goods is reduced below its normal selling price, the
reduction `marked down` is adjusted both in the Stock Account and the Departmental Mark-
up Account. The rate of `Markup` for X Department is 33-1/3% of the cost and for Y
Department it is 50% of the cost.

The following figures have been taken from the books for the year ended March, 2016:
Particulars X Y
Deptt. Amount Deptt. Amount
(Rs.) (Rs.)
Stock as on April 1st at cost 3,15,000 5,58,000
Purchases 22,77,000 28,02,000
Sales 28,68,000 37,50,000

(1) The stock of Department X on April 1, 2015 included goods the selling price of which had
been marked down by Rs.37,800. These goods were sold during the year at the reduced prices.

(2) Certain stock of the value of Rs.2,07,000 purchased from the Department X was later in the
year transferred to the Department Y and sold for Rs. 3,10,5000. As a result though cost of the
goods is included in the Department X the sale proceeds have been credited to the Department Y.

(3) During the year 2015-16 to promote the goods, they were marked down as follows:

Cost Rs. Marked down

(Rs.)
Department X 1,68,000 10800
Department Y 3,00,000 60,000

All the goods marked down, were sold except of Department Y of the value of Rs.1,50,000
marked down by Rs. 30,000.

(4) At the time of stock taking on 31st March,2016 it was discovered that cloth of
Department X of the cost of Rs. 11,700 was missing and it was decided that the amount be
written off.
 ACCOUNTS
36

You are required to prepare for both the departments for the year ended 31st March,
2016:
(a) The Memorandum Stock Account; and
(b) The Memorandum Mark-up Account.

You are requested to prepare Branch Account in the Head Office books and also prepare
Chena Swami`s Trading and Profit & Loss Account (excluding branch transactions) for the
year ended 31st March 2016.

ANSWER

(a) Department X Memorandum Stock Account.

2015- Rs. Rs. 2015- Rs. Rs.
16 16
To Balance b/d (3,15,000 + By Sales 28,68,000
105,000 – 37,800) 3,82,200 XDeptt. 2,07,000
Mark-up A/c. 69,000 2,76,000
To Purchases 22,77,000 By Loss of
Mark up 7,59,000 30,36,000 Stock A/c. 11,700
Mark-up A/c. 3,900 15,600
By Mark up A/c. 10,800
By Balance c/d. 2,47,800
34,18,200 34,18,200

Department X Memorandum Mark-up Account

2015-16 Rs. 2015-16 Rs.
To Stock A/c.(Transfer) 69,000 By Balance b/d
To Stock A/c. (re-sale) 3,900
To Stock A/c. (markdown) 10,800 (1,05,000 – 37,800) 67,200
To Profit & Loss A/c. 6,80,550 By Stock A/c. 7,59,000
To Balance (1/4 of Rs.2,47,800) 61,950
8,26,200 8,26,200

Working Note:
Verification of Profit Rs.
Sales as per books 28,68,000
Add: Mark-down (37,800 + 10,800) 48,600
___________
29,16,600
___________
Gross Profit on fixed selling price @ 25% on Rs. 29,16,600 7,29,150

Less: Mark down (48,600)

____________
6,80,550
____________
 DEPARTMENTAL ACCOUNTS
37

Department Y Memorandum Stock Account

2015-16 Rs. 2015-16 Rs.

To Balance b/d By Sales A/c. 37,50,000
(558000+279000) 8,37,000 By Mark-up A/c. 60,000
To cost 28,02,000 By Balance c/d 15,40,500
Mark up 14,01,000 42,03,000

To x Deptt. A/c. 2,07,000

Mark-up 1,03,500 3,10,500
53,50,500 53,50,500

Department Y Memorandum Mark up Account

2015-16 Rs. 2015-16 Rs.

To Stock A/c. 60,000 By Balance b/d 2,79,000

To Profit & Loss A/c. 12,30,000 By Stock A/c. 14,01,000

(28,02,000 x 50%)
To Balance c/d: 4,93,500
(1/3 (15,40,500+30,000)- By Stock A/c. 1,03,500
Rs.30,000)
17,83,500 17,83,500
Working Notes:
Verification of Profit Rs.

Sales 37,50,000

Add: Mark-down in goods sold 30,000

___________
37,80,000
___________

Gross Profit 1/3 12,60,000

Less: Mark down (30,000)

____________
Gross Profit as per books 12,30,000
____________
 ACCOUNTS
38

QUESTION NO 34 (CA MAY 2016) (8MARKS)

There is transfer/sale among the three departments as below:

Department X sells goods to Department Y at a profit of 25% on cost and to Department Z

at20% profit on cost.

Department Y sells goods at a x and Z at a profit of 15% and 20% on sales respectively.

Department Z charges 20% and 25% profit on cost to Department x and Y respectively.

Department Managers are entitled to 10% commission on net profit subject to unrealized
profit on departmental sales being eliminated.

Departmental profits after charging Managers` commission, but before adjustment of

unrealized profit are as under:

Department X 1,80,000

Department Y 1,35,000

Department Z 90,000

Stocks lying at different Departments at the end of the year are as under:

Dept. X Dept. Y Dept. Z

Transfer from Department X -- 75,000 57,000

Transfer from Department Y 70,000 - 60,000

Transfer from Department Z 30,000 25,000 --

Find out the correct departmental profits after charging Manager`s commission.

ANSWER
(a) Calculation of Correct Profit
Department X Department Y Department Z
Rs. Rs. Rs.
Profit after charging 1,80,000 1,35,000 90,000
managers` commission
Add back: Managers` 20,000 15,000 10,000
commission (1/9)
2,00,000 1,50,000 1,00,000
Less: Unrealized profit on (24,500) (22,500) (10,000)
stock (W.N.)
 DEPARTMENTAL ACCOUNTS
39

Profit before Manager`s 1,75,500 1,27,500 90,000

commission
Less: Commission for (17,550) (12,750) (9,000)
Department Manager @
10%
Departmental Profits after 1,57,950 1,14,750 81,000
manager`s commissioner

Working Note:
Stock lying with
Dept. X Dept. Y Dept.Z Total
Unrealized
Profit of:

Department X 1/5x75,000=15,000 20/120x57,000=9,500 24,500

Department Y 0.15x70,000=10,500 0.20x60,000=12,000 22,500

Department Z 20/120x30,000=5,000 25/125x25,000=5,000 10,000

QUESTION NO 35 (CA NOV.2015) (4MARKS)

Sona Ltd. has three departments – P, Q and R. From the following particulars given below,
compute:

(i) The departmental results:

(ii) The value of stock as on 31st December, 2014:

Particulars P Q R
Stock as on 01.01.2014 30,000 45,000 15,000
Purchases 1,60,000 1,30,000 60,000
Actual Sales 1,88,000 1,66,000 93,000
Gross Profit on normal sales price 25% 33% 40%

During the year 2014 some items were sold at discount and these discounts were reflected
in the above sales value. The details are given below:

Particulars P Q R
Sales at normal price 15,000 8,000 6,000
Sales at actual price 11,000 6,000 4,000
 ACCOUNTS
40

SOLUTION
Calculation of Departmental Results:
P (Rs.) Q (Rs.) R (Rs.)
Actual Sales 1,88,000 1,66,000 93,000
Add: Discount (Refer W.N.) 4,000 2,000 2,000
Normal Sale 1,92,000 1,68,000 95,000
Gross Profit % on normal sales 25% 33.33% 40%
Normal gross profit 48,000 56,000 38,000
Less: Discount (4,000) (2,000) (2,000)
Actual gross Profit 44,000 54,000 36,000

Computation of value of stock as on 31st Dec. 2014

Departments P Q R
Stock (on 1.1.2014) 30,000 45,000 15,000
Add: Purchase 1,60,000 1,30,000 60,000
1,90,000 1,75,000 75,000
Add: Actual gross Profit 44,000 54,000 36,000
2,34,000 2,29,000 1,11,000
Less: Actual Sales (1,88,000) (1,66,000) (93,000)
Closing Stock as on 31.12.2014 (bal.fig) 46,000 63,000 18,000

Working Note:
Calculation of discount on sales

Departments P Q R
Sales at normal price 15,000 8,000 6,000
Less: Sales at actual price (11,000) (6,000) (4,000)
4,000 2,000 2,000

QUESTION NO 36 (CA MAY 2015) (8MARKS)

M/s. Suman Enterprises has two Departments, Finished Leather and Shoes. Shoes are
made by the Firm itself out of leather supplied by Leather Department at its usual selling
price. From the following figures, prepare Departmental Trading and Profit and Loss Account
for the year ended 31st March, 2014:

Finished Leather Shoes

Department (Rs.) Department
(Rs.)
Opening Stock (As on 01.04.2013) 30,20,000 4,30,000
Purchases 1,50,00,000 2,60,000
Sales 1,80,00,000 45,20,000
Transfer to Shoes Department 30,00,000 -
Manufacturing Expenses - 5,00,000
 DEPARTMENTAL ACCOUNTS
41

Selling Expenses 1,50,000 60,000

Rent and Warehousing 5,00,000 3,00,000
Stock on 31.03.2014 12,20,000 5,00,000

The following further information are available for necessary consideration:

(i) The stock in Shoes Department may be considered as consisting of 75% of Leather
and 25% of other expenses.
(ii) The Finished Leather Department earned a Gross Profit @ 15% in 2012-13.
(iii) General expenses of the business as a whole amount to Rs. 8,50,000.

SOLUTION

Departmental Trading and Profit and Loss Account for the year ended
31st March, 2014
Particulars Finished Shoes Total Particulars Finished Shoes Total
Leather (Rs.) (Rs.) Leather (Rs.) (Rs.)
(Rs.) (Rs.)
To Opening 30,20,000 4,30,000 34,50,000 By Sales 1,80,00,000 45,20,000 2,25,20,000
Stock
To Purchases 1,50,00,000 2,60,000 1,52,60,000 By Shoes 30,00,000 - 30,00,000
Deptt.
Transfer
To Transfer 30,00,000 30,00,000 By Closing 12,20,000 5,00,000 17,20,000
from Leather Stock
Deptt.
To Mfd. Exp. 5,00,000 5,00,000
To Gross 42,00,000 8,30,000 50,30,000
Profit c/d
2,22,20,000 50,20,000 2,72,40,000 2,22,20,000 50,20,000 2,72,40,000
To Selling 1,50,000 60,000 2,10,000 By Gross 42,00,000 8,30,000 50,30,000
Expenses Profit b/d
To Rent & 5,00,000 3,00,000 8,00,000
warehousing
To Net Profit 35,50,000 4,70,000 40,20,000
42,00,000 8,30,000 50,30,000 42,00,000 8,30,000 50,30,000

General Profit and Loss Account

Particulars Amount (Rs.) Particulars Amount (Rs.)
To General Expenses 8,50,000 By Net Profit 40,20,000
To Unrealized Profit 26,625
(Refer W.N.)
To General net Profit 31,43,375
(Bal. fig.)
40,20,000 40,20,000
 ACCOUNTS
42

Working Note:
Calculation of Stock Reserve
Rent of Gross Profit of Finished leather Department, for the year 2013-14

= Gross Profit x 100 = (42,00,000)/(1,80,00,000 + 30,00,000) x 100 = 20%

Total Sales

Closing Stock of Finished leather in Shoes Department = 75%.

i.e. Rs. 5,00,000 x 75% = Rs. 3,75,000

Stock Reserve required for unrealized profit @ 20% on closing stock.

Rs.3,75,000 x 20% = Rs. 75,000

Stock reserve for unrealized profit included in opening stock of Shoes Dept. @ 15% i.e.
(Res.4,30,000 x 75% x 15%) = Rs. 48,375

Additional Stock Reserve required during the year = Rs. 75,000 – Rs. 48,375 = Rs.26,625

QUESTION NO 37 (CA NOV 2014) (8 MARKS)

Mega Ltd. has two departments, A and B. From the following particulars, prepare
departmental Trading A/c. and General Profit & Loss Account for the year ended 31st March,
2014.

Particulars Amount (Rs.)

Department A Department B
Opening Stock as on 01.04.2013 (at cost) 70,000 54,000
Purchases 3,92,000 2,98,000
Carriage Inward 6,000 9,000
Wages 54,000 36,000
Sales 5,72,000 4,60,000
Purchased Goods Transferred
By Department B to A 50,000
By Department A to B 36,000
Finished Goods Transferred
By Department B to A 1,50,000
By Department A to B 1,75,000
Return of Finished Goods
By Department B to A 45,000
By Department A to B 32,000
Closing Stock
Purchased Goods 24,000 30,000
Finished Goods 1,02,000 62,000
 DEPARTMENTAL ACCOUNTS
43

Purchased goods have been transferred mutually at their respective departmental purchase
cost and finished goods at departmental market price and that 30% of the closing finished
stock with each department represents finished goods received from the other department.

SOLUTION
Department Trading Account in the books of Mega Ltd.
for the year ended 31st March, 2014

Particulars Department Department Particulars Deptt. A Deptt. B

A B
To Opening 70,000 54,000 By Sales 5,72,000 4,60,000
Stock By Transfer:
To Purchase 3,92,000 2,98,000 Purchased Good 36,000 50,000
To Carriage 6,000 9,000 Finished Goods 1,30,000 1,18,000
Inward By Closing
To Wages 54,000 36,000 stock:
To ransfers: Purchase.Goods 24,000 30,000
Purchased Finished* Goods 1,02,000 62,000
Goods 50,000 36,000
Finished**
Goods 1,18,000 1,30,000
To Gross
Profit c/d 1,74,000 1,57,000
8,64,000 7,20,000 8,64,000 7,20,000
* Finished goods from other department included inclosing stock.

Particulars Department A (Rs.) Department B (Rs.)

Stock of Finished Goods 1,02,000 62,000
Stock related to other 30,600 18,600
department
(30% of Finished Goods)

** Net transfer of Finished goods by

Department A to B = Rs. (1,75,000 – 45,000) = Rs. 1,30,000

Department B to A = Rs. (1,50,000 – 32,000)= Rs. 1,18,000
 ACCOUNTS
44

Profit and Loss A/c.

For the year ended 31st March, 2014

Particulars Amount Particulars Amount (Rs.)

(Rs.)
To Provision for By Gross Profit b/d:
unrealized Profit including Department A 1,74,000
in closing stock: Department B 1,57,000
Department A (W.N.2) 8,311
Department B (W.N.2) 4,611
To Net Profit 3,18,078
3,31,000 3,31,000

Working Notes

1. Calculation of ratio of gross profit margin on sales.

Particulars Department A (Rs.) Department B (Rs.)

Sales 5,72,000 4,60,000
Add: Transfer of Finished 1,75,000 1,50,000
Goods _________ ________
7,47,000 6,10,000

Less: Return of Finished Goods (45,000) (32,000)

_________ _________
7,02,000 5,78,000
_________ _________

Gross Profit 1,74,000 1,57,000

Gross Profit margin = 1,74,000 x 100 = 24.79% 1,57,000 x 100 = 27.16%
7,02,000 5,78,000
2. Unrealized profit included in the closing stock

Department A = 27.16% of Rs. 30,600 (30% of Stock of Finished Goods Rs. 1,02,000) = Rs.
8311.00

Department B = 24.79% of Rs. 18,600 (30% of Stock of Finished Goods Rs. 62,000) =
Rs. 4611.00
 DEPARTMENTAL ACCOUNTS
45

QUESTION NO 38(CA MAY 2014) (8MARKS)

Department P sells goods to Department S at a profit of 25% on cost and to Department Q
at a profit of 15% on cost. Department S sells goods to P and Q at a profit of 20% and 30%
on sales respectively. Department Q sells goods to P and S at 20% and 10% profit on cost
respectively.
Departmental Managers are entitled to10% commission on net profit subject to unrealized
profit on departmental sals being eliminated. Departmental profits after charging Manager`s
commission, but before adjustment of unrealized profits are as below:
Rs.
Department P 90,000
Department S 60,000
Department Q 45,000

Stock lying at different Departments at the end of the year are as below:
Figures in rs.
DEPARTMENS
p S Q
Transfer from P - 18,000 14,000
Transfer from S 48,000 - 38,000
Transfer from Q 12,000 8,000 --

Find out correct Departmental Profits after charging Managers` Commission.

SOLUTION
Calculation of correct Departmental Profits
Department Department S Department
P (Rs.) Q
(Rs.) (Rs.)
Profit after charging Manager`s 90,000 60,000 45,000
Commission
Add: Manager`s Commission (1/9) 10,000 6,667 5,000
1,00,000 66,667 50,000
Less: Unrealized Profit on Stock (5,426) (21,000) (2,727)
(WN)
Profit Before Manager`s Commission 94,574 45,667 47,273

Less: Manager`s Commission 10%

(9,457) (4,567) (4,727)
Correct Profit after Manager`s 85,117 41,100 42,546
Commission
 ACCOUNTS
46

Working Notes:
Department P Department S Department Q Total
(Rs.) (Rs.) (Rs.) (Rs.)
Unrealized Profit of:
Department P 25/125x18,000 15/115x14,000 5,426
= 3,600 = 1,826

Department S 20/100x48,000 - 30x100x38,000 21,000

=9,600 =11,400

Department Q 20/120x12,000 10/110x8,000 2,727

=2,000 =727

QUESTION NO 39 (CA INTER MAY 2017)(8 MARKS)

(a) The following balances were extracted from the books of Beta. You are required to
prepare Departmental Trading Account and General Profit & Loss Account for the year
ended 31st December, 2016.

Particulars Deptt. A (Rs.) Deptt. B (Rs.)

Opening Stock 3,00,000 2,40,000
Purchases 39,00,000 54,60,000
Sales 60,00,000 90,00,000

General expenses incurred for both the Departments were Rs. 7,50,000 and you are also
supplied with the following information:

(ii) Closing Stock of Department A Rs. 6,00,000 including goods from Department B
for Rs. 1,20,000 at cost to Department A.

(iii) Closing Stock of Department B Rs. 12,00,000 including goods for Department A for
Rs. 1,80,000 at cost to Department B.

(iv) Opening stock of Department A and Department B include goods of the value of Rs.
60,000 and Rs.90,000 taken from Department B and Department A respectively at
cost to transferee departments.

(v) The gross profit is uniform from year to year.

 DEPARTMENTAL ACCOUNTS
47

Answer

Departmental Trading Account for the year ended on 31st December, 2016

Particulars A B Particulars A B
` ` ` `
To Opening Stock 3,00,000 2,40,000 By Sales 60,00,000 90,00,000
To Purchases 39,00,000 54,60,000 By Closing Stock 6,00,000 12,00,000
To Gross Profit 24,00,000 45,00,000
66,00,000 1,02,00,000 66,00,000 1,02,00,000
General profit and loss account of Beta for the year ended on 31st December,2016
Particulars Amount Particulars Amount
` `
To General expenses* 7,50,000 By Stock reserve (opening stock)
To stock reserve Dept. A 30,000
(closing stock)
Dept. A 60,000 Dept. B 36,000
Dept. B 72,000 By Gross Profit
To Net profit 60,84,000 Dept. A 24,00,000
Dept. B 45,00,000
69,66,000 69,66,000
Working Notes:
Dept. A Dept.B
1. Percentage of Profit 24,00,000/60,00,000 x100 45,00,000/90,00,000 x 100
40% 50%
2. Opening Stock reserve 60,000 x 50% = 30,000 90,000 x 40% = 36,000
3. Closing Stock reserve 1,20,000 x 50% = 60,000 1,80,000 x 40% = 72,000
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 49

ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE

CHAPTER OVERVIEW

BONUS Bonus issue means of issue of free additional shares to existing

SHARES shareholders.
A company may issue fully paid-up bonus shares to its share- holders
out of –
(i) Its free reserves;
(ii) securities premium account; or
(iii) capital redemption reserve account:
Bonus shares should not be issued out of revaluation reserves (i.e.,
reserves created by the revaluation of assets).

RIGHT ISSUE 5LJKWVLVVXHLVDQLVVXHRIULJKWVWRDFRPSDQ\·VH[LVWLQJVKDUHKROGHUV

that entitles them to buy additional shares directly from the company
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In a rights offering, the subscription price at which each share may
be purchased is generally at a discount to the current market price.
Rights are often transferable, allowing the holder to sell them in the
open market.

The difference between the cum-right and ex-right value of the share
is the value of the right.

ISSUE OF BONUS SHARES

$ERQXVVKDUHPD\EHGHÀQHGDVLVVXHRIVKDUHVDWQRFRVWWRFXUUHQWVKDUHKROGHUVLQD
company, based upon the number of shares that the shareholder already owns. In other
words, no new funds are raised with a bonus issue while the issue of bonus shares increases
the total number of shares issued and owned, it does not increase the net worth of the
company. Although the total number of issued shares increases, the ratio of number of
shares held by each shareholder remains constant.

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members by issuing fully paid bonus shares to the members.
 50 ACCOUNTING

If the subscribed and paid-up capital exceeds the authorized share capital as a result of
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any manner whatsoever, out of-

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Provided that no issue of bonus shares shall be made by capitalizing reserves created by
the revaluation of assets.

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unless-

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debt securities issued by it;
(d) it has not defaulted in respect of the payment of statutory dues of the employees,
such as, contribution to provident fund, gratuity and bonus,
(e) the party paid-up shares, if any outstanding on the date of allotment, are made fully
paid-up.

The company which has once announced the decision of its Board recommending a bonus
issue shall not subsequently withdraw the same.
Sub-section (3) of the Section also provides that the bonus shares shall not be issued in
lieu of dividend.
A securities premium account and a capital redemption reserve account may be applied
in the paying up of unissued shares to be issued to members of the company as fully
paid bonus shares. In other words, securities premium account and capital redemption
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 

reserve cannot be applied towards payment of unpaid amount on any shares held by
existing shareholders.

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shares held by existing shareholders.
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be used for paying up amounts unpaid on shares held by existing shareholders (though
securities premium account and capital redemption reserve cannot be used.)

SEBI REGULATIONS
A listed company, while issuing bonus shares to its members, has to comply with the following
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Regulation 92- Conditions for Bonus issue

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time being in force, a listed company may issue bonus shares to its members if:

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or reserves, etc.:
Provided that if there is no such provision in the articles of association, the issuer
shall pass are solution at its general body meeting making provision in the articles of
associations for captalisation of reserve;
(b) it has not defaulted in payment of interest or principal in respect of fixed deposits or
debt securities issued by it;
(c) it has sufficient reason to believe that it has not defaulted in respect of the payment
of statutory dues of the employees such as contribution to provident fund, gratuity
and bonus;
(d) the partly paid shares, if any outstanding on the date of allotment, are made fully paid
up

Regulation 93- Restriction on bonus issue

No issuer shall make a bonus issue of equity shares unless it has made reservation of equity
shares of the same class in favour of the holders of outstanding compulsorily convertible
debt instruments, if any, in proportion to the convertible part thereof. The equity shares
  ACCOUNTING

so reserved for the holders of fully or partly compulsorily convertible debt instruments
shall be issued at the time of conversion of such convertible debt instruments on the same
terms of same proportion at which the bonus shares were issued.

Regulation 94- Bonus shares only against reserves, etc. if capitalized in cash
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be capitalized for the purpose of issuing bonus shares. The bonus share shall not be issued
in lieu of dividend.

Regulation 95- Completion of bonus issue

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of the issue by its board of directors: Provided that where the issuer is required to seek
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the bonus issue shall be implemented within two months from the date of the meeting of
its board of directors wherein the decision to announce the bonus issue was taken subject
WRVKDUHKROGHU·VDSSURYDO
Once the decision to make a bonus issue is announced, the issue cannot be withdrawn.

Journal Entries

(A) (1) Upon the sanction of an issue of bonus shares

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(2) Upon issue of bonus shares
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(B) (1) Upon the sanction of bonus by converting partly paid shares into fully paid
shares
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 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 53

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(2) On making the final call due
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QUESTION NO. 1

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0DUFK;

`
40,000 Equity shares of `HDFK 4,00,000
&DSLWDO5HGHPSWLRQ5HVHUYH 55,000
Securities Premium (collected in cash) 30,000
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7KHFRPSDQ\GHFLGHGWRLVVXHWRHTXLW\VKDUHKROGHUVERQXVVKDUHVDWWKHUDWHRIVKDUH
for every 4 shares held and for this purpose, it decided that there should be the minimum
reduction in free reserves. Pass necessary journal entries.

SOLUTION
Journal Entries in the Books of Bharat Ltd.

Dr. (`) Cr. (`)

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6HFXULWLHV3UHPLXP$F 'U 30,000
*HQHUDO5HVHUYH$FEI 'U 
7R%RQXVWR6KDUHKROGHUV$F 
(Bonus issue of one share for every four shares held,
E\XWLOL]LQJYDULRXVUHVHUYHVDVSHU%RDUGV·UHVROXWLRQ
dated ……….)
 54 ACCOUNTING

%RQXVWR6KDUHKROGHUV$F 'U 

7R(TXLW\6KDUH&DSLWDO$F 
&DSLWDOLVDWLRQRISURÀW

QUESTION NO. 2

)ROORZLQJLVWKHH[WUDFWRIWKH%DODQFH6KHHWRI6ROLG/WGDVDWst0DUFK;

`
Authorised capital :
3UHIHUHQFHVKDUHVRI`HDFK 
(TXLW\VKDUHVRI`HDFK 

Issued and Subscribed capital :
3UHIHUHQFHVKDUHVRI`HDFKIXOO\SDLG 80,000
90,000 Equity shares of `HDFK` 8 paid up 
Reserves and Surplus :
*HQHUDOUHVHUYH 
Revaluation reserve 35,000
Securities premium (collected in cash) 
3URÀWDQG/RVV$FFRXQW 
Secured Loan :
'HEHQWXUHV#`HDFK 5,00,000

2Qst$SULO[WKH&RPSDQ\KDVPDGHÀQDOFDOO#`HDFKRQHTXLW\VKDUHV
7KH FDOO PRQH\ ZDV UHFHLYHG E\ th $SULO [ 7KHUHDIWHU WKH FRPSDQ\ GHFLGHG WR
capitalize its reserves by way of bonus of the rate of one share every four shares held.
Show necessary entries in the books of the company and prepare the extract of the Balance
Sheet immediately after bonus issue assuming that the company has passed necessary
resolution at its general body meeting for increasing the authorized capital.
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 55

SOLUTION
Solid Ltd.
Journal Entries

20X1 Dr. (`) Cr. (`)

$SULO (TXLW\6KDUH)LQDO&DOO$F 'U 
  7R(TXLW\6KDUH&DSLWDO$F 
(Final call of `  SHU VKDUH RQ 
HTXLW\ VKDUHV GXH DV SHU %RDUG·V 5HVROXWLRQ
dated…………)
$SULO %DQN$F 'U 
  7R(TXLW\6KDUH)LQDO&DOO$F 
)LQDO &DOO PRQH\ RQ  HTXLW\ VKDUHV
received)
6HFXULWLHV3UHPLXP$F 'U 
*HQHUDO5HVHUYH$F 'U 
3URÀWDQG/RVV$FEI 'U 45,000
  7R%RQXVWR6KDUHKROGHU$F 
%RQXVLVVXH#RQHVKDUHIRUHYHU\IRXUVKDUHV
KHOGE\XWLOL]LQJYDULRXVUHVHUYHVDVSHU%RDUG·V
Resolution dated….)
$SULO %RQXVWR6KDUHKROGHU$F 'U 
  7R(TXLW\6KDUH&DSLWDO$F 
&DSLWDOLVDLWRQRISURÀW

Balance Sheet (Extract) as on 30th April, 20X1 (after bonus issue)

Particulars Notes Amounts (`)

Equity and Liabilities
1 6KDUHKROGHU·VIXQGV
a Share capital  
b Reserves and Surplus  
 Non-current liabilities
a /RQJ²WHUPERUURZLQJV 3 5,00,000
Total 
 56 ACCOUNTING

Note to Account

1 Share Capital
Equity share capital
Authorised share capital
(TXLW\VKDUHVRI`HDFKUHIHUZRUNLQJ 
note below)
Issued, subscribed and fully paid share capital
(TXLW\VKDUHVRI`HDFKIXOO\SDLG
2XW RI DERYH  HTXLW\ VKDUHV # `  HDFK 
were issued by way of bonus ) (A)
Preference share capital
Authorised share capital
3UHIHUHQFHVKDUHRI`HDFK 
Issued, subscribed and fully paid share capital
3UHIHUHQFHVKDUHVRI`HDFK% 80,000
Total (A+B) 12,05,000
2 Reserves and Surplus
Revaluation Reserve 35,000
Securities Premium 
/HVV8WLOLVHGIRUERQXVLVVXH  Nil
*HQHUDOUHVHUYH 
/HVV8WLOLVHGIRUERQXVLVVXH  Nil
3URÀW /RVV$FFRXQW 
/HVV8WLOLVHGIRUERQXVLVVXH (45,000) 
Total 1,95,000
3. Long –term borrowings
Secured
'HEHQWXUHV#`HDFK 5,00,000
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 57

Working Note:
The authorized capital should be increased as per details given below:

`
Existing authorized Equity share capital 
Add: Issue of bonus shares to equity shareholders
RI` 


QUESTION NO. 3

)ROORZLQJLVWKHH[WUDFWRIWKH%DODQFH6KHHWRI3UHHW/WGDVDWst0DUFK;

Authorized `
3UHIHUHQFHVKDUHVRI`HDFK 
(TXLW\VKDUHVRI`HDFK 

Issued and Subscribed capital :
3UHIHUHQFHVKDUHVRI`HDFKIXOO\SDLG 
(TXLW\VKDUHVRI`HDFK` 8 paid up 
Reserves and surplus
*HQHUDO5HVHUYH 
&DSLWDO5HGHPSWLRQ5HVHUYH 60,000
Securities premium (collected in cash) 37,500
3URÀWDQG/RVV$FFRXQW 3,00,000

2Qst$SULO;WKH&RPSDQ\KDVPDGHÀQDOFDOO#CHDFKRQHTXLW\VKDUHV7KH
FDOOPRQH\ZDVUHFHLYHGE\th$SULO;7KHUHDIWHUWKHFRPSDQ\GHFLGHGWRFDSLWDOL]H
its reserves by way of bonus at the rate of one share for every four shares held.

Show necessary journal entries in the books of the company and prepare the extract of the
balance sheet as on 30th$SULO;DIWHUERQXVLVVXH
58 ACCOUNTING

ANSWER
Journal Entries in the books of Preet Ltd.

` `
; (TXLW\VKDUHÀQDOFDOODF 'U 
  7R(TXLW\VKDUHFDSLWDO$F 
)RUÀQDOFDOOVRI`SHUVKDUHRQ
HTXLW\ VKDUH GXH DV SHU %RDUG·V 5HVROXWLRQ
dated…….)
; %DQN$F 'U 
  7R(TXLW\VKDUHÀQDOFDOO$F 
)RUÀQDOFDOOPRQH\RQHTXLW\VKDUHV
received)
6HFXULWLHV3UHPLXP$F 'U 37,500
&DSLWDO5HGHPSWLRQ5HVHUYH$F 'U 60,000
*HQHUDO5HVHUYH$F 'U 
3URÀWDQG/RVV$F 'U 60,000
  7R%RQXVWRVKDUHKROGHUV$F 3,37,500
(For making provision for bonus issue of one
share for every four shares held)
%RQXVWRVKDUHKROGHUV$F 'U 3,37,500
  7R(TXLW\VKDUHFDSLWDO$F 3,37,500
(For issue of bonus share )

Extract of Balance Sheet as at 30th April, 20X1 (after bonus issue)

`
Authorised Capital
3UHIHUHQFHVKDUHVRI`HDFK 
(TXLW\VKDUHVRI`HDFKUHIHUZRUNLQJQRWHEHORZ 
Issued and subscribed capital
3UHIHUHQFHVKDUHVRI`HDFKIXOO\SDLG 
(TXLW\VKDUHVRI`HDFKIXOO\SDLG 
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 59

2XWRIDERYHHTXLW\VKDUHV#`HDFKZHUHLVVXHGE\ZD\RI
bonus)
Reserves and surplus
3URÀWDQG/RVV$FFRXQW 

Working Note:

The authorized capital should be increased as per details given below: `

Existing authorized Equity share capital 
Add: Issue of bonus shares to equity shareholders 3,37,500


QUESTION 4

)ROORZLQJLWHPVDSSHDULQWKH7ULDO%DODQFHRI6DUDO/WGDVRQst0DUFK;

Particulars Amount
4,500 Equity Shares of `HDFK 4,50,000
Securities Premium (collected in cash) 40,000
&DSLWDO5HGHPSWLRQ5HVHUYH 70,000
*HQHUDO5HVHUYH 
3URÀWDQG/RVV$FFRXQW&U%DODQFH 65,000

7KHFRPSDQ\GHFLGHGWRLVVXHWRHTXLW\VKDUHKROGHUVERQXVVKDUHVDWWKHUDWHRIVKDUH
IRUHYHU\VKDUHVKHOG&RPSDQ\GHFLGHGWKDWWKHUHVKRXOGEHWKHPLQLPXPUHGXFWLRQLQ
IUHHUHVHUYHV3DVVQHFHVVDU\-RXUQDO(QWULHVLQWKHERRNV6DUDO/WG

QUESTION 5

7KHIROORZLQJQRWHVSHUWDLQWR%ULWH/WG·V%DODQFH6KHHWDVRQst0DUFK;

Notes ` in Lakhs
 6KDUH&DSLWDO
Authorised:
FURUHVKDUHVRI`HDFK 
Issued and Subscribed:
 60 ACCOUNTING

FURUH(TXLW\6KDUHVRI`HDFK 
FURUH&XPXODWLYH3UHIHUHQFH6KDUHVRI`HDFK 
Total 
&DOOHGDQGSDLGXS
FURUH(TXLW\6KDUHVRI`HDFK` 8 per share called and 8,000
paid up
FURUH&XPXODWLYH3UHIHUHQFH6KDUHVRI`HDFK
Fully called and paid up 
Total 
 Reserves and Surplus:
&DSLWDO5HGHPSWLRQ5HVHUYH 
Securities Premium (collected in cash) 
*HQHUDO5HVHUYH 
6XUSOXVLHFUHGLWEDODQFHRISURÀW /RVV$FFRXQW 
Total 4,798

2Qnd$SULO;WKHFRPSDQ\PDGHWKHÀQDOFDOORQHTXLW\VKDUHV#`SHUVKDUH
7KHHQWLUHPRQH\ZDVUHFHLYHGLQWKHPRQWKRI$SULO;
2Qst-XQH;WKHFRPSDQ\GHFLGHGWRLVVXHWRHTXLW\VKDUHKROGHUVERQXVVKDUHVDWWKH
UDWHRIVKDUHVIRUHYHU\VKDUHVKHOG3DVVMRXUQDOHQWULHVIRUDOOWKHDERYHPHQWLRQHG
WUDQVDFWLRQV$OVRSUHSDUHWKHQRWHVRQ6KDUH&DSLWDODQG5HVHUYHVDQG6XUSOXVUHOHYDQWWR
the Balance Sheet of the company immediately after the issue of bonus shares.

QUESTION 6

)ROORZLQJLVWKHH[WUDFWRIWKH%DODQFH6KHHWRI0DQRM/WGDVDWst0DUFK;

Authorized capital: `
3UHIHUHQFHVKDUHVRI`HDFK 3,00,000
3,00,000 Equity shares of `HDFK 30,00,000
33,00,000
Issued and Subscribed capital:
3UHIHUHQFHVKDUHVRI`HDFKIXOO\SDLG 
(TXLW\VKDUHVRI`HDFK` 8 paid up 
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 

Reserves and surplus:

*HQHUDO5HVHUYH 3,60,000
&DSLWDO5HGHPSWLRQ5HVHUYH 
Securities premium (collected in cash) 75,000
3URÀWDQG/RVV$FFRXQW 6,00,000

2Qst$SULO;WKH&RPSDQ\KDVPDGHÀQDOFDOO#`HDFKRQHTXLW\VKDUHV
7KHFDOOPRQH\ZDVUHFHLYHGE\th April, Thereafter, the company decided to capitalize
its reserves by way of bonus at the rate of one share for every four shares held.

Show necessary journal entries in the books of the company and prepare the extract of the
balance sheet as on 30th$SULO;DIWHUERQXVLVVXH
  ACCOUNTING

Right Issue
3URYLVLRQRIVHFWLRQDJRYHUQDQ\FRPSDQ\SXEOLFRUSULYDWHGHVLURXVRIUDLVLQJLWV
subscribed share capital by issue of further shares. Whenever a company intends to issue
new shares, the voting and governance rights of the existing shareholders may be diluted,
if they are not allowed to preserve them. It may happen because new shareholders may
VXEVFULEH WR WKH LVVXHG VKDUH FDSLWDO &RPSDQLHV $FW  DOORZV H[LVWLQJ VKDUHKROGHUV
WRSUHVHUYHWKHLUSRVLWLRQE\RIIHULQJWKRVHQHZO\LVVXHGVKDUHVDWWKHÀUVWLQVWDQFHWR
them. The existing shareholders are given a right to subscribe these shares, if they like.
However, if they do not desire to subscribe these shares, they are even given the right to
renounce it in favour of someone else (unless the articles of the company prohibits such a
right to renounce).

In nutshell, the existing shareholders have a right to subscribe to any fresh issue of shares
by the company in proportion to their existing holding for shares. They have an implicit
right to renounce this right in favour of anyone else, or even reject it completely.

,Q RWKHU ZRUG WKH H[LVWLQJ VKDUHKROGHUV KDYH ULJKW RI ÀUVW UHIXVDO LH WKH H[LVWLQJ
shareholders enjoy a right to either sub-scribe for these shares or sell their rights or
reject the offer.

Example
$VVXPH D FRPSDQ\ PDNHV D ULJKW LVVXH RI  VKDUHV ZKHQ LWV H[LVWLQJ LVVXHG DQG
VXEVFULEHGFDSLWDOLVVKDUHV7KLVHQDEOHVDQ\VKDUHKROGHUKDYLQJVKDUHVWR
VXEVFULEH WR  QHZ VKDUH +HQFH ; DQ H[LVWLQJ VKDUHKROGHU KROGLQJ  VKDUHV PD\
VXEVFULEHWRVKDUHVDVDPDWWHURIULJKW7KHH[LVWLQJVKDUHSHUFHQWDJHRI;ZDV
,I;VXEVFULEHVWKHVHVKDUHVKLVSHUFHQWDJHKROGLQJLQWKHFRPSDQ\
ZLOO EH PDLQWDLQHG  +RZHYHU LI ; GRHV QRW PLQG KLV VKDUH  GLOXWLQJ
KHPD\UHQRXQFHWKHULJKWLQIDYRXURIDQ\RQHHOVHVD\<+HQFHWKHVH
VKDUHVZLOOEHLVVXHGWR<DWWKHLQVLVWHQFHRI;;PD\FKDUJH IRUWKLVSULYLOHJH
which is technically termed as the value of right.

$FRPSDQ\GHVLURXVRILVVXLQJQHZVKDUHVKDVWRRIIHUDVSHU6HFWLRQDRI&RPSDQLHV
$FWWKHVKDUHVWRH[LVWLQJHTXLW\VKDUHKROGHUVWKURXJKDOHWWHURIRIIHUVXEMHFWWR
the following conditions, namely:

¾ The offer shall be made by notice specifying the number of shares offered and limiting
a time not being less then fifteen days and not exceeding thirty days from the date
of the offer within which the offer, if not accepted, shall be deemed to have been
declined;
¾ 8QOHVV WKH DUWLFOHV RI WKH FRPSDQ\ RWKHUZLVH SURYLGH WKH RIIHU DIRUHVDLG VKDOO EH
deemed to include a right exercisable by the person concerned to renounce the shares
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 63

offered to him or any of them in favour of any other person; and the notice (referred
to in above bullet point) shall contain a statement of this right;
¾ After the expiry of the time specified in the notice aforesaid, or on receipt of earlier
intimation from the person to whom such notice is given that he declines to accept the
VKDUHVRIIHUHGWKH%RDUGRI'LUHFWRUVPD\GLVSRVHRIWKHPLQVXFKPDQQHUZKLFKLV
not disadvantageous to the shareholders and the company

Exceptions to the rights of existing equity shareholders

6HFWLRQUHFRJQLVHVIRXUVLWXDWLRQVXQGHUZKLFKWKHIXUWKHUVKDUHVDUHWREHLVVXHGE\D
company, but they need not be offered to the existing shareholders.
The shares can be offered, without being offered to the existing shareholders, Provided
the company has passed a special resolution and shares are offered to

Situation 1
7R HPSOR\HHV XQGHU D VFKHPH RI HPSOR\HH·V VWRFN RSWLRQ VXEMHFW WR FHUWDLQ VSHFLÀHG
conditions

Situation 2
To any persons, either for cash or for a consideration other than cash, if the price of such
shares is determined by the valuation report of a registered valuer subject to certain
VSHFLÀHGFRQGLWLRQV

Situation 3
6RPHWLPHVFRPSDQLHVERUURZPRQH\WKURXJKGHEHQWXUHVORDQVDQGJLYHWKHLUFUHGLWRUDQ
option to buy equity shares of a company. An option is a right, but not an obligation, to buy
equity shares on a future date (expiry date) at a price agreed in advance (exercise price).
$FFRUGLQJ WR 6HFWLRQ  QRWKLQJ LQ WKLV VHFWLRQ VKDOO DSSO\ WR WKH LQFUHDVH RI WKH
subscribed capital of a company caused by the exercise of an option as a term attached to
the debentures issued or loan raised by the company to covert such debentures or loans
into shares in the company.
Provided that the terms of issue of such debentures or loan containing such an option
have been approved before the issue of such debentures or the raising of loan by a special
resolution passed by the company in general meeting.

Situation 4
It is a special situation where the loan has been obtained from the government, and
JRYHUQPHQW LQ SXEOLF LQWHUHVW GLUHFWV WKH GHEHQWXUHV ORDQ WR EH FRQYHUWHG LQWR HTXLW\
shares.
 64 ACCOUNTING

$FFRUGLQJWR6HFWLRQQRWZLWKVWDQGLQJDQ\WKLQJFRQWDLQHGLQVXEVHFWLRQZKHUH

DQ\ GHEHQWXUHV KDYH EHHQ LVVXHG RU ORDQ KDV EHHQ REWDLQHG IURP DQ\ *RYHUQPHQW E\ D
FRPSDQ\DQGLIWKDW*RYHUQPHQWFRQVLGHUVLWQHFHVVDU\LQWKHSXEOLFLQWHUHVWVRWRGRLW
may, by order, direct that such debentures or loans or any part thereof shall be converted
LQWRVKDUHVLQWKHFRPSDQ\RQVXFKWHUPVDQGFRQGLWLRQVDVDSSHDUWRWKH*RYHUQPHQWWREH
reasonable in the circumstances of the case even if terms of the issue of such debentures
or the raising of such loans do not include a term for providing for an option for such
conversion.
Provided that where the terms and conditions of such conversion are not acceptable to the
company, it may, within sixty days from the date of communication of such order, appeal to
WKH7ULEXQDOZKLFKVKDOODIWHUKHDULQJWKHFRPSDQ\DQGWKH*RYHUQPHQWSDVVVXFKRUGHUDV
LWGHHPVÀW
,QGHWHUPLQLQJWKHWHUPVDQGFRQGLWLRQVRIFRQYHUVLRQXQGHUVXEVHFWLRQWKH*RYHUQPHQW
VKDOO KDYH GXH UHJDUG WR WKH ÀQDQFLDO SRVLWLRQ RI WKH FRPSDQ\ WKH WHUPV RI LVVXH RI
debentures or loans, as the case may be, the rate of interest payable on such debentures
or loans and such other matters as it may consider necessary.
:KHUH WKH *RYHUQPHQW KDV E\ DQ RUGHU PDGH XQGHU VXEVHFWLRQ  GLUHFWHG WKDW DQ\
debenture or loan or any part thereof shall be converted into shares in a company and where
no appeal has been preferred to the Tribunal or where such appeal has been dismissed, the
memorandum of such company shall, where such order has the effect of increasing the
authorized share capital of the company, stand altered and the authorized share capital of
such company shall stand increased by an amount equal to the amount of the value of shares
which such debentures or loans or part thereof has been converted into.

Financial effects of a further issue

7KH ÀQDQFLDO SRVLWLRQ RI D EXVLQHVV LV FRQWDLQHG LQ WKH EDODQFH VKHHW )XUWKHU LVVXH RI
shares increase the amount of equity (net worth) as well as the liquid resources (Bank).
The amount of equity is the product of further number of shares issued multiplied by issue
SULFH7KHLVVXHSULFHPD\EHKLJKHUWKDQWKHIDFHYDOXHLVVXHDWDSUHPLXP&RPSDQLHV
Act does not allow issue of shares at a discount, except issue of sweat equity shares under
section 53.

Book Value of a share

%RRNYDOXHRIVKDUH 1HWZRUWKDVSHUERRNV1XPEHURIVKDUHV
,I WKHUH DUH  VKDUHV ZLWK ERRN YDOXH  7KH ERRN YDOXH RI RQH VKDUH LV `
 VKDUHV `  SHU VKDUH +RZHYHU WKH PDUNHW YDOXH PD\ GLIIHU IURP
WKHERRNYDOXHRIVKDUHV7KHPDUNHWYDOXHRIDFRPSDQ\·VVKDUHVUHSUHVHQWVWKHSUHVHQW
YDOXHRIIXWXUHFDVKÁRZVH[SHFWHGWREHHDUQHGIURPWKHVKDUHLQWKHIRUPLQWKHIRUPRI
dividends and capital gains from expected future shares price appreciation.
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 65

7KH PDUNHW SULFH ZKLFK H[LVWV EHIRUH WKH ULJKWV LVVXH LV WHUPHG DV &XPULJKW 0DUNHW
Price of the share. If the company decides to issue further shares, it may affect the
PDUNHWYDOXHRIWKHVKDUH¶7KHRUHWLFDOO\·WKHYDOXHRIDFRPSDQ\·VVKDUHVDIWHUDULJKWV
issue must equal the sum of market capitalization immediate prior to rights issue and the
FDVKLQÁRZVJHQHUDWHGIURPWKHULJKWVLVVXH
Normally, the further public issue to the existing shareholders are offered at a discounted
price from the market value, to evoke positive response as well as to reward the existing
shareholders.
$VVXPHVKDUHVDUHLVVXHGPDNLQJLWDULJKWLVVXHRIRUVKDUHIRUH[LVWLQJ
shares held) at a price of `SHUVKDUH7KHH[LVWLQJZRUWKRIWDQJLEOHDVVHWVKHOGE\WKH
EXVLQHVV VKDOO EHFRPH  ([LVWLQJ QHW ZRUWK `   )UHVK ,VVXH  ` 
Equity shares shall correspondingly command a valuation of `
The market price of the shares after further issue of shares (right issue) is termed as
Ex-right Market price of the shares. Theoretical Ex-Rights Price is a deemed value, which
LVDWWULEXWHGWRDFRPSDQ\·VVKDUHLPPHGLDWHO\DIWHUDULJKWVLVVXHWUDQVDFWLRQRFFXUV7KLV
price is going to prevail after the further issue of shares is executed.

EXAMPLE:

0U1DUDLQKDVVKDUHVRI3URVSHURXV&RPSDQ\EHIRUHULJKWVLVVXH
&XUUHQWZRUWKRIKROGLQJ 1RRIVKDUHVõ&XPULJKW0DUNHWSULFH
    õ
= `

(a) If Narain exercises his rights, he will pay `;VKDUHV `

His total investment in the company including rights is ```
On a per share basis, it is `VKDUHV `ZKLFKLVWKH([ULJKW0DUNHW
value of the share.
(b) ,I1DUDLQGRHVQRWH[HUFLVHVKLVULJKWWRIXUWKHULVVXHKLVKROGLQJ·VZRUWKZLOOGHFOLQH
to `;VKDUHV `7KHODZDOORZVKLPWRFRPSHQVDWHIRUWKLVGLOXWLRQRI
shareholding by renouncing this right in favour of, say, Mr. Murthy.
Narain can charge Murthy, in well-functioning capital markets, this dilution of `  E\
UHQRXQFLQJ KLV ULJKW WR DFTXLUH  VKDUHV +HQFH 0XUWK\ ZLOO EH FKDUJHG ` SHU VKDUH
(`VKDUHVLQUHWXUQIRUDFRQÀUPHGDOORWPHQWRIVKDUHVDW`HDFK
For every share to be offered to Murthy, Narain must have ten share at the back.
+HQFHKLVKROGLQJRIVKDUHVIHWFKHVKLPULJKWPRQH\RI`RU`SHUVKDUHKHOG
7KLVLVH[DFWO\HTXDOWRWKHGLIIHUHQFHEHWZHHQ&XPULJKWDQG([ULJKWYDOXHRIWKHVKDUH
It is termed as the Value of Right.
 66 ACCOUNTING

In a well-functioning capital market, this mechanism works in a fair manner to all the
participants.

¾ 0XUWK\·VWRWDOLQYHVWPHQWZLOOEH`SD\DEOHWR&RPSDQ\`SD\DEOHWR1DUDLQ

by way of value of right), or `+HZLOOHQGXSKROGLQJWHQVKDUHVDWDQDYHUDJHFRVW
of `ZKLFKLVWKH([ULJKW0DUNHW3ULFHRIWKHVKDUH
¾ Narain will have a final holding of ten shares worth ``E\ZD\RIYDOXHRI
right received from Murthy. It matches with his cum-right holding valuation.

Right of Renunciation
Right of renunciation refers to the right of the shareholder to surrender his right to buy
the securities and transfer such right to any other person. Shareholders that have received
right shares have three choices of what to do with rights issue; they can sell them in the
market; or they can pass on taking advantage of their rights (i.e., reject the right offer).
The renunciation of the right is valuable and can be monetised by the existing shareholders in
well-functioning capital market. The monetized value available to the existing shareholders
GXHWRULJKWLVVXHLVNQRZQDV¶YDOXHRIULJKW·,IDVKDUHKROGHUGHFLGHVWRUHQRXQFHDOORU
any of the right shares in favour of his nominee, the value of right is restricted to the sale
price of the re-nouncement of a right in favour of the nominee. IN case the right issue
offer is availed by an existing shareholder, the value of right is determined as given below:
9DOXHRIULJKW &XPULJKWYDOXHRIVKDUH²([ULJKWYDOXHRIVKDUH
([ULJKWYDOXHRIWKHVKDUH >&XPULJKWYDOXHRIWKHH[LVWLQJVKDUHV5LJKWVVKDUHVõ
LVVXH3ULFH@([LVWLQJ1XPEHURIVKDUHV1XPEHURIULJKWVKDUHV
In our previous example, Ex-right value of share = [ `    õ  VKDUHV@
VKDUHV `
Value of right = `` `SHUVKDUH
The Ex-right value of the share is also known as the average price.

QUESTION NO. 7

A company offers new shares of `HDFKDWSUHPLXPWRH[LVWLQJVKDUHKROGHUVRQ

one for four bases. The cum-right market price of a share is `&DOFXODWHWKHYDOXHRID
right. What should be the ex-right market price of a share?

SOLUTION:
([ULJKWYDOXHRIWKHVKDUH &XPULJKWYDOXHRIWKHH[LVWLQJVKDUHV5LJKWVVKDUHV,VVXH
3ULFH([LVWLQJ1XPEHURIVKDUHV5LJKW1XPEHURIVKDUHV
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 67

= (`õVKDUH`õ6KDUH6KDUHV

= `VKDUHV
= `SHUVKDUH
9DOXHRIULJKW &XPULJKWYDOXHRIWKHVKDUH²([ULJKWYDOXHRIWKHVKDUH
= `` ` 5 per share.
+HQFHDQ\RQHGHVLURXVRIKDYLQJDFRQÀUPHGDOORWPHQWRIRQHVKDUHIURPWKHFRPSDQ\DW
`ZLOOKDYHWRSD\`VKDUHVõ` ) to an existing shareholder holding 4 shares and
willing to renounce his right of buying one share in favour of that person.

ACCOUNTING FOR RIGHT ISSUE

The accounting treatment of rights share is the same as that of issue of ordinary shares
and the following journal entry will be made:
%DQN$F'U
 7R(TXLW\VKDUHVFDSLWDO$F
In case rights shares are being offered at a premium, the premium amount is credited to
the securities premium account.
The accounting entry is usual and is
%DQN$F    'U
 7R(TXLW\VKDUHFDSLWDO$F
 7R6HFXULWLHV3UHPLXP$F

EXAMPLE:

$ FRPSDQ\ KDYLQJ  VKDUHV RI `  HDFK DV LWV LVVXHG VKDUH FDSLWDO DQG KDYLQJ D
market value of `LVVXHVULJKWVVKDUHVLQWKHUDWLRRIDWDQLVVXHSULFHRI`
The entry at the time of subscription of right shares by the existing shareholders will be

%DQN$F 'U

7R(TXLW\6KDUH&DSLWDO$F  

7R6HFXULWLHV3UHPLXP$F 
 68 ACCOUNTING

ADVANTAGES AND DISADVANTAGES OF RIGHT ISSUE

Advantages of right Issue

 Right issue enables the existing shareholders to maintain their proportional holding in
the company and retain their financial and governance rights. It works as a deterrent
to the management, which may like to issue shares to known persons with a view to
KDYHDEHWWHUFRQWURORYHUWKHFRPSDQ\·VDIIDLUV
 In well-functioning capital markets, the right issue necessarily leads to dilution in the
value of share. However, the existing shareholders are not affected by it because
getting new shares at a discounted value from their cum-right value will compensate
decrease in the value of shares. The cum-right value is maintained otherwise also, if
the existing shareholders renounce their right in favour of a third party.
3. Right issue is a natural hedge against the issue expenses normally incurred by the
company in relation to public issue.
4. Right issue has an image enhancement effect, as public and shareholders view it
positively.
5. The chance of success of a right issue is better than that of a general public issue and
is logistically much easier to handle.

Disadvantages of right issue

 The right issue invariably leads to dilution in the market value of the share of the
company.
 The attractive price of the right issue should be objectively assessed against its true
worth to ensure that you get a bargained deal.

QUESTION 8

A company has decided to increase its existing share capital by making rights issue to its
existing shareholders. The company is offering one new share for every two shares held by
the shareholder. The market value of the share is `DQGWKHFRPSDQ\LVRIIHULQJRQH
share of `HDFK&DOFXODWHWKHYDOXHRIDULJKW:KDWVKRXOGEHWKHH[ULJKWPDUNHW
price of a share?
 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 69

EXTRA QUESTIONS ON BONUS SHARES

QUESTION NO 9

7KHIROORZLQJZDVWKH%DODQFHVKHHWRI$EKLVKHN&RVPHWLFV/LPLWHGDVRQst'HFHPEHU


Liabilities Rs. Assets Rs.

HTXLW\VKDUHVRI5VHDFK 4,00,000 Sundry Assets 
Securities premium 
*HQHUDO5HVHUYH 70,000
3URÀWDQG/RVV$FFRXQW 
Sundry creditors 90,000
 

7KH&RPSDQ\LVVXHGRQHERQXVVKDUHIRUHYHU\IRXUIXOO\SDLGXSVKDUHV6HFXULWLHV3UHPLXP
$FFRXQWZLOOEHXWLOL]HGÀUVW6KRZMRXUQDO(QWULHV

QUESTION NO 10

0RRQ DQG /DO /LPLWHG KDV 5V LQ HTXLW\ FDSLWDO FRQVLVWLQJ RI  VKDUHV RI
5VHDFKIXOO\SDLGDQGVKDUHVRI5VHDFKRIZKLFK5VSDLGLWKDV5V
LQFDSLWDO5HVHUYH5VLQVKDUHSUHPLXP$FFRXQW5VLQFDSLWDO5HGHPSWLRQ
UHVHUYH$FFRXQWDQG5VLQ*HQHUDO5HVHUYH
By way of Bonus the party paid up shares are converted in fully paid up shares and the
holders of fully paid up shares are allotted fully paid up Bonus shares in the same ratio
Share premium Account includes a premium of Rs.50,000 for shares issued to vendors
other than cash..
Pass journal entries showing separately the two types of Bonus issues as mentioned above
with the minimum reduction in free reserves.
 70 ACCOUNTING

QUESTION NO 11

7KH%DODQFH6KHHWRID/LPLWHGDVDWLVIROORZV

Liabilities Rs. Assets Rs.

Authorized Share capital; Sundry Assets 
(TXLW\VKDUHVRI5VHDFK
Issued, Subscribed and paid-up 
80,000 Equity Shares of Rs.7.50
each called up and paid up 6,00,000
Reserves;
&DSLWDO5HGHPSWLRQ5HVHUYHV 
Plant Revaluation Reserve 
Securities premium Account 
'HYHORSPHQW5HEDWH5HVHUYH 
Investment Allowance Reserve 
*HQHUDO5HVHUYH 3,00,000
 

7KH&RPSDQ\ZDQWHGWRLVVXHERQXVVKDUHVWRLWVVKDUHKROGHUV#RQHVKDUHIRUHYHU\WZR
shares held. Necessary resolutions were passed; requisite legal requirements were complies
with.
<RXDUHUHTXLUHGWR*LYHDIIHFWWRWKHSURSRVDOE\SDVVLQJMRXUQDO(QWULHVLQWKHERRNVRI
$/LPLWHG
 REDEMPTION OF PREFERENCE SHARES 71

REDEMPTION OF PREFERENCE SHARES

(SECTION 55 OF COMPANIES ACT)

PURPOSE OF ISSUING REDEEMABLE PREFERENCE SHARES

A company may issue redeemable preference shares because of the following:

1. It is a proper way of raising finance in a dull primary market.

2. A company may face difficulty in raising share capital, as its shares are not traded
on the stock exchange. Potential investors, hesitant in putting money into shares that
cannot easily be sold, may be encouraged to invest if the shares are redeemable by the
company.
3. The preference shares may be redeemed when there is a surplus of capital and the
surplus funds cannot be utilised in the business for profitable use.
In India, The issue and redemption of preference shares is governed by Section 55 of the
Companies Act, 2013.

PROVISIONS OF THE COMPANIES ACT (SECTION 55)

A company limited by shares if so authorized by its Articles, may issue preference shares
which at the option of the company, are liable to be redeemed within a period, normally not
exceeding 20 years from the date of their issue. It should be noted that:

(a) no shares can be redeemed except out of profit of the company which would otherwise
be available for dividend or out of proceeds of fresh issue of shares made for the
purpose of redemption;
(b) no such shares can be redeemed unless they are fully paid;
(c) (i) in case of such class of companies, as may be prescribed and whose financial
statement comply with the accounting standards prescribed for such class of
companies under Section 133, the premium, if any, payable on redemption shall be
provided for out of the profits of the company, before the shares are redeemed:
Provided also that premium, if any, payable on redemption of any preference
shares issued on or before the commencement of this Act by any such company
VKDOOEHSURYLGHGIRURXWRIWKHSURILWVRIWKHFRPSDQ\RURXWRIWKHFRPSDQ\·V
securities premium account, before such shares are redeemed.
(ii) in case of other companies (not falling under (i) above), the premium, if any payable
on redemption shall be provided for out of the profits of the company or out of
WKHFRPSDQ\·VVHFXULWLHVSUHPLXPDFFRXQWEHIRUHVXFKVKDUHVDUHUHGHHPHG
 72 ACCOUNTING

(d) where any such shares are proposed to be redeemed out of the profits of the company,
there shall, out of profits which would otherwise have been available for dividends, be
transferred to a reserve account to be called Capital Redemption Reserve Account, a
sum equal to the nominal amount of the shares redeemed; and the provisions of the Act
relating to the reduction of the share capital of a company shall, except as provided in
the Section, apply as if the Capital Redemption Reserve (CRR) Account were the paid-
up share capital of the company. The utilisation of CRR Account is further restricted
to issuance of fully paid-up bonus shares only.
From the legal provision outlined above, it is apparent that on the redemption of redeemable
SUHIHUHQFHVKDUHVRXWRIDFFXPXODWHGSURÀWVLWZLOOEHQHFHVVDU\WRWUDQVIHUWRWKH&DSLWDO
Redemption Reserve Account an amount equal to the amount repaid on the redemption
of preference shares on account of face value less proceeds of a fresh issue of capital
made for the purpose of redemption. The object is that with the repayment of redeemable
preference shares, the security for creditors/ bankers, etc. should not be reduced. At
WLPHVDSDUWRIWKHSUHIHUHQFHVKDUHFDSLWDOPD\EHUHGHHPHGRXWRIDFFXPXODWHGSURÀWV
and the balance out of a fresh issue.

METHODS OF REDEMPTION OF FULLY PAID-UP SHARES

Redemption of preference shares means repayment by the company of the obligation on
account of shares issued. According to the Companies Act, 2013, preference shares issued
by a company must be redeemed within the maximum period (normally 20 years) allowed
under the Act. Thus, a company cannot issue irredeemable preference shares. Section 55
of the Companies Act, 2013, deals with provisions relating to redemption of preference
VKDUHV ,W HQVXUHV WKDW WKHUH LV QR UHGXFWLRQ LQ VKDUHKROGHUV· IXQGV GXH WR UHGHPSWLRQ
and, thus, the interest of outsiders is not affected. For this, it requires that either fresh
LVVXHRIVKDUHVLVPDGHRUGLVWULEXWDEOHSURÀWVDUHUHWDLQHGDQGWUDQVIHUUHGWR¶&DSLWDO
5HGHPSWLRQ5HVHUYH$FFRXQW·
The rationale behind these provisions is to protect the interest of outsiders to whom the
amount is payable before redemption of preference share capital. The interest of outsiders
is protected if the nominal value of capital redeemed is substituted, thus, ensuring the
same amount of shareholders fund. In case of redemption of preference shares out of
proceeds of a fresh issue of shares, replacement of capital and tangible assets is obvious.
%XWLIUHGHPSWLRQLVGRQHRXWRIGLVWULEXWDEOHSURÀWVUHSODFHPHQWRIFDSLWDOLVHQVXUHG
LQ DQ LQGLUHFW PDQQHU E\ UHWHQWLRQ RI SURÀW E\ WUDQVIHU WR &DSLWDO 5HGHPSWLRQ 5HVHUYH
In this case, the amount which would have gone to shareholders in the form of dividend
is retained in the business and is used for settling the claim of preference shareholders.
Thus, there is no additional claim on net assets of the Company. The transfer of divisible
SURÀWV WR &DSLWDO 5HGHPSWLRQ 5HVHUYH PDNHV WKHP QRQGLVWULEXWDEOH SURÀWV $V &DSLWDO
5HGHPSWLRQ5HVHUYHFDQEHXVHGRQO\IRULVVXHRIIXOO\SDLGERQXVVKDUHVSURÀWVUHWDLQHG
in the business ultimately get converted into share capital.
 REDEMPTION OF PREFERENCE SHARES 73

Security cover available to outside stakeholders depends upon called-up capital as well as
uncalled capital to be demanded by the company as per its requirements. To ensure that the
interests of outsiders are not reduced, Section 55 provides for redemption of only fully
paid-up shares.
)URPWKHDERYHSDUDVLWFDQEHFRQFOXGHGWKDWWKH¶JDS·FUHDWHGLQWKHFRPSDQ\·VFDSLWDOE\
WKHUHGHPSWLRQRIUHGHHPDEOHSUHIHUHQFHVKDUHVPXFKEHÀOOHGLQE\
(a) The proceeds of a fresh issue of shares;
E7KHFDSLWDOLVDWLRQRIXQGLVWULEXWHGSURÀWVRU
(c) A combination of (a) and (b).

Redemption of Preference Shares by Fresh Issue of Shares

One of the methods for redemption of preference shares is to use the proceeds of a fresh
issue of shares. A company can issue new shares (equity share or preference share) and the
proceeds from such new shares can be used for redemption of preference shares.

The proceeds from issue of debentures cannot be utilized for the purpose.
A problem arises when a fresh issue is made for the purpose of redemption of preference
shares, at a premium. The point to ponder is that whether the proceeds of a fresh issue
of shares will include the amount of securities premium for the purpose of redemption of
preference shares.
For securities premium account, Section 52 of the Companies Act, 2013 provides that the
securities premium account may be applied by the company;

(a) Towards issue of un-issued shares of the company to be issued to members of the
company as fully paid bonus securities
(b) To write off preliminary expenses of the company
(c) To write off the expenses of, or commission paid, or discount allowed on any of the
securities or debentures of the company
(d) To provide for premium on the redemption of redeemable preference shares or
debentures of the company.
(e) For the purchase of its own shares or other securities.

Note : ,IPD\EHQRWHGWKDWFHUWDLQFODVVRI&RPSDQLHVZKRVHÀQDQFLDOVWDWHPHQWVFRPSO\
with the Accounting Standards as prescribed under Section 133 of the Companies Act,
FDQ·WDSSO\WKHVHFXULWLHVSUHPLXPDFFRXQWIRUWKHSXUSRVHVEDQGGPHQWLRQHG
above.
 74 ACCOUNTING

Note : All the questions in this chapter have been solved on the basis that the companies
referred in the questions are governed by Section 133 of the Companies Act, 2013 and
comply with the Accounting Standards prescribed for them. Accordingly the balance in
securities premium account has not been utilized for the purpose of premium payable to
redemption of preference share.
Any other way, except the above prescribed ways, in which securities premium account is
utilised will be in contravention of law.
Thus, the proceeds of a fresh issue of shares will not include the amount of securities
premium for the purpose of redemption of preference shares.

Reasons for issue of New Equity Shares

A company may prefer issue of new equity shares for the following reasons:

(a) When the company has come to realise that the capital is needed permanently and it
makes more sense to issue Equity Shares in place of Redeemable Preference Shares
which carry a fixed rate of dividend.
(b) When the balance of profit, which would otherwise be available for dividend, is
insufficient.
(c) When the liquidity position of the company is not good enough.

Advantages of redemption of preference shares by issue of fresh equity shares

Following are the advantages of redemption of preference shares by the issue of fresh
equity shares:

(1) No cash outflow of money – now or later.

(2) New equity shares may be valued at a premium.
(3) Shareholders retain their equity interest.

Disadvantages of redemption of preference shares by issue of fresh equity shares

The disadvantages are:

(1) There will be dilution of future earnings;

(2) Share-holding in the company is changed.
 REDEMPTION OF PREFERENCE SHARES 75

Accounting Entries

1. When new shares are issued at par

Bank Account Dr.
To Share Capital Account
(Being the issue of .......shares of `......each for the purpose of redemption of preference
VKDUHVDVSHU%RDUG·V5HVROXWLRQ1RGDWHG
2. When new shares are issued at a premium
Bank Account Dr.
To Share Capital Account
To Securities Premium Account
(Being the issue of ........shares of `......each at a premium of `......each for the purpose
RIUHGHPSWLRQRISUHIHUHQFHVKDUHVDVSHU%RDUG·V5HVROXWLRQ1RGDWHG
3. When preference shares are redeemed at par
Redeemable Preference Share Capital Account Dr.
To Preference Shareholders Account
4. When preference shares are redeemed at a premium
Redeemable Preference Share Capital Account Dr.
Premium on Redemption of Preference Shares Account Dr.
To Preference Shareholders Account
5. When payment is made to preference shareholders
Preference Shareholders Account Dr.
To Bank Account
6. For adjustment of premium on redemption
Profit and Loss Account Dr.
To Premium on Redemption of Preference Shares Account

QUESTION NO. 1

Hinduja Company Ltd. had 5,000, 8% Redeemable Preference Shares of `100 each, fully
paid up. The company decided to redeem these preference shares at par by the issue of
VXIÀFLHQWQXPEHURIHTXLW\VKDUHVRI`10 each fully paid up at par. You are required to pass
necessary Journal Entries including cash transactions in the books of the company.

7.8
 76 ACCOUNTING

QUESTION NO. 2

C Ltd. had 10,000, 10% Redeemable Preference Shares of `100 each, fully paid up. The
FRPSDQ\GHFLGHGWRUHGHHPWKHVHSUHIHUHQFHVKDUHVDWSDUE\LVVXHRIVXIÀFLHQWQXPEHU
of equity shares of `10 each at a premium of `2 per share as fully paid up. You are required
to pass necessary Journal Entries including cash transactions in the books of the company.

QUESTION NO. 3

G India Ltd. had 9,000 10% redeemable Preference Shares of `10 each, fully paid up. The
FRPSDQ\ GHFLGHG WR UHGHHP WKHVH SUHIHUHQFH VKDUHV DW SDU E\ WKH LVVXH RI VXIÀFLHQW
number of equity shares of `9 each fully paid up.
You are required to pass necessary Journal Entries including cash transactions in the books
of the company.

Calculation of Minimum Fresh Issue of Shares

Sometimes, examination problem does not specify the number of shares to be issued for
the purpose of redemption of preference shares and requires that the minimum number
of shares should be issued to ensure that provisions of Section 55 of the Companies Act,
2013, are not violated. This is done in four steps as given below:

(1) In such cases, the maximum amount of reserves and surplus available for redemption
is ascertained taking into account the balances appearing in the balance sheet before
redemption and the additional information provided in the problem. For example, if
balance of general reserve in the balance sheet is ` 1,00,000 and additional information
provides that the Board of Directors have decided that the balance of general reserve
should not be less than ` 40,000 under any circumstances, then, the maximum amount
of general reserve available for redemption is ` 60,000.
(2) After ascertaining the maximum amount of reserves and surplus available for
redemption, adjustment for premium on redemption payable out of profits is made and
then it is compared with the nominal value of shares to be redeemed. By comparison,
one gets the minimum proceeds of fresh issue as Section 55 permits redemption either
out of proceeds of fresh issue or out of divisible profits. Thus,
Minimum Proceeds of Fresh Issue of shares :
Nominal value of preference shares to be redeemed – Maximum amount of reserve and
surplus available for redemption.
(3) After computation of minimum proceeds, the minimum number of shares to be issued
are determined by dividing minimum proceeds by the proceeds of one share. This is
done as follows:
 REDEMPTION OF PREFERENCE SHARES 77

Minimum Number of Shares = Minimum proceeds to comply with Section 55/ face
value of one share
Proceeds of one share mean the par value of a share issued, if it is issued at par or
premium. However, in case of issue of share at a discount, it refers to the discounted
value.
(4) Minimum number of shares calculated as per (3) above, needs to be adjusted due to
various reasons. Firstly, shares fractions cannot be issued. Thus, if minimum number
of shares as per (3) above includes a fraction, it must be approximated to the next
higher figure to ensure that provisions of Section 55 are not violated. Secondly, if the
examination problem states that the proceeds/number of shares should be a multiple
of say, 10 or 50 or 100, then again the next higher multiple should be considered.

QUESTION NO. 4

The Board of Directors of a Company decide to issue minimum number of equity shares
of `9 to redeem ` SUHIHUHQFH VKDUHV 7KH PD[LPXP DPRXQW RI GLYLVLEOH SURÀWV
available for redemption is `3,00,000. Calculate the number of shares to be issued by
the company to ensure that provisions of Section 55 are not violated. Also determine the
number of shares if the company decides to issue shares in multiples of `50 only.

Fresh Issue at a Premium and Minimum Fresh Issue

The calculation of minimum number of shares, when fresh issue is at a premium should
be handled very carefully Minimum fresh issue cannot be calculated unless one knows the
SURÀWVDYDLODEOHIRUUHSODFHPHQWRISUHIHUHQFHVKDUHVDQGSURÀWDYDLODEOHIRUUHSODFHPHQW
FDQQRWEHGHWHUPLQHGXQOHVVRQHNQRZVWKHSRUWLRQRISURÀWDYDLODEOHIRUUHGHPSWLRQZKLFK
is required for paying premium on redemption. To tackle this, assume thatSURÀWVDYDLODEOH
for redemption is not required for paying premium on redemption of preference shares.
In other words, it means that securities premium including premium on fresh issue is
comparatively more than premium on redemption.
If the above assumption holds good, minimum number of shares can be calculated in a simple
manner without use of equation. But, if above condition does not hold good, then an equation
is used to determine the minimum number of shares.

Minimum Fresh Issue to Provide Funds for Redemption

Besides, ensuring compliance with Section 55, the fresh issue of shares is made to provide
funds for making payment to preference shareholders. To calculate minimum number of
fresh shares to be issued to provide funds, amount payable to preference shareholders
is compared with funds available for redemption and the balance of funds to be raised by
 78 ACCOUNTING

fresh issue of shares are calculated. The amount to be raised is divided by the issue price
of a share (amount payable by shareholder including premium, if any, on fresh issue) to
compute the minimum number of shares to be issued.

QUESTION NO. 5

The Balance Sheet of X Ltd. as on 31st March, 20X3 is as follows:

Particulars `
EQUITY AND LIABILITIES
1. 6KDUHKROGHUV·IXQGV
a. Share capital 2,90,000
b. Reserve and Surplus 48,000
2. Current liabilities
Trade Payables 56,500
Total 3,94,500
ASSETS
1. Fixed Assets
Tangible asset 3,45,000
Non-current investments 18,500
2. Current Assets
Cash and cash equivalents (bank) 31,000
Total 3,94,500

The share capital of the company consists of `50 each equity shares of `2,25,000 and `100
each Preference shares of `65,000(issued on 1.4.20X1). Reserves and Surplus comprises
3URÀWDQG/RVV$FFRXQWRQO\
In order to facilitate the redemption of preference shares at a premium of 10%, the
Company decided:

(a) To sell all the investments for `15,000.

(b) To finance part of redemption from company funds, subject to, leaving a bank balance
of `12,000.
(c) To issue minimum equity share of `50 each at a premium of `10 per share to raise the
balance of funds required.
 REDEMPTION OF PREFERENCE SHARES 79

You are required to pass:

The necessary Journal Entries to record the above transactions and prepare the balance
sheet as on completion of the above transactions.

5HGHPSWLRQRI3UHIHUHQFH6KDUHVE\&DSLWDOLVDWLRQRI8QGLVWULEXWHG3URÀWV
Another method for redemption of preference shares, as per the Companies Act, is to
XVH WKH GLVWULEXWDEOH SURÀWV LQ SODFH RI LVVXLQJ QHZ VKDUHV :KHQ VKDUHV DUH UHGHHPHG
E\XWLOLVLQJGLVWULEXWDEOHSURÀWDQDPRXQWHTXDOWRWKHIDFHYDOXHRIVKDUHVUHGHHPHGLV
WUDQVIHUUHGWR&DSLWDO5HGHPSWLRQ5HVHUYH$FFRXQWE\GHELWLQJWKHGLVWULEXWDEOHSURÀW,Q
RWKHUZRUGVVRPHRIWKHGLVWULEXWDEOHSURÀWVDUHNHSWDVLGHWRHQVXUHWKDWLWFDQQHYHUEH
distributed to shareholders as dividend.
,QWKLVFRQQHFWLRQWKHSURYLVLRQVRIWKH&RPSDQLHV$FWVWDWHWKDW¶:KHQDQ\VXFKVKDUHV
are redeemed otherwise than out of the proceeds of a fresh issue, there shall out of
SURÀWVZKLFKZRXOGRWKHUZLVHKDYHEHHQDYDLODEOHIRUGLYLGHQGEHWUDQVIHUUHGWRDUHVHUYH
fund to be called the Capital Redemption Reserve Account sum equal to the nominal amount
RIWKHVKDUHVUHGHHPHG·

Advantages of redemption of preference shares by

FDSLWDOLVDWLRQRIXQGLVWULEXWHGSURÀWV
The advantages of redemption of preference shares by capitalisation of undistributed
SURÀWVDUH

(1) No change in the percentage of equity share-holding of the company;

(2) Surplus funds can be used.

Disadvantages of redemption of preference shares by

FDSLWDOLVDWLRQRIXQGLVWULEXWHGSURÀWV
The disadvantage of redemption of preference shares by capitalisation of undistributed
SURÀWVLVWKDWWKHUHPD\EHDUHGXFWLRQLQOLTXLGLW\
Accounting Entries

1. When shares are redeemed at par

Redeemable preference share capital account Dr.
To preference shareholders account
(Being the amount payable on redemption of preference shares transferred
to preference shareholders account)
 80 ACCOUNTING

2. When shares are redeemed at a premium

Redeemable preference share capital account Dr.
Premium on redemptions of preference shares account Dr.
To preference shareholders account
(Being the amount payable on redemption transferred to preference
shareholders account)
3. When payment is made to preference shareholders
Preference shareholder account Dr.
To Bank account
(Being the payment to preference shareholders as per terms)
4. For adjustment of premium redemption
3URÀWDQGORVVDFFRXQW Dr.
To premium on redemption of preference shares account
%HLQJWKHSUHPLXPRQUHGHPSWLRQDGMXVWHGDJDLQVWSURÀWDQGORVV$FFRXQW
5. For transferring nominal amount of shares redeemed to capital redemption
Reserve Account
General Reserve Account Dr.
3URÀWDQG/RVV$FFRXQW Dr.
To Capital redemption Reserve Account
(Being the amount transferred to Capital redemption reserve account as
per the requirement of the of the Act.)

QUESTION NO. 6

The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st December,
20X1.
Share capital: 40,000 Equity shares of `10 each fully paid – `4,00,000; 1,000 10% Redeemable
preference shares of `100 each fully paid – `1,00,000.
Reserve & Surplus: Capital reserve – `50,000; Securities premium – `50,000; General
reserve –`3URÀWDQG/RVV$FFRXQW²`35,000
On 1st January 20X2, the Board of Directors decided to redeem the preference shares at
par by utilisation of reserve.
You are required to pass necessary Journal Entries including cash transactions in the books
of the company.
 REDEMPTION OF PREFERENCE SHARES 81

Redemption of Preference Shares by Combination of Fresh Issue and Capitalisation of

8QGLVWULEXWHG3URÀWV
A company can redeem the preference shares partly from the proceeds from new issue and
SDUWO\RXWRISURÀWV,QRUGHUWRÀOOLQWKH¶JDS·EHWZHHQWKHIDFHYDOXHRIVKDUHVUHGHHPHG
DQGWKHSURFHHGVRIQHZLVVXHDWUDQVIHUVKRXOGEHPDGHIURPGLVWULEXWDEOHSURÀWV3URÀW
& Loss Account, General Reserve and other Free Reserves) to Capital Redemption Reserve
Account.
Formula:

(i) Amount to be transferred to Capital Redemption Reserve `

Face Value of shares redeemed ***
Less: Proceeds from New Issue ***
***
(ii) Proceeds to be collected from New Issue `
Face Value of shares redeemed ***
/HVV3URÀWVDYDLODEOHIRUGLVWULEXWLRQDVGLYLGHQG ***
***

QUESTION NO. 7

C Limited had 3,000, 12% Redeemable Preference Shares of `100 each, fully paid up. The
company had to redeem these shares at a premium of 10%.
It was decided by the company to issue the following:

(i) 25,000 Equity Shares of `10 each at par,

(ii) 1,000 14% Debentures of `100 each.
The issue was fully subscribed and all amounts were received in full .The payment was
GXO\PDGH7KHFRPSDQ\KDGVXIÀFLHQWSURÀWV6KRZ-RXUQDO(QWULHVLQWKHERRNVRIWKH
company.

QUESTION NO. 8

The capital structure of a company consists of 20,000 Equity Shares of ` 10 each fully
paid up and 1,000 8% Redeemable Preference Shares of `100 each fully paid up (issued on
1.4.20X1).
Undistributed reserve and surplus stood as: General Reserve ` 3URÀW DQG /RVV
Account `20,000; Investment Allowance Reserve out of which `5,000, (not free for
 82 ACCOUNTING

distribution as dividend) `10,000; Securities Premium `2,000, Cash at bank amounted to

`98,000. Preference shares are to be redeemed at a Premium of 10% and for the purpose
of redemption, the directors are empowered to make fresh issue of Equity Shares at par
after utilising the undistributed reserve and surplus, subject to the conditions that a sum
of `20,000 shall be retained in general reserve and which should not be utilised..20
Pass Journal Entries to give effect to the above arrangements and also show how the relevant
items will appear in the Balance Sheet of the company after the redemption carried out.

6DOHRI,QYHVWPHQWVWR3URYLGH6XIÀFLHQW)XQGVIRU5HGHPSWLRQ
&RPSDQLHV PD\ KDYH VXIÀFLHQW LQYHVWPHQWV ZKLFK FDQ EH VROG LQ WKH PDUNHW WR DUUDQJH
funds for redemption of preference shares.

REDEMPTION OF PARTLY CALLED-UP PREFERENCE SHARES

One of the conditions of redemption is that only fully paid up preference shares can be
redeemed by a company. If the examination problem states that it is decided to redeem
SUHIHUHQFH VKDUHV ZKLFK DUH SDUWO\ FDOOHG XS WKHQ LW LV DVVXPHG WKDW ÀQDO FDOO RQ WKHVH
shares is demanded and received before proceeding with redemption of these shares. If
information about both fully paid and partly paid preference shares is provided, then, only
fully paid shares are redeemed.

QUESTION NO.9

The Balance Sheet of XYZ as at 31st December, 20X1 inter alia includes the following:

`
50,000, 8% preference shares of `100 each , `70 paid up 35,00,000
1,00,000 Equity shares of `100 each fully paid up 1,00,00,000
Securities Premium 5,0,000
Capital Redemption Reserve 20,00,000
General Reserve 50,00,000

Under the terms of their issue, the preference shares are redeemable on 31st March,
;DWSUHPLXP,QRUGHUWRÀQDQFHWKHUHGHPSWLRQWKHFRPSDQ\PDNHVDULJKWVLVVXH
of 50,000 equity shares of `100 each at `110 per share, `20 being payable on application,
`35 (including premium) on allotment and the balance on 1st January, 20X3. The issue was
fully subscribed and allotment made on 1st March, 20X2. The money due on allotment were
UHFHLYHGE\VW0DUFK;7KHSUHIHUHQFHVKDUHVZHUHUHGHHPHGDIWHUIXOÀOOLQJWKH
necessary conditions of Section 55 of the Companies Act, 2013.
 REDEMPTION OF PREFERENCE SHARES 83

You are asked to pass the necessary Journal Entries and show the relevant extracts
IURPWKHEDODQFHVKHHWDVRQVW0DUFK;ZLWKWKHFRUUHVSRQGLQJÀJXUHVDVRQVW
December, 20X1.

Redemption on fully called but partly paid –up preference shares

The problem of unpaid calls on fully called up shares may be studied under following
categories.

When calls –in arrears in received by the company

If the amount of unpaid calls is received by the Company before redemption, the entry
passed is as under:
Bank A/c Dr.
To Calls-in-Arrears A/c
After receipt of calls in arrears, the shares become fully paid up and, then, company can
proceed with redemption in the normal course.

In case of Forfeited Shares

If, on getting a proper notice from the company, the shareholders fail to pay the unpaid calls,
the Board of Directors may decide to forfeit the shares and cancel these shares instead
of reissuing the forfeited shares because redemption of these shares is due immediately
or in near future. In this case, entry for forfeiture is passed as usual.

QUESTION 10

The books of B Ltd. showed following balance on 31st December, 20X3: 30,000 Equity Shares
of ` 10 each fully paid; 18,000 12% Redeemable Preference Shares of ` 10 each fully paid;
4,000 10% Redeemable Preference Shares of ` 10 each, ` 8 paid up (all shares issued on 1st
April, 20X2).
8QGLVWULEXWHG5HVHUYHDQG6XUSOXVVWRRGDV3URÀWDQG/RVV$FFRXQW` 80,000; General
Reserve ` 1,20,000; Securities Premium Account ` 15,000 and Capital Reserve ` 21,000.
Preference shares are redeemed on 1st January, 20X1 at a premium of ` 2 per share. The
whereabouts of the holders of 100 shares of ` 10 each fully paid are not known.
For redemption, 3,000 equity shares of ` 10 each are issued at 10% premium. At the same
WLPHDERQXVLVVXHRIHTXLW\VKDUHZDVPDGHDWSDUWZRVKDUHVEHLQJLVVXHGIRUHYHU\ÀYH
held on that date out of the Capital Redemption Reserve Account.
Show the necessary Journal Entries to record the transactions.
 84 ACCOUNTING

QUESTION 11

The following is the summarized Balance Sheet of Bumbum Limited at 31st March, 20X1:

`
Sources of funds
Authorized capital
50,000 Equity shares of ` 10 each 5,00,000
10,000 Preference shares of ` 100 each (8% redeemable) 10,00,000
15,00,000
Issued, subscribed and paid up
30,000 Equity shares of ` 10 each 3,00,000
5,000, 8% Redeemable Preference shares of ` 100 each 5,00,000
Reserves @ Surplus
Securities Premium 6,00,000
General Reserve 6,50,000
3URÀW /RVV$F 40,000
2,500, 9% Debentures of ` 100 each 2,50,000
Trade payables 1,70,000
25,10,000
Application of funds
Fixed Assets (net) 7,80,000
Investments (market value ` 5,80,000) 4,90,000
Deferred Tax Assets 3,40,000
Trade receivables 6,20,000
Cash & Bank balance 2,80,000
25,10,000

In Annual General Meeting held on 20th June, 20X1 the company passed the following
resolutions:
(i) To split equity share of ` 10 each into 5 equity shares of ` 2 each from 1st July.
(ii) To redeem 8% preference shares at a premium of 5%.
(iii) To redeem 9% Debentures by making offer to debentures holders to convert their
holdings into equity shares at ` 10 per share accept cash on redemption.
 REDEMPTION OF PREFERENCE SHARES 85

(iv) To issue fully paid bonus shares in the ratio of one equity share for every 3 shares
held on record date. On 10th July, 20x1 investments were sold for ` 5,55,000 and
preference shares were redeemed.
40% of Debenture holders exercised their option to accept cash and their claims were
settled on 1st August, 20X1.
The company fixed 5th September, 20X1 as record date and bonus issue was concluded
by 12th September, 20X1
You are requested to journalize the above transactions including cash transactions and
prepare Balance Sheet as at 30th September, 20X1. All working notes should form part of
your answer.

QUESTION 12

The following is the summarized Balance Sheet Trinity Ltd. as at 31.3.20X1:

Liabilities ` Assets `
Share Capital Fixed Assets
Authorised Gross Block 3,00,000
10,000 10% Redeemable Preference Less: Depreciation 1,00,000
Shares of ` 10 each 1,00,000 2,00,000
90,000 Equity Shares of ` 10 each 9,00,000 Investments 1,00,000
10,00,000 Current Assets and
Loans and Advances
Issued, Subscribed and Paid-up 1,00,000 Inventory 45,000
Capital 10,000 10% Redeemable
Preference Shares of ` 10 each
10,000 Equity Shares of ` 10 each 1,00,000 Trade receivable 25,000
Cash and Bank Balances 50,000
(A) 2,00,000
Reserves and Surplus
General Reserve 1,20,000
Securities Premium 70,000
3URÀWDQG/RVV$F 18,500
(B) 2,08,500
 86 ACCOUNTING

Current Liabilities and Provisions 11,500

(C)
Total (A+B+C) 4,20,000 Total 4,20,000

)RUWKH\HDUHQGHG;WKHFRPSDQ\PDGHDQHWSURÀWRI` 35,000 after providing

` 20,000 depreciation.
7KHIROORZLQJDGGLWLRQDOLQIRUPDWLRQLVDYDLODEOHZLWKUHJDUGWRFRPSDQ\·VRSHUDWLRQ

1. The preference dividend for the year ended 31.3.20X2 was paid.
2. Except cash and bank balances other current assets and current liabilities as on
31.3.20X2, was the same as on 31.3.20X1.
3. The company redeemed the preference shares at a premium of 10%.
4. The company issued bonus shares in the ratio of one share for every equity share held
as on 31.3.20X2.
5. To meet the cash requirements of redemption, the company sold investments.
6. Investments were sold at 90% of cost on 31.3.20X2.
You are required to prepare necessary journal entries to record redemption and issue of
bonus shares.
 PROFIT OR LOSS PRE AND POST INCORPORATION 87

PROFIT OR LOSS PRE AND POST INCORPORATION

INTRODUCTION
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COMPUTING PROFIT OR LOSS PRIOR TO INCORPORATION

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 88 ACCOUNTING

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QUESTION NO 1

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incorporation periods

Particulars Total Basis of Pre- Post-

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QUESTION NO 2

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Particulars Pre-incorporation Post-incorporation

period period
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for pre and post incorporation periods

Pre-Inc Post-Inc
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QUESTION 4

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incorporation periods
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Particulars Total Basis Pre-incor Post-incor

Amount Allocation Poration Poration
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Bad debts  6DOHV  
 $GYHUWLVLQJ  Time  
 6DODULHV *HQHUDO([SHQVHV  Time  
 3UHOLPLQDU\H[SHQVHV
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1. Sales ratio

Particulars `
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6DOHVIRUSHULRGIURP;WR; 

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 VW$SULO;WR-XQH;VW-XO\;WRVW0DUFK;
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QUESTION 5

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D3ULYDWH/LPLWHG&RPSDQ\FDOOHG0V.97UDGLQJ3ULYDWH/WGZLWKHIIHFWIURP;
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Ratio Total Pre- Post-

incorporation incorporation
6DOHV    
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Working Notes:

 Calculation of Sales Ratio

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QUESTION 6

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Particulars Amount (`) Particulars Amount (`)

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incorporation periods

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Working Notes:

 Sales ratio

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 7KHQVDOHVIRUPRQWKV [
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 PRQWKVPRQWKV 
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QUESTION NO 7

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QUESTION NO 8

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PROFIT AND LOSS ACCOUNT
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Particulars Rs. Particulars Rs.

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QUESTION NO 9

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HDFK \HDU DQG WKH VXPPDUL]HG WUDGLQJ DQG SURÀW DQG ORVV DFFRXQW IRU WKH \HDU HQGHG
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Particulars Rs. Particulars Rs.

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QUESTION NO 10

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QUESTION NO 12

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Particulars Rs. Particulars Rs.

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QUESTION NO 13

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 HIRE PURCHASE SYSTEM 113

HIRE PURCHASE SYSTEM

CHAPTER OVERVIEW
Hire Purchase Accounting: Under Hire Purchase System, hire purchaser pays the cost of
purchased asset in number of installments. The ownership of the goods is transferred by
the Hire Vendor only after payment of outstanding balance.
Installment System: Under Installment also, the purchaser pays the cost of purchased
asset in number installments. However, under installment system, ownership of the goods is
transferred by owner on the date of delivery of the goods

Methods of Accounting

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books books

Cash price Interest suspense Interest suspense

Sales method
methods methods methods

With an increasing demand for better life, the consumption of goods has been on the ex-
panding scale. But, this has not been backed up by adequate purchasing power, transform-
ing it into effectual demand, i.e., actual sale at set or settled prices. This has created the
market for what is called hire purchase.
When a person wants to acquire an asset, but is not sure how to make payment within a
stipulated period of time he may pay in installments if the vendor agrees. This enables the
purchaser to use the asset while paying for it in installments over an agreed period of time.
This type of a business deal is known as hire purchase transaction. Here, the customer
pays the entire amount either in monthly or quarterly or yearly instilments, while the asset
remains the property of the seller until the buyer squares up his entire liability. For the
seller, the agreed instalments include his interest on the assets given on credit to the
purchaser. Therefore, when the total amount (being paid in instalments over a period of
time) is certainly higher than the cash down price of the asset because of interest charges.
Obviously, both the parties gain in the bargain. By virtue of this, the purchaser has the
right of immediate use of the asset without making immediate payment for the asset, by
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GHULYHVWKHEHQHÀWVE\ZD\RILQFUHDVHLQVDOHVDQGDOVRKHUHFRYHUVKLVRZQFRVWRIFUHGLW
 114 ACCOUNTING

NATURE OF HIRE PURCHASE AGREEMENT

Under the Hire Purchase System, the Hire Purchaser gets possession of the goods at the
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per the agreement. However, the ownership of the goods remains with the Hire Vendor
until the hire purchaser has paid all the installments. Each installment paid by the hire
purchaser is treated as hire charges for using the asset. IN case he fail to pay any of the
installments (even the last one) the hire vendor has the right to take back his goods without
compensating the buyer, i.e., the hire vendor is not going to pay back a part of whole of the
amount received through installments till the date of default from the buyer.

SPECIAL FEATURES OF HIRE PURCHASE AGREEMENT

1. Possession: The hire vendor transfers only possession of the goods to the hire
purchaser immediately after the contract for hire purchase is made.
2. Installments: The goods are delivered by the hire vendor on the condition that a hire
purchaser should pay the amount in periodical installments.
3. Down Payment: The hire purchaser generally makes a down payment, i.e., an amount on
signing the agreement.
4. Constituents of Hire purchase installments: Each consists of two elements- finance
charge (interest on unpaid amount) and capital payment.
5. Ownership: The property in goods is to pass to the hire purchaser on the payment of
the last installment and exercising the option conferred upon him under the agreement.
6. Repossession: In case of default in respect of payment of even the last installment,
the hire vendor has the right to take the goods back without making any compensation.

TERMS USED IN HIRE PURCHASE AGREEMENTS

1. Hire Vendor: Hire vendor is a person who delivers the goods along with its possession
to the hire purchase under a hire purchase agreement.
2. Hire Purchaser: Hire purchaser is a person who obtains the goods and rights to use
the same from hire vendor under a hire purchase agreement.
3. Cash Price: Cash price is the amount to be paid by the buyer on outright purchase in
cash.
4. Down Payment: Down payment is the initial payment made to the hire vendor by the
hire purchaser at the time of entering into a hire purchase agreement.
 HIRE PURCHASE SYSTEM 115

5. Hire Purchase Instalment: Hire purchase instalment is the amount which the hire
purchaser has to pay after a regular interval upto certain period as specified in the
agreement to obtain the ownership of the asset purchased (on payment of the last
installment) under a hire purchase agreement. It comprises of principal amount and
the interest on the unpaid amount.
6. Hire purchase price: It means the total sum payable by the hire purchaser to obtain
the ownership of the asset purchased under hire purchase agreement. It comprises of
cash price and interest on outstanding balances.

QUESTION NO. 1

What are the differences between Hire Purchase and Installment System?

ANSWER
Statement showing differences between Hire Purchase and Installment System

Basis of Distinction Hire Purchase Installment System

1. Governing Act It is governed by Hire Purchase It is governed by the

Act, 1972. Sale of Goods Act, 1930.

2. Nature of Contract It is an agreement of hiring. It is an agreement of

sale.

3. Passing of Title The title of goods passes on The title to goods

(ownership last payment passes immediately as in
the case of usual sale.

4. Right to Return goods The hirer may return goods Unless seller defaults,
without further payment goods are not
except for accrued installment returnable.

5. 6HOOHU·VULJKWWR The seller may take possession The seller can sue for
repossess of the goods if hirer is in price if the buyer is in
default. default. He cannot take
possession of the goods

6. Right of Disposal Hirer cannot hire out sell, The buyer may dispose
pledge of assign entitling of the goods and give
transferee to retain possession good title to the bona
as against the hire vendor. ÀGHSXUFKDVHU
 116 ACCOUNTING

7. Responsibility for The hirer is not responsible for The buyer is responsible
Risk of Loss. risk of loss of goods if he has for risk of loss of
taken reasonable precaution goods because of
because the ownership has not the ownership has
yet transferred. transferred.

8. Name of Parties The parties involved are called The parties involved are
involved Hirer and Hire vendor. called buyer and seller.

9. Component other than Component other than cash Component other than
cash price. price included in installment is cash price included in
called Hire charges. Installment is called
interest.

QUESTION NO 2 (BASIC PROBLEM)

On 1st January 1995, transport company purchased a Motor Lorry from Motor supply com
Ltd. on hire purchase basis, the cash price being Rs.60,000, Rs.15,000 was paid on the
signing of the contract and balance in three annual installments of Rs.15,000 each on 31st
December. In addition to it, interest at 5% per annum was also payable to vendors on
outstanding balances. Calculate the amounts of interest and installments.

QUESTION NO 3 (CALCULATION OF CASH PRICE)

Mr.X purchased a machine on Hire Purchase system on 1st January 2003. He paid Rs.5,000
at spot and then three annual installments of Rs.5,000 each. The rate of interest was 5%
per annum. Find out the amount of interest included in installments and cash price of the
machine.

QUESTION NO 4 (TWO YEAR SIMPLE RATE)

Remesh purchased an asset on hire purchase system. He paid Rs.1,000 down and 1200 each
at the end of 2nd, 4th and 6th year. Interest is charged @10% per annum on two yearly rests.
Calculate the amount of interest and cash price included in each installment.

QUESTION NO 5 (TWO YEAR COMPOUNDING RATE)

G.D Milling industries purchased an asset on hire purchase system. They pay Rs.1524 down
payment and Rs.5400 in 3 installments of Rs.1800 each at the interval of two years. Hire
vendor charge interest at 10 percent per annum on yearly rests.
 HIRE PURCHASE SYSTEM 117

QUESTION NO 6 (SALES METHOD)

On 1st April, 2012, M/s power Motors sold on hire purchase basis a truck whose cash price
ZDV5VWR0V6LQJK 6LQJKDÀUPRIWUDQVSRUWHUV7KHWHUPVRIWKHFRQWUDFW
were that the transporters were to pay Rs. 3,00,000 down and six four-monthly installments
of Rs. 1,00,000 plus interest on standing amount of cash price for the intervening four
months. The installments were payable on 31th July, 30th November and 31st March in each
one of the two accounting years. Interest was calculated @ 12% per annum.
M/s. Singh & Singh duly paid the installment on 31st July,2012 but failed to pay the installment
on 30th November,2012
M/s power Motors, spent Rs. 80,000 on repairs and repairing of the truck and on 7th
janaury,2013 sold it for Rs. 7,50,000 cash.
You are required to prepare the amount of M/s. Singh & Singh and Goods Repossessed
Account in the books of M/s power Motors.

QUESTION NO 7 (LOSS OF GOODS)

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follows:

Date of purchase Tractor A Tractor B

1st April, ‘01 1st October, ‘01
Cash price 14,000 19,000
Deposit 2,000 2,680
Interest (deemed to accrue evenly
over the period of agreement) 2,400 2,880

Both agreements provided for payment to be made in twenty-four monthly installments,

commencing on the last day of the month of purchase, all installments being paid on due
dates.
On 30th-XQHWUDFWRU%ZDVFRPSOHWHO\GHVWUR\HGE\ÀUH,QIXOOVHWWOHPHQWRQth
July 2002 an insurance company paid Rs.15,000 under a comprehensive policy out of which
Rs.10,000 was paid to the hire purchase company in termination of the agreement. Any
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written off.
7KHÀUPSUHSDUHGDFFRXQWVDQQXDOO\WRst December and provided depreciation on tractors
on a straight-line basis at a rate of 20 per cent per annum rounded off to nearest rupee,
apportioned as from the date of purchase to the date of disposal.
 118 ACCOUNTING

You are required to record these transactions in the following accounts, carrying down the
balance on 31st December 2001 and 31st December 2002:

(i) Tractors on hire purchase

(ii) Provision for depreciation of tractors
(iii) Disposal of tractors
(iv) Hire purchase-company.

QUESTION NO 8 (PARTIAL REPOSSESSION)

X Transport Limited purchased from Delhi Motors 3 Tempos costing Rs.50,000 each on the
hire purchase system on 1-1-2000. Payment to be made Rs.30,000 down and the remainder
in 3 equal annual installments payable on 31-12-2000, 31-12-2001 and 31-12-2002 together
with interest @ 9%. X Transport Limited write off depreciation at the rate of 20% on the
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but could not pay the next on 31-12-2001. Delhi Motors agreed to leave one Tempo with the
purchaser on 1-1-2002 adjusting the value of the other 2 Tempos against the amount due
on 31-12-2001. The Tempos were valued on the basis of 30% depreciation annually. Show
the necessary accounts in the books of X Transport Limited for the years 2000, 2001 and
2002.

QUESTION 9 (CALCULATION OF CASH PRICE)

On 1st April, 2012, Fastrack Motor Co. sells at 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 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.

ANSWER

Rate of interest 10 1
Ratio of interest and amount due = = = .
100 + Rate of interest 110 11

There is no interest element in the down payment as it is paid on the date of the transaction.
Instalments paid after certain period included interest portion also. Therefore, to ascertain
FDVKSULFHLQWHUHVWZLOOEHFDOFXODWHGIURPODVWLQVWDOPHQWWRÀUVWLQVWDOPHQWDVIROORZV
 HIRE PURCHASE SYSTEM 119

Calculation of Interest and cash Price

No of Amount due at the Interest Cumulative

instalments time of instalment Cash price

[1] [2] [3] (2-3) = [4]

3rd 2,20,000 1/11 of ` 2,20,000 = ` 20,000 2,00,000

2nd 4,20,000 pW.N.1] 1/11 of ` 4,20,000 = ` 38,182 3,81,818
1st 6,01,818 [W.N.2] 1/11 of ` 6,01,818 = ` 54,711 5,47,107

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.

QUESTION NO 10 (PARTIAL REPOSSESSION)

X Limited purchased 3 milk vans from Super Motors costing Rs.75,000 each on hire purchase
system. Payment was to be made: Rs.45,000 down and the remainder in 3 eqal installments
together with interest @ 9%. X Limited writes off depreciation @ 20% on the diminishing
balance. It paid the instalment at the end of the 1st year but could not pay the next. Super
Motor agreed to leave one milk van with the purchaser, adjusting the value of the other
two milk vans against the amount due. The milk vans were valued on the basis of 30%
GHSUHFLDWLRQDQQXDOO\RQZULWWHQGRZQYDOXHEDVLV;/LPLWHGVHWWOHGWKHVHOOHU·VGXHVDIWHU
three months.

QUESTION NO 11 (HYBRID QUESTION)

A machinery is sold on hire purchase. The terms of payment is four annual instalments of
Rs.6,000 at the end of each year commencing from the date of agreement. Interest is
charged @ 20% and is included in the annual payment of Rs.6,000.
Show Machinery account and Hire vendor account in the books of the purchaser who
defaulted in the payment of the third yearly payment whereupon the vendor re-possessed
the machinery. The purchaser provides depreciation on the machinery @ 10% per annum. All
workings should form part of your answer.
120 ACCOUNTING

QUESTION NO 12 (CALCULATION OF CASH PRICE)

A acquired on 1st January, 2003 a machine under a hire purchase agreement which provides
IRUKDOI\HDUO\LQVWDOOPHQWVRI5VHDFKWKHÀUVWLQVWDOOPHQWEHLQJGXHRQst July,
2003. Assuming that the applicable rate of interest is 10 per cent per annum. Calculate the
cash value of the machine. All working should form part of the answer.

QUESTION NO 13 (CALCULATION OF CASH PRICE)

Ram & Co. acquired a motor lorry on hire-purchase basis. It has to make cash down payment
of Rs. 1,00,000 at the beginning. The payments to be made subsequently are Rs. 2,63,000; Rs.
DQG5VDWWKHHQGRIÀUVW\HDUVHFRQG\HDUDQGWKLUG\HDUUHVSHFWLYHO\
Interest charged is @ 14% per annum. Calculate the cost price of motor lorry and interest
paid in each installment.

QUESTION NO 14 (CALCULATION OF CASH PRICE)

From the following, calculate the cash price of the asset:

Rs,
Hire purchase price of the asset 50,000
Down payment 10,000
Four annual installments at the end of each year 10,000
Rate of Interest 5% p.a.

QUESTION NO 15 (CALCULATION OF IRR)

On 1st April, 2009 a car company sold to Arya Bros., a motor car on hire-purchase basis.
The total hire-purchase price was Rs. 4,60,000 with down payment of Rs. 1,60,000. Balance
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payable on 31st March, 2010. The cash price of the car was Rs. 4,00,000.
How will Arya Bros. account for interest over three accounting years assuming books of
accounts are closed on 31st March every year.
 HIRE PURCHASE SYSTEM 121

QUESTION NO 16(HIRE PURCHASE SYSTEM)

Discuss installment payment system and its distinction from sale and hire purchase
agreement. (1992 — November [6]) 5 Marks

Nature of Hire Purchase Agreement and Installment Payment Agreement

A hire purchase agreement is a contract of bailment coupled with an option to the hire
purchaser to acquire the goods delivered to him under such an agreement. By the delivery
of goods to the hire purchaser, the hire vendor merely parts with their possession, but not
the ownership. The property or title to the goods is transferred to the hire-purchaser, on
his paying the last installment of the hire price or complying with some other conditions
stipulated in the contract. At any time before that the hire-purchaser has the option
to return the goods and, if he does so, he has only to pay the installments of price that
by then have fallen due. The right or option to purchase is the essence of hire-purchase
agreement. In the event of a default by the buyer (hire purchaser) in the payment of any of
the installments of hire price, the vendor can take back the goods into his possession. This
is legally permissible since the property in the goods is still with the vendor.
On the other hand, it may have been agreed between the buyer and the seller that the price
of the goods would be payable by installments and the property would immediately pass to
the buyer; in the event of a default of installments, it would not be possible for the vendor
to recover back the goods. He, however, would have the right to bring an action against the
purchaser for the recovery of the part of the price that has not been paid to him.

QUESTION NO 17

Mumbai Roadways Ltd. purchased three trucks costing Rs. 1,00,000 each from Hindustan
Auto Ltd. on 1st January, 1979 on the hire purchase system. The term were Payment on
delivery Rs. 25,000 for each truck and balance of the principal amount by 3 equal installments
plus interest at 15% per annum, to be paid at the end of each year. Mumbai Roadways Ltd.
writes off 25% depreciation each year on the diminishing balance method.
Mumbai Roadways Ltd paid the installment due on 31st December, 1979 and 31st December,
EXWFRXOGQRWSD\WKHÀQDOLQVWDOOPHQW+LQGXVWDQ$XWR/WGUHSRVVHVVHGWZRWUXFNV
adjusting values against the amount due. The re-possession was done on 1st January, 1982
on the basis of 40% depreciation on the diminishing balance method.

1. Write up the ledger accounts in the books of Mumbai Roadways Ltd. showing the above
transactions upto 1-1-1982, and
2. Show the disclosure of the balance arising from the above in the Balance Sheet of
Mumbai Roadways Ltd. as on 31st December, 1981 ( 15 marks)
122 ACCOUNTING

SOLUTION:
Books on Mumbai Roadways Ltd. \
Vendor (Hindustan Auto Ltd.A/c

To Cash Account ( 25,000x3) 75,000 By Assets (Truck) A/c 3,00,000

To Cash A/c ( 75,000+33,750) 1,08,750 By Interest 33,750
(2,25,000x 15%)
To balance C/d 1,50,000
3,33,750 3,33,750
To cash ( 75,000 + 22,500) 97,500 By Balance B/d 1,50,000
To Balance C/d 75,000 By Interest ( 1,50,000x15% 22,500
1,72,500 1,72,500
To Assets (truck) A/c 43,200 By Balance B/d 75,000
To Balance C/d 43,050 By Interest ( 75,000x15%) 11,250
86,250 86,250

Truck Account
Hindustan Auto Ltd. 3,00,000 By Deprecation 75,000
( 3,00,000x 25% )
( 1, 00,000x3) By Balance C/d 2,25,000
3,00,000 3,00,000
To Balance B/d 2,25,000 By Deprecation 56,250
( 2,25,000x 25%)
2,25,00
To bank 1,68,750 By Deprecation 1,68,750
( 1,68,750 x 25%) 2,25,000
42,188
By Hindustan Auto Ltd. 43,200
By Loss on Repossession 41,175
By Balance C/d
( 1,68,750-42,188) /3 42,187
1,68,750 1,68,750
 HIRE PURCHASE SYSTEM 123

Working Note -1

Calculation of Goods Repossessed Value :

Value of 2 Truck on 1st Jan. 1979 2,00,000
(-) Deprecation for 1st year @ 40% 80,000
Remaining Assets 1,20,000
(-) Deprecation for 2nd year @ 40% 48,000
Remaining Assets 72,000
(-) Deprecation for 3rd year @ 40% 28,800
remaining Assets 43,200

QUESTION NO 18 (CALCULATION OF IRR)

Calculate Interest

Rs.
Cost price 1,00,000
Rate of interest ?
Down payment 20,000
First installment ` 40,000
Second installment 30,000
Third installment 30,000

QUESTION NO 19 (CALCULATION OF CASH PRICE)

Date of purchase of assets 1st January, 2002. Rate of interest 12% p.a. following payments
were agree. Calculate Cost.

Rs.
January 1, 2002 30,000
July 1,2002 50,000
January 1,2003 40,000
October 1,2003 40,000
January 1,2004 40,000
 124 ACCOUNTING

QUESTION NO 20 (MASTER PROBLEM)

Calculate cost Price where rate of interest is 12% p.a. charged quarterly and down payment
is Rs. 10,000

Date Amount Nature

1.1.2003 10,000 Down
1.4.2003 15000 1st Instal
1.11.2003 20,000 2nd Instal
1.4.2004 20,000 3rd Instal
1.6.2005 30,000 4th Instal

Rate of interest is increasing by 2% every year with effect from 1.1.2004

QUESTION NO 21 (CALCULATION OF CASH PRICE )

K. Industries Ltd. Acquired plant delivered on January 1,1998 on the following hire purchase
terms.

(i) On initial payment of Rs. 40,000 payable on or before delivery;

(ii) Four half yearly payment of Rs. 30,000 each commencing from June 30,1999.
In arriving at terms the plant manufactures computed interest at 6% per annum with yearly
rests.

QUESTION NO. 22 (CALCULATION OF CASH PRICE)

Asha purchased at truck on hire purchase system. As terms she is required to pay ` 70,000
down, `DWWKHHQGRIÀUVW\HDU` 49,000 at the end of second year and ` 55,000 at
the end of third year. Interest is charged @ 10% p.a.
You are required to calculate the total cash price of the truck and the interest paid with
each instalment.

SOLUTION.

Rate of interest 10 1
(1) Ratio of interest and amount due = = = .
100 + Rate of interest 110 11
 HIRE PURCHASE SYSTEM 125

(2) Calculation of Interest and Cash Price

No. of Amount due at the Interest Cash price

instalments time of instlment
[1] [2] [3] [4]
3rd 55,000 1/11 of ` 55,000 = ` 5,000 50,000
2nd * 99,000 1/11 of ` 99,000 = ` 9,000 90,000
1st ** 1,43,000 1/11 of ` 1,43,000 = ` 13,000 1,30,000

Total cash price = ` 1,30,000 + 70,000 (down payment ) = ` 2,00,000.

* ` 50,000 + 2nd instalment of ` 49,000 = ` 99,000.
** ` 90,000+ 1st instalment of ` 53,000 = ` 1,43,000.

QUESTION NO 23 (ANNUITY METHOD)

On 1st April, 20x1 a manufacturing company buys on Hire-purchase system a machinery for
` 90,000, payable by three equal annual instalments combining principal and interest, the
rate of interest was 5% per annum, Calculate the amount of cash price and interest. Assume
that the present value of on annuity of one rupee for three years at 5% interest is ` 2.723.

QUESTION NO 24 (CALCULATION OF CASH PRICE)

Om Ltd. Purchased a machine on hire purchase basis from Kumar Machinery Co. Ltd. On the
following terms:

(a) Cash price ` 80,000

(b) Down payment at the time of signing the agreement on 1.1. 20 x 1 ` 21,622.
(c) 5 annual instalment of ` 15,400, the first to commence at the end of twelve months
from the date of down payment.
(d) Rate of interest is 10% p.a.

You are required to calculate the total interest and interest included in cash instalment.
126 ACCOUNTING

QUESTION NO 25 (IRR)

Happy Valley Florists Ltd. acquired a delivery van on hire purchase on 01.04.20x1 from
Ganesh Enterprises. The terms were as follows:

Particular Amount (`)

Hire Purchase Price 180,000
Down Payment 30,000
1st installment payable after 1 year 50,000
2nd installment after 2 years 50,000
3rd installment after 3 years 30,000
4th installment after 4 years 20,000

Cash price of van ` 1,50,000 you are required to calculate Total Interest and Interest
included in each instalment.

QUESTION NO. 26 (CASH PRICE METHOD)

On January 1, 20x1 HP M/s acquired a pick-up Van on hire purchase from FM M/s the terms
of the contract were as follows:

(a) The cash price of the van was ` 1, 00,000.

(b) ` 40,000 were to be paid on signing of the contract.
(c) The balance was to be paid in annual instalments of ` 20,000 plus interest.
(d) Interest chargeable on the outstanding balance was 6% p.a.
(e) Depreciation at 10% p.a. is to be written off using the straight-line method

You are required to:

(a) Give journal Entries and show the relevant accounts in the books of HP M/s from
January 1, 20x1 to December 31, 20x3; and
(b) Show the relevant items in the balance sheet of the purchaser as on December 31,20x1
to 20x3.
 HIRE PURCHASE SYSTEM 127

SOLUTION
In the books of HP M/s
Journal Entries

Date Dr. Cr.

` `
20 x 1 Pick-up Van A/c Dr. 1,00,000
Jan. 31 To FM M/S A/c 1,00,000
(Being the purchase of a pick-up van on hire
purchase from FM M/s)
,, FM M/s A/C Dr. 40,000
To Bank A/c 40,000
(Being the amount paid on signing the H.P. contract
Dec. 31 Interest A/c Dr. 3,600
To FM M/s A/c 3,600
(Being the interest payable @ 6% on ` 60,000)
,, FM M/s A/c (` 20,000 + ` 3,600) Dr. 23,600
To Bank A/c 23,600
(Being the payment of 1st instalment along with
interest)
,, Depreciation A/c Dr. 10,000
To pick-up Van A/c 10,000
(Being the depreciation charged @ 10% p.a. on
` 1,00,000)
,, 3URÀW /RVV$F Dr. 13,600
To Depreciation A/c 10,000
To Interest A/c 3,600
(Being the depreciation and interest transferred
WR3URÀWDQG/RVV$FFRXQW
20x2 Interest A/c Dr. 2,400
Dec. 31 To FM M/s A/c 2,400
(Being the interest payable @ 6% on ` 40,000)
128 ACCOUNTING

FM M/s A/c (` 20,000 + ` 2,400) Dr. 22,400

To Bank A/c 22,400
(Being the payment of 2nd instalment along with
interest)
Depreciation A/c Dr. 10,000
To Pick-up Van A/c 10,000
(Being the depreciation charged @ 10% p.a.)
3URÀW /RVV$F Dr. 12,400
To Depreciation A/c 10,000
To Interest A/c 2,400
(Being the depreciation and interest charged to
SURÀWDQG/RVV$FFRXQW
20x3 Interest A/c Dr. 1,200
Dec.31 To FM M/s A/c 1,200

(Being the interest payable @ 6% on ` 20,000)

FM M/s A/c (` 20,000 + ` 1,200) Dr. 21,200
%HLQJWKHSD\PHQWRIÀQDOLQVWDOPHQWDORQJZLWK 21,200
interest)
Depreciation A/c Dr. 10,000
To Pick-up Van A/c 10,000
(Being the depreciation charged @ 10% p.a. on
` 1,00,000)
3URÀW /RVV$F Dr. 11,200
To Depreciation A/c 10,000
To Interest A/c 1,200
(Being the interest and depreciation charged to
3URÀWDQG/RVV$FFRXQW
 HIRE PURCHASE SYSTEM 129

Ledgers in the books of HP M/s

Pick-up Van Account

Date Particular ` Date Particular `

1.1.20x1 To FM M/s A/c 1,00,000 31.12.20x1 By Depreciation A/c 10,000

31.12.20x1 By Balance c/d 90,000

1,00,000 1,00,000

1.1.20x2 To Balance b/d 90,000 31.12.20x2 By Depreciation A/c 10,000

31.12.20x2 By Balance c/d 80,000

90,000 90,000

1.1.20x3 To Balance b/d 80,000 31.12.20x3 By Depreciation A/c 10,000

31.12.20x3 By Balance c/d 70,000

80,000 80,000

FM M/s Account

Date Particular ` Date Particular `

1.1.20x1 To Bank A/c 40,000 1.1.20x1 By Pick-up Van A/c 1,00,000

31.12.20x1 To Bank A/c 23,600 31.12.20x1 By Interest c/d 3,600

31.12.20x1 To Balance c/d 40,000

1,03,600 1,03,600

31.12.20x2 To Bank A/c 22,400 1.1.20x2 By Balance b/d 40,000

31.12.20x2 To Balance c/d 20,000 31.12.20X2 By Interest A/c 2,400

42,400 42,400

31.12.20x3 To Bank A/c 21,200 1.1.20x3 By Balance b/d 20,000

31.12.20x3 By Interest A/c 1,200

21,200 21,200
130 ACCOUNTING

Depreciation Account

Date Particular ` Date Particular `

31.12.20x1 To Pick-up Van A/c 10,000 31.12.20x1 %\3URÀW /RVV$F 10,000
31.12.20x2 To Pick-up Van A/c 31.12.20x2 %\3URÀW /RVV$F
31.12.20x3 To Pick-up Van A/c 10,000 31.12.20x3 %\3URÀW /RVV$F 10,000

10,000 10,000

Interest Account

Date Particular ` Date Particular `

31.12.20x1 To FM M/s A/c 3,600 31.12.20x2 %\3URÀW /RVV$F 3,600
31.12.20x2 To FM M/s A/c 31.12.20x3 %\3URÀW /RVV$F
31.12.20x3 To FM M/s A/c 2,400 %\3URÀW /RVV$F 2,400

1,200 1,200

Balance Sheet of HP M/s as at 31st December, 20x1

Liabilities ` Assets `
FM M/s 40,000 Pick –up Van 90,000

Balance Sheet of HP M/s as at 31st December, 20x2

Liabilities ` Assets `
FM M/s 20,000 Pick –up Van 80,000

Balance Sheet of HP M/s as at 31st December, 20x3

Liabilities ` Assets `
Pick –up Van 70,000
 HIRE PURCHASE SYSTEM 131

QUESTION NO. 27 (INTEREST SUSPENSE ACCOUNTING)

In illustration 6 assume that the hire purchaser adopted the interest suspense method for
recording his hire purchase transactions. On this basis, prepare H.P. Interest Suspense
Account, Interest Account and FM M/s Accounts and Balance Sheets in the books of hire
purchaser.

SOLUTION
H.P. Interest Suspense Account

Date Particular ` Date Particular `

1.1.20x1 To FM M/s A/c (W.N.) 7,200 31.12.20x1 By Interest A/c 3,600
31.12.20x1 By Balance c/d 3,600

7,200 7,200

1.1.20x2 To Balance b/d 3,600 31.12.20x2 By Interest A/c 2,400

31.12.20x2 By Balance c/d 1,200

3,600 3,600

1.1.20x3 To Balance b/d 1,200 31.12.20x3 By Interest a/c 1,200

Interest Account

Date Particular ` Date Particular `

31.12.20x1 To H.P. Interest 31.12.20x1 %\3URÀW /RVV$F 3,600
Suspense A/c 3,600
31.12.20x2 To H.P. Interest 31.12.20x2 %\3URÀW /RVV$F 2,400
Suspense A/c 2,400
To H.P. Interest
31.12.20x3 31.12.20x3 %\3URÀW /RVV$F 1,200
Suspense A/c 1,200

FM M/s Account

Date Particular ` Date Particular `

1.1.20x1 To Bank A/c 40,000 1.1.20x1 By Pick-up Van A/c 1,00,000
31.12.20x1 To Bank A/c 23,600 1.1.20x1 By H.P. Interest 7,200
Suspense A/c
132 ACCOUNTING

31.12.20x1 To Balance c/d 43,600

1,07,200 1,07,200

31.12.20x2 To Bank A/c 22,400 1.1.20x2 By Balance b/d 43,600

31.12.20x2 To Balance c/d 21,200

43,600 43,600

31.12.20x3 To Bank A/c 21,200 1.1.20x3 By Balance b/d 21,200

Balance Sheet of HP M/s as at 31st December, 20x1

Liabilities ` Assets `
FM M/s 21,200 Pick-up Van 90,000
Less: H.P. Interest (1,200) 20,200 Less: Depreciation (10,000) 80,000
Suspense

Balance Sheet of HP M/s as at 31st December, 20x3

Liabilities ` Assets `
Pick-up Van 80,000
Less: Depreciation (10,000) 70,000

Working Note:

Total interest = ` 3,600 + ` 2,400 + ` 1,200 = ` 7,200

QUESTION NO. 28 (CALCULATION OF CASH PRICE)

On 1st April, 20x1, Fastrack Motors co. sells 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 down payment
and the balance in three equal annual instalments of ` 2,20,000 each payable on 31st March
20x2,k 20x3 and 20x4.
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.
 HIRE PURCHASE SYSTEM 133

QUESTION NO. 29 (CALCULATION OF CASH PRICE & ACCOUNTING)

Lucky bought 2 tractors from Happy on 1-10-20x1 on the following terms:

`
Down payment 5,00,000
1stLQVWDOOPHQWDWWKHHQGRIÀUVW\HDU 2,65,000
2nd installment at the end of 2nd year 2,45,000
3rd installment at the end of 3rd year 2,75,000

Interest charged at 10% p.a.

Lucky provides depreciation @ 20% on the diminishing balances.
On 30-9-20x4 Lucky failed to pay the 3rd installment upon which Happy repossessed 1
tractor. Happy agreed to leave one tractor with Lucky and adjusted the value of the tractor
against the amount due. The tractor taken over was valued on the basis of 30% depreciation
DQQXDOO\RQZULWWHQGRZQEDVLV7KHEDODQFHDPRXQWUHPDLQLQJLQWKHYHQGRU·VDFFRXQWDIWHU
the above adjustment was paid by Lucky after 3 months with interest @ 18% p.a.
You are required to:

(1) Calculate the cash price of the tractors and the interest paid with each installment
(2) Prepare Tractor Account and Happy Account in the books of Lucky assuming that
books are closed on September 30 every. Figures may be rounded off to the nearest
rupee.

QUESTION NO 30 (BASIC PROBLEM)

Cash price of asset purchased on hire purchase system Rs.37,500

Down payment Rs.5,000
Annual installment 5 of Rs.7,500 each
Rate of interest: 5% calculate interest included in each installment
134 ACCOUNTING

NOTES
 INSURANCE CLAIM 135

INSURANCE CLAIM

Business enterprises get insured against the loss of stock on the happening of certain
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claim for loss is restricted to the actual loss of assets sometimes an enterprises also gets
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(i) Claim for loss of stock

(ii) Claim for loss of profit

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through:
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 136 ACCOUNTING

CLAIM FOR LOSS OF STOCK

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i) Without average clause:- claim is equal to the lower of actual loss or the sum
insured.
ii) with average clause:- amount of claim for loss of stock is proportionately
reduced, considering the ratio of policy amount (i.e. insured amount) to the
value of stock as on the date of fire (i.e. insurable amount) as shown below:
  $PRXQWRIFODLP /RVVRIVWRFN[6XPLQVXUHG,QVXUDEOHDPRXQWWRWDOFRVW

One should note that the average clause applies only where the insured value is less than
the total cost and not vice versa.

RELEVANT POINTS:

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 INSURANCE CLAIM 137

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WKHFRVWRIVXFKVWRFNPXVWEHFUHGLWHGWRWKHWUDGLQJDFFRXQWDQGGHELWHGDQWKH
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Loss of Stock
$PRXQWRIORVVRIVWRFNLVFDOFXODWHGDVXQGHU
9DOXHRIVWRFNRQWKHGDWHRIÀUH  [[[[
/HVV9DOXHRIVDOYDJHGVWRFN   [[[[
Amount of loss of stock xxxx

QUESTION NO 1

6LJQLÀFDQFHRI´$YHUDJHFODXVH·LQDÀUHLQVXUDQFHSROLF\

ANSWER
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7KHDFWXDOFODLPDPRXQWZRXOGWKHUHIRUHEHGHWHUPLQHGE\WKHIROORZLQJIRUPXOD
insured value
Claim = x Loss suffered
total cost
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LQVXUHGVXEMHFWPDWWHU

QUESTION NO 2

On 20th2FWREHUWKH*RGRZQDQGEXVLQHVVSUHPLVHVRI$PDQ/WGZHUHDIIHFWHGE\
ÀUHIURPWKHVDOYDJHGDFFRXQWLQJUHFRUGVWKHIROORZLQJLQIRUPDWLRQLVDYDLODEOH

Rs.
6WRFNRIJRRGV#ORZHUWKDQFRVWDVRQst0DUFK 
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6DOHVOHVVUHWXUQVWR 
 ACCOUNTING

Additional information:

(1) sales up to 20th 2FWREHU  LQFOXGHV 5V  IRU ZKLFK JRRGV KDG QRW EHHQ
GLVSDWFKHG
(2) purchase up to 20th2FWREHUGLGQRWLQFOXGH5VIRUZKLFKSXUFKDVHLQYRLFHV
KDGQRWEHHQUHFHLYHGIURPVXSSOLHUVWKRXJKJRRGVKDYHEHHQUHFHLYHGLQJRGRZQ
 3DVWUHFRUGVVKRZKHJURVVSURILWUDWHRI
 7KHYDOXHRIJRRGVVDOYDJHGIURPILUH5V
 $PDQ/WGKDVLQVXUHGWKHLUVWRFNIRU5V
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ANSWER
Memorandum trading A/c (1.4.09 to 20.10.09)

Particulars Rs. Particulars Rs.

7RRSHQLQJVWRFNUHIHU:1  %\VDOHV 
To purchase  5V5V
5V5V %\FORVLQJVWRFN 
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5V[ 
 

Rs.
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6WRFNGHVWUR\HGE\ÀUH 

loss of stock
,QVXUDQFHFODLP  [DPRXQWRISROLF\
YDOXHRIVWRFNRQWKHGDWHRIÀUH

= [ 5V

Working Note:
Stock as on 1st$SULOZDVYDOXHGDWORZHUWKDQFRVW
+HQFHRULJLQDOFRVWRIWKHVWRFNDVRQst$SULOZRXOGEH

= [ 5V

 INSURANCE CLAIM 

QUESTION NO 3

$ÀUHRFFXUUHGLQWKHSUHPLVHVRI0VNDLODVK FRRQth6HSWHPEHU)URPWKH
IROORZLQJSDUWLFXODUVUHODWLQJWRWKHSHULRGIURPst April 2013 to 30th6HSWHPEHU<RX
DUHIROORZLQJWRDVFHUWDLQWKHDPRXQWRIFODLPWREHÀOOHGZLWKWKHLQVXUDQFHFRPSDQ\IRU
WKHORVVRIVWRFN7KHFRPSDQ\KDVWDNHQDQLQVXUDQFHSROLF\IRU5VZKLFKLVVXEMHFW
WRDYHUDJHFODXVH7KHYDOXHRIJRRGVVDOYDJHGZDVHVWLPDWHGDW5V7KHDYHUDJH
UDWHRI*URVVSURÀWZDVWKURXJKRXWWKHSHULRG

Particular Amount
in Rs.
(i) Opening stock 
(ii) 3XUFKDVHPDGH 
(iii) :DJHVSDLGLQFOXGLQJZDJHVIRUWKHLQVWDOODWLRQRIPDFKLQH5V 
(iv) Sales 
(v) *RRGVWDNHQE\WKHSURSULHWRUVDOHYDOXH 
(vi) Cost of goods sent to consignee on 20th6HSWHPEHUO\LQJXQVROG 
ZLWKWKHP
(vii) )UHHVDPSOHVGLVWULEXWHGFRVW 

ANSWER
Memorandum Trading Account for the period
1st April, 2013 to 30th Sept. 2013

Rs. Rs.
To opening stock  %\VDOHV 
7RSXUFKDVH %\FRQVLJQPHQWVWRFN 
/HVV$GYHUWLVHPHQW %\FORVLQJVWRFN%DOÀJ 
Cost of goods
7DNHQE\SURSULHWRU 
7RZDJHV 
7RJURVVSURÀW 
(20% of sales
 
 ACCOUNTING

Statement of insurance claim

Rs.
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/HVVVDOYDJHGVWRFN 
,QVXUDQFHFODLP 

Note: since policy amount is less than claim amount, average clause will apply. Therefore,
claim amount will be computed by applying the formula
insured value
Claim = x Loss suffered
total cost
&ODLPDPRXQW 5V[

QUESTION NO 4

On 12th-XQHÀUHRFFXUUHGLQWKHSUHPLVHVRI3DWHODSDSHUPHUFKDQW0RVWRIWKH
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VDOYDJHG LQ D GDPDJHG FRQGLWLRQ DQG LWV YDOXH LQ WKDW FRQGLWLRQ ZDV DJUHHG DW 5V
)URPWKHERRNVRIDFFRXQWWKHIROORZLQJSDUWLFXODUVZHUHDYDLODEOH

(a) +LVVWRFNDWWKHFORVHRIDFFRXQWRQ'HFHPEHUZDVYDOXHGDW5V
E +LVSXUFKDVHVIURPWRDPRXQWHGWR5VDQGKLVVDOHVGXULQJ
WKDWSHULRGDPRXQWHGWR5V
2QWKHEDVLVRIKLVDFFRXQWVIRUWKHSDVWWKUHH\HDUVLWDSSHDUVWKDWKHHDUQVRQDQDYHUDJH
DJURVVSURÀWRIRQVDOHV
3DWHOKDVLQVXUHGKLVVWRFNIRU5V&RPSXWHWKHDPRXQWRIFODLP

QUESTION NO 5

On 1st$SULOWKHVWRFNRI6KUL5DPHVKZDVGHVWUR\HGE\ÀUHEXWVXIÀFLHQWUHFRUGV
ZHUHVDYHGIURPZKLFKIROORZLQJSDUWLFXODUVZHUHDVFHUWDLQHG

5V
Stock at cost 1st-DQXDU\ 
Stock at cost 31st'HFHPEHU 
3XUFKDVHV\HDUHQGHGst'HFHPEHU 
6DOHV\HDUHQGHGst'HFHPEHU 
3XUFKDVHV 
6DOHV 
 INSURANCE CLAIM 

,Q YDOXLQJ WKH VWRFN IRU WKH EDODQFH VKHHW DW st 'HFHPEHU  5V KDG EHHQ
ZULWWHQRIIRQFHUWDLQVWRFNZKLFKZDVDSRRUVHOOLQJOLQHKDYLQJWKHFRVW5V$SRUWLRQ
RIWKHVHJRRGVZHUHVROGLQ0DUFKDWORVVRI5VRQRULJLQDOFRVWRI5V7KH
UHPDLQGHURIWKLVVWRFNZDVQRZHVWLPDWHGWREHZRUWKLWVRULJLQDOFRVW6XEMHFWWRWKH
DERYHH[FHSWLRQJURVVSURÀWKDGUHPDLQHGDWDXQLIRUPUDWHWKURXJKRXW\HDU
7KHYDOXHRIVWRFNVDOYDJHGZDV5V7KHSROLF\ZDVIRU5VDQGZDVVXEMHFWWR
WKHDYHUDJHFODXVH:RUNRXWWKHDPRXQWRIWKHFODLPRIORVVE\ÀUH

QUESTION NO 6

2Qth0D\WKHSUHPLVHVRIVKUL*UDLEGDVZHUHGHVWUR\HGE\ÀUHEXWVXIÀFLHQW
UHFRUGVZHUHVDYHGZKHUHIURPWKHIROORZLQJSDUWLFXODUVZHUHDVFHUWDLQHG

Rs.
6WRFNDWFRVWRQ 
6WRFNDWFRVWRQ 
3XUFKDVHOHVVUHWXUQVGXULQJ 
Sales less return during 2010 
3XUFKDVHVOHVVUHWXUQVGXULQJWR 
6DOHVOHVVUHWXUQVGXULQJWR 

,V YDOXLQJ WKH VWRFN IRU WKH EDODQFH VKHHW DV DW st 'HFHPEHU5V KDG EHHQ
ZULWWHQRIIRQFHUWDLQVWRFNZKLFKZDVDSRRUVHOOLQJOLQHKDYLQJWKHFRVW5V$SRUWLRQ
RIWKHVHJRRGVZHUHVROGLQ0DUFKDWDORVVRI5VRQRULJLQDOFRVWRI5V
7KHUHPDLQGHURIWKLVVWRFNZDVQRZHVWLPDWHGWREHZRUWKWKHRULJLQDOFRVW6XEMHFWWR
WKHDERYHH[FHSWLRQVJURVVSURÀWKDVUHPDLQHGDWDXQLIRUPUDWHWKURXJKRXW7KHVWRFN
VDOYDJHGZDV5V

6KRZWKHDPRXQWRIWKHFODLPRIVWRFNGHVWUR\HGE\ÀUH0HPRUDQGXPWUDGLQJDFFRXQWWR
EHSUHSDUHGIRUWKHSHULRGIURPWRIRUQRUPDODQGDEQRUPDOLWHPV
  ACCOUNTING

ANSWER
Shri Garib Das
Trading Account for the year ended on 31st December, 2010

Rs. Rs. Rs.

To Opening stock  %\ Sales A/c 
To 3XUFKDVH  %\ &ORVLQJVWRFN
To *URVV3URÀW  As valued 
$GGDPRXQWZULWWHQRIIWR
restore stock to full cost  

 


7KHQRUPDOUDWHRIJURVVSURÀWWRVDOHVLV  x 100 = 20%


Memorandum trading account upto 19, may 2011

Normal Abnormal Total Normal Abnormal total

Items Items Items Itmes

Rs. Rs. Rs. Rs. Rs. Rs.

To opening stock    %\VDOHV   

To purchase    %\ORVV  125 125

7RJURVVSURÀW %\FORVLQJ

RQ5V    stock

EDOÀJ   

     

Calculation of insurance claim

      5V
9DOXHRIVWRFNRQth0D\ 
/HVVVDOYDJH    
/RVVRIVWRFN    
Therefore, insurance claim will be for Rs.26,125 only.
 INSURANCE CLAIM 

QUESTION NO 7

On 30th0DUFKÀUHRFFXUUHGLQWKHSUHPLVHVRI0V6XUDMEURWKHUV7KHFRQFHUQKDG
WDNHQDQLQVXUDQFHSROLF\RI5VZKLFKZDVVXEMHFWWRWKHDYHUDJHFODXVH)URPWKH
ERRNVRIDFFRXQWVWKHIROORZLQJSDUWLFXODUVDUHDYDLODEOHUHODWLQJWRWKHSHULRGst-DQXDU\
to 30th0DUFK

 6WRFNDVSHUEDODQFHVKHHWDWst'HFHPEHU5V
 3XUFKDVHLQFOXGLQJSXUFKDVHRIPDFKLQHU\FRVWLQJ5V5V
 :DJHVLQFOXGLQJZDJHV5VIRULQVWDOODWLRQRIPDFKLQHU\5V
 VDOHVLQFOXGLQJJRRGVVROGRQDSSURYDOEDVLVDPRXQWLQJWR5V5V1R
DSSURYDOKDVEHHQUHFHLYHGLQUHVSHFWRIrdRIWKHJRRGVVROGRQDSSURYDO
 7KHDYHUDJHUDWHRIJURVVSURILWLVVDOHV
 7KHYDOXHRIWKHVDOYDJHGJRRGVZDV5V

<RX DUH UHTXLUHG WR FRPSXWH WKH DPRXQW RI WKH FODLP WR EH ORGJHG WR WKH LQVXUDQFH
FRPSDQ\

ANSWER
Computation of claim for loss of stock

Rs.
6WRFNRQWKHGDWHRIÀUHLHRQth0DUFK:1 
/HVVYDOXHRIVDOYDJHGVWRFN 
Loss of stock 
insured value
Amount of claim = x Loss of stock 
WRWDOFRVWRIVWRFNRQWKHGDWHRIÀUH
DSSUR[

= [


$ FODLP RI 5V DSSUR[ VKRXOG EH ORGJHG E\ 0V 6XUDM EURWKHU WR WKH LQVXUDQFH
FRPSDQ\
 ACCOUNTING

Working Note:

1. Calculation of closing stock as on 30th March 2012

Memorandum trading account for
(from 1st January, 2012 to 30th March 2012)

Particulars Amount Particulars Amount

Rs. Rs.
To opening stock  %\VDOHV:1 
To purchases %\JRRGVZLWKFXWRPHUV
  IRUDSSURYDO:1 
7RZDJHV  %\FORVLQJVWRFN%DOÀJ 
7RJURVVSURÀW
(20% on sales) 
 

2. Calculate of goods with customers

6LQFH QR DSSURYDO IRU VDOH KDV EHHQ UHFHLYHG IRU WKH JRRGV RI 5V  LH  RI
5VKHQFHWKHVHVKRXOGEHYDOXHGDWFRVWLH5VRI5V 5V

3. Calculation of actual sales

Total sales – sale of goods on approval (2/3rd 5V 5V

QUESTION NO 8

$ÀUHRFFXUUHGLQWKHSUHPLVHVRI0VÀUHSURRIFRRQst$XJXVWIURPWKHIROORZLQJ
particulars relating to the period from 1st April 2011to 31st$XJXVW\RXDUHUHTXHVWHGWR
DVFHUWDLQWKHDPRXQWRIFODLPWREHÀOHGZLWKWKHLQVXUDQFHFRPSDQ\IRUWKHORVVRIVWRFN
7KHFRQFHUQKDGWDNHQ DQLQVXUDQFH SROLF\IRU 5V ZKLFKLVVXEMHFWWRDQDYHUDJH
FODXVH
 INSURANCE CLAIM 

Rs.
(i) 6WRFNDVSHUEDODQFHVKHHWDW 
(ii) 3XUFKDVH 
(iii) :DJHVLQFOXGLQJZDJHVIRUWKHLQVWDOODWLRQRIPDFKLQH5V 
(iv) Sales 
(v) 6DOHYDOXHRIJRRGVGUDZQE\SDUWQHUV 
(vi) Cost of goods sent to consignee on 16thDXJXVWO\LQJXQVROG 
ZLWKWKHP
(vii) &RVWRIJRRGVGLVWULEXWHGDVIUHHVDPSOHV 

While valuing the stock at 31st0DUFK5VZHUHZULWWHQRIILQUHVSHFWRIDVORZ

PRYLQJLWHPV7KHFRVWRIZKLFKZDV5V$SRUWLRQRIWKHVHJRRGVZHUHVROGDWDORVV
RI5VRQWKHRULJLQDOFRVWRI5V7KHUHPDLQGHURIWKHVWRFNLQQRZHVWLPDWHGWR
EHZRUWKWKHRULJLQDOFRVW7KHYDOXHRIJRRGVVDOYDJHGZDVHVWLPDWHGDW5V7KH
DYHUDJHUDWHRIJURVVSURÀWZDVWKURXJKRXW

ANSWER
Memorandum Trading Account for the period 1st April, 2011 to 31st August, 2011

Normal Abnormal Total Normal Abnormal Total

Items Items Items Items

Rs. Rs. Rs. Rs. Rs. Rs.

To opening stock    %\VDOHV   

To purchase %\JRRGV   

UHIHU:1    Sent to

7RZDJHV    consignee

To gross   %\ORVV  500 500

SURÀW# %\FORVLQJ 

VWRFN%DO
ÀJ

     

 ACCOUNTING

Statement Of claim for loss of Stock

Rs.
%RRNYDOXHRIVWRFNDVRQ 
/HVVVWRFNVDOYDJHG 
Less of stock 

$PRXQWRIFODLPWREHORGJHGZLWKLQVXUDQFHFRPSDQ\
SROLF\YDOXH
= less of stock x
YDOXHRIVWRFNRQWKHGDWHRIÀUH

[  5V


Working Note:

Calculation of adjusted purchase

5V
3XUFKDVH 
/HVV'UDZLQJV 
Free samples 
$GMXVWHGSXUFKDVHV 

QUESTION NO 9

2QthDXJXVWWKHJRGRZQRIDWUDGHUFDXJKWÀUHDQGDODUJHSDUWRIWKHVWRFNRI
JRRGVZDVGHVWUR\HG+RZHYHUJRRGVFRVWLQJ5VFRXOGEHVDOYDJHGLQFXUULQJWKH
ÀJKWLQJH[SHQVHVDPRXQWLQJWR5V
7KHWUDGHUSURYLGHV\RXWKHIROORZLQJDGGLWLRQDOLQIRUPDWLRQ

Rs.
Cost of stock on 1st$SULO 
Cost of Stock on 31st0DUFK 
3XUFKDVHGXULQJWKH\HDUHQGHGst0DUFK 
3XUFKDVHIURPst$SULOWRWKHGDWHRIÀUH 
 INSURANCE CLAIM 

&RVWRIJRRGVGLVWULEXWHGDVVDPSOHVIRUDGYHUWLVLQJIURPst April 2012 

WRWKHGDWHRIÀUH
&RVWRIJRRGVZLWKGUDZQE\WUDGHUIRUSHUVRQDOXVHIURPst$SULO 
WRWKHGDWHRIÀUH
6DOHVIRUWKH\HDUHQGHGst0DUFK 
Sales from 1st$SULOWRWKHGDWHRIÀUH 

7KHLQVXUDQFHFRPSDQ\DOVRDGPLWWHGÀUHÀJKWLQJH[SHQVHV7KHWUDGHUKDGWDNHQWKHÀUH
LQVXUDQFHSROLF\IRU5VZLWKDQDYHUDJHFODXVH
&DOFXODWHWKHDPRXQWRIWKHFODLPWKDWZLOOEHDGPLWWHGE\WKHLQVXUDQFHFRPSDQ\

ANSWER
Memorandum trading account for the period 1st April, 2012 to 29th august 2012

Rs. Rs.
To opening stock  %\VDOHV 
7RSXUFKDVHV  %\FORVLQJVWRFN%DOÀJ 
/HVVDGYHUWLVHPHQW 
'UDZLQJV  
7RJURVVSURÀW>RIVDOHV²
UHIHUZRUNLQJ1RWH@ 
 

Statement of insurance claim

Rs.
9DOXHRIVWRFNGHVWUR\HGE\ÀUH 
/HVVVDOYDJHGVWRFN 
$GGÀUHÀJKWLQJH[SHQVHV 
,QVXUDQFHFODLP 

1RWHVLQFHSROLF\DPRXQWLVPRUHWKDQFODLPDPRXQWDYHUDJHFDOXVHZLOOQRWDSSO\
7KHUHIRUHFODLPDPRXQWRI5VZLOOEHDGPLWWHGE\WKHLQVXUDQFHFRPSDQ\
 ACCOUNTING

Working Note:

Trading account for the year ended 31st March 2012

Rs. Rs.
To opening stock  %\VDOHV 
To purchases  %\FORVLQJVWRFN 
7RJURVVSURÀW 
 

5DWHRI*URVV3URÀWLQ
*URVV3URÀW 
x 100 = x 100 = 30%
Sales 

QUESTION NO 10

)URPWKHIROORZLQJLQIRUPDWLRQDVFHUWDLQWKHYDOXHRIVWRFNDVRQst0DUFK

Rs.
6WRFNDVRQ 
3XUFKDVH 
Manufacturing expenses 
Selling expenses 
Administration expenses 
Financial expenses 
Sales 

At the time of valuing stock as on 31st0DUFKDVXPRI5VZDVZULWWHQRIIRQD

SDUWLFXODULWHPZKLFKZDVRULJLQDOO\SXUFKDVHGIRU5VDQGZDVVROGGXULQJWKH\HDU
IRU5V%DUULQJWKHWUDQVDFWLRQUHODWLQJWRWKLVLWHPWKHJURVVSURÀWHDUQHGGXULQJ
WKH\HDUZDVRQVDOHV
 INSURANCE CLAIM 

ANSWER
Statement showing valuation of stock as on 31.3.2012

Rs. Rs.
6WRFNDVRQ 
/HVV%RRNYDOXHRIDEQRUPDOVWRFN5V5V  
$GGSXUFKDVHV 
Manufacturing expenses 
/HVVFRVWRIVDOHV 
6DOHVDVSHUERRNV 
/HVVVDOHVRIDEQRUPDOLWHP 
/HVVJURVVSURÀW# 
Value of stock as on 31st0DUFK  


QUESTION NO 11

On 15th 'HFHPEHU  D ÀUH RFFXUUHG LQ WKH SUHPLVHV RI 0V 20 ([SRUWV 0RVW RI
WKHVWRFNVZHUHGHVWUR\HG&RVWRIVWRFNVDOYDJHGEHLQJ5V)URPWKHERRNVRI
DFFRXQWWKHIROORZLQJSDUWLFXODUVZHUHDYDLODEOH

(i) stock at the close of account on 31st0DUFKZDVYDOXHGDW5V

LL SXUFKDVH IURP  WR  DPRXQWHG WR 5V DQG WKH VDOHV
GXULQJWKDWSHULRGDPRXQWHGWR5V

2QWKHEDVLVRIKLVDFFRXQWVIRUWKHSDVWWKUHH\HDUV,WDSSHDUVWKDWDYHUDJHJURVVSURÀW
UDWLRLVRQVDOHV
&RPSXWHWKHDPRXQWRIWKHFODLP,IWKHVWRFNZHUHLQVXUHGIRU5V

ANSWER
Memorandum Trading Account
For the period 01.04.2012 to 15.12.2012

Particulars Rs. Particulars Rs.

To opening stock  %\VDOHV 
To purchase  %\FORVLQJVWRFN 
7RJURVVSURÀW#  EDOÀJXUH
 
 150 ACCOUNTING

Statement of claim

Rs.
(VWLPDWHGYDOXHRIVWRFNDVDWGDWHRIÀUH 
/HVVYDOXHRIVDOYDJHGVWRFN 
(VWLPDWHGYDOXHRIVWRFNORVWE\ÀUH 

$V WKH YDOXH RI VWRFN LV PRUH WKDQ LQVXUHG YDOXH DPRXQW RI FODLP ZRXOG EH VXEMHFW WR
DYHUDJHFODXVH
DPRXQWRISROLF\
Amount of claim = x actual Loss of Stock
value of stock

Amount of claim = [ 5V


QUESTION NO 12

2XWRIJRRGVFRVWLQJ5VDUHGHVWUR\HGE\ÀUH)LQGRXWWKHDPRXQWXQGHU
IROORZLQJFRQGLWLRQV

6XPLQVXUHG²5V
6XPLQVXUHGZLWKRXWDYHUDJHFODXVH

6XPLQVXUHGZLWKDYHUDJHFODXVH

SOLUTION
3
7XUQRYHU/RVW õ  5V

L 3ROLF\WDNHQ 
 &ODLP 
LL 3ROLF\WDNHQ 
 &ODLP 
LLL 3ROLF\WDNHQ 
Sum insured
 &ODLP /RVVVXIIHUHGõ
$FWXDO,QVXUDEOH9DOXH

  õ  

 1RWH$YHUDJHFODXVHDSSOLHVRQO\ZKHUHWKHLQVXUHGYDOXHLV/HVVWKDQWKHWRWDOFRVW
 INSURANCE CLAIM 151

QUESTION NO 13

&DOFXODWLRQWKH*URVVSURÀW5DWLRIRUWKHIRU&DOHQGHU\HDU

Opening Stock 5V

3XUFKDVHV 5V
Wages 5V
Sales 5V
Closing Stock 5V

SOLUTION

Trading A/c for the year ending on 31.12.06

Particulars Rs. Particulars Rs.

Opening Stock  Sales 
3XUFKDVHV  Closing Stock 
Wages 
*3%DODQFHÀJXUH 
 
*URVV3URÀW
*35DWLR  õ
1HW6DOHV

= õ 


QUESTION NO 14

'XHWRÀUHRQ-XO\WKHHQWLUH6WRFNZDVEXQWH[FHSW6RPHFRVWLQJ5V7KH
LQIRUPDWLRQDYDLODEOHIURPWKHERRNVRIDFFRXQWVVDYHGZHUHDVIROORZV

(i) 7KHDYHUDJH*3ZDVRQ6DOHV
(ii) 7KHZDJHVIRUWKHSHULRGLV
(iii) The Stock on 31st 'HFHPEHU  YDOXHG DV SHU SUDFWLFH DW  DERYH &RVW ZDV
5V
(iv) 7KH3XUFKDVH 6DOHVIURPXSWRGDWHRIILUHZHUH5V 
UHVSHFWLYHO\
 152 ACCOUNTING

(v) 7KH&RPSDQ\LQVXUHG6WRFNIRU5V
YL 7KHSROLF\KDGDQDYHUDJHFODXVH
3UHSDUHD6WDWHPHQWVKRZLQJWKHDPRXQWRIVWRFN/RVWE\ÀUHDQGWKHDPRXQWRIFODLPWR
EHFROODJHGZLWKWKHLQVXUDQFHFRPSDQ\

SOLUTION

Memorandum Trading Account

For the period 1.1.2003 to 1.7.04

Particulars Rs. Particulars Rs.

Opening Stock Sales 
100 
õ
110

3XUFKDVH 
Wages 
*URVVSURÀW Closing Stock
RI  %DODQFHÀJXUH 
 

/RVVVXIIHUHG ² 

Sum insured
&ODLP /RVVVXIIHUHGõ
$FWXDO,QVXUDEOH9DOXH

 õ  


QUESTION NO 15

$ÀUHRFFXUUHGLQWKHSUHPLVHVRI$JQL 2QWK$XJXVW  ZKHQDODUJHSDQWRIWKH

6WRFNZDVGHVWUR\HG6DOYDJHZDV5V$JQLJLYHV\RXWKHIROORZLQJLQIRUPDWLRQIRU
WKHSHULRGRI-DQXDU\WR$XJXVW

D 3XUFKDVHV 5V
E 6DOHV  5V

F *RRGVFRVWLQJ5VZHUHWDNHQE\$JQLIRUSHUVRQDOXVH

G &RVWSULFHRI6WRFN2Q-DQXDU\ZDV5V
 INSURANCE CLAIM 153

 2YHU WKH SDVW IHZ \HDUV $JQL KDV EHHQ VHOOLQJ JRRGV DW D FRQVLVWHQW JURVV SURÀW
PDUJLQRI²
7KHLQVXUDQFHSROLF\ZDV5V,WLQFOXGHGDQDYHUDJHFODXVH$JQLDVNV\RXWRSUHSDUH
DVWDWHPHQWRIFODLPWREHPDGHRQWKHLQVXUDQFHFRPSDQ\

SOLUTION

Statement of Claim

Closing stock 

Less salvage 
Loss 
Application of average clause :
Value of stock on hand 
$PRXQWRISROLF\ 
 
$GPLVVLEOHFODLPõ )


Memorandum Trading A/c

For the period ending 25.8.03

Particulars Rs. Particulars Rs.

To Opening Stock  Sales 
7R3XUFKDVH
/HVV'UDZLQT5000  %\&ORVLQJ6WRFN 
7R*3 %DODQFHÀJXUH
²RI 
 

QUESTION NO 16

0U$SUHSDUHVDFFRXQWVRQth6HSWHPEHUHDFK\HDUEXWRQÀUHGHVWUR\HGWKH
JUHDWLQSDUWRIKLV6WRFN)ROORZLQJLQIRUPDWLRQZDVFROOHFWHGIRUPKLVERRN

6WRFNDV2Q 
3XUFKDVHIURPWR 
:DJHVIURPWR 
6DOHVIURPWR 
 ACCOUNTING

7KHUDWHRIJURVVSURÀWLVRQ&RVW6WRFNWRWKHYDOXHRI5VZDVVDOYDJHG
,QVXUDQFHSROLF\ZDVIRU5VDQGFODLPZDVVXEMHFWWRDYHUDJHFODXVH
$GGLWLRQDOLQIRUPDWLRQ·V

D 6WRFNLQWKHEHJLQQLQJZDVFDOFXODWHGDWOHVVWKDQFRVW
E $SODQWZDVLQVWDOOHGE\ILUP·VRZQZRUNHU+HZDVSDLG5V:KLFKZDVLQFOXGHGLQ
ZDJHV"
F 3XUFKDVHVLQFOXGHWKHSXUFKDVHRIWKHSODQWIRU5V

<RXDUHUHTXLUHGWRFDOFXODWHFODLPIRUWKH/RVVRIVWRFNWKH/RVVRI6WRFN

SOLUTION
Compulation of claim for Loss of stock

6WRFNRQWKHGDWHRIÀUH 
/HVVVDOYDJHVWRFN 
Loss of stock 

,QVXUHG9DOXHV
Amount of claim = õORVVRIVWRFN
7RWDOFRVWRIVWRFNRQWKHGDWHDÀUH

= õ 


Memorandum Trading Account

For period from 1.10 to 31.12.01

Particulars Rs. Particulars Rs.

To Opening Stock  Sales 
100 Closing Stock 
õ )
 %DODQFHÀJXUH

3XUFKDVH  
²&RVWRI3ODQW  
:DJHV  
²:DTHVSDLG  500 
*3RQVDOHV 
 

Note:–*32Q&RVWRURQ6DOHV 
 INSURANCE CLAIM 155

QUESTION NO 17

0U¶$·SUHSDUHVDFFRXQWVRQWK6HSWHPEHUHDFK\HDUEXWRQst'HFHPEHUÀUH
GHVWUR\HG WKH JUHDWHU SDUW RI WKLV VWRFN )ROORZLQJ LQIRUPDWLRQ ZDV FROOHFWHG IURP KLV
ERRNV

Rs.
6WRFNDVRQ 
3XUFKDVHIURPWR 
:DJHVIURPWR 
6DOHVIRUPWR 

7KHUDWHRI*URVV3URÀWLVRQFRVW6WRFNWRWKHYDOXHRI5VZDVVDOYDJHG
,QVXUDQFHSROLF\ZDVIRU5VDQGFODLPZDVVXEMHFWWRDYHUDJHFODXVH
$GGLWLRQDO,QIRUPDWLRQ·V

(i) 6WRFNLQWKHEHJLQQLQJZDVFDOFXODWHGDWOHVVWKDQFRVW
(ii) $ SODQW ZDV LQVWDOOHG E\ ILUP·V ZRUNHU +H ZDV SDLG 5V  ZKLFK ZDV LQFOXGHG LQ
ZDJHV
(iii) 3XUFKDVHLQFOXGHGWKHSXUFKDVHRIWKHSODQWIRU5V
<RXDUHUHTXLUHGWRFDOFXODWHWKHFODLPIRUWKHORVVRI6WRFN

QUESTION NO 18

$ÀUHRFFXUUHGLQWKHZRUNVKRSRI0URQst0DUFKZKHUHDODUJHSDUWRIVWRFNZDV
GHVWUR\HG6FDUSUHDOL]HG5V0U$JLYHV\RX·UHWKHIROORZLQJLQIRUPDWLRQIRUWKH
period of 1st-DQXDU\WRst0DUFK

Rs.
(i) 3XUFKDVH 
(ii) Sales 
(iii) *RRGVFRVWLQJ5VZHUHWDNHQE\0U$IRUSHUVRQDOXVH
(iv) Cost price of stock on 1st-DQXDU\ZDV5V
(v) 2YHUWKHSDVWIHZ\HDUV0UV$KDVEHHQVHOOLQJJRRGVDWDFRQVLVWHQW
gross profit margin of 30%
(vi) 7KH,QVXUDQFHSROLF\ZDVIRU5V,WLQFOXGHGDQDYHUDJHFODXVH
3UHSDUHDVWDWHPHQWRIFODLPWREHPDGHRQWKH,QVXUDQFH&RPSDQ\E\
0U$
156 ACCOUNTING

QUESTION NO 19

2Q  WKH VWRFN RI 0U %ODFN ZDV GHVWUR\HG E\ ÀUH +RZHYHU IROORZLQJ
SDUWLFXODUVZHUHIXUQLVKHGIRUPWKHUHFRUGHUVVDYHG

Rs.
6WRFNDWFRVWRQ 
6WRFNDWRIFRVWRQ 
3XUFKDVHVIRUWKH\HDUHQGHG 
6DOHVIRUWKH\HDUHQGHG 
3XUFKDVHVIURPWR 
6DOHVIURPWR 

6DOHVXSWRLQFOXGHV5VEHLQJWKHJRRGVQRWGLVSDWFKHGWRWKHFXVWRPHUV
7KHVDOHVLQYRLFHSULFHLV5V3XUFKDVHXSWRLQFOXGHVDPDFKLQHU\DFTXLUHG
IRU5V3XUFKDVHVXSWRGRHVQRWLQFOXGHGJRRGVZRUWK5VUHFHLYHG
IURPVXSSOLHUVDVLQYRLFHQRWUHFHLYHGXSWRWKHGDWHRIÀUH7KHVHJRRGVKDYHUHPDLQHG
LQWKHJRGRZQDWWKHWLPHRIÀUH9DOXHRIVWRFNVDOYDJHGIURPÀUH5VDQGWKLVKDV
EHHQKDQGHGRYHUWKHLQVXUDQFHFRPSDQ\
7KHLQVXUDQFHSROLF\LVIRU5VDQGLWLVVXEMHFWWRDYHUDJHFODXVH$VFHUWDLQWKH
DPRXQWRIFODLPIRUORVVRIVWRFN

QUESTION NO 20

2QWKHSUHPLVHVRI5RFN\/WG:DVGHVWUR\HGE\ÀUH7KHIROORZLQJLQIRUPDWLRQ
LVPDGHDYDLODEOH

Rs
6WRFNDVRQ 
3XUFKDVHIURPWR 
6DOHVIURPWRS 
6WRFNDVRQ 
3XUFKDVHIURPWR 
6DOHVIURPWR 

,Q YDOXLQJ WKH VWRFN RQ  GXH WR GDPDJH  RI WKH YDOXH RI WKH VWRFN ZKLFK
RULJLQDOO\FRVW5VZDVZULWWHQRII
 INSURANCE CLAIM 157

,Q-XQHDERXWRIWKLVVWRFNZDVVROGIRU5VDQGWKHEDODQFHRIREVROHWH
VWRFNLVH[SHFWHGWRUHOLHVWKHVDPHSULFHLHRIWKHRULJLQDOFRVW
7KHJURVVSURÀWUDWLRLVWREHDVVXPHGDVXQLIRUPLQUHVSHFWRIRWKHUVDOHV6WRFNVDOYDJHG
IURPÀUHDPRXQWVWR5V
&RPSXWHWKHYDOXHRIVWRFNORVWLQÀUH

QUESTION NO 21

 $ ÀUH EURNH RXW LQ WKH JRGRZQ RI D EXVLQHVV KRXVH RQ WK -XO\  *RRGV FRVWLQJ
5VLQDVPDOOVXEJRGRZQUHPDLQXQDIIHFWHGE\ÀUH7KHJRRGVUHWULHYHGLQD
GDPDJHGFRQGLWLRQIURPWKHPDLQJRGRZQZHUHYDOXHGDW5V
7KHIROORZLQJSDUWLFXODUVZHUHDYDLODEOHIURPWKHERRNVRIDFFRXQWV
Stock on the last Balance Sheet date at 31st0DUFKZDV5V3XUFKDVHVIRU
the period from 1st$SULOWRth-XO\ZHUH5VDQGVDOHVGXULQJWKH
VDPHSHULRGDPRXQWHGWR5V7KHDYHUDJHJURVVSURÀWPDUJLQZDVRQVDOHV
7KHEXVLQHVVKRXVHKDVDÀUHLQVXUDQFHSROLF\IRU5VLQUHVSHFWRILWVHQWLUH
VWRFN$VVLVWDFFRXQWDQWRIWKHEXVLQHVVKRXVHLQFRPSXWLQJDPRXQWRIFODLPRIORVVE\ÀUH

QUESTION NO 22

,Q-DQXDU\DÀUPWRRNDQLQVXUDQFHSROLF\IRU5VODNKVWRLQVXUHJRRGVLQLWVJRGRZQ
DJDLQVWÀUHVXEMHFWWRDYHUDJHFODXVH2Qth0DUFKDÀUHEURNHRXWGHVWUR\LQJJRRG
FRVWLQJ 5V  ODNKV 6WRFN LQ WKH JRGRZQ ZDV HVWLPDWHG DW 5V  ODNKV &RPSXWHU WKH
DPRXQWRILQVXUDQFHFODLP

QUESTION NO 23

On 20th-XO\WKHJRGRZQDQGEXVLQHVVSUHPLVHVRIDPHUFKDQWZHUHDIIHFWHGE\ÀUH
DQGIURPDFFRXQWLQJUHFRUGVVDOYDJHGWKHIROORZLQJLQIRUPDWLRQLVPDGHDYDLODEOHWR\RX

Stock of goods at cost on 1st$SULO 

6WRFNRIJRRGVDWORZHUWKDQFRVWDVRQst0DUFK 
3XUFKDVHRIJRRGVIRUWKH\HDUIURPst$SULOWRstPDUFK 
Sale for the same period 
3XUFKDVHOHVVUHWXUQIRUWKHSHULRGIURPst April to 20th-XO\ 
6DOHVOHVVUHWXUQVIRUWKHDERYHSHULRG 
 ACCOUNTING

Sale upto 20th -XO\  LQFOXGHG 5V  IRU ZKLFK JRRGV KDG QRW EHHQ GLVSDWFKHG
3XUFKDVHVXSWRth-XO\GLGQRWLQFOXGH5VIRUZKLFKSXUFKDVHLQYRLFHVKDG
QRWEHHQUHFHLYHGIURPVXSSOLHUVWKRXJKWJRRGVKDYHEHHQUHFHLYHGDWWKHJRGRZQ
*RRGVVDOYDJHGIURPWKHDFFLGHQWZHUHZRUWK5VDQGWKHVHZHUHKDQGHGRYHUWR
WKHLQVXUDQFHFRPSDQ\
$VFHUWDLQWKHYDOXHRIWKHFODLPIRUORVVRIJRRGVVWRFNZKLFKFRXOGEHSUHIHUUHGRQWKH
LQVXUHU

SOLUTION
Trading A/c 1.4.90 to 31.3.90)

Particulars Amount Particulars Amount

To Opening stock  %\VDOHV 
To purchases  %\FORVLQJVWRFN 
7R*URVVSURÀW 
 


*3UDWLR  [ 


Memorandum Trading A/c ( 1.4..01 to 20.7.01)

Particulars Amount Particulars Amount

To Opening stock  %\VDOHV 
To purchases  
 %\FORVLQJVWRFN 
7RJURVVSURÀW  EDOÀJXUH
3,70,000 3,70,000

6WRFNRQWKHGDWHRIÀUH 
,QVXUDQFH FODLP   EHFDXVH VDOYDJHG JRRGV KDYH EHHQ KDQGHG RYHU WR LQVXUDQFH
FRPSDQ\

QUESTION NO 24

2QWKHVWRFNRI0U%ODFNZDVGHVWUR\HGE\ÀUH+RZHYHUIROORZLQJSDUWLFXODUV
ZHUHIXUQLVKHGIURPWKHUHFRUGVVDYHG
 INSURANCE CLAIM 

Rs.

6WRFNDWFRVWRQ 

6WRFNDWRIFRVWRQ 

3XUFKDVHIRUWKH\HDUHQGHG 

6DOHVIRUWKH\HDUHQGHG 

3XUFKDVHVIURPWR 

6DOHVIURPWR 

6DOHXSWRLQFOXGHV5VEHLQJWKHJRRGVQRWGLVSDWFKHGWRWKHFXVWRPHUV
7KHVDOHVLQYRLFHSULFHLV5V

3XUFKDVHXSWRLQFOXGHVDPDFKLQHU\DFTXLUHGIRU 5V

3XUFKDVHXSWRGRHVQRWLQFOXGHVJRRGVZRUWK 5V

5HFHLYHGIURPVXSSOLHUVEXWLQYRLFHQRWUHFHLYHGXSWRWKHGDWHRIÀUH
7KHVHJRRGVKDYHUHPDLQHGLQWKHJRGRZQDWWKHWLPHRIÀUH
9DOXHRIVWRFNVDOYDJHGIURPÀUH5VDQGWKLVKDVEHHQKDQGHGRYHUWRWKHLQVXUDQFH
FRPSDQ\
7KHLQVXUDQFHSROLF\LVIRU5VDQGLWLVVXEMHFWWRDYHUDJHFODXVH$VFHUWDLQWKH
DPRXQWRIFODLPIRUORVVRIVWRFN

SOLUTION
In the books of Mr. Black
Trading Account for the year ended 31.3.2007

Rs. Rs.

To opening stock  %\VDOHV 

To purchase  %\&ORVLQJVWRFNDWFRVW 

7R*URVVSURÀW  [Ý

 
 160 ACCOUNTING

Memorandum Trading A/c

For the period from 1.4.2007 to 02.06.2007

To opening stock at cost  %\VDOHV 

To purchases  /HVV*RRGVQRW
Add: *RRGV UHFHLYHG EXW  'LVSDWFKHG  
invoice not received 
/HVV0DFKLQHU\   %\&ORVLQJ6WRFN 
(Balancing Figure)
7R*URVV3URÀW5HIHUZRUNLQJQRWH  


Calculation of Insurance Claim

&ODLPVXEMHFWWRDYHUDJHFODXVH $FWXDOORVVRIVWRFN[$PRXQWRISROLF\9DOXHRIVWRFN
RQWKHGDWHRIÀUH
 [¸ 5V
Working Note :
*3UDWLR  ¸[ 
$PRXQWRI*URVVSURÀW 5V[
    5V
x 6
 DOYDJHGVWRFNDPRXQWLQJ5VKDQGHGRYHUWRWKHLQVXUDQFHFRPSDQ\LVDOVRD
ORVVWR0U%ODFN

QUESTION NO 25

On 30th-XQHDFFLGHQWDOÀUHGHVWUR\HGDPDMRUSDUWRIWKHVWRFNVLQWKHJRGRZQRI
-D\$VVRFLDWHV6WRFNVFRVWLQJ5VFRXOGEHVDOYDJHGEXWQRWWKHLUVWRUHVOHGJHUV
$ÀUHLQVXUDQFHSROLF\ZDVLQIRUFHXQGHUZKLFKWKHVXPLQVXUHGZDV5V)URP
DYDLODEOHUHFRUGVWKHIROORZLQJLQIRUPDWLRQZDVUHWULHYHG

(i) 7RWDORIVDOHVLQYRLFHVGXULQJWKHSHULRG$SULO-XQHDPRXQWHGWR5V $Q

DQDO\VLV VKRZHG WKDW JRRGV RI WKH YDOXH RI 5V  KDG EHHQ UHWXUQHG E\ WKH
FXVWRPHUVEHIRUHWKHGDWHRIWKHILUH
(ii) 2SHQLQJVWRFNRQZDV5VLQFOXGLQJVWRFNVRIYDOXHRI5VEHLQJ
ORZHURIFRVWDQGQHWYDOXHVXEVHTXHQWO\UHDOL]HG
 INSURANCE CLAIM 161

(iii) 3XUFKDVHVEHWZHHQDQGZHUH5V
(iv) 1RUPDOJURVVSURILWUDWHZDVRQVDOHV
(v) $VXPRI5VZDVLQFXUUHGE\ZD\RIILUHILJKWLQJH[SHQVHVRQWKHGD\RIWKH
ILUH
3UHSDUHDVWDWHPHQWVKRZLQJWKHLQVXUDQFHFODLPUHFRYHUDEOH

QUESTION 26

On 1st$SULOWKHVWRFNRI0U+DULSUDVDGZDVGHVWUR\HGE\ÀUHEXWVXIÀFLHQWUHFRUGV
ZHUHVDYHGIURPZKLFKIROORZLQJSDUWLFXODUVZHUHDVFHUWDLQHG
 6WRFNDWFRVW-DQ    
 6WRFNDWFRVW'HF   
 3XUFKDVHV\HDUHQGHGVW'HF  
 6DOHV\HDUHQGHGst'HF   
 3XUFKDVHVWR   
 6DOHVWR   
,Q YDOXLQJ WKH VWRFN IRU WKH %DODQFH 6KHHW DW st GHF 5V  KDG EHHQ ZULWWHQ
RIIRQFHUWDLQVWRFNZKLFKZDVDSRRUVHOOLQJOLQHKDYLQJWKHFRVW5V$SRUWLRQRI
WKHVHJRRGVZHUHVROGLQ0DUFKDWDORVVRIUVRQRULJLQDOFRVWRI5V7KH
UHPDLQGHURIWKLVVWRFNZDVQRZHVWLPDWHGWREHZRUWKLWVRULJLQDOFRVW6XEMHFWWRWKH
DERYHH[FHSWLRQJURVVSURÀWKDGUHPDLQHGDWDXQLIRUPUDWHWKURXJKRXWWKH\HDU
7KHYDOXHRIVWRFNVDOYDJHGZDV5V7KHSROLF\ZDVIRU5VDQGZDVVXEMHFW
WRDYHUDJHFODXVH
:RUNRXWWKHDPRXQWRIWKHFODLPRI/RVVE\ÀUH

ANSWER
Trading Account for the year ending on 31.12.2015

Particulars Amount Particulars Amount

To opening stock  %\VDOHV 
To purchase  %\FORVLQJVWRFN 
7RJURVVSURÀW  
 

*35$7,2 õ 

162 ACCOUNTING

Memorandum Trading Account

(1.1.2016-1.4.2016)

Particulars Normal Abnormal Particulars Normal Abnormal

To opening stock   %\VDOHV  
7R3XUFKDVHV   %\JURVVORVV  500
7R *URVV 3URÀW  By closing stock  
@20% EDOÀJ
5,65,200 13,800 5,65,200 13,800

CALCULATION OF CLAIM

&ORVLQJVWRFN1RUPDOJRRGV 
$EQRUPDOJRRGV 
Total stock 116100
Salvaged goods 11600
'DPDJHGJRRGV 

&ODLP [ 

 INSURANCE CLAIM 163

&ODLPIRU/RVVRI3URÀW
:KHQDÀUHRFFXUVDSDUWIURPWKHGLUHFWORVVRQDFFRXQWRIVWRFNRURWKHUDVVHWVGHVWUR\HG
WKHUHLVDOVRDFRQVHTXHQWLDOORVVEHFDXVHIRUVRPHWLPHWKHEXVLQHVVLVGLVRUJDQL]HGRU
KDVWREHGLVFRQWLQXHGDQGGXULQJWKDWSHULRGWKHVWDQGLQJH[SHQVHVRIWKHEXVLQHVVOLNH
UHQWVDODULHVHWFFRQWLQXHPRUHRYHUWKHUHLVORVVRISURÀWVZKLFKWKHEXVLQHVVZRXOGKDYH
HDUQHGGXULQJWKHSHULRG7KLVORVVFDQEHLQVXUHGDJDLQVWE\DORVVRISURÀWRUFRQVHTXHQWLDO
ORVVSROLF\WKHUHPXVWEHDVHSDUDWHSROLF\LQUHVSHFWRIWKHFRQVHTXHQWLDOORVVEXWFODLP
ZLOOEHDGPLWWHGLQUHVSHFWRIWKHSROLF\XQOHVVWKHFODLPRQDFFRXQWRIÀUHLVDOVRDGPLWWHG
XQGHURWKHUSROLFLHV
7KHORVVRISURÀWSROLF\QRUPDOO\FRYHUVWKHIROORZLQJLWHPV
(1) Loss of net profit
 6WDQGLQJFKDUJHV
 $Q\LQFUHDVHGFRVWRIZRUNLQJHJUHQWLQJRIWHPSRUDU\SUHPLVHV

,QHYHU\EXVLQHVVWKHUHLVVRPHVWDQGDUGE\ZKLFKLWVDFWLYLW\RUSURJUHVVFDQEHDFFXUDWHO\
MXGJHGLWPD\EHVDOHVDIIHFWHGRUWKHTXDQWLW\RIJRRGVRUVHUYLFHVSURGXFHG7RPHDVXUH
WKHORVVVXIIHUHGE\DÀUPGXHWRÀUHLWLVQHFHVVDU\WRVHWXSVRPHVWDQGDUGH[SUHVVHG
LQVXFKXQLWVWRUHSUHVHQWVWKHYROXPHRIZRUN7KHUHVKRXOGEHDGLUHFWUHODWLRQEHWZHHQ
WKHDPRXQWRIVWDQGDUGDQGWKHDPRXQWRISURÀWUDLVHG$FRPSDULVRQEHWZHHQWKHDPRXQW
RIWKHVWDQGDUGEHIRUHDQGDIWHUWKHÀUHZLOOJLYHDUHOLDEOHLQGLFDWLRQRIWKHORVVRISURÀW
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7KHPRVWVDWLVIDFWRU\XQLWRIPHDVXULQJWKHSURVSHULW\DQGWKHUHIRUHSURÀWVLVXVXDOO\
WXUQRYHU
$FODLPIRUORVVRISURÀWVFDQEHHVWDEOLVKHGRQO\LI
L 7KHLQVXUHG·VSUHPLVHVRUWKHSURSHUW\WKHUHLQDUHGHVWUR\HGRUGDPDJHGE\WKHSHULO
GHILQHGLQWKHSROLF\DQG
LL 7KHLQVXUHGEXVLQHVVFDUULHGRQWKHSUHPLVHVLVLQWHUUXSWHGRULQWHUIHUHGZLWKDVD
UHVXOWRIVXFKGDPDJH

$FODLPIRUORVVRISURÀWFDQQRWDULVHLIWKHFODLPIRUORVVRISURSHUW\DVDUHVXOWRIWKHÀUH
LVQRWDOVRDGPLWWHG7KLVLVYHU\FRQYHQLHQWDVLWDYRLGVLQGHSHQGHQWLQYHVWLJDWLRQLQWRORVV
RISURSHUW\IRUSXUSRVHVRIORVVRISURÀWVSROLF\,WLVSRVVLEOHWKDWWKHEXVLQHVVRIWKH
LQVXUHGPD\VXIIHUEHFDXVHRIÀUHLQWKHQHLJKERUKRRGQRWFDXVLQJGDPDJHWRWKHSURSHUW\
RIWKHLQVXUHGVD\E\FORVLQJWKHVWUHHWIRUVRPHWLPH6XFKHYHQWXDOLWLHVPD\EHFRYHUHG
E\DJUHHPHQWZLWKWKHLQVXUHURQSD\PHQWRIH[WUDSUHPLXP,IÀUHGRHVQRWDIIHFWWKH
YROXPHRIEXVLQHVVWKHUHFDQEHQRFODLPIRUORVVRISURÀWV
$OVRLWGRHVQRWIROORZWKDWLIWKHUHLVDODUJHSURSHUW\FODLPWKHUHZLOOEHQHFHVVDULO\D
ODUJHFODLPIRUORVVRISURÀWRUYLFHYHUVD
 ACCOUNTING

7HUPVGHÀQHG
7KHIROORZLQJWHUPVVKRXOGEHQRWHG
*URVV SURÀWLVWKHVXPSURGXFHGE\DGGLQJWRWKHQHWSURÀWWKHDPRXQWRIWKHLQVXUHG
VWDQGLQJFKDUJHVRULIWKHUHEHQRQHWSURÀWWKHDPRXQWRIWKHLQVXUHGVWDQGLQJFKDUJHV
OHVVVXFKDSURSRUWLRQRIDQ\QHWWUDGLQJORVVDVWKHDPRXQWRIWKHLQVXUHGVWDQGLQJFKDUJHV
EHDUVWRDOOWKHVWDQGLQJFKDUJHVRIWKHEXVLQHVV
1HWSURÀWLVWKHQHWWUDGLQJSURÀWH[FOXVLYHRIDOOFDSLWDOUHFHLSWVDQGDFFUHWLRQDQGDOO
RXWOD\SURSHUO\FKDUJHDEOHWRFDSLWDOUHVXOWLQJIURPWKHEXVLQHVVRIWKHLQVXUHGDWWKH
SUHPLVHVDIWHUGXHSURYLVLRQKDVEHHQPDGHIRUDOOVWDQGLQJDQGRWKHUFKDUJHVLQFOXGLQJ
GHSUHFLDWLRQ
Insured standing charges:LQWHUHVWRQGHEHQWXUHVPRUWJDJHORDQVDQGEDQNRYHUGUDIWV
UHQW5DWHVDQGWD[HVRWKHUWKDQWD[HVZKLFKIRUPSDUWRIQHWSURÀWVDODULHVRISHUPDQHQW
VWDII DQG ZDJHV WR VNLOOHG HPSOR\HHV ERDUGLQJ DQG ORGJLQJ RI UHVLGHQW GLUHFWRUV DQGRU
0DQDJHUGLUHFWRUVIHHVXQVSHFLÀHGVWDQGLQJFKDUJHV>QRWH[FHHGLQJÀYHSHUFHQWRI
WKHDPRXQWUHFRYHUDEOHLQUHVSHFWRIVSHFLÀHGVWDQGLQJFKDUJHV@

&RQGLWLRQVLQFOXGHGLQDORVVRISURÀWLQVXUDQFHSROLF\
,QVXUDQFHSROLFLHVFRYHULQJORVVRISURÀWFRQWDLQWKHIROORZLQJFRQGLWLRQVXVXDOO\
5DWHRI*URVV3URÀWWKHUDWHRIJURVVSURÀWHDUQHGRQWXUQRYHUGXULQJWKHÀQDQFLDO\HDU
LPPHGLDWHO\EHIRUHWKHGDWHRIGDPDJH
Annual turnover:WKHWXUQRYHUGXULQJWKHWZHOYHPRQWKVLPPHGLDWHO\EHIRUHWKHGDPDJH
Standard turnover: WKH WXUQRYHU GXULQJ WKDW SHULRG LQ WKH WZHOYH PRQWKV LPPHGLDWHO\
EHIRUH WKH GDWH RI GDPDJH ZKLFK FRUUHVSRQGV ZLWK WKH LQGHPQLW\ SHULRG7R ZKLFK VXFK
DGMXVWPHQWVKDOOEHPDGHDVPD\EHQHFHVVDU\WRSURYLGHIRUWKHWUHQGRIWKHEXVLQHVVDQG
IRUYDULDWLRQVLQRUVSHFLDOFLUFXPVWDQFHVDIIHFWLQJWKHEXVLQHVVHLWKHUEHIRUHRUDIWHUWKH
GDPDJHRUZKLFKZRXOGKDYHDIIHFWHGWKHEXVLQHVVKDGWKHGDPDJHQRWRFFXUUHGVRWKDW
WKHÀJXUHVWKXVDGMXVWHGVKDOOUHSUHVHQWDVQHDUO\DVPD\EHUHDVRQDEO\SUDFWLFDEOHWKH
UHVXOWVZKLFKEXWIRUWKHGDPDJHZRXOGKDYHEHHQREWDLQHGGXULQJWKHUHODWLYHSHULRGDIWHU
GDPDJH
Indemnity Period: WKH SHULRG EHJLQQLQJ ZLWK WKH RFFXUUHQFH RI WKH GDPDJH DQG HQGLQJ
QRWODWHUWKDQWZHOYHPRQWKVWKHUHDIWHUGXULQJZKLFKWKHUHVXOWVRIWKHEXVLQHVVVKDOOEH
DIIHFWHGLQFRQVHTXHQFHRIWKHGDPDJH
Memo 1:LIGXULQJWKHLQGHPQLW\SHULRGJRRGVVKDOOEHVROGRUVHUYLFHVVKDOOEHUHQGHUHG
HOVHZKHUHWKDQDWWKHSUHPLVHVIRUWKHEHQHÀWRIWKHEXVLQHVVHLWKHUE\WKHLQVXUHGRUE\
RWKHUVRQWKHLQVXUHG·VEHKDOIWKHPRQH\SDLGRUSD\DEOHLQUHVSHFWRIVXFKVDOHVRUVHUYLFH
VKDOOEHEURXJKWLQWRDFFRXQWLQDUULYLQJDWWKHWXUQRYHUGXULQJWKHLQGHPQLW\SHULRG
 INSURANCE CLAIM 165

Memo 2: LI DQ\ VWDQGLQJ FKDUJHV RI WKH EXVLQHVV EH QRW LQVXUHG E\ WKLV SROLF\ WKHQ LQ
FRPSXWLQJWKHDPRXQWUHFRYHUDEOHKHUHXQGHUDVLQFUHDVHLQFRVWRIZRUNLQJVWKDWSURSRUWLRQ
RQO\RIWKHDGGLWLRQDOH[SHQGLWXUHVKDOOEHEURXJKWLQWRDFFRXQWZKLFKWKHVXPRIWKHQHW
SURÀWDQGWKHLQVXUHGVWDQGLQJFKDUJHVEHDWWRWKHVXPRIWKHQHWSURÀWDQGDOOVWDQGLQJ
FKDUJHV
Memo3: 7KLV LQVXUDQFH GRHV QRW FRYHU ORVV RFFDVLRQHG E\ RU KDSSHQLQJ WKRXJK RU LQ
FRQVHTXHQFHRIGHVWUXFWLRQRIRUGDPDJHWRDG\QDPRPRWRUWUDQVIRUPHUUHFWLÀHURUDQ\
SDUWRIDQHOHFWULFDOLQVWDOODWLRQUHVXOWLQJIURPHOHFWULFFXUUHQWKRZHYHUDULVLQJ

The student should note the following:

, 7KHZRUGWXUQRYHUXVHGDERYHPD\EHUHSODFHGE\DQ\RWKHUWHUPGHQRWLQJWKHEDVLV
IRUDUULYLQJDWWKHORVVRISURILWHJRXWSXW
LL ,QVXUHGVWDQGLQJFKDUJHVPD\LQFOXGHDGGLWLRQDOLWHPVE\DJUHHPHQWZLWKWKHLQVXUHU
LLL 1HWSURILWPHDQVSURILWEHIRUHLQFRPHWD[EDVHGRQSURILW
LY 'HSHQGLQJXSRQWKHQDWXUHRIEXVLQHVVWKHLQGHPQLW\SHULRGPD\H[WHQGEH\RQG
PRQWKVLWPD\EHDVORQJDV\HDUV,QGHPQLW\SHULRGVKDOOQRWEHFRQIXVHGZLWKWKH
SHULRGRILQVXUDQFHZKLFKFDQQRWEHPRUHWKDQRQH\HDU

7KHLQVXUDQFHIRUORVVRISURILWLVOLPLWHGWRORVVRIJURVVSURILWGXHWR
(i) reduction in turnover and
LL LQFUHDVHLQWKHFRVWRIZRUNLQJ

7KHDPRXQWSD\DEOHDVLQGHPQLW\LVWKHVXPRIDDQGEEHORZ

D LQUHVSHFWRIUHGXFWLRQLQWXUQRYHUWKHVXPSURGXFHGE\DSSO\LQJWKHUDWHRIJURVV
SURILW WR WKH DPRXQW E\ ZKLFK WKH WXUQRYHU GXULQJ WKH LQGHPQLW\ SHULRG VKDOO LQ
FRQVHTXHQFHRIWKHGDPDJHIDOOVVKRUWRIWKHVWDQGDUGWXUQRYHU
E LQUHVSHFWRILQFUHDVHLQFRVWRIZRUNLQJWKHDGGLWLRQDOH[SHQGLWXUH>VXEMHFWWRWKH
SURYLVLRQRIPHPRJLYHQDERYH@QHFHVVDULO\DQGUHDVRQDEO\LQFXUUHGIRUWKHVROH
SXUSRVH RI DYRLGLQJ RU GLPLQLVKLQJ WKH UHGXFWLRQ LQ WXUQRYHU ZKLFK EXW IRU WKDW
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GDPDJHWKHDPRXQWDOORZDEOHXQGHUWKLVSURYLVLRQFDQQRWH[FHHGWKHVXPSURGXFHGE\
DSSO\LQJWKHUDWHRIJURVVSURILWWRWKHDPRXQWRIUHGXFWLRQDYRLGHGE\WKHDGGLWLRQDO
H[SHQGLWXUH

7KHDPRXQWSD\DEOHDUULYHGDWDVDERYHLVUHGXFHGE\DQ\VXPVDYHGGXULQJWKHLQGHPQLW\
SHULRGLQUHVSHFWRIVXFKRIWKHLQVXUHGVWDQGDUGFKDUJHVDVPD\FHDVHRUEHUHGXFHGLQ
FRQVHTXHQFHRIWKHGDPDJH
,QVXUDQFHSROLFLHVSURYLGHWKDWLIWKHVXPLQVXUHGLQUHVSHFWRIORVVRISURÀWLVOHVVWKDQ
WKHVXPSURGXFHGE\DSSO\LQJWKHUDWHRIJURVVSURÀWWRKHDQQXDOWXUQRYHUDVDGMXVWHG
 166 ACCOUNTING

E\WKHWUHQGRIWKHEXVLQHVVRIYDULDWLRQLQVSHFLDOFLUFXPVWDQFHVDIIHFWLQJWKHEXVLQHVV
HLWKHU EHIRUH RU DIWHU WKH GDPDJH RU ZKLFK ZRXOG KDYH DIIHFWHG WKH EXVLQHVV KDG WKH
GDPDJHQRWRFFXUUHGWKHDPRXQWSD\DEOHE\WKHLQVXUHUVKDOOEHSURSRUWLRQDWHO\UHGXFHG
7KLVLVQRWKLQJEXWDSSOLFDWLRQRIWKHDYHUDJHFODXVH
7KHWXUQRYHURIDEXVLQHVVUDUHO\UHPDLQVFRQVWDQWDQGZKHUHWKHUHKDVEHHQDQXSZDUG
RUGRZQZDUGWUHQGVLQFHWKHGDWHRIWKHODVWDFFRXQWVDQGXSWRWKHGDWHRIWKHÀUHWKH
VWDQGDUGWXUQRYHUVKRXOGEHDSSURSULDWHO\DGMXVWHGDVSHUGHÀQLWLRQJLYHQDERYH

QUESTION NO 27

7KHSUHPLVHVRI;</WGZHUHSDUWLDOO\GHVWUR\HGE\ÀUHRQst0DUFKDQGDVDUHVXOW
WKHEXVLQHVVZDVSUDFWLFDOO\GLVRUJDQL]HGXSWRst$XJXVW7KHFRPSDQ\LVLQVXUHG
XQGHUDORVVRISURÀWSROLF\IRU5VKDYLQJDQLQGHPQLW\SHULRGRIPRQWKV
)URPWKHIROORZLQJLQIRUPDWLRQSUHSDUHDFODLPXQGHUWKHSROLF\

(i) $FWXDOWXUQRYHUGXULQJSHULRGRIGLVORFDWLRQ5V

(ii) 7XUQRYHU IRU WKH FRUUHVSRQGLQJ SHULRG GLVORFDWLRQ LQ WKH  PRQWKV LPPHGLDWHO\
EHIRUHWKHILUHWR5V
(iii) 7XUQRYHUIRUWKHPRQWKVLPPHGLDWHO\SUHFHGLQJWKHILUHWR
5V
(iv) 1HWSURILWIRUWKHODVWILQDQFLDO\HDU5V
(v) ,QVXUHGVWDQGLQJFKDUJHVIRUWKHODVWILQDQFLDO\HDU5V
(vi) 8QLQVXUHGVWDQGLQJFKDUJHV5V
(vii) 7XUQRYHUIRUWKHODVWILQDQFLDO\HDU5V

'XHWRVXEVWDQWLDOLQFUHDVHLQWUDGHEHIRUHDQGXSWRWKHWLPHRIWKHÀUHLWZDVDJUHHG
WKDWDQDGMXVWPHQWRIVKRXOGEHPDGHLQUHVSHFWRIWKHXSZDUGWUHQGLQWXUQRYHU7KH
FRPSDQ\LQFXUUHGDGGLWLRQDOH[SHQVHVDPRXQWLQJWR5VLPPHGLDWHO\DIWHUWKHÀUHDQG
EXW IRU WKLV H[SHQGLWXUH WKH WXUQRYHU GXULQJ WKH SHULRG RI GLVORFDWLRQ ZRXOG KDYH EHHQ
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VWDQGLQJFKDUJHVDVDUHVXOWRIWKHÀUH

QUESTION NO 28

)URPWKHIROORZLQJGDWDFRPSXWHDFRQVHTXHQWLDOORVVFODLP

 )LQDQFLDO\HDUHQGRQst'HFHPEHU7XUQRYHU5V
 ,QGHPQLW\SHULRGPRQWKV3HULRGRILQWHUUXSWLRQst-XO\WRst2FWREHU
 INSURANCE CLAIM 167

 1HWSURILW5V
 6WDQGLQJFKDUJHV5VRXWRIZKLFK5VKDYHQRWEHHQLQVXUHG
 6XPDVVXUHG5V6WDQGDUGWXUQRYHU
 7XUQRYHULQWKHSHULRGRILQWHUUXSWLRQ5VRXWRIZKLFK5VZDVIURPD
UHQWHGSODFHDW5VSHUPRQWK
 $QQXDOWXUQRYHU5V6DYLQJLQVWDQGLQJFKDUJHV5VSHUDQQXP
'DWHRIÀUHQLJKWRIth-XQH,WZDVDJUHHGWREHWZHHQWKHLQVXUHGWKDWWKHEXVLQHVV
WUHQGVZRXOGOHDGWRDQLQFUHDVHRILQWKHWXUQRYHU

>$QV5V@

QUESTION NO 29

7KHSUHPLVHVRIDFRPSDQ\ZDVSDUWO\GHVWUR\HGE\ÀUHRQst0DUFKDVDUHVXOWRI
ZKLFKWKHEXVLQHVVZDVGLVRUJDQL]HGIURPst March to 31st-XO\$FVDUHFORVHGRQ
31st 'HFHPEHU HYHU\ \HDU 7KH FRPSDQ\ LV LQVXUHG XQGHU D ¶ORVV RI SURÀW· SROLF\ IRU 5V
7KHSHULRGRILQGHPQLW\VSHFLÀHGLQWKHSROLF\LVPRQWKV)URPWKHIROORZLQJ
LQIRUPDWLRQ \RX DUH UHTXLUHG WR FRPSXWH WKH DPRXQW RI FODLP XQGHU WKH ORVV RI SURÀW
SROLF\DOOÀJXUHVLQ5V

7XUQRYHUIRUWKH\HDU 
6WDQGDUGWXUQRYHUIRUWKHFRUUHVSRQGLQJSHULRGLHIURPWR 
1HWSURÀWIURSUHFHGLQJ\HDU 
,QVXUHGVWDQGLQJFKDUJHV 
$QQXDOWXUQRYHUIRUWKH\HDULPPHGLDWHO\SUHFHGLQJLHWR 
Uninsured standing charges 
7XUQRYHUGXULQJWKHSHULRGRIGLVRUJDQLVDWLRQLHIURPWR 
,QFUHDVHGFRVWRIZRUNLQJ 
Saving in insured standing charges 
5HGXFWLRQLQWXUQRYHUDYRLGHGWKURXJKLQFUHDVHLQZRUNLQJFRVW 

2ZLQJWRUHDVRQVDFFHSWDEOHWRWKHLQVXUHUWKH´6SHFLDOFLUFXPVWDQFHVFODXVHµVWLSXODWHV
IRUD,QFUHDVHVRIWXUQRYHUVWDQGDUGDQGDQQXDOE\DQGE,QFUHDVHRIUDWHJURVV
SURÀWE\
  ACCOUNTING

QUESTION NO 30

)LQGRXWWKHDPRXQWRIQHWFODLPIRUORVVRISURÀWE\DSSO\LQJFODXVHVIURPWKHIROORZLQJLQ
IRUPDWLRQ
L $GMXVWHGDQQXDOWXUQRYHUSUHFHGLQJWKHGDWHRIÀUH 
LL 3ROLF\DPRXQW       
LLL /RVVVXIIHUHG       
LY $GMXVWHG,QVXUHG*3UDWH     

SOLUTION
*3UDWH 
/RVVVXIIHUHG 
3ROLF\DPRXQW
Amount of Claim = õ/RVVVXIIHUHG
,QVXUHGSURÀW

= õ
RI

= õ 


QUESTION NO 31

2Q DFFRXQW RI ÀUH RQ th -XQH  LQ WKH EXVLQHVV KRXVH RI D FRPSDQ\ WKH ZRUNLQJ
UHPDLQHG GLVWXUEHG XSWR  'HFHPEHU  DV D UHVXOW RI ZKLFK LW ZDV QRW SRVVLEOH WR
DIIHFW DQ\ VDOHV 7KH FRPSDQ\ KDG WDNHQ RXW DQ LQVXUDQFH SROLF\ ZLWK DQ DYHUDJH FODXVH
DJDLQVWFRQV&RQVHTXHQWLDOORVVHVIRU5VDQGDSHULRGRIPRQWKVKDVEHHQDJUHHG
XSRQDVLQGHPQLW\SHULRG$QLQFUHDVHGRIZDVPDUNHGLQWKHFXUUHQW\HDU·VVDOHVDV
FRPSDUHGWRWKHODVW\HDU7KHFRPSDQ\LQFXUUHGDQDGGLWLRQDOH[SHQGLWXUHRI5VWR
PDNHVDOHVSRVVLEOHDQGPDGHD6DYLQJRI5VLQWKHLQVXUHGVWDQGLQJFKDQJHV
$FWXDOVDOHVIURP-XQHWR'HFHPEHU 
6DOHVIURP-XQHWR'HFHPEHU 
1HWSURÀWIRUODVWÀQDQFLDO\HDU 
,QVXUHGVWDQGLQJFKDQJHVIRUWKHODVWÀQDQFLDO\HDU 
7RWDOVWDQGLQJFKDQJHVIRUWKHODVWÀQDQFLDO\HDU 
7XUQRYHUIRUWKHODVWÀQDQFLDO\HDU 
7XUQRYHUIRUWKH\HDU-XQHWR-XQH 
 INSURANCE CLAIM 

SOLUTION

 3HULRGRI&ODLP PRQWKV-XQHWR'HFHPEHU

1HWSURÀW,QVXUHG6WDQGLQJ&KDQJHV
 *URVVSURILWUDWLR  õ
Turnover

= õ 

(3) Turnover Lost = Standard – Actual
   RI² 
 /RVVRISURILW RI 
 &DOFXODWLRQRI&ODLPIRULQFUHDVHG&RVWRI:RUNLQJ
 L$FWXDOH[SHQVH  
 LL*URVVSURILWRU6DOHJHQHUDWHGE\DGGLWLRQDOH[SHQGLWXUH RI 
*URVVSURÀWRQDGMXVWHGWXUQRYHU
 LLL$GGLWLRQDOH[SHQVHõ
*3DVDERYH8QLQVXUHG6WDQGLQJ&KDUJHV
õõ
=
õ

   DSSUR[
 $GMXVWHGDQQXDOWXUQRYHU  
 5VEHLQJWKH/HDVW6KDOOEHLQFUHDVHGFRVWRIZRUNLQJ
 7RWDO&ODLP ² 
,QVXUHG$PRXQW
 1HW&ODLP  × Total Claim
,QVXUDEOH$PRXQW

= × 64,833 =51,866.40
RI

QUESTION NO 32

2Q DFFRXQW RI D ÀUH RQ  -XQH  LQ WKH EXVLQHVV KRXVH RI D FRPSDQ\ WKH ZRUNLQJ
UHPDLQHGGLVWXUEHGXSWR'HFDVDUHVXOWRIZKLFKLWZDVQRWSRVVLEOHWRDIIHFW
DQ\ VDOHV 7KH FRPSDQ\ KDG WDNHQ RXW DQ LQVXUDQFH SROLF\ ZLWK DQ DYHUDJH FODXVH DJDLQVW
FRQVHTXHQWLDOORVVHVIRU5VDQGDSHULRGRIPRQWKVKDVEHHQDJUHHGXSRQDV
LQGHPQLW\SHULRG$QLQFUHDVHRIZDVPDUNHGLQWKHFXUUHQW\HDUV·VDOHVDVFRPSDUHG
WRODVW\HDU7KHFRPSDQ\LQFXUUHGDQDGGLWLRQDOH[SHQGLWXUHRI5VWRPDNHVDOHV
SRVVLEOHDQGPDGHDVDYLQJRI5VLQWKHLQVXUHGVWDQGLQJFKDUJHV
 170 ACCOUNTING

$VFHUWDLQ WKH FODLP XQGHU WKH FRQVHTXHQWLDO ORVV SROLF\ NHHSLQJ WKH IROORZLQJ DGGLWLRQDO
LQIRUPDWLRQLQYLHZ

Rs.
$FWXDOVDOHVIRUP-XQHWR'HF 
6DOHVIURP-XQHWR'HF 
1HW3URÀWIRUODVW)LQDQFLDO\HDU 
,QVXUHGVWDQGLQJFKDUJHVIRUWKHODVW)LQDQFLDO\HDU 
7RWDOVWDQGLQJFKDUJHVIRUWKHODVW)LQDQFLDO\HDU 
7XUQRYHUIRUWKHODVW)LQDQFLDO\HDU 
7XUQRYHUIRURQH\HDU-XQHWR-XQH 

QUESTION NO 33

)URPWKHIROORZLQJGHWDLOVFDOFXODWHFRQVHTXHQWLDOORVVFODLP

 'DWHRIILUHst6HSWHPEHUIROORZLQJ
 ,QGHPQLW\SHULRGPRQWKV
 3HULRGRIGLVUXSWLRQst6HSWHPEHUst)HEUXDU\
 6XPLQVXUHG5V
 6DOHVZHUH5VIRUSUHFHGLQJILQDQFLDO\HDUHQGHGRQst0DUFK
 1HW3URILWIRUSUHFHGLQJILQDQFLDO\HDU5VSOXVLQVXUHGVWDQGLQJFKDUJHV5V

 5DWHRI*URVVSURILW
 8QLVQXUHGVWDQGLQJFKDUJHV5V
 7XUQRYHUGXULQJWKHGHVWLWXWLRQSHULRG5V
 $QQXDOWXUQRYHUIRUPRQWKVLPPHGLDWHO\SUHFHGLQJWKHGDWHRIILUH5V
 6WDQGDUGWXUQRYHULHIRUFRUUHVSRQGLQJPRQWKst6HSWHPEHUWRst)HEUXDU\LQ
WKH\HDUSUHFHGLQJWKHGDWHRIILUH5V
 ,QFUHDVHLQWKHFRVWRI:RUNLQJFDSLWDO5VZLWKDVDYLQJRILQVXUHGVWDQGLQJ
FKDUJHV5VGXULQJWKHGLVUXSWLRQSHULRG
 5HGXFHGWXUQRYHUDYRLGHGWKURXJKLQFUHDVHLQ:RUNLQJFDSLWDO5V
 6SHFLDOFODXVHVWLSXODWHG
 D,QFUHDVHLQUDWHRI*3
 E,QFUHDVHLQWXUQRYHU6WDQGDUGDQG$QQXDO
 INSURANCE CLAIM 171

QUESTION NO 34

;/WGKDVLQVXUHGLWVHOIXQGHUDORVVRISURÀWSROLF\IRU5V
7KHLQGHPQLW\SHULRGXQGHUWKHSROLF\LVVL[PRQWK2Qst6HSWHPEHUDÀUHRFFXUUHG
LQWKHIDFWRU\RI;/WGDQGWKHQRUPDOEXVLQHVVZDVDIIHFWHGXSWRst0DUFK
7KHIROORZLQJLQIRUPDWLRQLVFRPSOLHGIRUWKH\HDUHQGHGRQst0DUFK

Rs.
Sales 
,QVXUHGVWDQGLQJFKDUJHV 
Uninsured standing charges 
1HWSURÀW 

)ROORZLQJIXUWKHUGHWDLOVRIWXUQRYHUDUHIXUQLVKHG

(a) 7XUQRYHUGXULQJWKHSHULRGRIPRQWKVHQGLQJRQWKHGDWHRIILUHZDV5V
E 7XUQRYHUGXULQJWKHSHULRGRILQWHUUXSWLRQZDV5V
(c) $FWXDO WXUQRYHU GXULQJ WKH SHULRG IURP  WR  GXULQJ WKH SUHFHGLQJ
\HDUFRUUHVSRQGLQJWRWKHLQGHPQLW\SHULRGZDV5V

;/WGVSHQWDQDPRXQWRI5VDVDGGLWLRQDOFRVWRIZRUNLQJ'XULQJWKHLQGHPQLW\
SHULRG2QDFFRXQWRIWKLVDGGLWLRQDOH[SHQGLWXUH

(a) 7KHUH ZDV D VDYLQJ RI 5V  LQ LQVXUHG VWDQGLQJ FKDUJHV GXULQJ WKH SHULRG RI
LQGHPQLW\
E 5HGXFHGWXUQRYHUDYRLGHGZDV5VLHEXWIRUWKLVH[SHQGLWXUHWKHWXUQRYHU
DIWHUWKHGDWHRIILUHZRXOGKDYHEHHQRQO\5V

$VSHFLDOFODXVHLQWKHSROLF\VWLSXODWHVWKDWRZLQJWRWKHUHDVRQVDFFHSWDEOHWRWKHLQVXUHU
XQGHUWKHVSHFLDOFLUFXPVWDQFHVWKHIROORZLQJLQFUHDVHVDUHWREHPDGH

(a) ,QFUHDVHRIWXUQRYHUVWDQGDUGDQGDFWXDOE\
E ,QFUHDVHLQUDWHRIJURVVSURILWE\IURPSUHYLRXV\HDU·VOHYHO

;/WGDVNV\RXWRFRPSXWHWKHFODLPIRUORVVRISURÀW$OOFDOFXODWLRQVVKRXOGEHPDGHWR
WKHQHDUHVWUXSHH
 172 ACCOUNTING

ANSWER
&RPSXWDWLRQRIORVVRI3URÀWIRULQVXUDQFHFODLP

(1) Rate of gross profit

QHWSURÀWIRUWKHODVWÀQDQFLDO\HDULQVXUHGVWDQGLQJFKDUJHV
x100
WXUQRYHUIRUWKHODVWÀQDQFLDO\HDU
2%
 $GG$GMXVWPHQWIRULQFUHDVHLQJURVVSURILWUDWH 
20%

(2) Calculation of short sales:

Rs.
7XUQRYHUIURPWR 
$GGDGMXVWPHQWIRULQFUHDVHLQWXUQRYHU# 
$GMXVWHGWXUQRYHU 
/HVV$FWXDO7XUQRYHUIURPWR 
Short sales 

(3) Additional expenses:

Rs.
(i) Actual expenses 
LLJURVVSURÀWRQVDOHJHQHUDWHGE\DGGLWLRQDOH[SHQVHV
 >[5V@ 

*URVVSURÀWRQDQQXDODGMXVWHGWXUQRYHU
(iii) additional expenses x
JURVVSURÀWRQDQQXDODGMXVWHGWXUQRYHUXQLQVXUHGVWDQGLQJFKDUJHV

RQ5V
 5V[
RQ5V5V
5V
 5V[
5V
 5V

/HDVWRIWKHDERYHWKUHHÀJXUHVLH5V,VDOORZDEOH
5V[
 INSURANCE CLAIM 173

(4) Amount of claim before application of average clause

Rs.
*URVVSURÀWRQVKRUWVDOHVRQ5V 
$GGDOORZDEOHDGGLWLRQDOH[SHQVHV 

/HVV6DYLQJLQLQVXUHGVWDQGLQJFKDUJHV 


(5) Application of average clause

Rs.
$QQXDOWXUQRYHULHWXUQRYHUIURPWR 
$GGDGMXVWPHQWVIRULQFUHDVHLQWXUQRYHURI5V 

*URVVSURÀWRQDQQXDODGMXVWHGWXUQRYHURQ5V 
/RVVRISURÀWSROLF\YDOXH 

6LQFHWKHSROLF\YDOXHLVOHVVWKDQSURÀWRQDGMXVWHGDQQXDOWXUQRYHUWKHDYHUDJHFODXVHLV
DSSOLFDEOH
+HQFHWKHDPRXQWRIFODLP 5V[5V5V 5V

QUESTION NO 35

$ÀUHRFFXUUHGRQst)HEUXDU\LQWKHSUHPLVHVRI3LRQHHU/WGDUHWDLOVWRUHDQG
EXVLQHVVZDVSDUWLDOO\GLVRUJDQL]HGXSWRth-XQH7KHFRPSDQ\ZDVLQVXUHGXQGHU
D ORVV RI SURÀWV IRU 5V ZLWK D VL[ PRQWKV SHULRG LQGHPQLW\ )URP WKH IROORZLQJ
LQIRUPDWLRQFRPSXWHWKHDPRXQWRIFODLPXQGHUWKHORVVRISURÀWSROLF\

5V
Actual Turnover from 1st)HEUXDU\WRth June 2006 
Turnover from 1st)HEUXDU\WRth June 2005 
Turnover from 1st)HEUXDU\WRst-DQXDU\ 
1HWSURÀWIRUODVWÀQDQFLDO\HDU 
,QVXUHGVWDQGLQJFKDUJHVIRUODVWÀQDQFLDO\HDU 
7RWDOVWDQGLQJFKDUJHVIRUODVWÀQDQFLDO\HDU 
7XUQRYHUIRUWKHODVWÀQDQFLDO\HDU 
 ACCOUNTING

7KH FRPSDQ\ LQFXUUHG DGGLWLRQDO H[SHQVHV DPRXQWLQJ WR 5V ZKLFK UHGXFHG WKH ORVV
LQWXUQRYHU7KHUHZDVDOVRDVDYLQJGXULQJWKHLQGHPQLW\SHULRGRI5VLQWKHLQVXUHG
VWDQGLQJFKDUJHVDVDUHVXOWRIWKHÀUH
7KHUHKDGEHHQDFRQVLGHUDEOHLQFUHDVHLQWUDGHVLQFHWKHGDWHRIWKHODVWDQQXDODFFRXQWV
DQGLWKDVEHHQDJUHHGWKDWDQDGMXVWPHQWRIEHPDGHLQUHVSHFWRIWKHXSZDUGWUHQG
LQWXUQRYHU
 INSURANCE CLAIM 175

MIXED QUESTIONS
(DUAL POLICY CONSITING STOCK & PROFIT)

QUESTION NO 36

5HPRWH 6RQVKDGWDNHQRXWSROLFLHVZLWKRXWDYHUDJHFODXVHERWKDJDLQVWORVVRIVWRFN

DQGORVVRISURÀWIRU5VDQG5VUHVSHFWLYHO\$ÀUHRFFXUUHGRQst-XO\
DQGDVDUHVXOWRIZKLFKVDOHVZHUHVHULRXVO\DIIHFWHGIRUDSHULRGRIPRQWKV

7UDGLQJDQGSURÀW ORVV$FRIUDPGD VRQVIRUWKH\HDUVHQGHGRQst0DUFKLV

JLYHQEHORZ

Particular Amount Particulars Amount

Rs. Rs.
To opening stock  %\VDOHV 
To purchase  %\FORVLQJVWRFN 
7RZDJHV 
To manufacturing expenses 
7RJURVVSURÀWFG 
 
To administrative expenses  %\JURVV3URÀWEG 
7RVHOOLQJH[SHQVHVÀ[HG 
To commission on sales 
7RFDUULDJHRXWZDUG 
7RQHWSURÀW 
 

)XUWKHUGHWDLOSURYLGHGLVDVEHORZ
D VDOHV SXUFKDVHV ZDJHV DQG PDQXIDFWXULQJ H[SHQVHV IRU WKH SHULRG WR
ZHUH5V5V5VDQG5VUHVSHFWLYHO\
E RWKHUVDOHVÀJXUHZHUHDVIROORZV

5V
IRUPWR 
IURPWR 
IURPWR 
176 ACCOUNTING

(c) due to decrease in the material cost, gross profit during 2011-12 was expected to increase
by 5% on sales.
G 5V ZHUH DGGLWLRQDOO\ LQFXUUHG GXULQJ WKH SHULRG DIWHU ILUH 7KH DPRXQW RI
SROLF\LQFOXGHG5VIRUH[SHQVHVOHDYLQJ5VXQFRYHUHG
&RPSXWHWKHFODLPIRUVWRFN/RVVRISURÀWDQGDGGLWLRQDOH[SHQVHV

ANSWER
Claim for loss of stock
Memorandum trading account for the period 1st April to 1st July, 2011

Rs. Rs.
To opening stock  %\VDOHV 
To purchase  %\FORVLQJ
7RZDJHV  %DOÀJ 
To manufacturing expenses 
7RJURVVSURÀW[ 

&ODLPIRUORVVRIVWRFNZLOOEHOLPLWHGWR5VRQO\ZKLFKLVWKHDPRXQWRILQVXUDQFH
SROLF\DQGQRDYHUDJHFODXVHZLOOEHDSSOLHG

1RWH:HKDYHFDOFXODWHG*35DWLRIURPWUDGLQJDFFRXQWRISUHYLRXV\HDUZKLFKLVDOUHDG\
JLYHQLQTXHVWLRQLH SOXVLQFUHDVHLQ*3UDWLRE\

/RVVRISURÀW

(a) Short sales:

Sales from 1stMXO\WRth6HSW 

$GGULVHREVHUYHGLQRYHU
$SULO-XQH5VLQVWHDGRI5V 

/HVV6DOHVIURPst-XO\WRth6HSW 
Short sales 
 INSURANCE CLAIM 177

(b) Gross profit ratio

1HWSURÀWLQVXUHGVWDQGLQJFKDUJHV
= õ
VDOHV

= õ      


 $GG([SHFWHGULVHGXHWRGHFOLQHLQPDWHULDOFRVW   5% 23%
(c) loss of gross profit
 RQVKRUWVDOHV5V 5V
(d) Annual turnover (12months to 1st July,2011)

$PRXQW5V
6DOHVIRUDSULO0DUFK 
/HVVIURPWR 

$GGIURPWR 

$GGLQFUHDVLQJWUHQG 

*URVVSURÀWRQDQQXDOWXUQRYHU# 

(e) amount allowable in respect of additional expenses

Amount (Rs.)
/HDVWRIWKHIROORZLQJ
(i) actual expenses 
LL*URVVSURÀWRQVDOHVGXULQJLQGHPQLW\SHULRGRI 
JURVVSURÀWRQDQQXDODGMXVWHGWXUQRYHU
(iii) [DGGLWLRQDO([SHQVHV
JURVVSURÀWDVDERYHXQLQVXUHGFKDUJHV
[/HDVWLH5VLVDGPLVVLEOH 
Claim Rs.71,392.
/RVVRI*URVVSURÀW Rs.11,040
Add: Addition expenses Rs.82,432
,QVXUDQFHFODLPIRUORVVRISURÀWZLOOEHRI5VRQO\
 ACCOUNTING

Working Note:

5DWHRI*URVVSURÀWLQ
JURVV3URÀW
= x 100
Sales

= x 100=25%


,Q*URVVSURÀWLVH[SHFWHGWRLQFUHDVHE\DVDUHVXOWRIGHFOLQHPDWHULDOFRVW
KHQFHWKHUDWHRI*URVVSURÀWIRUORVVRIVWRFNLVWDNHQDW

QUESTION NO 37

0RQDOLVD &RUXQVSODVWLFJRRGVVKRS)ROORZLQJGHWDLOVDUHDYDLODEOHIURPTXDUWHUO\VDOHV
WD[UHWXUQÀOHG

Sales 2009 2010 2011 2012

Rs. Rs. Rs. Rs.
From 1st-DQXDU\WRst March    
From 1st April to 30th June    
From 1st-XO\WRth6HSWHPEHU    
From 1st2FWREHUWRst'HFHPEHU    
Total    

Period Rs.
6DOHVIURPWR 
6DOHVIURPWR 1LO
6DOHVIURPWR 
6DOHVIURPWR 

$ORVVRISURÀWSROLF\ZDVWDNHQIRU5V)LUHRFFXUUHGRQth6HSWHPEHU
LQGHPQLW\SHULRGZDVIRUPRQWKV1HWSURÀWZDV5VDQGVWDQGLQJFKDUJHVDOO
LQVXUHGDPRXQWHGWR5VIRU\HDUHQGLQJst'HFHPEHU
'HWHUPLQHWKHLQVXUDQFHFODLP
 INSURANCE CLAIM 

QUESTION NO 38

)URP WKH IROORZLQJ SDUWLFXODUV \RX DUH UHTXLUHG WR FDOFXODWH WKH DPRXQW RI FODLP IRU
EXLOGZHOO/WGZKRVHEXVLQHVVSUHPLVHVZDVSDUW\GHVWUR\HGE\ÀUH

Sum insured (from 31st'HFHPEHU 5V

3HULRGRILQGHPQLW\ 12 months
'DWHRIGDPDJH 1st-DQXDU\
'DWHRQZKLFKGLVUXSWLRQRIEXVLQHVVFHDVHG 31st2FWREHU

7KHVXEMHFWPDWWHURIWKHSROLF\ZDVJURVVSURÀWEXWRQO\QHWSURÀWDQGLQVXUHGVWDQGLQJ
FKDUJHVDUHLQFOXGHG

D 7KHJURVVSURILWIRUWKHILQDQFLDO\HDUZDV5V
E 7KH DFWXDO WXUQRYHU IRU ILQDQFLDO \HDU  ZDV 5V  ZKLFK ZDV DOVR WKH
WXUQRYHULQWKLVFDVH
(c) The turnover for the period 1st-DQXDU\WRst2FWREHULQWKH\HDUSUHFHGLQJWKHORVV
ZDV5V

'XULQJGLVORFDWLRQRIWKHSRVLWLRQLWZDVOHDUQWWKDWLQ1RYHPEHU'HFHPEHUWKHUH
KDVEHHQDQXSZDUGWUHQGLQEXVLQHVVGRQHFRPSDUHGZLWKWKHÀJXUHRIWKHSUHYLRXV\HDUV
DQGLWZDVVWDWHGWKDWKDGWKHORVVQRWRFFXUUHGWKHWUDGLQJUHVXOWVIRUZRXOGKDYH
EHHQEHWWHUWKDQWKRVHRIWKHSUHYLRXV\HDU
7KH LQVXUDQFH FRPSDQ\ RIÀFLDO DSSRLQWHG WR DVVHVV WKH ORVV DFFHSWHG WKLV YLHZ DQG
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DPRXQWVZKLFKZRXOGKDYHUHVXOWHGLQ
7KHSUHGDPDJHGÀJXUHVWRJHWKHUZLWKDJUHHGDGMXVWPHQWVZHUH

Period Pre-damaged Adjustments to Adjusted

ÀJXUHV be added standard
turnover
5V 5V 5V
-DQXDU\   
)HEWR2FWREHU   
1RYHPEHUWR'HFHPEHU   
  
*URVVSURÀW   
 ACCOUNTING

5DWHRIJURVVSURÀWDFWXDOIRUDGMXVWHGIRU

,QFUHDVHGFRVWRIZRUNLQJDPRXQWHGWR5V
7KHUHZDVDFODXVHLQWKHSROLF\UHODWLQJWRVDYLQJVLQLQVXUHGVWDQGDUGFKDUJHVGXULQJWKH
LQGHPQLW\SHULRGDQGWKLVDPRXQWHGWR5V
6WDQGLQJ&KDUJHVQRWFRYHUHGE\LQVXUDQFHDPRXQWHGWR5VSDWKHDQQXDOWXUQRYHU
IRU-DQXDU\ZDVQLODQGIRUWKHSHULRG)HEUXDU\WR2FWREHU5V

QUESTION NO 39
6  0 /WG JLYH WKH IROORZLQJ 7UDGLQJ DQG 3URÀW DQG /RVV $FFRXQW IRU \HDU HQGHG st
'HFHPEHU
7UDGLQJDQG3URÀWDQG/RVV$FFRXQWIRUWKH\HDUHQGHGst December, 2005

Rs. Rs.
To Opening Stock  %\6DOHV 
7R3XUFKDVHV  %\&ORVLQJ6WRFN 
To Wages
5VIRUVNLOOHGODERXU 
7R0DQXIDFWXULQJ([SHQVHV 
7R*URVV3URÀW  ——
 
7R2IÀFH$GPLQLVWUDWLYH  %\*URVV3URÀW 
([SHQVHV
To Advertising 
7R6HOOLQJ([SHQVHV)L[HG 
To Commission on Sales 
7R&DUULDJH2XWZDUG 
7R1HW3URÀW  
 

7KHFRPSDQ\KDGWDNHQRXWSROLFLHVERWKDJDLQVWORVVWRVWRFNDQGDJDLQVWORVVRISURÀW
WKHDPRXQWVEHLQJ5VDQG5V$ÀUHRFFXUUHGRQst0D\DQGDVD
UHVXOWRIZKLFKVDOHVZHUHVHULRXVO\DIIHFWHGIRUDSHULRGRIPRQWKV<RXDUHJLYHQWKH
IROORZLQJIXUWKHULQIRUPDWLRQ
 INSURANCE CLAIM 

D 3XUFKDVHVZDJHVDQGRWKHUPDQXIDFWXULQJH[SHQVHVIRUWKHILUVWPRQWKVRI
ZHUH5V5VDQG5VUHVSHFWLYHO\
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   5V
From 1st-DQXDU\WRth$SULO 
From 1st0D\WRst$XJXVW 
From 1st0D\WRst$XJXVW 
G 'XHWRULVHLQZDJHVJURVVSURILWGXULQJZDVH[SHFWHGWRGHFOLQHE\RQVDOHV
H $GGLWLRQDOH[SHQVHVLQFXUUHGGXULQJWKHSHULRGDIWHUILUHDPRXQWHGWR5V
7KH DPRXQW RI WKH SROLF\ LQFOXGHG 5V  IRU H[SHQVHV OHDYLQJ 5V 
XQFRYHUHG$VFHUWDLQWKHFODLPIRUVWRFNDQGIRUORVVSURILW
  $OOZRUNLQJVVKRXOGIRUPSDUWRI\RXUDQVZHUV

QUESTION NO 40
6RQ\/WG·V7UDGLQJDQGSURÀWDQGORVVDFFRXQWIRUWKH\HDUHQGHGst'HFHPEHU
ZHUHDVIROORZV
7UDGLQJDQGSURÀWDQG/RVV$FFRXQWIRUWKH\HDUHQGHG

Rs. Rs.
Opening stock  Sales 
3XUFKDVHV  Closing stock 
Manufacturing expenses 
*URVVSURÀW  
 
Administrative expenses  *URVVSURÀW 
Selling expenses 
Finance charges 
1HWSURÀW 
 

7KHFRPSDQ\KDGWDNHQRXWDÀUHSROLF\IRU5VDQGDORVVRISURÀWVSROLF\IRU
5VKDYLQJDQLQGHPQLW\SHULRGRIPRQWKV$ÀUHRFFXUUHGRQDWWKH
SUHPLVHV DQG HQWLUH VWRFN ZHUH JXWWHG ZLWK QLO VDOYDJH YDOXH 7KH QHW TXDUWHU VDOHV LH
WRZDVVHYHUHO\DIIHFWHG7KHIROORZLQJDUHWKHRWKHULQIRUPDWLRQ
 ACCOUNTING

6DOHVGXULQJWKHSHULRG WR 

3XUFKDVHVGXULQJWKHSHULRG WR 
0DQXIDFWXULQJH[SHQVHV WR 
6DOHVGXULQJWKHSHULRG WR 
6WDQGLQJFKDUJHVLQVXUHG  
$FWXDOH[SHQVHLQFXUUHGDIWHUÀUH  

7KHJHQHUDOWUHQGRIWKHLQGXVWU\VKRZVDQLQFUHDVHRIVDOHVE\DQGGHFUHDVHLQ*3E\
GXHWRLQFUHDVHGFRVW
$VFHUWDLQWKHFODLPIRUVWRFNDQGORVVRISURÀWV
 INSURANCE CLAIM 

CALCULATION OF SUM INSURED

QUESTION 41

$ ÀUP KDV GHFLGHG WR WDNH RXW D ORVV RI SURÀW SROLF\ IRU WKH \HDU  DQG JLYHQ WKH
IROORZLQJLQIRUPDWLRQIRUWKHODVWDFFRXQWLQJ\HDU9DULDEOHPDQXIDFWXULQJH[SHQVHV
5V6WDQGLQJFKDUJHV5V1HWSURÀWV5V1RQRSHUDWLQJLQFRPH
5V6DOHV5V
&RPSXWH WKH VXP WR EH LQVXUHG LQ HDFK RI WKH IROORZLQJ DOWHUQDWLYH FDVHV VKRZLQJ WKH
DQWLFLSDWLQJIRUWKH\HDU

(i) ,IVDOHVZLOOLQFUHDVHE\
(ii) ,IVDOHVZLOOLQFUHDVHE\DQGRQO\RIWKHSUHVHQWVWDQGLQJFKDUJHVDUHWREH
LQVXUHG
(iii) ,IVDOHVDQGYDULDEOHH[SHQVHVZLOOLQFUHDVHE\DQGVWDQGLQJFKDUJHVZLOOLQFUHDVH
E\
(iv) ,IVDOHVZLOOLQFUHDVHE\DQGYDULDEOHH[SHQVHVZLOOGHFUHDVHE\
(v) ,IVDOHVZLOOLQFUHDVHE\DQGVWDQGLQJFKDUJHVZLOOLQFUHDVHE\
(vi) ,IWKHWXUQRYHUDQGVWDQGLQJFKDUJHVZLOOLQFUHDVHE\DQGYDULDEOHH[SHQVHVZLOO
GHFUHDVHE\EXWRQO\RIWKHSUHVHQWVWDQGLQJFKDUJHVDUHWREHLQVXUHG
ANSWER
Calculation of amount of insurance policy to be taken

I II III IV V VI
Sales (existing)      
,QFUHDVH      

([SHFWHGVDOHV      

9DULDEOHH[S      

*URVVSURÀW      6

,QFUHDVHLQÀ[HG
expenses      
8QLQVXUHGÀ[HGH[S      

Sum to be insured 4.37 3.62 4.52 5.19 4.41 5.3625

 ACCOUNTING

QUESTION NO 42

$WUDGHULQWHQGVWRWDNHDORVVRISURÀWSROLF\ZLWKLQGHPQLW\SHULRGRIPRQWKVKRZHYHU
KHFRXOGQRWGHFLGHWKHSROLF\DPRXQW)URPWKHIROORZLQJGHWDLOVVXJJHVWWKHSROLF\DPRXQW
`
7XUQRYHULQODVWÀQDQFLDO\HDU 
6WDQGLQJFKDUJHVLQODVWÀQDQFLDO\HDU 
1HW SURÀW HDUQHG LQ ODVW \HDU ZDV  RI WXUQRYHU DQG WKH VDPH WUHQG H[SHFWHG LQ
VXEVHTXHQW\HDU
,QFUHDVHLQWXUQRYHUH[SHFWHG
7RDFKLHYHDGGLWLRQDOVDOHVWUDGHUKDVWRLQFXUDGGLWLRQDOH[SHQGLWXUHRI`
 ACCOUNTING FOR INCOMPLETE RECORDS 185

ACCOUNTING FOR INCOMPLETE RECORDS

QUESTION NO 1

The following information relates to the business of Mr.Shiv Kumar, who requests you to
SUHSDUHD7UDGLQJDQGSURÀWDQGORVVDFFRXQWIRUWKH\HDUHQGHGDQG%DODQFH
Sheet as on that date:

Balance as on 31.3.2002 Balance as on 31.03.2003

%XLOGLQJ  
Furniture  
0RWRUFDU  
6WRFNV - 
%LOOVSD\DEOH  
&DVKDQGEDQNEDODQFHV  
Sundry Debtors  -
%LOOVUHFHLYDEOHV  
6XQGU\FUHGLWRUV  -

&DVKWUDQVDFWLRQVGXULQJWKH\HDULQFOXGHGWKHIROORZLQJEHVLGHVFHUWDLQRWKHULWHPV
6DOHRIROGSDSHUVDQGPLVFHOODQHRXVLQFRPH   
0LVFHOODQHRXVWUDGHH[SHQVHVLQFOXGLQJVDODULHV  
&ROOHFWLRQIURP'HEWRUV     
&DVKSXUFKDVHV     
3D\PHQWWRFUHGLWRUV     
&DVKVDOHV      
The following are the other information:

 %LOOVUHFHLYDEOHGUDZQGXULQJWKH\HDUDPRXQWWR5VDQG%LOOVSD\DEOHDFFHSWHG
5V
 6RPHLWHPVRIROGIXUQLWXUHZKRVHZULWWHQGRZQYDOXHRQstPDUFKZDV5V
ZDVVROGRQth6HSWHPEHUIRU5V'HSUHFLDWLRQLVWREHSURYLGHG
RQEXLOGLQJDQGIXUQLWXUH#SDDQGRQ0RWRUFDU#SD'HSUHFLDWLRQRQVDOH
RIIXUQLWXUHWREHSURYLGHGIRUPRQWKVDQGIRUDGGLWLRQVWR%XLOGLQJIRUZKROH\HDU
186 ACCOUNTS

 2IWKH'HEWRUVDVXPRI5VVKRXOGEHZULWWHQRIIDV%DGGHEWVDQGDUHVHUYH
IRUGRXEWIXOLVWREHSURYLGHG#
 0U6KLYNXPDUKDVEHHQPDLQWDLQLQJDVWHDG\JURVVSURILWUDWHRIRQWXUQRYHU
 2XWVWDQGLQJVDODU\RQZDV5VDQGRQZDV5V2Q
SURILWDQGORVVDFFRXQWKDGDFUHGLWEDODQFHRI5V
 RIWRWDOVDOHVDQGWRWDOSXUFKDVHVDUHWREHWUHDWHGDVIRUFDVK
 $GGLWLRQVLQIXUQLWXUHDFFRXQWWRRNSODFHLQWKHEHJLQQLQJRIWKH\HDUDQGWKHUHZDV
no opening provision for doubtful debts.
ANSWER:
TRADING AND PROFIT AND LOSS ACCOUNT
)257+(<($5(1'('ST0DUFK

3DUWLFXODUV 5V 3DUWLFXODUV 5V

7R2SHQLQJVWRFNV  %\6DOHV 
7R3XUFKDVH  %\&ORVLQJ6WRFN 
7R*URVVSURÀWVRQVDOHV 
------------ --------------
---- 

7RPLV([SHQVHV %\*URVVSURÀWV 
  %\PLVFLQFRPHV 
7RGHSUHFLDWLRQ %\ QHW ORVV 
%XLOGLQJ  WUDQVIHUUHGWRFDSLWDO
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Furniture 
0RWRUFDU 
To loss on sale of furniture 
To bad debts 
To provision for doubtful debts 
------------- ------------
 ---

 ACCOUNTING FOR INCOMPLETE RECORDS 187

BALANCE SHEET AS ON 31.03.2003

(‘000)

Liabilities Amount Assets Amount

Capital  %XLOGLQJ 
3URÀWDQGORVVDFFRXQW Furniture 
2SHQLQJEDODQFH 0RWRUFDU 
/HVVORVV&<  6WRFNLQWUDGH 
'HEWRUV
Creditors  /HVV3URYLVLRQ 
%LOOVSD\DEOH  %LOOVUHFHLYDEOH 
2XWVWDQGLQJVDODU\  &DVKLQKDQGDQG%DQN 
-------------- ---------------
 

WORKING NOTES:
Debtors Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNFROOHFWLRQ 
%\ELOOVUHFHLYDEOH 
7RFUHGLWVDOH  %\EDGGHEWV 
%\EDODQFHFG 
 

Creditors Account

Particulars Amount Particulars Amount

7REDQNSD\PHQW  %\EDODQFHEG 
To bills payable 

7REDODQFHFG  %\FUHGLWSXUFKDVHV 

EDODQFLQJÀJXUH
 
188 ACCOUNTS

Bills Receivable Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNEDODQFLQJÀJ 
7R'HEWRUVDFFRXQW  %\EDODQFHFG 
 

Bills Payable Account

Particulars Amount Particulars Amount

7RFDVKEDQNEDOÀJ  %\EDODQFHEG 
7REDODQFHFG  %\FUHGLWRUVDFFRXQW 
 

Furniture Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNFDVKDFFRXQW 
7REDQN  %\GHSUHFLDWLRQ 
%\SURÀWDQGORVVDFFRXQW
ORVVRQVDOH 
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Cash and Bank Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\PLVFH[SHQVHV 
7RPLVF([SHQVHV  %\SXUFKDVHV 
7R'HEWRUVDFFRXQW  %\IXUQLWXUH 
To sales  %\FUHGLWRUVDFFRXQW 
To furniture  %\ELOOVSD\DEOHDFFRXQW 
7RELOOVUHFHLYDEOH  %\EXLOGLQJDFFRXQW 
%\EDODQFHFG 
 
 ACCOUNTING FOR INCOMPLETE RECORDS 

OPENING BALANCE SHEET AS ON 31.03.2002

(‘000)

Liabilities Amount Assets Amount

&DSLWDOEDODQFLQJÀJXUH  %XLOGLQJ 
3URÀWDQGORVVDFFRXQW  Furniture 
Creditors  0RWRUFDU 
%LOOVSD\DEOH  6WRFNLQWUDGH 
2VVDODU\  Debtors 
%LOOVUHFHLYDEOH 
&DVKLQKDQGDQG%DQN 
-------------- --------------
 

Motor Car Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\GHSUHFLDWLRQ 
%\EDODQFHFG 
 

Building Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\GHSUHFLDWLRQ 
7RFDVKEDQNDFFRXQW  %\EDODQFHFG 
 

+LQW,QWKHJLYHQTXHVWLRQLWLVPHQWLRQHGWKDWGHSUHFLDWLRQLVWREHSURYLGHGRQÀ[HG
DVVHWV6RZHKDYHUHYLVHGFORVLQJEDODQFHVLQÀ[HGDVVHWV

QUESTION NO 2 (SAME AS QUESTION NO.29)

/XFN\GRHVQRWPDLQWDLQSURSHUERRNVRIDFFRXQWV+RZHYHUKHPDLQWDLQVDUHFRUGRIKLV
EDQN WUDQVDFWLRQV DQG DOVR LV DEOH WR JLYH WKH IROORZLQJ LQIRUPDWLRQ IURP ZKLFK \RX DUH
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 ACCOUNTS

1.1.2003 31.12.2003
Debtors  -
Creditors - 
6WRFN  
%DQNEDODQFH - 
)L[HGDVVHWV  

'HWDLOVRIKLVEDQNWUDQVDFWLRQZHUHDVIROORZV
5HFHLYHGIURPGHEWRUV      5V
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6DOHRIÀ[HGDVVHWVERRNVYDOXH5V   5V
3DLGWRFUHGLWRUV       5V
([SHQVHVSDLG       5V
3HUVRQDOGUDZLQJV       5V
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1RFDVKWUDQVDFWLRQWRRNSODFHGXULQJWKH\HDU*RRGVDUHVROGDWFRVWSOXV&RVWRI
JRRGVVROGZDV5V

ANSWER:
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDING ON 31.12.2003

Particulars Amount Particulars Amount

72RSHQLQJVWRFN  %\VDOHV 
7RSXUFKDVHV  %\FORVLQJVWRFN 
7RJURVVSURÀW 
 

7RGHSUHFLDWLRQ  %\JURVVSURÀW 

To loss on sale of asset 
7RH[SHQVHV 
7RQHWSURÀW 

 
 ACCOUNTING FOR INCOMPLETE RECORDS 

BALANCE SHEET AS ON 31.12.2003

LIABILITIES Amount ASSETS Amount

Capital  )L[HGDVVHWV 
6WRFN 
Creditors  Debtors 
%DQNDFFRXQW 

 

WORKING NOTES:
Debtors Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNFROOHFWLRQ 

7RFUHGLWVDOH  %\EDODQFHFG 

 

Creditors Account

Particulars Amount Particulars Amount

7REDQNSD\PHQW  %\EDODQFHEG 
EDODQFLQJÀJXUH
7REDODQFHFG 
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  ACCOUNTS

Bank Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\FUHGLWRUVDFFRXQW 
EDODQFLQJÀJXUH %\H[SHQVHV 
7RGHEWRUVDFFRXQW  %\GUDZLQJV 
7RFDSLWDODFFRXQW  %\À[HGDVVHWV 
7RÀ[HGDVVHWVDFFRXQW  %\EDODQFHFG 
 

)L[HG$VVHWVDFFRXQW

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNDFFRXQW 
7REDQNDFFRXQW  %\SURÀWDQGORVV 
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Calculation of closing capital

2SHQLQJEDODQFHRIFDSLWDO 
$'' 3URÀWV 
 $GGLWLRQDOFDSLWDOHPSOR\HGGXULQJWKH\HDU 
/(66 'UDZLQJV  
  &ORVLQJFDSLWDO 

Calculation of purchases made during the year

&RVWRIJRRGVVROGGXULQJWKH\HDU 
$'' &ORVLQJVWRFN 
/(66 2SHQLQJVWRFN  

 ACCOUNTING FOR INCOMPLETE RECORDS 

STATEMENT OF AFFAIRS AS ON 1.1.2003

LIABILITIES Amount ASSETS Amount

&DSLWDOEDOÀJ  )L[HGDVVHWV 
6WRFN 
Creditors  Debtors 
%DQNDFFRXQW 
 

QUESTION NO 3

7KHIROORZLQJLVWKHEDODQFHVKHHWRI6UL$JQLGHYDVRQst0DUFK

Rs. Rs.
Capital  0DFKLQHU\ 
Creditors  Furniture 
6WRFN 
Debtors 
Cash in hand 
&DVKDWEDQN 
 

5LRWVRFFXUUHGDQGÀUHEURNHRXWRQWKHHQHQLQJRIst0DUFKGHVWUR\LQJWKHERRNV
RIDFFRXQWDQGIXUQLWXUH7KHFDKLHUZDVJULHYRXVO\KXUWDQGWKHFDVKDYDLODEOHLQWKHFDVK
ER[ZDVVWROHQ7KHWUDGHUJLYHV\RXWKHIROORZLQJLQIRUPDWLRQ

D 6DOHVDUHHIIHFWHGDVIRUFDVKDQGEDODQFHRQFUHGLW+LVWRWDOVDOHVIRUWKH\HDU
HQGHG st 0DUFK  ZHUH  KLJKHU WKDQ WKH SUHYLRXV \HDU $OO WKH VDOHV DQG
SXUFKDVHVRIJRRGVZHUHHYHQO\VSUHDGWKURXJKRXWWKH\HDUDVDOVRLQWKHODVW\HDU
E 7HUPVRIFUHGLW
 L 'HEWRUVPRQWKV
ii. Creditors 1 month
F 6WRFNOHYHOZDVPDLQWDLQHGDW5VDOOWKURXJKRXWWKH\HDU
G $ VWHDG\ JURVV SURILW UDWH RI  RQ WKH WXUQRYHU ZDV PDLQWDLQHG WKURXJKRXW
&UHGLWRUVDUHSDLGE\FKHTXHRQO\H[FHSWIRUFDVKSXUFKDVHRI5V
  ACCOUNTS

H +LVSULYDWHUHFRUGVDQGWKHEDQNSDVVERRNGLVFORVHGWKHIROORZLQJWUDQVDFWLRQIRUWKH
year
 L 0LVFHOODQHRXV EXVLQHVV H[SHQVHV 5V LQFOXGLQJ 5V SDLG E\ FKHTXH
DQG5VZDVRXWVWDQGLQJDVRQstPDUFK
 LL 5HSDLUV5VE\FDVK
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 LY 3ULYDWHGUDZLQJV5VSDLGE\FDVK
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 YL ,QWURGXFWLRQRI$GGLWLRQDOFDSLWDOE\GHSRVLWLQJLQWRWKHEDQN5V
 YLL &ROOHFWLRQIURP'HEWRUVZHUHDOOWKURXJKFKHTXHV
 YLLL 'HSUHFLDWLRQRQPDFKLQHU\LVWREHSURYLGHG#RQWKHFORVLQJERRNYDOXH
 L[ 7KHFDVKVWROHQLVWREHFKDUJHGWRWKHSURILWDQGORVVDFFRXQW
 [ /RVVRIIXUQLWXUHLVWREHDGMXVWHGIURPWKHFDSLWDODFFRXQW
3UHSDUHWUDGLQJSURÀWDQGORVVDFFRXQWIRUWKH\HDUHQGLQJst0DUFKDQGDEDODQFHVKHHW
DV RQ WKDW GDWH 0DNH DSSURSULDWH DVVXPSWLRQV ZKHUHYHU QHFHVVDU\ $OO ZRUNLQJV VKRXOG
form part of your answer.

ANSWER:
TRADING AND PROFIT AND LOSS ACCOUNT
)257+(<($5(1'('ST0DUFK

Particulars Rs. Particulars Rs.

7R2SHQLQJVWRFNV  %\6DOHV 
7R3XUFKDVH  %\&ORVLQJ6WRFN 
7R*URVVSURÀWV 
------------- --------------
 

7RH[SHQVHV  %\*URVVSURÀWV 

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7RGHSUHFLDWLRQ 
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To loss by theft 
7RQHWSURÀW 
-------------- --------------
 
 ACCOUNTING FOR INCOMPLETE RECORDS 

BALANCE SHEET AS ON 31.03.2002

(‘000)

Liabilities Amount Assets Amount

&DSLWDO  0DFKLQHU\
$GGDGGLWLRQDOFDSLWDO   
$GGQHWSURÀW  &ORVLQJ6WRFN 
/HVV'UDZLQJV  Debtors 
/HVVIXUQLWXUH 
---------- 
%DQNRYHUGUDIW 
Creditors 
2XWVWDQGLQJH[SHQVHV 
-------------- --------------
 

WORKING NOTES:
Cash and Bank Account

Particulars Cash Bank Particulars Cash Bank

7REDODQFHEG   %\FUHGLWRUVDF  
7R'HEWRUVDF -  %\0LVFH[SHQVHV  
To sales  - %\UHSDLUV  -
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FDSLWDO -  %\WUDYHOLQJH[S  -
7REDODQFHFG -  %\GUDZLQJV  -
%DQNRYHUGUDIW %\EDODQFHFG  -
/RVWE\WKHIW
---------- ------------ -------- --------
   
 ACCOUNTS

Rs
1.Sales during 2001-2002
'HEWRUVDVRQ 
EHLQJHTXDOWRPRQWKVVDOHV
7RWDOFUHGLWVDOHVLQ5V  
&DVKVDOHVEHLQJHTXDOWRrdRIFUHGLWVDOHVRUth of the 
total 
6DOHVLQ 
,QFUHDVHDVVWDWHGLQWKHSUREOHP 
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&DVKVDOHVth

&UHGLWVDOHV th

2.DebtorsHTXDOWRWZRPRQWKVFUHGLWVDOHV  

3.Purchases
6DOHVLQ 
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4.Creditors for the goods 

5.Collection from Debtors
2SHQLQJEDODQFH 
$GGFUHGLWVDOHV 
/HVVFORVLQJEDODQFH 
-------------------


Payment to creditors
2SHQLQJEDODQFH 
$GG&UHGLWSXUFKDVHV 
/HVV&ORVLQJEDODQFH 
---------------
3D\PHQWE\FKHTXH 
 ACCOUNTING FOR INCOMPLETE RECORDS 

QUESTION NO 4

0U;UXQVDUHWDLOEXVLQHVV6XGGHQO\KHÀQGVRQWKDWKLVFDVKDQGEDQNEDODQFHV
KDYHUHGXFHGFRQVLGHUDEO\+HSURYLGHV\RXWKHIROORZLQJLQIRUPDWLRQ

31.03.2005 31.03.2005
Rs. Rs.
Sundry debtors  
6XQGU\FUHGLWRUV  
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Cash  
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6WRFN  
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5V
Total deposits 
Withdrawals:
Creditors 
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Proprietor 

5HQWKDGEHHQLQFUHDVHGVLQFH-DQXDU\.
II. 7KHSURSULHWRUGHSRVLWHGDOOFDVKVDOHVDQGFROOHFWLRQVDIWHUPHHWLQJVKRSH[SHQVHV
SD\PHQWRIUHQWHOHFWULFLW\DQGWHOHSKRQHELOOVDQGZDJHV
III. +HPDGHDOOSXUFKDVHVRQFUHGLW
IV. 0RQWKO\ZDJHV5V
V. (OHFWULFLW\DQG7HOHSKRQHELOOVSDLG5V6KRSH[SHQVHV5VSDLG
VI. +HPDLQWDLQHGDOOVWDWHPHQWVRIFUHGLWVDOHVIURPZKLFKKHDVFHUWDLQHGWKDWFUHGLW
VDOHVZHUH5V
VII. &KDUJHGHSUHFLDWLRQ#SDRQIXUQLWXUH
)LQDOL]HWKHDFFRXQWVRI0U;
 ACCOUNTS

ANSWER:
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDING ON 31.03.2006

Particulars Amount Particulars Amount

7RRSHQLQJVWRFN  %\VDOHV
7RSXUFKDVHV  &DVK 
(w.n#2) (w.n#6)
7RZDJHV   &UHGLW  
7RJURVVSURÀW  -----------
%\FORVLQJVWRFN 
 

7RGHSUHFLDWLRQ  %\JURVVSURÀW 

To rent 
(w.n#7)
7RHOHFW WHOHSKRQH 
(w.n#8)
7RVKRSH[SHQVHV 
7RSURIHVVLRQDOFKDUJHV 
7RQHWSURÀW 

 

BALANCE SHEET AS ON 31.03.2006

LIABILITIES Amount ASSETS Amount

Capital (w.n#5)  Furniture (w.n#4) 
6WRFN 
Creditors  Debtors 
2V5HQW  %DQNDFFRXQW 
2VWHOH HOHFWUL  &DVKDFFRXQW 

 
 ACCOUNTING FOR INCOMPLETE RECORDS 

WORKING NOTES:
Debtors Account (1)

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNFROOHFWLRQ 
EDODQFLQJÀJXUH
7RFUHGLWVDOH  %\EDODQFHFG 
 

Creditors Account (2)

Particulars Amount Particulars Amount

7REDQNSD\PHQW  %\EDODQFHEG 

7REDODQFHFG  %\FUHGLWSXUFKDVHV 

EDODQFLQJÀJXUH
 

Bank Account (3)

Particulars Amount Particulars Amount

7REDODQFHEG  %\FUHGLWRUVDFFRXQW 
7RFDVKDFFRXQW  %\SURIHVVLRQDOH[S 
GHSRVLWV %\IXUQLWXUH 
%\GUDZLQJV 
%\EDODQFHFG 
 

Furniture account (4)

Particulars Amount Particulars Amount

7REDODQFHEG 1LO %\GHSUHFLDWLRQ 
7REDQNDFFRXQW    
%\EDODQFHFG 
 
  ACCOUNTS

Calculation of closing capital (5)

2SHQLQJEDODQFHRIFDSLWDO 
$'' 3URÀWV 
/(66 'UDZLQJV 
------------
  &ORVLQJFDSLWDO      
------------
Cash account (6)

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQN 
To debtors  GHSRVLWV
7RFDVKVDOHV  %\ZDJHV 
EDODQFLQJÀJXUH %\HOHFWULFLW\ 
%\VKRSH[S 
%\UHQW 
%\EDODQFHFG 
 

Rent account (7)

Particulars Amount Particulars Amount

7RFDVKDFFRXQW  %\EDODQFHEG 
EDODQFLQJÀJXUH
%\SURÀWDQGORVVDF
7REDODQFHFG  $SULOWR'HF
  
-DQWR0DUFK
  

 
 ACCOUNTING FOR INCOMPLETE RECORDS 

Electricity and Telephone bills (8)

Particulars Amount Particulars Amount

7RFDVKDFFRXQW  %\EDODQFHEG 1LO
%\SURÀWDQGORVVDF
7REDODQFHFG  EDODQFLQJÀJXUH 

 

STATEMENT OF AFFAIRS AS ON 31.03.2005 (9)

LIABILITIES Amount ASSETS Amount

&DSLWDOEDOÀJ  6WRFN 
Debtors 
Creditors  %DQNDFFRXQW 
5HQWRXWVWDQGLQJ  &DVKDFFRXQW 

 

QUESTION NO 5 (MASTER PROBLEM)

0U;UXQVDUHWDLOEXVLQHVV6XGGHQO\KHÀQGVRQWKDWKLVEDQNDFFRXQWVKRZVD
EDODQFHRI5VRQO\DQGKLVFDVKLQKDQGLVRQO\5V%XWKHGLGDJRRGEXVLQHVVGXULQJ
WKH\HDU+HSURYLGHV\RXWKHIROORZLQJLQIRUPDWLRQ
L

Balance 31.12.1991 31.12.1992

Rs. Rs.
Sundry debtors  
6XQGU\FUHGLWRUV  
%DQN  
Cash  
5HQWRXWVWDQGLQJIRURQHPRQWK  
6WRFN  
 ACCOUNTS

LL 3DVVERRNUHYHDOVWKHIROORZLQJ

Rs.
Total deposits 
Withdrawals:
Creditors 
/HJDOH[SHQVHV 
6KRZFDVH 
Proprietor 

LLL 5HQWKDGEHHQLQFUHDVHGVLQFH6HSWHPEHU
LY 7KHSURSULHWRUGHSRVLWHGDOOFDVKVDOHVDQGFROOHFWLRQVDIWHUPHHWLQJVKRSH[SHQVHV
SD\PHQWRIUHQWHOHFWULFLW\DQGWHOHSKRQHELOOVDQGZDJHV%XWKHPDGHDOOSXUFKDVHV
RQFUHGLW0RQWKO\ZDJHV5V(OHFWULFLW\DQG7HOHSKRQHELOOVSDLG5VDQG
GXH5V6KRSH[SHQVHV5VSHUPRQWK
Y +HPDLQWDLQHGDOOVWDWHPHQWVRIFUHGLWVDOHVIURPZKLFKKHDVFHUWDLQHGWKDWFUHGLW
VDOHVZHUH5V
)LQDOLVHDFFRXQWVRI0U;WRVKRZKLVSURÀW3UHSDUHVWDWHPHQWRI$IIDLUVDQGUHFRQFLOH
WKHSURÀWEDODQFH

QUESTION NO 6

6XUHVKGRHVQRWPDLQWDLQKLVERRNVRIDFFRXQWVXQGHUWKHGRXEOHHQWU\V\VWHPEXWNHHSV
VOLSVRISDSHUVIURPZKLFKKHPDNHVXSKLVDQQXDODFFRXQWV+HKDVERUURZHGPRQH\VIURP
DEDQNWRZKRPKHKDVWRUHQGHUÀJXUHVRISURÀWVHYHU\\HDU+HKDVJLYHQWKHEDQNWKH
IROORZLQJSURÀWÀJXUHV

Year ending 3URÀWV

31st December Rs.

 
 
 
 
 
 ACCOUNTING FOR INCOMPLETE RECORDS 

7KHDSSRLQWV\RXWRDXGLWWKHVWDWHPHQWVDQGYHULI\ZKHWKHUWKHÀJXUHVRISURÀWVUHSRUW
DUHFRUUHFWRUQRWIRUWKLVSXUSRVHWKHIROORZLQJÀJXUHVDUHPDGHDYDLODEOHWR\RX

D 3RVLWLRQDVRQst'HFHPEHU6XQGU\GHEWRUV5V6WRFNLQWUDGHDW
RIWKHFRVW5V&DVKLQKDQGDQGDWEDQN5V7UDGHFUHGLWRUV5V
([SHQVHVGXH5V
E +H KDG ERUURZHG 5V IURP KLV ZLIH RQ th 6HSWHPEHU  RQ ZKLFK KH KDG
DJUHHGWRSD\VLPSOHLQWHUHVWDWSD7KHORDQZDVUHSDLGDORQJZLWKLQWHUHVWRQ
st'HFHPEHU
F ,Q'HFHPEHUKHKDGDGYDQFHG5VWR$IRUSXUFKDVHRIDYDFDQWODQG7KH
SURSHUW\ ZDV UHJLVWHUHG LQ 0DUFK  DIWHU SD\PHQW RI EDODQFH FRQVLGHUDWLRQ RI
5V&RVWVRIUHJLVWUDWLRQLQFXUUHGIRUWKLVZHUH5V
G 6XUHVKSXUFKDVHGMHZHOOHU\RI5VIRUKLVGDXJKWHULQ2FWREHU0DUULDJH
H[SHQVHVLQFXUUHGLQ-DQXDU\ZHUH5V
H $QHZ9&5ZDVSXUFKDVHGE\KLPLQ0DUFKIRU5VDQGSUHVHQWHGE\KLP
WRKLVIULHQGLQ1RYHPEHU
I +LVDQQXDOKRXVHKROGH[SHQVHVDPRXQWHGWRDPLQLPXPRI5V
J 7KH SRVLWLRQ RI DVVHWV DQG OLDELOLWLHV DV RQ st 'HFHPEHU  ZDV IRXQG WR EH
RYHUGUDIWZLWKEDQNVHFXUHGDJDLQVWSURSHUW\5V7UDGHFUHGLWRUV5V
([SHQVHVSD\DEOH5V6XQGU\GHEWRUVLQFOXGLQJ5VGXHIURPDSHRQGHFODUHG
LQVROYHQW E\ FRXUW 5V 6WRFN LQ WUDGH DW  RI FRVW WR UHIOHFW PDUNHW
YDOXH5VDQGFDVKLQKDQG5V

,WLVIRXQGWKDWWKHUDWHRISURÀWKDVEHHQXQLIRUPWKURXJKRXWWKHSHULRGDQGWKHSURSRUWLRQ
RIVDOHVGXULQJWKH\HDUVWRWRWDOVDOHVIRUWKHSHULRGZDVLQWKHUDWLRRI
$VFHUWDLQWKHDQQXDOSURÀWVDQGLQGLFDWHGLIIHUHQFHVLIDQ\ZLWKWKRVHUHSRUWHGE\6XUHVK
WRWKHEDQNHDUOLHU
$OOZRUNLQJVVKRXOGIRUPSDUWRI\RXUDQVZHU

QUESTION NO 7

$$GDPMHHNHHSVKLVERRNVRQVLQJOHHQWU\EDVLV7KHDQDO\VLVRIWKHFDVKERRNIRUWKH\HDU
HQGHGRQst'HFHPEHULVJLYHQEHORZ

Receipts Rs. Payments Rs.

%DQNEDODQFHDVRQst-DQXDU\  3D\PHQWVWRVXQGU\FUHGLWRUV 
5HFHLYHGIURPVXQGU\GHEWRUV  Salaries 
 ACCOUNTS

Cash sales  *HQHUDOH[SHQVHV 

Capital brought during the year  5HQWDQGWD[HV 
Interest on investments  Drawings 
&DVKSXUFKDVHV 
%DODQFHDWEDQNRQst
'HFHPEHU 
&DVKLQKDQGRQst
'HFHPEHU 
 

Particulars of other assets and liabilities are as follows:

1st January 1992 31st December 1992

Sundry debtors  
6XQGU\FUHGLWRUV  
0DFKLQHU\  
Furniture  
6WRFN  
Investments  

3UHSDUHÀQDODFFRXQWVIRUWKH\HDUHQGLQJst'HFHPEHUDIWHUSURYLGLQJGHSUHFLDWLRQ
DWRQPDFKLQHU\DQGIXUQLWXUHDQG5VDJDLQVt doubtful debts.

SOLUTION:
Statement of Affairs of A. Adamjee as on 1.1.2010

Rs Rs
Sundry Creditors  0DFKLQHU\ 
$$GDPMHH·V&DSLWDO  Furniture 
EDODQFLQJÀJXUH 6WRFN 
Sundry Debtors 
Investment 
%DQNEDODQFHIURP&DVK6WDWHPHQW 
34,900 34,900
 ACCOUNTING FOR INCOMPLETE RECORDS 

$$GDPMHH·V&DSLWDO$FFRXQW

5V 5V
To Drawings  -DQ %\%DODQFH 
7R%DODQFHFG  'HF %\&DVK 
 

Sales Account

'HF 7R7UDGLQJ$F  'HF %\&DVK 

'HF %\WRWDO'HEWRUV$FFRXQW 
 

Total Debtors Account

5V 5V
-DQ 7R%DODQFHEG  'HF %\&DVK 
'HF To Credit Sales  'HF %\%DODQFHFG 
EDODQFLQJÀJXUH

 

Total Creditors Account

5V 5V
'HF To Cash  -DQ %\%DODQFHEG 
'HF 7R%DODQFHEG  'HF %\&UHGLW
3XUFKDVHV 
 %DODQFLQJÀJXUH 

A. Adamjee
7UDGLQJDQG3URÀW /RVV$FFRXQWIRUWKH\HDUHQGHG

Rs Rs
7R2SHQLQJVWRFN  %\VDOHV 
7RSXUFKDVHV  %\&ORVLQJ6WRFN 
 ACCOUNTS

7R*URVV3URÀWFG  __
 
To Salaries  %\*URVV3URÀWEG 
7R5HQWDQG7D[HV  %\,QWHUHVWRQ,QYHVWPHQW 
7R*HQHUDO([SHQVHV 
7R'HSUHFDWLRQ
0DFKLQHU\ 5V
Furniture 5V 
To provision for 
Doubtful Debts
7R%DODQFHEHLQJ
SURÀW
Carried to Capital 
$F
 

Balance Sheet as on 31st December, 2010

Liabilities Rs Rs Assets Rs Rs
$$GDPMHH·V&DSLWDO 0DFKLQHU\ 
2QVW-DQXDU\  /HVV'HSUHFLDWLRQ  
$GG)UHVK&DSLWDO  Furniture 
$GG 3URÀW IRU WKH  /HVV'HSUHFLDWLRQ  
year

Less: Drawings   6WRFNLQWUDGH 
Sundry Debtors 
Sundry Creditors  Less: Provision for
Doubtful debts  
Investment 
&DVKDW%DQN 
&DVKLQ+DQG 
 
 ACCOUNTING FOR INCOMPLETE RECORDS 

QUESTION NO 8

)URPWKHIROORZLQJGDWH\RXDUHUHTXLUHGWRSUHSDUHD7UDGLQJDQG3URÀWDQG/RVVDFFRXQW
IRUWKH\HDUHQGHGst0DUFKDQGD%DODQFH6KHHWDVDWWKDWGDWH
Assets and Liabilities

As on 1st April 1991 As on 31st March 1992

Rs. Rs.
Creditors  
6XQGU\H[SHQVHVRXWVWDQGLQJ  
Sundry assets  
6WRFNLQWUDGH  
&DVKLQKDQGDQGDWEDQN  
Trade debtors X 

Details relating to transactions in the year:

5V
&DVKDQGGLVFRXQWFUHGLWHGWRGHEWRUV 
Sales return 
%DGGHEWV 
6DOHVFDVKDQGFUHGLW 
'LVFRXQWDOORZHGE\WUDGHFUHGLWRUV 
3XUFKDVHUHWXUQV 
$GGLWLRQDOFDSLWDOSDLGLQWREDQN 
5HDOL]DWLRQVIURPGHEWRUVSDLGLQWREDQN 
&DVKSXUFKDVHV 
&DVKH[SHQVHV 
3DLGE\FKHTXHIRUPDFKLQHU\SXUFKDVHG 
+RXVHKROGH[SHQVHVGUDZQIURPEDQN 
&DVKSDLGLQWREDQN 
&DVKGUDZQIURPEDQN 
&DVKLQKDQGRQ 
&KHTXHVLVVXHGWRWUDGHFUHGLWRUV 
 ACCOUNTS

QUESTION NO 9 (NOV 2005)

)URP WKH IROORZLQJ IXUQLVKHG E\ 6KUL 5DPML \RX DUH UHTXLUHG WR SUHSDUH D 7UDGLQJ DQG
3URÀWDQG/RVVDFFRXQWIRUWKH\HDUHQGHGDQGD%DODQFH6KHHWDVDWWKDWGDWH
Assets and Liabilities

1.4.2004 31.3.2005
Rs. Rs.
Creditors  
6XQGU\H[SHQVHV26  
Sundry assets  
6WRFNLQWUDGH  
Cash in hand  
&DVKDWEDQN  
Trade debtors  ?

Details relating to transactions in the year:

Rs.
&DVKDQGGLVFRXQWFUHGLWHGWRGHEWRUV 
Sales return 
%DGGHEWV 
6DOHVFDVKDQGFUHGLW 
'LVFRXQWDOORZHGE\WUDGHFUHGLWRUV 
3XUFKDVHUHWXUQV 
$GGLWLRQDOFDSLWDOSDLGLQWREDQN 
5HDOL]DWLRQVIURPGHEWRUVSDLGLQWREDQN 
&DVKSXUFKDVHV 
&DVKH[SHQVHV 
3DLGE\FKHTXHIRUPDFKLQHU\SXUFKDVHG 
+RXVHKROGH[SHQVHVGUDZQIURPEDQN 
&DVKSDLGLQWREDQN 
&DVKGUDZQIURPEDQN 
Cash sales 
&KHTXHVLVVXHGWRWUDGHFUHGLWRUV 
 ACCOUNTING FOR INCOMPLETE RECORDS 

Note: 5DPMLKDVQRWVROGDQ\À[HGDVVHWGXULQJWKH\HDU

ANSWER
In the boos of Shri Ramji
7UDGLQJDQGSURÀWDQGORVVDFFRXQW
For the year ended 31st March ,2011

Rs. Rs. Rs. Rs.

7RRSHQLQJVWRFN %\VDOHV
7RSXUFKDVH Cash 
Cash  Credit 
&UHGLW:1  
 Less: returns  
Less: return  
7RJURVVSURÀWFG  %\FORVLQJVWRFN 
 
7RGLVFRXQW %\JURVVSURÀW 
$OORZHG 
To bad debts  %\GLVFRXQW 
To general
H[SHQVHV:1 
7RGHSUHFLDWLRQ
:1 
7RQHWSURÀW 
 

Balance sheet as at 31st March, 2011

Liabilities Rs. Assets Rs.

&DSLWDOZ1  Sundry assets 
$GG$GGLWLRQDO  $GGQHZPDFKLQHU\ 
FDSLWDO 
1HWSURÀW  /HVVGHSUHFLDWLRQ  
Less: drawings   6WRFNLQWUDGH 
 ACCOUNTS

6XQGU\FUHGLWRUV   Sundry debtors 

([SHQVHVRXWVWDQGLQJ  :1
Cash in hand 
&DVKLQEDQN 
 

Working Notes:
    Statement of Affairs as At 31st March 2011

Liabilities Rs. Assets Rs.

6XQGU\FUHGLWRUV  Sundry assets 
2XWVWDQGLQJH[SHQVHV  6WRFN 
5DPMLVFDSLWDO Debtors 
EDODQFLQJÀJXUH  Cash in hand 
&DVKDWEDQN 
 

     Sundry debtors account

Rs. Rs
7REDODQFHEG  %\FDVK 
7RVDOHV  %\GLVFRXQW 

%\UHWXUQVVDOHV 

%\EDGGHEWV 
%\EDODQFHFGEDOÀJ 
 

     Sundry creditors Account

Rs. Rs.
7REDQNSD\PHQWV  %\EDODQFHEG 
7RGLVFRXQW  E\SXUFKDVHVFUHGLW 
To returns  EDODQFLQJÀJXUH
7REDODQFHFGFORVLQJEDODQFH 
 
 ACCOUNTING FOR INCOMPLETE RECORDS 

(4)

'HSUHFLDWLRQRQÀ[HGDVVHWV Rs.
2SHQLQJEDODQFH 
$GG$GGLWLRQV 

/HVVFORVLQJEDODQFH 
'HSUHFLDWLRQ 

 H[SHQVHVWREHVKRZQLQSURÀWDQGORVVDFFRXQW
 ([SHQVHVLQFDVK 
 $GGRXWVWDQGLQJRI 
  
 /HVVRXWVWDQGLQJRI 
  

(6) Cash and bank account

Cash Bank Cash Bank

5V 5V 5V 5V
7REDODQFHEG   %\SXUFKDVHV 
7RFDSLWDO  %\H[SHQVHV 
To debtors  %\SODQWDQG 
PDFKLQHU\
7REDQN  %\GUDZLQJV 
7RFDVK  %\FUHGLWRUV 
To sales  %\FDVK 
%\EDQN 
%\EDODQFHFG  

   

  ACCOUNTS

QUESTION NO 10 (MASTER PROBLEM)

0U$QXSUXQVDZKROHVDOHEXVLQHVVZKHUHLQDOOSXUFKDVHVDQGVDOHVDUHPDGHRQFUHGLW+H
IXUQLVKHVWKHIROORZLQJFORVLQJEDODQFHV

31-12-91 31-12-92
Sundry debtors  
%LOOVUHFHLYDEOH  
%LOOVSD\DEOH  
6XQGU\FUHGLWRUV  
6WRFN  
%DQN  
Cash  

Summary of cash transactions during 1991-92:

L '
 HSRVLWHGWREDQNDIWHUSD\PHQWRIVKRSH[SHQVHV#5VSPZDJHV#5V
SPDQGSHUVRQDOH[SHQVHV#5VSP5V
LL :LWKGUDZDOV5V
LLL &DVKSD\PHQWWRVXSSOLHUV5VIRUVXSSOLHVDQG5VIRUIXUQLWXUH
LY &KHTXHVFROOHFWHGIURPFXVWRPHUVEXWGLVKRQRUHG5V
Y %LOOVDFFHSWHGE\FXVWRPHUV5V
YL %LOOVHQGRUVHG5V
YLL %LOOVGLVFRXQWHG5VGLVFRXQW5V
YLLL %LOOVPDWXUHGDQGGXO\FROOHFWHG5V
L[ %LOOVDFFHSWHG5V
[ 3DLGVXSSOLHUVE\FKHTXH5V
[L 5HFHLYHG5VRQPDWXULW\RIRQH/,&SROLF\RIWKHSURSULHWRUE\FKHTXH
[LL 5HQWUHFHLYHG5VE\FKHTXH
[LLL $
  EXLOGLQJ ZDV SXUFKDVHG RQ  IRU RSHQLQJ D EUDQFK IRU 5V  DQG
VRPHH[SHQVHVZHUHLQFXUUHGGHWDLOVRIZKLFKDUHQRWPDLQWDLQHG
[LY (OHFWULFLW\DQGWHOHSKRQHELOOVSDLGE\FDVK5VGXH5V

Other transactions:
D &ODLPDJDLQVWWKHILUPIRUGDPDJHV5VLVXQGHUOHJDOGLVSXWH/HJDOH[SHQVHV
5V7KHILUPDQWLFLSDWHVGHIHDWLQWKHVXLW
 ACCOUNTING FOR INCOMPLETE RECORDS 

E *RRGVUHWXUQHGWRVXSSOLHUV5V
F *RRGVUHWXUQHGE\FXVWRPHUV5V
G 'LVFRXQWRIIHUHGE\VXSSOLHUV5V
H 'LVFRXQWRIIHUHGWRWKHFXVWRPHUV5V
I 7KHEXVLQHVVLVFDUULHGRQDWWKHSUHPLVHVRZQHGE\WKHSURSULHWRURIWKHJURXQG
IORRU VSDFHLV XVHG IRU EXVLQHVV DQG UHPDLQLQJ  LV OHW RXW IRU DQ DQQXDO UHQW RI
5V

3UHSDUH7UDGLQJDQG3URÀWDQG/RVVDFFRXQWRI0U$QXSIRUWKH\HDUHQGHGDQG
D%DODQFH6KHHWDVRQWKDWGDWH

QUESTION NO 11 (MASTER PROBLEM)

$9/LVDQXQHPSOR\HGVFLHQFHJUDGXDWHZLWKW\SHZULWLQJTXDOLÀFDWLRQ%HLQJXQDEOHWRJHW
HPSOR\PHQWIRUPRUHWKDQ5VSPKHGHFLGHGWRVWDUWKLVRZQW\SHZULWLQJLQVWLWXWH
+HDSSURDFKHG8%&%DQNZKLFKVDQFWLRQHGKLPDORDQRI5VRQ+LVIDWKHU
JLIWHGKLP5VRQWKHVDPHGDWH+HSXUFKDVHGW\SHZULWHUVZRUWK5V
8QDEOHWRXQGHUVWDQGWKHDFFRXQWVSURSHUO\KHVHHNV\RXUKHOSLQSUHSDULQJD3URÀWDQG
/RVVDFFRXQWDQGD%DODQFH6KHHWUHODWLQJWRWKH\HDUHQGLQJ+LVSDVVERRN
reveals the following:

D ([SHQVHVRIWKHLQVWLWXWH5V
E 6DODU\WRVHOI5V
F 0RQWKO\IHHVFROOHFWHG5V7RWDOHG
G ([DPLQDWLRQIHHVFROOHFWHG5V

The following other additional details available:

D 'XULQJWKH\HDU$9/SXUFKDVHGDVHFRQGKDQGF\FOHFRVWLQJ5VIURPDVWXGHQWZKR
RZHGPRQWKO\IHHVRI5V7KHEDODQFHZDVSDLG7KHF\FOHLVXVHGIRUWKHLQVWLWXWH
only.
E $9/KHOSHGDIULHQGE\HQFDVKLQJDFKHTXHIRU5VZKLFKZDVGLVKRQRUHG7KH
IULHQGKDVVRIDUUHSDLGRQO\5V
F $9/KDVWDNHQ5VSHUPRQWKIRUSHUVRQDOH[SHQVHVLQDGGLWLRQWRKLVVDODU\
G $9/UXQVWKHLQVWLWXWHIURPKLVKRXVHIRUZKLFKDUHQWRI5VSHUPRQWKLVSDLG
PD\UHDVRQDEO\EHDOORFDWHGIRUKLVRZQOLYLQJ
  ACCOUNTS

H 7KHIROORZLQJDUHRXWVWDQGLQJDVDWHQGRI

Rs.
)HHVUHFHLYDEOH 
([SHQVHVSD\DEOH 
6DODU\WRVHOIIRU1RYHPEHUDQG'HF
6WRFNRIVWDWLRQDU\RQKDQG 

 3URYLGHGHSUHFLDWLRQRQW\SHZULWHUVDQGF\FOH
J 7KH ORDQ IURP EDQN LV UHSD\DEOH DW 5V SHU PRQWK IURP WKH EHJLQQLQJ RI -XO\
RQZDUGV,QWHUHVWLVSD\DEOHDWSHUDQQXPLQDGGLWLRQWRLQVWDOOPHQWVIRUSULQFLSDO
K $VVXPHWKDWDOOWUDQVDFWLRQVDUHURXWHGWKURXJKEDQNDQGQRFDVKLVKDQGOHG

QUESTION NO 12 (MASTER PROBLEM)

,QGLDQ 7UDYHO $JHQF\ VHOOV WLFNHWV IRU ,QODQG 7UDQVSRUW /LPLWHG %KDUDW $LU /LQHV DQG
*RYHUQPHQW5DLOZD\V7KHUDWHRIFRPPLVVLRQGXHWR$JHQF\RQDFFRXQWRIVDOHVRIWLFNHWV
DUHSHUFHQWSHUFHQWDQGSHUFHQWUHVSHFWLYHO\RQWKHVDOHSULFHRIWLFNHWV7KH
ÀUP FORVHV LWV ERRNV RQ st 'HFHPEHU 7KH EDODQFHV DV RQ st 'HFHPEHU  ZHUH DV
follows:

Rs. Rs.
Capital 
'HSRVLWVIURPFXVWRPHUVRI,QODQG7UDQVSRUW/LPLWHG 
'HSRVLWVIURPJHQHUDOSXEOLF 
Interest due for half year on above 
$XGLWRUV·IHHV 
$GYHUWLVLQJ 
5DWHVDQGWD[HV 
)L[WXUHVDQGÀWWLQJV 
0RWRUFDU 
'HEWRUVIRU5DLO7LFNHWV 
'HEWRUVIRU$LU7LFNHWV 
5HQWSDLGLQDGYDQFH 
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Other available particulars are:

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Rs.
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Inland Transport Limited 
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same date.

QUESTION NO 13 (TRADE DISCOUNT)

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/RVVDFFRXQWIRUWKH\HDUHQGHGst0DUFKDQGWKH%DODQFH6KHHWDVRQWKDWGDWH

Liabilities and assets 31.3.1992 31.3.1993

Rs. Rs.
Car  
Furniture  
6WRFN  
Debtors  
%DQN  
Creditors  ?

The following further information is also available:

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GLVFRXQWRIRQJRRGVSXUFKDVHGLQH[FHVVRI5VLQD\HDU7KHGLVFRXQW
IRUWKH\HDUHQGHGst0DUFKZDV5V
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F %DQNVWDWHPHQWVIRUWKH\HDUUHYHDOWKHIROORZLQJSD\PHQWV

Rs.
Creditors 
Salaries 
&DUH[SHQVHV 
 ACCOUNTING FOR INCOMPLETE RECORDS 

5HQW 
Printing and stationary 
5DWHVDQGWD[HV 
Carriage outward 
7UDYHOLQJH[SHQVHV 
'HOLYHU\YDQSXUFKDVH 
0LVFHOODQHRXVH[SHQVHV 
Drawings 

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RQ
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QUESTION NO 14 (MASTER PROBLEM)

.$]DGZKRLVLQEXVLQHVVDVDZKROHVDOHULQVXQÁRZHURLOLVDFOLHQWRI\RXUDFFRXQWLQJÀUP
<RXDUHUHTXLUHGWRGUDZXSKLVÀQDODFFRXQWVIRUWKH\HDUHQGHG
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Balance Sheet as at 31.3.1995

Liabilities Rs. Rs.

.$]DG·VFDSLWDO 
&UHGLWRUVIRURLOSXUFKDVHV 
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5HQW 
Salaries 
Commission 

 ACCOUNTS

Assets Rs. Rs.

&DVKDQGEDQNEDODQFH 
Debtors 
6WRFNRIRLOWLQV 
Furniture 
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Cash and Bank Summary

Rs.
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Payments:
To Landlord 
Salaries 
0LVFHOODQHRXVRIÀFHH[SHQVHV 
Commission 
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To Creditors for oil supplies 

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figure of payments to landlord.
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QUESTION NO 15

7KHIROORZLQJLVWKH%DODQFH6KHHWRI6DQMD\DVPDOOWUDGHUDVRQ
)LJXUHVLQ5V¶

Liabilities Rs. Assets Rs.

Capital  )L[HGDVVHWV 145
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Cash on hand 5
&DVKDWEDQN 
 

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  ACCOUNTS

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account.

QUESTION NO 16

)ROORZLQJLVWKHDEULGJHG%DODQFH6KHHWRIWKH(YHUHVW&RPSDQ\/LPLWHGDVDWst0DUFK

Balance Sheet as on 31st March 1996

Rs. Rs. Rs.

3DLGXSVKDUHFDSLWDO  Freehold property 
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Current liabilities  6WRFNV 
Debtors 
%DQN 
 

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%DODQFH6KHHWDVDWst0DUFK

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The debentures were issued on 1st$SULOLQWHUHVWEHLQJSDLGRQth September

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of two months.
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QUESTION NO 17 (MASTER PROBLEM)

6KUL5DVKLGIXUQLVKHV\RXZLWKWKHIROORZLQJLQIRUPDWLRQUHODWLQJWRKLVEXVLQHVV
Assets and Liabilities:

Assets and liabilities as on 1.1.1997 31.12.1997

Rs. Rs.
)XUQLWXUHZGY  
6WRFNDWFRVW  
Sundry debtors  ?
6XQGU\FUHGLWRUV  
3UHSDLGH[SHQVHV  
8QSDLGH[SHQVHV  
&DVKLQKDQGDQGDWEDQN  

5HFHLSWVDQGSD\PHQWVGXULQJ
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EDQNWRWDOOHGWR5V
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  ACCOUNTS

 ,QYHVWPHQWFDUU\LQJDQQXDOLQWHUHVWRIZHUHSXUFKDVHGDW5VRQst-XO\
and payment made therefore.
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QUESTION NO 18 (GOOD QUESTION)

7KHIROORZLQJLVWKH%DODQFH6KHHWRIWKHUHWDLOEXVLQHVVRI6UL6ULQLYDVDVDWst'HFHPEHU


Liabilities Rs. Assets Rs.

6UL6ULQLYDV·VFDSLWDO  Furniture 
Liabilities for goods  6WRFN 
5HQW  Debtors 
&DVKLQEDQN 
Cash in hand 
 

<RXDUHIXUQLVKHGZLWKWKHIROORZLQJLQIRUPDWLRQ

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 ACCOUNTING FOR INCOMPLETE RECORDS 

$QDO\VLVRIWKHEDQN3DVVERRNIRUWKHZHHNVSHULRGHQGLQJst0DUFKGLVFORVHG
the following:

Rs.
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$PRXQWVGHSRVLWHGLQWRWKHEDQN 
LQFOXGH5VUHFHLYHGIURPGHEWRUVE\FKHTHXV

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 6WRFN        
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DQGDOVRD3URÀWDQG/RVVDFFRXQWIRUWKHSHULRGHQGHGst0DUFKDQGD%DODQFH6KHHW
as on that date.

QUESTION NO 19 (OUT OF COURSE NOW)

6KUL .LVDQ D IDUPHU PDLQWDLQV D FDVK ERRN WKURXJK ZKLFK KH UHFRUGV DOO UHFHLSWV DQG
SD\PHQWVDQGDGLDU\LQZKLFKKHUHFRUGVRWKHUUHOHYDQWLQIRUPDWLRQ2Qst0DUFK
KHKDGFDVKLQKDQG5VDQGEDODQFHRI5VZLWKORFDO*UDPHHQ%DQN+HDOVRRZHG
5VWR%HHM%KDQGDUIRUVHHGVSXUFKDVHGE\WKDWGDWH
'XULQJWKH\HDUHQGHGst0DUFKKHUHDOLVHG

Rs.
6DOHSURFHHGVRIFURSV 
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6DOHSURFHHGVRIZRRGDQGJUDVV 
6DOHRIFRZGXQJ 
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*UDQWIURP=LOOD3DULVKDGIRULQVWDOOLQJWXEHZHOO³FKHTXH 
 ACCOUNTS

'XULQJWKH\HDUHQGHGst0DUFKKHSDLG

Rs.
Wages 
%HHM%KDQGDU 
Seeds, feeds and fertilizer 
Power 
Land revenue 
7RROVSXUFKDVHG 
+RXVHKROGH[SHQVHV 

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Rs.
L 6DOHRIFURSWR%DEXRQFUHGLW 
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one month seeds of 
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Self and family

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QUESTION NO 20 (GOOD QUESTION)

$WUDGHU NHHSVKLVERRNVRIDFFRXQWXQGHU VLQJOHHQWU\V\VWHP2Q st0DUFK KLV

statement of affairs stood as follows:
 ACCOUNTING FOR INCOMPLETE RECORDS 

Liabilities Rs. Assets Rs.

7UDGHFUHGLWRUV  )XUQLWXUH)L[WXUHVDQG)LWWLQJV 
%LOOVSD\DEOH  6WRFN 
2XWVWDQGLQJH[SHQVHV  Trade debtors 
&DSLWDODFFRXQW  %LOOVUHFHLYDEOHV 
8QH[SLUHGLQVXUDQFH 
&DVKLQKDQGDQGDWEDQN 
 

7KHIROORZLQJZDVWKHVXPPDU\RI&DVKERRNIRUWKH\HDUHQGHGst0DUFK

Receipts Rs. Payments Rs.

&DVKLQKDQGDQGDWEDQNDVRQ 3D\PHQWWRWUDGHFUHGLWRUV 
1st$SULO  Payment for bills payable 
Cash sales  6XQGU\H[SHQVHVSDLG 
5HFHLSWVIURPWUDGHGHEWRUV  Drawings 
5HFHLSWVIRUELOOVUHFHLYDEOH  &DVKLQKDQGDQGDWEDQNDV
RQst0DUFK 

 

'LVFRXQW DOORZHG WR WUDGH GHEWRUV DQG UHFHLYHG IURP WUDGH FUHGLWRUV DPRXQWHG WR
5VDQG5VUHVSHFWLYHO\%LOOVHQGRUVHGDPRXQWHGWR5V$QQXDO)LUH
,QVXUDQFHSUHPLXPRI5VZDVSDLGHYHU\\HDURQst$XJXVWIRUWKHUHQHZDORIWKH
SROLF\)XUQLWXUH)L[WXUHVDQG)LWWLQJVZHUHVXEMHFWWRGHSUHFLDWLRQ#SHUDQQXPRQ
GLPLQLVKLQJEDODQFHVPHWKRG
<RXDUHLQIRUPHGDERXWWKHIROORZLQJEDODQFHVDVRQst0DUFK

Rs.
6WRFN 
Trade Debtors 
%LOOV5HFHLYDEOHV 
%LOOV3D\DEOHV 
2XWVWDQGLQJH[SHQVHV 
 ACCOUNTS

7KHWUDGHUPDLQWDLQVDVWHDG\JURVVSURÀWUDWLRRIRQVDOHV
3UHSDUHWKH7UDGLQJDQG3URÀWDQG/RVVDFFRXQWIRUWKH\HDUHQGHGst0DUFKDQG
%DODQFH6KHHWDVDWWKDWGDWH

QUESTION NO 21

7KHIROORZLQJLVWKH%DODQFH6KHHWRIDFRQFHUQRQst0DUFK

Rs. Rs.
Capital  )L[HGDVVHWV 
&UHGLWRUV7UDGH  6WRFN 
3URÀWDQG/RVVDFFRXQW  Debtors 
&DVKDQGEDQN 

 

7KHPDQDJHPHQWHVWLPDWHVWKHSXUFKDVHVDQGVDOHVIRUWKH\HDUHQGHGst0DUFKDV
under:

Up-to March
28.2.2001 2001

3XUFKDVHV 5V 

Sales  

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#RQFRVW
7KHWLPHODJIRUSD\PHQWWRWUDGHFUHGLWRUVIRUSXUFKDVHDQGUHFHLSWIURPVDOHVLVRQH
PRQWK7KHEXVLQHVVHDUQVDJURVVSURÀWRIRQWXUQRYHU7KHH[SHQVHVDJDLQVWJURVV
SURÀWDPRXQWWRRIWKHWXUQRYHU7KHDPRXQWRIGHSUHFLDWLRQLVQRWLQFOXGHGLQWKHVH
H[SHQVHV
'UDIWD%DODQFH6KHHWDVDWst0DUFKDVVXPLQJWKDWFUHGLWRUVDUHDOOWUDGHFUHGLWRUV
IRU SXUFKDVHV DQG GHEWRUV IRU VDOHV DQG WKHUH LV QR RWKHU LWHP RI FXUUHQW DVVHWV DQG
OLDELOLWLHVDSDUWIURPVWRFNDQGFDVKDQGEDQNEDODQFHV
 ACCOUNTING FOR INCOMPLETE RECORDS 

QUESTION NO 22

$VVHWVDQGOLDELOLWLHVRI0U;DVRQDQGDUHDVIROORZV

31-12-97 31-12-98
Rs. Rs.
$VVHWV
%XLOGLQJ 
Furniture 
6WRFN  
Sundry debtors  
&DVKDWEDQN  
Cash in hand  
Liabilities:
Loans  
6XQGU\FUHGLWRUV  

'HFLGHGWRGHSUHFLDWHEXLOGLQJE\DQGIXUQLWXUHE\2QHOLIHLQVXUDQFHSROLF\RI
WKHSURSULHWRUZDVPDWXUHGGXULQJWKHSHULRGDQGWKHDPRXQW5VLVUHWDLQHGLQWKH
EXVLQHVV3URSULHWRUWRRN#5VSPIRUPHHWLQJIDPLO\H[SHQVHV
Prepare statement of affairs.

QUESTION NO 23

$VVHWVDQGOLDELOLWLHVRI0U;DVRQDQGDUHDVIROORZV

31-12-97 31-12-98
Rs. Rs.
$VVHWV
%XLOGLQJ 
Furniture 
6WRFN  
Sundry debtors  
&DVKDWEDQN  
Cash in hand  
  ACCOUNTS

Liabilities:
Loans  
6XQGU\FUHGLWRUV  

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WKHSURSULHWRUZDVPDWXUHGGXULQJWKHSHULRGDQGWKHDPRXQW5VLVUHWDLQHGLQWKH
EXVLQHVV3URSULHWRUWRRN#5VSPIRUPHHWLQJIDPLO\H[SHQVHV
)LQGRXWSURÀWRI0U;

QUESTION NO 24

0U;VWDUWHGDEXVLQHVVZLWK5VDVRQ+HWRRNDORDQRI5VIURP
6WDWH%DQNRI,QGLD#SD+HSXUFKDVHGLQYHVWHGIRUWKHIROORZLQJDVVHWV
Rs.
 )XUQLWXUH        
 7HOHSKRQH        
 'HSRVLWZLWK(OHFWULF6XSSO\$XWKRULW\   
+HGLGQRWPDLQWDLQDQ\ERRNVRIDFFRXQWV%XWKHPDLQWDLQHGDFFRXQWVIRUKLVGHEWRUVDQG
FUHGLWRUV'HEWRUVDVRQZHUH5VDQGFUHGLWRUV5V+HUHSDLG
ÀUVWLQVWDOOPHQWRIORDQ5VZLWKLQWHUHVW
'XULQJWKH\HDUKHZLWKGUDZ#5VSP,WDSSHDUHGWKDWVWRFNLQKDQGZDV5V
+LVRWKHUOLDELOLWLHVZHUH

Rs.
8QSDLGZDJHVIRU'HFHPEHU 
8QSDLGVKRSUHQW 
8QSDLGHOHFWULFLW\ELOO 
8QSDLGWHOHSKRQHELOO 
+HIRXQGWKDWWKHIROORZLQJDGYDQFHVZHUHPDGH
For advertisement 
)RUSXUFKDVHRIDVKRZFDVH 
Suppliers 

2QVFUXWLQ\LWZDVIRXQGKHVHQWJRRGVZRUWK5VRQFRQVLJQPHQWEDVLVWR0U<.
<.VROGRIWKHFRQVLJQPHQWDWRIFRVW0U;PHWDOOUHODWHGFRVW0U<.SDLG
 ACCOUNTING FOR INCOMPLETE RECORDS 

RIWKHVDOHSURFHHGV+HLVHQWLWOHGWRFRPPLVVLRQRQVDOHV)XUQLWXUHVKRXOGEH
GHSUHFLDWHG E\  SHU DQQXP &DVK DW WKH HQG 5V 'HSRVLWV ZLWK WHOHSKRQH DQG
HOHFWULFLW\VXSSO\DXWKRULWLHVKDYHEHHQDGMXVWHGDJDLQVWFXUUHQW\HDU·VELOO
)LQGRXWSURÀWHDUQHGE\0U;GXULQJ

QUESTION NO 25

7KHIROORZLQJLVWKH%DODQFH6KHHWRI0U5DPDVKDQNDUDVRQth-XQH

Rs. Rs.
5DPD6KDQNDU·V&DSLWDO  %XLOGLQJ 
*HQHUDO5HVHUYH  Furniture 
Creditors  0RWRUFDU 
6WRFN 
Debtors 
Cash in hand 
&DVKDW%DQN 
 

$ÀUHRFFXUUHGLQWKHHYHQLQJRIth-XQHLQWKHSUHPLVHVRIWKHWUDGHUGHVWUR\LQJ
DOOWKHERRNVDQGUHFRUGV7KHFDVKLHUDEVFRQGHGZLWKWKHDYDLODEOHFDVK0U5DPDVKDQNDU
gives you the following information:

D +LVVDOHVIRUWKH\HDUKLJKHUWKDQWKHSUHYLRXV\HDU·V+HVHOOVKLVJRRGVDWFRVW
SOXVRIWKHWRWDOVDOHVZHUHIRUFDVK7KHUHZHUHQRFDVKSXUFKDVHV
b. From 1st-XO\WKHVWRFNOHYHOZDVUDLVHGWR5VDQGPDLQWDLQHGDWWKDW
level all throughout the year.
F &ROOHFWLRQIURP'HEWRUVDPRXQWHGWR5VRIZKLFK5VZDVUHFHLYHGLQ
FDVK%XVLQHVVH[SHQVHVDPRXQWHG5VRIZKLFKRI5VZDVRXWVWDQGLQJ
RQth-XQHDQG5VZDVSDLGE\FKHTXHV&UHGLWRUVZHUHSDLGE\&KHTXHV
only.
G $QDO\VLVRIWKHSDVVERRNUHYHDOHGWKHIROORZLQJ
 L 3D\PHQWWRFUHGLWRUV  5V
 LL 3HUVRQDOGUDZLQJV   5V
 LLL &DVKGHSRVLWHGLQEDQN  5V
 LY &DVKZLWKGUDZQIURPEDQN  5V
 ACCOUNTS

H *URVVSURILWDVSHUODVW\HDU·VDXGLWHGDFFRXQWVZDV5V3URYLGHGHSUHFLDWLRQ
RQEXLOGLQJDQGIXUQLWXUHDWDQGPRWRUFDU
<RXDUHUHTXLUHGWRDVFHUWDLQWKHDPRXQWGHIDOFDWHGE\WKHFDVKLHUDQGSUHSDUHWKHWUDGLQJ
DQG3URÀWDQG/RVV$FFRXQWIRUWKH\HDUWKHHQGHGth-XQHDQGD%DODQFH6KHHWDV
RQWKHWKDWGDWHDIWHUGHIDOFDWLRQ

QUESTION NO 26

7KH,72DVVXPLQJWKHLQFRPHRI6KUL0RWLIRUWKHÀQDQFLDO\HDUDQG
IHHOVWKDW6KUL0RWLKDVQRWGLVFORVHGWKHIXOOLQFRPH+HJLYHV\RXWKHIROORZLQJSDUWLFXODUV
of assets and liabilities of Shri Moti on 1st$SULODQGst$SULO

Rs.
 $VVHWV Cash in hand 
6WRFN 
Sundry debtors 
Land and building 
:LIH·VMHZHOOHU\ 
Liabilities: 2ZLQJWR0RWL·V%URWKHU 
6XQGU\FUHGLWRUV 
 $VVHWV Cash in hand 
6WRFN 
Sundry debtors 
Land and building 
0RWRUFDU 
:LIH·VMHZHOOHU\ 
/RDQWR0RWL·V%URWKHU 
Liabilities: 6XQGU\FUHGLWRUV 

'XULQJWKHWZR\HDUVWKHGRPHVWLFH[SHQGLWXUHZDV5VSP7KHGHFODUHGLQFRPHRI
WKHÀQDQFLDO\HDUVZHUH5VIRUDQG5VIRUUHVSHFWLYHO\
6WDWHZKHWKHUWKH,72·VFRQWHQWLRQLVFRUUHFW([SODLQE\JLYLQJ\RXUZRUNLQJV
 ACCOUNTING FOR INCOMPLETE RECORDS 

QUESTION NO 27

0U$VKRN.HHSKLVERRNVLQ6LQJOH(QWU\V\VWHP)URPWKHIROORZLQJ,QIRUPDWLRQSUHSDUH
7UDGLQJDQG3URÀW /RVV$FFRXQWIRUWKH\HDUHQGHGstHQGHGst0DUFKDQGWKH
%DODQFH6KHHWDVRQWKDWGDWH

Assets and Liabilities 31.3.2005 31.3.2006

(Rs.) (Rs.)
Sundry Creditors  
2XWVWDQGLQJH[SHQVHV  
)L[HV$VVHWV  
6WRFN  
&DVKLQ+DQGDQGDW%DQN  
Sundry Debtors ? 

)ROORZLQJIXUWKHUGHWDLOVDUHDYDLODEOHIRUWKH&XUUHQW<HDU

Rs. Rs.
&DVKUHFHLYDEOHIURP  &DVKSXUFKDVHV 
debtors

5HWXUQVLQZDUG  )L[HG$VVHWVSXUFKDVHG

%DG'HEWV  $QGSDLGE\FKHTXH 
Total Sales  'UDZLQJVE\FKHTHXV 
'LVFRXQWUHFHLYHG  'HSRVLWHGLQWRWKHEDQN 
5HWXUQRXWZDUGV  :LWKGUDZQIURPEDQN 
&DSLWDOLQWURGXFHG Cash in hand at the end 
SDLGLQWREDQN  3DLGWRFUHGLWRUVE\FKHTXHV 
&KHTXHVUHFHLYHGIURP  ([SHQVHVSDLG 
debtors
 ACCOUNTS

ANSWER
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDING ON 31.03.2006

Particulars Amount Particulars Amount

72RSHQLQJVWRFN  %\VDOHV
7RSXUFKDVHV Cash 
Cash  Credit 
Credit W.N # 3  %\3XUFKDVHUHWXUQ 
To sale return  %\FORVLQJVWRFN 
7RJURVVSURÀW 

 

7R([SHQVHV  %\JURVVSURÀW 35,000

 %\GLVFRXQWUHFHLYHG 
To bad debts 
7R'LVFRXQW 
7R'HSUHFLDWLRQ 
7RQHWSURÀW 
 

BALANCE SHEET AS ON 31.03.2006

LIABILITIES Amount ASSETS Amount

&DSLWDO  )L[HG$VVHWV 
3URÀW  6WRFN 
'UDZLQJV  Debtors 
$GGLWLRQDO  Cash on hand 
------------- 
Creditors 
2XWVWDQGLQJH[S 

 
 ACCOUNTING FOR INCOMPLETE RECORDS 

W.N # 1
Cash and Bank Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\FDVKSXUFKDVHV 
7RFDSLWDO  %\À[HGDVVHWV 
To debtors  %\GUDZLQJV 
7RFDVKVDOHV  %\FUHGLWRUV 
EDOÀJ %\H[SHQVHV 
%\EDODQFHFG 

 

W.N # 2
Debtors Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNFROOHFWLRQ 
%\EDGGHEWV 
7RFUHGLWVDOH  %\VDOHVUHWXUQ 
 %\GLVFRXQW 
%\EDODQFHFG 

 

W.N # 3
Creditors Account

Particulars Amount Particulars Amount

7REDQNSD\PHQW  %\EDODQFHEG 
7RSXUFKDVHUHWXUQ  %\FUHGLWSXUFKDVHV 
7RGLVFRXQW  EDOÀJ
7REDODQFHFG 

 
  ACCOUNTS

W.N # 4
STATEMENT OF AFFAIRS AS ON 31.03.2005

LIABILITIES Amount ASSETS Amount

Capital (BAL.FIG.) 49,500 )L[HG$VVHWV 
6WRFN 
Creditors  Debtors 
2XWVWDQGLQJH[S  &DVKRQKDQG 
 

W.N # 5
)L[HG$VVHWVDFFRXQW

Particulars Amount Particulars Amount

7REDODQFHEG  %\GHSUHFLDWLRQ 
7REDQN  %\EDODQFHFG 
 

W.N # 6
 &DVKUHFHLYDEOHIURPGHEWRUV 
 &ROOHFWLRQ 
 %DGGHEWV 
 5HWXUQLQZDUG 
------------
 'LVFRXQW 

QUESTION NO 28 (SAME QUESTION AS Q.20)

0U<.HHSVKLVERRNVXQGHUVLQJOHHQWU\V\VWHP2Qst0DUFKKLVEDODQFH6KHHW
was as follows:

Liabilities Rs. Assets Rs.

&DSLWDORI0U<  )L[HGDVVHWV 
Creditors  6WRFN 
%LOOVSD\DEOH  Debtors 
 ACCOUNTING FOR INCOMPLETE RECORDS 

([SHQVHVRXWVWDQGLQJ  %LOOVUHFHLYDEOH 

3UHSDLGLQVXUDQFH 
&DVK%DQNEDODQFH 
 

L )ROORZLQJ DUH WKH VXPPDU\ RI FDVK DQG EDQN WUDQVDFWLRQV IRU WKH  \HDU HQGHG st
0DUFK

Rs.
L Cash sales 
&ROOHFWLRQIURPGHEWRUV 
3D\PHQWVWRFUHGLWRUV 
Paid for bills payable 
6XQGU\H[SHQVHVSDLG 
'UDZLQJIRUGRPHVWLFH[SHQVHVE\0U< 
&DVKDQGEDQNEDODQFHDVRQ 
LL )ROORZLQJIXUWKHUGHWDLOVDUHÀQLVKHG
*URVVSURÀWRQVDOHV#
%LOOVUHFHLYDEOHIURPGHEWRUVGXULQJWKH\HDU 
'LVFRXQWDOORZHGWRGHEWRUV 
'LVFRXQWUHFHLYHGIURPFUHGLWRUV 
%LOOVUHFHLYDEOHHQGRUVHGWRFUHGLWRUV 
$QQXOÀUHLQVXUDQFHSUHPLXPSDLG
7KLVLVSDLGRQst$XJXVWHYHU\\HDU 
'HSUHFLDWHÀ[HGDVVHWV#
LLL %DODQFHVDVRQDUHJLYHQEHORZ 5V
6WRFNLQKDQG 
Debtors 
%LOOVUHFHLYDEOH 
%LOOVSD\DEOH 
2XWVWDQGLQJH[SHQVH 

3UHSDUH7UDGLQJSURÀWDQG/RVV$FFRXQWIRUWKH\HDUHQGHGst0DUFKDQG%DODQFHV
sheet on that date .
 ACCOUNTS

ANSWER:
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDING ON 31.03.2007

Particulars Amount Particulars Amount

72RSHQLQJVWRFN  %\VDOHV
7RSXUFKDVHV W.N # 5  Cash 
7RJURVVSURÀW  Credit W.N # 2 
%\FORVLQJVWRFN 

 

7R([SHQVHV(w.n#6)  %\JURVVSURÀW 14,04,750

7R'LVFRXQW  %\GLVFRXQWUHFHLYHG 
7R'HSUHFLDWLRQ 
7RQHWSURÀW 

 

BALANCE SHEET AS ON 31.03.2007

LIABILITIES Amount ASSETS Amount

&DSLWDO  )L[HG$VVHWV 
3URÀW  
'UDZLQJV  6WRFN 
-------------  Debtors 
%LOOVUHFHLYDEOH 
%LOOVSD\DEOH  3UHSDLGLQVXUDQFH 
Creditors  Cash on hand 
2XWVWDQGLQJH[SHQVHV 

 
 ACCOUNTING FOR INCOMPLETE RECORDS 

WORKING NOTES:
W.N # 1
Bills Receivable Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\FDVKEDOÀJ 
To Debtors  %\&UHGLWRUV 
%\EDODQFHFG 

 

W.N # 2
Debtors Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNFROOHFWLRQ 
%\GLVFRXQW 
7RFUHGLWVDOH%DOÀJ  %\ELOOVUHFHLYDEOH 
%\EDODQFHFG 

 

W.N # 3
Bills Payable Account

Particulars Amount Particulars Amount

7REDQNSD\PHQW  %\EDODQFHEG 
%\FUHGLWRUV 
7REDODQFHFG  EDOÀJ

 
 ACCOUNTS

W.N # 4
Creditors Account

Particulars Amount Particulars Amount

7REDQNSD\PHQW  %\EDODQFHEG 
7RGLVFRXQW  %\FUHGLWSXUFKDVHV 
7R%5HQGRUVHG 
7R%3 
7REDODQFHFGEDOÀJ 
 

W.N # 5
Calculation of Purchases
&2*6 2SHQLQJ6WRFN3XUFKDVHV&ORVLQJ6WRFN
 3XUFKDVHV
3XUFKDVHV 
W.N # 6
([SHQVHV$FFRXQW

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDODQFHEG 
7RFDVK  %\SURÀWORVV 
7REDODQFHFG  EDOÀJ
%\EDODQFHFG 
 

QUESTION NO 29

7KHERRNVRI0U=VKRZHGWKHIROORZLQJLQIRUPDWLRQ

1.1.2007 31.12.2007
Rs. Rs.
%DQNEDODQFH - 
Debtors - 
Creditors - 
 ACCOUNTING FOR INCOMPLETE RECORDS 

6WRFN  

)L[HG$VVHWV  

7KHIROORZLQJDUHWKHGHWDLOVRIWKHEDQNWUDQVDFWLRQV
5V
5HFHLSWIURPFXVWRPHUV 
3D\PHQWWRFUHGLWRUV 
Capital brought in 
6DOHRI)L[HGDVVHWV 
([SHQVHVSDLG 
Drawings 
3XUFKDVHRI)L[HGDVVHWV 
2WKHULQIRUPDWLRQ
L Cost of goods sold 
LL *URVVSURÀWRQFRVWRIJRRGVVROG
LLL %RRNVYDOXHRIDVVHWVVROG 

3UHSDUH7UDGLQJ3URÀW /RVVDFFRXQWIRUWKH\HDUHQGHGDQG%DODQFH6KHHW
DVDW

QUESTION NO 30 (ALL FIGURES ARE DOUBLE OF Q.15)

)ROORZLQJLVWKHEDODQFH6KHHWRI0U5DPDVPDOOWUDGHUDVRQst0DUFK

Liabilities Rs. Assets Rs.

Creditors  Cash 
Capital  %DQN 
6WRFN 
Debtors 
)L[HG$VVHWV 
 

$ÀUHRFFXUUHGRQWKHQLJKWRIst0DUFKGHVWUR\LQJWKHDFFRXQWLQJUHFRUGVDVZHOO
DVWKHFORVLQJFDVKRIWKHWUDGHU+RZHYHUWKHIROORZLQJLQIRUPDWLRQZDVDYDLODEOH
  ACCOUNTS

L 'HEWRUVDQGFUHGLWRUVDVRQst0DUFKVKRZHGDQLQFUHDVHRIDVFRPSDUHG
WRst0DUFK
LL Credit period:
Debtors: 1 month
 &UHGLWRUVPRQWKV
LLL 6WRFNZDVPDLQWDLQHGDWWKHVDPHOHYHOWKURXJKRXWWKH\HDU
LY &DVKVDOHVFRQVWLWXWHGDWRIWKHWRWDOVDOHV
Y $OOSXUFKDVHVZHUHRQFUHGLWEDVLVRQO\
YL &XUUHQWUDWLRRQst0DUFKZDVH[DFWO\
YLL 7RWDOH[SHQVHVH[FOXGLQJGHSUHFLDWLRQIRUWKH\HDUDPRXQWHGWR5V
YLLL'HSUHFLDWLRQZDVSURYLGHG#RQWKHFORVLQJERRNYDOXHRIIL[HGDVVHWV
L[ %DQNDQGFDVKWUDQVDFWLRQVIRUWKHILQDQFLDO\HDUZHUHDVXQGHU
 D 3D\PHQWWRFUHGLWRUVLQFOXGHG5VE\FDVK
 E 5HFHLYHGIURPGHEWRUVLQFOXGHG5VE\ZD\RIFKHTX\H
 F &DVKGHSRVLWHGLQWRWKHEDQN5V
 G 3HUVRQDOGUDZLQJVIURP%DQN5V
 H )L[HGDVVHWVSXUFKDVHGDQGSDLGE\FKHTXHV5V
 I $VVXPHWKDWFDVKGHVWUR\HGE\ILUHLVZULWWHQRIILQWKH3URILWDQG/RVVDFFRXQW
you are required to prepare :
 L 7UDGLQJDQG3URILWDQG/RVVDFFRXQWRI6KUL5DPIRUWKH\HDUHQGHGst0DUFK

 LL $%DODQFH6KHHWDVDWWKDWGDWH

QUESTION NO 31

7KHERRNVRIDFFRXQWRI5XN0DDQRI0XPEDLVKRZHGWKHIROORZLQJÀJXUHV

31.3.2008 31.3.2008
Rs. Rs.
)XUQLWXUH )L[WXUHV  
6WRFN  
Debtors 
&DVKLQKDQG EDQN 
 ACCOUNTING FOR INCOMPLETE RECORDS 

Creditors  

%LOOV3D\DEOH  
2XWVWDQGLQJ6DODULHV  

$QDQDO\VLVRIWKHFDVKERRNUHYHDOHGWKHIROORZLQJ
Rs.
Cash Sales 
&ROOHFWLRQIURPGHEWRUV 
'LVFRXQWDOORZHGWRGHEWRUV 
&DVKSXUFKDVHV 
Payment to Creditors 
'LVFRXQWUHFHLYHGIURPFUHGLWRUV 
Payment for bills payable 
'UDZLQJVIRUGRPHVWLFH[SHQVHV 
Salaries paid 
5HQWSDLG 
6XQGU\WUDGHH[SHQVHV 

'HSUHFLDWLRQLVSURYLGHGRQIXUQLWXUH À[WXUHV#SDRQGLPLQLVKLQJEDODQFHVPHWKRG
5XN5XN0DDQPDLQWDLQVDVWHDG\JURVVSURÀWUDWHRIRQVDOHV
<RXDUHUHTXLUHGWRSUHSDUHWUDGLQJDQGSURÀWDQGORVVDFFRXQWIRU\HDUHQGHGst0DUFK
DQG%DODQFHVKHHWDVRQWKDWGDWH

ANSWER
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDING ON 31.03.2009
 ACCOUNTS

Particulars Amount Particulars Amount

7RRSHQLQJVWRFN  %\VDOHV
7RSXUFKDVHV Cash 
Cash  Credit W.N # 3 
Credit W.N # 1  %\FORVLQJVWRFN 
7RJURVVSURÀW 

 

To salaries (w.n#6)  %\JURVVSURÀW 6,80,000

7R5HQW  %\GLVFRXQWUHFHLYHG 
7RWUDGHH[SHQVHV 
7R'LVFRXQW 
7R'HSUHFLDWLRQ 
7RQHWSURÀW 

 

BALANCE SHEET AS ON 31.03.2009

LIABILITIES Amount ASSETS Amount

&DSLWDO  )L[HG$VVHWV
3URÀW  Furniture 
'UDZLQJV   6WRFN 
------------- 'HEWRUV:1 
Cash on hand 
%LOOVSD\DEOH 
Creditors 
2XWVWDQGLQJ6$/$5,(6 

 
 ACCOUNTING FOR INCOMPLETE RECORDS 

W.N # 1
Bills Payable Account

Particulars Amount Particulars Amount

7REDQNSD\PHQW  %\EDODQFHEG 
%\FUHGLWRUV 
7REDODQFHFG  EDOÀJ

 

W.N # 2
Creditors Account

Particulars Amount Particulars Amount

7REDQNSD\PHQW  %\EDODQFHEG 
7RGLVFRXQW  %\FUHGLWSXUFKDVHV 
7R%3  EDOÀJ
7REDODQFHFG 

 

W.N # 3
CALCULATION OF CREDIT SALES

Particulars Amount
2SHQLQJ6WRFN 
$GG3XUFKDVHV 
/HVV&ORVLQJVWRFN 

Cogs 
*S5DWLR2Q6DOHV 
7RWDO6DOHV; 
/HVVFUHGLW6DOHV 

 ACCOUNTS

W.N # 4
Debtors Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\EDQNFROOHFWLRQ 
%\GLVFRXQW 
7RFUHGLWVDOH  %\EDODQFHFG 
(BAL.FIG)
 

W.N # 5
Salaries Account

Particulars Amount Particulars Amount

7RFDVK  %\EDODQFHEG 
7REDODQFHFG  %\SURÀWORVV 
EDOÀJ
 

W.N # 6
Cash and Bank Account

Particulars Amount Particulars Amount

7REDODQFHEG  %\FDVKSXUFKDVHV 
7RFDVKVDOHV  %\FUHGLWRUV 
To debtors  %\ELOOVSD\DEOH 
%\GUDZLQJV 
%\VDODULHV 
%\UHQW 
%\WUDGHH[SHQVHV 
%\EDODQFHFG 

 
 ACCOUNTING FOR INCOMPLETE RECORDS 

W.N # 7
STATEMENT OF AFFAIRS AS ON 31.03.2008

LIABILITIES Amount ASSETS Amount

Capital (BAL.FIG.) 5,16,000 )L[HG$VVHWV
Furniture 
%LOOVSD\DEOH  6WRFN 
Creditors  Debtors 
2XWVWDQGLQJ6$/$5,(6  Cash on hand 
 

QUESTION NO 32

0U$UXQVEXVLQHVVRIUHDG\PDGHJDUPHQWV+HFORVHVWKHERRNVRIDFFRXQWVRQst0DUFK
7KHEDODQFHVKHHWDVRQst0DUFKZDVDVIROORZV

Liabilities Rs. Assets Rs.

$·VFDSLWDODF  Furniture 
Creditors  6WRFN 
Debtors 
Cash in hand 
&DVKDWEDQN 
 

<RXDUHIXUQLVKHGZLWKWKHIROORZLQJLQIRUPDWLRQ

 +LV VDOHV IRU WKH \HDU HQGHG st 0DUFK  ZHUH  KLJKHU WKDQ WKH VDOHV RI
SUHYLRXV \HDU RXW RI ZKLFK  VDOHV ZDV FDVK VDOHV7RWDO VDOHV GXULQJ WKH \HDU
ZHUH5V
 3D\PHQWVIRUDOOWKHSXUFKDVHVZHUHPDGHE\FKHTXHVRQO\
 *RRGVZHUHVROGIRUFDVKDQGFUHGLWERWK&UHGLWFXWRPHUVSD\EHFKHTXHVRQO\
 'HSUHFLDWLRQRQIXUQLWXUHLVWREHFKDUJHGSD
 0U$VHQWWRWKHEDQNFROOHFWLRQRIWKHPRQWKDWWKHODVWGDWHRIWKHHDFKPRQWK
DIWHUSD\LQJVDODU\RI5VWRWKHFOHUNRIILFHH[SHQVHV5VDQGSHUVRQDO
H[SHQVHV5V
 ACCOUNTS

$QDO\VLVRIEDQNSDVVERRNIRUWKH\HDUHQGLQJst0DUFKGLVFORVHGWKHIROORZLQJ

Rs.
3D\PHQWWRFUHGLWRUV 
3D\PHQWRIUHQWXSWRst0DUFK 
&DVKGHSRVLWHGLQWRWKHEDQNGXULQJWKH\HDU 

7KHIROORZLQJDUHWKHEDODQFHVRQst0DUFK

Rs.
6WRFN 
Debtors 
Creditors for goods 

2QWKHHYHQLQJRIst0DUFKWKHFDVKLHUDEVFRQGHGZLWKWKHDYDLODEOHFDVKLQWKH
FDVKEDFN
<RXDUHUHTXLUHGWRSUHSDUHWUDGLQJDQGSURÀWDQGORVV$FIRUWKH\HDUHQGHGst0DUFK
DQGEDODQFHVKHHWDVRQWKDWGDWH$OOWKHZRUNLQJVKRXOGIURPSDUWRIWKHDQVZHU

ANSWER
7UDGLQJDQGSURÀWDQGORVV$FFRXQWIRUWKH\HDUHQGLQJst March 2011

Particulars Rs. Partiulars Rs.

7RRSHQLQJVWRFN  %\VDOHV:1
7RSXUFKDVH:1  &UHGLW  
7RJURVVSURÀW  &DVK    
%\FORVLQJVWRFN 
 
To salary  %\JURVVSURÀW 
To rent 
7RRIÀFHH[SHQVHV 
7RORVVRIFDVK:1 
7RGHSUHFLDWLRQRQIXUQLWXUH 
7RQHWSURÀW 
 
 ACCOUNTING FOR INCOMPLETE RECORDS 

%DODQFHVKHHWDVRQst0DUFK

Liabilities 5V $VVHWV 5V

$·VFDSLWDO   )XUQLWXUH  
$GG1HW3URÀW  /HVVGHSUHFLDWLRQ 
Less: Drawings   6WRFN 
Creditors  debtors 
&DVKDWEDQN 

 

Working Notes:
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Creditors accounts

Particulars Rs. Particulars Rs.

7REDQN$F  %\EDODQFHEG 
7REDODQHFG  %\SXUFKDVHEDOÀJ 
 

Calculation of total sales

Rs.
6DOHVIRUWKH\HDU 
$GGLQFUHDVH 
7RWDOVDOHVIRUWKH\HDU 

Calculation of credit sales

Rs.
Total sales 
/HVVFDVKVDOHVRIWRWDOVDOHV 

 ACCOUNTS

Calculation of cash collected from debtors

Debtors account

Particulars Rs. Particulars Rs.

7REDODQFH  %\EDQN$FEDOÀJ 
7RVDOHV$F  %\EDODQFHFG 
 

Calculation of closing balance of cash at bank

Bank account

Particulars Rs. Particulars Rs.

7REDODQFHEG  %\FUHGLWRUV$F 
7RGHEWRUV$F  %\UHQW$F 
7RFDVK$F  %\EDODQFHFG 
 

&DOFXODWLRQRIWKHDPRXQWRIFDVKGHIDOFDWHGE\WKHFDVKLHU

Rs.
&DVKEDODQFHDVRQst$SULOO 
$GGFDVKVDOHGXULQJWKH\HDU 

/HVVVDODU\5V[ 
 2IÀFHH[SHQVHV5V[ 
 'UDZLQJVRI$5V[ 
 &DVKGHSRVLWHGLQWREDQNGXULQJWKH\HDU  
&DVKEDODQFHDVRQst0DUFKGHIDOFDWHGE\WKHFDVKLHU 

QUESTION NO 33

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+RZHYHUKHDOZD\VPDLQWDLQHG5VLQFDVKDQGGHSRVLWHGWKHEDODQFHLQWRWKHEDQN
DFFRXQW+HLQIRUPV\RXWKDWKHKDVVROGJRRGVDWSURÀWRIRQVDOHV
 ACCOUNTING FOR INCOMPLETE RECORDS 

Following information is given to you:

Assets and liabilities As on 1.4.2010 As on 31.3.2011

Cash in hand  

VXQGU\FUHGLWRUV  
&DVKDWEDQN &U &U
Sundry debtors  
6WRFNLQWUDGH  ?

$QDO\VLVRIKLVEDQNSDVVERRNUHYHDOVWKHIROORZLQJLQIRUPDWLRQ

D SD\PHQWWRFUHGLWRUV5V
E SD\PHQWIRUEXVLQHVVH[SHQVHV5V
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G ORDQIURPOD[PDQ5VWDNHQRQDWSHUDQQXP
H FDVKGHSRVWLWHGLQWKHEDQN5V

+HLQIRUPV\RXWKDWKHSDLGFUHGLWRUVIRUJRRGV5VLQFDVKDQGVDODULHV5V
LQFDVK+HKDVGUDZQ5VLQFDVKIRUSHUVRQDOH[SHQVHV'XULQJWKH\HDUUDPKDGQRW
LQWURGXFHGDQ\DGGLWLRQFDSLWDO6XUSOXVFDVKLIDQ\WREHWDNHQDVFDVKVDOHV
Prepare:

L WUDGLQJDQGSURILWDQGORVVDFFRXQWIRUWKH\HDUHQGHG
LL EDODQFHVKHHWDVDWst0DUFK

ANSWER
7UDGLQJDQGSURÀWDQGORVVDFFRXQW
For the year ended 31st March 2011

Rs. Rs.
7RRSHQLQJVWRFN  %\VDOHV
7RSXUFKDVH  &DVK   
7RJURVVSURÀW#  &UHGLW   
%\FORVLQJVWRFNEDOÀJ 
 
  ACCOUNTS

To salaries  %\JURVVSURÀW 

7REXVLQHVVH[SHQVHV 
To interest on loan 
RI 
7RQHWSURÀW 
 

Balance sheet as at 31st March, 2011

Liabilities Rs. Rs. Assets Rs.

5DP·VFDSLWDO Cash in hand 
2SHQLQJ  &DVKDWEDQN 
$GGQHWSURÀW  Sundry debtors 
 6WRFNLQKDQG 
Less: drawings  
/RDQIURPOD[PDQ 
LQFOXGLQJLQWHUHVWGXH
6XQGU\FUHGLWRUV 
 

Working Notes:
1. Sundry debtors account

5V 5V
WREDODQFHEG  %\EDQN$F 
WRFUHGLWVDOHV%DOÀJ  %\%DODQFHFG 
 

    Sundry creditors account

Rs. Rs.
7REDQN$F  %\EDODQFHEG 
7RFDVK$F  %\SXUFKDVH%DOÀJ 
7REDODQFHFG 
 
 ACCOUNTING FOR INCOMPLETE RECORDS 

     Cash and bank account

CASH Bank Cash Bank

Rs. Rs. Rs. Rs.
7REDODQFHEG  %\EDODQFHEG 
7RVDOHVEDOÀJ  %\EDQN$F& 
7RFDVK&  %\VDODULHV 
To debtors  %\FUHGLWRUV  
7ROD[PDQ·VORDQ  %\'UDZLQJV 
%\EXVLQHVV
H[SHQVHV 
%\EDODQFHFG  
   

FDOFXODWLRQRI5DP·VFDSLWDORQst$SULO

Balance sheet as at 01.04.2010

Liabilities Rs. Assets Rs.

5DP·VFDSLWDOEDOÀJ  Cash in hand 
%DQNRYHUGUDIW  Sundry debtors 
6XQGU\FUHGLWRUV  6WRFNLQWUDGH 
 

QUESTION NO 34

7KHFORVLQJFDSLWDORI0U%DVRQZDV5V2QKLVFDSLWDOZDV
5V+LVQHWSURÀWIRUWKH\HDUHQGHGZDV5V+HLQWURGXFHG
5VDVDGGLWLRQDOFDSLWDOLQ)HEUXDU\)LQGRXWWKHDPRXQWGUDZQE\0U%IRU
KLVGRPHVWLFH[SHQVHV
  ACCOUNTS

ANSWER
Computation of drawings during the year

5V
2SHQLQJFDSLWDODVRQ 
$GG1HWSURÀW 

$GGDGGLWLRQDOFDSLWDOLQWURGXFHGLQ)HEUXDU\ 

/HVVFORVLQJFDSLWDODVRQ 

'UDZLQJVE\0U¶%·GXULQJWKH\HDU 

QUESTION NO 35

/RNHVKZKRNHHSVERRNVE\VLQJOHHQWU\KDGVXEPLWWHGKLVLQFRPHWD[UHWXUQVWRLQFRPH
WD[

$XWKRULWLHVVKRZLQJKLVLQFRPHVWREHDVIROORZV

5V
<HDUHQGLQJ0DUFK = 
<HDUHQGLQJ0DUFK = 
<HDUHQGLQJ0DUFK = 
<HDUHQGLQJ0DUFK = 61,875
<HDUHQGLQJ0DUFK = 
<HDUHQGLQJ0DUFK = 

7KHLQFRPHWD[RIÀFHLVQRWVDWLVÀHGDVWRWKHDFFXUDF\RIWKHLQFRPHVUHWXUQHG<RXDUH
DSSRLQWHGDVDFRQVXOWDQWWRDVVLVWLQHVWDEOLVKLQJFRUUHFWQHVVRIWKHLQFRPHVUHWXUQHGDQG
for that purpose you are given the following information:

D EXVLQHVVOLDELOLWLHVDQGDVVHWVZHUH
 &UHGLWRUV 5V IXUQLWXUH  ILWWLQJV 5V VWRFN 5V  DW VHOOLQJ
SULFHZKLFKLVDERYHFRVWGHEWRUV5VFDVKDWEDQNDQGLQKDQG5V
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 ACCOUNTING FOR INCOMPLETE RECORDS 

F ORNHVK RZQV D KRXVH ZKLFK KH SXUFKDVHG LQ  IRU 5V DQG D FDU ZKLFK KH
SXUFKDVHGLQ2FWREHUIRU5V,Q-DQXDU\KHERXJKWGHEHQWXUHV
LQ;/WGKDYLQJIDFHYDOXHRI5VIRU5V
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5V 5V   DQG 5V SD
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GHEWRUV5VFDVKLQKDQGDQGDWEDQN5V
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GHFODUHGE\ORNHVKDUHFRUUHFW

ANSWER
Statement of affairs of Lokesh As on March 31,2004

Liabilities Rs. Assets Rs.

Creditors  )XUQLWXUHÀ[WXUH ÀWWLQJV 
Loan from brother  6WRFN[ 
&DSLWDOEDOÀJ  Debtors 
&DVKLQKDQGDQGDWEDQN 15,615
%XLOGLQJKRXVH 
 

Statement of affairs of Lokesh as on March 31.2010

Liabilities Rs. Assets Rs.

Creditors  )XUQLWXUHÀ[WXUHV ÀWWLQJV 
&DSLWDO%DO)LJ  6WRFN[ 
Debtors 
&DVKLQKDQGDQGDWEDQN 
Loan to brother 
%XLOGLQJ+RXVH 
Car 
'HEHQWXUHVLQ¶;/WG· 
 
 ACCOUNTS

6WDWHPHQWRI3URÀW

Particulas Rs.
&DSLWDODVRQ0DUFK 
$GGGUDZLQJV
   
   
   
   
   
    

$GG$PRXQWVWROHQLQ0D\ 

/HVVRSHQLQJ&DSLWDODVRQ0DUFK 

/HVVSURÀWDVVKRZQE\,72
 )RUWKH\HDUHQGLQJ0DUFK 
 )RUWKH\HDUHQGLQJ0DUFK 
 )RUWKH\HDUHQGLQJ0DUFK 
 )RUWKH\HDUHQGLQJ0DUFK 61,875
 )RUWKH\HDUHQGLQJ0DUFK 
 )RUWKH\HDUHQGLQJ0DUFK  
8QGHUVWDWHPHQWRILQFRPH 

1RWH LQ WKH DEVHQFH RI WKH LQIRUPDWLRQ UHJDUGLQJ GHSUHFLDWLRQ LQ WKH TXHVWLRQ QR
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DSSURSULDWHUDWHRIGHSUHFLDWLRQDQGFDQSURYLGHGHSUHFLDWLRQ

QUESTION NO 36

0V LFH OLPLWHG JLYHV \RX WKH IROORZLQJ LQIRUPDWLRQ WR ÀQG RXW WRWDO VDOHV DQG WRWDO
SXUFKDVHV
 ACCOUNTING FOR INCOMPLETE RECORDS 

Particulars Amount
'HEWRUVDVRQ 
&UHGLWRUVDVRQ 
%LOOVUHFHLYDEOHVUHFHLYHGGXULQJWKH\HDU 
%LOOVSD\DEOHLVVXHGGXULQJWKH\HDU 
&DVKUHFHLYHGIURPFXVWRPHUV 
Cash paid to suppliers 
%DGGHEWVUHFRYHUHG 
%LOOVUHFHLYDEOHVHQGRUVHGWRFUHGLWRUV 
%LOOVUHFHLYDEOHVGLVKRQRUHGE\FXVWRPHUV 
'LVFRXQWDOORZHGE\VXSSOLHUV 
'LVFRXQWDOORZHGWRFXVWRPHUV 
(QGRUVHGELOOVUHFHLYDEOHVGLVKRQRUHG 
sales return 
%LOOVUHFHLYDEOHGLVFRXQWHG 
'LVFRXQWHGELOOVUHFHLYDEOHGLVKRQRUHG 
Cash sales 
&DVKSXUFKDVHV 
'HEWRUVDVRQ 
&UHGLWRUVDVRQ 

Answer

 WRWDOVDOHV FDVKVDOHVFUHGLWVDOHV

 5V5V:1
 5V

 WRWDOSXUFKDVH FDVKSXUFKDVHVFUHGLWSXUFKDVHV

 UV5V:1
 5V
  ACCOUNTS

Working Notes:
1. Debtors Account

Particulars Rs. Particulars Rs.

7REDODQFHEG  %\ELOOVUHFHLYDEOH 
7RELOOVUHFHLYDEOHGLVKRQRUHG  %\FDVK 
7RELOOVUHFHLYDEOHGLVKRQRUHG  %\GLVFRXQWDOORZHG 
HQGRUVHV %\VDOHVUHWXUQ 
7RELOOVUHFHLYDEOHGLVKRQRUHG  %\EDODQFHFG 
GLVFRXQWHG
7RFUHGLWVDOHV%DOÀJ 

 

      Creditors account

Particulars Rs. Particulars Rs.

To bills payable  %\%DODQFHEG 
7RFDVK  %\%LOOVUHFHLYDEOHGLVKRQRUHG 
7RGLVFRXQWUHFHLYHG  HQGRUVHG
7RELOOVUHFHLYDEOHHQGRUVHG  %\FUHGLWSXUFKDVH%DOÀJ 
7REDODQFHFG 

 

Note:LW,VDVVXPHGWKDWVDOHVUHWXUQLVRXWRIFUHGLWVDOHVRQO\

QUESTION NO 37

$VROHWUDGHUUHTXHVWV\RXWRSUHSDUHKLVWUDGLQJDQGSURÀW /RVVDFFRXQWIRUWKH\HDU
HQGHG st 0DUFK  DQG EDODQFH VKHHW DV DW WKDW GDWH +H SURYLGHV \RX WR IROORZLQJ
Information:
 ACCOUNTING FOR INCOMPLETE RECORDS 

Statement of affairs as at 31st March 2012

Liabilities Rs. Assets Rs.

%DQNRYHUGUDIW  Furniture 
2XWVWDQGLQJH[SHQVHV Computer 
6DODULHV   Mobile phone 
5HQW     6WRFN 
%LOOVSD\DEOH  Trade debtors 
7UDGHFUHGLWRUV  %LOOVUHFHLYDEOH 
Capital 8QH[SLUHGLQVXUDQFH 
EDODQFLQJÀJXUH  6WRFNRIVWDWLRQHU\ 
Cash in hand 

Total  Total 

+HLQIRUPV\RXWKDWWKHUHKDVEHHQQRDGGLWLRQWRRUVDOHRIIXUQLWXUHFRPSXWHUDQGPRELOH
SKRQHGXULQJWKHDFFRXQWLQJ\HDU7KHRWKHUDVVHWVDQGOLDELOLWLHVRQW0DUFK
DUHDVIROORZV

Rs.
6WRFN 
Trade debtors 
%LOOVUHFHLYDEOH 
8QH[SLUHGLQVXUDQFH 
6WRFNRIVWDWLRQDU\ 
&DVKDWEDQN 
Cash at hand 
Salaries outstanding 
5HQWRXWVWDQGLQJ 
%LOOVSD\DEOH 
7UDGHFUHGLWRUV 
 ACCOUNTS

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Receipts Rs. Payments Rs.

Cash sales  7UDGHFUHGLWRUV 
Trade debtors  %LOOVSD\DEOH 
%LOOVUHFHLYDEOH  Salaries 
5HQW 
,QVXUDQFHSUHPLXP 
Stationery 
0RELOHSKRQHH[SHQVHV 
Drawings 

,WLVIRXQGSUXGHQWWRGHSUHFLDWHIXUQLWXUH#FRPSXWH#DQGPRELOHSKRQH#
$SURYLVLRQIRUEDGGHEWV#RQWUDGHGHEWRUVLVDOVRFRQVLGHUHGGHVLUDEOH

ANSWER
7UDGLQJDQGSURÀWDQGORVVDFFRXQW)RUWKH\HDUHQGHGst March 2013

Particulars Rs. Particulars Rs Rs.

7RRSHQLQJVWRFN  %\VDOHV
7RSXUFKDVH:1  &UHGLW:1 
7RJURVVSURÀWFG%DO)LJ  Cash  
7RLQVXUDQFH:1  %\FORVLQJVWRFN 
7RVDODULHV:1  
7RUHQW:1  %\JURVVSURÀWEG 
7RVWDWLRQHU\:1 
7RPRELOHSKRQHH[SHQVHV 
To provision for doubtful 
'HEWVRI 
7RGHSUHFLDWLRQ
)XUQLWXUH 
&RPSXWHU 
0RELOH3KRQH  
7RQHWSURÀW 
 
 ACCOUNTING FOR INCOMPLETE RECORDS 

Balance sheet as on 31st March 2013

Liabilities Rs. Rs. Assets Rs. Rs.

&DSLWDO$F Furniture 
2SHQLQJEDODQFH  /HVVGHSUHFLDWLRQ  
Less: Drawing s  Computer 
 /HVVGHSUHFLDWLRQ  
$GGQHWSURÀW   Mobile phone 
%LOOVSD\DEOH  /HVVGHSUHFLDWLRQ  
7UDGHFUHGLWRUV  Trade debtors 
2XWVWDQGLQJ Less: provision for  
([SHQVHV doubtful debts
Salaries  %LOOVUHFHLYDEOH 
5HQW  &ORVLQJVRFN 
8QH[SLUHGLQVXUDQFH 
6WRFNRIVWDWLRQDU\ 
&DVKDWEDQN 
Cash in hand 
 

Working Notes:
1. Trade debtors account

Rs. Rs.
7REDODQFH  %\FDVKEDQN 
7RFUHGLWVDOHVEDOÀJ  %\ELOOVUHFHLYDEOH$F:1 
%\EDODQFHFGJLYHQ 
 

     Bills receivable account

Rs. Rs.
7REDODQFHEG  E\FDVK%DQN 
7RVXQGU\GHEWRUVEDOÀJ  E\EDOFGJLYHQ 
 
 ACCOUNTS

     Trade creditors account

Rs, Rs.
7REDQNFDVK  %\%DOEG 
7RELOOVSD\DEOH$F:1  %\FUHGLWSXUFKDVH%DOÀJ 
7R%DOFGJLYHQ 
 

4. Bills payable account

Rs. Rs.
7RFDVKEDQN$F  %\EDOEG 
7REDOFGJLYHQ  %\VXQGU\FUHGLWHUVEDOÀJ 
 

5. ,QVXUDQFHH[SHQVHVIRUWKH\HDU

5V
,QVXUDQFHSDLGGXULQJWKH\HDU 
$GGXQH[SLUHGLQVXUDQFHDVRQ 
/HVVXQH[SLUHGLQVXUDQFHDVRQ 


6. Salaries for the year 2012-2013

Rs.
Salaries paid during the year 
$GGVDODULHVRXWVWDQGLQJDVRQ 

/HVVVDODULHVRXWVWDQGLQJDVRQ 

 ACCOUNTING FOR INCOMPLETE RECORDS 

7. 5HQWH[SHQVHVIRUWKH\HDU

Rs.
5HQWSDLGGXULQJWKH\HDU 
$GGUHQWRXWVWDQGLQJDVRQ 

/HVVUHQWRXWVWDQGLQJDVRQ 


8. VWDWLRQDU\H[SHQVHVIRUWKH\HDU

Rs.
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QUESTION NO 38

7KHGHWDLOVRIDVVHWVDQGOLDELOLWLHVRI0U¶$·DVRQDQGDUHDVIROORZV

31.3.2012 31.3.2013
Rs. Rs.
$VVHWV
Furniture 
%XLOGLQJ 
6WRFN  
Sundry debtors  
Cash in hand  
&DVKDWEDQN  
Liabilities:
Loans  
6XQGU\FUHGLWRUV  
  ACCOUNTS

0U¶$·GHFLGHGWRSURYLGHGHSUHFLDWLRQRQEXLOGLQJE\DQGIXUQLWXUHE\IRUWKH
SHULRGHQGHGRQ0U¶$·SXUFKDVHGMHZHOOHU\IRU5VIRUKLVGDXJKWHULQ
'HFHPEHUKHVROGKLVFDURQDQGWKHDPRXQWRI5VLVUHWDLQHGLQ
the business.
<RXDUHUHTXLUHGWR
L3UHSDUHVWDWHPHQWRIDIIDLUVDVRQDQG
LL&DOFXODWHWKHSURÀWUHFHLYHGE\¶$·GXULQJWKH\HDUHQGHG3

SOLUTION
L      Statement of affairs

Liabilities 31.3.12 31.3.13 Assets 31.3.12 31.3.13

Rs. Rs. Rs. Rs,
Loans   Furniture  
Creditors   %XLOGLQJ  
&DSLWDO$F   6WRFN  
Debtors  
Cash in hand  
&DVKDWEDQN  
   

:RUNLQJ1RWH
'HS2Q%XLOGLQJ     5VRI5V
'HS2QIXUQLWXUH     5VRI5V
LL&DOFXODWLRQRISURÀWHDUQHGE\DGXULQJWKH\HDUHQGHGst0DUFK
Capital account

Rs. Rs.
To drawings  %\EDOEG 
7R%DOFG  %\DGGLWLRQDOFDSLWDO 
FDUVDOHSURFHHGV
%\3 /$F%DOÀJ 
 

Note:LQWHUQDORQGUDZLQJVDQGFDSLWDOKDVEHHQLJQRUHGLQWKHEDODQFHRILQIRUPDWLRQ
 ACCOUNTING FOR INCOMPLETE RECORDS 

QUESTION NO 39

7KHIROORZLQJLVWKHEDODQFHVKHHWRI0VFDUHWUDGHUVDVRQ

Rs.
6RXUFHRIIXQGV
6KDUHFDSLWDO 
3URÀWDQGORVV 
8QVHFXUHGORDQ# 
Trade payables 

$SSOLFDWLRQRIIXQGV
0DFKLQHU\ 
Furniture 
Inventory 
7UDGHUHFHLYDEOHV 
%DQNEDODQFH 


$ ÀUH EURNH RXW LQ WKH SUHPLVHV RQ  DQG GHVWUR\HG WKH ERRNV RI DFFRXQW 7KH
DFFRXQWDQWFRXOGKRZHYHUSURYLGHWKHIROORZLQJLQIRUPDWLRQ

 6DOHVIRUWKH\HDUHQGHGZDV5V6DOHVIRUWKHFXUUHQW\HDUZDV
KLJKHUWKDQWKHODVW\HDU
 VDOHVZHUHPDGHLQFDVKDQGWKHEDODQFHZDVRQFUHGLW
 *URVVSURILWRQVDOHVLV
 7HUPVRIFUHGLW
 'HEWRUVPRQWKV
Creditors: 1 month
 $OOFUHGLWRUVDUHSDLGE\FKHTXHDQGDOOFUHGLWVDOHVDUHFROOHFWHGLQFKHTXH
 WKH EDQN SDVV ERRN KDV WKH IROORZLQJ GHWDLOV RWKHU WKDQ SD\PHQW WR FUHGLWRUV DQG
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 ACCOUNTS

Rs.
0DFKLQHU\SXUFKDVHG 
5HQWSDLG 
$GYHUWLVHPHQWH[SHQVHV 
7UDYHOOLQJH[SHQVHV 
5HSDLUV 
Sales of furniture 
&DVKZLWKGUDZQIRUSUHWW\H[SHQVHV 
,QWHUHVWSDLGRQXQVHFXUHGORDQ 

 0DFKLQHU\ZDVSXUFKDVHGRQ
 5HQWZDVSDLGIRUPRQWKVRQO\DQGRIWKHDGYHUWLVHPHQWH[SHQVHVUHODWHVWR
WKHQH[W\HDU
 7UDYHOOLQJH[SHQVHVRI5VIRUZKLFKFKHTXHVZHUHLVVXHGEXWQRWSUHVHQWHGLQ
EDQN
 )XUQLWXUHZDVVROGRQDWDORVVRI5VRQERRNYDOXH
 3K\VLFDO YHULILFDWLRQ DV RQ  DVFHUWDLQHG WKH VWRFN SRVLWLRQ DW 5V 
DQGSHWW\FDVKEDODQFHDWQLO
 7KHUHZDVQRFKDQJHLQXQVHFXUHGORDQGXULQJWKH\HDU
 'HSUHFLDWLRQLVWREHSURYLGHGDWRQPDFKLQHU\DQGRQIXUQLWXUH

3UHSDUHEDQNDFFRXQW7UDGLQJDQGSURÀWDQGORVVDFFRXQWIRUWKH\HDUHQGHG
LQWKHERRNVRI0VFDUHWUDGHUVDQGDEDODQFHVKHHWDVRQWKDWGDWH0DNHQHFHVVDU\
DVVXPSWLRQVZKHUHYHUQHFHVVDU\

ANSWER
In the book of M/s care traders
Bank account as on 31.3.2015

Particulars Amount Particualrs Amount

Rs. Rs
7RRSHQLQJEDODQFH  %\FUHGLWRUV 
SD\PHQWPDGH:1
7RFDVKVDOHV:1  %\PDFKLQHU\SXUFKDVHG 
 ACCOUNTING FOR INCOMPLETE RECORDS 

7RGHEWRUVFROOHFWLRQPDGH  %\DGYHUWLVHPHQW 

:1 H[SHQVHV
7RIXUQLWXUHVROG  %\UHQW 
%\WUDYHOLQJH[SHQVHV 

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%\EDODQFHFGEDOÀJ 
 

7UDGLQJDQGSURÀWDQGORVVDFFRXQW
For the year ended 31st March 2015

Particulars Amount Rs. Particulars Amount Rs.

7RRSHQLQJVWRFN  %\VDOHV:1 
7RSXUFKDVHV:1  %\FORVLQJVWRFN 
7RJURVV3URÀWEG:1 
 
7RUHQW[  %\JURVV3URÀWFG 
7RDGYHUWLVHPHQWH[SHQVHV 
7RWUDYHOOLQJH[SHQVHV 
To repairs 
7RSHWW\FDVKH[SHQVHV 
7RLQWHUHVWRQXQVHFXUHGORDQ 
To loss on sale of furniture 
7RGHSUHFLDWLRQ
PDFKLQHU\:1 
Furniture 
7RQHWSURÀW 
 
 ACCOUNTS

Balance sheet of M/s. care traders as on 01.4.2015

Liabilities Rs.
6KDUHFDSLWDO
3URÀWDQGORVV 
2SHQLQJEDODQFH
$GGSURÀWIRUWKH\HDU 
 
8QVHFXUHGORDQ# 
,QWHUHVWRQXQVHFXUHGORDQ 
7UDGHSD\DEOHV:1 
2XWVWDQGLQJH[SHQVHVUHQW 

Assets
0DFKLQHU\
*URVVEORFNYDOXH:1 
/HVVGHSUHFLDWLRQ  
Furniture
*URVVEORFNYDOXH:1 
/HVVGHSUHFLDWLRQ  
Inventory 
7UDGHUHFHLYDEOHV:0 
3UHSDLGH[SHQVHVDGYHUWLVHPHQW 
%DQNEDODQFH 


Working Notes:
VDOHVIRUWKH\HDUHQGG

Last years sales 

$GGJURZWK# 
6DOHIRU$ 
&DVKVDOHVRI5V 
&UHGLWVDOHV 
*URVVSURÀWRQVDOHV% 
 ACCOUNTING FOR INCOMPLETE RECORDS 

2. Purchases for the year ended 31.03.2015

&RVWRIVDOHV$% 

$GG&ORVLQJVWRFN 

/HVVRSHQLQJVWRFN 
3XUFKDVHVGXULQJWKH\HDU 

3. Trade receivables (debtors) as on 31.03.2015 Rs.

7RWDOFUHGLWVDOHV 
'HEWRUVPRQWKVFUHGLW
[ 

4. Collection from Debtors account

Amount Amount
Rs. Rs.
7RRSHQLQJEDODQFH  %\EDQNFROOHFWLRQ%DOÀJ 
7RFUHGLWVDOHV  %\FORVLQJEDODQFH 
 

5. trade payables (creditors) as on 31.03.2015

7RWDOFUHGLWSXUFKDVHV 
DOOFUHGLWRUVSDLGE\FKHTXHKHQFHWKHUHDUHQRFDVKSXUFKDVHV
&UHGLWRUVPRQWKFUHGLW 
[

6. Payment to creditors account

Amount Amount
Rs. Rs.
7REDQN3D\PHQW%DO)LJ  %\RSHQLQJ%DODQFH 
7RFORVLQJEDODQFH  %\FUHGLWSXUFKDVHV 
 
 ACCOUNTS

7. Machinery account

Amount Rs. Amount Rs.

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7RPDFKLQHU\SXUFKDVHG 
 

8. Depreciation on machinery

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9. Furniture account

Amount Amount
Rs. Rs.
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 ACCOUNTING FOR INCOMPLETE RECORDS 

ASSUMPTIONS FOR SINGLE ENTRY SYSTEM

(1) ,QFDVHFDVKVDOHV FDVKSXUFKDVHVDUHQRWJLYHQRUFDQQRWEHFDOFXODWHGRQWKHEDVLV

of given information then we should always assume that all sales & all purchases
are on credit basis.
(2) In case Bills receivable or Bills payable are given in questions then we should close
these accounts before closing sundry debtors & sundry creditors account.
(3) ,QDGGLWLRQFROOHFWLRQVIURP%LOOVUHFHLYDEOH SD\PHQWIRU%LOOV3D\DEOHLVDOZD\VWREH
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GHEWRURUFUHGLWRUVWKHQZHVKRXOGDVVXPHXQLIRUPVDOHVRUSXUFKDVHVRQWKHEDVLVRI
JLYHQFUHGLWSHULRGV(Refer question 15).
(5) If incomes or expenses are missing in any question but profit is required to be calculated
then we should apply capital comparison method for the calculation of profit.
(6) ,IDQ\VWRFNLVFRQVXPHGE\SURSULHWRURUGLVWULEXWHGDVIUHHVDPSOHVDVDGYHUWLVHPHQW
WKHQZHVKRXOGQRWFRQVLGHUVXFKVWRFNEXWZHVKRXOGWUDQVIHUVXFKVWRFNLQGUDZLQJV
RUSURILWDQGORVVDFFRXQW5HIHUTXHVWLRQ 
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EDQNDFFRXQWLQFRPELQHG,QDGGLWLRQZHVKRXOGLJQRUHFRQWUDHQWULHVLQVXFKDFFRXQW
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SURSHUW\WKHQZHFDQLJQRUHWKHVHWUDQVDFWLRQVRUZHFDQDOVRFRQVLGHUWKHVHH[SHQVHV
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 ACCOUNTING STANDARDS BASICS 271

ACCOUNTING STANDARDS BASICS

Accounting Standards – Introduction
(FOR SELF READING)

QUESTION NO 1

What are Accounting Standards?

SOLUTION
Accounting Standards (AS) are written policy documents issued by an Expert Accounting
Body, or by Government, or by other Regulatory Body, covering the following aspects of
accounting transactions in Financial Statements –

1. Recognition of transactions and events in the Financial Statements.

2. Measurement of these transactions and events.
3. Presentation of these transactions and events in Financial Statements, in a meaningful
& understandable manner, &
4. Disclosure requirements in Financial Statements.

QUESTION NO 2

Outline the advantages and disadvantages of Accounting Standards.

SOLUTION

Objectives/Advantages Disadvantages
1. To promote the dissemination of 1. In some cases, alternative solutions to
timely and useful financial information specific accounting problems may have
to all Stakeholders and Users. valid supportive arguments. Choice of
any one solution becomes difficult.

2. To provide a set of standard 2. Standards may be applied in a rigid

accounting policies, valuation norms and inflexible manner, focusing ore on
and disclosure requirements. form than substance.

3. To improve the quality of Financial 3. Standards cannot override the

Reporting, by promoting comparability, Statute, and should be framed within
consistency and transparency. the framework of the Law.
 272 ACCOUNTING

4. To ensure disclosure of accounting

principles and treatments, where
important information is not otherwise
statutorily required to be disclosed.
5. To reduce (or eliminate if possible),
accounting alternatives, thereby
leading to better inter-Firm &
Intra-Firm comparison of Financial
Statements.
6. To reduce scope for creative
accounting i.e. twisting of accounting
policies to produce Financial
Statements favourable to a particular
interest group.

QUESTION NO 3

Explain the composition of the Accounting Standards Board (ASB) of ICAI.

SOLUTION
The Accounting Standards Board (ASB) was constituted on 21st April 1977 by the ICAI. Its
composition is as under:-

1. Elected Members: (a) Elected members of the Council of the ICAI nominated on
the ASB, (b) Chairman of the Research Committee and the Chairman of the Expert
Advisory Committee of the ICAI, if they are not otherwise members of the ASB.
2. 1RPLQDWHG0HPEHUV&HQWUDO*RYHUQPHQW·V1RPLQHHRQWKH&RXQFLOUHSUHVHQWLQJ²D
Department of Company Affairs (DCA) (b) C & AG, and (c) Central Board of Direct
Taxes (CBDT).
3. Professional Institutions: Representative of – (a) Institute of Cost and Works
Accountants of India (ICWAI)and (b) Institute of Company Secretaries of India
(ICSA).
4. Academic Institutions: Representative from – (a) Universities & (b) Indian Institutes
of Management (IIM).
5. Government Representatives: Representative of – (a) Central Board of Excise and
Customs (CBEC), (b) Controller General of Accounts.
 ACCOUNTING STANDARDS BASICS 273

6. Institution Representatives: Representative of – (a) Reserve Bank of India (RBI), (b)

Securities and Exchange Board of India (SEBO) and (c) Financial Institutions.
7. Industry Associations: Representative from – (a) Associated Chambers of Commerce
and Industry (ASSOCHAM), (b) Confederation of Indian Industry (CII), and (c)
Federation of Indian Chambers of Commerce and Industry (FICCI).
8. Other Members: (a) Eminent Professionals co-opted by ICAI (either in practice or in
industry, government, education, etc.) and (b) Representative(s) of any other body, as
considered appropriate by the ICAI.

QUESTION NO 4

Outline the Objectives and Functions of the Accounting Standards Board (ASB) of ICAI.

SOLUTION

1. To conceive of and suggest areas in which Accounting Standards need to be developed.

2. To formulate Accounting Standards with a view to assisting the Council of the ICAI in
evolving and establishing Accounting Standards in India.
3. To examine how far the relevant International Accounting Standard/ International
Financial Reporting Standard can be adapted while formulating the Accounting
Standard and to adopt the same.
4. To review, at regular intervals, the Accounting Standards from the point of view of
acceptance or changed conditions, and, if necessary, revise the same.
5. To provide, from time to time, interpretations and guidance on Accounting Standards.
6. To carry out such other functions relating to Accounting Standards.

QUESTION NO 5

What factors are considered by ASB while formulate Accounting Standards?

SOLUTION
Accounting Standards are issued under the authority of the Council of the ICAI. While
formulating the Accounting Standards the ASB will take into consideration the following -

1. International Accounting Standards (IASs) issued by the International Accounting

Standards Committee (predecessor body to IASB) or International Financial Reporting
Standards (IFRSs) issued by the IASB.
2. Applicable Laws in India
274 ACCOUNTING

3. Customs and Usages in India

4. Business Environment prevailing in India.

QUESTION NO 6

Describe the procedure in the issue of an Accounting Standard in India.

SOLUTION
For formulating accounting Standards, the following procedure is adopted –

Step Procedure
1. Determining the Determination of – (a) the broad areas in which Accounting
need for AS Standards need to be formulated, and (b) the priority in regard
to the selection thereof.

2. Constituting Constituting a Study Group consisting of Members of ICAI and

Study Group RWKHUV WR FRQVLGHU VSHFLÀF SURMHFWV DQG SUHSDUH 3UHOLPLQDU\
Drafts of proposed Accounting Standards.
3. Drafting the The Study Group makes a Draft of the proposed standard
Standard FRQWDLQLQJ²D2EMHFWLYHVDQG6FRSHE'HÀQLWLRQVRIWHUPV
used, (c) Recognition and measurement principles, wherever
applicable, and (d) Presentation and disclosure requirements.
4. Analysing the x ASB considers the Preliminary Draft prepared by the
Draft Study Group.
x When any revision is required on the basis of deliberations
the ASB either – (a) makes the same, or (b) refers the
same to the study Group.
5. Circulating the ASB circulates the AS Draft to the Council Members of the
Draft ,&$,DQGWKHIROORZLQJVSHFLÀHGERGLHVIRUWKHLUFRPPHQWV

(a) The Institute of Cost and Works Accountants of India

(ICWAI).
(b) The Institute of Company Secretaries of India (ICSI).
(c) Department of Company Affairs (DCA).
(d) Comptroller and Auditor General of India (C&AG).
(e) Central Board of Direct Taxes (CBDT).
(f) Standing Committee/Conference of Public Enterprises
(SCOPE).
 ACCOUNTING STANDARDS BASICS 275

(g) Reserve Bank of India (RBI).

(h) ,QGLDQ%DQNV·$VVRFLDWLRQ,%$
(i) Securities and Exchange Board of India (SEBI).
(j) Associated Chambers of Commerce and Industry
(ASSOCHAM), Confederation of Indian Industry (CII) and
Federation of Indian Chambers of Commerce and Industry
(FICCI).
(k) Any other body considered relevant by the ASB keeping in
view the nature of the Accounting Standard.
6. Holding D$6%KROGVDPHHWLQJZLWKWKHUHSUHVHQWDWLYHVRI6SHFLÀHG
Discussion Bodies, to ascertain their views on the Draft Accounting
and Finalising Standard.
Exposure Draft. (b) Based on comments received and discussion with
UHSUHVHQWDWLYHV RI VSHFLÀHG ERGLHV $6% ÀQDOLVHV WKH
Exposure Draft of proposed Accounting Standard.

7. Circulating the (a) The Exposure Draft of the Proposed Standard is issued for
Exposure Draft. comments by the Members of ICAI and the public.
E7KH([SRVXUH'UDIWZLOODOVREHVSHFLÀFDOO\VHQWWR6SHFLÀHG
Bodies (as listed above), Stock Exchanges and other interest
groups, as considered appropriate.
8. Finalising the &RQVLGHULQJWKHFRPPHQWVUHFHLYHGWKH$6%ÀQDOLVHVWKHGUDIW
Exposure Draft of the Proposed Standard, and submits the same to the Council
of the ICAI.
9. Modifying and 7KH&RXQFLORIWKH,&$,FRQVLGHUVWKHÀQDOL]HGGUDIW6WDQGDUG
issuing the DQGLIQHFHVVDU\PRGLÀHVWKHVDPHLQFRQVXOWDWLRQZLWKWKH$6%
Accounting DQG WKHQ LVVXHV WKH $FFRXQWLQJ 6WDQGDUG DIWHU PRGLÀFDWLRQ
Standard. on the relevant subject.

QUESTION NO 7

Outline the nature and scope of Accounting Standards in India.

 276 ACCOUNTING

SOLUTION

1. AS are intended to apply only to material items. Material items are those the
knowledge of which will have a significant effect on the decisions of Users of Financial
Statements.
2. $6·VDUHSULPDULO\LQWHQGHGWREHEURDGSULQFLSOHVQRWGHWDLOHGUXOHV
3. AS by their nature cannot and do not override the Local Regulations which govern the
preparation and presentation of Financial Statements in the country.
4. If a particular AS is not in conformity with law, the provisions of law will prevail
and the Financial Statements should be prepared in conformity with such law. (In
the Financial Statements, there should be a description of the accounting treatment
made, along with the reason that it has been adopted because of Law/Court/Tribunal
Order description of the difference between the AS and the treatment given by the
Enterprise, and (c) financial impact, if any, arising due to the difference.
5. The prescribed disclosure (by way of appropriate notes explaining the treatment of
SDUWLFXODU LWHPV WR EH PDGH LQ )LQDQFLDO 6WDWHPHQWV DQG WKH $XGLWRU·V 5HSRUW DUH
intended only as a clarification, and need not be treated as adverse comments on the
Financial Statements.
6. ICAI specifies the date from which a particular standard will come into effect and the
class of enterprises to which it will apply. However, no standard will have retrospective
application, unless otherwise stated.
7. AS will be mandatory from respective date(s) mentioned in the Accounting Standard(s).
The Auditor is responsible for examining compliance with AS in the Financial Statements
and reporting deviations therefrom.
8. Treatment of a Revenue/Expense (or) Receipt/Payment under AS will not influence its
treatment under Tax Laws, governing allowability of expense, treatment of income/
receipt, etc. However, in case of audit u/s 44AB of the Income Tax Act, 1961, all
Financial Statements prepared under Mercantile System of Accounting should comply
with AS.

QUESTION 8

Write a short note on NACAS/NFRA

SOLUTION
National Advisory Committee on Accounting Standard (NACAS) – Under section 210A of
&RPSDQLHV$FWWKH&HQWUDO*RYHUQPHQWE\QRWLÀFDWLRQKDVFRQVWLWXWHGDFRPPLWWHH
to advise the Central Government on the formulation and lying down on accounting policies
DQGDFFRXQWLQJVWDQGDUGVIRUDGRSWLRQE\FRPSDQLHVRUFODVVRIFRPSDQLHVVSHFLÀHGXQGHU
 ACCOUNTING STANDARDS BASICS 277

WKH$FW%DVHGRQWKHUHFRPPHQGDWLRQVRI1$&$6WKH&HQWUDO*RYHUQPHQWKDVQRWLÀHG
AS-1 to AS-7 and AS-9 to AS-29 in December 2006 in the form of Companies (Accounting
Standards) Rules, 2006.
Under Section 132 of the Companies Act, 2013, National Financial Reporting Authority
1)5$ KDV EHHQ FRQVWLWXWHG DQG $FFRXQWLQJ 6WDQGDUGV ZLOO EH QRWLÀHG E\ WKH &HQWUDO
Government in consultation with National Financial Reporting Authority in place of NACAS.
Status of the Accounting Standards issued by the Institute of Chartered Accountants of
India.

Number Title of the Accounting Date from Entity to which

of the Standard which mandatory applicable.
Accounting (accounting
Standard periods
(AS) commencing on or
after)
AS-1 Disclosure of Accounting Policies 1.4.1993 All
AS-2 Valuation of Inventories 1.4.1999 All
AS-3 Cash Flow Statement 1.4.2001 Level-1 and
Non- SMC
AS-4 Contingenices and Events 1.4.1998 All
Occurring after the Balance
Sheet Date
AS-5 1HW3URÀWRU/RVVIRUWKH3HULRG 1.4.1996 All
Prior Period Items and Changes
in Accounting Policies
AS-6 Depreciation Accounting 1.4.1995 All
AS-7 (Revised) Construction Contracts 1.4.2002 All
AS-8 Withdrawn and included in AS- - -
26
AS-9 Revenue Recognition 1.4.1993 All
AS-10 Accounting for Fixed Assets 1.4.1993 All
AS-11 (Revised The Effects of Changes in 1.4.2003 All
2003) Foreign Exchange Rates
AS-12 Accounting for Govt. Grants 1.4.1994 All
AS-13 Accounting for Investments 14.1995 All
278 ACCOUNTING

AS-14 Accounting for Amalgamations 1.4.1995 All

AS-15 (Revised (PSOR\HHVEHQHÀW 1.4.2006 All
2005)
AS-16 Borrowing Costs 1.4.2000 All
AS-17 Segment Reporting 1.4.2001 Level-1 and
Non-SMC
AS-18 Related Party Disclosure 1.4.2001 Level – I, II and
all companies
AS-19 Leases 1.4.2001 All
AS-20 Earning Per Shares 1.4.2001 All
AS-21 Consolidated Financial 1.4.2001 See Note-1
Statements
AS-22 Accounting for Taxes on Income 1.4.2001 For Listed
Companies
1.4.2002 Companies other
than listed
1.4.2006 All
AS-23 Accounting for Investment 1.4.2002 See Note-I
in Associates in Consolidated
Financial Statements
AS-24 Discontinuing operations 1.4.2004 Level-I, II, and
all companies.
AS-25 Interim Financial Reporting 1.4.2002 Note-2
AS-26 Intangible Assets 1.4.2003 All
AS-27 Financial Reporting of Interests 1.4.2002 See Note-I
in Joint Ventures
AS-28 Impairment of Assets 1.4.2004 Level-I )and all
1.4.2006 Level-II )
1.4.2006 companies
Level-III
AS-29 Provisions, Contingent liabilities 1.4.2004 All
and Contingent Assets
AS-30 Financial Instruments – WITHDRAWN Non-SME
Recognition and Measurement
 ACCOUNTING STANDARDS BASICS 279

AS-31 Financial Instruments – WITHDRAWN Non-SME

Presentation
AS-32 Financial Instruments – WITHDRAWN Non-SME
Disclosures

Note 1 :
$6 $6 DQG $6 UHODWLQJ WR FRQVROLGDWHG ÀQDQFLDO VWDWHPHQWV DUH UHTXLUHG WR
be complied with by an entity if the entity, pursuant to the requirements of a statute/
UHJXODWRURUYROXQWDULO\SUHSDUHVDQGSUHVHQWVFRQVROLGDWHGÀQDQFLDOVWDWHPHQWV

Note 2:
,IDQHQWLW\LVUHTXLUHGRUHOHFWWRSUHSDUHDQGSUHVHQWDQLQWHULPÀQDQFLDOUHSRUWLWVKRXOG
comply with this standard.
280 ACCOUNTING

NOTES
 ACCOUNTING STANDARDS: BASICS APPLICATION OF ACCOUNTING STANDARDS
DS 281

ACCOUNTING STANDARDS: BASICS

APPLICATION OF ACCOUNTING STANDARDS
(SELF READING: ALREADY COVERED IN CLASS)

CONCEPT 1: APPLICABILITY OF ACCOUNTING STANDARDS

TO NON-CORPORATE ENTITIES

)RUWKHSXUSRVHRIDSSOLFDELOLW\RIDFFRXQWLQJVWDQGDUGVHQWLWOHVDUHFODVVLÀHGLQWRWKUHH
FDWHJRULHVE\WKH,&$,KRZHYHUWKLVFODVVLÀFDWLRQLVQRWDSSOLFDEOHWRFRPSDQLHVFRYHUHG
E\FODVVLÀFDWLRQPDGHE\&RPSDQLHV$FFRXQWLQJ6WDQGV5XOHV

Level I Entities -1RQFRUSRUDWHHQWLWLHVZKLFKIDOOLQDQ\RQHRUPRUHRIWKHIROORZLQJ

FDWHJRULHVDWWKHHQGRIWKHUHOHYDQWDFFRXQWLQJSHULRGDUHFODVVLÀHGDV/HYHO,HQWLWLHV

L $OOFRPPHUFLDOLQGXVWULDODQGEXVLQHVVUHSRUWLQJHQWLWLHVZKRVHWXUQRYHUH[FOXGLQJ
RWKHU LQFRPH H[FHHGV UXSHHV ILIW\ FURUH LQ WKH LPPHGLDWHO\ SUHFHGLQJ DFFRXQWLQJ
\HDU
LL $OOFRPPHUFLDOLQGXVWULDODQGEXVLQHVVUHSRUWLQJHQWLWLHVKDYLQJERUURZLQJVLQFOXGLQJ
SXEOLF GHSRVLWV LQ H[FHVV RI UXSHHV WHQ FURUH DW DQ\ WLPH GXULQJ WKH LPPHGLDWHO\
SUHFHGLQJDFFRXQWLQJ\HDU

Level II Entities (SMEs) -1RQFRUSRUDWHHQWLWLHVZKLFKDUHQRW/HYHO,HQWLWLHVEXWIDOO

LQDQ\RQHRUPRUHRIWKHIROORZLQJFDWHJRULHVDUHFODVVLÀHGDV/HYHO,,HQWLWLHVIURPWKH
DFFRXQWLQJ\HDUFRPPHQFLQJRQRUDIWHU$SULO

L $OOFRPPHUFLDOLQGXVWULDODQGEXVLQHVVUHSRUWLQJHQWLWLHVZKRVHWXUQRYHUH[FOXGLQJ
RWKHULQFRPHH[FHHGVUXSHHVRQHFURUHEXWGRHVQRWH[FHHGUXSHHVILIW\FURUHLQWKH
LPPHGLDWHO\SUHFHGLQJDFFRXQWLQJ\HDU
LL $OOFRPPHUFLDOLQGXVWULDODQGEXVLQHVVUHSRUWLQJHQWLWLHVKDYLQJERUURZLQJVLQFOXGLQJ
SXEOLFGHSRVLWVLQH[FHVVRIUXSHHVRQHFURUHEXWQRWLQH[FHVVRIUXSHHVWHQFURUHDW
DQ\WLPHGXULQJWKHLPPHGLDWHO\SUHFHGLQJDFFRXQWLQJ\HDU

Level III Entities (SMEs) –1RQFRUSRUDWHHQWLWLHVZKLFKDUHQRWFRYHUHGXQGHU/HYHO,

DQG/HYHO,,DUHFRQVLGHUHGDV/HYHO,,,HQWLWLHV
282 ACCOUNTING

Applicability of Accounting Standard to Level I²$OOWKH$FFRXQWLQJ6WDQGDUGVDUH

IXOO\DSSOLFDEOHWR/HYHO,HQWLWLHVH[FHSW$6DQGXQOHVVWKHUHOHYDQWUHJXODWLRQV
UHTXLUHFRPSOLDQFHZLWKWKHVHWKUHHVWDQGDUGV

Applicability of Accounting Standard to Levels II and III entities (SME) – For the
SXUSRVH RI DSSOLFDELOLW\ RI DFFRXQWLQJ VWDQGDUG WR /HYHO,, HQWHUSULVHV WKH FDVH FDQ EH
GLYLGHGLQWRWKUHHFDWHJRULHV
x $FFRXQWLQJVWDQGDUGVIXOO\DSSOLFDEOH
x $FFRXQWLQJVWDQGDUGVDSSOLFDEOHEXWUHOD[DWLRQIURPFHUWDLQGLVFORVXUHUHTXLUHPHQWV
x $FFRXQWLQJ6WDQGDUGVQRWDSSOLFDEOH

$FFRXQWLQJ6WDQGDUGVIXOO\DSSOLFDEOH²$6$6$6$6$6$6$6$6
$6$6$6$6$6$6$6$6DQG$6

AS-28, “Impairment of Assets” is applicable:

- )RU/HYHO,HQWLWLHVZHI
- )RU/HYHO,,HQWLWLHVZHIDQG
- )RU/HYHO,,,HQWLWLHVZHI
$FFRXQWLQJ 6WDQGDUGV DSSOLFDEOH EXW UHOD[DWLRQ IURP FHUWDLQ GLVFORVXUHV UHTXLUHPHQWV ²
$6$6DQG$6
$FFRXQWLQJ6WDQGDUGVQRWDSSOLFDEOH²$6$6$6DQG$6$6$6$6
DQG$6DUHQRWDSSOLFDEOHEHFDXVHRIH[LVWLQJUHJXODWLRQLQ,QGLD
Note: &RQVHTXHQW XSRQ WKH LVVXH RI &RPSDQLHV $FFRXQWLQJ 6WDQGDUGV 5XOHV  WKH
DSSOLFDELOLW\ RI WKH $FFRXQWLQJ 6WDQGDUGV DV DQQRXQFHG E\ WKH ,QVWLWXWH RI &KDUWHUHG
$FFRXQWDQWV PHQWLRQHG DERYH LV RQO\ IRU WKH HQWLWLHV RWKHU WKDQ FRPSDQLHV )RU WKH
FRPSDQLHV WKH DSSOLFDELOLW\ RI $FFRXQWLQJ 6WDQGDUGV LV DV SHU &RPSDQLHV $FFRXQWLQJ
6WDQGDUGV5XOHVDVGHWDLOHGLQSDUD

CONCEPT 2: APPLICABILITY OF ACCOUNTING STANDARD

TO CO-OPERATIVE SOCIETIES:

7KH ,QVWLWXWH RI &KDUWHUHG $FFRXQWDQWV RI ,QGLD KDV H[SODLQHG WKDW WKH $FFRXQWLQJ
6WDQGDUGV LVVXHG E\ WKH ,QVWLWXWH VKDOO DSSO\ LQ UHVSHFW RI ÀQDQFLDO VWDWHPHQWV RI FR
RSHUDWLYH VRFLHWLHV ZKLFK FDUU\ RQ FRPPHUFLDO LQGXVWULDO RU EXVLQHVV DFWLYLWLHV DQG DUH
VXEMHFWWRWKHDWWHVWIXQFWLRQRIWKHPHPEHUVRIWKH,QVWLWXWH
 ACCOUNTING STANDARDS: BASICS APPLICATION OF ACCOUNTING STANDARDS
DS 

$FFRXQWLQJ 6WDQGDUGV PDGH PDQGDWRU\ E\ WKH ,QVWLWXWH DV VSHFLÀHG LQ WKH UHVSHFWLYH
VWDQGDUGVRUPDGHPDQGDWRU\E\VHSDUDWHDQQRXQFHPHQWDUHDOVRPDQGDWRU\LQUHVSHFWRI
FRRSHUDWLYHVRFLHWLHV
7KH,QVWLWXWHRI&KDUWHUHG$FFRXQWDQWVRI,QGLDKDVIXUWKHUFODULÀHGWKDWHYHQLIDYHU\
VPDOOSURSRUWLRQRIWKHDFWLYLWLHVRIDFRRSHUDWLYHVRFLHW\LVFRQVLGHUHGWREHFRPPHUFLDO
LQGXVWULDO RU EXVLQHVV LQ QDWXUH WKHQ LW FDQQRW FODLP H[HPSWLRQ IURP WKH DSSOLFDWLRQ RI
$FFRXQWLQJ6WDQGDUGV7KH$FFRXQWLQJ6WDQGDUGVZRXOGDSSO\WRDOOLWVDFWLYLWLHVLQFOXGLQJ
WKRVHZKLFKDUHQRWFRPPHUFLDOLQGXVWULDORUEXVLQHVVLQQDWXUH
%\WKLVWKHPHPEHUVRIWKH,QVWLWXWHRI&KDUWHUHG$FFRXQWDQWVRI,QGLDZKRDUHDSSRLQWHG
as auditors of the co-operative societies have the responsibility to qualify their reports in
case the relevant accounting standards are not followed in the preparation and presentation
RIWKHÀQDQFLDOVWDWHPHQWVRIWKHFRRSHUDWLYHVRFLHWLHV

CONCEPT 3: APPLICABILITY OF ACCOUNTING STANDARDS

TO CHARITABLE ENTITIES

$FFRXQWLQJ6WDQGDUGDSSO\WRFRPPHUFLDOLQGXVWULDORUEXVLQHVVHQWHUSULVHV7KHUHIRUH
they do not apply to purely charitable entities, however, if charitable entity is also engaged
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CONCEPT 5: APPLICABILITY OF ACCOUNTING

STANDARDS FOR COMPANIES

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 ACCOUNTING STANDARDS: BASICS APPLICATION OF ACCOUNTING STANDARDS
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Change in Status of the company

(a) From SMC to Non-EMC – :KHUH D FRPSDQ\ EHLQJ DQ 60& KDV TXDOLILHG IRU DQ\
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(b) From Non-SMC to SMC -$QH[LVWLQJFRPSDQ\ZKLFKZDVSUHYLRXVO\QRWDQ60&DQG
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IRUWZRFRQVHFXWLYHDFFRXQWLQJSHULRGV

QUESTION 1

([DPLQHZKHWKHUWKHIROORZLQJ&RPSDQLHVFDQEHFODVVLÀHGDV60&DVSHU&RPSDQLHV$6
5XOHV

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CONCLUSION:

Company Status Reason

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288 ACCOUNTING

QUESTION 2

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RIWKHSUHYLRXV\HDUZDQWVWRDYDLORIWKHH[HPSWLRQVDYDLODEOHLQDGRSWLRQRI$6DSSOLFDEOH
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CONCLUSION:
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TXHVWLRQ

QUESTION 3

$ &RPSDQ\ ZKLFK VDWLVÀHV WKH FRQGLWLRQV RI D 60& DV SHU &RPSDQLHV $6 5XOHV 
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6WDWHPHQWVDQG$65HODWHG3DUW\'LVFORVXUHVLQLWV)LQDQFLDO6WDWHPHQWV&RPPHQW

CONCLUSION:
$6LVQRWDSSOLFDEOHWR60&+RZHYHU$6LVDSSOLFDEOHDQGUHTXLUHGGLVFORVXUHVDUHWR
EHJLYHQ

QUESTION 4

$&RPSDQ\ZDVFODVVLÀHGDV1RQ60&LQ,QLWKDVEHHQFODVVLÀHGDV60&
7KH0DQDJHPHQWGHVLUHVWRDYDLOWKHH[HPSWLRQRUUHODWLRQVDYDLODEOHWR60&VLQ
+RZHYHUWKH$FFRXQWDQWRIWKH&RPSDQ\GRHVQRWDJUHHZLWKWKHVDPH*LYH\RXUYLHZV

CONCLUSION:
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UHPDLQVDVDQ60&IRUWZRFRQVHFXWLYHDFFRXQWLQJSHULRGV7KH$FFRXQWDQW·VYLHZLVFRUUHFW
 AS-11: FOREIGN EXCHANGE TRANSACTIONS 289

ACCOUNTING STANDARD 11
FOREIGN EXCHANGE TRANSACTIONS

QUESTION NO 1

&RPSXWHWKH/RVV*DLQIRUWKHÀQDQFLDO\HDUHQGLQJst0DUFK;DQG;IURPWKH
IROORZLQJ
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7KH&KLHI$FFRXQWDQWRI&RPSDQ\SDVVHGDQHQWU\RQst0DUFK;DGMXVWLQJWKHFRVW
RI5DZ0DWHULDO&RQVXPHGIRUWKHGLIIHUHQFHEHWZHHQ5VDQG5VSHU86''LVFXVV
ZKHWKHUWKLVWUHDWPHQWLVMXVWLÀHG

SOLUTION
7KH5DZ0DWHULDO3XUFKDVHVKRXOGEHUHFRUGHGDWWKH7UDQVDFWLRQ5DWHLH86' 5V 
5V7KHWUHDWPHQWRI([FKDQJH'LIIHUHQFHVZLOOEHDVXQGHU

Purchase of Goods for Financial Year Ending Payment to Supplier

10,000 USD
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\HDUHQGLQJst0DUFK;DIWHUst0DUFK;

Conclusion:
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WR3 /$FDVDQ([FKDQJH'LIIHUHQFHDQGGLVFORVHGDVUHTXLUHGXQGHU$6DQG6FKHGXOH
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DQG7UDQVODWLRQ,WVKRXOGQRWEHDGMXVWHGWRWKH&RVWRI0DWHULDOV&RQVXPHG
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QUESTION NO 2

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DPRXQWZDVUHFHLYHGLQ-XQH([FKDQJH5DWH5V7KH&RPSDQ\FORVHVLWVERRNVRI
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)LQGRXWWKH([FKDQJH)OXFWXDWLRQ*DLQ/RVVRQWKH%DODQFH6KHHWGDWHDQGRQWKH
GDWHRIUHFHLSW

SOLUTION

Export of Goods USD 2,00,000 Financial Year Ending Receipt from Customer
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\HDUHQGLQJst0DUFKDIWHUst0DUFK

QUESTION NO 3

$PELNDSDWL/WGLPSRUWHGFHUWDLQVWRFNZRUWK86'RQth-XQHZKHQ86' 5V
7KHSD\PHQWLVPDGHRQst'HFHPEHUZKHQ86' 5V7KH6WRFNLVLQKDQG
DQGO\LQJXQVROGDVRQth6HSWHPEHUZKHQWKH&RPSDQ\FORVHVLWVDFFRXQWV*LYH-RXUQDO
(QWULHVXQGHU$6LIWKHUDWHRQWKH%DODQFH6KHHWGDWHZDV86' 5V

SOLUTION

Date Particulars Dr.(Rs.) Cr. (Rs.)

th June 3XUFKDVHV$F'U 
7UDQVDFWLRQ 7R9HQGRU)RUHLJQ6XSSOLHU$F 
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DW )DLU 9DOXH SUHVXPHG HTXDO WR 5V
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st'HF 3URÀW /RVV$F([FK5DWH'LII'U 
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[ 86'  WKH GLIIHUHQFH GXH WR
VHWWOHPHQW 5V  ² 5V [ 86'
EHLQJORVVWUDQVIHUUHGWR3 /$F

QUESTION NO 4

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th-XQH7KH&RPSDQ\SUHSDUHVLWV)LQDQFLDO6WDWHPHQWVHQGLQJRQst0DUFK
$VVXPHWKDW([FKDQJH5DWHEHWZHHQ5HSRUWLQJ&XUUHQF\5XSHHDQG)RUHLJQ&XUUHQF\86
RQGLIIHUHQWGDWHVDUHDVXQGHU
st-DQ86 5Vst0DUFK th-XQH
    86 5V  86 5V

D &DOFXODWHWKH%RUURZLQJLQUHSRUWLQJFXUUHQF\WREHUHFRJQLVHGLQWKHERRNVRQDERYH
PHQWLRQHGGDWHV$OVRVKRZWKH-RXUQDO(QWULHVIRUWKHVDPH
292 ACCOUNTING

E ,I%RUURZLQJVZDVUHSDLGVHWWOHGRQth)HE7DNH([FKDQJH5DWH86 5V

ZKDWHQWU\VKRXOGEHSDVVHGLQVXFKFDVH"
SOLUTION

Date Particulars Dr.(Rs.) Cr. (Rs.)

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 AS-11: FOREIGN EXCHANGE TRANSACTIONS 

QUESTION NO 5

$PDUHVKERXJKWD)RUZDUG&RQWUDFWIRUWKUHHPRQWKVRI86'RQst'HFHPEHU
;DW86' 5VZKHQWKH([FKDQJH5DWHZDV86' 5V2Qst'HFHPEHU
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;KHGHFLGHGWRVHOOWKH&RQWUDFWDW5VSHU'ROODU6KRZKRZWKHSURÀWVIURP
WKH&RQWUDFWZLOOEHUHFRJQL]HGLQWKHERRNV*LYHWKHIXOODFFRXQWLQJWUHDWPHQWDVVXPLQJ
WKDWWKHDERYHWUDQVDFWLRQLVRQ¶QRQVSHFXODWLYHEDVLVµ
$OVRGLVFXVVWKHDFFRXQWLQJWUHDWPHQWLIWKHDERYHWUDQVDFWLRQLVRQ´VSHFXODWLYHEDVLVµRQ
WKHDVVXPSWLRQWKDWRQst'HFHPEHU;WKHPRQWKV)RUZDUG5DWHLV86' 5V

SOLUTION
Situation A : ,IWKHDERYH)RUZDUG&RQWUDFWKDVEHHQHQWHUHGRQ´QRQVSHFXODWLYHµEDVLV

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

st )RUHLJQ &XUUHQF\ 5HFHLYDEOH $F 86' [ 
'HF 5V6SRW5DWH'U

; )RUZDUG&RQWUDFW'HIHUUHG3UHPLXP$F 

86'[5V²5V'U
7R)RUZDUG&RQWUDFW3D\DEOH$F 
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86'
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 ACCOUNTING

st )RUZDUG&RQWUDFW3D\DEOH$F'U 

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(STUDENTS ARE ADVISED TO PASS ENTRIES AS WE PASSED IN CLASS: CA PARVEEN

JINDAL)

Situation B: ,IWKHDERYH)RUZDUG&RQWUDFWKDVEHHQHQWHUHGRQ“speculative”EDVLV

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

st )RUHLJQ&RQWUDFW$VVHW5HFHLYDEOH$F86' 
'HF [5V5V'U

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 AS-11: FOREIGN EXCHANGE TRANSACTIONS 

QUESTION NO 6

2Qst)HEUXDU\DQ,QGLDQ&RPSDQ\VROGJRRGVWRDQ$PHULFDQ&RPSDQ\DWDQ,QYRLFH
3ULFHRI86'ZKHQWKH6SRW0DUNHW5DWHZDV86' 5V3D\PHQWZDVWREH
PDGHLQWKUHHPRQWKVWLPHQDPHO\E\st0D\
7RDYRLGWKHULVNRI)RUHLJQ([FKDQJHÁXFWXDWLRQVWKH,QGLDQ([SRUWHUDFTXLUHGD)RUZDUG
&RQWUDFWWRVHOO86'DW5VSHU86'RQst0D\
7KH,QGLDQ&RPSDQ\·VDFFRXQWLQJ\HDUHQGHGRQst0DUFKDQGWKH6SRW5DWHRQWKLV
GDWHZDV5VSHU86'7KH6SRW5DWHRQst0D\WKHGDWHE\ZKLFKWKHPRQH\
ZDVGXHIURPWKH$PHULFDQ%X\HUZDV5VSHU86'
6KRZWKHDFFRXQWLQJHQWULHVLQWKHERRNVVRIWKH,QGLDQ([SRUWHUDWWKHUHOHYDQWSHULRG
of time. .

SOLUTION
Journal Entries in the books of Indian Exporter (assumed as SME)

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

 6XQGU\'HEWRUV$PHULFDQ&RPSDQ\$F'U 
7R6DOHV$F 
%HLQJ6DOHVUHFRUGHGDW5V86'
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5V E\ UHVWDWHPHQW RI 'HEWRUV 'LIIHUHQFH
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'DWH
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 ACCOUNTING

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WUDQVIHUUHGWR3 /

QUESTION NO 7

.DSDOL /WG SXUFKDVHG D 3ODQW IRU 86'  RQ st 'HFHPEHU  SD\DEOH DIWHU 
PRQWKV7KH&RPSDQ\HQWHUHGLQWRD)RUZDUG&RQWUDFWIRUPRQWKVDW5VSHU86'
2Qst'HFHPEHUWKH([FKDQJH5DWHZDV5VSHU86'
 AS-11: FOREIGN EXCHANGE TRANSACTIONS 

+RZZLOO\RXUHFRJQL]HWKH3URÀWRU/RVVRQWKH)RUZDUG&RQWUDFWLQWKHERRNVRI.DSDOL
/WGIRUWKH\HDUHQGHGst0DUFK"-RXUQDO(QWULHVDUHQRWUHTXLUHG

SOLUTION

Particulars Rs.
9DOXHDWWKHUDWHSUHYDLOLQJDWWKHLQFHSWLRQRI)RUZDUG&RQWUDFW 
86'[
9DOXHDWWKH)RUZDUG5DWH86'[ 
7RWDO/RVVRQHQWHULQJLQWRWKH)RUZDUG&RQWUDFW DULVLQJDWLQFHSWLRQ 
IRUPRQWKV&RQWUDFW3HULRG
/RVVWREHUHFRJQLVHGIRUWKH\HDUHQGHGst0DUFKLH 
IRUPRQWKV [ó

QUESTION NO 8

+RZZRXOG\RXGHDOZLWKWKHIROORZLQJIRUHLJQH[FKDQJHWUDQVDFWLRQVRQWKHDQQXDODFFRXQWV
IRUWKH\HDUHQGLQJ0DUFK"
x ,QVLJKW,QGLD/WGLPSRUWVD3ODQW 0DFKLQHU\RQst-XO\RQGHIHUUHGSD\PHQW
EDVLVIRU862Q0DUFKWKHH[FKDQJHUDWHZKLFKZDVUVSHU
GROODURQst-XO\KDVJRQHXSWR5V
$QV5VWREHLQFOXGHGLQÀ[HGDVVHWV

QUESTION NO 9

$' 6RIWH[  ,QGLD /WG LPSRUWV FHUWDLQ VWRFN ZRUWK 86   RQ th $XJ  DW
ZKLFKGDWHWKHH[FKDQJHUDWHLV5VSHUGROODU7KHSD\PHQWDUHPDGHRQ0DUFK
:KHQWKHH[FKDQJHUDWHLV5VSHUGROODU7KHVWRFNLVLQKDQGDVRQst0DUFK
(Ans: Rs. 660000 debited to P&L Account)

QUESTION NO 10

$OPD],PSH[/WGREWDLQVDVKRUWWHUPIRUHLJQH[FKDQJHORDQRI86RQQG
6HSW  ZKHQ WKH H[FKDQJH UDWH LV 5V  SHU GROODU 2Q st 0DUFK  WKH
H[FKDQJHUDWHKDVJRQHXSWR5VSHUGROODU
(Ans: Rs. 58 Lakhs debited in P&L Account).
298 ACCOUNTING

QUESTION NO 11

$'6RIWH[,QGLD/WGLPSRUWHGJRRGVZRUWK86IURPD86EDVHGFRPSDQ\$&6
,QFRQZKHQWKHH[FKDQJHUDWHZDV86 $'6RIWH[,QGLD/WGDJUHHG
WRSD\LWVFUHGLWRUVLQIRXUHTXDOLQVWDOPHQWVIDOOLQJRQ
DQG7KHH[FKDQJHUDWHVRQWKHVHWWOHPHQWGDWHVZHUHDQG
UHVSHFWLYHO\3UHSDUHOHGJHUDFFRXQWVRI$&6,QFLQERRNVRI$'6RIWH[,QGLD/WG
DQGFDOFXODWHQHWH[FKDQJHÁXFWXDWLRQORVVJDLQ
$QV/RVVRI5V'UWR3URÀWDQG/RVV$FFRXQW

QUESTION NO 12

$OPD],PSH[/WGDQ,QGLDQ&RPSDQ\WRRNDIRUHLJQFXUUHQF\ORDQRI86#
SDRQ,QWHUHVWLVSD\DEOHKDOI\HDUO\ZLWKDQLQVWDOPHQWIRUSULQFLSDORI86
7KHFRPSDQ\FORVHVERRNVRIDFFRXQWDVRQst0DUFKHYHU\\HDU([FKDQJHUDWHV
DUH
 
    
    
    
    
3UHSDUHORDQDFFRXQWRIWKHFRPSDQ\DQGFDOFXODWHWKHH[FKDQJHÁXFWXDWLRQORVVJDLQIRU
WKHÀQDQFLDO\HDUHQGHGRQDQGUHVSHFWLYHO\
(Ans: Loss – Rs. 1,25,000 (31.3.2009): Loss – Rs. 4,95,000 (31.3.2010)

QUESTION NO 13

6WHP /WG SXUFKDVHG D 3ODQW IRU 86   RQ th 1RYHPEHU  SD\DEOH DIWHU 
PRQWKV7KH&RPSDQ\HQWHUHGLQWRDIRUZDUGFRQWUDFWIRUPRQWKV#UVSHU'ROODU
2Qth1RYHPEHUWKH([FKDQJH5DWHZDVVSHU'ROODU+RZZLOO\RXUHFRJQL]H
WKH3URÀWRU/RVVRQ)RUZDUG&RQWDFWLQWKHERRNVRI6WHP/WGIRUWKH\HDUHQGHGst
0DUFK"
 AS-11: FOREIGN EXCHANGE TRANSACTIONS 299

SOLUTION
7KHWUHDWPHQWXQGHU$6LVDVXQGHU

Particulars Rs.
9DOXHDWWKHUDWHSUHYDLOLQJDWWKHLQFHSWLRQRIIRUZDUG&RQWUDFW 
[
9DOXHDWWKHIRUZDUGUDWH[ 
7RWDO/RVVRQHQWHULQJLQWRIRUZDUGFRQWUDFW DULVLQJDWLQFHSWLRQIRU 
PRQWKVFRQWUDFW

/RVVWREHUHFRJQL]HGIRUWKH\HDUHQGHGst0DUFK 
LHIRUPRQWKV [

,QWHUHVW 3D\PHQWV VKRXOG EH FKDUJHG WR 3URÀW DQG /RVV $FFRXQW RI HDFK \HDU DW WKH
7UDQVDFWLRQ9DOXHRQSD\PHQWGDWHV
 ACCOUNTING

NOTES
 BRANCH ACCOUNTS
301

BRANCH ACCOUNTS
PART -1
DEPENDENT BRANCHES

QUESTION NO 1 (DEBTORS METHOD)

Buckingham Bros. Bombay have a branch at Nagpur. They send goods at cost to their
branch at Nagpur. However, direct purchases are also made by the branch for which payments
are made at head office. All the daily collections are transferred from the branch to the
Head Office.
From the following, prepare Nagpur branch account in the books of head office:
Opening balances:- 01-01-1998
Imprest Cash 2,000
Sundry debtors 25,000
Stock of transferred goods from Head office 24,000
Stock of direct purchases 16,000
Cash sales 45,000
Credit sales 1,30,000
Direct purchases 45,000
Returns from customers 3,000
Goods sent to branch from H.O 60,000
Transfer from H.O for Petty Cash expenses 4,000
Bad debts 1,000
Discount to customers 2,000
Remittances to H.O
(Received by H.O) 1,65,000
Remittances to H.O
(Not received by H.O) 5,000
Branch Exp directly paid by H.O 30,000
Closing balances: on 31.12.1998
Stock: Direct purchases 10,000
Transfer from H.O 15,000
Debtors ?
Imprest cash ?

QUESTION NO 2 (ALL THREE METHODS)

The Bombay trading company invoiced goods to its Delhi branch at cost. Head office paid
all the branch expenses from its bank account except petty cash expenses, which were met by
the Branch. All the cash collected by the branch was banked on the same day to the credit of the
Head office. The following is a summary of the transactions entered into at the branch during
the year ended December 31, 1998.
Stock January 1 7,000
 ACCOUNTS
302

Debtors January 1 12,600

Petty cash January 1 200
Goods sent from H.O 26,000
Goods returned to H.O 1,000
Cash sales 17,500
Credit sales 28,400
Allowances to customers 200
Discount to customers 1,400
Bad debts 600
Goods returned by customers 500
Salaries and wages 6,200
Rent and rates 1,200
Sundry expenses 800
Cash received from sundry debtors 28,500
Stock at end of year 6,500
Debtors at the end of year 9,800
Petty cash at end of year 100
Prepare: (a) Branch account (debtors method), (b) Memorandum Branch Trading and Profit
and Loss account to prove the results as disclosed by the branch account and (c) Branch Stock
account, branch Profit and Loss account, Branch debtors and Branch Expenses account by
adopting the stock and debtors Method.

QUESTION NO 3 (STOCK & DEBTORS METHOD: GIT)

Harrison Limited, Madras has a branch at New Delhi to which goods are sent @ 20% above
cost. The branch makes both cash and credit sales. Branch expenses are met partly from H.O and
partly by the branch. The statement of expenses incurred by the branch every month is sent to
head office for recording.
Following further details are given for the year ended 31st December 1998.
Cost of goods sent to branch at cost 2,00,000
Goods received by branch till 31.12.1998 at invoice price 2,20,000
Credit sales for the year @ invoice price 1,65,000
Cash sales for the year @ invoice price 59,000
Cash remitted to head office 2,22,500
Expenses paid by H.O 12,000
Bad debts written off 750
Balances as on 1.1.1998
Stock (at cost) 25,000
Debtors 32,750
Cash in hand 5,000
Balance as on 31.12.1998
Stock (at invoice price) 28,000
Debtors 26,000
Cash in hand 2,500
 BRANCH ACCOUNTS
303

Show the necessary ledger accounts in the books of the head office and determine the profit
and loss of the Branch for the year ended 31st December 1998.

QUESTION NO 4 (STOCK & DEBTORS METHOD)

Sell Well Limited who carried on a retail business opened a branch X on January 1st,
1999 where all sales were on credit basis. All goods required by the branch were supplied
from the Head Office and were invoiced to the branch at 10% above cost. The following were
the transactions:-
Jan`99 Feb`99 March`99
Goods sent to Branch (purchase price) 40,000 50,000 60,000
Sales as shown by the branch monthly 38,000 42,000 55,000
Cash received from debtors and remitted 20,000 51,000 35,000
Returns to H.O (invoice price to Branch) 1,200 600 2,400
The stock of goods held by the branch on March 31, 1999 amounted to Rs.53,400 at
invoice to branch.
Record these transactions in the Head Office books, showing balances as on 31st March
1999 and the branch gross profit for the three months ended on that date.
All working should form part of your solution.

QUESTION NO 5 (STOCK & DEBTORS METHOD)

Hindustan Industries Bombay has a branch in Cochin to which office goods are invoiced
at cost plus 25%. The branch sells both for cash and on credit, Branch expenses are paid
direct from head office and the Branch has to remit all cash received into the Head office
Bank account.
From the following details, relating to calendar year 1998, prepare the accounts in the
Head office ledger and ascertain the Branch profit. Branch does not maintain any books of
account but sends weekly returns to the head office.
Goods received from Head office at invoice price 6,00,000
Returns to Head office at invoice price 12,000
st
Stock at Cochin as on 1 Jan, 1998 60,000
Sales in the year-cash 2,00,000
Credit 3,60,000
st
Sundry debtors at cochin as on 1 January 1998 72,000
Cash received from debtors 3,20,000
Discount allowed to debtors 6,000
Bad debts in the year 4,000
Sales returns at cochin branch 8,000
Rent, rates, Taxes at Branch 18,000
Salaries, wages, Bonus at Branch 60,000
Office expenses 6,000
st
Stock at branch on 31 December 1998 at invoice price 1,20,000
 ACCOUNTS
304

QUESTION NO 6 (DEBTORS METHOD)

X Limited Bombay started on 1st January 1988 has two branches at Kanpur and Lucknow.
All goods sold at the Branches are received from the Head office invoiced at cost plus 25
per cent. All expenses relating to branches are paid by the Head office. All cash collections
are remitted daily to Head-office by the Branches. The following particulars relating to the
year ended 31st December, 1988 have been extracted from the weekly statements sent by
the branches:
Kanpur Lucknow
Rs. Rs.
Credit sales 1,25,200 1,10,000
Cash sales 78,600 85,200
Sales returns 2,300 1,200
Sundry debtors 34,500 23,600
Rent and rates 3,200 4,500
Bad debts 6,000
Salaries 16,000 18,000
General expenses 2,600 1,500
Goods received from H.O 1,50,000 1,25,000
Advertisement 7,500 5,200
st
Stock on 31 December 1988 45,000 35,000
You are required to prepare the Branch accounts as they would appear in the books of
the Head office.

QUESTION NO 7 (ABNORMAL LOSSES)

Bombay Traders Limited sends goods its Madras Branch at cost plus 25 per cent. The
following particulars are available in respect of the Branch for the year ended 31st March,
1988.
Opening stock at Branch at cost to Branch 80,000
Goods sent to Branch at invoice price 12,00,000
Loss in Transit at invoice price 15,000
Pilferage at invoice price 6,000
Sales 12,19,000
Expenses 60,000
Closing stock at Branch at cost to Branch 40,000
Recovered from insurance company against loss in transit 10,000
Show ledger accounts in the head office books for:-
(a) Branch stock account
(b) Goods sent to branch account
(c) Branch adjustment account
(d) Branch Profit and Loss account
 BRANCH ACCOUNTS
305

QUESTION NO 8 (RETAIL BRANCH)

New Textiles Limited operates a number of retails shops to which goods are invoiced
at wholesale price, which is cost plus 20%. Shops sell the goods at the list price, which is
wholesale price plus 10%. From the following particulars ascertain the profit or loss for 1997
at shop no: 143:
Stock at shop on January 1 1997 15,000
Goods invoiced to shop during 1997 1,40,000
Sale at the shop during the year 1,54,770
Goods destroyed by accident (retail value) 660
Expenses at the shop 7,200

QUESTION NO 9 (DEBTORS METHOD)

Arnold BROS. Delhi trades in Ghee and Oil. It has a branch at Lucknow. The company
dispatches 25 tins of Oil @ Rs.1,000 per tin and 15 tins of Ghee @ Rs.1,500 per tin on 1st of
every month. The branch incurs some expenditure, which is met out of its collections this is
in addition to expenditure directly paid by Head Office.
Following are the other details:
Delhi Lucknow
Rs. Rs.
Purchases Ghee 14,75,000
Oil 29,32,000
Direct expenses 3,83,275
Expenses paid by H.O. 14,250
Sales Ghee 18,46,350 3,42,750
Oil 27,41,250 3,15,730
Collection during the year (including cash 6,47,330
sales)
Remittance by Branch to Head Office 6,13,250
(DELHI)
Balance as on: 1-1-98 31-12-98
Stock: Ghee 1,50,000 3,12,500
Oil 3,50,000 4,17,250
Debtors 7,32,750
Cash on hand 70,520 55,250
Furniture and fixtures 21,500 19,350
Plant and machinery 3,07,250 7,73,500
(LUCKNOW)
Balance as on: 1-1-98 31-12-98
Stock: Ghee 17,000 13,250
Oil 27,000 44,750
Debtors 75,750 ---
Cash on hand 7,540 12,350
 ACCOUNTS
306

Furniture and fixtures 6,250 5,625

Plant and machinery --- ---
Addition to plant and machinery on 1-1-98 Rs.6,02,750.
Rate of depreciation: Furniture/fittings @ 10% and Plant/machinery @ 15% (already adjusted
in the above figures).
The branch manager is entitled to 10% commission after charging such commission
whereas, the general manager is entitled to 10% commission on overall company profits after
charging such commission. General manager is also entitled to a salary of Rs.2000 p.m. General
expense incurred by the Head Office Rs.24,000.
Prepare the branch account in the head office books and also prepare the company`s
Trading and Profit and Loss account (excluding branch transactions).

QUESTION NO 10 (NOV 1997) (BRANCH OPENED FOR PURCHASES)

T of Calcutta has a branch at Dibrugarh. The branch does not maintain separate books
of accounts. The branch has the following assets and liabilities on 31st August 1997 and 30th
September 1997:
31st August 1997 30th September 1997
Stock of tea 1,80,000 1,50,000
Advance to suppliers 5,00,000 4,50,000
Bank balance 75,000 1,00,000
Prepaid expenses 10,000 12,000
Outstanding expenses 13,000 11,000
Creditors for purchases 3,00,000 to be ascertained
During the month, Dibrugarh branch:
(a) Received by electronic mail transfer Rs.10,00,000 from Calcutta head office
(b) Purchased tea worth Rs.12,00,000
(c) Sent tea costing Rs.12,30,000 to Calcutta freight of Rs.80,000 being payable at the
destination by the receiver
(d) Spent Rs.25,000 on office expenses
(e) Paid Rs.3,00,000 as advance to suppliers
(f) Paid Rs.6,50,000 to suppliers in settlement of outstanding dues.
In addition, T informs you that the Calcutta office had directly paid Rs.3,50,000 to
Dibrugarh suppliers by cheques drawn on bank accounts in Calcutta during the month.
T informs you that for the purpose of accounting Dibrugarh branch is not treated as an
outsider. He wants you to write the detailed accounts relating to the transactions of the
Dibrugarh branch as would appear in the books of Calcutta head office.

QUESTION NO 11 (MAY 2001) (DEBTORS METHOD)

Widespread ltd. invoices goods to its branch at cost plus 20 %. The branch sells goods for
cash as well as on credit. The branch meets its expenses out of cash collected from its
debtors and cash sales and remits the balance of cash to head office after withholding
Rs.10000 necessary for meeting immediate requirements of cash. On 31.3.2000 the assets at
the branch were as follows:
 BRANCH ACCOUNTS
307

Rs.(`000)
Cash in hand 10
Trade debtors 384
Stock at Invoice Price 1080
Furniture and Fittings 500
During the accounting year ended 31.3.2001 the invoice price of goods dispatched by
the head office to the branch amounted to Rs.1 crore 32 lakh. Out of the goods received by
it the branch sent back to head office goods invoiced at Rs.72,000. Other transactions at
the branch during the year were as follows: Rs.
(`000)
Cash sales 9700
Credit sales 3140
Cash collected by branch from credit customers 2842
Cash discount allowed to debtors 58
Returns by customers 102
Bad debts written off 37
Expenses paid by the branch 842
st
On 1 January 2001 the branch purchased new furniture for Rs.1 lakh for which
payment was made by head office through a cheque.
On 31st March 2001 branch expenses amounting to Rs.6000 were outstanding and cash
in hand was, again Rs.10000. Furniture is subject to depreciation @ 16 % per annum on
diminishing balances method.
Prepare branch account in the books of head office for the year ended 31st March 2001.

QUESTION NO 12 (STOCK & DEBTORS: IBT)

Sell well Limited has two branches in Cochin and Bangalore. During the year ended 31st
March 1989, goods have been invoiced to the Cochin branch at 20% above cost and to the
Banglore branch at 25% above cost. The branches do not maintain complete books of accounts
but the following figures are available for the year ended 31st March 1989:-
Cochin Bangalore
Rs. Rs.
Opening stock at invoice price 10,000 10,000
Goods sent to branch at cost 50,000 40,000
Amount remitted Branch 80,000 80,000
Amount remitted by Head office 15,000 15,000
Goods returned by branch at invoice price 3,000
Cash as on 1.4.1988 2,000 1,000
Cash as on 31.3.1989 1,000 500
Goods returned by customer at branch at selling 5,000 4,000
price
Expenses at Branch in cash 9,000 3,000
 ACCOUNTS
308

All sales at the branches are for cash. During the year Cochin branch purchased fixed
assets worth Rs.4,000 and this amount is included in the figure of branch expenses. Cochin
branch transferred to the Bangalore branch stock costing Rs.5000 during the year. The
Bangalore branch remitted Rs.2000 to the Cochin branch also during the year. There was a
closing stock of Rs.24000 valued at invoice price at the Cochin Branch. There was no closing
stock at the Bangalore branch. The branch stock adjustment account in the head office books
showed the following position as on 1st April, 1988:-
For Cochin:-Rs.2500(cr.) For Bangalore-Rs.2,000(cr.)
Prepare branch stock account, branch adjustment account. Goods sent to Branch
account, cash accounts of Branches and Profit and Loss account of branches in the books of
Head office books ignoring depreciation.

QUESTION NO 13 (NOV 1992) (BRANCH FINAL A/CS)

M/s Bright & Co. with its head office in Madras invoiced goods to its branch at Bombay
at 20% less than the catalogue price which is cost plus 50%, with instructions that cash sales
were to be made at invoice price and credit sales at catalogue price. Discount on credit sale
at 15 % on prompt payment will be allowed. From the following particulars available from the
branch prepare the branch trading and profit and loss account for the year ended 31st March
1992 in the books of head office, so as to show the actual profit or loss of the branch for
the year 1991-92:
Rs.
Stock 1-4-1991 (invoice price) 12,000
Goods received form head office (invoice price) 1,32,000
Debtors on 1-4-1991 10,000
Sales (cash) 46,000
Sales (credit) 1,00,000
Cash received from debtors 85,635
Discount allowed to debtors 13,365
Expenses at the branch 6,000
Remittance to the head office 1,20,000
Debtors on 31-3-1992 11,000
Cash in hand on 31-3-1992 5,635
Stock on 31-3-1992 (invoice price) 15,000
It was reported that a part of stock at the branch was lost by fire during the year
whose value is to be ascertained and provision should be made for discount to be allowed to
debtors as on 31-3-1992 on the basis of the year`s trend of prompt payment.

QUESTION N0 14 (MAY 1997) (RETAIL BRANCH)

Rahul Limited operates a number of retail outlets to which goods are invoiced at
wholesale price, which is cost plus 25 %. These outlets sells the goods at the retail price,
which is wholesale price plus 20 %.
Following is the information regarding one of the outlets for the year ended 31.3.97:
 BRANCH ACCOUNTS
309

Rs.
Stock at the outlet 1.4.96 30,000
Goods invoiced to outlet during the year 3,24,000
Gross profit made by the outlet 60,000
Goods lost by fire ?
Expenses of the outlet for the year 20,000
Stock at the outlet 31.3.97 36,000
You are required to prepare the following accounts in the books of Rahul Limited for the
year ended 31.3.97:
(a) Outlet stock account
(b) Outlet profit and loss account

QUESTION NO 15 (ACCOUNTING FOR LOSSES)

The Empire store Limited invoice goods to their various branches at cost and the
branches sell on credit as well as for cash. For the following details relating to the Bombay
branch, prepare the necessary accounts in the Head Office books:-
Debtors 1st January 1992 26,200
st
Debtors 31 December 1992 31,100
st
Cash balance 1 January 1992 300
st
Stock, 1 January 1992 15,000
st
Stock 31 December 1992 13,900
Goods received from Head office 50,800
Cash received from Head office 1,500
Goods returned to Head office 700
Cash sales 33,500
Credit sales 60,000
Allowances to customers 320
Returns from customers 580
Discount allowed to customers 2,400
Bad debts 600
Remittance to Head office 74,900
Rent and rates 1,800
Wages and salaries 6,000
General Trade charges 1,300
Normal loss of goods due to Wastage 1,200
Abnormal loss of goods due to pilferage 3000

QUESTION NO 16 (STOCK & DEBTORS METHOD)

During the year ended 31st December 2002, X & company of Madras sent to their
branch at Bombay goods costing Rs.1,00,000. They used to invoice to the branch at a price
designed to show a gross profit of 33-1/3 per cent on invoice price.
 ACCOUNTS
310

Collections at the branch from debtors amounting to Rs.26,390 were all sent to Head
office. Branch transactions during the year were:-
Cash sales - Rs.1,21,050
Credit sales-Rs.27,600
Goods returned by customers- Rs.300
Goods returned to Head office – Rs.780 (invoice price).

Opening balances:
Stock 2,250
Debtors 1,320
Closing balances:
Stock 2,700
Debtors 2,230
Goods at the branch of Rs.1260 (invoice price) were lost. Insurances Company paid
Rs.730 on the claim. Branch expenses, paid by Head office amount to Rs.36,780.
Show the necessary ledger accounts as would appear in the Head office books
recording the above the transactions relating to branch Profit and Loss account.

QUESTION NO 17 (ACCOUNTING FOR LOSSES)

Atlantic paper products send goods to Bhopal branch at cost plus 20%. You are given
the following particulars:
Opening stock at branch at its cost 5,000
Goods sent to branch at invoice price 20,000
Loss in transit at invoice price 2,500
Theft at invoice price 1,000
Loss in weight (normal) at invoice price 500
Sales 25,500
Expenses 8,000
Closing stock at branch at cost to Branch 6,000
Claim received from the insurance company for loss in 2,000
transit.
You are required to prepare in the head office books:
1. Branch stock account.
2. Branch adjustment account
3. Branch Profit and Loss account

QUESTION NO 18 (HOME WORK: LOSS 800)

On 1st January 1980 goods costing Rs.132000 were invoiced by Madras Head office to
its branch at Delhi and charged at selling price to produce a gross profit of 25 per cent on
the selling price. At the end of the month the return from Delhi branch showed that the
sales were Rs.150000. Goods invoiced at Rs.1200 to Delhi branch had been returned to
Madras Head office. The closing stock at Delhi branch was Rs.24000 at selling price. Record
 BRANCH ACCOUNTS
311

the above transactions in Branch stock account in the Head office books and close the said
accounts on 31st January 1980.

QUESTION NO 19 (MAY 2006)

Concept & company with its Head office at Mumbai has a branch at Nagpur. Goods are
invoiced to the branch at cost plus 33.33%. The following information is given in respect of
the Branch for the year ended 31.3.2006:

Rs.
Goods send to branch (invoice price) 4,80,000
Stock at branch on 1.4.2005 (invoice price) 24,000
Cash sales 1,80,000
Return of goods by customers to the branch 6,000
Branch expenses paid in cash 53,500
Branch Debtors balance on 1.4.2005 30,000
Discount allowed 1,000
Bad debts 1,500
Collection from Debtors 2,70,000
Branch Debtors cheques returned dishonored 5,000
Stock at branch on 31.3.2006( invoice price) 48,000
Branch Debtors balance on 31..03.2006 36,500
Prepare under the stock and Debtors system the following ledger accounts in the books of
the head office:
(i) Nagpur branch stock account
(ii) Nagpur branch Debtors account
(iii) Nagpur branch adjustment account
Also compute shortage of stock at branch, if any?
ANSWER:
Branch Stock Account
Particulars Amount Particulars Amount
To Balance b/d 24,000 By Cash sales 1,80,000
To Goods sent to branch 3,60,000 By Branch Debtors 2,80,000
(cost) (credit sales)
To Branch adjustment 1,20,000 By Branch PL a/c 1,500
(loading) By Branch adjust. 500
To Branch Debtors 6,000 (w.n#1)
By Balance c/d 48,000

5,10,000 5,10,000
 ACCOUNTS
312

Branch Debtors Account

Particulars Amount Particulars Amount
To Balance b/d 30,000 By Discounts 1,000
To Bank (dishonored 5,000 By B. stock 6,000
cheque) (goods returned)
To Branch stock By Bad debts 1,500
(credit sales) 2,80,000 By Bank (collection) 2,70,000
(Balancing Figure)
36,500
By Balance c/d
3,15,000 3,15,000
Branch Adjustment Account
Particulars Amount Particulars Amount
To Branch Stock 5,00 By Stock reserve 6,000
(Shortage) (opening)
To Stock Reserve 12,000 By Branch stock 1,20,000
(closing) (loading on goods)
To Branch profit and 1,13,500
loss account
(Balancing Figure)
1,26,000 1,26,000
Working note:1
Calculation of shortage (invoice price)
Opening stock 24,000
Goods sent to branch 4,80,000
Goods from Debtors (returned) 6,000
Less: Cash sales 1,80,000
Credit sales 2,80,000
Closing stock 48,000
----------
Shortage (balancing figure) 2,000
Cost of shortage(2,000*100/133.33) 1,500
Loading (2,000*33.33/133.33) 500
Notes:
(i) Shortage is calculated at invoice price. We have assumed that the shortage is an
abnormal shortage so it should be divided into two break ups of cost and loading.
Cost should be debited to branch profit and loss account and loading in adjustment
account.
(ii) In the question, there is no requirement in relation to calculation of profit, so we
have not prepared the profit and loss account.
 BRANCH ACCOUNTS
313

QUESTION NO 20 (C A MAY 2010) (HOMEWORK)

Ram Limited of Chennai has a branch at Nagpur to which office, goods are invoiced at
cost plus 25% . the branch makes sales both for cash and on credit. Branch expenses are
paid direct from Head Office and the branch has to remit all cash received into the head
Office bank Account at Nagpur.
From the following details , relating to the year 2009, prepare the accounts in Head office
Ledgr and ascertain branch
Profit. Branch does not maintain any books of accounts , but sends weekly returns to Head
Office :
Rs.
Goods received from Head Office at 1,20,000
invoice price
Returns of head office at invoice price 2,400
Stock at Nagpur Branch on 1.1.2009 12,000
Sale during the year – cash 40,000
Credit 72,000
Debtors at Nagpur Branch 14,400
Cash received from Debtors 64,000
Discounts allowed to debtors 1,200
Bad debts during the year 800
Sales Returns at Nagpur Branch 1,600
Salaries and wages at Branch 12,000
Rent, Rates and taxes at Branch 3,600
Office Expenses at Nagpur Branch 1,200
Stock at Branch on 30.12.2009 at invoice 24,000
price
ANSWER
Branch net profit 7120

QUESTION NO 21 (C A MAY 2007)(HOMEWORK)

Red and Co. of Mumbai started a branch at Bangalore on 1.4.2006 to which goods were
sent at 20% above cost. The branch makes both cash sales and credit sales. Branch expenses
are met from branch cash and balance money remitted to H.O. the branch does not maintain
double entry books of account and necessary accounts relating to branch are maintained in
H.O. following further details are given for the year ending on 31.3.2007 :
Rs.
Cost of goods sent to branch 1,00,000
Goods received by branch till 31.3.2007 at 1,08,000
invoice price
Credit sales for the year 1,16,000
Closing debtors on 31.3.2007 41,600
Bad Debts written off during the year 400
 ACCOUNTS
314

Cash remitted to H.O. 86,000

Closing cash on hadn at branch on 31.3.2007 4,000
Cash remitted by H.O. to branch during the year 6,000
Closing stock in hand at branch at invoice price 12,000
Expenses incurred at branch 24,000
Draw up the necessary Ledger accounts like branch Debtors Account, branch stock account ,
goods sent to branch account, branch cash Account, branch Expenses Account and branch
Adjustments A/c for ascertaining gross profit and branch Profit and loss a/c for
ascertaining branch profit.
SOLUTION
Branch Stock Account
Particulars Amount Particulars Amount
To Balance b/d NIL By Cash sales 34,000
To Goods sent to branch 1,20,000 (REFER CASH A/C)
(IP) By credit sale 1,16,000
(credit sales)
To gross profit 54,000
By Balance c/d
Transit 12,000
Hand 12,000

1,74,000 1,74,000

Branch Debtors Account

Particulars Amount Particulars Amount
To credit sale 1,16,000 By bad debts 400
(credit sales) By cash (bal.fig) 74000
By Balance c/d 41600

1,16,000 1,16,000

Branch cash Account

Particulars Amount Particulars Amount
To branch debtors 74,000 By HO cash 86,000
To ho cash (received) 6,000 By Branch expenses 24,000
To branch sales (bal.fig) 34,000 By Balance c/d 4,000

1,14,000 1,14,000
 BRANCH ACCOUNTS
315

Branch Adjustment Account

Particulars Amount Particulars Amount
To Stock Reserve 4,000 By GSTB 20,000
(closing) (loading on goods)
(24000X20/120)
TO GP 70,000 BY GP 54,000

74,000 74,000

Branch Expenses Account

Particulars Amount Particulars Amount
To Branch cash 24,000 By branch P&L 24,400
To bad debts 400

24,400 24,400

Branch P&L Account

Particulars Amount Particulars Amount
TO BRANCH EXPENSES 24,400 BY GP 70,000

TO NP 45,600

70,000 70,000

QUESTION NO 22 (C A NOV 2010) (RETAIL BRANCH)

Following is the information of the Jammu branch of Best Ltd. New Delhi for the year
ending 31st March 2010 from the following:
(1) Goods are invoiced to the branch at cost plus 20%
(2) The sale price is cost plus 50%
(3) Other information:
Rs.
Stock as on 1.4.2009 2,20,000
Goods sent during the year 11,00,000
Sale during the year 12,00,000
Expenses incurred at the branch 45,000
Ascertain (i) the profit earned by the branch during the year (ii) branch stock reserve in

respect of unrealized profit.

 ACCOUNTS
316

QUESTION 23 (HOMEWORK)

Fanna Cloth Mills opened a branch at Mumbai on is April, 2011. The goods were invoiced to
the branch at selling price which was 125% of the cost to the head office.
The following are the particulars of the transactions relating to branch during the year ended
31sf March, 2012:
Rs Rs
Goods sent to branch at cost to head office 4212600
Sales
Cash 1876050
Credit 2661450 4537500
Cash collected from debtors 2355000
Discount allowed to debtors 23550
Returns from debtors 15000
Spoiled cloth in bales written off at invoice 7500
price
Cheques sent to branch for:
Rent
Salaries 108000
Other Expenses 270000
52500 430500

Prepare Branch Account based on invoice price under Debtors method for ascertaining profit
for the year ended 31sf March, 2012.
Solution
Branch Account
Rs Rs Rs Rs
To Good sent to 5265750 By H.O.Cash
Branch account (Remittances)
To Bank- Sale 1876050
Rent 108000 Collection from 2355000 4231050
Salaries 270000 debtors
Other Expenses 52500 430500
To Branch Stock Goods sent to
Reserve 147150 branch 1053150
( 7,35,750x25/125) Account (Loading)
To H.O. Profit and 444450 (52,65,750x25/125)
loss Account
- Transfer of profit Balance c/d
 BRANCH ACCOUNTS
317

Branch Stock 735750

Branch Debtors 267900 1003650
6287850 6287850

Working Notes:
Memorandum Branch Stock Account
To Goods Sent to By Cash- Sale 1876050
Branch By Credit Sales 2661450
Cost 4212600 By Abnormal Loss 7500
Add: Loading @ 25% 1053150 5265750 -spoiled cloth
To Returns from By Balance c\d 735750
Debtors 15000 (Bal.fig. )
5280750 5280750

Memorandum Branch Debtors Account

Rs Rs
To Credit Sales 2661450 By Cash collected 2355000
By Discount allowed 23550
______
By Returns 15000
_______ By Balance c/d (Balancing 2,67,900
2661450 figure 2661450
 ACCOUNTS
318

QUESTION 24 (DEBTORS METHOD)

LMN is having branch at Mumbai. Goods are invoiced to the branch at 25% profit on
sale. B ranch has been instructed to send all cash daily to head office. All expenses are paid
by head office except petty expenses, which are met by the Branch. From the following
particulars, prepare branch account in the books of head office:
Particular Amounts Particular Amounts
(Rs) (Rs)
Stock as on 1st April, 2013 (Invoice 40000 Discount allowed to debtors 300
price)
Sundry Debtors as on 1st April, 2013 25,000 Expenses paid by head office :
Cash in hand as on 1st April, 2013 1,000 Salary 4,000
Office Furniture as on 1st April, 2013 4,000 Staff Welfare 750
Goods invoiced from head office 1,80,000 Telephone Expenses 1,200
(invoice price) Other Misc. Expenses paid by branch 700
Goods return to head office 6,000 Stock as on 31st March, 2014
(at invoice price) 35,000
Goods return by debtors 1,250 Depreciation to be provided on 10% p. a.
cash received from Debtors 65,000 branch furniture
Cash Sales 1,20,000
Credit sales 70,000

Answer
In the books of Head office -LMN
Mumbai Branch Account (At invoice price)
Particular Amount Particular Amount
(Rs) (Rs)
To Balance b/d : By Stock Reserve (opening) 10,000
Stock 40,000 By Remittances
Debtors 25,000 Cash Sales 1,20,000
cash in hand 1,000 Cash from Debtors 65,000 1,85,000
Furniture 4,000 By Goods sent to Branch (loading) 45,000
To Goods send to branch 1,80,000 By Good returned by branch
To Goods returned by branch 1,500 (Returns to HO) 6,000
(loading) By Balance c/d:
Stock 35,000
To Bank (Expenses paid by Head Debtors 28,450
office) Cash (Rs 1,000- Rs 700) 300
Salary 4000 Furniture ( Rs 4,000- Rs 400) 3,600
Staff 750
Telephone 1200 5950
To Stock Reserve (closing) 8750
To profit Transferred to General 47,150 ______
profit & Loss A/c _____ 3,13,350
3,13,350
 BRANCH ACCOUNTS
319

Working Note :
Debtors Account
Particular Amount (Rs) Particular Amount (Rs)
To Balance b/d 25,000 By Cash A/c 65,000
To Sales A/c (Credit) 70,000 By Sales Return 1,250
______ By Discount allowed 300
95,000 By Balance c/d 28,450
95,000

QUESTION 25 {2011 May}

XYZ Company is having its` branch at Kolkata. Goods are invoiced to the branch at 20%
profit on sale. Branch has been instructed to send all cash daily to head office. All expenses
are paid by head office except petty expenses which are met by the branch manager. from
the following particulars prepare branch account in the books of Head office.

Rs Rs
Stock on 1st April 2010 (invoice 30,000 Discount allowed to debtors 160
price)
Sundry debtors on 1st April, 2010 18,000 Expenses paid by head office :
Cash in hand as on 1st April, 2010 800 Rent 1800
Salary 3200
Office furniture on 1st April, 3,000 Stationary & Printing 800
2010 petty exp. paid by the branch 600
Goods invoiced from the head 1,60,000 Depreciation to be
office ( invoice price)
Goods return by Branch 2000 Provided on branch
furniture at 10% p.a.
Goods return by debtors 960
Cash received from debtors 60,000
Cash sales 1,00,000 Stock on 31st March
Credit sales 60,000 2011 (at invoice price) 28,000

Answer :
In the books of Head Office - XYZ Company
Kolkata branch Account (at invoice)
Particular Amt. (Rs) Particular Amt. (Rs)

To Balance b/d By Stock reserve (Opening ) 6,000

Stock 30,000 By H O CASH(remittances)

 ACCOUNTS
320

Debtors 18,000 (Daily= 1,00,000+ 60,000) 1,60,000

Petty cash 800 By Loading in GSTB 32,000

Furniture 3,000 By goods returned by

To goods sent to branch 1,60,000 Branch (Return to H.O.) 2,000

To Goods returned branch By Balance c/d

(loading ) 400 Stock 28,000

To Bank (expenses paid by H.O.) Debtors 16,880

Rent 1800 Cash ( 800-600 ) 200

Salary 3200 Furniture ( 3,000-300) 2,700

Stationery & Printing 800 5,800

To stock reserve (Closing ) 5,600

To Profit transferred to 24,180

General Profit & Loss A/c

2,47,780 2,47,780

Working Note :
Debtors Account
Rs Rs

To Balance b/d 18,000 By cash account 60,000

To sales account (credit) 60,000 By Sales return account 960

By Discount allowed account 160

By balance c/d

16,880

78,000 78,000

Note : It is assumed that goods returned by branch are at invoice price.

 BRANCH ACCOUNTS
321

PART-2
INDEPENDENT BRANCHES
QUESTION NO 26
Ring Bell Limited Delhi has a branch at Bombay where a separate set of books is used.
The following is the trial balance extracted on 31st December 1998.
Head Office Trial Balance
Rs. Rs.
Share capital (Authorised: 10,000
equity shares of Rs.100 each)
Issued: 8,000 equity shares 8,00,000
Profit and Loss account 1.1.98 25,310
Interim dividend paid--August 1998 30,000
General reserve 1,00,000
fixed assets 5,30,000
Stock 2,22,470
Debtors and creditors 50,500 21,900
Profit for the year 1998 82,200
Cash balance 62,730
Branch current account 1,33,710
10,29,410 10,29,410
Branch Trial Balance
Rs. Rs.
Fixed assets 95,000
Profit for 1998 31,700
Stock 50,460
Debtors and creditors 19,100 10,400
Cash balance 6,550
Head office current account 1,29,010
1,71,110 1,71,110
The difference between the balances of the current account in the two sets of books is
accounted for as follows:
(a) Cash remitted by the branch on 31st December 1998 but received by the Head office
on 1st January 1999—Rs.3,000
(b) Stock stolen in transit from Head office and charged to branch by the Head office
but not credited to Head office in the branch books as the branch manager declined
to admit any liability (not covered by insurance) – Rs.1,700.
Give the branch current account in the Head office books after incorporating branch trial
balance through journal. Also prepare the company`s Balance Sheet as on 31st December
1998.
 ACCOUNTS
322

QUESTION NO 27
Ashwin, a trader commenced business on 1st January 1995 with a Head office and one
branch. Purchases were made exclusively by the Head office where the goods were processed
before sale. There was no loss or wastage.
Only processed goods received from head office were handled by the branch and these
were charged to the branch at processed cost plus 10 per cent.
All sales whether by head office or the branch were at uniform gross profit of 25 per
cent on their respective cost.
The following Trial Balance as on 31st December 1995 was extracted from the books.
Head office
Branch
Debit Credit Debit Credit
Rs. Rs. Rs. Rs.
Capital 2,20,000
Drawings 25,000
Purchases 19,93,350
Cost of processing 34,650
Sales 14,20,000 6,40,000
Goods sent to branch/
Received by branch 6,51,200 6,40,200
Selling & General expenses 2,24,000 27,000
Debtors/Creditors 2,30,000 5,83,350 92,000 2,400
Branch/H.O. current a/c 2,05,550 1,50,800
Balance at bank 1,62,000 34,000
Total 28,74,550 28,74,550 7,93,200 7,93,200
Further details are:
(a) Goods charged by head office to branch in December 1995 at Rs.11,000, were not
received by the branch until January 1996. A remittance of Rs.43,750 from the branch
to head office in December 1996 is still in transit.
(b) Stock taking at branch disclosed shortage of Rs.5,000 (at selling price).
(c) Cost of unprocessed goods at head office as on 31st December 1995 was Rs.1,80,000.
You are required to prepare in columnar form Profit and Loss account and Balance Sheet
of the head office, branch and the business as whole.
QUESTION NO 28 (NOV.2005)
M/s. Shah & Co. commenced business on 1.4.2004 with a Head office and one branch.
Purchases were made exclusively by the Head office where the goods were processed before
sale. There was no loss or wastage.
Only processed goods received from head office were handled by the branch and these
were charged to the branch at processed cost plus 10 per cent.
All sales whether by head office or the branch were at uniform gross profit of 25 per
cent on their respective cost.
 BRANCH ACCOUNTS
323

The following Trial Balance as on 31.03.2005 was extracted from the books.
Head office
Branch
Debit Credit Debit Credit
Rs. Rs. Rs. Rs.
Capital 3,10,000
Drawings 55,000
Purchases 19,69,500
Cost of processing 50,500
Sales 12,80,000 8,20,000
Goods sent to branch/
Received by branch 9,24,000 8,80,000
Selling & General expenses 50,000 6,200
Administrative expenses 1,39,000 15,000
Debtors/Creditors 3,09,600 6,01,400 1,13,600 10,800
Branch/H.O. current a/c 3,89,800 2,61,500
Balance at bank 1,52,000 77,500
Total 31,15,400 31,15,400 10,92,300 10,92,300
Further details are:
(d) Goods charged by head office to branch in March, 2005 at Rs.44,000, were not
received by the branch until 2.4.2005.
(e) A remittance of Rs.84,300 from the branch to head office was also similarly not
received up to 31.3.2005.
(f) Stock taking at branch disclosed shortage of Rs.20,000 (at selling price).
(g) Cost of unprocessed goods at head office as on 31.03.2005 was Rs.1,00,000.
You are required to prepare in columnar form Profit and Loss account and Balance Sheet
of the head office, branch and the business as whole.

QUESTION NO 29
KP Limited manufactures a range of goods which it sells to wholesale customers only
from its head office. In addition the head office transfers goods to a newly opened branch
at factory cost plus 15%. The branch then sells these goods to the general public on only cash
basis. The selling price to wholesale customers is designed to give a factory profit which
amounts to 30% of the sales value. the selling price to the general public is designed to give
a gross margin (i.e., selling price less cost of goods from head office) of 30% of the sales
value. The company operates from rented premises and leases all other types of fixed assets.
The rent and hire charges for these are include in the overhead costs shown in the trial
balances.
From the information given below you are required to prepare for the year ended 31st
December 1998 in columnar form:
(a) A Profit and Loss Account for (i) H.O. (ii) the branch (iii) the entire business.
 ACCOUNTS
324

(b) A Balance Sheet as on 31st December 1998 for the entire business.
Head Office Branch
Rs. Rs. Rs. Rs.
Raw materials purchased 35,000
Direct wages 1,08,500
Factory overheads 39,000
Stock on 1-1-98
Raw material 1,800
Finished goods 13,000 9,200
Debtors 37,000
Cash 22,000 1,000
Administrative salaries 13,900 4,000
Salesmen`s salaries 22,500 6,200
Other administrative &
selling overheads 12,500 2,300
Inter-unit accounts 5,000 2,000
Capital 50,000
Sundry creditors 13,000
Provision for unrealized
profit in stock 1,200
Sales 2,00,000 65,200
Goods sent to branch 46,000
Goods received from H.O. 44,500
3,10,200 3,10,200 67,200 67,200

Notes:
(a) On 28th December 1998 the branch remitted Rs.1,500 to head office and this has not
yet been recorded in the head office books. Also on the same date, the head office
dispatched goods to the branch invoiced at Rs.1,500 and these too have not yet been
entered into the branch books. It is the company`s policy to adjust items in transit in
the books of the recipient.
(b) The stock of raw materials held at the head office on 31st December 1998 was valued
at Rs.2,300
(c) You are advised that:
(i) There were no stock losses incurred at the head office or at the branch.
(ii) It is the company `s practice to value finished goods stock at the head office
at factory cost.
(iii) There were no opening or closing stock of work-in-progress.
(d) Branch employees are entitled to a bonus of Rs.156 under a bilateral agreement.
 BRANCH ACCOUNTS
325

QUESTION NO 30
AFFIX Limited of Calcutta has a branch at Delhi to which the goods are supplied from
Calcutta but the cost thereof is not recorded in the Head office books. On 31st March 1997
the Branch Balance Sheet was as follows:
Liabilities Rs. Assets Rs.
Creditors balance 40,000 Debtors balance 2,00,000
Head office 1,68,000 Building Extension A/c
closed by transfer to
H.O. a/c
Cash at bank 8,000
2,08,000 2,08,000
During the six months ending on 30-9-97 the following transactions took place at Delhi.
Rs. Rs.
Sales 2,40,000 Manager`s salary 4,800
Purchases 48,000 Collections from debtors 1,60,000
Wages paid 20,000 Discounts allowed 8,000
Salaries (inclusive of Discount earned 1,200
advance of Rs.2,000) 6,400 Cash paid to creditors 60,000
General expenses 1,600 Building account (further
Fire insurance (paid for payment) 4,000
one year) 3,200 Cash in hand 1,600
Remittance to head office 38,400 Cash at bank 28,000
Set out the head office account in Delhi books and the Branch Balance Sheet as on 30-
9-1997. Also give journal entries in the Delhi books.

QUESTION NO 31
The following trial balances as at 31st December 1997 have been extracted from the
books of Major Limited and its branch at a stage where the only adjustments requiring to be
made prior to the preparation of a Balance Sheet for the undertaking as a whole:
Head Office Branch
Debit Credit Debit Credit
Rs. Rs. Rs. Rs.
Share capital 1,50,000
Sundry fixed assets 75,125 18,901
Sundry current assets 1,21,089 23,715 (Note 3)
Sundry current liabilities 34,567 9,721
st
Stock reserve, 1 Jan. 997
(Note 2) 693
Revenue account 43,210 10,250
Branch account 31,536
Head office account 22,645
2,28,470 2,28,470 42,616 42,616
 ACCOUNTS
326

Notes:
(1) Goods transferred from head office to the branch are invoiced at cost plus 10% and
both revenue accounts have been prepared on the basis of the prices charged.
(2) Relating to the head office goods held by the branch on 1st January 1997.
(3) Includes goods received from head office at invoice price Rs.4,565.
(4) Goods invoiced by head office to branch at Rs.3,641 were in transit at 31st December
1997 as was also a remittance of Rs.3,500 from the branch.
(5) At 31st December 1997 the following transactions were reflected in the head office
books but unrecorded in the branch books:
(a) The purchase price of lorry, Rs.2,500 which reached the branch on Dec.
25;
(b) A sum received on December 30,1997 from one of the branch debtors
Rs.750.
You are required:
(i) To record the foregoing in the appropriate ledger accounts in both set of books.
(ii) To prepare a Balance Sheet as on 31st December 1997 for the undertaking as a
whole.

QUESTION NO 32 (MAY 1996)

Head office passes adjustment entry at the end of each month to adjust the position
arising out of inter-branch transactions during the month. Form the following inter-branch
transactions in January, 1996, make the entry in the books of Head office:
(a) Bombay branch
(i) Received Goods: Rs.6000 from Calcutta Branch, Rs.4000 from Patna Branch.
(ii) Sent Goods to: Rs.10000 to Patna, Rs.8000 to Calcutta.
(iii) Received B/R: Rs.6000 from Patna
(iv) Sent Acceptance: Rs.4000 to Calcutta, Rs.2000 to Patna.
(b) Madras Branch (Apart from the above):
(v) Received goods: Rs.10000 from Calcutta, Rs.4000 from Bombay.
(vi) Cash sent: Rs.2000 to Calcutta, Rs.6000 to Bombay
(c) Calcutta Branch (apart from the above):
(i) Sent goods to Patna Rs.6000
(ii) Paid B/P: Rs.4000 to Patna, Rs.4000 cash to Patna.

QUESTION NO 33 (MAY 2002)

On 31st March 2000 Kanpur branch submits the following trial balance to its head office at
Lucknow:

Debit balances (Rs. in lacs)

Furniture and equipment 18
Depreciation on furniture 2
Salaries 25
 BRANCH ACCOUNTS
327

Rent 10
Advertising 6
Telephone, Postage and Stationary 3
Sundry office expenses 1
Stock on 1.4.1999 60
Goods received from head office 288
Debtors 20
Cash at bank and in hand 8
Carriage inwards 7
--------
448
--------
Credit balances
Outstanding expenses 3
Goods returned to head office 5
Sales 360
Head office 80
-------
448
-------
Additional information:
Stock on 31st March 2000 was valued at Rs.62 lacs on 29th March 2000 the head office
dispatched goods costing Rs.10 lacs to its branch. Branch did not receive these goods before
1st April 2000. Hence the figure of goods received from head office does not include these
goods. Also the head office has charged the branch Rs.1,00,000 for centralized services for
which the branch has no passed the entry.
You are required to:
(i) Pass journal entries in the books of the branch to make the necessary adjustments.
(ii) Prepare final accounts of the branch including balance sheet and
(iii) Pass journal entries in the books of the head office to incorporate the whole of the
Branch Trial Balance.

QUESTION NO 34
A Madras Head office has an independent Branch at Ahmedabad. From the following
particulars, close the books of the Ahmedabad Branch.
Ahmedabad Branch
Trial balance as at 31st December, 2002
Debit balances Amount Credit balances Amount
st
Stock on 1 Jan 2002 8,200 Creditors 2,700
Purchases 12,800 Sales 34,950
Wages 6,550 Head office A/c 14,000
Discount 150
 ACCOUNTS
328

Manufacturing 3,400 Purchase returns 300

expenses 1,700
Rent 5,500
Salaries 4,000
Debtors 2,000
General expenses
Goods received from 7,200
H.O 750
Cash at bank
52,100 52,100
(a) Closing stock at branch Rs.14,350
(b) The branch fixed assets maintained in H.O books were: machinery Rs.25,000, furniture
Rs.1,000. Depreciation is to be charged at 10 per cent on machinery and 15 per cent on
furniture.
(c) Rent due Rs.150
(d) A remittance of Rs.4000 made by the branch on 28th December, 2002 was received by
the H.O on 4th January 2003.

ANS: Loss Rs.400

QUESTION NO 35
A Calcutta H.O passes one entry at the end of each month to adjust the position arising
out of inter branch transactions during the month, from the following inter-branch
transaction in April 19—make the entries in the books of Calcutta Head office: (give details
of working)
(a) Delhi Branch:
a. Received goods from Nagpur Branch Rs.9000 and Ahmedabad Branch Rs.6000.
b. Sent goods to Ahmedabad branch Rs.15,000 and Nagpur Branch Rs.12,000.
c. Received bills receivables from Ahmedabad Branch Rs.9,000.
d. Sent Acceptances to Nagpur Rs.6,000 and Ahmedabad 3,000.
(b) Kanpur Branch: (in addition to the above)
a. Received goods from Nagpur branch Rs.15,000 and Delhi Branch Rs.6,000.
b. Cash sent to Nagpur Branch Rs.3,000 and Delhi Branch Rs.6,000.
(c) Nagpur Branch: (in addition to the above)
a. Sent goods to Ahmedabad Branch Rs.9,000.
b. Received bills receivable from Ahmedabad Branch Rs.9,000.
c. Received cash from Ahmedabad Branch Rs.5000.
 BRANCH ACCOUNTS
329

QUESTION NO 36
A Bombay merchant opens a new branch in Delhi, which trades independently of the head
office. The transactions of the branch for the year ended 31st March 1990 are as under:
Rs. Rs.
Goods supplied by Head office 2,00,000
Purchases from outsiders:
Credit 1,55,500
Cash 30,000 1,85,500
Sales:
Credit 2,50,500
Cash 46,000 2,96,500
Cash received from customers 3,04,500
Cash paid to creditors 1,42,500
Expenses paid by branch 89,500
Furniture purchased by branch on credit 35,000
Cash received from Head office initially 40,000
Remittance to Head office 1,10,000
Prepare the Branch Final Accounts and the Branch Account in Head office books on incorporation
of the Brach trial balance in the Head office books after taking the following into consideration:
(a) The accounts of the branch fixed assets are maintained in the Head office books.
(b) Write off depreciation on furniture at 5 per cent per annum for full year.
(c) A remittance of Rs.20,000 from the branch to head office is in transit.
(d) The branch values its closing stock at Rs.1,20,000.

QUESTION NO 37
Anil and Sunil are partners of a business having head office in Delhi and Branch at Calcutta.
Anil looks after the Delhi office and Sunil books after the Calcutta Branch. Anil is entitled to 40% of
the profits made at Delhi while Sunil is entitled to 30% of the profits at Calcutta. The balance
profits/losses are shared equally.
The following trial balances as on 31st December, 1981 are furnished to you.

DELHI HEAD OFFICE CALCUTTA BRANCH

Dr. Cr. Dr. Cr.
Opening stock at cost 30,000 - 40,000 -
Purchases and returns 1,80,000 10,000 2,75,000 15,000
Goods sent to:
Calcutta - 50,000 - -
Delhi - - - 70,000
Goods received from:
Calcutta 65,000 - - -
Delhi - - 48,000 -
Sales and returns 15,000 3,15,000 20,000 3,70,000
Expenses 28,000 - 39,000 -
Customer accounts 64,000 4,000 71,000 3,000
Suppliers accounts 2,000 32,000 1,000 51,000
Bank account 70,000 - - 6,000
 ACCOUNTS
330

Fixed assets opening 50,000 - 80,000 -

WDV - 5,000 - -
Calcutta branch A/c - - 17,000 -
Delhi H.O. A/c
Capital and drawing : 30,000 83,000 4,000 35,000
Anil 5,000 40,000 25,000 70,000
Sunil 5,39,000 5,39,000 6,20,000 6,20,000

You are informed that:

(a) On 30th December 1981 Delhi head office remitted Rs.5000 by bank draft to Calcutta branch.
The envelope was received by the branch on 2nd January 1982.
(b) Stock at cost on 31st December 1981, was worth:-
a. Rs.46,000 at Delhi and
b. Rs.54,000 at Calcutta
(c) Depreciation is to be provided at 10%.
(d) 10% of the cash expenses relating to the Head office are to be treated as overheads incurred
on behalf of the branch.
(e) You are required to prepare the:-
i. Trading and Profit and Loss account both for the branch and H.O.
ii. Consolidated balance sheet of the firm as on 31st December 1981,
iii. Branch and head office accounts of the respective books.
(Ans:- Net profit:-branch =76,200, Head office=1,00,800. Balance Sheet total=4,37,000
branch and head office accounts balances in the respective books 7200)

QUESTION NO 38
Unique products operates from a head office in Cuttack and a branch in Ranchi. The following
trial balance have been extracted from the books of accounts as at 31st March 2000:
HEAD OFFICE RANCHI BRANCH
Dr. Cr. Dr. Cr.
Capital 20,50,000
Cash and bank 77,500 65,000
Debtors and creditors 3,00,000 2,50,000 3,00,000
Operating expenses 14,02,500 1,07,500
Branch current account 8,75,000
Head office account 6,00,000
Bad debt provisions 45,000 12,500
Provision for depreciation 7,00,000 1,50,000
Provision for unrealized
profit 20,000
Opening stock 40,000 1,00,000
Fixed assets (at cost) 17,50,000 5,00,000
Drawings 2,00,000
Sales 42,50,000 21,85,000
Goods sent to branch at
invoice price 19,00,000 18,75,000
Purchases 45,70,000
92,15,000 92,15,000 29,47,500 29,47,500
 BRANCH ACCOUNTS
331

Additional information:
(a) Sock at 31st March 2000 are valued at
1. head office Rs.60,000
2. branch Rs.75,000( invoice price)
(b) All goods are invoiced at cost plus 25%.
(c) Fixed assets are depreciated at 10% on costs.
(d) Provisions for bad debts are to be maintained at 5% on debtors.
(e) Goods in transit at invoice price from the head office to the branch at Rs.25,000
(f) Cash in transit from the branch to the head office Rs.2,50,000.
Prepare, in columnar form, the head office and the branch trading and Profit and
Loss account for the year ended 31st March 2000 and a Balance Sheet for the
business as a whole.

(Ans:- H.O= gross profit and net profits =16,00,000 and 52,500)
Branch = Gross profit and net profits= 2,85,000 and 1,25,000)
(Balance total is 22,77,500)

QUESTION NO 39 (NOV 2004)

Give journal entries in the books of Branch A to rectify or adjust the following:
(a) Head office expenses Rs.3,500 allocated to the Branch, but not recorded in the branch books.
(b) Depreciation of branch assets, whose accounts are kept by the head office not provided for
Rs.1,500.
(c) Branch paid Rs.2,000 as salary to a H.O. Inspector, but the amount paid has been debited by
the branch to salaries account.
(d) H.O collected Rs.10,000 directly from a customer on behalf of the branch, but no intimation
to this effect has been received by the branch
(e) A remittance of Rs.15,000 sent by the branch has not yet been received by the head office.
(f) Branch A incurred advertisement expenses of Rs.3,000 on behalf of Branch B.
ANSWER:
JOURNAL ENTRIES

(I) Expenses Account Dr. 3500

To Head Office Account 3500

(ii) Depreciation Account Dr. 1500

To Head office Account 1500
(iii) Head office Account Dr. 2000
To Salaries Account 2000
(iv) Head Office Account Dr. 10000
To Branch Debtors Account 10000
(v) -----------------------NO ENTRY------------------------------
(vi) Head office Account Dr. 3000
To bank account 3000
(being expenditure is paid on the direction of head office)
 ACCOUNTS
332

QUESTION NO 40 (MAY 2003)

Show adjustment journal entries in the books of head office at end of April 2003 for
incorporation of inter branch transactions assuming that only head office maintains
different branch accounts in its books:
(A)Delhi branch
a. Received goods from Mumbai: Rs.35,000 and 15,000 from Kolkata
b. Sent goods to Chennai Rs.25,000 and Kolkata Rs.20,000
c. Bills receivables received Rs.20,000 from Chennai
d. Acceptances sent to Mumbai Rs.25,000, Kolkata Rs.10,000
(B) Mumbai Branch (apart from above)
a. Received goods from Kolkata Rs.15,000, Delhi Rs.20,000
b. Cash sent to Delhi RS.15,000 and Kolkata Rs.7,000
(C) Chennai Branch (apart from above)
a. Received goods from Kolkata Rs.30,000
b. Acceptances and cash sent to Kolkata Rs.20,000 and Rs.10,000 respectively
(D)Kolkata Branch (apart from above)
a. Sent to goods to Chennai Rs.35,000
b. Paid cash to Chennai Rs.15,000
c. Acceptances sent to Chennai Rs.15,000
All working should form part of the answer.

QUESTION NO 41
The following is the Trial Balance of ICS branch as at 30th june 2002:
Debit Credit
H.O account 32,400
Opening stock 60,000
Purchases 1,78,000
Goods received from H.O 90,000
Sales 3,80,000
Goods supplied to H.O 60,000
Salaries 15,000
Debtors 37,000
Creditors 18,500
Rent 9,600
Office expenses 4,700
Cash in hand and at bank 17,800
Furniture 14,000
------------------- ---------------
4,58,500 4,58,500
Additional information:
(a) Stock on hand was valued at Rs.27,000
(b) The branch account in the head office books on 30th June 2002 stood at Rs.4600 debit
 BRANCH ACCOUNTS
333

(c) On 28th June 2002, the Head office forwarded goods to the value of Rs.25,000 to the
branch where they were received on 3rd July 2002.
(d) A cash remittance of Rs.12,000 by branch on 24th June was received by H.O on July 1.
Required:
(a) Journal entries necessary to incorporate the above trial balance
(b) The results of trading at branch
(c) ICS branch account in the books of H.O

ANS: 1,09,700

QUESTION NO 42
The head office of Ganpati company and its branch keep their own books prepare own profit
and loss account. The following are the balances appearing in the two sets of the books as on
31.3.2004 after ascertainment of profits and after making all adjustments except those
referred to below:
Particulars Head office Branch office
Capital - 10,00,000 - -
Fixed assets 3,60,000 - 1,60,000 -
Stock 3,42,000 - 1,07,400 -
Debtors and creditors 78,200 39,600 48,400 19,200
Cash 1,07,400 - 14,200 -
Profit and loss account - 1,46,600 - 30,600
Branch account 2,98,600 - - -
Head office account - - - 2,80,200
Total 11,86,200 11,86,200 3,30,000 3,30,000
Set out the Balance Sheet of the business as on 31.03.2004 and the journal entries necessary
(in both sets of books) to record the adjustments dealing with the following:
1. On 31.3.2004 the branch had sent a cheque for Rs.10,000 to the head office, not
received by the head office nor credited to the branch till next month.
2. Goods valued at Rs.4400 had been forwarded by the head office to the branch and
invoiced on 30.3.2004 but were not received by the branch nor dealt with in their books
till next month.
3. It was agreed that the branch should be charged with Rs.3000 for administration
services rendered by the head office during the year.
4. Stock stolen in transit from the head office to the branch and charged to the branch
by the head office but not credited to the head office in the branch books as the
manager declined to admit any liability , Rs.4000 (not covered by the insurance)
5. Depreciation of branch assets of which accounts are maintained by head office not
provided for Rs.2500.
6. The balance profits shown by the branch is to be transferred to head office books.
 ACCOUNTS
334

ANSWER:
Balance Sheet Of Ganpati Co. as at 31.03.2004
Liabilities Rs Rs Assets Rs Rs
Capital 10,00,000 Fixed assets:
Add: net profit: Head office 3,60,000
Head office 1,45,600 Branch 1,60,000
Branch 25,100 11,70,700 Less: 5,17,500
depreciation (2,500)
Creditors: Stock:
Head office 39,600 Head office 3,42,000
Branch 19,200 58,800 Branch 1,07,400
In transit 4,400 4,53,800
Debtors:
Head office 78,200
Branch 48,400 1,26,600
Cash:
Head office 1,07,400
Branch 14,200
In transit 10,000 1,31,600
----------- -----------
12,29,500 12,29,500

Journal entries in the books of Head office

S.No. Particulars Dr Cr
1. Cash in transit A/c Dr. 10,000
To Branch A/c 10,000
2. Branch A/c Dr. 3,000
To profit and loss a/c 3,000
3. Profit and loss account Dr. 4,000
To Branch A/c 4,000
4. Branch A/c Dr. 2,500
To fixed Assets account 2,500
5. Branch profit and loss account Dr. 25,100
To profit and loss account 25,100

HEAD OFFICE PROFIT AND LOSS ACCOUNT

Particulars Amount Particulars Amount
To branch-stock stolen 4,000 By balance b/d 1,46,600
To profit -transferred 1,45,600 By branch- expenses 3,000
------------ -------------
1,49,600 1,49,600
 BRANCH ACCOUNTS
335

Journal entries in the Books of Branch

S.No. Particulars Dr Cr
1. Goods in Transit A/c Dr. 4,400
To Head office A/c 4,400
2. Profit and loss account Dr. 3,000
To Head office a/c 3,000
3. Profit and loss account Dr. 2,500
To head office A/c 2,500
5. Profit and loss account Dr. 25,100
To Head office Account 25,100
(being profit transferred to head office account)

BRANH OFFICE PROFIT AND LOSS ACCOUNT

Particulars Amount Particulars Amount
To head office-expenses 3,000 By balance b/d 30,600
To head office- 2,500
depreciation 25,100
To profit-transferred to ------------ -------------
H.O 30,600 30,600

QUESTION NO 43 (C A NOV 2008)(2MARKS)

Goods worth Rs. 50,000 sent by head office but the branch has received till the closing
date goods only Rs. 40,000. Give journal entry in the books of H.O. and branch for goods in
transit.

ANSWER Goods in transit Ac/ Dr. 10,000

To Head Office A/c 10,000

QUESTION NO 44 (C A MAY 2007)(2MARKS)

Alpha & Co. Having head office in Mumbai has a branch in Nagpur. The branch at Nagpur
is an independent branch maintaining separate books of account .on 31.3.2007, it was found
that the goods dispatched by head office for R.s 2,00,000 was received by the branch only
to the extent of Rs. 1,50,000. The balance goods are in transit. What is the accounting entry
to be passed by the branch for recording the goods in transit, in its books?

ANSWER
Nagpur branch must include the inventory in its books as goods in transit.
The following journal entry must be made by the branch:
Goods in transit A/c Dr. 50,000
To Head office A/c 50,000
[ Being goods sent by head office is still in transit on the closing date ]
 ACCOUNTS
336

QUESTION 45
Messrs Ramhand & Co., Hydera bad have a branch in Delhi. The Delhi Branch deals not only in
the goods from Head Office but also buys some auxiliary goods and deals in them. They,
however, do not prepare any Profit & Loss Account but close all accounts to the Head Office
at the end of the year and open them afresh on the basis of advice from their Head Office.
The fixed assets accounts are also maintained at the Head Office.
The goods from the Head Office are in voiced at selling prices to give a profit of 20 per cent
on the sale price. The goods sent from the branch to Head Office are at cost. From the
following prepare Branch Trading and Profit & Loss Account and Branch Assets Account in
the Head Office Books.
Trail Balance of the Delhi Branch as on 31-12-2012

Debit Rs Credit Rs
Head office opening balance on 1-1-12 15000 Sales 100000
Goods from H.O 50000 Goods to H.O 3000
Purchase 20000 Head office current A/c 15000
Opening stock Sundry Creditors 3000
( H.O. goods at invoice prices) 4000
Opening stock of other goods 500
Salaries 7000
Rent 3000
Office expenditure 2000
Cash on Hand 500
Cash at Bank 4000
Sundry Debtors 15000
121000 121000
The Branch balances as on 1st January, 2012, were as under: Furniture 5,000 Sundry Debtors Rs
9,500: Cash 1,000. Creditors 30,000: Stock (HO. goods at invoice price) 4,000; other goods 500. The
closing stock at branch of the head office goods at invoice price is 3,000 and that of purchased goods
at cost is 1,000. Depreciation is to be provided at 10 per cent on branch assets.

Solution
Delhi Branch Trading and Profit & Loss Account
for the year ended 31st Dec., 2012
Rs Rs
To opening Stock By Sales 1,00,000
Head office Goods 3,200 By Goods from Branch 3,000
Other 500 3700 By Closing Stock:
To Goods to Branch 40000 Head Office goods 2,400
To Purchase 20000 Other 1,000 3,400
To Gross profit c/d 42700
1,06,400 1,06,400
To Salaries 7,000 By Gross profit b/d 42,700
To Rent 3000
To office Expenses 2000
To Dep. on furniture @ 10% 500
To Net Profit 30,200
42,700 42700
 BRANCH ACCOUNTS
337

Branch (Fixed) Assets Account ( In Head office Books)

2012 Rs 2012 Rs
Jan.1 To Balance b/d 5000 Dec. 31 By Delhi Branch A/c 500
(Depreciation )
__ By Balance c/d 4,500
5000 5000

2013 To Balance b/d 4500

Jan.1

Working Notes
Cash/ Bank Account (Branch Books)
Rs Rs Rs
To Balance b/d 1000 By Salaries 7,000
To Debtors By Rent 3000
Sales 1,00,000 By Office Exp. 2000
Opening balance By Creditors 47000
Of Debtors 9,500 By Head Office 32000
1,09,500 (balancing fig).
Less: Closing balance (15,000) 94,500 By Cash balance 500
By Bank Balance 4000

95,500 95,500

* Opening Balance + Purchase- Closing balance = payment

Rs 30,000+ Rs 2000- Rs 3,000= Rs 47000
Trial Balance of Delhi Branch as on 1-1-2012
Dr. Cr.
Rs Rs
Debtors 9500
Cash 1000
Stock H.O. Goods 4000
Others 500 4500
Creditors 30000
Head Office Account 15,000
30,000 30000
Head Office
Rs Rs
To Balance (transfer 15000 By Goods From Head 50000
To Cash 32000 office
To Goods Sent 3000
50000 50000
Credit balance in Head Office Account before this transfer will be 15,000 credit.
Note : Furniture A/c is maintained in head office books it is not a part of either opening or
closing balance.
 ACCOUNTS
338

QUESTION 46 {2007 - Nov [ 4]}

Beta Ltd. having office at Mumbai has a branch at Nagpur. The Head office does wholesale
trade only at cost plus 80%. The goods are sent to branch at the wholesale price viz.., Cost
plus 80%. The branch at Nagpur is wholly engaged in retail trade and the goods are sold at
cost to H.O. plus 100%.
Following details are furnished for the year ended 31st march, 2007:

Head Office Branch

Rs Rs
Opening Stock (as on 1.4.2006) 2,25,000 -
Purchases 25,50,000 -
Goods sent to Brach 9,54,000 -
(Cost to H.O. plus 80%)
Sales 27,81,000 9,50,000
Office expenses 90,000 8,500
Selling expenses 72,000 6,300
Staff Salary 65,000 12,000
You are required to prepare Trading and Profit and Loss Account of the Head Office and
Branch for the year ended 31st March, 2007.
ANSWER:
Trading & P&L A/c of the Branch
Particulars Rs Particulars Rs

To Op Stock - By Sales 9,50,000

To Goods received from 9,54,000 By closing (W.N.-1) 99,000

H.O. 95,000

To Gross Profit c/d 10,49,000 10,49,000

By Gross Profit b/d 95,000
To Office exp. 8,500

To Selling exp. 6,300

To Staff salary 12,000

To Net profit 68,200

95,000 95,000
 BRANCH ACCOUNTS
339

Trading & P&L A/c the of H.O.

Particulars Rs Particulars Rs

To Opening Stock 2,25,000 By Sales 27,81,000

To purchase 25,50,000 By goods sold to branch 9,54,000

To G.P. c/d 16,60,000 By closing (W.N.-2) 7,00,000

44,35,000 44,35,000

To Office expenses 90,000 By Gross Profit b/d 16,60,000

To selling expenses 72,000

To Staff Salary 65,000

To Branch Stock Revenue 44,000

(WN-1)

To Net Profit 13,89,000

16,60,000 16,60,000

Working Notes:

1. Calculation of closing stock of branch:

Rs.

Goods received from head office [ at invoice value ] 9,54,000

Less : Invoice value of goods sold [ 9,50,000 x 180/200] 8,55,000

2. Calculation of closing stock of head office: Rs

Opening stock of head office 2,25,000

Goods purchased by head office 25,50,000

27,75,000

Less: Cost of goods sold

[ ( 27,81,000 + 9,54,000 ) x 100/ 180 ] 20,75,000

7,00,000

3. Calculation of unrealised profit in branch stock : Rs

Branch stock 99,000

 ACCOUNTS
340

Profit included 80% of cost

Therefore , unrealised profit would be = Rs 99,000 x Rs 44, 000

80/180

QUESTION 47 {2014- May [6]}

Pass necessary Journal entries in the books of an independent Branch of a company, wherever
required, to rectify or adjust the following :
(i) Income of Rs 2,800 allocated to the branch by Head office but not recorded in the
branch books
(ii) Provision for doubtful debts, whose accounts are kept by the Head office, not
provided earlier for Rs 1,000.
(iii) Branch paid Rs 3,000 as salary to a Head Office Manager , but the amount paid has
been debited by the Branch to Salaries Account.
(iv) Branch incurred travelling expenses of Rs 5,000 on behalf of Branches, but not
recorded in the books of Branch.
(v) A remittance of Rs 1,50,000 sent by the branch has not received by Head office on
the date of reconciliation Accounts.
(vi) Head office allocated Rs 75,000 to the branch as Head office expenses, which has
not yet been recorded by the Branch.
(vii) Head office collected Rs 30,000 directly from a branch Customer. The intimation of
the fact has been received by the branch only now.
(viii) Goods dispatched by the Head Office amounting Rs 10,000, but not received by
the Branch till date of reconciliation. The Goods have been received
subsequently.

QUESTION 48 {2011- Nov}

Global Limited has a branch which closes its books of account every year on 31st March,
This is an independent branch which maintains comprehensive books of account for
recording their transactions.
You are required to show journal entries in the books of branch on 31st March, 2011
to rectify or adjust the following :
(i) Head Office allocates Rs 1,35,000 to the branch as head office expenses, which
have not yet been recorded by branch.
(ii) Deprecation of branch fixed assets, whose account are kept by head office in its
books, not yet recorded in the branch books Rs 1,15,000.
(iii) Branch paid Rs 1,40,000 as salary to an official from head office on visit to branch
and debited the amount to its Salaries Account.
(iv) Head office collected Rs 1,30,000 directly from a branch customer on behalf of
the branch, but no intimation was received earlier by the branch.
Now the branch learns about it.
 BRANCH ACCOUNTS
341

(v) It is learnt that a remittance of Rs 1,50,000 sent by the branch has not been
received by head office till date.
Answer :
In the books of Branch
Journal Entries
S.No. Particulars Dr. (R) Cr. (R)
(i) Expenses A/c Dr. 1,35,000
To Global Limited (H.O.) A/c 1,35,000
(Being expenses allocated to branch by head office
(ii) Deprecation a/c Dr. 1,15,000
To Global Limited (H.O.) A/c 1,15,000
(Being depreciation on fixed assets of branch ,
whose account are maintained by head office)
(iii) Global Limited (H.O.) A/c Dr. 1,40,000
To Salaries A/c 1,40,000
(Being the rectification of salary paid, on behalf of
the head office)
(iv) Global Limited (H.O.) A/c Dr. 1,30,000
To Debtors A/c 1,30,000
(Being adjustment of direct collection from branch
debtors, by head office)
( v) No. entry shall be passed in the books of Branch but will be shown in the books of Head
office as cash-in-transit.

QUESTION 49 {2012- Nov}

Give Journal Entries in the books of Head office to rectify or adjusted the following :
(i) Goods sent to branch Rs 12,000 stolen during transit, branch manager refused to
accept any liability.
(ii) Branch paid Rs 15,000 as salary to the officer of head office on his visit to the branch.
(iii) On 28th March, 2012, The H.O. dispatched goods to the branch invoiced at Rs
25,000 which was not received by branch till 31st March, 2012.
(iv) A remittance of Rs 10,000 sent by the branch on 30th March, 2012, received by the
head office on 1st April, 2012.
Answer :

In the books head office

Journal entries
Particulars Dr. Cr.
Amount Rs. Amount
(i) Loss of goods due to theft during transit Dr. 12,000
To Branch Account 12,000
(Being goods lost on account of theft during
transit.
 ACCOUNTS
342

(ii) Salaries account Dr. 15,000

To Branch account 15,000
(Being salary paid by the branch for H.O. employee)
(iii) No entry in the books of head office for goods
sent to branch not received by branch till 31st
March, 2012.
(iv) Cash in transit account Dr. 10,000
To branch account 10,000
(being remittance by branch not received by 31st
March, 2012)
 BRANCH ACCOUNTS
343

PART-3
FOREIGN BRANCHES (AS 11)
QUESTION NO 50
The New York branch of Fine Textiles Limited, Delhi sent the following Trial Balances
as on 31st December 19X9.
$ $
Fixed assets 1,20,000
st
Stock 1 January 19X9 56,000
Goods from head office 3,20,000
Sales 4,20,000
Expenses 25,000
Debtors and Creditors 24,000 17,000
Cash at bank 6,000
Head office account 1,14,000
5,51,000 5,51,000
In the head office books the branch account stood as shown below:
New York Branch Account
Debit Credit
Rs. Rs.
To Balance b/d 10,05,000 By Cash 26,08,000
To Goods sent to branch 24,63,000 By Balance c/d 8,60,000
34,68,000 34,68,000
Goods are invoiced to the branch at cost plus 10% and branch has instruction to sell at
invoice price plus 25%. Fixed assets were acquired on 1st January 19X1 when $ 100 = Rs.380.
Rates of exchange were:
1st January 19X9 $ 100 = Rs.760
31st December 19X9$ 100 = Rs.770
Average $ 100 = Rs.750
Fixed assets have to be depreciated by 10% and the branch manager is entitled to
commission of 5% on the profit of the branch (on invoice price basis).
You are required to convert the branch Trial Balance into rupees and prepare the
Branch Trading and Profit and Loss account and the Branch Account.

QUESTION NO 51
The New York branch of Delhi Export House sent the following Trial Balance as on 31-
12-19X3.
$ $
Debit Credit
Fixed assets 17,500
Loan (taken to purchase fixed assets) 13,000
 ACCOUNTS
344

Depreciation 2,500
Stock 1-1-X3 8,200
Goods from Head office 58,800
Sales 1,05,200
Salaries and wages 15,200
Interest 2,880
Cash at bank 1,700
Debtors 21,200
Head Office account 9,780
1,27,980 1,27,980
Fixed assets were purchased on 1-1-X1 when $1 = Rs.25.50, life was estimated to be
10 years. To finance the fixed asset a loan amounting to $ 22,000 was taken @ 18% interest
per annum. Annual loan instalment of 3,000 and interest were payable in every December.
Exchange Rates:
Average of 19X1 $1 = Rs.25.70
31-12-19X1 $1 = Rs.26.10
Average of 19X2 $1 = Rs.26.20
31-12-X2 $1 = Rs.26.40
Average of 19X3 $1 = Rs.36.50
31-12-X3 $1 = Rs.42.20
In the Head office books London Branch account appeared as follows:
New York Branch Account
$ Rs. $ Rs.
To Balance b/d 7,000 1,84,800 By Bank 56,020 20,44,730
To Goods 58,800 21,46,200 By Balance 9,780 4,12,716
To P & L a/c 1,26,446
Exchange gain
65,800 24,57,446 65,800 24,57,446
Closing Stock : $ 2,400
You are required to show:
(1) Branch Fixed A/c, (2) Branch Loan A/c, (3) Branch Trial Balance in Rupee Terms,
(4) Branch Profit and Loss A/c (5) Adjustment Entries to incorporate branch balances in the
head office loans.

QUESTION NO 52 (NOV 1999)

An Indian company has a branch at Washington. Its trial balance as on 30th September
1998 is as follows:
Dr. Cr.
US $ US $
Plant and machinery 1,20,000 ------
Furniture and fixtures 8,000 ------
Stock, October 1,1997 56,000 ------
 BRANCH ACCOUNTS
345

Purchases 2,40,000 ------

Sales ------ 4,16,000
Goods from Indian co. (H.O.) 80,000 ------
Wages 2,000 ------
Carriage inward 1,000 ------
Salaries 6,000 ------
Rent, rates and taxes 2,000 ------
Insurance 1,000 ------
Trade expenses 1,000 ------
Head Office a/c ------ 1,14,000
Trade debtors 24,000 ------
Trade creditors ------ 17,000
Cash at bank 5,000 ------
Cash in hand 1,000 ------
----------------------------------------
US $ 5,47,000 5,47,000
----------------------------------------
The following information is given:
(i) Wages outstanding-- $ 1000
(ii) Depreciation Plant and Machinery and furniture and fixtures @ 10 % p.a.
(iii) The head office sent goods to branch for Rs.39,40,000.
(iv) The head office shows an amount of Rs.43,00,000 due from branch.
(v) Stock on 30th September 1998 -- $ 52,000.
(vi) There were no in transit items either at the start or at the end of the year.
(vii) On September 1, 1996, when the fixed assets were purchased the rate of
exchange was Rs.38 to one $.
On October 1,1997 the rate was RS.39 to one $.
On September 30,1998 the rate was Rs.41 to one $.
Average rate during the year was Rs.40 to one $.

You are asked to prepare:

(a) Trial Balance incorporating adjustments given under 1 to 4 above, converting dollars
into rupees;
(b) Trading and profit and loss account for the year ended 30th September 1998 and
balance sheet as on that date depicting the profitability and net position of the branch
as would appear in India for the purpose of purpose of incorporating in the main balance
sheet.
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QUESTION NO 53 (MAY 1999)

Carlin & Co. has head office at New York (U.S.A.) and branch at Mumbai (India). Mumbai
branch furnishes you with its trial balance as on 31.3.99 and the additional information given
thereafter:
Dr. Cr.
(Rupees in thousand)
Stock on 1.4.1998 300 ------
Purchases and sales 800 1,200
Sundry debtors and creditors 400 300
Bill of exchange 120 240
Wages and salaries 560 ----
Rent, rates and taxes 360 ----
Sundry charges 160 ----
Computers 240 ----
Bank balance 420 ----
New York office A/c ---- 1,620
-----------------------------------
Rs. 3,360 3,360
-----------------------------------
Additional information:
(a) Computers were acquired from a remittance of US $ 6000 received from New York
head office and paid to the suppliers. Depreciate computers at 60 % for the year.
(b) Unsold stock of Mumbai branch was worth Rs.4,20,000, on 31.3.1999.
(c) The rates of exchange may be taken as follows:
(i) On 1.4.1998 @ Rs.40 per US $
(ii) On 31.3.1999 @ Rs.42 per US $
(iii) Average exchange rate for the year @ Rs.41 per US $
(iv) Conversion in $ shall be made up to two decimal accuracy.
You are required to prepare in US dollars the revenue statement for the year
-ended 31.3.1999 and the balance sheet as on that date of Mumbai branch as would appear in
the books of New York head office of Carlin & Co. You are informed that Mumbai branch
account showed a debit balance of US $ 39609.18 on 31.3.1999 in New York books and there
were no items pending reconciliation.
 BRANCH ACCOUNTS
347

QUESTION NO 54 (C A NOV 2009)

DM Ltd. Delhi has a branch in London. London branch is an integral foreign operation
of DM Ltd at the end of the year 31st March, 2009, the branch furnishes the following trial
balance in U.K. Pound :

Fixed assets (Acquired on 1st 24,000

April, 2005)
Stock as on 1st April, 2008 11,200
Goods from head office 64,000
Expenses 4,800
Debtors 4,800
Creditors 3,200
Cash at bank 1,200
Head Office Account 22,800
Purchase 12,000
Sale 96,000
1,22,000 1,22,000

In head office books, the branch account stood as shown below :

London branch A/c
Dr. Cr.

Particular Amount Particular Amount

Rs. Rs.

To Balance b/d 20,10,000 By bank a/c 52,16,000

To Goods sent to branch 49,26,000 By bank c/d 17,20,000

69,36,000 69,36,000

The following further information are given:

(a) Fixed assets are to be depreciated @ 10% p.a. straight line basis.
(b) On 31st March , 2008:
Expenses outstanding £400
Prepared expenses £200
Closing stock £ 8,000
(C) Rate of Exchange :

1st April, 2005 - Rs. 70 to £1

1st April, 2008 - Rs. 76 to £1

31st April, 2009 - Rs. 77 to £1

AVERAGE RATE
- RS.75 to £1
 ACCOUNTS
348

You are required to prepare:

(1) Trial balance, incorporating adjustments of outstanding and prepaid expenses,
converting U.K. pound into Indian rupees.
(2) Trading and profit and Loss A/c for the year ended 31st march, 2009 and the Balance
sheet as on that date of Londaon branch as would appear in the books of Delhi head
office of DM Ltd.
ANSWER:
Gross profit 11,38,800 Net profit 6,08,200 B/S TOTAL 26,05,400

QUESTION NO 55 (C A MAY 2008)

The Washington branch of XYZ Ltd., Mumbai sent the following trial balance as on
st
31 December , 2007:
$ $
Head Office A/c - 22,800
Sales - 84,000
Debtors and 4,800
Creditors 3,400
Machinery 24,000 -
Cash at Bank 1,200 -
Stock, 1 January, 11,200 -
2007
Goods from HO 64,000 -
Expenses 5,000 -
1,10,200 1,10,200
In the books of head office, the Branch a/c stood as follows

Washington Branch
A/c
Rs. Rs.

To Balance b/d 810,000 By cash 28,76,000

To goods sent to 29,26,000 By Balances 8,60,000

branch c/d
37,36,000 37,36,000

Goods are sent to the branch at cost plus 10% and the branch sell goods at invoice price
plus 25% Machinery were acquired on 31st January, 2002.
When $ 1.00 = Rs. 40 .

Rate of Exchange were

1st January 2007 $ 1.00 = Rs. 46

31st December 2007 $ 41.00 – Rs. 48
Average $ 1.00 = Rs. 47
 BRANCH ACCOUNTS
349

Machinery is depreciated @ 10% and the branch manager is entailed to a commission of

5% on the profit of the branch after charging such commission.
You are required to:
(i) Prepare the branch trading & Profit & Loss a/c in Dollars
(ii) Convert the trial balance of the branch into Indian Currency and prepare branch
trading & Profit and Loss a/c and the branch a/c in the books of head office.
ANSWER
(I)
Trading and Profit & Loss A/c ( In Dollars)

Particular Rs. Particular Rs.

To Opening Stock 11,200 By Sales 84,000

To Good from H.O. 64,000 By Closing 8,000

Stock

To Goods Profit c/d 16,800

92,000 92,000

To Expenses 5,000 By Gross 16,800

Profit b/d

To Depreciation 24000

To Manager`s 448

Commission

To Net Profit c/d 8,952

16,800 16,800

(ii) (a) Converted Trial Balance

Particular Rate per Re. (Dr. (Rs) Cr (Rs.)

Machinery 40 9,60,000

Stock Jan. 1,2007 46 5,15,200

Good from H.O. - 29,26,000

Sales 47 - 39,48,000

Expenses 47 2,35,000 -

Debtors & Creditors 48 2,30,400 163,200

 ACCOUNTS
350

H.O. A/c - - 8,60,000

Cash at Bank - 57600 -

Difference of - 47000 -

Exchange

- 49,71,200 49,71,200

Closing Stock $ 8,000 48 3,64,000

(WN 2)

(b) Trading and Profit & Loss Account

Particular Rs. Particular Rs.

To Opening Stock 5,15,200 By sales 39,48,000

To Goods from H.O. 29,26,000 By Closing 3,84,000

Stock

To Gross Profit c/d 8,90,800

43,32,000 43,32,000

To Expenses 2,35,000 By Gross 8,90,000

Profit b/d

To Depreciation @ 96,000

10% on R.s 9,60,000

To Exchange 47,000

differences

To Manger`s 21,504

Commission (WN1)

TO Net Profit c/d 4,91,296

8,90,800 8,90,800
 BRANCH ACCOUNTS
351

Working Notes

(i) (ii) (iii)Manager`s Commission = 5/105 of [ 16,800

– ( 5,000 + 2.400) ] = $ 448 (approx)
Manager`s Commission in Rs. $448 x 48 = 21,504
(iv) Calculation

of closing

stock

Opening stock 11,200

Add: Goods from H.O. 64,000

Less: Cost of Goods ( 67,200)

Sold (at invoice price)
[ 100/125 x 84,000 ]
Closing Stock 8,000

QUESTION 56 {2010- May [ 1]}

On 31st March, 2010, the following Ledger balances have been extracted from the
books of Washington branch office :

Ledger A/c $
Building 180
Stock as on 1.4.2009 26
Cash and bank balances 57
Purchases 96
Sales 110
Commission receipts 28
Debtors 46
Creditors 65
You are required to convert above ledger balances into Indian Rupees .

Use the following rates of exchanges:

Opening Rate $ = 46

Closing Rate $ = 50

Average rate $ = 48

For Fixed Assets $ = 42

 ACCOUNTS
352

Answer :
Conversion of ledger balances ( in Dollars) into Rupees
Particulars $ Rate per $ Amount in
Rs

180 42 7560
Building
26 46 1196
Stock as on 01.04.2009
57 50 2850
Cash and bank balances 96 48 4608
110 48 5280
Purchases
28 48 1344
Sales
46 50 2300
Commission receipts
65 50 3250
Debtors

Creditors

QUESTION 57 {2013- May [6]}

ABCD Ltd . Delhi has a branch in New York, USA, which is an integral foreign operation of
the company. At the end on 31st March, 2013, the following ledger balances have been
extracted from the books of the Delhi office and the New York Branch.
Delhi New York
Particulars (Rs. thousands ) $ thousand
Debit Credit Debit Credit
Share capital 1250
Reserves and Surplus 940
Land 475
Building (cost) 1,000
Buildings Depreciation Reserve 200
Plant & Machinery (cost) 2,000 100
Plant & Machinery Depreciation Reserve 500 20
Trade receivables/ payables 500 270 60 20
Stock ( 01-04-2012) 250 25
Branch stock Reserve 65
Cash & Bank Balances 125 4
Purchases/ Sales 275 600 25 125
Goods sent to branch 1,500 30
Managing Director`s salary 50
Wages & Salaries 100 18
Rent 6
Office Expenses 25 12
Commission receipts 275 100
 BRANCH ACCOUNTS
353

Branch /H.O. current A/c 800 - - 15

Total 5,600 5,600 280 280
The following information is also available:
(1) Stock as at 31-01-2013
Delhi - Rs 2,00,000
New york - $ 10 (all stock received from Delhi)
(2) Head office always sent goods to the branch at cost plus 25%
(3) Provision is to be made for doubtful debts at 5%
(4) depreciation is to be provided on Building at 10% and on Building at 10% and on plant
and Machinery at 20% on written down values.
You are required.
(a) To convert the Branch Trial balance into rupees, using the following rates of
exchange :
Opening Rate 1$ = Rs 50
Closing rate 1$ = Rs 55
Average rate 1$ = Rs 52
For fixed assets 1$ = Rs 45
(b) To prepare the Trading and Profit & Loss Account for the year ended 31st March ,
2013, showing to the extent possible, Head office result and branch results separately.
ABCD Ltd.
New York Branch Trial Balance
(As on 31st March, 2013)
( $ `000 (Rs `000)
Particular Dr. Cr. Conversion Dr. Cr.
rate per $
Plant & Machinery (cost) 100 Rs 45 4,500
Plant& Machinery Dep. Reserve 20 Rs 45 900
Trade receivable / payable 60 20 Rs 55 3,300 1,100
Stock ( 1.4.2012) 25 Rs 50 1,250
Cash & Bank Balances 4 Rs 55 220
Purchase /sales 25 125 Rs 52 1,300 6,500
Goods received from H.O. 30 1,500
Wages & Salaries 18 Rs 52 936
Rent 6 Rs 52 312
Office expenses 12 Rs 52 624
 ACCOUNTS
354

Commission Receipts 100 Rs 52 5,200

H.O. Current A/c 15 800
13942 14,500
Exchange loss (bal. fig) 558
14500 14,500

(b)
Trading and Profit & Loss Account
for the year ended 31st March, 2013
H.O. Branch Total H.O. Branch Total

To Opening stock 250 1250.00 1500.00 By Sales 6600 500.00 7,100.00

To Purchase 275 1300.00 1575.00 By Goods Sent to 1500 - 1500.00

To Goods receive from Branch

Head Office - 1500.00 1500.00 Closing stock 200 0.55 200.55

To wages & salaries 100 936.00 1036.00

To Gross Profit c/d 1675 1514.55 3189.55

2,300 6500.55 8800.55 2300 6,500.55 3800.55

To Rent - 312.00 312.00 By Gross profit

To Office expenses 25 624.00 649.00 b/d 1675 1514.55 3189.55

To Provision for doubtful By Commission 275 5200.00 5475.00

debts @ 5% 25 165.00 190.00 receipt

To Deprecation (W.N.1) 380 720.00 1100.00

To Balance c/d 1520 4893.55 6413.55

1950 8664.55 1950 6714.55 8664.55

To Exchange loss 558.00 By Balance b/d 6413.55

To Managing director`s 50.00 By Branch stock 64.89

Salary Reserve (W.N.2)

To balances c/d 5870.44

6478.44 6478.44
 BRANCH ACCOUNTS
355

Working Notes:
(1) Calculation of Deprecation (in `000)
Particular H.O.Rs Branch Rs.

Building Cost 1,000

(200)
Less: Dep. Reserve
800
WDV
80
Deprecation @ 10% (A)

Plant & Machinery Cost 2,000 4500

Less: Dep. Reserve (500) (900)

1,500 3,600
WDV

Depreciation @ 20% (B)

300 720

Total Depreciation (A+B) 380 720

(2) Calculation of Additional Branch Stock Reserve (Rs. in ` 000)

Particulars (Rs)

Closing stock of Branch 0.55

Reserve on closing stock ( 0.55 x 1/5) 0.11

Less: Branch stock reserve (as on

1.4.2012) (65)

Reversal of stock Reserve (64.89)

QUESTION 58
On 31st December, 2012 the following balances appeared in the books of Chennai Branch of
an English firm having its HO office in New York:
Amount in Rs Amount in Rs
Stock on 1st Jan., 2012 2,34,000
Purchases and Sales 1562500 2343750
Debtors and Creditors 765,000 510000
Bills Receivable and Payable 204,000 178500
Salaries and Wages 1,00,000
Rent, Rates and Taxes 1,06,250
Furniture 91,000
Bank A/c 5,68,650
 ACCOUNTS
356

New York Account - 599150

3631400 3631400

Stock on 31st December, 2012 was 6,37,500.

Branch account in New York books showed a debit balance of $13,400 on 31 December,
2012 and Furniture appeared in the Head Office books at $1,750.
The rate of exchange for on 31 December, 2011 was 52 and on 31st December, 2012 was
51. The average rate for the year was 50.
Prepare in the Head Office books the Profit and Loss a/c and the Balance Sheet of the
Branch.
Solution
In the books of English Firm (Head Office in New York)
Chennai Branch Profit and Loss Account
for the year ended 31st December, 2012

$ $

To Opening stock 4500 By Sales 46875

To Purchases 31250 By Closing 12500

To Gross profit c/d 23625 ( 6,37,500/51)

59375
59375

To Salaries 2000 By gross profit

23625
To Rent, rates and taxes 2125

To Exchange translation 2000

loss

To Net Profit c/d

17500

23625
23625

Balance Sheet of Chennai Branch

as on 31st December, 2012
Liabilities $ $ Assets $
Head Office A/c 13400 Furniture 1750
Add: Net Profit 17500 30900 Closing Stock 12500
Trade Creditors 10000 Trade Debtors 15000
Bills Payable 3500 Bills Receivable 4000
 BRANCH ACCOUNTS
357

Cash at bank 11150

44400 44400

Working Note:
Calculation of Exchange Translation Loss
Chennai Branch Trial Balance (converted in $)
as on 31st December, 2012
Dr. Cr. Conversion Dr. Cr.
Rs Rs Rate ($) ($)
Stock on lst Jan., 2012 234000 52 4500
Purchases & Sales 1562500 2343750 50 31250 46875
Debtors & creditors 765000 510000 51 15000 10000
Bills Receivable and Bills Payable 204000 178500 51 4000 3500
Salaries and wages 100000 50 2000
Rent, Rates and Taxes 106250 50 2125
Furniture 91000 1750
Bank A/c 568650 51 11150
New York Account 599150 13400
Exchange translation loss 2000
(bat. fig.)

3631400 3631400 73775 73775

 ACCOUNTS
358

LATEST PAST EXAMINATION QUESTIONS

QUESTION NO 59 (6 MARKS)
Show Adjustment Journal Entry alongwith working notes in the books of head office at the end of
April, 2017 for incorporation of inter branch transactions assuming that only head office maintains
different branch account in its books:
(A) Delhi Branch:
(i) Received goods from Mumbai Rs. 1,40,000 and Rs. 60,000 from Kolkata.
(ii) Sent goods to Chennai Rs. 1,00,000, Kolkata Rs. 80,000
(iii) Bill receivable received Rs. 80,000 from Chennai.
(iv) Acceptances sent to Mumbai Rs. 1,00,000, Kolkata Rs. 40,000
(B) Mumbai Branch (Apart from the above):
(i) Received goods from Kolkata Rs. 60,000, Delhi Rs. 80,000
(ii) Cash sent to Delhi Rs. 60,000, Kolkata Rs. 28,000
(C) Chennai Branch (Apart from the above):
(i) Received goods from Kolkata Rs. 1,20,000
(ii) Acceptance and cash sent to Kolkata Rs. 80,000 and Rs.40,000 respectively.
(D) Kolkata Branch (Apart from the above)
(i) Sent goods to Chennai Rs. 1,40,000
(ii) Paid cash to Chennai Rs. 60,000
(iii) Acceptance sent to Chennai Rs. 60,000
QUESTION NO 60 (SAME QUESTION 9)
Mr. Chena Swami of Chennai trades in Refined Oil and Ghee. It has a branch at Salem. He
despatches 30 tins of Refined Oil @ Rs. 1,500 per tin and 20 tins of Ghee Rs.5,000 per tin on 1st
of every month. The Branch has incurred expenditure of Rs.45,890 which is met out of its
collections; this is in addition to expenditure directly paid by Head Office.
Following are the other details:
Chennai H.O. Salem B.O.
Amount (Rs.) Amount (Rs.)
Purchases:
Refind Oil 27,50,000
Ghee 48,28,000
Direct Expenses 6,35,800
Expenses paid by H.O. 76,800
Sales:
Refined Oil 24,10,000 5,95,000
Ghee 38,40,500 14,50,000
Collection during the year (including 20,15,000
cash sales)
Remittance by Branch to Head Office 19,50,000

Chennai H.O. 01.04.2015 31.03.2016

Balance as on Amount (Rs.) Amount (Rs.)
Stock:
Refined Oil 44,000 8,90,000
Ghee 10,65,000 15,70,000
 BRANCH ACCOUNTS
359

Building 5,10,800 7,14,870

Furniture & Fixtures 88,600 79,740
Salem Branch Office
Balance as on 01.04.2015 31.03.2016
Amount (Rs.) Amount (Rs.)
Stock:
Refined Oil 22,500 19,500
Ghee 40,000 90,000
Sundry Debtors 1,80,000 ?
Cash in Hand 25,690 ?
Furniture & Fixtures 23,800 21,420
Additional Information:
(i) Addition to Building on 01.04.2015 Rs. 2,41,600 by H.O.
(ii) Rate of depreciation : Furniture & Fixtures @ 10% and Building @ 5% (already adjusted
in the above figure)
(iii) The General manager is entitled to 10% commission on overall organizational profits
after charging such commission.
(iv) The General Manager is entitled to a salary of Rs. 20,000 per month.
(v) General expenses incurred by Head Office is Rs. 1,86,000.
You are requested to prepare Branch Account in the Head Office books and also prepare Chena
Swami`s Trading and Profit & Loss Account (excluding branch transactions) for the year ended
31st March, 2016.
SOLUTION
In the books of Mr. Chena Swami
Salem Branch Account.
Rs. Rs.
To Balance b/d By Bank (Remittance to H.O.) 19,50,000
Opening Stock: Balance c/d
Ghee 40,000 Closing Stock:
Oil 22,500 Refined Oil
Debtors 1,80,000 Ghee 19,500
Cash in Hand 25,690 Debtors (W.N.1) 90,000
Furniture & Fittings 23,800 Cash on hand (W.N.2) 2,10,000
To Goods sent to Branch Furniture & Fittings 44,800
A/c. 21,420
Refined Oil (30x1500x12) 5,40,000
Ghee (20x5000x12) 12,00,000
To Bank (Expenses paid by 76,800
H.O.)
To Net Profit transferred to 2,26,930
General P&L A/c.
23,25,720 23,35,720
 ACCOUNTS
360

Mr. Chena Swami

Trading and Profit and Loss Account for the year
ended 31st March, 2016 (Excluding branch transactions)

Rs. Rs.
To Opening Stock: By Sales:
Refined Oil 44,000 Refined Oil 24,10,000
Ghee 10,65,000 Ghee 38,40,500
To Purchases: By GSTB 17,40,000
Refind Oil 27,50,000
Ghee 48,28,000 By Closing Stock:
Refined Oil
8,90,000
To Direct Expenses 6,35,800
Ghee
To Gross Profit 11,27,700 15,70,000

10450500 10450500
To Manager`s Salary 2,40,000 By Gross Profit 11,27,700
To General Expenses 1,86,000
To Depreciation
Furniture (88,600-79,740) 8,860
Building
(5,10,800+2,41,600-7,14,780) 37,620
10% (8,82,150x10/110)
To Net Profit 80,195
5,75,025
11,27,700 11,27,700

Working Notes:
(1) Debtors Account

Rs. Rs.
To Balance b/d 1,80,000 By Cash Collections 20,15,000
To Sales made during the year: By Balance c/d (Bal. 2,10,000
Refined Oil 5,95,000 Figure)
Ghee 14,50,000
22,25,000 22,25,000

(2) Branch Cash Account

Rs. Rs.
To Balance b/d 25,690 By Remittance 19,50,000
To Collections 20,15,000 By Exp. 45,890
By Balance c/d (Bal. Figure) 44,800
20,40,690 20,40,690

Note:
Since the amount of cash sales was not given specifically in the question, total amount of cash
collections during the year amounting Rs. 20,15,000 has been considered as collection from
Debtors in the above solution.
 BRANCH ACCOUNTS
361

QUESTION NO 61
M/s. ABC & Co. has head office at New York (U.S.A.) and branch in Bangalore (India).
Bangalore branch is an integral foreign operation of ABC & Co.
Bangalore branch furnishes you with its trial balance as on 31st March, 2015 and the additional
information given thereafter:
Dr. Cr.
(Rupees in thousands)
Stock on 1st April, 2014 300
Purchases and Sales 800 1,200
Sundry Debtors & Creditors 400 300
Bills of Exchange 120 240
Wages & Salaries 560 -
Rent, Rates & Taxes 360 -
Sundry Charges 160 -
Computers 240 -
Bank Balance 420 -
New York Office A/c. - 1,620
3,360 3,360
Additional Information:
(a) Computers were acquired from a remittance of US $ 6,000 received from New York head
office and paid to the suppliers. Depreciate computers at 60% for the year.
(b) Unsold stock of Bangalore branch was worth Rs. 4,20,000 on 31st March, 2015.
(c) The rates of exchange may be taken as follows:
- On 01.04.2014 @ Rs. 55 per US $
- On 31.03.2015 @ Rs. 60 per US $
- Average exchange rate for the year @ Rs. 58 per US $
- Conversion in $ shall be made up to two decimal accuracy.
You are asked to prepare in US dollars the revenue statement for the year ended 31st March, 2015
and the balance sheet as on that date of Bangalore branch as would appear in the books of New
York head office of ABC & Co. You are informed that Bangalore branch account showed a debit
balance of US $ 29845.35 on 31.3.2015 in New York books and there were no items pending
reconciliation.
SOLUTION
M/s. ABC & Co.
Bangalore Branch Trial Balance
in (US $) as on 31st March, 2015
Conversion rate per Dr. US $ Cr. US $
US $ (Rs.) Rs. Rs.
Stock on 1.4.14 55 5,454.55 -
Purchases and sales 58 13,793.10 20,689.66
Sundry debtors and creditors 60 6,666.67 5,000.00
Bills of exchange 60 2,000.00 4,000.00
Wages and salaries 58 9,655.17 -
Rent, rates and taxes 58 6,206.90 -
Sundry Charges 58 2,758.62 -
Computers - 6,000.00 -
Bank Balance 60 7,000.00 -
New York office A/c. - - 29,845.35
59,535.01 59,535.01
 ACCOUNTS
362

Trading and Profit & Loss Account

for the year ended 31st March, 2015
US $ US $
To Opening Stock 5,454.55 By Sales 20,689.66
To Purchases 13,793.10 By Closing Stock 7,000.00
To Wages and Salaries 9,655.17 (Rs.4,20,000/60)
By Gross Loss c/d 1,213.16
28,902.82 28,902.82
To Gross Loss b/d 1,213.16 By Net Loss 13,778.68
To Rent, rates and taxes 6,206.90
To Sundry Charges 2,758.62
To Depreciation on computers 3,600.00
(US $ 6,000x0.6)
13,778.68 13,778.68
Balance Sheet of Bangalore
Branch as on 31st March, 2015
Liabilities US $ Assets US $ US $
New York 29,845.35 Computers 6,000.00
Office A/c. Less: Dep. (3,600,00) 2,400.00
Less:
Net Loss (13,778.68) 16,066.67 Closing Stock 7,000.00

Sundry 5,000.00 Sundry Debtors 6,666.67

Creditors
Bills receivable 2,000.00
Bills Payable 4,000.00
Bank Balance 7,000.00
25,066.67 25,066.67
QUESTION NO 62
Raju Industries, Kolkata has a branch in Delhi to which office goods are invoiced at cost
plus 25%. The branch sells both for cash and on credit. Branch expenses are paid direct from
head office, and branch has to remit ash received to the Head Office Bank Account.
From the following details, relating to calendar year 2014, prepare the accounts in the Head Office
Ledger ascertain the Branch Profit, Branch does not maintain any books of account, but sends
weekly returns to Head Office.
Particulars Amount in Rs.
Goods received from Head Office at Invoice Price 6,00,000
Returns to Head Office at Invoice Price 12,000
Stock at Delhi as on 1st Jan. 2014 60,000
Sales during the year – Cash 1,80,000
- Credit 3,80,000
Sundry Debtors at Delhi as on 1st Jan. 2014 72,000
Discount allowed to debtors 8,000
Bad Debts in the year 6,000
Sales returns at Delhi Branch 6,000
Rent, Rates, Taxes at Branch 16,000
Salaries, Wages, Bonus at Branch 62,000
Office Expenses 6,000
Stock at Branch on 31st December, 2014 1,20,000
 BRANCH ACCOUNTS
363

SOLUTION
Delhi Branch Stock Account
Particulars Rs. Particulars Rs.
To Balance b/d 60,000 By Goods sent to branch A/c. 12,000
(Returns)
To Goods sent to branch A/c. 6,00,000 By Bank A/c. (Cash Sales) 1,80,000
To Branch Debtors A/c. 6,000 By Branch debtors A/c. 3,80,000
(Returns) (Credit sales)
To Branch adjustment A/c. 26,000 By Balance c/d 1,20,000
(Surplus over invoice price)
6,92,000 6,92,000

Delhi Branch Adjustment Account

Particulars Rs. Particulars Rs.
To Stock reserve – 20% of 24,000 By Delhi Branch stock A/c. 26,000
Rs.1,20,000 (Closing Stock)
By Stock reserve – 20% of 12,000
To Branch profit & loss A/c. 1,31,600 Rs.60,000 (Opening Stock)

By Goods sent to branch A/c. 1,17,600

– 20% of Rs. 5,88,000
1,55,600 1,55,600

Branch Expenses Account

Particulars Rs. Particulars Rs.
To Bank A/c. (Rent, rates & 16,000 By Branch profit and loss A/c. 84,000
taxes) (Transfer)

To Bank A/c.(Salaries & 62,000

Wages)
To Bank A/c.(Office exp.) 6,000
84,000 84,000

Branch Debtors Account

Particulars Rs. Particulars Rs.
To Balance b/d 72,000 By Bank A/c. 4,32,000
To Branch stock A/c. 3,80,000 By Branch profit and loss A/c. 14,000
(Bad debts and discount)
By Branch stock A/c. (Sales 6,000
returns)
4,52,000 4,52,000

Goods sent to Branch Account

Particulars Rs. Particulars Rs.
To Branch Stock A/c. 12,000 By Branch Stock A/c. 6,00,000
To Branch Adjustment A/c. 1,17,600
To Purchases A/c. 4,70,400
6,00,000 6,00,000
 ACCOUNTS
364

Branch Profit & Loss Account

Particulars Rs. Particulars Rs.
To Branch expenses A/c. 84,000 By Branch adjustment A/c. 1,31,600
To Branch debtors A/c. 8,000
(Discount)

* In the absence of information about closing balance of Branch debtors A/c. and cash received
from debtors closing balance of debtors is assumed as nil and balancing figure is considered as
cash received from debtors.
To Branch debtors A/c. (Bad 6,000
Debts)

To Net Profit (transferred to 33,600

Profit & Loss A/c)
1,31,600 1,31,600
 AS-13 INVESTMENT ACCOUNT 365

AS-13 INVESTMENT ACCOUNT

QUESTION NO 1

In 2011, M/s wye Ltd. issued 12% fully paid debenture of Rs.100 each, interest being
payable half yearly on 30th September and 31st March of every accounting year.

On 1st December, 2012 M/s Bull & bear purchased 10,000 of these Debentures at Rs.101
cum-interest price, also paying brokerage @ 1% of cum-interest amount of the purchase.
On 1st0DUFKWKHÀUPVROGDOORIWKHVHGHEHQWXUHVDW5VFXPLQWHUHVWSULFHDJDLQ
paying brokerage @ 1% of cum-interest amount. Prepare investment account in the books
of M/s. Bull & Bear for the period 1st December, 2012 to 1st March, 2013.

ANSWER
In the books of M/s Bull & Bear
Investment account
For the period from 1st December 2012 to 1st March, 2013
(Scrip : 12% Debentures of M/s. Wye Ltd.)

Date Particular Nominal Interest Cost Date Particular Nominal Interest Cost
value (Rs) (Rs.) Value (Rs.)
(Rs.)

1.12.2012 To bank 10,00,000 20,000 10,00,100 1.03.2013 By bank 10,00, 000 50,000 9,99,400
A/c A/c
(W.N.1) (W.N.2)
1.3.2013 7R3URÀW 30,000 1.3.2013 %\SURÀW 700
& loss & Loss
A/c A/c

10,00,000 50,000 10,00,100 10,00,000 50,000 10,00 ,100

Working Notes:

(i) Cost of 12% debentures purchased on 1.12.2012 Rs.

Cost Value (10,000 x Rs.101) = 10, 10,000
Add: Brokerage (1% of Rs.10,10,000) = 10,100
Less : Cum interest (10,000 x 100 x 12% x 2/12) = (20,000)
Total = 10, 00,100
 366 ACCOUNTING

(ii) Sale proceeds of 12% Debentures sold on 31st March, 2013 Rs.
Sales Price (10,000xRs.106) = 10,60,000
Less: Brokerage (1% of Rs. 10,60,000) = (10,600)
Less: Cum interest (10,000x100x12%x5/12) = (50,000)
Total = 9,99,4000

QUESTION NO 2

On 1st April, 2009, XY Ltd. has 15,000 equity shares of ABC Ltd. at a book value of Rs.15 per
share(face value Rs.10 per share). On 1st June, 2009, XY Ltd. acquired 5,000 equity shares
of ABC Ltd. for Rs.1,00,000. ABC Ltd. announced a bonus and right issue.

(1) Bonus was declared , at the rate of one equity share for every five shares held, on 1st
July 2009.
(2) Right shares are to be issued to the existing shareholders on 1st September 2009. The
company will issue one right share for every 6 shares at 20% premium. No dividend
was payable on these shares.
(3) dividend for the year ended 31.3.2009 were declared by ABC Ltd. @ 20% which was
received by XY Ltd. on 31st October 2009.
XY Ltd.
(i) Took up half the right issue
(ii) Sold the remaining rights for Rs.8 per share.
(iii) Sold half its share holdings on 1st January 2010 at Rs. 16.50 per share. Brokerage being
1%
You are required to prepare investment account of XY Ltd. for the year ended 31st March
2010 assuming the shares are being valued at average cost.

ANSWER
In the books of XY Ltd.
Investment in equity shares of ABC Ltd.
For the year ended 31st March, 2010
Date Particulars No Dividend Amount Date Particular No Dividend Amount
(Rs.) (Rs.) (Rs.) (Rs.)

2009 To balance 15,000 - 2,25,000 2009 By Bank - 30,000 10,000

April 1 b/d Oct.31 A/c(W.N.5)

June 1 To bank 5,000 - 1,00,000 2010 By Bank 13,000 - 2,12,355

A/c Jan.1 A/c(W.N4)
 AS-13 INVESTMENT ACCOUNT 367

July 1 To bonus 4,000 - - March 31 By Balance 13,000 - 1,69,500

issue c/d (W.N.6)
(W.N1)

Sep.1 To Bank 2,000 - 24,000

2010 A/c W.N.2)

Jan.1 To P&L A/c - - 42,855

2010 (W.N.4)

March 31 To P&L A/c - 30,000 -

26,000 30,000 3,91,855 25,000 30,000 3,91,855

Working Notes:

1. Calculation of no. of bonus shares issued

15,000 shares + 5,000 shares
Bonus Shares = x 1 = 4,000 shares
5

2. Calculation of rights shares subscribed

15,000 shares + 5,000 shares + 4,000 shares
Rights share = =4,000 shares
6
4,000
Shares subscribed by XY Ltd. = = 2,000 shares
2
Value of right shares subscribed = 2,000 shares @ Rs.12 per share= Rs.24,000
3. Calculation of sale of right entitlement
2,000 shares x Rs.8 per share = Rs.16,000

Amount received from sale of tights will be credited to P&L A/c as per Para 13 of AS
¶$FFRXQWLQJIRULQYHVWPHQW·,17+(*,9(1,19(670(17$&&2817:(+$9(
35(3$5('&2/801)25',9,'(1'625,*+7,1&20(:,//%(75$16)(55('
723/',5(&7/<
4. Calculation of profit on sale of shares
Total holding = 15,000 shares original
5,000 shares purchased
4,000 shares bonus
2,000 shares right shares
26,000shares
50% of the holding were sold
368 ACCOUNTING

i.e. 13,000 shares( 26,000 shares (on average basis)

= Rs.2,25,000 + Rs.1,00,000 + Rs.24,000 - Rs.10,000
= Rs.3,39,000
Average cost of 13,000 shares would be
3,39,000
= x 13,000 = Rs.1,69,500
26,000
Sale proceeds of 13,000 shares (13,000 x Rs.16.50) 2,14,500
Less: 1% Brokerage (2,145)
2,12,355
Less: cost of 13,000 shares (1,69,500)
Profit on sale 42,855
5. Dividend received on investment held as on 1st April,2009
= 15,000 shares x Rs.10x20%
= Rs.30,000 will be transferred to profit and loss A/c
Dividend received on shares purchased on 1st June 2009
= 5,000 shares x Rs.10 x 20% = Rs.10,000 will be adjusted to investment A/c
Note: it is presumed that no dividend is received on bonus shares as bonus shares are
declared on 1st July 2009 and dividend pertains to the year ended 31.3.2009.
6. Calculation of closing value of shares (on average basis) as on 31st March, 2010
3,39,000
13,000 x = Rs.1,69,500.
26,000

QUESTION NO 3

The following information is presented by Mr. Z, relating to his holding in 9% Central

*RYHUQPHQWERQGV
Opening balance (face value) Rs.1,20,000 cost Rs.1,18,000(face value of each unit is Rs.100).

1.3.2008 Purchased 200 units, ex-interest at Rs. 98.

1.7.2008 Sold 500 units, ex-interest out of original holding at Rs.100.
1.10.2008 Purchased 150 units at Rs.98, cum interest.
1.11.2008 Sold 300 units, ex-interest at Rs.99 out of original holdings.
 AS-13 INVESTMENT ACCOUNT 369

Interest dates are 30th September and 31st March. Mr. Z closes his books every 31st
December. Show the investment account as it would appear as it would in this books. Mr. Z
IROORZV),)2PHWKRG

ANSWER
In the books of Mr. Z
9% Central Government bonds (investment) account

Particulars Face value Interest Principal Particulars Face vale Interest Principle
2008 Rs. Rs. Rs. 2008 Rs. Rs. Rs.
Jan.1 To balance March By Bank
b/d 1,20,000 2,700 1,18,000 31 A/c - 6,300 -

March To bank July 1 By bank 50,000 1,125 50,000

1 A/c 20,000 750 19,600 A/c

July 1 To P&L - - 833 Sept. By Bank - 4,050

A/c 30 A/c

Oct.1 To bank 15,000 - 14,700 Nov.1 By Bank 30,000 225 29,700

A/c A/c

Nov.1 To P&L - - 200 Dec.31 By 75,000 1,688 73,633

A/c balance
c/d
Dec. To P&L 9,938
31 A/c
(transfer)
1,55,000 13,388 1,53,333 1,55,000 13,388 1,53,333

Working Note:

Calculation of closing balance: Units Rs.

Bonds In hand remained in hand at
1,18,000
31st 2008 40,000 x 40,000= 39,333
1,20,000
)URPRULJLQDOKROGLQJ
(1,20,000-50,000-30,000)=
Purchased on 1st March 20,000 19.600
Purchased on 1st October 15,000 14.700
TOTAL 75,000 73,633
370 ACCOUNTING

QUESTION NO 4

Mr. Purohit furnishes the following detail relating to his holding in 8% Debentures (Rs.100
each) of P Ltd., held as current assets:

1.4.2009 Opening balance- face Value Rs.1,20,000, cost Rs.1,18,000

1.7.2009 100 debentures purchased ex-interest at Rs.98
1.10.2009 Sold 200 Debentures ex-interest at Rs.100
1.1.2010 Purchased 50 Debentures at Rs.98 cum-interest
1.2.2010 Sold 200 Debentures ex-interest at Rs.99

Due dates for interest are 30th September and 31st march.
Mr. Purohit closes his books on 31.03.20x2. Brokerage is to be paid @ 1% for each transaction.
3UHSDUHLQYHVWPHQWDFFRXQWLQWKHERRNVRILQYHVWRUDVVXPLQJ),)2PHWKRGIRUDFFRXQWLQJ
Market value of debentures on balance sheet date is 99 per debenture.

SOLUTION
Investment A/c of Mr. Prohit
For the year ending on 31-3-2010
(Scrip: 8% Debentures of P Limited)
(Interest payable on 30th September and 31st March)

Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value Value

(Rs.) (Rs.) (Rs.) (Rs.)

1.4.09 To balance 1,20,000 - 1,18,000 30.9.09 By Bank - 5,200 -

b/d 1.10.09 By Bank 20,000 - 19,800
1.7.09 To bank 10,000 200 9,898 1.12.10 By Bank 20,000 533 19,602
(exinterest) (ex interest
1.10.09 7RSURÀW 133 1.2.10 %\SURÀW 64
Loss A/c Loss A/c
1.1.10 To bank 5,000 100 4,849 31.3.10 By Bank - 3,800 -
(cum 31.3.10 By Balance 95,000 - 93,414
interest) c/d
31.3.10 7RSURÀW - 9,233 -
Loss A/c
%DOÀJ

1,35,000 9.533 1,32,880 1,35,000 9,533 1,32,880

 AS-13 INVESTMENT ACCOUNT 371

Working Notes:

1. Valuation of closing balance as on 31.3.2010:

Market value of 950 Debentures at Rs.99 = Rs.94,050
Cost Price of800 Debentures cost
1,18,000
=( × 80,000) = 78,667
1,20,000
100 Debentures cost = 9,898
50 Debentures cost- = 4,849
93,414
Value at the end = Rs.93,414 i.e. whichever is less

2. Profit on sale of debentures as on 1.10.2009

Rs.
Sales price of Debentures (200 x 100) 20,000
Less: Brokerage @ 1% (200)
19,800
1,18,000
Less: cost price of Debentures = ( × 20,000) (19,667)
1,20,000
3URÀWRQVDOH 133

3. Loss on sale of debentures as on 1.2.2010

Rs.
Sale price of debentures (200x99) 19,800
Less: Broerage @ 1% (198)
19,602
1,18,000
Less: cost price of Debentures = ( × 20,000) (19,666)
1,20,000
Loss on sale 64
372 ACCOUNTING

QUESTION NO 5

0U%URZQKDVPDGHIROORZLQJWUDQVDFWLRQGXULQJWKHÀQDQFLDO\HDU

Date Particulars
01.05.2011 Purchased 24,000 12% bonds of Rs.100 each at Rs. 84 cum-interest. Interest
is payable on 30th September and 31st March every year.

15.06.2011 Purchased 1,50,000 equity shares of Rs.10 each in Alpha limited for Rs.25
each through a broker, who changed brokerage @2%

10.07.2011 Purchased 60,000 equity shares of Rs. 10 each in Beeta Limited for Rs44
each through a broker, who changed brokerage @ 2%

14.10.2011 Alpha limited made a bonus issue of two shares for every three shares held.
Sold 80,000 shares in alpha Limited for Rs.22 each.

31.10.2011 Received 15% interim dividend on equity shares of Alpha Limited.

01.01.2012

15.01.2012 Beeta Limited a right issue of One equity share for every four shares held
at Rs.5 per share. Mr. Brown exercised his option for 40% his entitlement
and sold the balance rights in the market at Rs.2.25 per share.

01.03.2012 Sold 15,000 12% bonds at Rs.90 ex-interest.

15.03.2012 Received 18% interim dividend on equity shares of Beeta Limited.

Interest on 12% bonds was duly received on due dates

3UHSDUHVHSDUDWHLQYHVWPHQWDFFRXQWIRU%RQGV(TXLW\VKDUHVRI$OSKD/LPLWHGDQG
(TXLW\  VKDUHV RI %HHWD /LPLWHG LQ WKH ERRNV RI 0U %URZQ IRU WKH \HDU HQGHG RQ st
March,2012

ANSWER
In the books of Mr. Brown
12% bonds for the year ended 31st March, 2012
Date Particulars No. Interest Amount Date Particulars No. Interest Amount
(Rs.) (Rs.) (Rs.) (Rs.)

2011 To Bank 24,000 24,000 19,92,000 2011 By bank - 1,44,000

May 1 A/c Sept 30 interest
 AS-13 INVESTMENT ACCOUNT 373

2012 To P&L A/c - - 1,05,000 2012 By bank 15,000 75,000 13,50,000

Mar 1 (W.N.1) Mar 1 A/c

March To P&L A/c 2,49,000 2012 By Bank 54,000

31 Mar. 1 interest
By Balance 9,000 - 7,47,000
c/d (W.N.2)
24,000 2,73,000 20,97,000 24,000 2,73,000 20.,97,000

Investment in Equity shares of Alpha Ltd.

for the year ended 31st March, 2012

Date Particulars No. Dividend Amount Date Particulars No. Dividend Amount
(Rs.) (Rs.) (Rs.) (Rs.)

2011 To Bank A/c 1,50,000 - 38,25,000 2011

June 15 Oct. 31 By bank 80,000 - 17,60,000
A/c
Oct. 14 To bonus issue 1,00,000 - - 2012
(1,50,000/3x2) Jan. 1 By Bank 2,55,000
A/c
31 To P&L A/c - - 5,36,000 dividend
(W.N.3)
March 31 By Balance 1,70,000 - 26,01,000
2012 To PL - 2,55,000 - c/d (W.N.4)
Mar. 31
2,50,000 2,55,000 43,61,000 2,50,000 2,55,000 43,61,000

Investment in Equity shares of Beeta Ltd.

for the year ended 31st March, 2012

Date Particulars No. Dividend Amount Date Particulars No. Dividend Amount
Rs. Rs. Rs. Rs.

2011 To bank A/c 60,000 - 26,92,800 2012 By Bank - 1,18,800

July 10 Mar.15 dividend

2012 To Bank A/c 6,000 - 30,000 March By Balance c/d 66,000 27,22,800
Jan. 15 (W.N.5) 31 EDOÀJ

March To P&L A/c - 1,18,800 -

31
66,000 1,18,800 27,22,800 66,000 1,18,000 27,22,800
374 ACCOUNTING

Working Notes:

1. Profit on sale of 12% Bond

Sales Price Rs.13,50,000
19,92,000
Less: Cost of Bond sold = x 15,000 (Rs. 12,45,000)
24,000
Profit on sale Rs.1,05,000
2. Closing balance as on 31.3.2012 of 12% Bond
19,92,000
x 9,000 = Rs.7,47,000
24,000
3. Profit on sale of equity shares of Alpha Ltd.
Sales price Rs.17,60,000
Less cost of bond sold=80,000 Rs.(12,24,000)
Profit on sale Rs.5,36,000
4. closing Balance as on 31.3.2012 of equity shares of Alpha Ltd.
38,25,000
x 1,70,000 = Rs.26,01,000
2,50,000

5. Calculation of right subscribed by Beeta. Ltd.

60,000 shares
Right shares= x 1 = 15,000 shares
4
Shares subscribed by Mr. Brown = 15,000 x 40% = 6,000 shares
Value of right shares subscribed = 6,000 shares @ Rs.5 per share = Rs.30,000
6. calculation of sale of right entitlement by Beeta Ltd.
No. of right shares sold = 15,000-6,000 = 9,000 shares
Sale value of right = 9,000 shares x Rs.2.25 per share =Rs.20,250
Note: As per Para 13 of AS 13, sale proceeds of rights is to be credited to P&L
A/c. WE HAVE PREPARED DIVIDEND COLUMN IN INVESTMENT ACCOUNT,
SO WE WILL TRANSFER INCOME FROM RIGHT ISSUE DIRECTLY TO PL.

QUESTION NO 6

On 1st April, 2011, Rajat has 50,000 equity shares of P Ltd. at a book value of Rs.15 per
VKDUHIDFHYDOXHUVHDFK+HSURYLGHV\RXWKHIXUWKHULQIRUPDWLRQ

(1) on 20th June, 2011 he purchased another 10,000 shares of P Ltd. at Rs.16 per share
 AS-13 INVESTMENT ACCOUNT 375

(2) on 1st August, 2011, P Ltd. issued one equity bonus share for every six shares held by
the shareholders/
(3) on 31st October, 2011, the directors of P Ltd. announced a right issue which entitles
the holders to subscribe three shares for every seven shares at Rs.15 per share.
Shareholders can transfer their rights in full or in part.
Rajat sold 1/3rdRIHQWLWOHPHQWWR8PDQJIRUDFRQVLGHUDWLRQRI5VSHUVKDUHDQGVXEVFULEHG
the rest on 5th November, 2011.
You are required to prepare investment A/c in the books of Rajat for the year ending 31st
March, 2012.

ANSWER
In the books of Rajat
Investment Account
(equity shares in P Ltd.)

Date Particulars No. of Amount Date Particulars No. of Amount

shares (Rs.) shares (Rs.)

1.4.11 To balance b/d 50,000 7,50,000 31.3.12 By balance c/d 90,000 12,10,000

20.6.11 To bank A/c 10,000 1,60,000 EDOÀJ

1.8.11 To bonus issue 10,000

(W.N.1)

5.11.2011 To bank A/c 20,000 3,00,000

(right shares)

(W.N.4)

90,000 12,10,000 90,000 12,10,000

Working Notes:
50,000 + 10,000
(1) Bonus shares = =10,000 shares
6
50,000 + 10,000 + 10,000
(2) right shares = x 3 = 30,000 shares
7
1
(3) Sale of Rights = 30,000 shares x x Rs.15 = Rs.3,00,000
3
Note: We have not shown income column in investment account, so income from sale of
right will be transferred to pl directly.
376 ACCOUNTING

QUESTION NO 7

On 01-04-2011, Mr. T. Shekharan purchased 5,000 equity shares of Rs.100 each in V Ltd.
#5VHDFKIURPDEURNHUZKRFKDUJHGEURNHUDJH+HLQFXUUHGSDLVDSHU5V
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 Rs.175 per
share and Rs.90 per share respectively. On 3103-2012, Mr. T. shekharan sold bonus shares
to a broker, who charged 2% brokerage.
Shoe the investment account in the books of T. Shekharan, who held the shares as current
Assets and closing value of investment shall be made at cost or market value whichever is
lower.

ANSWER
In the books of T. Shekharan
Investment Account
For the year ended 31st March, 2012
(Script : Equity Shares of V Ltd.)

Date Particulars Nominal Cost Date Particulars Nominal Cost

Value (Rs.) Value (Rs.)
(Rs.) (Rs.)
1.4.2011 To Bank A/c 5,00,000 6,15,000 31.3.2012 By Bank A/c 2,50,000 2,20,500
(W.N.1) (W.N.2)
31.01.2012 To bonus shares 2,50,000 -
31.3.2012 By Balance c/d 5,00,000 4,10,000
31.3.2012 7RSURÀW 15,500 (W.N.4)
and Loss A/c
(W.N.3)
7,50,000 6,3,500 7,50,000 6,30,500

Working Notes:

1. cost of equity shares purchased on 1st April, 2011

= cost + Brokerage+ cost of transfer stamps
=5,000 x Rs.120 + 2% of Rs.6,00,000 + ½% of Rs.6,00,000
=Rs.6,15,000
2. sale proceeds of equity shares sold on 31st March, 2012
= sale price – Brokerage
=2,500 x Rs.90 – 2% of Rs.2,25,000
=Rs.2,20,000.
 AS-13 INVESTMENT ACCOUNT 377

3. profit on sale of bonus shares on 31st March, 2012

= sales proceeds – Average cost
Sales proceeds = Rs.2,20,500
Average cost = Rs. [6,15,000 x 2,50,00/7,50,000] = Rs. 2,05,000
Profit = Rs. 2,20,500 - Rs. 2,05,000 = Rs.15,500.
4. Valuation of equity shares on 31st March 2012
Cost = Rs.[6,15,000 x 5,00,000/7,50,000] = Rs.4,10,000 i.e. Rs. 82 per share
Market Value= 5,000 Shares x Rs.90 = Rs.4,50,000
Closing stock of equity shares has been valued at Rs.4,10,000 i.e. cost being lower than
the market value

QUESTION NO 8

0U &KDWXU KDG  'HEHQWXUHV RI IDFH YDOXH 5V  RI 0V 8QQDWL /WG DV FXUUHQW
investments.
+HSURYLGHVWKHIROORZLQJGHWDLOVUHODWLQJWRWKHLQYHVWPHQWV

1-4-2014 Opening balance 4,000 debentures costing Rs.98 each

1-6-2014 Purchased 2,000 debentures @ Rs.120 cum interest
1-9-2014 Sold 3,000 debentures @ Rs.110 cum interest
1-12-2014 Sold 2,000 debentures @ Rs.105 ex-interest
31-1-2015 Purchased 3,000 debentures @ Rs.100 ex-interest
31-1-2015 Market value of the investment Rs.105 each

Interest due date are 30th June and 31st December.

0U&KDWXUFORVHVKLVERRNVRQ+HLQFXUUHGEURNHUDJHIRUDOOKLVWUDQVDFWLRQV
VKRZLQYHVWPHQWDFFRXQWLQWKHERRNVRI0U&KDWXUDVVXPLQJ),)2PHWKRGLVIROORZHG

QUESTION NO 9

A limited purchased 5,000 equity shares ( face value Rs.100 each) of Allianz limited for
Rs.105 each on 1st April, 2014. The shares were quoted cum dividend. On 15th may, 2014,
Allianz Limited declared & paid dividend of 2% for year ended 31st March, 2014. On 30th
June, 2014 Allianz limited issued bonus shares in ratio of 1:5 on 1st October, 2014 Allianz
Limited issued rights share in the ratio of 1:2 @ 45 per share. A Limited subscribed to half
of the rights issue and the balance was sold at Rs.5 per right entitlement. The company
378 ACCOUNTING

declared interim dividend of 1% on 30th November, 2014. Right shares were not entitled to
dividend. The company sold 3,000 shares on 31st December, 2014 at Rs. 95 per share. The
company A Ltd. incurred 2% as brokerage while buying and selling shares.
You are required to prepare investment account in books of A Ltd.

QUESTION NO 10

2QVXQGDUKDGHTXLW\VKDUHVRI¶;·/WGDWDERRNYDOXRI5VSHUVKDUH
(face value Rs 10). On 20.6.2014, he purchased another 5,000 shares of the company at
5VSHUVKDUH7KHGLUHFWRUVRI¶;·/WGDQQRXQFHGDERQXVDQGULJKWVLVVXH1RGLYLGHQG
was payable on these issues. The terms of the issue are as follows:
Bonus basis 1:6(date 16.8.2014).
Rights basis 3:7 (date 31.8.2014)price Rs.15 per share.
Due date for payment 30.9.2014.
Shareholders were entitled to transfer their rights in full or in part. Accordingly sundar
sold 33.33% of his entitlement to sekhar for a consideration of Rs.2 per share.
Dividends: dividend for the year ended 31.3.2014 at the rate of 20% were declared by X Ltd.
and received by sundar on 31.10.2014. dividends for shares acquired by him on 20.6.2014
are to be adjusted against the cost of purchase.
On 15.11.2014. sundar sold 25,000 equity shares at a premium of Rs.5 per share.
You are required to prepare in the books of sundar.

(1) investment account

(2) profit & Loss account.
)RU\RXUH[HUFLVHDVVXPHWKDWWKHERRNVDUHFORVHGRQDQGVKDUHVDUHYDOXHG
at average cost.

QUESTION NO 11

2Q0U.ULVKQDPXUW\SXUFKDVHGHTXLW\VKDUHVRI5VHDFKLQ7(/&2/WG
#5VHDFKIURPDEURNHUZKRFKDUJHGEURNHUDJH+HLQFXUUHGSDLVHSHU5V
as cost of shares transfer stamps. On 31.3.2015 bonus was declared in the ratio of 1 : 2
Before and after the record date of bonus shares the shares were quoted at Rs.175 per
share and Rs.90 per share respectively. On 31.3.2015 Mr. Krishna Murty sold bonus shares
to a broker, who charged 2% brokerage.
Show the investment Account in the books of Mr. Krishna Murty. Who held the shares as
Current assets and closing value of investments shall be made at cost of Market value which
ever is lower.
 AS-13 INVESTMENT ACCOUNT 379

QUESTION NO 12

Mr. X purchased 500 equity shares of Rs.100 each in omega Co. Ltd. for Rs. 62,500 inclusive
of brokerage and stamp duty. Some years later the company resolved to capitalize its
SURÀWVDQGWRLVVXHWRWKHKROGHUVRIHTXLW\VKDUHVRQHHTXLW\ERQXVVKDUHIRUHYHU\VKDUH
held by them. Prior to capitalization, the shares of omega co. Ltd. were quoted at Rs.175
per share. After the capitalization, the shares were quoted at Rs.92.50 per share. Mr. X.
sold the bonus shares and received at Rs.90 per share.
3UHSDUHWKHLQYHVWPHQWDFFRXQWLQ;·VERRNVRQDYHUDJHFRVWEDVLV

QUESTION NO 13

On 1st January 2014, singh had 20,000 equity shares in X Ltd. face value of the shares was
on Rs.10 each but their book value was Rs. 16 per share. On 1st June 2014, Singh purchased
5,000 more equity shares in the company at a premium of Rs. 4 per share.
On 30th June, 2014, the directors of X Ltd. announced a bonus and rights issue. Bonus
ZDVGHFODUHGDWWKHUDWHRIRQHHTXLW\VKDUHIRUHYHU\ÀYHVKDUHVKHOGDQGWKHVHZHUH
received on 2nd august, 2014.
The terms of the rights issue were:

(a) rights shares to be issued to the existing holders on 10th august, 2014.
(b) rights issue would entitle the holders on 10 august, 2014.
(b) rights issue would entitle the holders to subscribe to additional equity shares in the
company at the rate of one share per every held at Rs. 15 per share the whole sum
being payable by 30th September, 2014.
(c) existing share holders were entitled to transfer their rights to outsiders, either
wholly or in part.
(d) Singh exercised his option under the issue for 50% of his entitlements and the balance
of rights he sold to ananth for a consideration of Rs.1.50 per share.
(e) dividends for the year ended 31st March, 2014, at the rate of 15% were declared by
the company and received by singh on 20th October, 2014.
(f) on 1st November, 2014, Singh sold 20,000 equity shares at a premium of Rs. 3 per
share.
The market price of share on 31-12-2014 was Rs.14. Show the investment Account as it
ZRXOGDSSHDULV6LQJK·VERRNVRQDQGWKHYDOXHRIVKDUHVKHOGRQWKDWGDWH
380 ACCOUNTING

QUESTION NO 14

7KHIROORZLQJWUDQVDFWLRQRI1,'+,WRRNSODFHGXULQJWKH\HDUHQGHGst March 2014:

1st April Purchased Rs.12.00,00, 8% bonds at Rs.80.50 cum-interest. Interest Is

payable on 1st November and 1st May.
12th April Purchased 1,00,000 equity shares of Rs.10 each in X Ltd. for Rs.40,00,000
1st May 5HFHLYHGKDOI\HDU·VLQWHUHVWRQERQGV
15th Mary X Ltd. made a bonus issue of three equity shares for every two held.
Nidhi sold 1,25,000 bonus shares for Rs. 20 each.
1st October Sold Rs. 3,00,000, 8% bonds at Rs.81 ex-interest.
1st November Received half years bond interest.
1st December Received 18% dividend on equity shares in X Ltd.

Prepare the relevant investment account in the books of Nidhi for the year ended 31st
March 2014.

QUESTION NO 15

Smart investment made the following investment in the year 2013-14

VWDWH*RYHUPPHQWERQGVKDYLQJIDFHYDOXH5V

Date Particulars
01.04.2013 Opening balance (1200 bonds) book value of Rs.126,000
02.05.2013 Purchased 2,000 bonds @ Rs.100 cum interest
30.09.2013 Sold 1,500 bonds at Rs.105 ex interest

Interest on the bonds is received on 30th June and 31st Dec. each year.

Equity Shares of X Ltd.

15.04.2013 Purchased 5,00 equity shares @ Rs.200 on cum right basis
Brokerage of 1% was paid in addition (face value of shares Rs.10)
03.06.2013 The company announced a bonus issue of 2 shares for every 5 share held.
16.08.2013 The company made a rights issue of 1 share for every 7 shares held. At
Rs.250 per share.
The entire money was payable by 31.08.2013.
 AS-13 INVESTMENT ACCOUNT 381

22.8.2013 Rights to the exlent of 20% was sold @ Rs.60. the remaining rights were
subscribed.
02.09.2013 Dividend @ 15% for the year ended 31.03.2013 was received on 16.09.2013
15.12.2013 Sold 3,000 shares @ Rs.300. Brokerage of 1%was incurred extra.
15.01.2014 Received interim dividend @ 10% for the year 2013-14
31.03.2014 The shares were quoted in the stock exchange @ Rs.220

Prepare investment Accounts in the books of Smart Investments. Assume that the average
cost method is followed.

QUESTION NO 16

Bonanzaa Limited held on 1st April 1993 `RI*RYHUQPHQWORDQDW`

)DFHYDOXHRIORDQ`HDFK7KUHHPRQWK·VLQWHUHVWDFFUXHGRQWKHDERYH
date. On 31st May 1993 the company purchased the same government loan of the face
value of ` 80,000 at ` 95 (net) cum-interest. On 1st June 1993
60,000 face value of the loan was sold at ` 94 (net) ex-interest. Interest on the loan
was paid each year on 30th June and 31st December and was credited by the bank on
the same date. On 30th November 1993 ` 40,000 face value of the loan was sold at `
97 (net) cum-interest. On 1st December 1993 the company purchased the same loan `
10,000 at per ex-interest. On 1st March 1994 the company sold
10,000 face value of the loan at ` 95 ex-interest. The market price of the loan on 31st
March 1994 was ` 96. Draw up the 9% government loan (2003) account in the books of
WKHFRPSDQ\)LUVWLQÀUVWRXWPHWKRGVKDOOEHIROORZHGDQGWKHEDODQFHRIWKHORDQKHOG
by the company shall be valued at total average cost or market price whichever is lower.
Calculation shall be made to the nearest rupee or multiple thereof.

QUESTION NO 17

A purchased on 1st March, ` 24,000 5% Bharat Debenture stock at 90 cum-interest

interest being payable on 31st March and 30th September each year, stamp and expenses
on purchase amounted to ` 20 and brokerage at 2% was charged on cost; interest for the
half-year was received on the due date. On 1st September ` 10,000 of the stock was sold at
92 ex-interest less brokerage at 2%. On 30th September ` 8,000 stock was purchased at
91 ex-interest plus brokerage at 2% and charges ` 10. On 1st December ` 6,000 stock was
sold at 94 cum-interest less brokerage at 2%. The market price of stock on 31st December
was 91%. Show the investment account for the year ended 31st December, marking all
calculations in months.
382 ACCOUNTING

QUESTION NO 18

Tee Limited purchased on 1st May 1997 13.5% Convertible Debentures in Dee Limited of
face value of ` 5,00,000 @ 105; Interest on the debentures is payable each year on 31st
March and 30th September. The accounting year adopted by Tee Limited is the calendar
year. The following other transactions were entered into in 1997 by Tee Limited in regard
to these debentures:
August 1 Purchased ` 2,50,000 debentures @ 107 cum interest. October 1 Sale of ` 2,00,000
debentures @ 103
December 31 Receipt of 10,000 equity shares in Dee Limited of ` 10 each in conversion of
20% of the debentures held.
The market value of the debentures and equity shares in Dee Limited at the end of 1997
was 106 and ` 15 respectively.
Prepare the debenture investment account in the books of Tee Limited on average cost
basis.

QUESTION NO 19

Y Limited purchases 25,000 shares of ` 10 each of X Limited on 15.4.1999 @ 120 per

share(cum-right cum dividend). The company paid brokerage 1.5% and stamp duties 1%. It
acquires another 30,000 shares of X Limited on 25.5.1999 @ ` 140 pr share( cum right
cum dividend). And paid for brokerage and stamp duties. The company offered 1:1 right
@ 80 per share on 30.5.99. Y Limited acquired 35,000 shares exercising the right and
sold the right for 20,000 shares @ ` 30 per right. The company received dividend @ 40%
on paid up value of shares for 1999-2000. It sold 15,000 shares @ ` 110 less brokerage
1.5% on 15.11.1999. Please calculate the cost of investment sold, carrying amount of unsold
LQYHVWPHQWVDQGSURÀWRQVDOHRILQYHVWPHQWV

QUESTION NO 20

A Limited purchases 10000 shares of X Limited @ ` 80 and paid brokerage @ 1.5% and
stamp duties ` 8000 on 15.12.1999. The company purchases another 15000 shares of X
Limited @ 96 and paid brokerage @ 1.5% and stamp duties ` 14400 on 25.12.1999. It sold
12000 shares @ 105 and brokerage @ 1.5% on 15.2.2000.
6KRZWKHFRVWRILQYHVWPHQWEDODQFH,QDFFRXQWLQWKHEDODQFHVKHHWDQGDPRXQWRISURÀW
or loss on the sale?
 AS-13 INVESTMENT ACCOUNT 383

QUESTION NO 21

Continuing with the example above if X Limited issues one bonus share for every two shares
held on 2.1.2000 and X Limited sold 12000 shares on 15.2.2000.
Calculate the carrying amount of investments

QUESTION NO 22

Mr. Lal purchased 500 equity shares of ` 100 each in omega co Ltd. for ` 62500 inclusive
of brokerage and stamp duty on cum right basis. Later the company announced right issue
@ one equity share for every share held by them. X accepted 50% of right shares and sold
50% right. The shares of Omega co Ltd. were quoted at ` 110 per share pre right and the
shares were quoted at Rs92.50 per share after right issue. Mr. X sold the right @10 per
right share and paid at ` 80 per share as subscription charges for his 50% shares.
Prepare investment account on average cost basis valuation.

QUESTION NO 23

Sharma purchased 1000 equity shares of X Ltd. as ` 35 each on 1st$SULO+HIXUWKHU

purchased 300 equity shares @32 each on 1 july 2003. On 30 Sep, he received dividend
@ `SHUVKDUHIRUWKH\HDU+HVROGVKDUHV#SHUVKDUHRQ1RY
Market value of share on 31st March 2004 was ` 33, prepare investment account(assume
permanent investment).

QUESTION NO 24

Mr. T purchased 1,000 nos. 10% debentures of ` 100 each on 1st April, 2009 at ` 96
com interest, the previous interest date being 31st December, 2008. Computer cost of
investment.

QUESTION NO 25

0< /WG +DG DFTXLUHG  HTXLW\ VKDUHV RI <= /WG $W ` 105 per share on 1.1.2009 and
paid ` 200 towards brokerage, stamp duty and STT. On 31st March, 2009 Share of YZ Ltd.
Were traded at ` 110 per share. At what value investment is to be shown in the Balance
Sheet of MY Ltd. As at 31st March, 2009.
 384 ACCOUNTING

QUESTION NO 26

5RVH/WG+DGPDGHDQLQYHVWPHQWRI` 500 lakhs in the equity shares of Nose Ltd on

10.01.2009. The realizable value of such investment on 31.03.2009 became ` 200 laksh
DV1RVH/WG/RVWDFDVHRISDWHQWULJKWV5RVH/WG)ROORZVÀQDQFLDO\HDUVDVDFFRXQWLQJ
\HDU+RZZLOO\RXUHFRJQL]HWKLVUHGXFWLRQLQ)LQDQFLDO6WDWHPHQWVIRUWKH\HDU

QUESTION NO 27

*DPPD,QYHVWPHQW&RPSDQ\KROGGHEHQWXUHVRI` 100 each in Beta Industries

Ltd. As on April 1,2009 at a cost of ` 1,05,000. Interest is payable on June, 30 and December,
31 each year.
On may 1,2009, 500 debentures are purchased cum-interest at ` 53,500. On November,
1,2009, 600 debentures are sold ex-interest at ` 57,300. on November 30, 2009, 400
debentures are purchased ex-interest at ` 38,400. On December 31, 2009 400 debentures
are sold cum-interest for ` 55,000.
Prepare the investment account showing value of holdings on March 31, 2010 at cost, using
),)2PHWKRG

QUESTION NO 28

'HÀQHLQYHVWPHQWDVSHU$FFRXQWLQJ6WDQGDUG+RZLQYHVWPHQWVDUHFODVVLÀHGE\$6
13? What are the items not dealt with by AS-13?

ANSWER:
Meaning of Investments: $6GHÀQHVLQYHVWPHQWVDVDVVHWVKHOGE\DQ enterprise for:

 (DUQLQJLQFRPHE\ZD\RIGLYLGHQGVLQWHUHVWDQGUHQWDOVHJLQYHVWPHQWLQEXLOGLQJ
let out
Capital appreciation, e.g., increase in the value of land,
Other benefits to the investing enterprise, e.g., to control the investee,
Not held as stock-in-trade, e.g., held by investment company not investment

AS-13 does not deal with:

Bases for recognition of interest, dividends and rentals earned covered by AS-9;

Operating or finance leases;

Investments of retirement benefit plans and life insurance enterprises; and
Mutual funds, banks and public financial institutions
 AS-13 INVESTMENT ACCOUNT 385

&ODVVLÀFDWLRQRILQYHVWPHQWVAn enterprise should disclose current investments and long-

WHUPLQYHVWPHQWVGLVWLQFWO\LQLWVÀQDQFLDOVWDWHPHQWV
Current investment: A current investment is an investment that is-

By its nature readily realizable, e.g., land & building are not readily realizable, and
Intended to be held for not more than one year from the date of making such investment
(YLGHQFHWKDWKHOGIRUQRWPRUHWKDQRQH\HDUFRXOGEHPDQDJHPHQWUHSUHVHQWDWLRQ

7KHUHIRUH·UHDG\PDUNHWDELOLW\LVQRWWKHRQO\FULWHULDIRUFODVVLI\LQJWKHLQYHVWPHQWLQWR
FXUUHQWRUORQJWHUP7REHFODVVLÀHGDVFXUUHQWLQYHVWPHQWDQLQYHVWPHQWPXVWEHPDGH
for a period not more than one year.
Long-term investment: A long-term investment is an investment other than a current
investment, e.g., investment in property such as land and building should be accounted for
as long term investment.
)XUWKHUFODVVLÀFDWLRQRIFXUUHQWDQGORQJWHUPLQYHVWPHQWVVKRXOGEHDVVSHFLÀHGLQWKH
statute governing the enterprise. In the absence of a statutory requirement, such further
FODVVLÀFDWLRQVKRXOGGLVFORVHZKHUHDSSOLFDEOHLQYHVWPHQWVLQ

 *RYHUQPHQWRU7UXVWVHFXULWLHV
Shares, debentures or bonds
Investment properties
Others—specifying nature

QUESTION NO 29

%ULHÁ\LQGLFDWHKRZZRXOG\RXGHWHUPLQHWKHFRVWRILQYHVWPHQW"

ANSWER:
Cost of Investments: AS-13 lays down following with regard to determination of cost:

Acquisition against monetary consideration: The cost of an investment should include

purchase price and acquisition charges such as brokerage, fees and duties.

It is also possible that an investment has been purchased on cum-interest or cum-

dividend basis, the subsequent receipt of interest/dividend is allocated between pre-
acquisition and post-acquisition periods; the pre-acquisition portion is deducted from
cost as it represents recovery of cost.

Acquisition of right shares: When right shares are acquired, the cost of the right
shares is added to the carrying amount of the original holding. If rights are not acquired
but sold in the market, the sale proceeds are taken to the profit and loss account.
386 ACCOUNTING

+RZHYHUZKHUHWKHLQYHVWPHQWVDUHDFTXLUHGRQFXPULJKWEDVLVDQGWKHPDUNHWYDOXH
of investments immediately after their becoming ex-right is lower than the cost for
which they were acquired, it may be appropriate to apply the sale proceeds of rights
to reduce the carrying amount of such investments to the market value.

QUESTION NO 30

Summarize the provision contained in the Accounting Standard-13 in respect of valuation

RILQYHVWPHQWVLQWKHÀQDQFLDOVWDWHPHQWV

ANSWER:
Valuation of Investments: 9DOXDWLRQGHSHQGVXSRQFODVVLÀFDWLRQRILQYHVWPHQWV
Current investments:

Present in the financial statements at the lower of cost and fair value.
Cost or fair value should be determined either on an individual investment basis (i.e.,
cost and fair value of each investment should be compared separately) or by category
of investment (all types preference shares constitute a category), but not on an
overall/global basis.

Long-term investments:

Present at cost
Provision for diminution (reduction) in the value of the investments, shall be made to
recognise a decline, other than temporary,
Such reduction being determined on individual investment basis

Changes in Carrying Amounts of Investments:

Any reduction in the carrying amount and any reversals of such reductions should be charged
RUFUHGLWHGWRWKHSURÀWDQGORVVDFFRXQW
Disposal of Investments: On disposal of an investment, the difference between the carrying
DPRXQW DQG QHW GLVSRVDO SURFHHGV VKRXOG EH FKDUJHG RU FUHGLWHG WR WKH SURÀW DQG ORVV
account.
When disposing of a part of the holding of an individual investment, the carrying amount to
be allocated to that part is to be determined on the basis of the average carrying amount
of the total holding of the investment.
 AS-13 INVESTMENT ACCOUNT 387

QUESTION NO 31

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ANSWER:
Disclosure: 7KHIROORZLQJLQIRUPDWLRQVKRXOGEHGLVFORVHGLQWKHÀQDQFLDO statements:
Accounting policies for valuation of investments;
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companies, other dividends and rentals separately from long term and current investments.
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earning amount of such investments;
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remittance of income and proceeds of disposal;
Aggregate amount of quoted and unquoted investments along with market value;
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QUESTION NO 32

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of shares transfer stamps. On 31-10-2012, bonus was declared in the ratio 1:4 The
shares were quoted at Rs. 110 and Rs. 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%. You are required to prepare Investment Account 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.

ANSWER:
In the books of Mr. MISHRA Investment Account for the year ended 31.12.2012

Date Particular No. of Amount Date Particular No. of Amount

shars shares
(Rs.) (Rs.) (Rs.) (Rs.)
1.5.2012 To bank A/c 800 42,080 30.11.2012 By bank A/c 200 11,400
31.10.2012 To Bonus
Shares 200 - 31.12.2012 By Bal. c/d 800 33,664
388 ACCOUNTING

31.12.2012 7RSURÀWRQ 2,984

sale
1,000 45,064 1,000 45,064

W.N#1
CALCULATION OF COST OF INVESTMENTS PURCHASED ON 1.5.2012

Particulars Amount
Purchase price (800*50) 40,000
Brokerage @ 5% 2,000
Stamp duty (40000*.20/100) 80
Total acquisition cost 42,080

W.N#2
CALCULATION OF PROFIT OR LOSS
ON SALE OF INVESTMENTS ON 30.11.2012

Particulars Amount
Selling price (200*60) 12,000
Brokerage @ 5% (600)
Net selling price 11,400
Cost for sold portion on weighted average cost basis 8,416
(42080/1000shares x 200shares)
3URÀWRQVDOH 2,984

W.N#3
VALUATION OF INVESTMENTS

Particulars Amount
Cost Of Investments (42080/1000 X800) 33664
Or
Market Value On Balance Sheet Date (800*60) 48000
Whichever Is Lower 33664

(Note: In the given case, cost of investment is lower than market value due to which there
is no valuation loss)