Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.1  

Gurukripa’s Guideline Answers to May 2015 Exam Questions CA Inter (IPC) Group I Accounting

Question No.1 is compulsory (4 X 5 = 20 Marks).

Answer any five questions from the remaining six questions (16 X 5 = 80 Marks). [Answer any 4 out of 5 in Q.7] Working Notes should form part of the answer.

Wherever necessary, suitable assumptions should be made and indicated in answer by the Candidates.

Note: All Page References given are from Padhuka’s Ready Referencer on Accounting – For CA Inter (IPC) Question 1(a): AS – 3 Cash Flow Statement 5 Marks Prepare Cash Flow from Investing Activities of M/s Creative Furnishings Limited for the year ended 31.03.2015.

Particulars ` Plant acquired by the issue of 8% Debentures 1,56,000 Claim received for Loss of Plant in Fire 49,600 Unsecured Loans given to Subsidiaries 4,85,000 Interest on Loan received from Subsidiary Companies 82,500 Pre–Acquisition Dividend received on Investment made 62,400 Debenture Interest Paid 1,16,000 Term Loan repaid 4,25,000 Interest received on Investment (TDS of ` 8,200 was deducted on the above Interest) 68,000 Book Value of Plant sold (Loss incurred ` 9,600) 84,000 Solution: Similar to Illustrations in AS–3 Cash Flow Statement

Particulars `

CASH FLOW FROM INVESTING ACTIVITIES Unsecured Loans given to subsidiary (4,85,000) Interest on Loan received from Subsidiary Companies 82,500 Pre–Acquisition Dividend received on Investment 62,400 Interest Received on Investment (68,000 – TDS 8,200) 59,800 Proceeds on Sale of Plant (84,000 – 9,600) 74,400

NET CASH USED IN INVESTING ACTIVITIES (2,05,900)Note: 1. Plant acquired by Issue of 8% Debentures will not be considered in CFS, as Cash is not involved. They are disclosed in

Notes to Accounts. 2. Claims received for Loss of Plant in Fire is an Extraordinary Item, shown under “Operating Activities”. 3. Debenture Interest paid will be shown under “Financing Activities” 4. Term Loan Repaid will be shown under “Financing Activities”. Question 1(b): AS – 7 Construction Contract 5 Marks A Construction Contractor has a Fixed Price Contract for ` 9,000 Lakhs to build a bridge in 3 years timeframe. A summary of some of the financial data is as under:

Amount ` in Lakhs Year 1 Year 2 Year 3 Initial Amount for Revenue agreed in Contract 9,000 9,000 9,000 Variation in Revenue (+) – 200 200 Contracts Costs incurred up to the reporting date 2,093 (Note 1) 6,168 (Note 2) 8,100 Estimated Profit for the whole Contract 950 1,000 1,000 Note: 1. Includes ` 100 Lakhs for Standard Materials stored at the Site to be used in Year 3 to complete the work. 2. Excludes ` 100 Lakhs for Standard Material brought forward from Year 2.

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.2  

The variation in Cost and Revenue in Year 2 has been approved by the customer.

Compute year–wise amount of Revenue, Expenses, Contract Cost to complete and Profit or Loss to be recognised in the Statement of Profit or Loss as per AS–7.

Solution: Similar to Page No.B.5.17, Q.No.49

Basic Calculations: (in ` Lakhs) Particulars As at Year 1 As at Year 2 As at Year 3

Contract Price 9,000 9,000 9,000 Variations (Increase) Nil 200 200

(a) Total Contract Revenue 9,000 9,200 9,200(b) Estimated Profit for whole Contract (given) 950 1,000 1,000(c) Total Contract Costs = (a) – (b) 8,050 8,200 8,200(d) Costs till date 2,093 6,168 – 100 = 6,068 8,100 + 100 = 8,200

(e) % of Completion = CostsContractTotal

DateTillCost

8,0502,093

`

` = 26%

200,8068,6

``

= 74% 8,2008,200

``

=100%

The Contract Revenues, Costs & Profits recognised in each of the 3 years are given below – (in ` Lakhs)

Year Particulars Upto reporting date Already recognised in previous years

Recognised during current year

1 Contract Revenue 9,000 × 26% = 2,340 Nil 2,340 Contract Costs 2,093 Nil 2,093 Contract Profits 247 Nil 247

2 Contract Revenue 9,200 × 74% = 6,808 2,340 4,468 Contract Costs 6,068 2,093 3,975 Contract Profits 740 247 493

3 Contract Revenue 9,200 × 100% = 9,200 6,808 2,392 Contract Costs 8,200 6,068 2,132 Contract Profits 1,000 740 260

Question 1(c): AS–2 Inventory Valuation 5 Marks Mr. Mehul gives the following information relating to items forming part of Inventory as on 31.03.2015. His Factory produces Product X using Raw Material A. 1. 600 units of Raw Material A (purchased at ` 120). Replacement Cost of Raw Material A as on 31.03.2015 is ` 90 per unit. 2. 500 units of Partly Finished Goods in the process of producing X and Cost incurred till date ` 260 per unit. These units can

be finished next year by incurring Additional Cost of ` 60 per unit. 3. 1,500 units of Finished Product X and Total Cost incurred ` 320 per unit.

Expected Selling Price of Product X is ` 300 per unit.

Determine how each item of inventory will be valued on 31.03.2015. Calculate the Value of Total Inventory as on 31.03.2015.

Solution: Similar to Page No.B.2.16, Q.No.51 [P (A/c) – RTP]

Item Valuation Principle ResultRaw Material Since the Finished Product using this Raw Material is expectable be sold below

cost, Raw Material may be valued of NRV, i.e. Replacement Cost of ` 90. 600× ` 90 = ` 54,000

WIP • Cost ` 260 • Estimated NRV = Sale Price ` 300 – Cost to complete ` 60 = ` 240. • Hence, valued at least of the above, i.e. ` 240 p.u.

500×` 240 = ` 1,20,000

Finished Goods

Cost ` 320 or Net Realisable Value ` 300, whichever is lower. Hence valued at ` 300 p.u.

1,500×` 300= ` 4,50,000

Total ` 6,24,000

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.3  

Question 1(d): AS–6 Depreciation 5 Marks M/s. Laghu Udyog Limited has been charging depreciation on an item of Plant and Machinery on Straight line basis. The Machine was purchased on 01.04.2012 at ` 3,25,000. It is expected to have a total useful life of 5 years from the date of purchase and Residual Value of ` 25,000. Calculate the Book Value of the Machine as on 01.04.2015 and the Total Depreciation charged till 31.03.2014 under SLM. The Company wants to change the method of depreciation and charge depreciation at 20% on WDV from 2014–15. Is it valid to change the method of depreciation? Explain the treatment required to be done in the books of accounts in the context of AS – 6. Ascertain the amount of Depreciation to be charged for 2014–15 and the Net Book Value of Machine as on 31.03.2015 after giving effect of the above change. Solution: Similar to Page No.B.4.6, Q.No.22,23 [P (A/c) – M 03, N 03, N 05, N 10, M 10, N 11, N 12]

Particulars Under Existing Method (SLM) Under New Method (WDV) Cost on 01.04.2012 3,25,000 3,25,000 (–) Depreciation for 2012–2013 1/5th × (3,25,000 – 25,000) = 60,000 20% × 3,25,000 = 65,000 WDV on 01.04.2013 2,65,000 2,60,000 (–) Depreciation for 2013–2014 60,000 20%× 2,60,000= 52,000 WDV on 01.04.2014 2,05,000 2,08,000 1. Book Value of Plant & Machinery on 01.04.2014 (using SLM Depreciation) = ` 2,05,000

2. Total Depreciation charged till 31.03.2014 under SLM = 60,000 × 2 = ` 1,20,000 3. Change in Method of Depreciation is permissible only for –

(a) Compliance with Statutory Requirement, or (b) Compliance with an Accounting Standard, or (c) Consideration that the change would result in a more appropriate preparation or presentation of the Financilal

Statements of the enterprise. 4. Disclosure: A change in the method of charging depreciation is treated as a change in accounting policy and its effect is

quantified and disclosed. 5. Treatment in 2014–2015:

(a) Debit Asset & Credit P & L, by ` 3,000 (` 2,08,000 – 2,05,000) [Excess Depreciation to be reversed] (b) Charge Depreciation at 20% on ` 2,08,000 = ` 41,600 (WDV basis) (c) Net Book Value of Machine on 31–03–2015 after the above = ` 2,08,000 – ` 41,600 = ` 1,66,400 (d) The Company has to disclose that due to change in method of depreciation, there is a reversal of excess

depreciation of ` 3,000 and the Asset Value increased by ` 3,000 and Profits increased by ` 3,000. Such change will have effect in future years also.

Question 2: Amalgamation 16 Marks The financial position of two Companies Abhay Ltd and Asha Ltd as on 31.03.2015 is as follows –

Balance Sheet as on 31.03.2015

Particulars Abhay Ltd Asha Ltd Sources of Funds

Share Capital – Issued and Subscribed: 15,000 Equity Shares at ` 100, fully paid 15,00,000 10,000 Equity Shares at ` 100, fully paid 10,00,000 General Reserve 2,75,000 1,25,000 Profit & Loss 75,000 25,000 Securities Premium 1,50,000 50,000 Contingency Reserve 45,000 30,000 12% Debentures, at ` 100 fully paid – 2,50,000 Sundry Creditors 55,000 35,000

Total 21,00,000 15,15,000

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.4  

Particulars Abhay Ltd Asha Ltd Application of Funds

Land and Buildings 8,50,000 5,75,000 Plant and Machinery 3,45,000 2,25,000 Goodwill – 1,45,000 Inventory 4,20,000 2,40,000 Sundry Debtors 3,05,000 2,85,000 Bank 1,80,000 45,000

Total 21,00,000 15,15,000

They decided to merge and form a New Company Abhilasha Ltd. as on 01.04.2015 on the following terms: 1. Goodwill to be valued at 2 years purchase of the Super Profits. The Normal Rate of Return is 10% of the Combined Share

Capital and General Reserve. All Other Reserves are to be ignored for the purpose of Goodwill. Average Profits of Abhay Ltd is ` 2,75,000 and Asha Ltd is ` 1,75,000.

2. Land and Buildings, Plant and Machinery and Inventory of both Companies to be valued at 10% above Book Value and a Provision of 10% to be provided on Sundry Debtors.

3. 12% Debentures to be redeemed by the issue of 12% Preference Shares of Abhilasha Ltd (Face Value of ` 100) at a Premium of 10%

4. Sundry Creditors to be taken over at Book Value. There is an Unrecorded Liability of ` 15,500 of Asha Ltd as on 01.04.2015. 5. The Bank Balance of both Companies to be taken over by Abhilasha Ltd after deducting Liquidation Expenses of ` 60,000

to be borne by Abhay Ltd and Asha Ltd in the ratio of 2:1. You are required to: 1. Compute the basis on which Shares of Abhilasha Ltd. are to be issued to the Shareholders of the Existing Company

assuming that the Nominal Value per Share of Abhilasha Ltd is ` 100. 2. Draw the Balance Sheet of Abhilasha Ltd as on 01.04.2015 after the amalgamation. Solution: Similar to Page No.A.11.19, Q.No.9, N 97

The given question is an Amalgamation in the nature of Purchase. 1. Computation of Goodwill and Purchase Consideration

Particulars Abhay Ltd Asha Ltd(a) Average Net Profits (Given) 2,75,000 1,75,000 Less: Normal Profits (10% on Combined Share Capital & General Reserve)

10% of (15,00,000 + 2,75,000) = (1,77,500)

10% of (10,00,000 + 1,25,000) = (1,12,500)

(b) Super Profits 97,500 62,500(c) Goodwill at 2 years’ Purchase of Super Profits 1,95,000 1,25,000 Add: Other Assets: Land and Building 8,50,000 + 10% = 9,35,000 5,75,000 + 10% = 6,32,500 Plant and Machinery 3,45,000 + 10% = 3,79,500 2,25,000 + 10% = 2,47,500 Inventories 4,20,000 + 10% = 4,62,000 2,40,000 + 10% = 2,64,000 Debtors 3,05,000 2,85,000 Bank 1,80,000 – 40,000 = 1,40,000 45,000 – 20,000 = 25,000 Total Assets including Goodwill (A) 24,16,500 15,79,000Less: Creditors & other Current Liabilities Given = (55,000) 35,000 + 15,500 = (50,500) Provision for Doubtful Debts 3,05,000 × 10% = (30,500) 2,85,000 × 10% = (28,500) Debentures (See Note) – 2,50,000 × 110% = (2,75,000) Total Liabilities (B) (85,500) (3,54,000)(d) Net Assets taken over=Purchase Consideration (A) – (B) 23,31,000 12,25,000

(e) Number of Shares in Selling Company 15,000 10,000 (f) Intrinsic Value per Share (i.e. Book Value) ` 155.40 ` 125 (g) No. of Shares to be issued by Abhilasha Ltd (FV=` 100)

15,000 × 100

155.4 = 23,310 10,000 × 100

122.50 = 12,250

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.5  

Note: Computation of Preference Shares to be issued on Redemption of 12% Debentures • Amount Due to Debenture Holders = ` 2,50,000 × 110% = ` 2,75,000 • Preference Shares to be issued on Redemption =2,75,000 ÷100 = 2,750 Preference Shares at ` 100 each. • It is assumed that the Debentures are redeemed at a Premium of 10%. Alternatively, it can be assumed that Preference

Shares are issued at a Premium of 10%, i.e. ` 110 per Share for settling ` 2,50,000.

2. Balance Sheet of Abhilasha Limited as at 31st March (after Takeover) Particulars as at 31st March Note This Year Prev. Yr

I EQUITY AND LIABILITIES: (1) Shareholders’ Funds: Share Capital 1 38,31,000 (2) Current Liabilities: Trade Payables Creditors (55,000+50,500) 1,05,500 Total 39,36,500 II ASSETS (1) Non–Current Assets (a) Fixed Assets:(i) Tangible Assets – Land (9,35,000 + 6,32,500) 15,67,500 – Plant (3,79,500 + 2,47,500) 6,27,000 (ii) Intangible Assets (Goodwill) (1,95,000 + 1,25,000) 3,20,000 (2) Current Assets: (a) Inventories (4,62,000 + 2,64,000) 7,26,000 (b) Trade Receivables (Net of Provision) (2,74,500 + 2,56,500) 5,31,000 (c) Cash and Cash Equivalents (1,40,000 + 25,000) 1,65,000 Total 39,36,500

Note 1: Share Capital Particulars This Year Prev. Yr

Authorised: ……. Equity Shares of ` …. Each ……. Preference Shares of `….. Each

Issued, Subscribed & Paid up: (23,310 + 12,250) Equity Shares of ` 100 each 35,56,000

2,750 Preference Shares at ` 100 each 2,75,000

Note: Above 35,560 Equity Shares of ` 100 each and 2,750 Preference Shares of `100 each are issued for non – cash consideration, in the scheme of takeover of Abhay Ltd & Asha Ltd.

Total 38,31,000 Question 3(a): Profits Prior to Incorporation 10 Marks The Partners Kamal and Vimal decided to convert their existing Partnership Business into a Private Limited Company called KV Trading Private Ltd with effect from 01.07.2014.

The same books of accounts were continued by the Company which closed its account for the first term on 31.03.2015.

The summarized Profit and Loss Account for the year ended 31.03.2015 is below: Particulars ` in Lakhs ` in Lakhs

Turnover 240.00 Interest on Investments 6.00 Total Income 246.00 Less: Cost of Goods Sold 102.00 Advertisement 3.00 Sales Commission 6.00 Salary 18.00 Managing Directors Remuneration 6.00 Interest on Debentures 2.00 Rent 5.50 Bad Debts 1.00 Underwriting Commission 2.00

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.6  

Particulars ` in Lakhs ` in Lakhs Audit Fees 2.00 Loss on Sale of Investment 1.00 Depreciation 4.00 152.50

Net Profit 93.50 The following additional information was provided: 1. The Average Monthly Sales doubled from 01.07.2014. GP Ratio was constant. 2. All Investments were sold on 31.05.2014. 3. Average Monthly Salary doubled from 01.10.2014. 4. The Company occupied additional space from 01.07.2014 for which rent of ` 20,000 per month was incurred. 5. Bad Debts Recovered amounting to ` 50,000 for a sale made in 2012, has been deducted from Bad Debts mentioned above. 6. Audit Fees pertains to the Company. Prepare a Statement apportioning the Expenses between Pre and Post Incorporation Periods and calculate the Profit/ Loss for such periods. Also suggest how the Pre–Incorporation Profits are to be dealt with. Solution: Similar to Page No.A.9.12, Q.No.10 [N 11]

1. Computation of Time Ratio and Sales Ratio Particulars Pre Inc. Period Post Inc. Period Total

(a) No. of Months = Time Ratio 01.04.2014 to 31.06.2014 01.07.2014 to 31.03.2015 = 3 months = 9 months 3 : 9 = 1 : 3 (b) Sales per Month Ratio (given) Say ` 1 × 3 Months ` 2 × 9 Overall Sales Ratio = 3 = 18 3 : 18= 1 : 6

(c) Rent for Addnl Premises (from 1st July) – 20,000 × 9 Months=` 1,80,000

(d) Balance Rent (` 5,50,000 – ` 1,80,000) distributed in 1 : 3 (Time Ratio) ` 92,500 ` 2,77,500

Total Rent Expense (c) + (d) ` 92,500 ` 4,57,500

(e) Salary Ratio Say ` 1×3 Months = 3 (` 1×3 Months + ` 2×6) = 15 3: 15 = 1: 5

2. Statement showing calculation of Profit / Losses for Pre and Post Incorporation Periods

Particulars Total Ratio Pre Incorpn. Post Incorpn.

Turnover (Apportioned in Sales Ratio) 2,40,00,000 1:6 34,28,571 2,05,71,429Add: Apportionment of Other Income Interest on Investments 6,00,000 6,00,000 – Bad Debts Recovered 50,000 50,000 – A. Total Income 2,46,50,000 40,78,571 2,05,71,429 B. Apportionment of Expenses Cost of Goods Sold 102,00,000 1:6 14,57,143 87,42,857 Advertisement Expenses 3,00,000 1:6 42,857 2,57,143 Sales Commission 6,00,000 1:6 85,714 5,14,286 Salary 18,00,000 1:5 3,00,000 15,00,000 Managing Directors Remuneration 6,00,000 Post – 6,00,000 Interest on Debentures 2,00,000 Post – 2,00,000 Rent (Note 1d) 5,50,000 92,500 4,57,500 Bad Debts 1,50,000 1:6 21,429 1,28,571 Underwriting Commission 2,00,000 Post – 2,00,000 Audit Fees 2,00,000 Post – 2,00,000 Loss on Sale of Investment 1,00,000 Pre 1,00,000 – Depreciation 4,00,000 1:3 1,00,000 3,00,000

Total Expenses 1,53,00,000 21,99,643 1,31,00,357C. Profit (A – B) 93,50,000 18,78,928 74,71,072

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.7  

3. Accounting Treatment: Pre–Incorporation Profit is transferred to Capital Reserve A/c. Alternatively, the amount may be set off against the Goodwill, if any, arising on acquisition of business. Question 3(b): Insurance Claims – Loss of Profits – Computation of Policy Amount 6 Marks M/s. Platinum Jewellers wants to take up a “Loss of Profit Policy” for the Year 2015. The Extract of the Profit and Loss Account of the previous year ended 31.12.2014 is provided below: Variable Expenses: Cost of Materials 18,60,000 Fixed Expenses: Wages for Skilled Craftsmen 1,60,000 Salaries 2,80,000 Audit Fees 40,000 Rent 64,000 Bank Charges 18,000 Interest Income 44,000 Net Profit 6,72,000 Turnover is expected to grow by 25% next year. To meet the growing Working Capital needs, the Partners have decided to avail Overdraft Facilities from their Bankers @ 12% p.a. interest. The Average Daily Overdraft Balance will be around ` 2 Lakhs. The Wages for the Skilled Craftsmen will increase by 20% and Salaries by 10% in the current year. All other expenses will remain the same. Determine the amount of policy to be taken up for the current year by M/s. Platinum Jewellers. Solution: Similar to Page No.A.5.16, Q.No.22 [N 01]

1. Trading and Profit and Loss Account for Previous Year Particulars ` Particulars `

To Variable Expenses 18,60,000 By Sales (balancing figure) 30,50,000To Fixed Expenses 5,62,000 By Miscellaneous Income 44,000 To Net Profit 6,72,000

Total 30,94,000 Total 30,94,000Note: Total Fixed Expenses = `1,60,000 + `2,80,000 + `40,000 + `64,000 + `18,000 = ` 5,62,000

2. Computation of Insurance Policy to be taken

Particulars `

Gross Profit (Sales ` 30,50,000 Less Variable Expenses ` 18,60,000) 11,90,000 Add: Additional GP at 25% of above 2,97,500 Add: Increasing Standing Charges Wages @ 20% of 1,60,000 32,000 Salaries @ 10% of 2,80,000 28,000 Interest on Overdraft @ 12% of 2,00,000 24,000 84,000 Policy to be taken for Current Year 15,71,500 Question 4: Financial Statements from Incomplete Records 16 Marks The following is the Balance Sheet of M/s Care Traders as on 01.04.2014:

Sources of Funds Amt in ` Application of Funds Amt in ` Share Capital 10,00,000 Machinery 8,25,500 Profit and Loss 1,47,800 Furniture 1,28,700 Unsecured Loan at 10% 1,75,000 Inventory 1,72.000 Trade Payables 45,800 Trade receivables 2,29,600

Bank balance 12,800 Total 13,68,600 13,68,600

A fire broke out in the premises on 31.03.2015 and destroyed the Books of Account. The Accountant could however provide the following information:

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.8  

1. Sales for the year ended 31.03.2014 was ` 18,60,000. Sales for the current year was 20% higher than the last year. 2. 25% Sales were made in cash and the balance was on credit. 3. Gross Profit on Sales is 30% 4. Terms of Credit: Debtors– 2 Months, Creditors – 1 month. All Creditors are paid by Cheque and all Sales are collected in

Cheque. 5. The Bank Pass Book has the following details (other than payment to Creditors and collection from Debtors)

Machinery purchased 1,14,000 Repairs 36,500 Rent paid 1,32,000 Sales of Furniture 9,500 Advertisement Expenses 80,000 Cash withdrawn for Petty Expenses 28,300 Travelling Expenses 78,400 Interest paid on Unsecured Loan 8,750

6. Machinery was purchased on 01.10.2014. 7. Rent was paid for 11 months only and 25% of the Advertisement Expenses relates to the next year. 8. Travelling Expenses of ` 7,800 for which Cheques were issued but not presented in bank. 9. Furniture was sold on 01.04.2014 at a loss of ` 2,900 on Book Value. 10. Physical Verification as on 31.03.2015 ascertained the Stock Position at ` 1,81,000 and Petty Cash Balance at Nil. 11. There was no change in Unsecured Loans during the year. 12. Depreciation is to be provided at 10% on Machinery and 20% on Furniture. Prepare Bank A/c, Trading and Profit & Loss A/c for the year ended 31.03.2015, in the books of M/s. Care Traders and a Balance Sheet as on that date. Make necessary assumptions wherever necessary. Solution: Similar to Page No.A.3.59 Q.No.36, [N 02] and other Illustrations in this Chapter

1. Computation of Gross Profit Particulars Computation `

(a) Sales for Current Year 18,60,000 + 20% 22,32,000 (b) Cash Sales 22,32,000 × 25% 5,58,000 (c) Hence, Credit Sales = Total Sales (–) Cash Sales 22,32,000 – 5,58,000 16,74,000 (d) Gross Profit = Sales × 30% 22,32,000 × 30% 6,69,600

2. Trading Account for the year ended 31st March Particulars ` Particulars `

To Opening Stock 1,72,000 By Sales (WN 1) 22,32,000 To Purchases (balancing figure) 15,71,400 By Closing Stock 1,81,000 To Gross Profit (30%) 6,69,600

Total 24,13,000 Total 24,13,000 

3. Computation of Debtors – Closing Balance

Closing Debtors = Credit Sales × 12

O/S Months of No.= ` 16,74,000 ×

122 = ` 2,79,000

4. Sundry Debtors Account (To find out Collections from Debtors)

Particulars ` Particulars `

To balance b/d 2,29,600 By Bank – Collection (balancing figure) 16,24,600To Credit Sales (WN 1) 16,74,000 By balance c/d (WN 3) 2,79,000

Total 19,03,600 Total 19,03,600

5. Computation of Creditors – Closing Balance

Closing Creditors = Credit Purchases ×12

O/S Months of No.= ` 15,71,400 ×

121 = ` 1,30,950

(Assumed that the entire Purchases is on Credit)

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.9  

6. Sundry Creditors Account (To find out Payments to Creditors) Particulars ` Particulars `

To Bank – Payment (balancing figure) 14,86,250 By balance b/d 45,800 To balance c/d (WN 5) 1,30,950 By Purchases – Credit (WN 2) 15,71,400

Total 16,17,200 Total 16,17,200

7. Machinery Account Particulars ` Particulars `

To balance b/d 8,25,500 By Depreciation (8,25,500 × 10%)+(1,14,000 × 10% × 6/12) 88,250 To Bank 1,14,000 By balance c/d 8,51,250

Total 9,39,500 Total 9,39,500Note: Alternatively, Depreciation can be assumed at 10% on Book Value irrespective of date of addition.

8. Furniture Account Particulars ` Particulars `

To balance b/d 1,28,700 By Bank (Sale Proceeds) 9,500 By Loss on Sale 2,900 By Depreciation (1,16,300 × 20%) (Note) 23,260 By balance c/d 93,040

Total 1,28,700 Total 1,28,700Note: Depreciation = 20% on (1,28,700 – 9,500 – 2,900) = 23,260

9. Bank Account Particulars ` Particulars `

To Balance b/d 12,800 By Creditors (WN 6) 14,86,250 To Debtors – Collections received (WN 4) 16,24,600 By Machinery 1,14,000 To Cash Sales (WN 1) 5,58,000 By Rent 1,32,000 To Furniture 9,500 By Advertisement 80,000

By Repairs 36,500 By Travelling (78,400 + 7,800) (Cheque issued) 86,200 By Petty Expenses 28,300 By Interest 8,750 By balance c/d (balancing figure) 2,32,900

Total 22,04,900 Total 22,04,900 

10. Profit & Loss Account for the year ended 31.03.2015 Particulars ` Particulars `

To Rent (11

1,32,000 × 12) 1,44,000 By Gross Profit 6,69,600

To Advertisement (80,000 × 75%) 60,000 To Travelling Expenses 86,200 To Loss on Sale of Furniture 2,900 To Depreciation (88,250 + 23,260) 1,11,510 To Repairs 36,500 To Petty Expenses 28,300 To Interest (1,75,000 × 10%) 17,500 To Net Profit (balancing figure) 1,82,690

Total 6,69,600 Total 6,69,600 By Opening Balance b/d 1,47,800 To Closing Balance c/d 3,30,490 By Net Profits for the year as above 1,82,690

Total 3,30,490 Total 3,30,490

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.10  

11. Balance Sheet as at 31stMarch Capital and Liabilities ` Properties and Assets `

Capital 10,00,000 Non–Current Assets: Profit & Loss Account 3,30,490 Machinery (WN 7) 8,51,250 Non – Current Liabilities: Unsecured Loan 1,75,000 Furniture (WN 8) 93,040 Current Liabilities: Current Assets: Sundry Creditors (WN 5) 1,30,950 Inventory 1,81,000 Rent Payable 12,000 Sundry Debtors (WN 3) 2,79,000 Interest Payable (17,500 – 8,750) 8,750 Bank 2,32,900 Advertisement Exp. paid in advance 20,000

Total 16,57,190 Total 16,57,190 Question 5(a): Hire Purchase Accounting – Cash Price, Repossession, Ledger A/cs 8 Marks Lucky bought 2 tractors from Happy on 01.10.2011 on the following terms:

Description ` Down Payment 5,00,000 1st Installment at the end of First Year 2,65,000 2nd Installment at the end of Second Year 2,45,000 3rd Installment at the end of Third Year 2,75,000 Interest is charged at 10% p.a Lucky provides Depreciation @ 20% on the Diminishing Balances. On 30.09.2014, 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 annually on written down basis. The balance amount remaining in the Vendor’s Account after 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 30th September

every year. Figures may be rounded off to the nearest Rupee. Solution: Similar to Page A.5.73 Q.No.2 [N 12], and Page A.5.80 Q.No.14 [M 90]

1. Statement of Cash Price of the Asset acquired on HP End of

Instalment Balance due after

Instalment Instalment

AmountCumulative

AmountInterest at 10%

p.a Paid for Principal

(1) (2) (3) (4) = (2) + (3)

(5) = (4) ×11010 (6) = (3) – (5)

3 Nil 2,75,000 2,75,000 25,000 2,50,000 2 2,50,000 2,45,000 4,95,000 45,000 2,00,000 1 4,50,000 2,65,000 7,15,000 65,000 2,00,000 0 6,50,000 5,00,000 11,50,000 NIL (Down Payment) 5,00,000 12,85,000 1,35,000 11,50,000

Thus, Cash Price of the Asset = ` 11,50,000.

2.Tractor A/c Date Particulars ` Date Particulars `

01.10.11 To Bank A/c(Down Payment) 5,00,000 30.09.12 By Depreciation (11,50,000× 20%) 2,30,000 01.10.11 To Happy A/c 6,50,000 30.09.12 By balance c/d 9,20,000

Total 11,50,000 Total 11,50,00001.10.12 To balance b/d 9,20,000 30.09.13 By Depreciation (9,20,000× 20%) 1,84,000

30.09.13 By balance c/d 7,36,000 Total 9,20,000 Total 9,20,000

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.11  

Date Particulars ` Date Particulars `

01.10.13 To balance b/d 7,36,000 30.09.14 By Depreciation (7,36,000× 20%) 1,47,200

30.09.14

By Happy (2

11,50,000 ×70%×70%×70%) 1,97,225

30.09.14 By Loss on takeover (bal. figure) or [(½ of 5,88,800) 2,94,400 – 1,97,225] 97,175

By balance c/d (½ of 5,88,800) 2,94,400 Total 5,88,800 Total 5,88,800

01.10.14 To balance b/d 2,94,400 30.09.15 By Depreciation (2,94,400 × 20%) 58,880 30.09.15 By balance c/d 2,35,520 Total 2,94,400 Total 2,94,400

Note: Computation of Takeover Value of Tractor

Particulars `

Cost of the Tractor (1 Tractor) 11,50,000 ÷ 2 5,75,000 Depreciation for Year 1 5,75,000 × 30% (1,72,500) Depreciation for Year 2 (5,75,000 – 1,72,500) = 4,02,500 × 30% (1,20,750) Depreciation for Year 3 (4,02,500 – 1,20,750) = 2,81,750 × 30% (84,525)

Takeover Value of Tractor 1,97,225

3.Happy A/c Date Particulars ` Date Particulars `

30.09.12 To Bank A/c 2,65,000 01.10.11 By Tractor A/c 6,50,000 30.09.12 To Balance c/d (bal.fig) 4,50,000 01.10.11 By Interest (6,50,000 × 10%) 65,000

Total 7,15,000 Total 7,15,00030.09.13 To Bank 2,45,000 01.10.12 By Balance b/d 4,50,000 30.09.13 To Balance c/d 2,50,000 01.10.12 By Interest 45,000

Total 4,95,000 Total 4,95,00030.09.14 To Tractor A/c (take over) 1,97,225 01.10.13 By Balance b/d 2,50,000 30.09.14 To Balance c/d 77,775 01.10.13 By Interest 25,000

Total 2,75,000 Total 2,75,00031.12.14 To Bank A/c 81,275 01.10.14 By balance b/d 77,775

31.12.14 By Interest (77,775×18%× 3/12) 3,500 Total 81,275 Total 81,275

Question 5(b): Accounting for Investments – Ex–Interest & Cum–Interest Transactions 8 Marks Mr. Chatur had 12% Debentures of Face Value ` 100 of M/s. Unnati Ltd as Current Investments. He provides the following details relating to the Investments. 01.04.2014 Opening Balance 4,000 Debentures costing `98 each 01.06.2014 Purchased 2,000 Debentures @ `120 cum Interest 01.09.2014 Sold 3,000 Debentures @ ` 110 cum interest 01.12.2014 Sold 2,000 Debentures @ ` 105 ex interest 31.01.2015 Purchased 3,000 Debentures @ ` 100 ex interest 31.03.2015 Market Value of the Investments ` 105 each Interest due dates are 30th June and 31st December. Mr. Chatur closes his books on 31.03.2015. He incurred 2% Brokerage for all his transactions. Show Investment Account in the Books of Mr. Chatur, assuming FIFO Method is followed. Solution: Similar to Page No.A.5.49, Q.No.2 [N 95]

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May 2015.12  

Investment in 12% Debentures of M/s Unnati Ltd A/c (in Chatur’s Books) Date Particulars ` FV ` Int. ` Cost Date Particulars ` FV ` Int. ` Cost

01.04.14 To bal. b/d 4,00,000 – (4,000×98) 3,92,000

30.06.14 Int recd

By Bank (WN 1b)

– 36,000 –

01.06.14 To Bank (WN 2)

2,00,000 10,000 2,34,800 01.09.14 By Bank (WN 3)

3,00,000 6,000 3,17,400

01.09.14 To P&L– Profit tfr

– – 23,400 01.12.14 By Bank (WN 3)

2,00,000 10,000 2,05,800

31.01.15 To Bank (100 + 2%)

3,00,000 3,000 3,06,000 01.12.14 By P&L–Loss transfer

– – 9,600

31.03.15 To P&L– Interest tfr

– 45,000 – 31.12.14 Int recd

By Bank (WN 1e)

6,000 –

31.03.15 By P&L (WN 4)

– – 3,400

31.03.15 By bal.c/d 4,00,000 – 4,20,000 Total 9,00,000 58,000 9,56,200 Total 9,00,000 58,000 9,56,200 Working Notes: 1.Computation of Interest @ 12% on various dates

Date Particulars FV (`)

Period (Months)

Interest Amount @ 12% p.a. (`)

(a) 01.06.2014 Interest on Cum–Interest Purchase (2,000 × 100) 2,00,000 5 10,000 (b) 30.06.2014 Interest received on Holding (4,00,000 + 2,00,000) 6,00,000 6 36,000 (c) 01.09.2014 Interest on Cum–Interest Sale (3,000 × 100) 3,00,000 2 6,000 (d) 01.12.2014 Interest on Ex–Interest Sale (2,000 × 100) 2,00,000 5 10,000 (e) 31.12.2014 Interest received on Holding (6,00,000 – 5,00,000) 1,00,000 6 6,000 (f) 31.01.2015 Interest on Ex–Interest Purchase (3,000 × 100) 3,00,000 1 3,000

2. Computation of Cost of Purchase Particulars `

Purchase Value (2,000 × 120 + Brokerage @ 2% of 2,40,000 ) 2,44,800 Less: Interest (WN 1a) (2,000 × 100 × 12% × 5/12 ) 10,000 Cost of Debentures 2,34,800 Cost per Debenture (2,34,800÷2,000) 117.40

3. Computation of Profit or (Loss) on Sale Particulars Cum Interest Sale 01.09.2014 Ex Interest Sale 01.12.2014

Sale Proceeds (3,000 × 110) – 2% Brokerage = 3,23,400

(2,000 × 105) – 2% Brokerage = 2,05,800

Less: Interest (for Cum Int Sale) (WN 1c) = 6,000 N.A Net Sale Proceeds 3,17,400 2,05,800 Less: Cost of Debentures Out of OB, i.e. (3,000 × ` 98) = 2,94,000 (On FIFO Basis) (1,000 × ` 98)+

(1,000 × ` 117.4) = 2,15,400 Profit / (Loss) on Sale Profit = 23,400 Loss = (9,600)

4. Valuation of Current Investments: • As on 31.03.15, Cost = ` 4,23,400, computed by balancing the A/c or [(1,000 × ` 117.40) + (3,000 × ` 102)]. • However, Market Value = 4,000 × ` 105 = 4,20,000, which is lower than cost. • Hence, Market Value is considered for Inventory Valuation. • Loss on Valuation (being Current Investments) is transferred to P&L. Question 6: Partnership Accounts – Admission cum Retirement – Final Accounts, Time Proportion Analysis 16 Marks A and B who carry on Partnership Business in the name of M/s. AB Ltd, closes their Firm’s account as on 31st March each year. Their Partnership agreement provides:

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.13  

(i) Profit & Loss sharing – A: 2/3 and B: 1/3. (ii) On Retirement or Admission of Partner:

(a) If the change takes place during any accounting year, such Partner’s Share of Profits or Losses for the period up to retirement or from admission, is to be arrived at, by apportionment on a time basis except otherwise stated for specific item(s).

(b) No account for Goodwill is to be maintained in the Firm’s books. (c) Any balance due to an Outgoing Partner is to carry interest @ 9% p.a. from the date of his retirement to the date

of payment. The Trial Balance of the Firm as on 31.03.2015 was as follows:

Particulars (Dr.) Amount ` (Cr.) Amount ` Capital Account A – 24,000 B – 12,000 C – Cash brought in on 30.09.2014 – 9,000 Plant and Machinery at cost 22,000 – Depreciation Provision up to 31.03.2014 – 4,400 Motor Car at Cost 30,000 – Depreciation Provision up to 31.03.2014 – 6,000 Purchases 84,000 – Stock as on 31.03.2014 15,500 – Salaries 18,000 – Debtors 5,400 – Sales – 1,20,000 Travelling expenses 800 Office Maintenance 1,200 Conveyance 500 Trade Expenses 1,000 – Creditors – 10,100 Rent and Rates 3,000 – Bad Debts 900 Cash in Hand and at Bank 3,200 –

Total 1,85,500 1,85,500 ‘A’ retired from the Firm on 30th September 2014 and on the same day ‘C’ an Employee of the Firm was admitted as Partner. Further, Profits or Losses shall be shared – B: 3/5 and C: 2/5. Necessary Accounting Entries adjustments were pending up to 31.03.2015. You are given the following further information: (i) The value of Firm’s Goodwill as on 30th September 2014 was agreed to `15,000. (ii) The Stock as on 31st March 2015 was valued at ` 18,550. (iii) Partner’s Drawings which are included in Salaries: A – ` 2,000, B ` 3,000 and C – ` 1,000. (iv) Salaries also includes ` 1,500 paid to C prior to his being admitted as a Partner. (v) Bad Debts of ` 500 related to the period upto 30th September 2014. (vi) As on 31st March 2015, Rent paid in Advance amounted to ` 600 and Trade Expenses accrued amounted to ` 250. (vii) Provision is to be made for Depreciation on Plant and Machinery and on Motor Car at the rate of 10% p.a. on cost. (viii) A Bad Debts provision, specially attributable to the second half of the year, is to be made @ 5% on Debtors as on 31st

March 2015. (ix) Amount payable to A on retirement remained unpaid till 31st March 2015. You are required to prepare: (a) Trading and Profit & Loss Account for the year ended 31st March 2015. (b) Partners’ Capital Account for the year ended 31st March 2015. (c) Balance Sheet as on that date.

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.14  

Solution: Similar to Page No.A.6.46, Q.No.34 [RTP]

1. Trading Account for the year ended 31st March 2015 Particulars ` Particulars `

To Opening Stock 15,500 By Sales 1,20,000 To Purchases 84,000 By Closing Stock 18,550 To Gross Profit c/d (balancing figure) 39,050

Total 1,38,550 Total 1,38,550

2. Profit and Loss Account for the year ended 31st March 2015

Particulars Upto 30.9.2014

1.10.14 to 30.9.2015 Particulars Upto

30.9.20141.10.14 to 30.9.2015

To Salaries [Note (a)] 6,750 5,250 By Gross Profit b/d 19,525 19,525 To Trade Expenses (1,000 + 250) 625 625 (Time Basis– 6 Months each) To Rent and Rates (3,000 – 600) 1,200 1,200 To Bad Debts(given) 500 400 To Provision for Doubtful Debts

(5% on 5,400) – 270

To Depreciation [Note (b)] 2,600 2,600 To Office Maintenance 600 600 To Conveyance 250 250 To Travelling Expenses 400 400 To Interest on A’s Loan – 1,638 To Net Profit (balancing figure) 6,600 6,292

Total 19,525 19,525 Total 19,525 19,525

Allocation of Expenses Note (a) Salary Note (b) Depreciation P&M Car

Particulars ` (a) Cost 22,000 30,000

As per Trial Balance 18,000 (b) Accum. Deprn upto 31.03.2014 4,400 6,000 Less: Partners Drawings (2,000 + 3,000 + 1,000) (6,000) (c) Deprn for 2014–2015 (on SLM) 2,200 3,000 Less: C’s Salary included in above (1,500) (d) Accum.Depreciation at year end 6,600 9,000

Total 10,500 (e) Net Book Value at year end 15,400 21,000 Hence, I Half II Half Total Depreciation 5,200 Time Basis 50% 5,250 5,250 (a) I Half 2,600 Add: C’s Salary (Direct) 1,500 – (b) II Half 2,600 Total 6,750 5,250

5. Partners’ Capital Account Particulars A B C Particulars A B C

To Drawings 2,000 3,000 1,000 By balance b/d 24,000 12,000 – To A’s Capital (Gw adjt) – 4,000 6,000 By Cash – – 9,000 To A’s Loan A/c – transfer 32,000 By B’s Capital (Gw adjt) 4,000 – – To balance c/d – 5,000 2,000 By C’s Capital (Gw adjt) 6,000 – –

Total 34,000 12,000 9,000 Total 34,000 12,000 9,000 By balance b/d – 5,000 2,000

To A’s Loan A/c – transfer 4,400 By P & L A/c (2:1) (I Half Year)

4,400 2,200 –

To balance c/d – 10,975 4,517 By P & L A/c (3:2) (II Half Year)

– 3,775 2,517

Total 4,400 10,975 4,517 Total 4,400 10,975 4,517

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.15  

Note: Adjustment for Goodwill is as under – Particulars A B C

(a) On Creation (2:1 Ratio) 10,000 (Cr.) 5,000 (Cr.) – (b) On Reversal (3:2 Ratio) – 9,000 (Dr.) 6,000 (Dr.)

Net 10,000 (Cr.) 4,000 (Dr.) 6,000 (Dr.)

7. A’s Loan A/c Particulars ` Particulars `

To balance c/d 38,038 By Transfer from Capital A/c (32,000 + 4,400) 36,400 By Profit and Loss A/c (36,400 × 9% × 6/12) 1,638

Total 38,038 Total 38,038

8. Balance Sheet as at 31st March 2015 Capital and Liabilities ` Properties and Assets `

Capital Accounts: Non–Current Assets: – B 10,975 Plant and Machinery (Cost) 22,000 – C 4,517 15,492 Less: Accumulated Depreciation (6,600) 15,400

Car (Cost) 30,000 Less: Accumulated Depreciation (9,000) 21,000 Non–Current Liabilities: Current Assets: A’s Loan A/c 38,038 Stock 18,550 Debtors 5,400 Current Liabilities: Less: Provn for Doubtful Debts (270) 5,130

Creditors 10,100 Cash and Bank 3,200 Trade Expenses Payable 250 Prepaid Rent 600

Total 63,880 Total 63,880 Question 7 (a): Accounting for Not–for–Profit Organisations 4 Marks From the following information of M/s. Officers Sports Club, (a Non–Profit Organization) calculate – (i) Total Cost of Sports Material Consumed in the Club, and (ii) Sale Value of Sports Material during the year 2014–15.

Particulars ` Opening Balance of Sports Material as on 01.04.2014 56,800 Closing Balance of Sports Material as on 31.03.2015 32,900 Sports Material purchased in Cash 23,500 Payment made to Creditors of Sports Material 64,300 Creditors for Sports Material Opening 23,200 Closing 29,400 Out of the Total Sports Material used during the year, 40% was consumed by the Club and the remaining was sold at a Profit of 20% on Cost. Solution: Similar to Page No. A.4.64 Q.No.39 (Working Notes 4,6) and Other Illustrations

1. Creditors for Sports Materials A/C Particulars ` Particulars `

To Bank – Payment 64,300 By balance b/d (Opening Balance) 23,200 To balance c/d (Closing Balance) 29,400 By Sports Materials Purchased (b/f) 70,500

Total 93,700 Total 93,700

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.16  

2. Sports Material Stock A/c Particulars ` Particulars `

To balance b/d (Opening Stock) 56,800 By Sports Materials Consumed (1,17,900× 40%) 47,160 To Purchases By Bank (Sale Proceeds of Sports Materials)

– Cash / Bank 23,500 Cost (1,17,900× 60%) = 70,740 + 20% Profit 84,888 – Credit (as above) 70,500 By balance c/d (Closing Stock) 32,900

To Profit on Sale of Sports Materials, transferred to Income & Expenditure A/c

14,148

Total 1,64,948 Total 1,64,948Note: Cost of Sports Materials Consumed & Sold = Opening Stock + Purchases (–) Closing Stock = (56,800 + 23,500 + 70,500 – 32,900) = ` 1,17,900 Question 7 (b): Average Due Date 4 Marks Form the following details, find out the Average Due Date:

Date of Bill Amount (`) Usance of Bill 29th January 2014 10,000 1 Months 20th March 2014 8,000 2 Months 12th July 2014 14,000 1 Months 10th August 2014 12,000 2 Months Solution: Similar to Page No.A.2.6, Q.No.8 [N 10]

Computation of Average Due Date (Note: Base Date = 03rd March) Bill Date Term Due Date No. of Days from Base Date Amt Product Col. (1) Col. (2) Col. (3) Col. (4) Col. (5) (6) = (4)×(5)

29th January 1 month 3rd Mar 0 10,000 0 20th March 2 months 23rd May 28 + 30 + 23 = 81 8,000 6,48,000 12nd July 1 month 14th Aug (15th Aug

= Public Holiday) 28 + 30 + 31 + 30 + 31+ 14 = 164 14,000 22,96,000

10th August 2 months 13th Oct 28 + 30+31+30+ 31 + 31+ 30 + 13 = 224 12,000 26,88,000 Total 44,000 56,32,000

Average Due Date = Base Date ± AmountsofTotalProductsofTotal

= 3rd March +44,000

56,32,000 = 3rd March + 128 days = 9th July 2014

Question 7 (c): AS–9 Revenue Recognition – Treatment in Special Cases – Sale of Goods 4 Marks Given the following information of M/s. Paper Products Ltd. (i) Goods of ` 60,000 were sold on 20.03.2015 but at the request of the Buyer these were delivered on 10.04.2015. (ii) On 15.01.2015 goods of ` 1,50,000 were sent on consignment basis of which 20% of the goods unsold are lying with the

consignee as on 31.03.2015. (iii) ` 1,20,000 worth of goods were sold on approval basis on 01.12.2014. The period of approval was 3 months after which

they were considered sold. Buyer sent approval for 75% goods up to 31.01.2015 and no approval or disapproval received for the remaining goods till 31.03.2015.

(iv) Apart from the above, the Company has made Cash Sales of ` 7,80,000 (Gross). Trade Discount of 5% was allowed on the Cash Sales.

You are required to advise the Accountant of M/s. Paper Products Ltd, with valid reasons, the amount to be recognized as Revenue in above cases under AS–9 and also determine the total revenue to be recognized for the year ending 31.03.2015.

Solution: Refer Page No. B.6.7 Para 3

Situation Treatment Revenue recognised

Goods Sold, delivery delayed at Buyer’s request

Revenue should be recognised notwithstanding that physical delivery has not been completed so long as there is every expectation that delivery will be made.

` 60,000

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.17  

Situation Treatment Revenue recognised

Consignment Sales Revenue on Consignment Sales is recognised only when goods are sold by the agent to a third party. Note: Cost of Stock with Consignee should be taken into account

80% × ` 1,50,000 = ` 1,20,000

Goods sold on approval basis

• Revenue should not be recognised until the time period for rejection has elapsed or where no time has been fixed, a reasonable time has elapsed.

• 3 Months period has elapsed for all goods. Hence, entire revenue should be recognised.

`1,20,000

Trade Discounts

Trade Discounts and Volume Rebates received do not fall within the definition of Revenue, since they represent a reduction of cost. Hence, these Discounts and Volume Rebates given should be deducted to determine revenue.

7,80,000 – 5% = ` 7,41,000

Total ` 10,41,000 Question 7 (d): Accounting Basics and E–Environment 4 Marks What factors are to be considered at the time of choosing an appropriate Accounting Software for an organization? Solution: Similar to Page No.A.1.8. Q.No. 7 M 08, N 09, N 11, M 13 1. Business Requirements: The Enterprise should identify its business requirements and try to match its requirement

with functionalities offered by different software providers. 2. Reports: Software which is able to provide all the requisite reports (both routine and exception reporting) in a format

understandable to the User, should be preferred. 3. Ease of Use: Software which is easier to use (both interface and performance–wise), should be considered. Software

which are very high on GUI may fall short on performance (speed) while handling high volume data. 4. Cost: Packages having more features cannot be opted because of the prohibitive high costs. 5. Support: Vendor Support is essential for any software. A Stable Vendor with reputation and good track record will

always be preferred. 6. Regular Updates: Software which is constantly updated should be preferred against those Software where Vendors

do not update their Software regularly. Question 7 (e): AS–10 Accounting for Fixed Assed – Determination of Cost 4 Marks M/s. Versatile Limited purchased Machinery for ` 4,80,000 (inclusive of excise duty of ` 40,000). CENVAT Credit is available for 50% of the duty paid. The Company incurred the following other expenses for installation.

Particulars ` Cost of Preparation of Site for Installation 21,000 Total Labour Charges (200 out of the total of 600 men hours worked, were spent for installation of the machinery) 66,000 Spare Parts and Tools consumed in Installation 6,000 Total Salary of Supervisor (time spent for installation was 25% of the total time worked) 24,000 Total Administrative Expenses (1/10 relates to the Plant Installation) 32,000 Test Run and Experimental Production Expenses 23,000 Consultancy Charges to Architect for Plant Setup 9,000 Depreciation on Assets used for the installation 12,000 The Machine was ready for use on 15.01.2015 but was used from 01.02.2015. Due to this delay further expenses of ` 19,000 were incurred. Calculate the value at which the Plant should be capitalized in the books of M/s. Versatile Limited. Solution:

Similar to Page No. B.7.5,Illus.No.17,18 [N 13] Also see Principles in Qn.16, 22, 23 of AS–10 Cost of Fixed Asset (i.e. Machine) is calculated as under –

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May 2015.18  

Particulars `

Purchase Price (` 4,80,000 less Excise Duty 40,000) 4,40,000

Add: Non – Refundable Duties 50% of Excise Duty where CENVAT credit not available = 50% of ` 40,000 20,000Site Preparation Cost 21,000

Labour Charges ` 66,000 × 600200

22,000

Spares and Tools in Installation 6,000Salary of Supervisor (24,000 × 25%) 6,000Admin Expense attributable to Installation (apportioned costs are excluded) NilTest Run & Experimental production (Indirect Element) 23,000Consultancy Charges to Architect for Plant setup 9,000Depreciation on Asset used for Installation 12,000Expenses due to delay in use (Excluded as it is abnormal) NilTotal Capitalized Cost of Asset 5,59,000

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.19  

Additional Questions for Practice – CA Inter (IPC) Group I Accounting Question 1: Chapter 3: Accounts from Incomplete Records RTP Mr. H had ` 1,65,000 in the Bank Account on 1.1.2014 when he started his business. He closed his accounts on 31st March 2015. His single entry books (in which he did not maintain any account for the bank) showed his position as follows: (Amt in `)

Particulars 31.3.2014 31.3.2015 Cash in Hand 1,100 1,650 Stock in Trade 10,450 15,950 Debtors 550 1,100 Creditors 2,750 1,650 On and from 1.2.2014, he began drawings ` 385 per month for his Personal Expenses from the Cash Box of the business. His account with the bank had the following entries:

Particulars Deposits Withdrawals 1.1.2014 1,65,000 – 1.1.2014 to 31.3.2014 1,22,650 1.4.2014 to 31.3.2015 1,26,500 1,48,500 The above withdrawals included payment by cheque of ` 1,10,000 and ` 33,000 respectively during the period from 1.1.2014 to 31.3.2014 and from 1.4.2014 to 31.3.2015 respectively for the purchase of Machineries for the business. The deposits after 1.1.2014 consisted wholly of sale price received from the customers by cheques. Draw up Mr. H’s Statement of Affairs as at 31.3.2014 and 31.3.2015 respectively and work out his Profit or Loss for the year ended 31.3.2015. Solution: 1. Statement of Affairs as on 31st March 2014

Liabilities ` Assets `

Capital (balancing figure) 1,61,700 Machinery 1,10,000 Sundry Creditors 2,750 Stock 10,450 Debtors 550 Cash at bank (1,65,000 – 1,22,650) 42,350 Cash in hand 1,100

Total 1,64,450 Total 1,64,450

2. Statement of Affairs as on 31st March 2015 Liabilities ` Assets `

Capital (Balancing figure) 1,80,400 Machinery (1,10,000 + 33,000) 1,43,000 Sundry Creditors 2,750 Stock 15,950 Debtors 1,100 Cash at Bank (OB. 42,350 + 1,26,500 – 1,48,500) 20,350 Cash in hand 1,650

Total 1,82,050 Total 1,82,050

3.Profit and Loss for the Period

Particulars 1.1.2014 to 31.3.2014

(3 Months) 1.1.2014 to 31.3.2015

(12 Months)

Closing Capital as per Statement of Affairs above 1,61,700 1,80,400 Add: Drawings (From Feb 2014) 2 × 385 = 770 12 × 385 = 4,620 1,62,470 1,85,020 Less: Opening Capital At Bank = 1,65,000 1,61,700 Profit / (Loss) Loss (2,530) Profit 23,320

Gurukripa’s Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

May 2015.20  

Question 2: Chapter 4: Financial Statements of Not–For–Profit Organizations RTP From the following information, prepare Opening and Closing Balance Sheet of a Club:

Particulars 31st March 2015 31st March 2016 Building (subject to 10% Depreciation for the current year) 60,000 ? Furniture (subject to 10% Depreciation for the current year) – 20,000 Stock of Sports Materials 5,000 2,000 Prepaid Insurance 3,000 6,000 Outstanding Subscription 12,000 8,000 Advance Subscription 6,000 4,000 Outstanding Locker Rent 6,000 Advance Locker Rent received – 2,000 Outstanding Rent for Godown 6,000 3,000 12% General Fund Investments 2,00,000 2,00,000 Accrued Interest on above – 4,000 Cash Balance 1,000 64,000 Bank Balance 2,000 – Bank Overdraft 2,000 Entrance Fees received ` 20,000, Life Membership Fees received ` 20,000, Surplus from Income & Expenditure A/c ` 60,000. It is the policy of the club to treat 60% of Entrance Fees and 40% of Life Membership Fees as of revenue nature. The Furniture was purchased on 1st April 2015. Solution: Balance Sheet as at 31st March 2015

Liabilities ` Assets `

Capital Fund (Balancing Figure) 2,71,000 Non – Current Assets: Building 60,000 Current Liabilities: O/s Rent for Godown 6,000 Current Assets: Stock of Sports Materials 5,000 Advance Subscription 6,000 Prepaid Insurance 3,000 Outstanding Subscription 12,000 Bank Balance 2,000 Cash Balance 1,000

Total 2,83,000 Total 2,83,000

Balance Sheet as at 31st March 2016 Liabilities ` Assets `

Capital Fund: Non–Current Assets : Opening Balance 2,71,000 Building: Cost 60,000 less Deprn (6,000) 54,000 Add: Entrance Fees [` 20,000 x 40%] 8,000 Furniture: Cost 20,000 less Deprn (2,000) 18,000

Add: Life Membership Fees [` 20,000x60%] 12,000 12% General Fund Invts (assumed LT) 2,00,000 Add: Surplus 60,000 Current Assets:

Closing Balance of Capital Fund 3,51,000 Stock of Sports Materials 2,000 Current Liabilities: Prepaid Insurance 6,000 Outstanding Rent 3,000 Outstanding Subscription 8,000 Advance Subscription 4,000 Outstanding Locker Rent 6,000                Advance Locker Rent 2,000 Accrued Interest on 12% GF Invts 4,000 Bank Overdraft 2,000 Cash Balance 64,000

Total 3,62,000 Total 3,62,000 Question 3: Chapter 5: Accounting for Hire –Purchase Transactions RTP (a) On 1.1.2013 Shaan Ltd purchased a Machine on hire purchase basis. The terms of agreement provided for 40% as cash

down payment and the balance in three instalments of ` 1,63,000 on 31.12.2013, ` 1,20,000 on 31.12.2014 and ` 1,10,000 on 31.12.2015. The rate of interest charged by the Vendor is 10% p.a. compound annually.

You are required to calculate the Cash Price and Periodic Interest charged by the Hire Vendor.

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(b) On 1.1.2012, Beeta Ltd purchased a Machine from Yama Ltd on hire purchase basis. The terms of agreement provided for 40% as cash down payment and the balance in three instalment of ` 1,30,000 on 31.12.2012, ` 1,42,000 on 31.12.2014 and `1,10,000 on 31.12.2015. The rate of interest charged by the vendor is 10% p.a. compounded annually. You are required to calculate the Cash Price when 2nd instalment is payable after two years.

Solution: Case (a) Statement Showing the Computation of Cash Price and Periodic Interest End of

Instalment No. Balance due after

InstalmentInstalment

AmountCumulative Instalment

Interest at 10% p.a

Paid for Principal

(1) (2) (3) (4) = (2) + (3) (5) = (4) × 11010

(6) = (3) – (5)

3 NIL 1,10,000 1,10,000 10,000 1,00,000 2 1,00,000 1,20,000 2,20,000 20,000 2,00,000 1 2,00,000 1,63,000 3,63,000 33,000 3,30,000 0 3,30,000 – 3,30,000 30,000 3,00,000

Let Cash Price be X. So, X = ` 3,00,000 + 40% of X

0.6 X = ` 3,00,000 So, X = 0.6

3,00,000= ` 5,00,000 Cash Price = ` 5,00,000

Case (b): Statement Showing the Computation of Cash Price and Periodic Interest

End of Instalment No.

Balance due after Instalment

Instalment Amount

Cumulative Instalment

Interest at 10% p.a

Paid for Principal

(1) (2) (3) (4) = (2) + (3) (5) = (4) × 11010

(6) = (3) – (5)

3 Nil 1,10,000 1,10,000 10,000 1,00,000 2 1,00,000 1,42,000 2,42,000 22,000 2,20,000 2,20,000 – 2,20,000 20,000 2,00,000 1 2,00,000 1,30,000 3,30,000 30,000 3,00,000

Let Cash Price be X. So, X = ` 3,00,000 + 40% of X

0.6 X = ` 3,00,000 So, X = 0.6

3,00,000= ` 5,00,000 Cash Price = ` 5,00,000

Question 4: Chapter 6: Partnership Accounts – Basics RTP R and G are Partners sharing Profits and Losses in the ratio of 3:2 after allowing ` 1,000 p.m. Salary for each Partner. However, the accounts have not been prepared for the last three years. From the following details, you are required to calculate the distribution of profits between the Partners in total for the three years.

Particulars ` Particulars ` Assets as at the end of 3rd year 1,60,000 Capital on commencement: Liabilities as at the end of 3rd year 40,000 R 50,000 Drawings for three years in addition to Salaries: G 40,000 R 30,000 Introduction of fresh capital during three years G 22,000 R 10,000

Solution: 1. Computation of Profits for 3 years Particulars ` `

Assets at the end of the 3rd year 1,60,000 Less: Liabilities at the end of the 3rd year (40,000) 1,20,000 Add: Drawings including Partnership Salary: R [30,000 + (1,000 x 12 x 3)] 66,000 G [22,000 + (1,000 x 12 x 3)] 58,000 1,24,000 2,44,000 Less: Opening Capital: R 50,000 G 40,000 (90,000) 1,54,000 Less: Introduction of Capital by R (10,000) Net Profit 1,44,000

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2. Profit and Loss Appropriation Account for 3 years Particulars ` Particulars `

To Partner’s Salary: R (1,000 x 12 x 3) 36,000 By Net Profit for three years 1,44,000 G (1,000 x 12 x 3) 36,000 To Share of Profit: R 43,200 G 28,800 72,000

Total 1,44,000 Total 1,44,000 Question 5: Chapter 6: Partnership Accounts – Basics RTP T and W are equal Partners in Timber Business. The Balance Sheet of their Firm as on 31st March 2015 was as under:

Liabilities ` Assets ` Capital Accounts: T 1,60,000 Fixed Assets 2,50,000 W 1,60,000 Stocks 65,200 Creditors & Other Payables 50,000 Cash & Bank 54,800

Total 3,70,000 Total 3,70,000 On 1st April 2015, P is admitted as an equal partner. Prior to his admission, the Partners agreed to bring into the books of the Firm, Stocks worth ` 80,000 that was received free of cost from a Business Associate. Consequent to P’s entry into the Firm the Capital Base of the Firm was expanded to ` 6 Lakhs with all the Partners agreeing to adopt the proportionate capital principle. P brought in the agreed sum of ` 2,80,000 (` 2,00,000 towards Capital and ` 80,000 towards his share of Goodwill). The Partners decided not to raise Goodwill in the books of accounts.

You are requested to show Capital Accounts of the three Partners and the Balance Sheet of the Firm as on 1st April 2015. Solution: 1. Partners’ Capital Accounts (Amount in `)

Particulars T W P Particulars T W P To T & W (Goodwill) – – 80,000 By balance b/d 1,60,000 1,60,000 – To Bank (for cap Adjt.) 40,000 40,000 – By Bank – – 2,80,000 To Balance c/d 2,00,000 2,00,000 2,00,000 By P (Goodwill) 40,000 40,000 – By Stock A/c 40,000 40,000 –

Total 2,40,000 2,40,000 2,80,000 Total 2,40,000 2,40,000 2,80,000

2. Balance Sheet of M/s T, W & P as on 1st April 2015 Liabilities ` Assets `

Capital Accounts: T 2,00,000 Fixed Assets 2,50,000 W 2,00,000 Stocks (65,200 + 8,00,000) 1,45,200 P 2,00,000 Cash & Bank (54,800 + 2,80,000 – 80,000) 2,54,800 Creditors & Other Payables 50,000

Total 6,50,000 Total 6,50,000 Question 6: Chapter 8: Final Accounts of Companies RTP Futura Ltd had the following items under the head “Reserves and Surplus” in the Balance Sheet as on 31st March: Amount ` in Lakhs Securities Premium Account 80 Capital Reserve 60 General Reserve 90 The Company had an Accumulated Loss of ` 250 Lakhs on the same date, which it has disclosed under the head “Statement of Profit and Loss” as Asset in its Balance Sheet. Comment on accuracy of this treatment in line as per Schedule III.

Solution: 1. Principle:

(a) As per Note 6 (B) Part I of Schedule III, Debit Balance of Statement of Profit and Loss (after all allocations and appropriations) shall be shown as a negative figure under the head ‘Surplus’.

(b) Similarly, the balance of ‘Reserves and Surplus’, after adjusting negative balance of Surplus, shall be shown under the head ‘Reserves and Surplus’ even if the resulting figure is in the negative.

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2. Analysis and Conclusion: (a) Here, the Debit Balance of Profit and Loss i.e. ` 250 Lakhs exceeds the total of all the Reserves, i.e. ` 230 Lakhs. (b) So, balance of ‘Reserves and Surplus’ after adjusting Debit Balance of Profit and Loss, is negative by ` 20 Lakhs,

which should be disclosed under Reserves and Surplus as a negative item. (c) Thus the treatment given by the Company is incorrect.

Question 7: AS – 2 “Inventories” RTP A Company had 5,000 units of Stock “A”, costing ` 50 each on 31st March. Out of this Stock, 3,000 units are to be supplied under a firm contract at ` 45 each. Show how the valuation will be done of such stock when – (i) the General Selling Price is ` 49 each. (ii) the General Selling Price is ` 52 each.

Solution: Valuation of Stock as on 31st March Quantity When General Selling Price = ` 49 pu When General Selling Price = ` 52 pu

3,000 units (Firm Contract) Least of ` 50 Cost vs ` 45 NRV, so ` 45 pu Least of ` 50 Cost vs ` 45 NRV, so ` 45 pu 2,000 units (Balance Qtty) Least of ` 50 Cost vs ` 49 NRV, so ` 49 pu Least of ` 50 Cost vs ` 52 NRV, so ` 50 pu Total Value of Inventory (3,000×` 45)+(2,000×` 49) = ` 2,33,000 (3,000×` 45)+(2,000×` 50) = ` 2,35,000 Question 8: AS – 10 Fixed Assets RTP X Ltd purchased ` 5 Lakhs worth of land for a Factory Site. The Company demolished an old building on the property and sold the material for ` 10,000. Company incurred additional cost and realized salvaged proceeds during the period as follows:

Legal Fees for Purchase Contract and recording ownership ` 25,000 Title Guarantee Insurance ` 10,000 Cost for Demolition of Building ` 50,000

Compute the balance to be shown in the Land Account in Balance Sheet on 31st March. Solution: Cost of Land = 5,00,000 + Legal Fees 25,000 + Title Insurance 10,000 + Net Cost of Demolition 50,000

less Salvage Value (10,000) = Total ` 5,75,000 Question 9: AS – 13 Investments RTP X Ltd on 1–1–2015 had made an investment of ` 600 Lakhs in the Equity Shares of Y Ltd, of which 50% is made in the long– term category and the rest as Temporary Investment. The Realizable Value of all such investment on 31–3–2015 became ` 200 Lakhs as Y Ltd lost a case of copyright. How will you recognize the reduction in Financials for the year ended on 31–3–2015?

Solution: 1. Classification: Irrespective of the fact that Investment has been held by X Limited only for 3 months (from 1.1.2015

to 31.3.2015), AS – 13 lays emphasis on intention of the Investor to classify the investment as Current or Long Term even though the Long Term Investment may be readily marketable. Hence, it is appropriate to classify the above into Long – Term (Non–Current) & Temporary (Current) Investment.

2. Valuation: In the given case, the realizable value of all such investments on 31.3.2015 became ` 200 Lakhs i.e. ` 100

Lakhs each for Current Investment and Long Term Investment. The treatment is as under – Nature Long Term Temporary

Valuation Cost, adjusted for permanent decline in value, if any. Lower of Cost or Market Value

Accounting Treatment

(a) Here, Y Limited lost a case of copyright which has drastically reduced the realizable value of its Shares to one third. Losing the case of copyright may affect its business and performance.

(b) So, it will be appropriate to reduce the Carrying Amount of Long Term Investment by ` 200 Lakhs and shown the Investments at ` 100 Lakhs, considering the downfall in the value of Shares as decline other than temporary.

(c) The reduction of ` 200 Lakhs in the Carrying Value of Long Term Investment will be debited in the Statement of Profit & Loss.

(a) Temporary Investments should be shown at Realizable Value, i.e. ` 100 Lakhs.

(b) The reduction of ` 200 Lakhs in the Carrying Value of Current Investment will be debited in the Statement of Profit and Loss.

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