Financial Accounts Concept

1.
BRANCH ACCOUNTING INCLUDING FOREIGN BRANCH
Debtors System
Stock and Debtors System
Final Accounts System
Foreign Branch
Q1: Debtors System: 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. 10,000 necessary for
meeting immediate requirements of cash. On 31st March, 2000 the assets at the branch were as follows:
Rs. (‘000)
Cash in Hand 10
Trade Debtors 384
Stock, at Invoice Price 1,080
Furniture and Fittings 500
During the accounting year ended 31st March, 2001 the invoice price of goods dispatched by the head
office to the branch amounted to Rs. 1 crore 32 lakhs. 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 9,700
Credit Sales 3,140
Cash collected by Branch from Credit Customers 2,842
Cash Discount allowed to Debtors 58
Returns by Customers 102
Bad Debts written off 37
Expenses paid by Branch 842
On 1st 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. 6,000 were outstanding and cash in hand was
again Rs. 10,000. Furniture is subject to depreciation @ 16% per annum on diminishing balance method.
Prepare Branch Account in the books of head office for the year ended 31.3.01.
A:
In the Head Office Books Branch Account
for the year ended 31st March, 2001
Dr. Cr.
Rs. ‘000 Rs.’000
To Balance b/d By Balance b/d
Cash in hand 10 Stock reserve Rs. 1,080 ×1/6 180
Trade debtors 384 By Goods sent to branch A/c 72
Stock 1,080 (Returns to H.O.)
Furniture and fittings 500 By Goods sent to branch A/c 2,188
To Goods sent to branch A/c 13,200 (Loading on net goods sent
To Bank A/c (Payment for furniture) 100 to branch –(Rs. 13,128 × 1/6)
To Balance c/d By Bank A/c
Stock reserve (Rs.1,470 ×1/6) 245 (Remittance (BO to HO) 11,700
Outstanding expenses 6 By Balance c/d
To Profit and loss A/c 1,096 Cash in hand 10
(Net Profit) Trade debtors 485
Stock 1,470
Furniture and fittings 516
16,621 16,621
Working notes :
1. Invoice price and cost
Singar Academy: [CA-ICWA-ACS] M: Trichy: 93451 22645/Chennai: 9841971881 1
Let cost be 100
So, invoice price 120
Loading 20
Loading : Invoice price = 20 : 120 = 1 : 6
2. Invoice price of closing stock in branch stock account
Rs. ‘000 Rs. ‘000
To Balance b/d 1,080 By Goods sent to branch 72
To Goods sent to branch 13,200 By Branch Cash 9,700
To Branch debtors 102 By Branch debtors 3,140
By Balance c/d 1,470
14,382 14,382
3. Closing balance of branch debtors
Branch Debtors Account
Rs. ‘000 Rs. ‘000
To Balance b/d 384 By Branch branch 2,842
To branch stock 3,140 By Branch expenses discount 58
By Branch stock (Returns) 102
By Branch expenses
(Bad debts) 37
By Balance b/d 485
3,524 3,524
4. Closing balance of furniture and fittings
Branch Furniture and Fittings Account
Rs. ‘000 Rs. ‘000
To Balance b/d 500 By Depreciation (80+4) 84
To Bank 100 By Balance c/d 516
600 600
5. Remittance by branch to head office
Branch Cash Account
Rs. ‘000 Rs. ‘000
To Balance b/d 10 By Branch expenses 842
To Branch stock 9,700 By Remittances to H.O. 11,700
To Branch debtors 2,842 By Balance b/d 10
12,552 12,552
Q2: Stock and Debtors System: Concept & Co., with its Head Office at Mumbai has a branch at
Nagpur. Goods are invoiced to the Branch at cost plus 33 1/3%. The following information is given
in respect of the branch for the year ended 31 st March, 2006:
Rs.
Goods sent 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 dishonoured 5,000
Stock at Branch on 31.3.2006 (Invoice price) 48,000
Branch debtors balance on 31.3.2006 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. (16 Marks) (PE-II – May 2006)
Answer
In the books of head office
Nagpur Branch Stock Account
Rs. Rs.
To Balance b/d 24,000 By Bank A/c 1,80,000
(Cash Sales)
To Goods sent to Branch 4,80,000 By Branch Debtors (Credit Sales) 2,80,000
To Branch Debtors 6,000 By Stock shortage:
Branch P&L A/c 1,500*
Br. Adj. A/c (Loading) 500 2,000
5,10,000 5,10,000
Nagpur Branch Debtors Account
To Balance b/d 30,000 By Bank A/c (Collection) 2,70,000
To Bank (dishonour of cheques) 5,000 By Branch Stock A/c 6,000
To Branch Stock A/c 2,80,000 By Bad debts 1,500
*
By Discount allowed 1,000
3,15,000 3,15,000
Nagpur Branch Adjustment Account
To Branch Stock (loading of loss) 500* By Stock Reserve A/c 6,000
To Stock Reserve 12,000 By Goods sent to Branch A/c 1,20,000
To Gross Profit c/d 1,13,500
1,26,000 1,26,000
To Branch Stock A/c (Cost of 1,500 By Gross Profit b/d 1,13,500
loss)
To Branch Expenses 56,000
To Net Profit (Tr to P & L A/c)
56,000
1,13,500 1,13,500
*Balancing figure.
Working Notes:
1. The balancing figure of Branch Debtors Account is taken as credit sales
1
2. Loading is 33 3 % on Cost: Loading on opening stock = 24,000  25% = 6,000
3. Loading on goods sent = 4,80,000  25% = Rs.1,20,000
4. Loading on Closing Stock = Rs.48,000  25% = Rs.12,000
5. Total Branch Expenses = Cash expenses + Bad debt + Discount allowed
= Rs.53,500 + Rs.1,500 + Rs.1,000 = Rs.56,000
6. Gross Profit: (Total sales - Returned by customers) X 33.33/133.33
33.33
{(Rs. 1,80,000+ Rs. 2,80,000)- Rs. 6,000} x 133.33 = Rs. 1,13,500
Q3: Adjustment entry for inter-branch transfer
Show adjustment Journal entry in the books of Head Office at the 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:
(1) Received goods from Mumbai – Rs. 35,000 and Rs. 15,000 from Kolkata.
(2) Sent goods to Chennai – Rs. 25,000, Kolkata – Rs. 20,000.
(3) Bill Receivable received – Rs. 20,000 from Chennai.
(4) Acceptances sent to Mumbai – Rs. 25,000, Kolkata – Rs. 10,000.
B. Mumbai Branch (apart from the above):
(5) Received goods from Kolkata – Rs. 15,000, Delhi – Rs. 20,000.
(6) Cash sent to Delhi – Rs. 15,000, Kolkata – Rs. 7,000.
C. Chennai Branch (apart from the above):
(7) Received goods from Kolkata – Rs. 30,000.
(8) Acceptances and Cash sent to Kolkata – Rs. 20,000 and Rs. 10,000 respectively.
D. Kolkata Branch (apart from the above):
(9) Sent goods to Chennai – Rs. 35,000.
(10) Paid cash to Chennai – Rs. 15,000.
(11)Acceptances sent to Chennai – Rs. 15,000.
A: Journal entry in the books of Head Office

Date Particulars Dr. Cr.
Rs. Rs.
30.4.0 Mumbai Branch Account Dr 3,000
3
Chennai Branch Account Dr 70,00
0
To Delhi Branch Account 15,000
To Kolkata Branch Account 58,000
Working Note:
Inter – Branch transactions
Delhi Mumbai Chennai Kolkata
Rs. Rs. Rs. Rs.
A. Delhi Branch
(1) Received goods 50,000 (Dr.) 35,000 (Cr.) 15,000 (Cr.)
(2) Sent goods 45,000 (Cr.) 25,000 (Dr.) 20,000 (Dr.)
(3) Received Bills receivable 20,000 (Dr.) 20,000 (Cr.)
(4) Sent acceptance 35,000 (Cr.) 25,000 (Dr.) 10,000 (Dr.)
B. Mumbai Branch
(5) Received goods 20,000 (Cr.) 35,000 (Dr.) 15,000 (Cr.)
(6) Sent cash 15,000 (Dr.) 22,000 (Cr.) 7,000 (Dr.)
C. Chennai Branch
(7) Received goods 30,000 (Dr.) 30,000 (Cr.)
(8) Sent cash and 30,000 (Cr.) 30,000 (Dr.)
acceptances
D. Kolkata Branch
(9) Sent goods 35,000 (Dr.) 35,000 (Cr.)
(10 Sent cash 15,000 (Dr.) 15,000 (Cr.)
)
(11 Sent acceptances _________ _________ 15,000 (Dr.) 15,000 (Cr.)
) _
15,000 (Cr.) 3,000 (Dr.) 70,000 (Dr.) 58,000 (Cr.)

Q4: Adjustment entries for branch a/c:
Give Journal Entries in the books of Branch A to rectify or adjust the following:
(i) HO expenses Rs. 3,500 allocated to the Branch, but not recorded in the Branch Books.
(ii) Depreciation of branch assets, whose accounts are kept by the HO not provided earlier for Rs.
1,500.
(iii) 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.
(iv) 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.
(v) A remittance of Rs. 15,000 sent by the Branch has not yet been received by the H.O.
(vi) Branch A incurred advertisement expenses of Rs. 3,000 on behalf of Branch B.
(6 marks) (PE-II–Nov. 2004)
Books of Branch A
Journal Entries
Particulars Dr./Rs. Cr./Rs.
(i) Expenses account Dr. 3,500
To Head office account 3,500
(ii) Depreciation account Dr. 1,500
To Head office account 1,500
(iii Head office account
Dr. 2,000
)
To Salaries account 2,000
(iv) Head office account Dr. 10,000
To Debtors account 10,000
(v) No entry in branch books
(vi) Head Office account Dr. 3,000
To Cash account 3,000
Q5: Final A/c System: 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
Rent 10
Advertising 6
Telephone, Postage and Stationery 3
Sundry Office Expenses 1
Stock on 1st April, 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 despatched
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 lac for centralised services for which the branch has not 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. (16 marks) (Intermediate–May 2002)
A:
(i) Books of Branch - Journal Entries
(Rs. in lacs)
Dr. Cr.
Goods in Transit A/c Dr. 10
To Head Office A/c 10
Expenses A/c Dr. 1
To Head Office A/c 1
(ii) Trading and Profit & Loss Account of the Branch

Rs. in lacs Rs. in lacs
To Opening Stock 60 By Sales 360
To Goods received from By Closing Stock 62
Head Office 288
Less: Returns 5 283
To Carriage Inwards 7
To Gross Profit c/d 72
422 422
To Salaries 25 By Gross Profit b/d 72
To Depreciation on Furniture 2
To Rent 10
To Advertising 6
To Telephone, Postage & Stationery 3
To Sundry Office Expenses 1
To Head Office Expenses 1
To Net Profit Transferred to HO 24
72 72
Balance Sheet as on 31st March, 2000
Liabilities Rs. in lacs Assets Rs. in lacs
Head Office 80 Furniture & Equipment 20
Add : Goods in transit 10 Less : Depreciation 2 18
Head Office Stock in hand 62
Expenses 1 Goods in Transit 10
Net Profit 24 Debtors 20
115 Cash at bank and in hand 8
Outstanding Expenses 3
118 118
(iii) Books of Head Office Journal Entries

Rs. Rs.
Dr. Dr.
Branch Trading Account Dr. 355
To Branch Account 355
(The total of the following items in branch trial
balance debited to branch trading account
Rs. in lacs

Opening Stock 60
Goods received from Head Ofice 288
Carriage Inwards 7)
Branch Account Dr. 427
To Branch Trading Account 427
(Total sales, closing stock and goods returned to
HO credited to branch trading account, individual
amounts being as follows:
Rs. in lacs
Sales 360
Closing Stock 62
Goods returned to Head Office 5)
Branch Trading Account Dr. 72
T0 Branch Profit and Loss Account 72
(Gross profit earned by branch credited to
Branch Profit and Loss Account)
Branch Profit and Loss Account Dr. 48
To Branch Account 48
(Total of the following branch expenses debited
to Branch Profit & Loss Account
Rs. in lacs
Salaries 25
Rent 10
Advertising 6
Telephone, Postage & Stationery 3
Sundry Office Expenses 1
Head Office Expenses 1
Depreciation on furniture &
Equipment 2
Branch Profit & Loss Account Dr. 24
To Profit and Loss Account 24
(Net profit at branch credited to (general)
Profit & Loss A/c)
Branch Furniture & Equipment Dr. 18
Branch Stock Dr. 62
Branch Debtors Dr. 20
Branch Cash at Bank and in Hand Dr. 8
Goods in Transit Dr. 10
To Branch 118
(Incorporation of different assets at the branch
in H.O. books)
Branch Dr. 3
To Branch Outstanding Expenses 3
(Incorporation of Branch Outstanding
Expenses in H.O. books)
Q6: Final A/c System: M/s Shah & Co. commenced business on 1.4.2004 with Head Office at Mumbai
and a Branch at Chennai. Purchases were made exclusively by the Head Office, where the goods were
processed before sale. There was no loss or wastage in processing. Only the processed goods received
from Head Office were handled by the Branch. The goods were sent to branch at processed cost plus
10%. All sales, whether by Head Office or by the Branch, were at uniform gross profit of 25% on their
respective cost.
Following is the Trial Balance as on 31.3.2005.
Head Office Branch
Dr. Cr. Dr. Cr.

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 9,24,000
Administrative expenses 1,39,000 15,000
Selling expenses 50,000 6,200
Debtors 3,09,600 1,13,600
Branch Current account 3,89,800
Creditors 6,01,400 10,800
Bank Balance 1,52,000 77,500
Head Office Current account 2,61,500
Goods received from H.O. ________ ________ 8,80,000 ________
31,15,400 31,15,400 10,92,300 10,92,300
Following further information is provided:
(i) Goods sent by Head Office to the Branch in March, 2005 of Rs. 44,000 were not received by
the Branch till 2.4.2005.
(ii) A remittance of Rs. 84,300 sent by the Branch to Head Office was also similarly not received
upto 31.3.2005.
(iii) Stock taking at the Branch disclosed a shortage of Rs. 20,000 (at selling price).
(iv) Cost of unprocessed goods at Head Office on 31.3.2005 was Rs. 1,00,000.
Prepare Trading and Profit and Loss account in columnar form and Balance Sheet of the business as a
whole as at 31.3.2005. (16 Marks) (PE-II – Nov. 2006)
A: In the Books of Shah & Co.
Trading and Profit and Loss Account for the year ended 31st March, 2005
Particulars H.O. Branch Total H.O. Branch Total
Rs. Rs. Rs. Rs. Rs. Rs.
Purchases 19,69,50  19,69,50 Sales 12,80,00 8,20,000 21,00,000
0 0 0
Cost of 50,500  50,500 Goods sent to 9,24,000  
processing Branch
Goods Stock shortage  16,000 14,545
received
from H.O.  8,80,000  Goods in 44,000
transit
Gross profit 3,40,000 1,64,000 5,02,545 Closing stock:
c/d
Processed 56,000 2,08,000 2,64,000
goods
_______ ________ _______ Unprocessed 1,00,000  1,00,000
_ _ goods
23,60,00 10,44,000 25,22,54 23,60,00 10,44,00 25,22,545
0 5 0 0
Admn. 1,39,000 15,000 1,54,000 Gross profit 3,40,000 1,64,000 5,02,545

Expenses b/d
Selling 50,000 6,200 56,200
Expenses
Stock  16,000 14,545
shortage
Stock 22,909  22,909
reserve
Net profit 1,28,091 1,26,800 2,54,891 _______ _______ _______

3,40,000 1,64,000 5,02,545 3,40,000 1,64,000 5,02,545
Balance Sheet as at 31st March, 2005

Liabilities Rs. Assets Rs.
Capital 3,10,000 Debtors
Add: Net profit 2,54,891 H.O. 3,09,600
5,64,891 Branch 1,13,600
Less: 55,000 5,09,891 Closing stock:
Drawings
Creditors: Processed goods
H.O. 6,01,400 H.O. 56,000
Branch 10,800 6,12,200 Branch 2,08,000
2,64,000
Less: Stock reserve 18,909 2,45,091
Unprocessed 1,00,000
goods
Bank Balance
H.O. 1,52,000
Branch 77,500
Goods in transit 44,000
Less: Stock reserve 4,000 40,000
_______ Cash in transit 84,300
_
11,22,09 11,22,091
1
Working Notes:
1. Calculation of closing stock:
Stock at Head Office:
Cost of goods processed Rs. (19,69,500 + 50,500 – 1,00,000) 19,20,000
Less: Cost of goods sent to Branch: 8,40,000
924,000X100/110
100
12,80,000 × 10,24,000 18,64,000
Cost of goods sold 125
Stock of processed goods with H.O. 56,000
Stock at Branch:
Goods received from H.O. (at invoice price) 8,80,000
100
8,20,000 × 6,56,000
Less: Invoice value of goods sold: 125
100
20,000 × 16,000 6,72,000
Invoice value of stock shortage: 125
Stock at Branch at invoice price 2,08,000
Less: Stock Reserve:208,000X10/110 18,909
Stock of processed goods with Branch (at cost) 1,89,091
2. Stock Reserve:
Unrealised profit on Branch stock

(2,08,000 ×10110 ) 18,909
Unrealised profit on goods in transit

(44,000 ×10110 ) 4,000
22,909

Q7: Foreign Branch: S & M Ltd., Bombay, have a branch in Sydney, Australia. At the end of 31st
March, 1995, the following ledger balances have been extracted from the books of the Bombay Office
and the Sydney Office :
Bombay . Sydney .
(Rs. thousands) (Austr dollars thousands)
Debit Credit Debit Credit
Share Capital – 2,000 – –
Reserves & Surplus – 1,000 – –
Land 500 – – –
Buildings (Cost) 1,000 – – –
Buildings Dep. Reserve – 200 – –
Plant & Machinery (Cost) 2,500 – 200 –
Plant & Machinery Dep. Reserve – 600 – 130
Debtors / Creditors 280 200 60 30
Stock (1.4.94) 100 – 20 –
Branch Stock Reserve – 4 – –
Cash & Bank Balances 10 – 10 –
Purchases / Sales 240 520 20 123
Goods sent to Branch – 100 5 –
Managing Director’s salary 30 – – –
Wages & Salaries 75 – 45 –
Rent – – 12 –
Office Expenses 25 – 18 –
Commission Receipts – 256 – 100
Branch / H.O. Current A/c 120 – – 7
4,880 4,880 390 390
The following information is also available :
(1) Stock as at 31.3.95 :
Bombay Rs. 1,50,000
Sydney A $ 3,125
(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 buildings at 10% and on plant and machinery at 20% on written
down values.
(5) The Managing Director is entitled to 2% commission on net profits.
(6) Income–tax is to be provided at 47.5%.
You are required :
(a) To convert the Branch Trial Balance into rupees;
(use the following rates of exchange :
Opening rate A $ = Rs. 20
Closing rate A $ = Rs. 24
Average rate A $ = Rs. 22
For Fixed Assets A $ = Rs. 18).
(b) To prepare the Trading and Profit & Loss Account for the year ended 31st March, 1995
showing to the extent possible H.O. results and Branch results separately. (Balance Sheet not required.)
(20 marks) (Intermediate May 1995)

A: (a) S & M Ltd. Sydney Branch Trial Balance (in ‘000 Rupees)As on 31st March, 1995
Conversion Dr. Cr.
rate per A$
Plant & Machinery (cost) Rs 18 36,00
Plant & Machinery Dep. Reserve Rs. 18 23,40
Debtors / Creditors Rs. 24 14,40 7,20
Stock (1.4.94) Rs. 20 4,00
Cash & Bank Balances Rs. 24 2,40
Purchase / Sales Rs. 22 4,40 27,06
Goods received from H.O. – 1,00
Wages & Salaries Rs. 22 9,90
Rent Rs. 22 2,64
Office expenses Rs. 22 3,96
Commission Receipts Rs. 22 22,00
H.O. Current A/c 1,20
78,70 80,86
Exchange loss (balancing figure) 2,16
80,86 80,86
(b)
(Rs.’000)
Trading and Profit & Loss Account for the year ended 31st March, 1995 (in thousands)
H.O. Branch Total H.O. Branc Total

h
T Opening Stock 1,00 4,00 5,00 B Sales 5,20 27,06 32,26

o y
“ Purchases 2,40 4,40 6,80 “ Goods sent to 1,00 – 1,00
“ Goods received – 1,00 1,00 Branch
from Head “ Closing Stock 1,50 75 2,25

Office
“ Gross profit c/d 4,30 18,41 22,71
7,70 27,81 35,51 7,70 27,81 35,51
To Wages & 75 9,90 10,65 By Gross Profit 4,30 18,41 22,71

Salaries B/d
“ Rent 2,64 2,64 Commission 2,56 22,00 24,56

– receipts
“ Office 25 3,96 4,21 receipts

expenses
“ Provision for 14 72 86
RDD
“ Depreciation 4,60 2,52 7,12

(WN1)
“ Balance c/d 1,12 20,67 21,79

6,86 40,41 47,27 6,86 40,41 47,27
To Exchange loss 2,16 By Balance b/d 21,79

“ Branch Stock Reserve 11
(W. N. 2)
“ Managing Director’s
remuneration :
Salary 30
Commission 41 71
(W. N. 3)
Provision for Income-tax 8,93
(W. N. 4)
“ Balance c/d 9,88
21,79 21,79
Working Notes :
(1) Calculation of Depreciation : (Rs ‘000)
H.O. Branch
A. Building – Cost 10,00 –
Less : Dep. Reserve 2,00 –
8,00
Depreciation @ 10% 80
B. Plant & Machinery Cost 25,00 36,00
Less : Dep. Reserve 6,00 23,40
19,00 12,60
Depreciation @ 20% 3,80 2,52
Total Depreciation (A+B) 4,60 2,52
(Rs ‘000)
(2) Calculation of Branch Stock Reserve :
Closing stock 75
Reserve on closing stock (75 × 1/5) 15
Less : Branch Stock Reserve (as on 1.4.94) 4
Additional Reserve required 11
(Rs’ 000)
(3) Calculation of Managing Director’s Commission :
Profit before adjustment 21,79
Add: Provision for doubtful debts 86
22,65
Less: Branch stock reserve 11
Exchange loss 2,16 2,27
Profit u/s 349 20,38*
Commission @ 2% 41 (approx.)
(4) Calculation of provision for Income tax : (Rs ‘ 000)
Profit u/s 349 as computed above 20,38
Less : Provision for doubtful debts 86
MD’s remuneration 71 1,57
Profit before tax 18,81
Provision for tax @ 47.5% 8,93** (approx.)
Note : For the purpose of translation of financial statements of foreign operations, AS 11 (revised 2003)
“The Effects of Changes in Foreign Exchange Rates” classifies the foreign operations as (i) integral
foreign operations and (ii) non-integral foreign operations. The above answer has been given on the basis
that the Sydney branch is an integral foreign operation of S&M Ltd.

*For the purpose of calculating profit u/s 349 of the Companies Act, 1956, depreciation based on the rates
given in Schedule XIV to the Companies Act, 1956 should be deducted. Depreciation rates as per
Schedule XIV are not given in this question. Hence the adjustment for depreciation is ignored.
**Alternatively provision for tax may also be computed on Rs. (000) 19,67 ignoring provision for
doubtful debts.

Q8: Foreign Branch: 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 31st March, 1999 and the additional information
given thereafter :
Dr. Cr.
Rupees in thousands
Stock on 1st April, 1998 300 –
Purchases and sales 800 1,200
Sundry Debtors and creditors 400 300
Bills 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
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 Mumbai branch was worth Rs. 4,20,000 on 31st March, 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 upto two decimal accuracy.
You are asked to prepare in US dollars the revenue statement for the year ended 31st March, 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.(10 marks) (Intermediate–
May 1999)
A:
Carlin & Co. Ltd.Mumbai Branch Trial Balance in (US $) as on 31st March, 1999
Conversion Dr. Cr.
rate per US $ US $ US $
(Rs.)
Stock on 1.4.98 40 7,500.00 –
Purchases and sales 41 19,512.20 29,268.29
Sundry debtors and creditors 42 9,523.81 7,142.86
Bills of exchange 42 2,857.14 5,714.29
Wages and salaries 41 13,658.54 –
Rent, rates and taxes 41 8,780.49 –
Sundry charges 41 3,902.44 –
Computers – 6,000.00 –
Bank balance 42 10,000.00 –
New York office A/c – – 39,609.18
81,734.62 81,734.62

Trading and Profit & Loss Account for the year ended 31st March, 1999
US $ US $
To Opening Stock 7,500.00 By Sales 29,268.29
To Purchases 19,512.20 By Closing stock 10,000.00
To Wages and salaries 13,658.54 By Gross Loss c/d 1,402.45
40,670.74 40,670.74
To Gross Loss b/d 1,402.45 By Net Loss 17,685.38
To Rent, rates and taxes 8,780.49
To Sundry charges 3,902.44
To Depreciation on computers 3,600.00
(US $ 6,000 × 0.6)
17,685.38 17,685.38
Balance Sheet of Mumbai Branchas on 31st March, 1999

Liabilities US $ Assets US $ US $
New York Office A/c 39,609.18 Computers 6,000.00
Less : Net Loss 17,685.38 21,923.80 Less :Depreciation 3,600.00 2,400.00
Sundry creditors 7,142.86 Closing stock 10,000.00
Bills payable 5,714.29 Sundry debtors 9,523.81
Bank balance 10,000.00
Bills receivable 2,857.14
34,780.95 34,780.95
Note : The above answer has been given on the basis that the Mumbai branch is an integral foreign
operation of carlin & Co.

2 DEPARTMENTAL ACCOUNTS
Departmental Final A/c

Calculation of Unrealised Profit on Unsold Stock
Concept of Markup and Markdown
Q1: Departmental Final A/c: X Ltd, has two department, A and B. From the following particulars
prepare the consolidated Trading Accounts and Departmental Trading Account for the year ending 31 st
December 1985.
A (Rs) B (Rs)
Opening Stock (at cost) 20,000 12,000
Purchases 92,000 68,000
Sales 1,40,000 1,12,000
Wages 12,000 8,000
Carriage 2,000 2,000
Closing Stock:
(i) Purchased goods 4,500 6,000
(ii) Finished goods 24,000 14,000
Purchased goods transferred:
By B to A 10,000
By A to B 8,000
Finished goods transferred:
By A to B 35,000
By B to A 40,000
Return of finished goods:
By A to B 10,000
By B to A 7,000
You are informed that purchased goods have been transferred mutually at their respective
departmental purchases cost and finished at departmental market price and that 20% of the finished stock
(closing) at each department represented finished goods received from the other department.
A:-
Departmental Trading A/c for the yr ended 31st March Dec, 1985. X Ltd
Deptt.A Deptt. B Deptt.A Deptt. B
Particular Rs. Rs. Particular Rs. Rs.
To Stock 20,000 12,000 By Sales 1,40,000 1,12,000

To Purchases 92,000 68,000 By Goods Transferred 8,000 10,000
To Wages 12,000 8,000 By F.G. Transferred 35,000 40,000
To Carriage 2,000 2,000 By Return of F.G. 10,000 7,000
To Goods transferred 10,000 8,000 By Closing Stock:
To F.G. Transferred 40,000 35,000 Purchased Goods 4,500 6,000
To F.G. Transferred 40,000 35,000 Finished goods 24,000 14,000
To Return of F.G. 7,000 10,000
To Gross Profit c/d 38,500 46,000
2,21,500 1,89,000 2,21,500 1,89,000

Consolidated Trading A/c for the yr ended 31st Dec, 1985
Particular Rs. Particular Rs.
To Opening stock 32,000 By Sales 2,52,000
To Purchases 1,60,000 By Closing stock:
To Wages 20,000 Purchased goods 10,500
To Carriage 4,000 Finished goods 38,000
To Stock Reserve 2,196
To Gross Profit c/d 82,304
3,00,500 3,00,500
Working Notes:
Closing stock out of transfer 4,800 2,800
-------- --------
Sales 1,40,000 1,12,000
Add: Transfer 35,000 40,000
----------- ------------
1,75,000 1,52,000
Less: Return 7,000 10,000
----------- ------------
Net Sales plus transfer 1,68,000 1,42,000
------------ ----------
Rate of gross Profit 38,500/1,68,000 x 100 46,000/1,42,000x100
= 22.916% = 32.394%
Unrealized Profit 4,800x 32.394 % 2,800x22.916 %
= 1,555 = 641
Q2: Calculation of Unrealised Profit on Unsold Stock:

FGH Ltd. has three departments I.J.K. 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 unrealised profit ― 2,000 3,000
Materials 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 valued at costs 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 Rs. 18,000, rent Rs. 6,000.
Prepare Departmental Trading, Profit and Loss Account for the year ending 31.3.2004.

A: FGH Ltd. Departmental Trading and Profit and Loss Account for the year ended
31st March, 2004
I J K Total I J K Total
To Rs. Rs. Rs. Rs. By Rs. Rs. Rs. Rs.
Opening 5,000 8,000 19,00 32,000 Sales 80,000 80,000
stock 0
Material 16,000 20,000 36,000 Inter-
consumed departmental
Direct labour 9,000 10,000 19,000 transfer 30,000 60,000 90,000
Inter- Closing 5,000 20,000 5,000 30,000
departmental stock
Transfer 30,000 60,00 90,000
0
Gross profit 5,000 12,000 6,00 23,000 _____ ______ _____ _______
0 _ _
35,000 80,000 85,00 2,00,000 35,000 80,000 85,000 2,00,000
0
Salaries and Gross profit 5,000 12,000 6,000 23,000
staff welfare 9,000 6,000 3,000 18,000 b/d 7,000 7,000
Net loss
Rent 3,000 1,800 1,200 6,000
Net profit _____ 4,200 1,800 6,000 _____ _____ _____ _____
_
12,000 12,000 6,000 30,000 12,000 12,000 6,000 30,000
Net loss (I) 7,000 Stock 5,000
Stock reserve reserve b/d
(J+K) (J + K)
(Refer W.N.) 3,000 Net profit (J 6,000

+ K)
Balance
transferred to
Profit and loss
account 1,000 _____
11,000 11,000
Working Note:
Calculation of unrealized profit on closing stock
Rs.
Stock reserve of J department
Cost 30,000
Transfer from I department 30,000
60,000
Stock of J department 20,000
Proportion of stock of I department = Rs.20,000 X 30000/60000= Rs.10,000
Stock reserve =Rs.10,000 X 20/120 = Rs.1667 (approx.)
Stock reserve of K department Rs.
Stock transferred from J department 5,000
Less: Profit (stock reserve) 5,000  20% 1,000
Cost to J department 4,000
Rs.30,000
4,000 × = Rs.2,000
Proportion of stock of I department =Rs. Rs.60,000
20
Stock reserve =Rs .2,000 × = Rs.333
120 (approx.)

Total stock reserve = Rs.1,000 + Rs.333 = Rs.1,333
Q3: Mark up and Mark down Concept: Southern Store Ltd, 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 to 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, 1998: -
Deptt Y (Rs.) Deptt Z (Rs.)
Stock, 1st January, 1988 at cost 24,000 36,000

Purchases 1,62,000 1,90,000
Sales 2,10,000 2,85,000
(1) 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.
(2) Certain goods purchased in 1988 for Rs.2700 for department Y, were transferred during the
year to Department Z, and sold for Rs.4.050. Purchase and sale 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.
(3) Goods purchased in 1988 were marked down as follows:-
Deptt Y Deptt Z (Rs.)
Cost 8,000 21,900
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.2,300. With this exception all goods marked down in 1988 were sold during
the year at the reduced prices.
(4) During stock taking at 31st December 1988 goods which had cost Rs.240 were found to be
missing in the department Y. It was determined that the loss should be regarded as irrecoverable.
(5) The closing stock in both departments are to be valued at cost for the purpose of the annual
accounts.
You are requested to prepare for each department for the year ended 31.12.88: trading Account,
Memorandum Stock Account and a memorandum Mark up Account.
A: Southern Stores Ltd. Trading A/c for the year ended 31st Dec, 1998 (Rs)
Particular Deptt.Y Deptt. Z Particular Deptt.Y Deptt. Z
To Opening stock at cost 24,000 36,000 By Sales 2,10,000 2,85,000

To Purchases 1,62,000 1,90,000 By Transfer to Deptt. Z 2,700 -
To Transfer from Y Dept. - 2,700 By Goods lost 240 -
To Gross Profit 51,518 92,496 By Closing stock at cost 24,578 36,196

2,37,518 3,21,196 2,37,518 3,21,196
Memorandum Stock A/c (Rs)

Particular Dept.Y Dept. Z Particular Deptt.Y Deptt. Z
To balance b/d 32,000 54,000 By Balance b/d 510

To Purchases 1,62,000 1,90,000 By Sales 2,10,000 2,85,000
To Memorandum Mark up 54,000 95,000 By Transfer 2,700 -
To Transfer 2,700 By Memorandum Mark up 900
A/c (On transfer)
To Memorandum Mark up 1,350 By Memorandum up A/c 800 4,100
(marked down)
To Memorandum Mark up 344 By Loss of Stock 240
A/c (On marked down
goods still in stock)
By Memorandum mark up 80
A/c (or lost stock)
By balance c/d (cl. stock) 32,770 54,294
2,48,000 3,34,394 2,48,000 3,34,394
Memorandum mark-up A/c

Particular Dept.Y DeptZ Particular Dept.Y Dept.Z
To balance b/d 510 - By Balance b/d 8,000 18,000
To Memorandum stock A/c 900 - By Memorandum Stock 54,000 95,000
(on transfer) A/c (Mark-up on
purchased)
To Memorandum stock a/c 800 4,100 By Memorandum stock - 1,350
(Mark-down) A/c (Mark-up on transfer)
To Memorandum stock A/c 80 - By Memorandum stock - 344
(mark-down on good lost) A/c (Marked down on
goods still in stock)
To Gross Profit 51,518 92,496
62,000 1,14,694 62,000 1,14,694
Working Notes: - (Rs) (Rs)
Particular Dept.Y Dept.Z
1. Closing stock at cost :
Closing stock at invoice price 32,770 54,294
At Cost (3/4) 24,578 (2/3) 36,196
2. Mark down in unsold stock of Z Deptt.:
Mark down x value of stock /value after mark-down = 51,518 92,496
4,100x2,300/27,400= Rs.344
3. Verification of Gross Profit: -
Sales 2,10,000 2,85,000
Add: Reduction (mark-down) 1,310 3,756
2,11,310 2,88,756
Gross Profit (1/4) 52,828 (1/3)96,252
Less: Mark-down 1,310 3,756
Mark-up account 51,518 92,496
Rs.4,100 – 344 = 3,756
3. HIRE PURCHASE AND INSTALLMENT PAYMENT SYSTEM
Calculation of Cash Price of the Asset

Hire Purchase Sale and Repossession
Hire Purchase Sale and Partial Repossession
HP with pre closure
HP Accounting for small value goods [Final Accounts Method]
HP Accounting for small value goods [Stock and Debtors System]
Q1: Calculation of Cash Price of the Asset: A acquired on 1st January, 2003 a machine under a Hire-
Purchase agreement which provides for 5 half yearly installments of Rs.6,000 each, the first installment
being due on
1st July, 2003. Assuming that the applicable rate of interest is 10 per cent per annum, calculate
the cash value of the machine. All workings should form part of the answer.
A:
Statement showing cash value of the machine acquired on hire-purchase basis
Installment Interest Principal
5th Installment 6,000 286 5,714
Less: Interest -286
5,714
th
Add: 4 Installment 6,000
11,714 558 5,442
Less: Interest 558 (11,156-5,714)
11,156
Add: 3rd Installment 6,000
17,156 817 5,183
Less: Interest 817 (16,339-11,156)
16,339
Add: 2nd Installments 6,000
22,339 1,063 4,937
Less: Interest 1,063 (21,276-16,339)
21,276
Add: 1st Installments 6,000
27,276 1,299 4,701
Less: Interest 1,299 (25,977-21,276)
25,977 4,023 25,977
The cash purchase price of machinery is Rs.25,977.
Q2: Hire Purchase Sale and Repossession: A Machinery is sold on hire purchase. The terms of
payment is four annual installments of Rs.6000 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.6000.
Shows Machinery Account and Hire Vendor Account in the books of the purchaser who defaulted
in the payment of the third yearly payment where upon the vendor re-possessed the machinery. The
purchaser provides depreciation on the machinery @ 10% per annum. All workings should form part of
your answer.

A: Machinery Account
Date Particulars Rs. Date Particulars Rs.
1 year To Hire 15,533 1 year By Depreciation 1,553
Vendor
15,533 15,533
2 year To balance b/d 13,980 2 Year By Depreciation * 1,398
13,980 13,980
3 year To Balance b/d 12,582 3 year By Depreciation * 1,258
By Hire vendor 11,000
By P/Loss (Loss on 324
Surrender)
12,582 12,582
*It has been assumed that depreciation has been written off on w.d.v. method. Alternatively straight line
method may be assumed. Depreciation has been directly credited to the machinery account, it could have
been accumulated in provision for depreciation account.
Hire Vendor Account

1 year To Bank 6,000 1 year By Machinery 15,533
To Balance C/d 12,639 By Interest 3,106
18,639 18,639
2 year To Bank 6000 2 YearBy Balance c/d 12,639
To Balance c/d 9,167 By Interest 2,528
15,167 15,167
3 year To Machinery a/c (transfer) 11,000 3 yearBy Balance b/d 9,167
By Interest 1,833
11,000 11,000
Note: Alternatively total interest could have been debited to interest Suspense and credited to Hire
Vendor with consequently changes.
Working Notes:
Installment
Installment Interest Principal
4th Installments 6,000
Interest 20/120 1,000 1,000 5,000
5,000
Add: 3rd Installments 6,000
11,000
Interest 20/120 1,833 1,833 1,833
9,167
Add: 2nd Installment 6,000
15,167
Interest 20/120 2,528
12,639
Add: 1st Installments 6,000
18,639
Interest 20/120 3,106
15,533 8,467 15,533
Q3: Hire Purchase Sale and Partial Repossession: X Transport Ltd. Purchased form Delhi Motors
three Tempos costing Rs.50,000 each on the hire-purchases system on 1.1.1987. Payment was to be made

Rs.30,000 down and the remainder in three equal annual installments payable on 31.12.1987, 31.12.1989
together with interest @ 9% . X Transport Ltd. Write off depreciation @ 20% on the diminishing
balance. It paid the installment due at the end of the first year i.e. 31.13.1987 but could not pay the next
on 31.12.1988. Delhi Motors agreed to leave one Tempo with the purchaser on 1.1.1989 adjusting the
value of the other two tempos against the amount due on 1.1.1989. The Tempos were valued on the basis
of 30% depreciation annually. Show the necessary accounts in the books in the books of X Transport
Ltd. for the years 1987, 1988 and 1989.
A: X Transport Ltd. Tempo Account
Dr. Cr.
Date By Rs. Date To Particulars Rs.
Particulars
1.1.8 Delhi Motors 1,50,00 31.12.87 Depreciation 30,000
7 0
,, Balance c/d 1,20,000
1,50,00 1,50,000
0
1.1.8 Balance b/d 1,20,00 31.12.88 Depreciation 24,000
8 0
Delhi Motors 49,000
(Value of 2 Tempos taken away)
Profit and Loss A/c 15,000
(Balancing figures)
Balance c/d 32,000
(Value of one tempo left)
1,20,00 1,20,000
0
1.1.8 Balance c/d 32,000 31.12.89 By Depreciation 6,400
9
32,000 32,000
Delhi Motors
Dr. Cr.
Date To Particulars Rs. Date By Particulars Rs.
1.1.8 Bank (Down Payment) 30,000 1.1.87 Tempo 1,50,000
7
31.12 Bank 50,800 31.12 Interest (9% on 10,800
Rs.1,20,000)
Balance c/d 80,000
1,60,80 1,60,800
0
1.1.8 Tempos 49,000 1.1.88 Balance b/d 80,000
8
Balance c/d 38,200 31.12 Interest (9% on Rs.80,000) 7,200
87,200 87,200
31.12 Bank 41,638 1.1.89 Balance b/d 38,200
31.12 Interest (9% on Rs.38,200) 3,438
41,638 41,638

Alternative Method: Tempo Account
Dr. Cr.
1.1.87 Bank (down payment) 30,000 31.12.8 Depreciation @ 20% on 30,000
7 Rs.1,50,000)
31.12 Bank (1st Installment) 40,000 31.12 Bal c/d 40,000
70,000 70,000
1.1.88 Balance b/d 40,000 1.1.88 Depreciation 24,000
Dec.3 Delhi Motors (Creating a Dec.31 Profit and Loss A/c (Balancing
1 liability for Rs.38,200, figure) 22,000
amount due) 38,200
Balance c/d (tempo left) 32,000
78,200 78,200
1.1.89 Balance b/d 32,000 31.12.8 Depreciation 6,400
9
balance c/d 25,600
32,000 32,000
Delhi Motors
Dr. Cr.
Date To Particulars Rs. Date By Particulars Rs.
31.12.8 Balance c/d 38,200 31.12.8 Tempos A/c 38,200
8 8
Dec.31 Bank 41,638 Jan.1 Balance b/d 38,200
Dec.31 Interest (9% on 3,438
Rs.38,200)
41,638 41,638
Working Notes: -
(1) Value of a Tempo left with the buyer: - Rs.
Cost 50,000
Depreciation @ 20% p.a. under W.D.V. method for 2 year i.e. Rs.10,000 + 8,000 18,000
---------
Value of the Tempo left with the buyer at the end of 2nd year 32,000
(2) Value of Tempos taken away by the seller: -

No. of tempos Two
Cost Rs.50,000 x 2 = 1,00,000
Depreciation : @ 30% Under WDV method for 2 years i.e. Rs.30,000 + 21,000 51,000
----------
Value of tempos taken away at the end of 2nd year 49,000
Q4: HP with pre closure: ABC Associates entered into a financial lease agreement on 1.4.1995 with
Flexible Leasing Ltd. for lease of a car. The price of the car was Rs. 2,00,000 and the quarterly lease
rentals were agreed at Rs. 90 per thousand payable at the beginning of every quarter. ABC Associates
kept up their payments but by 25.3.1996 they approached and obtained the consent of the leasing
company for treating the arrangement as one of Hire-purchase from the beginning on the following
terms: Period: 3 years, Quarterly hire : Rs. 30,000 payable at the beginning of the quarter.
It was agreed that the lease rentals paid will be treated as hire monies and that the balance due upto
31.3.1996 will be settled by ABC Associates on that date with interest at 18% p.a. on various
instalments due during the year. The rate of depreciation on the car is 25%.
Show Flexible Leasing Ltd.’s A/c and Interest Suspense A/c.
A:

Books of ABC Associates
Flexible Leasing Limited Account
Dr. Cr.
Rs. Rs.
1996 1996
March 25 To Lease rental 72,000 March 25 By Car on Hire 2,00,000
A/c Purchase A/c
March 31 To Bank 53,400 March 25 By Interest 1,60,000
Suspense A/c
March 31 To Balance c/d 2,40,000 By Interest A/c 5,400
3,65,400 3,65,400
Interest Suspense Account for 1996

Dr. Rs. Cr.Rs.
25.3 To Flexible 1,60,000 31.3 By Interest on Hire 72,727
Leasing Ltd. purchase A/c
31.3 By Balance c/d 87,273
1,60,000 1,60,000
Working Notes :
(i) Calculation of balance payable on 31 st March, 1996 and the Amount of Interest
Calculation of Difference Payable on 31.3.1996 and Interest
Date Quarterly Hire Quarterly Lease Difference Interest 18% Amount of Interest
Charges Rentals Paid Payable From To (Rs.)
(Rs.)
1.4.95 30,000 18,000 12,000 1.4.95 31.3.96 2,160
1.7.95 30,000 18,000 12,000 1.7.95 31.3.96 1,620
1.10.95 30,000 18,000 12,000 1.10.95 31.3.96 1,080
1.1.96 30,000 18,000 12,000 1.1.96 31.3.96 540
72,000 48,000 5,400
Amount payable on 31 st March, 1996 :

Balance due 48,000
Interest due 5,400
53,400
(1) Ascertainment of Total Amount of Interest on Hire Purchase
Hire Purchase Price of the car
(Rs. 30,000 × 12 installments) 3,60,000
Less : Cash Price 2,00,000
Total Amount of Interest 1,60,000
(2) Calculation of Interest on Hire Purchase Attributable to the year 1995-1996.
Date Interest Calculation Interest - Rs.
1.4.95 — —
1.7.95 26,667
160,000X11/66
1.10.95 24,242
160,000X10/66
1.1.96 21,818
160,000X9/66 72,727
Q5: HP Accounting for small value goods [Final Accounts Method]: Krishna Agencies started
business on 1 st April, 1994. During the year ended 31 st March, 1995, they sold under-mentioned
durables under two schemes — Cash Price Scheme (CPS) and Hire-Purchase Scheme (HPS).

Under the CPS they priced the goods at cost plus 25% and collected it on delivery.
Under the HPS the buyers were required to sign a Hire-purchase Agreement undertaking to pay for
the value of the goods including finance charges in 30 instalments, the value being calculated at Cash
Price plus 50%.
The following are the details available at the end of 31 st March, 1995 with regard to the products :
Product Nos. Nos. Nos. sold Cost No. of No. of instalments
purchased sold under per unit instalments due received during
under HPS Rs. during the year the year
CPS
TV sets 90 20 60 16,000 1,080 1,000
Washing 70 20 40 12,000 840 800
Machines
The following were the expenses during the year :
Rs.
Rent 1,20,000
Salaries 1,44,000
Commission to Salesmen 12,000
Office Expenses 1,20,000
From the above information, you are required to prepare :
(a) Hire-purchase Trading Account, and
(b) Trading and Profit & Loss Account. (20 marks) (Intermediate–May 1995)
A:
In the books of Krishna Agencies Hire-Purchase Trading Account for the year ended 31 st
March, 1995
Rs. Rs. Rs. Rs.
To Goods sold on H.P. A/c: By Bank A/c cash received
TVs (60×Rs. 30,000) TVs (1,000×Rs.
18,00,000 1,000) 10,00,000
Washing Machines (40 × Washing Machines
Rs. 22,500) 9,00,000 27,00,000 (800 ×Rs. 750) 6,00,000 16,00,000
To H.P. Stock Reserve Rs. 4,62,000 By Instalment Due A/c:
87.5
9,90,000×87.5/187.5 TVs (80×Rs.1,000) 80,000
To Profit & Loss A/c (H.P. 7,98,000 Washing Machines
187.5
profit transferred) (40×Rs. 750) 30,000 1,10,000
By Goods sold on HP
(Cancellation of
loading)
87.5 12,60,000
9,90,000
187.5
39,60,000 39,60,000
Trading and Profit & Loss Account for the year ended 31 st March, 1995
Rs. Rs. Rs. Rs.
To Purchases: By Sales:
TVs TVs
(90×Rs. 16,000) 14,40,000 (20×Rs. 20,000) 4,00,000
Washing Machines Washing Machines
(70 × Rs. 12,000) 8,40,000 22,80,000 (20 ×Rs. 15,000) 3,00,000 7,00,000
To Gross profit c/d 1,40,000 By Goods sold on H.P.
(27,00,000–12,60,000) 14,40,000
Shop Stock (W. N 3)
2,80,000

24,20,000 24,20,000
To Salaries 1,44,000 By Gross profit b/d 1,40,000
To Rent 1,20,000 By H.P. Trading a/c
To Commission 12,000 (H.P. Profit) 7,98,000
To Office expenses 1,20,000
To Net Profit 5,42,000
9,38,000 9,38,000
Working Notes:
(1) Calculation of per unit cash price, H.P. price and Instalment Amount :
Product Cost Cash Price H.P. price Instalment
Rs. Rs. Rs. Amount (Rs.)
(Cost × 1.25) (Cash Price×1.50) (H.P. price/No.
of instalments)
TV sets 16,000 20,000 30,000 1,000
Washing
Machines 12,000 15,000 22,500 750
(2) Calculation of H.P. Stock as on 31 st March, 1995 :

Product Total No. of Instalments Instalments Amount
Instalments Due in 1994- not due in 1994- Rs.
(Nos.) 95 95
(Nos.) (Nos.)
TV sets 1800 1080 720 7,20,000
Washing Machines 1,200 840 360 2,70,000
9,90,000
(3) Calculation of Shop Stock as on 31 st March, 1995:

Product Purchased Sold Balance Amount
(Nos.) (Nos.) (Nos.) Rs.
TV sets 90 80 10 1,60,000
Washing 70 60 10 1,20,000
Machines 2,80,000
Q6: HP Accounting for small value goods [Stock and Debtors System]: The hire purchase department
of New Appliances Ltd. Sells television sets and room coolers. This department was started in 1986. The
relevant information for the year ended 31st December 1986 is as follows.
Television Room Cooler
Rs. Rs.
Cost 5,400 2,000
Cash price 6,300 2,400
Cash down payment 900 400
Monthly Installments 600 200
Number of installment 10 12
During the year, 200 television sets and 240 room coolers were sold on hire purchase basis. Four
television sets on which 3 installments only could be collected and 8 room coolers on which 5
installments had been collected were repossessed. These were valued at Rs.20,000; after reconditioning
at a cost of still paying were respectively as follows: -
Television sets 540 and 40
Room coolers 800 and 60
Prepare accounts on stock and debtors system to reveal the profit of the department. Shows your
workings.
A: New Appliances Limited Hire purchase Stock Account

Dr. Cr.
Particulars Rs. Particulars Rs.
To Goods sold on Hire Purchase 20,52,00 By Hire purchase Debtors Account 8,11,200
0 (Installments falling due)
By Goods Repossessed Account
(Installment not due on repossessed goods)
28,000
By Balance (Installment not set due)
12,12,800
20,52,00 20,52,000
0
Hire purchase Debtors Account

Dr. Cr.
To Hire Purchase Stock Account 8,11,200 By Bank 7,75,200
(Balancing figure)
8,11,200 8,11,200
Goods Repossessed Account
Dr. Cr.
To Hire Purchase Stock Account 28,000 By Hire Purchase Adjustment A/c 8,000
(Installments to be written off)
28,000 28,000
To Balance b/d 20,000 By Bank (Sale) 28,000
To Bank (expenses) 2,000
To Hire purchase adjustment 6,000
account (Profit)
28,000 28,000
Goods sold on Hire Purchase Account
Dr. Cr.
To Hire Purchase Adjustment 4,92,000 By Hire Purchase Stock Account 20,52,000
Account (Loading)
To Purchase Account-transfer 15,60,00
0
20,52,00 20,52,000
0
Hire Purchase Adjustment Account
Dr. Cr.
To Goods Repossessed Account By Goods sold on Hire Purchase A/c
(Loss on repossession of goods) 8,000 (loading) 4,92,000
To Stock Reserve A/c 2,89,493 By Goods repossessed A/c (profit on sale
of repossessed goods) 6,000
To Profit and Loss A/c (transfer to
profit) 2,00,057
4,98,000 4,98,000
Working Notes:-
1. Amount of Hire Purchase Cost and Sales are worked out as follows:-

Dr. Cr.
Particulars Cost Rs. Particulars H.P Price Rs.
Television 200 x Rs.5,400 10,800,00 200 x Rs.6,900 13,80,000
0
Room-coolers 240 x Rs.2,000 4,80,000 240 x Rs.2,800 6,72,000
15,60,000 15,60,000
2. Cash collected:-
Dr. Cr.
Particulars Television Particulars Room cooler
Rs. Rs.
Down payments Rs. 900 x 200 1,80,000 Rs. 400 x 240 96,000
Installments collected Rs. 600 x 3,24,000 Rs. 200 x 800 1,60,000
540
Amount collected on goods 7,200 Rs. 200 x 5 x8 8,000
repossessed Rs.600 x 3 x 4
5,11,200 5,11,200
3. Installments not yet due:-

Television
Total installments on 196 sets 1,960
Installments collected and due 580
--------
Installment not yet due 1,380
------------
Amount on installments not yet due: Rs.600 x 1,380 = Rs.8,28,000
------------

Room Coolers: -
Total Installments on 232 coolers 2,784
Installments collected and due 860
--------
Installments not yet due 1,924
-------------
Amount on installments not yet due Rs.200 x 1,924 = Rs.3,84,800
------------
Total Amount: -
Television 8,28,000
Room coolers 3,84,800
-------------
Rs. 12,12,800
-------------
4. Stock Reserve: - Television:-
Hire purchase Price Rs.6,900 per set
Cost 5,400
--------------------
Profit 1,500 per set
--------------------
Reserve: - 1,500/6,900 x 8,28,000 = Rs. 1,80,000
Room Coolers : -
Hire Purchase Price Rs. 2,800 each
Cost 2,000
------------------
Profit 800
-------------------
Reserve: - 800/2,800 x 3,84,800 = Rs. 1,09,942
Total Stock Reserve

Television Rs. 1,80,000
Room coolers 1,09,943
----------
2,89,943
----------
5. Hire purchase total amount receivable : - Room Coolers: -
Cash down 400 x 240 96,000
Installments received and due 200 x 860 1,72,000
Installments received on repossessed goods 200 x 8 x 5 8,000
--------- 2,76,000
----------
8,11,200
6. Installments not due on repossessed goods : - Television
Installments on 4 sets @ Rs.600 Rs. 16,800
Room Coolers
7 Installments on 8 coolers @ Rs.200 Rs. 11,200
---------
28,000
---------
Television :-
Cash Down 900 x 200 1,80,000
Installments receivable and due 600 x 580 3,48,000
Installments receivable on repossessed goods600 x 4 x3 7,200
----------- 5,53,200

7. Installments due: -
Television 40 x 600 24,000
Room coolers 60 x 200 12,000
----------
36,000
----------

4. ACCOUNTS FROM INCOMPLETE RECORDS
Preparation of Final A/c from Opening B/S and Cash Book:

Preparation of Final A/c from Opening B/S, Cash Book and Ratios:
Preparation of Complete A/c from Raw Details:
Preparation of Complete A/c from Raw Details:
Q1: Preparation of Final A/c from Opening B/S and Cash Book: K. Azad, who is in business as a
wholesaler in sunflower oil, is a client of your accounting firm. You are required to draw up his final
accounts for the year ended 31.3.96.
From the files, you pick up his Balance Sheet as at 31.3.95 reading as below:
Balance Sheet as at 31.3.95
Rs. Rs.
Liabilities:
K.Azad’s Capital 1,50,000
Creditors for Oil purchases 2,00,000
12% Security Deposit from Customers 50,000
Creditors for Expenses:
Rent 6,000
Salaries 4,000
Commission 20,000
-----------
4,30,000
-----------
Assets:
Cash and Bank Balance 75,000
Debtors 1,60,000
Stock of Oil (125 tins) 1,25,000
Furniture 30,000
Less: Depreciation 3,000
--------- 27,000
Rent Advance 12,000
Electricity Deposit 1,000
3-Wheeler Tempo Van 40,000
Less: Depreciation 10,000
--------- 30,000
-----------
4,30,000
-----------
A summary of the rough Cash Book of K. Azad for the year ended 31.3.96 is as below:
Cash and Bank Summary

Rs.
Receipts
Cash sales 5,26,500
Collection from Debtors 26,73,500
Payments to Landlord 79,000
Salaries 48,000
Miscellaneous 12,000
Commission 20,000
Personal Income tax 50,000
Transfer on 1.10.95 to 12% Fixed Deposit 6,00,000
To creditors for Oil Supplies 24,00,000

A scrutiny of the other records gives you the following information:
i. During the year oil was purchased at 250 tins per month basis at a unit cost of Rs.1,000. 5 tins were
damaged in transit in respect of which insurance claim has been preferred. The surveyors have since
approved the claim at 80%. The damaged ones were sold for Rs.1,500 which is included in the cash
sales. One tine has been used up for personal consumption. Total number of tins sold during the year
was 3,000 at a unit price of Rs.1,750.
ii. Rent until 30.9.95 was Rs.6,000 per month and was increased thereafter by Rs.1,000 per month.
Additional advance rent of Rs.2,000 was paid and this is included in the figure of payments to landlord.
iii. Provide depreciation at 10% and 25% of WDV on furniture and tempo van respectively.
iv. It is further noticed that a customer has paid Rs.10,000 on 31.3.96 as security by cash. One of the staff
has defalcated. The claim against the Insurance Company is pending.
You are requested to prepare final accounts for the year ended 31.3.96.
A: In the Books of K. Azad Trading and Profit and Loss Account For the year ended 31st
March, 1996
To Opening Stock 1,25,000 By Sales 52,50,000
To Purchases 30,00,00 By Damaged Stock 5,000
0
Less: Transferred to 1,000 29,99,00 By Closing stock 1,19,000
drawings A/c 0
To Gross Profit c/d 22,50,00
0
53,74,00 53,74,000
0
To Salaries 44,000 By Gross Profit b/d 22,50,000
To Rent 78,000 By Interest accrued on fired Deposits 36,000
To Miscellaneous office 12,000 By Profit on Damaged stock 500
expenses
To Loss of Deposits 10,000
To Interest on Security 6,000
Deposits
To Depreciation:
Furniture 2,700
Tempo Van 7,500 10,200
To Capital A/c (Net profit 21,26,30
transferred) 0
22,86,50 22,86,500
0

Balance sheet as on 31st March, 1996
K.Azad’s Capital 1,50,000 Furniture 27,000
Add: Net profit 21,26,300 Less: Depreciation 2,700 24,300
22,76,300 Tempo Van 30,000
Less: Drawings 51,000 22,25,30 Less: Depreciation 7,500 22,500
0
12% Security Deposit 60,000 Closing stock 1,19,000
from Customers
interest payable on 6,000 Debtors 22,11,500
security Deposits
Creditors for Oil 8,00,000 Cash and Bank Balances 66,000
Purchases
Outstanding Rent 7,000 Fixed Deposit 6,00,000
Interest Account on Fixed 36,000
Deposit
Rent Advances 14,000
Electricity Deposits 1,000
Insurance Claim receivable 4,000
30,98,30 30,98,300
0
Working Notes: -
1. Memorandum Stock Account
Particulars Qty Cost (Rs.) Particulars Qty Cost (Rs.)
To Opening Stock 125 1,25,000 By Damages 5 5,000
To Profit and Loss 3,000 30,00,000 By Drawings 1 1,000
Account
By Sales 3,000 30,00,000
By Closing stock 119 1,19,000
3,125 21,25,000 Closing stock 3,125 21,25,000
2. Damaged Stock Account
To Trading Account 5,000 By Insurance Claim Receivable A/c 4,000
To Profit and Loss A/c (transfer of balance) 500 By Cash and Bank A/c (sale) 1,500
5,500 5,500
3. Debtors Account
To Balance b/d 1,60,000 By Cash and Bank A/c 26,73,500
To Sales A/c (Credit Sales*) 47,25,00 By Balance c/d 22,11,500
0
48,85,00 48,85,000
0
Note:- Credit sales in respect of (normal) sales of 3,000 tins

Total Sales (3,000 x Rs.1,750) = 52,50,000
Less: Cash Sales (Rs.5,26,500-1,500) = 5,25,000
------------
47,25,000
=======
4. Creditors Account
To Cash and Bank A/c 75,000 By Balance b/d 2,00,000
To Balance c/d 8,00,000 By Purchases A/c 30,00,000

32,00,00 32,00,000
0
5. Cash and Bank Account

To Balance b/d 75,000 By Rent A/c 79,000
To Sales A/c 5,25,000 By Salaries A/ 48,000
To Damaged Stock A/c 1,500 By Miscellaneous office 12,000
expenses
To Debtors A/c 26,73,50 By Commission 20,000
0
To Securities Deposit A/c 10,000 By Drawings A/c (Personal 50,000
Income-tax)
By Fixed Deposit A/c 6,00,000
By Creditors A/c 24,00,000
By Loss of deposit A/c 10,000
(Defalcation of security)
32,85,00 32,85,000
0
Notes: -
1. 12% interest on fixed deposit is considered to be per annum. Same assumption is applies for 12%
security deposit from customers.
2. The treatment of claim pending against the insurance company in respect of defalcation of
security deposit by the staff has been considered on the basis of conservatism concept. Accounting to
conservation concepts, non-consideration of claim anticipation as an asset. When assessment of the
ultimate collection with reasonable certainty is lacking at the time of raising any claim, revenue
recognition is postponed to the extent of uncertainty involved (AS-9). In this question it may be assumed
that collectability of claims is not certain, so recognisation is to be posponeded.
Q2: Preparation of Final A/c from Opening B/S, Cash Book and Ratios:
The following is the Balance Sheet of Sanjay, a small trader as on 31.3.96:
(Figures in Rs. ‘000)
Capital 200 Fixed assets 145
Creditors 50 Stock 40
Debtors 50
Cash on Hand 5
Cash at Bank 10
250 250
A fire destroyed the accounting records as well as the closing cash of the trader on 31.3.97. However, the
following information was available:
a. Debtors and creditors on 31.3.97 showed an increase of 20% as compared to 31.3.96.
b. Credit period: Debtors _ 1 month Creditor - 2 month
c. Stock was maintained at the same level throughout the year.
d. Cash sales constituted 20% of total sales.
e. All purchase were for credit only.
f. Current ratio as on 31.3.97 was exactly 2.
g. Total expenses excluding depreciation for the year amounted to Rs.2,50,000.
h. Depreciation was provided at 10% on the closing value of fixed assets.
i. Bank and cash transactions:
1. Payments to creditors included Rs.50,000 by cash.
2. Receipts from debtors included Rs.5,90,000 by way of cheques.
3. Cash deposited into the bank Rs.1,20,000.

4. Personal drawings form bank Rs.50,000.
5. Fixed assets purchased and paid by cheques Rs.2,25,000.
You are required to prepare:
a. The Trading and Profit & Loss Account for the year ended 31.3.97 and
b. A Balance Sheet on that date.
For your exercise, assume cash destroyed by fire is written off in the Profit and Loss Account.
A: Books of Sanjay Trading and Profit and Loss A/c for the year ended 31.3.97
(Rs. ‘000)
To Opening stock 40 By Sales
To Purchases 360 Cash Sales 180
To Gross Profit c/d 540 Credit Sales 720 900
By Closing stock 40
940 940
To Expenses 250 By Gross Profit b/d 540
To Depreciation 37
To Cash destroyed 10
To Net profit 243
540 540
Balance sheet A/c

Capital 200 Fixed assets 333
( Less: Dep. 145+225 -37)
Add: Net profit 243 Stock 40
443 Debtors 60
Less: Drawings 50 393 Cash at Bank 20
Creditors 60
453 453
Cash and Bank A/C

Particulars J.F Cash Bank Particulars J.F Cash Bank
To Bal b/d 5 10 By creditors 50 300
To Debtors 120 590 By Drawings 50
To Cash Sales 180 120 By Bank (c) 120
To Cash (c) By Expenses 125 125*
By Assets 225
By Cash Destroyed 10*
By Balance c/d 20
305 720 305 720
Other Computation:
Rs.
1. Debtors Opening Balance 50,000
Closing Balance =Rs.50,000/20 x100 60,000
Credit Sales = Rs.60,000x 12 7,20,000
Total Sales = Rs.7,20,000 / 80 x 100 9,00,000
Cash Sales = Rs.9,00,000 / 20 x 100 1,80,000
Receipt of cash from deb6tors Rs. (50,000 + 7,20,000 – 60,000 – 1,20,000
5,90,000 )
2. Cr editors Opening Balance 50,000

Closing balance = Rs.50,000 / 20 x 100 60,000
Credit purchases = Rs.60,000 x 6 3,60,000
Payment by cheque Rs.50,000 + 3,60,000 – 60,000 – 50,000 3,00,000
3. Closing Bank Balance:
Creditors 60,000 x2 1,20,000
Current assets Current assets – stock- debtors
Bank Balance 1,20,000 – 40,000 -60,000 20,000
4. Expenses by cheque: (Balance fig.) (10 + 590 + 120 - 300 – 50 – 225 – 20) 125
(Rs. In ‘000)
Expenses by cash 250 -125 125
5. Cash destroyed (balance figure in cash a/c) (Rs. In ‘000) 10
Fig. (Rs.’000) (5 + 120 + 180 – 50 – 120
– 125)
Q3: Preparation of Complete A/c from Raw Details:

From the following furnished by Shri Ramji, prepare Trading and Profit and Loss account for the year
ended 31.3.2005. Also draft his Balance Sheet as at 31.3.2005:
1.4.2004 31.3.2005
Rs. Rs.
Creditors 3,15,400 2,48,000
Expenses outstanding 12,000 6,600
Fixed assets (includes machinery) 2,32,200 2,40,800
Stock in hand 1,60,800 2,22,400
Cash in hand 59,200 24,000
Cash at bank 80,000 1,37,600
Sundry debtors 3,30,600 ?
Details of the year’s transactions are as follows:
Cash and discount credited to debtors 12,80,000
Returns from debtors 29,000
Bad debts 8,400
Sales (Both cash and credit) 14,36,200
Discount allowed by creditors 14,000
Returns to creditors 8,000
Capital introduced by cheque 1,70,000
Collection from debtors (Deposited into bank after receiving 12,50,000
cash)
Cash purchases 20,600
Expenses paid by cash 1,91,400
Drawings by cheque 8,600
Machinery acquired by cheque 63,600
Cash deposited into bank 1,00,000
Cash withdrawn from bank 1,84,800
Cash sales 92,000
Payment to creditors by cheque 12,05,400
Note: Ramji has not sold any Fixed Asset during the year. (16 Marks) (PE-II - Nov. 2005)
A: In the books of Shri Ramji Trading and Profit and Loss Account
Dr Cr.
.
Rs. Rs. Rs. Rs.
To Opening 1,60,800 B Sales:
stock y
To Purchases: Cash 92,000
Cash 20,600 Credit 13,44,20

0
Credit 11,60,00 14,36,20
(W.N. 3) 0 0
11,80,60 Less: 29,00 14,07,200
0 Returns 0
Less: 8,00 11,72,600
Returns 0
To Gross Profit 2,96,20 B Closing 2,22,400
c/d 0 y stock
16,29,600 16,29,600
To Discount 30,000 B Gross 2,96,200

allowed y profit b/d
To Bad debts 8,400 B Discount 14,000
y
To General expenses (W.N. 1,86,000
5)
To Depreciation (W.N. 4) 55,000
To Net profit 30,800 _______
3,10,200 3,10,200
Capital (W.N. 1) 5,35,40 Sundry Assets 2,32,20
0 0
Add: Additional 1,70,00 Add: New 63,60
capital 0 machinery 0
Net profit 30,80 2,95,80
0 0
7,36,20 Less: Depreciation 55,00 2,40,800
0 0
Less: Drawings 8,60 7,27,600 Stock in trade 2,22,400
0
Sundry creditors 2,48,000 Sundry debtors (W.N. 2) 3,57,400
Expenses outstanding 6,600 Cash in hand 24,000
_______ Cash in Bank 1,37,600
9,82,200 9,82,200
Working Notes:
(1) Statement of Affairs as at 31st March, 2004
Rs. Assets Rs.
Liabilities
Sundry creditors 3,15,400 Sundry Assets 2,32,200
Outstanding expenses 12,000 Stock 1,60,800
Ramji’s Capital Debtors 3,30,600
(Balancing figure) 5,35,400 Cash in hand 59,200
_______ Cash at Bank 80,000
8,62,800 8,62,800
(2) Sundry Debtors Account

Rs. Rs.
T Balance b/d 3,30,600 B Cash 12,50,000
o y
T Sales (14,36,200 – 13,44,200 B Discount 30,000
o 92,000) y
B Returns (sales) 29,000

y
B Bad debts 8,400
y
________ B Balance c/d (Balancing 3,57,400
y figure)
16,74,800 16,74,800
(3) Sundry Creditors Account

Rs. Rs.
To Bank – Payments 12,05,40 B Balance b/d 3,15,400
0 y
To Discount 14,000 B Purchases credit 11,60,000
y
To Returns 8,000 (Balancing figure)
To Balance c/d (closing balance)
2,48,000 ________
14,75,40 14,75,400
0
(4) Depreciation on Fixed Assets: Rs.

Opening balance 2,32,200
Add: Additions 63,600
2,95,800
Less: Closing balance 2,40,800
Depreciation 55,000
(5) Expenses to be shown in profit and loss account

Expenses (in cash) 1,91,400
Add: Outstanding of 2005 6,600
1,97,800
Less: Outstanding of 2004 12,000
1,86,000
(6) Cash and Bank Account

Cash Bank Cash Bank
Rs. Rs. Rs. Rs.
To Balance b/d 59,200 80,000 By Purchases 20,600 
To Capital 1,70,000 By Expenses 1,91,400
To Debtors 12,50,000 By Plant and 63,600
Machinery
To Bank 1,84,800 By Drawings 8,600
To Cash 1,00,000 By Creditors 12,05,400
To Sales 92,000 By Cash 1,84,800
By Bank 1,00,000
_______ ________ By Balance c/d 24,000 1,37,600
3,36,000 16,00,000 3,36,000 16,00,000
Q4: Preparation of Complete A/c from Raw Details:

Shri Rashid furnishes you with the following information relating to his business :

(a) Assets and liabilities as on 1.1.1997 31.12.1997
Rs. Rs.
Furniture (w.d.v) 6,000 6,350
Stock at cost 8,000 7,000
Sundry Debtors 16,000 ?
Sundry Creditors 11,000 15,000
Prepaid expenses 600 700
Unpaid expenses 2,000 1,800
Cash in hand and at bank 1,200 625
(b) Receipts and payments during 1997 :
Collections from debtors, after allowing discount of Rs. 1,500 amounted to Rs. 58,500.
Collections on discounting of bills of exchange, after deduction of discount of Rs. 125 by the bank,
totaled to Rs. 6,125.
Creditors of Rs. 40,000 were paid Rs. 39,200 in full settlement of their dues.
Payment for freight inwards Rs. 3,000.
Amounts withdrawn for personal use Rs. 7,000.
Payment for office furniture Rs. 1,000.
Investment carrying annual interest of 4% were purchased at Rs. 96 on 1st July, 1997 and payment
made therefor.
Expenses including salaries paid Rs. 14,500.
Miscellaneous receipts Rs. 500.
(c) Bills of exchange drawn on and accepted by customers during the year amounted to Rs. 10,000. Of
these, bills of exchange of Rs. 2,000 were endorsed in favour of creditors. An endorsed bill of exchange
of Rs. 400 was dishonoured.
(d) Goods costing Rs. 900 were used as advertising materials.
(e) Goods are invariably sold to show a gross profit of 331/3% on sales.
(f) Difference in cash book, if any, is to be treated as further drawing or introduc-tion by
Shri Rashid.
(g) Provide at 2.5% for doubtful debts on closing debtors.
Rashid asks you to prepare trading and profit and loss a/c for the year ended 31st December, 1997 and the
balance sheet as on that date.
Answer
Tr and P and L A/c of Shri Rashidfor the year ended 31st December, 1997
Rs. Rs.
To Opening Stock 8,000 By Sales 73,050
To Purchases 45,600 By Closing stock 7,000
Less : For advertising 900 44,700
To Freight inwards 3,000
To Gross profit c/d 24,350
80,050 80,050
To Sundry expenses 14,200 By Gross profit b/d 24,350
To Advertisement 900 By Interest on investment 2
To Discount allowed –
( Rs . 100×1004 ×12 )
Debtors 1,500 By Discount received 800
Bills Receivable 125 1,625 By Miscellaneous income 500
To Depreciation on furniture 650
To Provision for doubtful debts 486
To Net Profit 7,791
25,652 25,652
Balance Sheet as on 31st December, 1997
Liabilities Amount Assets Amount
Rs. Rs.
Capital as on 1st January, 199718,800 Furniture (w.d.v.) 6,000
Additions during the year 1,000
Less : Drawings 7,904 7,000
10,896 Less : Depreciation 650 6,350
Add : Net Profit 7,791 18,687 Investment 96
Sundry creditors 15,000 Interest accrued 2
Outstanding expenses 1,800 Closing Stock 7,000
Sundry debtors 19,450
Less : Provision for
doubtful debts 486 18,964
Bills receivable 1,750
Cash in hand and at bank 625
Prepaid expenses 700
35,487 35,487
Working Notes :
(1) Capital on 1st January, 1997
Balance Sheet as on 1st January, 1997
Capital (Balancing figure) 18,800 Furniture (w.d.v.) 6,000
Creditors 11,000 Stock at cost 8,000
Outstanding expenses 2,000 Sundry debtors 16,000
Cash in hand and at bank 1,200
31,800 31,800
(2) Purchases made during the year

Sundry Creditors Account
Rs. Rs.
To Cash and bank A/c 39,200 By Balance b/d 11,000
To Discount received A/c 800 By Sundry debtors A/c 400
To Bills Receivable A/c 2,000 By Purchases A/c 45,600
To Balance c/d 15,000 (Balancing figure)
57,000 57,000
(3) Sales made during the year
Rs.
Opening stock 8,000
Purchases 45,600
Less : For advertising 900 44,700
Freight inwards 3,000
55,700
Less : Closing stock 7,000
Cost of goods sold 48,700
Add : Gross profit (@ 50% on cost) 24,350
73,050
(4) Debtors on 31.12.1997
Sundry Debtors Account
Rs. Rs.
To Balance b/d 16,000 By Cash and bank A/c 58,500
To Sales A/c 73,050 By Discount allowed A/c 1,500
To Sundry creditors A/c By Bills receivable A/c 10,000
(bill dishonoured) 400 By Balance c/d (Balancing figure) 19,450
89,450 89,450

(5) Additional drawings by Mr. Rashid
Cash and Bank Account
Rs. Rs.
To Balance b/d 1,200 By Freight inwards A/c 3,000
To Sundry debtors A/c 58,500 By Furniture A/c 1,000
To Bills Receivable A/c 6,125 By Investment A/c 96
To Miscellaneous income A/c 500 By Expenses A/c 14,500
By Creditors A/c 39,200
By Drawings A/c 7,904
[Rs. 7,000 + Rs. 904
(Additional drawings)]
By Balance c/d 625
66,325 66,325

(6) Amount of expenses debited to Profit and Loss A/c
Rs. Rs.
To Prepaid expenses A/c 600 By Outstanding expenses A/c 2,000
(on 1.1.1997) (on 1.1.1997)
To Bank A/c 14,500 By Profit and Loss A/c
To Outstanding expenses A/c 1,800 (Balancing figure) 14,200
(on 31.12.1997) By Prepaid expenses A/c 700
(on 31.12.1997)
16,900 16,900
(7) Bills Receivable on 31.12.1997
Bills Receivable Account

Rs. Rs.
To Debtors A/c 10,000 By Creditors A/c 2,000
By Bank A/c 6,125
By Discount on bills receivable A/c 125
By Balance c/d (Balancing figure) 1,750
10,000 10,000
Note : As regards investment, it has been assumed that investment purchased for Rs. 96 was of the face
value Rs. 100.

5. NON PROFIT ORGANISATION
Preparation of Income and Expenditure Account

Preparation of Complete Final Accounts
Q1: Preparation of Income and Expenditure Account
A:

Q2: Preparation of Complete Final Accounts:

6. PARTNERSHIP ACCOUNTING
P/L Appropriation Accounts

Past adjustments
Treatment of Goodwill - Premium Received
Treatment of Goodwill – Revaluation Method
Treatment of Goodwill – Premium Paid Partly
Treatment of Goodwill – Various Methods
Admission of Partner
Admission of Partner with Memorandum Revaluation Method
Retirement of Partner
Admission cum Retirement of Partner
Joint Life Policy
Death of Partner
Dissolution of Firm
Dissolution of Partnership Firm (One Partner Insolvent)
Dissolution of Firms (Single Partner Insolvent and Profit on Realisation)
Dissolution of Firms (Single Partner Insolvent and Garner Vs Murray
Dissolution of firm [All partners are insolvent]
Piecemeal Distribution for Dissolution of Firm (Capital Proportional Method)
Dissolution of Firm (Piecemeal Distribution Maximum Loss Method)
Amalgamation of sole trades
Formation of New Firm to Takeover Old Firm
Amalgamation of Firms
Conversion of Firm into Company
Sale to a Company
Q1: P/L Appropriation Accounts: A, B and C are partners in a firm with capitals of Rs.50,000,
Rs.40,000 and Rs.20,000 respectively. They share profits and losses as: (i) Up to Rs.10,000, in the ratio of
4:3:3 (ii) Above Rs.10,000 equally.
The net profit of the firm for the year ended 31 st December, 2002 amounted to Rs.40,200 and the
drawings of the partners were: A-Rs.6,000, B-5,000, C-Rs.3,000.
You are required to prepare the Profit and Loss Appropriation Account for the year ended 31.12.2002 and
Capital Accounts of the partners assuming: (a)partners capitals are fixed; and (b)partners capitals are
fixed’ and (b)partners’ capitals are fluctuating, after considering the following adjustments: (1)interest on
partners’ capitals to be paid @ 10% p.a., ; (2)interest on drawings to be charged @ 5% p.a.; (3)A to
receive salary of Rs.5,000 p.a.; and (4)B and C to get commission @ 10% each on the net profit.
A:
Profit and Loss Appropriation A/c for the year ended 31-12-2002
Particulars Rs Rs. Particulars Rs. Rs.
.
To interest on capital A/c (A-Rs.5,000; 11,00 By Profit and Loss A/c – Net 40,200
B-Rs.4,000; C-Rs.2,000 0 profit
To partners’ salary A/c; A 5,000 By int. on Drawings 5% on 150
Rs.6,000 for 6 months
To Commission A/c: (B-Rs.4,020; C- 8,040 B-5% on Rs.6,000 for 6 months 125
Rs.4,020)
To Share of profit A/c (A-Rs.6,170; B- 16,51 C-5% on Rs.3,000 for 6 months 75 350
Rs.5,170; C-Rs.5,170) 0
40,55 40,550
0
(a) Fixed capital method: Partners Capital A/c

Particular A B C Particular A B C
s s
To Bal. c/d 50,000 40,00 20,000 By Bal b/d 50,00 40,000 20,000
0 0
Partners Current A/c

Particulars A B C Particulars A B C
To Drawings A/c 6,000 5,000 3,000 By int. on Capital 5,000 4,000 2,000
To int. on Drawings 150 125 75 By partners Salary 5,000 --- ----
To bal.c/d 10,020 8,065 8,115 By Commision A/c --- 4,020 4,020
By Sh.Of profit A/c 6,170 5,170 5,170
16,160 13,190 11,190 16,170 13,190 11,190
(b) Fluctuating Capital Method: Partners’ Capital A/c

To Drawings A/c 6,000 5,000 3,000 By Bal. b/d 50,00 40,00 20,000
0 0
To Int. on Drawings 150 125 75 By int.on capital 5,000 4,000 2,000
To Bal. c/d 60,02 48,06 28,11 By partners Salary 5,000 ---- ----
0 5 5
By Comm. A/c ---- 4,020 4,020
By Share of profit 6,170 5,170 5,170
66,17 53,19 31,19 66,17 53,19 31,190
0 0 0 0 0
Working Note:
(1)Profit is shared as under: A B C; Up to Rs. 10,000 (4:3:3) 4,000 3,000 3,000 and above Rs.10,000
i.e.,Rs. 6,510 (1:1:1) 2,170 2,170 2,170; --- 6,170 5,170 5,170
Q2: Past adjustments: A and B started a partnership on 1.1.2001 with respective capital contributions of
Rs.1,20,000 and Rs.40,000. Their Capital Account balances as on 31.12.2002 were: A-Rs.2,09,500 and
B-90,500. The transactions recorded in the Capital Accounts during these two years were interest on
capital @ 10% p.a. on initial investments and allocations of incomes. On 31.12.2002, it was further
discovered that drawings of Rs.42,000 by A and Rs.30,000 by B had been wrongly treated as business
expenses. You are required to a pass a single journal entry to adjust the partners’ Capital Accounts
correctly on 31.12.2002.
A: Working Notes
(1)Ascertainment of Total Profit for 2 years (2) Ascertainment of Correct Profit
Particulars A B Particulars Rs.
Balance of capital as on Profits already credited (Rs.65,500
1.1.2001 1,20,000 40,00 +42,500) 1,08,000
0
Add: Int. on Capital for 2 Years Add: Drawings shown as expense
@ 10% p.a 24,000 8,000 (Rs.42,000 +30,000) 72,000
Add: Profit credited for 2 years
(Bal) 65,500 42,50
0
Balance of capital on Corrected profits to be shared equally
31.12.2002 2,09,500 90,50 1,80,000
0

(4)Ascertainment of correct capital balances (3) Adjustment of sharing of profits
A B A B
Balance of capital as on Profits that should have been
31.12.2002 2,09,50 90,500 credited (Note 2) 90,000 90,000
Less: Drawings previously 0 30,000
not charged 42,000
1,67,50 60,500 Less: Profits that actually have 65,500 42,500
0 been credited
Add: Profits to be credited 24,500 47,500 Profit that should be credited
(Note 3) further 24,500 47,500
Corrected capital balances as 1,92,00 1,08,000
on 1.12.2002 0
Required journal Entry (5) Adjustment of partners’ capital A/c

A Capital A/c Dr. 17,50 Capital Balances as on 2,09,500 90,500
0 31.12.2002 (given)
To B Capital A/c 17,500 Corrected balances as on 1,92,000 1,08,000
31.12.2002
(Being the partners’ capital Required adjustment: excess (+)17,500 (-)17,500
account adjusted) (+) / short (-)
Q3: Treatment of Goodwill - Premium Received: A & B are equal partners. C is coming as a new
partner who pays Rs.8,000 as premium for goodwill. The new profit sharing ratio among A, B & C is
4:3:2. Pass necessary journal entries showing the appropriation of premium money assuming that the
premium for goodwill is immediately withdrawn by the old partners.
Journal Entries
Cash A/c Dr. 8,000 A Capital A/c Dr. 2,00
0
To Premium for Goodwill A/c 8,000 B Capital A/c Dr. 6,00
0
Premium for Goodwill A/c 8,000 To Cash A/c 8,000
Dr.
To A Capital A/c 2,000
To B Capital A/c 6,000
Q4: Treatment of Goodwill – Revaluation Method: A & B are partners in a firm sharing profits and
losses in the ratio of 3:2. C joins the firm for 1/3 rd share, and is to pay Rs.20,000 as premium for goodwill
but cannot pay anything. As between A and B, they decided to share profits & losses equally. Pass
required journal entry.
C Capital A/c Dr. 20,000

To A Capital A/c (Note 1) 16,000
Q5: To B Capital A/c (Note 1) 4,000
Alternatively
Goodwill A/c (Note 2) Dr. 60,000
A Capital A/c (Note 3) Dr. 20,000
B Capital A/c 20,000
C Capital A/c 20,000
To Goodwill A/c 60,000
Treatment of Goodwill – Premium Paid Partly: A& B are partners in a firm sharing profits & loss in

the ratio of 3:2. C is coming for 1/3 rd share, is to pay Rs.30,000 as premium for goodwill but pays only
Rs.15,000. As between A&B, they decided to share profits & losses equally.
Pass necessary journal entries.
Bank A/c Dr. 15,000
To Premium for Goodwill 15,000
a/c.
Premium for Goodwill a/c Dr. 15,000
C capital A/c Dr. 15,000
Q6: Treatment of Goodwill – Various Methods: A and B are partners in a firm with capital balances of
Rs.1,20,000 and Rs.1,80,000 Respectively. C is admitted to the partnership. Prepare the appropriate
journal entries for each of the following:
(i)C Purchases a 20% partnership interest for Rs.70,000.
(ii)C Contributes Rs.1,00,000 for a 25% partnership interest for Rs.70,000.
(iii)C Contributes an amount to obtain a 33 1/3 % partnership interest.
In the books of the Firm
Cash A/c Dr. 70,000 A Capital (5 +24) Dr. 29,000
To C Capital A/c 60,000 B Capital (5 +36) Dr. 41,000
To Premium for Goodwill(Nt1) 10,000 To Cash A/c 70,000
Premium for goodwill Dr. 10,000 To C Capital A/c 1,00,000
To A Capital A/c 5,000 Cash A/c (Note 3) Dr. 1,50,000
To B Capital A/c 5,000 To Capital A/c 1,50,000

Q7: Admission of Partner: Rain and Storm are partners in a firm sharing profits and losses as 3:2
respectively. Their Balance sheet on 31.12.2000 stands as under:
Liabilities Rs. Rs. Assets Rs. Rs.
Creditors 35,000 Cash 4,000
Capital Debtors 22,000
Accounts:
Rain 40,000 Less: Prov. For doubtful 2000 20,000
debts
Storm 20,000 60,000 Stock 18,000
Machinery 20,000
Land & Building 33,000
95,000 95,000
On 1.1.2001, they agreed to take Dust as a partner on the following conditions:
(i) goodwill of the firm shall be valued at Rs.23,750, Dust shall pay his share of goodwill in cash.
(ii)Dust shall contribute Rs.15,000 as his share of capital.
(iii)Land and Building shall be valued at Rs.42,000. Machinery shall be depreciated by Rs.5,000.
Provision for doubtful debts shall be raised to Rs.3,000 and another provision shall be made for a
probable liability for damages amounting to Rs.1,300.
(iv)Profit & loss sharing ratio shall be so adjusted that, between Rain & Storm the former ratio is
maintained, while between Storm & Dust there shall be the same ratio as between Rain & Storm.
(v)The capital shall be adjusted (without disturbing the ultimate total capital) so as to correspond with the
new ratio, the excess or deficit being transferred to their respective current accounts.
Show journal entries to give effect to the above arrangement & prepare the opening B/S of the new firm.
A:
Land and Building A/c Dr. 9,000
To Revaluation A/c 9,000
Revaluation A/c Dr. 7,300
Balance Sheet of the New
firm as on 1st To Machinery A/c 5,000 January, 2001
Liabilities To Prov. For
Rs. Doubtful
Rs.Debts A/c.
Assets 1,000
Rs. Rs.
Capital Accounts: To Liability for Damages A/c Land and Building 1,300 42,000
Rain 38,700 Machinery
Revaluation A/c (Rs.9,000 – 7,300) Dr. 1,700 15,000
Storm 25,800
To Rain Capital A/c Stock 1,020 18,000
Dust 17,200 81,700 Debtors 22,000
Current A/c To Storm Capital A/c Less: Prov. For doubtful 3,000 680 19,000
Rain Cash A/c Dr. 5,320 debts 20,000 24,000
To Premium for Goodwill Cash (Rs.4,000
A/c (Note 2) + 20,000) 5,000
Creditors 35,000 Current A/c
To Dust Capital A/c 15,000
Liability for 1,300 Storm 3,120
Premium for Goodwill A/c (Note 3) Dr. 5,000
Damages
To Rain Capital A/c Dust 3,000
2,200 5,320
To Storm Capital A/c
1,23,320 2,000 1,23,320
Working Rain Capital A/c.(Note 4 and 5) Dr. 5,320 Notes:
(1) To Rain Current A/c 5,320 Calculation of
New Profit Sharing Ratio
The Strom Current A/c (Note 4 and 5) Dr. 3,120 profit sharing
ratio Dust Current A/c Dr. 2,200 between Rain
and To Storm Capital A/c 3,120 Storm is 3:2,
and profit sharing
To Dust Capital A/c 2,200
ratio between storm
and Dust will also be 3:2. Therefore, share of Dust =2/5/3 x 2 = 4/15
(2) Premium for goodwill brought in by Dust = Rs.23,750 / 19 x 4 = Rs.5,000.
(3) The partners’ old profit sharing ratio (3:2) is their sacrificing ratio.
(4) Total capital of the new firm

Opening capital + Capital and premium brought in by Dust + Revaluation profit
=Rs.(60,000 + 15,000 +5,000 + 1,700)=Rs.81,700
Rain’s share = Rs.81,700 x 9/19 = Rs.38,700
Storm’s share = Rs.81,700 x 6/19 = Rs.25,800
Dust’s share = Rs.81,700 x 4/19 = Rs.17,200.
(5) Partners’ Capital A/c

Particulars Rain Storm Dust Particulars Rain Storm Dust
To Current a/c (bal) 5,320 -------- By Bal. b/d 40,000 20,000 ---
By Bank A/c. ---- ---- 15,000
To Bal. (Note 4) 38,700 25,800 17,200 By Goodwill 3,000 2,000 ----
By Revaluation A/c 1,020 680 ----
By Current a/c (Bal) ---- 3,120 2,200
44,020 25,800 17,200 44,020 25,800 17,200
Q8: Admission of Partner: Ranu & Mili are partners in a firm sharing profits & losses in the ratio of 2:1
The Balance sheet of the firm on 31.12.2002 was as follows:
Creditors 7,000 Investments 25,000
Investment provision 2,000 Stock 15,000
General Reserve 10,500 Debtors 20,000
Workmen compensation 6,000 Less.Prov. for bad 2,500 17,500
Fund debts
Capital A/cs: Ranu 30,00 Bills Receivable 12,500
0
Mili 54,500 Bank 10,000
24,500
80,000 80,000
On the above date, Manisha is admitted for 2/5th share in the profits or losses of the firm. Following
adjustments were made at the time of admission:
(a)Manisha is required to bring in Rs.50,000 as capital.
(b)Her goodwill was calculated at Rs.12,000.
(c)Ranu and Mili purchased a Machiney on hire purchase system for Rs.15,000 of which only Rs.500 are
to be paid. Both machinery and unpaid liability did not appear in the Balance sheet.
(d)There was a joint life policy on the lives of Ranu and Mili for Rs.75,000. Surrender value of the policy
on the date of admission amounted to Rs.12,000.
(e)Accrued incomes not appearing in the books were Rs.500.
(f)Market value of investments is Rs.22,500.
(g)Claim on account of compensation is estimated at Rs.750.
(h)S, an old customer, whose account was written-off as bad, has promised to pay Rs.1,750 in settlement
of the full claim.
(i)Provision for bad debts is required at Rs.3,000.
Prepare Revaluation Account, Partners’ Capital Accounts and Opening Balance Sheet after the admission
of Manisha.
In the books of the firm
Revaluation A/c
To Investment Provision A/c (Nt 1) 500 By Accrued income A/c 500
To Prov. For bad debts A/c. 500 By Workmen Comp. Fund A/c (Note 2) 5,250
To Creditors A/c (hire purchase) 500 By Joint Life Policy A/c 12,000
To Partners’ Capital A/cs – Profit 31,25 By Machinery A/c 15,000
(Ranu- Rs.20,833; Mili – 0
Rs.10,417

32,75 32,750
0
Partners’ Capital A/c
Particulars Ranu Mili Manish Particulars Ranu Mili Manisha
a
To G/W 12,00 6,000 12,000 By Bal. b/d. 30,000 24,50 ----
0 0
To Bal. c/d 65,83 42,417 38,000 By Revaluation A/c 20,833 10,41 ----
3 7
By General Reserve 7,000 3,500 ----
By G/W A/c (Nt 3) 20,000 10,00 ----
0
By Bank A/c ---- ---- 50,000
77,83 48,417 50,000 77,833 48,41 50,000
3 7
Balance Sheet of the Firm (after Manisha’s admission)

Liabilities Rs. Assets Rs. Rs.
Capital A/c Machinery 15,000
Ranu 65,833 Investment 25,000
Mili 42,417 Stock 15,000
Manisha 38,000 Debtors 20,000
Creditors 7,500 Less: RDD 3,000 17,000
Investment Prov. (Rs.2,000 + 500) 2,500 Bills Receivable 12,500
Workmen Comp Fund (6,000- 750 Joint Life 12,000
5,250) Policy 500
Accrued Income
Bank (10+50) 60,000
1,57,000 1,57,000
Working Notes:
(1)Since there is a fall in the market value of investments of Rs.2,500, investment provision is increased
form Rs.2,000 to Rs.2,500.
(2)Workmen compensation fund is nothing but retained profit. Therefore, it is credited to Revaluation
A/c. Alternatively, it could have been credited to partners’Capital A/c in the old profit sharing ratio.
(3)Since Manisha is not paying the required amount of premium for goodwill. Therefore, Rs.30,000
goodwill will be adjusted through the Capital Accounts of the partners.
(4)There will be no entry for the promise made by S, Since it is an event and not a transaction.
Q9: Admission of Partner with Memorandum Revaluation Method:

Following was the B/S of A&B, who were sharing profit & loss in the ratio of 2:1 on 31.12.2006:
Capital Plant and machinery 12,00,000
Accounts
A 10,00,000 Building 9,00,000
B 5,00,000 Sundry debtors 3,00,000
Reserve fund 9,00,000 Stock 4,00,000
Sundry creditors 4,00,000 Cash 1,00,000
Bills payable 1,00,000
29,00,000 29,00,000
They agreed to admit ‘C’ into the partnership on the following terms:
(i) The goodwill of the firm was fixed at Rs.1,05,000.
(ii) That the value of stock and plant and machinery were to be reduced by 10%.
(iii) That a provision of 5% was to be created for doubtful debts.
(iv) That the building account was to be appreciated by 20%.

(v) There was an unrecorded liability of Rs.10,000.
(vi) Investments worth Rs.20,000 (Not mentioned in the B/S) were taken into account.
(vii)That the value of reserve fund, the values of liabilities & the values of assets other than cash are
not to be altered.
(viii) C was to be given ¼ th share in the profit& was to bring capital equal to his share of profit after
all adjustments.
Prepare Memorandum Revaluation Account, Capital account of the partners and the Balance Sheet of the
newly reconstituted firm. (16 Marks) (PE II, Nov. 2007)
A: Memorandum Revaluation A/c

Particulars Rs Particulars Rs
To Stock 40,000 By Building 1,80,000
To Plant & machinery 1,20,000 By Investments 20,000
To Provision for doubtful debts 15,000
To Unrecorded liability 10,000
To Partners’ Capital A/c (OR)
A = 10,000
B = 5,000 15,000
2,00,000 2,00,000
To Building 1,80,000 By Stock 40,000
To Investments 20,000 By Plant & machinery 1,20,000
By Provision for doubtful debts 15,000
By Unrecorded liability 10,000
By Partners’ Capital A/cs (NR)
A = 7,500
B = 3,750
C = 3,750 15,000
2,00,000 2,00,000
Partners’ Capital Ac
T Rev. Loss 7,500 3,750 3,750 B Balance b/d 10,00,000 5,00,00 -
o y 0
T Reserve Fund 4,50,000 2,25,00 2,25,000 B ReservFun 6,00,000 3,00,00 -
o 0 y d 0
T A (W.N.3) - - 17,500 B C (W.N.3) 17,500 8,750 -
o y
T B (W.N.3) - - 8,750 B Rev. Profit 10,000 5,000
o y
T Balance c/d – wn2 11,70,000 5,85,00 5,85,000 B Cash (Bal) 8,40,000
o 0 y
16,27,500 8,13,75 8,40,000 16,27,500 8,13,75 8,40,000
0 0
Balance Sheet of newly reconstituted firm as on 31.12.2006
Capital Accounts Plant & Machinery 12,00,000
A 11,70,000 Building 9,00,000
B 5,85,000 Sundry Debtors 3,00,000
C 5,85,000 Stock 4,00,000
Reserve Fund 9,00,000 Cash (1,00,000 + 8,40,000) 9,40,000
Sundry Creditors 4,00,000
Bills Payable 1,00,000
37,40,000 37,40,000
Working Notes: 1. Calculation of new profit and loss sharing ratio

C will get 1/4 th share in the new profit sharing ratio.
Therefore, remaining share will be 1-1/4 =3/4, Share of A will be 3/4 x 2/3 = 2/4 i.e. 1/2
Share of B will be 3/4 x 1/3 = ¼, New ratio will be A : B : C - 1/2 : 1/4 : 1/4 - 2 : 1: 1
2. Calculation of closing capital of C

Closing capitals of A & B after all adjustments are: A-Rs.11,70,000, B-Rs. 5,85,000
Since B’s capital is less than A’s capital, therefore B’s capital is taken as base.
Hence, C’s closing capital should be Rs.5,85,000 i.e. at par with B (new p&l ratio)
3. Adjustment entry for goodwill

Partners Goodwill as per old ratio Goodwill as per new Effect
ratio
A 70,000 52,500 + 17,500 -
B 35,000 26,250 + 8,750 -
C - 26,250 - 26,250
1,05,000 1,05,000 26,250 26,250
Adjustment entry will be:
C’s Capital A/c Dr. 26,250
To A’s Capital A/c 17,500
To B’s Capital A/c 8,750

Q10: Retirement of Partner: On 31-3-1995, the B/S of M/s. A, B and C sharing profits and losses in
proportion to their capitals, stood as follows:
st
On 31 Sundry Crs. 1,00,00 Land and Buildings 2,00,000 March 1995,
A desired to 0 retire from
the firm and Capital A/cs. Machinery 3,00,000 the
remaining A 2,00,00 Closing stock 1,00,000 partners
decided to 0 carry on. It
was agreed B 3,00,00 Sundry Debtors 1,00,000 to revalue
the assets 0 and
liabilities on C 2,00,00 7,00,00 Cash and Bank Balances 1,00,000 that date on
the 0 0 following
basis: 8,00,00 8,00,000
(1)Land and 0 Buildings be
appreciated by 30%
(2)Machinery is to be depreciated by 20%
(3)Closing stock is to be valued at Rs.75,000.
(4)Provision for bad debts is to be made at 5%.
(5)Old credit balances of Sundry Creditors Rs.20,000 is to be written-off.
(6)Joint Life Policy of the partners surrendered and cash obtained Rs.80,000.
(7)Goodwill of the entire firm be valued at Rs.1,40,000 &A’s share of the Goodwill be adjusted in the
accounts of B& C who share the future profits equally. No Goodwill A/c being raised.
(8)The capital of the firm is to be the same as before retirement. Individual capital be in their profit
sharing ratio.
(9)Amount due to A is to be settled on the following basis: 50% on retirement and the balance 50%
within one year. Prepare Revaluation Account, Capital Accounts of partners, Cash and Bank Account and
Balance Sheet as on 1.4.1995 of M/s. B and C.
In the Books of M/s/ A,B and C

Revaluation A/c
To Machinery A/c 60,00 By Land and Buildings A/c 60,000
0
To closing stock A/c 25,00 By Sundry Crs. A/c 20,000
0
To Prov. For bad debts 5,000 By Partners’Capital (A:.2,857; B;4,286; 10,000
A/c C;2,857)
90,00 90,000
0
Cash and Bank A/c

To Balance b/d 1,00,000 By A Capital A/c 1,30,000
To Joint Life Policy 80,000 By Balance c/d 2,40,000
A/c Partners’
Capital A/c To B Capital A/c 30,000
Particulars ToAC Capital BA/c C 1,60,000Particulars A B C
To Revaluation 2,857 4,286 3,70,000
2,857 By Bal. b/d 3,70,000
2,00,00 3,00,00 2,00,00
0 0 0
To A ---- 10,000 30,000 By J.L.P A/c 22,857 34,286 22,857
Capital(GW)
To Bank (50% 1,30,00 ---- By B Capital 10,000 ---- ----
paid) 0 GW)
To A Loan A/c 1,30,00 ---- By C Capital 30,000 ---- ----
0 GW

To Balance (req) ---- 3,50,00 3,50,00 By Bank (Bal) ---- 30,000 1,60,00
0 0 0
2,62,85 3,64,28 3,82,85 2,62,85 3,64,28 3,82,85
7 6 7 7 6 7
Balance sheet of M/s. B and C as on 1st April, 1995

Partners capital Land and Buildings 2,60,000
a/cs
B 3,50,00 Machinery 2,40,000
0
C 3,50,00 7,00,000 Closing Stock 75,000
0
A’s Loan A/c 1,30,000 Sundry Debtors 1,00,00
0
Sundry Creditors 80,000 Less:Prov. For Bad 5,000 95,000
Debts
Cash and Bank Balances 2,40,000
9,10,000 9,10,000
Calculation of Share of Goodwill

Right of Goodwill before retirement 40,000 60,000 40,000
(2:3:2)
Right of Goodwill after retirement (1:1) ---- 70,000 70,000
Sacrifice (-)/Gain (+) (-)40,000 (+)10,000 (+)30,000
Q11: Retirement of Partner: Following is the B/S of A,B&C who were partners as on 31.3.1993.
Liabilities Rs Assets Rs
A’s Capitals 33,600 Plant and Machinery 49,000
B’s Capitals 25,200 Furniture and fittings 4,800
C’s Capitals 12,000 Stock in Trade 22,800
Sundry creditors 12,000 Sundry debtors 21,600
15% Mortgage Loan 16,600 Cash on hand 1,000
Cash at bank 200
______ _______
99,400 99,400
They share profits and losses in the ratio of 2:2:1 on 1 st April, 1993, C retired from the firm and claimed
his share of secret reserve/profits arising out of the following.
a. During the year ended 31.3.1993 purchase of Machinery at a cost of Rs.10,000 was charged to
purchase account, the erection charges of Rs.600 being charged to machinery repairs account.
(Depreciation is to be charged at 10% p.a. )
b. Rs.600 received from Mr. X on 31.3.93 towards rent of the property sublet was credited to his
personal accounts instead of to rent account so as to reduce his debit balance from Rs.1,000 to Rs.400
debit on 31.3.93.
c. Interest on mortgage loan was paid in advance up to 31.5.93 and the whole amount was charged
to interest account during the year ended 31.3.93. After rectifying the above errors, it was mutually
decided as under:
i. The goodwill of the firm is valued at 5 times the average profits of the last 3 years. Such
profits should be correct profits & not the book profits. The book profits for the last 3 financial year were:
1990-91 Rs.18,380; 1991-92 Rs.32,000; 1992-93 Rs,7,471.
ii. Plant & Machinery to be depreciated by 10% & provision for bad doubtful debts be made at
5% on sundry debtors.

iii. The goodwill should not appear in the books.
iv. There is a liability for Rs.501 for bill discounted. This has to be accounted for.
v. C should be paid half of his dues in cash which shall be brought in by A and B in their profit
sharing proportion and the other half shall be left in the business as C’s loan fetching an interest of 18%
p.a.
Prepare profit and loss account, Revaluation account, Capital account of the partners and the Balance
sheet of A and B after C’s retirements
A: Profit and Loss Adjustment A/c
To Depreciation (Plant and 1,060 By Plants and Machinery A/c 10,600
Machinery)
To Partners Capital A/c (2:2:1) By Interest on Mortgage Loan 415
A 4,222 By Sundry Debtors A/c (Rent) 600
B 4,222
C 2,111
11,615 11,615
Revaluation A/c
To Prov for bad and doubtful debts 1,110 By Partners’ Capital A/c (Loss)
To Depreciation 5,854 A 2,986
(Plant&Machinery)
To Liabilities for bills discounted 501 B 2,986
C 1,493
7,465 7,465
Capital A/c
Particulars A B. C. Particulars A B. C.
To Revaluation A/c (loss) 2,986 2,986 1,493 By Balance b/d 33,60 25,20 12,000
0 0
To C’s Capital A/c 11,40 11,40 - By P&L Adj. A/c 4,222 4,222 2,111
(Share of Good will) 1 1
To Cash A/c - - 17,71 By A’s Capital A/c - - 11,401
0
To C’s Loan A/c - - 17,71 By B’s Capital A/c - - 11,401
0 (GW Share)
To Balance c/d 32,29 23,89 - By Cash A/c 8,855 8,855 -
0 0
46,67 38,27 36,91 46,67 38,27 36,913
7 7 3 7 7
Balance Sheet of M/s A.B as on 1.4.1993

Capital A/c : Plant and Machinery 58,54
0
A 32,290 Less: Depreciation 5,854 52,686
B 23,890 Furniture and Fittings 4,800
C’s Loan a/c 17,710 Stock in Trade 22,800
15% Mortgage Loan 16,600 Sundry Debtors 22,20
0
Liabilities for bills discounted 501 Less: Provision 1,110 21,090
Creditors 12,000 Interest on Mortgage Loan 415

prepaid
Cash in hand 1,000
Cash at Bank 200
1,02,99 1,02,991
1
Working Notes: Rs.

1. Sundry Debtors:
Opening Debtors as on 31.3.1993 21,600
Add: Rent received from Mr. X 600
-----------
22,200
2. Goodwill:
Year Profit
1990-91 18,380
1991-92 32,000
1992-93 [7,471 + 10,555] 18,026
Total Profits 68,406
Average Profit = 68,406/3 = 22,802
Goodwill of the firm = Average profit x 5 = 22,802 x 5 = Rs. 1,14,010
Cr. Share of goodwill = 1,14,010/5 = Rs.22,802
3. Calculation of balance of Plant and Machinery Accounts: -

Opening Plant and Machinery 49,000
Add: Machinery Purchased 10,000
Add: Installation charge 600
----------
10,600
Less : Depreciation @ 10% 1,060
--------- 9,540
58,540

Q12: Admission cum Retirement:
Ram, Rahim and Robert are partners, sharing Profits and Losses in the ratio of 5 : 3 : 2. It was
decided that Robert would retire on 31.3.2005 and in his place Richard would be admitted as a partner
with new profit sharing ratio between Ram, Rahim and Richard at 3 : 2 : 1.
Balance Sheet of Ram, Rahim and Robert as at 31.3.2005:
Capital Accounts: Cash in hand 20,000
Ram 1,00,000 Cash in Bank 1,00,000
Rahim 1,50,000 Sundry Debtors 5,00,000
Robert 2,00,000 Stock in Trade 2,00,000
General Reserve 2,00,000 Plant & Machinery 3,00,000
Sundry Creditors 8,00,000 Land & Building 5,30,000
Loan from Richard 2,00,000 ________
16,50,000 16,50,000
Retirement of Robert and admission of Richard is on the following terms:
(a) Plant & Machinery to be depreciated by Rs. 30,000.
(b) Land and Building to be valued at Rs. 6,00,000.
(c) Stock to be valued at 95% of book value.
(d) Provision for doubtful debts @ 10% to be provided on debtors.
(e) General Reserve to be apportioned amongst Ram, Rahim and Robert.
(f) The firm’s goodwill to be valued at 2 years purchase of the average profits of the last 3 years.
The relevant figures are:
Year ended 31.3.2002  Profit Rs. 50,000
(g) Out of the amount due to Robert Rs. 2,00,000 would be retained as loan by the firm and the
balance will be settled immediately.
(h) Richard’s capital should be equal to 50% of the combined capital of Ram and Rahim.
Prepare:
(i) Capital accounts of the partners; and(ii) Balance Sheet of the reconstituted firm.
A:
Partners’ Capital Accounts
Dr Cr.
Ram Rahim Robert Richar Ram Rahim Robert Richar
d d
To 10,000 6,000 4,000  By 1,00,00 1,50,00 2,00,00 
Revaluati Balance 0 0 0
on A/c b/d
(W.N. 1)
Loan from 2,00,00 General 1,00,00 60,000 40,000 
Robert 0 reserve 0
A/c
Bank 58,000 Goodwi 55,000 33,000 22,000 
ll (W.N.
2)
Bal.c/d 2,45,00 2,37,00  
0 0
2,55,00 2,43,00 2,62,00  2,55,00 2,43,00 2,62,00 
0 0 0 0 0 0
Goodwill 55,000 36,667  18,333 Balance 2,45,00 2,37,00  

b/d 0 0
Loan    2,00,00
A/c 0

transfer
Bal. c/d 1,90,00 2,00,33  1,95,16 Bank    13,500
0 3 7
2,45,00 2,37,00  2,13,50 2,45,00 2,37,00  2,13,50
0 0 0 0 0 0

Balance Sheet as at 31.3.2005 after the admission of Richard
Capital Accounts: Land and Building 6,00,000
Ram 1,90,000 Plant and Machinery 2,70,000
Rahim 2,00,333 Stock 1,90,000
Richard 1,95,167 Debtors 4,50,000
Sundry Creditors 8,00,000 Cash at Bank (W.N. 3) 55,500
Loan from Robert 2,00,000 Cash in hand 20,000
15,85,500 15,85,500
Working Notes:
(1) Revaluation A/c
Rs. Rs.
To Plant and Machinery 30,000 By Land and Building 70,000
To Stock 10,000 By Partners Capital A/cs:
To Debtors 50,000 Ram 10,000
Rahim 6,000
______ Robert 4,000 20,000
90,000 90,000
(2) Calculation of Goodwill:
Profit for the year ended 31.3.2002 50,000
1,65,000
Average Profit = 165,000/3 = Rs. 55,000 and Goodwill = Rs. 55,000  2 = Rs. 1,10,000.
(3) Bank A/c

T Balance b/d 1,00,00 By Robert’s Capital A/c 58,000
o 0
T Richard’s Capital A/c 13,500 By Balance c/d 55,500
o
1,13,50 1,13,500
0
Q13: Joint Life Policy: X,Y & Z are partners sharing profits and losses in the ratio of 2:2:1. On 1 st
January 2000, they took out a joint life policy of Rs.1,00,000. Annual premium of Rs.5,000 was payable
on 1st January each year. Last premium was paid on 1st January 2003. Y died on 1st March 2003, and
policy money was received on 31st March, 2003.
The surrender value of policy as on 31st December each year were as follows:
2000 – Nil; 2001-Rs.1,000; 2002-Rs.2,500.
Show necessary accounts and Balance sheet as on 31st December, each year, assuming that:
1. premium is charged to profit and loss Account every year.
2. premium is debited to Joint Life Policy A/c & the balance of the Joint Life Policy A/c is adjusted every
year to its surrender Value.
3. premium is debited to JLP A/c & a sum equal to premium is debited to P&L Appropriation
A: Case 1 In this case, premium paid is charged to P/L A/c every year, so nothing will appear in the JLP
A/c and in the B/S of 2000,2001, and 2002. However, in 2003 the JLP A/c will appear as
Joint Life Policy A/c
To partners capital a/cs (x-40,000; Y-40,000; 1,00,00 By Bank A/c (policy money 1,00,000
Z-20,000) 0 received)
1,00,00 1,00,000
0
Case 2:
Joint Life Policy A/c
To Bank –Premium 5,000 By Profit & Loss A/c 5,000
5,000 5,000
To Bank –Premium 5,000 By Profit & Loss A/c 4,000
5,000 5,000
To Bal. b/d 1,000 By profit & Loss A/c 3,500
To Bank –premium 5,000 By Bal. c/d 2,500
6,000 6,000
To Bal. b/d 2,500 By Bank A/c(Policy money 1,00,000
received)
To Bank –premium 5,000
To partners’ capital A/cs 92,500
(x-37,000; Y-37,000; Z-
18,500)
1,00,000 1,00,000
Balance Sheet as at 31st December, 2000

Joint Life Policy ----

Joint Life Policy 1,000

Joint Life Policy 2,500
Case 3:
Joint Life Policy Account
To Bank a/c-Premium 5,000 By joint life policy fund a/c 5,000
===== =====
To Bank a/c-Premium 5,000 By joint life policy fund a/c 4,000

By bal c/d 1,000
5,000 5,000
To bal. b/d 1,000 By joint life policy fund a/c 3,500
To Bank a/c-premium 5,000 By bal. c/d 2,500
6,000 6,000
To bal. b/d 2,500 By bank a/c (policy money received) 1,00,000
To Bank A/c –Premium 5,000
To Joint Life policy fund a/c 92,500
1,00,000 1,00,000

Joint Life Policy Fund Account
To joint life policy A/c 5,000 By profit & Loss appropriation A/c 5,000
===== =====
To joint life policy A/c 4,000 By Profit & Loss appropriation A/c 5,000
To bal c/d 1,000
5,000 5,000
To joint life policy a/c 3,500 By bal. b/d 1,000
To bal. c/d 2,500 By Profit & loss appropriation a/c 5,000
6,000 6,000
95,000 95,000
Balance sheet as at 31st December, 2000

Joint Life Policy Fund ---- Joint Life Policy Nil
Balance sheet as at 31st December, 2001

Joint Life Policy fund 1,000 Joint Life Policy 1,000

Joint Life Policy Fund 2,500 Joint Life Policy 2,500
Q14: Death of Partner: A, B and C were partners of a firm sharing profits and losses in the ratio of
3:4:3. The Balance Sheet of the firm. As at 31st March,1998 was as under.
Liabilities Assets
Capital Accounts: Fixed assets 1,00,000
A 48,000 Current assets:
B 64,000 Stock 30,000
C 48,000 1,60,000 Debtors 60,000
Reserves 20,000 Cash in hand 30,000
Creditors 40,000 ______
2,20,000 2,20,000
The firm had taken a joint life policy for Rs.1,00,000; the premium periodically paid was charged to
Profit and Loss Account. Partner C died on 30 th September 1998. It was agreed between the surviving
partners and the legal representatives of C that:
i. Goodwill of the firm will be taken at Rs.60,000
ii. Fixed Assets will be written down by Rs.20,000
iii. In lieu of profits, C should be paid at the rate of 25% pa on his capital as on 31-3-98,
Policy money was received and the legal heirs were paid off. The profits for the year ended 31-3-99, after
charging depreciation of Rs.10,000 (depreciation upto 30-Sep was agreed to be Rs.6,000) were
Rs.48,000.
Partners’ Drawings Accounts showed balances as under:
A. Rs. 18,000 (drawn evenly over the year)
B. Rs. 24,000 (drawn evenly over the year)
C. (up-to-date of death) Rs.20,000
On the basis of the above figures, please indicate the entitlement of the legal heirs of C, assuming that
they had not been paid anything other than the share in the Joint Life Policy.

A: - Determination of entitlement of legal heirs of C
(1) Profits for the half year ended 31st March, 1999: Rs.
Profits for the year ended 31st March, 1999 (after depreciation) 48,000
Add: Depreciation 10,000
Profits before depreciation 58,000
Profit for the first half (assumed: evenly spread) 29,000
Less: Depreciation for the first half 6,000
Profits for the first half year (after depreciation) 23,000
Profits for the second half (i.e., 1st October, 1998 to 31st March, 1999) 29,000
Less: Depreciation for the second half 4,000
Profits for the second half year (after depreciation) 25,000
(2) Capital Accounts of partners as on 30th September, 1998:
To Fixed Assets 6,000 8,000 6,000 By Balance c/d 48,000 64,00 48,000
0
To Drawings 9,000 12,000 20,000 By Reserve 6,000 8,000 6,000
Goodwill 18000 24000 18000
To C - - 52,000 By P&L App A/c (Int on - - 6,000
Executor’s A/c Rs.48,000 @ 25% for 6 m)
To Balance c/d 57,00 76,000 -
0
72,00 96,000 78,000 72,000 96,00 78,000
0 0
(3) Application of Section 37 of the partnership Act: Legal heirs of C has not been paid anything
other than the share in joint life policy. Amount due to the deceased partner carriers interest at the
mutually agreed rate. If there is no agreement the representatives of the deceased partner can receive at
their option interest at the rate of 6% per annum or the share of profit earned for the amount due to the
deceased partner.
Therefore, the representatives of C can Choose: - Either,
(i) Interest on Rs.52,000 for 6 months @ 6% p.a. = Rs.1,560 (Or)
(ii) Profit earned out of unsettled capital (in the second half year ended 3s1t march, 1999)
Rs.25,000 x 52,000/57,000 + 76,000 + 52,000 = Rs.7,027 (approx)
In the above case, it would be clear that the legal heirs of C would chose option of Rs.7,027.
(4) Amount due to legal heirs of C:
Balance in C’s Executor’s account 52,000
Amount of profit earned out of unsettled capital [calculated in (3)] 7,027
Amount due 59,027
Important Note: In the question paper, there was Printing mistake whereby 31 st March 1996 was printed
in place of 31st march 1998 in the statement ‘In lieu of profi8ts, So, should be paid at the rate of 25% per
annum on his capital as on 31st March, 1998.
Q15: Dissolution of Firm: A, B & C are partners in a firm sharing profits & losses in the ratio of 3:2:1.
They decided to dissolve the partnership business as on 31-3-02. Following is the B/S on the date of
dissolution:
Capitals Machiner 31,000
y
A 20,000 Furnitures 3,000
B 10,000 Stock 10,000
C 2,000 Debtors 6,000
Bank overdraft 6,000
Sundry 12,000

creditors
50,000 50,000
Following assets were realised in cash: Machinery at Rs.22,000; 50% of the stock at Rs.3,500; & Debtors
were collected at 15% less than their book values. Remaining 50% of the stock was taken over by A at
Rs.3,200. Furniture was taken over by B at Rs.2,400. Realisation expenses were Rs.300. Pass necessary
journal entries to close the books of the firm and also prepare Realisation A/c, Bank A/c & Partners’
Capital A/c.
Realisation A/c 50,00 A capital A/c Dr. 3,200

Dr. 0
To Machinery A/c 31,000 B Capital A/c Dr. 2,400
To Furniture A/c 3,000 To Realisation 5,600
A/c
To Stock A/c 10,000 A Capital A/c Dr. 7,050
To Debtors A/c 6,000 B Capital A/c Dr. 4,700
Sundry Creditors A/c Dr. 12,00 C Capital A/c Dr. 2,350
0
To Realisation A/c 12,000 To Realisation 14,100
A/c
Bank A/c Dr. 30,60 Bank A/c Dr. 350
0
To Realisation A/c 30,600 To C Capital A/c 350
Realisation A/c Dr. 12,00 A Capital A/c Dr. 9,750
0
To Bank A/c 12,000 B Capital A/c Dr. 2,900
Realisation A/c Dr. 300 To Bank A/c 12,650
To Bank A/c 300
Realisation A/c
To Machinery A/c 31,000 By Sundry Crs. A/c 12,000
To Furniture A/c 3,000 By Bank A/c(assets realised) 30,600
To Stock A/c 10,000 By A Capital A/c(Stock taken over) 3,200
To Debtors A/c 6,000 By B Capital A/c (furniture taken over) 2,400
To Bank A/c(sundry creditors paid) 12,000 By Partners’ Capital A/cs (loss): 14,100
To Bank A/c (expenses) 300 [A-Rs.7,050; B-Rs.4,700; C-Rs.2,350]
62,300 62,300
Bank Account
To Realisation 30,600 By Balance b/d (Note 1) 6,000
A/c
To C Capital A/c 350 By Realisation A/c (payment to 12,000
creditors)
By Realisation A/c (expenses) 300
By Capital A/c (A-Rs.9,750; B-Rs.2,900) 12,650
30,950 30,950


To Realisation A/c 3,200 2,400 ---- By Bal. b/d 20,000 10,00 2,000
0
To Realisation A/c 7,050 4,700 2,350 By Bank ---- ---- 350
(loss) A/c
To Bank A/c 9,750 2,900 ----
20,00 10,000 2,350 20,000 10,00 2,350
0 0
Working Note: (1) Bank overdraft represents adverse balance in the Bank Account. therefore, it should
not be transferred to Realisation Account.
Q16: Dissolution of Firm:

X, Y and Z are partners of the firm XYZ and Co., sharing Profits and Losses in the ratio of 4:3:2.
Following is the Balance sheet of the firm as at 31 st March, 2008:
Partners’ Capitals: Fixed Assets 5,00,000
X 4,00,000 Stock in trade 3,00,000
Y 3,00,000 Sundry debtors 5,00,000
Z 2,00,000 Cash in hand 10,000
General Reserve 90,000
Sundry Creditors 3,20,000 ________
13,10,000 13,10,000
Partners of the firm decided to dissolve the firm on the above said date. It was found that a credit
purchase of Rs. 20,000 in January, 2008 had not been recorded in the books of the firm.
Fixed assets realized Rs. 5,20,000 and book debts Rs. 4,40,000.
Stocks were valued at Rs. 2,50,000 and it was taken over by partner Y.
Creditors allowed discount of 5% and the expenses of realization amounted to Rs. 6,000.
(i) Realisation account; (ii) Partners capital account; and
(iii) Cash account. (8 Marks) (PE-II Nov. 2008)
A:
(i) Realisation Account
Rs. Rs.
T Fixed assets 5,00,000 By Creditors 3,20,000
o
T Stock in trade 3,00,000 By Cash 9,60,000
o (5,20,000+4,40,000)
T Debtors 5,00,000 By Y (Stock taken over) 2,50,000
o
T Cash – Expenses 6,000 By Loss transferred to
o partners’ capital accounts
T Cash –Creditors 3,23,000 X 44,000
o
(3,40,000x 95% ) Y 33,000
Z 22,000
16,29,00 16,29,000
0
(ii) Partners’ Capital Accounts

X Y Z X Y Z
T Realisation 44,000 33,000 22,000 B Balance b/d 4,00,00 3,00,000 2,00,000

o Account y 0
T Realisation - 2,50,000 - B General 40,000 30,000 20,000
o Account y reserve
T Cash 3,96,00 47,000 1,98,00
o 0 0
4,40,00 3,30,000 2,20,00 4,40,00 3,30,000 2,20,000
0 0 0
(iii)

Cash Account
Rs. Rs.
To Balance b/d 10,000 By Realisation A/c (Expenses) 6,000
To Realisation A/c 9,60,000 By Realisation A/c (Creditors) 3,23,000
(Fixed assets and By X 3,96,000
book debts realized) By Y 47,000
By Z 1,98,000
9,70,000 9,70,000
Q17: Dissolution of Firms (Single Partner Insolvent and Profit on Realisation):

Balance Sheet As At 31st March, 1995
Capital A/C s :
F.Kapil 2,00,000 land 50,000
S.Kapil 2,00,000 Buildings 2,50,000
R.Dev 1,00,000 Office equip. 1,25,000
Computers 70,000
Current A/Cs: Debtors 4,00,000
F.Kapil 50,000 Stocks 3,00,000
S.Kapil 1,50,000 Cash at Bank 75,000
R.Dev 1,10,000 Other Current Assets 22,600
Loan from NBFC 5,00,000 Current A/c:
Current Liabilities 70,000 B.Dev 87,400
----------- ------------
13,80,000 13,80,000
The partners have been sharing profits and losses in the ratio of 4:4:1:1. It has been agreed to dissolve the
firm on 1.4.1995 on the basis of the following understanding:
a. The following assets are to be adjusted to the extent indicated with respect to the books vales:
Land 200%
Buildings 120%
Computers 70%
Debtors 95%
Stocks 90%
b. In the case of loan, the lenders are to be paid at a prepayment premium of 1%.
c. B.Dev is insolvent and no amount is recoverable from him. His father, R.Dev. however, agrees to
bear 50% of his deficiency. The balance of the deficiency is agreed to be apportioned according to law.
Assuming that the realization of the assets and discharged of liabilities is carried out immediately show
the Cash A/c, Realization Account and the partner’s Accounts.

A:
In the books of M/s Kapil and Dev Cash Account (Bank Column)
Particular Rs. Particular Rs. Rs.
To Balance b/d 75,000 By Realization A/c (paid of 5,75,000
sundry liabilities paid)
To Realization A/c 12,46,600 Partner’s capital A/cs:
(Sundry assets Realized) F. Kapil 2,42,600
S.Kapil 3,42,600
R.Dev 1,61,400
13,21,600 13,21,600
Realization Accounts
Particular Rs. Rs. Particular Rs. Rs.
To Land 50,000 By Current Liabilities 70,000
To Building 2,50,000 By Loan from NBFC 5,00,000
To Office equipments 1,25,000 By Cash A/c:
To Computers 70,000 Land 1,00,00
0
To Debtors 4,00,000 Building 3,00,00
0
To Stocks 3,00,000 Office Eqp. 1,25,00
0
To Other Current Assets 22,600 Computers 49,000
To Cash A/c: Debtors 3,80,00
0
Current Liabilities 70,000 Stock 2,70,00
0
Loan from NBFC 5,05,00 5,75,000 Other current assets 22,600 12,46,600
0
To Partner’s Current A/cs:
Profit on realization:
F.Kapil 9,600
S.Kapil 9,600
R.Dev 2,400
B.Dev 2,400 24,000
18,16,600 18,16,600

Particular F.Kapi S.Kapi R.Dev B.De Particul F.Kapi S.Kapi R.Dev B.De
l l Rs. c ar l l Rs. c
To partners’ - - - 85,00 By 2,00,00 2,00,00 1,00,00 -
Current A/c’s 0 Balance 0 0 0
Transfer b/d
To B.Dev A/c 42,500 By 59,600 1,59,60 1,12,40
balance of Partner’s 0 0
Deficiency current
borne by in 17,000 17,000 8,500 - A/c
capital ratio Transfer
other
partners(2:2:1)
SS
To Cash A/c 2,42,60 3,42,60 1,61,40 - R.Dev - - - 42,50
final settlement 0 0 0 A/c 50% 0
of
Deficienc
y
By F. - - - 17,00
Kapil 0
By S. - - - 17,00
Kapil 0
By - - - 8,500
R.Dev
A/c
2,59,60 3,59,60 2,12,40 85,00 2,59,60 3,59,60 2,12,40 85,00
0 0 0 0 0 0 0 0
Partners’ Current Accounts
Particula F.Kapi S.Kapil R.Dev B.Dec Particular F.Kapi S.Kapil R.Dev B.Dec
r l Rs. Rs. Rs. l Rs. Rs. Rs.
Rs. Rs.
Balance - - - 87,40 Balance 50,000 1,50,00 1,10,00 -
b/d 0 b/d 0 0
Partners’ 59,600 1,59,60 1,12,40 Realizatio 9,600 9,600 2,400 2,400
Capital 0 0 n
By - - - 85,00
Partners’ 0
Capital
59,600 1,59,60 1,12,40 87,40 59,600 1,59,60 1,12,40 87,40
0 0 0 0 0 0
Q18: Dissolution of Firm (Garner Vs Murray):

Neptune, Jupiter, Venus and Pluto had been carrying on business in partnership sharing profits and
losses in the ratio of 3 : 2 : 1 : 1. They decide to dissolve the partnership on the basis of the following
Balance Sheet as on 30th April, 2003:
Capital Account: Premises 1,20,000
Neptune 1,00,00 Furniture 40,000
Jupiter 0 1,60,000 Stock 1,00,000
60,000
General Reserve 56,000 Debtors 40,000
Capital Reserve 14,000 Cash 8,000
Sundry 20,000 Capital Overdrawn:
Creditors
Mortgage Loan 80,000 Venus 10,000
_______ Pluto 12,000 22,000
3,30,000 3,30,000
(i) The assets were realised as under:
Rs.
Debtors 24,000
Stock 60,000
Furniture 16,000
Premises 90,000
(ii) Expenses of dissolution amounted to Rs. 4,000.
(iii) Further Creditors of Rs. 12,000 had to be met.
(iv) General Reserve unlike Capital Reserve was built up by appropriation of profits.

You are required to draw up the Realisation Account, Partners’ Capital Accounts and the Cash
Account assuming that Venus became insolvent and nothing was realised from his private estate.
Apply the principles laid down in Garner vs Murray.
A: Realisation Account
Rs. Rs. Rs.
T Sundry assets A/c B Sundry creditors A/c 20,000
o (transfer): y
Premises 1,20,00 Mortgage Loan 80,000
0
Furniture 40,000 B Cash A/c (assets sold):
y
Stock 1,00,00 Premises 90,00
0 0
Sundry Debtors 40,000 Furniture 16,00
0
T Cash A/c (creditors paid) 32,000 Stock 60,00
o 0
T Cash A/c (Loan paid) 80,000 Debtors 24,00 1,90,000
o 0
T Cash A/c (expenses) 4,000 B Loss transferred to
o y
Capital Accounts:
Neptune 54,00
0
Jupiter 36,00
0
Venus 18,00
0
______ Pluto 18,00 1,26,000
_ 0
4,16,00 4,16,000
0
Cash Account
Rs. Rs.
T Balance b/d 8,000 B Realisation A/c (creditors) 32,000
o y
T Realisation A/c B Realisation A/c (expenses) 4,000
o y
(assets realised) 1,90,000 B Mortgage loan 80,000
y
T Capital A/c B Neptune's Capital A/c 1,18,857
o y
(realisation loss B Jupiter's Capital A/c 73,143
y
made good):
Neptune 54,00
0
Jupiter 36,00
0
Pluto 18,00 1,08,000
0
T Pluto's Capital 2,000 _______
o A/c
3,08,000 3,08,000

Particular Neptune Jupiter Venu Pluto Particulars Neptun Jupiter Venu Pluto
s s e s
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Balance   10,00 12,00 Balance b/d 1,00,00 60,000  
b/d 0 0 0
Realisastio 54,000 36,000 18,00 18,00 GR 24,000 16,000 8,000 8,000
n 0 0
V's Capital 11,143 6,857   CR 6,000 4,000 2,000 2,000
Cash A/c 1,18,857 73,143   Cash A/c 54,000 36,000  18,00
0
N's Capital   11,14 
3
J's Capital   6,857 
_______ ______ ____ ____ Cash A/c    2,00
_ _ _ 0
1,84,000 1,16,00 28,00 30,00 1,84,00 1,16,00 28,00 30,00
0 0 0 0 0 0 0
Q19: Dissolution of firm [All are insolvent]: A,B and C are equal partners, B/S Dec 31, 2002
Sundry Creditors 5,000 Cash in hand 50
A’s Loan 1,000 Stock 800
Capital A/cs: Debtors 1,000
A 800 Plant & Mach., 2,000
C 500 Furniture & Fittings 800
Land & Builidings 2,000
B’s Capital (overdrawn) 650
7,300 7,300
Due to lack of liquidity and weak financial position of the partners, the firm is dissolved. A and C are not
able to contribute anything and a sum of Rs.200 received from B. All of them are declared insolvent. The
assets are realised: Stock Rs.500; Plant and Machinery Rs.1,000; Furniture and Fittings Rs.200; Land &
Buildings Rs.800; and Debtors Rs.550 only. Realisation expenses amounted to Rs.50. You are required to
close the firm’s books.

Realisation Account
Particulars Rs. Particulars Rs. Rs.
To Stock A/c 800 By Cash A/c:
To Debtors A/c 1,000 Stock 500
To Plant & Mach. A/c 2,000 Plant & Mach. 1,00
0
To Furniture & Fittings A/c 800 Furniture & Fittings 200
To Land & Buildings A/c 2,000 Land & Buildings 800
To Cash A/c(realization 50 Debtors 550 3,050
exp.,)
By Partners’ 3,600
Capital
6,650 6,650
Cash Account
To Bal. b/d 50 By Realisation A/c (expenses) 50
To Realisation A/c (assets realised) 3.050 By Creditors A/c (final payment) 3,250
To Partners Capital A/cs: B 200
3,300 3,300
Sundry Creditors Account

To Cash A/c (final payment) 3,25 By bal. b/d 5,000
0
To Deficiency A/c 1,75
0
5,00 5,000
0
Deficiency Account
To Partners Capital 2,350 By Sundry Creditors A/c 1,750
A/cs:
(B-Rs.1,650; C-Rs.700) By Partners Capital A/cs: A 600
2,350 2,350

To Bal. b/d ---- 650 ---- By bal. b/d 800 ---- 500
To Realisation A/c (loss) 1,200 1,200 1,200 By Cash A/c (final div.) ---- 200 ----
To Deficiency A/c 600 ---- ---- By A Loan A/c 1,000 ---- ----
By Deficiency A/c ---- 1,650 700
1,800 1,850 1,200 1,800 1,850 1,200
Q20: Piecemeal Distribution for Dissolution of Firm (Capital Proportional Method):

Creditors 2,00,000 Fixed Assets 45,00,000
Bank Loan 5,00,000 Cash and Bank 2,00,000
L’s Loan 10,00,000
Capital
L 15,00,000
M 10,00,000
S 5,00,000
Total 47,00,000 47,00,000

Partners share profits equally. A firm of Chartered Accountants is retained to realise the assets and
distribute the cash after discharge of liabilities. Their fees which are to include all expenses is fixed at Rs.
1,00,000. No loss is expected on realisation since fixed assets include valuable land and building.
Realisations are:
S.No. Amount in Rs.
1 5,00,000
2 15,00,000
3 15,00,000
4 30,00,000
5 30,00,000
The Chartered Accountant firm decided to pay off the partners in ‘Higher Relative Capital Method’. You
are required to prepare a statement showing distribution of cash with necessary workings.(15 Marks)
(Intermediate–Nov. 1995)
A: Statement of Piecemeal Distribution (Under Higher Relative Capital method)
Particulars Amount Creditors Bank L’s loan Capital A/cs
available Loan L M S
Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Balance due 2,00,000 5,00,00010,00,00015,00,00010,00,0005,00,000
1st Instalment (including
cash and bank balances)5,00,000
Less: Liquidator’s Expenses
1,00,000
and fees 4,00,000
Less: Payment to Creditors
and repayment of Bank
Loan in the ratio of 2:5 (4,00,000)(1,14,286)(2,85,714) – – –
–
Balance Due – 85,714 2,14,286 10,00,00015,00,00010,00,0005,00,000
2nd Instalment 15,00,000
Less: Payment to Creditors
and repayment of bank
(3,00 ,000) (85 ,714 ) (2 ,14 ,286 )
loan in full settlement 12,00,000 – – – – – –
(10,00 ,000)
Less: Repayment of L’s Loan 2,00,000 (10,00,000) – – – –
Less: Payment to Mr. L towards
relative higher capital
(2,00,000) (2,00,000) – —
(W.N. 1) 13,00,000 10,00,000 5,00,000
Balance Due
3rd Instalment 15,00,000
Less: Payment to Mr. L
towards higher relative
(3,00,000) (3,00,000)
capital (W.N. 2) 12,00,000 10,00,000
Less: Payment to Mr. L &
Mr. M towards excess
(10,00 ,000) (5,00 ,000) (5,00 ,000)
capital (W.N. 1&2) 2,00,000 5,00 ,000 5,00 ,000
Less: Payment to all the
(2,00,000) (66 ,667) (66 ,667) (66,666)
partners equally 4,33,333 4,33,333 4,33,334
Balance due
4th Instalment 30,00,000
Less: Payment to all
(30,00,000)
the partners equally (10,00,000) (10,00,000) (10,00,000)
Realisation profit
credited to Partners 5,66,6675,66,667 5,66,666
5th Instalment 30,00,000
Less: payment to all
partners equally(30,00,000) 10,00,00010,00,00010,00,000
Realisation profit 15,66,66715,66,66715,66,666
credited to partners
Working Notes:
(i) Scheme of payment of surplus amount of Rs. 2,00,000 out of second Instalment:
Capital A/cs
L M S
Rs. Rs. Rs.
Balance (i) 15,00,000 10,00,000 5,00,000
Profit sharing ratio (ii) 1 1 1
Capital taking S’s Capital (iii) 5,00,000 5,00,000 5,00,000
Excess Capital (iv) = (i) – (iii) 10,00,000 5,00,000
Profit Sharing Ratio 1 1
Excess capital taking
M’s Excess Capital as base (v) 5,00,000 5,00,000
Higher Relative Excess (iv) – (iv) 5,00,000
So Mr. L should get Rs. 5,00,000 first which will bring down his capital account balance from Rs.
15,00,000 to Rs. 10,00,000. Accordingly, surplus amounting to Rs. 2,00,000 will be paid to Mr. L
towards higher relative capital. (ii) Scheme of payment of Rs. 15,00,000 realised in 3rd Instalment:
– Payment of Rs. 3,00,000 will be made to Mr. L to discharge higher relative capital. This makes the
higher capital of both Mr. L and Mr. M Rs. 5,00,000 as compared to capital of Mr. S.
– Payment of Rs. 5,00,000 each of Mr. L & Mr. M to discharge the higher capital.
– Balance Rs. 2,00,000 equally to L, M and S, i.e., Rs. 66,667 Rs. 66,667 and Rs. 66,666 respectively.
Q21: Dissolution of Firm (Piecemeal Distribution: Maximum Loss Method)

A, B and C are partners sharing profits and losses in the ratio of 5:3:2. Their capitals were Rs. 9,600, Rs.
6,000 and Rs. 8,400 respectively.
After paying creditors, the liabilities and assets of the firm were:
Rs. Rs.
Liability for interest on Investments 1,000
loans from : Furniture 2,000
Spouses of partners 2,000 Machinery 1,200
Partners 1,000 Stock 4,000
The assets realised in full in the order in which they are listed above. B is insolvent.
You are required to prepare a statement showing the distribution of cash as and when available,
applying maximum possible loss procedure. (10 marks) (Intermediate–Nov. 1999)
A:
Statement of Distribution of Cash
RealisationInterest onInterest on Partners’ Capitals
loans fromloans from
partners’ partners A B C Total
spouses
Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balances due 2,000 1,000 9,600 6,000 8,400 24,000
( 1,000 ) ( 1,000 )
(i) Sale of investments 1,000 1,000 –
( 1,000 )
( 1,000 )
(ii) Sale of furniture 2,000 – –
(iii) Sale of machinery 1,200
Maximum possible loss Rs. 22,800
(total of capitals Rs. 24,000 less
cash available Rs. 1,200) allocated
to partners in the profit sharing
ratio i.e. 5 : 3 : 2 (11,400)
(4,560) (22,800)
Amounts at credit (1,800) (840)
1,200
Deficiency of A and B written off
against C 1,800
(2,640) –
Amount paid – – 1,200 1,200
Balances in capital acounts 9,600 6,000 7,200 22,800
(iv) Sale of stock 4,000
Maximum possible loss Rs. 18,800
(Rs. 22,800 – Rs. 4,000) Allocated
to partners in the ratio 5 : 3 : 2 (9,400)(5,640) (3,760) (18,800)
Amounts at credit and cash paid 200 360 3,440
Balances in capital accounts left unpaid—Loss 9,400 5,640 3,760 18,8000
Q22: Amalgamating sole trades and formation of firm: A and B carry on independent business in
provisions and their position on 31.12.2002 are reflected in the Balance Sheet given below:
Liabilities A B Assets A B
Trade creditors 1,10,000 47,000 Stock-in-trade 1,70,000 98,000
Sundry Creditors for Exp. 750 2,000 Sundry Debtors 89,000 37,000
Bills payable 12,500 ---- Cash at bank 13,000 7,500
Capital Account 1,53,000 95,500 Cash in hand 987 234
Furniture and Fixtures 2,750 1,766
Investments 513 ----
2,76,250 1,44,500 2,76,250 1,44,500
Both of them want to form a partnership firm from 1.1.2003 on the following understanding:
(a)The capital of the partnership firm would be Rs.3,00,000 which would be contributed by them in the
ratio of 2:1.
(b)The assets of the individual business would be evaluated by C at which values, the firm will take them
over and the value would be adjusted against the contribution due by A and B. (c)C gave his valuation
report as follows: Assets of A: Stock-in-trade to be written down by 15% and a portion of the sundry
debtors amounting to Rs.9,000 estimated unrealisable not to be assumed by the firm; furniture and
fixtures to be valued at Rs.2,000 and investments to be taken at market value of Rs.1,000. Assets of B:
Stocks to be written up by 10% and sundry debtors to be admitted at 85% of their value; rest of the assets
to be assumed at their book values. (d)The firm is not to assume any creditors other than the dues on
account of purchases made. You are required to pass necessary journal entries in the books of A and B.
Also prepare the opening Balance Sheet of the firm as on 1 st Jan 2003
In the books of A
Realisation A/c Dr. 2,76,250 New Firm (Note 1) Dr. 1,18,987
To Stock-in-trade A/c 1,70,000 To Realisation A/c 1,18,987

To Sundry Debtors A/c 9,000 Realisation /ac. Dr. 750
To Cash at bank A/c 13,000 To Capital A/c 750
To Cash in hand A/c 987 Capital A/c Dr. 34,763
To Furniture & Fixture 2,750 To Realisation a/c 34,763
To investments A/c 513 Capital in New Firm Dr 1,18,987
Crs for Purchases Dr. 1,10,000 To New Firm A/c 1,18,987
Creditors for Expenses Dr. 750 Capital A/c Dr. 1,18,987
Bills Payable A/c Dr. 12,500 To Capital - New Firm 1,18,987
To Realisation A/c 1,23,250
In the books of B Journal

Realisation A/c Dr. 1,44.500
To Stock-in-trade A/c 98,000
To Sundry Debtors A/c 37,000
To Cash at bank a/c 7,500
To Cash in hand A/c 234
To Furniture & Fixture A/c 1,766
Creditors for purchase A/c Dr. 47,000
Creditors for Expenses A/c 2,000
Dr.
To Realisation A/c 49,000
New Firm A/c (Note 1) Dr. 1,01,750
To Realisation A/c 1,01,750
Realisation A/c Dr. 4,250
To Capital A/c 4,250
Capital in New Firm A/c Dr. 1,01,750
To New Firm A/c 1,01,750
Capital A/c Dr. 1,01,750
To Capital in New Firm A/c 1,01,750
Balance Sheet of New Firm as on 1st January, 2003

Capital Accounts: Furniture & Fittings 3,766
A 2,00,000 Investments 1,000
B 1,00,000 Stock-in-trade 2,52,300
Creditors for 1,57,000 Sundry Debtors 1,11,450
purchases
Bills payable 12,500 Cash at bank (Rs.13,000+7500+81,013-1,750) 99,763
Cash in hand (Rs.987+234) 1,221
4,69,500 4,69,500
Working Notes: Calculation of Purchase Consideration

Particulars A B
Furniture 2,000 1,766
Investments 1,000 ---
Stock-in-trade 1,44,500 1,07,800
Sundry Debtors 80,000 31,450
Cash at bank 13,000 7,500
Cash in hand 987 234
2,41,487 1,48,750
Less:Sundry Creditors for purchases 1,10,000 47,000
Bills payable (Assumed arising out of credit 12,500 ----
purchases)

Net assets taken over by the new firm 1,18,987 1,01,750
Capital as per agreement 2,00,000 1,00,000
Less:Net assets taken over 1,18,987 1,01,750
Cash to be introduced (+)/withdrawn (-) (+)81,013 (-)1,750
Q23: Amalgamation of Firms:

Firm X & Co. consists of partners A and B sharing Profits and Losses in the ratio of 3 : 2. The firm Y &
Co. consists of partners B and C sharing Profits and Losses in the ratio of 5 : 3.
On 31st March, 2006 it was decided to amalgamate both the firms and form a new firm XY & Co.,
wherein A, B and C would be partners sharing Profits and Losses in the ratio of 4:5:1.
Liabilities X&Co., Y&Co. Assets X&Co. Y&Co.
Rs. Rs. Rs. Rs.
Capital: Cash in hand/bank 40,000 30,000
A 1,50,000 --- Debtors 60,000 80,000
B 1,00,000 75,000 Stock 50,000 20,000
C --- 50,000 Vehicles --- 90,000
Reserve 50,000 40,000 Machinery 1,20,000 ---
Creditors 1,20,000 55,000 Building 1,50,000 ---
4,20,000 2,20,00 4,20,000 2,20,000
0
The following were the terms of amalgamation:
(i) Goodwill of X & Co., was valued at Rs.75,000. Goodwill of Y & Co. was valued at Rs.40,000.
Goodwill account not to be opened in the books of the new firm but adjusted through the Capital accounts
of the partners.
(ii) Building, Machinery and Vehicles are to be taken over at Rs.2,00,000, Rs.1,00,000 and Rs.74,000
respectively.
(iii) Provision for doubtful debts at Rs.5,000 in respect of X & Co. and Rs.4,000 in respect of Y &
Co. are to be provided.
You are required to:
(i) Show, how the Goodwill value is adjusted amongst the partners.
(ii) Prepare the Balance Sheet of XY & Co. as at 31.3.2006 by keeping partners capital in their profit
sharing ratio by taking capital of ‘B’ as the basis. The excess or deficiency to be kept in the respective
Partners’ Current account. (16 Marks) (PE-II – May 2006)

A:
(i) Adjustment for raising and writing off of goodwill
Raised in old profit sharing Total Written off in new Difference
ratio ratio
X & Co. 3:2 Y & Co.5:3
A 45,000 --- 45,000 Cr. 46,000 Dr. 1,000 Dr.
.
B. 30,000 25,000 55,000 Cr. 57,500 Dr. 2,500 Dr.
C 15,000 15,000 Cr. 11,500 Dr. 3,500 Cr.
75,000 40,000 1,15,000 1,15,000 Nil
(ii) Balance Sheet of X Y & Co.(New firm) as on 31.3.2006

Capital Accounts: Vehicle 74,000
A 1,72,000 Machinery 1,00,000
B 2,15,000 Building 2,00,000
C 43,000 Stock 70,000
Current Accounts: Debtors 1,31,000
A 22,000 Cash & Bank 70,000
C 18,000
Creditors 1,75,000
6,45,000 6,45,000
Working Notes:
1. Balance of Capital Accounts at the time of amalgamation of firms
X & Co.Profit and loss sharing ratio 3:2 A’s Capital - B’s Capital - Rs.
2. Balance of Capital A/cs in the balance sheet of the new firm as on 31.3.2006
Rs..
Balance as per Balance Sheet 1,50,000 A - Rs. 1,00,000
B - Rs. C-
Add: Reserves 30,000 20,000 Rs.
Revaluation profit (Building) 30,000 20,000
Balance b/d: X & Co. 1,95,00 1,30,000 --
Less: Revaluation loss (Machinery) (12,000) (8,000)
0
Provision for doubtful debt. (3,000) -- (2,000)
Y & Co. 87,500 57,500
Y & Co. Profit and loss sharing ratio 5:3 1,95,000 1,30,000
1,95,00 2,17,500 57,500
B’s Capital - Rs. C’s 0Capital - Rs.
Balance
Adjustment as per Balance sheet
for goodwill 75,000 (1,000) 50,000
(2,500) 3,500
Add: Reserves 25,000 1,94,00 2,15,000
15,000 61,000
Less: Revaluation (vehicle) (10,000) 0 (6,000)
Provision
Total capital for doubtful
Rs. 430,000 debts i.e. Rs. 215,000 x 2) to be (2,500)
(B’s capital (1,500)
contributed in 4:5:1 ratio. 87,500 1,72,00 2,15,000
57,500 43,000
0
Transfer to Current Account 22,000 --- 18,000
Q24: Conversion of Partnership Firm into Company:

‘X’ and ‘Y’ carrying on business in partnership sharing Profit and Losses equally, wished to dissolve
the firm and sell the business to ‘X’ Limited Company on 31-3-2006, when the firm’s position was as
follows:
X’s Capital 1,50,000 Land and Building 1,00,000
Y’s Capital 1,00,000 Furniture 40,000
Sundry Creditors 60,000 Stock 1,00,000
Debtors 66,000
Cash 4,000
3,10,000 3,10,000

The arrangement with X Limited Company was as follows:
(i) Land and Building was purchased at 20% more than the book value.
(ii) Furniture and stock were purchased at book values less 15%.
(iii) The goodwill of the firm was valued at Rs.40,000.
(iv)The firm’s debtors, cash and creditors were not to be taken over, but the company agreed to
collect the book debts of the firm and discharge the creditors of the firm as an agent, for which
services, the company was to be paid 5% on all collections from the firm’s debtors and 3% on cash
paid to firm’s creditors.
(v)The purchase price was to be discharged by the company in fully paid equity shares of Rs.10 each
at a premium of Rs.2 per share.
The company collected all the amounts from debtors. The creditors were paid off less by Rs.1,000
allowed by them as discount. The company paid the balance due to the vendors in cash. Prepare the
Realisation account, the Capital accounts of the partners and the Cash account in the books of
partnership firm. (16 Marks) (PE-II – Nov. 2006)
A: Realisation Account
To Rs. By Rs.
Land & Building 1,00,000 Sundry Creditors 60,000
Furniture 40,000 X Ltd. Co. –
Purchase consideration 2,79,000
Stock 1,00,000 X Ltd. Company – Drs 66,000
Debtors 66,000 Less: Comm 5% on 66,000 3,300 62,700
X Ltd. Co. – S. Creditors 59,000
X Ltd. Co: Comm 3% on 59,000 1,770
A’s Capital A/c17,465
B’s Capital A/c17,465 34,930
4,01,700 4,01,700
Capital Accounts
A – Rs. B – Rs. A – Rs. B – Rs.
To Shares in X Ltd. Co.– By Balance b/d 1,50,000 1,00,000
(W.N.2) 1,63,980 1,15,020
To Cash – Final Payment By Realisation A/c -
3,485 2,445 Profit 17,465 17,465
1,67,465 1,17,465 1,67,465 1,17,465

Cash Account
Rs. Rs.
To Balance b/d 4,000 By A’s Capital A/c- Final
payment 3,485
To X Ltd. Co. (Amount realized By B’s Capital A/c- Final
from Debtors less amount Payment
paid to creditors) –(W.N.3) 1,930 2,445
5,930 5,930
Working Notes:
1 Calculation of Purchase consideration:
Rs.
Land & Building 1,20,000
Furniture 34,000
Stock 85,000
Goodwill 40,000
2,79,000
2. The shares received from the company have been distributed between the two partners A & B
in the ratio of their final claims i.e., 1,67,465: 1,17,465 .
2,79,000
= 23,250
No. of shares received from the company = 12
23,250 × 1,67,465
= 13,665
A gets 2,84,930 shares valued at 13,665 x 12 = Rs.1,63,980. B gets the
remaining 9,585 shares, valued at Rs.1,15,020 (9,585  12)
3. Calculation of net amount received from X Ltd on account of amount realized from debtors
less amount paid to creditors.
Rs.
Amount realized from Debtors 66,000
Less: Commission for realization from debtors (5% on 66,000) 3,300
62,700
Less: Amount paid to creditors 59,000
3,700
Less: Commission for cash paid to creditors (3% on 59,000) 1,770
Net amount received 1,930
Q25: Sale to a Company:

S and T were carrying on business as equal partners. Their Balance Sheet as on 31 st March, 2007
stood as follows:
Capital accounts: Stock 2,70,000
S 6,40,000 Debtors 3,65,000
T 6,60,000 13,00,000 Furniture 75,000
Creditors 3,27,500 Joint life policy 47,500
Bank overdraft 1,50,000 Plant 1,72,500
Bills payable 62,500 Building 9,10,000
18,40,000 18,40,000
The operations of the business was carried on till 30 th September, 2007. S and T both withdrew in equal
 
In the above situation, shares received from X Ltd. Company have been distributed between two partners
A and B in the ratio of their final claims. Alternatively, shares received from X Ltd. can be distributed
among the partners in their profit sharing ratio i.e. Rs. 2,79,000 x ½ =Rs. 1,39,500 each. In that case, firm
will pay cash amounting Rs. 27,965 to A and will receive cash Rs.22,035 from B.
amounts, half the amount of profits made during the current period of 6 months after 10% p.a. had been
written off on building and plant and 5% p.a. written off on furniture. During the current period of 6
months, creditors were reduced by Rs.50,000, Bills payables by Rs.11,500 and bank overdraft by
Rs.75,000. The Joint life policy was surrendered for Rs.47,500 on 30 th September, 2007. Stock was
valued at Rs.3,17,000 and debtors at Rs.3,25,000 on 30 th September, 2007. The other items remained the
same as they were on 31st March, 2007.
On 30th September, 2007 the firm sold its business to ST Ltd. The goodwill was estimated at
Rs.5,40,000 and the remaining assets were valued on the basis of the balance sheet as on 30 th
September, 2007. The ST Ltd. paid the purchase consideration in equity shares of Rs.10 each. You
are required to prepare a Realisation account and Capital accounts of the partners.
A:
Realisation Account
T Sundry By Creditors 2,77,500
o assets:
Stock 3,17,000 By Bills payables 51,000
Debtors 3,25,000 By Bank overdraft 75,000
Plant 1,63,875 By Shares in ST Ltd. (W.N. 18,80,000
3)
Building 8,64,500
Furniture 73,125
T Profit:
o
S 2,70,00
0
T 2,70,00 5,40,000
0
22,83,50 22,83,500
0

Date S T Date S T
2008 To 2008 By
April 1 Cash –Drawings 20,000 20,000 April 1 Balance b/d 6,40,00 6,60,000
wn2 0
Sept. Shares in ST Ltd. 9,30,00 9,50,000 Sept. Profit (W.N.2) 40,000 40,000
30 0 30
Realisation A/c
(Profit) 2,70,00 2,70,000
0
9,50,00 9,70,000 9,50,00 9,70,000
0 0

Working Notes: (1) Ascertainment of total capital
Balance Sheet as at 30th September, 2007

Sundry creditors 2,77,500 Building 9,10,000
Bills payable 51,000 Less: Depreciation 45,500 8,64,500
Bank overdraft 75,000 Plant 1,72,500
Total capital (bal. fig.) 13,40,000 Less: Depreciation 8,625 1,63,875
Furniture 75,000
Less: Depreciation 1,875 73,125
Stock 3,17,000
Debtors 3,25,000
17,43,500 17,43,500
(2) Profit earned during six months to 30 September, 2007 Rs.

Total capital (of S and T) on 30th September, 2007 - WN.1 13,40,000
Capital on 1st April, 2007
S 6,40,000
T 6,60,000 13,00,000
Net increase (after drawings) 40,000
Since drawings are half of profits therefore, actual profit earned is Rs.40,000 x 2 = Rs.80,000 (shared
equally by partners S and T).
Half of the profits, has been withdrawn by both the partners equally i.e. drawings
Rs. 40,000 (Rs.80,000 x ½) withdrawn by S and T in 1:1 (i.e. Rs.20,000 each).
(3) Purchase consideration: Rs.
Total assets (W.N.1) 17,43,500
Add: Goodwill 5,40,000
22,83,500
Less: Liabilities (2,77,500 + 51,000 + 75,000) 4,03,500
Purchase consideration 18,80,000
Note: The above solution is given on the basis that reduction in bank overdraft is after surrender of
Joint life policy.

7. JOINT STOCK COMPANIES
Issue of Shares at par, discount & premium, Forfeiture, Reissue of Shares

Underwriting of Shares
Issue and Redemption of Preference Shares
Issue, Conversion and Redemption of Debentures
Q1: Issue of Shares – Over Subscription – Issues of Assets: A prospectus issued by a company invited
applications for 2,00,000 equity shares of Rs.10 each, payable Rs.2 on application, Rs.2 on application,
Rs.2 on allotment and the balance in two equal instalments at intervals of three months each after allotmet
which was made on June 15,2000.
The Vendor was to receive 20,000 fully paid equity shares at par as part payment of the purchase
consideration of Rs.16,00,000 made up as follows: Land and Building Rs.6,00,000, Plant Rs.3,50,000,
Stock in Trade Rs.4,50,000 and the balance as Goodwill.
The offer was over-subscribed by 20,000 shares and the amount due on allotment was received in full.
Rs.5,25,000 and Rs.5,20,000 were received on first and second calls respectively. Show the accounts
concerned after opening the books, recording the above receipts on account of capital, and paying the
balance of the purchase consideration to the vendor.
Journal entries are not required.
Business Purchase Account
To 16,00,00 By Land & Buildings a/c 6,00,000
Vendor 0
By Plant Account 3,50,000
By Stock Account 4,50,000
By Goodwill Account 2,00,000
(bal. Figure)
16,00,00 16,00,000
0
Land & Buildings Account

To Business purchase 6,00,000 By Balance c/d 6,00,000
a/c ======= =======
To Balance b/d 6,00,000
Plant Account
To Business Purchase 3,50,000 By Bal. c/d 3,50,000
A/c ======= ========
Stock Account
To Business Purchase 4,50,000 By Bal. c/d 4,50,000
a/c. ======== ========
Goodwill Account
To Business Purchase 2,00,000 By Balance c/d 2,00,000
a/c ======= ========
To bal. b/d 2,00,000
Vendor

To Equity Share Capital 2,00,000 By Business purchase a/c 16,00,000
a/c
To Bank 14,00,000
16,00,000 16,00,000
Equity Share Capital Account

To bal. C/d 22,00,000 By Vendor 2,00,000
By Equity Share Applications and Allotment 8,00,000
Account
By Equity Share First Call Account 6,00,000
By Equity Share Second & Final Call Account 6,00,000
22,00,000 22,00,000
By Bal. b/d 22,00,000
Equity Share Applications and Allotment Account

To Equity Share Capital 8,00,00 By Bank-Application Money 4,40,000
A/c 0
To Bank-Refund 40,000 By Bank-Allotment Money 4,00,000
8,40,00 8,40,000
0
Equity Share First Call Account

To Equity Share Capital 6,00,00 By Bank 5,25,000
Account 0
By Calls in Arrear a/c 75,000
6,00,00 6,00,000
0
Equity Share Second and Final Call Account

To Equity Share Capital 6,00,00 By Bank 5,20,000
Account 0
By Calls in Arrear a/c 80,000
6,00,00 6,00,000
0
Calls in Arrear Account

To Equity Share First Call Account 75,000 By Balance c/d 1,55,000
To Equity Share Second & Final Call 80,000
a/c
1,55,000 1,55,000
Cash Book (Bank Columns)

To Equity Shares Applications Rs. By Equity Share Application & 40,000
and Allotment Account Allotment Account (Amount refunded on
(Application money on 2,20,000
equity shares @
Rs.2 per share). 4,40,000 20,000 equity shares)
To Equity Share Applications By Vendor 14,00,000
and Allotment account
(Allotment money on 4,00,000 By Balance c/d 4,45,000
2,00,000 equity shares @ Rs.2
per Share).

To Equity Share First Call 5,25,000
Account - (First call money
received).
To Equity Share Second and 5,20,000
Final Call account.
(Final call money received)
18,85,000 18,85,000
To bal. b/d 4,45,000
Q2: Underwriting of Shares: Kusum Ltd. has authorised capital of Rs.25,00,000 divided into 1,00,000
equity shares of Rs.25 each.
The company issued for subscription 25,000 shares at a premium of Rs.10 each. The entire issue was
underwritten as follows:
A-15,000 shares (firm underwriting-2,500 shares), B-7,500 shares (firm underwriting-1,000
shares), and c-2,500 shares [firm underwriting-500 shares].
Out of total issue, 22,500 shares including firm underwriting were subscribed.
The following were the marked forms: A-8,000 shares B-5,000 shares C-2,000 shares
Calculate the liability of each underwriter.
Solution: Liability of Underwriters (Number of shares]
A B C Total
Gross Liability 15,000 7,500 2,500 25,000
Less:Unmarked application in the ratio of gross liability i.e. 6:3:1 4,500 2,250 750 7,500
Balance 10,500 5,250 1,750 17,500
Less:Marked application 8,000 5,000 2,000 15,000
Balance 2,500 250 -250 2,500
Less:Credit for C’s oversubscription to A and B in the ratio of -167 -83 +250 ----
their gross liability i.e.2:1
Liability in respect of shares unscribed for 2,333 167 Nil 2,500
Add: Firm Underwriting 2,500 1,000 500 4,000
Total Liability 4,833 1,167 500 6,500
Working Notes:
Total marked applications = 8,000+5,000+2,000 = 15,000
Unmarked application = 22,500 – 15,000 = 7,500
Alternative solution:
In case the underwriting contract provides that shares underwriters firm will be treated as marked
applications, the liability of the underwriters will be calculated as follows:-
Liability of Underwriters (Number of shares)

A B C Total
Gross Liability 15,000 7,500 2,500 25,000
Less:Unmarked application in the ratio of gross liability i.e. 6:3:1 2,100 1,050 350 3,500
Balance 12,900 6,450 2,150 21,500
Less: Marked application 10,500 6,000 2,500 19,000
Balance 2,400 450 -350 2,500
Less:Credit for C’s oversubscription to A and B in the ratio of their -233 -117 +350 ----
gross liability i.e. 2:1
Liability in respect of shares unscribed for 2,167 333 Nil 2,500
Add: Firm underwriting 2,500 1,000 500 4,000
Total Liability 4,667 1,333 500 6,500
Working Notes: A B C
Marked applications from public 8,000 5,000 2,000
Add: Firm underwriting 2,500 1,000 500

Total application being treated as -------- -------- --------
Marked 10,500 6,000 2,500
Unmarked applications = 22,500 – 10,500 – 6,000 – 2,500 = 3,500
Q3: Underwriting of Shares [Journal Entries + Balance Sheet]:

X Ltd. issued 10,000 14% Debentures of Rs.100 each at a discount of 6%. Eighty per cent of the issue
was underwritten by M/s. A.B.Co. for a commission of 1 per cent on the nominal value of the debentures.
Applications were received for 7,500 Debentures. Journalise the transactions, assuming all moneys due
have been received. Also show the entries in the balance sheet of the company.
Solution:
(Note: In order to ascertain the underwriters liability, we will have to assume that the company itself is
the underwriter for the remaining 20% debentures.
As details of marked applications are not given, we shall distribute the total applications in the ratio of
gross liabilities.
M/s.A.B.Co. X Ltd.
No. of Debentures No. of Debentures
Gross Liability 8,000 2,000
Less:Applications received
Allocated in the ratio of 8:2 6,000 1,500
------------ -------------
Net Liability 2,000 500
Journal Entries
Bank Dr. 7,05,000
To 14% Debenture Applications and Allotment a/c 7,05,000
14% Debenture Applications and Allotment Account 7,05,000
Dr.
Discount on Issue of Debentures Account 45,000
To 14% Debentures a/c 7,50,000
M/s. A.B.Co. Dr. 1,88,000
Disc. On issue of Debentures a/c Dr. 12,000
To 14% Debentures a/c 2,00,000
Underwriting Commission a/c Dr. 8,000
To M/s. A.B Co. 8,000
Bank Dr. 1,80,000
To M/s. A.B.Co 1,80,000
Balance Sheet as at ………

Secured Loans Current Assets, Loans and Advances:
14% 9,50,00 (a)Current Assets
Debentures 0
Cash at bank 8,85,000
(B)Loans and Advances ---
Miscellaneous Expenditure:
Underwriting Commission 8,000
Discount on Issue of Debentures 57,000
9,50,00 9,50,000
0
X Ltd. has the following balance sheet as on 31 March, 2000
Rs. Rs.
Share Capital: Fixed Assets 22,00,000
Issued, Subsd and fully paid up 10,000 E Shares of Rs. 100 10,00,00 Current 8,00,000
each 0 Assets
5,000 Preference shares of Rs.100 each 5,00,000
Capital Reserve 1,00,000
Securities Premium Account 1,00,000
General Reserve 2,00,000
Profit and Loss account 1,00,000
Current Liabilities 10,00,00
0
30,00,00 30,00,000
0
Q4: Redemption of Preference Shares out of Free Reserve and Fresh Issues: The preference shares
are to be redeemed at 10 per cent premium. Fresh issue of equity shares is to be made to the extent it is
required under the Companies Act for the purpose of this redemption. The shortfall in funds for the
purpose of the redemption after utilising the proceeds of the fresh issue is to be met by taking a bank loan.
Show journal entries.
Securities Premium Account Dr. 50,000

To Premium on Redemption of Preference shares a/c 50,000
General Reserve Dr. 2,00,000
Profit and Loss account 1,00,000
To Capital Redemption Reserve 3,00,000
Bank Dr. 2,00,000
To Equity share applications & allotment account 2,00,000
Equity Share Applications & Allotment account Dr. 2,00,000
To Equity Share Capital a/c 2,00,000
Preference share capital a/c Dr. 5,00,000
Premium on Redemption of preference shares a/c 50,000
Dr.
To Sundry preference shareholders a/c 5,50,000
Bank Dr. 3,50,000
To Bank Loan a/c 3,50,000
Sundry Preference shareholders a/c Dr. 5,50,000
To Bank 5,50,000
Q5: Issue of Bonus Shares: The Balance Sheet A Ltd. as at 31.3.1995 is as follows:
Authorized Share Capital
1,50,000 Equity Shares of
Rs.10 each 15,00,000 Sundry Assets 17,00,000
------------
Issued, Subscribed and Paid-up
80,000 Equity shares of Rs.7.50
each called-up and paid-up reserve 6,00,000
Capital Redemption reserve 1,50,000
Plant Revaluation Reserve 20,000
Share Premium Account 1,50,000
Development Rebate Reserve 2,30,000
Investment Allowance Reserve 2,50,000
---------- -----------------
Total 17,00,000 17,00,000
The company wanted to issue bonus shares to its shareholders at the rate of one share for every two share
held. Necessary resolutions was passed; requisite legal requirements were complied with:

a. You are required to give effect to the proposal by passing journal entries in the books of A Ltd.
Show the amended Balance Sheet.
A:-
In the books of A Ltd. Journal Entries
Share final call A/c Dr. 2,00,000

To share capital 2,00,000
(Being the final call of Rs.2.50 each on 80,000 equity shares to make them
fully paid up share)
General Reserve A/c Dr. 2,00,000
To Bonus to shareholders A/c 2,00,000
(Being the transfer of Rs.2,00,000 from general reserve to make the partly
paid up share to fully paid up)
Bonus to Shareholders A/c Dr. 2,00,000
To Share final call A/c 2,00,000
(Being the amount due on final call adjusted against General Reserve to
Bonus to shareholders a/c)
Share premium A/c Dr. 1,50,000
Capital Redemption A/C Dr. 1,50,000
To Bonus to share holders A/c 4,00,000
(Being the appropriation made as above in order to facilitate issue of fully
paid up bonus shares at the rate of one shares for every two shares held)
Bonus to shareholders A/c Dr. 4,00,000
To Equity share Capital A/c 4,00,000
(Being the issuance of 40,000 fully paid up shares of Rs.10 each by way of
bonus shares)
Note:
i.Reserve other than capital redemption reserve, Plant revaluation reserve and share premium account can
be used for making the partly paid up shares fully paid up.
ii.Except Plant Revaluation Reserve, all other Reserves and share premium account can be used for
making the bonus issue.

Q6: Redemption of Preference Shares with Final A/c: Provisional Balance Sheet of P Ltd. as at 31 st
march, 201 was as under:
Liabilities Rs. Rs. Assets Rs.
Share Capital: Fixed assets(at cost less
50,000 equity share of Rs.10 Depreciation) 7,00,000
each, Rs.7 per share called up 3,50,000 Cash & Bank Balance 2,00,000
Less: Calls in arrear on Other Current Assets 6,00,000
Calls in career on 10,000
Shares @ Rs.2 per share 20,000
-------------
3,30,000
Add: Calls in advance on
40,000 shares @
Rs.3 per share 1,20,000
------------ 4,50,000
20,000 10% Redeemable
preference shares of Rs.10
each fully paid up 2,00,000
Reserves & Surplus:
Profit and Loss Account 2,70,000
Current Liabilities 2,80,000
------------ ------------------
15,00,000 15,00,000
Calls in arrear are outstanding for 6 months. Calls in advance were also received 6 months back. Interest
@ 10% p.a. on calls in advance and 12% p.a. on calls in arrear are allowed/charged.
The Board of Director have recommended that:
i. Dividend for the year 2000-01 be allowed @ 20% on equity shares.
ii. Money on calls in advance be refunded and partly paid equity shares be converted as fully
paid up by declaring bonus divided to shareholders.
iii. The preference shares, which are redeemable at a premium of 10% any time after 31 st March,
2001 may be redeemed by issue of 10% Debentures of Rs.100 in cash.
Show journal Entries to give effect to the above proposals including payment and receipt of cash and
redraft the profit and Loss Account and Balance Sheet of P Ltd.
A:
Journal Entries P Ltd.
Particulars Dr. Rs. Cr. Rs.
Interest on Cash in Arrear A/c Dr. 1,200
To profit and Loss Account 1,200
(Being interest @ 12% p.a. on Rs.20,000 for 6 months credited to P and L
A/c.)
Bank A/c Dr. 21,200
To Calls in Arrear A/c 20,000
To Interest on Calles in Arrear A/c 1,200
(Being interest on calls in arrear received)
Profit and Loss a/c Dr. 6,000
To interest on Calls in Advance A/c 6,000
(Being interest @ 10% on Rs.1.2 lacs for 6 m allowed on calls in adv)
Profit and Loss A/c Dr. 90,000
To Preference Dividend 20,000
To Equity Dividend 70,000
(Being dividend @ 10% on Rs.1,20,000 for 6 months allowed on calls in

advance)
Profit and Loss A/c Dr. 1,50,000
To Bonus to Equity shareholders A/c 1,50,000
(Being bonus dividend declared)
Share Final Call A/c Dr. 1,50,000
To Equity share capital A/c 1,50,000
(Being final call made @ Rs.3 on 50,000 shares)
Bonus to Equity shareholders A/c Dr. 1,50,000
To Share Final Call A/c 1,50,000

(Being adjustment of bonus dividend against final call)
Calls in Advance A/c Dr. 1,20,000
Interest on Calls in Advance A/c Dr. 6,000
To Bank A/c 1,26,000
(Being refund of calls in advance along with interest)
Bank A/c Dr. 2,20,000
To 10% Debenture A/c 2,20,000
(Being 2,200 Debenture of Rs.100 each issued for cash)
To Premium on Redemption of Preference share A/c 20,000
(Being premium payable on redemption)
To Capital Redemption Reserve A/c 2,00,000
(Being transfer to capital redemption reserve)_
Preference Share Capital A/c Dr. 2,00,000
Premium on Redemption of preference share A/c Dr. 20,000
To Preference Shareholders A/c 2,20,000
Preference shareholders A/c Dr. 2,20,000
(Being Amount paid to preference of preference shares)

In the Books of P Ltd.Profit and Loss Account(for the year ended 31 st March, 2001)
To Interest on Calls in Advance 6,000 By Balance c/d 2,70,000
To Balance c/d 2,65,200 By Interest on calls in arrears 1,200
2,71,200 2,71,200
To premium on redemption 20,000 By Balance c/d 2,65,200
To preference Dividend 20,000
To Equity Dividend 70,000
To Bonus Dividend 1,50,000
To Capital Redemption Reserve 5,200
2,65,200 2,65,200
In the Books of P Ltd.Balance Sheet (as on 31st March, 2001)

Share Capital : Fixed Assets: (Cost of 7,00,000
depreciation)
50,000 equity shares of Rs.10 5,00,000 Cash and Bank balance (Note.1) 95,200
each fully paid up (of the above
equity shares Rs.3 per share has
not been received in cash but has
been capitalized by issuing bonus
dividend)
Reserves and Surplus Other current assets 6,00,000
Capital redemption Reserve 2,00,000
0
Less: Utilized for redemption of 1,94,80 1,05,200
preference shares 0
Profit and Loss Account
10% Debentures 2,20,000
Current liabilities 2,80,000
Proposed dividend 90,000
13,95,200 13,95,200
Working Notes:
(1)Computation of cash and Bank Balance as on 31st March, 2001:-
Rs.
Cash and Bank balance (Given) 2,00,000
Add: Recovery of calls in arrears and interest thereon 21,200
Proceeds from issue of 10% Debentures 2,20,000
---------
4,41,200
Less: Payment of calls in advance and interest thereon 1,26,000
Redemption of preference shares 2,20,000
95,200
Note: In case of non-availability of information, it has been assumed that the calls in arrear amount has
been received. It has been assumed that 20% dividend on equity shares has been proposed before the
equity share are made fully paid by way of bonus dividend.

Q7: Redemption of Preference Shares and Issue of Bonus Shares:
Trinity Ltd.Balance Sheet as at 31st March, 1995
Share Capital Fixed Assets
Authorised Gross Block 3,00,000
10,000 10% Redeemable Preference Less : Depreciation 1,00,000
Shares of Rs. 10 each 1,00,000 2,00,000
90,000 Equity Shares of Rs. 10 each9,00,000Investments 1,00,000
10,00,000 Current Assets and Loans
and Advances
Issued, Subscribed and Paid-up Capital
10,000 10% Redeemable Preference Inventory 25,000
Shares of Rs. 10 each 1,00,000 Debtors 25,000
10,000 Equity Shares of Rs. 10 each 1,00,000 Cash and Bank Balances 50,000
(A) 2,00,000 Misc. Expenditure to the extent
Reserves and Surplus not written of 20,000
Securities Premium 70,000
(B) 2,08,500
Current Liabilities and Provis(C) 11,500
Total (A + B + C) 4,20,000 Total 4,20,000
For the year ended 31.3.1996, the company made a net profit of Rs. 15,000 after providing Rs. 20,000
depreciation and writing off the miscellaneous expenditure of Rs. 20,000.
The following additional information is available with regard to company’s operation :
1. The preference dividend for the year ended 31.3.1996 was paid before 31.3.1996.
2. Except cash and bank balances other current assets and current liabilities as on 31.3.1996, was the
same as on 31.3.1995.
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
31.3.1996.
5. To meet the cash requirements of redemption, the company sold a portion of the investments, so as to
leave a minimum balance of Rs. 30,000 after such redemption.
6. Investments were sold at 90% of cost on 31.3.1996.
You are required to
(a) Prepare necessary journal entries to record redemption and issue of bonus shares.
(b) Prepare the cash and bank account.
(c) Prepare the Balance Sheet as at 31st March, 1996 incorporating the above transactions.
(20 marks) (Intermediate–Nov. 1996)
A:
Journal Entries in the Books of Trinity Ltd.
Dr. Cr.
Securities Premium A/c Dr. 10,000
To Premium on Redemption of Preference shares 10,000
(Being amount of premium payable on redemption of
preference shares)
10% Redeemable Preference Capital Dr. 10,00,000

Premium on redemption of Preference Shares Dr. 10,000
To Preference Shareholders 1,10,000
(Being the amount payable to p. shareholders on redemption)
To Capital Redemption Reserve 1,00,000
(Being transfer to the latter account on redemption of shares)

Bank A/c Dr. 45,000
To Investments 50,000
(Being amount realised on sale of Investments and loss thereon adjusted)
Preference shareholders A/c Dr. 1,10,000
To Bank 1,10,000
(Being payment made to preference shareholders)
Capital Redemption Reserve A/c Dr. 1,00,000
To Bonus to Shareholders 1,00,000
(Amount adjusted for issuing bonus share in the ratio of 1 : 1.)
Bonus to Shareholders A/c Dr. 1,00,000
To Equity Share Capital 1,00,000
(Balance on former account transferred to latter)
(b) Cash and Bank A/c

Dr. Cr.
Rs. Rs.
To Balance b/d 50,000 By Preference Dividend 10,000
To Cash from operations: By Preference shareholders 1,10,000
Profit 15,000 By Balance c/d 30,000
Add : Depreciation 20,000
Add : Miscellaneous
Expenditure
written off 20,000 55,000
To Investments 45,000
1,50,000 1,50,000
(c)
Balance Sheet of Trinity Limited as at 31st March, 1996 (after redemption)
Share Capital Fixed Assets
Authorised Capital 10,00,000 Gross Block 3,00,000
Issued, Subscribed and Paid-up Less : Depreciation
Capital upto 31.3.951,00,000
20,000 Equity Share
of Rs. 10 each fully paid 2,00,000 For the year 20,0001,20,000 1,80,000
(10,000 shares have been
allotted as Bonus Shares Investments
by capitalising capital (Market Value Rs. 45,000) 50,000
Redemption Reserve) Current Assets, Loans and Advances
Reserves and Surplus
General Reserve 20,000 Inventory 25,000
Securities Premium 60,000 Debtors 25,000
Profit and Loss A/c 18,500 98,500 Cash and Bank Balance 30,000 80,000
Current Liabilities and Provisions
Sundry Creditors 11,500
3,10,000 3,10,000
Working Notes:
(i) Profit and Loss Account for the year ending 31st March, 1996 Rs.
Balance as on 1.4.1995 18,500
Add : Profit for the year 15,000
33,500
Less : Preference Dividend 10,000
Loss on sale of investments 5,000 15,000
Balance as on 31.3.1996 18,500

(ii) General Reserve 1,20,000
Less : Transfer to Capital Redemption Reserve 1,00,000
Balance as on 31.3.1996 20,000
(iii) Securities Premium 70,000

Less : Premium on Redemption of Preference shares 10,000
Balance as on 31.3.1996 60,000
(iv) Capital Redemption Reserve 1,00,000

Less : Transfer for Bonus Shares 1,00,000
Balance as on 31.3.1996 NIL
(v) Sale of Investments:

Cost of Investments 50,000
Less :Cash Received 45,000
Loss on Sale of Investments 5,000
Total Investments: 1,00,000
Less : Cost of Investments sold 50,000
Cost of Investments on hand 50,000
Market value (90% of Rs. 50,000) 45,000
Q8: Issue of Debentures:

Pass journal entries in 1 in the case of the issue of debentures by ABC Co. Ltd:
Issued Rs.1,00,000 11% debentures at95% redeemable at the end of 10 years (i) at 102 percent and
(ii) at 98% .
A:
ABC Co. Ltd. Journal entries
Date Particulars Dr. Cr.
Amount Rs Amount-Rs.
Bank A/c Dr. 95,000
Discount on issue of debenture a/c Dr. 5,000
Loss on issue of debentures A/c Dr. 2,000
To 11% Debenture A/C 1,00,000
To Premium on redemption of deb 2,000
(Being issue of Rs.1,00,000 11% debentures at a discount of
5% but redeemable at a premium of 2%)
Bank A/c Dr. 95,000
Discount on issue of debentures A/c Dr. 5,000
To 11% Debentures A/c 1,00,000
(Being issue of Rs.1,00,000 11% debentures at a discount of
5% and redeemable at discount of 2%)
Q9: Issue and Redemption of Debentures [Sinking Fund Method]: X Ltd. issued 2000 12%
Debentures of Rs.100 each at par on April, 1996. These debentures are redeemable at the end of the fifth
year at 5% premium. It was resolved that Sinking Fund should be formed and invested in 10%
Development Bonds of Rs.100 each. Interest of Bonds is payable on 31st March every year. Reference to
Sinking Fund Table shows that Re.0.1638 invested at the end of every year at 10% compound interest
will produce Re.1 at the end of the fifth year.
10% Development Bonds of the required amount were purchased on different dates at the following
prices:
On March 31, 1999 Rs.94
On March 31,2000 Rs.96
On March 31,2001 Rs.98

You are required to show Debenture Redemption Fund, Debenture Redemption Fund Investments
account ad interest on Debenture Redemption Find Investments Accounts for the first three years in the
books of X Ltd. Accounting year of the company ends on 31st March.
To bal. 34,398 By Profit and Loss(Appropriation) a/c 34,398
c/d
To bal. 72,456 By bal. b/d 34,398
c/d
By int. on Deb. Redemption Fund Investments a/c 3,660
By Profit & Loss (Appropriation) a/c 34,398
72,456 72,456
To bal. 1,14,474 By bal. b/d 72,456
c/d
By Int. on Debenture Redemption Fund Investments 7,620
account
By Profit & Loss (Appropriation) Account 34,398
1,14,474 1,14,474
By bal. c/d 1,14,474
Debenture Redemption Fund Investment Account

To Bank-366 Bonds 34,404 By bal. c/d 34,404
To bal. b/d 34,404 By bal. c/d 72,420
To Bank-396 bonds 38,016
72,420 72,420
To bal. b/d 72,420 By bal. c/d 1,14,462
To Bank-429 Bonds 42,042
1,14,462 1,14,462
To bal. b/d 1,14,462
To Deb. Redemption 3,660 By Bank-10% of 3,660
Fund – Transfer ===== Rs.36,600 =====
To Deb. Redemption 7,620 By Bank – 10% of 7,620
Fund – Transfer ===== Rs.76,200 =====
Working Notes:
Annual amount to be appropriated = Rs.2,10,000 x 0.1638 = Rs.34,398
Bonds purchased on 31.3.1999 = 34,398/94 = 365.9 i.e 366 bonds
cost of bonds purchased = Rs.94 x 366 = Rs.34,404
Interest received during the year ended 31.3.2000 = 10% of Rs.36,600 = Rs.3,660
Amount available for investment on 31.3.2000
=Rs.34,398 + Rs.3,660 – Rs. (34,404 – 34,398)
=Rs.34,3,660 – Rs.6 = Rs.38,052
Bonds purchased on 31.3.2000 = 38,052 / 96 =396.3 i.e. 396 bonds
Cost of bonds purchased = Rs.96 x 396 = Rs.38,016
Interest received during the year ended 31.3.2001
=10% of Rs. (36,600 + 39,600) =10% of Rs. 36,000 = Rs.7,620.
Amount available for investment on 31.3.2001
=Rs.34,398 + Rs.7,620 + Rs. (38,052 – 38,016)
=Rs.34,398 + Rs.7,620 + Rs.36 =Rs.42,054
Bonds purchased on 31.3.2001 = 42,054 / 98 = 429.1 i.e 429 bonds
Cost of bonds purchased = Rs.98 x 429 = Rs.42,042.
Q10: Issue and Redemption of Debentures [cum-int and ex-int]: S Ltd. made an issue of 1,000 14%
Debentures of Rs.500 each on 1st April, 1997 at the issue price of Rs.480. The terms of issue provided that
beginning with 1999-2000 Rs.20,000 Debentures should be redeemed either by purchase in the market or
by drawings by lot at par. The expenses of issue amounted to Rs.4,000 which were written off in 1997-98.
In 1998-99 and 1999-2000, Rs. 5,000 were written off the Discount on Issue of Debentures.

In 1999-2000 the company purchased Rs.6,000 Debentures @ Rs.470 on 31 st December cum-interest and
Rs.10,000 Debentures @ Rs.475 ex-interest on 28 th February, the expenses being Rs.400. On 31 st March,
the debentures necessarily to be redeemed were paid off at par by drawings by lot. Assuming the interest
is payable on 30th September and 31st March, make Journal entries to record the above transactions
including interest on debentures.
Bank Dr. 4,80,000
To 14% Debenture Applications & allotment 4,80,000
a/c
14% Debenture applications & allotment a/c Dr. 4,80,000
Discount on Issue of Debentures account Dr. 20,000
To 14% Debentures account 5,00,000
Expenses on Issue of Debentures a/c Dr. 4,000
To Bank 4,000
Interest onDebentures a/c Dr. 35,000
To Bank 35,000
Interest on Debentures a/c Dr. 35,000
To Bank 35,000
Profit and Loss Account Dr. 1,99,000
To exp. On issue of Debentures a/c 4,000
To int. on Debenture a/c 70,000
To Debenture Redemption Reserve 1,25,000
To Bank 35,000
To Bank 35,000
Profit and Loss account Dr. 2,00,000
To Discount on Issue of Debentures a/c 5,000
To interest on Debentures a/c 70,000
To Debenture Redemption Reserve 1,25,000
To Bank 35,000
Own Debentures a/c Dr. 5,430
Interest on Debentures a/c Dr. 210
To Bank 5,640
Own Debentures a/c Dr. 9,900
Interest on Debentures a/c Dr. 583
To Bank 10,483
14%Debentures account Dr. 16,000
To Own Debentures a/c 15,330
To Capital Reserve a/c 670
14% Debentures a/c Dr. 4,000
To Bank 4,000
Int. on Debentures a/c Dr. 34,207
To Bank 33,880
To Int. on Own Debentures a/c 327
Profit and Loss account Dr. 75,000
To Interest on Debentures a/c 70,000
To Discount on Issue of Debentures account 5,000
Interest on Own Debentures account Dr. 327
To Profit and Loss Account 327
Working Notes:

No. of Debentures purchased on 31st December, 1999 = 6,000/500 = 12
Cum-interest price of 12 debentures= Rs.470 X 12 = Rs.5,640
Interest paid for 3 months on Rs.6,000 @ 14% p.a = Rs.210
Ex-interest price of 12 debentures = Rs.5,640 – Rs.210 = Rs.5,430
Ex-interest price of 20 debentures purchased on 28th February, 2000 = Rs.475 X 20=
Rs.9,500. Expenses = Rs.400
Total ex-interest cost = Rs.9,500 + Rs.400 = Rs.9,900
Interest paid for 5 months on Rs.10,000 @ 14% p.a = Rs.583 (to the nearest rupee).
Q11: Conversion of Debenture into Shares:

Libra Limited recently made a public issue in respect of which the following information is available:
(a) No. of partly convertible debentures issued 2,00,000; face value and issue price Rs.100 per
debenture.
(b) Convertible portion per debenture 60%, date of conversion on expiry of 6 months from the date of
closing of issue.
(c) Date of closure of subscription lists 1.5.1994, date of allotment 1.6.1994, rate of interest on
debenture 15% payable from the date of allotment, value of equity share for the purpose of
conversion Rs. 60 (Face Value Rs. 10).
(d) Underwriting Commission 2%.
(e) No. of debentures applied for 1,50,000.
(f) Interest payable on debentures half-yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year ended 31st
March, 1995 (including cash and bank entries).

A:
In the books of Libra Ltd. Journal Entries
Date Particulars Amount Dr. Amount Cr.
Rs. Rs.
1.5.94 Bank A/c Dr. 1,50,00,000
To Debenture Application A/c 1,50,00,000
1.6.94 Debenture Application A/c Dr. 1,50,00,000

Underwriters A/c Dr. 50,00,000
To 15% Debentures A/c 2,00,00,000
Underwriting Commission Dr. 4,00,000

To Underwriters A/c 4,00,000
Bank A/c Dr. 46,00,000

To Underwriters A/c 46,00,000
30.9.94 Debenture Interest A/c Dr. 10,00,000

To Bank A/c 10,00,000
30.10.94 15% Debentures A/c Dr. 1,20,00,000

To Equity Share Capital A/c 20,00,000
To Securities Premium A/c 1,00,00,0000
31.3.95 Debenture Interest A/c Dr. 7,50,000

Working Note :
Calculation of Debenture Interest for the half year ended 31st March, 1995
On Rs. 80,00,000 for 6 months @ 15% = Rs. 6,00,000
On Rs. 1,20,00,000 for 1 months @ 15% = Rs. 1,50,000
Rs. 7,50,000
Q12: Debenture Redemption [Ex-int, Cum-int and Own Debenture]:

On 1st April, 2007, in MK Ltd’s ledger 9% debentures appeared with a opening balance of Rs.
50,00,000 divided into 50,000 fully paid debentures of Rs. 100 each issued at par.
Interest on debentures was paid half-yearly on 30 th of September and 31 st March every year.
On 31.5.2007, the company purchased 8,000 debentures of its own @ Rs. 98 (ex-interest) per
debenture.
On 31.12.2007 it cancelled 5,000 debentures out of 8,000 debentures acquired on 31.5.2007.
On 31.1.2008 it resold 2,000 of its own debentures in the market @ Rs. 101 (ex-interest) per
debenture.
(i) Own debentures account;(ii)Interest on debentures account; and
(iii) Interest on own debentures account.

A:
MK Ltd.’s Ledger (i)
Own Debentures Account
Rs. Rs.
31.5.07 To Bank 7,84,000 31.12.07 By 9% Debentures 5,00,000
31.12.0 To Capital Reserve (Profit 10,000 31.1.08 By Bank- Resale of 2,02,000
7 on cancellation) 2,000 debentures
31.1.08 To Profit and Loss A/c 6,000 31.3.08 By Balance c/d 98,000
(Profit on resale)
8,00,000 8,00,000
(ii) Interest on Debentures Account

Rs. Rs.
31.5.07 To Bank (Interest for 2 months on 12,000 31.3.0 By Profit and 4,38,750
8,000 debentures) 8 Loss A/c
30.9.07 To Interest on own debentures (Interest
for 4 months on 8,000 debentures) 24,000
30.9.07 To Bank (Interest for 6 months on
42,000 debentures) 1,89,000
7 for 3 months on 5,000 debentures) 11,250
for 6 months on 1,000 debentures)
4,500
31.3.08 To Bank (Interest for 6 months on
44,000 debentures)
1,98,000
4,38,750 4,38,750
(iii) Interest on Own Debentures Account

Rs. Rs.
31.3.0 To Profit and 45,750 30.9.07 B Interest on Debentures A/c 24,000
8 Loss A/c y
31.12.07 B Interest on Debentures A/c 11,250
y
31.01.08 B Bank (interest for 4 months on 6,000
y 2,000 debentures)
31.03.08 B Interest on Debentures
y 4,500
45,750 45,750
Working Note:
31.5.07 Acquired 8,000 Debentures @ 98 per debenture Rs.
(ex-interest)
Purchase price of debenture 8,000 × Rs. 98 = 7,84,000
2
Interest for 2 months Rs. 8,00,000 × 9% × 12
= 12,000
30.9.07 Interest on own debentures

[Rs. 8,00,000 × 9% × ½ ] less Rs.12,000 = 24,000
Interest on other debentures
Rs. 42,00,000 × 9% × ½ = 1,89,000
31.12.0 Cancellation of 5,000 own debentures
7

Face value Rs.100 less acquired at Rs.98 = 2 × = 10,000
5000
31.1.08 Resale of 2,000 Debentures sold for 101 (ex-

interest) acquired for Rs. 98 (ex-interest)
2,000 × Rs.3 per Debenture = 6,000
31.12.0 Interest on cancelled 5,000 debentures
7
1
5,000 × Rs.100 × 9% × 4 = 11,250
31.3.08 Interest on 1,000 own debentures
Rs. 1,00,000 × 9% × ½ = 4,500
Q13: Redemption of Debenture [ex-int and cum-int]: Progressive Ltd. issued Rs. 10,00,000, 6%
Debenture Stock at par on 21.1.1984, Interest was payable on 30th June and 31st December, in each year.
Under the terms of the Debentures Trust the owned stock is redeemable at par. The trust deed obliges the
Company to pay to the trustees on 31st December, 1995 and annually thereafter the sum of Rs. 1,00,000
to be utilised for the redemption and cancellation of an equivalent amount of stock, which is to be
selected by drawing lots.
Alternatively, the Company is empowered as from 1st January, 1995 to purchase its own debentures on
the open market. These Debentures must be surrendered to the Trustees for cancellation and any
adjustments for accrued interest recorded in the books of account. If in any year the nominal amount of
the stock surrendered under this alternative does not amount to Rs. 1,00,000 then the shortfall is to be
paid by the Company to the Trustees in cash on 31st December.
The following purchases of stock were made by the Company:
Nominal value of Purchase price per
stock purchased Rs. 100 of stock
Rs. Rs.
(1) 30th September, 1995 1,20,000 98
(2) 31st May, 1996 75,000 95 (Ex-interest)
(3) 31st July, 1997 1,15,000 92
The Company fulfilled all its obligations under the trust deed.
Prepare the following Ledger Accounts :
(a) Debenture Stock A/c
(b) Debenture Redemption A/c
(c) Debenture Interest A/c
Note : Ignore costs and taxation

A:
In the Books of Progressive Ltd.Debenture Stock Account
1995 Rs. 1995 Rs.
Sept. 30 To Debenture
Redemption A/c 1,20,000 Jan. 1 By Balance b/d 10,00,000
Dec. 31 To Balance c/d 8,80,000
10,00,000 10,00,000
1996 Rs. 1996 Rs.

May 31 To Debenture Jan. 1 By Balance b/d 8,80,000
Redemption A/c 75,000
Dec.31 To Debenture
Redemption A/c 25,000
To Balance c/d 7,80,000
8,80,000 8,80,000
1997 Rs. 1997 Rs.

July 31 To Debenture Jan. 1 By Balance b/d 7,80,000
Redemption A/c 1,15,000
Dec.31 To Balance c/d 6,65,000
7,80,000 7,80,000
Debenture Redemption Account
1995 Rs. 1995 Rs.
Sept. 30 To Bank A/c 1,15,800 Sept.30 By Debenture Stock A/c 1,20,000
(Rs. 1,20,000×0.98
– Rs. 1,800)
To Capital Reserve A/c 4,200
1,20,000 1,20,000
1996 Rs. 1996 Rs.

May 30 To Bank A/c 71,250 May 31 By Debenture Stock A/c 75,000
(Rs. 75,000 × 0.95) Dec. 31 By Debenture Stock A/c 25,000
(Profit on cancellation)
Dec.31 To Bank A/c 25,000
(Shortfall=Rs.1,00,000
– Rs. 75,000)
1,00,000 1,00,000
1997 Rs. 1997 Rs.

July 31 To Bank A/c 1,05,225 July 31 By Debenture Stock A/c 1,15,000
(Rs. 1,15,000 ×.92
– Rs. 575)
(Profit on cancellation)
1,15,000 1,15,000

Debenture Interest Account
1995 Rs. 1995 Rs.
June 30 To Bank A/c 30,000 Dec. 31 By Profit and Loss A/c 58,200
Sept. 30 To Bank A/c 1,800
Dec. 31 To Bank A/c 26,400
58,200 58,200
1996 Rs. 1996 Rs.

May 31 To Bank A/c 1,875 Dec. 31 By Profit and Loss A/c 50,175
June 31 To Bank A/c 24,150
50,175 50,175
1997 Rs. 1997 Rs.

June 30 To Bank A/c 23,400 Dec. 31 By Profit and Loss A/c 43,925
July 31 To Bank A/c 575
43,925 43,925
Working Notes :
Interest paid on Debentures @6% per annum:
Date Amount of Period Interest
Debentures
Rs. Rs.
1995
June 30 10,00,000 6 months 30,000
Sept. 30 1,20,000 3 months 1,800
Dec. 31 8,80,000 6 months 26,400
1996
May 31 75,000 5 months 1,875
June 30 8,05,000 6 months 24,150
Dec. 31 8,05,000 6 months 24,150
1997
June 30 7,80,000 6 months 23,400
July 31 1,15,000 1 month 575
Dec. 31 6,65,000 6 months 19,950
Notes : (1) It has been assumed that debentures are purchased for immediate cancellation.
(2) The purchases of 30th September, 1995 and 31st July, 1997 have been taken on cum-
interest basis

8 PREPARATION OF COMPANY FINAL ACCOUNTS
Final Accounts
Calculation of Managerial Remuneration
Provision for Taxation
Q1: Final Accounts:

The following is the Trail Balance of Subhash Limited as on 31.3.97:
(Figures in Rs.’000)
Debit Rs. Credit Rs.
Land at Cost 110 Equity Capital (Shares of
Plant & Machinery at cost 385 Rs.10 each) 150
Debtors 48 10% Debentures 100
Stock(31.3.97) 43 General Reserve 65
Bank 10 Profit and Loss A/c 36
Adjusted Purchases 160 Share premium 20
Factory expenses 30 Sales 350
Admission Expenses 15 Creditors 26
Selling Expenses 15 Provision for Depreciation 86
Debentures Interest 10 Suspense Account 2
Interim Dividend paid 9
835 835
Additional information:
a. On 31.3.97, the company issued bonus shares to the shareholders on 1:3 basis. No entry relating to
this has yet been made.
b. The authorized share capital of the company is 25,000 shares of Rs.10 each.
c. The Company on the advice of independent valuer wish to revalue the land at Rs.1,80,000.
d. Proposed final dividend 10%.
e. Suspense account of Rs.2,000 represents cash received for the sale some of the machinery on 1.4.96.
The cost of the machinery was Rs.5,000 and the accumulated depreciation thereon being Rs.4,000.
f. Depreciation is to be provided on plant and machinery at 10% on cost.
You are required to prepare subhash Limited’s profit and loss account for the year ended 31.3.97 and a
balance sheet on that date in vertical from as per the provision of Schedule VI of the Companies Act,
1956. You answer to include detailed schedules for Share Capital, Reserve & Surplus and Fixed assets.
Ignore previous year’s figures & Taxation.
A:
Subash Limited Balance Sheet as at 31.3.97
1. Sources of funds: Rs. in Thousands
Particulars Schedule No. Rs. Rs.
(1) Shareholders Funds
(a) Capital 1 20
0
(b) Reserve and surplus 2 20 400
0
(2) Loan funds 10% 100
debentures
Total 500
2. Application of funds:
Particulars Schedule Rs. Rs. Rs.

No.
(1) Fixed assets 3
Land 180
Gross Block (385 – 380
5)
Less: Depreciation (86 + 38 – 4) 120 260 400
(2) Current Assets:
Stock 43
Debtors 48
Cash 10 101
Less: Current liabilities
Creditors 26
Proposed dividend 15 41 60
Total 500
Subash limited - Profit and loss account for the year ended 31.3.97
(Rs.’000)
Particulars (Rs. (Rs.)
)
Sales 350
Other income (Profit on sale of 1
machine)
Total income 351
Less: Expenses
Purchases 160
Factory expenses 30
Administration expenses 15
Selling expenses 15
Depreciation 38
Interest on debentures 10 268
Net profit before dividend 83
Dividend:
Interim 9
Final 15 24
Balance transfer to the balance sheet 59
Working Notes: -
Bonus issue in the proportion of 1:3
Number of share = 15,000 x 1/3 = 5,000
Debit Credit
(1) General Reserve A/c Dr. 50,000
To Equity share capital 50,000
(Being reserve capitalized)
(2) Land Account 70,000
Dr.
To Revaluation Reserve 70,000
(Being land revaluation of land)

Schedule-1
Rs.
Share capital
Authorized 25,000 shares of Rs.10 each 2,50,000
----------Issued,
subscribed and fully paid – up 20,000 shares of Rs.10 each [of the above 5,000
Shares are allotted as fully paid by way of Bonus shares, Bonus shares were issued by utilizing the
General reserve] 2,00,000
----------
Schedule -2
Reserve and surplus 20,000
Share premium Account 70,000
Revaluation reserve 15,000
General reserve 95,000
---------
Balance in profit and Loss A/c 2,00,000
---------
Schedule -3
Fixed assets As on Additions Deletion Depreciatio Net
1.4.96 Rs. Rs. n Block Rs.
Rs. Rs.
Land 1,10,00 70,000 - - 1,80,000
0
Plant and Machinery 3,85,00 - 5,000 1,20,000 2,60,000
0
Total 4,95,00 70,000 5,000 1,20,000 4,40,000
0
Land was revalued upward by Rs.70,000 during the year
Q2: Calculation of Managerial Remuneration:

From the following particular of Ganga Limited, you are required to calculate the managerial
remuneration in the following situation:
i. There is only one whole time director.
ii. There is two whole time director.
iii. There are two whole time director, a part time director and a manager.
Net profit before provision for income-tax and managerial remuneration, but after depreciation and
provision for repairs 8,70,410
Depreciation provided in the books 3,10,000
Provision for repairs of machinery during the year 25,000
Depreciation allowable under Schedule XIV 2,60,000
Actual expenditure incurred on repairs during the year 15,000
A:
(a) Section 198 and 309 of the Companies Act, 1956 prescribe the maximum percentage e of profit
that can be paid as managerial remuneration. For this purpose, profit is to be calculated in the manner as
specified in Section 349.
Computation of net profit u/s 349 of the Companies Act, 1956

Net profit before provision for income-tax and managerial remuneration, but 8,70,410
after depreciation and provision of repairs
Add black: Depreciation provided in the books 3,10,000
Provision for repairs of machinery 25,000 3,35,000
12,05,410
Less: Depreciation allowable under schedule XIV 2,60,000

Actual expenditure incurred on repairs 15,000 2,75,000
Profit as per section 349 9,30,410
Computation of Managerial remuneration
i). If there is only one whole time director:
Managerial remuneration = 5% of Rs.9,30,410 = Rs.46,520.50
ii). If there are two whole time directors:
Managerial remuneration = 10% of Rs.9,30,410 = Rs.93041
iii). If there are two whole time directors, a part time director and a manager:
Managerial remuneration = 11% of Rs.9,30,410 = Rs.1,02,345.10
Q3: Provision for Taxation:

The trail balance of Complex Ltd. as at 31st March, 1998, shows the following items:
Dr. Cr.
Rs. Rs.
Advance payment of income-tax 2,20,000 -
Provision for income-tax for the year ended 31.3.97 - 1,20,000
The following further information are given:
i. Advance payment of income-tax included Rs.1,40,000 for 1996-97.
ii. Actual tax liability for 1996-97 amounts to Rs.1,52,000 and no effect for the same has so far
been given in accounts.
iii. Provision for income-tax has to be make for 1997-98 for Rs.1,60,000.
You are required to prepare (a) provision for income-tax account, (b) advance payment of income-tax
accounts, (c) liabilities for taxation account and also show, how the relevant items will appear in the profit
and loss account and balance sheet of the company.
A:
Complex Ltd. provision for income tax (1996-97) account
31.3.9 To Advance payment of 1,40,000 1.4.97 By Balance b/d 1,20,000
8 income tax a/c
To Liability for taxation 12,000 31.3.98 By Profit and 32,000
A/c Loss
1,52,000 1,52,000
Provision for Income tax (1997-98) Account
31.3.98 To Balance c/d 1,60,00 31.3.98 By Profit and Loss A/c 1,60,000
0
1,60,00 1,60,000
0
Advance payment of income tax account
31.3.9 To Balance b/d 2,20,00 31.3.9 By Provision for Income tax (1996-97) 1,40,000
8 0 8 A/c
2,20,00 2,20,000
0
Liability for taxation Account
31.3.9 T o Balance c/d 12,000 31.3.98 By Provision for Income Tax A/c 12,000
8
12,000 12,000
Profit and Loss Account for the year ended 31st March, 1998 (Extracts)
Rs. Rs.
Profit before taxation

Less: Taxation for the year 1,60,000 -
Less: Taxation adjustments of previous year 32,000 1,92,000
Let Profit - -
Balance sheet of complex Ltd. as at 31st March, 1998

Current liabilities and Provisions Current Assets, Loans and Advances
A.Current Liabilities Loans and Advances
Liability for taxation (1996-97) 12,000 Advance payment of income tax 80,000
B.Provision for income tax 1,60,00
0

9 ACCOUNTING FOR BANKING COMPANIES
Calculation of Provision on Assets

Calculation of Rebate on Bills Discounted
Journal Entry and Ledger Preparation for Rebate on Bills Discounted
Treatment for Acceptances, Endorsements and Obligations
Preparation of Final Accounts
Q:1 Calculation of Provision on Assets: Rajatapeeta Bank Ltd. had extended the following credit
lines to a Small Scale Industry, which had not paid any Interest since March, 1997:
Particulars Term Loan Export Loan

Balance Outstanding on Rs. 35 lacs Rs. 30 lacs
31.03.2003
DICGC/ECGC 40% 50%
Securities held Rs. 15 lacs Rs. 10 lacs
Realisable value of Securities Rs. 10 lacs Rs. 08
Compute necessary provisions to be made for the year ended 31st March, 2003.
A: (Rs. in lakhs)
Term Loan Export Credit

Balance outstanding on 31.3.2003 35.0 30.0
Less: Realisable value of 10.0 8.0
Securities
25.0 22.0
Less: DICGC cover @ 40% 10.0
ECGC cover @ 50% - 11.0
Unsecured balance 15.0 11.0
Required Provision:
100%* for unsecured portion 15.0 11.0
100% for secured portion 10.0 8.00
Total provision required 25.0 19.0
* The above solution has been provided based on the latest NPA provisions (as per the Master Circular
issued by RBI “ DBOD No. BP. BC. 11/21.04.048/2005-06” dated November 4, 2005) though in the
above question provisions for the year ended 31st march 2000 is required.
Q: 2 Calculation of Provision on Assets: From the following information find out the amount of
provisions to be shown in the Profit and Loss Account of a Commercial Bank:
Assets Rs. (in lakhs)
Standard 4,000
Sub-standard 2,000
Doubtful upto one year 900
Doubtful upto three years 400
Doubtful more than three years 300
Loss Assets 500

A: Computation of provision:
Assets Amount %of Provision
(Rs. in lacs) Provision (Rs. in lacs)
Standard 4,000 0.40** 16
Sub-standard 2,000 10 200
Doubtful upto one year* 900 20 180
Doubtful upto three years* 400 30 120
Doubtful more than three 300 100** 300
years*
Loss 500 100 500
1316
* Doubtful assets are taken as fully secured.
** The above solution has been provided based on the latest NPA provisions (as per the Master Circular
issued by RBI “ DBOD No. BP. BC. 11/21.04.048/2005-06” dated November 4, 2005) though in the
above question provisions for the year ended 31st march 2000 is required.
Q3: Provision on assets: Books of the M/s Commercial Bank Ltd for following credit lines to a Small
Scale Industry, which had not paid any Interest since March, 1997:

Balance Outstanding on 31.3.03 Rs.35 Lakhs Rs.30 Lakhs
DICGC/ ECGC Cover 40% 50%
Securities held Rs.15 Lacs Rs.10 Lacs
Realisable value of securities Rs.10 Lacs Rs.08 Lacs
Compute the necessary provisions to be made for the year ended 31 st March, 2003.
A: Computation of Provision required (Rs. In Lakhs)
Balance outstanding on 31.3.2003 35.0 30.0

Less: Realizable value of securities 10.0 8.0
25.0 22.0
Less: DICGE cover @ 40% 10.0
ECGE cover @ 50% 11.0
Unsecured balance 15.0 11.0
Provision Required:
100% for unsecured portion 15.0 11.0
Add: 50% for secured portion 5.0 4.0
Less: Covered under
DICGC (40%) 2.0 3.0
ECGC (50%) 2.0 2.0
Total Provision required 18.0 13.0

Otherwise, it can also be calculated as follows: - (Rs. In Lakhs)

Balance outstanding 36.5 30.0
Less: Realizable value of securities 10.0 8.0
Unsecured Amount 25.0 22.0
Provision for unsecured portion (100%) 25.0 22.0
Provision in respect at sewed portion (50%) 5.0 4.0
30.0 26.0
Less: DICG cover (40%) 12.0
ECGC cover (50%) 13.0
Total Provision required 18.0 13.0
Q4: Provision on Assets: From the following information find-out the amount of provision to be shown
in the profit and Loss Account of a Commercial Bank:
Assets: (Rs. In lakhs)

Standard 4,000
Sub standard 2,000
Doubtful 1 yr 900
Doubtful 1 yr to 3 yrs 400
Doubtful more 3 yrs 300
Loss Assets 500
A: Computation of Amount of Provision (Rs. In Lacks)
Assets Amt Provision % Provision

Standard 4,00 0.4 16
0
Sub-Standard 2,00 10 200
0
Doubtful:
For upto 1 year 900 20 180
For upto 3 years 400 30 120
For more than 3 300 50 150
years
Loss 500 100 500
Required provisions 1,166
Note: Doubtful assets are considered as fully secured.
Q 5: Calculation of Amount of Rebate on Bills on Discounted and Journal Entry:

The following is an extract from the Trial Balance of Dream Bank Ltd. as at 31 March, 2006:
Rebate on bills discounted as on 1-4-2005 68,259 (Cr.)
Discount received 1,70,156 (Cr.)
Analysis of the bills discounted reveals as follows:
Amount (Rs.) Due date
2,80,000 June 1, 2006
8,72,000 June 8, 2006
5,64,000 June 21, 2006
8,12,000 July 1, 2006
6,00,000 July 5, 2006

You are required to find out the amount of discount to be credited to Profit & Loss A/c for the year
ending 31-3-2006 & pass Journal Entries. Rate of discount may be taken at 10% pa.
A:
The amount of rebate on bills discounted as on 31 st March, 2006 the period which has not been expired
upto that day will be calculated as follows:
Discount on Rs.2,80,000 for 62 days @ 10% 4,756
Total 70,159
The amount of discount to be credited to the profit and loss account will be:
Rs.
Transfer from rebate on bills discounted as on 31.03.2005 68,259
Add: Discount received during the year 1,70,156
2,38,415
Less: Rebate on bills discounted as on 31.03.2006(as above) 70,159
Total 1,68,256
Journal Entries
Rs. Rs.
Rebate on bills discounted A/c Dr. 68,259
To Discount on bills A/c 68,259
Discount on bills A/c Dr. 70,159
To Rebate on bills discounted 70,159
Discount on Bills A/c Dr. 1,68,256
To P & L A/c 1,68,526
Q6: Journal Entry and Ledger Preparation for Rebate on Bills Discounted: The following particulars
are extracted from the (Trial Balance) Books of the M/s Commercial Bank Ltd. for the year ending 31st
March, 2003:
Rs.
(i) Interest and Discounts 1,96,62,400
(ii) Rebate on Bills Discounted (balance on 65,040
1.4.2002)
(iii Bills Discounted and purchased 67,45,400
)
It is ascertained that proportionate discount not yet earned on the Bills Discounted which will mature
during 2003-2004 amounted to Rs. 92,760.
Pass the necessary Journal entries with narration adjusting the above and show:
(a) Rebate on Bill Discounted Account; and
(b) Interest and Discount Account in the ledger of the Bank.
A:
The Commercial Bank Ltd. - Journal
Date Dr. Cr.
2003 Rs. Rs.
Mar Rebate on Bills Discounted A/c Dr. 65,040
31
To Interest and Discount A/c 65,040
Mar Interest and Discount A/c Dr. 92,760
31

To Rebate on Bills Discounted A/c 92,760
Mar Interest and Discount A/c Dr.
31
1,96,34,680
To Profit & Loss A/c 1,96,34,680
(a) Rebate on Bills Discounted Account

2003 Rs. 2002 Rs.
31.3 To Interest & Dis A/c 65,040 1.4 By Balance b/d 65,040
31.3 To Balance c/d 92,760 31.3 By Interest & Dis a/c 92,760
(rebate required)
1,57,800 1,57,800
(b) Interest and Discount Account

200 Rs. 2003 Rs.
3
31.3 To Rebate on Bills 92,760 01.4 B Rebate on Bill 65, 40
Discounted A/c y Discount A/c
31.3 To Profit & Loss A/c 31.3 B Cash and Sundries
(transfer) 1,96,34,680 y 1,96,62,400
1,97,27,440 1,97,27,440
Q 7: Treatment for Acceptances, Endorsements and Obligations: From the following details prepare
“Acceptances, Endorsements & ther Obligation A/c” as would appear in the general ledger: On 1.4.98
Acceptances not yet satisfied stood at Rs.22,30,000. Out of which Rs.20 lacs were subsequently paid off
by clients & bank had to honor the rest. A scrutiny of the Acceptance Register revealed the following:
Client Acceptances/Guarantees Remarks

A Rs.10,00,000 Bank honored on 10.6.98
B Rs.12,00,000 Party paid off on 30.9.98
C Rs. 5,00,000 Party failed to pay and bank had to honor on 30.11.98
D Rs. 8,00,000 Not Satisfied up to 31.3.99
E Rs. 5,00,000 Do
F Rs. 2,70,000 Do
Total Rs. 42,70,000
Acceptances, Endorsements and Other Obligation A/c
Date Particular Rs Rs
1998-99 To Constituents’ liabilities for 20.00 By Balance b/d 22.30
acceptances/guarantees etc. (paid off by
Clients)
To Constituent’s Liabilities for 2.30 By Constituents liabilities for
acceptances/guarantees etc. (Honored by acceptance/guarantees etc.
bank Rs.22.30 lahks less Rs.20 lahks)
10.6.98 To Constituent’s liabilities for 10.00 A 10.00
acceptances/guarantees etc. (Honored by
bank)

30.9.98 To Constituent’s liabilities for acceptances/ 12.00 B 12.00
guarantees etc. (paid off by party)
30.11.9 To Constituent’s Liabilities for acceptances 5.00 C 5.00
8 etc. (Honored by bank on party’s failure to
pay)
31.3.99 To Balance c/d (acceptances not yet satisfy) 15.70 D 8.00
E 5.00
F 2.70
65.00 65.00
Q 8: Preparation of Profit and Loss A/c: On 31.3.2000 the following balance stood in the books of
New Bank Ltd. Prepare Profit and Loss A/c. Rs. ‘000
Share capital 3,500

(net profit is Reserve fund 2,450 after
deducting Fixed deposit accounts 6,650 provisions
Savings bank accounts 21,000
for bad debts
Current accounts 56,000
Money at call and short notice 2,100
Investments (at cost) 21,000
Profit and Loss Account (Cr.) 1.4.1999 1,470
Dividends for 1999 350
Land and buildings (after depreciation up to 31.3.2000) 7,445
Cash in hand 420
Cash with RBI 10,500
Cash with other banks 9,100
Borrowings from other banks 4,400
Bills discounted and purchased 4,200
Sundry creditors 210
Bills payable 5,600
Unclaimed dividend 210
Bills for collection 980

Acceptance on behalf of customers 1,400
Net profit for 1999 2000
1,680
Rs.2,10,000, tax provision Rs.7,00,000 and rebate on bills discounted Rs.35,000. Prepare the balance
sheet of bank as on 31.3.2000.
A: New Bank Limited Balance sheet as on 31.3.00 Rs.000’s
S.No 31.3.00 C.Y 31.3.199 P.Y

.
Capital and Liabilities
Share capital 1 3,500
Reserves and surplus 2 5,250
Deposits 3 83,650
Borrowings from other banks 4 4,400
Other liabilities and provisions 5 6,965
1,03,765
Assets
Cash on hand and balance with RBI 6 10,920

Balance with other banks and money at call and short 7 11,200
notice
Investments at cost 8 21,000
Advances 9 53,200
Fixed assets (Land and Buildings) 7,445
Other assets 10 Nil
1,03,765
Contingent liabilities 1,400
Bills for collection 980
Schedule 2- Reserves and surplus (Rs. ‘000)
Reserve Fund 2,786

Profit and loss A/c Surplus (Tutorial 2,464
note.2)
Total 5,250
Schedule 3- Deposits
Fixed deposit accounts 6,650

Savings bank accounts 21,000
Current accounts 56,000
Total 83,650
Schedule 5-Other Liabilities and Provisions
Rebate on bills discounted 35

Schedule-9 Bills payable 5,600 Advances
Provision
Bills discounted for bad debts
and purchased 210
4,200
Loans, overdrafts and cash Total 6,965
49,000
credits
Term loans Nil
Total 53,200
As details are not available the full format of the advances is not given.
Note: Schedules which are simple to prepare are omitted. The student can try the omitted schedules and
verify with the amount given in the Balance Sheet.
Tutorial Notes: (Rs. ‘000)
Reserve Fund Balance as on 1.4.99 2,450

Add: 20% on current profits of 16, 80,000 336
-------
2,786

Profit and Loss A/c Surplus:
Net profit of the current year 1,680
Add: Profit brought forward 1,470
--------
3,150
Appropriation:
Transfer to statutory reserve 336
Transfer to other reserves Nil
Dividends paid for 1999 350
Balance carried over to Balance Sheet 2,464
3,150
Q 9: Preparation of Profit and Loss and Balance Sheet:As on that date from following Trial Balance
on 31st March 1999:
Dr Cr
Unissued capital 2,00,000 Authorized Capital 5,00,000
(Equity Shares of Rs.100 each)
Uncalled capital 1,50,000 Commission, Exchange & Brokerage 49,400
Interest paid on Deposits & Profit on Sale of Gold 35,900
Borrowings 48,500
Loss on sale of investment 12,600 Short Loans 2,20,000
Provident Fund contribution 9,200 Reserve Fund (invested Kerala Govt
Bonds ) 80,000
Directors’ Fees 5,500 Investment Fluctuation Reserve 20,000
Stationary & Printing 5,600 Current Accounts 5,00,000
Auditors’ Fees 1,200 Contingency Accounts 1,00,000
General expenses 2,700 Profit and Loss A/c on 1.4.98 25,000
Owing by Foreign Correspondents 20,000 Interest and Discount 1,70,000
Overdrafts, Loans, Cash Creditors 3,80,000 Savings Bank Deposits 3,35,000
Bank premises 60,000
Kerala Government Bond 80,000
Government of India Securities 4,20,000
Money at call and short Notice 70,000
Bills Discounted 73,000
Shares of other companies 17,000
Cash in hand and with RBI 1,10,000
Cash in Banks 3,00,000
Income Tax paid 9,000
Salaries and Allowances 73,500
Interim Dividend paid 7,500
20,55,300 20,55,30
(i) Interest Accrued on Investments Rs.750.

(ii) Market Value of Investment Securities was Rs.4,75,000 & increase corresponding fluctuation
reserve with necessary amount.
(iii) The bills discounted mature at 20-5 average date& all bills are discounted at 10% p.a.
(iv) Premises added during the yr Rs.10,000 & provide 5% Depreciation on Opening Balance.
(v) Provision for Taxation on 1.4.98 stood at Rs.15,000 which is to be increased to Rs.28,000.
(vi) Out of the Loans and Advances Rs.2,50,000 are secured & Rs.1,00,000 are guaranteed by
Government.

A: Mini Bank Limited Profit and Loss Account For the year ended 31.3.1999 (Rs.)
Schedul Year Year

e Ending Ending
No. 31.3.99 31.3.98
I. Income
Interest and discount 13 1,60,000
Other income 14 73,450
Total 2,33,450
II. Expenditure
Interest expended 15 48,500
Operating expenses 16 1,00,200
Previous and contingencies 53,175
Total 2,01,875
III. Profit/(Loss)
Net profit for the year (I-II) 31,575
Profit brought forward from the previous 25,000
year
Total 56,575
IV. Appropriations
Transfer to statutory reserve 6,315*
Transfer to other reserves Nil
Interim dividend paid 7,500
Balance carried over to balance sheet 42,760
Total 56,575
*Transfer to statutory reserve is made at 20%. As per recent instructions of RBI the percentage has been
increased to 25%.
Schedule-13 Interest and Discount
Interest and discount 1,70,000

Less: Rebate on bills discounted (Tutorial note 10,000
1)
Net Shown in the profit and loss account 1,60,000
Schedule – 14 Other income
Commission, exchange and 49,400

brokerage
Profit on sale of gold 35,900
Less: Loss on sale investments 12,600 23,300
Interest accrued 750
Total 73,450

Schedule 15-Interest expended
Paid on deposits and borrowings 48,500
Schedule – 16 Operating expenses
Salaries and allowances 73,500

Provident fund contribution 9,200
Directors’ fees 5,500
Provisions and contingencies
Stationery and printing 5,600
(No schedule is Auditors fees 1,200 required. The details
are given for the General expenses 2,700 benefit of the
student.) Depreciation on buildings 2,500
Total 1,00,200
Provision for taxation (Tutorial note 2) 22,000
Provision for bad debts (Tutorial note 3) 9,175
Investment fluctuation reserve (Tutorial note 22,000
4)
53,175
Mini Bank Ltd Balance sheet as at 31.3.1999
Schedule No. As on 31.3.99 As on 31.3.98

Capital and liabilities
Capital 1 1,50,000
Reserve and surplus 2 1,29,075
Deposits 3 8,55,000
Borrowings 4 2,20,000
Other liabilities and provisions 5 1,74,175
Total 15,28,175
Assets
Cash and Balance with RBI 6 1,10,000
Balance with Banks and money at 7 3,70,000
call
Investments at cost 8 5,17,000
Advances 9 4,73,000
Fixed assets 10 57,500
Other assets 11 750
Total 15,28,250
Schedule 1- capital
Authorized capital 5,00,000

Issued capital 3,00,000
Subscribed capital 3,00,000
Called-up capital 1,50,000
Paid-up capital 1,50,000
Schedule-2 reserve and surplus
Statutory reserve as on 1.4.98 80,00

0
Add: Transfer from current 6,315 86,315

profits
Profit and loss account balance 42,760
Total 1,29,075
Schedule-3 Deposits
Current accounts 5,00,000

Savings Bank 3,55,000
Deposits
Total 8,55,000
Schedule-5 Other Liabilities and Provisions
Rebate on bills discounted (Tutorial note 1) 1,000

Contingency account balances as on 1.4.98 1,00,00
0
Add: Transfer to tax provision (Tutorial note 2) 22,000 1,22,000
Investment fluctuation reserve (20,000+22,000) (Tutorial note 42,000
4)
Bad debts provision (Tutorial note 3) 9,175
Total 1,74,175
Schedule-8 Investments
Government Securities 4,20,000

Kerala Government Bonds 80,000
Shares in other Companies 17,000
Total 5,17,000
Schedule-9 Advances
(i) Bills purchased and discounted 73,000

(ii) Cash credits, overdrafts and loans 4,00,000
Term Loan Nil
Total 4,73,000
(i) Secured by tangible assets 2,50,000
(ii) Covered by Government guarantees 1,00,000
(iii)Unsecured 1,23,000
Total 4,73,000
(i) Advances in India 4,53,000
(ii) Advances Outside India 20,000
Total 4,73,000
Advances schedule has been given to the extent information is available and can be inferred.
Tutorial notes:
Rebate on bills discounted

Unexpired period of the bills on the basis of the average due date 30+20=50 days
Rebate on bills = (73,000X50X10) /(365X100) = Rs.1,000
-Transfer to tax provision (included in contingency account) (Rs.)
-Opening balance of provision 15,000
-Less: tax paid 9,000
-Balance Provision -6,000
-Required provision for the current year -28,000
- ---------
-Balance required for the current year -22,000
-----------
Provision for bad debts

On Rs.3,50,000 standard assets @ 0.25% 875
On Rs.83,000 Sub-standard assets@10% 8,300
9,175
Fully secured and guaranteed debts by government guarantee are taken as standard assets and the rest as
sub-standard assets.
Investment fluctuation reserve
Investments at cost 5,17,000
Less: Market value of investment 4,75,000
-----------
Investment fluctuation reserve required 42,000
Less: opening balance 20,000

-----------
Transfer from profit and loss A/c 22,000
Q10: Preparation of Balance Sheet: The Asoka Bank Ltd. owns premises. From the following
particulars relating to its accounts, prepare the balance sheet as on 31 st March, 1992: (Rs.)
Authorized capital 40,00,000 Letter of credit 5,00,000

Subscribed capital: 4 lacs shares of Rs.10 each Telegraphic transfers 3,00,000
Rs.5 paid 20,00,000 payable
Investment 70,00,000 Banks drafts 7,00,000
Bills discounted 1,50,00,000 Short loans 40,000
Profit and Loss A/c (Cr) 8,50,000 Rebate on bills 10,000
discounted
Endorsement on bills negotiated 1,00,000 Acceptance for 50,00,000
customers
Liability of customers for acceptances 50,00,000 Loans 1,00,00,000
Money at call and short notice 90,00,000 Cash credit 1,00,00,000

Cash in hand 20,00,000 Bank overdraft 10,00,000
Cash with RBI 40,00,000 Bills purchased 10,00,000
Cash with SBI 40,00,000 Current and deposit A/c 5,60,00,000
Reserves 30,00,000 Investment fluctuation 1,00,000
A/c
Circular notes 10,00,000 Bills negotiated 1,00,000
Liability on bills of exchange rediscounted amounts Rs.3,70,000 and on account of outstanding forward
exchange contracts Rs.2,00,000.

A: Ashoka Bank Ltd. Balance sheet as on 31st March, 1992
Particulars Schedule As on As on
No. 31.3.92 31.3.91
Capital and liabilities 1 2,000
Capital 2 3,950
Reserve and Surplus 3 56,000
Deposits 4 40
Borrowings 5 2,010
Total 64,000
Assets
Cash and balance with RBI 6 6,000
Balance with banks and money at call land 7 13,000
short notice
Investments 8 7,000
Advances 9 37,000
Fixed assets 10 1,000
Other assets 11 Nil
Total 64,000
Contingent liabilities 12 6,170
Bills for collection Nil
Schedule 1- Capital 000’s omitted
As on As on 31.3.91
31.3.92
Authorized Capital
4,00,000 shares of Rs.10 each 4,000
Issued and subscribed capital
Called-up capital
Less: Calls unpaid Nil
Add: Forfeited Nil
2,000
Schedule 2- Reserves and Surplus
As on As on 31.3.91
31.3.92
Statutory Reserve
Opening balance -
Additions during the year -
Total 3,000
Revenue and other reserves
Investment fluctuation
account
Opening balance -
Additions during the year -
Total 100
Balance in profit and Loss A/c 850
Total of 1+2+3 3,950

Schedule 3 - Deposits 000’somitted
As on As on 31.3.91
31.3.92
i. Demand deposits -
ii.Savings Bank Deposits -
Term Deposits -
56,000
i. Deposit of branches in India -
ii. Deposits of branches outside -
India
56,000
Schedule 4 – Borrowings 000’s omitted
As on As on 31.3.91
31.3.92
Borrowings in India
RBI -
Other banks 40
Other institutions and agencies -
Borrowing outside India -
Total (A and B) 40
Secured borrowings in A and B
above
Schedule 5- Other Liabilities and Provisions
As on As on 31.3.91
31.3.92
Bills Payable 2,000
Inter-Office adjustment (net) -
Interest accrued -
Other (including provisions) 10
2,010
Schedule 6- Cash and Balances with RBI 000’s omitted
As on As on 31.3.91
31.3.92
Cash in hand 2,000
Balance with RBI 4,000
6,000
Schedule 7- Balances with Banks and Money at call and short notice 000’s omitted
As on 31.3.92 As on 31.3.91
In India
Balance with banks 4,000
Money at call and short 9,000
notice
Total of (i) + (ii) 13,000
Outside India Nil
Grand total A and B 13,000

Schedule 8- Investments 000’s omitted
As on As on 31.3.91
31.3.92
Investments in India in
Government securities
Other approved securities
Shares
Debentures and loans
Subsidiaries and or joint
venture
Others
Total
Investment outside India in
Government securities
Other Investment
Total
Grand Total (A and B) 7,000
Schedule 9- Advances 000’s omitted
As on 31.3.92 As on 31.3.91
i. Bills purchased and discounted 16,000
ii.Cash credits, overdrafts & loans repayable on 21,000
demand
Term loan Nil
Total 37,000
i. Secured by tangible assets 22,000
ii.Covered by bank/Govt. Guarantee 10,000
iii.Unsecured 5,000
Total 37,000
a. Advances in India
Priority sector 8,000
Public sector 6,500
Banks 500
Others 6,200
21,200
b. Advances outside India
Due from banks 8,400
Due from others
Bills purchased and discounted 2,400
Syndicated loans 1,600
Others 3,400
Total 15,800
Grand Total (C I + II) 37,000

Schedule 10- Fixed Assets 000’s omitted
As on As on 31.3.91
31.3.92
Premises
At cost on 31st March during the previous year
Additions/Adjustments during the year -
Deduction during the year -
Depreciation to date -
Total 1,000
Buildings under construction Nil
Other fixed assets Nil
At cost on 31st March during their previous year -
Additions/Adjustments during the previous -
year
Depreciation to date -
Total Nil
Total 1+2+3 1,000
*This schedule is given with imaginary figure.
Schedule 11- Other Assets
As on As on 31.3.91
31.3.92
Interest accrued Nil
Tax paid in advance/tax deducted at source Nil
Stationery and stamps Nil
Non-banking assets acquired in satisfaction of Nil
claims
Others Nil
Total Nil
Schedule 12- Contingent Liabilities 000’s omitted
31.3.92 31.3.91
Claims against the bank not acknowledge as debts
Liability for partly paid investments
3. Liability on account of outstanding forward exchange contracts 200
4. Guarantees given on behalf of constituents -
(a) In India -
(b)Outside India
5.Acceptances, endorsements and other obligations 5,600
6.Other items for which the bank is contingently liable:
Liability on account of bills rediscounted 370
6,170

10 ACCOUNTS FOR INSURANCE COMPANIES
Life Insurance – Valuation Balance Sheet

Life Insurance – Revenue Account and Balance Sheet
General Insurance – Unexpired Risk Reserve
General Insurance – Revenue Account and Balance Sheet
Insurance Claims
Q1: Preparation of Valuation Balance Sheet:

Heaven Life Insurance Co. furnishes you the following information:
Rs.
Life Insurance fund on 31.3.2008 52,00,000
Net liability on 31.3.2008 as per actuarial valuation 40,00,000
Interim bonus paid to policyholders during intervaluation period 3,00,000
(i) Valuation Balance Sheet;
(ii) Statement of Net Profit for the valuation period; and
(iii) Amount due to the policyholders. (8 Marks)(PE II- Nov. 2008)
A
(i) Heaven Life Insurance Co.
Valuation Balance Sheet as at 31 st March, 2008
Rs. Rs.
T Net Liability as per actuarial 40,00,00 By Life Assurance 52,00,000
o valuation 0 Fund
T Surplus 12,00,00
o 0
52,00,00 52,00,000
0
(ii) Statement showing Net Profit for the valuation period
Rs.
Surplus as per Balance Sheet (i.e., Valuation Balance Sheet) 12,00,000
Add: Interim bonus paid 3,00,000
15,00,000
(iii) Amount due to policyholders
.
14,25,000
95% of net profitdue to policyholders(95%of Rs. 15,00,000)
Less: Interim bonus already paid 3,00,000

Amount due to policyholders 11,25,000
Q2: Valuation Balance Sheet: The life insurance fund of Hindusthan Life Insurance Co. Ltd. was
Rs.34,00,000 on 31st March, 1997. Its actuarial on 31 st march, 1997 disclosed a net liability of
Rs.28,80,000. An interim bonus of Rs.40,000 was paid to the policy holders during the previous two
years. It is now proposed to carry forward Rs.1,10,000 and to divide the balance between the policy
holders and the shareholders. Show (a) the valuation balance Sheet, (b) the net profit for the two years
period &(c) the distribution of the profits.
A:
In the Books of Hindustan Life Insurance Co. Lt d.Valuation balance sheet as on 31-3-1997
Rs. Rs.
To Net 28,80,000 By Life Insurance 34,00,000
Liability Fund
To Profit 5,20,000
34,00,000 34,00,000

Net Profit for the two years period Rs.
Profit as per Valuation balance sheet 5,20,000
Add: Interim Bonus paid during the previous two year 40,000
s
Net profit 5,60,000
Distribution of the profits
Net Profit 5,60,000
Less: Amount proposed to be carried forward 1,10,000
Balance 4,50,000
Share of Policyholders (95% of Rs.4,50,000) 4,27,500
Less: Interim Bonus paid 40,000
Amount due to policyholders 3,87,500
Share of shareholders (5% of Rs.4,50,000) 22,500
Q3: Preparation of Valuation Balance Sheet with Income Statement: At the valuation on 31.3.2006
of a life office, the actuary’s certificate disclosed a net liability on policies & annuities at Rs.4,040 (000s).
The following were the revenue items for the yr 2005-06: (Rs 000’s)
Bonus in cash 95 Annuities 810
Bonus in reduction of 5 Consideration for annuities granted 1,120
premium
Surrenders 160 Life assurance fund on 1.4.97 4,000
Premium 3,00 Interim bonus paid for the valuation 90
0 period
Interest, dividends and Rents 1,10
0
Claims 2,20
0
Expenses of management 220
Commission 80
Prepare revenue account and ascertain the balance of life assurance fund. It was decided by the company
to write down investments from Rs.4,540 Thousands to Rs.4,360 Thousands, if the valuation revealed
surplus. There was an investment fluctuation reserve amounting to Rs.130 Thousands.
As a result of the valuation, the company declared a reversionary bonus of Rs.45 per Rs.1,000 and gave
the policy holders the option to get the bonus in cash @ Rs.19 per Rs.1,000. The total business in force
was Rs.4 crores. ¼ of the policy holders in value decided to get the bonus in cash. Draft journal entries to
give effect to utilization of the surplus. Show how much the policy holders can get by way of share of
profit. Ignore taxation.
A:
Revenue A/c for the year ended 31st March, 2006
Particulars Schedule No. CY PY
Premiums earned –Net: 1 3,00
0
Interest, dividend and rents 1,10 -
0
Other incomes (To be specified):
Consideration for annuities granted 1,12 -
0
Total (A) 5,22
0
Commission 2 80
Operating expenses related to insurance 3 220
business
Total (B) 300
Benefits paid (Net) 4 3,27 -

0
Total (C) 3,27 -
0
Surplus (D) = (A)-(B)-(C) 1,65
0
Note: “Interim bonus paid for the valuation period” may be taken as payment in an earlier
period.Schedule Forming Part of Revenue Account
Schedule 1 – Premium
Particulars CY PY
Premium 3,000
received
3,000 -
Schedule 2 - Commission Expenses

Particulars CY PY
Commission 80
paid
80 -
Schedule 3 – Operating Expenses related to Insurance Business

Particulars CY PY
Expenses of 220
management
220 -
Schedule 4 – Benefits paid (Net)
Particulars CY PY
Claims paid 2,20
0
Annuities 810 -
Surrenders 160 -
Bonus in cash 95 -
Bonus in reduction of 5 -
premium
Total 3,27
0
Valuation Balance Sheet of …… as on 31.3.2006 (Rs)

To Net liability as per actuarial 4,040 By Life assurance fund as per balance 5,650
valuation sheet (4,000 + 1,650)
To Surplus (Bal. Fig) 1,610
5,610 5,610
Schedule 4 – Benefits paid (Net) ( Rs. 000)

Surplus as revealed by valuation Balance sheet 1,610
Add: Interim Bonus paid 90
1,700
Less: Loss on investments to be written of (45,40,000 – 43,60,000 – 1,30,000) 50
Net Profit 1,650

Policy holders will get 95% (16,50,000 x95%) 1567.50
Less: Interim bonus already paid 90.00
Amount due to policy holders 1,477.50
Note: Loss on investments should not be shown in revenue account because the investments are to be
written down only if “The valuation revealed surplus”.

Journal Entries (Rs. 000))
Particulars L.F. Dr. Cr.
3-31-06 Life Assurance fund A/c Dr 1,610

To Profit and Loss A/c 1,610
(Being the profit revealed by valuation balance sheet transferred to
profit and Loss A/c)
3-31-06 Profit and Loss A/c Dr. 50
To Investments Fluctuation A/c 50
(Being the additional provision required to make the investment
fluctuation equal to Rs.1,80,000, the difference between the cost and
market value of investments)
Investments fluctuation A/c Dr. 180
To Investments A/c 180
(Being the investments written down from Rs.45,40,000 to
Rs.43,60,000 by utilizing the investment fluctuation reserve)
Profit and Loss A/c Dr. 190
To Bonus in cash (payable) 190
(Being the immediate bonus payable @ Rs.19 Per Rs.1,000 on
Rs.1,00,00,000)
Profit and Loss A/c Dr. 570
To Life assurance fund A/c 570
(Being the sum transferred to the Life assurance fund due to the new
liability in respect of reversionary bonus @ Rs.19 per Rs.1,000 on
3,00,00,000)
Q4: Preparation of Valuation Balance Sheet: Life fund of a life assurance company was Rs.86,48,000
as on 31.3.2006. The interim bonus paid during the undervaluation period was Rs.1,48,000. The
periodical actuarial valuation determined the net liability at Rs.74,25,000. Surplus brought forward from
the previous valuation was Rs.8,50,000. The directors of the company proposed to carry forward
Rs.9,31,000 and to divide the balance between the shareholders and the policy holders in the ratio of 1:10.
Show: a. the valuation Balance sheet, b. the net profit for the valuation period.
c. the distribution of the surplus.
A: -
(a) ……..Co. Ltd…Valuation Balance Sheet as at 31.3.2006 (Rs. 000)
To Net liability as per actual 74,25,000 By Life assurance fund as per balance 86,48,00
revaluation sheet)
To Surplus (Bal. Fig) 12,23,000
86,48,000 86,48,000
(b) Calculation of net profit for the valuation period
Surplus as per valuation Balance Sheet 12,23,000

Add: Interim Bonus distributed 1,48,000
13,71,000
Less: Surplus at the beginning of the 8,50,000
period
Net Profit 5,21,000

(C) Statement showing distribution of surplus
Total surplus 13,17,000

Less: Surplus to be carried forward 9,31,000
4,40,000
Distribution: To Shareholders (4,40,000 x1/11) 40,000
To Policy holders (4,40,000x 10/11) 4,00,00
0
Less: Interim bonus already distributed 1,48,00
0
Amount payable to policy holders 2,52,000
(This equals Rs.4,40,000 to be distributed less Rs.1,48,000 already paid as interim 2,92,000
bonus)
Q5: Preparation of Valuation Balance Sheet: The life assurance fund of a company on 31.3.2006 was
Rs.29,00,000. Its net liability on that date was estimated to be Rs.19,00,000 by the company’s actuary.
The investments held by the amounted to Rs.1,60,00,000 against which the investment reserve stood at
Rs.2,50,000. The investments have to be written down by Rs.3,50,000. The company declared a
reversionary bonus of Rs.20 per Rs.1,000 with the option to policy holders of bonus in cash at the rate of
Rs.8 per Rs.1,000. Total value of policies in force was Rs.8 crores, 1/4 th of the policy holders (in value)
decided to receive the bonus in cash. The company estimated that its liability for income tax would be
Rs.1,60,000. Draft Journal entries
A:
Valuation Balance Sheet as at 31.3.2006
To Net liability as per actual 19,00,00 By Life assurance fund as per balance 29,00,000
valuation 0 sheet)
To Surplus (Bal. Fig) 10,00,00
0
29,00,00 29,00,000
0
Journal Entries
31-3-06 Life Assurance fund A/c Dr 10,00,000
To Profit and Loss A/c 10,00,000
(Being the profit revealed by valuation balance sheet
transferred to profit and Loss A/c)
‘’ Profit and Loss A/c Dr 1,00,000
.
To Investments reserve A/c 1,00,000
(increase in investment reserve on revaluation of investment)
Investments reserve A/c Dr 3,50,000
.
To Investments A/c 3,50,000
(Writing down the investments to their market value)
Profit and Loss A/c Dr 16,40,000
.
To Bonus in cash 1,60,000
To Life assurance fund 4,80,000
(Bonus @ Rs.8 per Rs.1,000 on policies valued at 2 crores
the liability in respect of remaining policies @ Rs.8 per
Rs.1,000 recredited to the life assurance fund)
Profit and Loss A/c Dr 1,60,000
.
To Provision for income tax 1,60,000
(Provision created for the tax payable)
Q6: Preparation of Valuation Balance Sheet: The following balances are extracted from the books of
AB Life Insurance Corporation:
Life Insurance Fund (as on 31.3.1995) Rs.1,600 lakhs

Net Liabilities as per Valuation Rs.1,200 Lakhs
Interim Bonus paid Rs.150 lakhs
You are required to show:
a. The valuation Balance Sheet as on 31.3.95. b.The distribution statement.
In the books of AB Life Insurance Corporation Valuation Balance Sheet
Particulars Rs. In lacs Particulars Rs. In lacs
T o Net 1,200 By Life Assurance Fund 1,600
liability
To Profit 400
1,600 1,600
Rs. In lacs
Profit as per valuation account 400
Add: Interim Bonus 150
550
Policyholders Share (95% of 522.50
thereof)
Less: Interim Bonus paid 150.00
Amount due to policy holders 372.50
Q7: Valuation Balance Sheet: From the following figures of Live Well Assurance Co. Ltd. prepare a
Valuation Balance Sheet and profit Distribution Statement for the year ended 31 st March, 2001 also pass
necessary Journal entries to record the above transactions with narration.
Rs. in lacs.
Balance of Life Assurance Fund as on 1.4.2000 167.15
Interim Bonus paid for the valuation period 25.00
Balance of Revenue Account for the year ended 31.3.01 240.00
Net liability as per Valuer’s certificate as on 31.3.2001 165.00
The company declared a reversionary bonus of Rs.185 per Rs.1,000 and gave the policy holders an option
to take bonus in cash Rs.105 per Rs.1,000. Total business conducted by the company was Rs.600 lacs.
The company issued with profit policy only, 3/5 of the policy holders in value opted for cash bonus.
Live well life Assurance Company Ltd.:Valuation Balance Sheet on 31-3-2001 Rs.in lakh
To Net Liability 165.0 By Life fund as on 31.3.2001 240.00
0
To Profit and Loss 75.00
A/c
240.0 240.00
0
Distribution Statement
Profit as per valuation balance 75.00
sheet
Add: Interim Bonus paid 25.00
100.00
Policy holders share (95%) 95.00
Less: Interim Bonus Paid 25.00
70.00
Journal Entries Dr Cr
Life Assurance Fund A/c Dr. 75.0
0
To Profit and Loss A/c 75.00
(Being profit transferred as per Valuation Balance Sheet)
Profit and Loss A/c Dr. 37.8
0
To Bonus payable in Cash A/c 37.80
(Being cash bonus payable @ Rs.105 per 1000 on 3/5 of 600 lacks)
Profit and Loss A/c Dr. 44.4
0
To Life Assurance Fund A/c 44.40
(Being profits @ of Rs.185 per 1000 on 2/5 of 600 lakhs transferred to life fund for
reversionary bonus)
Q8: Valuation Balance Sheet with Journal Entry: The Life Insurance Fund of an Insurance Company
was on 31.3.2004 Rs.60 lachs before providing for dividend of Rs.20,000 for the year 2003-2004. While
ascertaining the above fund figure, the following items were omitted.
a. Interest received on investment Rs.36,000 after deduction of tax at source 10%
b. Bonus utilized for reduction of premium Rs.14,000.
c. Death claim intimated, but not yet admitted Rs.12,000.
d. Death claim covered under re-insurance Rs.12,000.
e. Consideration for annuities granted Rs.9,000.
Interim bonus for the valuation period paid was Rs.80,000.
Net liabilities as per valuation was Rs.50 lakh. It is now proposed to carry forward Rs.2,70,000.
The company declared a reversionary bonus of Rs.12 per Rs.1,000 and gave the policyholders on
option to get the bonus in cash for Rs.5 per Rs.1000. Total business of the company is Rs.15 crores, 40%
of the policyholders decided to get bonus in cash.
Prepare i. Valuation Balance Sheet as on 31.3.2004.
ii. Distribution statement sharing the amount due to the policyholders.
Also give Journal Entries relating to reversionary bonus.
A:
Valuation Balance Sheet as on 31st March, 2004 Rs. In lacs
T o Net 50,00,000 By Life Insurance fund 60,34,000
Liabilities (Note.1)
60,34,000 60,34,000
Distribution Statement (Rs.)
Net Profit as per Valuation Balance Sheet 10,34,000
Add: Interim bonus paid 80,000
-------------
11,14,000
Less: Dividend provided for 2003-2004 20,000
10,94,000
Less: Carried forward 2,70,000
8,24,000
--------------
Policy holders will get 8,24,000x95% 7,82,800
Less: Interim bonus paid 80,000
-----------
Amount due to policy holders 7,02,800

Journal Entries Dr Cr
Profit and loss Account Dr. 3,00,000
To Bonus payable in Cash 3,00,000
(Being the bonus payable in cash)
Profit and Loss account Dr. 10,80,000
To Life Insurance Fund 10,80,000
(Being transfer to life insurance fund for new
liability)
Valuation Balance Sheet as on 31st March, 2004 Rs. In lacs

To Net 50,00,000 By Life insurance fund (Note- 60,34,000
Liabilities 1)
60,34,000 60,34,000
Working Notes: - 1.Computation of Adjusted Life Insurance Fund as on 31st March, 2004.
Life Insurance fund before adjustments 60,00,000
Add: Interest on investment (gross) 63,000x100/(100-10) 70,000 63,000
Less: Tax deducted at source Consideration for annuities granted 7,000 9,000 72,000
60,72,000
Death claim intimated 36,000
Less: Death claim covered under re-insurance 12,000 24,000
Bonus utilized in reduction of premium 14 , 38,000
000
Adjusted life insurance Fund 60,34,000
2.Bonus:
(a) Payable in cash Rs.15 crores x 4/10 x 5/1,000 = Rs.3,00,000
(b) Transfer to fund Rs.15 crores x 6/10 x 12/1,000 = Rs.10,80,000
Imp. Note:
In the question bonus payable is cash is Rs.3,00,000 and the bonus by transfer to life insurance fund
amounting Rs.10,80,000 covers to Rs.13,80,000 which is more than the amount due to the policy holder
i.e. Rs.7,02,800.
So the above question is solved on the assumption that company has sufficient balance in P&L
A/c for declaration of Bonus.
Life Insurance – Revenue Account and Balance Sheet
Q9: Preparation of Final A/c for Life Insurance: From the following Trial balance of National Life
Assurance Co. Ltd. prepare Revenue A/c and Balance Sheet as on 31.3.2006.
Debit balance Rs. ‘000 Credit balance Rs.’000
Claims by death 76,980 Life Assurance fund (1.4.05) 14,70,562
Claims by maturity 36,420 Premiums 2,10,572
Expenses of management 19,890 Consideration for annuities granted 10,620
Dividend paid 20,000 Interest, Dividends and Rent s 52,461
Commission 26,541 Fines 92
Income tax on interest etc. 3,060 Annuities due but not paid 22,380
Surrenders 22,860 Share capital:40,00,000 shares of Rs.100 4,00,000
each
Annuities 29,420 Claims admitted but not paid 80,034
Bonus paid in cash 9,450

Bonus in reduction of premium 2,500
Preliminary expenses 200
Stamps on hand 400
Govt. securities 8,70,890
Furniture 20,000
Mortgages 3,09,110
Loans on Company’s Policies 2,00,000
Freehold premises 3,00,000
Leasehold ground rents 2,00,000
House Property 1,00,000
22,46,721 22,46.721
Additional information: Rs. (‘000)
1. Management expenses due 600
2. Premium outstanding 7,400
3. Reinsurance premium 6,000
4. Interest accrued 15,400
5. Surrenders adjusted against loans 5,000
6. Further bonus utilized in reduction of premium 1,500
7. Further claim intimated 8,000
8. Claim covered under reinsurance 10,000
A:
National Insurance Co., Ltd Revenue A/c for the year ended 31 st March 2006
Particulars Schedule CY PY
No.
Premiums earned –Net:
(a) Premium 1 2,19,472
(b) Reinsurance ceded (-)6,000
(c) Reinsurance accepted -
Income from Investments:
Interest, dividends and Rents (gross) (52,461 + 67,861
15,400)
Other incomes (to be specified):
Consideration for annuities grandted 10,260
Fines 92
Total (A) 2,92,045
Commission 2 26,541
Operating expenses related to insurance business 3 20,490
Total(B) 47,031
Benefits paid (net) 1,81,130
Total (C) 1,81,130
Surplus (B)= (A)-(B)-(C) 63,884
Appropriation :
Transfer to shareholders Account –Dividend 20,000
Transfer to other reserves
Balance being funds for further appropriations 43,884
Total (D) 63,884
Note: 1. Dividend is to be shown as an item of payment in profit and loss Account.
1. Income tax on interest etc., is a “TDS’ and it will appear under schedule 12
Advances and other assets, as per the IRDA form.
Balance sheet as on 31st March 2006
No.

Sources of Funds:
Share capital 5 3,99,800 -
Reserve and surplus 6 15,14,446 -
Borrowings 7 - -
Total 19,14,246
Application of Funds:
Investments 8 10,70,890
Loans 9 5,04,110
Fixed assets 10 4,20,000 -
Total 19,95,000 -
Current assets:
Cash and Banks Balances 11 - -
Advances and other assets 12 36,260 -
Sub total (A) 36,260
Current liabilities 13 1,17,014
Provisions 14 - -
Sub-Total (B) 1,17,014
Net current assets (A) –(B) (-)80,754
Total (Total of schedules 8,9 and 10 and net current 19,14,246
assets)
Schedules forming part of Financial Statement

Schedule -1 premium
Particulars CY PY
Premiums received 2,10,572 -
Add: Outstanding premiums on 7,400 -
31.3.2006
Add: Bonus in reduction of premium 1,500 -
Total 2,19,472 -
Schedule 2-Commission Expenses

Particulars CY PY
Commissio 26,541 -
n
26,541
Schedule 3 –Operating expenses related to Insurance Business

Particulars CY PY
Expenses of management 19,890 -
Add: Expenses of management 600 -
due
Total 20,490 -
Schedule 4-Benefits paid (Net)

Particulars CY PY
Claims paid:
By Death 76,980 -
By maturity 36,420 -
1,13,400 -
Add: Claims intimated 8,000
1,21,400
Less: Claims covered under reinsurance 10,000 1,11,400
Annuities 29,420

Surrenders 21,860
Add: surrenders adjusted against loans 5,000 26,860
Bonus paid in cash 9,450
Bonus in reduction of premium 2,500
Add: Further Bonus in reduction of 1,500 4,000
premium
Total 1,81,130
Schedule-5 Share capital

Particulars CY PY
4,000 shares of Rs.100 4,00,000 -
each
B: Preliminary expenses 200 -
Total 3,99,800
Note: As per IRDA from, preliminary expenses and all losses on issue of shares should be reduced from
share capital.
Schedule -6 Reserves and surplus

Particulars CY PY
Reserve - -
Life Assurance fund on 1.4.2005 14,70,56 -
2
Add: Transfer to Fund of future 43,884 15,14,446 -
appropriations
Total 15,14,446 -
Schedule 7 – Borrowings Nil
Schedule 8 - Investments
Particulars CY PY
Government securities 8,70,890
Leasehold ground rent 2,00,000 -
s
Total 10,70,890 -
Schedule 9 - Loans
Particulars CY PY
Loans on Mortgage 3,09,110
Loans on Policies 2,00,000 -
Less: Surrenders 5,000 1,95,000 -
adjusted
Total 5,04,110 -
Schedule 10 – Fixed assets

Particulars CY PY
Freehold 3,00,000
premises
House property 1,00,000 -
Furniture 20,000 -
Total 4,20,000 -
Schedule 11 – Cash and Bank - Nil

Schedule 12 – Advances and other Assets
Particulars CY PY
Advances:
Income tax on interest etc. 3,060 -
Other Assets: -
Outstanding premiums 7,400 -
Amount due from other 10,000
insurers
Accrued Interest 15,400
Stamps 400
Total 36,260
Schedule 13 - Current liabilities

Particulars CY PY
Claims admitted, but not 80,034
paid
Further claim intimated 8,000 -
Annuities due but not paid 22,380 -
Management Expenses due 600 -
Reinsurance premium due 6,000
Total 1,17,014
Schedule 14 – Provisions – Nil
Schedule 15 – Miscellaneous – Nil
General Insurance – Unexpired Risk Reserve

Q10: Unexpired Risk Reserve: Indian Insurance Co. Ltd. Furnishes you with the following information:
i. On 31.12.1996, it had reserve for unexpired risks to the tune of Rs.40 crores. It comprised of
Rs.15 crores in respect of marine insurance business; Rs.20 crores in respect of fire insurance business
and Rs.5 crores in respect of miscellaneous insurances business.
ii. It is the practice of Indian Insurance Co. Ltd. to create reserve at 100% of net premium income
in respect of marine insurance policies and at 50% of net premium income in respect of fire and
miscellaneous income policies.
iii.During 1997, the following business was conducted: Rs. in crores
Marine Fire Miscellaneous
Premia collected from:
a. Insured in respect of policies
Issued 18 43 12
b. Other insurance companies
In respect of risks undertaken 7 5 4
Premia paid/payable to other
Insurance companies on business
Ceded 6.7 4.3 7
Indian Insurance Co. Ltd. asks you to:
a. Pass journal entries relating to “Unexpired risks reserve”
b. Show in columnar form “Unexpired risks reserve” a/c for 1997.

In the books of Indian Insurance Co. Ltd. (Rs.Crores) Dr. Cr.
Marine Revenue A/c Dr 3.30

.
To Unexpired Risks Reserve A/c 3.30
(Being the difference between closing provision of Rs.18.30 crores
(18 + 7– 6.7) &opening provision of Rs.15 Crores charged to marine revenue A/c)
Fire Revenue A/c Dr 1.85
.
To Unexpired Risks Reserve A/c 1.85
(Being the difference between closing provision of Rs.21.85 crores
(143+5–4.3)/2 & opening provision of Rs.20 crores charged to fire revenue A/c)
Unexpired Risks Reserve A/c Dr 0.50
.
To Miscellaneous Revenue A/c 0.50
(Being the excess of opening balance of Rs.5 crores over the required closing balance of
Rs.4.5 crores [ (12 + 4 – 7 )/2] Credited to miscellaneous revenue A/c)
Unexpired Risks Reserve A/c (Rs.)

1997 Fire Marine Misc 1997 Fire Marine Misc
31-12 To Revenue - - 0.50 1-1 By Bal b/d 15.00 20.00 5.00

To Bal c/d 18.30 21.85 4.50 31-12 By Revenue A/c 3.30 1.85 -
18.30 21.85 5.00 18.30 21.85 5.00
Note: Other wise, the opening balance of unexpired risk reserves can be reversed the beginning of the
year by transfer to Revenue A/c and a new reserve is open with full required amount is created at the end
of the year and this will be carry forwarded as closing balance.
Q11: Preparation of final accounts of general accounts:

The following are the Balances of Hercules Insurance Co. Ltd. as on 31 st March, 1996:
(Rs. in ‘000)
Capital 320.00
Balance of Fund as on 1.4.95
Fire Insurance 800.00
Marine Insurance 950.00
Miscellaneous Insurance 218.65
Unclaimed Dividends 8.50
Amount Due to Other Insurance Companies 34.50
Sundry Creditors 72.50
Deposit and Suspense Account (Cr.) 22.80
Profit and Loss Account (Cr.) 80.40
Agent Balances (Dr.) 135.00
Interest accrued but not due (Dr.) 22.50
Due from Other Insurance Companies 64.50
Cash on Hand 3.50
Balance in Current Account with Bank 74.80
Furniture and Fixtures WDV (cost 100,00) 58.00
Stationary Stock 1.40
Expenses of Management:
Others 30.00

--------- 510.00
Foreign Taxes-Marine 8.00
Outstanding premium 82.00
Donation paid (No 80G Benefit) 10.00
Transfer Fees 1.00
I.T. Refund received during the year 30.00
Reserve for Bad Debts 11.70
Income tax paid 120.00
Mortgage Loan (Dr.) 975.00
Sundry Debtors 25.00
Government Securities Deposited with RBI 37.00
Government Securities (1020.00) 1020.00
Debentures 465.50
Equity shares of Joint Stock Companies 225.00
Claims Less Re-insurance:
--------- 876.90
Premium Less Re-insurance:
----------- 3047.25
Interest and Dividends Received on investment 58.50
Tax Deducted at sources 11.70
Commission:
--------- 930.00
You are required to make the following provision:
Depreciation on Furniture – 10% of Original Cost
Depreciation on Investment of Joint stock Companies Share 10.00
Transfer to General Reserve 10.00
Outstanding Claims as on 31.3.96:
Provision for tax @ 50%. Proposed for unexpired risks is to be made as follows:
a. On Marine Policies 100% premium less reinsurance.
b. On Other Policies 50% Premium less reinsurance.
You are required to prepare the revenue and Profit and Loss Account for the year ended
31.3.1996 and Balance Sheet as on that date of the company.

A: - (Rs. 000)
Particulars Schedule Fire Marine Misc
1 Premium earned (Net) 1 1,68,125 95,000 34,977
2. Profit and Loss on Sub redemption of - - -
3. Investments - - -
4. Other (to be specified) - - -
Interest Dividend + Rent (Gross)
Total (A) 1,68,125 95,000 34,977
1 Claim Insured (Net) 2 65,000 40,890 100,50
2. Commission 3 50,000. 35,000 8,000
3. Operating expenses related to insurance business 4 28,000 16,800 4,000
Total (B) 1,68,125 92,690 22,050
Operating profit (Loss) from Business 25,125 2,310 12,927
(C = A-B)
Appropriations:
Transfer to Shareholder A/c - - -
Transfer to catastrophe reserve - - -
Transfer to other Reserve - - -
Total 25,125 2,310 12,927
From B-PL (Rs. 000’s)

Hercules Insurance Co. Ltd. Profit and Loss Account:Fourth Year ended 31 st March 1996
1 Opening Profit and Loss:
(a) Fire 25,125
(a) Marine 2,310
(b) Miscellaneous 12,997
2 Income from investments: interest, Dividend Rent (Gross) 7,020
.
3 Other Income (to be specified)
.
Transfer fee 100
Income tax refund 3,000
Total 50,482
4 Provision (Other than taxation)
.
For diminution in the value of investment of joint stock Companies 50,482
shares (Depreciation on investments)
5 Other expenses:
.
(a).Expenses other than those related to insurance Business 1,000
Donation
Expenses of management 3,000
(b).Others
Depreciation furniture 1,000
Total (B) 6,000
Profit before (C=A-B) 44,482
Provision for taxation (D) 20,656
(E=C-D) 23,262
Appropriations

(a).Proposed Dividend 6,400
(b).Transfer to General Reserve 1,000
(F) 7,400
(G=E-F) 16,426
Balance of profit brought forward from last year (4) 8,040
Balance carried forward to Balance sheet (I = G+H) 24,466
From B – BS
Hercules Insurance Co. Ltd. Balance sheet as at 31st March 1996 (Rs.000)
Particulars Schedul CY PY
e
Sources of Funds
Share capital 5 32,000 -
Reserve and Surplus 6 27,636 -
Fair value change account - -
Borrowings - -
Application of Funds
Loans 9 97,500
Fixed Assets 10 4,800
Current Assets
Cash and ban k Balance 11 7,830
Advances and other assets 12 34,210
Sub Total (A) 3,19,090
Current liabilities 13 42,080
Provisions 14 2,17,374
Sub Total (B) 2,59,454
Net Current Assets (C= A –B) 59,367
Miscellaneous expenditure 15 - -
Debit Balance in Profit and Loss - -
A/c
Total 59,636
Schedule -1: Premium earned (Net) (Rs.000)

Net Premium Fire Marine Misc.
Adjustment for change in reserve for unexpired 1,76,205 1,02,25 26,225
risks 0
Fire (80,000 -88,125 = (-) 8,125] (-) 8,125 (-) (+) 8,725
7,250
Marine [95,000 – 1,02,250 = (-) 7,250 ]
Misc. [211,865 – 13,113 = (+) 8,752]
Total Premium earned (Net) 1,68,125 95,000 34,977
Schedule -2: Claims Incurred (Net) (Rs.000)

Net Premium Fire Marin Misc.
e
Claim paid 45,000 35,890 6,800
Add: Claim outstanding at end of the 20,000 5,000 3,250
year
Less: Claim outstanding at the beginning - - -
Total claim incurred 65,000 40,800 10,050
Schedule -3: Commission

Net 50,000 35,000 8,000
Commission
Schedule -4: Operating expenses related to Insurance Business (Rs.000)

(1) Expenses of 28,00 16,000 4,000
management 0
(2)Foreign tax - 800 -
Total 28,00 16,800 4,000
0
Schedule -5: Share capital (Rs.000)

Particula CY PY
r
Total 32,000 -
Schedule -6: Reserve and surplus (Rs.000)

Particular CY PY
1.General Reserve 1,000 -
2.Investment Reserves (Repreciation 1,000
Investment )
3.Reserve and Bad debts 1,170
4.Profit and Loss A/c 24,466
Total 27,636
Schedule -7: Borrowing NIL
Schedule-8: Investment (Rs.000)

Particular CY PY
Government 1,02,000 -
Securities
Equity Shares 22,500 -
Debenture 46,550 -
Government 3,700 -
Securities
Deposited with RBI -
Total 17,475
Schedule -9: Loans (Rs.000)

Particular CY PY
Secured 97,500 -
Mortgage Loan - -
Unsecured
Total 97,500
Schedule -10: Fixed Assets - Furniture and Fittings (Rs.000)

Particular
Opening value 10,000
Addition -
Deduction -
Closing Value 10,000
Depreciation

Up to last 4,200
year
For the year 1,000
Total 4,800

Schedule -11: Cash and Bank balances (Rs.000)
Particular CY PY
1.Cash in hand 350 -
2.Cash at 7,480 -
Bank
Total 7,830 -
Other assets (Rs.000)

Particular CY PY
Advances
1.Advamce tax paid and taxes deducted 1,170 -
source
Total 1,170
Schedule -12: Advance and other assets (Rs.000)

Particular CY PY
1.Income accrued on Investment 2,250 -
2.Outstanding premium 8,200 -
3.Agent Balances 13,500
4.Due from Other Insurance 6,450
Companies
5.Others
(a) Sundry Debtors 2,500
(b)Stationary Stock 140
Total B 33,040
Total (A+B) 34,210
Schedule -13: Current Liability (Rs.000)

Particular CY PY
1.Amount due to other Insurance Co. 3,450 -
2.Sundry Creditors 7,250
3.Claim outstanding 28,250
4.Others Accounts
- Deposit and Suspense A/c 2,280
- Unclaimed Dividend 850
Total 42,080
Schedule -14: Provision (Rs.000)

1.Reserve for Unexpired Risk Rs. Rs.
Fire 88,125 -
Marine 1,02,250
Tot al 2,03,488
2.Reserve for taxation
Provision (related from P/L A/c)
Less: Tax period 20,656
Less: Tax deducted at source 1,20,00
Net Provision 1,170
Total 7,486
3.Provision for 6,400
dividends
Total 2,17,374

Schedule -15 Miscellaneous Expenditure Nil
Working Notes: 1.Calculation of Provision for taxation: (Rs.000)
Tax profit
Rs.(25,125 + 2,310 + 12,927 + 5,850 + 100 – 43,312 – 1,000 – 1,000) 41,312
Tax Provision (50% of Rs.41,312) 20,656
Q12: Revenue A/c and P/L A/c of General Insurance:
From the following balances extracted from the books of Perfect General Insurance Company Limited as
on 31.3.2000, you are required to prepare Revenue Accounts in respect of Fire and Marine Insurance
business for the year ended 31st march,2000 and a Profit and Loss Account for the same period:
( Rs. )
Directors’ Fees 80,000 Interest received 19,000

Dividend received 1,80,000 Fixed Assets (1.4.99) 90,000
Provision for Taxation (as on 1.4.99) 85,000 Income-tax paid during the yr 60,000
Fire Marine (Rs)
Outstanding claims on 1.4.1999 28,000 7,000
Claims paid 1,00,000 80,000
Reserve for Unexpired Risk on 1.4.1999 2,00,000 1,40,000
Premiums Received 4,50,000 3,30,000
Agent’s Commission 40,000 20,000
Expenses of Management 60,000 45,000
Re-insurance Premium (Dr.) 25,000 15,000
The following additional points are also to be taken into account:
a. Depreciation on fixed assets to be provided at 10% p.a.
b. Interest accrued on investments Rs.10,000.
c. Closing provision for taxation on 31.3.2000 to be maintained at Rs.1,24,138.
d. Claims O/s on 31.3.2000 were fire Insurance Rs.10,000; Marine insurance Rs.15,000.
e. Premium O/s on 31.3.2000 were fire insurance Rs.30,000; Marine insurance Rs.20,000.
f. Reserve for unexpired risk to be maintained at 50% and 100% of net premium in respect of Fire
and marine insurance respectively.
g. Expenses of Management due on 31.3.2000 were Rs.10,000 for Fire Insurance &Rs.5,000 in
respect of Marine Insurance.
A: - From B-RA
ABC Insurance Co. Ltd.: Revenue A/c for the year ended 31st March,2000
Particulars Fire Marine Insurance
Insurance
1.Premiums ended 4,55,000 3,35,000
2.Other income (27,500) (1,95,000)
3.Change in Provision for unexpired risk
4.Interest, Dividend and Rent-Gross
Total (A) 4,27,500 1,40,000
5.Claims incurred 82,000 88,000
6.Commission 40,000 20,000
7.Operating Expenses related to Insurance 70,000 50,000
Business
8.Other expenses
Total 1,92,000 1,58,000
Operating Profit/(Loss) from
Fire/Marine/Miscellaneous Business i.e. (A+B) 2,35,500 (18,000)
From B-PL
ABC Insurance Co. Ltd. Profit and Loss A/c for the year ended 31 st March, 2000

Particulars Amount
1.Operating Profit / (Loss) form
(a)Fire Insurance 2,35,500
(b)Marine Insurance (18,000)
(c)Miscellaneous Insurance
2.Income from Investments
(a)Interest Dividend and Rent-Gross 1,19,000
(b)Profit on sale of Investments 10,000
3.Other Income
Total 3,46,500
4.Provision (Other than taxation) -
5.Other expenses (Director’s Fees. Depreciation on 89,000
F.A.)
Total (B) 89,000
Profit Before Tax (A-B) 2,57,500
Less: Provision for taxation 99,138
Profit after tax 1,58,362
Annexure
Particulars Fire Marine
Premiums earned (schedule-1)
Premium 4,50,000 3,30,000
Less: Reinsurance (25,000) (15,000)
Add: Outstanding (Closing) 30,000 20,000
4,55,000 3,35,000
Claims incurred (schedule -2)
Claim 1,00,000 80,000
Less: Outstanding (Opening) (28,000) (7,000)
Add: Outstanding (Closing) 10,000 15,000
82,000 88,000
Commission (Schedule-3)
Agent commission 40,000 20,000
Operating expenses (Schedule
-4)
Expenses of management 60,000 45,000
Add: Outstanding 10,000 5,000
Total 70,000 50,000
Working Notes: -
1.Tax during the year 60,000
Less: Opening provision (85,000)
Add: Closing provision 1,24,138
99,138
2.Unexpired Risk
Reserve
Opening 2,00,000 1,40,000
Closing (2,27,500 (3,35,000)
)
Total 27,500 1,95,000
Q1: Insurance Claims: CCL wants to take up a Loss of Profit Policy. Turnover during the current year is
expected to increase by 20%. The company will avail overdraft facilities from its bank @ 15% interest to

boost up the sales. The average daily overdraft balance will be around Rs.3 lakh. All other fixed expenses
will remain same. The following further details are also available from the previous year’s account.
Total variable expenses 24,00,000
Fixed expenses:
Salaries 3,30,000
Rent, Rates and Taxes 30,000
Traveling expenses 50,000
Postage, Telegram, Telephone 60,000
Directors’ fees 10,000
Audit Fees 20,000
Miscellaneous income 70,000
Net Profit 4,20,000
Determine the amount of policy to be taken for the current year.
A: (Rs.)
Insurance Policy .
Gross Profit on the basis of last year’s sales 8,50,000
Add: 20% for increase of turnover 1,70,000
------------
10,20,000
Add: Increased standing charges (Interest on overdraft) 45,000
------------
Policy to be taken for current year 10,65,000
Working Notes:- 1. Profit and loss Account for the PY -

To Variable 24,00,00 By Sales 32,50,000
Expenses 0
To Fixed expenses 5,00,000 By Misc. Income 70,000
33,20,00 33,20,000
0
2. Gross Profit of the PY: Rs.
Sales 32,50,000
Less: Variable expenses 24,00,000
--------------
Gross Profit 8,50,000
Q13: Preparation of Final A/c for General Insurance -19 From the following trial balance of the
National Insurance Co. Ltd. as at March 31, 2006, preparing the final accounts of the company for 2005-
2006. (Rs. 000)
Trial Balance as on 31.3.2006 Dr. Cr.
Cash at Bank 51,500
Capital 1,50,000
Government Securities 5,25,000
Claims paid: Marine 1,00,000
Fire 80,000
Commission: Marine 55,000
Fire 60,000
Provision for unexpired risk
(1.4.05)
Marine - 3,00,000
Fire 1,25,000
Additional Reserve (Fire)
Expenses: Marine 1,05,000
Fire 1,02,500

Claims outstanding on 1.4.05
Marine 15,000
Fire 12,500
General expenses 75,000
Premium outstanding :
Marine 10,000
Fire 7,500
Due to other insurance companies 17,500
Interest on securities 32,500
General reserve 25,000
Premiums received:
Marine 3,75,000
Fire 3,50,000
Dividend paid 15,000
Premises 2,50,000
Furniture 25,000
14,61,500 14,61,500
i. Claims outstanding on 31.3.2006 were: Fire Rs.12,500 & Marine Rs.12,500 (Thousands)
ii. A taxation reserve of Rs.15,000 thousands is required.
iii. Depreciate premises by 5% furniture by 10%.
iv. Additional reserve (fire) is to be increased by 5% net premiums.
National Insurance Co., Ltd. Revenue A/c for the year ended 31st March 2006
No.
Premiums earned –Net: 1 2,82,50 3,00,000
0
Total 2,82,50 3,00,000
0
Claims incurred (Net) 2 80,000 97,500
Commission 3 60,000 55,000
Operating expenses related to Insurance 4 1,02,50 1,05,000
business 0
Total (B) 2,42,50 2,57,500
0
Opening profit (A-B) 40,000 42,500
Profit and loss A/c For the year ended 31st March 2006 Rs. 000
1 Operating profit from Fire Insurance Business 40,000
.
2 Income from investments
.
Insurance on securities (Gross) 42,500
3 Other income 32,500
.
Total (A) 1,15,000
4 Provision (Other than taxation) -
.
5 Other Expenses:
.
(a) Expenses other than those related to insurance business:
General Expenses 75,000

(b) Bad debts written off -
(c) Other:
Depreciation : On premises 2,50,000 x 5% 12,500
On Furniture 25,000 x 10% 2,500
Total (B) 90,000
Profit before tax (A-B) 25,000
Provision for taxation 15,000
Profit after tax 10,000
Appropriations:
Dividend paid 15,000
Dividend distribution tax 15,000x 10% 1,500 16,500
-6,500
Balance of profit brought forward from last year 9,000
Balance of profit credited to balance Sheet 2,500
Note: After 1998, Dividend distribution tax at 10% has to provided on dividend to shareholders.
Surcharge varies from yr & may be ignored.B/ S of National Insurance Co., Ltd.31.3.2006
Particulars Schedule No. CY PY
Sources of Funds:
Share capital 5 1,50,000 -
Reserve and surplus 6 27,500 -
Fair value charges account - -
Borrowings 7 - -
Total 1,77,500
Application of Funds:
Loans 9 -
Fixed assets 10 2,60,000 -
Current assets:
Cash and Banks Balances 11 51,500 -
Advances and other assets 12 17,500 -
Sub total (A) 69,000
Current liabilities 13 42,500
Provisions 14 6,34,000 -
Sub-Total (B) 6,76,500
Net current assets (A) –(B) (6,07,500)
Miscellaneous expenditure 15 -
Total (B) 1,77,500

Schedule Forming Part of Financial Statements
Schdule1 – Premiums earned (Net) (Rs. 000)

Premium received 3,50,000 3,50,000

Adjustment for change in reserve for unexpired risk:
Add: Provision for unexpired risk on 1.4.2005 1,25,000 3,00,000
Add: Additional reserve on 1.4.2005 50,000 -
5,25,000 6,75,000
Less: Provision for unexpired risk on 31.3.2006 1,75,000 3,75,000
(3,50,000 x 50%) (3,75,000x 100%)
3,50,000 3,00,000
Less: Additional reservation on 31.3.2006
Fire : 3,50,000 x 50% + 50,000 67,500
Total Premiums (Net) 2,82,500 3,00,000
Schdule2 – claim incurred (Net) ( Rs. 000 )

Claims paid 80,000 1,00,000

Add: Outstanding claims on 12,500 12,500
31.3.2006
92,500 1,12,500
Less: Outstanding claims on 1.4.2005 12,500 15,000
Claims incurred (Net) 80,000 97,500
Schedule-3 commission
Commission on direct 60,000 55,000

business
60,000 55,000
Schedule 4 – Operating expenses related to Insurance Business ( Rs. 000 )

Expenses of 1,02,500 1,05,000

Management
1,02,500 1,05,000
Schedule 5 – Share capital ( Rs. 000 )

Share - 1,50,000
capital
- 1,50,000

Schedule 6 – Reserve and Surplus

Balance of profit and loss 2,500
account
27,500
Schedule 7 – Borrowings Nil
Schedule 8 – Investments
Govt. 5,25,000
Securities
5,25,000
Schedule 9- Loans Nil
Schedule 10- Fixed assets

Premises 2,50,000 -
Less: Depreciation 12,500 2,37,500
Furniture 25,000
Less: 2,500 22,500
Depreciation
Total 2,60,000
Schedule 11- Cash and Bank Balance

Cash and Bank 51,500
51,500
Schedule 12 – Advances and Other assets

Advances -
Other assets: -
Outstanding 17,500
premiums
Total 17,500
Schedule 13- Current Liabilities

Claims outstanding 25,000
Due to the Insurance 17,500
companies
Total 42,500
Schedule 14 – Provisions
Provisions for unexpired risk : 2,42,500
Fire
Marine 3,75,000
Provision for taxation 15,000
Dividend distribution tax 1,500
Total 6,34,000
Schedule -15- Miscellaneous expenditure Nil

Q14: Preparation of Final A/c of General Insurance: From the following Trial balance as on 31.3.2006
drawn from the books of Calcutta General Insurance Co. Ltd.& with the help of the further information,
draw up the separate revenue accounts, P/L A/c for 2005-06 & B/S as on 31.3.2006.
Debit balances Rs. ‘000 Credit balances Rs.’000
Claims paid less reinsurance: Share Transfer fee 200
Fire 2,00,000 Compensation from L.I.C. (transferred to 2,00,000
P & L A/c)
Marine 75,000 General Reserve 50,000
Miscellaneous 1,50,000 Share capital (equity shares of Rs.10 3,00,000
each)
Commission paid: Balance of funds as on 1.4.05
Fire 45,000 Fire 2,50,000
Marine 30,000 Marine 50,000
Miscellaneous 37,000 Miscellaneous 1,00,000
Expenses of management: Unclaimed dividend 5,000
Marine 24,000 Amount of due to other insurers 1,75,000
Fire 30,000 Sundry creditors 25,000
Miscellaneous 22,000 P & L A/c (1.4.05) 30,000
Interest accrued but not due 5,000 Interest & Dividends (Net) (not relating 20,000
to any fund)
Amount due from other insurers 85,000 Investments reserve 50,000
Furniture (Cost 8,000) 7,000 Outstanding claims as on 1.4.05
Building (Cost 1,50,000) 1,40,000 Marine 10,000
Cash in hand 8,200 Fire 30,000
Cash at bank in current A/c 2,50,000 Miscellaneous 20,000
Investments (at cost): Commission on reinsurance ceded:
Deposit with R.B.I (Central Govt. 1,00,000 Fire 15,000
Securities)
Central Govt. Securities 6,50,000 Marine 18,000
State Govt. Securities 2,00,000 Miscellaneous 10,000
Fully paid shares of joint stock 50,000 Premium less reinsurance:
companies
Marine 2,00,000
Fire 3,00,000
Miscellaneous 2,50,000
21,08,20 21,08,200
0
i. O/s claims as on 31.3.06 (Less reinsurance) Fire-Rs.40,000&Marine-Rs.20,000 Thousands
Miscellaneous-Rs.25,000 Thousands
ii. Market value of investments on 31.3.06 – Rs.8,90,000 Thousands.
iii. Depreciation on furniture @ 10% and on Buildings @ 2% to be charged to profit and loss A/c.
iv. Transfer to general reserve Rs.2,00,000 thousands
v. Reserve for unexpired risks to be provided @ 50% of the premium income for the year.
vi. Ignore taxation.

A:
Schedule Forming Part of Finance Statements
Schedule 1 –Premiums earned (Net)
Particulars Fire Marine Miscellaneous
Premiums less reinsurance 3,00,000 2,00,000 2,50,000

Adjustments for change in reserve for unexpired risk:
Add: Reserve for unexpired risk (1.4.2005) 2,50,000 50,000 1,00,000
5,50,000 2,50,000 3,50,000
Less: Reserve for unexpired risk (31.3.2006) (3,00,000x 1,50,000 1,00,000 1,25,000
50%)(2,00,000x50%) (2,50,000x 50%)
Total Premiums earned 4,00,000 1,50,000 2,25,000
Schedule 2 – Claims incurred (Net)

Particulars Fire Marine Miscellaneous
(Rs. ‘000) (Rs.’000) (Rs.’000)
Claims paid less reinsurance 2,00,000 75,000 1,50,000
Add: Outstanding claims on 31.3.2006 40,000 20,000 25,000
2,40,000 95,000 1,75,000
Less: Outstanding claims on 1.4.2005 30,000 10,000 20,000
Claims incurred (Net) 2,10,000 85,000 1,55,000
Schedule 3 - Commission
Particulars Fire Marin Miscellaneous
e
Commission on direct business: 45,00 30,000 37,000

0
Less: Commission on reinsurance 15,00 18,000 10,000
ceded 0
Net commission 30,00 12,000 27,000
0
Schedule 4 – Operating expenses related to Insurance business

Particulars Fire Marin Miscellaneous
e
Management 30,000 24,000 22,000

expenses
30,00 24,000 22,000
Schedule 5 – Share capital

3,00,00,000 Shares of Rs.10 each 3,00,000
Total 3,00,000
Schedule 6 - Reserves and Surplus

Add: Current years transfer 2,00,000 2,50,000
Investment Reserve 50,000
Balance of Profit and Loss 2,26,400
Account
Total 5,26,400

Schedule 7 – Borrowings --------Nil

Schedule 8 – Investments
Central Govt. Securities 6,50,000
State Govt. Securities 2,00,000
Deposit with RBI (Central Govt. 1,00,000
Securities)
Fully paid shares of Joint stock companies 50,000
Total 10,00,000
Schedule 9 – Loans Nil
Schedule 10 – Fixed assets

Buildings 1,50,000 -
Less: Depreciation (10,000 + 13,000 1,37,000
3,000)
2,37,500
Furniture 8,000
Less: Depreciation (1,000 + 800) 1,800 6,200
Total 1,43,200
Schedule 11 – Cash and Bank Balance

Cash in hand 8,200
Cash at 2,50,000
Bank
Total 2,58,000
Schedule 12 – Advances and Other assets

Advances -
Other assets:
Interest accrued but not due 5,000
Amount due from other 85,000
insurers
Total 90,000
Schedule 13 – Current Liabilities

Outstanding claims:
Fire 40,000
Marine 20,000
Outstanding dividend 5,000
Amount due to other 1,75,000
insurers
Sundry Creditors 25,000
Total 2,90,000
Schedule 14 - Provisions
Provisions for unexpired
Risk:
Fire 1,50,000
Marine 1,00,000
Miscellaneous 1,25,000
Total 3,75,000
Schedule 15 – Miscellaneous Expenditure Nil

Q15: Calculation of Claims Payable for General Insurance:
From the following figures appearing in the books of Fire Insurance division of a General Insurance
Company, show the amount of claim as it would appear in the Revenue Account for the year ended 31st
March, 1999 :
Direct BusinessRe-Insurance (Rs.)
Claim paid during the year 46,70,000 7,00,000
Claim Payable— 1st April, 1998 7,63,000 87,000
31st March, 1999 8,12,000 53,000
Claims received – 2,30,000
Claims Receivable—1st April, 1998 – 65,000
31st March, 1999 – 1,13,000
Expenses of Management 2,30,000 –
(includes Rs. 35,000 Surveyor’s fee and Rs. 45,000
Legal expenses for settlement of claims) (6 marks)(Intermediate–Nov. 1999)
A:
General Insurance Company(Abstract showing the amount of claims)Rs ’000
Claims less Re-insurance :
Paid during the year 52,20
Add : Outstanding claims at the end of the year 7,52
59,72
Less : Outstanding claims at the beginning of the year 7,85 51,87
Working Notes : Rs. 000
1. Claims paid during the year
Direct business 46,70
Reinsurance 7,00 53,70
Add: Surveyor’s fee 35
Legal expenses 45 80
54,50
Less : Claims received from re-insurers 2,30
52,20
2. Claims outstanding on 31st March, 1999
Direct business 8,12
Reinsurance 53 8,65
Less Claims receivable from re-insurers 1,13
7,52
3. Claims outstanding on 1st April, 1998
Direct business 763
Reinsurance 87 8,50
Less : Claims receivable from re-insurers 65
7,85

Q16: Preparation of Revenue A/c of General Insurance:
From the following information as on 31st March, 2002, prepare the Revenue Accounts of Sagar Bhima
Co. Ltd. engaged in Marine Insurance Business:
Particulars Direct Business Re-insurance
I. Premium :
Received 24,00,000 3,60,000
Receivable – 1st April, 2001 1,20,000 21,000
– 31st March, 2002 1,80,000 28,000
Premium paid 2,40,000 –
Payable – 1st April, 2001 – 20,000
– 31st March, 2002 – 42,000
II. Claims :
Paid 16,50,000 1,25,000
Payable – 1st April, 2001 95,000 13,000
– 31st March, 2002 1,75,000 22,000
Received – 1,00,000
Receivable – 1st April, 2001 – 9,000
– 31st March, 2002 – 12,000
III. Commission :
On Insurance accepted 1,50,000 11,000
On Insurance ceded – 14,000
Other expenses and income:

Salaries – Rs. 2,60,000; Rent, Rates and Taxes – Rs. 18,000; Printing and Stationery – Rs. 23,000; Indian
Income Tax paid – Rs. 2,40,000; Interest, Dividend and Rent received (net) – Rs. 1,15,500; Income Tax
deducted at source – Rs. 24,500; Legal Expenses (Inclusive of Rs. 20,000 in connection with the
settlement of claims) – Rs. 60,000; Bad Debts – Rs. 5,000; Double Income Tax refund – Rs. 12,000;
Profit on Sale of Motor car Rs. 5,000.
Balance of Fund on 1st April, 2001 was Rs. 26,50,000 including Additional Reserve of Rs. 3,25,000.
Additional Reserve has to be maintained at 5% of the net premium of the year.
A:
In exercise of the powers conferred by Section 114A of the Insurance Act, 1938 (4 of 1938), the
Insurance Regulatory and Development Authority in consultation with the Insurance Advisory Committee
prescribed the new formats for the financial statements of Insurance Companies i.e. preparation of
Financial Statements and Auditor’s Report of Insurance Companies Regulations, 2000. Therefore, the
above revenue account can be prepared as:

Form B – RA (Prescribed by IRDA)Revenue Account for the year ended 31 st March, 2002
Marine Insurance Business
Schedul CY PY
e
Premiums earned (net) 1 25,65,00
0
Change in provision (Rs. 26,93,250 – Rs. (-)43,250
26,50,000)
Interest, Dividends and Rent – Gross 1,15,500
Double Income Tax refund 12,000
Profit on sale of motor car 5,000
Total (A) 26,54,25
0
Claims incurred (net) 2 17,81,00
0
Commission 3 1,47,000
Operating expenses related to Insurance business 4 3,41,000
Bad debts 5,000
Indian and Foreign taxes 2,40,000
Total (B) 25,14,00
0
Profit from Marine Insurance business ( A-B) 1,40,250
Schedules forming part of Revenue Account

Schedule –1
Premiums earned (net) CY PY
Premiums from direct business written 28,27,000

Less: Premium on reinsurance ceded 2,62,000
Total Premium earned (net) 25,65,000
Schedule – 2
Claims incurred (net) 17,81,000
Schedule – 3
Commission paid
Direct 1,50,000
Add: Re-insurance accepted 11,000
Less: reinsurance ceded 14,000
1,47,000
Schedule – 4
Operating expenses related to insurance
business
Employees’ remuneration and welfare 2,60,000
benefits
Printing and Stationery 23,000
Legal and Professional charges 40,000
3,41,000

Working Notes:
1. Total Premium Income Direct Re-insurance
Rs. Rs.
Received 24,00,000 3,60,000
Add: Receivable on 31st March, 2002 1,80,000 28,000
25,80,000 3,88,000
Less: Receivable on 1st April, .2001 1,20,000 21,000
24,60,000 3,67,000
Total premium income 24,60,000 + 3,67,000 = 28,27,000
Premium Paid
2.
Paid 2,40,000
Add: Payable on 31st March, 2002 42,000
2,82,000
Less: Payable on 1st April, 2001 20,000
2,62,000
3. Claims Paid
Direct Business 16,50,000
Re-insurance 1,25,000
Legal Expenses 20,000
17,95,000
Less: Re-insurance claims received 1,00,000
16,95,000
4. Claims outstanding as on 31st March,
2002
Direct 1,75,000
Re-insurance 22,000
1,97,000
Less: Recoverable from Re-insurers on
31st March, 2002 12,000
1,85,000
5. Claims outstanding as on 1st April, 2001
Direct 95,000
Re-insurance 13,000
1,08,000
Less: Recoverable from Re-insurers on 1st
April, 2001 9,000
99,000
6. Expenses of Management
Salaries 2,60,000
Rent, Rates and taxes 18,000
Printing and Stationery 23,000
Legal Expenses 40,000
3,41,000
Q17: Preparation of Revenue A/c General Insurance (Fire) X Fire Insurance Co. Ltd. commenced
its business on 1.4.2005. It submits you the following information for the year ended 31.3.2006:

Rs.
Premiums received 15,00,000
Re-insurance premiums paid 1,00,000
Claims paid 7,00,000
Expenses of Management 3,00,000
Commission paid 50,000
Claims outstanding on 31.3.2006 1,00,000
Create reserve for unexpired risk @40%
Prepare Revenue account for the year ended 31.3.2006.
(4 Marks) (PE-II – May 2006)
(c) Form B – RA (Prescribed by IRDA)

Name of the Insurer: X Fire Insurance Co. Ltd.
Registration No. and Date of registration with the IRDA: …………………..
st
Revenue Account for the year ended 31 March, 2006
Particulars Schedule Current year
ended on 31st
March, 2006
Rs.
1 Premiums earned (Net) 1 14,00,000
.
2 Change in provision for unexpired risk
. (NIL–5,60,000) 2 (5,60,000)
Total (A) 8,40,000
1 Claims incurred (Net) 3 8,00,000
.
2 Commission 50,000
.
3 Operating Expenses 4 3,00,000
.
Total (B) 11,50,000
Operating Profit/(Loss) from Fire Insurance
Business [C =(A - B)] (3,10,000)
Schedule 1
Premiums earned (Net) Rs.
Premium received 15,00,000
Less: Premium on re-insurance paid 1,00,000
14,00,000
Schedule 2
Reserve for unexpired risk @ 40% on net premium
40
= Rs.5,60,000
Rs.14,00,000 ´ 100
Schedule 3
Claims Rs.
Add: Claims outstanding on 31.3.2006 1,00,000
8,00,000

Schedule 4
Operating expenses Rs.
Expenses of Management 3,00,000
Q18: Preparation of Revenue A/c General Insurance (Fire)

Prepare the Fire Insurance Revenue A/c as per IRDA regulations for the year ended 31 st March, 2008
from the following details:
Rs.
Legal expenses regarding claims 10,000
Premiums received 13,00,000
Re-insurance premium paid 1,00,000
Commission 3,00,000
Expenses of management 2,00,000
Provision against unexpired risk on 1st April, 2007 5,50,000
st
Claims unpaid on 1 April, 2007 50,000
Claims unpaid on 31st March, 2008 80,000
(6 Marks) (PE II- May, 2008)
A
FORM B - RA
Name of the Insurer:
Registration No. and Date of Registration with the IRDA:
Fire Insurance Revenue Account
Particulars Schedule Amount (Rs.)
(1) Premium earned 1 11,50,000
(2) Other income -
(3) Interest, dividend and rent -
Total (A) 11,50,000
(4) Claims incurred 2 5,30,000
(5) Commission 3 3,00,000
(6) Operating expenses related to Insurance 4 2,00,000
business
Total (B) 10,30,000
Operating Profit (A)- (B) 1,20,000
Schedule 1 : Premium earned (net) Rs.

Premium received 13,00,000
Less: Re-insurance premium 1,00,000
Net premium 12,00,000
Adjustment for change in reserve for unexpired risks (Refer W.N.) 50,000
11,50,000
Schedule 2 : Claims Incurred Rs.

Claims paid including legal expenses (4,90,000 + 10,000) 5,00,000
Add : Claims outstanding at the end of the year 80,000
Less : Claims outstanding at the beginning of the year (50,000)
Total claims incurred 5,30,000
Schedule 3 : Commission Rs.

Commission paid 3,00,000
3,00,000
Schedule 4: Operating expenses Rs.
Expenses of management 2,00,000
2,00,000

Working Note:
Change in the provision for unexpired risk Rs.
Unexpired risk reserve on 31st March, 2008 =50% of net premium
i.e. 50% of Rs.12,00,000 (See Schedule 1) 6,00,000
Less : Unexpired risk reserve as on 1st April 2007 5,50,000
Change in the provision for unexpired risk 50,000

11 ACCOUNTS OF ELECTRICITY SUPPLY COMPANIES
Replacement of Assets Account

Disposal of Surplus
Final Accounts – Normal Method and Double A/c Method
Q1: Replacement of Assets: A power house originally built for Rs.4,00,000 is to be replaced by a new
one. The total cost of the construction is Rs.14,00,000. But the estimated cost of construction of the
original size power house is Rs.6,00,000. Find out the amount to be charged to revenue and capital.
A:
Estimated cost of replacement of the Original power house Rs. 6,00,000 (revenue charge)
Total cost of construction Rs. 14,00,000
Less: Estimated cost of replacement Rs. 6,00,000
-----------------
Rs. 8,00,000 (Capital charge)
----------------
Q2: Replacement of Assets: What shall be amount to be charged to revenue and capitalized if the asset
of material reused is Rs.12,000 and sale proceeds of old material are Rs.8,000? Should the sale or reuse of
old material make any difference in the capital charge?
A:
(a) (b) Rs
Calculation of revenue charge:
Estimated cost of replacement of original 600,000
assets
Less: Cost of material reused 12,000
Sale proceeds of material sold 8,000 20,000
Net revenue charge: 580,000
Calculation of capital charge:

Total cost a construction 14,00,000
Less: Estimated cost of original asset to be replaced 6,00,000
-------------
Net amount to be capitalized 8,00,000
------------
Cost of material reused and sale proceeds of old materials makes difference only in calculation of revenue
charge. Capitalization is not at all affected by these items.
Q3: Replacement of Assets: Electricity supply ltd. Rebuilt and re-equipped on of their Mains at a cash
cost of Rs.40,00,000. The old Mains thus superseded cost Rs.15,00,000. The capacity of the new Main is
double that of the old Main.
Rs. 70,000 was realized from sale of old materials. Four old motors valued at Rs.2,00,000
salvaged from the old main were used in the reconstruction. The cost of Labour and Materials is
respectively 30% and 25% higher now than when the old Main was built. The proportion of Labour to
Materials in the Main then end now is 2:3.
Show the Journal entries for recording the above transactions, if accounts are maintained under Double
Account System.
A:
Journal Entries
Rs. Rs.
1. New Main Account Dr. 20,95,000

Replacement Account 19,05,000
To Bank Account 40,00,000
2. New Main Account Dr. 2,00,000
To Replacement account 2,00,000
3. Bank Account Dr. 70,000
To Replacement account 70,000
4. Revenue Account Dr. 16,35,000
To Replacement account 16,35,000
Tutorial Notes:
1. Current cost of replacement
Rs. Rs. Rs.
Material (3/5 XRs.15 Lakhs) 9,00,000 25% 2,25,000 11,25,000
Labour (2/5XRs.15 lakhs) 6,00,000 30% 1,80,000 7,80,000
Estimated current cost for replacement of present main
(amount to be charged to replacement account) 19,05,000
2. Additional cost of reconstruction of main (to be capitalized)

Cash cost of re-building new main 40,00,000
Less: Estimated current cost of replacement of existing old main 19,05,000
Cost of new main to be capitalized (excluding old motors used) 20,95,000
Replacement Account
Dr. Cr.
Rs. Rs.
To Bank 19,05,000 By New main A/c 2,00,000
By Bank A/c 70,000
By Replacement A/c (Balance) 16,35,000
19,05,000 19,05,000
Q4: Replacement of Assets:

X Electricity Company Limited decides to replace one of its old plants with a modern one in April,
2006. The plant when installed in the year 2000, costed the company Rs.26 lakhs, the components of
materials and labour being in the ratio of 7:3. It is ascertained that the cost of labour and materials
have risen by 30% and 25% respectively. The cost of new plant is Rs.66 lakhs and in addition old
materials worth Rs.92,000 are reused. Old materials worth Rs.1,68,000 are sold. Under double
account system compute the following:
(i) The amount to be written off to Revenue A/c.
(ii) The amount to be capitalized.
(iii) Draw up the necessary Journal entries.
(iv) Draw up the Replacement Account.

A:
(i) Statement showing amount to be written off to Revenue Account
Rs.
Cost of old plant 26,00,000
Add: Increase in cost of material 26 lacs X 4,55,000
7/10X25/100
Increase in cost of Labour 26 lacs X 3/10X30/100 2,34,000
Current cost of old plant 32,89,000
Less Cost of Material used 92,000
:
Cost of Material sold 1,68,000 (-) 2,60,000
Amount to be written off to Revenue A/c 30,29,000
(ii) Statement showing amount to be capitalised

Cost of new plant excluding the value of old materials used 66,00,000
Less: Current cost of old plant 32,89,000
Current cost to be capitalized 33,11,000
Add: Value of old material used 92,000
Total amount to be capitalized 34,03,000
(iii) Journal Entries in the Books of X Electricity Company Ltd.

Rs. Rs.
(a) Replacement Account Dr. 32,89,000
(b) Plant Account Dr. 34,03,000
To Replacement Account 92,000
(c) Bank Account Dr. 1,68,000
To Replacement A/c 1,68,000
(d) Revenue A/c Dr. 30,29,000
To Replacement Account 30,29,000
(iv)
Replacement Account
Dr Cr.
.
Rs. Rs.
To Bank A/c 32,89,00 By New Plant A/c 92,000
0
By Bank A/c 1,68,000
By Revenue A/c (Balance) 30,29,000
32,89,00 32,89,000
0
Q5: Distribution of Surplus:

‘H’ Electricity Company earned a profit of Rs.60,00,000 (after tax) after paying Rs.48,000 at 12%
interest on debentures for the year ended 31.3.2007. The following further information is supplied to
you:

Rs.
Share Capital 2,50,00,000
Reserve Fund Investment (invested in 8% Government Securities at par) 60,00,000
Contingencies Reserve Fund Investment (7%) 25,00,000
Loan from State Electricity Board 50,00,000
Development Reserve 16,00,000
Fixed Assets 6,00,00,000
Depreciation Reserve on Fixed Assets 60,00,000
Security Deposits of customers 80,00,000
Amount contributed by consumers towards cost of Fixed Assets 4,50,000
Intangible Assets 17,50,000
Tariffs and Dividends Control Reserve 22,00,000
Monthly average of C A including amount due from customers 36,00,000
Rs.5,00,000
Show, how the profits of the company will be dealt with under the provisions of the Electricity Act,
assuming the bank rate of the year was 8%. All working notes should form part of your answer.
(16 Marks) (PE II, Nov. 2007)
A:
‘H’ Electricity Company
Statement of Distribution of Profit for the year ended 31.3.2007
Capital Base
Rs. Rs.
Fixed Assets as reduced by customers contribution (600 – 4.5 lacs) 5,95,50,000
Intangible Assets 17,50,000
Monthly average of C A (Excluding due from customers Rs 5 31,00,000
lacs)
Contingencies Reserve Fund Investment 25,00,000 6,69,00,000
Deduct:
Depreciation Reserve 60,00,000
Loan from Electricity Board 50,00,000
12% Debentures (48000X100/12) 4,00,000
Development Reserve 16,00,000
Security Deposits of Customers 80,00,000
Tariffs and Dividends Control Reserve 22,00,000 2,32,00,000
Capital Base 4,37,00,000
Reasonable Return
Rs.
10% (Bank Rate + 2%) on Capital Base 43,70,000
8% on Reserve Fund Investment 4,80,000
½% on Loan from Electricity Board 25,000
½% on Debentures 2,000
½% on Development Reserve 8,000
Reasonable Return 48,85,000
Surplus and its Disposal

Rs.
Clear Profit 60,00,000
Surplus (Rs.60,00,000 – Rs.48,85,000) 11,15,000
Less: 20% of Reasonable Return (to be disposed off) 9,77,000
Amount refundable to consumers 1,38,000

Disposal of Surplus of Rs. 977,000
Rs.
rd
(i) 1/3 of surplus over clear profit limited to 5% of reasonable return will be
at the disposal of the company i.e. s.3,71,667 >Rs.2,44,250 2,44,250
(ii) Credit to Tariffs and Dividends Control Reserve (1/2 of remaining) 3,66,375
(iii Credit to Consumers’ Suspense Account 3,66,375
)
9,77,000
Total amount at the disposal of the company

Rs.
(a) Amount of reasonable return 48,85,000
(b Share in surplus 2,44,250
)
51,29,250
Total amount refunded to consumers

Rs.
(a) Surplus in excess of 20% of reasonable 1,38,000
return
(b Share in surplus 3,66,375
)
5,04,375
Q6: Calculation of Clear Profit, Capital Base and Distribution of Surplus: From the following details
of an electricity supply company, maintaining accounts under Double Account System, calculate the
following:
a. Clear Profit, b. capital base, c. reasonable return, and d. amounts available for dividends and
contributions to tariff and dividend control reserve and consumer’s rebate reserve.
Rs.
Sale of energy 12,40,000
Meters rents 90,000
Transfer fees 1,000
Costs of generation 605,000
Distribution and selling expenses 65,000
Audit fees 5,000
Intangible written off 3,000
Management expenses 90,000
Depreciation 60,000
Interest on loan from electricity board 9,000
Contingency reserve investment 5,000
income
Interest on security deposit 1,000
Interest on provident fund 600
Contribution to provident fund 32,000
Original cost of Fixed Assets is Rs.27,00,000; contributions by consumers for acquisition of such fixed
assets Rs.2,00,000; cost of intangibles Rs.50,000; contingency reserve investments of Rs.50,000; stores
opening and closing Rs.40,000 and Rs.60,000 respectively; cash and Bank balances-opening Rs.30,000
and Closing Rs.50,000.

Depreciation up to the beginning of the year Rs.5,00,000. Intangibles written off up to the beginning of
the year Rs.40,000. Security deposit of customers held in cash Rs.20,000, Tariff and dividend control
reserve-opening balance Rs.80,000. Development Reserve opening balance Rs.1,20,000.
Amount carried forward fro distribution to consumers Rs.15,000. Loan from State Electricity Board
Rs.90,000. No new plant and Machinery was added in the year. Transfer in the year to Contingency
Reserve was Rs.8,000. Reserve Bank rate is to be adopted at 8%.
A: Clear Profit
Rs.
Revenue : State of energy 12,40,000
Meters rents 90,000
Transfer fees 1,000
Contingency reserve investment income 5,000
Interest on bank deposits 600
13,36,600
Less: Opening Expenses:
Cost of generation 6,05,000
Distribution and selling expenses 65,000
Interest on loan from Electricity board 9,000
Interest on security deposit 1,000
Audit fees 5,000
Depreciation 60,000
Contribution to provident fund 32,000 8,85,000
4,51,600
Less: Special appropriations:
Intangible assets written off 3,000
Transfer to Contingency Reserve 8,000 11,000
Clear profit Rs.4,40,600
(a) Capital Base:

Rs. Rs.
Depreciation written off 5,60,000 Original cost of fixed assets
27,00,000
Intangible assets written off 43,000 Less: Contribution from
Consumers 2,00,000 25,00,000
Loan from Electricity Board 90,000 Cost of intangible assets 50,000
Tariff and dividend control reserve 80,000 Contingency Reserve investments 50,000
Security deposit of customers 20,000 Working capital 90,000
Development reserve 1,20,000 ½ (40,000+60,000) =50,000
½ (30,000+50,000)=40,000
Amount carried forward for distribution to
consumers 15,000
Capital base 17,62,00
0
26,90,00 26,90,000
0
(b) Reasonable return: Rs.

(i) Bank rate 8% + 2% =10% on capital base of Rs.17,62,000 1,76,200
(ii) Add: Investment Income on Bank deposits 600

(iii) ½ % on Bank loan from Electricity Board of Rs.90,000 450
(iv) ½ % on development reserve Rs.1,20,000 600
1,77,850
(c) Amount available for dividend:
Clear profit 4,40,600
Less: Reasonable return 1,77,850
2,62,750
1/3 rd thereof, viz., Rs.87,583 or 5% or reasonable return, viz., Rs.8,893 whichever is less. Hence,
amount available for dividend out of current year’s profit is Rs.8,893.
(d) Contribution to:

Tariff and Dividend Control Reserve Rs.1,26,929
(50% of Rs.2,62,750-Rs.8,893)
Contribution to consumers rebate reserve-balance Rs.1,26,929
Q7: Final Account - Normal Method and Double A/c Method: The following is the Trial Balance of
Electricity Light and Power Company Ltd. As at 31st March, 2002. Prepare the final accounts:
i. Using the old forms, and
ii. Using the Statutory Forms prescribed by Electricity Rules, 1956.
Trial Balance As on 31st March, 2002
Dr. - Rs. Cr. - Rs.
Preliminary expenses 10000
Cost of licence 15000
Buildings 350000
Plant 450000
Mains 175000
Tools and instruments 20000
Transformers 100000
Meters 50000
Furniture and fixtures 60000
Share capital 400000
8% Debentures 300000
Reserve fund 100000
Reserve fund investment 100000
Sales of ashes 5000
Rent and taxes 10000
Fuel, oil, waste, etc., at generation station 125000
Wages at plant 120000
Distribution wages 40000
Materials 30000
Balance of Net Revenue A/c 40000
Transfer fee 1000
Depreciation fund 150000
Bad debts 1000
Law charges 4000
Cash in hand 10000

Cash at bank 60000
Sundry debtors 27000
Fixed deposit with banks 50000
Management expenses 24000
Directors’ remuneration 6000
Auditors’ remuneration 2000
Stores in hand 20000
Repairs-Generation plant 4000
-Distribution 2000
Street lighting expenses 60000
Sale of energy for lighting 450000
Sale of energy for power 310000
Sale of energy for under special contracts 150000
Miscellaneous receipts 1000
Salaries of engineers and staff
-Generation 40000
-Distribution 15000
-Office 20000
1,972,00 1,972,00
0 0
Additional information
(1) Additions to fixed assets and capital during the year: Rs.
Buildings 50,000
Plant 1,20,000
Mains 25,000
Share capital 1,00,000
(2) Depreciation to be provided for the year:
Buildings 30,000
Plant 35,000
Mains 25,000
Meters 5,000
Transformers 10,000
Tools and instruments 2,000
Furniture and fixtures 5,000
(3) Interest on debentures to be provided for one year.
(4) Provide for income tax Rs.30,000
(5) Transfer to reserve fund Rs.15,000
A:
(i) Using old forms.
Revenue Account for the year ended 31st March, 2002
Dr. Cr.
Rs Rs.
A. Generation
To fuel, Oil and waste 1,25,000 By Sale of energy for lighting 4,50,000
To salary of engineers 40,000 BY sale of energy for power 3,10,000
To wages 1,20,000 By sale of energy under special contracts 1,50,000
To Repairs 40,000 By meter rent 30,000
B. Distribution

To salary of engineers 15,000 By sale of ashes 5,000
To wages 40,000 By Transfer fees 1,000
To Repairs 2,000 By Miscellaneous receipts 1,000
C. Public Lamps
To street lighting expenses 60,000
D. Rent, Rates, and Taxes
To Rent and Taxes 10,000
E. Management Expenses
To Directors’ remuneration 6,000
To Management expenses 24,000
To Salaries of office staff 20,000
To Auditors’ remuneration 2,000
F. Law charges
To law charges 4,000
G. Depreciation
To Buildings 30,000
To Plant 35,000
To Mains 25,000
To meters 5,000
To Transformers 10,000
To Tools and investments 2,000
To Furniture and Fixtures 5,000
H. Spl. Charges
To Bad Debt 1,000
5,85,000
To Balance carried to net revenue
account 3,62,000
9,47,000 9,47,000

Net Revenue Account
Dr. Cr.
Rs Rs.
To Interest on debentures 24,000 By Balance from last account 40,000
To Reserve fund 15,000 By Balance from revenue A/c 3,62,000
To Income tax 30,000
To Balance carried to general balance sheet 3,33,000
4,02,000 4,02,000
Capital Account
For the year ended 31st March, 2002
Dr. Cr.
Expenditure Expendi Expend. Expendi Receipts Receipts Receipts Receipts
-ture up to during -ture up to up to during the up to
31.3.01 the year 31.3.2002 31.3.01 year 31.3.02
To Rs. Rs. Rs. By Rs. Rs. Rs.
Preliminary 10,000 - 10,000 Share 3,00,000 1,00,000 4,00,000
expenses capital
Cost of licence 15,000 - 15,000 Deben 3,00,000 - 3,00,000
Building 3,00,000 50,000 3,50,000
Plant 3,30,000 1,20,000 4,50,000
Mains 1,50,000 25,000 1,75,000
Tools and 20,000 - 20,000
investments
Transformers 1,00,000 - 1,00,000
Meters 50,000 - 50,000
Furniture and 60,000 - 60,000
fixtures
Total expenditure 10,35,000 1,95,000 12,30,000 Total 6,00,000 1,00,000 7,00,000
receipts
Balance 5,30,000
12,30,000 12,30,000
General Balance Sheet as at 31st March, 2002

Liabilities Rs Assets Rs.
Capital A/c –receipts 7,00,000 Capital A/c-expenditure 12,30,000
Sundry creditors 35,000 Stores in hand 20,000
Net revenue account 3,33,000 Sundry debtors 27,000
Reserve fund 1,15,000 Reserve fund investments 1,00,000
Depreciation fund 2,162,000 Fixed deposit with banks 50,000
Provision for income tax 30,000 Prepaid expenses 2,000
Interest on debentures outstanding 24,000 Cash at bank 60,000
Cash in hand 10,000
14,99,000 14,99,000

ii) Under the new forms prescribed by the Electricity Rules, 1956
Statement No.1
Statement of Share and Loan capital
For the year ended 31st March, 2002
Description of Capital Balance Receipts Redeemed Balance at Re-
at the during the during the the end of the marks
beginning of year Year year
the year Rs. Rs. Rs.
Rs.
A. Share capital –
Authorized, issued,
subscribed ….shares of
Rs. …..each, fully called 3,00,000 1,00,000 - 4,00,000
3,00,000 1,00,000 - 4,00,000
B. Capital reserve - - - -
C. Loan Capital 8% 3,00,000 - - 3,00,000
Debentures
3,00,000 3,00,000
D. Other Capital - - - -
Total capital raised and 6,00,000 1,00,000 - 7,00,000
appropriated
Statement No. II Statement of Capital Expenditure for the year ended 31. Mar.02
Balance at Addition Retireme Balance Remarks
the during nt during at the end
Particulars beginning of the year the Year of the
the year Rs. Rs. year
Rs. Rs.
A. Intangible Assets
Preliminary expenses 10,000 - - 10,000
Cost of licence 15,000 - - 15,000
25,000 25,000
B. Hydraulic power Plant - - - -
C. Steam power plant - - - -
D. Internal Combustion -
power plant Building 3,00,000 50,000 3,50,000
Plant 3,30,000 1,20,000 - 4,50,000
6,30,000 1,70,000 - 8,00,000
E. Transmission plant Transformers 1,00,000 - - 1,00,000
1,00,000 - - 1,00,000
F. Distribution (H.V.)
Mains 1,50,000 25,000 - 1,75,000
Meters 50,000 - 50,000
2,00,000 25,000 - 2,25,000
G. Distribution (M&L.V) - - - -
H. Public Lighting - - - -
I. General Equipment
Tools and Instruments 20,000 - - 20,000
Furniture & Fixtures 60,000 - - 60,000
80,000 80,000
Total Capital Assets in use 10,35,000 1,95,000 - 12,30,000
Statement No. IIIStatement of Operating Revenue For the year ended 31st March, 2002

Corresponding amount Amount for Remarks
for the previous year the year
Particulars of revenue Rs. Rs.
A. Net revenue by sale of electricity
Domestic and residential industrial 4,50,000
Special contract 3,10,000
Total revenue by sale of electricity 1,50,000
9,10,000
B. Miscellaneous Revenue from Consumers
Rent from meters 30,000
Transfer fees 1,000
Total miscellaneous revenue from customers 31,000
C. Other Revenue
Sale of ashes 5,000
Miscellaneous receipts 1,000
6,000
Total operating revenue 9,47,000
Less Total operating expenses as per statement
No. IV 5,85,000
Net Surplus carried to Net Revenue and
Appropriation Account Statement X 3,62,000
Statement No. IVStatement of Operating ExpensesFor the year ended 31 st March, 2002
Corresponding Amount for Remarks
amount for the the year
Particulars of revenue previous year
Rs. Rs.
A. Hydraulic power Generation - -
B. Steam power Generation -
C. Internal combustion power generation
(a) Operation:
Fuel, Oil and waste 1,25,000
Salary of engineers 40,000
Wages 1,20,000
Total Operation 2,85,000
(b) Maintenance:
Repairs 4,000
Total maintenance 4,000
(c) Depreciation
Buildings 30,000
Plant 35,000
65,000
Total Generation Expenses (A+B+C) 3,54,000
D. Power purchased -
Total production expenses 3,54,000
E. Transmission
a) Operation and Maintenance -
b) Depreciation 10,000
Total transmission expenses 10,000
F. Distribution (H.V)
a) Operation and Maintenance
Salary of engineers 15,000

Wages 40,000
Repairs 2,000
b) Depreciation
Mains and meters 30,000
Total distribution expenses 87,000
G. Distribution (M. & L.V.)
H. Public Lighting
a) Operation and Maintenance -
Street lighting expenses 60,000
Total public lighting expenses 60,000
I. Consumers’ Servicing -
J. General Establishment Expenses
Salaries of staff 20,0000
Auditors 2,000
Rent and taxes 10,000
Law charges 4,000
Depreciation-Furniture 5,000
Tools and instruments 2,000
Total general establishment chares 67,000
K. Other charges
Bad debts 1,000
Total other charges 1,000
L. Management expenses
Directors’ remuneration 6,000
Total management expenses 6,000
Total operating expenses transferred to
Statement No.III 5,85,000
Statement No. IXNew Revenue and Appropriation AccountFor the year ended 31.Mar.02
P/ Particulars Amount P/Y Particulars Amount
Y Rs. Rs. Rs.
Rs.
To taxes on income 30,000 By Balance of last year 40,000
To Interest on 24,000 By operating surplus on per statement 3,62,000
debentures No.III
To Reserve fund 15,000
To Balance carried over 3,33,000
4,02,000 4,02,000

Statement No. XIIGeneral Balance Sheet For the year ended 31st March, 2002
Figures Particulars Amount Figures of Particulars Amount
of PY Rs. previous Year Rs.
Rs.
Rs.
1. capital raised and 7,00,000 1. Capital Expenditure 12,30,000
Appropriate Statement I Statement II
Reserve and surplus Less: Depreciation 2,62,000
Fund Statement V
2. Reserve fund 1,15,000 Net Block 9,68,000
3. Balance of net revenue Current Assets
A/c –statement X
3,33,000
Current liabilities and 2. Stores in hand 20,000
Provisions
4.Cretidors 35,000 3. Debtors reserve fund 27,000
5.Interest on debentures 24,000 4. Investment 1,00,000
outstanding
6.Income tax provision 30,000 5. Fixed deposit with 50,000
bank
6. Prepaid expenses 2,000
7. Cash at bank 60,000
8. Cash in hand 10,000
12,37,000 12,37,000

12 RATIO ANALYSES
Q: Calculation of Ratios
Q: Preparation of Balance Sheet:
Q: Completion of Balance Sheet:
Q: Preparation of Profit and Loss A/c and Balance Sheet from Ratios:
Q1: Calculation of Ratios

JKL Limited has the following Balance Sheets as on March 31of 2006 and 2005:
Particulars Rs. in lakhs
31.03.06 31.03.05
Sources of Funds:
Shareholders Funds 2,377 1,472
Loan Funds 3,570 3,083
5,947 4,555
Applications of Funds:
Fixed Assets 3,466 2,900
Cash and bank 489 470
Debtors 1,495 1,168
Stock 2,867 2,407
Other Current Assets 1,567 1,404
Less: Current Liabilities (3,937) (3,794)
5,947 4,555
The Income Statement of the JKL Ltd. for the year ended is as follows:
Particulars Rs. in lakhs
31.03.06 31.0305
Sales 22,165 13,882
Less: Cost of Goods sold 20,860 12,544
Gross Profit 1,305 1,338
Less: Selling, General & Administrative expenses 1,135 752
Earnings before Interest & Tax (EBIT) 170 586
Interest Expense 113 105
Profits before Tax 57 481
Tax 23 192
Profits after Tax (PAT) 34 289
Required:
(i) Calculate for the year 2005-06:
(a) Inventory turnover ratio
(b) Financial Leverage
(c) Return on Investment (ROI)
(d) Return on Equity (ROE)
(e) Average Collection period.
(ii) Give a brief comment on the Financial Position of JKL Limited.
(PE-II-May 2006)(12 marks)

A:
Ratios for the year 2005-2006
(i) (a) Inventory turnover ratio
20,860
=
COGS (2,867 + 2,407 )
=
Average Inventory 2 = 7.91
(b)
Financial leverage 2005-06 2004-05
EBIT 170 586
= = =
EBIT − I 57 481
= 2.98 = 1.22
(c) ROI
57 ×(1 −. 4 ) 22,165
NOPAT Sales = ×
22,165 (5,947 + 4,555) 34 .2 22,165
= × = ×
Sales Average Capital employed 2 22,165 5,251 =
0.65%
(d) ROE
34
=
PAT (2,377 + 1,472) 34
= =
Average shareholders' funds 2 1,924 .5 = 1.77%
(e) Average Collection Period*
22,165
Average Sales per day= = Rs . 60.73 lakhs
365
(1,495 + 1,168)
Average Debtors 2 1331 .5
Average collection period= = =
Average sales per day 60.73 60.73 = 22 days
*Note: In the above solution, 1 year = 365 days has been assumed. Alternatively, some candidates
may give the solution on the basis 1 year = 360 days.
(ii) Brief Comment on the financial position of JKL Ltd.
The profitability of operations of the company are showing sharp decline due to increase in operating
expenses. The financial and operating leverages are becoming adverse.
The liquidity of the company is under great stress.
Q2: Preparation of Balance Sheet:

From the following information, prepare a summarised Balance Sheet as at 31 st March, 2002:
Working Capital Rs.2,40,000
Bank overdraft Rs.40,000
Fixed Assets to Proprietary ratio 0.75
Reserves and Surplus Rs.1,60,000
Current ratio 2.5
Liquid ratio 1.5
(PE-II-Nov.2002) (6 marks)
A
Working notes:
1. Current assets and Current liabilities computation:
Current assets 2.5 Current assets Current liabilities

= ¿
Current liabilities 1 or 2.5 1 = k (say)
Or Current assets = 2.5 k and Current liabilities = k
Or Working capital = ( Current assets  Current liabilities)

Or Rs.2,40,000 = k (2.5  1) = 1.5 k
Or k = Rs. 1,60,000
Current liabilities = Rs. 1,60,000
Current assets = Rs.1,60,000  2.5 = Rs.4,00,000
2. Computation of stock
Liquid assets
Liquid ratio = Current liabilities
Current assets - Stock
Or 1.5 = Rs .1,60,000
Or 1.5  Rs.1,60,000 = Rs.4,00,000  Stock
Or Stock = Rs.1,60,000
3. Computation of Proprietary fund; Fixed assets; Capital and Sundry creditors

Fixed assets
=0.75
Proprietary ratio = Proprietary fund
 Fixed assets = 0.75 Proprietary fund
and Net working capital = 0.25 Proprietary fund
Or Rs.2,40,000/0.25 = Proprietary fund
Or Proprietary fund = Rs.9,60,000
and Fixed assets = 0.75 proprietary fund
= 0.75  Rs.9,60,000 = Rs.7,20,000
Capital = Proprietary fund  Reserves & Surplus
= Rs.9,60,000  Rs.1,60,000 = Rs.8,00,000
Sundry creditors = (Current liabilities  Bank overdraft)
= (Rs.1,60,000  Rs.40,000) =Rs.1,20,000
Construction of Balance sheet: (Refer to working notes 1 to 3)
Balance Sheet
Capital 8,00,000 Fixed assets 7,20,000
Reserves & 1,60,000 Stock 1,60,000
Surplus
Bank overdraft 40,000 Current 2,40,000
assets
Sundry creditors 1,20,000
11,20,000 11,20,000
Q3: Completion of Balance Sheet:

With the help of the following information complete the Balance Sheet of MNOP Ltd.:
Equity share capital Rs. 1,00,000
The relevant ratios of the company are as follows:
Current debt to total debt .40
Total debt to owner’s equity .60
Fixed assets to owner’s equity .60
Total assets turnover 2 Times
Inventory turnover 8 Times
(PE-II-May 2005) (7 marks)

A: MNOP Ltd Balance Sheet
Liabilities Rs Assets Rs
Owner equity 1,00,000 Fixed assets 60,000
Current debt 24,000 Cash 60,000
Long term debt 36,000 Inventory 40,000
1,60,000 1,60,000
Working Notes
1. Total debt = 0.60 ¿ Owners equity = 0.60 ¿ Rs 1,00,000 = Rs 60,000
Current debt to total debt = 0.40 , hence current debt = 0.40 ¿ 60,000 = 24,000
2. Fixed assets = 0.60 ¿ Owners equity = 0.60 ¿ Rs 1,00,000 = Rs 60,000
3. Total equity = Total debt + Owners equity = Rs.60,000+Rs.1,00,000 = Rs.1,60,000
4. Total assets consisting of fixed assets and current assets must be equal to Rs
1,60,000 (Assets = Liabilities + Owners equity).
Since Fixed assets are Rs 60,000 , hence, current assets should be Rs 1,00,000
5. Total assets to turnover = 2 Times : Inventory turnover = 8 Times
Hence, Inventory /Total assets = 2/8=1/4, Total assets = 1,60,000
Therefore Inventory = 1,60,000/4 = 40,000
Balance on Asset side Cash = 1,00,000 – 40,000 = 60,000

Using the following data, complete the Balance Sheet given below:
Gross Profits Rs. 54,000
Shareholders’ Funds RsRs.6,00,000
Gross Profit margin 20%
Credit sales to Total sales 80%
Total Assets turnover 0.3 times
Inventory turnover 4 times
Average collection period(360 days year) 20 days
Current ratio 1.8
Long-term Debt to Equity 40%
Balance Sheet
Creditors ………… Cash ……………
…
Long-term debt ………… Debtors ……………
…
Shareholders’ funds ………… Inventory ……………
…
Fixed ……………
assets
(PE-II-Nov. 2005)(12 Marks)

A:
Gross Profits Rs. 54,000
Gross Profit Margin 20%
Gross Profits
\ Sales = Gross Profit Margin = Rs. 54,000 / 0.20 = Rs. 2,70,000
Credit Sales to Total Sales = 80%, \Credit Sales = Rs. 2,70,000×0.80 = Rs. 2,16,000 Total
Sales 2,70 ,000
Assets Turnover = 0.3 times, \Total Assets = Total Assets = 0.3 = 900,000
Sales – Gross Profits = COGS

COGS = Rs. 2,70,000 – 54,000 = Rs. 2,16,000
Inventory turnover = 4 times
COGS 2,16 ,000
=
Inventory = Inventory turnover 4 = Rs.54,000
Average Collection Period = 20 days
360
\ Debtors turnover = Average Collection Period = 360/20=18
Credit Sales Rs. 2,16,000
\ Debtors = Debtors turnover = 18 = Rs.12,000
Debtors + Inventory + Cash

Current ratio = 1.8 , hence 1.8 = Creditors
1.8 Creditors = (Rs. 12,000 + Rs. 54,000 + Cash)
1.8 Creditors = Rs. 66,000 + Cash
Long-term Debt to Equity = 40%
Shareholders Funds = Rs. 6,00,000
\Long-term Debt= Rs. 6,00,000×40% = Rs. 2,40,000
Creditors (Bal .fig) = 9,00,000 – (6,00,000 + 2,40,000) = Rs. 60,000
\Cash = (60,000×1.8) – 66,000 = Rs. 42,000
Balance Sheet (in Rs)
Creditors (Bal. Fig) 60,000 Cash 42,000
Debtors 12,000
Long- term debt 2,40,000 Inventory 54,000
Shareholders’ funds 6,00,000 FixedAsset(Bal.fig) 7,92,000
9,00,000 9,00,000

Using the following information, complete the Balance Sheet given below:
(i) Total debt to net worth 1:2
(ii) Total assets turnover 2
(iii Gross profit on sales 30%
)
(iv) Average collection period 40days
(Assume 360 days in a year)
(v) Inventory turnover ratio (cost of goods sold/ Cl. 3
Inventory)
(vi) Acid test ratio 0.75
Balance Sheet as on March 31, 2007
Equity Shares Capital 4,00,000 Fixed Assets 
Reserves and Surplus 6,00,000 Current Assets:
Total Debt: Inventory 
Current Liabilities  Debtors 
Cash 
_______ _______
(PE-II-Nov. 2007) (8 marks)

A:
Networth = Capital + Reserves and surplus = 4,00,000 + 6,00,000 = Rs. 10,00,000
Total Debt 1
=
Networth 2  Total debt = Rs. 5,00,000
,
Total Liability side = 4,00,000 + 6,00,000 + 5,00,000 = Rs. 15,00,000= Total Assets
Sales Sales
Total Assets Turnover = Total assets 2 = 15,00,000  Sales = Rs. 30,00,000
Gross Profit on Sales : 30% i.e. Rs. 9,00,000,
COGS = Rs. 30,00,000 – Rs. 9,00,000 = Rs. 21,00,000
COGS 21,00,000
Inventory turnover = Inventory , 3 = Inventory , Inventory = Rs. 7,00,000
Average debtors Debtors
Average collection period = Sales / day , 40 = 30,00,000 / 360 , Debtors = Rs. 3,33,333.
Current Assets − Stock Current Assets − 7,00,000
Acid test ratio = Current liabilities 0.75 = 5,00,000
 Current Assets = Rs. 10,75,000.

Fixed Assets = Total Assets – Current Assets = 15,00,000 – 10,75,000 = Rs. 4,25,000
Cash and Bank balance = Current Assets – Inventory – Debtors
= 10,75,000 – 7,00,000 – 3,33,333 = Rs. 41,667.
Balance Sheet as on March 31, 2007

Equity Share 4,00,000 Fixed Assets 425,000
Capital
Reserves & Surplus 6,00,000 Current Assets:
Total Debt: Inventory 7,00,000
Current liabilities 5,00,000 Debtors 3,33,333
Cash 41,667
5,00,000 15,00,000
Q6: Preparation of Profit and Loss A/c and Balance Sheet from Ratios:
The following accounting information & financial ratios of PQR Ltd. relate to the year ended 31-12-
2006:
I Accounting Information:
Gross Profit 15% of Sales
Net profit 8% of sales
Raw materials consumed 20% of workscost
Direct wages 10% of workscost
Stock of raw materials 3 months’ usage
Stock of finished goods 6% of works cost
Debt collection period 60 days
All sales are on credit
II Financial Ratios:
Fixed assets to sales 1:3
Fixed assets to Current assets 13 : 11
Current ratio 2:1
Long-term loans to Current liabilities 2:1
Capital to Reserves and Surplus 1:4

If value of fixed assets as on 31-12-2005 amounted to Rs. 26 lakhs, prepare a summarised P&L A/c
of the company for the year ended 31-12-2006 & also the B/S. (PE-II-May 07)
Answer
(a) Working Notes:
Fixed Assets 1 26,00,000 1
= = ⇒ Sales =Rs .78,00,000
(i) Sales = Sales 3  Sales 3
,
Fixed Assets 13 26,00,000 13

= = ⇒ Current Assets =Rs . 22,00,000
(ii) Current Assets = Current Assets 11 Current Assets 11
,
(iii) Calculation of Raw Material Consumption and Direct Wages

SALES 78,00,000
LESS: GROSS PROFIT 11,70,000
WORKS COST 66,30,000
Raw Material Consumption (20% of Works Cost) Rs. 13,26,000

Direct Wages (10% of Works Cost) Rs. 6,63,000
3
=Rs. 3,31,500
(iv) Stock of Raw Materials (= 3 months usage) = 13,26,000  12
6
=Rs. 3,97,800
(v) Stock of Finished Goods (= 6% of Works Cost) = 66,30,000  100
Current Assets 22,00,000
=2 =2 ⇒ CL = 11,00,000
(vi) Current Liabilities= Current Liabilities , Current Liabilities
Debtors Debtors
× 365 × 365= 60 ⇒ Debtors = 12,82,192
(vii) Debtors = ACP = Credit Sales , 78,00,000
Long term Loan 2 Long term loan 2
= = ⇒ Long term loan = 22,00,000.
(viii) Long term Loan = Current Liabilities 1 11,00,000 1
,
(ix) Calculation of Cash Balance
CURRENT ASSETS 22,00,000
LESS: DEBTORS 12,82,192
RAW MATERIALS STOCK 3,31,500
FINISHED GOODS STOCK 3,97,800 20,11,492
CASH BALANCE 1,88,508
(x) Calculation of Net worth
FIXED ASSETS 26,00,000
CURRENT ASSETS 22,00,000
TOTAL ASSETS 48,00,000
LESS: LONG TERM LOAN
22,00,000
CURRENT LIABILITIES 33,00,000
11,00,000
NET WORTH 15,00,000
Net worth = Share capital + Reserves = 15,00,000
Capital 1 1
= ⇒Share Capital = 15,00,000 × =Rs . 3,00,000
Reserves and Surplus 4 5

4
Reserves and Surplus =15,00,000 × =Rs . 12,00,000
5
PROFIT AND LOSS A/C OF PQR LTD.FOR THE YEAR ENDED 31-12-2006
T Direct materials 13,26,000 B Sales 78,00,000
o y
T Direct wages 6,63,000
o
T Works (overhead)(bal 46,41,000
o fig)
T G p c/d (15% of sales) 11,70,000
o
78,00,000 78,00,000
T Selling&distribution (bal) 5,46,000 B G p 11,70,000
o y b/d
T Net profit (8% of sales) 6,24,000
o
11,70,000 11,70,000
B/S OF PQR LTD.AS AT 31-12-2006
Share capital 3,00,000 Fixed assets 26,00,000
Reserves & surplus 12,00,000 Current assets:
Long term loans 22,00,000 Stock of raw material 3,31,500
Current liabilities 11,00,000 Stock of finished goods 3,97,800
Debtors 12,82,192
________ Cash 1,88,508
48,00,000 48,00,000
Q7: Complete Ratio Analysis:

Following incomplete information of X Ltd. are given below: Trading and Profit & Loss Account for
the year ended 31 st March, 2008
Rs.’000 Rs.’000
T Opening stock 700 B Sales ?
o y
T Purchases ? B Closing stock ?
o y
T Direct expenses 175
o
T Gross profit c/d ?
o
? ?
T Establishment expenses 740 B Gross profit b/d ?
o y
T Interest on loan 60 B Commission 100
o y
T Provision for taxation ?
o
T Net profit c/d ?
o
? ?
T Proposed dividends ? B Balance b/f 140
o y

T Transfer to general reserve ? B Net profit b/d ?
o y
T Balance transferred to Balance ?
o sheet
? ?
Balance Sheet as at 31 st March, 2008
Liabilities Assets
(Rs.’000) (Rs.’000)
Paid-up capital 1,000 Fixed assets:

General reserve: Plant & machinery 1,400
Balance at the beginning of the year ? Other fixed assets ?
Proposed addition ? Current assets:
Profit and loss account ? Stock ?
10% Loan account ? Sundry debtors ?
Current liabilities Cash at bank 125
?
? ?
Other information:
(i) Current ratio is 2:1.
(ii) Closing stock is 25% of sales.
(iii) Proposed dividends to paid-up capital ratio is 2:3.
(iv) Gross profit ratio is 60% of turnover.
(iv) Loan is half of current liabilities.
(v) Transfer to general reserves to proposed dividends ratio is 1:1.
(vi) Profit carried forward is 10% of proposed dividends.
(vii) Provision for taxation is equal to the amount of net profit of the year.
(viii) Balance to credit of general reserve at the beginning of the year is twice the amount
transferred to that account from the current year’s profits.
All working notes should be part of your answer. You are required to complete:
(i) Trading and Profit and Loss A/c for the year ended 31 st March, 2008 &
(ii) The Balance Sheet as on that date. (20 Marks)(May, 2008)
A:
Trading and Profit & Loss A/c for the year ended 31-3-2008
Particulars (Rs.‘000s) Particulars (Rs.‘000s)
To Opening stock 700.00 By Sales (W.N.10) 5366.66
To Purchases (Bal. Fig.) 2613.33 By Closing stock (W.N.11) 1341.67
To Direct expenses 175.00
To Gross profit c/d (W.N.9) 3,220.00
6,708.33 6,708.33
To Establishment expenses 740.00 By Gross profit (Bal. Fig) 3,220.00
To Interest on loan 60.00 By Commission 100.00
To Provision for tax (W.N.8) 1,260.00
To Net profit c/d 1,260.00
3,320.00 3,320.00
To Proposed dividends (W.N.1) 666.67 By Balance b/f 140.00
To Transfer to general reserve 666.67 By Net profit (Bal Fig) 1,260.00
(W.N.2)
To Balance transferred to
B/S(W.N.3) 66.66
1,400.00 1,400.00
Liabilities (Rs.‘000s Assets (Rs. in ‘000s)

)
Paid-up capital 1,000.00 Fixed assets:
General reserve: Plant & machinery 1,400.00
Balance at the beginning 1333.34 Other fixed assets (Bal 1066.67
(W.N.14) Fig)
Proposed addition (W.N.2) 666.67 Current Assets:
Profit and loss A/c 66.66 Stock (W.N.11) 1341.67
10% Loan A/c (W.N.4) 600.00 Sundry debtors (W.N.13) 933.33
Current liabilities (W.N.5) 1,200.00 Cash at bank 125.00
4,866.67 4,866.67
Working Notes:
1. Proposed dividend to paid up capital is 2:3.
2 2
i.e. Proposed dividend = 3 of capital = Rs.1,000,000 × 3 = Rs. 666,667
2. Transfer to General Reserve is equal to proposed dividend i.e., 1:1.
Proposed dividend is Rs.666.67 thousand,
therefore general reserve is also Rs. 666.67 thousand.
3. Profit carried forward to Balance Sheet = 10% of Proposed Dividend
i.e., Rs. 666.67 thousand × 10% = Rs.66.66 thousand
4. 10% Loan implies interest on loan being 10%
100
i.e. Rs.60.00 thousand × 10 = Rs.600.00 thousand
5. Loan is half of current liabilities which means current liabilities are twice of loan
i.e., Rs.600.00 thousand × 2 = Rs.1,200.00 thousand
6. Current Assets 2
Current Ratio i.e., Current Liabilities = 2:1 or 1
i.e. Current Assets = 2 x Current Liabilities
or 2 x Rs.1,200.00 thousand = Rs.2,400.00 thousand
7. Current Net Profit (Rs. in ‘000s)
Proposed dividend 666.67
Transfer to general reserve 666.67
Profit and loss balance transferred to balance sheet 66.66
1,400.00
Less: Balance b/f 140.00
Net profit for the year 1,260.00
8. Provision for taxation is equal to current net profit i.e., = Rs.1,260.00 thousand
9. Gross profit being balancing figure of Profit and Loss A/c = Rs.3,220.00 thousand
10. Gross profit = 60% of sales i.e.
Rs.3,220.00 thousand = 60% of sales
100
Rs.3,220 thousand×
Or, sales = 60 = Rs. 5,366.67 thousand
11. Closing stock is 25% of sales i.e., 25% of Rs. 5,366.67 thousand = Rs.1,341.67
thousand
12. Purchases being balancing figure of Trading A/c = Rs.2,613.33 thousand
13. Debtors = Current Assets – Closing Stock – Cash at Bank
= Rs.2,400.00 thousand – Rs.1,341.67 thousand – Rs.125.00 thousand
= Rs.933.33 thousand
14. Balance of general reserve at the beginning of the year is twice of the amount
transferred to general reserve during the year i.e. 2 x Rs.666.67 thousand =
Rs.1,333.34 thousand
15. Other fixed assets = Total of balance sheet (liabilities side)- Current assets – Plant

and machinery
i.e., Rs.4,866.67 thousand - Rs.2,400.00 thousand – Rs.1,400.00 thousand
= Rs.1,066.67 thousand

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1.

BRANCH ACCOUNTING INCLUDING FOREIGN BRANCH

Singar Academy: [CA-ICWA-ACS] M: Trichy: 93451 22645/Chennai: 9841971881 2

A: Journal entry in the books of Head Office

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Singar Academy: [CA-ICWA-ACS] M: Trichy: 93451 22645/Chennai: 9841971881 5

(ii) Trading and Profit & Loss Account of the Branch

(iii) Books of Head Office Journal Entries

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Singar Academy: [CA-ICWA-ACS] M: Trichy: 93451 22645/Chennai: 9841971881 7

Admn. 1,39,000 15,000 1,54,000 Gross profit 3,40,000 1,64,000 5,02,545

Singar Academy: [CA-ICWA-ACS] M: Trichy: 93451 22645/Chennai: 9841971881 8

Balance Sheet as at 31st March, 2005

Unrealised profit on Branch stock

Unrealised profit on goods in transit

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Singar Academy: [CA-ICWA-ACS] M: Trichy: 93451 22645/Chennai: 9841971881 10

H.O. Branch Total H.O. Branc Total

T Opening Stock 1,00 4,00 5,00 B Sales 5,20 27,06 32,26

“ Purchases 2,40 4,40 6,80 “ Goods sent to 1,00 – 1,00

“ Goods received – 1,00 1,00 Branch

from Head “ Closing Stock 1,50 75 2,25

“ Gross profit c/d 4,30 18,41 22,71

7,70 27,81 35,51 7,70 27,81 35,51

To Wages & 75 9,90 10,65 By Gross Profit 4,30 18,41 22,71

“ Rent 2,64 2,64 Commission 2,56 22,00 24,56

“ Office 25 3,96 4,21 receipts

“ Depreciation 4,60 2,52 7,12

“ Balance c/d 1,12 20,67 21,79

Singar Academy: [CA-ICWA-ACS] M: Trichy: 93451 22645/Chennai: 9841971881 11

To Exchange loss 2,16 By Balance b/d 21,79

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Singar Academy: [CA-ICWA-ACS] M: Trichy: 93451 22645/Chennai: 9841971881 13

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Balance Sheet of Mumbai Branchas on 31st March, 1999

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Departmental Final A/c

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

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Q2: Calculation of Unrealised Profit on Unsold Stock:

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(Refer W.N.) 3,000 Net profit (J 6,000

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Stock, 1st January, 1988 at cost 24,000 36,000

To Opening stock at cost 24,000 36,000 By Sales 2,10,000 2,85,000

To Gross Profit 51,518 92,496 By Closing stock at cost 24,578 36,196

Memorandum Stock A/c (Rs)

To balance b/d 32,000 54,000 By Balance b/d 510

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Memorandum mark-up A/c

3. HIRE PURCHASE AND INSTALLMENT PAYMENT SYSTEM

Calculation of Cash Price of the Asset

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Hire Vendor Account

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(2) Value of Tempos taken away by the seller: -

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Interest Suspense Account for 1996

Amount payable on 31 st March, 1996 :

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