Test Series: March, 2019

MOCK TEST PAPER - 1

INTERMEDIATE (IPC) : GROUP – I
PAPER – 1: ACCOUNTING
Question No. 1 is compulsory.
Answer any five questions from the remaining six questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
(Time allowed: three hours) (Maximum Marks: 100)
1. (a) X Ltd. negotiates with Bharat Petroleum Corporation Ltd (BPCL), for construction of “Franchise
Retail Petrol Outlet Stations”. Based on proposals submitted to different “Zonal offices of BPCL,
the final approval for one outlet each in Zone A, Zone B, Zone C, Zone D, is awarded to X Ltd.
Agreement (in single document) is entered into with BPCL for Rs. 490 lakhs. The agreement lays
down values for each of the four outlets (Rs. 88 + 132 + 160 + 110 lakhs) in addition to individual
completion time. Comment whether X Ltd., will treat it as a single contract or four separate
contracts.
(b) On the basis of information given below, find the value of inventory (by periodic inventory
method) as per AS 2, to be considered while preparing the Balance Sheet as on 31 st March, 2017
on weighted Average Basis.
Details of Purchases:
Date of purchase Unit (Nos.) Purchase cost per unit (Rs.)
01-03-2017 20 108
08-03-2017· 15 107
17-03-2017 30 109
25-03-2017 15 107
Details of issue of Inventory:
Date of Issue Unit (Nos.)
03-03-2017 10
12-03-2017 20
18-03-2017 10
24-03-2017 20
Net realizable value of inventory as on 31st March, 2017 is Rs. 107.75 per unit. What will be the
value of Inventory as per AS 2.
(c) The following extract of Balance Sheet of X Ltd. (a non-investment company) was obtained:
Balance Sheet (Extract) as on 31st March, 2017
Liabilities Rs.
Issued and subscribed capital:
20,000, 14% preference shares of Rs. 100 each fully paid 20,00,000
1,20,000 Equity shares of Rs. 100 each, Rs. 80 paid-up 96,00,000
Capital reserves (Rs. 1,50,000 is revaluation reserve) 1,95,000
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 Securities premium 50,000
15% Debentures 65,00,000
Unsecured loans: Public deposits repayable after one year 3,70,000
Investment in shares, debentures, etc. 75,00,000
Profit and Loss account (debit balance) 15,00,000
You are required to compute Effective Capital as per the provisions of Schedule V to Companies
Act, 2013.
(d) Harish has the following bills due on different dates:
(i) Rs. 5,000 due on 5.3.2017
(ii) Rs. 7,500 due on 7.4.2017
(iii) Rs. 6,000 due on 17.7.2017
(iv) Rs. 8,000 due on 14.9.2017
It was agreed to settle the total amount due by a single cheque payment. Find the date on which
the payment can be settled by single cheque. (4 x 5 Marks = 20 Marks)
2. The following is the summarized Balance Sheet of Weak Ltd. as on 31.3.2017:
Liabilities Rs. Assets Rs.
Equity shares of Rs. 100 each 1,00,00,000 Fixed assets 1,25,00,000
12% cumulative preference 50,00,000 Investments (Market value 10,00,000
shares of Rs. 100 each Rs. 9,50,000)
10% debentures of Rs. 100 40,00,000 Current assets 1,00,00,000
each
Trade payables 50,00,000 P & L A/c 6,00,000
Provision for taxation 1,00,000
2,41,00,000 2,41,00,000
The following scheme of reorganization is sanctioned:
(i) All the existing equity shares are reduced to Rs. 40 each.
(ii) All preference shares are reduced to Rs. 60 each.
(iii) The rate of interest on debentures is increased to 12%. The debenture holders surrender their
existing debentures of Rs. 100 each and exchange the same for fresh debentures of Rs. 70 each
for every debenture held by them.
(iv) One of the creditors of the company to whom the company owes Rs. 20,00,000 decides to forgo
40% of his claim. He is allotted 30,000 equity shares of Rs. 40 each in full satisfaction of his
claim.
(v) Fixed assets are to be written down by 30%.
(vi) Current assets are to be revalued at Rs. 45,00,000.
(vii) The taxation liability of the company is settled at Rs. 1,50,000.
(viii) Investments to be brought to their market value.
(ix) It is decided to write off the debit balance of Profit and Loss account.
You are required to pass Journal entries and show the Balance sheet of the company after giving
effect to the above. (16 Marks)

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3. On 31st December 2018, the Balance Sheet of A, B, and C who were sharing profits and losses in
proportion to their capital stood as follows:
Liabilities Rs. Assets Rs. Rs.
Creditors 20,000 Cash at bank 16,000
Employees’ provident fund 1,600 Debtors 20,000
A’s capital A/c 72,000 Less: Provision 400 19,600
B’s capital A/c 48,000 Inventory 18,000
C’s capital A/c 24,000 Machinery 48,000
Contingency reserve 30,000 Land & building 1,00,000
Workmen compensation reserve 6,000
2,01,600 2,01,600
B retires and the following adjustments of the assets and liabilities have been agreed upon before the
ascertainment of the amount payable to B:
(a) Out of the amount of insurance which was debited entirely to Profit and Loss Account, Rs. 2,000
to be carried forward as an unexpired insurance.
(b) Land and building to be appreciated by 10%.
(c) Provision for doubtful debts to be brought up to 5% on debtors.
(d) Machinery to be depreciated by 5%.
(e) Provision of Rs.3,000 to be made in respect of an outstanding bill of repairs.
(f) Goodwill of the entire firm be fixed at Rs.36,000 and B's share of the same be adjusted into the
accounts of Aand C who are going to share future profits in the proportion of 3/4 and 1/4
respectively. (No Goodwill account being raised).
(g) The entire capital of the firm as newly constituted be fixed at Rs.1,20,000 between A and C in the
proportion of 3/4 and 1/4 after passing entries in their accounts for adjustments i.e. actual cash to
be paid off or to be brought in by the continuing partners as the case may be.
(h) B to be paid Rs. 6,000 in cash and the balance to be transferred to his loan account.
Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the firm of A
and C after retirement. (16 Marks)
4. (a) ABC Ltd. took over a running business with effect from 1 st April, 2016. The company was
incorporated on 1st August, 2016. The following summarized Profit and Loss Account has been
prepared for the year ended 31.3.2017:
Rs. Rs.
To Salaries 48,000 By Gross profit 3,20,000
To Stationery 4,800
To Travelling expenses 16,800
To Advertisement 16,000
To Miscellaneous trade expenses 37,800
To Rent (office buildings) 26,400
To Electricity charges 4,200
To Director’s fee 11,200
To Bad debts 3,200

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 To Commission to selling agents 16,000
To Tax Audit fee 6,000
To Debenture interest 3,000
To Interest paid to vendor 4,200
To Selling expenses 25,200
To Depreciation on fixed assets 9,600
To Net profit 87,600
3,20,000 3,20,000
Additional information:
(a) Total sales for the year, which amounted to Rs.19,20,000 arose evenly upto the date of
30.9.2016. Thereafter they spurted to record an increase of two-third during the rest of the
year.
(b) Rent of office building was paid @ Rs. 2,000 per month upto September, 2016 and
thereafter it was increased by Rs.400 per month.
(c) Travelling expenses include Rs. 4,800 towards sales promotion.
(d) Depreciation include Rs.600 for assets acquired in the post incorporation period.
(e) Purchase consideration was discharged by the company on 30 th September, 2016 by
issuing equity shares of Rs.10 each.
Prepare Statement showing calculation of profits and allocation of expenses between pre and
post incorporation periods.
(b) In 2015, Royal Ltd. issued 12% fully paid debentures of Rs. 100 each, interest being payable half
yearly on 30th September and 31 st March of every accounting year.
On 1st December, 2016, M/s. Kumar purchased 10,000 of these debentures at
Rs.101 cum-interest price, also paying brokerage @ 1% of cum -interest amount of the purchase.
On 1st March, 2017 the firm sold all of these debentures at Rs.106 cum-interest price, again
paying brokerage @ 1 % of cum-interest amount. Prepare Investment Account in the books of
M/s. Kumar for the period 1s t December, 2016 to 1st March, 2017. (10 + 6 = 16 Marks)
5. The accountant of Tiger Club gave the following information about the receipts and payments of the
club for the year ended 31 st March, 2017:
Receipts: Rs.
Subscriptions 1,24,260
Fair receipts 14,400
Variety show receipts (net) 25,620
Interest 1,380
Bar collections 44,700
Payments:
Premises 60,000
Rent 4,800
Rates and taxes 7,560
Printing and stationary 2,820
Sundry expenses 10,700
Wages 5,040
Fair expenses 14,340
Honorarium to secretary 22,000
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 Bar purchases (payments) 34,620
Repairs 1,920
New car (less proceeds of old car Rs. 18,000) 75,600
The following additional information could be obtained:-
1.4.2016 31.3.2017
Rs. Rs.
Cash in hand 900 Nil
Bank balance as per cash-book 48,840 20,700
Cheque issued for sundry expenses not presented to the bank (entry
has been duly made in the cash book) 540 180
Subscriptions due 7,200 5,880
Premises (at cost) 1,74,000 2,34,000
Provision for depreciation on premises 1,12,800 -
Car (at cost) 73,140 93,600
Accumulated depreciation on car 61,740 -
Bar inventory 4,260 5,220
Creditors for bar purchases 3,540 2,580
Annual honorarium of secretary is Rs. 24,000. Depreciation on premises is to be provided at 5% on
written down value. Depreciation on new car is to be provided at 20%.
You are required to prepare the Receipts and Payments Account and Income and Expenditure
Account of Tiger Club for the year ended 31.3.2017. (16 Marks)
6. (a) The following information is extracted from a set of books of Mr. Laxminarayan for the year ended
31st December, 2016
Rs.
Sales 11,26,000
Purchases 6,44,000
Returns outward 15,200
Cash received from debtors 3,68,400
Bills payable accepted 2,40,000
Returns inward 33,600
Cash paid to creditors 3,60,000
Bills receivable received 3,20,000
Discounts received 8,400
Bad debts written off 24,000
Discount allowed 21,600
The total of the sales ledger balances on 1 st Jan, 2016 was Rs. 6,41,600 and that of the
purchases ledger balances on the same date was Rs. 3,72,800.
Prepare Sales Ledger and Purchases Ledger Adjustment Accounts in the General Ledger from
the above information.
(b) The premises of Anmol Ltd. caught fire on 22 nd January 2017, and the stock was damaged. The
firm makes account up to 31st March each year. On 31 st March, 2016 the stock at cost was
Rs. 6,63,600 as against Rs. 4,81,100 on 31st March, 2015.
Purchases from 1st April, 2016 to the date of fire were Rs. 17,41,350 as against Rs. 22,62,500 for
the full year 2015-16 and the corresponding sales figures were Rs. 24,58,500 and
Rs. 26,00,000 respectively. You are given the following further information:
5

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 (i) In July, 2016, goods costing Rs. 50,000 were given away for advertising purposes, no
entries being made in the books.
(ii) During 2016-17, a clerk had misappropriated unrecorded cash sales. It is estimated that
the defalcation averaged Rs. 1,000 per week from 1 st April, 2016 until the clerk was
dismissed on 18th August, 2016.
(iii) The rate of gross profit is constant.
From the above information calculate the stock in hand on the date of fire. (8 + 8 = 16 Marks)
7. Answer any four of the following:
(a) Mohan Ltd. has an existing freehold factory property, which it intends to knock down and
redevelop. During the redevelopment period the company will move its production facilities to
another (temporary) site.
The following incremental costs will be incurred:
Setup costs of Rs. 5,00,000 to install machinery in the new location.
Rent of Rs. 15,00,000
Removal costs of Rs. 3,00,000 to transport the machinery from the old location to the temporary
location.
Mohan Ltd. wants to seek your guidance as whether these costs can be c apitalized into the cost of
the new building. You are required to advise in line with AS 10 “Property, Plant and Equipment”.
(b) The Board of Directors of X Ltd. decided on 31.3.2017 to increase sale price of certain items of
goods sold retrospectively from 1st January, 2017. As a result of this decision the company has
to receive Rs. 5 lakhs from its customers in respect of sales made from 1.1.2017 to 31.3.2017.
But the Company’s Accountant was reluctant to make-up his mind.
You are asked to offer your suggestion in line with AS 9.
(c) What are the advantages of outsourcing the accounting functions? Explain in brief.
(d) What are the issues, with which Accounting Standards deal?
(e) Prepare Cash Flow from Investing Activities of M/s. Creative Furnishings Limited for the year
ended 31-3-2018.
Particulars Rs.
Plant acquired by the issue of 8% Debentures 1,56,000
Claim received for loss of plant in fire 49,600
Unsecured loans given to subsidiaries 4,85,000
Interest on loan received from subsidiary companies 82,500
Pre-acquisition dividend received on investment made 62,400
Debenture interest paid 1,16,000
Term loan repaid 4,25,000
Interest received on investment 68,000
(TDS of Rs. 8,200 was deducted on the above interest)
Book value of plant sold (loss incurred Rs. 9,600) 84,000
(4 x 4 Marks =16 Marks)

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 Test Series: March, 2019
MOCK TEST PAPER
INTERMEDIATE (IPC) : GROUP – I
PAPER – 1: ACCOUNTING
SUGGESTED ANSWERS/HINTS

1. (a) As per AS 7 on ‘Construction Contracts’, when a contract covers a number of assets, the
construction of each asset should be treated as a separate construction contract when:
(a) separate proposals have been submitted for each asset;
(b) each asset has been subject to separate negotiation and the contractor and customer have
been able to accept or reject that part of the contract relating to each asset; and
(c) the costs and revenues of each asset can be identified.
In the given case, each outlet is submitted as a separate proposal to different Zonal Office, which
can be separately negotiated, and costs and revenues thereof can be separately identified. Hence,
each asset will be treated as a “single contract” even if there is one document of contract.
Therefore, four separate contract accounts have to be recorded and maintained in the books of X
Ltd. For each contract, principles of revenue and cost recognition have to be applied separately and
net income will be determined for each asset as per AS -7.
(b) Net Realisable Value of Inventory as on 31 st March, 2017
= Rs. 107.75 x 20 units = Rs. 2,155
Value of inventory as per Weighted Average basis
Total units purchased and total cost:
01.03.2017 Rs. 108 x 20 units = Rs. 2160
08.3.2017 Rs. 107 x 15 units = Rs. 1605
17.03.2017 Rs. 109 x 30 units = Rs. 3270
25.03.2017 Rs. 107 x 15 units = Rs. 1605
Total 80 units = Rs. 8640
Weighted Average Cost = Rs. 8640/80 units = Rs.108
Total cost = Rs. 108 x 20 units = Rs. 2,160
Value of inventory to be considered while preparing Balance Sheet as on 31 st March, 2017 is, Cost
or Net Realisable value whichever is lower i.e. Rs. 2,155.
(c) Computation of effective capital:
Rs.
Paid-up share capital-
20,000, 14% Preference shares 20,00,000
1,20,000 Equity shares 96,00,000
Capital reserves (excluding revaluation reserve) 45,000
Securities premium 50,000

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 15% Debentures 65,00,000
Public Deposits 3,70,000
(A) 1,85,65,000
Investments 75,00,000
Profit and Loss account (Dr. balance) 15,00,000
(B) 90,00,000
Effective capital (A–B) 95,65,000
(d) Calculation of number of days from the base date
Due date Amount (Rs.) No. of days from 5.3.17 Product
5.3.2017 5,000 0 0
7.4.2017 7,500 33 2,47,500
17.7.2017 6,000 134 8,04,000
14.9.2017 8,000 193 15,44,000
26,500 25,95,500
Sum of Product
Average due date = Base date +
Sum of Amount
25,95,500
= 5.3.2017 + = 98 days (round off)
26,500
The date of the cheque will be 98 days from the base date i.e.11.6.2017. So on
11th June, 2017, all bills will be settled by a single cheque payment.
2. Journal Entries in the books of Weak Ltd.
Rs. Rs.
(i) Equity share capital (Rs.100) A/c 1,00,00,000
Dr.
To Equity Share Capital (Rs.40) A/c 40,00,000
To Capital Reduction A/c 60,00,000
(Being conversion of equity share capital of Rs.100 each into Rs.40 each
as per reconstruction scheme)
(ii) 12% Cumulative Preference Share capital (Rs.100) A/c Dr. 50,00,000
To 12% Cumulative Preference Share Capital (Rs.60) A/c 30,00,000
To Capital Reduction A/c 20,00,000
(Being conversion of 12% cumulative preference share capital of Rs.100
each into Rs.60 each as per reconstruction scheme)
(iii) 10% Debentures A/c Dr. 40,00,000
To 12% Debentures A/c 28,00,000
To Capital Reduction A/c 12,00,000
(Being 12% debentures issued to 10% debenture-holders for 70% of their
claims. The balance transferred to capital reduction account as per
reconstruction scheme)
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 (iv) Trade payables A/c Dr. 20,00,000
To Equity Share Capital A/c 12,00,000
To Capital Reduction A/c 8,00,000
(Being a creditor of Rs.20,00,000 agreed to surrender his claim by 40%
and was allotted 30,000 equity shares of Rs.40 each in full settlement of
his dues as per reconstruction scheme)
(v) Provision for Taxation A/c Dr. 1,00,000
Capital Reduction A/c Dr. 50,000
To Current assets(bank A/c) A/c 1,50,000
(Being liability for taxation settled)
(vi) Capital Reduction A/c Dr. 99,00,000
To P & L A/c 6,00,000
To Fixed Assets A/c 37,50,000
To Current Assets A/c 55,00,000
To Investments A/c 50,000
(Being amount of Capital Reduction utilized in writing off
P & L A/c (Dr.) Balance, Fixed Assets, Current Assets, Investments
through capital reduction account)
(vii) Capital Reduction A/c Dr 50,000
To Capital Reserve A/c 50,000
(Being balance in capital reduction account transferred to capital reserve
account)
Balance Sheet of Weak Ltd. (and reduced) as on 31.3.2017
Particulars Notes Rs.
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 82,00,000
b Reserves and Surplus 2 50,000
2 Non-current liabilities
a Long-term borrowings 3 28,00,000
3 Current liabilities
a Trade Payables 30,00,000
Total 1,40,50,000
Assets
1 Non-current assets
Property, Plant & Equipment
Tangible assets 4 87,50,000
b Investments 5 9,50,000
2 Current assets 6 43,50,000
Total 1,40,50,000

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 Notes to accounts
Rs.
1. Share Capital
Equity share capital
Issued, subscribed and paid up
1,30,000 equity shares of Rs.40 each 52,00,000
Preference share capital
Issued, subscribed and paid up
50,000 12% Cumulative Preference shares of Rs.60
30,00,000
each
Total 82,00,000
2. Reserves and Surplus
Capital Reserve 50,000

3. Long-term borrowings
Secured
12% Debentures 28,00,000
4. Tangible assets
Fixed Assets 1,25,00,000
Adjustment under scheme of reconstruction (37,50,000) 87,50,000
5. Investments 10,00,000
Adjustment under scheme of reconstruction (50,000) 9,50,000
6. Current assets 45,00,000
Adjustment under scheme of reconstruction (1,50,000) 43,50,000
Working Note:
Capital Reduction Account
Rs. Rs.
To Current Asset 50,000 By Equity share capital 60,00,000
To P & L A/c 6,00,000 By 12% Cumulative 20,00,000
preference share capital
To Fixed assets 37,50,000 By 10% Debentures 12,00,000
To Current assets 55,00,000 By Trade payables 8,00,000
To Investment 50,000
To Capital Reserve (bal. 50,000 _________
fig.)
1,00,00,000 1,00,00,000

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3. Revaluation Account
Particulars Rs. Particulars Rs.
To Provision for doubtful debts 600 By Unexpired insurance 2,000
To Machinery 2,400 By Land and building 10,000
To Outstanding repairs 3,000
To Profit t/f to:
A’s capital A/c 3,000
B’s capital A/c 2,000
C’s capital A/c 1,000
12,000 12,000
Capital Accounts of Partners
Particulars A B C Particulars A B C
Rs. Rs. Rs. Rs. Rs. Rs.
To B’s capital 9,000 - 3,000 By Balance b/d 72,000 48,000 24,000
A/c By Revaluation A/c 3,000 2,000 1,000
(for goodwill)
(W. N 2)
To Bank A/c - 6,000 - By A’s capital
To B’s loan A/c - 68,000 - A/c (for goodwill)
To Balance c/d 90,000 - 30,000 (W.N. 2) - 9,000 -
By C’s capital A/c
(for goodwill) - 3,000 -
(W.N 2)
By Contingency 15,000 10,000 5,000
Reserve
By Work 3,000 2,000 1,000
Compensation
Reserve
By Bank A/c 6,000 - 2,000
(Bal. fig)
99,000 74,000 33,000 99,000 74,000 33,000

Balance Sheet of A and C at 31st December 2018

Liabilities Rs. Assets Rs. Rs.
Creditors 20,000 Cash at bank (W.N 1) 18,000
Employees’ Provident Fund 1,600 Debtors 20,000
Liability for repairs 3,000 Less: Provision (1,000) 19,000
B’s loan A/c 68,000 Stock 18,000
A’s capital A/c 90,000 Machinery 45,600
C’s capital A/c 30,000 (48,000- 2,400)
Land & building 1,10,000
(1,00,000+10,000)

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 Unexpired insurance 2,000
2,12,600 2,12,600
Working Notes:
1. Bank Account
Particulars Rs. Particulars Rs.
To Balance b/d 16,000 By B’s capital A/c 6,000
To A’s capital A/c 6,000 By Balance c/d 18,000
To C’s capital A/c 2,000
24,000 24,000
2. Adjustment of goodwill
New ratio Old ratio Gaining ratio
A 3/4 3/6 18  12 6

24 24
C 1/4 1/6 64 2

24 24

Therefore, gaining ratio of A & C = 3:1

B’s share of goodwill of Rs.12,000 will be shared by A & C in 3:1 = Rs.9,000:
Rs.3,000
4. (a) Statement showing calculation of profits for pre and post incorporation periods for the year
ended 31.3.2017
Particulars Pre-incorpo- Post- incorpo-
ration period ration period
Rs. Rs.
Gross profit (1:3) 80,000 2,40,000
Less: Salaries (1:2) 16,000 32,000
Stationery (1:2) 1,600 3,200
Advertisement (1:3) 4,000 12,000
Travelling expenses (W.N.3) 4,000 8,000
Sales promotion expenses (W.N.3) 1,200 3,600
Misc. trade expenses (1:2) 12,600 25,200
Rent (office building) (W.N.2) 8,000 18,400
Electricity charges (1:2) 1,400 2,800
Director’s fee - 11,200
Bad debts (1:3) 800 2,400
Selling agents commission (1:3) 4,000 12,000
Audit fee (1:3) 1,500 4,500
Debenture interest - 3,000
Interest paid to vendor (2:1) (W.N.4) 2,800 1,400
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 Selling expenses (1:3) 6,300 18,900
Depreciation on fixed assets (W.N.5) 3,000 6,600
Capital reserve (Bal. Fig.) 12,800 -
Net profit (Bal. Fig.) - 74,800
Working Notes:
1. Time Ratio
Pre incorporation period = 1 st April, 2016 to 31st July, 2016
i.e. 4 months
Post incorporation period is 8 months
Time ratio is 1: 2.
2. Sales ratio
Let the monthly sales for first 6 months (i.e. from 1.4.2016 to 30.09.16) be = x
Then, sales for 6 months = 6x
2 5
Monthly sales for next 6 months (i.e. from 1.10.16 to 31.3.2017) = x + x = x
3 3
5
Then, sales for next 6 months = x X 6 = 10x
3
Total sales for the year = 6x + 10x = 16x
Monthly sales in the pre incorporation period = Rs.19,20,000/16 = Rs.1,20,000
Total sales for pre-incorporation period = Rs.1,20,000 x 4 = Rs.4,80,000
Total sales for post incorporation period = Rs.19,20,000 – Rs.4,80,000 =
Rs.14,40,000
Sales Ratio = 4,80,000 : 14,40,000= 1 : 3
3. Rent
Rs.
Rent for pre-incorporation period (Rs.2,000 x 4) 8,000 (pre)
Rent for post incorporation period
August,2016& September,2016 (Rs.2,000 x 2) 4,000
October,2016 to March,2017 (Rs.2,400 x 6) 14,400 18,400 (post)
4. Travelling expenses and sales promotion expenses
Pre Post
Rs. Rs.
Traveling expenses Rs.12,000 (i.e. Rs.16,800-
Rs.4,800) distributed in 1:2 ratio 4,000 8,000
Sales promotion expenses Rs.4,800 distributed in 1:3 1,200 3,600
ratio

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 5. Interest paid to vendor till 30 th September, 2016
Pre Post
Rs. Rs.
 ` 4,200  2,800
Interest for pre-incorporation period  4
 6 
Interest for post incorporation period i.e. for
 ` 4,200  1,400
August, 2016& September, 2016=  2
 6 
6. Depreciation
Pre Post
Rs. Rs.
Total depreciation 9,600
Less: Depreciation exclusively for post incorporation period 600 600
9,000
 4 3,000
Depreciation for pre-incorporation period 9,000  
 12 
 8 6,000
Depreciation for post incorporation period 9,000  
 12 
3,000 6,600
(b) In the books of M/s Kumar
Investment Account
for the period from 1 st December 2016 to 1st March, 2017
(Scrip: 12% Debentures of Royal Ltd.)
Date Particula Nominal Interest Cost Date Particulars Nominal Interest Cost
rs Value (Rs.) Value (Rs.)
(Rs.) (Rs.)

1.12.2016 To Ba nk A/c 10,00,000 20,000 10,00,100 1.03.2017 By Ba nk A/c 10,00,000 50,000 9,99,400
(W.N.1) (W.N.2)
1.3.2017 To Profi t & - 1.3.2017 By Profi t &
l oss A/c 30,000 l oss A/c 700
10,00,000 50,000 10,00,100 10,00,000 50,000 10,00,100

Working Notes:
(i) Cost of 12% debentures purchased on 1.12.2016 Rs.
Cost Value (10,000 Rs.101) = 10,10,000
Add: Brokerage (1% of Rs.10,10,000) = 10,100
Less: Cum Interest (10,000 x 100 x12% x 2/12) = (20,000)
Total = 10,00,100
(ii) Sale proceeds of 12% debentures sold on 1st March, 2017 Rs.
Sales Price (10,000 Rs.106) = 10,60,000
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 Less: Brokerage (1% of Rs.10,60,000) = (10,600)
Less: Cum Interest (10,000 x 100 x12% x 5/12) = (50,000)
Total = 9,99,400
5. Tiger Club
Receipts and Payments Account
for the year ended 31 st March, 2017
Receipts Rs. Payments Rs.
To Opening balance: By Premises 60,000
Cash on hand 900 By Rent 4,800
Bank balance 48,840 By Rates and taxes 7,560
To Subscriptions 1,24,260 By Printing and stationary 2,820
To Fair receipts 14,400 By Sundry expenses 10,700
To Variety show receipts (net) 25,620 By Wages 5,040
To Interest 1,380 By Fair expenses 14,340
To Bar collections 44,700 By Honorarium to secretary 22,000
To Sale proceeds of old car 18,000 By Bar purchases (payments) 34,620
By Repairs 1,920
By New Car 93,600
By Closing balance:
Cash in hand Nil
Bank balance 20,700
2,78,100 2,78,100
Income and Expenditure Account
for the year ended 31 st March, 2017
Expenditure Rs. Rs. Income Rs. Rs.
To Rent 4,800 By Subscriptions 1,24,260
To Rates and taxes 7,560 Add: Due as on 31.3.17
_5,880
To Printing and 2,820 1,30,140
stationary
To Wages 5,040 Less: Due as on 31.3.16 (7,200) 1,22,940
To Honorarium to 24,000 By Surplus from fair:
secretary
To Sundry expenses 10,700 Fair receipts 14,400
To Repairs 1,920 Less: Fair expenses 14,340 60
To Depreciation on By Surplus from variety 25,620
Premises @ 5%  6,060 show
Car @20% of 18,720 24,780 By Interest 1,380
93,600 By Profit from bar (W.N.2) 12,000

 [(1,74,000 -1,12,800) x 0.05 + 60,000x0.05]

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 To Excess of income 86,980 By Profit from sale of car 6,600
over expenditure ______ (W.N. 3) ______
1,68,600 1,68,600
Working Notes:
1. Calculation of bar purchases
Bar Creditors Account
Dr. Cr.
Rs. Rs.
To Bank A/c 34,620 By Balance b/d 3,540
To Balance c/d 2,580 By Bar purchases 33,660
37,200 37,200
2. Profit from bar
Rs. Rs.
Bar collections 44,700
Less: Bar inventory consumed-
Opening inventory 4,260
Add: Purchases 33,660
37,920
Less: Closing inventory 5,220 32,700
12,000
3. Profit on sale of car
Rs.
Sale proceeds of old car 18,000
Less: W.D.V. of old car (Rs. 73,140-Rs. 61,740) 11,400
6,600
6. (a) Sales Ledger Adjustment Account
2016 Rs. 2016 Rs.
Jan. 1 To Balance b/d 6,41,600 June 30 By General ledger adjustment A/c-
June 30 To General ledger 11,26,000 Cash 3,68,400
adjustment A/c- Returns inward 33,600
Sales Bills receivable 3,20,000
Bad debts 24,000
Discounts allowed 21,600
_______ June 30 By Balance c/d 10,00,000
17,67,600 17,67,600

Purchases Ledger Adjustment Account

2016 Rs. 2016 Rs.
June 30 To General ledger Jan. 1 By Balance b/d 3,72,800
adjustment A/c: June 30 By General ledger
3,60,000 adjustment A/c:
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 Cash
Returns outward 15,200 Purchases 6,44,000
Bills payable 2,40,000
Discounts received 8,400
June 30 To Balance c/d 3,93,200
10,16,800 10,16,800

(b) Ascertainment of rate of gross profit for the year 2015-16

Trading A/c for the year ended 31-3-2016
Rs. Rs.
To Opening stock 4,81,100 By Sales 26,00,000
To Purchases 22,62,500 By Closing stock 6,63,600
To Gross profit 5,20,000
32,63,600 32,63,600
GP
Rate of gross profit = × 100
Sales
5,20,000
= ×100 = 20%
26,00,000
Memorandum Trading A/c for the period from 1-4-2016 to 22-01-2017
Rs. Rs. Rs. Rs.
To Opening stock 6,63,600 By Sales 24,58,500
To Purchases 17,41,350 Add: Unrecorded cash 20,000 24,78,500
Less: Goods used for sales (W.N.)
advertisement (50,000) 16,91,350 By Closing stock 3,72,150
To Gross profit (20% 4,95,700
of Rs. 24,78,500)
28,50,650 28,50,650

Estimated stock in hand on the date of fire was Rs. 3,72,150.

Working Note:
Cash sales defalcated by the Accountant:
Defalcation period = 1.4.2016 to 18.8.2016= 140 days
Since, 140 days / 7 weeks = 20 weeks
Therefore, amount of defalcation = 20 weeks × Rs. 1,000 = Rs. 20,000.
7. (a) Constructing or acquiring a new asset may result in incremental costs that would have been
avoided if the asset had not been constructed or acquired. These costs are not be included in the
cost of the asset if they are not directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by management.
The costs to be incurred by the company are in the nature of costs of reducing or reorganizing the
operations of the accompany. These costs do not meet that requirement of AS 10 “Property, Plant
and Equipment” and cannot, therefore, be capitalized.
(b) As per AS 9 ‘Revenue Recognition’, the additional revenue on account of increase in sales price
with retrospective effect, as decided by Board of Directors of X Ltd., of Rs.5 lakhs to be recognized
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 as income for financial year 2016-17, only if the company is able to assess the ultimate collection
with reasonable certainty. If at the time of raising of any claim it is unreasonable to expect ultimate
collection, revenue recognition should be postponed.
(c) Following are the advantages of outsourcing the accounting functions:
(i) Saving of Time: The organisation that outsources its accounting function is able to save time
to concentrate on the core area of business activity.
(ii) Expertise of the third party: The organisation is able to utilise the expertise of the third party
in undertaking the accounting work.
(iii) Maintenance of data: Storage and maintenance of the data is in the hand of professional
people.
(iv) Economical: The organisation is not bothered about people leaving the organisation in key
accounting positions. The proposition often proves to be economically more sensible.
(d) Accounting Standards deal with the issues of
(i) Recognition of events and transactions in the financial statements,
(ii) Measurement of these transactions and events,
(iii) Presentation of these transactions and events in the financial statements in a manner that is
meaningful and understandable to the reader, and
(iv) Disclosure requirements which should be there to enable the public at large and the
stakeholders and the potential investors in particular, to get an insight into what these financial
statements are trying to reflect and thereby facilitating them to take prudent and informed
business decisions.
(e) Cash Flow Statement from Investing Activities of
M/s Creative Furnishings Limited for the year ended 31-03-2018
Cash generated from investing activities Rs. Rs.
Interest on loan received 82,500
Pre-acquisition dividend received on investment made 62,400
Unsecured loans given to subsidiaries (4,85,000)
Interest received on investments (gross value) 76,200
TDS deducted on interest (8,200)
Sale of plant 74,400
Cash used in investing activities (before extra ordinary item) (1,97,700)
Extraordinary claim received for loss of plant 49,600
Net cash used in investing activities (after extra ordinary item) (1,48,100)
Note:
1. Debenture interest paid and Term Loan repaid are financing activities and therefore not
considered for preparing cash flow from investing activities.
2. Plant acquired by issue of 8% debentures does not amount to cash outflow, hence also not
considered in the above cash flow statement.

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