Advanced Accounting

Pre-exam Preparation Test

All questions are compulsory. Working notes should form part of the answer.
Make assumptions wherever necessary.
1. The following is the Balance Sheet of A Ltd. as at 31st March, 2023:

Amount in Amount in
Liabilities Assets
NPR NPR
8,000 Equity Shares of 800,000 Building 340,000
Rs. 100 each
10% Debentures 400,000 Machinery 640,000
Loan from A 160,000 Stock 220,000
Creditors 320,000 Debtors 260,000
General Reserve 80,000 Bank 136,000
Goodwill 130,000
Miscellaneous Expenses 34,000
1,760,000 1,760,000
B Ltd. agreed to absorb A Ltd. on the following terms and conditions:

1. B Ltd. would take over all assets, except bank balance at their book values less
10%. Goodwill is to be valued at 4 years’ purchase of super profits, assuming that
the normal rate of return be 8% on the combined amount of share capital and
general reserve.
2. B Ltd. is to take over creditors at book value.
3. The purchase consideration is to be paid in cash to the extent of Rs. 600,000 and
balance in fully paid equity shares of Rs. 100 each at Rs. 125 per share.
4. The average profit is Rs. 124,400. The liquidation expenses amounted to Rs.
16,000. B Ltd sold prior to 31st March 2023 goods costing Rs. 120,000 to A Ltd.
for Rs. 160,000. Rs. 100,000 worth of goods are still in stock of A Ltd. on 31st
March 2023. Creditors include Rs. 40,000 still due to B Ltd.
Required: 20
Show the necessary Ledger Accounts to close the books of A Ltd. and prepare the
Statement of Financial Position of B Ltd. as at 1st April, 2023 after the takeover.

2.
a) The balance sheet of the books as on 31-12-2018 were:
Liabilities Amount Asset Amount
Capital Account: Goodwill 10,000
X 104,000 Fixed Asset 108,000
Y 102,000 Stock 60,000
Creditors 20,000 Debtors 40,000
Bank Balance 8,000
226,000 226,000
X and Y are equal partners. X, by agreement, retires and Z joins the firm on the
basis of one-third share of profits on 01.01.2019. Goodwill and Fixed assets are
valued at Rs. 30,000 and Rs. 140,000 respectively. And it was agreed to be written
up accordingly. Sufficient money is to be introduced so as to enable X to be paid
off and leave Rs. 5,000 cash at bank. Y and Z are to provide such sum as to make
their capital requirement proportionate to their share of profit.
 Required: 10
Show Journal entries required and prepare the Statement of Financial Position
after admission of Z.
b) XYZ Enterprises commenced the business of selling washing machines both on
cash basis and by Installments. Installment Sales require a deposit of 20% of Cash
Selling Price with the balance payable in 18 Equal Monthly Installments. No
additional charge is made for this serve. At the end of each financial year, company
takes credit for the profit on Installment sales only in respect of the proportion
represented by Deposits and Installments actually received. The following
transactions took place during the first two years of operation:
(Amounts in Rs.)
Particulars Year 1 Year 2
Cash Sales 35,735 48,920
Installments Sales 321,615 440,280
New Washing Machines Purchased 265,360 287,345
Cash collections on Installments contracts:
Initial Deposit 64,323 88,056
Installments - Year 1 Sales 80,403 128,645
Year 2 Sales 0 110,070
Overdue Installments 16,080 22,015
th
Shop Stock at 16 July (at cost) (at close of 66,340 74,835
financial year)
Required: 10
Prepare (for two year) Hire Purchase Trading Account, Hire Purchase Debtors
Account and General Trading Account.
3.
a) XYZ company of Butwal has branch at Palpa. Goods sent to Palpa are mostly
supplied from Butwal. On 31st Ashadh 2079 the Branch Balance Sheet after closing
the books was as follows:

Amount in Amount in
Liabilities Assets
NPR NPR
Creditors 40,000 Debtor 200,000
Head Office 168,000 Building A/c Nil
(t/f to HO)
Cash 8,000
208,000 208,000
For the six months with Poush end 2079, the following transactions took place at
Palpa Branch.
NPR NPR
Cash Collected from 160,000 Purchases 48,000
Debtors
Discount Allowed 8,000 Sales 240,000
Discount Received 1,200 Wages Paid 20,000
Paid to Creditors 60,000 Salaries (including 4,000
advance Rs. 2,000)
Cash sent to Bank 80,000 General Expenses 1,600
Building A/c (further 4,000 Fire insurance paid for 3,200
payment to contractors) one year
Cash in hand 1,600 Managers Salary for 9 7,200
months
Cash at Bank 28,000
 Required: 10
Set out the Head Office Account in Palpa Books as on 30th Poush 2079 and also
the Branch Balance Sheet on the same date. Also give the closing Journal Entries,
assuming all the accounts are transferred to HO A/c.

b) The following is an extract form the Trial Balance of Money Bank Ltd.as at 31
Ashadh 2078:
Rebate on Bills discounted as on 1-4-2077 341,295(Cr.)
Discount Received 850,780(Cr.)
Analysis of the the bills discounted reveals as follows:
Amount (Rs.) Due Date
1,400,000 Aswin 1,2078
4,360,000 Aswin 8,2078
2,820,000 Aswin,21,2078
4,060,000 Kartik 1,2078
3,000,000 Kartik 5, 2078
Required: 5
Find out the amount of discount to be credited to profit and Loss Account for the
year ending 31 Ashadh 2078 and Pass journal entries. The rate of discount may be
taken at 10% per annum. (Assuming: Shrawan 2078= 31 month days, Bhadra
2078= 30 month days, Aswin 2078=30 month days)

4.
a) A doctor, after retiring from government services, started private practice on 1st
January 2020 with NPR 20,000 of his own and NPR. 30,000 borrowed at an interest
of 15% p.a. His accounts for the year were kept on a cash basis and the following
is his summarized cash account:

Particulars Amount Particulars Amount

in NPR in NPR
To Capital 20,000 By Medicines Purchased 24,500
To Loan taken 30,000 By Surgical Equipment 25,000
To Prescription fees 52,500 By Motor Car Purchased 32,000
To Gift from patients 13,500 By Motor Car Expenses 12,000
To Visiting fees 25,000 By Wages and Salaries 10,500
To Fees from Lectures 2,400 By Rent of Clinic 6,000
To Pension received 30,000 By general Expenses 4,900
By Household Expenses 18,000
By Household Furniture 2,500
By Expenses on daughter’s 21,500
Marriage
By Interest on Loan 4,500
By Balance c/d
Bank 11,000
Cash 1,000
173,400 173,400
Additional Information:
• One-third of the motorcar expenses was made to the private use of car and Rs.
3,000 of the wages and salaries are in respect of domestic servants
• The stock of medicines in hand as on 31st December 2020 was valued at Rs.
9,500
Required: 10
Prepare Income and Expenditure account for the year ended 31st December 2020
and Statement of financial position as on that date.
 b) Business School maintains separate building fund. As on 31.03.2079, balance of
building fund was Rs. 10,00,000 and it was represented by fixed deposit (8% per
annum) of Rs. 6,00,000 and current account balance Rs. 4,00,000. During the year
2079/80, the school collected as donations towards the building fund Rs. 5,60,000
and transferred 40% of development fees collected Rs. 22,56,500 to building fund.
Capita work progress as on 31st Ashad 2079 was Rs.8,25,000 for which contractor’s
bill up to 75% was paid on 14.4.2079. The extension of building was finished on
31.12.2080 costing Rs. 7,25,000 for which contractor’s bill was fully met. It was
decided to transfer the cost of completed building (Rs.15,50,000) to the
corresponding asset account.
Required: 5
Pass journal entries to incorporate the above transactions in the books of Business
School for the year 2079/80 and show the trial balance of the building fund ledger.
5.
a) X Ltd. had entered into a non-cancellable contract with Y Ltd. to purchase 10,000
units of raw material at Rs 50 per unit at a contract price of Rs 5,00,000. As per
terms of contract , X Ltd. would have to pay Rs 60,000 to exit the said contract.
X Ltd has discontinued manufacturing the product that would use the said raw
material. For that X Ltd. has identified a third party to whom it can sell the said
raw material at Rs 45 per unit. How should X Metals Ltd. account for this
transaction in its books of account in respect of the above contract? 5
b) Bibek Ltd. took a factory premises on lease on 01.04.2073 for Rs. 100,000 per
month. The lease is operating lease. During Ashadh 2074, Bibek Ltd. relocates its
operation to a new factory building. The lease of the old factory premises continues
to live upto 31.12.2076. The lease cannot be cancelled and cannot be sub-let to
another user. The auditor insists that lease rent of balance 33 months upto
31.12.2076 should be provided in the accounts for the year ending 31.03.2074
Bibek Ltd. seeks your advice.

c) Ayush Traders Private Limited commenced trading business on 1 January 2015.

On that date, the company purchased a building for NPR. 120,000 to be depreciated
over 30 years with no residual value. Ayush Traders Private Limited uses
revaluation model for buildings. After five years, on 1 January 2020, the building
has a fair value of NPR 175,000. It still has a further 25 years of useful life
remaining. Calculate the annual depreciation charge to profit or loss in each year of
the asset's life, and the revaluation surplus as at 1 January 2020 as per Nepal
Accounting Standard on Property, Plant and Equipment.

6. Write short notes: (5×3=15)

a) Biological assets and their measurement
b) Accrual and Matching Concept
c) Debt Service Coverage Ratio
d) Offsetting as per NAS-01
e) Accounting treatment of contingency gains