© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
(a) First Ltd. began construction of a new factory building on 1st April, 2017. It obtained
` 2,00,000 as a special loan to finance the construction of the factory building on
1st April, 2017 at an interest rate of 8% per annum. Further, expenditure on construction of
the factory building was financed through other non-specific loans. Details of other
outstanding non-specific loans were:
Amount (` ) Rate of Interest per annum
4,00,000 9%
5,00,000 12%
3,00,000 14%
The expenditures that were made on the factory building construction were as follows:
Date Amount (` )
1 April, 2017
st 3,00,000
31 May, 2017
st 2,40,000
1st August, 2017 4,00,000
31st December, 2017 3,60,000
The construction of factory building was completed by 31 st March, 2018. As per the
provisions of AS 16, you are required to:
(1) Calculate the amount of interest to be capitalized.
(2) Pass Journal entry for capitalizing the cost and borrowing cost in respect of the factory
building.
(b) On 15th June, 2018, Y limited wants to re-classify its investments in accordance with
AS 13 (revised). Decide and state the amount of transfer, based on the following
information:
(1) A portion of long term investments purchased on 1st March, 2017 are to be re-
classified as current investments. The original cost of these investments was ` 14
lakhs but had been written down by ` 2 lakhs (to recognise 'other than temporary'

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 2 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

decline in value). The market value of these investments on 15 th June, 2018 was
` 11 lakhs.
(2) Another portion of long term investments purchased on 15 th January, 2017 are to be
re-classified as current investments. The original cost of these investments was ` 7
lakhs but had been written down to ` 5 lakhs (to recognize 'other than temporary'
decline in value). The fair value of these investments on 15 th June, 2018 was ` 4.5
lakhs.
(3) A portion of current investments purchased on 15 th March, 2018 for ` 7 lakhs are to
be re-classified as long term investments, as the company has decided to retain them.
The market value of these investments on 31st March, 2018 was ` 6 lakhs and fair
value on 15th June 2018 was ` 8.5 lakhs,
(4) Another portion of current investments purchased on 7 th December, 2017 for ` 4 lakhs
are to be re-classified as long term investments. The market value of these
investments was:
on 31st March, 2018 ` 3.5 lakhs
on 15th June, 2018 ` 3.8 lakhs
(c) State whether the following statements are 'True' or 'False'. Also give reason for your
answer.
(1) As per the provisions of AS-5, extraordinary items should not be disclosed in the
statement of profit and loss as a part of net profit or loss for the period.
(2) As per the provisions of AS-12, government grants in the nature of promoters'
contribution which become refundable should be reduced from the capital reserve.
(3) As per the provisions of AS-2, inventories should be valued at the lower of cost and
selling price.
(4) As per the provisions of AS-13, a current investment is an investment, that by its
nature, is readily realisable and is intended to be held for not more than six months
from the date on which such investment is made.
(5) As per the provisions of AS-4, a contingency is a condition or situation, the ultimate
outcome of which (gain or loss) will be known or determined only on the occurrence
of one or more uncertain future events.
(d) The financial statements of PQ Ltd. for the year 2017-18 approved by the Board of
Directors on 15th July, 2018. The following information was provided :
(i) A suit against the company's advertisement was filed by a party on 20th April, 2018,
claiming damages of ` 25 lakhs.
(ii) The terms and conditions for acquisition of business of another company have been
decided by March, 2018. But the financial resources were arranged in April, 2018 and
amount invested was ` 50 lakhs.

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 3

(iii) Theft of cash of ` 5 lakhs by the cashier on 31st March, 2018 but was detected on
16th July, 2018.
(iv) Company sent a proposal to sell an immovable property for ` 40 lakhs in March,
2018. The book value of the property was ` 30 lakhs on 31st March, 2018. However,
the deed was registered on 15 th April, 2018.
(v) A, major fire has damaged the assets in a factory on 5th April, 2018. However, the
assets are fully insured.
With reference to AS-4 "Contingencies and events occurring after the balance sheet date",
state whether the above mentioned events will be treated as contingencies, adjusting
events or non-adjusting events occurring after the balance sheet date.
(4 Parts x 5 Marks = 20 Marks)
Answer
(a) (i) Computation of average accumulated expenses
`
` 3,00,000 x 12 / 12 = 3,00,000
` 2,40,000 x 10 / 12 = 2,00,000
` 4,00,000 x 8 / 12 = 2,66,667
` 3,60,000 x 3 / 12 = 90,000
8,56,667
(ii) Calculation of average interest rate other than for specific borrowings
Amount of loan (`) Rate of interest Amount of
interest (`)
4,00,000 9% = 36,000
5,00,000 12% = 60,000
3,00,000 14% = 42,000
1,38,000
Weighted average rate of interest = 11.5%
 1,38,000 
 12,00,000  100 
 
(iii) Amount of interest to be capitalized
`
Interest on average accumulated expenses:
Specific borrowings (` 2,00,000 x 8%) = 16,000

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 4 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

Non-specific borrowings (` 6,56,667 x 11.5%) = 75,517

Amount of interest to be capitalised = 91,517
(iv) Total expenses to be capitalised for building
`
Cost of building ` (3,00,000 + 2,40,000 + 4,00,000 + 3,60,000) 13,00,000
Add: Amount of interest to be capitalized 91,517
13,91,517

(v) Journal Entry

Date Particulars Dr. (`) Cr. (` )
31.3.2018 Building A/c Dr. 13,91,517
To Building WIP  A/c 13,00,000
To Borrowing costs A/c 91,517
(Being amount of cost of building and
borrowing cost thereon capitalised)
(b) As per AS 13 (Revised) ‘Accounting for Investments’, where long-term investments are
reclassified as current investments, transfers are made at the lower of cost and carrying
amount at the date of transfer; and where investments are reclassified from current to long
term, transfers are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer is less than the
cost; hence this re-classified current investment should be carried at ` 12 lakhs in the
books.
(ii) In this case also, carrying amount of investment on the date of transfer is less than
the cost; hence this re-classified current investment should be carried at ` 5 lakhs in
the books.
(iii) In this case, reclassification of current investment into long-term investments will be
made at ` 7 lakhs as cost is less than its fair value of ` 8.5 lakhs on the date of
transfer.

 ( ` 8,56,667 – ` 2,00,000)
 Considering that ` 13,00,000 was debited to Building WIP A/c earlier.

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 5

(iv) In this case, market value (considered as fair vale) is ` 3.8 lakhs on the date of
transfer which is lower than the cost of ` 4 lakhs. The reclassification of current
investment into long-term investments will be made at ` 3.8 lakhs.
(c) (1) False: The nature and the amount of each extraordinary item should be separately
disclosed in the statement of profit and loss in a manner that its impact on current
profit or loss can be perceived.
(2) True: When grants in the nature of promoters’ contribution becomes refundable, in
part or in full to the government on non-fulfillment of some specified conditions, the
relevant amount refundable to the government is reduced from the capital reserve.
(3) False: Inventories should be valued at the lower of cost and net realizable value (not
selling price) as per AS 2.
(4) False: A current investment is an investment that is by its nature readily realizable
and is intended to be held for not more than one year from the date on which such
investment is made.
(5) False: A contingency is a condition or situation, the ultimate outcome of which, gain
or loss, will be known or determined only on the occurrence, or non-occurrence, of
one or more uncertain future events.
(d) (i) Suit filed against the company is a contingent liability but it was not existing as on
balance sheet date as the suit was filed on 20 th April after the balance Sheet date.
As per AS 4, 'Contingencies' used in the Standard is restricted to conditions or
situations at the balance sheet date, the financial effect of which is to be determined
by future events which may or may not occur. Hence, it will have no effect on financial
statements and will be a non-adjusting event.
(ii) In the given case, terms and conditions for acquisition of business were finalised and
carried out before the closure of the books of accounts but transaction for payment
of financial resources was effected in April, 2018. This is clearly an event occuring
after the balance sheet date. Hence, necessary adjustment to assets and liabilities
for acquisition of business is necessary in the financial statements for the year ended
31st March 2018.
(iii) Only those significant events which occur between the balance sheet date and the
date on which the financial statements are approved, may indicate the need for
adjustment to assets and liabilities existing on the balance sheet date or may require
disclosure. In the given case, theft of cash was detected on 16 th July, 18 after approval
of financial statements by the Board of Directors, hence no treatment is required.
(iv) Adjustments to assets and liabilities are not appropriate for events occurring after the
balance sheet date, if such events do not relate to conditions existing at the balance
sheet date. In the given case, sale of immovable property was under proposal stage
(negotiations also not started) on the balance sheet date. Therefore, no adjustment

© The Institute of Chartered Accountants of India

 6 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

to assets for sale of immovable property is required in the financial statements for the
year ended 31st March, 2018.
(v) The condition of fire occurrence was not existing on the balance sheet date. Only the
disclosure regarding event of fire and loss being completely insured may be given in
the report of approving authority.
Question 2
(a) M/s Amar bought six Scooters from M/s Bhanu on 1st April, 2015 on the following terms:
Down payment ` 3,00,000
1st instalment payable at the end of 1st year ` 1,59,000
2nd instalment payable at the end of 2nd year ` 1,47,000
3 instalment payable at the end of 3rd year
rd ` 1,65,000
Interest is charged at the rate of 10% per annum.
M/s Amar provides depreciation @ 20% per annum on the diminishing balance method.
On 31st March, 2018 M/s Amar failed to pay the 3 rd instalment upon which M/s Bhanu
repossessed two Scooters. M/s Bhanu agreed to leave the other four Scooters with M/s
Amar and adjusted the value of the repossessed Scooters against the amount due. The
Scooters taken over were valued on the basis of 30% depreciation per annum on written
down value. The balance amount remaining in the vendor's account after the above
adjustment was paid by M/s Amar after 5 months with interest@ 15% per annum.
M/s Bhanu incurred repairing expenses of ` 15,000 on repossessed scooters and sold
scooters for ` 1,05,000 on 25th April, 2018.
You are required to :
(1) Calculate the cash price of the Scooters and the interest paid with each instalment.
(2) Prepare Scooters Account and M/s Bhanu Account in the books of M/s Amar.
(3) Prepare Goods Repossessed Account in the books of M/s Bhanu.
(b) A fire occurred in the premises of M/s Bright on 25th May, 2017. As a result of fire, sales
were adversely affected up to 30 th September, 2017. The firm had taken Loss of profit
policy (with an average clause) for ` 3,50,000 having indemnity period of 5 months. There
is an upward trend of 10% in sales.
The firm incurred an additional expenditure of ` 30,000 to maintain the sales.
There was a saving of ` 5,000 in the insured standing charges.
Actual turnover from 25th May, 2017 to 30th September, 2017 ` 1,75,000
Turnover from 25 May, 2016 to 30th September, 2016
th ` 6,00,000
Net profit for last financial year ` 2,00,000

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 PAPER – 1 : ACCOUNTING 7

Insured standing charges for the last financial year ` 1,75,000

Total standing charges for the last financial year ` 3,00,000
Turnover for the last financial year ` 15,00,000
Turnover for one year from 25th May, 2016 to 24th May, 2017 ` 14,00,000
You are required to calculate the loss of profit claim amount, assuming that entire sales
during the interrupted period was due to additional expenses. (10 + 10 = 20 Marks)
Answer
(a) (i) Calculation of Interest and Cash Price
No. of Outstanding Amount due Outstanding Interest Outstanding
installments balance at at the time of balance at balance at
the end installment the end the beginning
after the before the
payment of payment of
installment installment
[1] [2] [3] [4] = 2 +3 [5] = 4 x 10/110 [6] = 4-5
3rd - 1,65,000 1,65,000 15,000 1,50,000
2 nd 1,50,000 1,47,000 2,97,000 27,000 2,70,000
1 st 2,70,000 1,59,000 4,29,000 39,000 3,90,000
Down 3,00,000
payment
Total of interest and Total cash price 81,000 6,90,000
(ii) In the books of M/s Amar
Scooters Account
Date Particulars ` Date Particulars `
1.4.2015 To Bhanu A/c 6,90,000 31.3.2016 By Depreciation A/c 1,38,000
By Balance c/d 5,52,000
6,90,000 6,90,000
1.4.2016 To Balance b/d 5,52,000 31.3.2017 By Depreciation A/c 1,10,400
Balance c/d 4,41,600
5,52,000 5,52,000
1.4.2017 To Balance b/d 4,41,600 31.3.2018 By Depreciation A/c 88,320
By M/s Bhanu a/c (Value of 78,890
2 Scooters taken over)
By Profit and Loss A/c (Bal. 38,870
fig.)

© The Institute of Chartered Accountants of India

 8 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

By Balance c/d 2,35,520

4
(4,41,600 - 88,320)
6
4,41,600 4,41,600

(iii) M/s Bhanu Account

Date Particulars ` Date Particulars `
1.4.15 To Bank (down 3,00,000 1.4.15 By Scooters A/c 6,90,000
payment) 31.3.16 By Interest A/c 39,000
31.3.16 To Bank (1st 1,59,000
Installment)
To Balance c/d 2,70,000
7,29,000 7,29,000
31.3.17 To Bank (2nd 1,47,000 1.4.2016 By Balance b/d 2,70,000
Installment) 31.3.2017 By Interest A/c 27,000
To Balance c/d 1,50,000
2,97,000 2,97,000
31.3.18 To Scooter A/c 78,890 1.4.2017 By Balance b/d 1,50,000
To Balance c/d (b.f.) 86,110 31.3.2018 By Interest A/c 15,000
1,65,000 1,65,000
31.8.18 To Bank (Amount 91,492 1.4.2018 By Balance b/d 86,110
settled after 5 31.8.2018 By Interest A/c (@ 15 %
months) on bal.) 5,382
(86,110 x 5/12 x 15/100)
91,492 91,492

(iv) In the Books of M/s Bhanu

Goods Repossessed A/c
Date Particulars ` Date Particulars `
31.3.18 To Amar A/c 78,890 31.3.2018 By Balance c/d 78,890
78,890 78,890
1.04.2018 To Balance b/d 78,890 25.4.2018 By Bank (Sale) 1,05,000
25.4.2018 To Repair A/c 15,000
25.4.2018 To Profit & Loss A/c 11,110
1,05,000 1,05,000

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 9

Working Note:
Value of Scooters taken over
`
2 Scooters (6,90,000/6 x 2) 2,30,000
Depreciation @ 30% WDV for 3 years
(69,000 + 48,300 +33,810) (1,51,110)
78,890
(b) Computation of the amount of claim for the loss of profit
1. Reduction in turnover `
Turnover from 25th May, 2016 to 30th September, 2016 6,00,000
Add: 10% expected increase 60,000
6,60,000
Less: Actual Turnover from 25 th May, 2017 to 30th September, 2017 (1,75,000)
Short Sales 4,85,000
2. Calculation of loss of Profit
Gross Profit on reduction in turnover @ 25% on ` 4,85,000 1,21,250
(see working note 1)
Add: Additional Expenses
Lower of
(i) Actual = ` 30,000
(ii) G.P. on Adjusted Annual Turnover
Additional Exp. x
G.P. as above + Uninsured Standing Charges

30,000x [3,85,000/(3,85,000+1,25,000)] = ` 22,647

(iii) G.P. on sales generated by additional expenses
175000 x 25% = ` 43,750
It is given that entire sales during the interrupted period was due to additional
expenses.
Therefore, lower of above is (i, ii & iii) ` 22,647
1,43,897
Less: Saving in Insured Standing Charges (5,000)
Amount of claim before application of Average Clause 1,38,897

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 10 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

3. Application of Average Clause:

Amount of Policy
× Amount of Claim
G.P. on Annual Turnover
(3,50,000/3,85,000) x 1,38,897= ` 1,26,270
Amount of claim under the policy = ` 1,26,270
Working Notes:
1. Rate of Gross Profit for last Financial Year: `
Net Profit for last financial year 2,00,000
Add: Insured Standing Charges 1,75,000
Gross Profit 3,75,000
Turnover for the last financial year 15,00,000
Rate of Gross Profit = 3,75,000 ×100 = 25%
15,00,000

2. Annual Turnover (adjusted):

Turnover from 25 May, 2016 to 24 May, 2017 14,00,000
Add: 10% expected increase 1,40,000
15,40,000
Gross Profit on ` 15,40,000 @ 25% 3,85,000
Standing charges not Insured (3,00,000 – 1,75,000) 1,25,000
Gross profit + Uninsured standing charges 5,10,000
Question 3
(a) The following balances appeared in the books of M/s Sunshine Traders:
As on As on
31-03-2018 31-03-2019
(` ) (` )
Land and Building 2,50,000 2,50,000
Plant and Machinery 1,10,000 1,65,000
Office Equipment 52,500 42,500
Sundry Debtors 77,750 1,10,250
Creditors for Purchases 47,500 ?
Provision for office expenses 10,000 7,500
Stock ? 32,500

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 11

Long Term loan from ABC Bank @ 10% per annum 62,500 50,000
Bank 12,500 ?
Capital 4,65,250 ?
Other information was as follows:
In (` )
- Collection from Sundry Debtors 4,62,500
- Payments to Creditors for Purchases 2,62,500
- Payment of office Expenses 21,000
- Salary paid 16,000
- Selling Expenses paid 7,500
- Total sales 6,25,000
Credit sales (80% of Total sales)
- Credit Purchases 2,70,000
Cash Purchases (40% of Total Purchases)
- Gross Profit Margin was 25% on cost
- Discount Allowed 2,750
- Discount Received 2,250
- Bad debts 2,250
- Depreciation to be provided as follows:
Land and Building - 5% per annum
Plant and Machinery - 10% per annum
Office Equipment - 15% Per annum
- On 01.10.2018 the firm sold machine having book value, ` 20,000 (as on 31.03.2018)
at a loss of ` 7,500. New machine was purchased on 01.01.2019.
- Office equipment was sold at its book value on 01.04.2018.
- Loan was partly repaid on 31.03.2019 together with interest for the year.
You are required to prepare:
(i) Trading and Profit & Loss account for the year ended 31 st March, 2019.
(ii) Balance Sheet as on 31st March 2019. (12 Marks)

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 12 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

(b) M/s Rani & Co. has head office at Singapore and branch at Delhi (India). Delhi branch is
an integral foreign operation of M/s Rani & Co. Delhi branch furnishes you with its Trial
Balance as on 31st March, 2019 and the additional information thereafter:
Dr. Cr.
Rupees in thousands
Stock on 1st April, 2018 600 -
Purchases and Sales 1,600 2,400
Sundry Debtors and Creditors 800 600
Bills of Exchange 240 480
Wages 1,120 -
Rent, rates and taxes 720 -
Sundry Expenses 320 -
Computers 600 -
Bank Balance 520 -
Singapore Office A/c - 3,040
Total 6,520 6,520
Additional information :
(a) Computers were acquired from a remittance of Singapore dollar 12,000 received from
Singapore Head Office and paid to the suppliers. Depreciate Computers at the rate
of 40% for the year.
(b) Closing Stock of Delhi branch was ` 15,60,000 on 31st March, 2019.
(c) The Rates of Exchange may be taken as follows :
(i) on 1.4.2018 @ ` 50 per Singapore Dollar
(ii) on 31.3.2019 @ ` 52 per Singapore Dollar
(iii) Average Exchange Rate for the year @ ` 51 per Singapore Dollar.
(iv) Conversion in Singapore Dollar shall be made upto two decimal accuracy.
(d) Delhi Branch Account showed a debit balance of Singapore Dollar 59,897.43 on
31.3.2019 in the Head office books and there were no items pending for reconciliation.
In the books of Head office you are required to prepare :
(1) Revenue statement for the year ended 31st March, 2019 (in Singapore Dollar)
(2) Balance Sheet as on that date. (in Singapore Dollar) (8 Marks)

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 PAPER – 1 : ACCOUNTING 13

Answer
(a) Trading and Profit and Loss A/c for the year ended 31.3.2019
` `
To Opening stock 82,500 By Sales- Cash 1,25,000
(Balancing figure) (W.N.1)
To Purchases-Cash 1,80,000 Credit 5,00,000 6,25,000
Credit (W.N.1) 2,70,000 4,50,000 By Closing stock 32,500
To Gross profit c/d 1,25,000
6,57,500 6,57,500
To Loss on sale of 7,500 By Gross profit b/d 1,25,000
Machine By Discount
To Depreciation received 2,250
Land & Building 12,500
Plant & Machinery 11,875
Office Equipment 6,375 30,750
To Expenses paid
Salary 16,000
Selling Expenses 7,500
Office Expenses 18,500 42,000
To Bed debt 2,250
To Discount allowed 2,750
To Interest on loan 6,250
To Net profit 35,750
1,27,250 1,27,250
Balance Sheet as on 31-3-2019
Liabilities ` Assets `
Capital (Balancing 4,65,250 Land & Building 2,50,000
Figure)
Add: Net profit 35,750 5,01,000 Less: Depreciation (12,500) 2,37,500
Sundry creditors (W.N.3) 52,750 Plant & Machinery 1,65,000
Bank loan 50,000 Less: Depreciation (10,875) 1,54,125
Provision for expenses 7,500 Office Equipment 42,500

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 14 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

Less: Depreciation (6,375) 36,125

Debtors 1,10,250
Stock 32,500
Bank balance 40,750
(W.N.4)
6,11,250 6,11,250

Working Notes:
1. Calculation of Sales and Purchases
Total sales = ` 6,25,000
Cash sales = 20% of total sales (6,25,000) = ` 1,25,000
Credit sales = 80% of total sales = (6,25,000) ` 5,00,000
25
Gross Profit 25% on cost = 6,25,000 x = `1,25,000
125
Credit purchases = ` 2,70,000
Credit purchases = 60% of total purchases
Cash purchases = 40% of total purchases
2,70,000
Total purchases = 100 ` 4,50,000
60
Cash purchases = 4,50,000 – 2,70,000 = ` 1,80,000
2. Plant & Machinery
` `
To Balance b/d 1,10,000 By Sale of Machinery A/c 20,000
To Cash-purchase (Bal. Fig.) 75,000 By Balance c/d 1,65,000
1,85,000 1,85,000
Depreciation on Plant & Machinery:
@ 10% p.a. on ` 20,000 for 6 months = 1,000
@ 10% p.a. on ` 90,000 (i.e. ` 1,10,000 – ` 20,000) = 9,000
@ 10% p.a. on ` 75,000 for 3 months (i.e. during the year) = 1,875
11,875

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Sale of Machinery Account

To Plant and Machinery 20,000 By Depreciation (20,000 x 10% 1000
x 1/2
By Profit and Loss A/c 7,500
By Bank (Balancing figure) 11,500
20,000 20,000
3. Creditors Account
` `
To Cash 2,62,500 By Balance b/d 47,500
To Discount received 2,250 By Credit purchases (W.N.2) 2,70,000
To Balance c/d (Bal. Fig.) 52,750
3,17,500 3,17,500
Debtors Account
` `
To Balance b/d (Given) 77,750 By Cash 4,62,500
To Sales (Credit) 5,00,000 By Discount allowed 2,750
By Bad debts 2,250
By Balance c/d 1,10,250
5,77,750 5,77,750
Provision for Office Expenses Account
` `
To Bank 21,000 By balance b/d 10,000
To balance c/d 7,500 By Expenses. (Bal. fig.) 18,500
28,500 28,500
4. Bank Account
` `
To Balance b/d 12,500 By Creditors 2,62,500
To Debtors 4,62,500 By Purchases 1,80,000
To Office Equipment 10,000 By Expenses 44,500
(sales) ` (16,000 + 7,500 + 21,000)
To Cash sales (W.N.1) 1,25,000 By Bank loan paid 18,750

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 16 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

To Machine sold 11,500 By Machine purchased (W.N.4) 75,000

By Balance c/d (Bal. Fig.) 40,750
6,21,500 6,21,500
5. Office Equipment Account
To balance b/d 52,500 By Sales 10,000
By balance c/d 42,500
52,500 52,500
(b) Revenue Statement
for the year ended 31 st March, 2019
Singapore dollar Singapore dollar
To Opening Stock 12,000.00 By Sales 47,058.82
To Purchases 31,372.55 By Closing stock 30,000.00
To Wages 21,960.78 (15,60,000/52)
To Gross profit b/d 11,725.49
77,058.82 77,058.82
To Rent, rates and taxes 14,117.65 By Gross profit c/d 11,725.49
To Sundry Expenses 6,274.51 By Net loss b/d 13,466.67
To Depreciation on computers
(Singapore dollar 12,000 × 0.4) 4,800.00
25,192.16 25,192.16
Balance Sheet of Delhi Branch
as on 31st March, 2019
Liabilities Singapore Assets Singapore Singapore
dollar dollar dollar
Singapore Office A/c 59,897.43 Computers 12,000.00
Less: Net Loss (13,466.67) 46,430.76 Less: Depreciation (4,800.00) 7,200.00
Sundry creditors 11,538.46 Closing stock 30,000.00
Bills payable 9,230.77 Sundry debtors 15,384.61
Bank balance 10,000.00
Bills receivable 4,615.38
67,199.99 67,199.99

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Working Note:
M/s Rani & Co.
Delhi Branch Trial Balance in (Singapore $)
as on 31st March, 2019
Conversion Dr. Cr.
rate per Singapore Singapore
Singapore dollar dollar
dollar
(`)
Stock on 1.4.18 6,00,000.00 50 12,000.00 –
Purchases and sales 16,00,000.00 24,00,000.00 51 31,372.55 47,058.82
Sundry Debtors and 8,00,000.00 6,00,000.00 52 15,384.61 11,538.46
Creditors
Bills of exchange 2,40,000.00 4,80,000.00 52 4,615.38 9,230.77
Wages 11,20,000.00 51 21,960.78 –
Rent, rates and taxes 7,20,000.00 51 14,117.65 –
Sundry Expenses 3,20,000.00 51 6,274.51 –
Computers 6,00,000.00 – 12,000.00 –
Bank balance 5,20,000.00 52 10,000.00 –
Singapore office A/c – 59,897.43
1,27,725.48 1,27,725.48

Question 4
The following is the Balance Sheet of M/s Red and Black as on 31st March, 2018:
Liabilities (` ) Assets (` )
Red’s Capital 80,000 Building 1,00,000
Black's Capital 1,00,000 1,80,000 Closing Stock 60,000
Red's Loan 20,000 Sundry Debtors 40,000
General Reserve 20,000 Investment 40,000
Sundry Creditors 40,000 (6% Debentures in Cool Ltd.)
Cash 20,000
2,60,000 2,60,000
It was agreed that Mr. White is to be admitted for a fifth share in the future profits from
1st April, 2018. He is required to contribute cash towards goodwill and ` 20,000 towards capital.
(a) The following further information is furnished:

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 18 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

(i) The partners Red and Black shared the profits in the ratio of 3 : 2.
(ii) Mr. Red was receiving a salary of ` 1,000 p.m. from the very inception of the firm in
addition to the share of profit.
(iii) The future profit ratio between Red, Black and White will be 3 : 1 : 1. Mr. Red will not
get any salary after the admission of Mr. White.
(iv) The goodwill of the firm should be determined on the basis of 2 years' purchase of the
average profits from business of the last 5 years. The particulars of profits/losses are
as under :
Year Ended (` ) Profit/Loss
31.3.2014 40,000 Profit
31.3.2015 20,000 Loss
31.3.2016 40,000 Profit
31.3.2017 50,000 Profit
31.3.2018 60,000 Profit
The above profits and losses are after charging the salary of Mr. Red. The profit of
the year ended 31st March, 2014 included an extraneous profit of ` 60,000 and the
loss for the year ended 31st March, 2015 was on account of loss by strike to the
extent of ` 40,000.
(v) It was agreed that the value of the goodwill should not appear in the books of the firm.
(b) Trading profit for the year ended 31 st March, 2019 was ` 80,000 (Before charging
depreciation)
(c) Each partner had drawn ` 2,000 per month as drawing during the year 2018-19.
(d) On 31st March, 2019 the following balances appeared in the books:
Building (Before Depreciation) ` 1,20,000
Closing Stock ` 80,000
Sundry Debtors Nil
Sundry Creditors Nil
Investment ` 40,000
(e) Interest was @ 6% per annum on Red's loan was not paid during the year.
(f) Interest on Debenture was received during the year.
(g) Depreciation is to be provided @ 5% on Closing Balance of Building.
(h) Partners applied for conversion of the firm into a private Limited Company i.e. RBW Private
Limited. Certificate received on 1.4.2019.

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They decided to convert Capital accounts of the partners into share capital, in the ratio of
3: 1: 1 (on the basis of total Capital as on 31.3.2019). If necessary, partners have to
subscribe to fresh capital or withdraw.
You are required to prepare :
(1) Profit & Loss Account for the year ended 31st March, 2019 in the books of M/s Red
and Black.
(2) Balance Sheet as on 1st April, 2019 in the books of RBW Private Limited. (20 Marks)
Answer
M/s Red, Black and White
Statement of Profit & Loss for the year ended on 31 st March, 2019
` `
To Depreciation on Building (1,20,000 x 5%) 6,000 By Trading Profit 80,000
To Interest on Red’s loan (20,000 x 6%) 1,200 By Interest on 2,400
To Net Profit to : Debentures
Red’s Capital A/c 45,120
Black’s Capital A/c 15,040
White’s Capital A/c 15,040
82,400 82,400
Balance Sheet of the RBW Pvt. Ltd. as on 1-4-2019
Notes No. `
I Equity and Liabilities
Shareholders funds 2,39,040
Non-current liabilities
Long term borrowings 1 21,200
Total 2,60,240
II Assets
Non-current assets
Property, Plant & Equipment
Tangible assets 2 1,14,000
Non-current investments 40,000
Current assets
Inventories 80,000
Cash and cash equivalents 26,240
Total 2,60,240

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 20 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

Notes to Accounts
`
1. Borrowings
Loan from Red 21,200
2. Tangible assets
Land and Building ` (1,20,000 – 6,000) 1,14,000
Working Notes:
1. Calculation of goodwill
Year ended March, 31
2014 2015 2016 2017 2018
₹ ` ` ` `
Book Profits 40,000 (20,000) 40,000 50,000 60,000
Adjustment for extraneous profit of
2014 and abnormal loss for 2015 (60,000) 40,000 — — —
(20,000) 20,000 40,000 50,000 60,000
Add Back: Remuneration of Red 12,000 12,000 12,000 12,000 12,000
(8,000) 32,000 52,000 62,000 72,000
Less: Debenture Interest being non-
operating income (2,400) (2,400) (2,400) (2,400) (2,400)
(10,400) 29,600 49,600 59,600 69,600
Total Profit from 2015 to 2018 2,08,400
Less: Loss for 2014 (10,400)
Accumulated Profit 1,98,000
Average Profit 39,600
Goodwill equal to 2 years’ purchase 79,200
Contribution from White, equal to 1/5 15,840
2. Partners’ Capital Accounts
Red Black White Red Black White
` ` ` ` ` `
To Drawings 24,000 24,000 24,000 By Balance b/d 80,000 1,00,000 —
To Black A/c 15,840 By General 12,000 8,000 —
To Balance c/d 1,13,120 1,14,880 11,040 Reserve

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By White A/c 15,840 —

By Bank A/c — — 35,840
By Profit & 45,120 15,040 15,040
Loss A/c
1,37,120 1,38,880 50,880 1,37,120 1,38,880 50,880
3. Balance Sheet as on 31 st March, 2019
Liabilities ` ` Assets ` `
Red’s Capital 1,13,120 Land & Building 1,20,000
Black’s Capital 1,14,880 Less: Depreciation (6,000) 1,14,000
White’s Capital 11,040 Investments 40,000
Red’s Loan 20,000 Stock-in-trade 80,000
Add: Interest due 1,200 21,200 Cash (Balancing figure) 26,240*
2,60,240 2,60,240

4. Conversion into Company

`
Capital: Red 1,13,120
Black 1,14,880
White 11,040
Share Capital 2,39,040
Distribution of share: Red (3/5) 1,43,424
Black (1/5) 47,808
White (1/5) 47,808

Red should subscribe shares of ` 30,304 (` 1,43,424 – ` 1,13,120) and White should
subscribe shares of ` 36,768 (` 47,808 less 11,040). Black withdraws ` 67,072
(` 47,808 – ` 1,14,880).
5 Adjustment for Goodwill
To be raised in old Raio To be written off in new ratio Difference
Red 47,520 47,520 Nil
Black 31,680 15,840 15,840 Cr.
White 15,840 15,840 Dr.

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 22 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

6. Closing cash balance* can also be derived as shown below:

` `
Trading profit (assume realised) 80,000
Add: Debenture Interest 2,400
Add: Decrease in Debtors Balance 40,000
1,22,400
Less: Increase in stock 20,000
Less: Decrease in creditors 40,000 (60,000)
Cash Profit 62,400
Add: Opening cash balance 20,000
Add: Cash brought in by White 35,840
1,18,240
Less: Drawings 72,000
Less: Additions to Building 20,000 (92,000)
26,240
Question 5
(a) The Summarized Balance Sheet of Clean Ltd. as on 31 st March, 2019 is as follows:
Particulars (` )
EQUITY AND LIABILITIES
1. Shareholder's funds:
(a) Share Capital 5,80,000
(b) Reserves and Surplus 96,000
2. Current Liabilities:
Trade Payables 1,13,000
Total 7,89,000
ASSETS:
1. Non-Current Assets
(a) Property, Plant and Equipment
Tangible Assets 6,90,000
(b) Non-current investments 37,000
2. Current Assets
Cash and cash equivalents (Bank) 62,000
Total 7,89,000

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The Share Capital of the company consists of ` 50 each Equity shares of ` 4,50,000 and
` 100 each 8% Redeemable Preference Shares of ` 1,30,000 (issued on 1.4.2017).
Reserves and Surplus comprises statement of profit and loss only.
In order to facilitate the redemption of preference shares at a premium of 10%, the
Company decided:
(a) to sell all the investments for ` 30,000.
(b) to finance part of redemption from company funds, subject to, leaving a Bank balance
of ` 24,000.
(c) to issue minimum equity share of ` 50 each at a premium of ` 10 per share to raise
the balance of funds required.
You are required to
(1) Pass Journal Entries to record the above transactions.
(2) Prepare Balance Sheet after completion of the above transactions.
(b) The following information was provided by PQR Ltd. for the year ended 31st March, 2019 :
(1) Gross Profit Ratio was 25% for the year, which amounts to ` 3,75,000.
(2) Company sold goods for cash only.
(3) Opening inventory was lesser than closing inventory by ` 25,000.
(4) Wages paid during the year ` 5,55,000.
(5) Office expenses paid during the year ` 35,000.
(6) Selling expenses paid during the year ` 15,000.
(7) Dividend paid during the year ` 40,000 (including dividend distribution tax).
(8) Bank Loan repaid during the year ` 2,05,000 (included interest ` 5,000)
(9) Trade Payables on 31st March, 2018 were ` 50,000 and on 31st March, 2019 were
` 35,000.
(10) Amount paid to Trade payables during the year ` 6,10,000
(11) Income Tax paid during the year amounts to ` 55,000
(Provision for taxation as on 31st March, 2019 ` 30,000)·
(12) Investments of ` 8,20,000 sold during the year at a profit of ` 20,000.
(13) Depreciation on furniture amounts to ` 40,000.
(14) Depreciation on other tangible assets amounts to ` 20,000.
(15) Plant and Machinery purchased on 15 th November, 2018 for ` 3,50,000.

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 24 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

(16) On 31st March, 2019 ` 2,00,000, 7% Debentures were issued at face value in an
exchange for a plant.
(17) Cash and Cash equivalents on 31 st March, 2018 ` 2,25,000.
(A) Prepare cash flow statement for the year ended 31st March, 2019, using direct method.
(B) Calculate cash flow from operating activities, using indirect method. (10 + 10 = 20 Marks)
Answer
(a) Journal Entries
Particulars Dr. (` ) Cr. (` )
1 Bank A/c Dr. 75,000
To Share Application A/c 75,000
(For application money received on 1,250 shares @
` 60 per share)
2 Share Application A/c Dr. 75,000
To Equity Share Capital A/c 62,500
To Securities Premium A/c 12,500
(For disposition of application money received)
3 Preference Share Capital A/c Dr. 1,30,000
Premium on Redemption of Preference Shares A/c Dr. 13,000
To Preference Shareholders A/c 1,43,000
(For amount payable on redemption of preference
shares)
4 Profit and Loss A/c Dr. 13,000
To Premium on Redemption of 13,000
Preference Shares A/c
(For writing off premium on redemption out of
profits)
5 Bank A/c Dr. 30,000
Profit and Loss A/c (loss on sale) A/c Dr. 7,000
To Investment A/c 37,000
(For sale of investments at a loss of ` 3,500)
6 Preference Shareholders A/c Dr. 1,43,000
To Bank 1,43,000
(Being amount paid to Preference shareholders)

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7 Profit and Loss A/c Dr. 67,500

To Capital Redemption Reserve A/c 67,500
(For transfer to CRR out of divisible profits an
amount equivalent to excess of nominal value of
preference shares over proceeds (face value of
equity shares) i.e., ` 1,30,000 - ` 62,500)
Balance Sheet of Clean Ltd. (after redemption)
Particulars Notes No. `
EQUITY AND LIABILITIES
1. Shareholders’ funds
a) Share capital 1 5,12,500
b) Reserves and Surplus 2 88,500
2. Current liabilities
Trade Payables 1,13,000
Total 7,14,000
ASSETS
1. Non-Current Assets
Property Plant and Equipments
Tangible asset 6,90,000
2. Current Assets
Cash and cash equivalents (bank) 3 24,000
Total 7,14,000
Notes to accounts
`
1. Share Capital
Equity share capital ` (4,50,000 + 62,500) 5,12,500
2. Reserves and Surplus
Capital Redemption Reserve 67,500
Profit and Loss Account ` (96,000 – 13,000 – 7,000 – 67,500) 8,500
Security Premium 12,500
88,500
3. Cash and cash equivalents
Balances with banks ` (62,000 + 75,000 +30,000 – 1,43,000) 24,000

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 26 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

Working Note:
Calculation of Number of Shares: `
Amount payable on redemption (1,30,000 + 10% Premium) 1,43,000
Less: Sale price of investment (30,000)
1,13,000
Less: Available bank balance (62,000 - 24,000) (38,000)
Funds required from fresh issue 75,000
No. of shares = 75,000/60 = 1,250 shares
(b) (i) PQR Ltd.
Cash Flow Statement for the year ended 31 st March, 2019
(Using direct method)
Particulars ` `
Cash flows from Operating Activities
Cash sales (` 3,75,000/25%) 15,00,000
Less: Cash payments for trade payables (6,10,000)
Wages Paid (5,55,000)
Office and selling expenses ` (35,000 + 15,000) (50,000) (12,15,000)
Cash generated from operations before taxes 2,85,000
Income tax paid (55,000)
Net cash generated from operating activities (A) 2,30,000
Cash flows from Investing activities
Sale of investments ` (8,20,000 + 20,000) 8,40,000
Payments for purchase of Plant & machinery (3,50,000)
Net cash used in investing activities (B) 4,90,000
Cash flows from financing activities
Bank loan repayment (including interest) (2,05,000)
Dividend paid (including dividend distribution tax) (40,000)
Net cash used in financing activities (C) (2,45,000)
Net increase in cash (A+B+C) 4,75,000
Cash and cash equivalents at beginning of the period 2,25,000
Cash and cash equivalents at end of the period 7,00,000

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(ii) ‘Cash Flow from Operating Activities’ by indirect method

`
Net Profit for the year before tax and extraordinary items 2,80,000
Add: Non-Cash and Non-Operating Expenses:
Depreciation 60,000
Interest Paid 5,000
Less: Non-Cash and Non-Operating Incomes:
Profit on Sale of Investments (20,000)
Net Profit after Adjustment for Non-Cash Items 3,25,000
Less: Decrease in trade payables 15,000
Increase in inventory 25,000 (40,000)
Cash generated from operations before taxes 2,85,000

Working Note:
Calculation of net profit earned during the year
` `
Gross profit 3,75,000
Less: Office expenses, selling expenses 50,000
Depreciation 60,000
Interest paid 5,000 (1,15,000)
2,60,000
Add: Profit on sale of investments 20,000
Net profit before tax 2,80,000

Question 6
Answer any four of the following :
(a) Write short note on Timing difference and Permanent Difference as per AS 22.
(b) Summarised Balance Sheet of Cloth Trader as on 31.03.2017 is given below:
Liabilities Amount Assets Amount
(` ) (` )
Proprietor's Capital 3,00,000 Fixed Assets 3,60,000
Profit & Loss Account 1,25,000 Closing Stock 1,50,000
10% Loan Account 2,10,000 Sundry Debtors 1,00,000

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 28 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

Sundry Creditors 50,000 Deferred Expenses 50,000

Cash & Bank 25,000
6,85,000 6,85,000
Additional Information is as follows :
(1) The remaining life of fixed assets is 8 years. The pattern of use of the asset is even.
The net realisable value of fixed assets on 31.03.2018 was ` 3,25,000.
(2) Purchases and Sales in 2017-18 amounted to ` 22,50,000 and ` 27,50,000
respectively.
(3) The cost and net realizable value of stock on 31.03.2018 were ` 2,00,000 and
` 2,50,000 respectively.
(4) Expenses for the year amounted to ` 78,000.
(5) Deferred Expenses are amortized equally over 5 years.
(6) Sundry Debtors on 31.03.2018 are ` 1,50,000 of which ` 5,000 is doubtful. Collection
of another ` 25,000 depends on successful re-installation of certain product supplied
to the customer;
(7) Closing Sundry Creditors are ` 75,000, likely to be settled at 10% discount.
(8) Cash balance as on 31.03.2018 is ` 4,22,000.
(9) There is an early repayment penalty for the loan of ` 25,000.
You are required to prepare: (Not assuming going concern)
(1) Profit & Loss Account for the year 2017-18.
(2) Balance Sheet as on 31 st March, 2018.
(c) Tarun Ltd. was incorporated on 1 st July, 2018 to acquire a running business of Vinay Sons
with effect from 1st April, 2018. During the year 2018-19, the total sales were
` 12,00,000 of which ` 2,40,000 were for the first six months. The Gross Profit for the
year is ` 4,15,000. The expenses debited to the Profit and Loss account included:
(i) Director's fees ` 25,000
(ii) Bad Debts ` 6,500
(iii) Advertising ` 18,000 (under a contract amounting to ` 1,500 per month)
(iv) Company Audit Fees ` 15,000
(v) Tax Audit Fees ` 10,000
(1) Prepare a statement showing pre-incorporation and post incorporation profit for the
year ended 31st March, 2019.
(2) Explain how profits are to be treated.

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(d) State the circumstances when Garner V/s Murray rule is not applicable.
(e) Wooden Plywood Limited has a normal wastage of 5% in the production process. During
the year 2017-18, the Company used 16,000 MT of Raw material costing ` 190 per MT. At
the end of the year, 950 MT of wastage was in stock. The accountant wants to know how
this wastage is to be treated in the books.
You are required to :
(1) Calculate the amount of abnormal loss.
(2) Explain the treatment of normal loss and abnormal loss. [In the context of AS-2
(Revised)] (4 Parts x 5 Marks = 20 Marks)
Answer
(a) Matching of taxes against revenue for a period poses special problems arising from the
fact that in number of cases, taxable income may be different from the accounting income.
The divergence between taxable income may be different from the accounting income
arises due to two main reasons: Firstly, there are differences between items of revenue
and expenses as appearing in the statement of profit and loss and the items which are
considered as revenue, expenses or deductions for tax purposes, known as Permanent
Difference. Secondly, there are differences between the amount in respect of a particular
item of revenue or expense as recognised in the statement of profit and loss and the
corresponding amount which is recognised for the computation of taxable incom e, known
as Timing Difference.
Permanent differences are the differences between taxable income and accounting income
which arise in one accounting period and do not reverse subsequently. For example, an
income exempt from tax or an expense that is not allowable as a deduction for tax
purposes.
Timing differences are those differences between taxable income and accounting income
which arise in one accounting period and are capable of reversal in one or more
subsequent periods. For e.g., Depreciation, Bonus, etc.
(b) Profit and Loss Account for the year ended 2017-18(not assuming going concern)
Particulars Amount Particulars Amount
` `
To Opening Stock 1,50,000 By Sales 27,50,000
To Purchases 22,50,000 By Closing Stock 2,50,000
To Expenses* 78,000 By Trade payables 7,500
To Depreciation 35,000
To Provision for doubtful debts 30,000
To Deferred cost 50,000
To Loan penalty 25,000

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 30 INTERMEDIATE (NEW) EXAMINATION: MAY 2019

To Net Profit (b.f.) 3,89,500

30,07,500 30,07,500
Balance Sheet as at 31 st March, 2018 (not assuming going concern)
Liabilities Amount Assets Amount
` `
Capital 3,00,000 Fixed Assets 3,25,000
Profit & Loss A/c 5,14,500 Stock 2,50,000
10% Loan 2,35,000 Trade receivables (less provision) 1,20,000
Trade payables 67,500 Deferred costs Nil
Bank 4,22,000
11,17,000 11,17,000
*Assumed that ` 78,000 includes interest on 10% loan amount for the year.
(c) Statement showing the calculation of Profits for the pre-incorporation and post-
incorporation periods
For the year ended 31 st March, 2019
Particulars Total Basis of Pre- Post-
Amount Allocation incorporation incorporation
Gross Profit 4,15,000 Sales (1:9) 41,500 3,73,500
Less: Directors’ fee 25,000 Post 25,000
Bad debts 6,500 Sales (1:9) 650 5,850
Advertising 18,000 Time (1:3) 4,500 13,500
Company Audit Fees 15,000 Post 15,000
Tax Audit Fee 10,000 Sales (1:9) 1,000 9,000
Net Profit 3,40,500 35,350 3,05,150
Pre-incorporation profits to be transferred to capital reserve and post-incorporation profit
to be transferred to profit & Loss A/c.
Working Notes:
(i) Sales ratio
Particulars `
Sales for period up to 30.06.2018 (2,40,000 x 3/6) 1,20,000
Sales for period from 01.07.2018 to 31.03.2019 (12,00,000 – 10,80,000
1,20,000)

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Thus, Sales Ratio = 1 : 9 (1,20,000 : 10,80,000)

(ii) Time ratio
1st April, 2018 to 30 June, 2018: 1 st July, 2018 to 31st March, 2019
= 3 months: 9 months = 1: 3
Thus, Time Ratio is 1: 3
(d) Garner vs Murray rule is non-applicable in the following cases:
1. When the solvent partner has a debit balance in the capital account.
Only solvent partners will bear the loss of capital deficiency of insolvent partner in
their capital ratio. If incidentally a solvent partner has a debit balance in his capital
account, he will escape the liability to bear the loss due to insolvency of another
partner.
2. When the firm has only two partners.
3. When there is an agreement between the partners to share the deficiency in capital
account of insolvent partner.
4. When all the partners of the firm are insolvent.
(e) (i) As per AS 2 (Revised) ‘Valuation of Inventories’, abnormal amounts of wasted
materials, labour and other production costs are excluded from cost of inventories
and such costs are recognised as expenses in the period in which they are incurred.
The normal loss will be included in determining the cost of inventories (finished goods)
at the year end.
Amount of Abnormal Loss:
(ii) Material used 16,000 MT @ ` 190 = ` 30,40,000
Normal Loss (5% of 16,000 MT) 800 MT (included in calculation of cost of
inventories)
Net quantity of material 15,200 MT
(iii) Abnormal Loss in quantity (950 - 800) 150 MT
Abnormal Loss ` 30,000
[150 units @ ` 200 (` 30,40,000/15,200)]
Amount of ` 30,000 (Abnormal loss) will be charged to the Profit and Loss statement.

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© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
Answer the following questions:
(a) Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited
for year ended 31.3.2019.
Particulars Amount (`)
Machinery acquired by issue of shares at face value 2,00,000
Claim received for loss of machinery in earthquake 55,000
Unsecured loans given to associates 5,00,000
Interest on loan received from associate company 70,000
Pre-acquisition dividend received on investment made 52,600
Debenture interest paid 1,45,200
Term loan repaid 4,50,000
Interest received on investment (TDS of ` 8,200 was deducted on the 73,800
above interest)
Purchased debentures of X Ltd., on. 1 st December, 2018 which are 3,00,000
redeemable within 3 months
Book value of plant & machinery sold (loss incurred ` 9,600) 90,000
(b) Karan Enterprises having its Head Office in Mangalore, Karnataka has a branch in
Greenville, USA. Following is the trial balance of Branch as at 31-3-2019:
Particulars Amount ($) Amount ($)
Dr. Cr.
Fixed assets 8,000
Opening inventory 800
Cash 700
Goods received from Head Office 2,800
Sales 24,050
Purchases 11,800

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 2 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

Expenses 1,800
Remittance to head office 2,450
Head office account 4,300
28,350 28,350
(i) Fixed assets were purchased on 1st April, 2015.
(ii) Depreciation at 10% p.a. is to be charged on fixed assets on straight line method. ·
(iii) Closing inventory at branch is $ 700 as on 31-3-2019.
(iv) Goods received from Head Office (HO) were recorded at ` 1,85,500 in HO books.
(v) Remittances to HO were recorded at ` 1,62,000 in HO books.
(vi) HO account is recorded in HO books at ` 2,84,500.
(vii) Exchange rates of US Dollar at different dates can be taken as :
1-4-2015 ` 63
1-4-2018 ` 65 and
31-3-2019 ` 67
Prepare the trial balance after been converted into Indian rupees in accordance with
AS-11.
(c) Mr. Rakshit gives the following information relating to items forming part of inventory as on
31st March, 2019. His factory produces product X using raw material A.
(i) 800 units of raw material A (purchased @ ` 140 per unit). Replacement cost of raw
material A as on 31 st March, 2019 is ` 190 per unit.
(ii) 650 units of partly finished goods in the process of producing X and cost incurred till
date ` 310 per unit. These units can be finished next year by incurring additional cost
of ` 50 per unit.
(iii) 1,800 units of finished product X and total cost incurred ` 360 per unit.
Expected selling price of product X is ` 350 per unit.
In the context of AS-2, determine how each item of inventory will be valued as on
31st March, 2019. Also, calculate the value of total inventory as on 31st March, 2019.
(d) Sheetal Ltd. has provided the following information for the year ended 31st March, 2019:
Particulars Amount ( `)
Accounting profit 9,00,000
Book profit as per MAT 5,25,000
Profit as per Income Tax Act 95,000

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 PAPER – 1 : ACCOUNTING 3

Tax rate 30%

MAT rate 7.5%
You are required to calculate the deferred tax asset/liability as per AS-22 and amount of
tax to be debited to the profit and loss account for the year.
(4 Parts x 5 Marks = 20 Marks)
Answer
(a) Cash Flow Statement from Investing Activities of
Subham Creative Limited for the year ended 31-03-2019
Cash generated from investing activities ` `
Interest on loan received 70,000
Pre-acquisition dividend received on investment made 52,600
Unsecured loans given to subsidiaries (5,00,000)
Interest received on investments (gross value) 82,000
TDS deducted on interest (8,200)
Sale of Plant & Machinery ` (90,000 – 9,600) 80,400
Cash used in investing activities (before extra-ordinary item) (2,23,200)
Extraordinary claim received for loss of machinery 55,000
Net cash used in investing activities (after extra-ordinary item) (1,68,200)

Note:
1. Debenture interest paid and Term Loan repaid are financing activities and therefore
not considered for preparing cash flow from investing activities.
2. Machinery acquired by issue of shares does not amount to cash outflow, hence also
not considered in the above cash flow statement.
3. The investments made in debentures are for short-term, it will be treated as ‘cash
equivalent’ and will not be considered as outflow in cash flow statement.
(b) Trial Balance of Foreign Branch (converted into Indian Rupees) as on March 31, 2019
Particulars $ (Dr.) $ (Cr.) Conversion Rate ` (Dr.) ` (Cr.)
Basis
Fixed Assets 8,000 Transaction Date 63 5,04,000
Rate
Opening Inventory 800 Opening Rate 65 52,000
Goods Received 2,800 Actuals 1,85,500
from HO

© The Institute of Chartered Accountants of India

 4 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

Sales 24,050 Average Rate 66 15,87,300

Purchases 11,800 Average Rate 66 7,78,800
Expenses 1,800 Average Rate 66 1,18,800
Cash 700 Closing Rate 67 46,900
Remittance to HO 2,450 Actuals 1,62,000
HO Account 4,300 Actuals 2,84,500
Exchange Rate Balancing Figure 23,800
Difference
28,350 28,350 18,71,800 18,71,800
Closing Stock 700 Closing Rate 67 46,900
Depreciation 800 Fixed Asset Rate 63 50,400
(c) As per AS 2 (Revised) “Valuation of Inventories”, materials and other supplies held for use
in the production of inventories are not written down below cost if the finished products in
which they will be incorporated are expected to be sold at cost or above cost. However,
when there has been a decline in the price of materials and it is estimated that the cost of
the finished products will exceed net realizable value, the materials are written down to net
realizable value. In such circumstances, the replacement cost of the materials may be the
best available measure of their net realizable value. In the given case, selling price of
product X is ` 350 and total cost per unit for production is ` 360.
Hence the valuation will be done as under:
(i) 800 units of raw material will be valued at cost 140.
(ii) 650 units of partly finished goods will be valued at 300 per unit* i.e. lower of cost
(` 310) or Net realizable value ` 300 (Estimated selling price ` 350 per unit less
additional cost of ` 50).
(iii) 1,800 units of finished product X will be valued at NRV of ` 350 per unit since it is
lower than cost ` 360 of product X.
Valuation of Total Inventory as on 31.03.2019:
Units Cost NRV / Value = units `
(`) Replacement x cost or NRV
cost whichever is
` less (`)
Raw material A 800 140 190 1,12,000 (800 x 140)
Partly finished goods 650 310 300 1,95,000 (650 x 300)
Finished goods X 1,800 60 350 6,30,000 (1,800 x 350)
Value of Inventory 9,37,000
*It has been assumed that the partly finished unit cannot be sold in semi-finished form and its NRV
is zero without processing it further.

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 PAPER – 1 : ACCOUNTING 5

(d) Tax as per accounting profit 9,00,00030%= ` 2,70,000

Tax as per Income-tax Profit 95,00030% =` 28,500
Tax as per MAT 5,25,0007.50%= ` 39,375
Tax expense= Current Tax +Deferred Tax
` 2,70,000 = ` 28,500+ Deferred tax
Deferred Tax liability as on 31-03-2019
= ` 2,70,000 – ` 28,500 = ` 2,41,500
Amount of tax to be debited in Profit and Loss account for the year 31-03-2019
Current Tax + Deferred Tax liability + Excess of MAT over current tax
= ` 28,500 + ` 2,41,500+ ` 10,875 (39,375 – 28,500)
= ` 2,80,875
Question 2
(a) G, S & J were partners sharing profits and losses in the ratio of 4:3:2, no partnership salary
or interest on capital being allowed. Their Balance Sheet as on 31.3.2019 is as follows:
Liabilities Amount Amount Assets Amount Amount
(`) (`) (`) (`)
Partners’ fixed Fixed assets:
capital accounts:
G 24,000 Goodwill 48,000
S 24,000 Land 9,600
J 12,000 60,000 Plant & Machinery 15,360
Partners’ current Motor car 840 73,800
accounts:
G 600 Current assets:
S 10,800 Stock 4,680
J (480) 10,920 Trade debtors 2,400
Loan from G 9,600 Less: provision 120 2,280
Trade creditors 14,880 Cash at bank 240
Miscellaneous losses:
Profit & loss sale 14,400
95,400 95,400

© The Institute of Chartered Accountants of India

 6 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

On 1st April, 2019, the partnership was dissolved. Motor car was taken over by G at a value
of ` 600, but no cash was given specifically in respect of this transaction. Sale of other
assets realized the following amounts:
Particulars `
Goodwill Nil
Land 8,400
Plant & machinery 6,000
Stock 3,600
Trade debtors 1,920
Trade creditors were paid ` 14,040 in full settlement of their debts. The cost of dissolution
amounted to ` 1,800. The loan from G was repaid; G and S both were fully solvent and
able to bring in any cash required but J was forced into bankruptcy and was only able to
bring 1/2 of the amount due.
You are required to prepare:
(i) Cash & Bank account
(ii) Realization account, and
(iii) Partners’ Fixed Capital Accounts (after transferring current accounts balances)
Apply Garner Vs. Murray rule.
(b) AD, BD & SD are partners sharing profits and losses in the ratio of 5:3:2. There capitals
were ` 13,440, ` 8,400, ` 11,760 respectively.
Liabilities and assets of the firm are as under:
Liabilities: `
Trade creditors 2.800
Loan from partners 1,400
Assets of the firm:
Patent 1,400
Furniture 2,800
Machinery 1,680
Stock 5,600
The assets realized in full in the order in which they are listed above. B D is insolvent.
You are required to prepare a statement showing the distribution of cash as and when
available, applying maximum possible loss procedure. (15 + 5 = 20 Marks)

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 PAPER – 1 : ACCOUNTING 7

Answer
(a) Cash & Bank Account
` `
To Balance b/d 240 By Realisation A/c-Creditors 14,040
To Realisation A/c- By Realisation A/c-Expenses 1,800
Land 8,400 By G’s Loan A/c 9,600
Plant and Machinery 6,000 By G’s Capital A/c 16,280
Stock 3,600 By S’s Capital A/c 28,680
Trade Debtors 1,920
To Capital Accounts:
G 27,200
S 20,400
J 2,640 50,240
70,400 70,400
Realisation Account
` `
To Goodwill 48,000 By Trade Creditors 14,880
To Land 9,600 By Provision for Bad Debts 120
To Plant and Machinery 15,360 By Bank:
To Motor Car 840 Land 8,400
To Stock 4,680 Plant and Machinery 6,000
To Sundry Debtors 2,400 Stock 3,600
To Bank (Creditors) 14,040 Debtors 1,920 19,920
To Bank (Expenses) 1,800 By G (Car) 600
By Capital Accounts:
(Loss)
G 27,200
S 20,400
J 13,600 61,200
96,720 96,720

© The Institute of Chartered Accountants of India

 8 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

Partners’ Fixed Capital Accounts

G S J G S J
` ` ` ` ` `
To Current A/c 5,800 — 3,680 By Balance b/d 24,000 24,000 12,000
(Transfer)
To Realisation A/c 27,200 20,400 13,600 By Current A/c — 6,000 —
(Loss) (Transfer)
To Realisation A/c 600 - — By Bank — — 2,640
(Car)
To J's Capital A/c 1,320 1,320 By Bank* 27,200 20,400 —
(Deficiency) (realisation loss)
To Bank* 16,280 28,680 — By G & S — — 2,640
(Deficiency)
51,200 50,400 17,280 51,200 50,400 17,280
Note:
1. G, S and J will bring cash to make good their share of the loss on realization.
2. As per Garner Vs. Murray rule, solvent partners- G and S have to bear the loss due
to insolvency of a partner J in their fixed capital ratio.
*Alternatively, posting may be done for the net amount being received from /paid to G and
S respectively.
Working Note:
Current account balances of partners have been arrived after adjusting profit and loss
account debit balance as follows:
Current account balance Profit & loss
G 600 (6,400) 5,800 Dr.
S 10,800 (4,800) 6,000 Cr.
J (480) (3,200) 3,680 Dr.
(b) Statement of Distribution of Cash
Realization Trade Loans Partners’ Capitals
Creditor from
partners
AD BD SD Total
` ` ` ` ` ` `
Balances due (1) 2,800 1,400 13,440 8,400 11,760 33,600

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 9

(i) Sale of Patent 1,400 (1,400) -

1,400 1,400
(ii) Sale of furniture 2,800 (1,400) (1,400)
(iii) Sale of machinery 1,680
Maximum possible loss ` 31,920 (15,960) (9,576) (6,384) (31,920)
(total of capitals ` 33,600
less cash available
` 1,680) allocated to
partners in the profit
sharing ratio i.e. 5 : 3 : 2
Amounts at credit (2,520) (1,176) 5,376 1,680
Deficiency of AD and BD 2,520 1,176 (3,696) -
written off against SD
Amount paid (2) – – 1,680 1,680
Balances in capital 13,440 8,400 10,080 31,920
accounts (1 – 2) = (3)
(iv) Sale of stock 5,600
Maximum possible loss 26,320
(` 31,920 – ` 5,600)
allocated
to partners in the ratio
5:3:2 (13,160) (7,896) (5,264) (26,320)
Amounts at credit and
cash paid (4) 280 504 4,816 5,600
Balances in capital 13,160 7,896 5,264 26,320
accounts left unpaid—
Loss (3 – 4) = (5)

Question 3
(a) Mr. Harsh provides the following details relating to his holding in 10% debentures (face
value of ` 100 each) of Exe Ltd. held as current assets:
1.4.2018 opening balance - 12,500 debentures, cost ` 12,25,000
1.6.2018 purchased 9,000 debentures@ ` 98 each ex-interest
1.11.2018 purchased 12,000 debentures @ ` 115 each cum interest
31.1.2019 sold 13,500 debentures@ ` 110 each cum-interest
31.3.2019 Market value of debentures @ ` 115 each
Due dates of interest are 30 th June and 31st December.

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 10 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

Brokerage at 1% is to be paid for each transaction. Mr. Harsh closes his books on
31.3.2019. Show investment account as it would appear in his books assuming FIFO
method is followed.
(b) A fire occurred in the premises of M/s Kirti & Co. on 15 th December, 2018. The working
remained disturbed upto 15 th March, 2019 as a result of which sales got adversely affected.
The firm had taken out an insurance policy with an average clause against consequential
losses for ` 2,50,000.
Following details are available from the quarterly sales tax return filed/GST return filed:
Sales 2015-16 2016-17 2017-18 2018-19
(`) (`) (`) (`)
From 1st April to 30 th June 3,80,000 3,15,000 4,11,900 3,24,000
From 1st July to 30th September 1,86,000 3,92,000 3,86,000 4,42,000
From 1st October to 31 st December 3,86,000 4,00,000 4,62,000 3,50,000
From 1st January to 31 st March 2,88,000 3,19,000 3,80,000 2,96,000
Total 12,40,000 14,26,000 16,39,900 14,12,000
A period of 3 months (i.e. from 16-12-2018 to 15-3-2019) has been agreed upon as
indemnity period.
Sales from 16-12-2017 to 31-12-2017 68,000
Sales from 16-12-2018 to 31-12-2018 Nil
Sales from 16-03-2018 to 31-03-2018 1,20,000
Sales from 16~03-2019 to 31-03-2019 40,000
Net profit was ` 2,50,000 and standing charges (all insured) amounted to ` 77,980 for the
year ending 31st March, 2018.
You are required to calculate the loss of profit claim amount. (10 + 10 = 20 Marks)
Answer
(a) Investment Account of Mr. Harsh
for the year ending on 31-3-2019
(Scrip: 10% Debentures of Exe Limited)
(Interest Payable on 30 th June and 31 st December)
Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value Value
` ` ` ` ` `
1.4.18 To Balance 12,50,000 31,250 12,25,000 30.6.18 By Bank - 1,07,500 -
b/d 21,500 x 100

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 PAPER – 1 : ACCOUNTING 11

x 10% x 1/2
1.6.18 To Bank 9,00,000 37,500 8,90,820 31.12.19 By Bank 1,67,500
(ex-Interest) 33,500 x
(W.N.1) 100x10% x
1/2
1.11.18 To Bank 12,00,000 40,000 13,53,800 31.1.19 By Bank 13,50,000 11,250 14,58,900
(cum- (W.N.3)
Interest)
(W.N.2)
31.1.19 To Profit & 1,34,920 31.3.19 By Balance 20,00,000 50,000 21,45,640
Loss A/c c/d (W.N.4) -
(W.N.3)
31.3.19 To Profit & 2,27,500
Loss A/c
(Bal. fig.)
33,50,000 3,36,250 36,04,540 33,50,000 3,36,250 36,04,540

Working Notes:
1. Purchase of debentures on 1.6.18
Interest element = 9,000 x 100 x 10% x 5/12 = ` 37,500
Investment element = (9,000 x 98) + [1%(9,000 x 98)] = ` 8,90,820
2. Purchase of debentures on 1.11.2018
Interest element = 12,000 x 100 x 10% x 4/12 = ` 40,000
Investment element = 12,000 X 115 X 101% less 40,000 = ` 13,53,800
3. Profit on sale of debentures as on 31.1.19
`
Sales price of debentures (13,500 x ` 110) 14,85,000
Less: Brokerage @ 1% (14,850)
14,70,150
Less: Interest (1,35,000/ 12) (11,250)
14,58,900
Less: Cost of Debentures [(12,25,000 + (890820 X
(13,23,980)
1,00,000/9,00,000)]
Profit on sale 1,34,920
4. Valuation of closing balance as on 31.3.2019:
Market value of 20,000 Debentures at ` 115 = ` 23,00,000
Cost of

© The Institute of Chartered Accountants of India

 12 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

8,000 Debentures = 8,90,820/ 9,000 X 8,000 = 7,91,840

12,000 Debentures = 13,53,800
Total 21,45,640
Value at the end is ` 21,45,640, i.e., which is less than market value of ` 23,00,000.
(b) Gross profit ratio `
Net profit for the year 2017-18 2,50,000
Add: Insured standing charges 77,980
3,27,980
Ratio of Gross profit = = 20% 3,27,980
16,39,900
Calculation of Short sales
Indemnity period: 16.12.2018 to 15.3.19
Standard sales to be calculated on basis of corresponding period of year 2017-18
`
Sales for period 16.12.2017 to 31.12.17 68,000
Sales for period 1.1.2018 to 15.3.2018 (Note 1) 2,60,000
Sales for period 16.12.2017 to 15.3.2018 3,28,000
Add: upward trend in sales (15%) (Note 2) 49,200
Standard Sales (adjusted) 3,77,200
Actual sales of disorganized period
Calculation of sales from 16.12.18 to 15.3.19
Sales for period 16.12.18 to 31.12.18 Nil
Sales for 1.1.19 to 15.3.19 (` 2,96,000 – ` 40,000) 2,56,000
Actual Sales 2,56,000
Short Sales (` 3,77,200 - ` 2,56,000) 1,21,200
Loss of gross profit
Short sales x gross profit ratio = 1,21,200 x 20% 24,240
Application of average clause
policy value
Net claim = Gross claim x
gross profit on annual turnover

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 PAPER – 1 : ACCOUNTING 13

2,50,000
= 24,240 x
3,26,240 (W.N.3)
Amount of loss of profit claim = ` 18,575
Working Notes:
1. Sales for period 1.1.18 to 15.3.18 `
Sales for 1 Jan. to 31 March (2017-18) (given) 3,80,000
Less: Sales for 16.3.18 to 31.3.18 (given) (1,20,000)
Sales for period 1.1.18 to 15.3.18 2,60,000
2. Calculation of upward trend in sales
Total sales in year 2015-16 = ` 12,40,000
Increase in sales in year 2016-17 as compared to 2015-16 = ` 1,86,000
1,86,000 (14,26,000 - 12,40,000)
% increase = = 15%
12,40,000
Increase in sales in year 2017-18 as compared to year 2016-17
2,13,900 (16,39,900 - 14,26,000)
% increase = = 15%
14,26,000
Thus annual percentage increase trend is of 15%
3. Gross profit on annual turnover `
Sales from 16.12.17 to 30.12.17 (adjusted) (68,000 x 1.15) 78,200
1.1.18 to 31.3.18 (adjusted) (3,80,000 x1.15) 4,37,000
1.4.18 to 30.6.18 3,24,000
1.7.18 to 30.9.18 4,42,000
1.10.18 to 15.12.18 (3,50,000 – Nil) 3,50,000
Sales for 12 months just before date of fire* 16,31,200
Gross profit on adjusted annual sales @ 20% 3,26,240

NOTE*: Alternatively, the annual adjusted turnover may be computed as `17,98,000

(` 15,64,000 X 1.15) considering the annual % increase trend for the entire period of last
12 months preceding to the date of fire. In that case, the gross profit on adjusted annual
sales @ 20% will be computed as ` 3,59,720 and net claim will be computed accordingly.

© The Institute of Chartered Accountants of India

 14 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

Question 4
(a) ABC Ltd. has several departments. Goods supplied to each department are debited to a
Memorandum Departmental Stock Account at cost plus a fixed percentage (mark-up) to
give the normal selling price. The amount of mark-up is credited to a Memorandum
Departmental Markup account. If the selling price of goods is reduced below its normal
selling prices, the reduction (mark-down) will require adjustment both in the stock account
and the mark-up account. The mark-up for department X for the last three years has been
20%. Figures relevant to department X for the year ended 31 st March, 2019 were as
follows:
Stock as on 1st April, 2018, at cost ` 1,50,000
Purchases at cost ` 4,30,000
Sales ` 6,50,000
It is further ascertained that:
(1) Shortage of stock found in the year ending 31.3.2019, costing ` 4,000 were written
off.
(2) Opening stock on 1.4.2018 including goods costing ` 12,000 had been sold during
the year and had been marked-down in the selling price by ` 1,600. The remaining
stock had been sold during the year.
(3) Goods purchased during the year were marked down by ` 3,600 from a cost of
` 30,000. Marked-down stock costing ` 10,000 remained unsold on 31.3.2019.
(4) The departmental closing stock is to be valued at cost subject to adjustment for mark-
up and mark-down.
You are required to prepare for the year ended 31 st March, 2019 :
(i) Departmental Trading Account for department X for the year ended 31st March, 2019
in the books of head office.
(ii) Memorandum Stock Account for the year ended 31 st March, 2019.
(iii) Memorandum Mark-Up account for the year ended 31 st March, 2019.
(b) Archana Enterprises maintain their books of accounts under single entry system. The
Balance-Sheet as on 31st March, 2018 was as follows :
Liabilities Amount (`) Assets Amount (`)
Capital A/c 6,75,000 Furniture & fixtures 1,50,000
Trade creditors 7,57,500 Stock 9,15,000
Outstanding expenses 67,500 Trade debtors 3,12,000
Prepaid insurance 3,000

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 PAPER – 1 : ACCOUNTING 15

Cash in hand & at bank 1,20,000

15,00,000 15,00,000
The following was the summary of cash and bank book for the year ended 31st March,
2019:
Receipts Amount ( `) Payments Amount (`)
Cash in hand & at Bank on 1,20,000 Payment to trade 1,24,83,000
1st April, 2018 creditors
Cash sales 1,10,70,000 Sundry expenses paid 9,31,050
Receipts from trade debtors 27,75,000 Drawings 3,60,000
Cash in hand & at Bank
on 31st March, 2019 1,90,950
1,39,65,000 1,39,65,000
Additional Information:
(i) Discount allowed to trade debtors and received from trade creditors amounted to
` 54,000 and ` 42,500 respectively (for the year ended 31st March, 2019).
(ii) Annual fire insurance premium of ` 9,000 was paid every year on 1st August for the
renewal of the policy.
(iii) Furniture & fixtures were subject to depreciation @ 15% p.a. on diminishing balance
method.
(iv) The following are the balances as on 31st March, 2019:
Stock ` 9,75,000
Trade debtors ` 3,43,000
Outstanding expenses ` 55,200
(v) Gross profit ratio of 10% on sales is maintained throughout the year.
You are required to prepare Trading and Profit & Loss account for the year ended
31st March, 2019, and Balance Sheet as on that date. (10 + 10 = 20 Marks)
Answer
(a) (i) Department Trading Account for Department X
For the year ending on 31.03.2019
In the books of Head Office
Particulars ` Particulars `
To Opening Stock 1,50,000 By Sales 6,50,000

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 16 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

To Purchases 4,30,000 By Shortage 4,000

To Gross Profit c/d 1,05,000 By Closing Stock 31,000
6,85,000 6,85,000

(ii) Memorandum Stock Account (for Department X) (at selling price)

Particulars ` Particulars `
To Balance b/d 1,80,000 By Profit & Loss A/c 4,000
(` 1,50,000+20% of (Cost of Shortage)
` 1,50,000)
To Purchases 5,16,000 By Memorandum Departmental 800
(` 4,30,000 + 20% of Mark up A/c (Load on
` 4,30,000) Shortage) (` 4,000 x 20%)
By Memorandum Departmental 3,600
Mark-up A/c (Mark-down on
Current Purchases)
By Debtors A/c (Sales) 6,50,000
By Memorandum Departmental 1,600
Mark-up A/c
(Mark Down on Opening Stock)
By Balance c/d 36,000
6,96,000 6,96,000

(iii) Memorandum Departmental Mark-up Account

Particulars ` Particulars `
To Memorandum 800 By Balance b/d 30,000
Departmental Stock A/c (` 1,80,000 x 20/120)
(` 4,000 × 20/100)
To Memorandum Departmental 3,600 By Memorandum 86,000
Stock A/c Departmental Stock A/c
To Memorandum 1,600 (` 5,16,000 x 20/120)
Departmental Stock A/c
To Gross Profit transferred 1,05,000
to Profit & Loss A/c
To Balance c/d [(` 36,000
+ 1,200*) x 20/120 - ` 1,200] 5,000

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1,16,000 1,16,000

*[` 3,600 ×10,000/30,000] = ` 1,200. Alternatively, this adjustment of ` 1,200 may be

routed through Memorandum Stock Account.
Working Notes:
(i) Calculation of Cost of Sales
`
A Sales as per Books 6,50,000
B Add: Mark-down in opening stock (given) 1,600
C Add: mark-down in sales out of current Purchases
(` 3,600 x 20,000 /30,000) 2,400

D Value of sales if there was no mark-down (A+B+C) 6,54,000

E Less: Gross Profit (20/120 of ` 6,54,000) subject to Mark Down (1,09,000)
F Cost of sales (D-E) 5,45,000

(ii) Calculation of Closing Stock

`
A Opening Stock 1,50,000
B Add: Purchases 4,30,000
C Less: Cost of Sales (5,45,000)
D Less: Shortage (4,000)
E Closing Stock (A+B-C-D) 31,000

(b) Trading and Profit and Loss Account of Archana Enterprises

for the year ended 31st March, 2019
` `
To Opening Stock 9,15,000 By Sales
To Purchases (W.N. 2) 125,97,000 Cash 110,70,000
To Gross profit c/d 13,93,000 Credit (W.N. 1) 28,60,000 139,30,000
(10% of 139,30,000) By Closing stock 9,75,000

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149,05,000 149,05,000
To Sundry expenses 9,18,750 By Gross profit b/d 13,93,000
(W.N. 4)
To Discount allowed 54,000 By Discount received 42,500
To Depreciation 22,500
(15% ` 1,50,000)

To Net Profit (b.f.) 4,40,250

14,35,500 14,35,500
Balance Sheet of Archana Enterprises as at 31st March, 2019
Liabilities Amount Assets Amount
` `
Capital Furniture & Fittings 1,50,000
Opening 6,75,000 Less: Depreciation (22,500) 1,27,500
balance
Less: Drawing (3,60,000) Stock 9,75,000
3,15,000 Trade Debtors 3,43,000
Add: Net profit Unexpired insurance 3,000
for the years 4,40,250 7,55,250
Trade creditors 8,29,000 Cash in hand & at bank 1,90,950
(W.N. 3)
Outstanding 55,200
expenses

16,39,450 16,39,450

Working Notes:
1. Trade Debtors Account
` `
To Balance b/d 3,12,000 By Cash/Bank 27,75,000
To Credit sales 28,60,000 By Discount allowed 54,000
(Bal. fig.) By Balance c/d 3,43,000
31,72,000 31,72,000

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2. Memorandum Trading Account

` `
To Opening stock 9,15,000 By Sales 139,30,000
To Purchases (Balancing figure) 125,97,000 By Closing stock 9,75,000
To Gross Profit (10% on sales) 13,93,000
149,05,000 149,05,000

3. Trade Creditors Account

` `
To Cash/Bank 124,83,000 By Balance b/d 7,57,500
To Discount received 42,500 By Purchases (as calculated 125,97,000
To Balance c/d in W.N. 2)
(balancing figure) 8,29,000
133,54,500 133,54,500

4. Computation of sundry expenses to be charged to Profit & Loss A/c

`
Sundry expenses paid (as per cash and Bank book) 9,31,050
Add: Prepaid expenses as on 31–3–2018 3,000
9,34,050
Less: Outstanding expenses as on 31–3–2018 (67,500)
8,66,550
Add: Outstanding expenses as on 31–3–2019 55,200
9,21,750
Less: Prepaid expenses as on 31–3–2019 (Insurance paid till July, 2019)
(9,000 x 4/12) (3,000)
9,18,750

Question 5
(a) From the following particulars furnished by the Prashant Ltd., prepare the Balance Sheet
as at 31st March, 2019 as required by Schedule III of the Companies Act, 2013 :

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 20 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

Particulars Debit (`) Credit (`)

Equity share capital (face value of ` 10 each) 15,00,000
Calls-in-arrears 5,000
Land 5,50,000
Building 4,85,000
Plant & machinery 5,60,000
General reserve 2,70,000
Loan from State Financial Corporation 2,10,000
Inventories 3,15,000
Provision for taxation 72,000
Trade receivables 2,95,000
Short-term loans & advances 58,500
Profit & loss account 1,06,800
Cash in hand 37,300
Cash at bank 2,85,000
Unsecured loans 1,65,000
Trade payables 2,67,000
Total 25,90,800 25,90,800
The following additional information is also provided :
(1) 10,000 equity shares were issued for consideration other than cash.
(2) Trade receivables of ` 55,000 are due for more than six months.
(3) The cost of building and plant & machinery is ` 5,50,000 and ` 6,25,000 respectively.
(4) The loan from State Financial Corporation is secured by hypothecation of plant &
machinery. The balance of ` 2,10,000 in this account is inclusive of ` 10,000 for
interest accrued but not due.
(5) Balance at Bank included ` 15,000 with Aakash Bank Ltd., which is not a scheduled
bank.
(b) The partners of C&G decided to convert their existing partnership business into a private
limited called CG trading Pvt. Ltd. with effect from 1.7.2018.
The same books of accounts were continued by the company which closed its accounts
for the first term on 31.3.2019.
The summarized profit & loss account for the year ended 31.3.2019 is below:

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Particulars ` in lakhs ` in lakhs

Turnover 245.00
Interest on investments 6.00 251.00
Less: Cost of goods sold 124.32
Advertisement 3.50
Sales Commission 7.00
Salaries 18.00
Managing Director’s Remuneration 6.00
Interest on Debentures 2.00
Rent 5.50
Bad debt 1.15
Underwriting Commission 1.00
Audit fees 3.00
Loss on sale of Investments 1.00
Depreciation 4.00 176.47
74.53
The following additional information was provided :
(i) The average monthly sales doubled from 1.7.2018, GP ratio was constant.
(ii) All investments were sold on 31.5.2018.
(iii) Average monthly salaries doubled from 1.10.2018.
(iv) The company occupied additional space from 1.7.2018 for which rent of ` 20,000 per
month was incurred.
(v) Bad debts recovered amounting to ` 60,000 for a sale made in 2016-17 has been
deducted from bad debts mentioned above.
(vi) Audit fees pertains to the company.
Prepare a statement apportioning the expenses between pre and post incorporation
periods and calculate the profit / loss for such periods.
Answer
(a) Prashant Ltd.
Balance Sheet as on 31 st March, 2019
Particulars Notes `
Equity and Liabilities

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 22 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

1 Shareholders' funds
a Share capital 1 14,95,000
b Reserves and Surplus 2 3,76,800
2 Non-current liabilities
Long-term borrowings 3 3,65,000
3 Current liabilities
a Trade Payables 2,67,000
b Other current liabilities 4 10,000
c Short-term provisions 5 72,000
Total 25,85,800
Assets
1 Non-current assets
Property, Plant and Equipment 6 15,95,000
2 Current assets
a Inventories 3,15,000
b Trade receivables 7 2,95,000
c Cash and bank balances 8 3,22,300
d Short-term loans and advances 58,500
Total 25,85,800
Notes to accounts
`
1 Share Capital
Equity share capital
Issued & subscribed & fully paid up
1,50,000 Equity Shares of ` 10 each
(of the above 10,000 shares have been issued for
consideration other than cash) 15,00,000
Less: Calls in arrears (5,000) 14,95,000
2 Reserves and Surplus
General Reserve 2,70,000
Profit & Loss balance 1,06,800
Total 3,76,800
3 Long-term borrowings

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Secured
Loan from State Financial Corporation (2,10,000-10,000)
(Secured by hypothecation of Plant and Machinery) 2,00,000
Unsecured Loan 1,65,000
Total 3,65,000
4 Other current liabilities
Interest accrued but not due on loans (SFC) 10,000
5 Short-term provisions
Provision for taxation 72,000
6 Property, Plant & Equipment
Land 5,50,000
Building 5,50,000
Less: Depreciation(b.f.) (65,000) 4,85,000
Plant & Machinery 6,25,000
Less: Depreciation (b.f.) (65,000) 5,60,000
Total 15,95,000
7 Trade receivables
Outstanding for a period exceeding six months 55,000
Other Amounts 2,40,000
Total 2,95,000
8 Cash and bank balances
Cash and cash equivalents
Cash at bank 2,85,000
Cash in hand 37,300
Other bank balances Nil
Total 3,22,300
(b) C G Trading Private Limited
Statement showing calculation of Profit/Loss for Pre and Post Incorporation Periods
` In lakhs
Ratio Total Pre Post
Incorporation Incorporation
Sales 1:6 245.00 35.00 210.00
Interest on Investments Pre 6.00 6.00 -
Bad debts recovered Pre 0.60 0.60 _

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 24 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

(i) 251.6 41.60 210.00

Cost of goods sold 1:6 124.32 17.76 106.56
Advertisement 1:6 3.50 0.50 3.00
Sales commission 1:6 7.00 1.00 6.00
Salary (W.N.3) 1:5 18.00 3.00 15.00
Managing director’s remuneration Post 6.00 - 6.00
Interest on Debentures Post 2.00 - 2.00
Rent (W.N.4) 5.50 0.93 4.57
Bad debts (1.15 + 0.6) 1:6 1.75 0.25 1.50
Underwriting commission Post 1.00 - 1.00
Audit fees Post 3.00 - 3.00
Loss on sale of Investment Pre 1.00 1.00 -
Depreciation 1:3 4.00 1.00 3.00
(ii) 177.07 25.44 151.63
Net Profit [(i) – (ii)] 74.53 16.16 58.37
Working Notes:
1. Calculation of Sales Ratio
Let the average sales per month be x
Total sales from 01.04.2018 to 30.06.2018 will be 3x
Average sales per month from 01.07.2018 to 31.03.2019 will be 2x
Total sales from 01.07.2018 to 31.03.2019 will be 2x X 9 =18x
Ratio of Sales will be 3x: 18x i.e. 3:18 or 1:6
2. Calculation of time Ratio
3 Months: 9 Months i.e. 1:3
3. Apportionment of Salary
Let the salary per month from 01.04.2018 to 30.09.2018 is x
Salary per month from 01.10.2018 to 31.03.2019 will be 2x
Hence, pre incorporation salary (01.04.2018 to 30.06.2018) = 3x
Post incorporation salary from 01.07.2018 to 31.03.2019 = (3x + 12x) i.e.15x
Ratio for division 3x: 15x or 1: 5
4. Apportionment of Rent ` In Lakhs
Total Rent 5.5 0

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Less: additional rent from 1.7.2018 to 31.3.2019 1.80

Rent of old premises for 12 months 3.70
Pre Post
Apportionment in time ratio 0.93 2.77
Add: Rent for new space - 1.80
Total 0.93 4.57
Question 6
Answer any four of the following:
(a) The following extract of Balance Sheet of Prabhat Ltd. (Non investment Company) was
obtained:
Balance Sheet (Extract) as on 31 st March, 2019
Liabilities `
Issued and subscribed capital:
30,000, 12% preference shares of ` 100 each (fully paid) 30,00,000
24,00,000 equity shares of `10 each, ` 8 paid up 1,92,00,000
Share suspense account 40,00,000
Reserves and Surplus:
Securities premium 1,00,000
Capital reserves ( ` 3,00,000 is revaluation reserve) 3,90,000
Secured loans:
12% debentures 1,30,00,000

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Unsecured loans:
Public deposits 7,40,000
Current liabilities:
Trade payables 6,90,000
Cash credit from SBI (short term) 9,30,000
Assets
Investments in shares, debentures etc. 1,50,00,000
Profit & loss account (Dr. balance) 30,50,000
Share suspense account represents application money received on shares, the allotment
of which is not yet made.
You are required to compute effective capital as per the provisions of Schedule V. Would
your answer differ if Prabhat Ltd. is an investment company?
(b) Following is the extract of Balance Sheet of Prem Ltd. as at 31 st March, 2018 :
`
Authorized capital:
3,00,000 equity shares of `10 each 30,00,000
25,000,10% preference shares of `10 each 2,50,000
32,50,000
Issued and subscribed capital:
2,70,000 equity shares of ` 10 each fully paid up 27,00,000
24,000, 10% preference shares of ` 10 each fully paid up 2,40,000
29,40,000
Reserves and surplus:
General reserve 3,60,000
Capital redemption reserve 1,20,000
Securities premium (collected in cash) 75,000
Profit and loss account 6,00,000
11,55,000
On 1st April, 2018, the company decided to capitalize its reserves by way of bonus at the
rate of two shares for every five shares held.
Show necessary journal entries in the books of the company and prepare the extract of the
balance sheet after bonus issue.

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(c) Mac Ltd. gives the following data regarding to its six segments:
(` in lakhs)
Particulars A B C D E F Total
Segment assets 80 160 60 40 40 20 400
Segment results 100 (380) 20 20 (20) 60 (200)
Segment revenue 600 1,240 160 120 160 120 2,400
The accountant contends that segments 'A' and 'B' alone are reportable segments. Is he
justified in his view? Discuss in the context of AS-17 'Segment Reporting'.
(d) Give an analytical statement of distinction between an ordinary partnership firm and a
limited liability partnership.
(e) A company had issued 40,000, 12% debentures of ` 100 each on 1st April, 2015. The
debentures are due for redemption on 1st March, 2019. The terms of issue of debentures
provided that they were redeemable at a premium of 5% and also conferred option to the
debenture holders to convert 20% of their holding into equity shares (nominal value ` 10)
at a predetermined price of ` 15 per share and the payment in cash. 50 debentures holders
holding totally 5,000 debentures did not exercise the option. Calculate the number of equity
shares to be allotted to the debenture holders and the amount to be paid in cash on
redemption. (4 Parts x 5 Marks = 20 Marks)
Answer
(a) Computation of effective capital
Where Prabhat Ltd. Is Where Prabhat Ltd.
a non-investment is an investment
company company
` `
Paid-up share capital —
30,000, 12% Preference shares 30,00,000 30,00,000
24,00,000 Equity shares of ` 8 paid up 1,92,00,000 1,92,00,000
Capital reserves (3,90,000 – 3,00,000) 90,000 90,000
Securities premium 1,00,000 1,00,000
12% Debentures 1,30,00,000 1,30,00,000
Public Deposits 7,40,000 7,40,000
(A) 36,130,000 36,130,000
Investments 1,50,00,000 —

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 28 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2019

Profit and Loss account (Dr. balance) 30,50,000 30,50,000

(B) 1,80,50,000 30,50,000
Effective capital (A–B) 1,80,80,000 3,30,80,000
(b) Prem Ltd.
Journal Entries
Dr. Cr.
April 1 Capital Redemption Reserve A/c Dr. 1,20,000
Securities Premium A/c Dr. 75,000
General Reserve A/c Dr. 3,60,000
Profit and Loss A/c (b.f.) Dr. 5,25,000
To Bonus to Equity Shareholders A/c 10,80,000
(Bonus issue @ two shares for every five
shares held by utilizing various reserves as
per Board’s Resolution dated...)
Bonus to Shareholders A/c Dr. 10,80,000
To Equity Share Capital A/c 10,80,000
(Issue of bonus shares)
Balance Sheet (Extract) as on 1st April, 2018 (after bonus issue)
Particulars Notes Amount (`)
Equity and Liabilities
1 Shareholders’ funds
a Share capital 1 40,20,000
b Reserves and Surplus 2 75,000

Notes to Accounts
1 Share Capital (`)
Authorized share capital:
3,78,000* Equity shares of ` 10 each 37,80,000*
25,000 10% Preference shares of ` 10 each 2,50,000
Total 40,30,000

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Issued, subscribed and fully paid share capital:

3,78,000 Equity shares of ` 10 each, fully paid
(Out of above, 1,08,000 equity shares @ ` 10 each
were issued by way of bonus) 37,80,000
24,000 10% Preference shares of ` 10 each 2,40,000
Total 40,20,000
2 Reserves and Surplus
Capital Redemption Reserve 1,20,000 Nil
Less: Utilized 1,20,000
Securities Premium 75,000
Less: Utilised for bonus issue (75,000) Nil
General reserve 3,60,000
Less: Utilised for bonus issue (3,60,000) Nil
Profit & Loss Account 6,00,000
Less: Utilised for bonus issue (5,25,000) 75,000
Total 75,000
Note: *Authorized capital has been increased by the minimum required amount i.e. `
7,80,000 (37,80,000 – 30,00,000) in the above solution.
(c) As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should
be identified as a reportable segment if:
Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments; or
Its segment result whether profit or loss is 10% or more of combined result of all
segments in profit; or combined result of all segments in loss, whichever is greater in
absolute amount; or
Its segment assets are 10% or more of the total assets of all segments.
If the total external revenue attributable to reportable segments constitutes less than 75%
of total enterprise revenue, additional segments should be identified as reportable
segments even if they do not meet the 10% thresholds until at least 75% of total enterprise
revenue is included in reportable segments.
On the basis of turnover criteria segments A and B are reportable segments.
On the basis of the result criteria, segments A, B and F are reportable segments (since
their results in absolute amount is 10% or more of ` 400 lakhs).
On the basis of asset criteria, all segments except F are reportable segments.

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Since all the segments are covered in at least one of the above criteria all segments have
to be reported upon in accordance with Accounting Standard (AS) 17. Hence, the opinion
of accountant is wrong.
(d) Distinction between an ordinary partnership firm and an LLP
Key Elements Partnerships LLPs
1 Applicable Law Indian Partnership Act The Limited Liability
1932 Partnerships Act, 2008
2 Registration Optional Compulsory with ROC
3 Creation Created by an Agreement Created by Law
4 Body Corporate No Yes
5 Separate Legal Entity No Yes
6 Perpetual Partnerships do not have It has perpetual succession and
Succession perpetual succession individual partners may come
and go
7 Number of Partners Minimum 2 and Maximum Minimum 2 but no maximum
20 (subject to 10 for limit
banks)
8 Ownership of Assets Firm cannot own any The LLP as an independent
assets. The partners own entity can own assets
the assets of the firm
9 Liability of Partners/ Unlimited: Partners are Limited to the extent of their
Members severally and jointly liable contribution towards LLP except
for actions of other in case of intentional fraud or
partners and the firm and wrongful act of omission or
their liability extends to commission by a partner.
personal assets
10 Principal Agent Partners are the agents Partners are agents of the firm
Relationship of the firm and of each only and not of other partners
other
(e) Calculation of number of equity shares to be allotted
Number of debentures
Total number of debentures 40,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 35,000

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Option for conversion 20%

Number of debentures to be converted (20% of 35,000) 7,000

Redemption value of 7,000 debentures at a premium of 5%

[7,000 x (100+5)] ` 7,35,000
Equity shares of ` 10 each issued to debenture holders on redemption
[` 7,35,000/ ` 15] 49,000 shares
Amount of cash to be paid
Amount to be paid into cash [42,00,000 (40,000 x ` 105 ) – 7,35,000] ` 34,65,000
on redemption

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 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
Answer the following:
(a) A Ltd. had following assets. Calculate depreciation for the year ended 31st March, 2020
for each asset as per AS 10 (Revised):
(i) Machinery purchased for ` 10 lakhs on 1st April, 2015 and residual value after
useful life of 5 years, based on 2015 prices is ` 10 lakhs.
(ii) Land for ` 50 lakhs.
(iii) A Machinery is constructed for ` 5,00,000 for its own use (useful life is 10 years).
Construction is completed on 1st April, 2019, but the company does not begin using
the machine until 31st March, 2020.
(iv) Machinery purchased on 1st April.2017 for ` 50,000 with useful life of 5 years and
residual value is NIL. On 1st April, 2019, management decided to use this asset for
further 2 years only.
(b) On 1st April, 2016, Mac Ltd. received a Government Grant of ` 60 lakhs for acquisition of
machinery costing ` 300 lakhs. The grant was credited to the cost of the asset. The
estimated useful life of the machinery is 10 years. The machinery is depreciated @ 10%
on WDV basis. The company had to refund the grant in June 2019 due to non-
compliance of certain conditions.
How the refund of the grant is dealt with in the books of Mac Ltd. assuming that the
company did not charge any depreciation for the year 2019-20.
Pass necessary Journal Entries for the year 2019-20.
(c) A Limited invested in the shares of XYZ Ltd. on 1st December, 2019 at a cost of
` 50,000. Out of these shares, ` 25,000 shares were purchased with an intention to hold
for 6 months and ` 25,000 shares were purchased with an intention to hold as long-term
Investment.
A Limited also earlier purchased Gold of ` 1,00,000 and Silver of ` 30,00,000 on 1st
April, 2019. Market value as on 31st March, 2020 of above investments are as follows:
Shares ` 47,500 (Decline in the value of shares is temporary.)
Gold ` 1,80,000

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 2 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Silver ` 30,55,000
How above investments will be shown in the books of accounts of M/s A Limited for the
year ended 31st March, 2020 as per the provisions of AS 13 (Revised)?
(d) On 15th April, 2019 RBM Ltd. obtained a Term Loan from the Bank for ` 320 lakhs to be
utilized as under:
` (in lakhs)
Construction for factory shed 240
Purchase of Machinery 30
Working capital 24
Purchase of Vehicles 12
Advance for tools/cranes etc. 8
Purchase of technical know how 6
In March, 2020 construction of shed was completed and machinery was installed. Total
interest charged by the bank for the year ending 31st March, 2020 was ` 40 lakhs.
In the context of provisions of AS 16 'Borrowing Costs', show the treatment of interest
and also explain the nature of Assets. (4 Parts X 5 Marks = 20 Marks)
Answer
(a) Computation of amount of depreciation as per AS 10
`
(i) Machinery purchased on 1/4/15 for ` 10 lakhs Nil
(having residual value of ` 10 lakhs)
Reason: The company considers that the residual value, based on prices
prevailing at the balance sheet date, will equal the cost. Therefore, there
is no depreciable amount and depreciation is correctly zero.
(ii) Land (50 lakhs) (considered freehold) Nil
Reason: Land has an unlimited useful life and therefore, it is not
depreciated.
(iii) Machinery constructed for own use (` 5,00,000/10) 50,000
Reason: The entity should begin charging depreciation from the date the
machine is ready for use i.e. 1st April,2019. The fact that the machine
was not used for a period after it was ready to be used is not relevant in
considering when to begin charging depreciation.
(iv) Machinery having revised useful life 15,000
Reason: The entity has charged depreciation using the straight-line
method at ` 10,000 per annum i.e (50,000/5 years). On 1 st April,2019 the

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asset's net book value is [50,000 – (10,000 x 2)] i.e. ` 30,000. The
remaining useful life is 2 years as per revised estimate. The company
should amend the annual provision for depreciation to charge the
unamortized cost over the revised remaining life of 2 years.
Consequently, it should charge depreciation for the next 2 years at
` 15,000 per annum i.e. (30,000 / 2 years).

(b)
(` in lakhs)
1st April, 2016 Acquisition cost of machinery 300.00
Less: Government Grant 60.00
240.00
31st March, 2017 Less: Depreciation @ 10% (24.00)
1st April, 2017 Book value 216.00
31st March, 2018 Less: Depreciation @ 10% (21.60)
1st April, 2018 Book value 194.40
31st March, 2019 Less: Depreciation @ 10% (19.44)
1st April, 2019 Book value 174.96
Less: Depreciation @10% for 2 months (2.916)
1st June, 2019 Book value 172.044
June 2019 Add: Refund of grant* 60.00
Revised book value 232.044
Depreciation @10% on the revised book value amounting to ` 232.044 lakhs is to be
provided prospectively over the residual useful life of the machinery.
*considered refund of grant at beginning of June month and depreciation for two months
already charged. Alternative answer considering otherwise also possible.
Journal Entries
Machinery Account Dr. 60
To Bank Account 60
(Being government grant on asset partly refunded
which increased the cost of fixed asset)
Depreciation Account Dr. 19.337
To Machinery Account 19.337
(Being depreciation charged on revised value of
fixed asset prospectively for 10 months)
Profit & Loss Account Dr. 22.253

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 4 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

To Depreciation Account 22.253

(Being depreciation transferred to Profit and Loss
Account amounting to ` (2.916 + 19.337= 22.253)
(c) As per AS 13 (Revised) ‘Accounting for Investments, for investment in shares - if the
investment is purchased with an intention to hold for short-term period (less than one
year), then it will be classified as current investment and to be carried at lower of cost
and fair value.
In the given case ` 25,000 shares held as current investment will be carried in the books
at ` 23,750 (` 47,500/2).
If equity shares are acquired with an intention to hold for long term period (more than one
year), then should be considered as long-term investment to be shown at cost in the
Balance Sheet of the company. However, provision for diminution should be made to
recognize a decline, if other than temporary, in the value of the investments. Hence,
` 25,000 shares held as long-term investment will be carried in the books at ` 25,000.
Gold and silver are generally purchased with an intention to hold them for long term
period (more than one year) until and unless given otherwise.
Hence, the investment in Gold and Silver (purchased on 1 st March, 2019) should
continue to be shown at cost (since there is no ‘other than temporary’ diminution) as on
31st March, 2020. Thus Gold at ` 1,00,000 and Silver at ` 30,00,000 respectively will be
shown in the books.
(d) As per AS 16 A qualifying asset is an asset that necessarily takes a substantial period of
time to get ready for its intended use or sale. Other investments and those inventories
that are routinely manufactured or otherwise produced in large quantities on a repetitive
basis over a short period of time, are not qualifying assets. Assets that are ready for their
intended use or sale when acquired also are not qualifying assets. Borrowing costs that
are directly attributable to the acquisition, construction or production of a qualifying asset
should be capitalized as part of the cost of that asset. Other borrowing costs should be
recognized as an expense in the period in which they are incurred.
Construction of factory shed amounting ` 240 lakhs is qualifying asset in the given case.
The interest for this amount during the year will be added to the cost of factory shed. All
others (purchase of machinery, vehicles and technical know how, working capital,
advance for tools/cranes) are non-qualifying assets and related borrowing cost will be
charged to Profit and Loss statement.
Qualifying Asset as per AS 16 (construction of a shed) = ` 240 lakhs
Borrowing cost to be capitalized = ` 40 lakhs x 240/320 = ` 30 lakhs
Interest to be debited to Profit or Loss account: ` (40 – 30) = ` 10 lakhs.
Note: Assumed that construction of factory shed completed on 31 st March, 2020.

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 PAPER – 1 : ACCOUNTING 5

Question 2
(a) Vijay & Co. of Jaipur has a branch in Patna to which goods are sent @ 20% above cost.
The branch makes both cash & credit sales. Branch expenses are paid direct from Head
office and the branch has to remit all cash received into the bank account of Head office.
Branch doesn't maintain any books of accounts, but sends monthly returns to the head
office.
Following further details are given for the year ended 31st March, 2020:
Amount (` )
Goods received from Head office at Invoice Price 8,40,000
Goods returned to Head office at Invoice Price 60,000
Cash sales for the year 2019-20 1,85,000
Credit Sales for the year 2019-20 6,25,000
Stock at Branch as on 01-04-2019 at Invoice price 72,000
Sundry Debtors at Patna branch as on 01-04-2019 96,000
Cash received from Debtors 4,38,000
Discount allowed to Debtors 7,500
Goods returned by customer at Patna Branch 14,000
Bad debts written off 5,500
Amount recovered from Bad debts previously written off as Bad 1,000
Rent, Rates & taxes at Branch 24,000
Salaries & wages at Branch 72,000
Office Expenses (at Branch) 9,200
Stock at Branch as on 31-03-2020 at cost price 1,25,000
Prepare necessary ledger accounts in the books of Head office by following Stock and
Debtors method and ascertain Branch profit.
(b) M/s Rohan & Sons runs a business of Electrical goods on wholesale basis. The books of
accounts are closed on 31 st March every year. The Balance Sheet as on 31st March,
2019 is as follows :
Liabilities ` Assets `
Capital 12,50,000 Fixed Assets 6 50,000
Closing stock 3,75,000
Trade Debtors 3,65,000
Trade Creditors 1,90,000 Cash & Bank 1,95,000

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 6 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Profit & Loss A/c 1,45,000

15,85,000 15,85,000
The management estimates the purchase & sales for the year ended 31st March,2020 as
under:
Particulars Upto 31.01.2020 February 2020 March 2020
(` ) (` ) (` )
Purchases 16,20,000 1,40,000 1,25,000
Sales 20,75,000 2,10,000 1, 75,000
All Sales and Purchases are on credit basis. It was decided to invest ` 1,50,000 in
purchase of Fixed assets, which are depreciated @ 10% on book value. A Fixed Asset
of book value as on 01.04.2019, ` 60,000 was sold for ` 56,000 on 31st March, 2020.
The time lag for payment to Trade Creditors for purchases is one month and receipt from
Trade debtors for sales, is two months. The business earns a gross profit of 25% on
turnover. The expenses against gross profit amounts to 15% of the turnover. The
amount of depreciation is not included in these expenses.
Prepare Trading & profit & Loss Account for the year ending 31st March, 2020 and draft
a Balance Sheet as at 31st March, 2020 assuming that creditors are all Trade creditors
for purchases and debtors are all Trade debtors for sales and there is no other current
asset and liability apart from stock and cash and bank balances.
Also, prepare Cash & Bank account and Fixed Assets account for the year ending
31st March, 2020. (10+10=20 Marks)
Answer
(a) Branch Stock Account
` ` ` `
1.4.19 To Balance b/d 72,000 31.3.20 By Sales:
(opening
stock)
31.3.20 To Goods Sent 8,40,000 Cash 1,85,000
to Branch A/c Credit 6,25,000
To Branch P&L 94,000 Less:
Return (14,000) 6,11,000 7,96,000
By Goods 60,000
sent to
branch -
returns
By Balance 1,50,000
c/d
(closing
stock)

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 PAPER – 1 : ACCOUNTING 7

10,06,000 10,06,000
1.4.20 To Balance b/d 1,50,000

Branch Debtors Account

` `
1.4.19 To Balance b/d 96,000 31.3.20 By Cash 4,38,000
31.3.20 To Sales 6,25,000 By Returns 14,000
By Discounts 7,500
By Bad debts 5,500
By Balance c/d 2,56,000
7,21,000 7,21,000
1.4.20 To Balance b/d 2,56,000
Branch Expenses Account
` `
31.3.20 To Salaries & Wages 72,000 31.3.20 By Branch P&L 1,18,200
A/c
To Rent, Rates & 24,000
Taxes
To Office Expenses 9,200
To Discounts 7,500
To Bad Debts 5,500
1,18,200 1,18,200

Branch Profit & Loss Account for year ended 31.3.20

` `
31.3.20 To Branch 1,18,200 31.3.20 By Branch stock 94,000
Expenses A/c
To Net Profit By Branch Stock 1,17,000
transferred to Adjustment
account
General P & L 93,800 By Bad debts 1,000
A/c recovered
2,12,000 2,12,000

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 8 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Branch Stock Adjustment Account for year ended 31.3.20

` `
31.3.20 To Goods sent to 10,000 31.3.20 By Balance b/d 12,000
branch (72,000x1/6)
(60,000x1/6) -
returns
To Branch P & L 1,17,000 By Goods sent to 1,40,000
A/c branch
(8,40,000x1/6)
To Balance c/d 25,000
(1,50,000x1/6)
1,52,000 1,52,000
(b) Trading and Profit and Loss Account of M/s Rohan & Sons
for the year ended 31st March, 2020
` `
To Opening stock 3,75,000 By Sales 24,60,000
To Purchases 18,85,000 By Closing stock 4,15,000
To Gross Profit c/d 6,15,000 (Balancing Figure)
(25%)
28,75,000 28,75,000
To Depreciation 80,000 By Gross profit b/d 6,15,000
To Expenses (15% of 3,69,000 By Profit on sale of Fixed 2,000
` 24,60,000) assets
To Net Profit (b.f.) 1,68,000
6,17,000 6,17,000
Balance Sheet of M/s Rohan Sons as on 31st March, 2020
Liabilities Assets `
Capital 12,50,000 Fixed assets (less Dep.) 6,66,000
Profit & Loss A/c 3,13,000 Stock 4,15,000
(1,45,000 + 1,68,000)
Trade Creditors 1,25,000 Debtors 3,85,000
_______ Cash and bank 2,22,000
16,88,000 16,88,000

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 PAPER – 1 : ACCOUNTING 9

Cash and Bank Account

To Bal. b/d 1,95,000 By Creditors (1,90,000 + 19,50,000
16,20,000 + 1,40,000)
To Debtors 24,40,000 By Expenses 3,69,000
(3,65,000 + 20,75,000)
To Fixed assets 56,000 By Fixed assets 1,50,000
By Bal. c/d 2,22,000
26,91,000 26,91,000
Fixed Assets Account
To Bal. b/d 6,50,000 By Cash 56,000
To Profit on sale of Fixed asset 2,000 By Depreciation on sold 6,000
fixed asset
By Depreciation 74,000
(59,000 + 15,000)
To Bank A/c 1,50,000 By Bal. c/d 6,66,000
8,02,000 8,02,000
Question 3
(a) On 1st April, 2019 Mr. H had 30,000 equity shares of ABC Ltd. at book value of ` 18 per
share (Nominal value 10 per share). On 10th June, 2019, H purchased another 10,000
equity shares of the ABC ltd. at ` 16 per share through a broker who charged 1.5%
brokerage.
The directors of ABC Ltd. announced a bonus and a right issue. The terms of the issues
were as follows:
(i) Bonus shares were declared at the rate of one equity share for every four shares
held on 15th July, 2019.
(ii) Right shares were to be issued to the existing equity shareholders on 31st August,
2019. The company decides to issue one right share for every five equity shares
held at 20% premium and the due date for payment will be 30th September, 2019.
Shareholders were entitled to transfer their rights in full or in part.
(iii) No dividend was payable on these issues.
Mr. H subscribed 60% of the rights entitlements and sold the remaining rights for
consideration of ` 5 per share.
Dividends for the year ending 31st March, 2019 was declared by ABC Ltd. at the rate of
20% and received by Mr. H on 31st October, 2019.

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 10 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

On 15th January, 2020 Mr. H sold half of his shareholdings at ` 17.50 per share and
brokerage was charged @1 %.
You are required to prepare Investment account in the books of Mr. H for the year ending
31st March, 2020, assuming the shares are valued at average cost.
(b) A Fire occurred in the premises of M/s B & Co. on 30th September, 2019. The firm had
taken an insurance policy for ` 1,20,000 which was subject to an average clause.
Following particulars were ascertained from the available records for the period from 1st
April, 2018 to 30th September, 2019:
Amount
(` )
Stock at cost on 1-04-2018 2,11,000
Stock at cost on 31-03-2019 2,52,000
Purchases during 2018-19 6,55,000
Wages during 2018-19 82,000
Sales during 2018-19 8,60,000
Purchases from 01-04-2019 to 30-09-2019 (including purchase of 4,48,000
machinery costing ` 58,000)
Wages from 01-04-2019 to 30-09-2019 (including wages for installation 85,000
of machinery costing ` 7,000)
Sales from 01-04-2019 to 30-09-2019 6,02,000
Sale value of goods drawn by partners (1-4-19 to 30-9-19) 52,000
Cost of Goods sent to consignee on 18 th September, 2019 lying unsold 44,800
with them
Cost of Goods distributed as free samples(1-4-19 to 30-9-19) 8,500
While valuing the Stock at 31st March, 2019, ` 8,000 were written off in respect of a slow
moving item, cost of which was ` 12,000. A portion of these goods was sold at a loss of
` 4,000 on the original cost of ` 9,000. The remainder of the stock is estimated to be
worth the original cost. The value of Goods salvaged was estimated at ` 35,000.
You are required to ascertain the amount of claim to be lodged with the Insurance
Company for the loss of stock. (10+10=20 Marks)

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 PAPER – 1 : ACCOUNTING 11

Answer
(a) In the books of Mr. H
Investment in equity shares of ABC Ltd. for the year ended 31 st March, 2020
Date Particulars No. Income Amount Date Particulars No. Income Amount
` ` ` `
2019 To Balance b/d 30,000 - 5,40,000 2019 By Bank - 60,000 20,000
April 1 Oct. A/c
(W.N. 5)
June To Bank A/c 10,000 -- 1,62,400 20X2 By Bank 28,000 - 4,85,100
Jan. A/c
(W.N.4)
July To Bonus Issue 10,000 - - March By Balance 28,000 - 3,77,200
(W.N. 1) 31 c/d
(W.N. 6)
Sept. To Bank A/c 6,000 - 72,000
(W.N. 2)
2020 To P & L A/c - - 1,07,900
Jan. (W.N. 4)
March To P & L A/c - 60,000 -
31
56,000 60,000 8,82,300 56,000 60,000 8,82,300

Working Notes:
1. Calculation of no. of bonus shares issued
Bonus Shares = (30,000 + 10,000) divided by 4= 10,000 shares
2. Calculation of right shares subscribed
30,000 shares+10,000 shares+10,000 shares
Right Shares =
5
= 10,000 shares
Shares subscribed 10,000 x 60% = 6,000 shares
Value of right shares subscribed = 6,000 shares @ ` 12 per share = ` 72,000
3. Calculation of sale of right entitlement
Amount received from sale of rights will be 4,000 shares x ` 5 per share
= ` 20,000 and it will be credited to statement of profit and loss.
4. Calculation of profit/loss on sale of shares-
Total holding = 30,000 shares original
10,000 shares purchased
10,000 shares bonus

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 12 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

6,000 shares right shares

56,000
50% of the holdings were sold i.e. 28,000 shares (56,000 x1/2) were sold.
Cost of total holdings of 56,000 shares
= ` 5,40,000 + ` 1,62,400 + ` 72,000– ` 20,000 = ` 7,54,400
Average cost of shares sold would be:

= 7,54,400 × 28,000 = ` 3,77,200

56,000
`
Sale proceeds of 28,000 shares (28,000 x `17.50) 4,90,000
Less: 1% Brokerage (4,900)
4,85,100
Less: Cost of 28,000 shares sold (3,77,200)
Profit on sale 1,07,900
5. Dividend received on investment held as on 1 st April, 2019
= 30,000 shares x ` 10 x 20%
= ` 60,000 will be transferred to Profit and Loss A/c and
Dividend received on shares purchased on 10 th June, 2019
= 10,000 shares x ` 10 x 20% = `20,000 will be adjusted to Investment A/c
6. Calculation of closing value of shares (on average basis) as on 31st March, 2020
7,54,400
× 28,000 = ` 3,77,200
56,000
(b) Memorandum Trading Account
for the period 1st April, 2019 to 30th September, 2019
Normal Abnormal Total Normal Abnormal Total
Items Items Items Items
` ` ` ` ` `
To Opening 2,48,000 12,000 2,60,000 By Sales 5,97,000 5,000 6,02,000
stock
To 3,39,900 - 3,39,900 By Goods
Purchases sent to 44,800 - 44,800
(W.N. 2) consignee

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 PAPER – 1 : ACCOUNTING 13

To Wages 78,000 - 78,000 By Loss - 4,000 4,000

(85,000 –
7,000)
To Gross 1,19,400 - 1,19,400 By Closing 1,43,500 3,000 1,46,500
profit stock
@20% (Bal. fig.)
7,85,300 12,000 7,97,300 7,85,300 12,000 7,97,300

Statement of Claim for Loss of Stock

`
Book value of stock as on 30.9.2019 1,46,500
Less: Stock salvaged (35,000)
Loss of stock 1,11,500
Amount of claim to be lodged with insurance company
Policy value
= Loss of stock x
Value of stock on the date of fire
= ` 1,11,500 x 1,20,000/1,46,500 = `91,331 (approx.)
Working Notes:
1. Rate of gross profit for the year ended 31 st March, 2019
Trading Account for the year ended 31 st March, 2019
` `
To Opening Stock 2,11,000 By Sales 8,60,000
To Purchases 6,55,000 By Closing stock 2,52,000
Add: written off 8,000
To Wages 82,000 2,60,000
To Gross Profit (b.f.) 1,72,000
11,20,000 11,20,000
Rate of Gross Profit in 2018-19
Gross Profit
× 100
Sales
= 1,72,000 X 100 / 8,60,000 = 20%
2. Calculation of Adjusted Purchases
`
Purchases (4,48,000 – 58,000) 3,90,000

© The Institute of Chartered Accountants of India

 14 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Less: Drawings [52,000 – (20 % of 52,000)] (41,600)

Free samples (8,500)
Adjusted purchases 3,39,900
Note: The answer has been given considering that the value of stock (at cost) on 31.3.19
amounting ` 2,52,000 is after adjustment of written off amount in respect of slow-moving
item.
Question 4
(a) The following figures have been extracted from the books of Manan Jo Limited for the
year ended on 31.3.2020. You are required to prepare the Cash Flow statement as per
AS 3 using indirect method.
(i) Net profit before taking into account income tax and income from law suits but after
taking into account the following items was ` 30 lakhs :
(a) Depreciation on Property, Plant & Equipment ` 7.50 lakhs.
(b) Discount on issue of Debentures written off ` 45,000.
(c) Interest on Debentures paid ` 5,25,000.
(d) Book value of investments ` 4.50 lakhs (Sale of Investments for ` 4,80,000).
(e) Interest received on investments ` 90,000.
(ii) Compensation received ` 1,35,000 by the company in a suit filed.
(iii) lncome tax paid during the year ` 15,75,000.
(iv) 22,500, 10% preference shares of ` 100 each were redeemed on 02-04-2019 at a
premium of 5%.
(v) Further the company issued 75,000 equity shares of ` 10 each at a premium of 20%
on 30.3.2020 (Out of 75,000 equity shares, 25,000 equity shares were issued to a
supplier of machinery)
(vi) Dividend for FY 2018-19 on preference shares were paid at the time of redemption.
(vii) Dividend on Equity shares paid on 31.01.2020 for the year 2018-2019 ` 7.50 lakhs
(including dividend distribution tax) and interim dividend paid ` 2.50 lakhs for the
year 2019-2020.
(viii) Land was purchased on 02.4.2019 for ` 3,00,000 for which the company issued
22,000 equity shares of ` 10 each at a premium of 20% to the land owner and
balance in cash as consideration.
(ix) Current assets and current liabilities in the beginning and at the end of the years
were as detailed below :

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 PAPER – 1 : ACCOUNTING 15

As on 01.04.2019 As on 31.3.2020
` `
Inventory 18,00,000 19,77,000
Trade receivables 3,87,000 3,79,650
Cash in hand 3,94,450 16,950
Trade payables 3,16,500 3,16,950
Outstanding expenses 1,12,500 1,22,700
(b) Sumit Ltd. (an unlisted company other than AIFI, Banking company, NBFC and HFC) had
8,000, 9% debentures of ` 100 each outstanding as on 1st April, 2019, redeemable on
31st March, 2020.
On 1st April, 2019, the following balances appeared in the books of accounts:
• Investment in 1,000, 7% secured Govt. bonds of ` 100 each, ` 1,00,000.
• Debenture Redemption Reserve is ` 50,000.
Interest on investments is received yearly at the end of financial year.
1,000 own debentures were purchased on 30 th March, 2020 at an average price of
` 96.50 and cancelled on the same date.
On 31st March, 2020, the investments were realized at par and the debentures were
redeemed. You are required to write up the following accounts for the year ended 31st
March, 2020.
(1) 9% Debentures Account.
(2) Debenture Redemption Reserve Account.
(3) DRR Investment Account.
(4) Own Debentures Account. (10+10=20 Marks)
Answer
(a) Manan Ltd.
Cash Flow Statement
for the year ended 31st March, 2020
` `
Cash flow from Operating Activities
Net profit before income tax and extraordinary items: 30,00,000
Adjustments for:
Depreciation on Property, plant and equipment 7,50,000

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 16 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Discount on issue of debentures 45,000

Interest on debentures paid 5,25,000
Interest on investments received (90,000)
Profit on sale of investments (30,000) 12,00,000
Operating profit before working capital changes 42,00,000
Adjustments for:
Increase in inventory (1,77,000)
Decrease in trade receivable 7,350
Increase in trade payables 450
Increase in outstanding expenses 10,200 (1,59,000)
Cash generated from operations 40,41,000
Income tax paid (15,75,000)
Cash flow from ordinary items 24,66,000
Cash flow from extraordinary items:
Compensation received in a suit filed 1,35,000
Net cash flow from operating activities 26,01,000
Cash flow from Investing Activities;
Sale proceeds of investments 4,80,000
Interest received on investments 90,000
Purchase of land (3,00,000 less 2,64,000) (36,000)
Net cash flow from investing activities 5,34,000
Cash flow from Financing Activities
Proceeds of issue of equity shares at 20% premium 6,00,000
Redemption of preference shares at 5% premium (23,62,500)
Preference dividend paid (2,25,000)
Interest on debentures paid (5,25,000)
Dividend paid (7,50,000 + 2,50,000) (10,00,000)
Net cash used in financing activities (35,12,500)
Net decrease in cash and cash equivalents during the (3,77,500)
year
Add: Cash and cash equivalents as on 31.3.2019 3,94,450
Cash and cash equivalents as on 31.3.2020 16,950

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 PAPER – 1 : ACCOUNTING 17

(b) 9% Debentures Account

Date Particulars ` Date Particulars `
30th March, To Own 96,500 1 April, By Balance b/d
st 8,00,000
2020 Debentures A/c 2019
30thMarch, 2020 To Profit on
cancellation 3,500
31st March, To Bank A/c 7,00,000
2020
8,00,000 8,00,000
Debenture Redemption Reserve (DRR) Account
Date Particulars Date
` Particulars `
1st April, By Balance b/d 50,000
2019
31st March, To General 80,000 1st April, By Profit and loss A/c
2020 Reserve A/c 2019 [Refer Working Note 30,000
3]
80,000 80,000
Debenture Redemption Reserve Investments (DRRI) Account
Date Particulars Amount Date Particulars Amount
1st April To Balance b/d 1,00,000 31 March, By Bank A/c
st
15,000
2019 2020 (1,000 x 100 x 15%)
(Refer Working Note
2)
1st April To Bank A/c 20,000 31 March, By Bank A/c
st
1,05,000
2019 (Refer Working 1,20,000 2020 (Refer Working Note 1,20,000
Note 1) 2)

Own Debentures A/c

Date Particulars Amount Date Particulars Amount
30th March, To Bank 96,500 30th March, By 9% Debentures 96,500
2020 A/c* 2020
96,500 96,500
* interest not considered.

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 18 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

Working Notes:
1. Debenture Redemption Reserve Investment A/c
The company would be required to invest an amount equivalent to 15% of the value
of the debentures in specified investments which would be equivalent to:
= Total No of debentures X Face value per debenture X 15%
= 8,000 X 100 X 15% = `1,20,000/-
The company has already invested in specified investments i.e. 7% Govt bonds for
an amount of `1,00,000 as per the information given in the question. The balance
amount of `20,000 (i.e. ` 1,20,000 less ` 1,00,000) would be invested by the
company on 1 April 2019.
2. Redemption of Debenture Redemption Reserve Investments on 31.3.2020
Since the company purchased 1,000 own debentures on 31 March 2020, the
company would also realize the investments of 15% corresponding to these
debentures for which computation is as follows:
= No of own debentures to be bought X Face value per debenture X 15%
= 1,000 X 100 X 15% = ` 15,000/-
The remaining debentures i.e. total debentures less own debentures would be
redeemed on 31 March 2020 and hence the company would also realize the
balance investments of 15% corresponding to these debentures for which
computation is as follows:
= (Total no of debentures - No of own debentures) X Face value per debenture X
15% = (8,000 - 1,000) X 100 X 15% = `1,05,000/-
3. Debenture Redemption Reserve
The company would be required to transfer an amount equivalent to 10% of the
value of the debentures in Debentures Redemption Reserve Account. The value of
debentures is 8,00,000 thus 10% of it i.e. 80,000 should be there in DRR a/c. The
available balance in DRR a/c is only 50,000 therefore 30,000 (80,000 – 50,000)
additional amount will be transferred from General Reserve or Profit and loss A/c to
DRR A/c.
Question 5
(a) On 1st April, 2017, Mr. Nilesh acquired a Tractor on Hire purchase from Raj Ltd. The
terms of contract were as follows:
(i) The Cash price of the Tractor was ` 11,50,000.
(ii) ` 2,50,000 were to be paid as down payment on the date of purchase.

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 PAPER – 1 : ACCOUNTING 19

(iii) The Balance was to be paid in annual instalments of ` 3,00,000 plus interest at the
end of the year.
(iv) Interest chargeable on the outstanding balance was 8% p.a.
(v) Depreciation @ 10% p.a. is to be charged using straight line method.
Mr. Nilesh adopted the Interest Suspense method for recording his Hire purchase
transactions.
You are required to :
Prepare the Tractor account, Interest Suspense account and Raj Ltd.’s account in the
books of Mr. Nilesh for the period of hire purchase.
(b) The Books of Arpit Ltd. shows the following Balances as on 31st December, 2019:
Amount (` )
6,00,000 Equity shares of ` 10 each fully paid up 60,00,000
30,000, 10% Preference shares of ` 100 each, ` 80 paid up 24,00,000
Securities Premium 6,00,000
Capital Redemption Reserve 18,00,000
General Reserve 35,00,000
Under the terms of issue, the Preference Shares are redeemable on 31st March, 2020 at
a premium of 10%. In order to finance the redemption, the Board of Directors decided to
make a fresh issue of 1,50,000 Equity shares of ` 10 each at a premium of 20%, ` 2
being payable on application, ` 7 (including premium) on allotment and the balance on
1st January, 2021. The issue was fully subscribed and allotment made on 1st March,
2020. The money due on allotment was received by 20th March, 2020.
The preference shares were redeemed after fulfilling the necessary conditions of Section
55 of the Companies Act, 2013.
You are required to pass the necessary Journal Entries and also show how the relevant
items will appear in the Balance Sheet of the company after the redemption carried out
on 31st March, 2020. (8+12=20 Marks)
Answer
(a) Tractor Account
Date Particulars ` Date Particulars `
1.4.2017 To Raj 11,50,000 31.3.2018 By Dep. 1,15,000
_______ By Balance c/d 10,35,000
11,50,000 11,50,000
1.4.2018 To Balance b/d 10,35,000 31.3.2019 By Dep. 1,15,000

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 20 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

________ By Balance c/d 9,20,000

10,35,000 10,35,000
1.4.2019 To balance b/d 9,20,000 31.3.2020 By Dep. 1,15,000
_______ By Balance c/d 8,05,000
9,20,000 9,20,000
H.P. Interest Suspense Account
Date Particulars ` Date Particulars `
1.4.2017 To Raj Ltd. A/c 1,44,000 31.3.2018 By Interest A/c 72,000
(W.N.)
31.3.2018 By Balance c/d 72,000
1,44,000 1,44,000
1.4.2018 To Balance b/d 72,000 31.3.2019 By Interest A/c 48,000
31.3.2019 By Balance c/d 24,000
72,000 72,000
1.4.2019 To Balance b/d 24,000 31.3.2020 By Interest A/c 24,000
Total Interest = ` 72,000 + ` 48,000 + ` 24,000 = ` 1,44,000
Raj Ltd. Account
Date Particulars ` Date Particulars `
1.4.2017 To Bank A/c 2,50,000 1.4.2017 By Tractor A/c 11,50,000
31.3.2018 To Bank A/c 3,72,000 By H.P. Interest 1,44,000
Suspense A/c
To Balance c/d 6,72,000
12,94,000 12,94,000
31.3.2019 To Bank A/c 3,48,000 1.4.2018 By Balance b/d 6,72,000
To Balance c/d 3,24,000 _______
6,72,000 6,72,000
31.3.2020 To Bank A/c 3,24,000 1.4.2019 By Balance b/d 3,24,000
(b) Journal Entries
` `
1 10% Preference Share Final Call A/c Dr. 6,00,000
To 10% Preference Share Capital A/c 6,00,000
(For final call made on preference shares @ ` 20
each to make them fully paid up)

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2 Bank A/c Dr. 6,00,000

To 10% Preference Share Final Call A/c 6,00,000
(For receipt of final call money on preference shares)
3 Bank A/c Dr. 3,00,000
To Equity Share Application A/c 3,00,000
(For receipt of application money on 1,50,000 equity
shares @ ` 2 per share)
4 Equity Share Application A/c Dr. 3,00,000
To Equity Share Capital A/c 3,00,000
(For capitalization of application money received)
5 Equity Share Allotment A/c Dr. 10,50,000
To Equity Share Capital A/c 7,50,000
To Securities Premium A/c 3,00,000
(For allotment money due on 1,50,000 equity shares
@ ` 7 per share including a premium of ` 2 per
share)
6 Bank A/c Dr. 10,50,000
To Equity Share Allotment A/c 10,50,000
(For receipt of allotment money on equity shares)
7 10% Preference Share Capital A/c Dr. 30,00,000
Premium on Redemption of Preference Shares A/c Dr. 3,00,000
To Preference Shareholders A/c 33,00,000
(For amount payable to preference shareholders on
redemption at 10 % premium)
8 General Reserve A/c Dr. 3,00,000
To Premium on Redemption A/c 3,00,000
(Writing off premium on redemption of preference
shares)
9 General Reserve A/c Dr. 19,50,000
To Capital Redemption Reserve A/c 19,50,000
(For transfer of CRR the amount not covered by the
proceeds of fresh issue of equity shares i.e.,
30,00,000 - 3,00,000 - 7,50,000)
10 Preference Shareholders A/c Dr. 33,00,000

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 22 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

To Bank A/c 33,00,000

(For amount paid to preference shareholders)
Balance Sheet (extracts)
Particulars Notes As at As at
No. 31.3.2020 31.12.2019
` `
EQUITY AND LIABILITIES
1. Shareholders’ funds
a) Share capital 1 70,50,000 84,00,000
b) Reserves and Surplus 2 59,00,000 59,00,000
Notes to Accounts:
As at As at
31.3.2020 31.12.2019
1. Share Capital
Issued, Subscribed and Paid up:
6,00,000 Equity shares of ` 10 each fully paid 60,00,000 60,00,000
up
1,50,000 Equity shares of ` 10 each ` 7 paid up 10,50,000 -
30,000, 10% Preference shares of ` 100 each, - 24,00,000
`80 paid up
70,50,000 84,00,000
2. Reserves and Surplus
Capital Redemption Reserve 37,50,000 18,00,000
Securities Premium 9,00,000 6,00,000
General Reserve 12,50,000 35,00,000
59,00,000 59,00,000
Note:
1. Securities premium has not been utilized for the purpose of premium payable on
redemption of preference shares assuming that the company referred in the question
is governed by Section 133 of the Companies Act, 2013 and comply with the
Accounting Standards prescribed for them.
2. Amount received (excluding premium) on fresh issue of shares till the date of
redemption should be considered for calculation of proceeds of fresh issue of
shares. Thus, proceeds of fresh issue of shares are `10,50,000 (`3,00,000

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 PAPER – 1 : ACCOUNTING 23

application money plus ` 7,50,000 received on allotment towards share capital) and
balance ` 19,50,000 to taken from general reserve account.
Question 6
Answer any four of the following:
(a) Department A sells goods to Department B at a profit of 20% on cost and to Department
C at 50% on cost. Department B sells goods to Department A and Department C at a
profit of 15% and 10% on sales respectively. Department C sells goods to Department A
and Department B at a profit of 10% and 5% on cost respectively.
Stock lying at different departments at the end of the year are as follows:
Department A Department B Department C
(` ) (` ) (` )
Transfer from Department A 1,14,000 60,000
Transfer from Department B 55,000 15,200
Transfer from Department C 52,800 1,11,300
Calculate Department wise unrealized profit on Stock.
(b) What are the qualitative characteristics of the Financial Statements which improve the
usefulness of the information furnished therein?
(c) Following is the draft Profit & Loss Account of X Ltd. for the year ended 31st March, 2020:
Amount Amount
(` ) (` )
To Administrative Expenses 5,96,400 By Balance b/d 7,25,300
To Advertisement Expenses 1,10,500 By Balance from Trading A/c 42,53,650
To Sales Commission 1,05,550 By Subsidies received from 3,50,000
Government
To Director's fees 1,48,900
To Interest on Debentures -56,000
To Managerial 3,05,580
Remuneration
To Depreciation on Fixed 5,78,530
Assets
To Provision for taxation 12,50,600
To General Reserve 5,50,000
To Investment Revaluation 25,800
Reserve

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 24 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

To Balance c/d 16,01,090

53,28,950 53,28,950
Depreciation on Fixed Assets as per Schedule II of the Companies Act, 2013 was
` 6,51,750. You are required to calculate the maximum limits of the managerial
remuneration as per Companies Act, 2013.
(d) Following is the Balance Sheet of M/s. S Traders as on 31st March, 2019:
Liabilities (` ) Assets (` )
Capital 1,50,000 Fixed Assets 1,05,000
11% Bank Loan 80,000 Closing stock 76,000
Trade payables 52,000 Debtors 68,000
Profit & Loss A/c 56,000 Deferred Expenditure 24,000
Cash & Bank 65,000
3,38,000 3,38,000

Additional Information:
(i) Remaining life of Fixed Assets is 6 years with even use. The net realizable value of
Fixed Assets as on 31st March, 2020 is ` 90,000.
(ii) Firm's Sales & Purchases for the year ending 31st March, 2020 amounted to
` 7,80,000 and ` 6,25,000 respectively.
(iii) The cost & net realizable value of the stock as on 31 st March, 2020 was, ` 60,000
and ` 66,000 respectively.
(iv) General expenses (including interest on Loan) for the year 2019-20 were ` 53,800.
(v) Deferred expenditure is normally amortised equally over 5 years starting from the
Financial year 2018-19 i.e. ` 6,000 per year.
(vi) Debtors on 31st March, 2020 is ` 65,000 of which ` 5,000 is doubtful. Collection of
another ` 10,000 debtors depends on successful re-installation of certain products
supplied to the customer.
(vii) Closing Trade payable ` 48,000, which is likely to·be settled at 5% discount.
(viii) There is a prepayment penalty of ` 4,000 for Bank loan outstanding.
(ix) Cash & Bank balances as on 31st March, 2020 is ` 1,65,200.
Prepare Profit & Loss Account for the year ended 31st March, 2020 and Balance Sheet
as on 31st March, 2020 assuming the firm is not a going concern.

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(e) Moon Ltd. was incorporated on 1st August, 2019 to take over the running business of a
partnership firm w.e.f. 1st April, 2019. The summarized Profit & Loss Account for the
year ended 31st March, 2020 is as under:
Amount
(` )
Gross Profit 6,30,000
Less: Salaries 1,56,000
Rent, Rates & Taxes 72,000
Commission on sales 40,600
Depreciation 60,000
Interest on Debentures 36,000
Director's fees 24,000
Advertisement 48,000 4,36,600
Net Profit for the year 1,93,400
Moon Ltd. initiated an advertising campaign which resulted in increase of monthly sales
by 25% post incorporation.
You are required to prepare a statement showing the profit for the year between pre-
incorporation and post-incorporation. Also, explain how these profits are to be treated in
the accounts? (4 Parts X 4 Marks = 16 Marks)
Answer
(a) Calculation of unrealized profit of each department
Dept. A Dept. B Dept. C Total
` ` ` `
Unrealized Profit
of:
Department A 1,14,000 x 60,000 x 50/150 39,000
20/120 = 19,000 = 20,000
Department B 55,000 x .15 15,200 x.10 9,770
= 8,250 = 1,520
Department C 52,800 x 10/110 1,11,300 x 5/105
= 4,800 5,300 10,100

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 26 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

(b) The qualitative characteristics are attributes that improve the usefulness of information
provided in financial statements. Financial statements are required to show a true and
fair view of the performance, financial position and cash flows of an enterprise. The
framework for Preparation and Presentation of Financial Statements suggests that the
financial statements should maintain the following four qualitative characteristics to
improve the usefulness of the information furnished therein.
1. Understandability: The financial statements should present information in a
manner as to be readily understandable by the users with reasonable knowledge of
business and economic activities and accounting.
2. Relevance: The financial statements should contain relevant information only.
Information, which is likely to influence the economic decisions by the users, is said
to be relevant. Such information may help the users to evaluate past, present or
future events or may help in confirming or correcting past evaluations. The
relevance of a piece of information should be judged by its materiality. A piece of
information is said to be material if its misstatement (i.e., omission or erroneous
statement) can influence economic decisions of a user.
3. Reliability: To be useful, the information must be reliable; that is to say, they must
be free from material error and bias. The information provided are not likely to be
reliable unless transactions and events reported are faithfully represented. The
reporting of transactions and events should be neutral, i.e. free from bias and be
reported on the principle of 'substance over form'. The information in financial
statements must be complete. Prudence should be exercised in reporting uncertain
outcome of transactions or events.
4. Comparability: Comparison of financial statements is one of the most frequently
used and most effective tools of financial analysis. The financial statements should
permit both inter-firm and intra-firm comparison. One essential requirement of
comparability is disclosure of financial effect of change in accounting policies.
(c) Calculation of net profit of X Ltd. as per the Companies Act, 2013
` `
Balance from Trading A/c 42,53,650
Add: Subsidies received from Government 3,50,000
46,03,650
Less: Administrative expenses 5,96,400
Advertisement expenses 1,10,500
Sales commission 1,05,550
Director’s fees 1,48,900

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 PAPER – 1 : ACCOUNTING 27

Interest on debentures 56,000

Depreciation on fixed assets as per Schedule II 6,51,750 (16,69,100)
Profit u/s 198 29,34,550
Maximum Managerial remuneration under Companies Act, 2013 = 11% of ` 29,34,550
= ` 3,22,800 (rounded off).
(d) Profit and Loss Account of M/s S Traders for the year ended 31 st March, 2020
(business is not a going concern)
` `
To Opening Stock 76,000 By Sales 7,80,000
To Purchases 6,25,000 By Trade payables 2,400
To General expenses 53,800 By Closing Stock 66,000
To Depreciation (1,05,000 less 15,000
90,000)
To Provision for doubtful debts 15,000
To Deferred expenditure 24,000
To Loan penalty 4,000
To Net Profit (b.f.) 35,600
8,48,400 8,48,400
Balance Sheet M/s S Traders as on 31st March, 2020
Liabilities and Capital ` Assets `
Capital 1,50,000 Fixed assets 90,000
Profit & Loss A/c Debtors
opening balance 56,000 (65,000 less provision 50,000
for doubtful debts
` 15,000)
Profit earned during the 35,600 91,600 Closing stock 66,000
year
11% Loan 84,000 Cash & Bank balance 1,65,200
Trade payables 45,600
3,71,200 3,71,200

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 28 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020

(e) Statement showing the calculation of Profits for the pre-incorporation and post-
incorporation periods
Particulars Total Basis of Pre- Post-
Amount Allocation incorporation incorporation
` ` `
Gross Profit (W.N.2) 6,30,000 2:5 (sales) 1,80,000 4,50,000
Less: Salaries 1,56,000 Time (52,000) (1,04,000)
Rent, rates and taxes 72,000 Time (24,000) (48,000)
Commission on sales 40,600 2:5 (sales) (11,600) (29,000)
Depreciation 60,000 Time (20,000) (40,000)
Interest on debentures 36,000 Post (36,000)
Directors’ fee 24,000 Post (24,000)
Advertisement 48,000 Post ( 48,000)
Net profit 72,400 1,21,000
Pre-incorporation profit will be transferred to Capital Reserve.
Post-incorporation profit will be transferred to Profit & Loss Account.
Working Notes:
1. Sales ratio
Let the monthly sales for first 4 months (i.e. from 1.4.2019 to 31.7.2019) be = x
Then, sales for 4 months = 4x
Monthly sales for next 8 months (1 st August, 2019 to 31st March, 2020)
= x + 25% of x= 1.25x Then, sales for next 8 months = 1.25x X 8 = 10x
Total sales for the year = 4x + 10x = 14x. Hence Sales Ratio = 4 x :10x i.e. 2:5
2. Time ratio
1st April, 2019 to 31st July, 2019 : 1st August, 2019 to 31st March, 2020
= 4 months: 8 months = 1:2. Thus, time ratio is 1:2.

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 PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
(a) Darshan Ltd. purchased a Machinery on 1 st April, 2016 for ` 130 lakhs (Useful life is
4Years). Government grant received is ` 40 lakhs for the purchase of above Machinery.
Salvage value at the end of useful life is estimated at ` 60 lakhs.
Darshan Ltd. decides to treat the grant as deferred income.
Your are required to calculate the amount of depreciation and grant to be recognized in
profit & loss account for the year ending 31 st March, 2017,31 st March, 2018, 31 st March,
2019& 31st March, 2020.
Darshan Ltd. follows straight line method for charging depreciation.
(b) Kunal Securities Ltd. wants to reclassify its investments in accordance with AS -13
(Revised). State the values, at which the investments have to be reclassified in the
following cases:
(i) Long term investment in Company A, costing ` 10.5 lakhs is to be re-classified as
current investment. The company had reduced the value of these investments to
` 9 lakhs to recognize a permanent decline in value. The fair value on the date of
reclassification is ` 9.3 lakhs.
(ii) Long term investment in Company B, costing ` 14 lakhs is to be re-classified as
current investment The fair value on the date of reclassification is ` 16 lakhs and
book value is ` 14 lakhs.
(iii) Current investment in Company C, costing `12 lakhs is to be re-classified as long
term investment as the company wants to retain them. The market value on the
date of reclassification is ` 13.5 lakhs.
(iv) Current investment in Company D, costing ` 18 lakhs is to be re-classified as long
term investment. The market value on the date of reclassification is ` 16.5 lakhs.
(c) Mr. Jatin gives the following information relating to the items forming part of the inventory
as on 31.03.2019. His enterprise produces product P using Raw Material X.
(i) 900 units of Raw Material X (purchases @ ` 100 per unit). Replacement cost of
Raw Material X as on 3103.2019 is ` 80 per unit

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 2 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

(ii) 400 units of partly finished goods in the process of producing P. Cost incurred till
date is ` 245 per unit. These units can be finished next year by incurring additional
cost of ` 50 per unit.
(iii) 800 units of Finished goods P and total cost incurred is ` 295 per unit.
Expected selling price of product P is `280 per unit, subject to a payment of 5%
brokerage on selling price.
Determine how each item of inventory will be valued as on 31.03.2019.
Also calculate the value of total Inventory as on 31.03.2019.
(b) Explain briefly the accounting treatment needed in the following cases as per AS 11 as
on 31.03.2020
(i) Debtors include amount due from Mr. S ` 9,00,000 recorded at the prevailing
exchange rate on the date of sales, transaction recorded at US $1 = ` 72.00
US $ 1=`73.50 on 31 st March,2020
US $ 1= ` 72.50 on 1 st April,2019.
(ii) Long term loan taken on 1st April, 2019 from a U.S. company amounting to
` 75,00,000. `5,00,000 was repaid on 31 st December, 2019, recorded at US $ 1 =
` 70.50. interest has been paid as and when debited by the US company.
US $1= ` 73.50 on 31 st March,2020
US $1=1` 72.50 on 1st April, 2019. (4 Parts X 5 Marks = 20 Marks)
Answer
(a) As per 12 “Accounting for government grants”, grants related to depreciable assets, if
treated as deferred income are recognized in the profit and loss statement on a
systematic and rational basis over the useful life of the asset.
Amount of depreciation and grant to be recognized in the profit and loss account
each year
Depreciation per year:
`in lakhs
Cost of the Asset 130
Less: Salvage value (60)
70
Depreciation per year(70lakhs/4) 17.50
` 17.50 Lakhs depreciation will be recognized for the year ending 31 st March, 2017, 31 st
March, 2018, 31 st March, 2019 and 31 st March, 2020.

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Amount of grant recognized in Profit and Loss account each year:

40 lakhs /4 years = ` 10 Lakhs for the year ending 31st March, 2017, 31 st March, 2018,
31st March, 2019 and 31 st March, 2020.
(b) As per AS 13 (Revised) ‘Accounting for Investments’, where long-term investments are
reclassified as current investments, transfers are made at the lower of cost and carrying
amount at the date of transfer. And where investments are reclassified from current to
long term, transfers are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer is less than the
cost; hence this re-classified current investment should be carried at ` 9 lakhs in
the books.
(ii) The carrying / book value of the long-term investment is same as cost i.e.,
` 14 lakhs. Hence this long-term investment will be reclassified as current
investment at book value of ` 14 lakhs only.
(iii) In this case, reclassification of current investment into long-term investments will be
made at ` 12 lakhs as cost are less than its market value of ` 13.5 lakhs.
(iv) Market value of the investment is ` 16.5 lakhs, which is lower than its cost i.e., ` 18
lakhs. Therefore, the transfer to long term investments should be done in the books
at the market value i.e., ` 16.5 lakhs.
(c) As per AS 2 (Revised) “Valuation of Inventories”, materials and other supplies held for
use in the production of inventories are not written down below cost if the finished
products in which they will be incorporated are expected to be sold at cost or above cost.
However, when there has been a decline in the price of materials and it is estimated that
the cost of the finished products will exceed net realizable value, the materials are written
down to net realizable value. In such circumstances, the replacement cost of the
materials may be the best available measure of their net realizable value. In the given
case, selling price of product P is ` 266 and total cost per unit for production is
` 295.
Hence the valuation will be done as under:
(i) 900 units of raw material X will be written down to replacement cost as market value
of finished product is less than its cost, hence valued at ` 80 per unit.
(ii) 400 units of partly finished goods will be valued at 216 per unit i.e., lower of cost
(` 245) or Net realizable value ` 216 (Estimated selling price ` 266 per unit less
additional cost of ` 50).
(iii) 800 units of finished product P will be valued at NRV of ` 266 per unit since it is
lower than cost ` 295.

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Valuation of Total Inventory as on 31.03.2019:

Units Cost ( `) NRV/Repl Value = units x cost
acement or NRV whichever is
cost less ( `)
Raw material X 900 100 80 72,000
Partly finished goods 400 245 216 86,400
Finished goods P 800 295 266 2,12,800
Value of Inventory 3,71,200
(d) As per AS 11 “The Effects of Changes in Foreign Exchange Rates”, exchange
differences arising on the settlement of monetary items or on reporting an enterprise’s
monetary items at rates different from those at which they were initially recorded during
the period, or reported in previous financial statements, should be recognized as income
or as expenses in the period in which they arise.
However, at the option of an entity, exchange differences arising on reporting of long -
term foreign currency monetary items at rates different from those at which they were
initially recorded during the period, or reported in previous financial statements, in so far
as they relate to the acquisition of a non-depreciable capital asset can be accumulated in
a “Foreign Currency Monetary Item Translation Difference Account” in the enterprise’s
financial statements and amortized over the balance period of such long-term asset/
liability, by recognition as income or expense in each of such periods.
Foreign `
Currency Rate
Debtors
Initial recognition US $12,500 (9,00,000/72) 1 US $ = `72 9,00,000
Rate on Balance sheet date 1 US $ = ` 73.50
Exchange Difference Gain US $ 12,500 X (73.50- 18,750
72)
Treatment: Credit Profit and Loss A/c by ` 18,750
Long term Loan
Initial recognition US $ 1,03,448.28 1 US $ = ` 73.50 75,00,000
(75,00,000/72.50)
Rate on Balance sheet date 1 US $ = ` 73.50
Exchange Difference Loss after adjustment of
exchange gain on repayment of ` 5,00,000
` 67,987.48 [82,171.88 (US $ 96,356.08 X ` 73.5
less ` 70,00,000) less profit 14,184.40

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[US $ 7,092.2 (5,00,000/70.5) X ` 2)] NET LOSS 67,987.48*

Treatment: Credit Loan A/c and
Debit FCMITD A/C or Profit and Loss A/c by
` 67,987.48
Thus, Exchange Difference on Long term loan amounting ` 67,987.48 may either be
charged to Profit and Loss A/c or to Foreign Currency Monetary Item Translation
Difference Account but exchange difference on debtors amounting ` 18,750 is required
to be transferred to Profit and Loss A/c.
NOTE 1: *Exchange Difference Loss (net of adjustment of exchange gain on repayment
of ` 5,00,000) has been calculated in the above solution. Alternative considering
otherwise also possible.
NOTE 2: Date of sales transaction of ` 9 lakhs has not been given in the question and
hence it has been assumed that the transaction took place during the year ended 31
March 2020.
Question 2
(a) XYZ Garage consists of 3 departments: Spares, Service and Repairs, each department
being managed by a departmental manager whose commission was respectively 5%,
10% and 10% of the respective departmental profit subject to a minimum of `5,000 in
each case.
Inter departmental transfers take place at a “loaded” price as follows:
From Spares to Service 5% above cost
From Spares to Repairs 10% above cost
From Spares to Service 10% above cost
In respect of the year ended March 31 st2019 the firm had already prepared and closed
the departmental trading and profit and loss account. Subsequently it was discovered
that the closing stocks of department had included inter-departmentally transferred goods
at “loaded” price instead of the correct cost price.
From the following information, you are required to prepare a statement re-computing the
departmental profit or loss:
Spares Service Repairs
` ` `
Final Net Profit/Loss (after 38,000 50,400 72,000
charging commission) (Loss) (Profit) (Profit)
Inter-departmental transfers 65,000 4,202
Included at “loaded” price in (21,000 from (from Spares)

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 6 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

the departmental stocks Spares and 44,000

from Repairs)
(b) Mr. Prakash furnishes following information for his readymade garments business:
(i) Receipts and Payments during 2019-20:
Receipts Amount ` Payments Amount `
Bank Balance as on Payment to Sundry
1-4-2019 16,250 Creditors 3,43,000
Received from Sundry Salaries 75,000
Debtors 4,81,000
General Expenses 22,500
Cash sales 1,70,800 Rent and Taxes 11,800
Capital brought in the Drawings 96,000
Business during the year 50,000
Cash Purchases 1,22,750
Interest on Investment Balance at Bank on
Received 9,750 31-03-2020 36,600
Cash in hand on
31-03-2020 20,150
7,27,800 7,27,800
(ii) Particulars of other Assets and Liabilities are as follows:
1st April, 2019 31st March, 2020
( `) ( `)
Machinery 85,000 85,000
Furniture 24,500 24,500
Trade Debtors 1,55,000 ?
Trade Creditors 60,200 ?
Stock 38,600 55,700
12% Investment 85,000 85,000
Outstanding Salaries 12,000 14,000
(iii) Additional information:
(1) 20% of Total sales and 20% of total purchases are in cash.
(2) Of the Debtors, a sum of ` 7,200 should be written off as Bad debt and further
a provision for doubtful debts is to be provided @2%.

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 PAPER – 1 : ACCOUNTING 7

(3) Provide depreciation @10% p.a. on Machinery and Furniture.

You are required to prepare Trading and Profit & Loss account for the year ended
31st March, 2020, and Balance Sheet as on that date. (10+10=20 Marks)
Answer
(a) Calculation of correct Departmental Profits or Losses
Department Department Department
Spares (`) Service (`) Repair (`)
Profit after charging Manager’s (38,000) 50,400 72,000
Commission
Add: Manager’s Commission (1/9) 5,000(Minimum) 5,600 8,000
(33,000) 56,000 80,000
Less: Unrealized profit on Stock (WN) (1,382) (4,000)
Profit Before Manager’s Commission (34,382) 56,000 76,000
Less: Manager’s Commission 10% (5,000) (5,600) (7,600)
Correct Profit after Manager’s (39,382) 50,400 68,400
Commission

Working Note:
Department Department Department Repair Total
Spares (`) Service (`) (`) (`)
Unrealized Profit of:
Department Spares 21,000X5/105 4202X10/110 = 382 1,382
= 1,000
Department Repair 44000X10/110 4,000
= 4000
(b) Trading and Profit & Loss Account for the year ended 31-03-2020
` ` `
To Opening Inventory 38,600 By Sales 8,54,000
To Purchases 6,13,750 By Closing Inventory 55,700
To Gross profit c/d (b.f.) 2,57,350
9,09,700 9,09,700
To Salaries 77,000 By Gross Profit b/d 2,57,350
(75,000+14,000-12,000)
To Rent 11,800 By Interest on 10,200
investment

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 8 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

To General expenses 22,500 (9,750+450)

To Depreciation:
Machinery @ 10% 8,500
Furniture @ 10% 2,450 10,950
To Bad Debts 7,200
To Provision for doubtful 7,000 14,200
debts
To Balance being profit
carried to Capital A/c 1,31,100
(b.f.)
2,67,550 2,67,550
Balance Sheet as on 31st March, 2020
Liabilities ` ` Assets ` `
A. Adamjee’s Capital Machinery 85,000
on 1st April, 2019 3,32,150 Less: Depreciation (8,500) 76,500
Add: Fresh Capital 50,000 Furniture 24,500
Add: Profit for the year 1,31,100 Less: Depreciation (2,450) 22,050
5,13,250
Less: Drawings (96,000) 4,17,250 Inventory-in-trade 55,700
Sundry debtors 3,57,200
Sundry creditors 2,08,200 Less: Provision for
Outstanding expenses 14,000 Doubtful debts (14,200) 3,43,000
Investment 85,450
(including accrued
interest ` 450)
Cash at bank 36,600
Cash in hand 20,150
6,39,450 6,39,450

Working Notes:
1. Balance sheet as on 1-4-2019
` `
Sundry creditors 60,200 Machinery 85,000
Capital 3,32,150 Furniture 24,500
(balancing figure) Inventory 38,600

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 PAPER – 1 : ACCOUNTING 9

Outstanding salaries 12,000 Sundry debtors 1,55,000

Investments 85,000
Bank balance (from Cash 16,250
statement)
4,04,350 4,04,350
2. Total Debtors Account
` `
1.4.19 To Balance b/d 1,55,000 31.3.20 By Cash 4,81,000
31.3.20 To Credit sales 6,83,200 31.3.20 By Bad debts 7,200
(1,70800/20x80) By Balance c/d 3,50,000
(Bal. Fig.)
8,38,200 8,38,200
3. Total Creditors Account
` `
31.3.20 To Cash 3,43,000 1.4.19 By Balance b/d 60,200
31.3.20 To Balance 2,08,200 31.3.20 By Credit Purchases 4,91,000
c/d (1,22,750/20x80)
(Bal. Fig.)
5,51,200 5,51,200
Question 3
(a) P Ltd. had 8,000 equity shares of K Ltd., at a book value of ` 15 per share (face value of
` 10 each) on 1 st April,2019. On 1 st September, 2019, P Ltd. acquired another 2,000
equity shares of K Ltd. at a premium of ` 4 per share. K Ltd. announced a bonus and
right issue for existing shareholders.
The term of bonus and right issue were:
(i) Bonus was declared at the rate for two equity shares for every five shares held on
30th September, 2019.
(ii) Right shares are to be issued to the existing shareholders on 1 st December, 219.
The Company had issued two right shares for every seven shares held at 25%
premium on face value. No dividend was payable on these shares. The whole sum
being payable by 31 st December, 2019.
(iii) Existing shareholders were entitled to transfer their right to outsiders either wholly
or in part.
(iv) P Ltd. exercised its option under the issue for 50% of its entitlements and sold the
remaining rights for `8 per share.

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 10 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

(v) Dividend for the year ended 31 st March,2019 at the rate of 20% was declared by K
Ltd. and received by P Ltd. on 20 th January, 2020.
(vi) On 1st February, 2020, P Ltd. sold half of its shareholdings at a premium of ` 4 per
share.
(vii) The market price of share on 31 st March,2020 was `13 per share.
You are required to prepare the Investment account of P Ltd. for the year ended
31st March,2020 and determine the value of shares held on that date, assuming the
investment as current investment. Consider average cost basis for ascertainment for
cost for equity shares sold. (10 Marks)
(b) A Fire occurred in the premises of M/S MJ & Co., on 31 st December, 2019. From the
following particulars related to the period from 1st April 2019 to 31 st December 2019, you
are required to ascertain the amount of claim to be filed with the insurance policy for
` 1,00,000 which is subject to average clause. The value of goods salvaged was
estimated at ` 31,000. The average rate of gross profit was 20% throughout the period:
Particulars Amount (`)
(i) Opening stock as on 1 st April,2019 1,50,000
(ii) Purchases during the year 4,20,000
(iii) Goods withdrawn by the proprietor for his self-use at Sales 10,000
Value
(iv) Goods distributed as charity at cost 4,000
(v) Purchases include ` 5,000 of Tools purchased, these tools
should have been capitalized.
(vi) Wages (include wages paid for the installation of machinery 90,000
`6,000)
(vii) Sales during the year 6,10,000
(viii) Cost of goods sent to consignee on 1 st November,2019, lying 25,000
unsold with the consignee.
(ix) Sales Return 10,000
(10 Marks)
Answer
(a) Investment Account-Equity Shares in K Ltd.
Date No. of Dividend Amount Date No. of Dividend Amount
shares shares
` ` ` `
1.4.19 To Bal.b/d 8,000 - 1,20,000 20.1.20 By Bank 16,000 4,000
(dividend)
[8,000 x 10
x 20%] and

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 PAPER – 1 : ACCOUNTING 11

[2,000 x 10
x 20%]
1.9.19 To Bank 2,000 - 28,000 1.2.20 By Bank 8,000 1,12,000
30.9.19 To Bonus 4,000 —
Issue
31.12.19 To Bank 2,000 - 25,000 31.3.20 By Balance 8,000 84,500
(Right) c/d (W.N. 3)
(W.N.1)
20.1.20 To Profit & 16,000
Loss A/c
(Dividend
income)
1.2.20 To P& L 27,500
A/c (profit
on sale)
16,000 16,000 2,00,500 16,000 16,000 2,00,500

Working Notes:
1. Right shares
No. of right shares issued = (8,000 + 2,000 + 4,000)/ 7 X 2= 4,000
No. of right shares subscribed = 4,000 x 50% = 2,000 shares
Value of right shares issued = 2,000 x `12.50 = ` 25,000
No. of right shares sold = 2,000 shares
Sale of right shares = 2,000 x ` 8 = ` 16,000 to be credited to statement of profit
and loss
2. Cost of shares sold — Amount paid for 16,000 shares
`
(`1,20,000 + ` 28,000 + ` 25,000) 1,73,000
Less: Dividend on shares purchased on Sept.1 (since the dividend (4,000)
pertains to the year ended 31st March, 2019, i.e., the pre-acquisition
period)
Cost of 16,000 shares 1,69,000
Cost of 8,000 shares (Average cost basis) 84,500
Sale proceeds (8,000 X `14) 1,12,000
Profit on sale 27,500
3. Value of investment at the end of the year
Assuming investment as current investment, closing balance will be valued based
on lower of cost or net realizable value.

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 12 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

Here, Net realizable value is `13 per share i.e., 8,000 shares x ` 13 =
` 1,04,000 and cost = 84,500. Therefore, value of investment at the end of the year
will be ` 84,500.
(b) Memorandum Trading Account for the period 1st April, 2019 to 31 st Dec 2019
` `
To Opening Stock 1,50,000 By Sales 6,00,000
(6,10,000 - 10,000)
To Purchases 4,20,000 By Consignment stock 25,000
Less: Tools purchased (5,000) By Closing Stock (Bal. 1,32,000
fig.)
Goods distributed as (4,000)
Charity
Cost of goods taken
by proprietor (8,000)
4,03,000
To Wages 84,000
(90,000 – 6,000)
To Gross Profit 1,20,000
[20% of Sales)
7,57,000 7,57,000
* For financial statement purposes, this would form part of closing stock (since there is
no sale). However, this has been shown separately for computation of claim for loss of
stock since the goods were physically not with the concern and, hence, there was no loss
of such stock.
Statement of Insurance Claim
`
Value of stock destroyed by fire 1,32,000
Less: Salvaged Stock (31,000)
Loss of stock 1,01,000
Note:
Since policy amount is less than value of stock on date of fire, average clause will apply.
Therefore, claim amount will be computed by applying the formula:
Insured value
Claim = ×Loss suffered
Total cost
Claim amount = ` 1,01,000/1,32,000X1,00,000 = ` 76,515 (Rounded off)

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 PAPER – 1 : ACCOUNTING 13

NOTE: The average rate of 20% has been given in the question. In the above solution,
Gross Profit is calculated @ 20% on sales. Alternative answer considering Gross Profit of
20% is also possible.
Question 4
(a) During the year 2019-2020, A Limited (a listed company) made a public issue in respect
of which the following information is available:
(i) No. of partly convertible debentures issued-1,00,000; face value and issue price
`100 per debenture. (Whole issue was underwritten by X Ltd.)
(ii) Convertible portion per debenture -60%, date of conversion -on expiry of 6 months
from the date of closing of issue.
(iii) Date of closure of subscription lists -1st May,2019, date of allotment – 1st June,
2019, rate of interest on debenture -15% p.a. payable from the date of allotment,
value of equity share for the purpose of conversion – `60 (face value `10)
(iv) Underwriting Commission –2%
(v) No. of debentures applied for by public –80,000
(vi) Interest is payable on debentures half yearly on 30 th September and 31st March
each year.
Pass relevant journal entries for all transactions arising out of the above during the year
ended 31st March,2020. (including cash and bank entries) (8 Marks)
(b) Following information was extracted from the books of S Ltd. for the year ended
31st March,2020 :
(1) Net profit before talking into account income tax and after talking into account the
following items was `30 lakhs;
(i) Depreciation on Property, Plant & Equipment `7,00,000
(ii) Discount on issue of debentures written off `45,000.
(iii) Interest on debentures paid `4,35,000
(iv) Investment of Book value `3,50,000 sold for `3,75,000.
(v) Interest received on Investments `70,000
(2) Income tax paid during the year ` 12,80,000
(3) Company issued 60,000 Equity Shares of `10 each at a premium of 20% on
10th April,2019.
(4) 20,000,9% Preference Shares of `100 each were redeemed on 31 st March, 2020 at
a premium of 5%

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 14 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

(5) Dividend paid during the year amounted to `11 Lakhs (including dividend
distribution tax)
(6) A new Plant costing `7 Lakhs was purchased in part exchange of an old plant on 1 st
January,2020. The book value of the old plant was `8 Lakhs but the vendor took
over the old plant at a value of `6 Lakhs only. The balance amount was paid to
vendor through cheque on 30 th March,2020.
(7) Company decided to value inventory at cost, whereas previously the practice was to
value inventory at cost less 10%. The inventory according to books on 31.03.2020
was ` 14,76,000.
The inventory on 31.03.2019 was correctly valued at ` 13,50,000.
(8) Current Assets and Current Liabilities in the beginning and at the end of year
2019-2020 were as:
As on 1st April,2019 As on 31st March,2020
(` ) (` )
Inventory 13,50,000 14,76,000
Trade Receivables 3,27,000 3,13,200
Cash &Bank Balances 2,40,700 3,70,500
Trade Payables 2,84,700 2,87,300
Outstanding Expenses 97,000 1,01,400
You are required to prepare a Cash Flow Statement for the year ended 31 st March, 2020
as per AS 3 (revised) using the indirect method. (12 Marks)
Answer
(a) Journal Entries in the books of A Ltd.
Date Particulars Amount Dr. Amount Cr.
` `
1.5.2019 Bank A/c Dr. 80,00,000
To Debenture Application A/c 80,00,000
(Application money received on 80,000
debentures @ `100 each)
1.6.2019 Debenture Application A/c Dr. 80,00,000
Underwriters A/c Dr. 20,00,000
To 15% Debentures A/c 1,00,00,000
(Allotment of 80,000 debentures to
applicants and 20,000 debentures to
underwriters)

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 PAPER – 1 : ACCOUNTING 15

Underwriting Commission Dr. 2,00,000

To Underwriters A/c 2,00,000
(Commission payable to underwriters
@ 2% on ` 1,00,00,000)
Bank A/c Dr. 18,00,000
To Underwriters A/c 18,00,000
(Amount received from underwriters in
settlement of account)
01.06.2019 Debenture Redemption Investment A/c Dr. 6,00,000
To Bank A/c
(100,000 X 100 x 15% X 40%) 6,00,000
(Being Investments made for
redemption purpose)
30.9.2019 Debenture Interest A/c Dr. 5,00,000
To Bank A/c 5,00,000
(Interest paid on debentures for 4
months @ 15% on ` 1,00,00,000)
31.10.2019 15% Debentures A/c Dr. 60,00,000
To Equity Share Capital A/c 10,00,000
To Securities Premium A/c 50,00,000
(Conversion of 60% of debentures into
shares of ` 60 each with a face value
of ` 10)
31.3.2020 Debenture Interest A/c Dr. 3,75,000
To Bank A/c 3,75,000
(Interest paid on debentures for the
half year)
(Refer working note below)
Working Note:
Calculation of Debenture Interest for the half year ended 31st March, 2020
On ` 40,00,000 for 6 months @ 15% = `3,00,000
On ` 60,00,000 for 1 months @ 15% = ` 75,000
`3,75,000

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 16 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

(b) S Ltd.
Cash Flow Statement for the year ended 31st March, 2020

` `
Cash flows from operating activities
Net profit before taxation* 30,00,000
Adjustments for:
Depreciation on PPE 7,00,000
Discount on debentures 45,000
Profit on sale of investments (25,000)
Interest income on investments (70,000)
Interest on debentures 4,35,000
Stock adjustment 1,64,000
{14,76,000 less 16,40,000(14,76,000/90X100)}
Operating profit before working capital changes 12,49,000
Changes in working capital 42,49,000
(Excluding cash and bank balance):
Less: Increase in inventory (2,90,000)
{16,40,000(14,76,000/90X100) less 13,50,000}
Add: Decrease in Trade receivables 13,800
Increase in trade payables 2,600
Increase in o/s expenses 4,400 (2,69,200)
Cash generated from operations 39,79,800
Less: Income taxes paid (12,80,000)
Net cash generated from operating activities 26,99,800
Cash flows from investing activities
Sale of investments 3,75,000
Interest received 70,000
Payments for purchase of fixed assets (1,00,000)
(7,00,000 – 6,00,000)
Net cash used in investing activities 3,45,000
Cash flows from financing activities
Redemption of Preference shares (21,00,000)

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 PAPER – 1 : ACCOUNTING 17

Issue of shares 7,20,000

Interest paid (4,35,000)
Dividend paid (11,00,000)
Net cash used in financing activities (29,15,000)
Net increase in cash 1,29,800
Cash at beginning of the period 2,40,700
Cash at end of the period 3,70,500
*Net profit given in the question is after considering only the items listed as information
point (1) of the question ; hence amount of loss on plant not added back.
Question 5
(a) The Capital structure of a company BK Ltd., consists of 30,000 Equity Shares of ` 10
each fully paid up and 2,000 9% Redeemable Preference Shares of ` 100 each fully paid
up as on 31.03.2020. the other particulars as at 31.03.2020 are as follows:
Amount (`)
General Reserve 1,20,000
Profit &Loss Account 60,000
Investment Allowance Reserve (not free for distribution as 15,000
dividend)
Cash at bank 1,95,000

Preference Shares are to be redeemed at a premium of 10%. For the purpose of

redemption, the directors are empowered to make fresh issue of Equity Shares at per
after utilizing the undistributed reserve &surplus, subject to the conditions that a sum of
` 40,000 shall be retained in General Reserve and which should not be utilized.
Company also sold investment of 4500 Equity Shares in G Ltd., costing `45,000 at ` 9
per share. (12 Marks)
Pass Journal entries to give effect to the above arrangements and also show how the
relevant items will appear in the Balance Sheet as at 31.03.2020 of BK Ltd., afte r the
redemption is carried out.
(b) Jai Ltd purchased a machine on hire purchase basis from KM Ltd. on the following terms:
(a) Cash price ` 1,20,000.
(b) Down payment at the time of signing the agreement on 1-1-2016, ` 32,433.
(c) 5 annual instalments of `23,100, the first to commence at the end of twelve months
from the date of down payment.

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 18 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

(d) Rate of interest is 10% p.a.

Your are required to calculate the total interest and interest included in each instalment.
Also prepare the Ledger Account of KM Ltd. in the books of Jai Ltd. (8 Marks)
Answer
(a) Journal Entries
Date Particulars Dr. (`) Cr. (`)
Bank A/c Dr. 84,500
To Equity Share Capital A/c 84,500
(Being the issue of 8,450 Equity Shares of
` 10 each as per Board’s Resolution
No…..dated…….)
9% Redeemable Preference Share Capital A/c Dr. 2,00,000
Premium on Redemption of Preference Shares A/c Dr. 20,000
To Preference Shareholders A/c 2,20,000
(Being the amount paid on redemption transferred to
Preference Shareholders Account)
Bank A/c Dr. 40,500
Profit and Loss A/c (loss on sale) A/c Dr. 4,500
To Investment A/c 45,000
(Being investment sold at loss of ` 4,500)
Preference Shareholders A/c Dr. 2,20,000
To Bank A/c 2,20,000
(Being the amount paid on redemption of
preference shares)
Profit & Loss A/c Dr. 20,000
To Premium on Redemption of 20,000
Preference Shares A/c
(Being the premium payable on redemption is
adjusted against Profit & Loss Account)
General Reserve A/c Dr. 80,000
Profit & Loss A/c Dr. 35,500
To Capital Redemption Reserve A/c 1,15,500
(Being the amount transferred to Capital
Redemption Reserve Account)

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 PAPER – 1 : ACCOUNTING 19

Balance Sheet as on ………[Extracts]

Particulars Notes `
No.
EQUITY AND LIABILITIES
1. Shareholders’ funds
a Share capital 1 3,84,500
b Reserves and Surplus 2 1,70,500
ASSETS
2. Current Assets
Cash and cash equivalents 1,00,000
(1,95,000 + 84,500+ 40,500 – 2,20,000)
Notes to accounts
1. Share Capital
38,450 Equity shares (30,000 + 8,450) of `10 each fully paid up 3,84,500
2. Reserves and Surplus
General Reserve 40,000
Profit and loss account NIL
Capital Redemption Reserve 1,15,500
Investment Allowance Reserve 15,000
1,70,500
Working Note:
Number of Shares to be issued for redemption of Preference Shares:
Face value of shares redeemed `2,00,000
Less: Profit available for distribution as dividend:
General Reserve: ` (1,20,000-40,000) `80,000
Profit and Loss (60,000 less 20,000 set aside for
adjusting premium payable on redemption of Pref.
shares less 4,500 loss on sale of investments) `35,500
` (1,15,500)
` 84,500
Therefore, No. of shares to be issued = 84,500/`10 = 8,450 shares.

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 20 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

(b) Calculation of interest

Total Interest in each Cash price in
(`) instalment each instalment
(1) (2)
Cash Price 1,20,000
Less: Down Payment (32,433) Nil ` 32,433
Balance due after down payment 87,567
Interest/Cash Price of 1st - ` 87,567x10/100 ` 23,100 –
instalment = ` 8,757 =
8,757 ` 14,343
Less: Cash price of 1st instalment (14,343)
Balance due after 1st instalment 73,224
Interest/cash price of 2 nd instalment - ` 73,224x 10/100 ` 23,100 -
= ` 7,322=
` 7322 ` 15,778
Less: Cash price of 2nd instalment (15,778)
Balance due after 2nd instalment 57,446
Interest/Cash price of 3rd instalment - ` 57,446 x 10/100 ` 23,100 -
= ` 5745=
` 5745 ` 17,355
Less: Cash price of 3rd instalment (17,355)
Balance due after 3rd instalment 40,091
Interest/Cash price of 4th instalment - ` 40,091x10/100= ` 23,100 -
` 4,009 ` 4,009=
` 19,091
Less: Cash price of 4th instalment (19,091)
Balance due after 4th instalment 21,000
Interest/Cash price of 5th instalment - `21,000 x10/100 ` 23,100 –
= ` 2,100 ` 2,100= 21,000
Less: Cash price of 5th instalment (21,000)
Total Nil ` 27,933 `1,20,000
Total interest can also be calculated as follow:
(Down payment + instalments) – Cash Price = ` [32,433 +(23,100 x 5)] – `1,20,000 =
` 27,933
KM Ltd. Account in the books of Jai Ltd
Date Particulars ` Date Particulars `
1.1. 2016 To Bank A/c 32,433 1.1.2016 By Machine A/c 1,20,000

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 PAPER – 1 : ACCOUNTING 21

31.12.2016 To Bank A/c 23,100 31.12.2016 By Interest A/c 8,757

31.12.2016 To Balance c/d 73,224
1,28,757 1,28,757
31.12.2017 To Bank A/c 23,100 1.1.2017 By Balance b/d 73,224
31.12.2017 To Balance c/d 57,446 31.12.2017 By Interest A/c 7,322
80,546 80,546
31.12.2018 To Bank A/c 23,100 1.1.2018 By Balance b/d 57,446
31.12.2018 To Balance c/d 40,091 31.12.2018 By Interest A/c 5,745
63,191 63,191
31.12.2019 To Bank A/c 23,100 1.1.2019 By Balance b/d 40,091
31.12.2019 To Balance c/d 21,000 31.12.2019 By Interest A/c 4,009
44,100 44,100
31.12.2020 To Bank A/c 23,100 1.1.2020 By Balance b/d 21,000
____ 31.12.2020 By Interest A/c 2,100
23,100 23,100

Question 6
Answer any four of the following:
(a) Explain how financial capital is maintained at historical cost?
Kishore started a business on 1st April, 2019 with ` 15,00,000 represented by 75,000
units of `20 each. During the financial year ending on 31 st March, 2020, he sold the
entire stock for ` 30 each. In order to maintain the capital intact, calculate the maximum
amount, which can be withdrawn by Kishore in the year 2019-20 if Financial Capital is
maintained at historical cost.
(b) The following is the Draft Profit & Loss A/c of Brown Ltd. the year ended
31st March,2020:

Amount Amount
(` ) (` )

To Administrative expenses 4,99,200 By Balance b/d 6,27,550

To Advertisement 1,18,200 By Balance from
To Commission on sales 95,225 Trading A/c 38,15,890
To Director’s Fees 1,35,940 By Subsidies
To Interest on debentures 28,460 received from Govt. 2,50,000
To Managerial remuneration 2,75,550 By Profit on sale of 20,000
forfeited shares
To Depreciation on fixed assets 4,82,565

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 22 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

To Provision for Taxation 11,50,200

To General Reserve 4,50,000
To Investment Revaluation Reserve 52,800
To Balance c/d 14,25,300
47,13,440 47,13,440
Depreciation on fixed assets as per Schedule II of the Companies Act, 2013 was
` 5,15,675. You are required to calculate the maximum limit of managerial remuneration
as per Companies Act, 2013.
(c) Give Journal Entries in the books of Branch to rectify or adjust the following:
(1) Branch paid ` 5,000 as salary to H.O supervisor, but the amount paid by branch
has been debited to salary account in the books of branch.
(2) Asset Purchased by branch for ` 25,000, but the Asset account was retained in H.O
Books.
(3) A remittance of `8,000 sent by the branch has not been received by H.O.
(4) H.O collected ` 25,000 directly from the customer of Branch but fails to give the
intimation to branch.
(5) Remittance of funds by H.O to branch `5,000 not entered in branch books.
(d) List the Criteria for classification of non-corporate entities as level I Entities for the
purpose of application of Accounting Standards as per the Institute of Chartered
Accountants of India.
(e) Following items appear in the Trail Balance of Star Ltd. as on 31 st March, 2019:
Particulars `
80,000 Equity shares of `10 each, ` 8 paid-up 6,40,000
Capital Reserve (including `45,000 being profit on sale of Machinery) 1,10,000
Revaluation Reserve 80,000
Capital Redemption Reserve 75,000
Securities Premium 60,000
General Reserve 2,10,000
Profit & Loss Account (Cr. Balance) 1,00,000
On 1st April,2019, the Company has made final call on Equity shares @` 2 per share.
The entire money was received in the month of April, 2019.

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 PAPER – 1 : ACCOUNTING 23

On 1st June, 2019, the Company decided to issue to Equity shareholders bonus shares at
the rate of 2 shares for every 5 shares held and for this purpose, it was decided that
there should be minimum reduction in free reserves.
Pass necessary journal entries in the Books of Star Ltd. (4 Parts x 5 Marks = 20 Marks)
Answer
(a) Financial capital maintenance at historical cost: Under this convention, opening and
closing assets are stated at respective historical costs to ascertain opening and closing
equity. If retained profit is greater than or equals to zero, the capital is said to be
maintained at historical costs. This means the business will have enough funds to
replace its assets at historical costs. This is quite right as long as prices do not rise.
Maximum amount withdrawn by Kishore in year 2019-20 if Financial capital is maintained
at historical cost
Particulars Financial Capital Maintenance at
Historical Cost (`)
Closing equity (` 30 x 75,000 units) 22,50,000 represented by cash
Opening equity 75,000 units x ` 20 = 15,00,000
Permissible drawings to keep Capital 7,50,000 (22,50,000 – 15,00,000)
intact
Thus ` 7,50,000 is the maximum amount that can be withdrawn by Kishore in year
2019-20 if Financial capital is maintained at historical cost.
(b) Calculation of net profit u/s 198 of the Companies Act, 2013

` `
Balance from Trading A/c 38,15,890
Add: Subsidies received from Government 2,50,000
40,65,890
Less: Administrative, selling and distribution expenses 7,12,625
(4,99,200 + 1,18,200 + 95,225)
Director’s fees 1,35,940
Interest on debentures 28,460
Depreciation on fixed assets as per Schedule II 5,15,675 (13,92,700)
Profit u/s 198 26,73,190
Maximum Managerial remuneration under Companies Act, 2013= 11% of ` 26,73,190
= ` 2,94,051 (rounded off).

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 24 INTERMEDIATE (NEW) EXAMINATION: JANUARY 2021

Note:
1. Investment Revaluation reserve not to be deducted for calculation of profit under
section 198;
2. Profit on sale of forfeited shares not to added for calculation of profit under section
198.
*Alternative presentation of the above answer also possible by starting from Net
profit as per Profit and Loss Account.
(c) Journal Entries in Books of Branch A
Particulars Dr. Cr.
Amount Amount
` `
(i) Head office account Dr. 5,000
To Salaries account 5,000
(Being the rectification of salary paid on behalf
of H.O.)
(ii) Head office account Dr. 25,000
To Bank / Liability A/c 25,000
(Being Asset purchased by branch but Asset
account retained at head office books)
(iii) No Entry in Branch Books
(iv) Head office account Dr. 25,000
To Debtors account 25,000
(Being the amount of branch debtors collected
by H.O.)
(v) Bank A/c Dr. 5,000
To Head Office 5,000
(Remittance of Funds by H.O. to Branch)
(d) Criteria for classification of non-corporate entities as level 1 entities for purpose of
application of Accounting Standards decided by the Institute of Chartered Accountants of
India is given below:
Non-corporate entities which fall in any one or more of the following categories, at the
end of the relevant accounting period, are classified as Level I entities:
(i) Entities whose equity or debt securities are listed or are in the process of listing on
any stock exchange, whether in India or outside India.
(ii) Banks (including co-operative banks), financial institutions or entities carrying on
insurance business.

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 PAPER – 1 : ACCOUNTING 25

(iii) All commercial, industrial and business reporting entities, whose turnover (excluding
other income) exceeds rupees fifty crore in the immediately preceding accounting
year.
(iv) All commercial, industrial and business reporting entities having borrowings
(including public deposits) in excess of rupees ten crore at any time during the
immediately preceding accounting year.
(v) Holding and subsidiary entities of any one of the above.
(e) Journal Entries in the books of Star Ltd.
2019 Dr. Cr.
` `
April 1 Equity Share Final Call A/c Dr. 1,60,000
To Equity Share Capital A/c 1,60,000
(Final call of ` 2 per share on 80,000
equity shares made due)
Bank A/c Dr. 1,60,000
To Equity Share Final Call A/c 1,60,000
(Final call money on 80,000 equity
shares received)
June 1 Capital Redemption Reserve A/c Dr. 75,000
Capital Reserve Dr. 45,000*
Securities Premium A/c Dr. 60,000
General Reserve A/c (b.f.) Dr. 1,40,000**
To Bonus to Shareholders A/c 3,20,000
(Bonus issue of two shares for every
five shares held, by utilizing various
reserves as per Board’s resolution
dated…….)
Bonus to Shareholders A/c Dr. 3,20,000
To Equity Share Capital A/c 3,20,000
(Capitalization of profit)
* considering it as free reserve as it has been realized.
** Alternatively, different combination of profit and loss balance and general reserve
may also be used.

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