Answer 1 a)

1. True - The balance represents the cash physically in existence and

is therefore an asset.
2. False - Finished goods are normally valued at cost or net realizable
value whichever is lower.
3. False - Current year subscription shall be shown in the credit side
of the income and expenditure account and not in the balance sheet,
as it is not a capital item.
4. False - When shares are forfeited, the share capital account is
debited with called up capital of shares forfeited and the share
forfeiture account is credited with amount received on shares
forfeited.
5. True - Discount at the time of retirement of a bill is a gain for the
drawee and loss for the drawer.
6. True - Yes they are types of subsidiary books which is alternate to
the journals.

(b) Oil Mill

Calculation of the value of Inventory as on 31-3-2021

Receipts Issues Balance

Date Units Rate Amount Unit Rate Amoun Units Rate Amount
s t
₹ ₹ ₹ ₹ ₹ ₹
1-1-2021 Balance Nil
1-1-2021 10 300 3,000 10 300 3,000
15-1-2021 5 300 1,500 5 300 1,500
1-2-2021 20 400 8,000 25 380 9,500
15-2-2021 10 380 3,800 15 380 5,700
20-2-2021 10 380 3,800 5 380 1,900
Therefore, the value of Inventory as on 31-3-2021 = 5 units @ ₹380 = ₹1,900

(c ) The basic considerations in distinction between capital and revenue expenditures are:
 (a) Nature of business: For a trader dealing in furniture, purchase of
furniture is revenue expenditure but for any other trade, the purchase
of furniture should be treated as capital expenditure and shown in the
balance sheet as asset. Therefore, the nature of business is a very
important criterion in separating expenditure between capital and
revenue.
(b) Recurring nature of expenditure: If the frequency of an expense is
quite often in an accounting year then it is said to be an expenditure
of revenue nature while non-recurring expenditure is infrequent in
nature and do not occur often in an accounting year. Monthly salary or
rent is the example of revenue expenditure as they are incurred every
month while purchase of assets is not the transaction done regularly
therefore, classified as capital expenditure unless materiality criteria
defines it as revenue expenditure.
(c) Purpose of expenses: Expenses for repairs of machine may be
incurred in course of normal maintenance of the asset. Such
expenses are revenue in nature. On the other hand, expenditure
incurred for major repair of the asset so as to increase its productive
capacity is capital in nature.
(d) Effect on revenue generating capacity of business: The expenses
which help to generate income/revenue in the current period are
revenue in nature and should be matched against the revenue earned
in the current period. On the other hand, if expenditure helps to
generate revenue over more than one accounting period, it is
generally called capital expenditure.
(e) Materiality of the amount involved: Relative proportion of the amount
involved is another important consideration in distinction between
revenue and capital.

Answer 2)
(a) Plant and Machinery Account for the year ended 31st March,2021

₹ ₹
01-04-20 To Balance 95,00,000 01-09-20 By Bank (Sales) 3,75,000
b/d
01-09-20 To Bank By
(14,00,000 + 14,44,600 Depreciat 73,811
44,600) ion (on sold
machine)
By Loss on sale 13,22,659

By Loss on
scrapping 18,84,562
the
machine
By
Depreciat 81,938
ion
(on Scrapped
machinery)
By 6,60,471
Depreciat
ion (Note iii)
By Balance c/d 65,46,159
109,44,600 109,44,60
 0
Working Note:

(i) Calculation of loss on sale of machine on 01-

09-2020 ₹
Cost on 1-4-2018 21,87,000
Less: Depreciation @ 10% on ₹ 21,87,000 (2,18,700)
W.D.V. on 31-03-2019 19,68,300
Less: Depreciation @ 10% on ₹ 19,68,300 (1,96,830)
W.D.V. on 31-03-2020 17,71,470
Less: Depreciation @ 10% on ₹ 17,71,470 for (73,811)
5 months
16,97,659
Less: Sale proceeds on 01-09-2020 (3,75,000)
Loss 13,22,659
Calculation of loss on scrapped machine
(ii)
Cost on 1-4-2019 21,85,000
Less: Depreciation @ 10% on ₹ 21,85,000 (2,18,500)
W.D.V. on 31-3-2020 19,66,500
Less: Depreciation @ 10% on ₹19,66,500 for 5 (81,938)
months
Loss 18,84,562
(iii) Depreciation
Balance of machinery account on 1-4-2020 95,00,000
Less: W.D.V of machinery sold 17,71,470
W.D.V. of machinery scrapped 19,66,500 (37,37,970)
Balance of other machinery after sale and 57,62,030
scrap on 1-4-2020
Depreciation @ 10% on ₹ 57,62,030 for 12 5,76,203
months
Depreciation @ 10% on ₹ 14,44,600 for 7 84,268
months
6,60,471
Note: The figures are rounded off to nearest rupee.

(b) Statement of Valuation of Stock as on 31st March, 2021

₹
Value of stock as on 1st April, 2020 28,00,000
Add: Purchases during the year 1,38,40,000
Add: Manufacturing expenses during the above 28,00,000
period
1,94,40,000
Less: Cost of sales during the period:
Sales 2,08,80,000
Less: Gross profit 51,40,000 1,57,40,000
Value of stock as on 31.3.2021 37,00,000
Working Note:
 ₹
Calculation of gross profit:
Gross profit on normal sales 25/100 x (2,08,80,000 -6,40,000) 50,60,000
Gross profit on the particular (abnormal) item 6,40,000 - 80,000
(8,00,000 –
2,40,000)
51,40,000

(c ) Bank Reconciliation Statement as on 31st March,2021

₹ ₹
Bank balance as per Pass book 25,00,000
Add: Bills dishonoured not recorded in the cash 12,50,000
book
Cheque received entered twice in the cash book 25,000
Insurance premium paid directly not recorded in 1,50,000
the cash book
Cheque received but not sent to the bank 28,00,000
Credit side of the bank column cast short 5,000 42,30,000
67,30,000
Less: Cheque deposited into the bank but no entry
was passed in the cash book 12,50,000
Bank charges recorded twice in the cash book 5,000
Cheque issued but not presented to the bank 12,50,000 (25,05,000)
Bank balance as per Cash book 42,25,000

Answer 3)
(a) In the books of T
Journal Entries

Date Particulars Debit Credit

Amount Amount
2022 ₹ ₹

1-Apr Bills receivable A/c Dr. 1,80,000

To J’s A/c 1,80,000
(Being acceptance received from J for mutual
accommodation)
1-Apr Bank A/c Dr. 1,72,800
Discount A/c Dr. 7,200
To Bills receivable A/c 1,80,000
(Being bill discounted with bank)
1-Apr J’s A/c Dr. 60,000
To Bank A/c 57,600
To Discount A/c 2,400
(Being ₹ 57,600 sent to J)
4-Jul J’s A/c Dr. 2,52,000
To Bills payable A/c 2,52,000
(Being Acceptance given)
4-Jul Bank A/c Dr. 40,440
Discount A/c [1,20,000+40,440 × Dr. 7,560
11,340]
2,40,660
To J’s A/c 48,000

(Being proceeds of second bill received from J)

7-Oct Bills payable A/c Dr. 2,52,000
To J’s A/c 2,52,000
(Being bill dishonoured due to
insolvency)
7-Oct J’s A/c (1,20,000+48,000) Dr. 1,68,000
To Bank A/c 84,000
To Deficiency A/c * 84,000
(Being insolvent, only 50% amount paid
to J)

In the books of J Journal Entries

Date Particulars Debit Credit

Amount Amount
2022 ₹ ₹

1-Apr T A/c Dr. 1,80,000

To Bills Payable A/c 1,80,000
(Being bill of exchange accepted and send to
Mr. T)
1-Apr Bank A/c Dr. 57,600
Discount Charges A/c Dr. 2,400
To T A/c 60,000
(Being the amount received from T on account
of the bill receivable)
4-Jul Bills Receivable A/c Dr. 2,52,000
To T A/c 2,52,000
(Being the bills accepted by T)
4-Jul Bank A/c Dr. 2,40,660
Discount Charges A/c Dr. 11,340
To Bills Receivable A/c 2,52,000
(Being T’s acceptance discounted with
bank)
4-Jul Bills Payable A/c Dr. 1,80,000
Bank A/c 1,80,000
(Being the amount met on the due date)
4-Jul T A/c Dr. 48,000
To Bank A/c 40,440
To Discount A/c 7,560
(Being the amount received and discount
debited to T account)
[1,20,000+40,440 × 11,340] = 7,560
2,40,660
7-Oct T A/c Dr. 2,52,000
To Bank A/c 2,52,000
(Being T’s acceptance dishonoured due to
T’s
bankruptcy)
7- Bank A/c Dr. 84,000
Octl Bad Debts A/c* Dr. 84,000
To T A/c 1,68,000
(Being the amount received from T and
the balance being written off as bad debts)
 (b) Calculation of Capital of Zavier
₹ 1-4-2021 ₹ 1-4-2023
₹ ₹
Assets
Cash in hand 25,500 16,000
Inventory 56,000 91,500
Sundry debtors 41,500 52,500
Land & Building 1,90,000 1,90,000
75,000
Wife’s 1,25,000
Jewellery 1,25,000
Motor Car 20,000
Loan to Zavier’s Brother
6,20,000
Liabilities:
Owing to Zavier’s 40,000 —
Brother
Sundry creditors 35,000 75,000 55,000 55,000
Capital 3,13,000 5,65,000
Income during the
two years:
Capital as on 1-4-2023 5,65,000
Add: Drawings – Domestic Expenses for the two years 96,000
(₹ 4,000 × 24 months)
6,61,000
Less: Capital as on 1-4-2021 (3,13,000)
Income earned in 2021-2022 and 2022-2023 3,48,000
Income declared (₹ 1,05,000 + ₹ 1,33,000) 2,38,000
Suppressed Income 1,10,000

The Income-tax officer’s contention that Zavier has not declared his true income
is correct. Zavier’s true income is in excess of the disclosed income by ₹
1,10,000 based on the information available.

(c )
Particulars A B C Total
Profit of
firm
I. Amount already credited:
 Share of profit (in the ratio 26,000 26,000 26,000 78,000
of 1:1:1) (2019-20,2020-21)
II. Amount which should have been
credited: C’s Salary (2019-20,2020-21) 10,000
Interest on Capital (2019-20,2020-21) 5,000 2,500 2,500
Share of Profit 29,000 14,500 14,500 58,000

34,000 17,000 27,000

Net effect (I-II) (8,000) 9,000 (1,000) -
The necessary journal entry will be:

Particulars Debit (₹) Credit (₹)

B’s Current A/c 9,000
To A’s Current A/c 8,000
To C’s Current A/c 1,000
(Salary to C, Interest on capital charged and profit
shared among partners in the ratio of capital)

Answer 4)

(a) Journal Entries in the Books of Safari Ltd.

Dr. ` Cr. `
Bank A/c Dr. 1,12,500
To Equity Shareholders A/c 1,12,500
(Application money received on 7,500 shares
@ ` 15 per share to be issued as rights shares
in the ratio of 1:4)
Equity Shareholders A/c Dr. 1,12,500
To Equity Share Capital A/c 75,000
To Securities Premium A/c 37,500
(Share application money on 7,500 shares
@ ` 10 per share transferred to Share Capital
Account, and ` 5 per share to Securities
Premium Account vide Board’s Resolution
dated…)

Securities Premium A/c Dr. 37,500

Profit & Loss A/c Dr. 37,500
To Bonus to Shareholders A/c 75,000
(Amount transferred for issue of bonus shares
to existing shareholders in the ratio of 1:5 vide
General Body’s resolution dated...)

Bonus to Shareholders A/c Dr. 75,000

To Equity Share Capital A/c 75,000
(Issue of bonus shares in the ratio of 1 for
5 vide Board’s resolution dated. ............... )
12% Debentures A/c Dr. 1,80,000
Premium Payable on Redemption A/c Dr. 5,400
To Debenture holders A/c 1,85,400
(Amount payable to debentures holders)
Profit and loss A/c Dr. 5,400
To Premium Payable on Redemption A/c 5,400

(Premium payable on redemption of

debentures charged to Profit & Loss A/c)
Debenture Redemption Reserve A/c To Dr. 18,000
General Reserve 18,000
(For DRR transferred to general reserve)
Bank A/c Dr. 27,000
To Debenture Redemption Reserve 27,000
Investment
(for DRR Investment realised)
Debenture holders A/c Dr. 1,85,400
To Bank A/c 1,85,400
(Amount paid to debenture holders on
redemption)
 (b) Balance Sheet of S as on 31st March, 2022

Liabilities ₹ Assets ₹
Capital 22,00,000 Cash at Bank 5,50,000
Add: Net Profit (WN.1) 6,50,000 Trade receivables 12,61,000
(WN. 2)
28,50,000 Vehicles (WN. 3) 2,70,000
Add: Introduction of capital 3,00,000 Furniture & 5,85,000
Fixtures (WN. 4)
31,50,000 Inventories 6,50,000
Outstanding commission 35,000 Prepaid expenses 15,000
Trade payables 1,46,000
33,31,000 33,31,000
Working Note 1
Profit and Loss Account (Revised)

Particulars ₹ Particulars ₹
To Outstanding 35,000 By Balance b/d 6,70,000
Commission
To Net profit 6,50,000 By Prepaid expenses 15,000
6,85,000 6,85,000
Working Note 2
Trade Receivables

Particulars ₹ Particulars ₹
To Balance b/d 13,00,000 By Provision for Doubtful 39,000
Debts
By Balance c/d (b/f) 12,61,000
13,00,000 13,00,000
Working Note 3
Vehicles A/c

Particulars ₹ Particulars ₹
To Balance b/d 2,75,000 By Depreciation 55,000
To Bank a/c 50,000 By Balance c/d (b/f) 2,70,000
3,25,000 3,25,000

Working Note 4
Furniture & Fixtures A/c

Particulars ₹ Particulars ₹
To Balance b/d 6,50,000 By Depreciation 65,000
 By Balance c/d (b/f) 5,85,000
6,50,000 6,50,000

Answer 5)(a)

Date Particulars Dr. Cr.

₹ ₹
(1) Scooter Account Dr. 27,000
To Profit and Loss Adjustment A/c 27,000
(Purchase of scooter wrongly debited to
conveyance account now rectified-
capitalization of ₹27,000, i.e., ₹30,000 less
10% depreciation)
(2) Suspense Account Dr. 1,00,000
To Profit & Loss Adjustment A/c 1,00,000
(Purchase Account overcast in the
previous year error now rectified).
(3) Profit & Loss Adjustment A/c Dr. 40,000
To X’s Account 40,000
(Credit purchase from X₹20,000, entered
as sales last year, now rectified)
(4) Bhaskar’s Account Dr. 10,000
To Anand’s Account 10,000
(Amount received from Mr. Anand wrongly
posted to the account of Mr. Bhaskar; now
rectified)

(5) Suspense Account Dr. 10,000

To Chandu’s Account 10,000
(₹ 5,000 received from Chandu wrongly
debited to his account; now rectified)
(6) Trade receivables (Ramesh) / Ramesh Dr. 5,000
To Suspense Account 5,000
(₹5,000 due by Mr. Ramesh not taken into
trial balance now rectified)
(7) Ram’s Account Dr. 20,000
To Profit & Loss Adjustment A/c 20,000
(Sales to Ram omitted last year; now
adjusted)
(8) Suspense Account Dr. 1,980
To Profit & Loss Adjustment A/c 1,980
(Excess posting to purchase account last
year, ₹25,930, instead of
₹23,950, now adjusted)
(9) Profit & Loss Adjustment A/c Dr. 1,08,980
 To Ratan’s Capital Account 1,08,980
(Balance of Profit & Loss Adjustment A/c
transferred to Capital Account)
(10) Ratan’s Capital Account Dr. 1,06,980
To Suspense Account 1,06,980
(Balance of Suspense Account transferred
to Capital Account)

(b)Statement showing Realization of Cash

Sr. Particulars Realization Creditors Partner’s Partner’s
No. Loan Capital
1 After taking into 1,500 1,500 - -
account cash
balance and amount
set aside for expenses

2 4,500 1,500 3,000

3 5,850 - 4,500 1,350
4 9,000 - - 9,000
Including Savings in 30,150 - - 30,150
Exp
51,000 3,000 7,500 40,500

To ascertain the amount distributable out of each installment realized among the
partners, the following table will be constructed:
Calculation to determine the mode of distribution of ₹1,350
Particulars Total A B C
Balance 63,000 22,500 27,000 13,500
Less: Maximum Loss in (61,650) (24,660) (24,660) (12,330)
2:2:1
+1,350 -2,160 +2,340 +1,170
Deficiency of A's capital (1,440) (720)
written off against those of
B and C in the ratio of their
capital 27,000: 13,500,
(Garner vs. Murray)
Manner in which the first + 900 + 450
₹ 1,350 should be
distributed

Distribution of ₹9,000
Balance after (1) 61,650 22,500 26,100 13,050
Less : Maximum Loss in 2:2:1 (52,650) (21,060) (21,060) (10,530)
Balance available and 9,000 1,440 5,040 2,520
distributed

Distribution of ₹30,150

Balance after (2) 52,650 21,060 21,060 10,530

Less: Maximum Loss in 2:2:1 (22,500) (9,000) (9,000) (4,500)

Distribution of ₹ 30,150 30,150 12,060 12,060 6,030

Summary:
- Balance 63,000 22,500 27,000 13,500
- Total Amounts Paid 40,500 13,500 18,000 9,000
- Loss 22,500 9,000 9,000 4,500

Answer 6)
(a)
Dr. Cr.
₹ ₹
1 Bank Account Dr. 27,00,000
To Share Application & Allotment A/c 27,00,000
(Being Application money on 3,00,000
shares at
₹ 9 per share received.)
2 Share Application & Allotment A/c Dr. 27,00,000
To Share Capital A/c (75,000 x ₹ 4) 3,00,000
To Securities premium A/c (75,000 x ₹ 5) 3,75,000
To Bank A/c (2,00,000 x ₹ 9) 18,00,000
To Share First & Final Call A/c 2,25,000
(Being application money transferred)
3 Share First & Final Call A/c (75,000 x6) Dr. 4,50,000
To Share Capital Account 4,50,000
(Amount First & Final Call A/c due from
members as per Directors, resolution no......
dated )
4 Bank Account A/c Dr. 2,21,625
Calls in arrear A/c Dr. 3,375
To Share First & Final Call Account 2,25,000
(Being Receipt of the amounts due on first
call.)
5 Equity share capital A/c Dr. 11,250
To Share forfeiture A/c 7,875
To Calls in arrear A/c 3,375
(Being 1,125 shares forfeited for non
payment of final call.)
6 Bank Account A/c (1,125 x ₹ 6) Dr. 6,750
 Share forfeiture A/c (1,125 x ₹ 4) 4,500
To Share Capital Account (1,125 x ₹ 10) 11,250
(Being forfeited shares reissued at ₹ 4
discount)
7 Share forfeiture A/c 3,375
To Capital reserve A/c 3,375
(Being share forfeiture transferred to capital
reserve*)
Working notes:
1.
Shares Shares Money Money Money Excess Share First Amount Money
Applied Allotted Received on Transferre Transferred Application and Final received Refunded
Application @ d to Share to Security Money Call @ ₹ 6/- from Share
₹ 9/- Capital@ Premium First and
₹ 4/- @₹ 5/- Final Call
after
adjusting
excess
appl.
money
2,00000 - 75,000 18,00,000 - 3,00,000 - 3,75,000 - 2,25,000 - 4,50,000 - 4,25,000 18,00,000
1,00,000 9,00,000 -
3,00,000 75,000 27,00,000 3,00,000 3,75,000 2,25,000 4,50,000 4,46,625* 18,00,000
* ₹ 4,50,000 less ₹ 3,375.
Number of shares allotted to Mr. Raj = 1,500 x 75,000 / 1,00,000 = 1,125 shares
Calculation of calls in arrear
Application money received from Raj (1,500 x9) 13,500
Less: actual application money 1,125 x9 10,125
Excess Application & Allotment Money Adjusted 3,375
with first and final call
Final call due from Raj 6,750
Less: Adjusted with final call (3,375)
Calls in arrear 3,375

(b)Advantages of Subsidiary Books

The use of subsidiary books affords the under mentioned advantages:

 Division of work: Since in the place of one journal there will be so many subsidiary
books, the accounting work may be divided amongst a number of clerks.

 Specialization and efficiency: When the same work is allotted to a particular person
over a period of time, he acquires full knowledge of it and becomes efficient in
handling it. Thus the accounting work will be done efficiently.

 Saving of the time: Various accounting processes can be undertaken simultaneously

because of the use of a number of books. This will lead to the work being completed
quickly.

 Availability of information: Since a separate register or book is kept for each class of
transactions, the information relating to each transactions will be available at one
 place.

 Facility in checking: When the trial balance does not agree, the location of the error or
errors is facilitated by the existence of separate books. Even the commission of errors
and frauds will be checked by the use of various subsidiary books