CASE 1.

MEHTA AUTOMOBILES
SUMMARY
HISTORY OF MEHTA AUTOMOBILES
Mr Mehta is a mechanic. Due to his excellent work, professional ability, pleasing
manners and sense of responsibility, he was soon promoted to the post of a chief
mechanic. Because of his abilities, his friends and relatives advised him to start his own
automobile repairs shop. Therefore, after consulting with his family he accepted the
offers of his friends Mr Nitin and Mr Mohan Kapoor, who offered to give a rental office
in a busy street of Ahmedabad and a loan of 1,00,000 respectively to start his business.
CURRENT POSITION
Mr Mehtas business is well settled small-scale business. He has hired four more
assistants in addition to earlier two and also two mechanics and a part-time salesman. He
has a small office with necessary furniture, and he stores his goods at his home, which he
uses as his small godown. He has also started a small spare parts selling section. He is
also assisted by his son Mr Rajendra Mehta for the regular day-to-day activities.
NEW VENTURE
During his day-to-day activities, Mr Mehta came across an advertisement in a local
newspaper, which was about a company, who was in search of a well-known automobile
service shop owner, for a sole selling agency of their cars and spare parts in Gujarat. Mr
Mehta found this proposal profitable and thus applied for the same.
CONDITIONS OF CONTRACT
The company specified two conditions which every applying firm in order to get the
contract had to fulfil. The conditions are as under:
(a) Every firm had to obtain from its bank, a certificate to the effect that a minimum
balance of 5,00,000 was maintained in business account.
(b) Every firm had to submit a complete current financial position of the business
and the results of immediate past period.
THE PROBLEM
Mr Mehta found the problem, which was to comply with the above, two conditions. The
following were the difficulties, which Mr Mehta had to face in order to get the problem.
As Mr Mehta did not have any knowledge about how to prepare his financial
accounts, he had not prepared any regular accounts.
His used to run his business in such a manner that each cash received was deposited in
bank and was withdrawn at the time of payment, and as his business was not of a very
large scale he was not able to maintain a minimum balance of Rs 5,00,000 in his business
account.
Thus due to the above problems, he was not able to satisfy the two conditions laid
down by the company.

THE SOLUTION
In order to get the contract, Mr Mehta must fulfil the above two conditions so for that he
has to do the following things.
(a) Learn the basic things of recording of day-to-day transactions.
(b) Collect necessary data for the preparation of last years financial statements.
(c) Maintain a daily book to record all the day-to-day transactions of the business.
(d) Appoint an accountant, who will prepare all the accounts and financial
statements from this daily book.
QUESTIONS AND ITS ANSWERS
1. Mr Mehta mentioned that
(a) He could not have systematic accounting records because he did not possess
specialized accounting skill; and
(b) Keeping such records would increase in costs, which he could not afford. How
would you respond to these comments?
Solution:
(a) Here, as Mr Mehtas business is not very vast, recording of day-to-day
transactions does not require any specialised knowledge so he could just learn
the basic fundamentals of accounting and start recording the day-to-day
transactions in a daily book. This daily book can be recorded systematically by
appointing an accountant (Mr Lal).
(b) In short term, recording of proper accounts will cost a bit to Mr Mehta but it will
be equalized by the long-term benefits by maintaining proper books of accounts.
In addition, appointing an accountant (Mr Lal) for such limited size firm would
not cost very much as he will not have to be paid a very high amount for his
services rendered.
2. What information would Mr Lal require for preparing the financial statements?
Solution: Mr Mehta would require three types of information for preparing the financial
statements, which are as under.
(a) Information related to Trading Account
(i) Purchases and sales of goods
(ii) Direct expenses
(iii) Closing stock of goods
(b) Information related to Profit & Loss A/c.
(i) Daily revenue expenses of the firm
(ii) Daily revenue incomes of the firm
(c) Information related to Balance Sheet
(i) Information related to liabilities of firm
1. Share capital
2. Other liabilities which include:
Reserves & Surplus
Secured loan and unsecured loans
Current liability
Contingent liability
(ii) Information related to Assets of the business:

1. Fixed assets
2. Investments
3. Current Assets
4. Miscellaneous expenditure
3. What items would you expect to find in the statements of financial position and profit
and loss analysis relating to Mr Mehta?
Solution: Following are the items which may appear in the profit and loss account of Mr
Mehta:
Trading Account of Mr Mehta
Particulars
To Opening Stock
To Purchase
To Wagesxxx
To Gross Profit
Total

Amount
xxx
xxx

Particulars
By Sales
By Closing Stock

Amount
xxx
xxx

xxx
xxxxx

By Gross Loss
Total

xxx
xxxxx

Profit and loss a/c of Mr Mehta

Particulars
To Salary of Assistants
To Electricity Expenses
To Telephone Expenses
To Sundry Expenses
To Discount Paid
To Net Profit
Total

Amount
xxx
xxx
xxx
xxx
xxx
xxx
xxxxx

Particulars
By sale of Assets
By Discount Received
By Interest on Investment

Amount
xxx
xxx
xxx

By Net Loss
Total

xxx
xxxxx

Balance Sheet of Mr Mehta

Liabilities
Share Capital
Total ownership capital
Reserve & Surplus
Profit
Secured Loan
Mortgage Loan
Unsecured Loan
Friends Loan
Current Liability
Bank Overdraft
Creditors
Total

Amount

Assets
Fixed Assets
Land & Building
Furniture
Equipments
Investments
Investments
Current Assets
Cash Balance
Bank Balance
Debtors
Stock

xxx
xxx
xxx
xxx
xxx
xxx
xxxxx

Total

Amount
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxxxx

4. What records would Mr Mehta require to maintain, for controlling his business
activities?
Solution. Mr Mehta would be required to maintain the following records, for controlling
his business activities.
(1) Trading Account
(a) It tells us what are the net purchase and net sales of the company.
(b) It also specifies the direct expenditure, incurred by the company.
(c) Information regarding trading account is helpful during time of calculating
the gross profit of the company.

(d) Other benefits.

(2) Profit and Loss Account
(a) It specifies the various expenses made by the company.
(b) It also specifies the various incomes earned by the company.
(c) This account helps us to find out the net profit of the company.
(3) Balance Sheet
(a) It tells the current financial position of the company.
(b) It tells the total assets of the company.
(c) It also tells about the total liabilities of the company.
Note: A detailed explanation of above statement has been mention in Question 3.
CONCLUSION
Thus from the above case, we can conclude that the problem mentions in the case is one
of the common problems which every unit faces if it does not prepare and maintain
necessary accounts.
Mr Mehta is one of the persons who are suffering from various problems, which are
mentioned in this case, and there are many other problems, which may occur due to nonmaintenance of accounts.
Thus in order to keep away such problems, every firm big or small should always
maintain its accounts in a systematic way.

Case 2.1
Balance Sheet as on April 12, 1946
Liabilities
Capital
Mrs Bevan
Mrs Maywoods
Mr Maywoods
Secured Loan
Mortgage loan

Amount
2,000
2,000
2,000

Assets
Fixed Assets
Land
2,500
Add
2,000
Building
Equipments
Current Assets
Cash (6,000 4,500)
Total

6,000
11,500

Total

Amount

17,500

4,500
10,500
1,000
1,500
17,500

Balance Sheet as on December 11, 1946

Liabilities
Capital
Mrs Bevan
Add:

Amount

Amount

Assets

4,500
44.45

4,455.55

Building
Less: Depreciation

10,500
233.45

10,266.55

1,000
415.95
1,415.95
44.19

1,371.76

Less: Loss
Mrs Maywood
Less: Loss

2,000
329.34

1670.66

Equipments
Add: Purchase

Mr Maywood
Less: Loss

2,000
329.34

1670.66

Less: Depreciation
Current Assets,
Loans & Advances

Secured Loan
Mortgage Loan

10800
Deposit
Stock
Cash
Bank

Current Liabilities
& Provisions
Bills Payable
Total

Amount

Fixed Assets
Land
Less: Depreciation

2000
400
2,400
329.34

2070.66

Amount

35
100
65.35
9.78

92.01
16,303.99

Total

16,303.99

SUMMARY
In the year 1946 three partners, Mr Bevan, Mr & Mrs Maywoods, started business
contributing $2000 each. They also hire some amount of loan. The cafe was on the
highway and frequently visited by truck drivers and voyagers. All of the partners have
divided their duty by the mutual understanding.
Due to the friendly relationship between one of the partners, namely, Mrs Maywoods
with a customer Fred Mead, she finally she run away with him. Mr Maywoods searched
her a lot. After this event occurred, Mrs. Bevan decided to dissolve this partnership. Thus
they started their business on 12th April 1946 and dissolve on 16th December 1946. The
dissolution of business resulted into loss and all the partners equally shared it.
As the professional approach was a lacking factor for this partnership, finally it had to
be broken up and bear a loss. After briefly analysing the case, we can say that the proper
planning was not present in this partnership and they did have the scarcity of funds from

the beginning.The loss amount= (Liabilities+OE)-Asset Vaue= (Right side value-left

side)/3
CASE 2.2
PREMIER ENGINEERING COMPANY LTD.
Debtors Account
Dr
Particulars
To Balance b/d
To Sales

JF
-

Total

Amount
14,505,000
2,90,000,000

3,04,50,000

Particulars
By Sales return
By Discount
By Cash
By Balance c/f
Total

JF
-

Cr
Amount
20,000
40,000
26,00,00,000
4,44,45,000
3,04,50,000

Creditors Account
Dr
Particulars
To Cash
To Balance c/f

JF
-

Total

Amount
14,000,000
2,06,00,000
16,06,00,000

Particulars
By Balance b/d
By Purchase
By Supplies

JF

Cr
Amount

1,50,00,000
14,50,00,000
6,00,000

Total

16,06,00,000

Cash Account
Dr
Particulars
To Balance b/d
To Bank
To Debtors

JF
-

Total

Amount

Particulars

14,10,000
10,00,20,000
26,00,000,000

36,14,30,000

By Machinery
By Insurance and tax
By Miscellaneous
expenditure
By Bank loan
By Creditors
By Insurance and tax
By Dividend
By Balance c/f

JF

Cr
Amount

80,00,000
9,27,000
1,00,03,000
8,00,00,000
14,00,00,000
2,59,65,500
1,39,40,000
69,08,000

Total

36,14,30,000

Loan Account
Dr
Particulars
To retirement of bank loan
To Balance c/f
Total

Cr
JF
-

Amount
8,00,00,000
6,00,40,000
16,06,00,000

Particulars
By Balance b/d
By Bank loan
Total

JF
-

Amount
4,00,20,000
10,00,20,000
16,06,00,000

Sales Account
Dr
Particulars
To Sales return &
allowances
To Sales discount
To Balance c/f
Total

JF

Amount

20,000

40,000
28,99,40,000
29,00,00,0000

Particulars

JF

Cr
Amount

By Debtors

29,00,00,000

Total

29,00,00,000

Machinery Account
Dr
Particulars
To Balance b/d
To Cash

JF
-

Total

Amount
22,61,30,000
80,00,000

23,41,30,000

Cr
Particulars
JF
Amount
By Depreciation
7,88,20,000
(accumulated & current
year depreciation
By Balance c/f
15,53,10,000
Total

23,41,30,000

Accured Tax
Dr
Particulars
To Balance c/f

JF
-

Total

Amount

Particulars

2,59,65,500

By Balance b/d

2,59,65,500

Total

JF

Cr
Amount

2,59,65,500
2,59,65,500

Depreciation Account
Dr
Particulars
To Balance c/f
Total

JF
-

Amount
7,88,20,000
7,88,20,000

Particulars
By Balance b/d
By P & L a/c
Total

JF
-

Cr
Amount
4,48,00,000
3,40,20,000
7,88,20,000

Trading and Profit & Loss Account

For year ending on 31st March 1983
Particulars

JF.

Amount

To Opening stock
To Purchase
To Direct labour
To Indirect labour
To ESIS premium
To Heat, light and power
To Sales administrative service
To Interest
To Manufacturing taxes
and insurance
To Depreciation
To Income tax
To Net profit

8,32,05,000
14,56,00,000
2,40,50,000
48,40,000
2,50,000
35,46,000
4,30,00,500
1,00,03,000

Total

38,28,20,000

**Calculation of Closing Stock

Opening Stock
8,32,05,000
Add:
Purchase
14,56,00,000
22,88,05,000
Less:
Raw Material
consumed
Supplied used
Closing Stock

Particulars

JF

By Sales 29,00,00,000
Less :
Sales return
20,000
Sales discount 40,000

By Closing stock **

Amount

28,99,40,000

9,26,80,000

8,00,000
3,40,20,00
29,348,275
3,957,225
Total

38,28,20,000

(5,30,00,000 + 1,00,05,000 + 2,00,00,000 + 2,00,000)

13,55,20,000
6,05,000
13,61,25,000
9,26,80,000

(22,88,05,000 13,61,25,000)

Profit & Loss Appropriation Account

for year ending on 31st March 1983
Particulars
To Provision for dividend
Total

JF
-

Amount

Particulars

1,39,40,000
13,940,000

JF

Amount

By Net profit

39,57,225

By Deficit

99,82,775

Total

13,940,000

Balance Sheet as on 31st March 1983

Particulars
Shareholders Fund
Equity
Retained earnings
Secured Loans
Loans
Current Liabilities &
Provisions
Creditors
Provision for income tax

Total

JF
-

Amount

Particulars

JF

Amount

19,10,46,700
84,97,800

Fixed Assets
Plant and Equipments
Investments

15,53,10,000

6,00,40,000
2,06,00,000
2,93,48,275

30,95,32,775

Current Assets
Loans & Advances
Debtors
Cash
Closing stock
Prepaid taxes and
insurance
Advance Taxes paid
9,27,000
Less :
Expired
8,00,000
Misc. Expenditure
Deficit
Total

4,44,45,000
69,08,000
9,26,80,000
80,000

1,27,000
99,82,775
30,95,32,775

Premier Engineering Company Ltd.,

General Budget for 1983
Worksheet
Assets
Changes
Cash
Debtors
Raw Materials
Goods in Process
Finished Goods
Supplies
Prepaid Taxes & Insu.
Manufacturing Plant
15,53,10,000
Liabilities
Changes
Loans
Creditors
Accursed Taxes
Accumulated Dep.

Amount

Increase in

Decrease in

Assets

Assets

14,10,000
1,45,05,000
5,30,00,000
1,00,05,000
2,00,00,000
2,00,000
80,000
22,61,30,000

54,98,000
2,99,40,000
94,80,000
------

Amount

Increase in

Decrease in

Liabilities

Liabilities

4,00,20,000
1,50,00,000
2,59,65,500
4,48,00,000

2,00,20,000
56,00,000
-3,42,20,000

-----5000
-7,08,30,000

--2,59,65,500
--

Net

69,08,000
4,44,45,000
6,24,80,000
--1,95,000
--

Net

6,00,40,000
20,600,000
-78,820,000

Equity
Retained Earnings

19,10,46,700
84,97,800

---

---

---

CASE 3.1
MASTERS FUEL OIL COMPANY
Income Statement for the year ended 31st December 1958
Particulars
Income from Sales & Services
Fuel oil, non-budget accounts
Burner services & repairs
Installations
Credit Sales
Closing Stock of burner parts
Total Income

Amount

2,39,776
8,250

Amount

2,48,026
2,48,026

Cost of Sales & Services

Fuel oil delivered
Buner parts
Installations
Subcontract charge
Opening stock burner inventory parts
Credit Purchases
Total Cost of Sale

5,490
1,58,990

Gross Profit on Sales

Operating Expenses:
Utilities
Add Outstanding
Supplies
Telephone
Advertising
Add Outstanding
Property Taxes
Office & Printing costs
Fees for professional services
Payroll Taxes Outstanding
Rental of Uniforms
Vehicles Operation
Wages
Miscellaneous Exp.
Depreciations:
Furniture & Fixture
Delivery & Services Equipment
Vehicle (Truck)
Building

1,64,480
1,64,480
83,546

424
36

460
277
231

2,627
159

2,786
972
1,119
1,520
490
512
2,312
9,816
1,949

148
4,757
202
1,084

6,191
28,635

10

Net Profit from operation

54,911

11

Master Fuel Oil Company

Balance sheet as on 31st Dec. 1958
Liabilities

Amount

Assets

Capital:

Amount

Fixed Assets:

Leonard Master
Less: Drawing
Profit

31,295
12,650
27,456

Louis Webster
Less: Drawing
Profit

32,185
15,000
27,455

Land
Furniture & Fixture
Less: Depreciation
Allowance
Less: Depreciation

46,101

44,640

Delivery & Services

Equipment
Add: Purchase (Truck)

6,000
1,481
566
148
23,786
12,133
35,919
9,787

Less: Depreciation
Allowance
Less: Depreciation
4959
Building
21,699
Less: Depreciation Allowance 7,364
Less: Depreciation
1,084
Current Liabilities

21,173

13,251

Current Assets:

Account Payables:
Fuel bills
Utility bills
Burner parts
Advertising
Other Liabilities

767

Cash
3,962
36
438
159

Total

15,211

Account Receivables:
Regular Accounts
Budget Accounts
Deposit on Commercial bids
Less:
Inventory of Burner Part

4,595
278
95,614

18,640
12,172
900
750

Total

30,812
150
8,250
95,614

Cash Account
Date

Particulars

1 Jan., To Opening Balance b/d

1958
To Regular Customers
To Budget Plan Customers
To Burner Service & repair
To Installation Work
To Deposit Refunds

Amount
13,993
1,06,478
97,798
12,714
4,460
750

12

Date

Particulars
By Account Payable
Last Years
By Drawing L. Master
By Drawing L. Webster
By Fuel Purchase
By Burner Parts
By Installations
By Subcontractors
By Utilities
By Supplies

Amount
4,382
12,650
15,000
1,46,260
5,905
2,111
314
424
277

31st Dec
Total

2,36,193

By New Truck
By Telephone
By Advertising
By Property Taxes
By Office & Printings
By Fess Pro. Services
By Liabilities Last Yr
By Payroll Taxes C.Y
By Rental of Uniforms
By Vehicle Operation
By Wages
By Miscellaneous Exp.
By Closing Balance
Total

(contd.)
12,133
231
2,627
972
1,119
1,520
256
212
512
2,312
9,816
1,949
15,211
2,36,193

Account Receivable (Debtors) A/c

Date

Particulars

Date

Particulars

Amount

1 Jan.,
1958

To Balance b/d

Amount
12,486

31 Dec.,
1958

2,21,450

31 Dec., To Credit Sales

1958

2,39,776

31 Dec.,
1958

By Cash A/c (1,06,478

+ 97,798 + 12,714 +
4,460)
By Balance c/f :
Regular A/c
Budget A/c

Total

2,52,262

Total

18,640
12,172

30,812

2,52,262

Account Payable (Creditors) A/c

Date

Particulars

Amount

31 Dec., To Cash (4.382 +

1,58,972
1958
1,46,260 + 5.905 +
2111 + 314)
31 Dec., To Balance c/f (3,962
4,400
1958
+ 438)
Total

Date

Particulars

1 Jan.,
1958

By Balance b/d

31 Dec.,
1958

By Credit Purchases

1,58,990

Total

1,63,372

1,63,372

13

Amount
4,382

Profit and loss account of the year Ended on 31/3/1982

Dr.
Expenses

Amount

Amount

To Depreciation on
office equipment
To salary
10,39,920
+ Outstanding
17,500
To office supply
3,45,450
+ Outstanding
45,150
To rent
1,70,800
+ Outstanding
16,800
To miscellaneous
expenses
1,20,400
+ Outstanding
1,750
To Profession fee Exp.
Bad debts
Net Profit c/f.

21,815

Income

Amount

By Dividend received
By Bills received
By Closing Stock

Cr.
Amount
1,19,000
20,79,000
70,000

10,57,420
3,90,600
1,87,600

1,22,150
35,000
37,800
4,15,615
22,68,000

22,68,000

Balance sheet of Latif Khan Architect As on 31/3/1982

Capital
Capital
+ Net profit
Drawing
Outstanding Exp.
Salary
Rent
Supplies
Miscellaneous Exp.

Amount
11,86,253
4,15,615
16,01,868
5,60,000

Amount

10,41,868
17,500
16,800
45,150
1,750

Assets

Amount

Office equipment
- Depreciation
Investment
+ Purchase
Debtors
Cash at Bank
Closing Stock

2,18,153
21,815
3,50,000
1,68,000

11,23,068

Amount
1,96,338
5,18,000
2,91,200
47,530
70,000

11,23,068

Cash Account
Dr.
Particulars
To Bal b/d.
To Debtor
To Dividend Int.

Amount
1,12,000
23,45,000
1,19,000

Particulars
By Salary & charges
By Office supplies
By Rent.
By Profession exp.
By Purchase shares
By Drawing
By Miscellaneous Exp.
By Bal. B/d.
47,530

25,76,000

Cr.
Amount
10,51,820
4,02,850
1,84,800
35,000
1,68,000
5,60,000
1,26,000
25,76,000

14

WORKING NOTES:
FOR FINDING CAPITAL:Asset:
Office Furniture And Equipment
Investment
Cash
Debtors

21,8,153
3,50,000
1,12,000
5,95,000
12,75,153

Less
Outstanding of 1981
Salary
Supplies
Rent
Misc.

11,900
57,400
14,000
5,600
88,900
1,86,253

Capital in the Business

FOR FINDING DEBTOR:
Op. balance
+ Bills issued

5,95,000
20,79,000
26,74,000

Less
By cash Received
By Bad debts.

23,45,000
37,800

23,82,800
Net debtors at end of the year 1982
2,91,200
Cash Received = 17,50,000 + 5,95,000 = 23,45,000

CASE No. 3.3

Profit Reconciliation Statement
Particulars

Amount

Profit as per Bhatia

Less:
Acc. Dep
Provision for Exp.
Reduction in Value of stock

Amount
2,05,000

29,000
40,000
25,000

Add:
Prepaid Ins.
Prepaid Subscription
Change in Capital
Profit as per accountant

2,500
75
37,750

15

94,000

40,325
1,51,325

Opening Statement of Affairs

Liabilities

Amount

Capital

Assets

Amount

Furniture
Cash & Bank
Debitors
Stock

1,00,000
47,000
12,000
56,250
2,15,250

1,16,250

Creditors

80,000

Accumulated Dep.

19,000
2,15,250

Debtors Account
Dr
Particulars

Amount

To Balance

12,000

To Sales

Particulars

Cr
Amount

By Cash
By Cash

12,000
9,70,000

10,00,000
By Bal
10,12,000

30,000
10,12,000

Creditors Account
Dr
Particulars

Amount

To Cash
To Cash

80,000
6,40,000

To Bal

1,10,000
8,30,000

Particulars
By Bal
By Purchase

Cr
Amount
80,000
7,50,000
8,30,000

Acc. Dep. Account

Dr
Particulars

Amount

To Bal

29,000
29,000

Particulars
By Bal
By Depreciation

Cr
Amount
19,000
10,000
29,000

Balance Sheet as at 31st Dec. 1981

Liabilities

Amount

Assets

Amount

Furniture

1,00,000

Capital
Less: Drawings

1,16,250
1,69,000
52,750

Add: Profit

1,51,325

98,575

Cash & Bank

Debtors

Pro. for Service Exp.

Less: Exp. Inc.

50,000
10,000

40,000

Prepaid Ins.
Prepaid Subscription

Acc. Dep
Add. Dep.

19,000
10,000

29,000

Closing Stock

Creditors

1,10,000

16

70,000
30,000
2,500
75
75,000

2,77,575

2,77,575

Income & Exp. A/c for the year ended on the 31st Dec. 1981
Dr
Particulars
Opening Stock
Purchase
Dep. on Furniture
Prov. For Service Exp.
Exp. for Services
(For the radios sold in
the Previous Period)
Wages & Salaries
Insurance Paid
Rent Paid
Selling & Gen. Exp
Subscription
Net Profit

Amount
56,250
7,50,000

Cr
Amount

Particulars
Sales
of Radios
of Radio Parts

10,000
50,000
20,000

10,00,000
50,000

60,000
2,500
10,000
14,850
75
1,51,325
10,50,000

10,50,000

CASE 4.1
International Hotels Ltd
Journal-Adjusting Entries
Date

Particulars

LF

Debit
Rs.

30th
June

Bad debts A/c

Dr.
To Debtors A/c
(Being there is a Bad debts
arise and deduct from Debtors)

19,250

30th
June

P&L A/c
Dr.
To Bad debts A/c
(Being Bad debts is recognize
and debited to P&L A/c

19,250

30th
June

Advertisement Exp. A/c

Dr.
To P&L A/c
(Being Advertisement Exp. is
carried forward to next year)

2,02,500

30th
June

Depreciation A/c
Dr.
To Building & Furniture A/c
(Being Amt. Depreciated to
the Building and Furniture)

31,97,250

30th

P&L A/c

3,197,250

Credit
Rs.
19,250

19,250

2,02,500

31,97,250

Dr.

17

June

To Depreciation A/c
(Being the depreciation recognized
and debited to P&L A/c)

30th
June

P&L A/c
Dr.
To O/s wages A/c
(Being O/s wages is transfer to
P&L A/c)

1,92,000

30th
June

General Reserve A/c

Dr.
P&L Appro. A/c
Dr.
To proposed equity div A/c
(Being the proposed dividend
is paid through P&L Appro.
A/c and G.R. A/c

1,46,505
95,13,495

30th
June

3,197,250

1,92,000

96,60,000

P&L A/c
Dr.
To Repairs and maintenance A/c
(Being repairs and maintenance
is not recorded)
Total

Solution (ii)

28,900
28,900

1,65,16,400

1,65,16,400

International Hotels Ltd.

Statement showing Profit and Loss Account of the year ended June 30, 1982
Dr.
Cr.
Particulars
Rs.
Rs. Particulars
Rs.
Rs.
To Opening stock
wine, cigars
+ food stuff
To purchase
wine, cigars
+ food stuff
To wages & salaries
o/s wages & salaries
To coal & firewood
To Carriage & freight
To Gross Profit

By sales
wine, cigars
27,09,000
+ food stuff
By closing stock
28,70,000
wine, cigars
9,430,000 12,300,000
+ food stuff
4,245,000
192,000 4,437,000
493,500
121,500
6,674,000
9,20,000
17,89,000

5,260,000
13,640,000 18,900,000
3,375,000
4,460,000

26,735,000
To Depreciation
Land & Building
Fitting & Furniture
To Bad Debts (T)
+ Bad Debts (Adj)
+ B.D.R.(Adj)
B.D.R(T)
To Adventiserpent Exp.

2,550,000
647,250
0
19,250
0
19,250
0
1,254,000

To Gross Profit
To rent room
3,197,250 To Casino Room Earning
To golf course Earning
To Health club earning
To Pool side earning
To shopping arcade rentals
19,250 To discotheque earnings

18

7,835,000

26,735,000
6,674,000
8,108,950
142,500
148,500
268,250
136,400
145,000
125,400

+ c/f next year.

To Repair & Maintanance
+ Not Recover
To rent, Rates, Taxes
To Laundry
To miscellaneous Exp.
To O/s debenture Int.
To Provision for Tax
To net profit

202,500
637,500
28,900

1,051,500
666,400
1,335,000
122,500
876,000
4,050,000
2,442,605
1,998,495
15,749,000

15,749,000

Statement showing Profit and Loss Appropriation Account of the year ended
June 30, 1982
Dr.
Particulars

Rs. Particulars

Cr.
Rs.

By Bal b/d

6,225,000

To proposed equity
share dividend

9,660,000 By P & L A/c

By General reserve
9,660,000

1,998,495
146,505
9,660,000

Statement showing Balance Sheet as on June 30, 1982.

Liabilities

Rs.

Rs. Assets

Rs.

Rs.

Share capital
Fixed assets
1207500 Equity share
120,750,000 Good will
75,000,000
of Rs. 100 each
75,000,000 Land & building
127,500,000
750000 Preference
-Dep. @ 2%
2,550,000 124,950,000
share of Rs. 100 each
Furniture & Fittings 12,945,000
Reserve & surplus
- Dep. @ 5%
647,250 12,297,750
General reserve
30,000,000
- Equity share
1,436,505 28,563,495
dividend
Investment:
40,845,000
Secured loan:
300000 13.5%
Current assets:
Deb of Rs. 100 each 300,000,000
loan & advances
+O/s deb. int.
4,050,000 34,050,000 Closing stock:
wine, cigars
3,375,000
Current liabilities &
+ food stuffs
4,460,000
7,835,000
Provision
Cash in Hand
330,000
O/s repairs &
28,900 Cash in Bank
11,457,000
maintenance
Creditors
6,300,000 Debtors
2,889,000
Proposed equity dividend
9,660,000
- Bad. Debt
19,250
2,869,750
Provision for tax
2,442,605 Carried forward
202,500
O/s wages & salaries
192,000
Adv. exp
Miscellaneous

19

Expenses:
Preliminary &
formation expenses
276,987,000

1,200,000
276,987,000

CASE 4.2:
SUMMARY
This is the cas of Supreme Paper Company Ltd. Here list of balances is given, from that
information following items should be prepared.
1. The adjustment entries.
2. The Profit and loss account for the year ending December 31, 1982.
3. The Profit and loss appropriation account.
4. The Balance Sheet as on December 31, 1982.
P&L A/c for the year ended as on Dec. 31, 1982
Particulars
To Tax on dividend
To Debenture interest
84000
+ Outstanding interest 176000
To Un-expired payment
To Directors fees
To Interim Dividend
To Depreciation on
Land & Building
1,00,000
Plant
6,00,000
Furniture
32,000
Vehicles
50,000
To Tax
Total

Amount (Rs.)
31,400

Particulars

Amount (Rs.)

By Dividend on Investment
By Net Loss

1,00,000
20,53,300

Total

21,53,300

2,60,000
60,000
40,000
3.45,000

7,82,000
6,34,900
21,53,300

Profit & Loss Appropriation A/c for the year ended on Dec. 31, 1982
Particulars
To Debenture Redemption
Reserve
To General Reserve
To provision for dividend
To provision for taxation
To net loss
Total

Amount (Rs.)

Particulars

Amount (Rs.)

4,00,000

By balance b/d

32,51,700

7,00,000
7,20,000
3,24,540
20,53,300

By balance c/f

9,46,140

41,97,840

Total

20

41,97,840

Balance sheet as on 31st December 1982

Liabilities

Amount

Owners Equity:
Share capital

60,00,000

Reserves and Surplus:

General reserve
6,00,000
+ Extra provision
7,00,000
Debn

redm

reserve
+ Extra provision

4,00,000
4,00,000

Share premium
Secured Loans:
13 % debenture
20,00,000
+ interest outstanding
1,76000
Current Liabilities:
Other liabilities
Creditors & accured charges
Provisions:
Proposed dividend
Provision for taxation

13,00,000

8,00,000

Assets

Amount

Fixed Assets:
Lease hold and
& Building
- Depreciation

16,00,000
1,00,000

15,00,000

Plant & machinery 42,40,000

- Depreciation
6,00,000

36,40,000

Furniture & Equip

- Depreciation

3,20,000
32,000

2,88,000

Vehicle
- Depreciation

2,00,000
50,000

1,50,000

1,00,000

21,76,000
600
40,69,000

7,20,000
12,06,540

Investment:
Current Assets:
Debtors
Stocks & WIP
Cash
Bank
Other assets

10,00,000
49,10,000
33,20,000
10,000
5,00,000
1,08,000

By P & L A/C

9,46,140

1,63,72.140

1,63,72,140

Adjustment Entries
Date

Particulars

March 31

Depreciation A/C
To land & building A/C
(Depreciation provided on the
Land & Building at the end of
the year)
Depreciation A/C
To plant & machinery A/C
(Depreciation provided on the
plant & Machinery at the end
of the year)
Depreciation A/C
To vehicle A/C
(Depreciation provided on the
vehicle at the end of the year)

March 31

Mach 31

LF No.
Dr.

Debit

Credit

1,00,000
1,00,000

Dr.

6,00,000
6,00,000

Dr.

50,000
50,000

21

March 31

March 31

March 31

March 31

March 31

March 31

March 31

P & L A/C
Dr.
To Depreciation A/C
(Transfer of Depreciation A/C
to the Profit & Loss A/C
P & L appropriation A/C
Dr.
To provision for taxation A/C
(Provision made for the Taxation)
P & L appropriation A/C
Dr.
To debenture redemption reserve A/C
(Provision made for the Debenture
Redemption Reserve)
P & L appropriation A/C
Dr.
To general reserve A/C
(Provision made for the General Reserve)
P & L appropriation A/C
Dr.
To provision for dividend A/C
(Provision made for the proposed
12 % Dividend)
Debenture interest A/C
Dr.
To debenture A/C
(Outstanding Debenture Interest)
P & L A/C
Dr.
To debenture interest A/C
(Outstanding Debenture Interest)

7,82,000
7,82,000

3,24,520
3,24,520
4,00,000
4,00,000

7,00,000
7,00,000
7,20,000
7,20,000

1,76,000
1,76,000
1,76,000
1,76,000

TOTAL

56,44,520

56,44520

CASE 4.2
Monarch Trading Corporation Ltd.
Trial Balance for the Period ending on March 31, 1982

Particulars
Leasehold Land
Buildings
Stock (31 March 1982) Merchandize
Cost of Merchandise sold
Carriage inward
Creditors
Wages
Debtors
Bank overdraft
Interest on Bank overdraft
Advertisement expenses
Premium received (Apprentice Scheme)

22

Debit
2,000,000
77,00,000
4,80,000
10,120,000
95,000

Credit

4,520,000
8,850,000
9,405,000
3,000,000
240,000
328,000
50,000

Office administration expenses

Discount allowed and earned
Capital
Salaries
Electricity charges
Rent and rates
Retained earnings (1st April 1981)
Commission earned
Investments & interests on investment
Sales
Stock of stationery as at 1st April 1981
Furniture and fixtures
Salesmens salary and commission
Carriage outward
Purchase on stationery
Accumulated depreciation 1st April 1981
Buildings
Furniture and Fittings
Provision for bad debts as on 1st Apr-81
Advance Income tax during the year
Total53,596,000

192,000
147,000

101,000
10,000,000

3,553,000
186,000
215,000
3,188,000
75,000
247,500
30,038,000

2,750,000
45,000
1,710,000
1,632,000
218,000
180,000

1,750,000
450,000
176,500
3,550,000
53,596,000

Journal Adjustment Entries

Date Particulars

LF
No.

P & L A/c Dr.

Debit
Rs.
100,000

To Land A/C
Wages A/c Dr.
Salaries A/c Dr.

Credit
Rs.
100,000

15,000
27,500
To Outstanding wages A/c
To Outstanding salaries A/c

Miscellaneous Expense A/c Dr.

P & L A/c Dr.

15,000
27,500
160,000
40,000

To Advertisement Expense A/c

Premium of Apprentice A/c Dr.

200,000
12,500

To Prepaid Apprentice A/c

Commission accured A/c Dr.

12,500
12,500

To Commission A/c
P & L A/c Dr.

12,500
195,000

To Stationery A/c
P & L A/c Dr.

195,000
470,250

To Provision for Bad Debts A/c

P & L A/c Dr.

4,70,250
5,56,000

23

To Accumulated A/c

5,56,000

Adjusted Trial Balance for the Period ending on March 31, 1982
Particulars
Leasehold Land
Buildings
Stock (31 March 1982) Merchandize
Cost of Merchandize sold
Carriage inward
Creditors
Wages
Debtors
Bad Debt Provision
Bank overdraft
Interest on Bank overdraft
Advertisement expenses
Miscellanius Expense (Advertisement)
Premium received (Apprentice Scheme)
Office administration expenses
Discount allowed and earned
Capital
Salaries
Electricity charges
Rent and rates
Retained earnings
Commission earned
Outstanding commission
Investments & interests
Sales
Stock of Stationery
Furniture and fixtures
Salesmens salary and commission
Carriage outward
Accumulated Depreciation
Buildings
Furniture and Fixture
Advance Income tax during the year 1982
Outstanding Wages and Salaries
P and L A/c
Total

Debit
19,00,000
7,70,000
4,80,000
10,120,000
95,000

Credit

4,520,000
8,850,000
9,405,000
6,46,750
3,000,000
240,000
128,000
160,000
37,500
192,000
147,000

101,000
10,000,000

3,580,000
186,000
215,000
3,188,000
875,000
12,500
2,750,000
30,000
1,710,000
1,632,000
218,000

247,500
30,038,000

2,135,000
6,210,00
3,550,000
42000
1,348,750
54664250

24

54664250

Profit and Loss Account and Retained Earning Statement for the Year ended
March 31, 1982
Particulars
To Cost of Marchandise
To Carriage Inward

Amount

Wages
88,50,000
Add: Outstanding Wages
15,000
To P and L A/c (Gross Profit)
Total

1,28,000
40,000

To Office Expense
To Discount Allowed
To Salaries Paid
Add: Outstanding Salary
To Electric Charges
To Rent & Rates
To Depreciation:
Building
Furniture
To Salesman Salary
To Carriage Outward
To Provision of Tax
To Net Profit
Total

88,65,000
82,08,000
2,72,88,000

1,00,000 By Trading A/c

1,95,000 By Premium of
Apprentice
4,70,250
2,40,000 By Discount
Earned

To Bad Debt Reserve

To Interest on BOD

Add: Adv. Expense

Amount
Amount
3,00,38,000
27,50,000 2,72,88,000

2,72,88,000 Total

To Land A/c
To Stationary A/c

To Advertisement Expense

Amount Particulars
1,01,20,000 By Sales
95,000 Less: Sales
Return

35,53,000
27,000

3,85,000
1,71,000

By Commission
Earned
1,68,000 Add: Accrued
Commission
1,92,000 By Investment
and its Interest
1,47,000

82,08,000
12,500

1,01,000
75,000
12,500

87,500
2,47,500

35,80,000
1,86,000
2,15,000

5,56,000
16,32,000
2,18,000
3,93,770
3,63,480
86,56,500 Total

25

86,56,500

Balance Sheet as on March 31, 1982

Liabilities
Capital
Capital

Amount

Reserve and Surplus:

Retained Earnings
Net Profit
Premium of Apprentice
Provisions:
Accumulated Depreciation
Building
17,50,000
Add: Depreciation
Furniture
Add: Depreciation
Provision For Tax
Current Liabilities:
Creditors
BOD

3,85,000
4,50,000
1,71,000

Outstanding Wages
Outstanding Salary

Total

Amount Assets
Amount
Fixed Assets:
1,00,00,000 Land
Building
Furniture
Investments:
31,88,000
3,63,480
37,500
Current Assets:
Debtors
94,05,000
Less: Prov. For
6,46,750
Bad debts
21,35,000
Stock of Merchandice
6,21,000
3,93,770 Stock of Stationary
Loans and Advances:
45,20,000 Accured Commission
30,00,000 Advance Tax Paid
(1982)
15,000
27,000
Miscellaneous Expenses:
Advertisement Expenses 2,00,000
Less: Written Off
40,000
2,43,00,750 Total

Amount
19,00,000
77,00,000
17,10,000

87,58,250
4,80,000
30,000
12,500
35,50,000

1,60,000
2,43,00,750

Stationery Account

Dr

Cr

Particulars
To Balance B/d
To Bank A/c

Amount
45,000
180,000

Particulars
By P & L A/c
By Closing Stock

Amount
195,000
30,000

Total

225,000

Total

225,000

CASE 5.1
Oliver Optics Company
Trading A/c for year ending 31 December
Particulars
To purchase
To gross profit

Amount

Amount

Particulars

15,130
23,280
38,410

By Sales
By closing stock

26

Amount

Amount
35,210
3,200
38,410

P&L A/c for year ending 31 December

Expenditure

Amt. ($)

To Insurance
To Interest on uncles loan
To Office & admin. Exp.
Salary to Miss Schultz
Salary to Oliver
To Selling Exp. (Shop salaries)
(3,500 + 3,200 + 4,800 + 400)
To Rent
To Office supply used
To Electricity
To Travel and Advertising Exp.
To Bad debts
To B.D.R.
To Depreciation on equipment
To Prov. for loss by rejection
To Net profit

Amt.($)
50
60

Particulars

800
1,200

Amt.($)

Amt.($)

By Gross profit

23,280

2,000
11,900
2,000
200
430
2,670
310
103
800
208
2,429
23,280

23,280

Balance Sheet As On 31 December

Liabilities
Capital
+ Net profit
Provision for loss
by rejection
Uncles Loan
Creditors for
Equip. (W.N-4)
Creditors

Amount
($)

Amount
($)

5,000
2,429

Assets

7,429
208

Equipment (W.N-4)
Less Dep. (W.N-5)
Debtors

2,000
3,000

Less B.D.R.
Insurance paid in advance

5,130

Interest paid in advance

Stock of office supply
Closing stock

Amount
($)

Amount
($)

5,000
800
10,250

4,200

103

20
50
3,200

17,767

17,767

WORKING NOTE NO. 1 (W.N.-1)

Particulars
To Interest on uncles loan
To Interest on equipments
To Installment and down payment
To Salaries paid
To rent paid
To Suppliers (Creditors)
To Office supply
To Electricity and etc.
To Travel and Advertisement Exp.
To Insurance paid

10,147
150

Amount
80
120
2,000
13,900
2,000
10,000
250
430
2,670
200
31,650

27

Particulars
By Capital
By uncles loan
By Debtors

Amount
5,000
2,000
24,650

31,650

Working Note No. 2 (W.N.-2)

Debtors A/c
Particulars

Amount ($)

To Sales

Particulars

35,210

By Cash (Cash a/c)

By Bad Debts
By Balance (Cash sales)

35,210

Amount ($)
24,650
310
10,250
35,210

Working Note No. 3 (W.N.-3)

Creditors A/C
Particulars
To bank/cash A/C.
To balance

Amount ($)
10,000
5,130
15,130

Particulars
By Purchase

Amount ($)
15,130
15,130

Working Note No. 4 (W.N.-4)

Equipment value
Down payment
+ Instalment (250* 16)
Total Cost

= 1,000
= 4,000
= 5,000
Working Note No. 5 (W.N.-5)
Equipment value

Equipment value
Less Scrap value
Net value

= 5,000
= 1,000
= 4,000

Usage period = 5 Years

So, Depreciation = 800 p.a
Journal Entries
2 Audit fees

4 Entertainment expenses
6 Remuneration paid to
managing director
10 Loss on sales of assets
12 Depreciation (for the
year ended Dec
31, 1982)
14 Interest paid on loans
during the year
18 establishment expense
20 Traveling expense

5,500 P&L 16 Rental received from

employees provided
with quarters
84,720 P&L 32 Interest and dividends
received on investments
3,52,000 P&L
2,150 P&L
11,12,280 P&L

3,68,300 P&L
2,75,370 P&L
1,82,250 P&L

28

47,510 P&L

88,480 P&L

22 Insurance expenses for

1,15,420
machinery at work site
24 Salaries, wages, bonus, 38,91,640
etc
26 Repairs to machinery
3,74,860
and building
28 Power and fuel
11,22,760
30 Freight and transpora- 31,88,320
tion expenses
APPR.
34 Stores and materials 1,05,69,720
consumed
3 Loan given to a sister
4,76,580
instititution, Capital
Stores, a supplier of
building materials
19 Debtors
42,780
23 Cash in hand
4,38,940

P&L
P&L
P&L
P&L
P&L 11 Retained earning (jan. 1,
1982)
P&L
B/S

B/S
B/S

25 Cash at bank

5,35,180 B/S

29 Investments in shares

9,88,170 B/S

31 Fixed Assets

1,42,09,400 B/S

33 Advances to suppliers
6,57,450
equipment and stores
35 Advance income-tax
11,23,020
36 Billing to customers* 2,21,98,220
37 Earnest money deposi1,70,700
ted with the Municipal corporation, Government, etc. against
building
7 Stock of stores and
25,63,410
supplies-Dec. 31, 1982 1,02,26,770
9 Value of uncompleted
contracts (based on
architect certificate
and valued at contract
price for work done
13 Interest accured on
22,510
Total

43,57,430 P&L

B/S
B/S
B/S
B/S

1 Paid up capital

5 Unsecured loan from bank

8 Accumulated depreciation
Dec. 31, 1982
27 Interest accured but not
due on unsecured loan
15 Secured loans (against
work-in-progress and
stock of stores and
supplies) repayable on
Dec. 31, 1986)
17 on account advances
received from customers
against uncompleted
contracts
21 Creditors
38 Income-tax payable
General reserve

27,70,000

B/S

6,24,850
80,61,490

B/S
B/S

86,320

B/S

53,67,530

B/S

33,52,950

B/S

42,72,900

B/S

21,97,520
4,40,71,440

B/S
B/S

B/S
B/S

B/S

7,52,98,420

7,52,98,420

29

30

Profit and Loss Account for the year 31st Dec. 1982
Particulars
2 Audit fees

4 Entertainment expenses
6 Remuneration paid to
managing director
10 Loss on sales of assets
12 Depreciation (for the
year ended Dec
31, 1982)
14 Interest paid on loans
during the year
18 Miscellaneous
establishment expense
20 Traveling expense
22 Insurance expenses for
machinery at work site
24 Salaries, wages, bonus,
etc
26 Repairs to machinery
and building
28 Power and fuel
30 Freight and transporation expenses
34 Stores and materials
consumed
Less: Adj. 2
less: 6,03,500
Adj. 2: Loss on transit
Adj. 3: Loss on invest
ments:
Adj. 4: Provision for bad
debts
Total

Amount
5,500

16

84,720

32

3,52,000
2,150
11,12,280

Particulars
Rental received from
employees provided
with quarters
Interest and dividends
received on investment
* Contract account profit

Amount
47,510

88,480

Net Loss

2,05,83,115

Total

2,14,59,046

3,68,300
2,75,370
1,82,250
1,15,420
38,91,640
3,74,860
11,22,760
31,88,320
1,05,69,720
99,66,220
2,41,400
1,75,000
856
2,14,59,046

Profit and Loss Appropriation A/c

Particulars
Loss b/d
Proposed dividend

Total

Amount
2,05,83,115

Particulars
Retained earning (Jan. 1, 1982)

2,77,000

General reserve

2,08,60,115

31

Amount
43,57,430
2,77,000

Balance c/d

1,62,25,685

Total

2,08,60,115

Balance Sheet as on 31st Dec. 1982

Liabilities
1 Paid up capital
Reserve and Surplus:
General reserve
Adj.5: Transfer to P&L
Approx. A/c
Secured Loan
15 Secured loans

Unsecured Loan:
5 Unsecured loan from bank
Current Liabilities and
Provisions
A. Current Liabilities
27 Interest accured but not due
17 On account Advance:
Less: Profit margin 739941
21 Creditors
38 Income-tax payable

Amount
2770000

4379440

31
8
29

5367530

624850

19

86320
2613009

23
25
36

4272900
2197520

7
9

B. Provisions
Adj. 5:Proposed dividend

Assets

13
277000
3

33
35

Amount
Share
Capital
Fixed Assets
14209400
Less: Accumulated
8061490
Investments
Investments in shares
988170
debentures
Adj.3: Less loss
17500
Current
Assets, Loans and
Advances
A. Current Assets
Debtors
42780
Less: Provision for bad
856
debts
Cash in hand
Cash at bank
Billing to customers*
Stock of stores and
supplies Dec. 31,
Value of uncompleted
contacts (based on architects certificate and
valued at contract price
for work done
interest accrued on invest
ments
Adj: 2.Insurrance claim
B. Loans
Loan given to a sister
institution, Capital
Stores, a supplier of
building, materials
Advances to suppliers
of equipment and stores
Advance income-tax paid
P&L A/c (net loss)

Amount
:
6147910

813170

41924
438940
535180
22198220
2563410
10226770

22510
362100
476580

657450
1123020

1,62,25,685

Total

62003569

37 Earnest money deposited

with the Municipal
corporation, Government, etc. against
building contracts
Total

Adjustment
Adj 1: Contingent liability of Rs. 380000

32

1,70,700

62003569

Adj 2: Loss in transit included in cost of material consumed

603500
60% B/S
362100
40% P/L
241400
Adj 3: 250000 Market value decreased due to liquidation 30 paise realizable
i.e. 75000
therefore loss on investment
175000
Adj 4: Provision of bad debts on Government contract 2%
Assuming Debtor to be of Government contract
Adj 5: Last year unpaid dividend decided to be paid
No effect
Adj 6: Future contract of next accounting year estimated
No entries
Working note:
Contract complected
Contract profit (profit margin)
greater than 50% of contract
Total contract
Profit margin is to be taken as 2/3rd of total contract profit
If less than 50% 1/3rd of total contract profit is realized.
Here,
11971450 / 22198220 = 53%
Therefore,
5% of 22198220 = 1109911 * 2/3 = 749441 profit margin for current year.

CASE No. 5.3

Consumer Product International Ltd.
Manufacturing & Trading A/c for the year ended April 30, 1982

Dr.

Cr.
Particulars
To, Opening Stock
Raw Material
WIP- Fin. Goods.
Raw Material Purchase
Processing Charge
Power & Fuel
Freight & Forwarding Ch.
Cost of Goods
Purchase of finished
Goods
Gross Profit

Amount

Particulars
By Closing Stock:
WIP-Fin. Goods.
Raw Material

75544017
61855426
427169870
1107096
1107096
16032535
592731752
476575039
2666275

Cost of Goods
Sales
Goods Destroyed by fire

Amount
63331296
52830817

476575039
592737152
885342435
55862

406156983
885398297

885398297

33

Profit & Loss A/c for the year ended April 30, 1982.

Dr.

Cr.

Particulars
To,
Employee R & B.
Con. of Stores
Rent, Rates, Taxes
- Prepaid
Insurance
Advt.
- 50 %
Repair & Maint.
+ Un Recorded
Commission
Interest
Mis. Exp.
Depri.
+ Extra
Excise Duty
Tax.
Bad Debt.
Salaries
Loss by Fire
Net Profit?

Amount

Amount
37213329
1652486

5732667
19662
31749447
1592737
1805062
29650

2005610
221175

Particulars
By,
Gross Profit
Duty draw back
Other income

Amount

Amount
406156983
216567
3963465

5713005
1407567
30156710
1834712
103130
773772
16403391
2226785
135740481
129844757
265382
2305680
10512
44685316
410337015

410337015

Profit & Loss A/c for the year ended April 30, 1982.

Dr.
Particulars
To,
Interim Dividend
Proposed Div.
General Reserve
I
II
Bal C/F

Cr.
Amount

Amount
26822250
1965000

3062203
7713328

Particulars
By,
Net Profit

Amount

Amount
44685316

10775531
5122535
44685316

44685316

34

Balance Sheet as on April 30, 1982.

Particulars

Amount

Share Capital
Reserve
& Surplus:
Devel. & Rebate
General Reserve
43028712
+I
3062203
+ II
7713328
P & L A/C
Secured Loan:
Unsecured Loan:
Loan from Foreign
Liability:
Acceptance
Creditor
Unclaimed Div.
Adv. From Cust.
Un paid Salary
Proposed Div.
Un Recorded Main
Provision:
Tax Provision
Pro. for Exp.

Amount
29475000

187400

53804243
5122535

29770426

45950454
7156668
408510
614318
2305680
1965000
29650

6844362
396367

Particulars
Fixed Asset:
Building
Plant & Machi.

Amount

13514577
6213488

- Depri.
221175
Furniture
1781804
+ Depri. (wrongly)
64363
Auto & truck
985282
- Depri.
64363
Investment:
C.A. & Loan, Adv.
Current Asset:
Store and Spare
WIP
Finished goods
Debtor
50731705
- Bad Debt.
265382
Cash in hand
Bank Balance
Insu. Claim
Prepaid Rent
Creative Ltd. (advt)
Closing stock RM
Loan & Advances:
Adv. For Capital
WIP

249197180

Amount

5992313
1846167
920919

1818373
743916
62135880
50466323
23712
39848499
45350
19662
1592737
52830817
10859458
6358477
249197180

CASE NO. 5.4

CONSOLIDATED STEELS LTD.

Consolidated Steels Limited manufactures iron and steel products, steel castings
(including alloy steel castings) and various types of Industrial Machinery; e.g. Ball Mills,
E.O.T. Cranes, Copper converters, etc.
From the following trial balance and adjustments, prepare the Profit and Loss account,
the Profit and Loss Appropriation account and the Balance sheet.

35

Trial Balance as on December 31, 1982

Account Heads

Dr. (Rs.)

Share Capital
Reserves and surplus
Deferred Payment Liability
Unsecured Loans
Land and Roads
Buildings
Plant and Machinery
Furniture and Fixtures
Vehicles
Accumulated Depreciation
- On Building
- On Plant and Machinery
- On Furniture and Fixtures
- On Vehicles
Capital Work-in-Progress
Investments
Loose Tools (Stock on 31.12.1982)
Stores (Stock on 31.12.1982)
Raw Materials (Stock on 31.12.1982)
Debtors
Cash and Bank Balances
Loans and Advances
Creditors
Advance received against orders
Unclaimed Dividends
Sales
Cash subsidy
Raw Materials Consumed
Interest
Depreciation
Stores and Spares Consumed
Power and Fuel
Subcontracting
Rent, Rates and Taxes
Insurance
Advertisements
Repairs and Maintenance
Freight and Carriage
Bad debts and Advances Written off
Miscellaneous Expenses
Excise Duty
Salaries, Wages, etc.
Staff Welfare

Cr. (Rs.)
60,558,000
21,955,000
113,637,000
35,949,000

3,360,000
34,243,500
117,989,250
7,305,750
1,455,000
14,362,500
76,370,250
2,381,250
905,250
2,289,000
4,119,750
507,000
53,382,000
45,777,750
53,014,500
3,388,500
41,090,250
57,501,000
24,370,500
71,250
497,322,750
5,730,000
158,803,500
10,689,750
9,591,750
126,394,500
42,966,000
31,426,500
1,378,500
988,500
446,250
1,895,250
3,060,000
744,000
10,664,250
6,731,250
67,650,000
5,049,000
911,474,250

36

911,474,250

Additional Information:
(1) The Board of Directors resolved that Rs. 528,000 included in the interest, relating to buying
of an imported plant, be capitalized
(2) A provision of doubtful debts amounting to Rs. 468,000 to be made.
(3) The income-tax liability for the current year was Rs. 14,000.
(4) Company XYZ Limited, to which the company has given a loan of Rs. 326,400 went into
liquidation. The liquidator informed that all the unsecured creditors would get a 20%
dividend.
(5) Slow moving stock of the following items had to be written off:
Raw Materials Rs. 430,200
Loose Tools
Rs. 89,500
Stores
Rs. 689,400
(6) A pilferage of Rs. 5,500 was reported from the cash box. This had been included in the cash
balance in the Trial balance.
(7) Due to shift in the export policy, the company was to receive an additional cash subsidy of
Rs. 732,000
(8) Interest accrued and due on the loans taken Rs. 759,650
(9) Dividend (proposed) of Rs. 60,55,550 is to be provided.
(10) Closing stock (as on 31.12.82) of the Work-in-progress and Finished goods was:
Work-in-progress
Rs. 57,836,250.
Finished goods
Rs. 21,807,000.
Consolidated Steels Ltd.
P&L Account for the year ending on 31st Dec. 1982
Particulars
Opening stock:
-work-in-progress
-Finished Goods
Raw Materials Consumed
Stores & Spares consumed
Power & Fuel
Subcontracting
Freight & Carriage
Excise Duty
Gross Profit
Loss from Pilferage
Bad Debts (New)
261120
Bad Debts (Old)
744000
B.D.R.
468000
Interest
10689750
+ Acc. Interest
759650
11449400
- For Assets
528000
Depreciation
Rent, Rates & Taxes
Insurance

Amount
53638500
11434500
158803500
126394500
42966000
31426500
306000
6731250
142511250
576966000

Particulars
Sales:
Closing stock:
Work-in-Progress
Finished Goods

Gross Profit

1473120

10921400
9591750
1378500
988500

37

Amount
497322750
57836250
2180700

576966000
142511250

Advertisement
Repairs & maintenance
Misc. Expenses
Salaries, Wages etc.,
Staff Welfare
Provision for Tax
Loss on Moving Stock
Net Profit
Total

446250
1895250
10664250
67650000
5049000
14000
1209100
31224630
142511250

Total

142511250

P&L Appropriation Account for the year ending on 31st Dec. 1982
Particulars

Amount

Proposed Dividend
Surplus
Total

Particulars

6055550
25169080
31224630

38

Amount

Net Profit

31224630

Total

31224630

Consolidated Steels Ltd.

Balance sheet As on 31st Dec.-1982
Liabilities
1. Share Capital
2. Reserves & Surplus
Reserves & Surplus
+ Additional
Cash Subsidy
Surplus

Amount
60558000
21955500
732000
22687500
5730000
25169080

53586580

Assets
1. Fixed Assets
Land & Roads
Building
Plant & Machinery
+ Addition to P & M
Furniture
Vehicles
Capital work in process

Amount
3360000
34243500
117989250
528000
7305750
1455000
2289000

167170500

3. Secured Loans
2- Investments

4119750

4. Unsecured Loans
Loans
+ Unpaid Interest
5. C.L & Provisions
A. Current Liabilities
Differed payment
Creditors
Advance against order
Unclaimed Dividend
B. Provisions
Accumulated depreciation
- On Building
- On Plant & Mach.
- On Furniture
- On Vehicles
Tax Provision
Proposed Dividend

35949000
759650

11363700
57501000
24370500
71250
195579750

3. C.A., Loans & Adv.

A. Current Assets
Closing Stock
Debtors
Cash & Bank
Unreceived Subsidy
B. Loans & Advances
Loans
Bad Debts

178100900
52546500
3383000
732000
234762400
41090250
261120
40829130

275591530

14362500
76730250
2381250
9050250
94379250
14000
6055550

100448800
Total

36708650

296028550
446881780

Total

39

446881780

Calculations
1. Closing stock:
Loose tools
Stores
Raw Materials
Work in progress
Finished goods

417500
52692600
45347550
57836250
21807000
178100900

2. Lose on moving stock:

Loose tools
Stores
Raw Materials
Total

89,500
689,400
430,200
1,209,100

Manufacturing Account for the year ended on 31st December 1982.

Dr.

Cr.

Particulars

Amount
in 000

To, Opening Inventory

Raw Material
Work in Progress
To Net Purchase
To Direct Labour
To Indirect Labour
To Rent and Rates
To Canteen Charges
To Depreciation
Plant & Machinery
Building
To Fire Insu. Premium
To Power & Light
To Service Dept.
Total

1850
2300

Amount
in 000

4150
15800
9119
1450
825
2781

225
2100
300

Particulars
By Closing Inventory
Raw Material
Work in Progress

Amount
in 000

Amount
in 000

1600
2100

3700

By Balance C/F.
(Cost of Production)

2625
120
600
191
37761

34061

Total

37761

Trading Account for the year ended on 31st December 1982

Dr.

Cr.

Particulars
To, Opening Inventory
Finished Goods
To Cost of Production
To Gross Profit

Amount
in 000

Amount
in 000

Particulars
By Net Sales

3000
34061
14498

40

By Closing Inventory
Finished Goods

Amount
in 000

Amount
in 000
48709

2850

Total

51559

Total

51559

Profit & Loss Account for the year ended on 31st December 1982

Dr.

Cr.

Particulars

Amount
in 000

To Interest on Debenture
To Rent and Rates
To Depreciation
Building
Furniture
To Fire Insu. Premium
To Powe & Light
To Canteen Charges
To Service Dept.
To Discount Allowed
To Selling Expenses
To Packing Charges
To Advertising Exp.
To Office Salary
To Bad Debt Written Off
To Provision for I.T.
To Net Profit
Total

Amount
in 000
350
550

185
150

Particulars

Amount
in 000

By Gross Profit

335
60
100
515
382
520
800
760
1500
2600
250
2388
3388
14498

Amount
in 000
14498

Total

14498

Balance Sheet as on 31st December 1982

Dr.
Liabilities
Share Capital
Equity Shares
Reserve & Surplus
P & L A/c. (Net Profit)

Secured Loan
7% Debenture

Cr.
Amount
in 000

Amount
in 000
40000

Assets

Amount
in 000

Amount
in 000

Fixed Assets
Land
Buildings
Depreciation

10000
3500

6500

Plant & Machinery

Depreciation

21000
4100

16900

Furniture & Fixtures

Depreciation

4850
1487.6

3362.4

5000

6775

5000

Unsecured Loan
Investments
Fixed Depositors

398.4
Investments

Current Liabilities
Creditors

4250

41

Current Assets,
Loans and
Advances

4500

Provisions
Provision for I.T.

2388

Total

(A) Current Assets

Debtors
Cash in Hand
Cash at Bank
Closing Stock
Raw Material
1600
Work in Progress
2100
Finished Goods
2850
(B) Loans & Advances

58811.4

Total

11700
67
4232

6550
58811.4

Cost Distribution Schedule of Engineering Ancillaries Ltd.

Item

Basis of
Distribution

Production
Department

Sales
Department

Power &
Light

750,000 Kilo Watt

Hours
12:1:1:1

600000
750000
(12/15)

500000
750000
(1/15)

50000
750000
(1/15)

50000
750000
(1/15)

Rent &
Rates

1650000 Area
Sq. Feet
33:9:13:11

825000
1650000
(33/66)

225000
1650000
(9/66)

325000
1650000
(13/66)

275000
1650000
(11:66)

Canteen
Charges

3399000 No. of
Employee
27:1:4:1

2781000
3399000
(27/33)

103000
3399000
(1/33)

412000
3399000
(4/33)

103000
3399000
(1/33)

225000

85000

100000

75000

2100000 Cost of
P & Mach.

2100000

*****

*****

*****

Depreciation
on Building

500000 Cost of
Building
6:1:2:1

300000

50000

100000

50000

Fire Insu.
Premium

200000 Cost of
Building
6:1:2:1

1200000

20000

40000

20000

Proportion
of Service

573000

191000

191000

191000

****

Depreciation on
Furniture
Deprec
iation on
Plant &
Machinery

Total
Amount

485000 Cost of
Furniture
45:17:20:15

1:01:01

42

Administrative
Department

Service
Department

Department

CASE NO. 6.1.

CHARLES CROWN COMPANY

Solution 1
Project 220
Method (a):
102751.5 completed
106230.0 claimed
208961.5 total cost

49.16775% completed.
Method (b):
116970 completed
232294 claimed
349264 total cost

50.35429% completed
Net impact on companys B/s:
Billing Earned through Method (a): 116970
Cost earned through Method (a): 102751.5
Net Profit
14218.5
Answer:
Net profit earned for current year as per Method (a)
= 14218.5 49.16775 = 6990.92
Net profit earned for current year as per Method (b)
= 14218.5 50.35 = 7159.63
Net Change in P&L statement
= 6990.92 7159.63 = Rs. 168.71.
Solution 2. Project 221
Method (a):
76578.18 Task completed
9040.00
85618.18 Total cost
89.44% completed.
Method (b):
90780 Task completed
110220 Total Task (cost)
82.36% completed.
Net Billing = 90780 70578.18
= Rs. 14201.82 (Net profit)
Method (a): 89 unit of 44201.82 = 12702.32
(Net profit earned for current year)

43

Method (b): 82.36% of 44201.82 = 11696.98

(Net profit earned for current year)

Net change in P&L statement:

= 12702.32 11696.98
= Rs. 1005.34 (Net effect of changing Method)
Project 224:
Method (a):
11486.84 completed
100250.00 total task
111736.84
Total 10.28% task completed.
Method (b):
12250 task completed
121950 task task
Total 10.05% task completed.
Net profit = Net Billing Cost
= 12250 11486
= Rs. 763.16.
Entire profit will transfer to contingency reserve.
Ans 2.
Method (a):
Capital & Liabilities
Assets
Reserve & surplus:
Contingency Reserve 7227.58
Surplus
6990.92
Method (b):
Capital & Liabilities
Assets
Reserve & surplus:
Contingency Reserve 7058.87
Surplus
5759.63
Answer 3:
Net Profit:
Additional Billing
(125000 116970)
Estimated cost
(106230 100000)
Net profit
* Percentage compelation by
Method (a) (49.17%)

8030
6230
1800
= 885.02

44

Percentage compeletion by
Method (b) (50.35%)
Net Effect on profit

= 906.38
21.35

45

Answer 4:
Mr John would prefer Method A, as profitibility of Method A is higher than
profitibility of Method B.
CASE NO. 6.2
GOLDEN GATE HOLIDAY RESORT LTD.

Ans 1.
1. Copntribution from members (fees) can be capitalised. And revenue generating
from that would be reserve for the period.
2. Identification of Real value of contribution for 99 years and then amortisation of
that fees.
Ans 2.
Effect of on Accounts:
1.
* Contribution on liability side.
* Only return will be shown in the P&L Account.
2.
* Revenue Income (Amrtised value) = Proporturate Revenue Regonition
Real value of contribution/99 years.
* If instalment system is followed then proporturate division of EMI will be treated
as revenue and will be shown in P&L credit side.
Ans 3.
Second option is preferable because it reflects the revenue of primary business.
CASE NO. 7.3
CALCUTTA MOTORS PVT. LTD.

1. If there is no estimate for future warranty of repair cost, then current years
financial statement will show higher profit and results into outflow of current tax
and return to stake holders.
2. Mr Bannarji should make estimate for outstanding warranty expenditure on the
basis of some reasonable percentage on sale made.
3. Adding 2% warranty on expenditure (As per Income Tax Act in India) in Profit
& Loss account and then profit should be found. The second effect will be on
the provision side of Balance Sheet.
CASE NO. 7.4
VAT IN DAT

As per AS 2, Inventory should be valued net of MODVAT e.g.

Purchase Price

MODVAT

Net value of Inventory

MODVAT has been replaced by SENVAT in the year 2004.

46

CASE NO. 8.1

CONTROL DATA CORPORATION

Solution 1
As manufacturing cost of product is 50% of the selling piece of the listed selling price, it
can be possible to spend on maintenance of computer to increase the life of the product.
If possible, life of computer can be increased by 2 more years. Given figures of cost of
specification of computer it is always possible to increase the life of product.
Solution 2
Yes, CDC should change the department policy. Simple WDV would be more preferable
for six years. Depreciation rate will end up around 16.677, which will give stability in
cost and profit. As depending on nature of business, depreciation shares 317 of the total
cost which is considerable. Written Down Value (WDV) method will give constitency in
cost structure in long run..
CASE No. 8.2
National Pharma Ltd
Solution 1. Managerial factors :
*To sustain goodwill of the organisation or net profit is negative with present policy.
*To identify appropriate policy for depreciation that suits to the company.
*Present performance of the company will not show sound and rosy picture of the
organisation so far reporting to shareholders and other external associates some
adjustments in financial statement is required.
*To sustain dividend policy. For dividend policy decision led to reconsider the policy.
Operational Factors :
*Profit will turn from negative to positive. It will save the doubts of operational
efficiency of business.
*To identify appropriate policy for depreciation, in terms of accounting of usage of
fund since the doubts are raised by the secretary which will demand another thought
about companies policy.
*Reduction of Net profit ratio from 4% (app.) to 127. (app.) the strong factor to
think over operational issues. Depreciation policy is one of them.
Financial
*To have an ideal Dividend Policy decision for the current year. And use this
experience in future to divide such situation.
*Interest exp. is increased by more than five times. It will give considerable effect on
financial statement as interest are paid to long term loans which are taken for long-term
assets in general.
*To get an advantage of current amendment of financial policies of government for
example revised depreciation rates.
Solution 2
Suggested changes in accounting policy for depreciation is valid for the current year.
Because profit with suggested policy is getting increased by Rs. 54,89,000. So far the
current year, it is better to change the policy. Another reason, This action will reduce

47

current assets (by reducing inventory) of increase in Fixed Assets which is positive move
for the better financial reporting.
Solution 3
No. change in the depreciation policy is not the permanent solution. This proposed
change will differentiate the financial statement from the financial statement reported
policy then their would be serious question mark for the past performance. Because it can
be taken as c past attempt to create the secrete reserve.
Solution 4
Impect of taxation wound be as per the current rate. This action will increase tax.
CASE NO. 9.3
RAINBOW PAINTS LTD.

No Accounting standard for R&D.

(A) Amalgumation of Nature of Purchase.
Balance Sheet
Capital-Liabilities
Assets
Share capital
FA (3000 + 200)
(500 + 200)
700
Investment
Reserve & Surplus:
Current Assets
Reserve
1500
(1940 + 75)
Loans
(2500 + 50)
2550
Current Liabilities
(500 + 25)
525
5275

3200
60
2075

5275

(B)
The company can show the same as the Amalgamation of Nature of merger in
which all Assets and Liabilities will merge with acquiring company and Net impact of
change will be given to reserve and surplus. Investment (60) will be eliminated from
investments.

48