Marathon Batch Final With Cover and Index PDF

V’SMART ACADEMY
CA-INTER/IPCC
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V’Smart Academy
INDEX
Intermediate / IPCC Accounting
Sr. No. Chapter Page

No.
1. AS - 1 Disclosure of Accounting Policies 1
2. AS – 2 Valuation of Inventories 2
3. AS – 3 Cash Flow Statement 4
4. AS 10 – Property, Plant And Equipment (PPE) 5
5. Insurance Claim 7
6. Hire Purchase and Installment Purchase System 16
7. Profit or Loss Pre and post Incorporation 24
8. Investment Accounts 28
9. Accounts from Incomplete records 36
10. Cash flow statement 50
11. Company Final Accounts & Managerial Remuneration 59
12. Accounting for Bonus shares 76
13. Redemption of Preference Shares 79
14. Departmental Accounts 85
15. Accounting for Branches Including Foreign Branches 92

V’Smart Academy (88883 88886) By CMA, CS Rohan Nimbalkar
By
AS 1 “Disclosure of Accounting Policies”
Accounting Policies Means

1.
Specific accounting principles & Methods of applying such
principles adopted in preparation and presentation of financial
statements.
Selection of accounting policies is the responsibility of the management.
In selection of accounting policies, management should consider the following:
Primary consideration Other Major consideration
Financial statements should

give True & Fair view after Prudence Substance over Materiality
applying selected policies
- It means management - It is Reality over - Financial
should be careful while Legality. Statement should
selecting accounting - Management should disclose all
policies. select the accounting material Items i.e.
- Management should policies which help to those items which
apply knowledge i.e. present a accurate affect decision
nature of business, legal picture of financial making of users
requirements, statements rather
accounting standards, than legality
etc. in the selection of
policies.
Fundamental Accounting Assumption in preparation

2. of financial statements
Going concern Consistency Accrual Assumption
It is assumed that business it is always assumed that It is assumed that entity

would continue for foreseeable same accounting policies record all income & exp. on
period. would be followed every period basis. They are not
year. recorded on payment basis
1
AS – 2 Valuation of Inventories (Chart)
Inventory is an asset held for sale in the ordinary course of business (Finished
goods), which is used in the process of production (Raw Material) or consumed
in the process of production (Consumables and Loose tools)
Valuation of Inventory
Inventory is valued at COST (or) NRV whichever is LOWER

1.
Let us understand “What Cost of Inventory Includes”
Cost of Purchase Cost of Conversion Other Cost
This includes the costs incurred to convert the raw

Particulars ₹
materials into finished goods. (I.e. Factory Overheads)
Purchase price i.e. Basic price of
material --
Add Absorption of Factory Overheads
NON refundable taxes & duties --
Carrying Cost i.e. inward freight cost --
Inward Insurance cost -- Fixed OHs Variable OHs
All other costs incurred directly
related to acquisition and bringing it --
to warehouse. Actual Capacity > Actual Capacity
Normal Capacity < Normal Absorb based
Less
Trade discounts Quantity discounts -- on actual
Duty drawbacks & other similar -- capacity
items Absorb based on Absorb based on utilisation
-- Actual Capacity Normal Capacity
Cost of Purchase --
Example
All other costs incurred to bring the inventory to the present

location and condition. E.g. R & D cost, Packaging cost,
Administration OHs in relation to production activities
Cost of inventory should be ascertained in following manner

1. If stock in hand is unique not similar to each other, use Specific Identification Method.
2. If stock in hand is similar to each other, then use following two methods of stock valuation FIFO
Method, Weighted Average Method
Following Cost should be Excluded from Cost – 1) Abnormal Loss 2) Storage Cost (Unless those cost
are necessary for production process) 3) Administrative selling & distribution cost
4) Borrowing cost (Interest) 2
Let us see “How to Calculate Net Realisable Value

2.
Net Realisable Value of
Finished Goods Work in Progress Raw Material
Expected SP - Selling cost Expected SP of FG - Expected Strictly, No need to

cost to complete - Selling Cost determine NRV
3. Valuation of Raw Material
Its valuation is fully based on the valuation of Finished Goods
If finished goods is sold or expected to be If finished goods is sold or expected to

sold at cost or above cost be sold below the cost
Raw material should be valued at Raw material should be valued at

Cost Replacement Cost
Examples
Or
4. Disclosure Requirements –
The financial statement should disclosed
1. The accounting policies adopted in measuring inventories, including the cost

formula used. The accounting policies adopted in measuring inventories,
including the cost formula used
2. The total carrying amount of inventories and its classification appropriate to the
enterprise.
3
Cash Flow Statement

1.
Cash Flow Statement Means
Presentation of Flow of Cash & Cash Equivalents during the year , it includes following cash
activities
Cash Inflow/ Outflow Cash Inflow/ Outflow from Cash Inflow/ Outflow from
from Operating Activity Investing Activity Financing Activity
Activities that result in change in the

These are the principal/ Main It include the purchase and
size and composition of the capital
revenue generating activities of sale of long term assets and
(including Preference share capital
the enterprise. other investments than
in the case of a company) and
cash equivalents.
borrowings of the enterprise
Cash Inflow –
1. Cash Sales 2. Cash received Cash Inflow- Cash Inflow-
from Debtors /Commission 1. Sale of fixed assets 2. Sale 1. Issue of shares/debentures 2.
and Fees etc…. of investment Proceeds from long term, short
Cash Outflow 3. Interest received term Loans/ borrowings
1. Cash Purchases. 2. Cash 4. Dividend received Cash Outflow
operating expenses. 3. Payment Cash Outflow 1. Cash repayments of amounts
of wages/ Income Tax. 1. Purchase of fixed assets of Loan. 2. Redemption of
2. Purchase of investment shares & debentures. 3. Interest
Dividends paid
2. Presentation of Cash Flow Statement
Statement can be prepared with the help of following two methods.
Difference is there only in presentation of operating activities

(Other activities are presented in the same way in both Methods)
Direct Method Indirect Method
Major classes of gross cash receipts & cash Reconciles from net income to cash provided by
payments are disclosed. operating activities Indirect Method
1. Net Profit before tax 2. +/- Non cash & Non operating
3. +/- Changes in Working Capital 4. - Tax paid & extra ordinary items
3. Disclosure Required
• Components of Cash & Cash Equivalents

• Reconciliation of the amounts in CFS with amounts reported in Balance Sheet. 4
• Management comments on special areas.
AS 10 – PROPERTY, PLANT AND EQUIPMENT (PPE)
1. Let us see “What is PPE”

It is Tangible Assets
Expected to be used during more than a Held for use in

period of 12 months
Producing Goods Providing Services Rental to others For Administration

Purpose
2. Recognition of Plant, Property and Equipments
How entity should do "Recognition of PPE" i.e. (Recording of PPE in the books of account)
Initial Recognition & Measurement Subsequent Expenditure & Measurement
Asset is acquired by Does subsequent

expenditure (including
spare parts) increase the
future economic benefits?
Payment of Cash/Credit Self construction Exchange with In other words it is PPE if
another assets & it satisfies the recognition
by issue of criteria
Asset is recognised at securities
Purchase Price + Expenses Asset is recognised
incurred on asset to make at Cost of 1. Asset received is
asset ready to use Construction + recognised at Fair value Yes No
Expenses of either
Borrowing cost (a) Asset given up
incurred before (b) Asset acquired. Capitalise Charge to
Purchase price xx
+Freight xx asset is ready to along with P&L
+Non refundable taxes xx use. 2. If it is reliable PPE Statement
+PV of restoration xx (Avoid internal measurement of fair
+All direct exp Inc till profits on stores value of asset given up
ready to use xx used and abnormal or Asset received is not
+ 16- Borrowing cost xx loss of material and possible then new asset
-Discount xx
labour) received is to be
-Govt. Grants xx
xx recorded at Carrying
amount of Asset given
&
up.
It is recognised as PPE if it is expected to generate Future economic benefit to Entity

5
3. Important Points
1. Major assets replacement & overhauling should be capitalised and depreciated over its
useful life, if it satisfies PPE recognition criteria.
2. If deferred credit terms are involved, it should be recognised at present value and it would be
unwinded over the period. PPE should be recognised at cash price (Present Value) on the
date of Recognisation. Interest = Total Payment – Cash Price should be debited to P& L
unless asset is qualifying asset as per AS -16
3. Useful life, Residual value & depreciation method should be reviewed every year end.
4. Any change in price. Life, Realisable Value & method of depreciation - Account prospectively.
5. Select Cost or revaluation model for the entire class of items. Select and apply consistently.
6. If any major components is replaced then component to be recognised separately by
removing old component from book and depreciation on new component to be charged on
4.
Retirement of PPE
1. PPE is retired from active use and it is held for disposal - such PPE should be
stated in balance sheet Carrying amount (Net book value); or Net realisable value
(NRV) Whichever is LOWER
Replaced By
2. Disclose such items separately in the financial statements. Any expected loss
should be recognised immediately in the profit and loss statement.
5. Accounting disposal
COST Model Revaluation Model & Revaluation surplus exist
Profit/loss on disposal should be Profit/Loss on disposal should be transferred to P&L;

transferred to P & L After disposal, if any Revaluation surplus exists -
transfer to General reserve (Revenue reserves)
After disposal of a PPE, it should be completely eliminated from the financial statements i.e.
gross value and accumulated depreciation related to the asset:
6
V'Smart Academy (88883 88886) Insurance Claim
7
Insurable Value is the value of Stock in godown / Shop on the date of Fire
Note: If there is misappropriation of unrecorded sales then such unrecorded sales shall be added to Sales 8
9
10
V’Smart Academy (88883 88886) Insurance claim for loss of Stock & Loss of Profit
Insurance claim for loss of Stock & Loss of Profit
Question 1
A fire engulfed the premises of a business of M/s K on the morning of 1st July 2016. The building, equipment
and stock were destroyed and the salvage recorded the following:
The Building - ₹ 4,000; Equipment - ₹ 2,500; Stock - ₹ 20,000. The following other information was obtained
from the records saved for the period from 1st January to 30th June 2016:
₹
Sales 11,10,000
Purchases 9,37,500
Cartage inward 17,500
Wages 7,500
Stock in hand on 31st December, 2015 1,50,000
Building (value on 31st December, 2015) 3,75,000
Equipment (value on 31st December, 2015) 75,000
Depreciation provision till 31st December, 2015 on:
Building 1,25,000
Equipment 22,500
No depreciation has been provided since December 31st 2015. The latest rate of
depreciation is 5% p.a. on building and 15% p.a. on equipment by straight line method.
Normally business makes a profit of 25% on sales. You are required to prepare the statement of claim for
submission to the Insurance Company.
Answer
Statement of Claim
Items Cost Depreciation Salvage Claim
(₹) (₹) (₹) (₹)
A B C D (E=B-C-D)
Stock (W.N. 2) 2,80,000 20,000 2,60,000
Buildings 3,75,000 1,25,000 + 9,375 4,000 2,36,625
Equipment 75,000 22,500 + 5,625 2,500 44,375
5,41,000
Working Notes:
1. Memorandum Trading Account for the Period from 1.1.2016 to 30.6.2016
₹ ₹
To Opening Stock (1.1.2016) 1,50,000 By Sales 11,10,000
To Purchases 9,37,500
To Cartage Inwards 17,500 By Closing Stock 2,80,000
To Wages 7,500 (Bal. Fig.)
To Gross Profit 2,77,500
(25% of ₹ 11,10,000)
13,90,000 13,90,000
11
By CMA, CS Rohan Nimbalkar (88887 88889)
2. Stock Destroyed Account

₹ ₹
To Trading Account 2,80,000 By Stock Salvaged Account 20,000
By Balance c/d (For Claim) 2,60,000
2,80,00 2,80,000
0
Master Problem
Problem No. 2
On 19th May, 2011, the premises of Mr. Gyan were destroyed by fire, but sufficient records were saved, wherefrom
the following particulars were ascertained:
Particulars Amount is Rs.

Stock at cost on 1.1.2010 36,750
Value of Stock on 31.12.2010 39,800
Purchases less returns during 2010 1,99,000
Sales less return during 2010 2,43,500
Purchases less returns during 1.1.2011 to 19.5.2011 81,000
(Valued at 90% of Cost Price)
Sales less returns during 1.1.2011 to 19.5.2011 1,55,600
Wages from 1.1.2011 to 19.5.2011 30,000
In valuing the stock for the balance Sheet as at 31st December, 2010, Rs. 1,150 had been written off on certain
stock which was a poor selling line having the cost Rs. 3,450. A portion of these goods were sold in March, 2011
at a loss of Rs. 125 on original cost of Rs 1,725. The remainder of this stock was now estimated to be worth the
original cost. Subject to the above exceptions, gross profit has remained at a uniform rate throughout. The
stock salvaged was Rs 2,900. Policy is taken for Rs. 30,000
Additional Information:
1. Sales Upto 19th May, 2011 includes Rs. 4,000 for which goods had not been dispatched.
2. Purchases Upto 19th May, 2011 did not include Rs. 10,000 for which purchase invoices had not been
received from suppliers, though goods have been received in Godown.
3. Purchases includes purchase of machinery costing Rs. 3000.
4. Wages includes wages Rs. 2,000 for installation of machinery.
5. Sales of 1.1.2011 to 19.5.2011 include goods sold on approval basis amounting to Rs. 40,000. No
approval has been received in respect of 3/4th of the goods sold on approval.
6. Sale value of goods drawn by partners Rs. 10,000
7. Cost of goods sent to consignee on 15th April, 2011 lying unsold withthem Rs. 7,000
8. Cost of goods distributed as free samples Rs. 1,500
9. The insurance company also admitted firefighting expenses of 4000.

12
10. Selling Expenses – Rs. 5000, Administration Expenses – Rs. 8800, Financial Exp. - Rs. 3200.
11. Gross profit of current year shows 5% increasing trend on sales.
Show the amount of the claim of stock destroyed by fire. Memorandum Trading Account to be prepared for the
period from 1-1-2011to 19-5-2011 for normal and abnormal items.
Solution
Trading Account
(For the Period 1-1-2011 to 19-5-2011)
Dr. Cr.
Particulars Normal Abnormal Total Particulars Normal Abnormal Total
To Opening 37,500 3,450 40,950 By Sales less 1,20,000 1600 1,21,600

Stock returns (W.N. 4)
To Purchase 88,000 - 88,000 By Loss on Sale - 125 125
(W.N. 1)
To wages 28,000 -28,000 By Goods with 7000 - 7000
(W.N. 2) Consignee
To Gross Profit 30,000 - 30,000 By Goods with 22,500 - 22,500
(Normal Sales x Customer
25%) (W.N.3) (W.N. 5)
By Closing 34,000 1725 35,725
Stock
(Bal. Figure)
183500 3450 186950 183500 3450 186950
Trading A/c for the year ended 31st December 2010
Particulars Amount (₹) Particulars Amount (₹)

To opening stock 36.750 By sales return 2,43,500
To purchase 1,99,000
To G.P. 48,700 By closing stock 39800
(+) Amt written off to 1150 40,950
restore at cost
2,84,450 2,84,450
Calculation of claim for loss of stock
Particulars Amount (₹)

Stock lost due to fire 35,725
(-) salvaged value (2,900)
(+) fire fighting expenses 4000
36,825
Average clause = loss x Insured Value/Insurable Value
= 36,825 x 30000/35,725
= 30,924
13
Note: - As policy amount is 30,000 & loss is 30,924. Maximum claim can be 30,000 only
Working Notes
1. Adjusted Purchases:
Cost Price of Purchase: 81,000 = 90% (Stock shown at 90% of Cost)
? = 100%
81000/90 x 100 = 90,000
Particulars Amount
Cost Price 90,000
(+) Unrecorded Purchase 10,000
(-) Purchase of Machinery (it was included in Purchase by mistake) 3000
(-) Drawings at Cost (10,000 – 25%) 7,500
(-) Free Sample 1,500
Total 88,000
2. Wages:
Particulars Amount
Wages (as given) 30,000
Less: Wages for installation 2,000
Wages to be debited to trading A/c 28,000
3. Percentage of Gross Profit (on the Basis of last year’s trading Account)
Percentage of Gross Profit = G.P./ Sales x 100

= 48,700/2,43,500 x 100
= 20
= 20% + 5 % Increase in G.P in current year (Given)
Total % of Gross profit = 25 %
4. Sales

Sales given 1,55,600
(-) goods not dispatched 4,000
(-) sales on approval (40000 x 3/4) (Approval not received) 30,000
1,21,600
5. Cost price of goods with customer

Sales on approval – Gross Profit
(30,000 - 25%) 22,500
6. Selling Expenses of ₹ 5000, Administration expenses of ₹ 8800, Financial expenses of ₹ 3200 is

excluded as these expenses are part of Profit and Loss Account.
14
Question No. 3
X Ltd. has insured itself under a loss of profit policy for ₹ 3,63,000. The indemnity period under
the policy is six months. On 1st September, 2010 a fire occurred in the factory of X Ltd. and the
normal business was affected upto 1st March, 2011.
The following information is compiled for the year ended on 31st March, 2010:
Particulars ₹
Sales 20,00,000
Insured standing charges 2,40,000
Uninsured standing charges 20,000
Net profit 1,20,000
Following further details of turnover are furnished.

(a) Turnover during the period of 12 months ending on the date of fire was ₹ 22,00,000.
(b) Turnover during the period of interruption was ₹ 2,25,000.
(c) Actual turnover during the period from 1.9.2009 to 1.3.2010 during the preceding year
corresponding to the indemnity period was ₹ 7,50,000.
X Ltd. spent an amount of ₹ 40,000 as additional cost of working during the indemnity period.
On account of this additional expenditure:
(a) There was a saving of ₹ 15,000 in insured standing charges during the period of
indemnity.
(b) Reduced turnover avoided was ₹ 1,00,000 i.e. but for this expenditure, the turnover after
the date of fire would have been only ₹ 1,25,000.
A special clause in the policy stipulates that owing to the reasons acceptable to the insurer
under the special circumstances the following increases are to be made:
(a) Increase of turnover standard and actual by 10%.
(b) Increase in rate of gross profit by 2% from previous year's level.
X Ltd. asks you to compute the claim for loss of profit. All calculations should be to the nearest
rupee.
15
V'Smart Academy (88883 88886) Hire Purchase
16
17
(Above entry -At Cash Price)

(Above entry -At Cash Price)
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19
Hire-Purchase Instalment Payment
V’Smart Academy (88883 88886) SystemInstalment Payment System
Hire-Purchase
Question No. 1
Srikumar bought 2 cars from ‘Fair Value Motors Pvt. Ltd. on 1.4.2014 on the following terms (for both cars):
Down payment 6,00,000

1st Installment at the end of first year 4,20,000
2nd Installment at the end of 2nd year 4,90,000
3rd Installment at the end of 3rd year 5,50,000
Interest is charged at 10% p.a.
Srikumar provides depreciation @ 25% on the diminishing balances.
On 31.3.2017 Srikumar failed to pay the 3rd installment upon which ‘Fair Value Motors Pvt. Ltd.’ repossessed
1 car. Srikumar agreed to leave one car with Fair Value Motors Pvt. Ltd. and adjusted the value of the car
against the amount due. The car taken over was valued on the basis of 40% depreciation annually on written
down basis. The balance amount remaining in the vendor’s account after the above adjustment was paid by
Srikumar after 3 months with interest @ 20% p.a.
You are required to:
1. Calculate the cash price of the cars and the interest paid with each installment.
2. Prepare Cars Account in the books of Srikumar assuming books are closed on March 31, every year.
Figures may be rounded off to the nearest rupee.
Answer
Calculation of Interest and Cash Price
No. of Outstanding Amount Outstanding Interest Outstanding
installments balance at due at the balance at the balance at
the end after time of end before the the beginning
the payment installment payment of
of installment installment
[1] [2] [3] [4] = 2 +3 [5] = 4 x [6]4-5

10/110
3rd - 5,50,000 5,50,000 50,000 5,00,000

2nd 5,00,000 4,90,000 9,90,000 90,000 9,00,000
1st 9,00,000 4,20,000 13,20,000 1,20,000 12,00,000
Total cash price = ₹ 12,00,000+ 6,00,000 (down payment) = ₹ 18,00,000.
20
V’Smart Academy (88883 88886) Hire-Purchase Instalment Payment System
(ii) In the books of Srikumar Cars Account

Date Particulars ₹ Date Particulars ₹
1.4.2014 To Fair Value 18,00,000 31.3.2015 By Depreciation A/c 4,50,000
Motors A/c By Balance c/d 13,50,000
18,00,000 18,00,000
1.4.2015 To Balance b/d 31.3.2016 By Depreciation A/c
13,50,000 3,37,500
By Balance c/d
10,12,500
1.4.2016 To Balance b/d 13,50,000 31.3.2017 13,50,000

10,12,500 By Depreciation A/c 2,53,125
By Fair Value Motors A/c
(Value of 1 Car taken over
after depreciation for 3 years
@ 40% p.a.) [9,00,000 -
(3,60,000 + 2,16,000 + 1,29,600)] 1,94,400
By Loss transferred to
Profit and Loss A/c on
surrender (Bal. fig.)
1,85,288
By Balance c/d
½ (10,12,500-2,53,125)
3,79,687
10,12,500 10,12,500
Question 2
A Ltd. purchases a plant on hire purchase basis for ₹ 1,00,000 (cash price ₹ 86,000) and makes the payment
in the following order:
Down payment ₹ 20,000,

1st instalment after one year ₹ 40,000;
2nd instalment after two years ₹ 20,000;
Last instalment after three years.
You are required to calculate: (i) total interest and (ii) interest included in each instalment.
(b) Shyam purchased from Rang Ltd. a colour T.V set on 1st October, 2011 on the hire purchase system. The
cash price of the T.V set was ₹ 15,000. Terms of payment were ₹ 1,150 down payment and half yearly
instalments of ₹ 4,000 each, over two years. The first instalment was to be paid on 31st March, 2012. Rate
of interest was 12% p.a. Shyam could not pay the second instalment due on 30th September, 2012 and as a
consequence, Rang Ltd. repossessed the T.V set after fulfilling legal formalities. Prepare Shyam’s Account
and Goods Repossessed Account in Rang Ltd.'s books. Assume that the estimated value of the T.V set at the
time of repossession was ₹ 12,000 and after an expenditure of ₹ 850 on repairs and repacking, the
company resold it on 6th December, 2012 for cash to one of its employees at a special discount of 10
percent on cash price i.e. for ₹ 13,500. Rang Ltd. closes its books of accounts every year on 31st March.
21
Answer
a) (i) Total interest = Hire Purchase price - Cash price = ₹ 1,00,000 - ₹ 86,000 =₹ 14,000
(ii) Hire purchase price outstanding at the beginning of each year
₹
(a) Hire purchase price 1,00,000
Less: Down payment (20,000)
(b) Hire Purchase Price outstanding at the beginning of the 1st year 80,000
(c) Less: 1st instalment (40,000)
Hire Purchase price outstanding at the beginning of the 2nd year 40,000
Less: 2nd instalment (20,000)
Hire Purchase Price outstanding at the beginning of the 3rd year 20,000
Less: 3rd instalment (20,000)
Nil
Ratio of (a): (b): (c) = 80:40:20 or 4:2:1
Amount of interest included in instalments:
1st instalment 4/7 x ₹ 14,000 ₹ 8,000

2nd instalment 2/7 x ₹ 14,000 ₹ 4,000
3rd instalment 1/7 x ₹ 14,000 ₹ 2,000
(b) Shyam’s Account in the books of Rang Ltd.
₹ ₹
2011 2011
Oct. 1 To Sales Account - Cash price 15,000 Oct. 1 By Bank - down payment 1,150
2012 To Interest A/c - on ₹ 13,850 2012 By Bank – First instalment 4,000

Mar.31 @ 12% p.a. for six months 831 Mar.3
1 By Balance c/ 10,681
15,831 15,831
2012 2012 By Goods Repossessed /c:
Sept.3 estimated value of T.V. set on 12,000
Apr. 1 To Balance b/d 10,681 0 repossession
Sept.30 To Interest A/c - on ₹ 10,681 641

@ 12% p.a. for six months
Sept.30 To Profit & Loss A/c - Profit

on repossession of T.V. set 678
12,000 12,000
22
Goods Repossessed Account

₹ ₹
2012 2012
Sept.30 To Shyam Restaurant - Estimated value Dec. 6 By Cash – Sale 13,500

of T.V. set on repossession 12,000 proceeds
Dec.6
To Bank expenses on repairs, repacking
etc. 850
To Profit & Loss Account - Profit on

resale 650
13,500 13,500
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V'Smart Academy (88883 88886) Profit or Loss Pre and post Incorp
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V'Smart Academy (88883 88886) Profit or Loss Pre and post Incorp
25
V’Smart Academy (88883 88886)
Profit/Loss prior to Incorporation
Question No. 1
The partners of Ojasvi Enterprises decided to convert the partnership firm into a Private Limited
Company Tejasvi (P) Ltd. with effect from 1st January, 2015. However, company could be
incorporated only on 1st June, 2015. The business was continued on behalf of the company and the
consideration of ₹ 6,00,000 was settled on that day along with interest @ 12% per annum. The
company availed loan of ₹ 9,00,000 @ 10% per annum on 1st June, 2015 to pay purchase
consideration and for working capital. The company closed its accounts for the first time on 31st
March, 2016 and presents you the following summarized profit and loss account:
₹ ₹
Sales 19,80,000
Cost of goods sold 11,88,000
Discount to dealers 46,200
Directors’ remuneration 60,000
Salaries 90,000
Rent 1,35,000
Interest 1,05,000
Depreciation 30,000
Office expenses 1,05,000
Preliminary expenses (to be written off in first
year itself) 15,000 17,74,200
Profit 2,05,800
Sales from June, 2015 to December, 2015 were 2½ times of the average sales, which further
increased to 3½ times in January to March quarter, 2016. The company recruited additional work
force to expand the business. The salaries from July, 2015 doubled. The company also acquired
additional showroom at monthly rent of ₹ 10,000 from July, 2015.
You are required to prepare a statement showing apportionment of cost and revenue between
pre-incorporation and post-incorporation periods. Also suggest the purposes for which Pre-
incorporation Profit & Pre-incorporation Losses can be used for.
Answer
Tejasvi (P) Limited
Profit and Loss Account for 15 months ended 31st March, 2016
Pre. inc. (5 months) (₹) Post inc. (10 months) (₹)
Sales (W.N.1) 3,00,000 16,80,000

Less: Cost of sales 1,80,000 10,08,000
Discount to dealers 7,000 39,200
Directors’ remuneration - 60,000
Salaries (W.N.2) 18,750 71,250
Rent (W.N.3) 15,000 1,20,000
Interest (W.N.4) 30,000 75,000
Depreciation 10,000 20,000
Office expenses 35,000 70,000
Preliminary expenses 15,000
Net profit 4,250 2,01,550
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V’Smart Academy (88883 88886)
Purposes for which pre-incorporation profits and losses can be used are as follows:
Pre-incorporation Profits can be used for: Pre-incorporation Losses can be used for:
• writing off Goodwill on acquisition • setting off against Post-Incorporation

• writing off Preliminary Expenses Profit
• writing down over-valued assets • addition to Goodwill on acquisition
• issuing of bonus shares • writing off Capital Profit
• paying up partly paid shares.
Working Notes:
1. Calculation of sales ratio
Let the average sales per month in pre-incorporation period be x
Average Sales (Pre-incorporation) =xX5 = 5x
Sales (Post incorporation) from June to December, 2015 = 2½x X 7 = 17.5x
From January to March, 2016 = 3½x X 3 = 10.5x
Total Sales 28.0x
Sales ratio of pre-incorporation & post incorporation is 5x : 28x
2. Calculation of ratio for salaries
Let the average salary be x
Pre-incorporation salary = xX5 = 5x
Post incorporation salary
June, 2015 = x
July to March, 2016 = x X 9 X 2 = 18x
19x
Ratio is 5 : 19
3. Calculation of Rent ₹
Total rent 1,35,000
Less: Additional rent for 9 months @ ₹ 10,000 p.m. 90,000
Rent of old premises apportioned in time ratio 45,000
Apportionment Pre Inc. Post Inc.
Old premises rent 15,000 30,000
Additional Rent 90,000
15,000 1,20,000
4. Calculation of interest
Pre-incorporation period from January, 2015 to May, 2015
6,00,000×12×5/100×12 = ₹ 30,000
Post incorporation period from June, 2015 to March, 2016
9,00,000×10×10 = ₹ 75,000
100×12
= ₹ 1,05,000
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V'Smart Academy (88883 88886) Investment Accounts
(Initial Recognition is always at Cost in both types)
Subsequent Measurement:
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Applicable for Re-Classification:
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V’Smart Academy (88883 88886) Investment Accounts
Investment Accounts
Question
Following are the details of Investments made by Mr. Gyaan, Prepare Investment Accounts for
following investments assuming that Mr. Gyaan closes his books of accounts on 31st March,
2015:
1. 12% Debentures of Face Value ₹ 100 of M/s. A Ltd. as current investments.
Date Particulars
1-4-2014 Opening balance 4,000 debentures costing ₹ 98 each
1-6-2014 Purchased 2,000 debentures @ ₹ 120 cum interest
1-9-2014 Sold 3,000 debentures @ ₹ 110 cum interest
1-12-2014 Sold 2,000 debentures @ ₹ 105 ex interest
31-1-2015 Purchased 3,000 debentures @ ₹ 100 ex interest
31-3-2015 Market value of the investments ₹ 105 each
Interest due dates are 30th June and 31st December.
He incurred 2% brokerage for all his transactions. Assume that Mr. Gyaan follows FIFO
method for Debentures.
2. 12% State Government Bonds having face value ₹ 100
Date Particulars
01.04.2014 Opening Balance (1200 bonds) book value of ₹ 126,000
02.05.2014 Purchased 2,000 bonds ₹ 100 cum interest
30.09.2014 Sold 1,500 bonds at ₹ 105 ex interest
Interest on the bonds is received on 30th June and 31st Dec. each year.
Assume that Mr. Gyaan follows Average Cost Method for Bonds.
3. Equity Shares of X Ltd. With face value of ₹ 10 each.
Date Particulars
01.04.2014 Opening Balance (1000 Equity Shares) book value of ₹ 2,00,000
15.04.2014 Purchased 5,000 equity shares @ ₹ 200,Brokerage of 1% was paid in addition
(Face Value of shares ₹ 10)
03.06.2014 The company announced a bonus issue of 2 shares forevery 5 shares held.
16.08.2014 The company made a rights issue of 1 share for every 7 shares held at ₹250 per
share. The entire money was payable by 31.08.2014.
22.8.2014 Rights to the extent of 20% were sold @ ₹ 60. Theremaining rights were
subscribed.
02.09.2014 Dividend @ 15% for the year ended 31.03.2014 wasreceived on 16.09.2014 32
15.12.2014 Sold3,000 shares@ ₹ 300. Brokerage of 1% wasincurred extra.
15.01.2015 Received interim dividend @10% for the year 2014-15
31.03.2015 The shares were quoted in the stock exchange @ ₹ 220
Assume that Mr. Gyaan follows Average Cost Method for Equity shares.
Investment A/c(Scrip: 12% Debentures)

for the year ending on 31-3-2015
(Interest Payable on 30th June and 31st December)
Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value Value
1.4.2014 To Balance 4,00,000 12,000 3,92,000 30.6.2014 By Bank - 36,000 -
b/d (6,00,000x6%)
1.6.2014 To Bank 2,00,000 10,000 2,34,800 1.9.2014 By Bank(W.N. 3,00,000 6,000 3,17,400
(W.N. 1) 2)
1.9.2014 To Profit & - - 23,400 1.12.2014 By Bank(W.N. 2,00,000 10,000 2,05,800
Loss 3)
A/c(W.N. 2)
31.1.2015 To Bank 3,00,000 3,000 3,06,000 1.12.2014 By Profit & - - 9,600
Loss a/c(W.N.
3)
31.3.2015 To Profit & - 45,000 - 31.12.14 By Bank - 6,000 -
Loss A/c (1,00,000 x
(Bal. Fig,) 6%)
31.3.2015 By Profit & Loss - - 3,400
A/c (b.f.)
31.3.2015 By Balance c/d 4,00,000 12,000 4,20,000
(W.N.4)
9,00,000 70,000 9,56,200 9,00,000 70,000 9,56,200
12% Govt. Bonds (for the year ended 31st March, 2015)
(Interest Payable on 30th June and 31st December)
Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value Value
1.4.14 To Balance 1,20,000 3,600 1,26,000 30.6.14 By Bank A/c - 19,200 -
b/d (Interest)
(3,20,000 x
12% x 6/12)
2.5.14 To Bank A/c 2,00,000 8,000 1,92,000 30.9.14 By Bank A/c 1,50,000 4,500 1,57,500
30.9.14 To P&LA/c - - 8,438 31.12.14 By Bank A/c - 10,200 -
(Profit on (Interest)
Sale)
(1,70,000 X
(W.N.5) 12% X 6/12)
31.3.15 P & L A/c - 27,400 - 31.3.15 By Bal. c/d 1,70,000 5,100 1,68,938
(Interest) (W.N. 6)
(b.f.)
3,20,000 39,000 3,26,438 3,20,000 39,000 3,26,438
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Investments in Equity shares of X Ltd.
(for year ended 31.3.2015)
Date Particulars No. Dividend Cost Date Particulars No. Dividend Cost
01.04.14 To Balance B/d 1000 - 2,00,000
15.4.14 ToBank A/c 5,000 - 10,10,000 16.9.14 By Bank - 1500 7,500
(W.N. 7) (Dividend)
3.6.14 ToBonus Issue 2,400 - - 15.12.14 By Bank 3,000 - 8,91,000
(Sale)
31.8.14 ToBank A/c 960 - 2,40,000 15.1.15 By Bank - 6,360 -
(W.N. 8) (interim
dividend)
15.12.14 To P & L - - 4,28,660
A/c(profit)(W.N.
9)
31.3.15 To P & L A/c - 7,860 - 31.3.15 By Bal. c/d 6,360 - 9,80,160
(b.f.) (W.N. 10)
9360 7,860 18,78,660 9360 7,860 18,78,660
Working Notes for 12% Debentures

1. 1.6.2014 Purchase cost of 2,000 debentures
200 Debentures @ ₹ 120 cum interest 2,40,000

Add: Brokerage @ 2% 4,800
2,44,800
Less: Interest for 5 months (10,000)
Purchase cost of 2,000 debentures 2,34,800
2. 1.9.2014 Sale value& Profit 0n 3,000 debentures
₹
Sales price of debentures cum interest (3,000 x ₹ 110) 3,30,000
Less: Brokerage @ 2% (6,600)
3,23,400
Less: Interest for 2 months (6,000)
Sale value for 3,000 debentures 3,17,400
Less: Cost Price of Debentures 3,92,000x 3000 Deb. (2,94,000)
4,000 Deb.
Profit on sale 23,400
3. 1.12.2014Loss on sale of debentures as on

₹
Sales price of debentures (2,000 x ₹ 105) 2,10,000
Less: Brokerage @ 2% (4,200)
2,05,800
Less: Cost price of Debentures (98,000 + 1,17,400) 2,15,400
Loss on sale 9,60034

4. Valuation of closing balance as on 31.3.2015:

A. Market value of 4,000 Debentures at ₹ 105 = ₹ 4,20,000
B. Cost price of 1,000 debentures at ₹ 1,17,400&3,000 debentures at ₹ 3,06,000

Therefore total cost is (1,17,400 + 3,06,000) ₹ 4 23 400
Value at the end = 4,20,000 i.e. whichever is less
Working Notes for 12% Bonds
5. Profit on sale of bonds on 30.9.14

= Sales proceeds - Average cost
Sales proceeds = ₹ 1,57,500
Average cost = [(1,26,000+1,92,000) x 1,500/3,200] = 1,49,062.50
Profit = 1,57,500- ₹ 1,49,062.50=₹ 8,438 (approx.)
6. Valuation of bonds on 31st March, 2015

Cost = 3,18,000/3,200 x1,700 = 1,68,937.50
Working Notes for Equity Shares
7. Cost of equity shares purchased on 15/4/2014

= Cost + Brokerage
= (5,000 x₹ 200) + 1% of (5,000 x ₹ 200) = ₹ 10,10,000
8. Right Issue as on 31.08.14

Rights Available : { 1,000 + 5000 + 2400 / 7} = 1200 Shares
Rights Sold 1200 x 20% = 240 at 60 each therefore 14,400 (240 x 60) transferred to P&L A/c
Rights Purchased 1200 x 80% = 960 at ₹ 250 each therefore ₹ 2,40,000 (960 shares x 250 each) debited to investment account.
9. Sale proceeds and Profit on Sale of equity shares on 15/12/2014

Sales proceeds (3000 x 300) - 1%₹ 8,91,000
Less: Average cost[(2,00,000 + 10,10,000+2,00,000-7,500) x 3,000/9,360]

₹ [14,42,500 x 3,000/9,360] = 4,62,340
Profit =₹ 8,91,000 - ₹ 4,62,340=₹ 4,28,660.
10. Valuation of equity shares on 31st March, 2015

Cost =₹ {14,42,500 x 6360/9,360} = ₹ 9,80,160
Market Value = 6,360 shares x ₹ 220 = ₹13,99,200
Closing stock of equity shares has been valued at ₹ 9,80,160 i.e. cost being lower than the market
value.
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V'Smart Academy (88883 88886) Incomplete records
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V’Smart Academy (88883 88886) Accounts from Incomplete Records
Accounts from Incomplete Records
Question No. 1
The following is the Balance Sheet of Manish and Suresh as on 1st April, 2016:
Liabilities ₹ Assets ₹
Capital: Building 1,00,000
Manish 1,50,000 Machinery 65,000
Suresh 75,000 Stock 40,000
Creditors for goods 30,000 Debtors 50,000
Creditors for expenses 25,000 Bank 25,000
2,80,000 2,80,000
They give you the following additional information:
(i) Creditors' Velocity* 1.5 month & Debtors' Velocity* 2 months.

(ii) Stock level is maintained uniformly in value throughout all over the year.
(iii) Depreciation on machinery is charged @ 10%, Depreciation on building @ 5% in the current
year.
(iv) Cost price will go up 15% as compared to last year and also sales in the current year will
increase by 25% in volume.
(v) Rate of gross profit remains the same.
(vi) Business Expenditures are ₹ 50,000 for the year. All expenditures are paid off in cash.
(vii) Closing stock is to be valued on LIFO Basis.
(viii) All sales and purchases are on credit basis and there are no cash
purchases and sales.
Prepare Trading, Profit and Loss Account, Trade Debtors A/c and Trade
Creditors A/c for the year ending 31.03.2017.
(* Velocity indicates the no. of times the creditors and debtors are turned over a year.)
Answer
Trading and Profit and Loss account for the year ending 31st March, 2017
Particulars ₹ Particulars ₹
To Opening Stock 40,000 By Sales 4,31,250
To Purchases (Working Note) 3,45,000 By Closing Stock 40,000
To Gross Profit c/d (20% on
sales) 86,250
4,71,250 4,71,250
To Business Expenses 50,000 By Gross Profit b/d 86,250
To Depreciation on:
Machinery 6,500
Building 5,000 11,500
To Net profit 24,750
86,250 86,250
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Trade Debtors Account

To Balance b/d 50,000 By Bank (bal.fig.) 4,09,375
To Sales 4,31,250 By Balance c/d (1/6 of 4,31,250) 71,875
4,81,250 4,81,250
Trade Creditors Account

To Bank (Balancing figure) 3,31,875 By Balancing b/d 30,000
To Balance c/d/ (1/8 of ₹ 3,45,000) 43,125 By Purchases 3,45,000
3,75,000 3,75,000
Working Note:
₹
(i) Calculation of Rate of Gross Profit earned during previous year
A Sales during previous year (₹ 50,000 x 12/2) 3,00,000
B Purchases (₹ 30,000 x 12/1.5) 2,40,000
C Cost of Goods Sold (₹ 40,000 + ₹ 2,40,000 - ₹ 40,000) 2,40,000
D Gross Profit (A-C) 60,000
E 20%
Rate of Gross Profit ₹ 60,000/₹ 3,00,000 x 100
Calculation of sales and Purchases during current year ₹
(ii)
Cost of goods sold during previous year 2,40,000
A
Add: Increases in volume @ 25 % 60,000
B
3,00,000
Add: Increase in cost @ 15% 45,000
C
Cost of Goods Sold during Current Year 3,45,000
D
Add: Gross profit @ 25% on cost (20% on sales) 86,250
E
Sales for current year [D+E] 4,31,250
F
Question No. 2
From the following information in respect of Mr. Preet, prepare Trading and Profit and Loss Account
for the year ended 31st March, 2016 and a Balance Sheet as at that date:
(1) Liabilities and Assets

31-03- 31-03-2016
2015
₹ ₹
Stock in trade 1,60,000 1,40,000
Debtors for sales 3,20,000 ?
Bills receivable - ?
42
Creditors for purchases 2,20,000 3,00,000

Furniture at written down value 1,20,000 1,27,000
Expenses outstanding 40,000 36,000
Prepaid expenses 12,000 14,000
Cash on hand 4,000 3,000
Bank Balance 20,000 1,500
(2) Receipts and Payments during 2015-2016:
Collections from Debtors (after allowing 2 1/2% discount) 11,70,000

Payments to Creditors (after receiving 2% discount) 7,84,000
Proceeds of Bills receivable discounted at 2%) 1,22,500
Proprietor’s drawings 1,40,000
Purchase of furniture on 30.09.2015 20,000

12% Government securities purchased on 1-10-2015 2,00,000
Expenses 3,50,000
Miscellaneous Income 10,000
(3) Sales are effected so as to realize a gross profit of 50% on the cost.
(4) Capital introduced during the year by the proprietor by cheques was omitted to be recorded
in the Cash Book, though the bank balance of 9,500 on 31st March, 2016 (as shown above), is
after taking the same into account.
(5) Purchases and Sales are made only on credit.
(6) During the year, Bills Receivable of ₹ 2,00,000 were drawn on debtors. out of these, Bills
amount to ₹ 40,000 were endorsed in favour of creditors. Out of this latter amount, a Bill for ₹
8,000 was dishonoured by the debtor.
Answer
Trading and Profit and Loss Account of Mr. Preet for the year ended 31st March, 2016
Amount Amount
₹ ₹
To Opening stock 1,60,000 By Sales 13,98,000
To Purchases (W.N.5) 9,12,000 By Closing stock 1,40,000
To Gross profit c/d (Bal.fig.) 4,66,000 _______
15,38,000 15,38,000
To Expenses (W.N.7) 3,44,000 By Gross profit b/d 4,66,000
To Discount allowed 32,500 By Discount received 16,000
(W.N.9) (W.N.10)
To Depreciation on 13,000 By Interest on Govt. 12,000
furniture (W.N.1) Securities (W.N.8)
To Net profit 1,14,500 By Miscellaneous income 10,000
5,04,000 5,04,000
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Balance Sheet of Mr. Preet as on 31st March, 2016

Liabilities Amount Assets Amount
₹ ₹
Capital (W.N.6) 3,76,000 Furniture 1,27,000
Add: Additional capital 1,72,000 12% Government 2,00,000
(W.N.2) Securities
Accrued interest on
Govt. securities (W.N.8) 12,000
Add: Profit during the 1,14,500
year Debtors (W.N.3) 3,26,000
6,62,500 Bills Receivable 35,000
Less: Drawings (1,40,000) 5,22,500 (W.N.4)
Stock 1,40,000
Creditors 3,00,000 Prepaid expenses 14,000
Outstanding expenses 36,000 Cash on hand 3,000
Bank balance 1,500
8,58,500 8,58,500
Working Notes:
1. Furniture account
₹ ₹
To Balance b/d 1,20,000 By Depreciation (bal.fig.) 13,000
To Bank 20,000 By Balance c/d 1,27,000
1,40,000 1,40,000
2. Cash and Bank account

₹ ₹
To Balance b/d By Creditors 7,84,000
Cash 4,000 By Drawings 1,40,000
Bank 20,000 By Furniture 20,000
To Debtors 11,70,000 By 12% Govt. securities 2,00,000
To Bill Receivable 1,22,500 By Expenses 3,50,000
To Miscellaneous 10,000 By Balance c/d
income Cash 3,000
To Additional Capital 1,72,000 Bank 1,500
(bal.fig.)
_______
14,98,500
14,98,500
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3. Debtors account
₹ ₹
To Balance b/d 3,20,000 By Cash and Bank 11,70,000
To Creditors (Bills 8,000 By Discount 30,000
receivable
dishonoured)
To Sales (W.N.11) 13,98,000 By Bills Receivable 2,00,000
By Balance c/d (bal.fig.) 3,26,000
17,26,000 17,26,000
4. Bills Receivable account

₹ ₹
To Debtors 2,00,000 By Bank 1,22,500
By Discount 2,500
By Creditors 40,000
By Balance c/d (bal. fig.) 35,000
2,00,000 2,00,000
5. Creditors account
₹ ₹
To Bank 7,84,000 By Balance b/d 2,20,000
To Discount 16,000 By Debtors (Bills 8,000
receivable
To Bills receivable 40,000 dishonoured) 9,12,000
To Balance c/d 3,00,000 By Purchases (bal. fig.)
11,40,000 11,40,000
6. Balance Sheet as on 1st April, 2015

Creditors 2,20,000 Furniture 1,20,000
Outstanding expenses 40,000 Debtors 3,20,000
Capital (balancing figure) 3,76,000 Stock 1,60,000
Prepaid expenses 12,000
Cash 4,000
_______ Bank balance 20,000
6,36,000 6,36,000
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7. Expenses incurred during the year

₹
Expenses paid during the year 3,50,000
Add: Outstanding expenses as on 31.3.2016 36,000
Prepaid expenses as on 31.3.2015 12,000 48,000
3,98,000
Less: Outstanding expenses as on 31.3.2015 40,000
Prepaid expenses as on 31.3.2016 14,000 (54,000)
Expenses incurred during the year 3,44,000
8. Interest on Government securities

2,00,000 x 12% x 6/12= ₹ 12,000
Interest on Government securities receivables for 6 months = ₹ 12,000
9. Discount allowed
₹
Discount to Debtors 11,70,000/97.5% ×2.5% 30,000
Discount on Bills Receivable 1,22,500/ 98%×2% 2,500

32,500
10. Discount received

₹
Discount to Creditors 7,84,000/98% ×2% 16,000
11. Credit sales

Cost of Goods sold = Opening stock + Net purchases - Closing stock
= ₹ 1,60,000 + ₹ 9,12,000 - ₹ 1,40,000 = ₹ 9,32,000
Sales price = ₹ 9,32,000 + 50% of 9,32,000 = ₹ 13,98,000
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Question No. 3
The following is the Balance Sheet of Chirag as on 31st March, 2015:
Capital Account 48,000 Building 32,500
Loan 15,000 Furniture 5,000
Creditor 31,000 Motor car 9,000
Stock 20,000
Debtors 17,000
Cash in hand 2,000
Cash at bank 8,500
94,000 94,000
a) A riot occurred on the night of 31st March, 2016 in which all books and records were lost.
The cashier had absconded with the available cash. He gives you the following
information:
b) His sales for the year ended 31st March, 2016 were 20% higher than the previous year’s. He
always sells his goods at cost plus 25%; 20% of the total sales for the year ended 31st March,
2016 were for cash. There were no cash purchases
c) On 1st April, 2015 the stock level was raised to ₹ 30,000 and stock was maintained at this
new level all throughout the year.
d) Collection from debtors amounted to ₹ 1,40,000 of which ₹ 35,000 was received in cash,
Business expenses amounted to ₹ 20,000 of which ₹ 5,000 was outstanding on 31st March,
2016 and ₹ 6,000 was paid by cheques.
e) Analysis of the Pass Book revealed the Payment to Creditors ₹ 1,37,500, Personal Drawing ₹
7,500, Cash deposited in Bank ₹ 71,500, and Cash withdrawn from Bank ₹ 12,000.
f) Gross profit as per last year’s audited accounts was ₹ 30,000.
g) Provide depreciation on Building and Furniture at 5% and Motor Car at 20%.
h) The amount defalcated by the cashier may be treated as recoverable from him.
You are required to prepare the Trading and Profit and Loss Account for the year ended 31st March,
2016 and Balance Sheet as on that date.
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Answer
Trading and Profit and Loss Account For the year ending on 31st March, 2016
To Opening Stock 20,000 By Sales 1,80,000
To Purchases (bal.fig.); 1,54,000 By Closing Stock 30,000
To Gross Profit c/d (@20% on sales) 36,000

2,10,000 2,10,000
To Sundry Business Expenses 20,000 By Gross Profit b/d 36,000
To Depreciation on 3,675
Building 1,625
Furniture 250
Motor 1,800
To Net profit transferred to 12,325
Capital A/c
36,000 36,000
Balance Sheet as at 31st March, 2016

Capital Account: Building 32,500
Opening Balance 48,000 Less: Depreciation (1,625) 30,875
Add: Net profit 12,325 Furniture 5,000
60,325 Less: Depreciation (250) 4,750
Less: Drawings (7,500) 52,825 Motor Car 9,000
Loan 15,000 Less: Depreciation (1,800) 7,200
Sundry Creditors 47,500 Stock in trade 30,000
Outstanding 5,000 Sundry Debtors 21,000
Expenses
Cash at Bank 22,000
Sundry Advances
(Amount recoverable
from Cashier) 4,500
1,20,325 1,20,325
48
Working Notes:
(i) Total Debtors Account
To Balance b/d 17,000 By Bank (₹ 1,40,000 - ₹ 35,000) 1,05,000
To Sales (80% of 1,44,000 By Cash A/c 35,000
₹ 1,80,000)
By Balance c/d 21,000
1,61,000 1,61,000
(ii) Total Creditors Account

To Bank 1,37,500 By Balance b/d 31,000
To Balance c/d 47,500 By Purchases 1,54,000
1,85,000 1,85,000
(iii) Cash Book

Particulars Cash ₹ Bank ₹ Particulars Cash ₹ Bank ₹
To Balance b/d 2,000 8,500 By Business Expenses 9,000 6,000
By Drawings - 7,500
To Sales 36,000 - By Sundry Creditors - 1,37,500
To Sundry Debtors 35,000 1,05,000 By Bank (Contra) 71,500 -
By Cash (Contra) - 12,000
To Cash (Contra) - 71,500
By Defalcation (Bal fig.) 4,500 -
To Bank (Contra) 12,000
By Balance c/d
(Bal fig.) 22,000
85,000 1,85,000 1,85,000 1,85,000
(iv) Last year’s Total Sales = Gross Profit x 100/20 = ₹ 30,000 x 100/20 = ₹ 1,50,000
(v) Current year’s Total Sales = ₹ 1,50,000+ 20% of ₹ 1,50,000= ₹ 1,80,000
(vi) Current year’s Credit Sales = ₹ 1,80,000 x 80%= ₹ 1,44,000
(vii) Cost of Goods Sold = Sales - G.P. = ₹1,80,000 - ₹ 36,000 = ₹ 1,44,000
(viii) Purchases = Cost of Goods Sold + Closing Stock - Opening Stock

= ₹ 1,44,000 + ₹ 30,000 - ₹ 20,000 = ₹ 1,54,000
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V'Smart Academy (88883 88886) Cash flow statement
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V’Smart Academy (88883 88886) Cash Flow Statements
Cash flow statement
Question No. 1
On the basis of the following information prepare a Cash Flow Statement for the year ended 31st March,
2017 (Using direct method):
(i) Total sales for the year were ₹ 398 crores out of which cash sales amounted to ₹ 262
crores.
(ii) Receipts from credit customers during the year, totalled ₹ 134 crores.
(iii) Purchases for the year amounted to ₹ 220 crores out of which credit purchase was 80%.
Balance in creditors as on
₹ 84 crores
1.4.2016
₹ 92 crores
31.3.2017
(iv) Suppliers of other consumables and services were paid ₹ 19 crores in cash.
(v) Employees of the enterprises were paid 20 crores in cash.
(vi) Fully paid preference shares of the face value of ₹ 32 crores were redeemed. Equity shares
of the face value of ₹ 20 crores were allotted as fully paid up at premium of 20%.
(vii) Debentures of ₹ 20 crores at a premium of 10% were redeemed. Debenture holders were
issued equity shares in lieu of their debentures.
(viii) ₹ 26 crores were paid by way of income tax.
(ix) A new machinery costing ₹ 25 crores was purchased in part exchange of an old machinery.
The book value of the old machinery was ₹ 13 crores. Through the negotiations, the vendor
agreed to take over the old machinery at a higher value of ₹ 15 crores. The balance was
paid in cash to the vendor.
(x) Investment costing ₹ 18 cores were sold at a loss of ₹ 2 crores.
(xi) Dividends totalling ₹ 15 crores (including dividend distribution tax of ₹ 2.7 crores) was also
paid.
(xii) Debenture interest amounting ₹ 2 crore was paid.
(xiii) On 31st March 2016, Balance with Bank and Cash on hand totalled ₹ 2 crores.
Answer
Cash flow statement (using direct method) for the year ended 31st March, 2017
(₹ in crores) (₹ in crores)
Cash flow from operating activities
Cash sales 262
Cash collected from credit customers 134
Less: Cash paid to suppliers for goods & services and to employees (251)
(Refer Working Note)
Cash from operations 145
Less: Income tax paid (26)
Net cash generated from operating activities 119
Cash flow from investing activities
Net Payment for purchase of Machine (25 - 15) (10)

Proceeds from sale of investments 16
55
Net cash used in investing activities 6

Cash flow from financing activities
Redemption of Preference shares (32)
Proceeds from issue of Equity shares 24
Debenture interest paid (2)
Dividend Paid (15)
Net cash used in financing activities (25)
Net increase in cash and cash equivalents 100
Add: Cash and cash equivalents as on 1.04.2016 2
Cash and cash equivalents as on 31.3.2017 102
Working Note:
Calculation of cash paid to suppliers of goods and services and to employees
(₹ in crores)
Opening Balance in creditors Account 84
Add: Purchases (220 x .8) 176
Total 260
Less: Closing balance in Creditors Account 92
Cash paid to suppliers of goods 168
Add: Cash purchases (220 x .2) 44
Total cash paid for purchases to suppliers (a) 212
Add: Cash paid to suppliers of other consumables and services (b) 19
Add: Payment to employees (c) 20
Total cash paid to suppliers of goods & services and to employees [(a)+ (b) + (c)] 251
56
Question No. 2
Preet Ltd. presents you the following information for the year ended 31st March, 2017:
(₹ in lacs)
(i) Net profit before tax provision 72,000

(ii) Dividend paid 20,404
(iii) Income-tax paid 10,200
(iv) Book value of assets sold 444
Loss on sale of asset 96
(v) Depreciation debited to P & L account 48,000
(vi) Capital grant received - amortized to P & L A/c 20
(vii) Book value of investment sold 66,636
Profit on sale of investment 240
(viii) Interest income from investment credited to P & L A/c 6,000
(ix) Interest expenditure debited to P & L A/c 24,000
(x) Interest actually paid (Financing activity) 26,084
(xi) Increase in working capital 1,34,580
[Excluding cash and bank balance]
(xii) Purchase of fixed assets 44,184
(xiii) Expenditure on construction work 83,376
(xiv) Grant received for capital projects 36
(xv) Long term borrowings from banks 1,11,732
(xvi) Provision for Income-tax debited to P & L A/c 12,000
Cash and bank balance on 1.4.2016 12,000
Cash and bank balance on 31.3.2017 16,000
You are required to prepare a cash flow statement as per AS-3.
57
Answer
Cash Flow Statement as per AS 3
Cash flows from operating activities: ₹ in lacs
Net profit before tax provision 72,000
Add: Non cash expenditures: 48,000
Depreciation 96
Loss on sale of assets 24,000 72,096
Interest expenditure (non-operating activity) 1,44,096
Less: Non cash income

Amortisation of capital grant received
(20)
Profit on sale of investments (non-operating income)
(240)
Interest income from investments (non-operating income)
(6,000) 6,260
Operating profit
1,37,836
Less: Increase in working capital
(1,34,580)
Cash from operations
3,256
Less: Income tax paid
(10,200)
Net cash generated from operating activities
(6,944)
Cash flows from investing activities:
Sale of assets (444 - 96)
348
Sale of investments (66,636+240)
66,876
Interest income from investments
6,000
Purchase of fixed assets
(44,184)
Expenditure on construction work
(83,376)
Net cash used in investing activities
(54,336)
Cash flows from financing activities:
Grants for capital projects
36
Long term borrowings
1,11,732
Interest paid
(26,084)
Dividend paid
(20,404) 65,280
Net cash from financing activities
Net increase in cash 4,000
Add: Cash and bank balance as on 1.4.2016 12,000
Cash and bank balance as on 31.3.2017 16,000
58
V'Smart Academy (88883 88886) Company Final Accounts
59
(This is applicable in case of Insufficient Profit or Loss)
60
61
62
63
64
A. Profits available for Dividend ,

B. Proceeds of Issue of New Shares
65
66
67
68
69
70
V’Smart Academy (88883 88886) Company Final Account
Company Final Account
Question 1
Girish Ltd. has the Authorised Capital of ₹ 10,00,000 consisting of 4,000 6% Preference shares of ₹ 100 each
and 60,000 equity Shares of ₹10 each. The following was the Trial Balance of the Company as on 31st March ,
2016
Particulars Dr. Cr.
Investment in Shares at cost 1,00,000
Purchases 9,81,000
Selling Expenses 1,58,200
Inventory as at the beginning of the year 2,90,400
Salaries and Wages 1,04,000
Cash on Hand 24,000
Interim Preference dividend for the half year to 30th 12,000
September
Bills Receivable 83,000
Interest on Bank overdraft 19,600
Interest on Debentures upto 30th Sep (1st half year) 7,500
Trade receivables and trade payables 1,00,200 1,75,700
Freehold property at cost 7,00,000
Furniture at cost less depreciation of ₹ 30,000 70,000
6% Preference share capital 4,00,000
Equity share capital fully paid up 4,00,000
5% mortgage debentures secured on freehold properties 3,00,000
Income tax paid in advance for the current year 20,000
Dividends 8,500
Profit and Loss A/c (opening balance) 57,000
Sales (Net) 13,40,700
Bank overdraft secured by hypothecation of stocks and 3,00,000
receivables
Technical knowhow fees at cost paid during the year 3,00,000
Audit fees 12,000
Total 29,81,900 29,81,900
You are required to prepare the Profit and Loss Statement for the year ended 31st March, 2016 and the
Balance Sheet as on 31st March, 2016 as per Schedule III of the Companies Act, 2013 after taking into account
the following -
1. Closing Stock was valued at ₹ 2,85,000.
2. Purchases include ₹ 10,000 worth of goods and articles distributed among valued customers.
3. Salaries and Wages include ₹ 4,000 being Wages incurred for installation of Electrical Fittings which were to
be recorded under "Furniture".
4. Bills Receivable include ₹ 3,000 being dishonoured bills. 50% of which had been considered irrecoverable.
5. Bills Receivable of ₹ 4,000 maturing after 31st March were discounted.
6. Depreciation on Furniture to be charged at 10% on Written Down Value.
7. Investment in shares is to be treated as non-current investments.
71
8. Interest on Debentures for the half year ending on 31st March was due on that date.
9. Provide Provision for taxation ₹ 8,000.
10. Technical Knowhow Fees is to be written off over a period of 10 years.
11. Salaries and Wages include ₹ 20,000 being Director's Remuneration.

12. Trade receivables include ₹ 12,000 due for more than six months.
Answer
Statement of Profit and Loss of Girish Ltd. for the year ended 31st March, 2016
Particulars Note This Year

I Revenue from Operations 13,40,700
II Other income (Divided income) 8,500
III Total Revenue (I &+ II) 13,49,200
IV Expenses:
(a) Purchases of Inventory 9,71,000
(9,81,000 – Advertisement Expenses 10,000)
(b) Changes in Inventories of finished Goods / Work in progress & 5,400
inventory (2,90,400 - 2,85,000)
(c) Employee Benefits expense 9 80,000
(d) Finance costs 10 34,600
(e) Depreciation & Amortization Expenses [10% of (70,000 + 4,000)] 7,400
(f) Other Expenses 11 2,31,700
Total Expenses 13,30,100
V Profit before exceptional, extraordinary items and tax (III-IV) 19,100
VI Exceptional items -
VII Profit before extra ordinary items and tax (V-IV) 19,100
VIII Extraordinary items -

IX Profit before tax (VII-VIII) 19,100
X Tax expense:
Current Tax 8,000
XI Profit/Loss for the period (after tax) 11,100
Balance sheet of Garish Ltd. as on 31st March, 2016
Particulars as on 31st March Note ₹

Shareholders’ funds:
(1)
(a) Share capital 1 8,00,000
(b) Reserves and surplus 2 44,100
(2) Non-current liabilities:
Long term borrowings 3 3,00,000
(3) Current liabilities:
72
(a) Short term borrowings 4 3,00,000

(b) Trade payables 1,75,700
(c) Other current liabilities 5 19,500
Total 16,39,300
II ASSETS
(1) (a) Non-current Assets
Fixed assets (i) Tangible assets 6 7,66,600
(ii) Intangible assets 7 2,70,000
(b) Non-current investments (Shares at cost) 1,00,000

Current Assets:
(a) Inventories 2,85,000

(b) Trade Receivables 8 1,81,700
(c) Cash and Cash equivalents - Cash on hand 24,000
(d) Short term loans and advances -Income tax (paid 12,000
20,000-Provision 8000)
Total 16,39,300
.
Note: There is a Contingent liability for Bills receivable discounted with Bank ₹ 4000.
Notes to accounts
₹ ₹
1. Share Capital
Authorized,
60,000 Equity Shares of ₹ 10 each. 6,00,000
4,000 6% Preference shares of ₹ 100 each 4,00,000
Issued, subscribed & called up
40,000 Equity Shares of ₹ 10 each 4,00,000
4,000 6% Redeemable Preference Shares of 100 each 4,00,000 8,00,000
2. Reserves and Surplus
Balance as on 1st April, 2015 57,000
Add: Surplus for current year 11,100 68,100
Less: Preference Dividend 24,000
Balance as on 31st March, 2016 44,100
3. Long Term Borrowings
5% Mortgage Debentures (Secured against Freehold Properties) 3,00,000
4. Short Term Borrowings
Secured Borrowings: Loans Repayable on Demand Overdraft from 3,00,000
Banks (Secured by Hypothecation of Stocks & Receivables)
5. Other Current liabilities
Interest Accrued and due on Borrowings (5% Debentures) 7,500
Unpaid Preference Dividends 12,000 19,500
6. Tangible Fixed assets
73
Furniture
Furniture at Cost Less depreciation ₹ 30,000 (as given in Trial Baln) 70,000
Add: Depreciation 30,000
Cost of Furniture 1,00,000

Add: Installation charge of Electrical Fittings wrongly included 4,000
under the heading Salaries and Wages
Total Gross block of Furniture A/c 1,04,000
Accumulated Depreciation Account:
Opening Balance-given in Trial Balance 30,000
Depreciation for the year:
On Opening WDV at 10% i.e. (10% x 70,000) 7,000

On additional purchase during the year at 10% i.e.
(10% x 4,000) 400
Less: Accumulated Depreciation 37,400 66,600
Freehold property (at cost) 7,00,000
7,66,600
7. Intangible Fixed Assets
Technical knowhow 3,00,000
Less: Written off 30,000 2,70,000
8. Trade Receivables
Sundry Debtors (a) Debt outstanding due more than six months 12,000
(b) Other Debts (refer Working Note) 89,700
Bills Receivable (83,000 -3,000) 80,000 1,81,700
9. Employee benefit expenses
Amount as per Trial Balance 1,04,000
Less: Wages incurred for installation of electrical fittings to be 4,000
capitalised
Less: Directors’ Remuneration shown separately 20,000
Balance amount 80,000
10. Finance Costs

Interest on bank overdraft 19,600
Interest on debentures 15,000 34,600
11. Other Expenses

Payment to the auditors 12,000
Director’s remuneration 20,000
Selling expenses 1,58,200
Technical knowhow written of (3,00,000/10) 30,000
Advertisement (Goods and Articles Distributed) 10,000
Bad Debts (3,000 x50%) 1,500 2,31,700
74
Working Note
Calculation of Sundry Debtors-Other Debts
Sundry Debtors as given in Trial Balance 1,00,200

Add Back: Bills Receivables Dishonoured 3,000
1,03,200
Less: Bad Debts written off - 50% ₹ 3,000 (1,500)
Adjusted Sundry Debtors 1,01,700
Less: Debts due for more than 6 months (as per information given) (12,000)
Total of other Debtors i.e. Debtors outstanding for less than 6 months 89,700
75
V’Smart Academy (88883 88886) Accounting for Bonus Issue
Accounting for Bonus Issue
Question no. 1
Following items appear in the Trial Balance of Hello Ltd. as on 31st March, 2017:
Particulars Amount
9,000 Equity Shares of ₹100 each 9,00,000
Securities Premium 80,000
Capital Redemption Reserve 1,40,000
General Reserve 2,10,000
Profit and Loss Account (Cr. Balance) 90,000
The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3 shares
held. Company decided that there should be the minimum reduction in free reserves. Pass necessary Journal
Entries in the books Hello Ltd.
Answer
Journal Entries in the books of Hello Ltd.
Capital Redemption Reserve A/c ..........................Dr. 1,40,000

Securities Premium A/c ........................................Dr. 80,000
General Reserve A/c .............................................Dr. 80,000
To Bonus to Shareholders 3,00,000
(Being issue of bonus shares by utilization of various Reserves, as per resolution dated …….)
Bonus to Shareholders A/c .................................................Dr. 3,00,000

To Equity Share Capital 3,00,000
(Being capitalization of Profit)
Question 2
Following is the extract from the Balance Sheet of M/s. Hello Ltd. as at 31st March, 2015.
₹
Authorised capital:
50,000, 10% Preference shares of ₹10 each 5,00,000
2,00,000 Equity shares of ₹10 each 20,00,000
Issued and subscribed capital:
40,000 10% Preference shares of ₹10 each fully paid 4,00,000
1,80,000 Equity shares of ₹10 each, of which ₹7.50 paid up 13,50,000
Reserves and Surplus:
General reserve 2,40,000
Capital reserve 1,50,000
Securities premium 30,000
76
Profit and loss account 3,00,000

On 1st April, 2015, the company has made a final call @ ₹ 2.50 each on 1,80,000 equity shares.
The call money was received by 30th April, 2015. Thereafter the company decided to
capitalize its reserves by issuing bonus shares at the rate of one share for every three shares
held. Capital reserve includes ₹ 60,000 being profit on revaluation of plant and machinery.
Show necessary Journal Entries in the books of the company and prepare the extract of the
Balance Sheet after bonus issue. Necessary assumption, if any, should form part of your answer.
In the books of M/s. Hello Ltd.

Journal Entries
Date Particulars ₹ ₹
1.4.2015 Equity share final call A/c......................................... Dr 4,50,000
To Equity share capital A/c 4,50,000
(Being the final call of Z 2.50 per share on 1,80,000 equity
shares made)
30.4.2015 Bank A/c.................................................Dr. 4,50,000

To Equity share final call A/ 4,50,000
(Being final call money on 1,80,000 shares received)
30.4.2015 Securities premium A/c......................................................Dr. 30,000

Capital reserve A/c (1,50,000 — 60,000).....................Dr. 90,000
General reserve A/c ...............................................................Dr. 2,40,000
Profit and loss A/c.................................................................Dr. 2,40,000
To Bonus to shareholders A/c 6,00,000
(Being utilisation of reserves for bonus issue of one share for
every three shares held)
30.4.2015 Bonus to equity shareholders A/c 6,00,000

To Equity share capital A/c 6,00,000
(Being capitalization of the bonus shares issued)
Extract of Balance Sheet (After bonus issue)
Particulars Notes ₹
No.
Equity & liabilities
1. Shareholders' Funds
(a) Share Capital 1 28,00,000

(b) Reserves & Surplus 2 1,40,000
29,40,000
77
Notes to Accounts
1. Share Capital
₹
Authorised share capital:
50,000, 10% Preference shares of ₹10 each 5,00,000
2,40,000, Equity shares of ₹10 each (refer W.N.) 24 00 000
Issued and subscribed capital:
40,000, 10% Preference shares of ₹10 each fully paid 4,00,000
2,40,000, Equity shares of ₹10 each fully paid 24,00,000
(Out of the above, 60,000 equity shares of ₹10
each have been issued by way of bonus) 28 00 000
2. Reserves and Surplus:
General reserve 2,40,000

Less: Utilisation for issue of bonus shares (2,40,000) -
Capital reserve 1,50,000
Less: Utilisation for issue of bonus shares (90,000) 60,000
Securities premium 30,000
Less: Utilisation for issue of bonus shares (30,000) -
Profit and loss A/c 3,00,000
Less: Utilisation for issue of bonus shares (2,40,000) 60,000
1 20 000
Assumptions:
1. Capital Reserve collected in cash only can be utilized for the purpose of issue of bonus shares. Hence,
capital reserve representing profit on revaluation of machinery has not been used for the purpose of
issue of bonus shares. It is assumed that balance of capital reserve is collected in cash only.
2. It is also assumed that necessary resolutions have been passed and requisite legal
requirements related to the issue of bonus shares have been complied with before issue of bonus
shares.
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V’Smart Academy (88883 88886) Redemption of Preference Shares
Redemption of Preference Shares
Question No. 1
The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st December, 20X1:
Share capital: 50,000 Equity shares of ₹ 10 each fully paid - ₹ 5,00,000; 1,500 10% Redeemable
preference shares of ₹ 100 each fully paid - ₹ 1,50,000.
Reserve & Surplus: Capital reserve - ₹ 1,00,000; General reserve -₹ 1,00,000; Profit and Loss Account - ₹
75,000.
On 1st January 20X2, the Board of Directors decided to redeem the preference shares at premium of 10% by
utilization of reserves.
You are required to prepare necessary Journal Entries including cash transactions in the books of the
company.
Answer
Date 20X2 - Jan 1
10% Redeemable Preference Share Capital A/c ................................Dr. 1,50,000
Premium on Redemption of Preference Shares .................................Dr. 15,000
To Preference Shareholders A/c 1,65,000
(Being the amount payable on redemption transferred to Preference Shareholders Account)
Preference Shareholders A/c..............................................Dr. 1,65,000

To Bank A/c 1,65,000
(Being the amount paid on redemption of preference shares)
General Reserve A/c.....................................................Dr. 1,00,000

Profit & Loss A/c...............................................Dr 50,000
To Capital Redemption Reserve A/c 1,50,000
(Being the amount transferred to Capital Redemption Reserve Account as per the
requirement of the Act)
Profit & Loss A/c................................................ Dr. 15,000
To Premium on Redemption of Preference Shares A/c 15,000
(Being premium on redemption charged to Profit and Loss A/c)
Note: Capital reserve cannot be utilized for transfer to Capital Redemption Reserve.
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Question 2
The following is the summarised Balance Sheet of Bumbum Limited as at 31st March. 2015:
Sources of funds Amount in ₹

Authorized capital
50,000 Equity shares of ₹10 each 5,00,000
10,000 Preference shares of ₹ 100 each (8% redeemable) 10,00,000
Total 15,00,000
Issued, subscribed and paid up
30,000 Equity shares of ₹ 10 each 3,00,000
5,000, 8% Redeemable Preference shares of ₹ 100 each 5,00,000
Reserves & Surplus

Securities Premium 6,00,000
General Reserve 6,50,000
Profit & Loss A/c 40,000
2,500, 9% Debentures of ₹ 100 each 2,50,000
Trade payables 1,70,000
25,10,000
Application of funds
Fixed Assets (net) 7,80,000
Investments (market value ₹ 5,80,000) 4,90,000
Deferred Tax Assets 3,40,000
Trade receivables 6,20,000
Cash & Bank balance 2,80,000
25,10,000
In Annual General Meeting held on 20th June, 2015 the company passed the following resolutions:
1. To split equity share of ₹ 10 each into 5 equity shares of ₹2 each from 1st July, 2015.
2. To redeem 8% preference shares at a premium of 5%.
3. To redeem 9% Debentures by making offer to debenture holders to convert their holdings into equity
shares at ₹ 10 per share or accept cash on redemption.
4. To issue fully paid bonus shares in the ratio of one equity share for every 3 shares held on record
date
On 10th July, 2015 investments were sold for ₹ 5,55,000 and preference shares were redeemed.
40% of Debenture holders exercised their option to accept cash and their claims were settled on 1st
August, 2015.
The company fixed 5th September, 2015 as record date and bonus issue was concluded by 12th
September, 2015
You are requested to journalize the above transactions including cash transactions and prepare
Balance Sheet as at 30th September, 2015. All working notes should form part of your answer.
80
Answer
2015 Dr. (₹) Cr. (₹)

July 1 Equity Share Capital A/c (₹ 10 each)..............................Dr. 3,00,000
To Equity share capital A/c (₹ 2 each) 3,00,000
(Being equity share of ₹ 10 each splitted into 5 equity shares of ₹ 2 each)
{1,50,000 X 2}
July 10 Cash & Bank balance A/c Dr 5,55,000
To Investment A/c 4,90,000
To Profit & Loss A/c 65,000
(Being investment sold out and profit on sale credited to
Profit & Loss A/c)
July 10 8% Redeemable preference share capital A/c Dr. 5,00,000
Premium on redemption of preference share A/c Dr. 25,000
To Preference shareholders A/c 5,25,000
(Being amount payable to preference share holders on
redemption)
July 10 Preference shareholders A/c Dr. 5,25,000
To Cash & bank A/c 5,25,000
(Being amount paid to preference shareholders)
July 10 General reserve A/c............................................................Dr. 5,00,000

To Capital redemption reserve A/c 5,00,000
(Being amount equal to nominal value of preference shares transferred to Capital
Redemption Reserve A/c on its redemption as per the law)
Aug 1 9% Debentures A/c Dr. 2,50,000

Interest on debentures A/c Dr. 7,500
To Debenture holders A/c 2,57,500
(Being amount payable to debenture holders along with interest payable)
Aug. 1 Debenture holders A/c Dr. 2,57,500

To Cash & bank A/c (1,00,000 + 7,500) 1,07,500
To Equity share capital A/c{15,000 X 2} 30,000
To Securities premium A/c 1,20,000
(Being claims of debenture holders satisfied)
Sept. 5 Capital Redemption Reserve A/c Dr. 1,10,000

To Bonus to shareholders A/c 1,10,000
(Being balance in capital redemption reserve capitalized to issue bonus shares)
Sept. Bonus to shareholders A/c Dr. 1,10,000

12 To Equity share capital A/c 1,10,000
(Being 55,000 fully paid equity shares of ₹ 2 each issued as bonus in ratio of 1
share for every 3 shares held)
Sept. Securities Premium A/c Dr. 25,000
30 To Premium on redemption of preference shares A/c 25,000
(Being premium on preference shares adjusted from securities premium
account)
Sept. Profit & Loss A/c Dr. 7,500
30 To Interest on debentures A/c 7,500
(Being interest on debentures transferred to Profit and Loss Account)
81
Balance Sheet as at 30th September, 2015

Particulars Notes ₹
Equity and Liabilities
1. Shareholders' funds
a. Share capital
b. Reserves and Surplus 1 4,40,000
2. Current liabilities 2 13,32,500
a. Trade Payables
Total 1,70,000
19,42,500
Assets
1 Non-current assets
a. Fixed assets
Tangible assets 7,80,000
b. Deferred tax asset 3,40,000
2. Current assets
Trade receivables 6,20,000
Cash and cash equivalents 2,02,500
Total 19,42,500
Notes to accounts
1 Share Capital ₹ ₹
Authorized share capital

2,50,000 Equity shares of ₹ 2 each 5,00,000
10,000 Preference shares of ₹100 each 10,00,000 15,00,000
Issued, subscribed and paid up

2,20,000 Equity shares of ₹ 2 each [(30,000 x 5) + 15,000 + 55,000] 4,40,000
Reserves and Surplus

2
Securities Premium A/c
Balance as per balance sheet 6,00,000
Add: Premium on equity shares issued on
conversion of debentures (15,000 x 8) 1,20,000
7,20,000
Less: Adjustment for premium on preference Shares (25,000)
Balance 6,95,000
Capital Redemption Reserve(5,00,000-1,10,000) 3,90,000
General Reserve (6,50,000 - 5,00,000- 25,000) 1,25,000
Profit & Loss A/c 40,000
Add: Profit on sale of investment 65,000
Less: Interest on debentures (7,500) 97,500
Total 13,32,500
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Working Notes:
₹
1. Redemption of preference share:
5,000 Preference shares of ₹ 100 each 5,00,000
Premium on redemption @ 5% 25,000
Amount Payable 5,25,000
2. Redemption of Debentures
2,500 Debentures of ₹100 each 2,50,000
Less: Cash option exercised by 40% holders (1,00,000)
Conversion option exercised by remaining 60% 1,50,000
1,50,000
Equity shares issued on conversion = = 15,000 shares
3. 10
Issue of Bonus Shares
Existing equity shares after split (30,000 x 5) 1,50,000 shares

Equity shares issued on conversion 15,000 shares
Equity shares entitled for bonus 1,65,000 shares
Bonus shares (1 share for every 3 shares held) to be issued 55,000 shares
4. Cash and Bank Balance
Balance as per balance sheet 2,80,000
Add: Realization on sale of investment 5,55,000
8,35,000
Less: Paid to preference share holders (5,25,000)
Paid to Debenture holders (7,500 + 1,00,000) (1,07,500)
Balance 2,02,500
5. Interest of ₹7,500 paid to debenture holders have been debited to
Profit & Loss Account.
Question 3 (SM)
The books of B Ltd. showed the following balance on 31st December, 20X3:
30,000 Equity Shares of ₹ 10 each fully paid; 18,000 12% Redeemable Preference Shares of ₹ 10 each fully paid;
4,000 10% Redeemable Preference Shares of ₹ 10 each, ₹ 8 paid up (all shares issued on 1st April, 20X2).
Undistributed Reserve and Surplus stood as: Profit and Loss Account ₹ 80,000; General Reserve ₹ 1,20,000;
Securities Premium Account ₹ 15,000 and Capital Reserve ₹ 21,000.
Preference shares are redeemed on 1st January, 20X1 at a premium of ₹ 2 per share. The whereabouts of the
holders of 100 shares of ₹ 10 each fully paid are not known.
For redemption, 3,000 equity shares of ₹ 10 each are issued at 10% premium. At the same time, a bonus issue of
equity share was made at par, two shares being issued for every five held on that date out of the Capital
Redemption Reserve Account.
Show the necessary Journal Entries to record the transactions.
83
Answer
In the books of B Limited
Journal Entries
Date Journal Entries

20X1
Jan 1
12% Redeemable Preference Share Capital A/c Dr. 1,80,000
Premium on Redemption of Preference Shares A/c Dr. 36,000
To Preference Shareholders A/c 2,16,000
(Being the amount payable on redemption of 18,000 12% Redeemable Preference Shares transferred to
Shareholders Account)
Preference Shareholders A/c Dr. 2,14,800

To Bank A/c 2,14,800
(Being the amount paid on redemption of 17,900 preference shares)
Bank A/c Dr. 33,000

To Equity Share Capital A/c 30,000
To Securities Premium A/c 3,000
(Being the issue of 3,000 Equity Shares of ₹ 10 each at a premium of 10% as per Board’s Resolution
No…….Dated……)
General Reserve A/c Dr. 1,20,000

Profit & Loss A/c Dr. 30,000
To Capital Redemption Reserve A/c 1,50,000
(Being the amount transferred to Capital Redemption Reserve A/c as per the requirement of the Act.)
Capital Redemption Reserve A/c Dr. 1,20,000

To Bonus to Shareholders A/c 1,20,000
(Being the amount appropriated for issue of bonus share in the ratio of 5:2 as per shareholders Resolution
No.….. dated…)
Bonus to Shareholders A/c Dr. 1,20,000

To Equity Share Capital A/c 1,20,000
(Being the utilisation of bonus dividend for issue of 12,000 equity shares of ₹ 10 each fully paid)
Profit & Loss A/c Dr. 36,000

To Premium on Redemption of Preference Shares A/c 36,000
(Being premium on redemption of preference shares adjusted against to Profit & Loss Account)
Working Note:
(1) Partly paid-up preference shares cannot be redeemed.
(2) Amount to be Transferred to Capital Redemption Reserve Account
Face value of share to be redeemed ₹1,80,000
Less: Proceeds from fresh issue (excluding premium) (₹ 30,000)
₹1,50,000
(3) No bonus shares on 3,000 equity shares issued for redemption.
84
V'Smart Academy (88883 88886) Departmental Accounts
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V’Smart Academy (88883 88886) Departmental Accounts
Departmental Accounts
Question No. 1
Following is the Trial Balance of Mr. Mohan as on 31.03.2017:
Particulars Debit (₹) Credit

(₹)
Capital Account 40,000

Drawing Account 1,500
Opening Stock Department A 8,500
Department B 5,700
Department C 1,200
Purchases Department A 22,000
Department B 17,000
Department C 8,000
Sales Department A 54,000
Department B 33,000
Department C 21,000
Sales Returns Department A 4,000
Department B 3,000
Department C 1,000
Freight and Carriage Department A 1,400
Department B 800
Department C 200
Furniture and fixtures 4,600
Plant and Machinery 20,000
Motor Vehicles 40,000
Sundry Debtors 12,200
Sundry Creditors 15,000
Salaries 4,500
Power and water 1,200
Telephone charges 2,100
Bad Debts 750
Rent and taxes 6,000
Insurance 1,500
Wages Department A 800
Department B 550
Department C 150
Printing and Stationeries 2,000
Advertising 3,500
Bank Overdraft 12,000
Cash in hand 850
1,75,000 1,75,000
89
.
You are required to prepare Department Trading, Profit and Loss Account and the Balance Sheet taking
into account the following adjustments:
(a) Outstanding Wages: Department B- ₹ 150, Department C - ₹ 50.
(b) Depreciate Plant and Machinery and Motor Vehicles at the rate of 10%.
(c) Each Department shall share all expenses in proportion to their sales.
(d) Closing Stock: Department A - ₹ 3,500, Department B - ₹ 2,000, Department C - ₹ 1,500.
Answer
Trading and Profit and Loss Account for the year ended on 31st Match, 2017
Particulars A (₹) B (₹) C (₹) Particulars A (₹) B (₹) C (₹)

To Opening Stock 8,500 5,700 1,200 By Sales less 50,000 30,000 20,000
Sales returns
To Purchases 22,000 17,000 8,000 By Closing 3,500 2,000 1,500
Stock
To Freight & carriage 1,400 800 200
To Wages 800 700 200
To Gross profit 20,800 7,800 11,900
53,500 32,000 21,500 53,500 32,000 21,500
To Salaries 2,250 1,350 900 By Gross Profit 20,800 7,800 11,900
To Power & Water 600 360 240 By Net Loss - 465 -
To Telephone 1,050 630 420
Charges
To Bad Debts 375 225 150
To Rent & Taxes 3,000 1,800 1,200
To Insurance 750 450 300
To Printing & 1,000 600 400
Stationery
To Advertising 1,750 1,050 700
To Depreciation 3,000 1,800 1,200
(2,000 +4,000)
To Net Profit 7,025 6,390
20,800 8,265 11,900 20,800 8,265 11,900
90
Balance Sheet as at 31.03.2017

Capital A/c 40,000 Furniture & Fixtures 4,600
Add: Net Profit Plant & Machinery 20,000
(₹ 7,025 + ₹ 6,390) 13,415
53,415 Less: Depreciation 2,000 18,000
Less: Net loss in Dept B 465 Motor Vehicles 40,000
52,950 Less: Depreciation 4,000 36,000
Less: Drawings 1,500 51,450 Sundry Debtors 12,200
Sundry Creditors 15,000 Cash in hand 850
Bank Overdraft 12,000 Closing Stock 7,000
Wages Outstanding 200
78,650 78,650
Note: All expenses have been allocated among departments in proportion of their sales in the solution as per the
specific requirement of the question.
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V'Smart Academy (88883 88886) Accounting for Branches
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93
94
95
96
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(At Invoice Price)
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"Sold "
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V’Smart Academy (88883 88886) Accounting for Branches Including Foreign Branches
Accounting for Branches Including Foreign Branches
Question No. 1
ABC Ltd. has head office at Delhi (India) and branch at New York (U.S.A). New York branch is an
integral foreign operation of ABC Ltd. New York branch furnishes you with its trial balance as on
31st March, 2017 and the additional information given thereafter:
Dr. ($) Cr. ($)

Stock on 1st April, 2016 150 -
Purchases and sales 400 750
Sundry Debtors and creditors 200 150
Bills of exchange 60 120
Sundry expenses 540 -
Bank balance 210 -
Delhi head office A/c - 540
1,560 1,560
The rates of exchange may be taken as follows:
on 1.4.2016 @ ₹ 40 per US $
on 31.3.2017 @ ₹ 42 per US $
Average exchange rate for the year @ ₹ 41 per US $.
New York branch account showed a debit balance of ₹ 22,190 on 31.3.2017 in Delhi books and
there were no items pending reconciliation.
You are asked to prepare trial balance of New York branch in ₹ in the books of ABC Ltd.
Answer
In the books of ABC Ltd.
New York Branch Trial Balance in (₹) as on 31st March, 2017
Conversion Dr. (₹) Cr.(₹)

rate per US $ (₹)
Stock on 1.4.16 40 6,000 -
Purchases and sales 41 16,400 30,750
Sundry debtors and creditors 42 8,400 6,300
Bills of exchange 42 2,520 5,040
Sundry expenses 41 22,140 -
Bank balance 42 8,820 -
Delhi head office A/c - - 22,190
64,280 64,280
100
Question 2
Neo with headquarters at Mumbai, maintains a branch at Goa. Goods are invoiced at cost plus
25%. In respect of Goa branch, the following information pertaining to the year ended 31st
March, 2013 are made available to you:
₹
Goods sent to Branch (at Invoice price) 6,75,000
Goods returned by branch during the year (at Invoice price) 24,000
Cash sales effected by branch 1,85,000
Discount allowed to customers 2,500
Amount received from branch debtors 3,25,000
Cheques of customers which got dishonoured 8,000
Branch expenses met in cash 72,500
Sales return at Goa branch 10,000
Bad debts 5,500
On 31st March, 2013 On 31st March, 2012

Branch debtors 1,05,000 50,000
Stock at branch (at Invoice price) 2,36,000 1,50,000
Adopting the Stock and debtors system, you are required to prepare the following Ledger
accounts, as appearing in the books of the Head Office:
(i) Goa branch debtors account;
(ii) Goa branch adjustment account;
(iii) Goa branch profit and loss account.
Answer
In the books of Neo (Head Office) Goa Branch Debtors Account
1.4.2012 To Balance b/d 50,000 31.3.2013 By Bank (Collection 3,25,000

from debtors)
31.3.2013 To Bank A/c 8,000 By Branch
(Dishonour of cheques) (Goods returned 10,000
by customers)
To Branch Stock A/c 3,90,000 By Bad debts 5,500
(Credit sales) By Discount allowed 2,500
By Balance c/d 1,05,000
4,48,000 4,48,000
101
Goa Branch Adjustment Account

31.3.2013 To Goods sent to Goa 4,800 1.4.2012 By Balance b/d 30,000
Branch A/c (goods returns (Opening
to H.O.) stock reserve)
31.3.2013 By Goods sent to 1,35,000
To Branch P & L A/c (Profit Goa Branch
on sale at invoice price) (Bal. 1,13,000 A/c (Loading)
Fig.)
To Balance c/d (Closing
stock reserve) 47,200
1,65,000 1,65,000
Goa Branch Profit and Loss Account for the year ending 31st March, 2013
Particulars Amount ₹ Particulars Amount ₹

To Branch Expenses A/c 72,500 By Branch Adjustment A/c 1,13,000
To Branch Debtors - Discount 2,500
Bad debts 5,500
To Net Profit (Transferred to 32,500
General Profit & Loss A/c)
1,13,000 1,13,000
Working Note:
Goa Branch Stock Account
1.4.2012 To Balance b/d 1,50,000 31.3.2013 By Bank (Cash sales) 1,85,000

31.3.2013 To Goods sent to Goa By Branch Debtors (Credit 3,90,000
Branch 6,75,000 sales)
To Branch Debtors 10,000 By Goods sent to Goa
(Goods Returned) Branch (Goods returned 24,000
to H.O.)
By Balance c/d 2,36,000
8,35,000 8,35,000
102
Question No 3
.
XYZ is having its Branch at Kolkata. Goods are invoiced to the branch at 20% profit on sale. Branch
has been instructed to send all cash daily to head office. All expenses are paid by head office
except petty expenses which are met by the Branch Manager. From the following particulars prepare
branch account in the books of Head Office.
(₹) (₹)
Stock on 1st April 2011 (invoice price) 30,000 Discount allowed to debtors 160
Sundry Debtors on 1st April, 2011 18,000 Expenses paid by head office:
Cash in hand as on 1st April, 2011 800 Rent 1,800

Office furniture on 1st April, 2011 3,000 Salary 3,200
Goods invoiced from the head office 1,60,000 Stationery & Printing 800
(invoice price)
Goods return to Head Office 2,000 Petty expenses paid by the 600
branch
Goods return by debtors 960 Stock on 31st March, 2012 (at 28,000
invoice price)
Cash received from debtors 60,000 Depreciation to be provided on
branch furniture at 10% p.a.
Cash Sales 1,00,000
Credit sales 60,000
Answer
In the books of Head Office – XYZ
Kolkata Branch Account (at invoice)
₹ ₹
To Balance b/d By Stock reserve (opening) 6,000
Stock 30,000 By Remittances:
Debtors 18,000 Cash Sales 1,00,000
Cash in hand 800 Cash from Debtors 60,000 1,60,000
Furniture 3,000 By Goods sent to branch (loading) 32,000
To Goods sent to branch 1,60,000 By Goods returned by
To Goods returned by branch (Return to H.O.) 2,000
branch (loading) 400 By Balance c/d
To Bank (expenses paid by Stock 28,000
H.O.) Debtors 16,880
Rent 1,800 Cash (800-600) 200
Salary 3,200 Furniture (3,000-300) 2,700
Stationary & printing 800 5,800
To Stock reserve (closing) 5,600
To Profit transferred to
General Profit & Loss A/c 24,180
2,47,780 2,47,780
103
Working Note:
Debtors Account
₹ ₹
To Balance b/d 18,000 By Cash account 60,000
To Sales account (credit) 60,000 By Sales return account 960
By Discount allowed 160
account
By Balance c/d 16,880
78,000 78,000
Note: It is assumed that goods returned by branch are at invoice price.
104

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V’SMART ACADEMY

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WhatsApp Number: 8788195556

CMA, CS, Rohan Nimbalkar

For Pendrive classes : Visit www.vsmartacademy.com

Call: 88883 88886

Sr. No. Chapter Page

3. AS – 3 Cash Flow Statement 4

4. AS 10 – Property, Plant And Equipment (PPE) 5

6. Hire Purchase and Installment Purchase System 16

7. Profit or Loss Pre and post Incorporation 24

9. Accounts from Incomplete records 36

10. Cash flow statement 50

11. Company Final Accounts & Managerial Remuneration 59

12. Accounting for Bonus shares 76

13. Redemption of Preference Shares 79

14. Departmental Accounts 85

15. Accounting for Branches Including Foreign Branches 92

Accounting Policies Means

Selection of accounting policies is the responsibility of the management.

In selection of accounting policies, management should consider the following:

Primary consideration Other Major consideration

Financial statements should

Fundamental Accounting Assumption in preparation

Going concern Consistency Accrual Assumption

It is assumed that business it is always assumed that It is assumed that entity

AS – 2 Valuation of Inventories (Chart)

Inventory is valued at COST (or) NRV whichever is LOWER

Cost of Purchase Cost of Conversion Other Cost

This includes the costs incurred to convert the raw

All other costs incurred to bring the inventory to the present

Cost of inventory should be ascertained in following manner

Let us see “How to Calculate Net Realisable Value

Finished Goods Work in Progress Raw Material

Expected SP - Selling cost Expected SP of FG - Expected Strictly, No need to

3. Valuation of Raw Material

Its valuation is fully based on the valuation of Finished Goods

If finished goods is sold or expected to be If finished goods is sold or expected to

Raw material should be valued at Raw material should be valued at

1. The accounting policies adopted in measuring inventories, including the cost

Cash Flow Statement

Activities that result in change in the

2. Presentation of Cash Flow Statement

Statement can be prepared with the help of following two methods.

Difference is there only in presentation of operating activities

Direct Method Indirect Method

• Components of Cash & Cash Equivalents

AS 10 – PROPERTY, PLANT AND EQUIPMENT (PPE)

1. Let us see “What is PPE”

Expected to be used during more than a Held for use in

Producing Goods Providing Services Rental to others For Administration

2. Recognition of Plant, Property and Equipments

Initial Recognition & Measurement Subsequent Expenditure & Measurement

Asset is acquired by Does subsequent

It is recognised as PPE if it is expected to generate Future economic benefit to Entity

COST Model Revaluation Model & Revaluation surplus exist

Profit/loss on disposal should be Profit/Loss on disposal should be transferred to P&L;

2. Stock Destroyed Account

Particulars Amount is Rs.

3. Purchases includes purchase of machinery costing Rs. 3000.

4. Wages includes wages Rs. 2,000 for installation of machinery.

6. Sale value of goods drawn by partners Rs. 10,000