B.COM (H) 1st Year.

ARUN BAJAJ CLASSES

B.Com. (Hons.) / I-NS
Paper II Financial Accounting 2009
Time : Part A 2 Hrs. Time : Part B 30 Min. Max. Marks : Part A 45 Max. Marks : Part B 10

General Instruction : This questions paper has 2 parts. Part A is compulsory for all examines. Part B is meant only for those examinees who have not offered Computerised Accounts. Applicable for students of Regular College). Student of SOL have to Attempt Part A & B. Part A and B are to be answered on separate answer books. PART - A 1. State with reasons whether the following statements are True or False. (i) Expenses incurred to keep the machine in working condition is capital expenditure. (ii) Accrual concept implies accounting on cash basis. (iii) Depreciation cannot be provided in case of loss in a financial year. (iv) Prudence is a concept to recognise unrealised profits and not losses. (v) The receipts and payments account records receipts and payments of revenue nature only. 2. (a) Distinguish between capital expenditure and revenue expenditure. 5 4

(b) M/s S.S Traders commenced business on 1st January, 2005, when they purchased machinery of . 7,00,000. They adopted a policy of (i) charging depreciation at 15% p.a. on diminishing balance basis, and (ii) charging full years depreciation on additions made during the year. Over the year, the purchases of machinery have been : Date 1-8-2006 30-9-2006

1,50,000 2,00,000

On 1st January, 2008, it was decided to change the method of depreciation and rate of depreciation to 10% on straight line basis with retrospective effect from 1-1-2005, the adjustment being made in the accounts for the year ending 31st December, 2008. Prepare Machinery Account and Provision for Depreciation Account for the year 2008. OR (a) Distinguish between periodic and prepetual system of inventory valuation. 4 (b) A company started its business on 1st January, 2008. It purchased and used raw material during the year 2008 as stated below : January 10 February 28 March 10 800 kgs @ 62 per kg 1,200 kgs @ 57 per kg Issued 1,000 kgs.
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10

B.COM (H) 1st Year.2

March 26 May 20 June 28 (i) 3.

Issued 500 kgs 900 kgs @ 65 per kg Issued 600 kgs.

Calculate the value of closing stock of raw materials on June 30 according to Last in First out basis, and 10 4 (ii) Weighted average basis, using perpetual inventory system. (a) Explain the relevance of disclosure principle in accounting.

(b) From the following information of M/s Kapil Brothers, prepare Trading and Profit and Loss Account for the year ended 31st March, 2008 and the Balance Sheet as on that date : Liabilities & Assets Motor Car Stock Furniture Debtors Creditors Bank (i) 31-3-2007 ( ) 90,000 70,000 10,000 62,000 60,000 9,000 31-3-2008 ( ) 90,000 90,000 10,000 46,000 ? 16,000

The following further information is also available : M/s Kapil Brothers purchases goods for resale from manufacturers who allow discount of 3% on goods purchased in excess of 5,00,000 in a year. The discouint for the year ended 31st March, 2008 was 12,480.

(ii) All goods are sold at a gross margin of 30% on selling price. (iii) Bank statements for the year reveal the following payments :

Creditors Salaries Car Expenses Rent Printing & Stationery Rates and Taxes Carriage Outward Travelling Expenses Bought Delivery Van Misc. Expenses Drawings 9,03,520 60,000 23,000 30,000 6,400 3,000 18,600 14,900 1,70,000 9,580 50,000

Depreciation on Car and Delivery Van @ 20% and Furniture @ 10% is to be provided on balances as on 31-3-2008 10 OR

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B.COM (H) 1st Year.3

The following is the Trial Balance of a traders as on 31st March, 2008 Particulars Cash in hand Land and Building Pland and Machinery Debtors & Creditors Stock on 1-4-2007 15% Investments on 1-4-2007 Purchase and Sales Bank Overdraft Wages Salaries Rent, Rates and Taxes Bad Debts Drawings Bills Receivable and Bills Payable Carriage Inwards Customs Duty on Purchases Fire Insurance Premium Advertisement Provision for Doubtful Debts Interest on Investments Sundry Expenses Furniture Valued Added Tax Capital 4,57,000 Additional Information : (i) Stock on 31st March, 2008 was valued at 40,000. (ii) Included in debtors are 8,000 due from Ram and included in creditors are 6000 due to Ram. (iii) Bills Receivable include a bill of Rs. 5,000 received from Mohan, which has been dishonoured. (iv) Sales include 5,000 for the goods sold on approval basis. Approval was not received till 31st March. Goods are sold at a profit of 25% on cost. (v) Wages include 5,000 spent on the erection of machinery on 1-4-2007. (vi) Create a provision for doubtful debts at 5% on debtors. (vii) Prepaid rates and taxes amounted to 2,000. (viii) Depreciation machinery by 10%. Prepare Trading and Profit and Loss Account for the year ended 31st March, 2008 and a Balance Sheet as on that date. 14
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Debit ( ) 5,000 80,000

Credit ( )

50,000 25,000 10,000 20,000 95,000 28,000 16,000 15,000 6,000 5,000 15,000 6,000 16,000 4,000 30,000 2,000 2,000 11,000 20,000 25,000 1,57,000 4,57,000 21,000 1,90,000 20,000 40,000

B.COM (H) 1st Year.4

4.

Mayur Electricals Ltd. sells TV sets and Music System on hire purchase basis. From the following particulars, prepare Hire Purchase Trading Account to find out the profit (show your workings clearly) : 14 T.V. Sets Cost Cash Price Down Payment Monthly instalment Number of instalments Music System

16,200 18,900 2,700 1,800

10

6,000 7,200 1,200

600 12

During the year ended 31st December, 2008, the company sold 200 TV sets and 240 Musich System on hire purchase basis. 4 TV sets on which only 3 instalments each could be collected and 8 music system on which only 5 instalments each could be collected were repossessed for non-payment of other instalments. These were valued at 50% of their costs and after spending 6,000 for their reconditioning, they were sold for 84,000. Other instalments collected and due (customers still paying) were respective as follows : TV sets Music System 540 and 40 800 and 60 OR The following is the Receipts and Payments Account of a Sports Club for the year ended 31st December, 2008 : Receipts Balance b/d Subscriptions (including Rs. 2000 for year 2007) Donations Life Membership Fees Sale of Furniture at book value Entrance Fees Int. on 10% Investments for full year Match Fund Donation for Building Fund Sale of Newspapers Additinoal Information : (i) The position of the Club on January 1, 2008 was as follows : Subscription due Furniture Books Building Creditors for Printing Rs. 3,000 10,000 20,000 1,25,000 4,500 2,500 14

Payments Match Expenses

14,000 28,000 40,000 15,000 12,000 5,000 15,000 6,000 40,000 10,000 35,000 2,20,000

7,500 Salaries 40,000 12% Investment on 1-1-20-8 15,000 Spots Materials 35,000 Printing & Stationery 5,000 Honorarium 10,000 Furniture 20,000 Municipal Taxes 40,000 Balance c/d 45,000 Magazine & Journals 2,500 Books 2,20,000

Stock of Sports Material Rs.

(ii) The Club has 1,000 members each paying an annual subscription of 50. 20 members paid their subscription in advance in 2007. In the year 2008, subscription was received in advance from 15 members.
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B.COM (H) 1st Year.5

(iii) Municipal Taxes are paid every year on 1st April. (iv) One member donated a Billiard Table worth 50,000. (v) Books worth 46,000 on 31st December, 2008 and stock of sports materials on that date amounted to 4,000. (vi) 12% investments include 30,000 invested from donations received for building fund. Prepare Income and Expenditure Account for the year ended 31st December, 2008 and a Balance Sheet as on that date. 14 5. Mayur stores Ltd. with their Head Office in Delhi, invoiced to its branch at Noida at 20% less than the list price which is cost plus 100% with instrucations that cash sales were to be made at invoice price and credit sales at list price. From the following particulars, prepare Branch Stock Account, Branch Debtors Account, Branch Expense Account, Branch Adjustment Account and Branch profit & Loss Account for the year ended 31st December, 2008: 14 Branch Stock on 1-1-2008 at cost to Branch 40,000 Branch Debtors on 1-1-2008 30,000 Goods received from H.O. at invoice price 3,60,000 Cash sales 90,000 Credit received from Debtors 3,00,000 Cash received from Debtors 2,40,000 Goods in Transit 40,000 Branch Expenses 40,000 Bad Debts 2,000 Loss of Goods by fire at invoice price 2,400 Transfer of goods to Faridabad at I.P. 6,000 Pilferage at I.P. (Normal) 1,000 Remittance to Head Office 3,30,000 Insurance claim admitted against loss by fire 1,200 Debtors on 31-12-2008 at invoice price 88,000 Stock on 31-12-2008 at invoice price 60,000 OR X Ltd. with his Head Office in Delhi, invoiced goods to its Chandigarh branch at 20% less than the catalogue price which is cost plus 50%, with instructions that cash sales were to be made at invoice price and credit sales at catalogue price. From the following particulars available from the branch, prepare Branch Account for the year ended 31st December, 2008 : Stock on 1-1-2008 at I.P. 48,000 Goods received from H.O. at invoice price 5,28,000 Debtors on 1-1-2008 40,000 Cash Sales 1,84,000 Credit Sales 4,00,000 Cash received from customers 3,42,540 Discount allowed to customers 53,460 Branch Expenses 25,000 Remittance to Head Office 4,80,000 Debtors on 31-12-2008 44,000 Cash in hand on 31-12-2008 23,000 Closing Stock on 31-12-2008 60,000
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B.COM (H) 1st Year.6

It was reported that a part of stock at the branch was lost by fire during the year whose value is to be ascertained. It is decided to provide for discount on debtors @ 15%. 14 PART - B 6. (a) What is gradual distribution of cash ? (b) A, B and C were partners sharing profits and losses in the ratio of 3 : 2 : 1. On 31st December, 2008 their Balance Sheet was as follows Liabilities Sundry Creditors Bills Payable As Loan Reserve Fund Profit & Loss Account Capital Accounts : A B

30,000 5,000 6,000 12,000 6,000

Assets

9,500 15,500 32,000 5,000 21,000 4,000 1,000 6,000 94,000

Cash at Bank Stock Sundry Debtors Furniture Plant As Drawings 20,000 Bs Drawings 15,000 Cs Capital A/c 94,000

The firm was dissolved on that date. Assets realised as follows : Stock - 12,200; Debtors - 30,100 and Furniture realised - 4,200. Plant was taken over by A 18,000. A contingent liability for bill discounted is setttled at 600. Realisation expenses amounted to 600. C is insolvent and only 1,900 could be recovered from his private estate. Prepare necessary Ledger Accounts to close the books of the firm. Apply Garner Vs. Murray. OR AB Ltd. was formed to acquire the business of A and B who share profits in the ratio of 3 : 2 respectively. The Balance Sheet of A and B as on 31st December, 2008 was as under Liabilities Capital Accounts : A B Mrs. As Loan Bills Payable Sundry Creditors 3+7

Assets Land and Building

40,000 20,000 24,000 23,200 6,400 4,800 9,600 8,000 1,36,000

64,000 Machinery 40,000 Stock 3,200 Debtors 7,200 Bills Receivable 21,600 Investments Cash at Bank Goodwill 1,36,000

It was agreed by the company to take over the assets at book value with the exception of land and building, stock and goodwill which are taken over a 45,000 , 20,000 and 28,000 respectively. The investments were retained by the firm and sold for 4,000. The firm discharged the loan of Mrs. A . The company took over the remaining liabilities. The purchase consideration was discharged by issuing 10,000 equity shares of 10 each in AB Ltd. and the balance was paid in cash. Close the books of the firm assuming that shares are distributed amonsgst partners in their profit sharing ratio. 10

END OF PAPER
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B.COM (H) 1st Year.7

ANSWERS - BCom(1st Year) 2009

1. (i) False : Expenses to kee the machine in wokring condition is a revenue expense because there is no increase in the capacity of the machine to produce more.

whereas perpetual inventory system is based on continuous record keeping of various items of inventories. (ii) Periodic system of inventory valuation provides a perodic stewardship of the inventory and little is known about the exact composition and amount of inventory items between actual counts in the beginning and at the end. Perpetual system provides a continuous stewardship of the inventory. Inventory records are continuously updated so that financial statements can be prepared at shorter intervals. (iii) Perpetual system provides a basis for inventory control so that physical stocks can be compared with book records and discrepancies, if any, investigatted. This is not feasible under the periodic system. (iv) Periodic system is comparatively simple and less expensive while detailed records and high cost of maintaining them are must for perpetual system. (v) Under periodic system, inventory is directly determined and cost of sales is taken as residual figure. In perpetual system, cost of sales is directly determined and inventory is taken as residual figure. (vi) Under periodic system, cost of sales includes lost goods. In perpetual system, inventory includes lost goods. (b) Valuation of Inventories (LIFO) = 50,500 Valuation of Inventories (FIFO) = 50,286 3. (a) Relevance of Disclosure Principle The relevance of the disclosure principle is that the financial statements namely the Balance Sheet and Profit and Loss Account respectively must give true and fair view of the financial position and operating results of a business enterprise. It is possible only when all the material or relevant information is fully disclosed by the management to the users of the accounting information for making decisions in relation to future investment in
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(ii) False : The word accrual means earned or incurred and not received or paid in cash. Hence it is not accounting on cash basis. (iii) False : Depreciation expenses is a charge against the profit and not an item of appropriation. Hence it must be debited in the profit and loss account whether the firm makes profit or incurs loss. (iv) False : Itis other way round. Prudence means anticipate all losses but record profits only when they are realised. (v) False : Receipts and Payment Account records all types of receipts and payments whether they are of capital nature or revenue nature provided the transaction is in cash. 2.(a) Distinction between Revenue and Capital Expenditures (i) Capital expenditure is incurred a permanent assets, but the revenue expenditure is incurred to maintain the efficiency of the fixed or capital asset.

(ii) Capital expenditure is incurred to increase the earning capacity of fixed assets e.g. to increase the seating capacity of a Cinema Hall. Revenue expenditure does not increase the earning capacity e.g. replacement of small screen with a wide screen of a cinema hall. (iii) Capital expenditure may add to the value of existing fixed asset while revenue expenditure will not add any value to the net assets. (iv) Capital expenditure is shown in the balance sheet while revenue expenditure is transferred to profit and loss account. (b) Plant & Machinery A/c 10,50,000 Provision for Dep. on Machinery A/c 4,16,730 OR (a) (i) Periodic inventory sytem requires a physical count of all the inventory items on hand

B.COM (H) 1st Year.8

the capital of the enterprise or supply of goods on credit or lending of money. Whatever details are available that must be honestly reported and additional information must be appended to the financial statements for the benefits of the users. It would be more appropriate if the summary of the accounting policies followed in the preparation of the financial statements is appended. For example, in a balance sheet the basis of valuation of assets such as investments, inventories, land and buildings etc. should be clearly disclosed. Similarly any change in the method of depreciation must also be clearly indicated. There must be ful, fair and adequate disclosure of accounting information. (b) Capital (Bal. figure) 1,81,000 Gross Profit 3,84,000 Net Profit 1,78,000 Balance Sheet 3,69,000 Bank A/c (B/f) 16,000 OR Gross Profit 79,000 Net Loss 2,450 Balancel Sheet 2,49,550 4. Valuation of goods 56,400 Profit & Loss A/c 6,00,171 Hire Purchase Trading Account 76,26,000 OR Surplus 19,700 Balance Sheet (31st Dec. 2007) 3,71,500 Balance Sheet (31st Dec. 2008) 5,44,050 5. Branch Debtors A/c 3,30,000 Branch Expenses A/c 42,000 Noida Branch Stock A/c Normal Loss 225 Branch Adj. A/c 225 Branch P & L A/c 375 Gross Profit 1,83,125 Branch P & L A/c 1,40,450 OR

Chandigarh Branch A/c 7,03,000 Chandigarh Branch Cash A/c 5,28,000 6.(a) Graudual Distribution of Cash This is is used in the context of dissolution of partnership. It simply means that cash is distributed amongest the creditors of tahe firm as and wahen realised from rhe sale of assets of the firm or other sources. Under this system, the creditors are informed about the dates of the distribution of cash. The sequence of payment is settlement of accounts given in the Partnership Act, namely: (i) Cost of dissolution (ii) Payment of outside liabilities like creditors bills payable, loans from wives of partners etc. (iii) Repayment of loans received from the partners (iv) Repayment of the capital contribution of the partners. (v) If there is still any surpllus left after meeting above claims, it will be shared by the partners in their profit sharing ratio. The purpose of gradual or piecemeal distribution of cash is that the partners waould not like to wait until all the assets are sold before receiving a certain amount of cash realised. (b) Net Loss 10,200 As Capital A/c 5,444 Bs Capital A/c 18,756 Cs Capital A/c 1,900 Bank A/c 66,400 OR Profit 21,000 As Capital A/c 16,600 Bs Capital A/c 8,400 Bank A/c 37,800

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