Q1(a)AS-1 fundamental accounting assumptions and policies
5 marks medium
State whether the following statements are 'True' or 'False' in line with the provisions of AS-1. Also give reason for your answer: (i) Certain fundamental accounting assumptions underline the preparation and presentation of financial statements. They are usually specifically stated because their acceptance and use are not assumed. (ii) If fundamental accounting assumptions are not followed in presentation and preparation of financial statements, a specific disclosure is not required. (iii) All significant accounting policies adopted in the preparation and presentation of financial statements should form part of the financial statements. (iv) Any change in an accounting policy, which has a material effect should be disclosed. Where the amount by which any item in the financial statements is affected by such change is not ascertainable, wholly or in part, the fact need not to be indicated. (v) There is no single list of accounting policies which are applicable to all circumstances.
Q1(c)Cash Flow Statement preparation - AS 3
5 marks medium
Following is the cash flow abstract of Alpha Ltd. for the year ended 31st March, 2021 with opening cash balance of ` 80,000, share capital issued of ` 5,00,000, collection from trade receivables of ` 3,50,000, sale of machinery of ` 70,000 on inflow side; and payments for account payables of ` 90,000, salaries and wages of ` 25,000, payment of overheads of ` 15,000, machinery acquired of ` 4,00,000, debentures redeemed of ` 50,000, bank loan repaid of ` 2,50,000, and tax paid of ` 1,55,000 on outflow side, with closing cash balance of ` 15,000. Prepare Cash Flow Statement for the year ended 31st March, 2021 in accordance with AS 3.
Q1(d)Government grants and subsidies - AS 12 refund treatment
5 marks medium
On 01.04.2018, XYZ Ltd. received Government grant of ` 100 Lakhs for acquisition of new machinery costing ` 500 lakhs. The grant was received and credited to the cost of the assets. The life span of the machinery is 5 years. The machinery is depreciated at 20% on WDV method. The company had to refund the entire grant on 2nd April, 2021 due to non-fulfilment of certain conditions imposed by the government. How do you deal with the refund of grant to the Government in the books of XYZ Ltd. as per AS 12?
Q2(a)Financial statements preparation - P&L and Balance Sheet wit
16 marks very hard
Shree Ltd. has authorized capital of ` 50 lakhs divided into 5,00,000 equity shares of ` 10 each. Its books show various balances including inventory of ` 6,65,000, discounts and rebates of ` 30,000, carriage inwards of ` 57,500, patterns of ` 3,75,000, purchases of ` 12,32,500, plant and machinery of ` 7,50,000, trade receivables of ` 4,00,500, bank overdraft of ` 12,67,000, trade payables of ` 2,40,500, equity share capital of ` 20,00,000, and sales of ` 36,17,000 among other items. You are required to prepare Statement of Profit & Loss for the year ended 31st March, 2021 and Balance Sheet as on that date in line with Schedule III to the Companies Act, 2013 after considering the following adjustments: inventory as on 31st March, 2021 was ` 7,08,000; outstanding liabilities for wages ` 25,000 and business expenses ` 36,000; depreciation on closing WDV of Plant & Machinery @ 5%, Engineering Tools @ 20%, Patterns @ 10%, and Furniture & Fixtures @ 10%; provision of ` 25,000 as doubtful debts after writing off ` 16,000 as additional bad debts; and income tax provision @ 30%.
Q2(b)Balance Sheet classification - Schedule III Companies Act 20
4 marks medium
State under which head these accounts should be classified in Balance Sheet, as per Schedule III of the Companies Act, 2013:
Q3(a)(i)Investment accounting - weighted average cost method with bo
8 marks hard
Mr. Vijay entered into the following transactions of equity shares of JP Power Ltd. (paid up value ` 10 per share): 01.01.2019: 600 shares @ ` 20 per share; 15.03.2019: 900 shares @ ` 25 per share; 20.05.2019: 1000 shares @ ` 23 per share; 25.07.2019: 2500 bonus shares received; 20.12.2019: 1500 shares sold @ ` 22 per share; 01.02.2020: 1000 shares sold @ ` 24 per share. Additional information: dividend of ` 3 per share received on 15.09.2019; right issue in ratio 1:5 on 12.11.2019 @ ` 20 per share with 60% subscription and renunciation of remaining at ` 3 per share; weighted average cost basis valuation. You are required to prepare Investment Account for the year ended 31.03.2019 and 31.03.2020.
Q3(a)(ii)Investments accounting - AS 13 diminution in value assessmen
4 marks medium
Whether the accounting treatment 'at cost' under the head 'Long Term Investments' without providing for any diminution in value is correct and in accordance with the provisions of AS 13? If not, what should have been the accounting treatment? What methodology should be adopted for ascertaining the provision for diminution in the value of investment, if any? Explain in brief.
Q3(b)Insurance claim calculation - ascertainment of loss from inc
8 marks hard
A fire engulfed the premises of M/s Preet on 1st July 2021. Building, equipment and stock were destroyed with salvage value of Building ` 4,000, Equipment ` 2,500, and Stock ` 20,000. From records saved for 1st January to 30th June 2021: Sales ` 11,50,000, Sales Returns ` 40,000, Purchases ` 9,50,000, Purchases Returns ` 12,500, Cartage inward ` 17,500, Wages ` 7,500, Stock on 31.12.2020 ` 1,50,000, Building value on 31.12.2020 ` 3,75,000 with depreciation till date ` 1,25,000, Equipment value on 31.12.2020 ` 75,000 with depreciation till date ` 22,500; depreciation rates: Building 5% p.a. and Equipment 15% p.a. by straight line method; normal profit margin is 25% on net sales. You are required to prepare the statement of claim for submission to the Insurance Company.
Q4(a)Accounts reconstruction from incomplete records with estimat
12 marks very hard
The Balance Sheet of Chirag as on 31st March, 2020 shows Capital Account ` 48,000, Loan ` 15,000, Creditor ` 31,000, Building ` 32,500, Furniture ` 5,000, Motor car ` 9,000, Stock ` 20,000, Debtors ` 17,000, Cash in hand ` 2,000, and Cash at bank ` 8,500. A riot on 31st March, 2021 destroyed all books and records and the cashier absconded. Information provided: sales for year ended 31.03.2021 were 20% higher than previous year with goods sold at cost plus 25%; 20% of total sales were for cash with no cash purchases; stock level was raised to ` 30,000 on 1.4.2020 and maintained throughout; collection from debtors ` 1,40,000 (` 35,000 in cash), business expenses ` 20,000 (` 5,000 outstanding, ` 6,000 by cheques); bank pass book shows payments to creditors ` 1,37,500, personal drawings ` 7,500, cash deposited ` 71,500, cash withdrawn ` 12,000; gross profit last year ` 30,000; depreciation on Building and Furniture @ 5% and Motor Car @ 20%; defalcated amount recoverable from cashier. You are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2021 and Balance Sheet as on that date.
Q4(b)Departmental accounts - inter-departmental transfers and pro
8 marks hard
The following balances were extracted from the books of Beta for the year ended 31st March, 2021: Department A - Opening Stock ` 3,00,000, Purchases ` 39,00,000, Sales ` 60,00,000; Department B - Opening Stock ` 2,40,000, Purchases ` 54,60,000, Sales ` 90,00,000. General expenses incurred for both departments were ` 7,50,000. Additional information: Closing stock of Department A ` 6,00,000 including goods from Department B ` 1,20,000 at cost to A; Closing stock of Department B ` 12,00,000 including goods from Department A ` 1,80,000 at cost to B; Opening stock of A includes ` 60,000 from B and opening stock of B includes ` 90,000 from A at cost to transferee; gross profit is uniform year to year. You are required to prepare Departmental Trading Account and general Profit & Loss Account for the year ended 31st March, 2021.
Q5(a)Pre-incorporation and post-incorporation period apportionmen
10 marks hard
The partners of Ojasvi Enterprises decided to convert the partnership firm into Private Limited Company Tejasvi (P) Ltd. with effect from 1st January, 2019, but incorporation occurred only on 1st June, 2019. Business continued on behalf of the company with consideration of ` 6,00,000 settled on incorporation date plus interest @ 12% p.a. Company availed loan of ` 9,00,000 @ 10% p.a. on 1st June, 2019 to pay consideration and for working capital. Company closed accounts for first time on 31st March, 2020 with: 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 ` 15,000 (written off in first year). Sales June-December 2019 were 2.5 times average; January-March quarter sales were 3.5 times average; salaries doubled from July 2019; additional showroom acquired at ` 10,000 monthly rent from July 2019. You are required to prepare a statement showing apportionment of cost and revenue between pre-incorporation and post-incorporation periods.
Q5(b)Branch accounting - inter-branch transfers and unrealized pr
6 marks medium
L Ltd. has head office at Mumbai and branches at Pune and Goa. Branches purchase goods independently with Pune branch making profit of one-third on cost and Goa branch making profit of 20% on sales. Goods supplied between branches at respective sales prices. Particulars for year: Pune opening stock ` 40,000, purchases ` 2,00,000, sales ` 2,80,000, chargeable expenses ` 15,000, closing stock ` 30,000, office and administration expenses ` 13,250, selling and distribution expenses ` 15,000; Goa opening stock ` 30,000, purchases ` 2,50,000, sales ` 2,95,625, chargeable expenses ` 27,500, closing stock ` 43,500, office and administration expenses ` 7,000, selling and distribution expenses ` 10,000. Information: Opening stock at Pune includes goods ` 10,000 (invoice price) from Goa; Opening stock at Goa includes goods ` 17,000 (invoice price) from Pune; Pune sales includes ` 20,000 (selling price) transfer to Goa; Goa sales includes ` 15,000 (selling price) transfer to Pune; Closing stock at Pune includes goods ` 5,000 (invoice price) from Goa; Closing stock at Goa includes goods ` 4,000 (invoice price) from Pune. Prepare Trading and Profit and Loss Account of Pune branch and find out the profit or loss considering the reserve for unrealised profits.
Q5(c)Foreign branch accounts - currency translation and trial bal
4 marks medium
Ganesh Ltd. has head office at Delhi and integral foreign operation branch at New York. New York branch trial balance as on 31st March, 2020: Stock on 1.4.2019 $300, Purchases and Sales $800 and $1,500, Sundry Debtors and Creditors $400 and $300, Bills of exchange $120 and $240, Sundry expenses $1,080, Bank balance $420, Delhi office A/c debit $1,080, with totals $3,120 each side. Exchange rates: 1.4.2019 @ ` 40 per US $, 31.3.2020 @ ` 42 per US $, average for year @ ` 41 per US $. New York branch account showed debit balance of ` 44,380 on 31.3.2020 in Delhi books with no pending reconciliation items. You are asked to prepare trial balance of New York in ` in the books of Ganesh Ltd.
Q6(a)Preference share redemption - journal entries and accounting
5 marks medium
The Balance Sheet of ABC Ltd. as on 31st March, 2021 shows: Share capital: 40,000 Equity shares of ` 10 each fully paid ` 4,00,000; 1,000 10% Redeemable preference shares of ` 100 each fully paid ` 1,00,000. Reserve & Surplus: Capital reserve ` 50,000, Securities premium ` 50,000, General reserve ` 75,000, Profit and Loss Account ` 35,000. On 1st April 2020, Board of Directors decided to redeem the preference shares at par by utilisation of reserve. You are required to pass necessary Journal Entries including cash transactions in the books of the company.
Q6(b)Effective capital computation - Schedule V Companies Act 201
5 marks medium
X Ltd. (a non-investment company) as on 31st March, 2021 provides: Issued and subscribed capital: 15,000 14% Preference shares of ` 100 each fully paid ` 15,00,000; 1,20,000 Equity shares of ` 100 each, ` 80 paid-up ` 96,00,000. Capital reserves ` 1,95,000 (with ` 1,50,000 revaluation reserve), Securities premium ` 50,000, 15% Debentures ` 65,00,000, Investment in shares, debentures, etc. ` 75,00,000, Profit and Loss account (debit balance) ` 15,25,000. You are required to compute Effective Capital as per the provisions of Schedule V to the Companies Act, 2013.
Q6(c)Income assessment from incomplete records - net worth method
5 marks medium
Mr. Aman is running a business of readymade garments without maintaining double entry books. Income Tax Officer feels he has not disclosed full income for financial year 2020-21. Information provided: As on 31st March, 2020 - Sundry Assets ` 16,65,000, Liabilities ` 4,13,000; As on 31st March, 2021 - Sundry Assets ` 28,40,000, Liabilities ` 5,80,000; Drawings ` 32,000 per month; Income declared to ITOs ` 9,12,000; Life insurance policy matured with amount received ` 50,000 retained in business. State whether the Income Tax Officer's contention is correct. Explain by giving your working.
Q6(c) [Alternative]Hire-Purchase agreement - present value calculation
5 marks medium
A acquired on 1st January, 2021 a machine under a Hire-Purchase agreement providing for 5 half-yearly instalments of ` 6,000 each, the first instalment being due on 1st July, 2021. Assuming that the applicable rate of interest is 10 per cent per annum, calculate the cash value of the machine. All working should form part of the answer.
Q6(d)Onerous contracts and contingent liabilities - non-cancellab
5 marks medium
ABC Ltd. has entered into a binding agreement with XYZ Ltd. to buy a custom-made machine amounting to ` 4,00,000. As on 31st March, 2021 before delivery of the machine, ABC Ltd. had to change its method of production. The new method will not require the machine ordered and so it shall be scrapped after delivery. The expected scrap value is 'NIL'. Show the treatment of machine in the books of ABC Ltd.