CA Inter Adv Accounting — Question Paper — May 2012

AS 7 (Revised) — Construction Contracts requires that when the outcome of a construction contract can be estimated reliably, contract revenue and contract costs shall be recognised by reference to the stage of completion of the contract activity at the reporting date.

Step 1 — Determine Total Estimated Cost

Cost already incurred = ₹1,80,00,000; Estimated additional cost = ₹1,40,00,000; Total estimated cost = ₹3,20,00,000.

Step 2 — Check for Foreseeable Loss

Total estimated cost (₹3,20,00,000) exceeds contract price (₹3,00,00,000). Therefore, there is a foreseeable loss of ₹20,00,000. As per AS 7 (Revised), the entire foreseeable loss must be recognised immediately as an expense, irrespective of stage of completion.

Step 3 — Stage of Completion (Cost-to-Cost Method)

Stage of completion = Cost incurred to date ÷ Total estimated cost = ₹1,80,00,000 ÷ ₹3,20,00,000 = 56.25%

Step 4 — Revenue to be Recognised

Contract revenue = ₹3,00,00,000 × 56.25% = ₹1,68,75,000

Step 5 — Cost to be Recognised (Amount Charged to Revenue)

Cost recognised via stage of completion = 56.25% × ₹3,20,00,000 = ₹1,80,00,000. Loss already embedded in the above = ₹1,80,00,000 − ₹1,68,75,000 = ₹11,25,000. Remaining foreseeable loss to be additionally charged = ₹20,00,000 − ₹11,25,000 = ₹8,75,000.

Total amount charged to revenue (P&L) = ₹1,80,00,000 + ₹8,75,000 = ₹1,88,75,000

This ensures the net loss for the year = ₹1,88,75,000 − ₹1,68,75,000 = ₹20,00,000, i.e., the entire foreseeable loss is recognised in the year ended 31st March, 2012, as mandated by AS 7 (Revised).

Classification of Investments under AS 13 (Accounting Standard 13 – Accounting for Investments):

AS 13 classifies investments into two categories: (i) Current Investments – readily realisable and intended to be held for not more than one year, and (ii) Long-term Investments – all other investments.

1. Shares of Mother (Parent) Company – Long-term Investment

Although the shares were purchased on 1st October, 2011 (only 6 months before year-end), shares of a parent/mother company are strategic in nature and are classified as Long-term Investments.

Under AS 13, long-term investments are carried at cost. A reduction in carrying amount is made only when there is a diminution other than temporary in the value of the investment.

Cost = ₹2,50,000 | Market Value = ₹2,25,000 | Decline = ₹25,000

- If the decline in value is temporary in nature → Shares are shown in the Balance Sheet at cost, i.e., ₹2,50,000. No provision is required.
- If the decline is other than temporary → A provision of ₹25,000 must be made, and the shares are shown at ₹2,25,000. The provision is charged to the Profit & Loss Account.

The management must assess the nature of diminution. Since no information is provided indicating permanent impairment, the prudent treatment is to disclose the decline and assess accordingly.

2. Gold – Long-term Investment

Gold was purchased on 1st March, 2009 and has been held for over 3 years as on 31st March, 2012. It is clearly a Long-term Investment.

Under AS 13, long-term investments are carried at cost. Any appreciation in market value is NOT recognised.

Cost = ₹4,00,000 | Market Value = ₹6,00,000 (Appreciation of ₹2,00,000 – not recorded)

Gold will be shown in the Balance Sheet at ₹4,00,000 (cost).

3. Silver – Long-term Investment

Silver was also purchased on 1st March, 2009 and held for over 3 years. It is a Long-term Investment.

Similarly, appreciation in market value is not recognised for long-term investments.

Cost = ₹2,00,000 | Market Value = ₹3,50,000 (Appreciation of ₹1,50,000 – not recorded)

Silver will be shown in the Balance Sheet at ₹2,00,000 (cost).

Presentation in Balance Sheet (as on 31st March, 2012):

All three investments are Long-term Investments and shall be shown under the head 'Investments' in the Balance Sheet:

- Shares of Mother Company: ₹2,50,000 (or ₹2,25,000 if diminution is other than temporary)
- Gold: ₹4,00,000
- Silver: ₹2,00,000

Total Long-term Investments: ₹8,50,000 (assuming temporary diminution in shares)

Note: Under AS 13, appreciation in long-term investments is ignored on grounds of prudence; however, any other-than-temporary decline must be provided for. The market value of each investment should be disclosed by way of notes to accounts as required by AS 13.

Part (i): Depreciation on Spare Bus — AS 6 (Depreciation Accounting)

As per AS 6 – Depreciation Accounting, depreciation is the measure of the wearing out, consumption, or other loss of value of a depreciable asset arising from use, efflux of time, or obsolescence through technology and market changes. The standard clearly states that depreciation should be charged on a systematic basis over the useful life of the asset, irrespective of whether the asset is actually used or not during the accounting period.

The spare bus, though not actually used during the year ended 31st March 2012, was purchased and kept ready for use as a stand-by. Since the bus was available and ready for use, it is a depreciable asset and the efflux of time alone is sufficient to warrant the charge of depreciation. The mere fact that the bus was not physically operated does not exempt it from depreciation.

Moreover, AS 6 requires that the depreciation method selected should be applied consistently from period to period. The company's contention that depreciation need not be charged because the bus was not used is not in conformity with AS 6. Accordingly, depreciation must be charged on the spare bus for the year ended 31st March 2012.

This omission, if material, would also require disclosure in the financial statements and could result in a qualification in the auditor's report since the financial statements would not give a true and fair view.

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Part (ii): Capitalisation of Self-Constructed Asset — AS 10 (Accounting for Fixed Assets)

As per AS 10 – Accounting for Fixed Assets, the cost of a self-constructed fixed asset should include only those costs that are directly attributable to bringing the asset to its working condition for its intended use. The standard specifically states that the cost of a self-constructed asset is determined using the same principles as for an acquired asset.

In case of self-construction, AS 10 further clarifies that the cost should include the cost of construction that directly relates to the specific asset, i.e., the actual cost incurred — wages, materials, etc. — and should not include any internal profits. Where the entity constructs a similar asset for sale in normal course of business and the cost of construction is the same, then such cost may be used as the basis; but the asset should not be stated at an amount exceeding its net realisable value or the cost obtainable from external sources (whichever is lower) only to prevent overstatement.

In this case:
- Actual cost incurred by the company = ₹4,50,000 (wages and materials)
- Lowest outside contractor estimate = ₹6,00,000

The directors' contention of debiting the Factory Building Account with ₹6,00,000 is incorrect. AS 10 does not permit capitalization of notional savings or unrealised profits from self-construction. The factory building must be recorded at actual cost of ₹4,50,000 — the actual expenditure incurred on wages and materials.

Capitalising ₹6,00,000 would result in overstatement of the fixed asset and creation of an artificial profit of ₹1,50,000, which is not permissible under AS 10. The difference of ₹1,50,000 between the contractor's quote and the actual cost represents a saving and cannot be treated as a cost of the asset.

Conclusion: The Factory Building Account should be debited with ₹4,50,000 only, being the actual cost of construction.

Types of Amalgamations under AS 14 (Accounting for Amalgamations)

As per AS 14 – Accounting for Amalgamations issued by the Institute of Chartered Accountants of India, amalgamations are classified into two broad types:

1. Amalgamation in the Nature of Merger

This type of amalgamation is essentially a uniting of interests where the identity of the transferor company is preserved in the transferee company. All of the following conditions must be satisfied for an amalgamation to be classified as merger:

(a) All assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company.

(b) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.

(c) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.

(d) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company.

(e) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company, except to ensure uniformity of accounting policies.

When all these conditions are met, the Pooling of Interests Method is used to account for such amalgamation.

2. Amalgamation in the Nature of Purchase

This type of amalgamation occurs when one company acquires another company and, as a result, the shareholders of the transferor company do not continue to have a proportionate share in the equity of the combined entity. This is essentially a takeover rather than a union.

An amalgamation that does not satisfy any one or more of the five conditions listed above for merger is treated as an amalgamation in the nature of purchase.

In such cases, the Purchase Method is used to account for the amalgamation. Under this method:
- Assets and liabilities are incorporated at their fair values or at agreed values.
- The difference between the purchase consideration and the net assets acquired is treated as Goodwill (if purchase consideration exceeds net assets) or Capital Reserve (if net assets exceed purchase consideration).

Summary of Accounting Methods:

- Amalgamation in the Nature of Merger → Pooling of Interests Method (assets and liabilities recorded at existing book values; no goodwill arises).
- Amalgamation in the Nature of Purchase → Purchase Method (assets and liabilities recorded at fair/agreed values; goodwill or capital reserve may arise).

The distinction is critical as it significantly impacts the financial statements of the transferee company post-amalgamation.

Internal Reconstruction of M/s Platinum Limited

Preliminary Working — Share Capital Position Before Reconstruction:
The Balance Sheet shows 50,000 shares of ₹50 each fully paid (₹25,00,000) and 1,00,000 shares of ₹50 each with ₹40 paid-up per share (₹40,00,000) — confirming ₹10 per share remains uncalled on the second lot.

Journal Entries in the Books of M/s Platinum Limited

Entry 1 — Call up of uncalled capital (Scheme Point 1):
Share Call A/c Dr ₹10,00,000
To Share Capital A/c ₹10,00,000
(Uncalled capital of ₹10 per share called up on 1,00,000 partly paid shares)

Bank A/c Dr ₹10,00,000
To Share Call A/c ₹10,00,000
(Call money received from shareholders)

Entry 2 — Conversion of all 1,50,000 shares of ₹50 each into ₹40 shares (Scheme Point 1):
Share Capital A/c (₹50 each) Dr ₹75,00,000
To Share Capital A/c (Equity ₹40 each) ₹60,00,000
To Capital Reduction A/c ₹15,00,000
(1,50,000 equity shares of ₹50 each — all now fully paid — converted into ₹40 each; surplus credited to Capital Reduction)

Entry 3 — Fresh issue of equity shares to existing shareholders (Scheme Point 2):
Bank A/c Dr ₹12,50,000
To Share Capital A/c ₹12,50,000
(31,250 equity shares of ₹40 each fully paid issued to existing shareholders at ₹40)

Entry 4 — Settlement of Trade Creditors (Scheme Point 3):
Trade Creditors A/c Dr ₹12,40,000
To Share Capital A/c ₹7,50,000
To Bank A/c ₹3,43,000
To Capital Reduction A/c ₹1,47,000
(₹7,50,000 creditors allotted 18,750 equity shares of ₹40 each; remaining ₹4,90,000 settled at 70% cash = ₹3,43,000; sacrifice of 30% = ₹1,47,000 to Capital Reduction)

Entry 5 — Mr. Shiv's Debentures (Scheme Point 4):
8% Debentures A/c Dr ₹3,00,000
12% Debentures A/c Dr ₹4,00,000
To 15% Debentures A/c ₹5,00,000
To Capital Reduction A/c ₹2,00,000
(Mr. Shiv cancels ₹2,00,000 of his debentures; balance ₹5,00,000 converted to 15% Debentures)

Bank A/c Dr ₹1,00,000
To 15% Debentures A/c ₹1,00,000
(Mr. Shiv subscribes further 15% Debentures in cash)

Entry 6 — Mr. Ganesh's Debentures (Scheme Point 5):
8% Debentures A/c Dr ₹1,00,000
12% Debentures A/c Dr ₹2,00,000
To 15% Debentures A/c ₹2,50,000
To Capital Reduction A/c ₹50,000
(Mr. Ganesh cancels ₹50,000; balance ₹2,50,000 converted to 15% Debentures)

Entry 7 — Revaluation of Assets (Scheme Point 6):
Land & Building A/c Dr ₹9,14,000
Stock A/c Dr ₹30,000
To Capital Reduction A/c ₹9,44,000
(Upward revaluation of assets)

Capital Reduction A/c Dr ₹3,59,000
To Machinery A/c ₹1,30,000
To Computers A/c ₹1,20,000
To Trade Debtors A/c ₹1,09,000
(Downward revaluation: Trade Debtors reduced by 10%; Machinery and Computers written down)

Entry 8 — Payment of Outstanding Expenses (Scheme Point 7):
Outstanding Expenses A/c Dr ₹10,60,000
To Bank A/c ₹10,60,000
(Outstanding expenses paid in full)

Entry 9 — Write off Goodwill and Profit & Loss Account (Scheme Point 8):
Capital Reduction A/c Dr ₹29,82,000
To Goodwill A/c ₹22,00,000
To Profit & Loss A/c ₹7,82,000
(Fictitious and intangible assets written off against Capital Reduction)

Entry 10 — Deficit in Capital Reduction adjusted against Capital Reserve (Scheme Point 8):
Capital Reserve A/c Dr ₹5,00,000
To Capital Reduction A/c ₹5,00,000
(Net deficit of ₹5,00,000 in Capital Reduction Account set off against Capital Reserve)

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Balance Sheet of M/s Platinum Limited (after reconstruction)

EQUITY AND LIABILITIES

Share Capital:
2,00,000 Equity Shares of ₹40 each, fully paid ................ ₹80,00,000

Non-Current Liabilities:
15% Debentures ................ ₹8,50,000

Total ................ ₹88,50,000

ASSETS

Land & Building ................ ₹51,84,000
Machinery ................ ₹7,20,000
Computers ................ ₹4,00,000
Stock ................ ₹3,50,000
Trade Debtors ................ ₹9,81,000
Cash at Bank ................ ₹12,15,000

Total ................ ₹88,50,000

Approach: To find Total Sales and Total Purchases, we prepare the Debtors Control Account (to derive Credit Sales) and the Creditors Control Account (to derive Credit Purchases). Cash Sales and Cash Purchases are added directly.

Debtors Control Account is used to find Credit Sales. The Dr side carries the opening balance and all items that increase debtor balances (Credit Sales, dishonoured bills that revive the debtor). The Cr side carries all items that reduce debtor balances (Bills Receivable received, cash collected, endorsements, discounts, returns, discounted bills, and closing balance). Credit Sales is the balancing figure.

From the Debtors Control Account:
- Total of Cr side = ₹3,40,000
- Total of Dr side (excluding Credit Sales) = ₹80,000
- Credit Sales = ₹2,60,000

Note on Bad Debts Recovered (₹16,000): This represents recovery of previously written-off debts. The entry is Dr Cash / Cr Bad Debts Recovered (P&L). It does not pass through the current Debtors Control Account and is therefore excluded.

Total Sales = Credit Sales + Cash Sales = ₹2,60,000 + ₹1,68,500 = ₹4,28,500

Creditors Control Account is used to find Credit Purchases. The Cr side carries opening balance, Credit Purchases, and items that revive creditor balances (Endorsed Bills Receivable dishonoured — when an endorsed bill is dishonoured by the original debtor, the creditor's claim revives on us). The Dr side carries all items that reduce creditor balances (Bills Payable issued, cash paid, discount received, bills endorsed, and closing balance). Credit Purchases is the balancing figure.

From the Creditors Control Account:
- Total of Dr side = ₹3,54,000
- Total of Cr side (excluding Credit Purchases) = ₹84,000
- Credit Purchases = ₹2,70,000

Total Purchases = Credit Purchases + Cash Purchases = ₹2,70,000 + ₹1,97,800 = ₹4,67,800

Profit and Loss Appropriation Account for the year ended 31st March, 2012

Before preparing the Appropriation Account, the Accountant's salary and commission (being a charge to the firm, not an appropriation) must be deducted from the Net Profit of ₹2,76,000.

Accountant's annual salary = ₹2,000 × 12 = ₹24,000. Commission is 12% of net profit after charging such commission: let commission = x; then x = 12% × (₹2,52,000 − x), giving x = ₹27,000. Net Profit transferred to Appropriation = ₹2,76,000 − ₹24,000 − ₹27,000 = ₹2,25,000.

Interest on Drawings (credited in Appropriation — charged to partners):
- Good (₹2,000 at start of month): ₹2,000 × 8% × 78/12 = ₹1,040
- Better (₹1,750 at end of month): ₹1,750 × 8% × 66/12 = ₹770
- Best (₹1,250 at mid-month): ₹1,250 × 8% × 72/12 = ₹600 | Total IOD = ₹2,410

Interest on Closing Capital @6% p.a.: Good ₹1,70,000 × 6% = ₹10,200; Better ₹1,10,000 × 6% = ₹6,600; Best ₹1,22,000 × 6% = ₹7,320.

Partner Salaries (annual): Good = ₹28,800; Better = ₹19,200; Best = ₹21,600.

Commission to Good and Best (8% and 10% of net profit before appropriation i.e., ₹2,25,000): Good = ₹18,000; Best = ₹22,500.

Better's Commission: 15% of net profit before charging IOD but after all other appropriations:
Base = ₹2,25,000 − ₹22,240 − ₹69,600 − ₹24,120 − ₹18,000 − ₹22,500 = ₹68,540; Better's commission = 15% × ₹68,540 = ₹10,281.

Balance of Profit shared 3:2:4 = ₹2,27,410 − ₹1,66,741 = ₹60,669 → Good ₹20,223 | Better ₹13,482 | Best ₹26,964.

| Dr | ₹ | Cr | ₹ |
|--------------------------------|---------|-------------------------------|----------|
| To General Reserve | 22,240 | By Net Profit b/d | 2,25,000 |
| To Salary — Good | 28,800 | By Interest on Drawings: | |
| To Salary — Better | 19,200 | Good | 1,040 |
| To Salary — Best | 21,600 | Better | 770 |
| To Interest on Capital — Good | 10,200 | Best | 600 |
| To Interest on Capital — Better| 6,600 | | |
| To Interest on Capital — Best | 7,320 | | |
| To Commission — Good | 18,000 | | |
| To Commission — Best | 22,500 | | |
| To Commission — Better | 10,281 | | |
| To Share of Profit — Good | 20,223 | | |
| To Share of Profit — Better | 13,482 | | |
| To Share of Profit — Best | 26,964 | | |
| Total |2,27,410| Total |2,27,410|

Note: Accountant's remuneration (salary ₹24,000 + commission ₹27,000 = ₹51,000) is a charge to the P&L Account and does not appear in the Appropriation Account.

Receipts & Payments Account for the year ended 31st March, 2012

Dr side (Receipts):

| Particulars | ₹ |
|---|---|
| To Balance b/d (Bank) | 8,300 |
| To Subscriptions | 4,27,000 |
| To Entrance Fee | 2,40,000 |
| To Sale of Sports Material | 22,480 |
| To Sale of Old Newspapers | 11,600 |
| To Interest on 8% Govt Bonds | 6,000 |
| Total | 7,15,380 |

Cr side (Payments):

| Particulars | ₹ |
|---|---|
| By Salaries | 1,20,500 |
| By Rent | 2,22,000 |
| By Printing & Stationery | 28,200 |
| By Postage & Telephone | 41,600 |
| By Membership Fee (State TTA) | 12,800 |
| By Electricity Charges | 38,500 |
| By Garden Upkeep | 19,300 |
| By Repairs & Maintenance | 19,900 |
| By Miscellaneous Expenses | 5,700 |
| By Purchase of Sports Material | 71,200 |
| By Purchase of Fixed Assets | 40,000 |
| By Fixed Deposit | 80,000 |
| By Balance c/d (Bank) | 15,680 |
| Total | 7,15,380 |

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Balance Sheet as on 31st March, 2012

| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capital Fund | 5,32,800 | Fixed Assets (Net) | 2,67,000 |
| Outstanding Salaries | 14,300 | 8% Government Bonds | 1,50,000 |
| Outstanding Rent | 15,000 | Fixed Deposit | 80,000 |
| Subscriptions Received in Advance | 4,900 | Stock of Sports Material | 35,670 |
| Creditors for Sports Material | 4,200 | Outstanding Subscriptions | 5,700 |
| | | Advance for Stationery | 1,550 |
| | | Prepaid Membership Fee | 9,600 |
| | | Accrued Interest on Bonds | 6,000 |
| | | Bank Balance | 15,680 |
| Total | 5,71,200 | Total | 5,71,200 |

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Key Notes: Entrance Fee — total cash received is ₹2,40,000 (since I&E reflects only 50% = ₹1,20,000; the capitalized 50% = ₹1,20,000 is added directly to Capital Fund). Interest on Bonds — only 2 quarters (₹6,000) received in cash; ₹6,000 accrued appears as asset. Membership Fee — full fee of ₹12,800 paid as cash (3 months in I&E = ₹3,200; prepaid 9 months = ₹9,600 shown as asset). Fixed Assets — new assets of ₹40,000 purchased on 01.10.2011 [derived: depreciation on new assets = 5% × ₹40,000 × 6/12 = ₹1,000; total depreciation ₹12,000 + ₹1,000 = ₹13,000]. Capital Fund closing = ₹5,32,800 (Opening ₹4,09,300 + Surplus ₹3,500 + Capitalized Entrance Fee ₹1,20,000).

MULTISTORE LIMITED - HIRE PURCHASE ACCOUNTS

Under the Stock and Debtors System, goods are removed from stock at cost and credited to H.P. Suspense, with the installment difference recognized as sales profit proportionally as cash is received.

Key Calculations:

Scooter: H.P. Price ₹38,600 (Down ₹5,000 + 12 installments ₹33,600); Cost ₹30,000; H.P. Profit ₹8,600

LCD TV: H.P. Price ₹51,600 (Down ₹6,000 + 6 installments ₹45,600); Cost ₹40,000; H.P. Profit ₹11,600

Cash/Adjustments Received:

Scooter: Down ₹5,000 + 9 monthly installments (June-Dec 2011, Feb-Mar 2012, January 2012 defaulted) = ₹25,200. Total = ₹30,200. Outstanding = ₹8,400. Repossessed at ₹22,000; excess to LCD = ₹13,600.

LCD TV: Down ₹6,000 + 2 quarterly installments (July, Oct 2011; Jan 2012 defaulted) = ₹15,200. Total = ₹21,200. Plus adjustment from Scooter = ₹13,600. Total realization = ₹34,800. Outstanding = ₹16,800.

H.P. Stock Account:
Dr: Scooter 30,000; LCD TV 40,000 | Cr: To H.P. Debtors 30,000; LCD 40,000 | Balance: Nil

H.P. Suspense Account (Profit on H.P. Sales):
Cr: Scooter 8,600; LCD TV 11,600 | Dr: Scooter profit realized (30,200/38,600 × 8,600) 6,729; LCD profit realized (34,800/51,600 × 11,600) 7,821 | Balance Cr: 5,650

H.P. Debtors - Manas (Scooter):
Dr: H.P. Price 38,600 | Cr: Cash (down & installments) 30,200; Repossession adjustment 8,400 | Balance: Nil

H.P. Debtors - Manas (LCD TV):
Dr: H.P. Price 51,600 | Cr: Cash (down & installments) 21,200; From Scooter excess 13,600; Balance (outstanding) 16,800

Scooter Sale Account:
Dr: Cash 24,500; Repair charges 1,000 | Cr: Scooter stock (at agreed repossession value) 22,000; Profit on resale 3,500 | Balance Nil

Profit Calculation:

Profit on Scooter = H.P. profit ₹8,600 + Profit on resale (₹24,500 - ₹1,000 repair - ₹22,000 repossession value) ₹1,500 = ₹10,100

Profit on LCD TV = (₹34,800 ÷ ₹51,600) × ₹11,600 = ₹7,821

Total Profit = ₹17,921

The three investment accounts are prepared under AS 13 (Revised) – Accounting for Investments using the columnar format (Nominal Value | Interest/Dividend | Cost).

Key principles applied:
- 12% Bonds (cum-interest purchase): Accrued interest separated from capital cost. Ex-interest sale proceeds credited to cost column; accrued interest credited to interest column separately.
- Equity shares: Brokerage included in cost per AS 13 Para 14. Bonus shares received at nil cost; existing cost redistributed over enlarged holding. Rights exercised: cost = amount paid. Rights sold: proceeds reduce carrying cost of original investment.
- Dividends: Credited to P&L (income), not routed through investment account.

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ACCOUNT 1: 12% BONDS INVESTMENT ACCOUNT
*(24,000 Bonds of ₹100 each | Interest: 30 Sep & 31 Mar)*

| Dr Side | Nominal (₹) | Interest (₹) | Cost (₹) | Cr Side | Nominal (₹) | Interest (₹) | Cost (₹) |
|---|---|---|---|---|---|---|---|
| 01.05.11 To Bank (cum-int purchase) | 24,00,000 | 24,000 | 19,92,000 | 30.09.11 By Bank (interest received) | — | 1,44,000 | — |
| 31.03.12 To P&L (profit on sale) | — | — | 1,05,000 | 01.03.12 By Bank (sale – ex-interest) | 15,00,000 | 75,000 | 13,50,000 |
| 31.03.12 To P&L (net interest income) | — | 2,49,000 | — | 31.03.12 By Bank (interest received) | — | 54,000 | — |
| | | | | 31.03.12 By Balance c/d | 9,00,000 | — | 7,47,000 |
| Total | 24,00,000 | 2,73,000 | 20,97,000 | Total | 24,00,000 | 2,73,000 | 20,97,000 |

Closing Balance: 9,000 bonds at ₹83 each = ₹7,47,000

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ACCOUNT 2: ALPHA LIMITED – EQUITY SHARES INVESTMENT ACCOUNT
*(Shares of ₹10 each)*

| Dr Side | Nominal (₹) | Cost (₹) | Cr Side | Nominal (₹) | Cost (₹) |
|---|---|---|---|---|---|
| 15.06.11 To Bank (1,50,000 shares @ ₹25 + 2% brokerage = ₹25.50) | 15,00,000 | 38,25,000 | 31.10.11 By Bank (80,000 shares sold @ ₹22) | 8,00,000 | 17,60,000 |
| 14.10.11 To Bonus Shares (1,00,000 shares @ nil cost) | 10,00,000 | — | 31.03.12 By Balance c/d (1,70,000 shares @ ₹15.30) | 17,00,000 | 26,01,000 |
| 31.10.11 To P&L A/c (Profit on sale) | — | 5,36,000 | | | |
| Total | 25,00,000 | 43,61,000 | Total | 25,00,000 | 43,61,000 |

Closing Balance: 1,70,000 shares at ₹15.30 = ₹26,01,000
*Note: Dividend of ₹2,55,000 (15% on ₹10 FV × 1,70,000 shares) received on 01.01.2012 credited to P&L A/c as Dividend Income.*

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ACCOUNT 3: BEETA LIMITED – EQUITY SHARES INVESTMENT ACCOUNT
*(Shares of ₹10 each)*

| Dr Side | Nominal (₹) | Cost (₹) | Cr Side | Nominal (₹) | Cost (₹) |
|---|---|---|---|---|---|
| 10.07.11 To Bank (60,000 shares @ ₹44 + 2% brokerage = ₹44.88) | 6,00,000 | 26,92,800 | 15.01.12 By Bank (rights sold: 9,000 @ ₹2.25 — reduces cost) | — | 20,250 |
| 15.01.12 To Bank (rights exercised: 6,000 shares @ ₹5) | 60,000 | 30,000 | 31.03.12 By Balance c/d (66,000 shares) | 6,60,000 | 27,02,550 |
| Total | 6,60,000 | 27,22,800 | Total | 6,60,000 | 27,22,800 |

Closing Balance: 66,000 shares at ₹40.95 (approx.) = ₹27,02,550
*Note: Dividend of ₹1,18,800 (18% on ₹10 FV × 66,000 shares) received on 15.03.2012 credited to P&L A/c as Dividend Income.*

CLAIM FOR LOSS OF STOCK

To ascertain the stock at the date of fire (1st July 2011), a Memorandum Trading Account is prepared for the period 1st April 2011 to 30th June 2011. Since Gross Profit is expected to increase by 5% on sales due to reduced material cost, the revised GP Rate = 25% + 5% = 30% and Cost of Goods Sold ratio = 70%.

Opening Stock (as at 1.4.2011) = ₹1,85,000; Add: Purchases = ₹2,14,000; Wages = ₹51,000; Manufacturing Expenses = ₹12,000; Total = ₹4,62,000. Less: Cost of Goods Sold (₹3,36,000 × 70%) = ₹2,35,200. Stock at date of fire = ₹2,26,800.

Since policy is without Average Clause, the full policy amount is claimable where actual loss exceeds sum insured. As stock lost (₹2,26,800) > Policy (₹2,10,000), Claim for Loss of Stock = ₹2,10,000.

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CLAIM FOR LOSS OF PROFIT

The GP Rate to be applied = 30% (revised rate, as material cost decrease is expected to apply during the indemnity period).

To compute Short Sales, the Standard Turnover (corresponding quarter last year) is adjusted for the upward business trend using the pre-fire comparison:
- Trend Factor = Sales Apr–Jun 2011 / Sales Apr–Jun 2010 = ₹3,36,000 / ₹3,00,000 = 1.12
- Adjusted Standard Turnover = ₹3,20,000 × 1.12 = ₹3,58,400
- Actual Turnover (Jul–Sep 2011) = ₹48,000
- Short Sales = ₹3,10,400

GP on Short Sales = ₹3,10,400 × 30% = ₹93,120.

Since the policy is without Average Clause and ₹93,120 < Policy of ₹3,20,000, Claim for Loss of Profit = ₹93,120.

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CLAIM FOR ADDITIONAL EXPENSES (Increased Cost of Working)

Additional expenses incurred post-fire = ₹1,98,000. Of this, the loss of profit policy covers ₹1,56,000 (subject to the limitation that the claim cannot exceed the GP saved). The balance ₹42,000 (approx. ₹42,900 as stated) remains uncovered.

Claim for Additional Expenses = ₹1,56,000.

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SUMMARY OF CLAIMS:
- Loss of Stock = ₹2,10,000
- Loss of Profit = ₹93,120
- Additional Expenses = ₹1,56,000
- Total Claim = ₹4,59,120

Average Due Date is the single date on which the debtor may pay the total of several amounts, due on different dates, without causing any loss of interest to either party.

Step 1: Determine the Due Dates of Each Bill

Under the Negotiable Instruments (Amendment) Act 2018, days of grace have been abolished. Due date = Date of drawing + Tenure.

- Bill 1: 15th May + 3 months = 15th August → 15th August is a National Holiday (Independence Day). When the due date falls on a public holiday, payment is due on the immediately preceding business day → 14th August
- Bill 2: 10th June + 4 months = 10th October
- Bill 3: 1st July + 1 month = 1st August
- Bill 4: 19th July + 2 months = 19th September (22nd September is an emergency holiday but does not affect this bill's due date)

Step 2: Select Base Date

Base Date = Earliest due date = 1st August

Step 3: Calculate Days from Base Date

- 1st August → 1st August = 0 days
- 1st August → 14th August = 13 days
- 1st August → 19th September = 30 (Aug) + 19 = 49 days
- 1st August → 10th October = 30 (Aug) + 30 (Sep) + 10 = 70 days

Step 4: Calculate Products and Apply Formula

Average Due Date = Base Date + (Total Product ÷ Total Amount) = 1st August + (45,55,000 ÷ 1,20,000) = 1st August + 37.96 ≈ 38 days = 8th September

Since 8th September is neither 15th August (National Holiday) nor 22nd September (Emergency Holiday), no adjustment is needed.

The Average Due Date is 8th September.

Under Section 37 of the Indian Partnership Act, 1932, a retiring partner (Z) has the following specific rights regarding profits earned after retirement:

Right to Share in Subsequent Profits: Z is entitled to a share in the profits made by the continuing partnership from the date of retirement (1st December 2011) until final settlement of accounts (1st March 2012). Z's share is determined by the original profit-sharing ratio (1/3 being equal partners). Therefore, Z's entitlement from the ₹30,000 profit earned during this period is ₹30,000 × 1/3 = ₹10,000.

Condition on Profit-Sharing Right: This right applies when profits arise from business conducted using partnership property or carried on with the partnership capital/assets of the dissolved partnership. Here, X and Y continued the business with the partnership assets, so Z's right applies.

Alternative Right - Interest on Capital Due: Z may alternatively claim interest at 4% per annum on the capital amount due (₹50,000) from the date of retirement until settlement. For the 3-month period (1st December 2011 to 1st March 2012), this amounts to ₹50,000 × 4% × (3/12) = ₹500.

Right to Elect: Z has the exclusive right to choose EITHER a share of profits OR interest on capital, but not both. In this case, the profit share (₹10,000) is significantly more favorable than interest (₹500).

Duration of Right: This statutory right subsists from the date of retirement until accounts are finally settled and payment is made.

Non-Waivable Statutory Right: These rights cannot be denied, modified, or excluded by the continuing partners or any post-retirement agreement. They are fundamental statutory protections afforded to retiring partners.

Change in Estimate of Useful Life — Treatment under AS 6 (Depreciation Accounting)

As per AS 6 (Depreciation Accounting), depreciation is provided to spread the depreciable amount over the useful life of the asset. When there is a revision in the estimate of useful life, the unamortised depreciable amount (i.e., the Written Down Value) is charged over the revised remaining useful life on a prospective basis.

Step 1 — Original Depreciation (Years 1 to 3):

Original annual depreciation under Straight Line Method (SLM) = ₹60,000 ÷ 10 years = ₹6,000 per year

Accumulated depreciation for 3 years = 3 × ₹6,000 = ₹18,000

Step 2 — Written Down Value at end of Year 3:

WDV = ₹60,000 − ₹18,000 = ₹42,000

Step 3 — Revised Depreciation from Year 4 onwards:

Revised remaining useful life = 5 years (as reassessed at the beginning of Year 4)

New annual depreciation = ₹42,000 ÷ 5 years = ₹8,400 per year

Conclusion: Depreciation for Years 1 to 3 is ₹6,000 per year. From Year 4 onwards, depreciation is ₹8,400 per year for the remaining 5 years, charged prospectively over the revised useful life.

Under the Companies Act, 2013, Schedule V, the maximum limits of managerial remuneration for companies having adequate profits are as follows:

For Managing Director/Whole-time Director:

1. Salary (inclusive of basic pay, dearness allowance, and allowances): Not exceeding 5% of net profits of the company. However, if there are more than one MD/WTD, the aggregate salary shall not exceed 10% of net profits.

2. Commission: Not exceeding 5% of net profits, in addition to salary. However, the aggregate of salary and commission shall not exceed 10% of net profits.

3. Perquisites: Not exceeding 2% of net profits. Perquisites include benefits such as furnished accommodation, medical reimbursement, and other facilities.

4. Pension: Not exceeding 1% of net profits per annum.

5. Gratuity: Either the actual amount or 6 months' salary, whichever is higher. However, it shall not exceed an average of 10% of net profits over a period of not more than 3 financial years.

For Managers:

Similar limits apply as for whole-time directors, with salary not exceeding 5% of net profits and aggregate salary and commission not exceeding 10% of net profits.

Key Points: (i) These limits are prescribed only when the company has adequate profits as defined; (ii) The company can pay up to the specified limits but is not obligated to pay the maximum; (iii) If profits are inadequate or absent, different rules under Part II of Schedule V apply; (iv) Board approval and member approval in general meeting are required before payment of remuneration exceeding these limits.

Advantages of ERP Packages:

1. Integrated Information System: ERP packages integrate all functional modules (Finance, Human Resources, Inventory, Sales, Purchase, Production, etc.) into a single unified system. This eliminates data silos, ensures consistency across the organization, and provides a comprehensive view of all business operations from a single database. This integration is particularly valuable for large organizations with multiple departments and locations.

2. Real-Time Information and Decision Making: ERP systems provide real-time, accurate, and up-to-date information across the entire organization. Managers and executives can access critical business metrics instantly, enabling faster and more informed decision-making. This eliminates delays caused by traditional manual data compilation and reporting processes.

3. Improved Operational Efficiency: ERP systems automate routine and repetitive tasks such as order processing, invoice generation, payroll processing, and inventory management. This reduces manual intervention, minimizes errors, and significantly improves productivity. Standardized processes across the organization ensure consistency and reduce time-to-completion for critical business cycles.

4. Cost Reduction: By automating processes, eliminating redundancies, and optimizing resource utilization, ERP systems reduce operational costs. Organizations benefit from lower inventory carrying costs, reduced transaction processing costs, decreased manual labor requirements, and improved asset utilization. This is particularly important for large organizations where even small efficiency gains translate to substantial savings.

5. Enhanced Security and Compliance: ERP systems provide centralized control over data with role-based access controls, comprehensive audit trails, and transaction logging. This strengthens data security, reduces fraud risk, and facilitates compliance with regulatory requirements and statutory obligations. Large organizations operating in regulated industries particularly benefit from these built-in controls.

Conclusion: The growing adoption of ERP packages in large organizations reflects their critical role in modern business management, offering competitive advantages through integrated operations, real-time insights, and operational excellence.