Question 1

MIs Excellent Construction Company Limited undertook a contract to construct a building for ₹ 3 Crore on 1st September, 2011. On 31st March, 2012 the company found that it had already spent ₹ 1 Crore 80 Lakhs on the construction. Prudent estimate of additional cost for completion was ₹ 1 Crore 40 Lakhs. What amount should be charged to revenue in the final accounts for the year ended on 31st March, 2012, as per the provisions of Accounting Standard 7 "Construction Contracts (Revised)"?

Accepted Answer

**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 = **…

Question 2

MIs Innovative Garments Manufacturing Company Limited invested in the shares of a mother company on 1st October, 2011 at a cost of ₹ 2,50,000. It also earlier purchased Gold of ₹ 4,00,000 and Silver of ₹ 2,00,000 on 1st March, 2009. Market value as on 31st March, 2012 of above investments are as follows: Shares ₹2,25,000, Gold ₹6,00,000, Silver ₹3,50,000. How above investments will be shown in the books of accounts of MIs Innovative Garments Manufacturing Company Limited for the year ending 31st March, 2012 as per the provisions of Accounting Standard 13 "Accounting for Investments"?

Accepted Answer

**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 clearl…

Question 3

MIs Progressive Company Limited has not charged depreciation for the year ended on 31st March, 2012, in respect of a spare bus purchased during the financial year 2011-12 and kept ready by the company for use as a stand-by, on the ground that it was not actually used during the year. Further, during the year the company made additions to its factory by using its own workforce, at a cost of ₹4,50,000 as wages and materials. The lowest estimate from an outside contractor to carry out the same work was ₹ 6,00,000.

Accepted Answer

**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): Capi…

Question 4

Briefly explain the types of Amalgamations.

Accepted Answer

**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…

Question 5

MIs Platinum Limited has decided to reconstruct the Balance Sheet since it has accumulated huge losses. The following is the Balance Sheet of the company as on 31st March, 2012 before reconstruction: Liabilities - Share Capital 50,000 shares of ₹50 each fully paid up ₹25,00,000; 1,00,000 shares of ₹50 each 40% paid up ₹40,00,000; Capital Reserve ₹5,00,000; 8% Debentures of ₹100 each ₹4,00,000; 12% Debentures of ₹100 each ₹6,00,000; Trade Creditors ₹12,40,000; Outstanding Expenses ₹10,60,000. Total ₹1,03,00,000. Assets - Goodwill ₹22,00,000; Land & Building ₹42,70,000; Machinery ₹8,50,000; Computers ₹5,20,000; Stock ₹3,20,000; Trade Debtors ₹10,90,000; Cash at Bank ₹2,68,000; Profit & Loss Account ₹7,82,000. Total ₹1,03,00,000. Mr. Shiv has 8% Debentures ₹3,00,000 and 12% Debentures ₹4,00,0…

Accepted Answer

**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 equi…

Question 6

MIs Ice Limited gives you the following information to find out Total Sales and Total Purchases: Debtors as on 01.04.2011 ₹70,000; Creditors as on 01.04.2011 ₹81,000; Bills Receivables received during the year ₹47,000; Bills Payable issued during the year ₹53,000; Cash received from customers ₹1,56,000; Cash paid to suppliers ₹1,72,000; Bad Debts recovered ₹16,000; Bills Receivables endorsed to creditors ₹27,000; Bills Receivables dishonoured by customers ₹5,000; Discount allowed by suppliers ₹7,000; Discount allowed to customers ₹9,000; Endorsed Bills Receivables dishonoured ₹3,000; Sales Return ₹11,000; Bills Receivable discounted ₹8,000; Discounted Bills Receivable dishonoured ₹2,000; Cash Sales ₹1,68,500; Cash Purchases ₹1,97,800; Debtors as on 31.03.2012 ₹82,000; Creditors as on 31.03…

Accepted Answer

**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 Pay…

Question 7

Good, Better and Best are in partnership sharing profits and losses in the ratio 3:2:4. Capital account balances as on 31st March, 2012: Good ₹1,70,000 (Cr), Better ₹1,10,000 (Cr), Best ₹1,22,000 (Cr). Further information: (1) ₹22,240 to be transferred to General Reserve. (2) Good, Better and Best paid monthly salary in cash of ₹2,400, ₹1,600 and ₹1,800 respectively. (3) Partners allowed interest on closing capital @6% p.a. and charged interest on drawings @8% p.a. (4) Good and Best entitled to commission @8% and 10% respectively of net profit before appropriation. (5) Better entitled to commission @15% of net profit before charging Interest on Drawings but after other appropriations. (6) Drawings during year: Good ₹2,000 at beginning of every month; Better ₹1,750 at end of every month; Be…

Accepted Answer

**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…

Question 8

From the following Income & Expenditure Account of Premium Sports Club for the year ended 31st March, 2012, prepare Receipts & Payment Account for the year ended 31st March, 2012 and Balance Sheet as on that date. Income & Expenditure shows: Salaries ₹1,18,800; Rent ₹2,16,000; Printing & Stationery ₹28,000; Postage & Telephone ₹41,600; Membership Fee ₹3,200; Electricity Charges ₹38,500; Garden Upkeep ₹19,300; Sports Material Utilized ₹62,800; Repairs & Maintenance ₹18,700; Depreciation ₹13,000; Miscellaneous Expenses ₹5,700; Surplus carried to Capital Fund ₹3,500; Subscriptions ₹4,20,000; Entrance Fee ₹1,20,000; Profit on sale of Sports Material ₹5,500; Interest on 8% Government Bonds ₹12,000; Sale of Old Newspaper ₹11,600. Additional information: (a) Fixed Assets ₹2,40,000 on 01.04.2011; …

Accepted Answer

**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 | 15,6…

Question 9

MIs Multistore Limited sells goods on cash and hire purchase basis, recording hire-purchase transactions on "Stock and Debtors System". It closes books on 31st March every year. On 1st May, 2011, it sold to Manas a Scooter and LCD TV with following details: Scooter - Cost Price ₹30,000, Down Payment ₹5,000, 12 Installments of ₹2,800 each, Monthly payments starting 1st June, 2011. LCD TV - Cost Price ₹40,000, Down Payment ₹6,000, 6 Installments of ₹7,600 each, Quarterly payments starting 1st July, 2011. Manas paid all installments except those due on 1st January, 2012. MIs Multistore Limited took back Scooter at agreed price of ₹22,000, with excess adjusted against LCD TV installments. Scooter was sold for ₹24,500 after repair charges of ₹1,000. Prepare necessary ledger accounts to record a…

Accepted Answer

**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…

Question 10

Mr. Brown made following transactions during financial year 2011-12: 01.05.2011 Purchased 24,000 12% Bonds of ₹100 each at ₹84 cum-interest (Interest payable 30th September and 31st March). 15.06.2011 Purchased 1,50,000 equity shares of ₹10 each in Alpha Limited for ₹25 each through broker charging 2% brokerage. 10.07.2011 Purchased 60,000 equity shares of ₹10 each in Beeta Limited for ₹44 each through broker charging 2% brokerage. 14.10.2011 Alpha Limited made bonus issue of 2 shares for every 3 shares held. 31.10.2011 Sold 80,000 shares in Alpha Limited for ₹22 each. 01.01.2012 Received 15% interim dividend on Alpha Limited shares. 15.01.2012 Beeta Limited made right issue of 1 share for every 4 shares at ₹5 per share; Mr. Brown exercised 40% option and sold balance rights at ₹2.25 per s…

Accepted Answer

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…

Question 11

Ramda & Sons had taken out policies (without Average Clause) against loss of stock for ₹2,10,000 and loss of profit for ₹3,20,000. Fire occurred on 1st July, 2011 affecting sales for 3 months. Trading and Profit & Loss Account for year ended 31st March, 2011: Opening Stock ₹96,000; Purchases ₹7,56,000; Wages ₹1,58,000; Manufacturing Expenses ₹75,000; Sales ₹12,00,000; Closing Stock ₹1,85,000; Gross Profit ₹3,00,000; Administrative Expenses ₹83,600; Selling Expenses (Fixed) ₹72,400; Commission on Sales ₹34,200; Carriage Outward ₹49,800; Net Profit ₹60,000. Further details: (a) For period 01.04.2011 to 30.06.2011: Sales ₹3,36,000, Purchases ₹2,14,000, Wages ₹51,000, Manufacturing Expenses ₹12,000. (b) Other Sales figures: 01.04.2010-30.06.2010 ₹3,00,000; 01.07.2010-30.09.2010 ₹3,20,000; 01.0…

Accepted Answer

**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 Pro…

Question 12

MIs Stairs & Co. draw upon M/s Marble & Co. several bills of exchange due for payment on different dates: 15th May ₹44,000 (3 months tenure); 10th June ₹45,000 (4 months tenure); 1st July ₹14,000 (1 month tenure); 19th July ₹17,000 (2 months tenure). Find out the average due date on which payment may be made in one single amount. Note: 15th August (Independence Day) is national holiday and 22nd September declared emergency holiday due to death of national leader.

Accepted Answer

**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…

Question 13

X, Y and Z are partners sharing profits and losses equally. On 1st December, 2011 Z retired. Capital account balances after adjustments: X ₹45,000, Y ₹75,000, Z ₹50,000. X and Y continued without settling Z's accounts. Final payment to Z made on 1st March, 2012. Partnership firm made profit of ₹30,000 during 1st December, 2011 to 29th February, 2012. What are the rights of Z to share subsequent profit as per Section 37 of the Indian Partnership Act?

Accepted Answer

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 …

Question 14

A computer costing ₹60,000 is depreciated on straight line basis, assuming 10 years working life and Nil residual value, for three years. The estimate of remaining useful life after third year was reassessed at 5 years. Calculate depreciation as per the provisions of Accounting Standard 6 "Depreciation Accounting".

Accepted Answer

**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.

Question 15

What are the maximum limits of managerial remuneration for companies having adequate profits?

Accepted Answer

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 Schedu…

Question 16

"ERP package is gaining popularity in big organizations." Briefly explain the advantages of using an ERP package, in the light of above statement.

Accepted Answer

**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…

CA Inter Adv Accounting

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