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Past papers › Adv Accounting › November 2018

CA Inter Adv Accounting — Suggested Answers — November 2018

This page contains all 5 questions from the CA Inter Advanced Accounting Suggested Answers for the November 2018 attempt cycle, sourced from VSI Jaipur.

✅ 1 of 5 questions have AI-generated solutions with bare-Act citations.
QbPartnership Accounting - Dissolution and Cash Distribution
20 marks very hard
Case: Partnership dissolution between E.P and O with 3:1 profit ratio. Firm dissolved on 31st December 2017. Assets realized over several months with varying recovery amounts.
E.P and O were partners in a firm, sharing profits and losses in the ratio of 3:1 respectively. Due to extreme competition, it was decided to dissolve the firm on 31st December 2017. The balance sheet on that date showed various assets including Capital accounts, Machinery (₹1,24,000), Furniture & fittings (₹23,000), Investments (₹6,000), Stock (₹97,700), Debtors (₹51,500), Bank account - F (₹14,000), and other liabilities. Assets were realized as follows: February, Debtors, ₹51,500; March, Machinery, ₹1,39,500; April, Furniture, ₹18,000; May, Goodwill taken over at ₹6,000; June, Stock, ₹16,000. You are required to prepare a statement of actual cash distribution as received using 'Maximum loss basis' method.
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Maximum Loss Basis Method – Statement of Cash Distribution

The Maximum Loss Basis (Surplus Capital / Highest Relative Loss Method) is applied when assets are realised piecemeal. At each distribution point, it is assumed all unrealised assets will fetch ₹NIL (maximum possible loss is absorbed notionally), partner capitals are adjusted for that notional loss, and only the surplus above each partner's adjusted capital is paid out.

Note: The question does not specify the exact capital balances or external liabilities. The following assumed balance sheet is used (consistent with all asset figures given and producing clean arithmetic):

Balance Sheet as at 31 December 2017

| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Creditors | 16,200 | Machinery | 1,24,000 |
| Capital – E.P. | 1,80,000 | Furniture & Fittings | 23,000 |
| Capital – O | 1,20,000 | Investments | 6,000 |
| | | Stock | 97,700 |
| | | Debtors | 51,500 |
| | | Bank | 14,000 |
| Total | 3,16,200 | Total | 3,16,200 |

Profit Sharing Ratio: E.P. : O = 3 : 1

Net Realization Loss: Book value of non-cash assets ₹3,02,200 – Cash realised ₹2,31,000 = ₹71,200 (E.P. bears ₹53,400; O bears ₹17,800)

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Statement of Cash Distribution (Maximum Loss Basis)

| Month | Cash Received (₹) | Creditors (₹) | E.P. Capital (₹) | O Capital (₹) |
|---|---|---|---|---|
| Opening Balances | — | 16,200 | 1,80,000 | 1,20,000 |
| Dec: Bank ₹14,000 → Pay creditors (partial) | (14,000) | (14,000) | — | — |
| Balance c/f | — | 2,200 | 1,80,000 | 1,20,000 |
| Feb: Debtors ₹51,500; Pay balance creditors ₹2,200; Net cash ₹49,300. Max loss working: unrealised = ₹2,50,700; E.P. adjusted capital = (8,025) → Nil; O adjusted = 57,325 – 8,025 deficiency = ₹49,300. Pay O only. | (49,300) | (2,200) | — | (49,300) |
| Balance c/f | — | — | 1,80,000 | 70,700 |
| Mar: Machinery ₹1,39,500. Max loss working: unrealised = ₹1,26,700; E.P. pays ₹84,975 (base) + ₹11,625 (surplus 3/4) = ₹96,600; O pays ₹39,025 + ₹3,875 = ₹42,900 | (1,39,500) | — | (96,600) | (42,900) |
| Balance c/f | — | — | 83,400 | 27,800 |
| *(Capitals now in 3:1 ratio — all future distributions in 3:1)* | | | | |
| Apr: Furniture ₹18,000 distributed in 3:1 | (18,000) | — | (13,500) | (4,500) |
| Balance c/f | — | — | 69,900 | 23,300 |
| May: Goodwill/Investments ₹6,000 in 3:1 | (6,000) | — | (4,500) | (1,500) |
| Balance c/f | — | — | 65,400 | 21,800 |
| Jun: Stock ₹16,000 in 3:1 | (16,000) | — | (12,000) | (4,000) |
| Final Balances (= Realization Loss in 3:1) | — | — | 53,400 | 17,800 |
| TOTALS | 2,45,000 | 16,200 | 1,26,600 | 1,02,200 |

Final balances of ₹53,400 (E.P.) and ₹17,800 (O) = Net realization loss ₹71,200 shared 3:1. These are written off via Realization Account; Capital Accounts close to nil.

Total cash distributed to partners: ₹1,26,600 (E.P.) + ₹1,02,200 (O) = ₹2,28,800

📖 Section 44 of the Indian Partnership Act 1932 (Dissolution of firm)Section 46 of the Indian Partnership Act 1932 (Rights of partners on dissolution)Section 48 of the Indian Partnership Act 1932 (Settlement of accounts on dissolution)
Qquestion_from_page_013Management Accounting - Departmental Accounting
0 marks hard
Case: Inter-departmental transfers with stock lying at different departments. Department managers are entitled to commission based on departmental profits.
Departmental managers are entitled to 10% commission on net profit subject to unrealised profit on departmental sales being eliminated. Departmental profits after charging manager's commission, but before adjustment of unrealised profit are as under: Department A: ₹2,33,000; Department B: ₹3,37,500; Department C: ₹1,86,000; Department D: ₹4,50,000. Calculate the correct departmental profits after charging Manager's commission.
Q3Investment accounting, accounting treatment of bonds and equ
10 marks hard
Following transactions of Niba took place during the financial year 2017-18: 1st April 2017: Purchased ₹ 9,000 8% bonds of ₹ 100 each at ₹ 8650; cum-interest. Interest is payable on 30th June and 31st December. 1st May 2017: Received half year's interest on 8% bonds. 10th July 2017: Purchased 12,000 equity shares of ₹ 10 each in Moon Limited for ₹ 14 each through a broker, who charged brokerage @ 2%. 1st October, 2017: Sold 2,250 8% bonds of ₹ 1 to directors. 1st November, 2017: Received half year's interest on 8% bonds. 15th January, 2018: Moon Limited made a rights issue of one equity share for every four Equity shares held of ₹ 5 per share. Naba exercised the option for 40% of her entitlements and sold the balance rights to the market at ₹ 2.25 per share. 19th March, 2018: Received 18% interim dividend on equity shares of Moon Limited. Prepare separate investment account for 8% bonds and equity shares of Moon Limited in the books of Niba for the year ended 31st March, 2018. Assume that the average cost method is followed.
Q4Insurance claim calculation, stock valuation, adjustment for
10 marks very hard
A fire engulfed the premises of a business of M/S Kiran Ltd. in the morning of 1st October, 2017. The entire stock was destroyed except for goods for which insurance Policy was for ₹ 1,00,000 with an average clause. The following information was obtained from the records saved for the period from 1st April to 30th September, 2017: Stock on 1st April, 2017: ₹ 60,000 Purchases: ₹ 15,73,000 Carriage inward: ₹ 12,000 Carriage outward: ₹ 20,000 Wages: ₹ 40,000 Salaries: ₹ 50,000 Stock in hand on 31st March, 2017: ₹ 3,50,000 Additional Information: (1) Stock on 30th September, 2017, includes ₹ 75,000 for which goods had not been dispatched. (2) On 1st June, 2017, goods worth ₹ 1,98,000 sold to Hari on approval basis which was included in sales but had not been recorded in respect of 27th of the goods sold to him till 30th September. (3) Purchases upto 30th September, 2017 did not include ₹ 1,00,000 for which purchase invoices had not been received from suppliers, though goods have been received in godown. (4) Past records show the gross profit rate of 25% on sales. You are required to prepare the statement of claim for loss of stock for submission to the insurance Company.