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Old May 16th, 2014, 03:23 PM
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Default Question Paper for ICWAI Financial Accounting

Will you please provide here The Institute of Cost And Works Accountants of India Financial Accounting question paper?
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Old May 17th, 2014, 06:55 PM
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Default Re: Question Paper for ICWAI Financial Accounting

Here are Institute of Cost And Works Accountants of India Financial Accounting questions:

Q. 1. State whether following statements are True/False.
(i) Expenses + Loss+ Assets=Income+ Gains+ Liabilities.
(ii) Bank Overdraft is a Real Account.
(iii) Short workings is the amount by which the minimum rent falls short of the actual royalty.
(iv) Hire purchase stock represents the installments from buyers not yet due.
(v) Life Membership fee is an item of liability in case of a club.
(vi) The inventory under AS 2 is valued on the basis of cost price or current replacement cost which
ever is lower.
(vii) Goodwill is a fictitious asset.
(viii) Debit balance in the Profit and Loss A/c is treated as surplus.
(ix) A and B divide profit in the ratio of 5:3. Z is admitted for 1/5 share in the business. The new profit
sharing ratio is 5:3:2.
(x) Gaining Ratio is applicable at the time of retirement of a partner.
(xi) The contract of insurance is a contract of guarantee.
(xii) Issue of Sweat Equity shares is a non-cash transaction.
(xiii) Stock Turnover ratio is Average Stock/Net Sales.
(xiv) High Capital Gearing ratio means high return to equity shareholders even in case of low profit.
(xv) AS 4 deals with prior period adjustments.
(xvi) The amortization of the amount of software commences from the date when it is available for
use.
(xvii) Changing of rings and pistons of an engine to increase efficiency is in the nature of revenue
expenditure.
(xviii) Preference shares may be redeemed from the General Reserve.
(xix) In case of a Branch situated in New York, Balance in ‘Head Office A/c’ in the Branch Books is to be
taken at Dollars.
(xx) Buy back is permitted only in respect of fully paid-up shares.
Answer 1.
(i) The Statement is True.
(ii) False – Bank O/D is a personal account.
(iii) False – Short workings is the amount by which the minimum rent exceeds the actual royalty.
(iv) The Statement is True.
(v) The Statement is True.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(vi) False – As per AS 2 on valuation of inventories, inventory is valued at the lower of historical cost
and net realizable value.
(vii) False – Goodwill is an intangible asset.
(viii) False – Debit balance in the Profit and Loss A/c is treated as deficit or loss as expenses are more
than income.
(ix) True – A’s new share is 5/8*4/5=1/2. B’s new share is 3/8*4/5=3/10. So new share is (½:3)/(10:1/5).
Multiplying the ratio with 10, the new ratio is 5:3:2.
(x) The Statement is True.
(xi) False – The contract of insurance is a contract of indemnity.
(xii) The Statement is True.
(xiii) Stock Turnover ratio Cost Of Goods Sold/ Average Stock.
(xiv) False – High Capital Gearing ratio means high return to equity shareholders in case of high profit.
(xv) False – AS 4 deals with Contingencies and Events occurring after the Balance Sheet Date.
(xvi) The Statement is True.
(xvii) The Statement is True.
(xviii) False – According to Section 80 of the Companies Act Preference Shares can be redeemed out of
profits or out of fresh proceeds of a fresh issue of shares made for the purpose of redemption.
(xix) False – It should be taken at Indian Rupees.
(xx) The Statement is True.
Q. 2A. Choose the correct alternative :
(i) Bank Reconciliation Statement is prepared to :
(a) rectify the mistakes in pass book.
(b) to rectify the mistakes in cash book.
(c) to arrive at balance as per bank statement.
(d) to find the reasons of differences in balance as per Cash Book and Bank Statement.
(ii) Which of the following is a Revenue Expenditure?
(a) Construction of Factory shed.
(b) Sales Tax paid in connection with purchase of Office Equipment.
(c) Legal Expenses in connection with defending a title to firm’s property.
(d) License fees.
(iii) Capital is shown on the liability side because of :
(a) Business Entity Concept.
(b) Conservatism Concept.
(c) Accrual Concept.
(d) Duality Concept.
(iv) Depreciation is a process of:
(a) apportionment
(b) valuation
(c) allocation
(d) appropriation

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(v) For Sales Return at Branch, in case of dependent branches, entry to be passed in HO books,
(a) Debit Branch Debtors A/c, Credit Branch Stock A/c.
(b) Debit Branch Stock A/c , Credit Branch Debtors A/c.
(c) Debit Sales A/c, Credit Branch Debtors A/c.
(d) Debit Sales A/c, Credit Branch Stock A/c.
(vi) Which of the following is treated as contingent liability as per AS 4?
(a) Obligations under retirement benefit plan.
(b) Commitments arising from long term lease contract.
(c) Arrears of fixed cumulative dividends.
(d) Liabilities of Life and General Insurance out of policies issued by enterprise.
(vii) Which of the following is not a unsecured loan in Balance sheet of a Company?
(a) Acceptance of Fixed Deposits.
(b) Creation of Sinking Funds.
(c) Loans and advances from others.
(d) Short term loans from Banks.
(viii) Any profit prior to incorporation may be:
(a) Credited to Capital Reserve A/c.
(b) Debited to Goodwill A/c
(c) Debited to Suspense A/c
(d) None of the above.
(ix) Which of the following terms is related to Accounts of Electricity Companies?
(a) Clear profit
(b) Work uncertified
(c) NPA
(d) Claims outstanding.
(x) Current Ratio is a :
(a) Efficiency Ratio
(b) Profitability Ratio
(c) Solvency Ratio
(d) Yield Ratio.
Answer 2A.
(i) (d) to find the reasons of differences in balance as per Cash Book and Bank Statement.
(ii) (c) Legal Expenses in connection with defending a title to firm’s property.
(iii) (a) Business Entity Concept.
(iv) (c) allocation
(v) (b) Debit Branch Stock A/c , Credit Branch Debtors A/c.
(vi) (c) Arrears of fixed cumulative dividends.
(vii) (b) Creation of Sinking Funds.
(viii) (a) Credited to Capital Reserve A/c.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(ix) (a) Clear profit.
(x) (c) Solvency Ratio.
Q. 2B. Match the items in Column (I) with the items shown in Column (II) :
Column (I) Column (II)
(i) Minimum Rent (a) Insurance A/c
(ii) Average Clause (b) Contract A/c
(iii) Undervaluation of asset (c) Sinking Fund
(iv) Work certified (d) Company Accounts
(v) DRFI (e) Capital Reserve
(vi) Money at call and in short notice (f) Allocation
(vii) Calls-in-arrear (g) Royalty A/c
(viii) Profit Prior to Incorporation (h) Appropriation
(ix) Charging of Depreciation (i) Bank Account
(x) Charging of Rent (j) Secret Reserve
Answer 2B.
Column (I) Column (II)
(i) Minimum Rent (a) Royalty A/c
(ii) Average Clause (b) Insurance A/c
(iii) Undervaluation of asset (c) Secret Reserve
(iv) Work certified (d) Contract A/c
(v) DRFI (e) Sinking Fund
(vi) Money at call and in short notice (f) Bank Account
(vii) Calls-in-arrear (g) Company Accounts
(viii) Profit Prior to Incorporation (h) Capital Reserve
(ix) Charging of Depreciation (i) Allocation
(x) Charging of Rent (j) Appropriation
Q. 2C. Fill up the blanks :
(i) Recording of fixed assets at cost ensures adherence of concept.
(ii) Conversion of debt into equity shares is transaction.
(iii) Amount received on account of Legacies is generally taken to .
(iv) Errors in Principle affect Balance Sheet.
(v) Average Clause is intended to discourage .
(vi) Premium brought in by a new partner is shared among old partners in their ratios.
(vii) As per AS 28 recoverable amount of an asset is higher of and Value in use.
(viii) Yield method of valuing shares is also known as method.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(ix) Cost of incorporating a Company should be debited to A/c.
(x) Velocity Ratios are also known as ratios.
(xi) The Double Account System is a method of presenting Annual Financial statements of .
Answer 2C.
(i) cost
(ii) non-cash
(iii) Balance Sheet
(iv) does not
(v) under-insurance
(vi) sacrificing
(vii) Net selling price
(viii) Earning Capacity
(ix) Preliminary Expenses
(x) Turnover
(xi) Public Utility Concerns
Q. 3. NN Ltd. owns certain patent rights. It has granted a license to AA Ltd. to use such rights on royalty
basis. The Royalty payable is Rs. 50 per unit produced. AA Ltd. Has issued sub-license to KK Ltd. On the
basis of a Royalty of Rs. 60 per unit sold. The minimum Royalty payable by KK Ltd is fixed at Rs. 75000/
- per annum. Short Workings can be recouped within one year from the last date of the year in which
they occur.
The following particulars are available for the first three years of working :
AA Ltd.
Year Sales (units) Closing Stock (units)
1 6000 1500
2 7500 3000
3 13500 4500
KK Ltd.
Year Production (units) Closing Stock (units)
1 600 300
2 3000 600
3 4500 1350
You are required to :
(a) Prepare in books of AA Ltd. a statement showing analysis of Royalties Receivable and Royalties
Payable, and
(b) Show Royalty Receivable A/c and Royalty Payable A/c in books of AA Ltd.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 3.
Books Of AA Ltd.
Analysis of Royalty Payable
Year Production (Consolidated Units) Rate Amount
Rs. Rs.
1 7500+600 = 8100 50 405000
2 9000+3000 = 12000 50 600000
3 15000+4500 = 19500 50 975000
Analysis of Royalty Receivable
Year Sales Minimum Royalty Excess of S/W S/W S/W S/W Amount
Unit Rent @Rs.60 Royalty over Occurred Adjusted Lapsed c/f Receivable
Min. Rent
(Rs) (Rs) (Rs) (Rs) (Rs)
1 300 75000 18000 - 57000 - - 57000
2 2700 75000 162000 87000 - 57000 - - 105000
3 3750 75000 225000 150000 - - - - 225000
Dr. Royalty Payable Account Cr.
Year end
1 To NN Ltd 405000 1 By Royalty Receivable A/c 30000
By P/L A/c 375000
405000 405000
2 To NN Ltd 600000 2 By Royalty Receivable A/c 150000
By P/L A/c 450000
600000 600000
3 To NN Ltd 975000 3 By Royalty Receivable A/c 225000
By P/L A/c 750000
975000 975000
Dr. Royalty Receivable Account Cr.
Year end
1 To Royalty Payable A/c 30000 1 By KK Ltd. 18000
600 × Rs.50 By P/L A/c 12000
30000 30000
2 To Royalty Payable A/c 150000 2 By KK Ltd. 162000
To P/L A/c 12000
162000 162000
3 To Royalty Payable A/c 225000 3 By KK Ltd. 225000

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Q. 4. GHI Associates entered into a financial lease agreement on 1.4.2006 with FBG Leasing Ltd. for lease
of a car. The price of the car was Rs. 400,000 and the quarterly lease rentals were agreed at Rs. 90 per
thousand payable at the beginning of every quarter. ABC Associates kept up their payments but by
25.3.2007 they approached and obtained the consent of the leasing company for treating the
arrangement as one of Hire-purchase from the beginning on the following terms :
Period: 3 years
Quarterly hire : Rs. 60,000 payable at the beginning of the quarter.
It was agreed that the lease rentals paid will be treated as hire monies and that the balance due upto
31.3.2007will be settled by GHI Associates on that date with interest at 18% p.a. on various instalments
due during the year. The rate of depreciation on the car is 25%.
Show the following accounts in the books of ABC Associates for the year 2006-2007.
FBG Leasing Ltd.’s A/c and Interest Suspense A/c.
Calculations are to be rounded off to the nearest rupee.
Answer 4.
Books of GHI Associates
FBG Leasing Limited Account
Dr. Cr.
Rs. Rs.
2007 2007
March 25 To Lease rental A/c 144000 March 25 By Car on Hire 400,000
Purchase A/c
March 31 To Bank 106800 March 25 By Interest 320000
Suspense A/c
March 31 To Balance c/d 480000 By Interest A/c 10800
730800 730800
Interest Sustpense Account
Dr. Cr.
Rs. Rs.
2007 2007
March 25 To FBG Leasing Ltd. A/c 320000 March, 31 By Interest on Hire 145454
purchase A/c
March, 31 By Balance c/d 174546
320000 320000
Working Notes :
(i) Calculation of balance payable on 31st March, 2006 and the Amount of Interest
Calculation of Difference Payable on 31.3.2007and Interest
Date Quarterly Hire Quarterly Lease Difference Interest (18% p.a) Amount of
Charges Rental Paid Payable From To Interest
Rs. Rs. Rs. Rs.
1.4.06 30,000 36000 24000 1.4.06 31.3.07 4320
1.7.06 30,000 36000 24000 1.7.06 31.3.07 3240
1.10.06 30,000 36000 24000 1.10.06 31.3.07 2160
1.1.07 30,000 36000 24000 1.1.07 31.3.07 1080
144000 96000 10800

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Amount payable on 31st March, 2007
Rs.
Balance due 96000
Interest due 10800
106800
(1) Ascertainment of Total Amount of Interest on Hire Purchase
Rs.
Hire Purchase Price of the car
(Rs. 60,000 × 12 installments) 720000
Less : Cash Price 400000
Total Amount of Interest 320000
(2) Calculation of Interest on Hire Purchase Attributable to the year 2006-2007
Date Interest Calculation Interest
Rs.
1.4.06 — —
1.7.06 320000 × 11/66 53333
1.10.06 320000 × 10/66 48485
1.1.07 320000 × 9/66 43636
145454
Q. 5. The Balance Sheet of New City College as at 31st March 2009 was as follows:
Rs. Rs.
Capital Fund 2100000 Land and Building 2000000
Building Construction Fund 800000 Furniture 300000
General Fund Outstanding 640000 Laboratory Equipment 250000
Salary(teachers) 160000 Library Books 360000
Investments 650000
Accrued Tuition Fee 10000
Cash and Bank 130000
3700000 3700000
The Receipts and Payments account for the year ended 31st March 2010 was drawn as under:
Rs. Rs.
To Opening Bal.(1/4/2009) 130000 By Salaries & Allowances(teachers) 4200000
To Govt . Grants 5000000 By non- teaching staff 2000000
To Donation for Building Construction 200000 By Printing & Stationary 80000
To Tuition fees & session charges 1820000 By Lab. Exp 60000
To Investment Income 70000 By Lab. Equipment 120000
To Rental Income (College Hall) 40000 By Library Books 250000
By Office Equipment 60000
By Electricity & Telephone 75000

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
By Audit Fees 2000
By Municipal Taxes 1000
By Building Repairs 40000
By Purchase of Furniture 80000
By Games and Sports 20000
By Welfare Exp. 30000
By New Investments 150000
By Cl.Bal. (31/3/2010) 92000
7260000 7260000
Other informations :
(i) Tuition fee outstanding as on 31/3/2010 – Rs . 40000
(ii) Salary of teaching staff outstanding for March 2010-Rs. 250000
(iii) Books received as donations from various parties- Rs. 30000 (valued)
(iv) Outstanding building repair expenses as on 31/3/2010-Rs. 15000
(v) Applicable depreciation rates :
Land and Building 2%
Furniture 8%
Lab. Equipment 10%
Library Books 20%
You are required to prepare the Income and Expenditure A/c for the year ended 31st March 2010 and a
Balance Sheet as on that date.
Answer 5.
New City College
Income and Expenditure A/c for the year ended 31/3/2010
Rs. Rs.
To Salaries : Tuition Fees 1820000
Teaching staff 4200000 Add : Outstanding 40000
Add: Outstanding 250000 1860000
4450000 Less : Accrued last year 10000 1850000
Less: Last year Liability 160000 4290000 Revenue Grant 5000000
Non-teaching staff 2000000 Investment income 70000
Building Repairs 40000 Rental Income 40000
Add: Outstanding 15000 55000 Value of donation of books 30000
Office Exp. 60000
Printing & Stationary 80000
Lab. Exp 60000
Electricity & Telephone 75000
Audit Fee 2000

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Municipal Tax 1000
Games & Sports 20000
Welfare Expenses 30000
Depreciation : Building 40000
Furniture 30400
Lab. Equip 37000
Book 128000 235400
Excess of Income over
Expenditure transferred to
General Fund 81,600
6990000 6990000
Balance Sheet as on 31/3/2010
Liabilities Rs. Rs. Assets Rs. Rs.
Capital Fund 2100000 Land & Buildings 2000000
Building Construction Fund 800000 Less: Depreciation 40000 1960000
Add: Donation 200000 1000000 Furniture 300000
General Fund 640000 Additions 80000
Add: Transfer from 81600 721600 380000
Income & Exp. A/c
Outstanding Teachers’ 250000 Less: Depreciation 30400 349600
Salary
Outstanding Building 15000 Lab Equipment 250000
Repair Exp. Addition 120000
370000
Less: Depreciation 37000 333000
Library Books 360000
Addition 250000
Donated Value 30000
640000
Less: Depreciation 128000 512000
Investments 650000
Addition 150000 800000
Tuition Fee accrued 40000
Cash and Bank 92000
4086600 4086600
Q. 6. The following information were obtained from the books of Dignity Foundation Recreation Club as
on 31.3.2009. At the end of first year of the club you are asked to prepare Receipts and Payments
Account, Income and Expenditure Account for the year ended 31.3.2009 and a Balance Sheet as at
31.3.2009 on mercantile basis :
(i) Donation received for building and library room : Rs. 100000/-

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(ii) Other revenue income and actual receipts :
Revenue Income Actual Receipts
Rs. Rs.
Entrance Fees 20000 20000
Subscription 17000 16000
Locker rent 800 800
Sundry Income 1400 860
Refreshment Account - 20000
(iii) Other revenue expenditure and actual payments :
Revenue Expenditure Actual Payment
Rs. Rs.
Land (Cost Rs. 10000) - 10000
Furniture (Cost Rs. 146000) - 130000
Salaries 6000 5800
Maintenance of club 3000 2000
Rent 6000 6000
Refreshment Account - 12000
Donations to the extent of Rs. 12500/- were utilized for purchase of library books, balance was still
unutilized. In order to keep it safe ,9% Govt. bonds of Rs. 80000/- were purchased on 31.3.2009. Remaining
amount was put in the bank on 31.3.2009 under term deposit. Depreciation at 10% p.a. was to be provided
for the whole year on Furniture and Library books.
Answer 6.
Dignity Foundation Recreation Club
Dr. Receipts and Payments Account for the Year ended 31st March, 2009 Cr.
Receipts Rs Payments Rs.
To Donation for Building 100000 By Land 10000
and Library Room By Furniture 130000
To Entrance Fees 20000 By Salaries 5800
To Subscription 16000 By Maintenance of Club 2000
To Locker Rents 800 By Rent 6000
To Sundry Income 860 By Repayment 12000
To Refreshment 20000 By Library Books 12500
By 9% Govt. Bonds 80000
To Balance c/d (O/D) 108140 By Term Deposits 7500
265800 265800

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Dr. Income and Expenditure Account for the Year ended 31.3.09 Cr.
Expenditure Rs. Rs. Income Rs. Rs.
To Salaries 5800 By Entrance fees 20000
Add: Outstanding 200 6000 By Subscription 16000
To Maintenance of Club 2000 Add: Outstanding 1000 17000
Add: Outstanding 1000 3000 By Locker Rent 800
To Rent 6000 By Sundry Income 860
To Depreciations: Add: Outstanding 540 1400
Furniture 14600 By Refreshment 8000
Library Books 1250 15850 (20000-12000)
Surplus of Income over
Expenditure 16350
47200 47200
Balance Sheet as at 31st March, 2009
Liabilities Rs. Rs. Assets Rs. Rs.
Capital fund (surplus) 16350 Land 10000
Building and Library Room Fund 100000 Furniture 146000
Creditors for Furniture 16000 Less: Depreciation 14600 131400
Creditors for Expenses : Library books 12500
Outstanding Salaries 200 Less: Depreciation 1250 11250
Maintenance of Club 1000 9% Govt. Bonds 80000
Bank O/D 108140 Bank term deposit 7500
Subscriptions receivable 1000
Sundry Income Receivable 540
241690 241690
Working Notes :
Bank Term Deposit : Donation received 100000
Donation Utilised 12500 Govt Bond, 80000 = Rs. 7500
Q. 7. A, B and C were in partnership sharing profits and losses in the ratio of 9 : 4 : 2. B retired from the
partnership on 31st March, 2010, when the firm’s balance sheet was as under :
Rs. in thousand
Rs. Rs.
Sundry creditors 900 Cash and bank 426
Capital accounts : Sundry debtors 600
A 4050 Stock 1200
B 1800 Furniture 399
C 900 6750 Plant 1275
Land and building 3750
7650 7650

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
B’s share in goodwill and capital was acquired by A and C in the ratio of 1 : 3, the continuing partners
bringing in the necessary finance to pay off B. The partnership deed provides that on retirement or
admission of a partner, the goodwill of the firm is to be valued at three times the average annual profits
of the firm for the four years ended on the date of retirement or admission. The profits of the firm during
the four years ended 31st March, 2010 in thousands of rupees were :
Rs.
2006-07 675
2007-08 375
2008-09 900
2009-10 1050
The deed further provided that goodwill account is not to appear in the books of accounts at all. The
continuing partners agreed that with effect from 1st April, 2010, G, son of A is to be admitted as a partner
with 25% share of profit.
A gifts to G, by transfer from his capital account, an amount sufficient to cover up 12.5% of capital and
goodwill requirement. The balance 12.5% of capital and goodwill requirement is purchased by G from A
and C in the ratio of 2 : 1.
The firm asks to you :
(i) Prepare a statement showing the continuing partners’ shares;
(ii) Pass journal entries including for bank transactions; and
(iii) Prepare the balance sheet of the firm after G ‘s admission.
Answer 7.
(i) Statement showing the partners’ shares
A B C G
Ratio before retirement of B
15
9
15
4
15
2
Adjustment on retirement
15
1
) (—
15
3
) (
New ratio before admission of G
15
10
15
5
On admission of G Gift by A (
100
5 . 12
)
8
1
) (−
8
1
Purchase from A & C.*
24
2
) (−
24
1
) (−
24
3
) (
New ratio
24
11
24
7
24
6
* Purchase from A =
15
10
× 1/8 = 2/24
Purchase from C. =
15
5
× 1/8 = 1/24 —

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(ii) Journal Entries
Dr. Cr.
Rs. Rs.
1. A’s capital A/c Dr. 1,50,000
C ‘s capital A/c Dr. 4,50,000
To B’s capital A/c 6,00,000
(Being purchase of goodwill by A and C from B)
2. A’s capital A/c Dr. 11,25,000
To G’s capital A/c 11,25,000
(Being gift made by A to G)
3. Bank A/c Dr. 46,50,000
To A’s capital A/c 11,62,500
To C’s capital A/c 20,81,250
To G’s capital A/c 14,06,250
(Being capital brought in by the partners)
4. B’s capital A/c Dr. 24,00,000
To Bank A/c 24,00,000
(Being final payment made to B on retirement)
5. G’s capital A/c Dr. 2,81,250
To A’s capital A/c 1,87,500
To C’s Capital A/c 93,750
(Being goodwill adjusted on admission)
(iii) Balance Sheet as on 1st April, 2010
Liabilities Rs. Assets Rs.
Sundry creditors 9,00,000 Cash and bank 2676,000
Capital accounts : Sundry debtors 6,00,000
A 4125,000 Stock 12,00,000
C 2625,000 Furniture 399,000
G 2250,000 Plant 1275,000
90,00,000 Land and building 3750,000
99,00,000 99,00,000
Working Notes :
(Rs. in thousand)
(1) Adjustment of Goodwill on Retirement :
Value of Goodwill = Average Profits × Years of Purchase
Share of B = 2250 × 4/15 = 600
Average Profits =
4
1050 900 375 675 
∴Value of Goodwill = 750 × 3 = 2250

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Adjustment through partners’ capital accounts
A : ¼*600=150(Dr.)
B : 4/15*2250=600(Cr.)
C : ¾*600=450(Dr.)
(2) Closing Balances of Capital Accounts
B’s share of capital (including goodwill) = 1,800 + 600 = 2400
This represents 4/15th share of capital requirement of the firm.
Thus, total capital = 2400*15/4=9000
Hence, closing capital balances (in new profit sharing ratio of 11 : 7 : 6) should be adjusted as follows:
A : 11/24*9000=4125
C : 7/24*9000=2625
G :6/24*9000=2250
(3) Gift by A to G : ½*2250=1125
(Debit to A’s capital A/c and credit to G’s capital A/c)
(4) Adjustment of Goodwill on Admission
Goodwill of the firm = 2250
G’s share of goodwill = 6/24 × 2250
= 562.50
(a) Gift by A = ½*562.50
= 281.25
(Included in the gift of 1125 – see W.N. 3)
(b) Purchase from A and C = 281.25
(in 2 : 1 ratio)
Thus, adjustment of goodwill purchased through capital accounts
A : 2/3*281.25=187.50(Cr.)
C : 1/3*281.25=93.75(Cr.)
G : ½*562.50=281.25(Dr.)
(5) Amount brought in by Partners
Dr. Partners’ Capital Accounts Cr.
A B C G A B C G
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To B 150 — 450 — By Balance b/d 4050 1800 900 —
To G 1125 — — — By A and C — 600 — —
To A & C — — — 281.25 By Cash and Bank 1162.5 — 2081.25 1406.25
To Cash and Bank — 2400 — — (Bal. figure)
To Balancd c/d 4125 — 2625 2250 By A — — — 1125.00
By G 187.5 — 93.75 —
5400 2400 3075 2531.25 5400 2400 3075 2531.25

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(5) Cash and Bank
Amount given (as on 31.3.10) 426
Amount brought in by partners 4650
(1162.50 + 2081.25 + 1406.25)
5076
Less : Payment to B 2400
Balance as on 1.4.10 2676
Net increase = Rs. 2676
(Equivalent to the value of goodwill)
Q. 8. The firm of PQR & Associates was dissolved on 31.3.2010, at which date its Balance Sheet stood as
follows :
Liabilities Rs. Assets Rs.
Creditors 5,00,000 Fixed Assets 1,12,50,000
Bank Loan 12,50,000 Cash and Bank 5,00,000
P’s Loan 25,00,000
Capital
P 37,50,000
Q 25,00,000
R 12,50,000
Total 1,17,50,000 1,17,50,000
Partners share profits equally. A firm of Professional Accountants is retained to realize the assets and
distribute the cash after discharge of liabilities. Their fees which are to include all expenses is fixed at
Rs. 2,50,000. No loss is expected on realization since fixed assets include valuable land and building.
Realisations are :
S.No. Amount in Rs.
1 7,50,000
2 37,50,000
3 37,50,000
4 75,00,000
5 75,00,000
The Accountant in the firm decided to pay off the partners in ‘Higher Relative Capital Method’. You are
required to prepare a statement showing distribution of cash with necessary workings.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 8.
M/s PQR & Associates
Statement of showing Distribution of Cash
(Under Higher Relative Capital method)
Particulars Amount Creditors Bank P’s loan Capital A/cs
available Loan P Q R
Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Balance due 5,00,000 12,50,000 25,00,000 37,50,000 25,00,000 12,50,000
1st Instalment (including
cash and bank balances) 12,50,000
Less: Liquidator’s Expenses
and fees 2,50,000
10,00,000
Less: Payment to Creditors
and repayment of Bank
Loan in the ratio of 2:5 (10,00,000) (2,85,715) (7,14,285) – – – –
Balance Due Nil 2,14,285 5,35,715 25,00,000 37,50,000 25,00,000 12,50,000
2nd Instalment 37,50,000
Less: Payment to Creditors
and repayment of bank
loan in full settlement (7,50,000) 214285 535715 – – – –
30,00,000 – –
Less: Repayment of P’s Loan 25,00,000 – – (25,00,000) – – –
5,00,000
Less: Payment to Mr. P towards
relative higher capital
(W.N. 1) (500000) 5,00,000 – –
Balance Due Nil 3250000 2500000 1250000
3rd Instalment 37,50,000
Less: Payment to Mr. P
towards higher relative
capital (W.N. 2) (7,50,000) 7,50,000
30,00,000 25,00,000 25,00,000 1250000
Less: Payment to Mr. Q &
Mr. R towards excess
capital (W.N. 1&2) (25,00,000) 12,50,000 12,50,000
5,00,000 12,50,000 12,50,000 12,50,000
Less: Payment to all the
partners equally (5,00,000) 1,66,667 1,66,667 1,66,666
Nil 10,83,333 10,83,333 10,83,334
Balance due
4th Instalment 75,00,000
Less: Payment to all
the partners equally (75,00,000) 25,00,000 25,00,000 25,00,000
Realisation profit
credited to Partners 14,16,667 14,16,667 14,16,666
5th Instalment 75,00,000
Less: Payment to all
partners equally (75,00,000) 12,50,000 12,50,000 12,50,000
Realisation profit 26,66,667 26,66,667 26,66,666
credited to partners

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Working Notes :
(i) Scheme of payment of surplus amount of Rs. 5,00,000 out of second Instalment :
Capital A/cs
P Q R
Rs. Rs. Rs.
1. Capital Balance 37,50,000 25,00,000 12,50,000
2. Profit Sharing Ratio (PSR) 1 1 1
3. Proportionate Capital (1÷2) 37,50,000 25,00,000 12,50,000
4. Taking R’s Capital as Base
(being the smallest × PQR) 12,50,000 12,50,000 12,50,000
5. Surplus Capital (1-4) 25,00,000 12,50,000 Nil
6. PSR 1 1 —
7. Proportionate Capital (5÷6) 25,00,000 12,50,000 —
8. Taking Q’s Capital as Base
(being the smallest) × PSR 12,50,000 12,50,000 —
9. Absolute Surplus (5-8) 12,50,000 — —
So Mr. P should get Rs. 12,50,000 first which will bring down his capital account balance from Rs. 37,50,000
to Rs. 25,00,000. Accordingly, surplus amounting to Rs. 5,00,000 will be paid to Mr. P towards higher
relative capital.
(ii) Scheme of payment of Rs. 37,50,000 realized in 3rd Installment :
– Payment of Rs. 7,50,000 will be made to Mr. P to discharge higher relative capital. This makes the
higher capital of both Mr. P and Mr. Q Rs. 12,50,000 as compared to capital of Mr. R.
– Payment of Rs. 12,50,000 each of Mr. P & Mr. Q to discharge the higher capital.
– Balance Rs. 5,00,000 equally to P, Q and R, i.e., Rs. 166,667 Rs. 1,66,667 and Rs. 1,66,666
respectively.
Q. 9. D, E and F were partners in business, sharing profits & losses in the ratio 2:1:1. Their Balance Sheet
as at 31.3.10 is as follows :
Balance Sheet as at 31.3.10 (Figures in Rs.’000)
Liabilities Rs. Assets Rs.
Fixed Capital: Fixed Assets 900
D 600 Investments 150
E 300 Current Assets:
F 300 1200 Stock 300
Current Accounts: Debtors 180
D 120 Cash & Bank 450 930
E 60 180
Unsecured Loans 600
1980 1980
On 1.4.10, it is agreed among the partners that AB (P) Ltd. a newly formed company with E and F having
each taken up 300 shares of Rs. 10 each will take over the firm as a going concern including goodwill but
excluding cash & bank balances. The following points are also agreed upon:
(a) Goodwill will be valued at 3 years purchase of super profits.
(b) The actual profit for the purpose of goodwill valuation will be Rs. 300,000.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(c) Normal rate of return will be 15% on fixed capital.
(d) All other assets and liabilities will be taken over at book values.
(e) The purchase consideration will be payable partly in shares of Rs. 10 each and partly in cash. Payment
in cash being to meet the requirement to discharge D, who has agreed to retire.
(f) E and F are to acquire equal interest in the new company.
(g) Expenses of liquidation Rs. 120,000.
You are required to prepare the necessary Ledger Accounts.
Answer 9.
Rs.
Capital employed on 31.3.10 (Fixed capital) 12,00,000
Calculation of Goodwill :
Weighted average of actual profits 3,00,000
Less: Normal profits at 15% of Rs. 12,00,000 1,80,000
Super profits 1,20,000
Goodwill at 3 years’ purchase, i.e. 120,000 × 3 3,60,000
Calculation of Purchase Consideration :
Total assets as per Balance Sheet 19,80,000
Less: Cash & Bank balances 4,50,000
15,30,000
Add: Goodwill 3,60,000
18,90,000
Less: Unsecured loans 6,00,000
Purchase Consideration 12,90,000
Dr. Realization Account Cr.
Rs. Rs.
To Sundry Assets 15,30,000 By Unsecured loans 6,00,000
To Goodwill 3,60,000 By AB(P) Ltd. 12,90,000
To Bank : expenses 1,20,000 By Capital A/c:
D 60,000
E 30,000
F 30,000 1,20,000
2010,000 20,10,000
Dr. Partners’ Capital Accounts Cr.
D E F D E F
Rs. Rs. Rs. Rs. Rs. Rs.
To Realisation 60,000 30,000 30,000 By Bal. c/d 6,00,000 3,00,000 3,00,000
To Cash 8,40,000 – – By Cur. A/c 1,20,000 60,000
To C (Cap. adj) – 30,000 – By Goodwill 18,00,000 90,000 90,000
To Shares in By E
AB (P) Ltd.) – 3,90,000 3,90,000 (Cap. adj) – – 30,000
9,00,000 4,50,000 4,20,000 9,00,000 4,50,000 420,000

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Dr. Cash & Bank Account Cr.
Rs. Rs.
To Balance b/d 4,50,000 By Realisation A/c – expenses 1,20,000
To AB (P) Ltd. (Balancing Figure) 5,10,000 By A’s Capital A/c 8,40,000
9,60,000 9,60,000
Dr. AB(P) Ltd. Account Cr.
Rs. Rs.
To Realisation A/c 9,00,000 By Cash A/c 5,10,000
By Equity Shares (Balancing Fig.) 390,000
(39,000 shares of Rs. 10 each)
900,000 900,000
Proportion of equity capital E:F = 1:1
No. of shares = 500 , 19
2
000 , 39
shares each.
Q. 10. From the following information, prepare —
(a) Reconciliation of Head Office Account in Branch Books and of the Branch Account in the Head Office
Books; and
(b) The Trading and Profit & Loss Account of the Head Office — for the year ended 31st March, 2010.
Head Office Branch
Rs. Rs.
Opening Stock 10,000 4,500
Purchases 1,15,000 —
Sales 2,05,000 1,55,000
Other Expenses 15,200 6,200
Closing Stock 5,200 3,100
The Branch books show the Head Office Account at Rs. 9,000 (Cr.) and the Head Office books show the
Branch Account at Rs. 24,000 (Dr.). The Branch receives all its supplies from the Head Office, which are
invoiced at 25% over cost. During the year, the Head Office sent invoices to the Branch to the tune of
Rs. 1,04,500. The Head Office credits its Sales Account with the invoice price of the goods sent to the
Branch.
The Head Office billed the Branch for Rs. 12,000 on 31st March 2010 representing the Branch’s share of the
expenses incurred by the Head Office. The said expenses had not been recorded in the books of the
Branch.
The expenses of the Branch are met by the Head Office from time to time for which amounts are sent in
advance to the Branch. A sum of Rs. 3,000 sent to the Branch by the Head Office on 29th March, 2010 in this
connection, was received by the Branch on 3rd April, 2010.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 10.
Dr. Reconciliation Account of the Branch (Memorandum) (in H.O. Books) Cr.
Rs. Rs.
To Balance b/d 24,000 By Remittance in Transit 3,000
(as per H.O. books) Transit to Branch
By H.O. Expenses (Entry not yet 12,000
made in Branch Books)
By Balance (as per Br. Books) 9,000
24,000 24,000
Dr. Memorandum Reconciliation Account of H.O. Accounts (in Branch Books) Cr.
Rs. Rs.
To Balance (as per H.O. Books) 24,000 By Balance b/d (as per Br. Books) 9,000
By Expenses 12,000
By H.O. Cash in transit 3,000
24,000 24,000
Dr. Trading and Profit and Loss Account Cr.
for the year ended 31.3.2010
H.O. Branch Total H.O. Branch Total
Rs. Rs. Rs. Rs. Rs. Rs.
To Opening 10,000 4,500 14,500 By Sales 1,00,500 1,55,000 2,55,000
Stock By Goods sent 1,04,500 — 1,04,500
To Purchase 1,15,000 — 1,15,000 to Branch
H.O.
To Goods — 1,04,500 1,04,500 By Closing 5,200 3,100 8,300
from H.O. Stock
Profit 85,200 49,100 1,34,300
2,10,200 1,58,100 3,68,300 2,10,200 1,58,100 3,68,300
To Expenses 15,200 6,200 21,400 By Gross Profit 85,200 49,100 1,34,300
To H.O. Exp. — 12,000 12,000 By Opening 900 — 900
To Stock 620 — 620 Stock
reserve req. (Reserve)
(3100×1/5) (4500×1/5)
To Net Profit 70,280 30,900 1,01,180
86,100 49,100 1,35,200 86,100 49,100 1,35,200
Note : It is assumed that branch profit is to be ascertained on the basis of invoice value of the goods
sent to the Branch since H.O. Sales A/c is credited by such a figure. Entries for Stock Reserve in
respect of unrealised profit on stock still lying with the Branch, are therefore made in the H.O.
books.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Q. 11. An Indian company has a branch at New York. Its Trial Balance as at 31st March, 2010 is as follows :
Dr. Cr.
US $ US $
Plant and machinery 180000 –
Furniture and fixtures 12,000 –
Stock, Oct. 1, 2009 84,000 –
Purchases 360,000 –
Sales – 624,000
Goods from Indian Co. (H.O.) 120,000 –
Wages 3000 –
Carriage inward 1500 –
Salaries 9,000 –
Rent, rates and taxes 3000 –
Insurance 1500 –
Trade expenses 1500 –
Head Office A/c 171,000
Trade debtors 36,000 –
Trade creditors – 25500
Cash at bank 7500 –
Cash in hand 1500 –
820500 820500
The following further information is given :
(1) Wages outstanding – $ 1500
(2) Depreciate Plant and Machinery and Furniture and Fixtures @ 10 % p.a.
(3) The Head Office sent goods to Branch for Rs. 5910000
(4) The Head Office shows an amount of Rs. 6450,000 due from Branch.
(5) Stock on 31st March, 2010 – $ 78,000.
(6) There were no in transit items either at the start or at the end of the year.
(7) On March 1, 2008, when the fixed assets were purchased, the rate of exchange was Rs. 44 to 1 $.
On April 1, 2009, the rate was Rs. 45 to 1 $.
On March 31, 2010, the rate was Rs. 46 to 1 $.
Average rate during the year was Rs. 45 to 1 $.
You are asked to prepare :
(a) Trial balance incorporating adjustments given under 1 to 4 above, converting dollars into rupees.
(b) Trading and Profit and Loss Account for the year ended 31st March, 2010 and Balance Sheet as on
that date depicting the profitability and net position of the Branch as would appear in India for the
purpose of incorporating in the main Balance Sheet.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 11.
(a) In the books of the Indian Company
New York Branch Trial Balance (in Rupees)
as on 31st March, 2010
(Rs. ‘000)
Dr. Cr. Conversion Dr. Cr.
US $ US $ rate Rs. Rs.
Plant and Machinery 1,62,000 46 74,52,000
Depreciation on plant and
machinery 18,000 46 8,28,000
Furniture and fixtures 10,800 46 4,96,800
Depreciation on furniture
and fixtures 1200 46 55,200
Stock, Oct. 1, 2009 84,000 45 37,80,000
Purchases 360,000 45 1,62,00,000
Sales 624,000 45 2,80,80,000
Goods from Indian Co. (H.O.) 1,20,000 59,10,000
Wages 4,500 45 2,02,500
Outstanding wages 1,500 46 69,000
Carriage inward 1,500 45 67,500
Salaries 9,000 45 4,05,000
Rent, rates and taxes 3,000 45 1,35,000
Insurance 1,500 45 67,500
Trade expenses 1,500 45 67,500
Head Office A/c 1,71,000 64,50,000
Trade debtors 36,000 46 16,56,000
Trade creditors 25,500 46 11,73,000
Cash at bank 7,500 46 3,45,000
Cash in hand 1,500 46 69,000
Exchange gain 19,65,000
(balancing figure) 3,77,37,000 3,77,37,000
Revisionary Test Paper (Revised Syllabus-2008) 26
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(b) New York Branch Trading and Profit and Loss Account
for the year ended 31st March, 2010
Dr. Cr.
Rs. Rs.
To Opening stock 37,80,000 By Sales 2,80,80,000
To Purchases 1,62,00,000 By Closing stock 35,88,000
To Goods from Head Office 59,10,000 (78,000 US $ × 46)
To Wages 2,02,500
To Carriage inward 67,500
To Gross profit c/d 55,08,000
3,16,68,000 3,16,68,000
To Salaries 4,05,000 By Gross profit b/d 55,08,000
To Rent, rates and taxes 1,35,000
To Insurance 67,500
To Trade expenses 67,500
To Depreciation on plant
and machinery 8,28,000
To Depreciation on furniture
and fixtures 55,200
To Net Profit c/d 39,49,800
55,08,000 55,08,000
Balance Sheet of New York Branch
as on 31st March, 2010
Liabilities Rs. Rs. Assets Rs. Rs.
Head Office A/c 64,50,000 Plant and machinery 82,80,000
Add : Net profit 39,49,800 1,03,99,800 Less : Depreciation 8,28,000 74,52,000
Foreign currency Furniture and fixtures 5,52,000
Translation reserve 19,65,000 Less : Depreciation 55,200 4,96,800
Trade creditors 11,73,000 Closing stock 35,88,000
Outstanding wages 69,000 Trade debtors 16,56,000
Cash in hand 3,45,000
Cash at bank 69,000
1,36,06,800 1,36,06,800
Note : (1) Depreciation has been calculated at the given depreciation rate of 10% on WDV basis.
(2) The above solution has been given assuming that the New York branch is a non-integral
foreign operation of the Indian Company.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Q. 12. Department A sells goods to Department B at a profit of 25% on cost and to Department C at 10%
profit on cost. Department B sells goods to A and C at a profit of 15% and 20% on sales, respectively.
Department C charges 20% and 25% profit on cost to Department A and B, respectively.
Department Managers are entitled to 10% commission on net profit subject to unrealised profit on
departmental sales being eliminated. Departmental profits after charging Managers’ commission,
but before adjustment of unrealised profit are as under :
Rs.
Department A 72,000
Department B 54,000
Department C 36,000
Stock lying at different departments at the end of the year are as under :
Dept. A Dept. B Dept. C
Rs. Rs. Rs.
Transfer from Department A — 30,000 22,000
Transfer from Department B 28,000 — 24,000
Transfer from Department C 12,000 10,000 —
Find out the correct departmental Profits after charging Managers’ commission.
Answer 12.
Calculation of correct Profit
Department A Department B Department C
Rs. Rs. Rs.
Profit after charging managers’ commission 72,000 54,000 36,000
Add back : Managers’ commission (1/9) 8,000 6,000 4,000
80,000 60,000 40,000
Less : Unrealized profit on stock
(Working Note) 8,000 9,000 4,000
Profit before Manager’s commission 72,000 51000 36,000
Less : Commission for Department
Manager @10% 7,200 5,100 3,600
64,800 45,900 32,400
Working Note :
Unrealised Profit on Stock
Dept. A Dept. B Dept. C Total
Rs. Rs. Rs. Rs.
Department A 000 , 6 000 , 30
5
1
000 , 2 000 , 22
11
1
8,000
Department B
100
15
× 28,000 = 4,200
100
20
×24000 = 4800 9,000
Department C 000 , 2 000 , 12
6
1
000 , 2 000 , 10
5
1
4000

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Q. 13. (a) Briefly indicate the items, which are included in the expression “borrowing cost” as explained in
AS 16.
Answer 13. (a)
Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing
of funds.
As per Para 4 of AS 16 on Borrowing Costs, borrowing costs may include :
(i) interest and commitment charges on bank borrowings and other short-term and long-term
borrowings;
(ii) amortization of discounts or premiums relating to borrowings ;
(iii) amortization of ancillary costs incurred in connection with the arrangement of borrowings;
(iv) finance charges in respect of assets acquired under finance leases or under other similar
arrangements; and
(v) exchange differences arising from foreign currency borrowings to the extent that they are regarded
as an adjustment to interest costs.
Q. 13. (b) Write short note on Effect of Uncertainties on Revenue Recognition.
Answer 13. (b)
Para 9 of AS 9 on “Revenue Recognition” deals with the effect of uncertainties on Revenue Recognition.
The Para states :
1. Recognition of revenue requires that revenue is measurable and at the time of sale or the rendering
of the service it would not be unreasonable to expect ultimate collection.
2. Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time
of raising any claim, e.g., for escalation of price, export incentives, interest etc. revenue recognition
is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize,
revenue only when it is reasonably certain that the ultimate collection will be made. When there is
uncertainty as to ultimate collection, revenue is recognized at the, time of sale or rendering of
service even, though payments are made by installments.
3. When the uncertainty relating to collectability arises subsequent to the time of sale or rendering of
the service, it is more appropriate to make a separate provision to reflect the uncertainty rather
than to adjust the amount of revenue originally recorded.
4. An essential criterion for the recognition of revenue is that the consideration receivable for the
sale of goods, the rendering of services or from the use by others of enterprise resources is
reasonably determinable. When such consideration is not determinable within reasonable limits;
the recognition of revenue is postponed.
5. When recognition of revenue is postponed due to the effect of uncertainties, it is considered as
revenue of the period in which it is properly recognized.
Q. 14. (a) How should rentals repayable under operating leases be accounted for in accordance with AS 19?
(b) State four items which are not to be included in determining the cost of inventories in accordance
with paragraph 6 of AS 2?
(c) When are parties considered ‘Related’ as per AS 18?
Answer 14. (a)
According to AS 19, rental payable under an operation lease should be charged against revenue on a
straight line basis to over the lease period. If any other method is more representative of the time pattern
of the user’s benefit, such method can be used.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 14. (b)
In determining the cost of inventories in accordance with paragraph 6 of AS 2, it is appropriate to exclude
certain costs and recognize therein as expenses in the period in which they are incurred. Examples of such
cost are —
(i) abnormal amounts of waste materials, labour or other production costs,
(ii) storage costs unless those costs are necessary in the production process prior to a further
production stage,
(iii) administrative overheads that do not contribute to bring the inventories to their present location
and condition, and
(iv) selling and distribution cost.
Answer 14. (c)
Parties are considered ‘Related’ if at any time during the reporting period one party has ability :
(i) to control the other party,
(ii) to exercise significant influence over the other party in making financial and /or operating decisions,
then by virtue of AS 18 both parties would be considered related.
Here the term control means :
(i) ownership directly or indirectly, of more than 50% of the voting power of an enterprise,
(ii) the composition of the board of directors (company) or the Governing Body (other enterprise)
(iii) a substantial interest in voting power and the power to direct by Statute or by agreement, the
financial/operating policies of the enterprise (20% or more interest in voting power)
Significant influence :
(i) refers to participation in the financial and/or operating policy decisions of an enterprise but not
control of those policies,
(ii) may be gained by ownership in share (including investment through intermediaries restricted to
mean subsidiaries as defined in AS-21 Consolidated Financial Statement).
Q. 15. How would you deal with the following in the annual accounts of a company for the year ended-
31st March, 2009?
(a) The Board of Directors decided on 31.3.2009 to increase the sale price of certain items
retrospectively from 1st January, 2009.
In view of this price revision with effect from 1st January, 2009 the company has to receive Rs. 20
lacs from its customers in respect of sales made from 1st January, 2009to 31st March, 2009 and
the Accountant cannot make up his mind whether to include Rs. 20 lacs in the sales for 2009-10.
Answer 15. (a)
Price revision was effected during the current accounting period 2008-2009. As a result, the company
stands to receive Rs. 20 lacs from its customers in respect of sales made from 1st January, 2009 to 31st
March, 2009. If the company is able to assess the ultimate collection with reasonable certainty, then
additional revenue arising out of the said price revision may be recognized in 2008-2009 vide Para 10 of
AS 9.
Q. 15. (b) The company undertook a contract for building a crane for Rs. 15 lacs. As on 31.03.09 it incurred
a cost of Rs. 2.25 lacs and expects that there will be Rs. 13.5 lacs more for completing the crane.
It has received so far Rs. 1.5 lacs as progress payment.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 15. (b)
Para 21 of AS 7 (Revised) ‘Construction Contracts’ provides that when the outcome of a construction
contract can be estimated reliably, contract revenue and contract costs associated with the construction
contract should be recognized as revenue and expenses respectively with reference to the stage of completion
of the contract activity at the reporting date.
As per para 32 of the standard, during the early stages of a contact it is often the case that the outcome of
the contract cannot be estimated reliably. Nevertheless, it may be probable that the enterprise will recover
the contract costs incurred. Therefore, contract revenue is recognized only to the extent of costs incurred
that are expected to be recovered. As the outcome of the contract cannot be estimated reliably, no profit is
recognized. Para 35 of the standard states that when it is probable that the total contacts costs will
exceed total contract revenue, the expected loss should be recognized as an expense immediately. Thus
the foreseeable loss of Rs. 75000 (expected cost Rs. 15.75 lacs less contract revenue Rs. 15 lacs should be
recognized as an expense in the year ended 31st March, 2009.
Also, the following disclosures should be given in the financial statements :
(i) the amount of contract revenue recognized as revenue in the period;
(ii) the aggregate amount of costs incurred and loss recognized up to the reporting date;
(iii) amount of advances received;
(iv) amount of retentions; and
(v) gross amount due from/due to customers Amount.
Q. 15. (c) P Ltd., used certain resources of Q Co. Ltd. In return Q Ltd. received Rs. 30 lacs and Rs. 45 lacs as
interest and royalties respective from Y Co. Ltd. during the year 2008-2009.
You are required to state whether and on what basis these revenues can be recognized by Q Ltd.
Answer 15. (c)
As per para 13 of AS 9 on Revenue Recognition, revenue arising from the use by others of enterprise
resources yielding interest and royalties should only be recognized when no significant uncertainty as to
measurability or collectability exists. These revenues are recognized on the following bases :
(i) Interest : on a time proportion basis taking into account the amount outstanding and the rate
applicable.
(ii) Royalties : on an accrual basis in accordance with the terms of the relevant agreement.
Q. 16. (a) What is meant by Sweat Equity Shares?
(b) State the cases where the creation of Debenture Redemption Reserve is not mandatory as per
SEBI guidelines.
(c) State the conditions which are required to be fulfilled by a Joint Stock Company to buy-back its
equity shares.
Answer 16. (a)
The Companies (Amendment) Act, 1999 introduced through section 79A a new type of equity shares called
‘Sweat Equity Shares. The expression ‘sweat equity shares’ means equity shares issued by a company to
its employees or directors at a discount or for consideration other than cash for providing know-how or
making available rights in the nature of intellectual property rights or value additions by whatever name
called. However , specified guidelines in this respect must be followed.
Answer 16. (b)
The following are the cases where Debenture Redemption Reserve is not mandatory as per SEBI guidelines :
(i) Infrastructure Company.
Group-I : Paper-5 : Financial Accounting 31
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(ii) A company issuing debenture with a maturity period of not more than 18 months.
Answer 16. (c)
As per section 77A(2) of the Companies Act, 1956 a joint stock company has to fulfill the following
conditions to buy-back its own equity shares :
(i) The buy-back is authorized by its articles.
(ii) A special resolution* has been passed in general meeting of the company authorizing the buy-back.
(iii) The buy-back does not exceed 25% of the total paid up capital and free reserves of the company.
Provided the buy–back must not exceed 25% of its total paid up equity capital in that financial year.
(iv) The ratio of the debt owed by the company is not more than twice the capital and its free reserves
after such buy-back.
(v) All the shares for buy-back are fully paid up.
(vi) The buy-back is made out of the free reserves (which include securities premium) or out of the
proceeds of a fresh issue of any shares or other specified securities.
(vii) The buy-back is completed within 12 months of the passing of the special resolution or a resolution
passed by the Board.
(viii) The buy-back of the shares listed on any recognized stock exchange is in accordance with the
regulations made by the SEBI in this behalf.
(ix) Before making such buy-back, a listed company has to file with the Registrar and the SEBI a
declaration of solvency in the prescribed form.
Q. 17. The Balance sheet of WYX Ltd. as at 31st December, 2008 inter alia includes the following :
Rs.
75000, 8% Preference shares of Rs. 100 each Rs. 70 paid up 52,50,000
150000 Equity shares of Rs. 100 each fully paid up 1,50,00,000
Securities premium 7,50,000
Capital redemption reserve 30,00,000
General reserve 75,00,000
Under the terms of their issue, the preference shares are redeemable on March 31, 2009 at a
premium of 5%. In order to finance the redemption, the company makes a right issue of 75000
equity shares of Rs. 100 each at Rs. 20 being payable on application, Rs. 35 (including premium) on
allotment and the balance on January 1, 2010 The issue was fully subscribed and allotment made on
March 1, 2009. The monies due on allotment were received by March 30, 2009.
The preference shares were redeemed after fulfilling the necessary conditions of Section 80 of the
Companies Act, 1956. The company decided to make the minimum utilization of general reserve.
You are asked to pass the necessary journal entries and show the relevant extracts from the
Balance Sheet as on March 31, 2009 with the corresponding figures as on 31st December, 2008.
Note : Party paid up Preference Share cannot be redeemed. Hence, the company share call the amount due
from the Preference Shares.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 17.
WYX Ltd.
Journal Entries
Dr. Cr.
Rs. ‘000 Rs. ‘000
8% Preference Share Final Call Account Dr. 2250
To 8% Preference Share Capital Account 2250
(Being the final call made on 75000 preference shares
@ Rs. 30 each to make them fully paid up)
Bank Account Dr. 2250
To 8% Preference Share Final Call Account 2250
(Being the final call amount received on 75000
preference shares @ Rs. 30 each)
Bank Account Dr. 1500
To Equity Share Application Account 1500
(Being the application money received on 75000
equity shares @ Rs. 20 per share)
Equity Share Application Account Dr. 1500
To Equity Share Capital Account 1500
(Being the application money on 75000 equity shares
transferred to equity share capital account vide Board’s
resolution dated...)
Equity Share Allotment Account Dr. 2625
To Equity Share Capital Account 1875
To Securities Premium Account 750
(Being the amount due on 75000 equity shares @ Rs. 35 per
share [including premium Rs.10 vide Board’s resolution dated...)
Bank Account Dr. 2625
To Equity Share Allotment Account 2625
(Being the allotment money received on 75000 equity
shares @ Rs. 35 per share)
8% Preference Share Capital Account Dr. 7500
Premium on Redemption of Preference Shares Account Dr. 375
To Preference Shareholders Account 7875
(Being the amount payable to preference share holders
on redemption)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Preference Shareholders Account Dr. 7875
To Bank Account 7875
(Being the payment made to preference shareholders)
Securities Premium Account Dr. 375
To Premium on Redemption of Preference Shares
Account 375
(Being the premium payable on redemption of preference
shares charged to share premium account)
General Reserve Dr. 4125
To Capital Redemption Reserve 4125
(Being the amount transferred to capital redemption reserve
on redemption of preference shares for the balance not
covered by proceeds of fresh issue of shares)
Balance Sheet of WYX Limited
As at 31st March, 2009 (after redemption of preference shares)
(Relevant extracts)
Amount Amount
Rs. (‘000) Rs. (‘000)
As on As on
31.3.09 31.12.08
1. Sources of funds
Shareholders’ funds :
(a) Share Capital
Issued, subscribed and paid-up
1,50,000 equity shares of Rs. 100 each, fully paid up 15,000 15,000
75000 equity shares of Rs. 100 each,
Rs. 45 called up and paid up 3,375 —
75000, 8% Redeemable preference shares of
Rs. 100 each, Rs. 70 called-up and paid-up
(redeemed on 31st March, 2009) — 5,250
18,375 20,250
(b) Reserves and Surplus :
Capital redemption reserve 7,125 3,000
Securities premium account 1,125 750
General reserve 3,375 7,500
11,625 11,250
The cash and bank balance will be decreased by Rs. 15,00,000 on 31.3.09 as compared to the balance on
31.12.2008.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Working Notes :
Rs. ‘000
(i) Transfer to capital redemption reserve
Nominal value of preference shares redeemed (Rs. 100 × 75,000) 7,500
Less : Proceeds of fresh equity issue [(Rs. 20 + 25) × 75,000)] 3,375
Transfer to capital redemption reserve 4,125
(ii) Capital redemption reserve as on 31.3.09
Balance as on 31.12.08 3,000
Add : Transfer from general reserve 4,125
Balance as on 31.3.09 7,125
(iii) General reserve as on 31.3.09
Balance as on 31.12.08 7,500
Less : Transfer to capital redemption reserve 4,125
Balance as on 31.3.09 3,375
(iv) Securities premium as on 31.3.09
Balance as on 31.12.08 750
Add : Amount received @ Rs. 10 per share on fresh issue of 75,000 equity shares 750
1,500
Less : Premium on redemption of preference shares 375
Balance as on 31.3.09 1,125
(v) Change in cash and bank balance
Receipts : (31.12.08 - 31.3.09)
Application money on 75,000 equity shares @ Rs. 20 per share 1,500
Allotment money on 75,000 equity shares @ Rs. 35 per share 2,625
Final call on 75,000, 8% Preference shares @ Rs. 30 per share 2,250
6,375
Payments :
Amount paid to preference shareholders on redemption 7,875
Reduction in cash and bank balance 1,500
Q. 18. ABC Limited recently made a public issue in respect of which the following information is available :
(a) No. of partly convertible debentures issued 4,00,000; face value and issue price Rs.100 per
debenture.
(b) Convertible portion per debenture 60%, date of conversion on expiry of 6 months from the date
of closing of issue.
(c) Date of closure of subscription lists 1.5.2009, date of allotment 1.6.2009, rate of interest on
debenture 15% payable from the date of allotment, value of equity share for the purpose of
conversion Rs. 60 (Face Value Rs. 10).
(d) Underwriting Commission 2.5 %.
(e) No. of debentures applied for 300000.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(f) Interest payable on debentures half-yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year ended
31st March, 2010 (including cash and bank entries).
Answer 18.
In the books of ABC Ltd.
Journal Entries
Dr. Cr.
Date Particulars Amount Amount
Rs. Rs.
1.5.09 Bank A/c Dr. 3,00,00,000
To Debenture Application A/c 3,00,00,000
(Application money received on 300,000
debentures @ Rs. 100 each)
1.6.09 Debenture Application A/c Dr. 3,00,00,000
Underwriters A/c Dr. 1,00,00,000
To 15% Debentures A/c 4,00,00,000
(Allotment of 300,000 debentures to applicants
and 100,000 debentures to underwriters)
Underwriting Commission Dr. 10,00,000
To Underwriters A/c 10,00,000
(Commission payable to underwriters @ 2.5 % on
Rs. 4,00,00,000)
Bank A/c Dr. 99,00,000
To Underwriters A/c 99,00,000
(Amount received from underwriters
in settlement of account)
30.9.09 Debenture Interest A/c Dr. 20,00,000
To Bank A/c 20,00,000
(Interest paid on debentures for
4 months @ 15% on Rs. 400,00,000)
30.10.09 15% Debentures A/c Dr. 2,40,00,000
To Equity Share Capital A/c 40,00,000
To Securities Premium A/c 2,00,00,0000
(Conversion of 60% of debentures into shares
of Rs. 60 each with a face value of Rs. 10)
31.3.10 Debenture Interest A/c Dr. 15,00,000
To Bank A/c 15,00,000
(Interest paid on debentures for the half year)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Working Note :
Calculation of Debenture Interest for the half year ended 31st March, 2010
On Rs. 1,60,00,000 for 6 months @ 15% = Rs. 12,00,000
On Rs. 2,40,00,000 for 1 months @ 15% = Rs. 300,000
Rs. 15,00,000
Q. 19. Provisional Balance Sheet of STP Ltd. as at 31st March, 2009 was as under :
Balance Sheet as at 31st March, 2009
Liabilities Rs. Rs. Assets Rs.
Share Capital Fixed Assets (at cost less
125,000 equity shares of Rs. 10 depreciation) 1750,000
each, Rs. 7 per share called up 875000 Cash & Bank balances 5,00,000
Less : Calls in arrear on 25,000 Other Current assets 1500,000
shares @ Rs. 2 per share 50,000
825,000
Add : Calls in advance on
100,000 shares @
Rs. 3 per share 300,000 1125,000
20,000, 10% Redeemable preference
shares of Rs. 10 each, fully paid up 5,00,000
Reserves & Surplus :
General Reserve 750,000
Profit & Loss Account 675,000
Current Liabilities 700,000
3750000 3750,000
Calls in arrear are outstanding for 6 months. Calls in advance were also received 6 months back.
Interest @ 10% p.a. on calls in advance and 12% p.a. on calls in arrear are allowed/charged.
The Board of Directors have recommended that :
(i) Dividend for the year 2008-09 be allowed @ 20% on equity shares.
(ii) Money on calls in advance be refunded and partly paid equity shares be converted as fully paid up
by declaring bonus dividend to shareholders.
(iii) The preference shares, which are redeemable at a premium of 10% any time after 31st March,
2009 may be redeemed by issue of 10% Debentures of Rs. 100 in cash.
Show Journal Entries to give effect to the above proposals including payment and receipt of cash and
redraft the Profit and Loss Account and Balance Sheet of STP Ltd.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 19.
Journal Entries
STP Ltd.
Dr. Cr.
Rs. Rs.
Interest on Calls in Arrear A/c Dr. 3000
To Profit & Loss A/c 3000
(Being interest @ 12 % p.a. on Rs. 50,000 for 6 months
credited to Profit and Loss Account)
Bank A/c Dr. 53000
To Calls in Arrear A/c 50000
To Interest on Calls in Arrear A/c 3000
(Being interest on calls in arrear received)
Profit & Loss A/c Dr. 15000
To Interest on Calls in Advance A/c 15000
(Being interest @ 10% on Rs. 3,00,000 for 6 months
allowed on calls in advance)
Profit & Loss A/c Dr. 225000
To Preference Dividend 50000
To Equity Dividend 175000
(Being dividend @ 10% on Preference share capital &
20% on Equity share capital proposed)
Profit & Loss A/c Dr. 375000
To Bonus to Equity Shareholders A/c 375000
(Being bonus dividend declared)
Share Final Call A/c Dr. 375000
To Equity Share Capital A/c 375000
(Being final call made @ Rs. 3 on 1,25,000 shares)
Bonus to Equity shareholders A/c Dr. 375000
To Share Final Call A/c 375000
(Being adjustment of bonus dividend against final call)
Calls in Advance A/c Dr. 300000
Interest on Calls in Advance A/c Dr. 15000
To Bank A/c 315000
(Being amount of calls in advance along with interest
refunded)
Bank A/c Dr. 550000
To 10% Debentures A/c 550000
(Being 5,500 Debentures of Rs.100 each issued in cash)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Profit & Loss A/c Dr. 50000
To Premium on Redemption of Preference shares A/c 50000
(Being premium payable on redemption)
Profit & Loss A/c Dr. 13000
General Reserve A/c Dr. 487000
To Capital Redemption Reserve A/c 500000
(Transfer to capital redemption reserve)
Preference Share Capital A/c Dr. 500000
Premium on Redemption of Preference Shares A/c Dr. 50,000
To Preference Shareholders A/c 550000
(Amount due on redemption of preference shares)
Preference Shareholders A/c Dr. 550000
To Bank A/c 550000
(Amount paid to preference shareholders)
Profit & Loss Account of STP Ltd.
for the year ended 31st March, 2009
Dr. Cr.
Rs. Rs.
To Interest on calls in advance 15,000 By Balance b/d 6,75,000
To Balance c/d 6,63,000 By Interest on calls in arrear 3,000
6,78,000 6,78,000
To Premium on redemption 50,000 By Balance b/d 6,63,000
To Preference Dividend 50,000
To Equity Dividend 1,75,000
To Bonus Dividend 3,75,000
To Capital Redemption Reserve 13,000
6,63,000 6,63,000
Group-I : Paper-5 : Financial Accounting 39
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Balance Sheet of STP Ltd.
as on 31st March 2009
Liabilities Rs. Assets Rs.
Share Capital: Fixed Assets 17,50,000
125,000 equity shares of Rs. 10 each (Cost less depreciation)
fully paid up 12,50,000
(Of the above equity shares Cash & Bank balance (W.N.) 2,38,000
Rs. 3 per share has not been received
in cash but has been capitalised Other Current Assets 15,00,000
by issuing bonus dividend)
Reserves & Surplus :
Capital Redemption Reserve 5,00,000
General Reserve 7,50,000
Less: utilised for redemption
of preference share 4,87,000 2,63,000
Profit & Loss Account —
10% Debentures 5,50,000
Current liabilities 7,00,000
Proposed dividend 2,25,000
34,88,000 34,88,000
Working Note :
Cash and Bank balance as on 31st March, 2009
Rs.
Cash and bank balance (given) 5,00,000
Add: Recovery of calls in arrear and interest thereon 53,000
Proceeds from issue of 10% Debentures 5,50,000
11,03,000
Less: Payment of calls in advance and interest thereon 3,15,000
Redemption of preference shares 5,50,000
2,38,000
Note : In the absence of information, it has been assumed that the amount of calls in arrear has been
received in the given solution. It has been assumed that 20% dividend on equity shares has been
proposed before the equity shares are made fully paid by way of bonus dividend.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Q. 20. The following is the Balance sheet of SS Ltd. as on 31.03.2009.
Liabilities Rs. Assets Rs.
Share Capital : Fixed Assets :
Authorised Gross Block 6,00,000
20,000 10% redeemable preference Less : Depreciation 2,00,000 4,00,000
share of Rs. 10 each 2,00,000 Investments 2,00,000
1,80,000 Equity Shares of Rs. 10 each 18,00,000 Current Assets,
20,00,000 Loans & Advances :
Issued, Subscribed and paid up Inventory 50,000
capital : Debtors 50,000
20,000, 10% redeemable Cash & Bank balance 1,00,000 2,00,000
preference share of Rs. 10 each 2,00,000 Miscellaneous Expenditure
20,000 equity shares of Rs. 10 each 2,00,000 to the extent not written off 40,000
Reserve and Surplus :
General Reserve 2,40,000
Securities premium 1,40,000
Profit and Loss Account 37,000
Current Liabilities & Provision : 23,000
8,40,000 8,40,000
For the year ended 31.3.2010, the company made a net profit of Rs. 30,000 after providing for Rs. 40,000
depreciation and writing off miscellaneous expenditure of Rs. 40,000. The following additional information
is available with regard to company’s operation.
(1) The preference dividend for the year ended 31.3.2010 was paid before 31.3.2010.
(2) Except cash & balances, other current assets and current liabilities on 31.3.2010, was the same as on
31.3.2009.
(3) The company redeemed the preference share at a premium of 10%.
(4) The company issued bonus shares in the ratio of 1 share for every two equity shares held as on
31.3.2010.
(5) To meet the cash requirements of redemption, the company sold a portion of the investments, so
as to leave a minimum balance of Rs. 60,000 after such redemption.
(6) Investments were sold at 90% cost as on 31.3.2010.
Prepare :
(i) Necessary Journal entries to record redemption and issue of shares.
(ii) Cash & Bank Account.
(iii) Balance Sheet as on 31.3.2010.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 20.
Journal Entries
Date Particulars Amount Amount
Rs. Rs.
Bank A/c Dr. 90,000
Profit & Loss A/c Dr. 10,000
To Investment A/c 1,00,000
(Being the investment sold at 90% cost)
10% Redeemable Preference Share Capital A/c Dr. 2,00,000
Premium on redemption of Preference Share Dr. 20,000
To Preference Shareholders A/c 2,20,000
(Being the amount payment on redemption of preference
share at a premium of 10%)
Preference Shareholders A/c Dr. 2,20,000
To Bank A/c 2,20,000
(Being the amount paid to preference shareholders)
General Reserve A/c Dr. 1,00,000
To Capital Redemption Reserve A/c 1,00,000
(Being the amount transferred to capital redemption
reserve A/c)
Securities Premium A/c Dr. 20,000
To Premium on redemption of Preference Shares A/c 20,000
(Being the premium on redemption of preference shares
adjusted against Securities Premium A/c)
Capital Redemption Reserve A/c Dr. 1,00,000
To Bonus to Shareholders A/c 1,00,000
(Being the bonus payable to shareholders in the
ratio of 2 :1)
Bonus to Shareholders A/c Dr. 1,00,000
To Equity Share Capital A/c 1,00,000
(Being utilisation of bonus dividend towards the issue
of 10,000 equity shares of Rs. 10 each at par)

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Dr. Cash and Bank Account Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Balance b/d 1,00,000 By Preference Dividend A/c 20,000
To Cash from operations By Preference Shareholders A/c 2,20,000
Net Profit 30,000 By Balance c/d 60,000
Add: Depreciation 40,00
Mis. Expenditure 40,000 1,10,000
To Investment A/c 90,000
3,00,000 3,00,000
Balance Sheet as on 31-03-2010
Liabilities Amount Assets Amount
Rs. Rs.
Share Capital : Fixed Assets :
Authorised Capital Gross Block 6,00,000
20,000 10% redeemable preference Less : Depreciation 2,40,000 3,60,000
shares of Rs. 10 each 2,00,000 Investments (market value Rs. 90,000 1,00,000
1,80,000 Equity Shares of Current Assets,
Rs. 10 each 18,00,000 Loans & Advances :
20,00,000 Inventory 50,000
Issued , Subscribed and Debtors 50,000
paid up capital : Cash & Bank balances 60,000 1,60,000
30,000 equity shares of Rs. 10 each Miscellaneous Expenditure : Nil
fully paid including 10,000 bonus
shares 3,00,00
Reserve and Surplus :
General Reserve (2,40,000 – 1,00,000) 1,40,000
Securities premium (1,40,000–20,000) 1,20,000
Profit and Loss Account 37,000
Current Liabilities & Provisions : 23,000
6,20,000 6,20,000
Working Note :
Profit and Loss A/c
Dr. for the year ended on 31-03-2010 Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Preference Dividend A/c 20,000 By Balance b/d 37,000
To Investment (loss on sale) 10,000 By Net Profit 30,000
To Balance c/d 37,000
67,000 67,000

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Q. 21. The Trial balance of CDX Ltd. as at 31st March, 2010 shows the following items :
Dr. Cr.
Rs. Rs.
Advance payment of income-tax 550000 —
Provision for income-tax for the year ended 31.3.2009 — 300000
The following further information are given :
(i) Advance payment of income-tax includes Rs. 350000 for 2008-09.
(ii) Actual tax liability for 2008-09 amounts to Rs. 380000 and no effect for the same has so far
been given in accounts.
(iii) Provision for income-tax has to be made for 2009-10 Rs. 400000
You are required to prepare (a) provision for income-tax account, (b) advance payment of incometax
account, (c) liabilities for taxation account and also show, how the relevant items will appear in
the profit and loss account and balance sheet of the Company.
Answer 21.
CDX Ltd.
(a) Provision for Income Tax (2008-09) Account
Dr. Cr.
Rs. Rs.
31.3.08 To Advance Payment of 1.4.07 By Balance b/d 3,00,000
Income-tax A/c 3,50,000 31.3.08 By Profit and Loss A/c 80,000
To Liability for
Taxation A/c 30,000
3,80,000 3,80,000
Provision for Income-tax (2009-10) Account
Rs. Rs.
31.3.08 To Balance c/d 4,00,000 31.3.08 By Profit and Loss A/c 4,00,000
4,00,000 4,00,000
(b) Advance Payment of Income Tax Account
Rs. Rs.
31.3.08 To Balance b/d 5,50,000 31.3.08 By Provision for Incometax
(2008-09) A/c 3,50,000
By Balance c/d 2,00,000
5,50,000 5,50,000
(c) Liability for Taxation Account
Rs. Rs.
31.3.08 To Balance c/d 30,000 31.3.08 By Provision for Incometax
A/c 30,000
30,000 30,000

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Profit and Loss Account
for the year ended 31st March, 2010 (Extracts)
Rs. Rs.
Profit before Taxation .....
Less : Taxation for the year 4,00,000
Taxation adjustment of previous year 80,000 4,80,000
Net Profit .....
Balance Sheet of CDX Ltd.
As at 31st March, 2010 (Extracts)
Liabilities Rs. Assets Rs.
Current Liabilities and Provisions Current Assets, Loans and Advances
A. Current Liabilities B. Loans and Advances
Liability for Taxation (2006-07) 30,000 Advance payment of
B. Provisions Income-tax 2,00,000
Provision for Income-tax 4,00,000
Q. 22. The following is the Trial Balance of SBS Limited as on 31.3.10 :
(Figures in Rs. ‘000)
Debit Rs. Credit Rs.
Land at cost 385 Equity Capital (Shares of Rs. 10 each) 525
Plant & Machinery at cost 1347.5 10% Debentures 350
Debtors 168 General Reserve 227.5
Stock (31.3.10) 150.5 Profit & Loss A/c 126
Bank 35 Securities Premium 70
Adjusted Purchases 560 Sales 1225
Factory Expenses 105 Creditors 91
Administration Expenses 52.5 Provision for Depreciation 301
Selling Expenses 52.5 Suspense Account 7
Debenture Interest 35
Interim Dividend Paid 31.5
2922.5 2922.5
Additional Information :
(a) On 31.3.10 the company issued bonus shares to the shareholders on 1 : 3 basis. No entry relating to
this has yet been made.
(b) The authorized share capital of the company is 87500 shares of Rs. 10 each.
(c) The company on the advice of independent valuer wish to revalue the land at Rs.630000
(d) Proposed final dividend 10%.
(e) Suspense account of Rs. 7000 represents cash received for the sale of some of the machinery on
1.4.09 The cost of the machinery was Rs. 17500 and the accumulated depreciation thereon being
Rs. 14000

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(f) Depreciation is to be provided on plant and machinery at 10% on cost.
You are required to prepare SBS Limited’s Profit & Loss account for the year ended 31.3.10 and a balance
sheet on that date in vertical form as per the provisions of Schedule VI of the Companies Act, 1956.
Your answer to include detailed schedules only for the following :
(1) Share Capital
(2) Reserves & Surplus
(3) Fixed Assets
Ignore previous years’ figures & taxation.
Answer 22.
SBS Limited
Balance Sheet as at 31.3.10
I. Sources of funds
Schedule
No. (Rs. ‘000)
(1) Shareholders funds :
(a) Capital 1 700
(b) Reserves & Surplus 2 700 1400
(2) Loan funds
10% Debentures 350
Total 1750
II. Application of funds :
(1) Fixed Assets : 3
Land 630
Gross Block (1347.5 – 17.5) 1330
Less: Depreciation
(301 + 133 - 14) 420 910 1540
(2) Current assets :
Stock 150.5
Debtors 168.0
Cash 35.0 353.5
Less: Current Liabilities:
Creditors 91.0
Proposed dividend 52.5 143.5 210
Total 1750
Revisionary Test Paper (Revised Syllabus-2008) 46
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
SBS Limited
Profit & Loss Account for the year ended 31.3.10
(Rs. ‘000)
Sales 1225.0
Other income (profit on sale of machinery) 3.5
Total income 1228.5
Less : Expenses:
Purchases 560
Factory expenses 105
Administration expenses 52.5
Selling expenses 52.5
Depreciation 133
Interest on Debentures 35 938
290.5
Net Profit before dividend
Dividend : Interim 31.5
Final 52.5 84.0
Balance carried to balance sheet 206.5
Working Notes :
Bonus issue proportion = 1:3
No. of shares = 52500 × 1/3 = 17500 shares
Debit (Rs.) Credit (Rs.)
(1) General Reserve Account Dr. 1,75,000
To Equity Share Capital Account Rs. 1,75,000
(Being reserves capitalized)
(2) Land Account Dr. 2,45,000
To Revaluation Reserve Account Rs. 2,45,000
(Being land revalued)
Schedules
SCHEDULE 1 Rs.
Share Capital
Authorised
87500 Shares of Rs. 10 each 8,75,000
Issued, subscribed & fully paid-up
70000 shares of Rs. 10 each 7,00,000
[of the above, 17500 shares are alloted as fully paid by
way of Bonus Shares. Bonus Shares were issued by
utilising the general reserve]

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
SCHEDULE 2 Rs.
Reserves and Surplus
Share Premium Account 70,000
Revaluation reserve 2,45,000
General reserve (2,27,500 – 1,75,000) 52,500
Balance in profit & loss A/c (1,26,000 + 2,06,500) 3,32,500
7,00,000
SCHEDULE 3
Fixed Assets As on 1/4/2009 Additions Deductions Depreciation Net Block
Rs. Rs. Rs. Rs. Rs.
Land 3,85,000 2,45,000 – – 6,30,000
Plant & Machinery 13,47,500 – 17,500 4,20,000 9,10,000
Total 17,32,500 2,45,000 17,500 4,20,000 15,40,000
Land was revalued upward by Rs. 2,45,000 during the year.
Q. 23. (a) State the respective heads of the following items in Balance Sheet of a Company :
(i) Uncalled liability on share partly paid.
(ii) Loose tools.
(iii) Future installments payable under hire- purchase agreements.
(iv) Unclaimed dividends.
(v) Public deposit
(vi) Discount on issue of shares.
(vii) Proposed dividend.
(viii) Share premium account.
(ix) Interest accrued but not due on loans
(x) Immovable properties.
Answer 23. (a)
Item Heading Sub-heading
(i) Uncalled liability on share partly Contingent liability, shown as
paid. a footnote to Balance Sheet.
(ii) Loose tools. Current Assets, Loans and Current Assets
Advances
(iii) Future installments payable under Secured Loans
hire-purchase agreements.
(iv) Unclaimed dividends. Current Liabilities
(v) Public deposit Unsecured Loans
(vi) Discount on issue of shares. Miscellaneous Expenditure
(vii) Proposed dividend. Current Liabilities and Provisions Provisions
Revisionary Test Paper (Revised Syllabus-2008) 48
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Item Heading Sub-heading
(viii) Share premium account. Reserves and Surplus Reserves
(ix) Interest accrued but not due Current Liabilities and Provisions Current Liabilities
on loans
(x) Immovable properties. Investments
Q. 23. (b)
(i) A major fire has damaged the assets in a factory of a limited company on 4th April-four days after
the year end closure of account. The loss is estimated at Rs. 55 crores out of which Rs. 16 crores
will be recoverable from the insurers. Explain briefly how the loss should be treated in the final
accounts for the previous year.
(ii) There is a sales tax demand of Rs. 3.50 crores against a company relating to prior years against
which the company has gone on appeal to the appellate authority in the department. The
grounds of appeal deal with points covering Rs. 3 crores of the demand. State how the matter
will have to be dealt with in the final accounts for the year.
Answer 23. (b)
(i) The loss due to break out of fire is an example of event occurring after the balance sheet date that
does not relate to condition existing at the balance sheet date. It has not affected the financial
position as on the date of the balance sheet and therefore requires no specific adjustments in the
financial statements. However, paragraph 8.6 of AS-4 states that disclosure is generally made of
events in subsequent periods that represent unusual changes affecting the existence of the enterprise
at the balance sheet date. In the given case, the loss of assets in a factory is considered to be an event
affecting the existence of the enterprise after the balance sheet date. Hence, as recommended in
paragraph 15 of AS-4, disclosure of the event should be made in the report of the approving authority
that represent material changes and commitments affecting the financial position of the enterprise.
(ii) The undisputed part of sales tax liability of Rs. 0.50 crore should be considered as actual liability
and adequately provided for. Accounting standard 29 deals with “Provisions Contingent Liabilities
and Contingent Assets’’. According to the standard, an enterprise should not recognize a contingent
liability but should disclose it, as required by paragraph 68, unless the possibility of an outflow of
resources embodying economic benefits is remote. Accordingly the company should disclose the
disputed part of sales tax liability of Rs. 3 crore as contingent liability in their financial statements
of the year. However, the above disclosed contingent liability should be reviewed continuously and
if it becomes probable that an outflow of future economic benefit will be required, then recognize the
contingent liability as a provision.
Q. 24. Write short note on :
(a) Classification of investments by a banking company.
(b) Valuation Balance Sheet.
(c) Double Accounts System.
(d) Votable and non-votable items.
Answer 24. (a)
The investment portfolio of a bank would normally consist of both approved securities (predominantly
government securities) and other securities (shares, debentures, bonds etc.). Banks are required to classify
their entire investment portfolio into three categories :
Group-I : Paper-5 : Financial Accounting 49
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(i) Held-to-maturity : Securities acquired by banks with the intention to hold them up to maturity
should be classified as ‘held-to-maturity’
(ii) Held-for-maturity : Securities acquired by banks with the intention to trade by taking advantage of
short–term price interest rate movements should be classified as held-for trading/maturity.
(iii) Available-for-sale : Securities which do not fall within the above two categories should be classified
as available-for-sale’.
Answer 24. (b)
For the purpose of ascertaining , the insurance company calculates its net liability on all outstanding
policies. For calculating net liability the actuaries calculate the present value of future liability on all the
policies in future as present value of future premium to be received on all policies in future. The excess of
the present values of future liability over the present value premium is called the net liability.
It is by comparing the life insurance fund and net liability in respect of policies, that profit of life
insurance business can be as estimated. If the fund is more than net liability , the difference represents
profit. On the other hand , excess of net liability over the life assurance fund represents loss for intervaluation
period.
The profit or loss in life insurance business is ascertained by preparing a statement called Valuation
Balance Sheet which is given below :
Valuation Balance Sheet as on........
To Net liability as per actuary’s By Life Assurance Fund as per
valuations Balance Sheet
To Surplus (net profit) By Deficiency (net loss)
Answer 24. (c)
Double Accounts system is the name given to the system of preparing the final accounts of certain
statutory companies formed by special Acts of Parliament, usually public utility undertakings (for example
Electricity Companies). The double accounts system is not a special method of keeping accounts, rather a
special method of presenting accounts which are kept under the normal double entry system. Under this
system, separate accounts in respect of capital and revenue are prepared in order to show clearly the
capital receipts and the manner in which the amounts thereof have been invested. The final accounts
prepared under the double accounts system normally consist of :
(i) Revenue Account
(ii) Net Revenue Account
(iii) Capital Account (Receipts and Expenditure on capital account)
(iv) General Balance Sheet.
The Revenue account is analogous to the Profit & Loss Account of a company with some exceptions. The
Net Revenue Account resembles with appropriation portion of the Profit & Loss Account of a company. The
Balance Sheet is presented in two parts namely Capital Account and General Balance Sheet. The Capital
Account shows the total amount of capital raised and its sources and also the manner and extent to which
this capital has been applied in the acquisition of fixed assets for the purpose of carrying on the business.
The General balance sheet includes the other items.
The Double Accounts System in its pure form does no longer exist but the statements submitted to State
Governments by electricity companies generally follow the principle of Double Accounts System. It may be
noted that for presenting accounts to the shareholders, electricity companies normally follow Schedule
VI of the Companies Act, 1956.
Revisionary Test Paper (Revised Syllabus-2008) 50
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 24. (d)
Certain items of expenditure are charged to the consolidated fund or public fund account. They are
incurred regardless of legislative approval. These are called non-votable items.
Other items are votable and expenditure thereon can be made only after the sanction of Parliament. The
Govt. makes the demand for grants for these items of expenditure. These demand may be reduced or even
rejected but in case of non-votable items, it can at best be debated and nothing more than that.
Q. 25. (a) Briefly describe with reference to Accounting Standard 7 on Accounting for construction contracts,
the methods which may be used for recognizing revenue on construction contracts.
Answer 25. (a)
As per Accounting Standard 7 on Accounting for Construction Contracts, two methods of accounting
commonly followed by contractors for recognizing revenue on construction contracts are the percentage
of completion method and the completed contract method.
Under the percentage of completion method, revenue is recognized as the contract activity progresses
based on the stage of completion reached. The costs incurred in reaching the stage of completion are
matched with this revenue, resulting in the reporting of results which can be attributed to the proportion
of work completed. Although (as per the principle of ‘prudence’) revenue is recognized only when realized,
under this method, the revenue is recognized as the activity progresses even though in certain circumstances
it may not be realized.
Under the completed contract method, revenue is recognized only when the contract is completed or
substantially completed; that is, when only minor work is expected other than warranty obligation. Costs
and progress payments received are accumulated during the course of the contract but revenue is not
recognized until the contract activity is substantially completed.
Under both methods, provision is made for losses for the stage of completion reached on the contract. In
addition, provision is usually made for losses on the remainder of the contract.
It may be necessary for accounting purposes to combine contracts made with a single customer or to
combine contracts made with several customers if the contracts are negotiated as a package or if the
contracts are for a single project. Conversely, if a contract covers number of projects and if the costs and
revenues of such individual projects can be identified within the terms of the overall contract, each such
project may be treated as equivalent to a separate contract.
Q. 25. (b) Y. Ltd. undertook a contract No. 80 for Rs. 7,50,000. The contract account showed the following
particulars :
2008 :
Materials Rs. 30,000, Wages Rs. 25,000, Overheads Rs. 10,000, Plant Rs. 1,00,000 and Materials at site at
close Rs. 3,000.
2009 :
Materials Rs. 1,00,000, Wages Rs. 60,000, Overheads Rs. 15,000, Materials returned, Rs. 8,000. The Plant
at its depreciated value was transferred to contract No. 88. Uncertified work Rs. 15,000.
2010 :
Materials Rs. 1,60,000, Wages Rs. 1,00,000, Overheads Rs. 28,000 and Materials Rs. 4,000.
The amount of work certified at the end of the first year was Rs. 1 ,00,000. The work certified upto the end
of the second year was Rs. 4,00,000 and the work certified in the third year was Rs. 3,50,000. 80 percent
of the certified work was received in cash.
Profit to be taken credit for are one-third and one-half on cash basis in each of the two years respectively.
Depreciate plant by 10 percent on balance at the beginning of each year.
Prepare accounts in respect of the contract at the end of each year.
Group-I : Paper-5 : Financial Accounting 51
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 25. (b)
Dr. Contract No. 80 Account Cr.
2008 : Rs. 2008 : Rs.
To Materials 30,000 By Work-n-Progress A/c :
To Wages 25,000 Materials 3,000
To Overheads 10,000 Plant 90,000
To Plant 1,00,000 Certified Work 1,00,000
To Balance c/d 28,000
1,93,000 1,93,000
To Profit & Loss Account 7,467 By Balance b/d 28,000
To Work-in-Progress Account 20,533
28000 28,000
2009 : 2009 :
To Work-in-Progress — Opening By Work-in-Progress — Opening
balance transferred: provision transferred 20,533
Materials 3,000 By Materials — returned 8,000
Plant 90,000 By Contract No. 88— Plant
Certified Work 1,00,000 transferred 81,000
To Materials 1,00,000 By Work-in-Progress c/d:
To Wages 60,000 Uncertified Work 15,000
To Overheads 15,000 Certified Work 4,00,000
To Balance cld 1,56,533
5,24,533 5,24,533
To Profit & Loss Account 62,613 By Balance b/d 1,56,533
To Work-in-Progress 93,920
1,56,533 1,56,533
2010 : 2010 :
To Work-in-Progress : By Work-in-Progress 93,920
Uncertified Work 15,000 By Bank — sale of materials 4,000
Certified Work 4,00,000 By Contractee’s Account
To Materials 1,60,000 (4,00,000 + 3,50,000) 7,50,000
To Wages 1,00,000
To Overheads 28,000
To Profit & Loss Account 1,44,920
8,47,920 8,47,920
Notes :
Profit credited in 2008 and 2009 : 2008 (Rs.) 2009 (Rs.)
Accounting Profit 28,000 1,56,533
Cash Profit — on 80% basis 22,400 1,25,226
Proportionate profit to be credited 3
1 ×22,400 2
1 ×1,25,226
= 7,467 = 62,613
Revisionary Test Paper (Revised Syllabus-2008) 52
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
In absence of specific direction, on profit in 2008 would have been considered as extent of completion
was less than one-third.
In 2010 the entire work was certified and hence no provision is necessary.
Q. 26. (a) From the following details prepare “Acceptances, Endorsements and other Obligation A/c” as
would appear in the general ledger.
On 1.4.09 Acceptances not yet satisfied stood at Rs. 3345,000. Out of which Rs. 30 lacs were
subsequently paid off by clients and bank had to honour the rest. A scrutiny of the Acceptance
Register revealed the following :
Client Acceptances/Guarantees Remarks
Rs.
P 1500,000 Bank honoured on 10.6.09
Q 1800,000 Party paid off on 30.9.09
R 750,000 Party failed to pay and bank had
to honour on 30.11.09
S 1200,000 Not satisfied upto 31.3.10
T 750,000 -do-
X 405,000 -do-
Total 6405,000
Answer 26. (a)
Acceptances, Endorsements and other Obligation Account
(in General Ledger) (Rs. ’000)
Dr. Cr.
Date Particulars Rs. Date Particulars Rs.
2009-10 To Constituents’ liabilities for 1.4.09 By Balance b/d 3345
acceptances/guarantees etc.
(Paid off by clients) 3,000 2009-10 By Constituents’ liabilities
To Constituent’s liabilities for for acceptances/
acceptances/guarantees etc. 345 guarantees etc.
P 1500
(Honoured by bank Q 1800
Rs. 22.30 lakhs less R 750
Rs. 20 lakhs)
10.6.09 To Constituents’ liabilities for S 1200
acceptances/guarantees etc. T 750
(Honoured by bank) 1500 X 405 6405
30.9.09 To Constituents’ liabilities for
acceptances/guarantees etc.
(Paid off by party) 1800
30.11.09 To Constituent’s liabilities for
acceptances/guarantees etc.
(Honoured by bank on
party’s failure to pay) 750
31.3.10 To Balance c/d
(Acceptances not yet satisfied) 2355
9750 9750
Group-I : Paper-5 : Financial Accounting 53
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Q. 26. (b) From the following information find out the amount of provisions required to be made in the
Profit & Loss Account of a commercial bank for the year ended 31st March, 2010 :
(i) Packing credit outstanding from Food Processors Rs. 90 lacs against which the bank holds securities
worth Rs. 22.50 lacs. 40% of the above advance is covered by ECGC. The above advance has
remained doubtful for more than 3 years.
(ii) Other advances :
Assets classification Rs. in lacs
Standard 4500
Sub-standard 3300
Doubtful :
For one year 1350
For two years 900
For three years 600
For more than 3 years 450
Loss assets 900
Answer 26. (b)
(i) (Rs. in lacs)
Rs. Rs.
Amount outstanding (packing credit) 90.00
Less : Realisable value of securities 22.50
67.50
Less : ECGC cover (40%) 27.00
Balance 40.50
Required provision :
Provision for unsecured portion (100%) 40.50
Provision for secured portion (100%)* 22.50
63.00
(ii) Other advances :
(Rs. in lacs)
Assets Amount % of Provision
Rs. provision Rs.
Standard 4500 0.40* 18
Sub-standard 3300 10 330
Doubtful :
For one year 1350 20 270
For two years 900 30 270
For three years 600 30 180
For more than three years 450 100* 450
Loss 900 100 900
Required provision 12,000 2418
Note : Doubtful advances have been taken as fully secured. However, in case, the students assume that no
security cover is available for these advances, provision will be made for 100%.
* As per the Master Circular issued by RBI “ DBOD No. BP. BC. 11/21.04.048/2005-06” dated November
4, 2005.
Revisionary Test Paper (Revised Syllabus-2008) 54
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Q. 27. (a) Prudence Life Insurance Co. furnishes you the following information:
Rs.
Life Insurance fund on 31.3.2010 1,30,00,000
Net liability on 31.3.2010 as per actuarial valuation 1,00,00,000
Interim bonus paid to policyholders during intervaluation period 7,50,000
You are required to prepare :
(i) Valuation Balance Sheet;
(ii) Statement of Net Profit for the valuation period; and
(iii) Amount due to the policyholders.
Answer 27. (a)
(i) Prudence Life Insurance Co.
Valuation Balance Sheet as at 31st March, 2010
Rs. Rs.
To Net Liability as per actuarial valuation 100,00,000 By Life Assurance Fund 130,00,000
To Surplus 30,00,000
130,00,000 130,00,000
(ii) Statement showing Net Profit for the valuation period
Rs.
Surplus as per Balance Sheet (i.e., Valuation Balance Sheet) 30,00,000
Add: Interim bonus paid 7,50,000
37,50,000
(iii) Amount due to policyholders
Rs.
95% of net profit due to policyholders (95% of Rs. 37,50,000) 35,62,500
Less: Interim bonus already paid 7,50,000
Amount due to policyholders 28,12,500
Q. 27. (b) From the following figures appearing in the books of Fire Insurance division of HBC General
Insurance Company, show the amount of claim as it would appear in the Revenue Account for the
year ended 31st March, 2010 :
Direct Business Re-Insurance
Rs. Rs.
Claim paid during the year 7005000 1050000
Claim Payable— 1st April, 2009 1144500 130500
31st March, 2010 1218000 79500
Claims received – 345000
Claims Receivable— 1st April, 2009 – 97500
31st March, 2010 – 169500
Expenses of Management 345000 –
(includes Rs. 52500 Surveyor’s fee and Rs. 67500
Legal expenses for settlement of claims)
Group-I : Paper-5 : Financial Accounting 55
DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
Answer 27. (b)
HBC General Insurance Company
(Abstract showing the amount of claims)
Rs. ’000 Rs. ’000
Claims less Re-insurance :
Paid during the year 7830
Add : Outstanding claims at the end of the year 1128
8958.0
Less : Outstanding claims at the beginning of the year 1177.5 7780.5
Working Notes :
Rs. ’000 Rs. ’000
1. Claims paid during the year
Direct business 7005
Reinsurance 1050 8055
Add : Surveyor’s fee 52.5
Legal expenses 67.5 120
8175
Less : Claims received from re-insurers 345
7830
2. Claims outstanding on 31st March, 2010
Direct business 1218.0
Reinsurance 79.5 1297.5
Less : Claims receivable from re-insurers 169.5
1128
3. Claims outstanding on 1st April, 2009
Direct business 1144.0
Reinsurance 130.5 1275.0
Less : Claims receivable from re-insurers 97.5
1177.5
Q. 28. RX Electricity Company Limited decides to replace one of its old plants with a modern one in April,
2009. The plant when installed in the year 2003, costed the company Rs. 32.50 lacs the components
of materials and labour being in the ratio of 7:3. It is ascertained that the cost of labour and
materials have risen by 35% and 27% respectively. The cost of new plant is Rs. 82.50 lacs and in
addition old materials worth Rs. 115,000 are reused. Old materials worth Rs. 210,000 are sold.
Under double account system compute the following:
(i) The amount to be written off to Revenue A/c.
(ii) The amount to be capitalized.
(iii) Draw up the necessary Journal entries.
(iv) Draw up the Replacement Account.
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Hello sir I am Vaibhavi, please provide me the previous year question paper of ICWAI Financial Accounting??
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Default Re: Question Paper for ICWAI Financial Accounting

Here as per your demand I am providing you question paper of ICWAI Financial Accounting of 2014
Question paper of ICWAI Financial Accounting of 2014











Syllabus of ICWAI Financial Accounting
i. Basics of bookkeeping and accounting - definition and its usefulness. Financial accounting principles, concepts and convention - measurement of business income. Position Statement. Accounting Standards - national and international (basic knowledge).

System of book keeping - double entry system, books of prime entry, subsidiary books, recording of cash and bank transactions, preparation of ledger accounts, preparation of trial balance - interpretation and usefulness.

Bank reconciliation statement - Need for reconciliation between cashbook and bank pass book and problems relating to the preparation of bank reconciliation statement.

Accounting mechanics (including computerization.), bill of exchanges, consignment and joint venture.

Concept of capital, revenue and deferred revenue expenditure, opening entries, closing entries, adjustment entries and rectification entries, trading, manufacturing and profit and loss account and balance sheet. Bad debts and reserves for bad debts - its accounting treatment. Depreciation - its significance and accounting.
Concept of single entry vis-à-vis double entry system of accounting, their interrelationship and conversion from single entry system to double entry system. Preparation of receipts and payments accounts and income and expenditure account. Significance of reserves and provisions. Preparation of profit and loss account and balance sheet of different organisations.
Partnership Accounts - Admission, Retirement, Death, Dissolution.
Joint stock company accounts - issue, forfeiture and redemption of preference shares and debentures, profits prior to incorporation and company profit and loss account and balance sheet as per provision of the Companies Act, 1956 (1 of 1956).
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