2014 (November)
COMMERCE
(Speciality)
(Advanced Financial Accounting)
The figures in the margin
indicate full marks for the questions.
1. (a) Choose the correct answer: 1x3=3
(i)
As per RBI’s Prudential Accounting Norms,
provision required for standard assets is @ 0.40% / @ 10% / @20%.
(ii)
Commission on reinsurance ceded deals with Schedule
2 / Schedule 3 / Schedule 4 in Revenue Account.
(iii)
Accounting for investments deals in AS-13
/ AS-14 / AS-15.
(b) Fill in the blanks: 1x3=3
(i)
In current cost accounting method, depreciation
is to be computed on the book value
of fixed assets.
(ii)
Under the Presidency
Towns Insolvency Act, 1909, rent is considered as preferential creditors up
to_____.
(iii)
In banking company’s final accounts, Schedule 12
is associated with contingent
liabilities.
(c) Write True or False: 1x2=2
(i)
Partly paid-up investments in an insurance
company are considered as contingent liabilities. True
(ii)
According to the provisions of the Insolvency
Act, any amount due to government or local authority is known as preferential
creditor. True
2. Write brief
answer of the following: 4x4=16
a) What is rebate on bill discounted and how is it treated in the final
accounts of banking companies?
Ans: Rebate on Bills
Discounted and its Accounting Treatment
Discounting of bills means
making the payment of the bill before the maturity date of the bill. While
making payment of the bill, the bank deducts discount for the unexpired period
for the amount of the bill discounted. Such discount is called rebate on bills
discounted. It is treated as interest received in advance. In profit and loss
account, closing balance of rebate on bills discounted is deducted and opening
balance of rebate on bills discounted is added with the interest and discount
for the year. Closing balance of rebate on bills discounted is shown as
liability in balance sheet under the heading ‘other liabilities’. At the
commencement of next year, a reverse entry is passed for the unexpired discount
of the previous year expiring this year and treated as income.
Rebate on bills discounted is calculated with
the help of following formula = (Total annual discount x no. of days after the
close of the year)/365.
Accounting
treatment of Rebate on Bill Discounted
a) At the end of current accounting period:
Discount on Bills A/c Dr.
To Rebate on Bills discounted A/c
b) At the beginning of next
accounting period:
Rebate on Bills discounted A/c Dr.
To Discount on Bills A/c
c) Transferring balance of interest
and discount to Profit and loss Account:
Discount on Bills A/c Dr.
To Profit and Loss A/c
b) Explain the list of creditors to be prepared by a debtor
when he / she become insolvent.
c) What are the limitations of historical accounting in a
period of inflation?
d)
Explain cum-interest purchase and ex-interest purchase.
Ans: The term ‘Cum’ and ‘Ex’ are latin words. ‘Cum’ means with
and ‘Ex’ means without. The term ‘Cum-interest’ and ‘Ex-interest’ relate to
debentures and bonds. Cum-interest can be expanded as inclusive of interest and
Ex-interest can be expanded as exclusive of interest. Cum interest is the amount
of interest accrued in the duration between the last interest date and the
settlement date or transaction date. The cum-interest price includes not only
the cost but also includes the interest accrued upto the date of purchase, and
when interest becomes due it would be the right of the buyer to claim interest.
Conversely, the quotation, Ex-interest, covers only the cost of the debentures
and the buyer is liable to pay additional amount as interest accrued upto the
date of purchase of debentures.
(a) From the following information, prepare Profit & Loss A/c of
Assam Bank Ltd. for the year ended 31st March, 2014 (working should
form part of your answer): 11
|
Interest on Loan
|
3,00,000
|
|
Interest on Fixed Deposits
|
2,75,000
|
|
Commission
|
10,000
|
|
Exchange and Brokerage
|
20,000
|
|
Salaries and Allowances
|
1,50,000
|
|
Discount on Bills (Gross)
|
1,52,000
|
|
Interest on cash credits
|
2,40,000
|
|
Interest on Temporary Overdrafts in Current Account
|
30,000
|
|
Interest on Savings Bank Deposits
|
87,000
|
|
Postage, Telegram and Stamps
|
10,000
|
|
Printing and Stationery
|
20,000
|
|
Sundry expenses
|
10,000
|
|
Rent
|
15,000
|
|
Taxes and Licenses
|
10,000
|
|
Audit Fees
|
10,000
|
Additional
information:
a) Rebate on bill discounted – Rs. 30,000
b) Director’s Fees and allowances Rs. – Rs.
30,000
c) Bad Debts – Rs. 40,000
d) Provision for Income Tax is to be made @
55% (round off to nearest thousand)
e) Interest of Rs. 4,000 on doubtful debts was
wrongly credited to interest on Loan Account
f) Transfer 20% of Net Profit to statutory
reserve and provide Rs. 15,000 as dividend.
Profit & Loss A/c
of Assam Bank Ltd.
For the year ended 31st
March, 2013
|
Particular
|
S.
No.
|
Rs.
(000)
|
|
i.
Income:
Interest
earned
Other
Income
|
13
14
|
688
30
|
|
|
|
718
|
|
ii.
Expenses:
Interest
Expended
Operating
Expenses
Provisions
and contingencies:
Provisions
for doubtful debt
Provide
for tax
|
15
16
|
362
255
40
34
|
|
|
|
691
|
|
iii.
Net
surplus: I and II
|
|
27
|
|
iv.
Appropriation:
Transfer to
Statutory reserve @ 20%
Proposed
Dividend
Balance
carried forward
|
|
5.4
15
6.6
|
|
|
|
27
|
|
S.
No.
|
Particular
|
Rs.
(000)
|
|
13
|
Interest Earned:
Interest/Discounts
on advance/bills (300+152 +240 + 30 -4 – 30)
|
688
|
|
|
|
688
|
|
14
|
Other Income:
Commission,
Exchange and brokerage (10 + 20)
|
30
|
|
|
|
30
|
|
15
|
Interest expended:
Interest
on deposit (275 + 87)
|
362
|
|
|
|
362
|
|
16
|
Operating Expenses:
Salaries
and allowances (Add: O/S salaries of a director fees) [150+30]
Postage,
telegram, and stamps
Printing
and stationary
Sundry
Expenses
Rent
Taxes
and license
Audit
fees
|
180
10
20
10
15
10
10
|
|
|
|
255
|
Or
(b) Explain the RBI’s prudential Accounting Norms as recommended by the
Narasimham Committee.
ADVANCED FINANCIAL ACCOUNTING PAST EXAM QUESTION PAPERS
NON-CBCS PATTERN: 2012 2013 2014 2015 2016 2017 2018 2019
CBCS PATTERN: 2021 (HELD IN 2022)
ADVANCED FINANCIAL ACCOUNTING PAST EXAM SOLVED PAPERS
NON-CBCS PATTERN: 2013 2014 2015 2016 2017 2018 2019
CBCS PATTERN: 2021 (Held in 2022)
Ans: Narasimham
Committee: Suggestion for Banking Sectors
1. Capital
Adequacy Norms: To avoid risk, the RBI laid down capital adequacy norms in
April 1992 to be complied by banks by March, 1996. All banks in India were
required to achieve a risk-weighted capital adequacy ratio of 4 per cent by 31
March 1993 and of 8 per cent by 31 March, 1996. Foreign banks operating in
India and Indian banks with branches abroad were to attain 8 percent by March,
1993. This has been raised to 9 per cent from March 2000 for all banks.
2. Recapitalisation: In order to enable the public sector banks to
meet the prescribed capital adequacy ratio, the Government of India has been
contributing to the capital of such banks. During 1993-94, the Government
provided Rs.5, 700 crores towards recapitalisation of 19 nationalised banks;
during 1994-95 Rs.5, 293 crores to 13 banks; Rs.850 crores to 6 banks; during
1995-96 and Rs.909 crores to 4 banks during 1996-97; and Rs.297 crores to one
bank in 1999-2000.
3. Partial Privatisation of
Public Sector Banks: But
recapitalisation is not a permanent solution of the problem. As the Government
resources are limited, banks have been allowed to mobilise equity resources
from the public. First, the State Bank of India Act was amended to enable the
Bank to have access to the capital market.
4. Prudential Accounting Norms: The RBI has introduced prudential accounting
norms for banks since 1992-93. A credit facility is required to be treated as
non-performing asset (NPA) if interest or instalment of principal are in
arrears for any two quarters in the accounting year.
5. Recovery of Debts: Indian banks suffer from large debt arrears
which adversely affect their current cash flow position and reduce profits. To
recover bad debts, a new Act known as the “Recovery of Debts due to Banks and
Financial Institutions Act, 1993” has been passed to set up Debt Recovery
Tribunals. Such tribunals have been set up at major centres.
6. Freedom about Bank Branches: Banks have been given freedom to open new
branches and upgrade extension counters on attaining capital adequacy norm of 8
per cent, net profits for last 3 consecutive years, NPAs of less than 15 per
cent and minimum owned funds of Rs.110 crores. They are also permitted to close
non-viable branches except in rural and semi-urban areas.
7. Entry of Private Sector
Banks: To introduce greater competition in
banking so as to improve banking services to customers, private banks have been
allowed entry as per RBI guidelines. Approval has been given to a few proposals
for setting up new private sector banks. Private banks have been allowed to
raise capital from institutional investors up to 20 per cent and from NRIs up
to 40 per cent.
8. Department of Supervision: A Department of Supervision has been set up
in the RBI with effect from 22 December 1993 to supervise the working of commercial
banks. It undertakes inspection, surveillance and special investigations
including those connected with frauds, and appointment of statutory auditors.
9. Board for Financial
Supervision (BFS): The BFS has been
set up within the RBI in November, 1994. The Board ensures implementation of
regulations in the areas of credit management, asset classification, income
recognition, provisioning, capital adequacy and treasury operations.
10. Disclosure on Defaulting
Borrowers: To enforce
payments discipline among borrowers, a scheme for disclosure of information
regarding defaulting borrowers of banks with outstanding aggregating to Rs.1
crore and above as on 31 March and 30 September every year has been in
operation since April, 1994.
11. Banking Ombudsman Scheme: The Banking Ombudsman Scheme has been started
from June, 1995 for speedy and inexpensive settlement of customer complaints
about the deficiencies in banking services. Ten Ombudsmen are functioning at
important centres in the country.
12. Central Board of Bank
Frauds (CBBF): The Finance
Ministry has set up the CBBF in January, 1997 to advise it on the merits of the
cases being pursued by the CBI against bank officials up to the level of the
general manager. The Board is to scrutinize banking transactions referred to it
and give its opinion within 3 months as to whether there is sufficient basis
for proceeding with criminal investigations against the officials.
13. Consortium Arrangements: To encourage competition and slow-down
disintermediation, lending restrictions on banks have been reduced. Large
borrowers above a specified credit limit have been allowed to borrow through a
consortium of scheduled commercial banks headed by a lead bank.
14. Lending Norms Liberalised: Bank lending norms have been liberalised
subject to the observance of prescribed prudential norms and quarterly
reporting requirements, as laid down by the RBI. They are free to decide levels
of holding of individual items of inventory and receivables to be permitted to
borrowers. They are also free to decide about the quantum and period of adhoc
credit limits without charging additional interest.
15. Measures to Streamline
Working of Banks: A number of
measures have been adopted by the RBI to improve the quality of performance and
management of banks. These include: management information systems and the
internal audit and control mechanisms; computerisation of banking operations;
prudential norms for income recognition assets, etc.
16. Liberal Credit Control
Measures: A number of
steps have been taken to reduce controls and distortions in the working of
banks. Statutory Liquidity Ratio (SLR) on incremental net demand and time
liabilities (NDTL) has been reduced to 25 per cent. SLR on total NDTL has been
brought down to 25 per cent by 1996.
17. Entry of New Private Banks: The RBI issued in January 2001 guidelines for
the entry of new private sector banks other than 10 previous banks. They are:
(i) Minimum
paid-up capital of Rs.200 crores to be raised to Rs.300 crores within three
years of opening;
(ii) Promoters’
contribution of minimum 40 per cent;
(iii) NRI
contribution in primary equity 40 per cent;
(iv) No large
industrial house can promote a new bank but individual companies can contribute
up to 10 per cent equity;
(v) NBFCs with
AAA rating and 12 per cent capital adequacy can become private sector banks;
(vi) 10 per cent
capital adequacy ratio to be maintained by the new bank;
(vii) 40 per cent
of net bank credit for priority sector lending, and
(viii) 25 per
cent branches in rural/semi-urban areas.
18. Entry of Banks into
Insurance: All banks have
been allowed to enter insurance business subject to having a minimum net worth
of Rs.500 crores and satisfying other criteria in regard to capital adequacy,
profitability, etc.
4. (a) From the
following particulars, you are required to prepare Fire Revenue A/c for the
year ended 31st March, 2013: 11
Claims
paid
|
4,80,000
|
Claims
outstanding on 1st April, 2012
|
40,000
|
Claims
intimated but not accepted on 31st
March, 2013
|
10,000
|
Claims
intimated and accepted but not paid on 31st March, 2013
|
60,000
|
Premium
Received
|
12,12,000
|
Reinsurance
premium paid
|
1,20,000
|
Commission
|
2,00,000
|
Commission
on reinsurance ceded
|
10,000
|
Commission
on reinsurance accepted
|
5,000
|
Expenses
of management
|
3,17,000
|
Reserve
for unexpired risk on 1st April, 2012
|
4,00,000
|
Additional
reserve for unexpired risk
|
20,000
|
Reinsurance
recoveries of claims
|
8,000
|
Sundry
expenses regarding claims
|
5,000
|
Loss on
sale of motorcar
|
5,000
|
Bad
debts
|
3,000
|
Refund
of double taxation
|
5,000
|
Interest
and dividends
|
6,000
|
Income
tax deducted thereon
|
1,000
|
Legal
expenses regarding claims
|
3,000
|
Profit
on sale of investments
|
2,000
|
Rent of
staff quarters deducted from salaries
|
2,000
|
Depreciation
on furniture
|
6,000
|
You are required to
provide an additional reserve for unexpired risks at 1% of the net premium in
addition to the opening balance.
Fire Revenue A/c
For the year ended 31/03/2013
Particulars
|
S.
No.
|
Amount
|
1.
Premium (Net)
2.
Profit on sale of investment
3.
Other Income
Refund of double taxation
Rent of staff quarters
4.
Interest, dividend & rent (gross)
|
1
|
9,35,080
2,000
5,000
2,000
6,000
|
Total
(A)
|
9,50,080
|
|
1.
Claims incurred Net
2.
Commission
3.
Operating Expenses
|
2
3
4
|
5,10,000
1,95,000
3,31,000
|
Total
(B)
|
10,36,000
|
|
Surplus
Operating loss
Total:
C = A – B
|
85,920
|
1. Premium (Net)
Particulars
|
Amount
|
Premium
received
Less:
Re-insurance premium paid (ceded)
|
12,12,000
1,20,000
|
Adjustment
for risk:
50% of Net Premium 10,92,000
5,46,000
Add: Additional reserve + 1% of
10,92,000 30,920
(20,000 + 10,920)
5,76,920
Less:
reserve for unexpired risk
At the beginning of the year 4,00,000
Add: Additional reserve 20,000 (4,20,000)
|
10,92,000
(1,56,920)
|
Total
|
9,35,080
|
2. Claims incurred
(Net):
Particulars
|
Amount
|
Claims
Paid
Less:
Re-insurance claim recoveries
Less:
Claims o/s at the beginning of the year
|
4,80,000
8,000
40,000
|
Add:
Claims initiated but not accepted at the end of the year
Add:
Claims initiated and accepted at the end of the year
Add:
Sundry expenses
Add:
Legal expenses
|
10,000
60,000
5,000
3,000
|
Total
|
5,10,000
|
3. Commission:
Particulars
|
Amount
|
Commission
paid
Add:
Commission on reinsurance accepted
Less
Commission on reinsurance ceded
|
2,00,000
5,000
10,000
|
Total
|
1,95,000
|
4. Operating Expenses:
Particulars
|
Amount
|
Expenses
of mgt.
Loss
on sale of motor car
Depreciation
on furniture
Bad
Debts
|
3,17,000
5,000
6,000
3,000
|
Total
|
3,31,000
|
Or
(b) Explain the financial statements that are to be prepared by the life
insurance companies as per the IRDA Regulations, 2002
Ans: Financial statements of a
life insurance companies are divided into three parts:
1.
Revenue account of Life Insurance companies:
Form A - RA
2.
Profit and loss account of Life Insurance
companies: Form A – PL
3.
Balance sheet of Life Insurance companies: Form
A – BS. (For format, refer your book)
General Instruction for
Preparation of Financial Statements of life insurance companies
1. The
corresponding amounts for the immediately preceding financial year for all
items shown in the Balance Sheet, Revenue Account, Profit and Loss Account and
Receipts and Payments Accounts shall be given.
2. The
figures in the financial statements may be rounded off to the nearest
thousands.
3. Interest,
dividends and rentals receivable in connection with an investment should be
stated at gross amount, the amount of income tax deducted at source should be
included under ‘advances taxes paid and taxes deducted at source’.
4. For
the purposes of financial statements, unless the context otherwise requires:
a) The
expression ‘provision’ shall, subject to (II) below mean any amount written off
or retained by way of providing for depreciation, renewals or diminution in value
of assets, or retained by way of providing for any known liability or loss of
which the amount cannot be determined with substantial accuracy;
b) The
expression ‘reserve’ shall not, subject to as aforesaid, include any amount
written off or retained by way of providing for depreciation, renewals or
diminution in value of assets or retained by way of providing for any known
liability or loss;
c) The
expression ‘capital reserve’ shall not included any amount regarded as free for
distribution through the profit and loss account; and the expression ‘revenue
reserve’ shall mean any reserve other than a capital reserve.
d) The
expression ‘liability’ shall include all liabilities in respect of expenditure
contracted for and all disputed or contingent liabilities.
5. Where:
a) Any
amount written off or retained by way of providing for depreciation, renewals
or diminution in value of assets, or
b) Any
amount retained by way of providing for any known liability or loss, is in
excess of the amount which in the opinion of the directors is reasonably
necessary for the purpose, the excess shall be treated as a reserve and not
provision.
6. The
company shall make provisions for damages under lawsuits where the management
is of the opinion that the award may go against the insurer.
7. Extent
of risk retained and re-insured shall be separately disclosed.
8. Any
debit balance of the Profit & Loss Account shall be shown as deduction from
uncommitted reserves and the balances, if any, shall be shown separately.
PROFORMA OF REVENUE ACCOUNT AND
PROFIT AND LOSS ACCOUNT OF A LIFE INSURANCE COMPANY
FORM
A-RA
REVENUE ACCOUNT FOR
THE YEAR ENDED 31ST MARCH, 20…..
Policyholder’s
Account (Technical Account)
No.
|
Particulars
|
Schedule
|
Current Year
(Rs.’000)
|
Previous Year
(Rs.’000)
|
Premiums earned – net
(a) Premium
(b) Reinsurance ceded
(c) Reinsurance accepted
Income from Investments
(a) Interest, Dividends &
Rent – Gross
(b) Profit on sale/redemption of
investments
(c) (Loss on sale/redemption of
investments.)
(d) Transfer/Gain on
revaluation/change in fair value’
Other income (to be specified)
Total (A)
Commission
Operating Expenses related to
insurance Business
Provision for doubtful debts
Bad debts written off
Provisions (other than taxation)
(a) For diminution in the value
of investments (Net)
(b) Others (to be specified)
Total (B)
Benefits Paid (Net)
Interim Bonuses Paid
Change in valuation of liability
in respect of life policies
(a) Gross”
(b) Amount ceded in Reinsurance
(c) Amount accepted in
Reinsurance
Total (C)
Surplus (Deficit) (D) = (A) – (B)
– (C)
Appropriations
Transfer to Shareholders’ Account
Transfer to Other Reserves (to be
specified)
Balance being Funds for Future
Appropriation
Total (D)
|
1
2
3
4
|
FROM
A-PL
PROFIT AND LOSS
ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 20…..
Shareholder’s
Account (Non-technical Account)
No.
|
Particulars
|
Schedule
|
Current Year
(Rs.’000)
|
Previous Year
(Rs.’000)
|
Amounts transferred from/to the
Policyholders account (Technical Account)
Income From Investments
(a) Interest, Dividends &
Rent – Gross
(b) Profit on sale/redemption of
investments
(c) (Loss on sale/redemption of
investments)
Other Income (To be specified)
Total (A)
Expenses other than those
directly related to the insurance business
Bad debts written off
Provisions (Other than taxation)
(a) For diminution in the value
of investments (Net)
(b) Provision for doubtful debts
(c) Others (To be specified)
Total (B)
Profit (Loss) before tax
Provision for Taxation
Profit/(Loss after tax
Appropriations
(a) balance at the beginning of
the year
(b) Interim dividends paid during
the year
(c) Proposed final dividend
(d) Dividend distribution tax
(e) Transfer to reserves/other
account (to be specified)
Profit carried…………………….to the
Balance Sheet
|
5. (a) From the following Trial
Balance of Mr. X, who commenced business on 1st January, 2012, you
are asked to prepare a Statement of Affairs and a Deficiency A/c :
11
Cash
|
2,300
|
Creditors
|
1,80,000
|
Stock-in-trade
|
6,660
|
Secured Creditors
|
25,000
|
Debtors (all goods)
|
1,30,000
|
Preferential Claims for Rent
|
1,900
|
Furniture
|
2,820
|
Capital
|
13,500
|
Investment in Shares
|
5,000
|
Profit (2010, 2011)
|
55,540
|
Value of Securities
held by Creditors
|
35,000
|
||
Loss (2012)
|
25,000
|
||
Drawings (up to
December, 2012)
|
69,160
|
||
2,75,940
|
2,75,940
|
Or
(b)
Distinguish between the following: 5.5
x2=11
a)
A statement of Affairs
and a Balance Sheet
b)
The Presidency Towns
Insolvency Act and the provincial Insolvency Act.
6. (a)
On 1st April, 2012 Ashok Ltd. had 12% government bonds amounting to
Rs. 4,00,000 at Rs. 96 (face value being Rs. 100 each), interest being payable
on 31st March and 30th September every year. On 1st
June, 2012, Ashok Ltd. sold 12% government bonds of Rs. 1, 00,000 at Rs. 98
ex-interest. 12
Investment
12%
Government Bonds in Ashok Ltd. A/c
For
the year ended 31st March, 2013
Date
|
Particular
|
Face Value
|
Interest
|
Cost
|
Date
|
Particular
|
Face Value
|
Interest
|
Cost
|
1/4/12
1/6/12
31/03/13
|
To Balance b/d
To P/L A/c (Sales of investment)
To P/L A/c (Interest for the
year)
|
4,00,000
|
38,000
|
3,84,000
(4,000 x 96)
2,000
|
1/6/12
30/9/12
31/03/13
31/3/13
|
By Bank A/c
By Bank A/c
By Bank A/c
By Balance c/d
|
1,00,000
3,00,000
|
2,000
(1,00,000 x
12% x 2/12)
18,000
(3,00,000 x
12% x 6/12)
18,000
|
98,000
(1,000 x 98)
28,800
|
4,00,000
|
38,000
|
3,86,000
|
4,00,000
|
38,000
|
3,86,000
|
Or
(b) Write explanatory notes on the following: 6+6=12
1) Cum-interest sale and
Ex-interest sale
2) Jobbers and Brokers
Ans: Concept of Jobbers
and Brokers and their difference
Jobbers:
Jobbers are security merchants dealing in shares, debentures as
independent operators. They buy & sell securities on their own behalf and
try to earn through price changes. They directly deal with brokers who make
transactions on the behalf of public. They generally quote two price, one – for
purchase and other for sell. The difference between the two prices
constitutes his remuneration. This system enables specialisation in the
dealings and each jobber specialises is certain group of securities. It also
ensures smooth and prompt execution of transactions. The double quotation of a
jobber assures fair-trading to investors.
Brokers: Brokers
are primarily Commission agents
and act as an intermediary between buyer & seller of securities. They do
not purchase & sell securities on their behalf. They bring together buyers
& seller and help them making a deal. They charges commission from both
parties. They are experts in estimating prices and advise their clients in
getting gain. They get orders from public and execute the orders through
jobbers.
Difference between Jobber and Broker
Basis
|
Jobber
|
Broker
|
Meaning
|
Jobber is a dealer who deals in buying and selling of
securities.
|
Broker is an agent who deals in buying and selling of securities
on behalf of his client.
|
Specialisation
|
Jobber is a specialist mercantile agent.
|
Broker is a general mercantile agent.
|
Nature of trading
|
A jobber carries out trading activities only with the broker.
|
A broker carries out trading activities with the jobber on
behalf of his investors.
|
Restrictions on dealings
|
A jobber is prohibited from buying or selling securities directly
in the stock exchange. Also he cannot directly deal with the investors.
|
A broker Acts as a link between the jobber and the investors. He
trades i.e. buyers and sells securities on behalf of its investors.
|
Agent
|
Jobber is an independent dealer or a merchant willing to buy and
sell securities.
|
Broker is merely an agent to buy or sell on behalf of his
clients.
|
Form of consideration
|
A jobber gets consideration in the form of profit.
|
A broker gets consideration of commission or brokerage.
|
Price Quotations
|
Jobbers quote two prices to the broker, one for buying and one
for selling. Sale quotation is higher than the purchase quotations.
|
Broker has to negotiate terms and conditions of sale or purchase
and safeguard his client’s interest.
|
7. (a) A company has
the following transactions at the given dated and price indices for the first
quarter, 2014:
Amount
|
Price index
|
|
Opening balance (January 1)
|
6,000
|
100
|
Cash sale (February 1)
|
17,500
|
105
|
Payment to creditors(March1)
|
12,000
|
108
|
Cash purchase (March 1)
|
2,000
|
108
|
Payment of expenses (March31)
|
2,000
|
110
|
Closing balance (March 31)
|
7,500
|
110
|
Calculate monetary gain or loss. 11
Or
(b) What do you mean by Inflation
Accounting? Discuss the limitations of historical accounting in a period of
inflation. 5+6=11
***