Breaking News

Tuesday, November 07, 2017

Financial Accounting Solved Question Papers: November' 2012


2012 (November) - Semester
1. (a) Fill up the blanks:
(i) Heavy advertising to launch a new product is a __. (Capital Expenditure / Revenue Expenditure / Deferred Revenue Expenditure)
(ii) Valuation of inventories is account for as per Accounting Standard 3.
(iii) If inventory at branch is shown at invoice price instead of cost price, then the account which is used for adjustment is Branch Adjustment Account.
(iv) Royalty Account is __. (Nominal Account / Real Account / Personal Account)
(v) An unrecorded liability when paid on dissolution is debited to __. (Realisation Account / Partner’s Capital Account / Revaluation Account)
(b) Write true or false
(i) Branch Stock Account is always prepared at cost price. False
(ii) Under Stock and Debtor System, Branch Stock Account is a Nominal Account. False
(iii) Under Stock and Debtor System, no entry is required for normal loss of stock. False
2.   (a) Write on the provision of Accounting Standard 1.
(b) Write on the features of hire-purchase system.
Ans:  Characteristics of Hire-Purchase System: The characteristics of hire-purchase system are as under
  1. Hire-purchase is a system of credit sale.
  2. The price under hire-purchase system is paid in installments.
  3. The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.
  4. Hire vendor continues to be the owner of the goods till the payment of last installment.
  5. The hire-purchaser has a right to use the goods as a bailer.
  6. The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer.
  7. The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement.
  8. If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.
(c) What is the purpose of fixing minimum rent?
Ans: Minimum Rent is the amount below which landlord never accepts in any year from the person who has to pay royalty in case of mines. Minimum Rent is also known as Fixed Rent, Dead Rent, Flat Rent or Contract Rent. If in any year amount of royalty is less than the amount of minimum rent, the amount of minimum rent is payable by the person who has to pay the royalty, but if the amount of royalty is more than the amount of minimum rent, royalty will be paid.
Importance of Minimum Rent: Fixation of minimum rent is in the interest of landlord because it guarantees him the receipt of the minimum rent even in the case of low output or sales. In the absence of minimum rent clause, only the actual royalty will be paid to the landlord. Moreover, it also gives incentive to the lessee to enhance production or sales because he is bound to pay minimum rent.
(d) Mention the objectives of amalgamation of firms. Out of syllabus
3. (a) Karan and Jawahar are partners in a firm. The Trail Balance of the firm as on 31st March, 2011 was as following:
Trial Balance
Particulars
Amount
Particulars
Amount
Drawings:
Karan
Jawahar
Land and Building
Machinery
Salaries and Wages
Trade Expenses
Sundry Debtors
Discount
Insurance
Advertisement
Cash at Bank
Bills Receivable
Closing Stock (31.03.2011)
Furniture

2000
3500
40000
18000
3700
1900
24600
1000
1200
3000
2900
4000
36000
6500
Capital:
Karan
Jawahar
Provision for Bad debt
General Reserve
Sundry Creditors
Outstanding Wages
Bank Loan (1.10.2010)
Trading Account (Gross Profit)

35000
25000
800
4000
15000
500
8000
60000

148300

148300
Prepare a profit and loss Account and a Profit and Loss Appropriation Account for the Year ended on 31st March, 2011 and also a balance sheet as on that date after taking into consideration the following adjustments:
(i) write off Rs. Bad Debt provide a 5% provision on the remaining Debtor for Doubtful Debts.
(ii)Interest on partner’s capital is to be allowed @ Rs.5% p.a.
(iii)Interest on Bank Loan id to be provide @ Rs. 10%
(iv)Depreciation is to be provided on Land and Buildings @ 10% p.a.; Machinery @ 12.50% p.a. and Furniture @5 p.a.
(v) 1/5th of the Advertisement is to be written off
Solution:
Profit and Loss Account
For the year ended on 31st March, 2011
Particulars
Amount
Particulars
Amount
To Depreciation on Land & Building
To Depreciation on Machinery
To Salaries & Wages
To Trade Expenses
To Write of bad debts
To Discount
To Insurance
To Advertisement
To Depreciation on furniture
To Interest on Bank Loan
To Net Profit
4,000
2,250
3,700
1,900
1,230
1,000
1,200
600
325
400
44,195
By Gross Profit
By Provision for bad debts
60,000
800

60,800

60,800
P/L Appropriation A/c
Particulars
Amount
Particulars
Amount
To Interest on Capital:
Karan             35,000 x 5% = 1,750
Jawahar         25,000 x 5% = 1,250
To Share of Profit
Karan            41,195 x 1/2
Jawahar       41,195 x 1/2


3,000

20,598
20,597
By Net Profit
44,195

44,195

44,195
Partners Capital A/c
Particulars
Karan
Jawahar
Particulars
Karan
Jawahar
To Drawings
To Balance c/d
2,000
55,348
3,500
43,347
By Balance b/d
By Interest on Capital
By Share of Profit
35,000
1,750
20,598
25,000
1,250
20,597

57,348
46,847

57,348
46,847
Balance Sheet
As on 31st March, 2011
Liabilities
Amount
Assets
Amount
Capital Reserve
Sundry Creditors
Outstanding Wages
Bank Loan                      8,000
Add: Interest
(8,000 x 10 x 6/12)          400
Capital:
Karan                       55,348
Jawahar                   43,347
                             
4,000
15,000
500


8,400


98,695
By Land & Building                 40,000
Less: Depreciation @ 10%     (4,000)

Machinery                                18,000
Less: Depreciation @ 12.5% (2,250)

Sundry Debtors                       24,600
Less: Write off                           1,230

Advertisement
Cash at Bank
Bills Receivable

Furniture                                     6,500
Less: Depreciation @ 5%           (325)
Closing Stock

36,000


15,750


23,370

2,400
2,900
4,000


6,175
36,000

1,26,595

1,26,595
Or
(b) Discuss the utility and significance of the financial statements to various parties in the business concern.
Ans: Users of Financial Statements
Users of accounting information may be categorised into (1) Internal Users; and (2) External Users.
(1) Internal Users:
(i) Owners: Owners contribute capital in the business and they are always exposed to risk. In view of risk involved, the owners are always interested in knowing the profitability and financial strength of the company.
(ii) Management: Managers has the responsibility to not only safeguard the owner’s investment but also to increase the value of business. Financial statements help the management to find out the overall as well as segment-wise efficiency of the business. It helps them in decision making as well as in controlling and self evaluation.
(iii) Employees and Workers: Employees and workers are entitled to bonus at the year end besides the salary and wages which is directly linked with the profits of the enterprise. Therefore, the employees and workers are interested in financial statements.
(2) External Users:
(i) Banks and Financial Institutions: Banks and Financial Institutions provide loans to the businesses. They watch the performance of the business to ensure the safety and recovery of the loan advanced.
(ii) Investors and Potential Investors: Investors uses financial statements to assess the earning capacity of the enterprise and ensure the safety of their investment.
(iii) Creditors: Creditors supply goods and services on credit. Before granting credit, Creditors satisfy themselves about the creditworthiness of the business. The financial statement helps them in making such assessment.
(iv) Government authorities: The government makes use of financial statements to compile national income accounts and other information. The information so available to it enables them to take policy decisions.
(v) Consumers: Customers have an interest in information about the continuance of an enterprise, especially whey they have a long-term with the enterprise. Sometime, prices of some products are fixed by the government, so it needs accounting information to fix fair prices so that consumers and producers are not exploited.
PURPOSES AND OBJECTIVES OF FINANCIAL STATEMENTS
Financial statements are very useful as they serve varied affected group having an economic interest in the activities in the business entity. Let us analyse the purpose served by financial statement:
a) The basic purpose of financial statement is communicated to their interested users, quantitative and objective information are useful in making economic decisions.
b) Secondly, financial statements are intended to meet the specialized needs of conscious creditors and investors.
c) Thirdly, financial statements are prepared to provide reliable information about the earning of a business enterprise and it ability to operate of profit in future. The users who are interested in this information are generally the investors, creditors, suppliers and employees.
d) Fourthly, financial statements are intended to provide the base for tax assessments.
e) Fifthly, financial statement are prepare in a way a provide information that is useful in predicting the future earning power of the enterprise.
f) Sixthly, financial statements are prepares to provide reliable information about the changes in economic resources.
g) Seventhly, financial statements are prepares to provide information about the changes in net resources of the organization that result from profit directed activities.
Thus, financial statement satisfy the information requirements of a wide cross-section of the society representing corporate managers, executives, bankers, creditors, shareholders investors, labourers, consumers, and government institution.

4. (a) Manabendra purchased a motorcycle on hire-purchase system from M/s Sarmah. The sale are as follows:
Down Payment
1st Instalment
2nd Instalment
3rd Instalment
40000
43500
39000
34500





All the Instalments are payable at the end of the year and each instalment include equal amount of cash price in addition to interest. Prepare necessary Ledger Accounts in the book of to the buyer.
Solution:
Let, The part of cash price including each installment = X, Interest = Y
Now,
Ledger
In the books of Manabendra & Company
M/S Sarma & Co.
Dr. Cr.
Date
Particulars
Amount
Date
Particulars
Amount
1st Year
To Bank A/c
To Bank A/c
To Balance c/d
40,000
43,500
60,000
1st Year
By Machinery A/c
By Interest A/c
1,30,000
13,500


1,43,500


1,43,500
2nd Year
To Bank A/c
To Balance c/d
39,000
30,000
2nd Year
By Balance b/d
By Interest A/c
60,000
9,000


69,000


69,000
3rd year
To Bank A/c
34,500
3rd year
By Balance b/d
By Interest A/c
30,000
4,500


34,500


34,500

Or
(b)   (i) Explain the feature of instalment purchase agreement.
Ans: Characteristics of Hire-Purchase System
  1. Hire-purchase is a system of credit sale.
  2. The price under hire-purchase system is paid in installments.
  3. The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.
  4. Hire vendor continues to be the owner of the goods till the payment of last installment.
  5. The hire-purchaser has a right to use the goods as a bailer.
  6. The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer.
  7. The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement.
  8. If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.
(ii) Distinguish between hire purchase and credit sale.
Ans: Difference between Sale and Hire Purchase
Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between sale and hire purchase.
Sale
Hire Purchase
A ‘sale’ is governed by the sale of Goods Act, 1930.
Hire purchase is governed by the Hire Purchase Act, 1972.
In case of sale, the ownership of the goods is transferred to the buyer immediately.
In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments.
In case of sale, the buyer makes payment in lump sum.
In case of hire purchase, the payment is made in installments.
The buyer pays only for the price of goods.
The hire purchaser pays for the price of goods and also some amount of interest.
On non-payment of the consideration the seller cannot take back the goods, but can only take legal action on buyer.
On non-payment of any installment, the seller can re-possess the goods.
Once a sale has taken place, neither the seller, nor the buyer can terminate the contract (unless it is for genuine reason like damage of goods etc.)
Either the buyer or the seller can terminate the contract at any point of time, until the payments of last installment.
When the buyer becomes insolvent, the seller has to undertake the risk of loss.
When the hire purchaser becomes insolvent, the seller can reposes the goods, and hence need not undertake the risk of loss.
A sale is subject to levy of sales tax at the time of contract of sale.
In this case, the sales tax will be leviable at the time of ownership (i.e. on payment of last installment).

5. (a) The following information relates to Guwahati Branch:
Particulars
Amount
Particulars
Amount
Stock on 1st January
Branch Debtors On 1st January
Goods sent to Branch
Cash sent to Branch For:
Rent                                    
Salaries
Petty Cash
11,200
6,300
51,000

1,500
3,000
500
Sales at Branch:
Cash           
Credit
Cash Received from Debtors
Stock on 31st December

25,000
39,000
41,200
13,600
You are required to prepare Branch Account for the year and also the Branch Debtors Account.
Solution:
In the books of Head office
Guwahati Branch A/c
Particulars
Amount
Particulars
Amount
To Opening Balance
Stock
Debtors
To Goods Sent to Branch
To Bank Exp.
Rent
Salaries
Petty Cash
To General P/L a/c
(Profit for the year)

11,200
6,300
51,000

1,500
3,000
500
10,400
By Remittance
Cash sales
Collection for Debtors
By Closing Balance
Stock
Debtors

25,000
41,200

13,600
4,100

83,900

83,900
Branch Debtors A/c
Particulars
Amount
Particulars
Amount
To Opening balance
To Branch Stock A/c (Credit sale)
6,300
39,000
By Branch Cash A/c
(Collection from debtors)
By Closing balance
41,200

4,100

45,300

45,300

Or
(b) Briefly explain the treatment of the following items in Branch Account:
(i) Cash in transit
(ii) Goods in transit
(iii) Interbranch transaction
(iv) Cash paid by Branch on behalf of Head Office
Ans: Treatment of some Specific Transactions in case of Independent Branch
(i) Cash in transit: If the cash sent by branch to H.O. or the cash sent by H.O. to branch has not been received by the other party upto the end of the year, it is known as cash in transit. There is a difference in the balances of two accounts on account of this transaction also. To reconcile the two balances, the following journal entry is passed in H.O. books at the end of the year:
Cash in Transit a/c Dr.
To Branch a/c
(Cash in transit taken into books)
At the beginning of the next year, reverse entry will be passed.
(ii) Goods in transit: When goods are dispatched by the head office to branch and the branch does not receive it even upto the end of the year, it is known as goods in transit. In the same way when goods are returned by branch to head office and the head office does not receive it upto the end of the year it is also known as goods in transit.
It is quite understandable that a difference should arise in the balances of two accounts due to these transactions. Therefore, to reconcile, the following journal entry will be passed in head office books in both the circumstances:
Goods in Transit a/c Dr.
To Branch a/c
(Goods in transit taken into books)
In the Balance Sheet of Head office both the above items will be shown as an asset.
(iv) Inter-Branch Transactions: Where there are number of branches, inter-branch transactions are likely to take place, e.g., cash or goods sent by one branch to another or expenses incurred by one branch on behalf of another.  Such transactions are usually adjusted assuming that they were entered into under the instructions from the H.O.  Suppose Kolkata branch transfers some goods to Mumbai branch under the directions of the H.O.  The entries will be as follows:
1.
In the books of Kolkata Branch:
Head Office A/c                        Dr                        
       To Goods Supplied to Branch A/c
XXX


XXX
2.
In the books of Mumbai Branch:
Goods received from Branches A/c        Dr           
       To Head Office A/c
XXX


XXX
3.
In the books of Head Office:
Mumbai Branch A/c                      Dr                  
       To Kolkata Branch a/c
XXX


XXX
Note: Inter-branch transactions without the knowledge of head office may be passed as between the branches only in the usual manner.
6. (a) Raju took a lease of mine for a period of 20 years. Royalty is payable Rs. 1 per ton subject to a minimum rent Rs.12000 per annum The short working are recoupable during the first three years of the lease. The output was followings:
2008  =  Nil
2009  =  4000 tons
2010  =  20000 tons
2011  =  40000 tons
Give the following Entries in the books of Raju.
Solution:
ANALYSIS OF ROYALTIES PAYABLE:
Year
Output
Royalty
@ Rs. 1
M/R
Shortworking
Surplus
Recoupment
Written off
Payment
2008
2009
2010
2011
-
4,000
20,000
40,000
-
4,000
20,000
40,000
12,000
12,000
12,000
12,000
12,000
8,000
-
-
-
-
8,000
28,000
-
-
8,000
-
-
-
12,000
-
12,000
12,000
12,000
40,000


Journal Entries
Date
Particulars
L/f
Amt. (Dr.)
Amt. (Cr.)
31st Dec, 2008
Shortworking A/c                                                                  Dr.
To Landlord A/c
(Being the royalties & Shortworking due to landlord.)

12,000

12,000
31st Dec, 2008
Landlord A/c                                                                          Dr.
To Bank A/c
(Being the royalties paid to landlord)

12,000

12,000
31st Dec, 2009
Royalties A/c                                                                          Dr.
Shortworking A/c                                                                  Dr.
To Landlord A/c
(Being the royalties & Shortworking due to landlord)

4,000
8,000


12,000
31st Dec, 2009
Landlord A/c                                                                          Dr.
To Bank A/c
(Being the royalties paid to landlord)

12,000

12,000
31st Dec, 2009
Production A/c                                                                      Dr.
To Royalties A/c
(Being the royalties transferred to production A/c)

4,000

4,000
31st Dec, 2010
Royalties A/c                                                                          Dr.
To Shortworking A/c
To Landlord A/c
(Being the royalties due & Shortworking recouped)

20,000

8,000
12,000
31st Dec, 2010
Landlord A/c                                                                           Dr.
To Bank A/c
(Being the royalties paid to landlord)

12,000

12,000
31st Dec, 2010
Production A/c                                                                       Dr.
To Royalties A/c
(Being the royalties transferred to production A/c)

20,000

20,000
31st Dec, 2010
Profit & Loss A/c                                                                    Dr.
To Shortworking A/c
(Being the Shortworking written off)

12,000

12,000
31st Dec, 2011
Royalties A/c                                                                           Dr.
To Landlord A/c
(Being the royalties due to landlord)

40,000

40,000
31st Dec, 2011
Bank A/c                                                                                   Dr.
To Landlord A/c
(Being the royalties paid to landlord)

40,000

40,000
31st Dec, 2011
Production A/c                                                                        Dr.
To Royalties A/c
(Being the royalties transferred to Production A/c)

40,000

40,000


Or
(b)   (i) What is Royalty and Surface Rent?
Ans: Royalty is an amount payable for utilizing the benefit of certain rights vested with some other person. For example a landlord possesses right over the mine in his land, the author of book possesses right over his book. When the rights are leased the owner receives a consideration for the same which is called royalty.
Royalty is a periodical sum based on the output payable by the lessee to the lessor for having utilized the rights of the lessor. The person who makes the payment to the owner of asset is known as lessee and the owner of the asset is known as lessor. Royalty is a business expense and closed and transferred to profit and loss account.
According to William Pickles, “Royalty is the remuneration payable to a person in respect of the use of an asset, whether hired or purchased from such person, calculated by reference to and varying with quantities produced or sold as a result of such asset.”
Surface Rent: The rent, paid to the landlord for the use of land or surface on the yearly or half yearly basis is known as Ground Rent or Surface Rent. Ground rent or surface rent in the rent payable by the lessee in addition to minimum rent.
(ii) Distinguish between rent and royalty.
Ans: Difference between Royalties and Rent: In the common usage, the term royalty is used to mean rent. But there is some difference between royalty and rent. The following are the major difference between royalty and rent:
S.N.
Royalty
Rent
  1. Type of Assets
Royalty is the consideration payable for the use of special right for both tangible and intangible assets.
But rent is the consideration payable for the use of only tangible assets.
  1. Basis of Calculation
Royalty is paid either on the basis of output or sale.
Rent is paid on the basis of period.
  1. Variability
Royalty varies on the basis of output or sales.
Rent is fixed.
  1. Minimum Rent
Royalty agreement normally contains a clause to pay a minimum rent.
But in rent, there is no concept of minimum rent.
  1. Parties
Parties are known as lessor and lessee.
Parties are known as tenant and landlord.
7   (a) P,Q and R are partners sharing profits and losses equally. On 31st March, 2011 their Balance Sheet stood as followings :
Liabilities
Amount
Assets
Amount
Bills Payable
Creditors
Loan from Q
General Reserve
P’s Current Account
Q’s Current Account
P’s Capital Account
Q’s Capital Account
R’s Capital Account
16000
119000
25000
30000
15000
15000
20000
100000
100000
Cash at Bank
Debtors
Stock
Furniture
Machinery
R’s Current Account
15000
125000
290000
40000
120000
30000

620000

620000
The firm was dissolve on the above mentioned date. P agreed to pay creditors at par . Q took over the remaining assets were sold for Rs 553000. Bills Payable were retained for a discount of 100 received for a payment before the due date of maturity. Expenses of discount amounted to Rs. 12000. Prepare important Ledger Accounts and Cash Book.
Or
(b)  Briefly explain the causes of dissolution of a partnership firm. Discuss the Garner vs. Murray decision and its applicability in dissolution of the partnership firm.

Popular Posts for the Day