Tuesday, November 07, 2017

Financial Accounting Solved Question Papers: November' 2011


Previous Exam Question Papers

2011 (November) - Semester

1. (a) choose the correct answer: (1x3=3)
(i)      Accounting standard board was set up in India in the year (1965/1971/1977)
(ii)    The total amount to be paid by the buyer under hire purchase system is called (cash price/ hire-purchase price/ market price)
(iii)   Cash sent by the branch not received by the head office by the end of the year is debited to (cash-in-transit/ goods-in-transit/ arrears cash account)
(b) Fill in the blanks: (1x3=3)
(i)      The cost of goods sold on hire purchase is transferred to Trading account.
(ii)    Royalty paid on sales is debited to Profit and Loss account.
(iii)   After making payment to third parties, the Loan due to partner is paid.
(c) Write true or false: (1x2=2)
(i)      Before Garner vs. Murray decision, no distinction was made between trading loss and capital loss. True
(ii)    When firms are amalgamated, realisation accounts are prepared to close the books of such firms. False
2. Write brief answers: (4x4=16)
(a)    How are the inter-branch transactions recorded in Branch account?
Ans: 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.
(b)   What is called “Rock Rent” in Royalty?
Ans: Minimum rent is also known as dead rent, fixed rent, flat rent, rock rent and contract rent. 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.
(c)    What are the uses of setting accounting standards?
Ans: Objectives or Purposes of Accounting Standards:
The  whole  idea  of  accounting  standards  is  centered  around  harmonization   of   accounting  policies  and practices  followed  by  different  business  entities   so  that  the  diverse  accounting  practices  adopted  for   various  aspects   of  accounting  can be  standardized. Accounting   standards   standardizes diverse accounting policies   with a view to:
  1. To provide information to the users as to the basis on which the accounts have been prepared and the financial statements have been presented.
  2. To serve the statutory purpose of eliminating the impact of diverse accounting policies and practices and to ensure uniformity in accounting policies & practices, i.e., to harmonize the diverse accounting policies & practices which are in use the preparation & presentation of financial statements.
  3. To make the financial statements more meaningful and comparable and to make people place more reliance on financial statements prepared in conformity with the accounting standards.
  4. To guide the judgment of professional accountants in dealing with those items, which are to be followed consistently from year to year.
  5. To provide   a  set  of  standard  accounting  policies, valuation  norms  and  disclosure  requirements.
(d)   How does “Complete repossession” differ from “Partial repossession” in hire-purchase system?
Ans: Complete Repossession: When the vendor takes back the possession of complete goods from the vendee in case of default in payment of installment, such process is called complete repossession of goods. In such case, the vendor closes the books of account of the hire-purchaser by transferring the balance to the goods repossessed account. Similarly, the hire-purchaser also closes the account of hire-vendor account by transferring the balance to assets account.
Partial Repossession: When the vendor takes possession of only part of the total goods sold from the vendee, such process is called partial repossession. In case of partial repossession of goods, Vendor’s Account is debited and the Asset Account is credited with the agreed value of goods repossessed. Since, the entire goods are not repossessed, Asset Account will have a balance for the goods not repossessed which will be equal to the depreciated value of the assets not repossessed and, naturally, Vendor’s Account will show a balance which will represent the amount due to the purchaser. If the agreed value of goods repossessed is not given, the same may be ascertained after charging depreciation from the original cost of the asset, i.e., written-down value at the date of repossession.
3. (a) Following is the Trial Balance of Sita and Gita as on 31st March, 2011:
Debit Balances
Amount (Rs.)
Credit Balances
Amount (Rs.)
Opening stock
Purchases
Bills receivable
Cash in hand
Bad debts
Machinery
Advertisement
Sundry Debtors
Goodwill
Land and Building
Fuel
Wages and Salaries
Rent and Taxes
Discount
Commission
Furniture
160000
400000
4000
26000
2000
132000
16000
100000
140000
450000
30000
80000
40000
17200
20000
30000
Sundry creditors
Bank loan
Sales
Bills payable
Interest
Capitals:
Sita:
Gita
150000
87200
840000
40000
10000

320000
200000

1647200

1647200
From the following additional information, you are required to prepare trading and profit and loss account for the year ended on 31st march, 2011 and a Balance sheet as on that date: (4+5+5=14)
  1. Closing stock as on 31st march, 2011: Rs. 120000.
  2. Depreciate machinery by 10% and furniture by 5%.
  3. Create a reserve of 5% on sundry debtors for doubtful debts.
  4. Write off  1/4th  of advertising.
Trading and Profit & Loss A/c
For the year ended on 31st March, 2011
Particulars
Amount
Particulars
Amount
To Opening Stock
To Purchase
To Fuel
To Wages & Salaries
To Gross Profit c/d
1,60,000
4,00,000
30,000
80,000
2,90,000
By Sales
By Closing Stock
8,40,000
1,20,000

9,60,000

9,60,000
To Bad debts
To Depreciation on Machinery
To Advertisement
To Reserve on doubtful debts
To Rent & Taxes
To Discount
To Commission
To Depreciation on Furniture
To Net Profit
- Sita  = 1,97,100/2=98,550
- Gita =1,97,100/2=98,550
2,000
13,200
4,000
5,000
40,000
17,200
20,000
1,500
1,97,100
By Gross Profit b/d
By Interest A/c
2,90,000
10,000

3,00,000

3,00,000
Balance Sheet
As on 31st March, 2011
Liabilities
Amount
Assets
Amount
Sundry Creditors
Bank Loan
Bills Payable
Capital:
Sita (3,20,000 + 98,550)= 418550
Gita (2,00,000 + 98,550)= 298550
1,50,000
87,200
40,000


7,17,100
Bills Receivable
Cash in Hand
Machinery                              1,32,000
Less: Depreciation @ 10%    (13,200)
Advertisement
Sundry Debtors                     1,00,000
Less: Reserve @ 5%                 (5,000)
Goodwill
Land & Building
Furniture                                  30,000
Less: Depreciation @ 5%       (1,500)
Closing Stock
4,000
26,000

1,18,800
12,000

95,000
1,40,000
4,50,000

28,500
1,20,000

9,94,300

9,94,300

Or
(b) What are accounting standards? What procedure is adopted for formulating accounting standards? Discuss the main objectives of such standards. (3+6+5=14)  
Ans: ACCOUNTING STANDARDS: Accounting Standards are the policy documents or written statements issued, from time to time, by an apex expert accounting body in relation to various aspects of measurement, treatment and disclosure of accounting transactions for ensuring uniformity in accounting practices and reporting. These standards are prepared by Accounting Standard Board (ASB). Accounting Standards are formulated with a view to harmonies different accounting policies and practices in use in a country.
Procedure adopted in formulation of Accounting Standards:
The Institute of Chartered Accountants of India (ICAI), recognising the need to harmonies the diverse accounting policies and practices, constituted an Accounting Standards Board (ASB) on April 21, 1977. The main function of ASB is to formulate accounting standards so that such standards may be mandated by the Council of ICAI. While formulating the standards in India, ASB will take into consideration the applicable laws, customs, usages and business environment.
Following procedure will be adopted for formulating Accounting Standards:
  1. Identification of the broad areas by the ASB for formulating the Accounting Standards.
  2. Constitution of the study groups by the ASB for preparing the preliminary drafts of the proposed Accounting Standards.
  3. Consideration of the preliminary draft prepared by the study group by the ASB and revision, if any, of the draft on the basis of deliberations at the ASB.
  4. Circulation of the draft, so revised, among the Council members of the ICAI and 12 specified outside bodies such as Standing Conference of Public Enterprises (SCOPE), Indian Banks’ Association, Confederation of Indian Industry (CII), Securities and Exchange Board of India (SEBI), Comptroller and Auditor General of India (C& AG), and Department of Company Affairs, for comments.
  5. Meeting with the representatives of specified outside bodies to ascertain their views on the draft of the proposed Accounting Standard.
  6. Finalisation of the Exposure Draft of the proposed Accounting Standard on the basis of comments received and discussion with the representatives of specified outside bodies.
  7. Issuance of the Exposure Draft inviting public comments.
  8. Consideration of the comments received on the Exposure Draft and finalisation of the draft Accounting Standard by the ASB for submission to the Council of the ICAI for its consideration and approval for issuance.
  9. Consideration of the draft Accounting Standard by the Council of the Institute, and if found necessary, modification of the draft in consultation with the ASB.
  10. The Accounting Standard, so finalised, is issued under the authority of the Council.
Objectives or Purposes of Accounting Standards:
The  whole  idea  of  accounting  standards  is  centered  around  harmonization   of   accounting  policies  and practices  followed  by  different  business  entities   so  that  the  diverse  accounting  practices  adopted  for   various  aspects   of  accounting  can be  standardized. Accounting   standards   standardizes diverse accounting policies   with a view to:
  1. To provide information to the users as to the basis on which the accounts have been prepared and the financial statements have been presented.
  2. To serve the statutory purpose of eliminating the impact of diverse accounting policies and practices and to ensure uniformity in accounting policies & practices, i.e., to harmonize the diverse accounting policies & practices which are in use the preparation & presentation of financial statements.
  3. To make the financial statements more meaningful and comparable and to make people place more reliance on financial statements prepared in conformity with the accounting standards.
  4. To guide the judgment of professional accountants in dealing with those items, which are to be followed consistently from year to year.
  5. To provide   a  set  of  standard  accounting  policies, valuation  norms  and  disclosure  requirements.
4. Raja ram obtained a coal mine on lease from 1st April, 2007 on the following terms: (2+4+4+4=14)
(i)      Minimum Rent:  Rs. 25000 P.a.
(ii)    Each year’s short-workings can be recovered during the subsequent two years.
(iii)   The minimum rent is to be reduced by 25% in a year where there is any cessation of work due to accident or strike.
(iv)  Royalty is to be calculated @ 50p per ton.
Production during first four years was as follows:
Year                                                                                                          Quantity(in tons)
2007-08                                                                                                        30000
2008-09                                                                                                        35000
2009-10                                                                                                        60000   
2010-11 (Strike for 3 months)                                                                  40000
From the above information, prepare in the books of Raja Ram:
(a)    Minimum Rent Account
(b)   Royalties Account
(c)    Short-workings Account
(d)   Landlord’s Account
Solution:
ANALYSIS OF ROYALTIES PAYABLE:
Year
Output
Royalty
@ Rs. 0.50
M/R
Shortworking
Surplus
Recoupment
Written off
Payment
2007-08
2008-09
2009-10
2010-11
30,000
35,000
60,000
40,000
15,000
17,500
30,000
20,000
25,000
25,000
25,000
18,750
10,000
7,500
-
-
-
-
5,000
1,250
-
-
5,000
1,250
-
-
5,000
6,250
25,000
25,000
25,000
18,750

Minimum Rent (of 2010-11) = 25,000 – 25% of 25,000
= 25,000 – 6,250
= 18,750
Minimum Rent A/c
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
1-4-08
To Landlord A/c
25,000
31-3-08
31-3-08
By Royalties A/c
By Shortworking A/c
15,000
10,000


25,000


25,000
1-4-08
To Landlord A/c
25,000
31-3-08
31-3-08
By Royalties A/c
By Shortworking A/c
17,500
7,500


25,000


25,000

Dr. Royalties A/c Cr.
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
31-3-08
To M/R A/c
15,000
31-3-08
By Production A/c
15,000


15,000


15,000
31-3-09
To M/R A/c
17,500
31-3-09
By Production A/c
17,500


17,500


17,500
31-3-10
31-3-10
To Landlord A/c
To Shortworking A/c
25,000
5,000
31-3-10
By Production A/c
30,000


30,000


30,000
31-3-11
31-3-11
To Landlord A/c
To Shortworking A/c
18,750
1,250
31-3-11
By Production A/c
20,000


20,000


20,000
Dr. Shortworkings  A/c Cr.
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
31-3-08
To M/R A/c
10,000
31-3-08
By Balance c/d
10,000


10,000


10,000
1-4-08
31-3-09
To Balance b/d
To M/R A/c
10,000
7,500
31-3-09
By Balance c/d
17,500


17,500


17,500
1-4-08
To Balance b/d
17,500
31-3-10
31-3-10
31-3-10
By Royalties A/c
By P/L A/c
By Balance c/d
5,000
5,000
7,500


17,500


17,500
1-4-08
To Balance b/d
7,500
31-3-10
31-3-10
By Royalties A/c
By P/L A/c
1,250
6,250


7,500


7,500

Landlord’s A/c
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
31-3-08
To Bank A/c
25,000
31-3-08
By M/R A/c  
25,000


25,000


25,000
31-3-09
To Bank A/c
25,000
31-3-09
By M/R A/c  
25,000


25,000


25,000
31-3-10
To Bank A/c
25,000
31-3-10
By Royalties A/c
25,000


25,000


25,000
31-3-11
To Bank A/c
18,750
31-3-11
By Royalties A/c
18,750


18,750


18,750

5. (a) What is hire-purchase system? What are its important features? Distinguish between hire-purchase system and instalment-purchase system? (2+4+8=14)
Ans: Hire Purchase - Meaning: A trader could sell goods either for cash or for credit. For goods sold on credit, the payments may be made by the buyer in lump sum on a future date, or in installments spread over for a specified period of time. When goods are sold on credit, for which payment is made by the buyer in installments over a period of time, it is called purchase system or installment system.
Hire Purchase System defers to the system wherein, the seller of goods transfer the goods to the buyer without transferring the ownership of goods. The payment for the goods will be made by the buyer in installments. If the buyer pays all the installments, the ownership of the goods will be transferred, on payment of the last installment. However, if the buyer does not pay for any installment, the goods will be repossessed by the seller and the money paid on earlier installments will be treated as hire charges for using the goods. So, under this system, the transaction may result in purchasing of goods by the buyer or in hiring the goods. Hence, the system is called Hire Purchase System.
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.
Differences Between Hire Purchase System and Installment Purchase System:
Hire-Purchase System
Installment Purchase
It is a contract of hiring.
It is a contract of sale.
It is transferred by seller to buyer only after payment of all installments.
It is transferred by seller to buyer, immediately on signing the contract.
In this case, the buyer is like a bailee
In this case, the buyer is not in the position of a bailee
Such risk is on the seller.
Such risk is on the buyer.
On default of payment of any installment by the buyer, the seller can repossess the goods.
On default and payment of any installment by the buyer, seller cannot repossess the goods, but can file a suit in the court of law against the buyer for the recovery of unpaid price.
The buyer can exercise the option of return of goods.
The buyer cannot exercise the option of return of goods.
The buyer cannot dispose the goods, until the payment of last installment. If disposed, the third party buyer does not get a better title.
The buyer has the right to dispose the goods, even if all installments are not yet paid.

Or
(b) Saraighat co. purchased from Dibrugarh Machine Mart, three machines costing Rs. 40000 each on hire-purchase system. Payment was to be made Rs. 30000 down and the remainder in three equal instalments together with interest at 5% p.a. The buyer writes off depreciation @ 20% p.a. on the Diminishing Balance method. The purchaser paid the instalment due at the end of the first year but could not pay the next. Prepare the necessary ledger accounts in the books of both the parties for two years, if the hire vendor took possession of all the three machines. The hire vendor spent Rs. 5800 on getting the machines thoroughly overhauled and sold them Rs. 70000. (4+4+4+2=14)
Solution: Calculation of Interest:

Rs.
Cash Price (40,000 x 3)
Less: Down Payment
1,20,000
30,000

Add: Interest @ 5%
90,000
4,500

Less: Installment (30,000 + 4,500)
94,500
34,500

Add: Interest @ 5%
60,000
3,000
Repossession value
63,000
Calculation of Depreciation:

Rs.
Cash Price
Less: Depreciation @ 20%
1,20,000
24,000

Less: Depreciation @ 20%
96,000
19,200

Less: Repossession Value
76,800
63,000
Loss on default
13,800
Calculation of Profit & Loss of the vendor:

Rs.
Repossession value
Add: Expenses
63,000
5,800

Less: Sold  
68,800
70,000
Profit on repossession
1,200
Ledger
In the books of Saraighat Company (Vendee)
Machinery A/c
Dr. Cr.
Date
Particulars
Amount
Date
Particulars
Amount
1st Year
To Dibrugarh Machine Mart A/c
1,20,000
1st Year
By Depreciation A/c
By Balance C/d
24,000
96,000


1,20,000


1,20,000
2nd Year
To Balance b/d
96,000
2nd Year
By Depreciation A/c
By Dibrugarh Machine A/c
By Profit & Loss A/c
19,200
63,000
13,800


96,000


96,000
Dibrugarh Machine Mart A/c
Dr. Cr.
Date
Particulars
Amount
Date
Particulars
Amount
1st Year
To Bank A/c
To Bank A/c
To Balance c/d
30,000
34,500
60,000
1st Year
By Machinery A/c
By Interest A/c
1,20,000
4,500


1,24,500


1,24,500
2nd Year
To Machinery A/c
63,000
2nd Year
By Balance b/d
By Interest A/c
60,000
3,000


63,000


63,000
Ledger
In the books of Dibrugarh Machine Mart (Vendor)
Saraighat Co.
Dr. Cr.
Date
Particulars
Amount
Date
Particulars
Amount
1st Year
To H.P. Sales A/c
To Interest A/c  
1,20,000
4,500
1st Year
By Bank A/c
By Bank A/c
By Balance c/d
30,000
4,500
60,000


1,24,500


1,24,500
2nd Year
To Balance b/d
To Interest A/c
60,000
3,000
2nd Year
By Goods repossessed
63,000


63,000


63,000
Goods Repossessed A/c
Dr. Cr.
Date
Particulars
Amount
Date
Particulars
Amount
2nd
Year
To Saraighat Company
To Bank A/c (Exp.)
To Profit & Loss A/c (Profit on sale of machinery)
63,000
5,800

1,200
2nd Year
By Bank A/c (Sold)
70,000


70,000


70,000

6. (a) P, Q and R are partners. The following is their Balance Sheet as on 31st December, 2010, on which date they decided to dissolve their business:
Balance Sheet
As on 31st December, 2010
Liabilities
Amount (Rs.)
Assets
Amount (Rs.)
Sundry Creditors
Loan from Mrs. P
Capital Accounts:
P : 36000
Q :27000
R : 9000
39800
14000



72000
Cash
Sundry Debtors
Stock
Machinery
2300
33500
40000
50000

125800

125800
Sundry Debtors, Stock and Machinery were realised at 50% of their book values. Realisation expenses amounted to Rs. 550. P agrees to pay off his wife’s loan. R is insolvent and is unable to bring anything in respect of his debts to the firm. Prepare Realisation Account, Partner’s Capital Accounts and Cash account by applying the decision in Garner vs. Murray case. (6+5+3=14)
Or
(b) A head office at Kolkata supplies goods to its branch at Jorhat on cost. The Branch sells the goods for cash and on credit and remits the proceeds to the Head office promptly. The Branch expenses are being met by the head office by cheque. The following are the transactions relating to the branch for the year ended on 31st March, 2011:
Particulars
Amount (Rs.)
Stock at branch on 01-04-2010
Debtors at branch on 01-04-2010
Goods sent to branch during the year
Total sales at branch (Including cash sales: Rs. 110000)
Goods returned by branch
Goods returned by customers
Collection from debtors
Discount allowed to debtors
Bad debts written off
Cheque sent by Head Office towards branch expenses
Salaries: 25000
Rent: 14500
Petty expenses: 500
Stock at branch on 31-02-2011
30000
40000
225000
370000
10000
10000
210000
10000
5000



40000
4 5000
Prepare Jorhat Branch Account and Goods sent to Branch Account in Head office books. Show Branch Debtors account as a part of your working note. (8+4+2=14)
In the books of Kolkata Head office
Jorhat Branch A/c
For the year ended on 31st March, 2011
Particulars
Amount
Particulars
Amount
To Opening balance
Stock
Debtors
To Goods sent to Branch          2,25,000
Less: Goods return by branch (10,000)

To Bank Exp.
Salaries
Rent
Petty Cash
To General Profit A/c

30,000
40,000

2,15,000


25,000
14,500
500
1,05,000
By Remittance
Cash Sales
Collection from debtors
By Closing Stock
Stock
Debtors

1,10,000
2,10,000

45,000
65,000

4,30,000

4,30,000
Goods Sent to Branch A/c
Particulars
Amount
Particulars
Amount
To Branch Stock (Return)
To Purchase A/c
10,000
2,15,000
By Branch Stock (Goods sent to branch)
2,25,000

2,25,000

2,25,000
Branch Debtors A/c
Particulars
Amount
Particulars
Amount
To Opening balance
To Credit sales
40,000
2,60,000
By Cash (Remittance)
By Return
By Discount
By Bad debt
By Closing balance
2,10,000
10,000
10,000
5,000
65,000

3,00,000

3,00,000

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