Financial Accounting Solved Question Papers November' 2011, Dibrugarh University B.Com 1st Sem

Financial Accounting Solved Question Papers November' 2011
Dibrugarh University B.Com 1st Sem
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.

(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.

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:

To provide information to the users as to the basis on which the accounts have been prepared and the financial statements have been presented.
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.
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.
To guide the judgment of professional accountants in dealing with those items, which are to be followed consistently from year to year.
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)

Closing stock as on 31st march, 2011: Rs. 120000.
Depreciate machinery by 10% and furniture by 5%.
Create a reserve of 5% on sundry debtors for doubtful debts.
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

(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:

Identification of the broad areas by the ASB for formulating the Accounting Standards.
Constitution of the study groups by the ASB for preparing the preliminary drafts of the proposed Accounting Standards.
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.
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.
Meeting with the representatives of specified outside bodies to ascertain their views on the draft of the proposed Accounting Standard.
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.
Issuance of the Exposure Draft inviting public comments.
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.
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.
The Accounting Standard, so finalised, is issued under the authority of the Council.

Objectives or Purposes of Accounting Standards:

To provide information to the users as to the basis on which the accounts have been prepared and the financial statements have been presented.
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.
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.
To guide the judgment of professional accountants in dealing with those items, which are to be followed consistently from year to year.
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

(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

Hire-purchase is a system of credit sale.
The price under hire-purchase system is paid in installments.
The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.
Hire vendor continues to be the owner of the goods till the payment of last installment.
The hire-purchaser has a right to use the goods as a bailer.
The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer.
The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement.
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.

(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)

(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

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

Financial Accounting Solved Question Papers November' 2011, Dibrugarh University B.Com 1st Sem