Financial Accounting Solved Question Papers November' 2016, Dibrugarh University B.Com 1st Sem (Non-CBCS)

 Financial Accounting Solved Question Papers November' 2016
Dibrugarh University B.Com 1st Sem

COMMERCE (General/Speciality)

Course: 103 (Financial Accounting)

The figures in the margin indicate full marks for the questions

(NEW COURSE)

Full Marks: 80

Pass Marks: 24

Time: 3 hours

1. (a) Fill in the blanks:                   1x4=4

a)      Accounting Standard 6 deals with Depreciation Accounting.

b)      The total amount to be paid by the buyer under hire-purchase system is called Hire purchase price.

c)       Under Stock and Debtors system, Branch Stock Account is a real account.

d)      Royalty paid on sales is debited to Profit and Loss Account.

(b) Write ‘True’ or ‘False’:                                                                                            1x4=4

a)      Loss of stock by fire is shown on the credit side of Profit and Loss Account.                  False

b)      Cost of goods sold on hire-purchase is transferred to Hire-Purchase Trading Account.             False,

c)       In Departmental Accounts, each department is considered as a separate profit centre.          True

d)      Royalty Account is a Real Account.                   False, Nominal Account

2. Write short notes on (any four):          4x4=16

a) IFR Standards.

Ans: International Financial Reporting Standards (IFRS)

IFRS is a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are generally principles-based standards and seek to avoid a rule-book mentality. Application of IFRS requires exercise of judgment by the preparer and the auditor in applying principles of accounting on the basis of the economic substance of transactions. IFRS are issued by the International Accounting Standards Board (IASB). IASB issued only thirteen (17) IFRS

The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements, rather than setting rules for industry-specific reporting. Having an international standard is especially important for large companies that have subsidiaries in different countries. Adopting a single set of world-wide standards will simplify accounting procedures by allowing a company to use one reporting language throughout. A single standard will also provide investors and auditors with a comprehensive view of finances. 

b) Installment Purchase System.

Ans: Meaning and Definition of Installment Purchase System

Installment payment system (also called the deferred installments) is a system where the buyer is given the ownership as well as the possession of the gods at the time of signing the contract. The buyer has the facility to pay the price in installments.

According to J.B. Batliboi, Installment Purchase System is a system under there is an agreement to purchase and pay by installments, the goods which become the property of the Purchaser immediately when he receives the delivery of the same.

Features and Characteristics of Installment Payment System:

a)    Under this system, there will be an outright sale of goods/assets.

b)   The possession as well as the ownership is passed to the buyer right at the time of signing the contract.

c)    The buyer can make the payment in installments.

d)   IN case of default in payment, the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid price.

e)   The buyer cannot exercise the option of returning the goods and terminate the contract, unless the same becomes void or voidable under the contract act.

c) Independent Branch.

Ans: Independent branches are those which act independently within the broad policies framed by the Head office in conducting their day-to-day activities. These branches keep full system of accounting. They can purchase goods from the market, supply goods to the head office, pay cash expenses from the cash realised and deposit cash in their own account.

The main features of independent branches.

a)    They need not depend on the Head office for their requirements of supplies of goods. They can make purchases themselves. Of course, they can also obtain supplies of goods from the head office as and when they want.

b)   They can sell goods only for cash and credit at any price they consider profitable.

c)    They need not remit the money received by them from cash sales and debtors to the Head office periodically. They can retain the funds and meet their day-to-day expenses out of those funds. Finally, if they have surplus cash in their hands, they can remit the same to the Head office.

d)   They keep a complete set of books for recording their transactions. So, they can prepare their own Trial Balance, Trading and Profit and Loss Account and Balance Sheet.

e)   However, as they are ultimately responsible to the Head office, at the end of every financial period, they are required to submit a copy of their Trial Balance to the Head office.

d) Inter-departmental Transactions.

e) Recoupment of Shortworkings.

3. (a) What are Accounting Standards? What procedure is adopted for formulating Accounting Standards? Discuss the objectives of such standards.                     3+5+6=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:

a)      Identification of the broad areas by the ASB for formulating the Accounting Standards.

b)      Constitution of the study groups by the ASB for preparing the preliminary drafts of the proposed Accounting Standards.

c)       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.

d)      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.

e)      Meeting with the representatives of specified outside bodies to ascertain their views on the draft of the proposed Accounting Standard.

f)       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.

g)      Issuance of the Exposure Draft inviting public comments.

h)      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.

i)        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.

j)        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:

a)      To provide information to the users as to the basis on which the accounts have been prepared and the financial statements have been presented.

b)      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.

c)       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.

d)      To guide the judgment of professional accountants in dealing with those items, which are to be followed consistently from year to year.

e)      To provide   a  set  of  standard  accounting  policies, valuation  norms  and  disclosure  requirements.

Or

(b) Rinku and Tinku share profits and losses equally. From the following Trial Balance of their business as on 31st March, 2016, prepare Trading, Profit & Loss Account for the year ended 31st March, 2016 and a Balance Sheet as on that date: 4+5+5=14


Particulars

Amount (Dr.)

Amounts (Cr.)

Capital:

             Rinku

             Tinku

Current Account:

             Rinku

             Tinku

Land and Buildings (at cost)

Machinery (at cost)

Purchases (adjusted)

Sales Return

Salaries

Wages

Rent and Taxes

Furniture

Cash at Bank

Accumulated Depreciation

Debtors

Creditors

Sales

Closing Stock

 

 

 

 

12,000

6,000

60,000

45,000

5,00,000

10,000

60,000

72,000

28,000

25,000

15,000

 

3,44,000

 

 

65,000

 

15,000

15,000

 

 

 

 

 

 

 

 

 

 

 

 

12,000

 

4,00,000

8,00,000

 

12,42,000

12,42,000

Adjustment: Accumulated depreciation includes Land and Buildings Rs. 5,000, Machinery Rs. 6,000 and Furniture Rs. 1,000.

Trading and Profit & Loss A/c

For the year ended on 31st March, 2016

Particulars

Amount

Particulars

Amount

To Purchase

To Wages

To Gross Profit c/d

5,00,000

72,000

2,18,000

By Sales                           8,00,000

Less: Return                     (10,000)

 

 

7,90,000

 

7,90,000

 

7,90,000

To Salaries

To Rent & Taxes

To Net Profit

60,000

28,000

1,30,000

By Gross Profit b/d

2,18,000

 

2,18,000

 

2,18,000

P/L Appropriation A/c

Particulars

Amount

Particulars

Amount

To Share of Profit :

Rinku          1,30,000 x 1/2  

Tinku          1,30,000 x 1/2

 

 

65,000

65,000

By Net Profit

1,30,000

 

1,30,000

 

1,30,000

Partners Current A/c

Particulars

Rinku

Tinku

Particulars

Rinku

Tinku

To Balance b/d

To Balance c/d

12,000

53,000

 

6,000

59,000

By Share of Profit

65,000

65,000

 

65,000

65,000

 

65,000

65,000

Partners Capital A/c

Particulars

Rinku

Tinku

Particulars

Rinku

Tinku

To Balance c/d

15,000

 

15,000

By Balance b/d

15,000

15,000

 

15,000

15,000

 

15,000

15,000

Balance Sheet

As on 31st March, 2011

Liabilities

Amount

Assets

Amount

Sundry Creditors

Partner’s Capital:

Rinku           15,000

Tinku           15,000

 

Current:

Rinku            59,000

Tinku            53,000

4,00,000

 

 

30,000

 

 

 

1,12,000

 

Land & Building                 60,000

Less: Depreciation             (5,000)

 

Machinery                          45,000

Less: Depreciation             (6,000)

 

Furniture                             25,000

Less: Depreciation              (1,000)

 

Cash at Bank

Sundry Debtors

Closing Stock

 

55,000

 

 

39,000

 

 

24,000

 

15,000

3,44,000

65,000

 

5,42,000

 

5,42,000

 

4. (a) A motorcar was purchased on 1st April, 2012 under hire-purchase system. The payments to be made Rs. 20,000 down and the balance including interest @ 5% p.a. as follows:                                                                                              (Rs.)

On 31st March, 2013

On 31st March, 2014

On 31st March, 2015

60,000

77,500

84,000

The buyer depreciated the motorcar @ 15% p.a. under Diminishing Balance Method. Ascertain the cash price of the motor car and prepare Motorcar Account and Hire Vendor’s Account in the books of hire purchaser.    4+5+5=14

Solution:

 

 

Calculation of Cash Price:

Year

Closing balance

Installment

Total

Interest @ 5%

Opening balance

2015

2014

2013

NIL

80,000

1,50,000

84,000

77,500

60,000

84,000

1,57,500

2,10,000

84,000*5/105 =4,000

1,57,500*5/105=7,500

2,10,000*5/105=10,000

80,000

1,60,000

2,00,000

Cash Price = 20,000 + 2,00,000 = 2,20,000

Calculation of Depreciation:

 

Rs.

Cash Price (1-4-2012)

Less: Depreciation @ 15% (31-3-2013)

2,20,000

33,000

B.V (1-4-2013)

Less: Depreciation @ 15% (31-3-2014)

1,87,000

28,050

B.V (1-4-2014)

Less: Depreciation @ 15% (31-3-2015)

1,58,950

23,843

 

1,35,107

LEDGER

In the books of hire purchase

Motor Car

Dr.                                                                                                                                                                                                                          Cr.

Date

Particulars

Amount

Date

Particulars

Amount

1.4.12

To Vendor A/c

2,20,000

31.3.13

31.3.13

By Depreciation A/c

By Balance c/d

33,000

1,87,000

 

 

2,20,000

 

 

2,20,000

1.4.13

To Balance b/d

1,87,000

31.3.14

31.3.14

By Depreciation A/c

By Balance c/d

28,050

1,58,950

 

 

1,87,000

 

 

1,87,000

1.4.14

To Balance b/d

1,58,950

31.3.15

31.3.15

By Depreciation A/c

By Balance c/d

23,843

1,35,107

 

 

1,58,950

 

 

1,58,950

Vendor A/c

Dr.                                                                                                                                                                                                                          Cr.

Date

Particulars

Amount

Date

Particulars

Amount

1.4.12

31.3.13

31.3.13

To Bank A/c (DP)

To Bank A/c(1st Installment )

To Balance c/d

20,000

60,000

1,50,000

1.4.12

31.3.13

By Motor Car A/c

By Interest A/c

2,20,000

10,000

 

 

2,30,000

 

 

2,30,000

31.3.14

31.3.14

To Balance c/d

To Balance c/d

77,500

80,000

1.4.13

31.3.14

By Balance b/d

By Interest A/c

1,50,000

7,500

 

 

1,57,500

 

 

1,57,500

31.3.15

 

To Bank A/c

84,000

1.4.14

31.3.15

By Balance b/d

By Interest A/c

80,000

4,000

 

 

84,000

 

 

84,000

 

Or

(b) What is Hire-Purchase System? Distinguish between Hire-purchase Sale and Ordinary Credit Sale. Mention three rights of each of Hire Seller and Hire Purchaser as laid down in the Hire-purchase Act, 1972.                     3+5+3+3=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.

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.

Rights and Obligations of the Hirer and Owner

RIGHTS OF THE HIRER

a)      Right of hirer to purchase at any time with rebate: The hirer may, at may time during the continuance of the hire-purchase agreement and after giving the owner not less than fourteen days notice in writing of his intention so to do, complete the purchase of the goods by paying or tendering to the owner the hire-purchase price or the balance thereof as reduced by the rebate.

b)      Right of hirer to terminate agreement at any time: The hirer may, at Dairy time before the final payment under the hire-purchase agreement falls due, and after giving the owner not less than fourteen days’ notice in writing of his intention so to do, terminate the hire-purchase agreement.

c)       Right to appropriate payments in respect of two or more agreements in such proportions as he thinks fit.

d)      Assignment and transmission of hirer’s rights or interest under hire-purchase agreement: The hirer may assign his right, title and interest under the hire-purchase agreement with the consent of the owner, or, if his consent is unreasonably withheld, without his consent.

e)      Rights of hirer in case of seizure of goods by owner: Where the owner seizes the goods let under a hire-purchase agreement, the hirer may recover from the owner the amount, if any, by which the hire-purchase price falls short of the aggregate of the following amounts, namely the date

Ø  The amounts paid in respect of the hire-purchase price up to the date of seizure;

Ø  The value of the goods on the date of seizure.

RIGHTS OF THE OWNER

a)      Rights of owner to terminate hire-purchase agreement for default in payment of hire or authorised act or breach of express conditions: Where a hirer makes more than one default in the payment of hire-purchase agreement then, subject to the provisions of Section 21 and after giving the hirer notice in writing of not less than-

Ø  One week, in a case where the hire is payable at weekly or lesser intervals; and

Ø  Two weeks, in any other case,

Ø  The owner shall be entitled to terminate the agreement by giving the hirer notice of termination in writing:

b)      Rights of owner on termination: Where a hire-purchase agreement is terminated under this Act, then the owner shall be entitled to retain the hire which has already been paid and to recover the arrears of’ hire due.

5. (a) From the following particulars, prepare Departmental Trading and Profit & Loss Account in columnar form for the two departments and thereafter the Combined Income Account of Dutta Brothers’ for the year ended 31st March, 2016: 4+6+4=14

 

Department – X (Rs.)

Department – Y (Rs.)

Stock 01.04.2015

Purchase from outside

Wages

Salaries

Transfer from Department – X

Stock 31.03.2016

Sales to outsiders

30,000

2,05,000

10,000

3,600

-

35,000

2,00,000

5,000

20,000

1,000

2,400

50,000

12,000

70,000

The entire closing stock of Department – Y represents goods transferred from Department – X at cost plus 25%. Administrative and Selling Expenses amount Rs. 14,000 which is to be allocated between the two departments in the ratio of 6 : 1.

Solution:

M/S Jorhat Traders Ltd.

DEPARTMENTAL TRADING & PROFIT AND LOSS ACCOUNT

For the year ended 31st March, 2015

Particular

X

Rs.

Y

Rs.

Particular

X

Rs.

Y

Rs.

To Opening Stock

To Purchases

Transfer

To Wages

To Gross Profit c/d

30,000

2,05,000

-

10,000

40,000

5,000

20,000

50,000

1,000

6,000

By Sales

By Inter-Departmental

Transfer

By Closing Stock

2,00,000

 

50,000

35,000

70,000

 

-

12,000

 

2,85,000

82,000

 

2,85,000

82,000

To Salaries

To Adm. & Selling Exp.

To Net Profit Transferred to General Profit & Loss A/c

3,600

12,000

 

 

24,400

2,400

2,000

 

 

1,600

By Gross Profit b/d

40,000

6,000

 

40,000

6,000

 

40,000

6,000

GENERAL PROFIT & LOSS ACCOUNT

For the year ended 31st March, 2015

 

Rs.

 

Rs.

To Stock Reserve (Closing)

To Net Profit transferred to Capital A/c

2,400

 

23,600

By Departmental N/P transferred from Dept. P/L A/c

X                            24,400

Y                              1,600

 

 

 

26,000

 

26,000

 

26,000

Working Note:

Calculation of Unrealized Profit

Unrealized Profit

O/S

C/S

Unsold Stock of Y

 

5,000

12,000

Rate of Profit changed by X

25% on cost

 

Now, Stock Reserve

12,000*25/125 = 2,400

 

 

Or

(b) (i) What do you mean by inter-branch transactions? State the procedure of recording such transactions.3+5=8

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.

(ii) Distinguish between ‘Cash-in-transit’ and ‘Goods-in-transit’.                                             6

Ans: 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.

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.

6. (a) Explain the following items in relation to Royalty Accounts:                                               3+3+4+4=14

a)      Minimum rent.

b)      Shortworkings.

c)       Sub-lease.

d)      Strike and lockout.

Ans:

Minimum 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.

Redeemable Minimum Rent:

Generally, when minimum rent is more than royalty, then minimum rent is payable if no such provision is given in the agreement, but if it is mentioned in the agreement that when royalty will be more than minimum rent, the excess of minimum rent over royalty paid in the earlier years will be written off out of the excess of the royalty over minimum rent in the coming years such minimum rent is called Redeemable Minimum Rent.

Shortworkings

The excess of minimum rent over royalty is called ‘Shortworkings’. It is calculated with the help of following formula: Minimum Rent – Royalty = Shortworkings. Normally, Shortworkings arises during gestation period or due to abnormal working conditions or during the early periods of lease as the activity level is low in that period.

Shortworkings should be carried forward and shown on the assets side in the Balance Sheet so long as they are recoverable and Shortworkings which could not be recouped during the allowed period of recoupment should be closed by transferring to profit and loss account. If there is no provision in the royalty agreement for recoupment of Shortworkings, the same should be transferred to profit and loss account in the year of the Shortworkings. The questions of Shortworkings or its recoupment does not arises if the royalty agreement does not contain a clause of minimum rent.

Sub-Lease:

Sometimes a lessee grants a sub-lease to another person either for the whole land or for the portion of it. The person, to whom a sub-lease is granted, is called sub-lessee. In such a case production or sales by the sub-lessee under sub-lease will be considered to be production or sales under the original lease and royalties payable to the original landlord will be calculated on the basis of total production or sales of both the lessee and the sub-lessee.

In case of sub-lease agreement, the status of original lessee will be two fold: as lessee paying royalties to the landlord and as sub-lessor receiving royalties from the sub-lease. As lessee he maintained royalty payable a/c, Short Workings a/c and landlord a/c and as lessor for sub-lessee he maintains royalty's receivable a/c, shortworkings suspense a/c and sub -lessee a/c .The entries in the book at all the parties will be the same as above. To the original landlord Royalty should be paid on the basis of the total output of both the lessee and sub-lease.

Or

(b) Jai Prakash took lease of a coal mine from Ram Prakash at an annual dead rent of Rs. 4,000 subject to a royalty payable @ 50 paise per ton of coal extracted. Shortworkings are recoupable over the first four years of the lease. Jai Prakash sub-leased a part of the mines to Satya Prakash at an annual dead rent of Rs. 2,000 subject to a royalty payable @ 75 paise per ton of coal extracted. The right to recoup Shortworkings was during the next two years following the Shortworkings. The output for five years were as follows:

Year

Jai Prakash

Tons

Satya Prakash

Tons

Total

Output

2011

2012

2013

2014

2015

4400

4640

5200

5600

7200

1600

2160

2800

3600

4800

6000

6800

8000

9200

12000

    Prepare Royalty Payable Account, Royalty Receivable Account and Shortworkings Account in the books of Jai Prakash.                                                                                                5+5+4=14

Solution:

ANALYTICAL TABLE [JAI PRAKASH]

Year

Output

Royalty

@ Rs. 50 p.

M/R

Shortworking

Surplus

Recoupment

Written off

Payment

2011

2012

2013

2014

2015

6,000

6,800

8,000

9,200

12,000

3,000

3,400

4,000

4,600

6,000

4,000

4,000

4,000

4,000

4,000

1,000

600

-

-

-

-

600

2,000

-

-

600

-

-

-

1,000

-

4,000

4,000

4,000

4,000

6,000

  ANALYTICAL TABLE [SATYA PRAKASH]

Year

Output

Royalty

@ Rs. 75 p.

M/R

Shortworking

Surplus

Recoupment

Written off

Payment

2011

2012

2013

2014

2015

1,600

2,160

2,800

3,600

4,800

1,200

1,620

2,100

2,700

3,600

2,000

2,000

2,000

2,000

2,000

800

380

-

-

-

-

100

700

1,200

-

-

100

380

-

-

-

700

-

-

2,000

2,000

2,000

2,320

3,600

 

Royalties Payable A/c

Dr.                                                                                                                                                                                                                          Cr.

Date

Particulars

Amount

Date

Particulars

Amount

31-12-11

To Ram Prakash A/c

3,000

 

31-12-11

31-12-11

By Royalties Receivable A/c

By Production A/c

800

2,200

 

 

3,000

 

 

3,000

31-12-12

To Ram Prakash A/c

3,400

31-12-12

31-12-12

By Royalties Receivable A/c

By Production A/c

1,080

2,320

 

 

3,400

 

 

3,400

31-12-13

 

To Ram Prakash A/c

 

4,000

 

31-12-13

31-12-13

By Royalties Receivable A/c

By Production A/c

1,400

2,600

 

 

4,000

 

 

4,000

31-12-14

To Ram Prakash A/c

To Shortworkings A/c

4,000

600

31-12-14

31-12-14

By Royalties Receivable A/c

By Production A/c

1,800

2,800

 

 

4,600

 

 

4,600

31-12-15

To Ram Prakash A/c

6,000

 

31-12-15

31-12-15

By Royalties Receivable A/c

By Production A/c

2,400

3,600

 

 

6,000

 

 

6,000

 

Royalties Receivable A/c

Dr.                                                                                                                                                                                                                          Cr.

Date

Particulars

Amount

Date

Particulars

Amount

31-12-11

31-12-11

To Royalties Payable A/c

To P/L A/c 

800

400

31-12-11

 

By Satya Prakash A/c 

1,200

 

 

 

1,200

 

 

1,200

31-12-12

31-12-12

To Royalties Payable A/c

To P/L A/c

1,080

540

31-12-12

 

By Satya Prakash  A/c

 

1,620

 

 

 

1,620

 

 

1,620

31-12-13

31-12-13

To Royalties Payable A/c

To P/L A/c

1,400

700

31-12-13

31-12-13

By Satya Prakash A/c

By Shortworking Suspense A/c

2,000

100

 

 

2,100

 

 

2,100

31-12-14

31-12-14

To Royalties Payable A/c

To P/L A/c

1,800

900

31-12-14

31-12-14

By Satya Prakash A/c

By Shortworking Suspense A/c

2,320

380

 

 

2,700

 

 

2,700

31-12-15

31-12-15

To Royalties Payable A/c

To P/L A/c

2,400

1,200

31-12-15

 

By Satya Prakash A/c 

3,600

 

 

3,600

 

 

3,600

 

Dr.                                                                                          Shortworking A/c                                                                                             Cr.

Date

Particulars

Amount (Dr.)

Date

Particulars

Amount (Cr.)

31-12-11

To Ram Prakash A/c

1,000

 

31-12-14

By Balance c/d

1,000

 

 

1,000

 

 

1,000

1-1-12

31-12-12

To Balance b/d

To Ram Prakash A/c

1,000

600

31-12-12

By Balance c/d

1,600

 

 

 

1,600

 

 

1,600

1-1-13

To Balance b/d

1,600

 

31-12-13

By Balance c/d

1,600

 

 

1,600

 

 

1,600

1-1-14

To Balance b/d

1,600

31-12-14

31-12-14

By Royalties Payable A/c

By P/L A/c

600

1,000

 

 

1,600

 

 

1,600

(OLD COURSE)

Full Marks: 80

Pass Marks: 32

Time: 3 hours

1. (a) Write whether the following statements are ‘True’ or ‘False’:         1x4=4

a)      Accounting principles are formulated by the Government.

b)      Hire-purchase transactions are governed by the Hire-Purchase Act, 1972.     True

c)       Cash sent by the branch not receive by the head office by the end of the year is debited to arrear cash account.                         False, Cash in transit

d)      Royalty paid on sales is credited to Profit and Loss Account.                                 True

    (b) Fill in the blanks: 1x4=4

a)      Valuation of inventories is accounted for as per Accounting Standard 2.

b)      Profit on repossession of goods sold on Hire-Purchase System is considered as a revenue profit.

c)       In Branch Accounting, each branch has separate existence.

d)      On dissolution of a partnership firm, cash in hand is transferred to Cash Account.

2. Write short notes on (any four):          4x4=16

a) Features of Accounting Principles.

Ans: The term principle refers to fundamental belief or a general truth which one established does not change. AICPA defined the term principle as a guide of to action, a settled ground or basis of conduct or practice. Accounting principles may be defined as those rules of conduct or procedure which are adopted by the accountants universally while recording the accounting transaction. If accounting has to serve its purpose of communicating the results of a business to the outside world, it should be based on certain uniform and scientifically laid down principles which are known as accounting principles. Accounting principles can be classified into two categories: accounting concepts and accounting conventions.

Generally Accepted Accounting Principles are the rules and concepts which have been accepted by accounting community for sound accounting practice. Their usefulness depends on ‘general acceptability’ rather than ‘individual acceptability’ of accounting concepts.  They (GAAP) have been formalised on the basis of usage, reason and experience.  

Simply, Generally Accepted Accounting Principles (GAAP) comprises a set of rules, concept and Conventions used in preparing financial accounting reports.

Essential features of Accounting Principles

(i)      Man made: Accounting principles are manmade. They are not tested in a laboratory.

(ii)    Objectivity: It means accounting principles must be based on facts and free from personal bias or judgment of the individuals who prepares the statements.

(iii)   Usefulness/relevance: Accounting principles must be relevant and useful to the person who is using financial statements.

(iv)  Feasibility: The accounting principles should be practicable or feasible.

(v)    Axiom: It denotes a statement of truth which cannot be questioned by anyone.

b) Termination of Hire-purchase Agreement.

Ans: Where a hirer makes more than one default in the payment of hire-purchase agreement then, subject to the provisions of Section 21 and after giving the hirer notice in writing of not less than -

a.    One week, in a case where the hire is payable at weekly or lesser intervals; and

b.    Two weeks, in any other case,

The owner shall be entitled to terminate the agreement by giving the hirer notice of termination in writing.

Where a hire-purchase agreement is terminated under this Act, then the owner shall be entitled to retain the hire which has already been paid and to recover the arrears of hire due.

c) Inter-branch transactions.

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.

d) Amalgamation of partnership firms.

e) Provisions of strike and lockout in Royalty Account.

3. (a) The following is the Trial Balance of M/s Baruah and Sharma Partnership Firm as on 31st March, 2016. Prepare Trading and Profit & Loss Account for the year ended 31st March, 2016 and a Balance Sheet as on that date: 3+5+3=11

Trial Balance

Debit

Rs.

Credit

Rs.

Bills Receivable

Cash in Hand

Bad Debts

Trade Expenses

Advertisement

Machinery

Sundry Debtors

Goodwill

Leasehold Premises

Fuel

Wages

Purchases

Opening Stock

Rent and Taxes

Discount

4,000

4,000

3,000

12,000

10,000

76,000

70,000

75,000

1,60,000

20,000

1,50,000

1,50,000

85,000

18,000

3,600

Bank Loan

Sundry Creditors

Sales

Bills Payable

Capital:

             Baruah

             Sharma

80,000

50,000

4,10,600

20,000

 

1,40,000

1,40,000

 

8,40,600

 

8,40,600

    Adjustments:

a)      Closing Stock Rs. 60,000

b)      Machinery is to be depreciated @ 10% p.a.

c)       Provision should be made for bad debts @ 2% p.a. on sundry debtors.

d)      Partners share the profit equally.

Trading and Profit & Loss A/c

Particulars

Amount

Particulars

Amount

To Opening Stock

To Purchases

To Fuel

To Wages

To Gross Profit c/d

85,000

1,50,000

20,000

1,50,000

65,600

By Sales

By Closing Stock

4,10,600

60,000

 

4,70,600

 

4,70,000

 

To Depreciation on Machinery

To Advertisement

To Bad debts

To Trade expenses

To Provision for B/d

To Rent and Taxes

To Discount

To Net Profit c/d

 

7,600

10,000

3,000

12,000

1,400

18,000

3,600

10,000

 

By Gross Profit b/d

 

 

65,600

 

 

65,600

 

65,600

Profit & Loss Appropriation A/c

Particulars

Amount (Dr)

Particulars

Amount (Cr)

To Share of Profit:

Baruah = 10,000 x 1/2

Sharma = 10,000 x 1/2

 

 

 

5,000

5,000

By Net Profit b/d

10,000

 

10,000

 

10,000

Partner’s Capital A/c

Particulars

Baruah

Sharma

Particulars

Baruah

Sharma

To Balance c/d

1,45,000

1,45,000

By Balance b/d

By P/L Appropriation A/c

1,40,000

5,000

1,40,000

5,000

 

1,45,000

1,45,000

 

1,45,000

1,45,000

Balance Sheet

Liabilities

Amount

Assets

Amount

Bank Loan

Sundry Creditors

Bills Payable

Capital Accounts:

Baruah

Sharma

80,000

50,000

20,000

 

1,45,000

1,45,000

Bills Receivable

Cash in Hand

Machinery                                76,000

Less: Depreciation @ 10%       7,600

 

Sundry Debtors                       70,000

Less: Reserve for d/d                1,400

Goodwill

Leasehold premises

Closing Stock

4,000

4,000

 

68,400

 

 

68,600

75,000

1,60,000

60,000

 

4,40,000                                                                                                                                                                                              

 

4,40,000

Or

(b) Outline the need for accounting. Briefly describe the principles of accounting to be followed in preparation of Financial Statements.     5+6=11

Ans:- Meaning of Accounting

Accounting is the analysis and interpretation of book-keeping records. It includes not only maintains of accounting records but also the preparation of financial statements which helps in analysis and interpretation of business transactions and events.

According to the American institute of certified public accounts” The arts of recordings, classifying and summarizing in a significant manner and in terms of money transaction and events which in parts, at least of a financial charter and interpreting the result there of”.

In the words of R.N. Anthony, “Accounting is a means of collecting, summarizing, analyzing and reporting in monetary terms the information of business.”

Features of Accounting:              

a)      It is an art of recording of transactions.

b)      Accounting’s main feature is also classifying all business transactions.

c)       Summarising of business transactions by preparing trial balance.

d)      It helps in interpretation of financial results.

The mean objectives of accounting are as follow:

a)      To keep systematic and authentic records of all the financial transaction of a business.

b)      To ascertain the net profit or loss suffered on account of carrying the business by preparing profit and loss account.

c)       To ascertain the financial position of business on a particular date by preparing balance sheet.

d)      To determine the tax liability of the business.

e)      To assist the management in taking various important managerial decisions.

The main advantages of accounting are mentioned below:

a)      Accounting helps in keeping a systematic and permanent record of business transactions and events.

b)      Accounting information is used by the management in taking various managerial decisions.

c)       It shows the financial position of business on a particular data.

d)      Accounting data are accepted by the tax authorities as authentic and reliable. Hence they can be used as the basis for discharging tax liabilities.

e)      Accounting supplies financial data which are accepted by the insurance company as reliable figure for settlement of insurance claim.

Following are the limitations of accounting:

a)      According to records only those transactions which can be measured in monetary terms. There may be certain important non-monitory transaction but are not recorded.

b)      Accounting information is historical in nature and does not provide timely information.

c)       Effects of price level changes are not considered while preparing financial statements.

d)      Personal bias of accountant affects the accounting statement.

e)      Accounting information is in summary form and detailed analysis of financial transactions during a particular is not possible.

Functions of accounting:

a)      Record Keeping Function: The primary function of accounting relates to recording, classification and summary of financial transactions-Journalisation, posting, and preparation of final statements. These facilitate to know operating results and financial positions.

b)      Managerial Function: Decision making programme is greatly assisted by accounting. The managerial function and decision making programmes, without accounting, may mislead.

c)       Legal Requirement function: Auditing is compulsory in case of registered firms. Auditing is not possible without accounting. Thus accounting becomes compulsory to comply with legal requirements.

d)      Language of Business: Accounting is the language of business. Various transactions are communicated through accounting. There are many parties-owners, creditors, government, employees etc., who are interested in knowing the results of the firm and this can be communicated only through accounting.

Process/Steps of Accounting

Accounting starts with identification of business transactions and events and ends with analysis, interpretation and communication of financial statements. A brief summary of process of accounting is given below:

a)         Identification of business transactions and events of an entity.

b)        Measurement of identified transactions and events in the terms of money.

c)         Recording of all business transactions in journal.

d)        Classification of transactions recorded in journal by preparing ledgers for each aspect of transaction.

e)        Summarising the ledgers in trial balance to check arithmetical accuracy and in financial statements i.e., profit and loss account and balance sheet to know operating efficiency and financial position.

f)          Analysis and interpretation of financial statements to know the financial strength and weakness of the business unit.

g)         Last but not the least; communicate the financial statements after proper analysis and interpretation in a proper form and manner to the proper person.

4. (a) Mention four features of Hire-Purchase System. Distinguish between Hire-purchase System and Instalment Purchase System.            5+6=11

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

a)      Hire-purchase is a system of credit sale.

b)      The price under hire-purchase system is paid in installments.

c)       The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.

d)      Hire vendor continues to be the owner of the goods till the payment of last installment.

e)      The hire-purchaser has a right to use the goods as a bailer.

f)       The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer.

g)      The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement.

h)      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) On 1st April, 2013, M/s Hazarika Traders purchased a car on Instalment Purchase System. The terms of the contract were as follows:

a)      The cash price of the car was Rs. 1,20,000

b)      Amount payable on signing the agreement was Rs. 45,000

c)       The balance of the purchase consideration was to be paid in three annual instalments of Rs. 25,000 each together with interest at 4% p.a. on the outstanding balance.

d)      The car was depreciated at 10% p.a. under Fixed Instalment Method.

e)      Accounts were closed on 31st March, each year.

Prepare the following accounts in the books of M/s Hazarika Traders up to 31st March, 2016:       4+4+3=11

a)      Car’s Account.

b)      Vendor’s Account.

c)       Interest Suspense Account.

Similar question

Calculation of Interest:

 

Rs.

Cash Price (1.4.10)

Less: Down Payment

4,50,000

1,20,000

 

Add: Interest A/c (31.3.11)

3,30,000

16,500

 

Less: 1st Installment

3,46,500

1,20,000

 

Add: Interest A/c (31.3.12)

2,26,500

11,325

 

Less: 2nd Installment

2,37,825

1,20,000

 

Add: Interest A/c (31.3.13)

1,17,825

2,175

 

Less: 3rd Installment

1,20,000

1,20,000

 

NIL

Calculation of Depreciation:

 

Rs.

Cash Price (1.1.10)

Less: Depreciation @ 10% (31.3.11)

4,50,000

45,000

B.V. (1.4.11)

Less: Depreciation @ 10% (31.3.12)

4,05,000

40,500

B.V. (1.4.12)

Less: Depreciation @ 10% (31.3.13)

3,64,500

36,450

 

3,28,050

Journal Entries

In the books of Delta Company (Vendee)

Date

Particulars

L/F

Dr. Amount

Cr. Amount

1.4.10

Motor Car A/c                                                     Dr.

Interest Suspense A/c                                        Dr.

To Meghna Motor Co. A/c

 

 

4,50,000

30,000

 

 

4,80,000

1.4.10

Meghna Motor Co. A/c                                      Dr.

To Bank A/c

 

 

1,20,000

 

1,20,000

31.3.11

Interest A/c                                                          Dr.

To Interest Suspense A/c

 

 

16,500

 

16,500

31.3.11

Meghna Motor Co. A/c                                       Dr.

To Bank A/c

 

 

1,20,000

 

1,20,000

31.3.11

Depreciation A/c                                                 Dr.

To Motor Car A/c

 

 

45,000

 

45,000

31.3.11

Profit & Loss A/c                                                 Dr.

To Interest A/c

To Depreciation A/c

 

 

61,500

 

16,500

45,000

31.3.12

Interest A/c                                                          Dr.

To Interest Suspense A/c

 

 

11,325

 

11,325

31.3.12

Meghna Motor Co. A/c                                      Dr.

To Bank A/c

 

 

1,20,000

 

1,20,000

31.3.12

Depreciation A/c                                                 Dr.

To Motor Car A/c

 

 

40,500

 

40,500

31.3.12

Profit & Loss A/c                                                  Dr.

To Interest A/c

To Depreciation A/c

 

 

51,825

 

11,325

40,500

31.3.13

Interest A/c                                                           Dr.

To Interest Suspense A/c

 

 

2,175

 

2,175

31.3.13

Meghna Motor Co. A/c                                        Dr.

To Bank A/c

 

 

1,20,000

 

1,20,000

31.3.13

Depreciation A/c                                                   Dr.

To Motor Car A/c

 

 

36,450

 

36,450

31.3.13

Profit & Loss A/c                                                   Dr.

To Interest A/c

To Depreciation A/c

 

 

38,625

 

2,175

36,450

Ledger

In the books of Delta Company

Motor Car A/c

Dr.                                                                                                                                                                                                                          Cr.

Date

Particulars

Amount

Date

Particulars

Amount

1.4.10

To Meghna Motor Co.

4,50,000

31.3.11

31.3.11

By Depreciation A/c

By Balance c/d

45,000

4,05,000

 

 

4,50,000

 

 

4,50,000

1.4.11

To Balance b/d

4,05,000

31.3.12

31.3.12

By Depreciation A/c

By Balance c/d

40,500

3,64,500

 

 

4,05,000

 

 

4,05,000

1.4.12

To Balance b/d

3,64,500

31.3.13

31.3.13

By Depreciation A/c

By Balance c/d

36,450

3,28,050

 

 

3,64,500

 

 

3,64,500

Meghna Motor Co.

Dr.                                                                                                                                                                                                                          Cr.

Date

Particulars

Amount

Date

Particulars

Amount

1.4.10

31.3.11

31.3.11

To Bank A/c

To Bank A/c

To Balance c/d

1,20,000

1,20,000

2,40,000

1.4.10

31.3.11

By Motor Car A/c

By Interest A/c

4,50,000

30,000

 

 

4,80,000

 

 

4,80,000

31.3.12

31.3.12

To Bank A/c

To Balance c/d

1,20,000

1,20,000

1.4.11

By Balance b/d

2,40,000

 

 

2,40,000

 

 

2,40,000

31.3.13

To Bank A/c

1,20,000

1.4.12

By Balance b/d

1,20,00

 

 

1,20,000

 

 

1,20,000

Interest Suspense Account

Dr.                                                                                                                                                                                                                          Cr.

Date

Particulars

Amount

Date

Particulars

Amount

1.4.10

To Meghna Motor Company

30,000

31.3.11

By Interest A/c

By Balance B/d

16,500

13,500

 

 

4,66,500

 

 

4,66,500

1.4.11

To Balance b/d

13,500

31.3.11

By Interest A/c

By Balance C/d

11,325

2,175

 

 

13,500

 

 

13,500

1.4.12

To Balance b/d

2,175

31.3.11

By Interest A/c

2,175

 

 

2,175

 

 

2,175

 

5. (a) Write the accounting treatment in Branch Account as regard to following: 3+4+4=11

a)      Cash-in-transit

Ans: 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.

b)      Goods-in-transit

Ans: 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.

c)       Depreciation of branch fixed assets.

Ans: Depreciation on Fixed Assets: Often, the accounts of fixed assets of a branch are maintained in the head office books.  In such a case,

1.

Entry for depreciation in H.O. Books:

Branch A/c                             Dr                        

     To Branch Fixed Assets A/c

XXX

 

 

XXX

2.

The branch passes the following entry in its own books for Depreciation:

Depreciation A/c                         Dr                    

     To Head Office A/c

XXX

 

 

XXX

Any purchase of fixed assets by the branch, in such a case, should be debited to head office account and credited to bank (or Supplier’s A/c) in the branch books.  Similarly, in head office books the same should be debited to branch fixed assets account and credited to Branch A/c.

Or

(b) A Head Office at Kolkata supplies goods to its branch at Dibrugarh on cost. The branch sells the goods for cash and 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, 2016:              Rs.

Stock at branch on 01.04.2015

Debtors at branch on 01.04.2015

Goods sent to branch during the year

Total sales at branch (including cash sales Rs. 1,10,000)

Goods returned by branch

Goods returned by customers

Cash collected from debtors

Discount allowed to debtors

Bad debts written off

Cheque sent by Head Office towards branch expenses:

       Salaries                             25,000

       Rent                                  14,500

       Petty expenses                     500

Stock at branch on 31.03.2016

30,000

40,000

2,25,000

3,70,000

10,000

10,000

2,10,000

10,000

5,000

 

 

 

40,000

45,000

Prepare Dibrugarh Branch Account and goods sent to Branch Account in Head Office books. Show Branch Debtors Account as a part of your working notes.                                                                5+3+3=11

Solution:

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

6. (a) Define Royalty. Discuss its various types. Also distinguish between royalty and rent.                         3+4+4=11

Ans: Introduction:

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.”

Types of Royalties:

There are many types of royalties but following types of royalty are very popular:

a)      Mining Royalties,

b)      Brick-making Royalties,

c)       Oils-wells Royalties,

d)      Patent Royalties

e)      Copyright Royalties

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:

Basis

Royalty

Rent

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.

Basis of Calculation

Royalty is paid either on the basis of output or sale.

Rent is paid on the basis of period.

Variability

Royalty varies on the basis of output or sales.

Rent is fixed.

Minimum Rent

Royalty agreement normally contains a clause to pay a minimum rent.

But in rent, there is no concept of minimum rent.

Parties

Parties are known as lessor and lessee.

Parties are known as tenant and landlord.

 

Or

(b) Meghna Coal Ltd. took a lease of coal mine for ten years on a royalty of Rs. 3 per ton of coal raised. The minimum rent was fixed at Rs. 13,000 and there was no any provision of right to recoup Shortworkings. The coal raised was as follows:

Year

Output (in tons)

2012

2013

2014

2015

3000

4000

6000

2000

Pass Journal Entries in the books of Meghna Coal Ltd.                                                                                     11

Solution:

ANALYSIS OF ROYALTIES PAYABLE:

Year

Output

Royalty

@ Rs. 3

M/R

Shortworking

Surplus

Payment

2012

2013

2014

2015

3,000

4,000

6,000

2,000

9,000

12,000

18,000

6,000

13,000

13,000

13,000

13,000

4,000

1,000

-

7,000

 

-

-

5,000

-

 

3,000

3,000

3,100

2,400

3,000

 

Journal Entries (in the books of Megha Coal Ltd)

Date

Particulars

L/f

Amt. (Dr.)

Amt. (Cr.)

31st Dec, 2012

Royalties A/c                                                                          Dr.

Shortworking A/c                                                                  Dr.

To Landlord A/c

(Being the royalties & Shortworking due to landlord)

 

9,000

4,000

 

 

13,000

31st Dec, 2012

Landlord A/c                                                                          Dr.

To Bank A/c

(Being the royalties paid to landlord)

 

13,000

 

13,000

31st Dec, 2012

Production A/c                                                                      Dr.

To Royalties A/c

(Being the royalties transferred to production A/c)

 

9,000

 

9,000

31st Dec, 2013

Royalties A/c                                                                          Dr.

Shortworking A/c                                                                  Dr.

To Landlord A/c

(Being the royalties due & Shortworking recouped)

 

12,000

1,000

 

 

13,000

31st Dec, 2013

Landlord A/c                                                                           Dr.

To Bank A/c

(Being the royalties paid to landlord)

 

13,000

 

13,000

31st Dec, 2013

Production A/c                                                                       Dr.

To Royalties A/c

(Being the royalties transferred to production A/c)

 

12,000

 

12,000

7. (a) State and explain the decisions and rules laid down in Garner vs. Murray case. Are these rules applicable in India?    7+5=12

Ans:-  Insolvency of a Partner – (Rules of Garner vs. Murray)

If a partner’s capital account shows a debit balance on the dissolution of the firm, he is required to bring cash in the firm to settle his account. But if such partner is unable to satisfy his debt to the firm due to his insolvency, then his deficiency is to be borne by the solvent partners in accordance with the decision in Garner vs. Murray. According to the rules of Garner vs. Murray, in the absence of any agreement to the contrary, the deficiency of the insolvent partner’s capital account must be borne by other solvent partners in proportion to their capital which stood before the dissolution of the firm. The effect of this ruling is to make a distinction between an ordinary loss caused due to business operation and loss on account of insolvency of a partner.

Some important judgments in Garner vs. Murray case by Lord Justice Joyce was stated below:

a)      Loss on realisation considered being ordinary loss and therefore to be shared by all the partners according to their profit sharing ratio.

b)      Solvent partners to bring cash equal to their share of loss on realisation

c)       Loss on account of deficiency of insolvent partner considered being capital loss; therefore   to be shared by solvent partners according to their last agreed capital.

Accounting treatment when the firm is dissolved due to insolvency of partners:

1) When there are more than two partners and one becomes insolvent, the solvent partners are liable to bear the loss of insolvent partner. The loss is borne by the solvent partners in the following partners:

a)      When Garner Versus Murray rule is not applicable, the solvent partners are supposed to bear the loss according to the profit sharing ratio.

b)      When the Garner versus Murray rule is applicable, the solvent partners are liable to bear the loss of insolvent partners according to the ratio of last agreed capital.

Last Agreed Capital means

1.    In case of Fixed Capitals: Fixed Capital (as given in the Balance Sheet) without any adjustment

2.    In case of Fluctuating Capitals: Capital after making adjustments for past accumulated reserves, profits or  losses, drawings, Interest on capital, Interest on Drawing, remuneration to a partner etc. to the date of dissolution but before making adjustment for profit or loss on realisation.