Tuesday, November 07, 2017

Financial Accounting Solved Question Papers: November' 2016

2016 (November)
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
  1. Accounting Standard 6 deals with Depreciation Accounting.
  2. The total amount to be paid by the buyer under hire-purchase system is called Hire purchase price.
  3. Under Stock and Debtors system, Branch Stock Account is a real account.
  4. Royalty paid on sales is debited to Profit and Loss Account.
(b) Write ‘True’ or ‘False’: 1x4=4
  1. Loss of stock by fire is shown on the credit side of Profit and Loss Account. False
  2. Cost of goods sold on hire-purchase is transferred to Hire-Purchase Trading Account. False,
  3. In Departmental Accounts, each department is considered as a separate profit centre. True
  4. Royalty Account is a Real Account. False, Nominal Account
2. Write short notes on (any four): 4x4=16

  1. IFR Standards.
  2. Instalment Purchase System.
  3. Independent Branch.
  4. Inter-departmental Transactions.
  5. 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:
  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.
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

7,500
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
  1. 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.
  2. 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.
  3. Right to appropriate payments in respect of two or more agreements in such proportions as he thinks fit.
  4. 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.
  5. 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
  • The amounts paid in respect of the hire-purchase price up to the date of seizure;
  • The value of the goods on the date of seizure.
RIGHTS OF THE OWNER
  1. 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-
  • One week, in a case where the hire is payable at weekly or lesser intervals; and
  • Two weeks, in any other case,
  • The owner shall be entitled to terminate the agreement by giving the hirer notice of termination in writing:
  1. 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
Rate of Profit changed by X
on cost

Now, Stock Reserve

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
  1. Minimum rent.
  2. Shortworkings.
  3. Sub-lease.
  4. 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
  1. Accounting principles are formulated by the Government.
  2. Hire-purchase transactions are governed by the Hire-Purchase Act, 1972. True
  3. 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
  4. Royalty paid on sales is credited to Profit and Loss Account. True
(b) Fill in the blanks: 1x4=4
  1. Valuation of inventories is accounted for as per Accounting Standard 2.
  2. Profit on repossession of goods sold on Hire-Purchase System is considered as a revenue profit.
  3. In Branch Accounting, each branch has separate existence.
  4. On dissolution of a partnership firm, cash in hand is transferred to Cash Account.
2. Write short notes on (any four): 4x4=16
  1. Features of Accounting Principles.
  2. Termination of Hire-purchase Agreement.
  3. 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.


  1. Amalgamation of partnership firms.
  2. 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:
  1. Closing Stock Rs. 60,000
  2. Machinery is to be depreciated @ 10% p.a.
  3. Provision should be made for bad debts @ 2% p.a. on sundry debtors.
  4. 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
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
  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.
  9. 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:
  1. The cash price of the car was Rs. 1,20,000
  2. Amount payable on signing the agreement was Rs. 45,000
  3. 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.
  4. The car was depreciated at 10% p.a. under Fixed Instalment Method.
  5. 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
  1. Car’s Account.
  2. Vendor’s Account.
  3. 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
  1. 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.
  1. 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.
  1. 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:
  1. Mining Royalties,
  2. Brick-making Royalties,
  3. Oils-wells Royalties,
  4. Patent Royalties
  5. 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)