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

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 31^st 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 31^st 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 1^st 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:

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 31^st 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 31^st 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 31^st 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:

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:

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 31^st March, 2016. Prepare Trading and Profit & Loss Account for the year ended 31^st 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 1^st 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 31^st March, each year.

Prepare the following accounts in the books of M/s Hazarika Traders up to 31^st 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,

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 31^st 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 31^st 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.

2) In the case of dissolution of a firm where all the partners are insolvent, the following procedure should be followed:

a)   The Realisation Account is prepared without transferring external liabilities to it.

b)   Cash Account should be prepared after the Realisation Account.

c)    Cash in hand together with the amount realized on sale of asset and the amount received from the estate of insolvent partners shall be applied in the following order:

i)        For meeting the realization expenses

ii)       For meeting the external liabilities like bank loan, creditors, outstanding expenses, etc.

iii)     For meeting partners loan account.

iv)     For paying partners’ capital account balances.

Note: In case of deficiency of cash, balances of above accounts shall be transferred to the Deficiency Account. (Deficiency Account: When all the partners become insolvent, external liabilities will not be met in full and balance due from partners also cannot be recovered from partners in full. Hence, the balance due to external creditors and balance due from partners are transferred to a separate account called Deficiency Account.)

Or

(b) P and Q were in partnership sharing profits or losses in the ratio of 2 : 1 respectively. They dissolved the partnership and their Balance Sheet on that date was as follows:

Balance Sheet

Liabilities	Rs.	Assets	Rs.
Capital Accounts:             P             Q Trade Creditors	10,000 8,000 2,000	Building Inventory Cash	16,000 2,500 1,500
	20,000		20,000

The assets realized Rs. 20,000. The creditors were paid in full. You are required to pass Journal Entries and prepare Ledger Accounts for closing the books of the partnership firm.                                  6+6=12