Thursday, November 09, 2017

Financial Accounting Solved Question Papers: November' 2014

2014 (November)
COMMERCE (General / Speciality)
(Financial Accounting)
(New Course)
The figures in the margin indicate full marks for the questions.
1. (a) Fill in the blanks :                  1x4=4
  1. Accounting Standards Board was set up in India in the year 1977
  2. The cost of goods sold on hire purchase is transferred to Trading Account.
  3. Royalty paid on sales is debited to Profit and loss Account.
  4. In departmental accounts, each department is considered as a  Separate profit centre.
(b) Write ‘True’ or ‘False’:            1x4=4
  1. Accounting principles are formulated by the government. False
  2. The total amounted to be paid by the buyer under hire-purchase system is called hire-purchase price.  True
  3. In branch accounting, each branch has separate entity. False
  4. Short working is the excess of minimum rent over royalty payable for the year. True
2. Write short notes on :                               4x4=16
  1. The provisions of Accounting Standard – 6
Ans: Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, passage of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortisation of assets whose useful life is predetermined. The depreciable amount of a depreciable asset should be allocated on a systematic basis to each accounting period during the useful life of the asset. Depreciable assets are assets which:
  1. are expected to be used during more than one accounting period; and
  2. have a limited useful life; and
  3. are held by an enterprise for use in the production or supply or for administrative purposes.
    Depreciable amount of a depreciable asset is its historical cost, or other amount substituted for historical cost less the estimated residual value.
Useful life is the period over which a depreciable asset is expected to be used by the enterprise. The useful life of a depreciable asset is shorter than its physical life.  There are two method of depreciation:ϖ 
1] Straight Line Method (SLM)
2] Written Down Value Method (WDVM)
  1. Repossession of goods under hire-purchase system
Ans: Default and re-possession
When hire purchaser is not able to make the payment in time, then default is committed by him and the owner takes back the possession of goods. There are two possibilities:
1) When seller takes back the possession of complete goods called complete repossession.
2) When seller takes possession of only part of the total assets sold called partial repossession.
Complete Repossession: When the vendor takes back the possession of complete goods from the vendee in case of default in payment of installment, such process is called complete repossession of goods. In such case, the vendor closes the books of account of the hire-purchaser by transferring the balance to the goods repossessed account. Similarly, the hire-purchaser also closes the account of hire-vendor account by transferring the balance to assets account.
Partial Repossession: When the vendor takes possession of only part of the total goods sold from the vendee, such process is called partial repossession. In case of partial repossession of goods, Vendor’s Account is debited and the Asset Account is credited with the agreed value of goods repossessed. Since, the entire goods are not repossessed, Asset Account will have a balance for the goods not repossessed which will be equal to the depreciated value of the assets not repossessed and, naturally, Vendor’s Account will show a balance which will represent the amount due to the purchaser. If the agreed value of goods repossessed is not given, the same may be ascertained after charging depreciation from the original cost of the asset, i.e., written-down value at the date of repossession.
  1. Inter-departmental transactions
Ans: Inter departmental transfers
Transfer of goods or services by one department to another department are called inter departmental transfers. When one department transfers goods to another department, the transaction should be considered as a sale for the supplying department and a purchase for the receiving department. As such, the supplying department should be credited and the receiving department should be debited with the value of goods supplied.
Similarly, when one department renders service to another department, the department rendering the service should be credited and the department receiving the service should be debited with the value of service rendered.
Goods may be transferred either at cost price or at selling price. If goods are transferred at selling price by the transferor department and such goods are unsold at the end of the accounting year by the transferee department, then profit charged on such unsold goods by the transferor department is treated as unrealized profit and it should be debited to the general profit and loss account as stock reserve. In the balance sheet stock reserve should be deducted from closing stock. If unrealized profit is contained in the opening stock, such reserve should be credited to the general profit and loss account.
  1. Sublease
Ans: 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.
3. (a) Following is the Trial Balance of Karan and Arjun as on 31st March, 2014 :
Trial Balance
Debit balance
Rs.
Credit balance
Rs.

Opening Stock
Purchases
Bills Receivable
Cash in Hand
Bad Debts
Machinery
Advertisement
Sundry Debtors
Goodwill
Land & Building
Fuel
Wages and Salaries
Rent & Taxes
Discount
Commission
Furniture

1,60,000
4,00,000
     4,000
   26,000
    2,000
1,32,000
  16,000
1,00,000
1,40,000
4,50,000
   30,000
   80,000
   40,000
   17,200
   20,000
   30,000

Sundry Creditors
Bank Loan
Sales
Bills Payable
Interest
Capital :
  Karan
  Arjun

1,50,000
 87,200
8,40,000
  40,000
 10,000

3,20,000
2,00,000

16,47,200

16,47,200


From the following additional information, you are required to prepare Trading & Profit & Loss A/c and also a Balance Sheet of Karan and Arjun for the year ended 31st March, 2014.                                4+4+4=16
    1. Closing Stock as on 31st March, 2014 was Rs. 1,20,000.
    2. Depreciate machinery by 10% and furniture by 5%
    3. Create a reserve of 5% on Sundry Debtors for Bad Debts
    4. Write of ¼th of advertising
Or
(b) (i) Discuss the need for introducing and developing Generally Accepted Accounting Principles.            8
Ans: Generally Accepted Accounting Principles (GAAP)
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.
Need and Significance of GAAP
1) Consistency: Corporations, non-profits and government organizations must prepare their financial statements in accordance with generally accepted accounting principles (GAAP) set by the Indian Accounting Standards Board (IASB). Accounting principles are important because they establish a consistency that allows for more accurate and efficient viewing of company statements and reports.
2) Standards: The generally accepted accounting principles represent a complex, important set of accounting definitions, methods and assumptions that create a standard method of reporting the financial details of a business. With the GAAP, a hierarchy exists that dictates which standard should be used and when.
3) Industry Comparisons: Potential investors who want to direct funds to a certain type of industry without a particular company in mind will find accounting principles an important tool as individual businesses are reviewed. Standards allow the investor to compare and contrast companies across a singular industry or multiple industries quickly through balance sheet, income statement and annual report reviews.
4) Company Performance: Because of the long-term consistency in key accounting definitions and methods, standard company performance measures listed on financial statements and annual reports provide a realistic view of the company's growth or lack of growth over a period of years.
(ii) Discuss in brief the IFR Standards.      6
Ans: International Financial Reporting Standards (IFRS)
IFRS is a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are generally principles-based standards and seek to avoid a rule-book mentality. Application of IFRS requires exercise of judgment by the preparer and the auditor in applying principles of accounting on the basis of the economic substance of transactions. IFRS are issued by the International Accounting Standards Board (IASB). IASB issued only thirteen (13) IFRS which are as follows:
IFRS 1 - First-time adoption of International Financial Reporting Standards
IFRS 2 - Share-based payment
IFRS 3 - Business combinations
IFRS 4 - Insurance contracts
IFRS 5 - Non-current assets held for sale and discontinued operations
IFRS 6 - Exploration for and evaluation of mineral resources
IFRS 7 - Financial instruments: disclosures
IFRS 8 - Operating segments
IFRS 9 - Financial instruments
IFRS 10 - Consolidated financial statements
IFRS 11- Joint arrangements
IFRS 12- Disclosure of interests in other entities
IFRS 13- Fair Value measurement
Need and Importance of IFRS
The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements, rather than setting rules for industry-specific reporting. Having an international standard is especially important for large companies that have subsidiaries in different countries. Adopting a single set of world-wide standards will simplify accounting procedures by allowing a company to use one reporting language throughout. A single standard will also provide investors and auditors with a comprehensive view of finances. 
4. (a) Prakash & Co. purchased as machine on 01.01.2011 on hire – purchases basis. The payments were to be made as follows:
On signing the agreement
At the end of the first year
At the end of the second year
At the end of the third year
10,000
12,000
7,000
4,400

33,400
Interest included in Rs. 33,400 was charged on the cash price @ 10% p.a. You are required to ascertain the cash price of the machine and write up Machinery A/c and Hire vendor’s A/c in the books of Prakash & Co.            4+5+5=14
Solution: Calculation of Cash Price:
Year
Closing balance
Installment
Total
Interest @ 10%
Opening balance
3rd
2nd
1st
NIL
4,000
10,000
4,400
7,000
12,000
4,400
11,000
22,000
400
1,000
2,000
4,000
10,000
20,000
Cash Price = 10,000 + 20,000 = 30,000
LEDGER
In the books of Prakash & Company (vendee)
Machinery A/c
Dr. Cr.
Date
Particulars
Amount
Date
Particulars
Amount
1st Year
To Vendor A/c
30,000
1st Year
By Balance c/d
30,000


30,000


30,000
2nd Year
To Balance b/d
30,000
2nd Year
By Balance c/d
30,000


30,000


30,000
3rd year
To Balance b/d
30,000
3rd year
By Balance c/d
30,000


30,000


30,000
Vendor A/c
Dr. Cr.
Date
Particulars
Amount
Date
Particulars
Amount
1st Year
To Bank A/c
To Bank A/c
To Balance c/d
10,000
12,000
10,000
1st Year
By Machinery A/c
By Interest A/c
30,000
2,000


32,000


32,000
2nd Year
To Bank A/c
To Balance c/d
7,000
4,000
2nd Year
By Balance b/d
By Interest A/c
10,000
1,000


11,000


11,000
3rd year
To Bank A/c
4,400
3rd year
By Balance b/d
By Interest A/c
4,000
400


4,400


4,400
Or
(b)  (i) Explain the features of Installment-purchase system.       6
Ans: INSTALMENT PURCHASE SYSTEM
Meaning: Installment payment system (also called the deferred installments) is a system where the buyer is given the ownership as well as the possession of the gods at the time of signing the contract. The buyer has the facility to pay the price in installments.
Definition: According to J.B. Batliboi, Installment Purchase System is a system under there is an agreement to purchase and pay by installments, the goods which become the property of the Purchaser immediately when he receives the delivery of the same.
Features of Installment Payment System:
The features of Installment payment are as follows:
  1. Under this system, there will be an outright sale of goods/assets.
  2. The possession as well as the ownership is passed to the buyer right at the time of signing the contract.
  3. The buyer can make the payment in installments.
  4. IN case of default in payment, the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid price.
  5. The buyer cannot exercise the option of returning the goods and terminate the contract, unless the same becomes void or voidable under the contract act.
(ii) Distinguish between Hire-purchase system and Installment-purchase system.             8
Ans: 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.


5. (a) Gojen obtained from Brojen a coal mine on lease for five years from 1st April, 2009 on the following terms :
  1. Royalty is to be paid @ Rs. 2 per ton
  2. Minimum Rent is Rs. 3,000 per year
  3. Each year’s shortworkings can be recouped during the subsequent two years subject to a maximum of Rs. 500 per annum.
  4. If there is any cessation of work due to strike, the minimum rent may be reduced proportionately with regard to the length of the stoppage. Production of coal during the five years was as follows:
Year
Output ( in tons )
2009-10
2010-11
2011-12
2012-13
2013-14
1000
1500
1800
1200
1300


During the year 2012 – 13 , there was a stoppage in work due to strike lasting 4 months. From the above particulars, prepare (i) Royalties A/c, (ii) Short workings A/c and  (iii) Brojen’s A/c in the books of Gojen. Show the Analysis table also. 4+4+4+2=14
ANALYSIS OF ROYALTIES PAYABLE:
Year
Output
Royalty
@ Rs. 2
M/R
Shortworking
Surplus
Recoupment
Written off
Payment
09 – 10
10 – 11
11 – 12
12 – 13
13 – 14
1,000
1,500
1,800
1,200
1,300
2,000
3,000
3,600
2,400
2,600
3,000
3,000
3,000
2,000
3,000
1,000
-
-
-
400
-
-
600
400
-
-
-
500
-
-
-
-
500
-
-
3,000
3,000
3,100
2,400
3,000


Minimum Rent for 20012 – 13
Journal Entries
In the books of Gojen (Lessee)
Royalties A/c
Dr. Cr.
Date
Particulars
Amount
Date
Particulars
Amount
31-3-10
To Brojen’s A/c
2,000
31-3-10
By Production A/c
2,000


2,000


2,000
31-3-11
To Brojen’s A/c
3,000
31-3-11
By Production A/c
3,000


3,000


3,000
31-3-12
31-3-12
To Brojen’s A/c
To Shortworkings A/c
3,100
500
31-3-12
By Production A/c
3,600


3,600


3,600
31-3-13
To Brojen’s A/c
2,400
31-3-13
By Production A/c
2,400


2,400


2,400
31-3-14
To Brojen’s A/c
2,600
31-3-14
By Production A/c
2,600


2,600


2,600


Dr. Shortworkings A/c Cr.
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
31-3-10
To Brojen’s A/c
1,000
31-3-10
By Balance c/d
1,000


1,000


1,000
1-4-10
To Balance b/d
1,000
31-3-11
By Balance c/d
1,000


1,000


1,000
1-4-11
To Balance b/d
1,000
31-3-12
31-3-12
By Royalties A/c
By P/L A/c
500
500


1,000


1,000
31-3-14
To Brojen’s A/c
400
31-3-14
By Balance c/d
400


400


400


Brojen’s A/c
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
31-3-10
To Bank A/c
3,000
31-3-10
31-3-10
By Royalties A/c
By Shortworking A/c
2,000
1,000


3,000


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


3,000


3,000
31-3-12
To Bank A/c
3,100
31-3-12
By Royalties A/c
3,100


3,100


3,100
31-3-13
To Bank A/c
2,400
31-3-13
By Royalties A/c
2,400


2,400


2,400
31-3-14
To Bank A/c
3,000
31-3-14
31-3-14
By Royalties A/c
By Shortworking A/c
2,600
400


3,000


3,000


Or
(b) (i) What is called ‘Rock Rent’ in Royalty Account.        4
(ii) What do you mean by ‘Recoupment of Short workings’? What conditions are to be satisfied for recoupment of short workings?                           2+3=5
(iii) Distinguish between Rent and Royalty.          5
6. (a) In the context of Branch Accounts, explain the following :                3½x4=14
    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. 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. 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. 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) From the following particulars, prepare Departmental Trading and Profit & Loss A/c in columnar form for the two departments and thereafter the Combined Income Account of Red-Rose Brothers for the year ended 31st March, 2014.
Particulars
Dept. – A
Dept. - B
Stock on 01.04.2013
Purchase from outside
Wages
Salaries
Transfer from Dept. A
Stock on 31.03.2014
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 – B represents goods transferred from Department – A at cost plus 25%. Administrative and selling expenses amount to Rs. 14,000 which is to be allocated between the two departments in the ration of 6 : 1.                    4+6+4=14
Solution:
DEPARTMENTAL TRADING & PROFIT AND LOSS ACCOUNT
For the year ended 31st March, 2015
Particular
Dept. A
Rs.
Dept. B
Rs.
Particular
Dept. A
Rs.
Dept. B
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
A                            24,400
B                              1,600



26,000

26,000

26,000


Working Note:
Unrealized Profit
Unrealized Profit
O/S
C/S
Unsold Stock of Y
Rate of Profit changed by X
on cost

Now, Stock Reserve




(Old Course)
Full Marks: 80
Pass Marks: 32
1. (a) Write ‘True’ or ‘False’ :       1x3=3
  1. Minimum Rent is also known as ‘Rock Rent’ in Royalty Accounts. True
  2. Unearned Income Account is a liability. True
  3. Registration of partnership firm is compulsory. True
(b) Fill in the blanks:       1x3=3
    1. Cash Flow Statement is prepared as per Accounting Standard 3.
    2. Hire-purchase transactions are controlled by the Hire-Purchase Act of 1972
    3. Cash sent by the branch not received by the head office by the end of the year is debited to cash in transit Account.
(c) Choose the correct Answer:                                1x2=2
  1. Royalty paid on sales is debited to (Trading Account / Profit & Loss Account / Profit & Loss Appropriation Account).
  2. If inventory at branch is shown at invoice price instead of cost price, then the account which is used for adjustment is (Reserve Stock Account / Stock Reserve Account / Stock Suspense Account).
2. Write brief notes on (any four) :           4x4=16
          1. Instalment-purchase System
Ans: Meaning: Installment payment system (also called the deferred installments) is a system where the buyer is given the ownership as well as the possession of the gods at the time of signing the contract. The buyer has the facility to pay the price in installments.
Definition: According to J.B. Batliboi, Installment Purchase System is a system under there is an agreement to purchase and pay by installments, the goods which become the property of the Purchaser immediately when he receives the delivery of the same.
Features of Installment Payment System:
The features of Installment payment are as follows:
  1. Under this system, there will be an outright sale of goods/assets.
  2. The possession as well as the ownership is passed to the buyer right at the time of signing the contract.
  3. The buyer can make the payment in installments.
  4. IN case of default in payment, the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid price.
  5. The buyer cannot exercise the option of returning the goods and terminate the contract, unless the same becomes void or voidable under the contract act.


          1. Independent Branch
Ans: Independent branches are those which act independently within the broad policies framed by the Head office in conducting their day-to-day activities.
The main features of independent branches.
  1. They need not depend on the Head office for their requirements of supplies of goods. They can make purchases themselves. Of course, they can also obtain supplies of goods from the head office as and when they want.
  2. They can sell goods only for cash and credit at any price they consider profitable.
  3. They need not remit the money received by them from cash sales and debtors to the Head office periodically. They can retain the funds and meet their day-to-day expenses out of those funds. Finally, if they have surplus cash in their hands, they can remit the same to the Head office.
  4. They keep a complete set of books for recording their transactions. So, they can prepare their own Trial Balance, Trading and Profit and Loss Account and Balance Sheet.
  5. However, as they are ultimately responsible to the Head office, at the end of every financial period, they are required to submit a copy of their Trial Balance to the Head office.


          1. Features of Accounting Income
Ans:  Features of Accounting Income:
From the foregoing definition it is clear that the accounting income is the difference between the realized revenues arising form the transactions of the period and the corresponding historical costs (expenses) incurred to earn those revenues. The following characteristics of accounting income, based on such descriptions may be noted as:
  1. Accounting income is based on the actual transactions entered into by the firm, primarily revenues arising from the sales of goods and/or services minus the cost necessary to achieve these sales. The transactions may be external and internal. External transactions results form the purchase of goods or services by a firm from other entities. They are based on objective evidence. On the other hand, internal transactions result from the use or allocation of assets within a firm e.g. depreciation. They are based on less objective evidence such as the use or passage of time.
  2. Accounting income is based on the accounting period convention in the sense that it refers to the financial performance of the business performance of the business enterprise for a given period.
  3. Accounting income is based on the revenue principle. Accounting income requires the definition of measurement and recognition of revenues.
  4. Accounting income requires the measurement of expenses in terms of historical cost to the enterprise.
  5. Accounting income requires that the realized revenues of the period be related to appropriate or corresponding relevant costs. Accounting income is therefore based on matching principle. 
          1. Garner vs. Murray Rule
          2. Minimum Rent
Ans: 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.


3. (a) (i) How does the money measurement concept limits the scope of accounting?     4
Ans: Money Measurement Concept: According to this concept, only those events and transactions are recorded in accounts which can be expressed in terms of money. Facts, events and transactions which cannot be expressed in monetary terms are not recorded in accounting. Hence, the accounting does not give a complete picture of all the transactions of a business unit.
(ii) Write four points of the necessity of accounting.        4
Ans: Accounting is the analysis and interpretation of book-keeping records. It includes not only maintains of accounting records but also the preparation of financial and economic information Which involves the measurement of transaction and other events pertaining to a business.
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”.
The main advantages of accounting are mentioned below:
  1. Accounting information is used by the management in taking various managerial decision.
  2. It shows the financial position of business on a particular data.
  3. Accounting data are accepted by the tax authorities as authentic and reliable. Hence they can be used as the basis for discharging tax liabilities.
  4. Accounting supplies financial data which are accepted by the insurance company as reliable figure for settlement of insurance claim.
(iii) Write a short note on Indian Accounting Standards Board.    4
Ans: 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. It was established in the year 1977.
Or
(b)From the following Trial Balance of Mr. Pathak, you are required to prepare Trading & Profit & Loss A/c for the year ended 31st March, 2014 and a Balance Sheet as on that date.       4+4+4=12
Trial Balance
Debit Balances
Rs.
Credit Balances
Rs.
Opening Stock
Furniture
Purchase
Carriage Inward
Bad Debts
Wages
Debtors
Sales Return
Rent
Salaries
Cash
Drawings
Building
Advertisement
Interest on Bank Overdraft
Miscellaneous Expenses
50,000
32,000
11,10,600
9,400
3,600
1,04,000
1,60,000
30,000
48,000
1,36,000
17,800
28,000
3,20,000
20,000
14,000
6,800
Sales
Creditors
Bank Overdraft
Provision for Doubtful Debts
Discount
Purchase Return
Capital
14,00,000
1,45,000
1,00,000
4,200
1,000
40,000
4,00,000

20,90,200

20,90,200
Adjustments:
  1. Closing Stock is valued at Rs. 72,000
  2. Make a provision for Bad and Doubtful Debts @ 5% on Debtors.
  3. Depreciate furniture by 10%
  4. Provide for Interest on Capital @ 6 % p.a.
Trading and Profit & Loss A/c
Particulars
Amount
Particulars
Amount
To Opening Stock
To Purchases                   11,10,600
Less: Returns                        40,000
To Carriage Inwards
To Wages
To Gross Profit c/d
50,000

10,70,600
9,400
1,04,000
2,08,000
By Sales                        14,00,000
Less: Returns                    30,000
By Closing Stock
13,70,000
72,000

14,42,000

14,42,000

To Depreciation on Machinery
To Bad debts
To Provision for d/d
To Rent
To Salaries
To Advertisement
To Interest on Bank Overdraft
To Miscellaneous Expenses
To Interest on capital

3,200
3,600
8,000
48,000
1,36,000
20,000
14,000
6,800
24,000

By Gross Profit b/d
By Provision for d/d
By Discount
By Net Loss c/d

2,08,000
4,200
1,000
50,400

2,13,200

2,13,200


Balance Sheet
Liabilities
Amount
Assets
Amount
Sundry Creditors
Bank Overdraft
Capital Accounts           4,00,000
Add: Interest on
Capital 6%                         24,000
4,24,000
Less: Drawings                  28,000
3,96,000
Less: Net Loss B/d            50,400
1,45,000
1,00,000






3,45,600
Furniture                                   32,000
Less: Depreciation @ 10%        3,200

Debtors                                    1,60,000
Less: Provision for d/d                8,000

Cash
Buildings
Closing Stock

28,800


1,52,000

17,800
3,20,000
72,000

5,90,600                                                                                                                                                                                               

5,90,600    


4. (a) On 1st January, 2010, Assam Traders purchased a machine from M/s Jai Hind Machinery on Hire-purchase system. As per agreement, an amount of Rs. 5,000 paid on signing the agreement and balance in three equal annual installments of Rs. 20,000 each on 31st December each year. The hire vendor charged interest @ 5% p.a. on yearly balance. Depreciation was charged @ 15% p.a. straight-line method.  Ascertain the cash price of the machine and prepare (i) Machinery A/c and (ii) M/s Jai Hind Machinery’s A/c in the books of Assam Traders.      3+4+4=11
Or
(b) Distinguish between the following:                  7+4=11
  1. Hire-purchase System and Installment-purchase System.
  2. Complete Repossession and Partial Repossession.
5. (a) Sri Madan Baruah took a colliery from Sri Mohan Singh on lease for a period of 20 years from 1st January, 2008 on a royalty of Rs. 16 per ton of coal raised with a Minimum Rent of Rs. 80,000 per annum and power to recoup short-workings was first four years of the lease.
Year
Tons
2008
2009
2010
2011
2012
3000
3500
5000
9000
10000
From the above particulars, prepare in the books of Sri Madan Baruah (i) Royalties A/c, (ii) Short workings A/c and (iii) Sri Mohan Singh’s A/c.         3+4+4=11
Solution:
ANALYSIS OF ROYALTIES PAYABLE:
Year
Output
Royalty
@ Rs. 16
M/R
Shortworking
Surplus
Recoupment
Written off
Payment
2008-09
2009-10
2010-11
2011-12
2012-13
3,000
3,500
5,000
8,000
10,000
48,000
56,000
80,000
1,28,000
1,60,000
80,000
80,000
80,000
80,000
80,000
32,000
24,000
-
-
-
-
-
-
48,000
80,000
-
-
-
48,000
-
-
-
-
8,000
-
80,000
80,000
80,000
80,000
1,60,000


Royalties A/c
In the books of Sri Mohini Baruah (Lessee)
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
31-3-09
To Kitip Singh
48,000
31-3-09
By Production A/c
48,000


48,000


48,000
31-3-10
To Kitip Singh
56,000
31-3-10
By Production A/c
56,000


56,000


56,000
31-3-11
To Kitip Singh
80,000
31-3-11
By Production A/c
80,000


80,000


80,000
31-3-12
31-3-12
To Kitip Singh
To Shortworking A/c
80,000
48,000
31-3-12
By Production A/c
1,28,000


1,28,000


1,28,000
31-3-13
To Kitip Singh
1,60,000
31-3-13
By Production A/c
1,60,000


1,60,000


1,60,000
Kitip Singh A/c
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
31-3-09
To Bank A/c
80,000
31-3-09
31-3-09
By Royalties A/c
By Shortworking A/c
48,000
32,000


80,000


80,000
31-3-10
To Bank A/c
80,000
31-3-10
31-3-10
By Royalties A/c
By Shortworking A/c
56,000
24,000


80,000


80,000
31-3-11
To Bank A/c
80,000
31-3-11
By Royalties A/c
80,000


80,000


80,000
31-3-12
To Bank A/c
80,000
31-3-12
By Royalties A/c
(1,28,000 – 48,000)
80,000


80,000


80,000
31-3-13
To Bank A/c
1,60,000
31-3-13
By Royalties A/c
1,60,000


1,60,000


1,60,000
                                                                                                                                                
Dr. Shortworking A/c Cr.
Date
Particulars
Amount (Dr.)
Date
Particulars
Amount (Cr.)
31-3-09
To Kitip Singh A/c
32,000
31-3-09
By Balance c/d
32,000


32,000


32,000
1-4-09
31-3-10
To Balance b/d
Ti Kitip Singh A/c
32,000
24,000
31-3-10
By Balance c/d
56,000


56,000


56,000
1-4-10
To Balance b/d
56,000
31-3-11
By Balance c/d
56,000


56,000


56,000
1-4-11
To Balance b/d
56,000
31-3-12
31-3-12
By Royalties A/c
By P/L A/c
48,000
8,000


56,000


56,000


Or
(b) What is Royalty? Explain the different types of royalty. Also distinguish between Rent and Royalty.  2+4+5=11
6. (a) A head office at Kolkata supplies goods to its Dibrugrh Branch on cost. The branch sells the goods for cash and on credit and remits the proceeds to the head office promptly. The branch expenses are being met by the head office by cheque. The following are the transactions relating to the branch for the year ended 31st March, 2014:
Stock at branch on 01.04.2013
Debtors at branch 01.04.2013
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 received from debtors
Discount allowed to debtors
Bad Debts written off   
Cheque sent to branch for expenses:
Salaries
Rent
Petty Expenses
Stock at branch on 31.03.2014
30,000
40,000
2,25,000
        3,70,000
10,000
10,000
2,10,000
10,000
  5,000

25,000
14,500
500
45,000


Prepare Dibrugarh Branch A/c and goods sent to Branch A/c in head Office books. Show Branch Debtors A/c as a part of your working note.    6+3+2=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


Or
(b) In the context of Branch Accounts, explain the following:      2+3+3+3=11
  1. Depreciation on 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.


  1. 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. 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.
7. (a) A, B and C are partners in a partnership firm. They decided to dissolve the partnership on 31st December, 2013. Their Balance Sheet as on 31st December, 2013 was as follows:
Balance Sheet
Liabilities
Rs.
Assets
Rs.
A’s Capital
B’s Capital
2,00,000
   60,000
Cash
C’s Capital
Realization A/c (Dr.)
1,50,000
   20,000
   90,000

2,60,000

2,60,000
C is insolvent and cannot pay anything. Pass Journal Entries and prepare Ledger A/c’s in the books of the firm:    5+6=11
  1. Just prior to decision in Garner vs. Murray
  2. After decision in Garner vs. Murray
Or

(b) What do you mean by Amalgamation of firms? What are the major objectives of amalgamation? Name the different forms of amalgamation.                2+6+3=11

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