Friday, November 15, 2019

Advanced Financial Accounting Solved Question Papers: Nov' 2017

2017
COMMERCE (General / Speciality)
Course: 301 (Advance Financial Accounting)
(New course)
Full marks: 80
Pass marks: 24
Time: 3 hours
1.       (a) State whether the following statements are True or False:                                 1x4=4

a)      Paid up capital of a banking company must be at least two-third of the subscribed capital of a banking company.                        False, one half
b)      In the financial statements of insurance companies liabilities under the existing policies are determined by actuarial valuation in case of life insurance.          True
c)       In case of marine insurance, the provision against unexpired risk is 50%.        False, 100%
d)      Brokerage is added in the cost of investment in the books of purchaser of investment.          True
(b) Fill in the blanks:                                                                            1x4=4
a)      A banking company cannot grant loan to any of its directors.
b)      Life insurance business is carried on by Life Insurance Corporation of India since 1956.
c)       The general insurance business was taken over by the central Government with effect from 1972.
d)      Sale of right is a capital receipts in case of right issue.
2.       Write short notes on any four of the following:                                                        4x4=16
a)      Statutory reserve
Ans: Statutory reserve is an amount of money which is set aside by the banks or insurance companies out of profit every year to meet its unpaid and contingent liabilities. As per Sec. 17, every banking company is require to transfer at least 25% of its current year’s profit to statutory reserve. Statutory reserve is shown in Schedule 2 (Reserve and Surplus) of Banking Company’s Balance sheet. Statutory reserve is added with the opening balance of previous year.

b)      Surrender value
Ans: Surrender Value: The term surrender value indicates the value that we receive from the insurance issuer after we surrender the policy before maturity. Surrender, here, means termination or cancellation of the life policy or returning the policy to the insurance company before the stipulated time. The policy no longer exists after the company clears off the payment to the policyholder. There can be a number of reasons behind surrendering our policy. One of the most common reasons is inability to pay the premiums. The policyholders often feel they have chewed more than they can swallow. Surrendering our policy means we will not have to pay premiums any further. When we terminate a policy, the company pays us certain amount because we have paid premiums in the previous years of which a portion has been used to cover risk, and another portion has been used as an investment. The investment portion with its increased value will be returned to us after deducting some termination charges. We might even get some bonus as well. This amount is known as the surrender value. However, keep in mind that the surrender value factor plays a key role in minimizing the bonus.  

c)       Reserve for unexpired risk
Ans: Insurance Company, close their accounts on 31st March but not all risks under different policies expire on that date. Many policies extend into the following accounting year during which the risk continues. Therefore on the closing date there is an unexpired liability under various policies which may occur during the remaining term of the policy beyond the year and therefore, a provision for unexpired risks is made. This reserve is based on the Net Premium income earned by the insurance company during the year.
The effort involved in calculating unexpired portion of premium under each policy is very time consuming. Therefore, a simple formula to derive a percentage of premium income to be allocated to reserve for unexpired risks is adopted.
According to the requirements of the Insurance Act, it is sufficient if the provision is made for unexpired risks at 50 per cent for Fire, Marine Cargo and Miscellaneous business except for Marine Hull which has to be 100 per cent. It may be mentioned that the insurance companies are governed by the provisions of Section 44 of the Income-tax Act, 1961. In this regard, Rule 5 of the First Schedule to the Income-tax Rules – computation of Profit & Loss of General Insurance Business – provides for creation of a reserve for unexpired risks as prescribed under Rule 6E of the said Rules. According to this Rule, the insurance companies are allowed a deduction of 50 per cent of net premium income in respect of Fire and Miscellaneous Business and 100 per cent of the net premium income relating to Marine Insurance business. In view of this the reserves are created at the rates allowed under the Income-tax Act.
d)      Purposes of an Investment A/c
Ans: Purpose of maintaining an investment ledger is as follows:
1.       It helps in keeping a record of each investment separately.
2.       It helps to ascertain the value of securities at the end of the account period.
3.       It is helpful in collection of interest and dividend as and when they become due.
4.       It is helpful in ascertaining the amount of accrued income at the end of the accounting period.
5.       It facilitates the determination of the profit or loss on sale of any security.
e)      Ex-interest quotations
Ans: The term ‘Cum’ and ‘Ex’ are Latin words. ‘Cum’ means with and ‘Ex’ means without. The term ‘Cum-interest’ and ‘Ex-interest’ relate to debentures and bonds. Cum-interest can be expanded as inclusive of interest and Ex-interest can be expanded as exclusive of interest. Cum interest is the amount of interest accrued in the duration between the last interest date and the settlement date or transaction date. The cum-interest price includes not only the cost but also includes the interest accrued upto the date of purchase, and when interest becomes due it would be the right of the buyer to claim interest. Conversely, the quotation, Ex-interest, covers only the cost of the debentures and the buyer is liable to pay additional amount as interest accrued upto the date of purchase of debentures.

3.       (a) Discuss the following items which are usually found in a Bank Balance Sheet: 3.5x4=14
a)      Rebate on bills discounted
Ans: Discounting of bills means making the payment of the bill before the maturity date of the bill. While making payment of the bill, the bank deducts discount for the unexpired period for the amount of the bill discounted. Such discount is called rebate on bills discounted. It is treated as interest received in advance. In profit and loss account, closing balance of rebate on bills discounted is deducted and opening balance of rebate on bills discounted is added with the interest and discount for the year. Closing balance of rebate on bills discounted is shown as liability in balance sheet under the heading ‘other liabilities’. At the commencement of next year, a reverse entry is passed for the unexpired discount of the previous year expiring this year and treated as income. Rebate on bills discounted is calculated with the help of following formula = (Total annual discount x no. of days after the close of the year)/365.
b)      Inter branch adjustments
Ans:

c)       Contingent liabilities
Ans: Contingent Liabilities: Those liabilities which may or may not arise because they are dependent on a happening in future. It is not shown in the balance sheet of the banking companies but is disclosed outside balance sheet in Schedule 12. Format is given below: Schedule 12 - Contingent Liabilities

Particulars
As on 31.3…
(current year)
As on 31.3...
(previous year)
I
Claims against the bank not acknowledged as debts


II.
Liability for partly paid investments


III.
Liability on account of outstanding forward exchange contracts



IV.
Guarantees given on behalf of constituents
(a) In India
(b) Outside India


V.
Acceptances endorsements and other obligations


Vi.
Other items for which the bank is contingently liable



Total



d)      Money at call and short notice
Ans: Money at call & short notice (Schedule 7): Money at call and Short money means a very short term loan given by banker for a period ranging from 1 day to 14 days. If the loan is given for one day, it is called ‘money at call’ and if the loan is given for a maximum period of 14 days and cannot be back on demand and will require at least a notice of 3 days for calling back, it is called ‘money at short notice’. These items appear on the assets side of a bank’s balance sheet and represents temporary loans to Bill Brokers, Stock Brokers & other banks. Call money are normally unsecured in our country.
OR
(b) From the following information, prepare Profit & Loss A/c of Jai Bharat Bank Ltd. For the year ended 31st March, 2017. Working should from a part of your answer: 14
Particulars
Rs.  (in ‘000)
Particulars
Rs.  (in ‘000)
Interest on loans
Interest on fixed deposits
Commission
Exchange and brokerage
Salaries and allowances
Discount on bills(gross)
Interest on cash credit
Interest on temporary
 overdrafts in current accounts
300
275
10
20
150
152
240

30
Interest on Savings Bank deposits
Postage and stamps
Printing and stationery
Sundry expenses
Rent
Taxes and licences
Audit fees
87
10
20
10
15
10
10
Additional information:
a)      Rebate on bills discounted- Rs. 30,000
b)      Salary of managing director- Rs. 30,000
c)       Provision for bad debts- Rs. 40,000
d)      Provision for income tax is to be made @ 55% (round off to the nearest thousands)
e)      Interest of Rs. 4,000 on doubtful debts was wrongly credited to Interest on Loan A/c
f)       Provide Rs. 15,000 as dividend

Profit & Loss A/c of Jai Bharat Bank Ltd.
For the year ended 31st March, 2017
Particular
S. No.
Rs. (000)
         i.            Income:
Interest earned
Other Income

13
14

688
30


718
       ii.            Expenses:
Interest Expended
Operating Expenses
Provisions and contingencies:
Provisions for doubtful debt
Provide for tax

15
16


362
255

40
34


691
      iii.            Net surplus: I and II

27
     iv.            Appropriation:
Transfer to Statutory reserve @ 25%
Proposed Dividend
Balance carried forward


6.75
15
5.25


27

S. No.
Particular
Rs. (000)
13


Interest Earned:
Interest/Discounts on advance/bills (300+152 +240 + 30 -4 – 30)

688


688
14
Other Income:
Commission, Exchange and brokerage (10 + 20)

30


30
15
Interest expended:
Interest on deposit (275 + 87)

362


362
16
Operating Expenses:
Salaries and allowances
Add: O/S salaries of a director fees

Postage, telegram, and stamps
Printing and stationary
Sundry Expenses
Rent
Taxes and license
Audit fees

150
30
180
10
20
10
15
10
10


255

4. (a) What is Life Insurance? What are the statutory and subsidiary books maintained by a life insurance company. 2+6+6=14
Ans: Insurance is an arrangement which is represented by a policy in which an individual or entity financial protection from insurance company against losses such as theft, fire, accident, illness, death etc, in return for payment of a specified premium. Insurance is of two types – Life insurance also known as contract of guarantee and general insurance also known as contract of indemnity.
Life Insurance is defined as a contract between the policy holder and the insurance company, where the life insurance company pays a specific sum to the insured individual or his family upon the maturity of the term for which the life is insured or on the death of the insured. That is why life insurance is called a contract of guaranteed. The life insurance sum is paid in exchange for a specific amount of premium.
Books maintained by All Insurance Companies
Under the Insurance Act, 1938 it is obligatory on the part of all insurance companies including the general insurance companies to maintain the following books which may be called ‘statutory books’.
1.       The registrar of policies: This book contains the following particulars in respect of each policy issued:
a)      The name and address of the policyholders.
b)      The date when the policy was affected.
c)       A record of any assignment of the policy.
2.       The registrar of claims: This book should contain the following particulars in respect of each claim:
a)      The date of claim.
b)      The name and address of the claimant.
c)       The date on which the claim was discharged.
d)      In the case of a claim which is rejected, the date of rejection and the ground for rejection.
3.       The register of licensed insurance agents: This book should contain the following particulars in respect of each agent:
a)      Name and address of every insurance agent appointed.
b)      The date of appointment.
c)       The date on which appointment ceased, if any.
In addition to the statutory books mentioned above, insurance companies also maintain the following subsidiary books for recording the transactions:
a)      Proposal register.
b)      New premium cash book.
c)       Renewal premium cash book.
d)      Agency and branch cash book.
e)      Petty cash book.
f)       Claims cash book.
g)      General cash book.
h)      Agency credit journal.
i)        Agency debit journal.
j)        Lapsed and cancelled policies book.
k)      Chief journal.
l)        Commission book.
m)    Agency ledger.
n)      Policy loan ledger.
o)      General loan ledger.
p)      Investment ledger.
OR
(b) From the figures set out below, prepare Revenue A/c of Eastern India Life Insurance Company for the ended 31st march 2017:
                                                                                                                                      Rs.(in ‘000)
Life assurance Fund (01.04.2016)                                                                              7,50,000
Premiums                                                                                                                           3,72,000
Interest, dividends and rents                                                                                     2,26,000
Consideration for annuities granted                                                                       12,500
Fines for revival of lapsed policies                                                                          200
Claims paid                                                                                                                        42,500
Bad debts                                                                                                                            400
Expenses of management                                                                                           35,000
Commission                                                                                                                       16,000
Bonus in reduction of premium                                                                                                500
Annuities paid                                                                                                                  18,500
Surrenders                                                                                                                         25,500
Surplus on revaluation of reversions purchased                                               1,500
Income tax paid                                                                                                               32,000
Bonus in cash                                                                                                                    18,000

Eastern India Life Insurance Co. Ltd.
REVENUE ACCOUNT
For the year ended 31st March, 2017
Particulars
Schedule
Amount
Premium Earned (Net)
Income from Investments:
Interest, Dividend and Rent
Surplus on Revaluation of Reversions

Other Income:
Consideration for Annuities Granted
Fees
1
3,72,000

2,26,000
1,500


12,500
200
Total (A)

6,12,200
Commission
Operating Expenses relating to Insurance Business
Bad debt (Re-insurance irrecoverable)
Income Tax
2
3
16,000
35,000
400
32,000
Total (B)

83,400
Benefits Paid (Net)
4
1,05,000
Total (C)

1,05,000
Surplus (D) = (A) – (B) – (C)

4,23,800
Schedule Forming Part of Revenue A/c
SCHEDULE 1 – PREMIUMS EARNED (NET)
Particulars
Amount
Premiums Earned (Net)
3,72,000
SCHEDULE 2 – COMMISSION EXPENSES
Particulars
Amount
Commission Paid
16,000
SCHEDULE 3 – OPEERATING EXPENSES RELATED TO INSURANCE BUSINESS
Particulars
Amount
Management Expenses
35,000
SCHEDULE 4 – BENEFITS PAID

Particulars
Amount
Claims less Reinsurance Claims
Annuities
Surrenders
Bonus in cash
Bonus in Reduction in Premium
42,500
18,500
25,500
18,000
500

1,05,000
5. (a) What is General Insurance? Point the main features of accounts of general insurance companies. How profit or loss is ascertained in general insurance business? 2+7+5=14
Ans: Meaning of General Insurance: Insurance contracts that do not come under the ambit of life insurance are called general insurance. The different forms of general insurance are fire, marine, motor, accident and other miscellaneous non-life insurance. The tangible assets are susceptible to damages and a need to protect the economic value of the assets is needed. For this purpose, general insurance products are bought as they provide protection against unforeseeable contingencies like damage and loss of the asset. Like life insurance, general insurance products come at a price in the form of premium. 
Features of General Insurance Companies:
a)      General Insurance policy is a contract of indemnity in which the insurer agrees to reimburse only the actual loss suffered subject to the average clause.
b)      General Insurance contract is for a short period usually a year.
c)       The subject matter is any physical property, assets, ship or cargo etc.
d)      General insurance has only the element of protection and not the element of investment.
e)      Insurable interest on the subject matter must be present both at the time of effecting policy as well as when the claim falls due.
f)       General insurance is a contract of indemnity. The insured can claim only the actual amount of loss from the insurer.
g)      General insurance does not have any surrender value or paid up value.
h)      In case of general insurance, business profit is determined after making provision for unexpired risks.
i)        Loss is measurable in case of general insurance.
Final Accounts of General Insurance Companies
Final account of general insurance business is required to be prepared as per IRDA Regulations, 2002 which consist of:
(a) Revenue Account (as per Form B-RA);
(b) Profit and Loss Account (Form B-PL);
(c) Balance Sheet (Form B-BS).
1. Revenue Account: Revenue account of a general insurance is a account which is prepared at the end of accounting year to know the operating profit or loss of a general insurance companies. A separate Revenue Account (Form B-RA) is prepared for each type of business e.g., fire, marine and others. It records the incomes and expenses of a particular business and profit/loss is transferred to Profit and Loss Account.
Incomes of general insurance companies include premium after adjusting reinsurance ceded and reinsurance accepted and incomes from investments. Expenses of general insurance companies includes commission, operating expenses, benefits paid, bonus and change in reserve for unexpired risk during a particular period. The difference between incomes and expenses is the operating profit or loss of insurance companies.
2. Profit and Loss Account: (Form B-PL) Besides, profit/loss of different business, it records incomes and expenses of general nature and it shows how the profit has been appropriated. Its balance is shown in the Balance Sheet.
3. Balance Sheet: (Form B-BS) It records various assets and liabilities of the General Insurance Companies.
Determination of Profits in case of general insurance companies
It must be observed that difference in revenue account does reveal profit or loss of business. The revenue account is closed by transfer to respective fund account viz., fire fund, marine fund etc. Ascertainment of profit under General Insurance Business. General insurance policies are normally issued for short terms renewable every year.
It is quite possible that on the accounting date, some of the contracts are still alive and hence represent unexpired risk. A suitable provision is made for that unexpired risk on a generalized basis as it is impractical to create it for specific policies. Sometimes an additional provision is also created. The total of reserve for unexpired risk and additional risk is collectively termed as ‘Respective Fund’ which may be fire fund, marine fund, motor vehicle fund, etc. The revenue account starts and ends with respective value of the fund besides recording normal revenue and expenditure. The difference of the account is called profits or loss and is transferred to Profit and Loss Account.
It must be observed that difference in revenue account does reveal profit or loss of business. The revenue account is closed by transfer to respective fund account viz., fire fund, marine fund etc. Ascertainment of profit under General Insurance Business. General insurance policies are normally issued for short terms renewable every year.
Reserve for unexpired risk and its significance at the time of calculating profits
Insurance Company, close their accounts on 31st March but not all risks under different policies expire on that date. Many policies extend into the following accounting year during which the risk continues. Therefore on the closing date there is an unexpired liability under various policies which may occur during the remaining term of the policy beyond the year and therefore, a provision for unexpired risks is made. This reserve is based on the Net Premium income earned by the insurance company during the year.
The effort involved in calculating unexpired portion of premium under each policy is very time consuming. Therefore, a simple formula to derive a percentage of premium income to be allocated to reserve for unexpired risks is adopted.
According to the requirements of the Insurance Act, it is sufficient if the provision is made for unexpired risks at 50 per cent for Fire, Marine Cargo and Miscellaneous business except for Marine Hull which has to be 100 per cent. It may be mentioned that the insurance companies are governed by the provisions of Section 44 of the Income-tax Act, 1961. In this regard, Rule 5 of the First Schedule to the Income-tax Rules – computation of Profit & Loss of General Insurance Business – provides for creation of a reserve for unexpired risks as prescribed under Rule 6E of the said Rules. According to this Rule, the insurance companies are allowed a deduction of 50 per cent of net premium income in respect of Fire and Miscellaneous Business and 100 per cent of the net premium income relating to Marine Insurance business. In view of this the reserves are created at the rates allowed under the Income-tax Act.
Additional reserve for unexpired risk
Ø  In a particular year the management may feel that the percentage of premium recommended by the General Insurance Council is not sufficient to meet the unexpired risks. In such a situation they may provide additional reserve. Such additional reserve for unexpired risk will also be debited to the revenue account.
Ø  The balance will be shown in the balance sheet as in the case of normal reserve for unexpired risk, and will be transferred to the credit of next year’s revenue account.
Treatment of reserves for unexpired risk: Reserve for unexpired risk is adjusted with premium earned in schedule – 1 of the Revenue account of a general insurance company. Difference in opening and closing balance of reserve for unexpired risk is calculated and increase in reserves during the year is deducted with premium earned or vice-versa.  In balance sheet, reserve for unexpired risk is shown in schedule – 14 under the head provisions.
OR

(b) You are required to prepare Revenue A/c of X Fire Insurance Co. Ltd. From the following figures for the year ended 31st March 2017:                                             Rs.
Reserve for unexpired risk (01.04.2016)                                                                1,65,000
Fire insurance premium                                                                                          4,00,000
Fire insurance claims paid                                                                                       2,10,000
Fire insurance commission                                                                                         24,730
Fire insurance expenses                                                                                              85,000
Contribution to fire brigades                                                                                     2,800
Additional fire insurance reserve                                                                            1,55,000
Dividend to shareholders                                                                                            8,000
Transfer fees (general)                                                                                                 30
Interest and dividend (fire fund)                                                                             10,000
Make provision for unexpired risk on the basis of 44% fire insurance premiums        14
Revenue A/c
For the year ended 31/03/2017
X Fire Insurance Company Limited
Particulars
S. No.
Amount
Premium (Net)
Interest Divided & Rent
1
3,89,000
10,000
Total (A)

3,99,000
Claims (Net)
Commission
Operating Expenses
2
3
4
2,10,000
24,730
87,800
Total (B)

3,22,530
Operating Profit (Total: C = A – B)

76,470
Schedules forming Part of the Revenue account:
1. Premium (Net)
Particulars
Amount
Premium recovered
4,00,000






11,000
Adjustment for unexpired risk:
Closing balance of unexpired risk:
44% of Net Premium                                                                                                                   1,76,000
Add: Additional reserve                                                                                                             1,55,000
                                                                                                                                                         3,31,000
Less: Opening unexpired risk including
opening additional reserve (1,65,000+1,55,000)                                                                  3,20,000

3,89,000
2. Claims Incurred (Net):
Particulars
Amount
Claims
2,10,000


2,10,000
3. Commission:
Particulars
Amount
Commission on direct business
24,730

24,730
4. Operating Expenses:

Particulars
Amount
Fire insurance expenses
Contribution to fire brigade
85,000
2,800

87,800
6. (a) What is Investment Account? Why is it prepared? Mention the special features of Investment Account. How are stock exchange transactions (sale and purchase of securities) recorded in books?                           2+2+6+4=14
Ans: Investment Accounts: The accounts of investments are kept in the same way as the accounts of any other asset. A separate investment account should be opened for each kind of security and on the head of the account particulars regarding the nature of the security, dates when interest or dividend is due, the date of redemption etc. should be stated. When the number of investments carried is large, a separate investment Ledger is employed for recording all investment accounts.
Purpose of maintaining an investment ledger is as follows:
6.       It helps in keeping a record of each investment separately.
7.       It helps to ascertain the value of securities at the end of the account period.
8.       It is helpful in collection of interest and dividend as and when they become due.
9.       It is helpful in ascertaining the amount of accrued income at the end of the accounting period.
10.   It facilitates the determination of the profit or loss on sale of any security.
Features of Investment accounts:
1. It is a real account.
2. Investment account is divided into three columns. First column show nominal value of investment, second column show interest and dividend and third column shows cost of investment or sale proceeds of investment.
Preparation of Investments Account
Concerns holding a large number of investments may find it more convenient to use a separate ledger called an Investment Ledger, for keeping the accounts of all their investments. Such a ledger is kept on the columnar system and is ruled differently from an ordinary ledger. As the issuing authority of a security pays interest to the holder at a certain rate calculated on its face value, it is desirable that the face value (also known as the nominal value) as well as the interest or dividend received should appear side by side with the capital invested in it. Therefore, the investment Ledger is provided with three columns on either side headed ‘Nominal Value’,’ Interest or Dividend’ and ‘Capital or Principal’. The name of each investment is written at the tip of the account followed by the rate of interest or dividend and the dates on when it is payable; when an investment is purchased “cum-dividend”, ‘ex-dividend” its cost is analyzed into the nominal price and the dividend or interest accrued and as entry is made on the credit side of the Cash Book, from where it is posted to the respective columns on the debit side of the particular Investment Account in the Investment Ledger. When the whole or part of the investment is sold, the price received, similarly split up into the nominal price and the dividend or interest accrued, is entered on the debit side of the Cash Book, from where it is posted to the respective columns on the credit side of the particular Investment Account in the Investment Ledger. Expenses by way of brokerage, stamps etc., will be debited to the capital account. When dividend or interest accrued on an investment is received, it is first entered on the debit side of the Cash Book and then posted to the credit side of the particular Investment Account in the ‘Dividend or Interest’ column in the investment Ledger. At the close of the financial year, the dividend or interest accrued on different investments, but not received, is brought into account by crediting the ‘Dividend or Interest’ columns of the different Investment accounts in the Investment Ledger and bringing down such balances as an asset after the accounts have been balanced.
The first column is of Nominal Value and in it on the credit side is entered the nominal value of investments on hand and the totals on both sides will then agree.
The second column is of Interest or Dividend and it will always show a credit balance representing interest or dividend on investments for the period and it will be carried to Profit and Loss Account.
The third column is for Capital or Principal. In this column against the closing balance will be entered the value of securities is hand and the difference of the two sides will show profit or loss on the sale of investments during the period. Value of securities in hand is the lower of cost and fair values as per Para 14 of AS – 13.
Balancing the Investment Account
When the whole of an investment has been sold, the difference between the two sides of an Investment Account will be profit or loss on the sale. Where only part of an investment has been sold during the year, the cost of the remaining investment will be brought down as a balance in the Investment Account and the difference between its two sides will be profit or loss on the investments sold. When the investment is a fixed asset, any profit or loss made on the sale thereof will be of a capital nature and should be treated accordingly.
OR
(b) On 1st April, 2016 , 400 12% debentures 0f Rs. 100 in X Ltd. held as investment by Y Ltd. at a cost of Rs. 36,800. Interest is payable on 31st March every year. On 1st August, 2016, 50 debentures were purchased @ Rs. 96 cum-interest and on 1st February 2017, 250 debentures were sold at Rs. 99 ex-interest. On 1st march 2017, 100 debentures were purchased at Rs. 94 ex-interest. On 31st March 2017, 150 debentures were sold at Rs. 98 cum-interest. Prepare investment A/c from the above for the year ending 31st March, 2017 using FIFO method. Market price of using debentures on 31st March 2017 is at par.                                 14
Investment A/c
For the year ended 31-12-2011
Date
Particulars
Face Value
Interest
Cost
Date
Particulars
Face Value
Interest
Cost
1.1.11



1.5.11



1.12.12






31.12.12


To Bal. c/d



To Bank



To Bank






To P/L A/c
(balancing figure)

40,000



5,000



10,000






-
-



200
(5,000x12%x4/12)

1,100






4,800
36,800



4,600



9,400






8,500

1.11.11



31.12.12



31.12.12



31.12.12



By Bank



By Bank



By Bank



Bal. c/d
25,000



15,000



-



15,000
2,500



1,800



1,800



-




24,750



12,900
(150x98-1,800)

-



14,000



55,000
6,100
51,650


55,000
6,100
51,650

Working Note: Calculation of P/L on sale of investment 
1. Sale of Investments (25,000)
Less: Cost of Investment (36,800x25,000/40,000)
24,750
- 23,000
Profit
1,750
2. Sale of Investments (15,000)
Less: Cost of Investment (36,800x15,000/40,000)
12,900
- 13,800
Loss
- 900
Profit
850


(Old course)
Full marks: 80
Pass marks: 32
1. (a) Fill in the blanks:                                   1x4=4
a)      A non performing asset is an asset that ceases to generate income for the bank.
b)      Revenue account of a life insurance business is prepared in the prescribed Form A - RA of the Insurance act.
c)       Under the Provincial Insolvency Act, rent due to the ________is not preferential.
d)      Investment Account is a real Account.
(b) Write True and False:                              1x4=4
a)   Banks show the provision for income tax under Provision and Contingencies.               False, other liabilities and provisions
b)   Life Assurance fund represents profit of the life insurance company.                False
c)    Only FIFO method is used to calculate cost of closing balance of investment. False, fifo and average
d)   Inflation is a state in which too much of money is chasing too few goods.
2. Write short notes on any four of the following:                                                             4x4=16
a)      Sub-standard Assets
b)      Life insurance Corporation act, 1956
c)       Deficiency A/c
d)      Columnar Investment A/c
e)      Historical Accounting
3. (a) From the following information, prepare the profit & Loss A/c with necessary schedules of AB Bank Ltd. for the year ended 31st March 2017:                                 12
                                                                                                                Rs.
Interest on Loans                                                                             25,90,000
Interest on Deposits                                                                       38,50,000
Rebate on Bills Discounted                                                          4,90,000
Commission                                                                                       82,000
Establishment Charges                                                                  5,40,000
Discount on Bills Discounted (Net)                                           14,60,000
Interest on Cash Credit                                                                 22,30,000
Rent and rates                                                                                  1,80,000
Interest on overdrafts                                                                   15,40,000
Directors fees                                                                                    30,000
Auditor’s fees                                                                                   12,000
Postal expenses                                                                                               14,000
Printing and Stationery                                                                  29,000
Sundry Expenses                                                                             17,000
Other information:
a)   Bad debts Rs. 4,00,000
b)   Provision for Income Tax Rs. 10,00,000

Profit & Loss A/c of AB Bank Ltd.
For the year ended 31st March, 2017
Particular
S. No.
Amt.
         i.            Income:
Interest earned
Other Income

13
14

73,30,000
82,000
Total

74,12,000
       ii.            Expenses:
Interest Expended
Operating Expenses
Provisions and contingencies

15
16


38,50,000
8,22,000
14,00,000
Total

60,72,000



13,40,000
      iii.            Net Profit for the year: I and II

13,40,000

     iv.            Appropriation:
Transfer to Statutory Reserve
Balance carried forward



3,35,000
10,05,000


13,40,000

SCHEDULE 13 – INTEREST EARNED



Interest on Loan
Advances
Investment
Less: Rebate on bill discounted  

25,90,000
14,60,000
22,30,000
15,40,000
(4,90,000)

73,30,000

SCHEDULE 14 – OTHER INCOME

Amt.

Commission

82,000

82,000

SCHEDULE 15 – INTEREST EXPENDED

Amt.

Interest Fixed deposit

38,50,000

38,50,000

SCHEDULE 16 – OPERATING EXPENSES

Amt.

Establishment charges
Rent and Rates
Directors fees
Auditors fees
Postage and Telegram
Sundry charges
Printing and Stationery 

5,40,000
1,80,000
30,000
12,000
14,000
29,000
17,000

8,22,000


OR
(b) Explain in relation to bank Accounting:                                                            3x4=12
a)      Non Performing Assets
b)      Rebate on Bills Discounted
c)       Cash Reserve Ratio
d)      Slip System of Posting
4. (a) What is meant by Reserve for Unexpired Risk? How and why is it created in general insurance? Also distinguish between general insurance and life insurance.     2+3+3+3=11
OR
(b) The Life Assurance Fund of an insurance company showed a balance of Rs. 64,24,000. It is found that the following adjustments are yet to be made:                             Rs.
Dividend from investments                                                         3,21,000
Income tax on above                                                                     65,200
Bonus in reduction of premium                                                                 9,35,400
Claims covered under reinsurance                                           3,79,000
Claims intimated but not accepted                                           9,40,000
Pass necessary Journal Entries and compute the actual Life Assurance fund 8+3=11
5. (a) What is Statement of Affairs? How is it prepared? Distinguish between a statement of Affairs and a Deficiency account.                                                               2+5+4=11
OR
(b) Mr. Rajen filed his petition for bankruptcy on 31st March 2017, 2017 on which date his books showed the following balance:               11
                                                                                           Dr.                                          Cr.
Cash in hand                                                                  200
Fixtures and fittings (estimated to
produce Rs. 1,600)                                                      5,000
Stock in trade(estimated
to produce Rs. 24,000)                                              36,000
Trade creditors                                                                                                             40,000
Bills payable                                                                                                                   44,000
Sundry debtors:
     Goods                                                                         20,000
     Doubtful (estimated
to produce 50%)                                                          40,000
Bad                                                                                    40,000
Bank overdraft                                                                                                             24,000
Capital                                                                                                                              33,200
                                                                                           1,41,200                               1,41,200
Preferential creditors included trade creditors amounting to Rs. 700. Liabilities on bills discounted was Rs. 10,000, out of which Rs. 2,000 were expected to rank. His household furniture etc. was valued at Rs. 5,000. He owned a house valued Rs. 15,000 having a mortgage on it Rs. 12,000 at 4%. Interest was paid up to September 30,2016. Creditors for rates on the house amounted to Rs. 300. Prepare the Statement of Affairs and the Deficiency A/c of Mr. Rajen. 7+4=11
6. (a) What are Investment Accounts? What are the special features of Investment Accounts? Discuss the purposes of Investment Accounts                     2+5+4=11
OR
(b) Mr. A held on 1st January 2016 Rs. 1,00,000 of 3.5% Government Loan at Rs. 95,000. Three months interest had accrued. On 31st May, he purchased a further Rs. 40,000 of the loan @ Rs. 96 (net) cum interest. On 31st July, Rs. 30,000 of the loan was sold at Rs. 94 (net) ex interest. On 31 March and 30 September and was collected on 4th April and 5th October. The price of the loan on 31st December 2016 was Rs. 96. Draw up the loan A/c. Ignore income tax and paise. 11

2017 (OLD COURSE)
Investment A/c
For the year ended
Date
Particulars
Face Value
Interest
Cost
Date
Particulars
Face Value
Interest
Cost
1.1.11


3.5.11



3.12.11


To Bank


To Bank



To P/L A/c

1,00,000


40,000

875


233



3,822
95,000


38,167



-

31.3.11


31.7.11



30.9.11
30.11.11
31.12.12
31.12.11

By Bank


By Bank



By Bank
By Bank
By P/L A/c Loss
By Balance c/d

-


30,000



-
20,000
-



90,000
1,750


350



1,925
117




788
-


28,200



-
19,083

217


85,667


1,40,000
4,930
1,33,167


1,40,000
4,930
1,33,167

Working Note: Calculation of cost on sale of Investments
1. Sale of Investments (30,000)
Less: Cost of Investment (95,000x30,000/1,00,000)
28,200
28,500
Loss
300
2. Sale of Investments (20,000)
Less: Cost of Investment (95,000x20,000/1,00,000))
19,083
19,000
Profit
83
Loss
217

7. (a) What do you mean by Accounting for Price Level Changes? Explain clearly accounting for price level changes under Current Purchasing Power (CPP) method.            3+8=11
OR
(b) Ram Ltd. followed the LIFO system. From the particulars given below, ascertain the cost of sales and closing inventory under CPP method:                                        11
                                                                                                           General price index
Inventory on 01.01.2016
           Rs. 20,000                                                                            200
Purchases during 2016
           Rs. 75,000                                                                            240(average for 2016)
Inventory on 31.12.2016
           Rs. 25,000                                                                            300

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