2018 (November)
COMMERCE
(Speciality)
Course: 301
(Advanced Financial Accounting)
The figures in the
margin indicate full marks for the questions
(NEW COURSE)
Full Marks: 80
Pass Marks: 24
Time: 3 hours
1. (a) Fill in the
blanks: 1x4=4
1)
A Non Performing
asset is an asset that ceases to generate income for the bank.
2)
Consideration for annuities granted is a source
of income for a life
insurance company.
3)
In case of marine insurance, the provision
against unexpired risk is maintained at 100
% of net premium.
4)
Investments are freely bought and sold in the stock exchange through banks and
brokers.
(b) Write True or
False: 1x4=4
1)
Rebate on bills discounted for a banking company
is an income. False, advance income
2)
Balance Sheet of a life insurance business is
prepared in the prescribed from A-BS of the Insurance Act. True
3)
Revenue Account of a general insurance company
has five Schedules. False, 4
4)
Brokerage is added in the cost of investment in
the books of purchaser of investment. True
2. Write short
notes on any four of the following: 4x4=16
a) 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.
b)
Double Insurance.
Ans: Double insurance: Double
insurance is the insuring of an individual, dependent, or personal property by
two or more insurance companies. Such dual insurance allows those with coverage
to claim the full amount from the policies; however the total claim cannot
exceed the actual loss or cost associated with the underwritten subject of the
policies. Insurance companies are law bound to honor double insurance policies,
but the recipient of such policies must satisfy certain eligibility
requirements. Underwriters of double insurance policies have the ability to reject
or appeal certain claims based on deception or unjust enrichment. Consequently,
it is important that individuals insurable under double insurance have an
understanding of the independent insurance policies that comprise their dual
coverage and know the process for claims and payouts.
c)
Fire Insurance
Revenue Account.
Ans: 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.
d)
Cub-dividend and
EX-dividend.
Ans: The term ‘Cum’ and ‘Ex’ are Latin words. ‘Cum’ means with
and ‘Ex’ means without. The term ‘Cum-dividend’ and ‘Ex-dividend’ relates to
shares. Cum-dividend can be expanded as share price inclusive of dividend and
Ex-dividend can be expanded as share price exclusive of dividend. Cum
dividend is the amount of dividend accrued in the duration between the dividend
declaration date and the settlement date or transaction date. The cum-dividend
price includes not only the cost of investment but also includes the dividend
accrued upto the date of purchase, and when dividend is declared it would be
the right of the buyer to claim dividend. Conversely, the quotation,
Ex-dividend, covers only the cost of the investment and the buyer is liable to
pay additional amount as dividend accrued upto the date of purchase of Shares.
e)
Columnar
Investment Accounts.
Ans: 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.
3. (a) What is
bank accounting? What are the main features of bank’s accounting system? Point
out the main advantages and disadvantages of slip system of posting in Bank
Accounts. 2+6+3+3=14
Ans:
Meaning of Banking and Banking Company
As
per Section 5(b) of the Banking Regulation Act, 1949, "banking" means
the accepting, for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise, and withdrawable by cheque,
draft, order or otherwise.
As
per Section 5(d) of the Banking Regulation Act, 1949, "company" means
any company as defined in Section 3 of the Companies Act, 1956 and includes a
foreign company within the meaning of Section 591 of that Act.
As
per Section 5(c) of the Banking Regulation Act, 1949 a "Banking
Company" means any company which transacts the business of banking in
India.
Main
Characteristics of a Bank’s Book-Keeping System
The book-keeping system of a banking company
is substantially different from that of a trading or manufacturing enterprise.
A bank maintains a large number of accounts of various types for its customers.
As a safeguard against any payment being made in the account of a customer in
excess of the amount standing to his credit or a cheque of a customer being
dishonoured due to a mistake in the balance in his account, it is necessary
that customers’ accounts should be kept up-to-date and checked regularly. In
many other mercantile enterprises, books of primary entry (i.e. day books) are
generally kept up-to-date while their ledgers including the general ledger and
subsidiary ledgers for debtors, creditors etc. are written afterwards. However
a bank cannot afford to ignore its ledgers, particularly those concerning the
accounts of its customers and has to enter into the ledgers every transaction
as soon as it takes place. In bank accounting, relatively less emphasis is
placed on day books. There are merely treated as a means to an end-the end
being to keep up-to-date detailed ledgers and to balance the trial balance
everyday and to keep all control accounts in agreement with the detailed
ledgers.
Presently most if not all of the Banks’
accounting is done on Core Banking Solutions (CBS) wherein all accounts are
maintained on huge servers with posting being effected instantly through
vouchers, debit cards, internet banking etc. The main characteristics of a
bank’s system of book-keeping are as follows:
a) Voucher posting: Vouchers are nothing
but loose leaves of journals or cash books on which transactions are recorded
as they occur. Entries in the personal ledger are made directly from vouchers
instead of being posted from the books of prime entry.
b) Voucher summary sheets: The vouchers
entered into different personal ledgers each day are summarized on summary sheets,
totals of which are posted to the control accounts in the general ledger.
c) Daily trial balance: The general ledger
trial balance is extracted and agreed every-day.
d) Continuous checks: All entries in the
detailed personal ledgers and summary sheets are checked by persons other than
those who have made the entries. A considerable force of such check is
employed, with the general result that most clerical mistakes are detected
before another day begins.
e) Control Accounts: A trial balance of
the detailed personal ledgers is prepared periodically, usually every two
weeks, agreed with general ledger control accounts.
f) Double voucher system: Two vouchers are
prepared for every transaction not involving cash-one debit voucher and another
credit voucher.
Main advantages of the slip system are:
1. Saving of time and labour: The bank
saves a lot of time and clerical labour as most of the slips are filled in by
its customers.
2. No need of subsidiary books: Subsidiary
books are avoided as posting is done from slips.
3. Minimum delay: Entries can be recorded
with minimum delay as slips can easily pass from hand to hand among clerks
concerned.
4. Division of labour: the slip system
enables the division of work of posting among employees due to a large number
of transactions in a bank.
5. Smooth accounting: The writing of the
day book and posting of the ledger can be done simultaneously without loss of
time.
Disadvantages of the slip system are:
1. Risk of loss or destruction of slips: Slips
may be lost, destroyed or misappropriated as these are loose.
2. Difficulty in verification: Books
cannot be verified if subsidiary books are not kept.
3. Inconvenience to customers: This system
causes great inconvenience to the illiterate and semi-literate customers as
slips are to be filled in (especially the amount in words and figures) with the
help of other customers and arrogant bank employees.
4. Risk of manipulation and misappropriation:
Dishonest employees can embezzle the money by destroying the loose and large
number of slips and manipulating the amounts.
5. Expensive system: Slips system becomes
difficult due to large number of daily transactions in a bank and becomes
expensive to keep it date-wise record of such slips.
Or
(b)
The following are the figures extracted from the books of XYZ Bank Ltd. as on
31st March, 2018: 14
Rs.
|
|
Interest and Discount received
Interest paid on Deposits
Issued and Subscribed Capital
Reserve under Section 17
Commission, Exchange and Brokerage
Rent Received
Profit on Sale of Investment
Salaries and Allowances
Director’s Fees and Allowances
Rent and Taxes paid
Stationery and Printing
Postage, Telephone and Internet Charges
Audit Fees
Depreciation on Bank’s Properties
Other Expenses
|
20,30,000
12,02,000
5,00,000
3,50,000
90,000
30,000
95,000
1,05,000
12,000
54,000
12,000
25,000
4,000
12,500
12,000
|
Other
Information:
1)
A
customer to whom a sum of Rs. 2,50,000 has been advanced, has become insolvent
and it is expected that 40% of the sum can be recovered from his estate.
Interest due at 15% on his debt has not been provided in the books.
2)
Provision
for bad and doubtful debts on other debts necessary Rs. 50,000.
3)
Provide
Rs. 3,50,000 for Income-tax.
4)
The
directors desire to declare 10% dividend.
Make the necessary assumptions and prepare
the Profit and Loss Account of XYZ Bank Ltd. in accordance with law.
Profit and Loss Account of XYZ Bank Ltd
For the year ended on 31-3-15
Particular
|
S. No.
|
Amt.
|
i.
Income:
Interest earned
Other Income
|
13
14
|
20,67,500
2,15,000
|
Total
|
22,82,500
|
|
ii.
Expenses:
Interest Expended
Operating Expenses
Provisions and contingencies
(1,50,000+50,000+3,50,000)
|
15
16
|
12,02,000
2,36,500
5,50,000
|
Total
|
19,88,500
|
|
iii.
Net Surplus for the year: (I – II)
|
2,94,000
|
|
2,94,000
|
||
iv.
Appropriation:
Transfer to Statutory Reserve( @ 25%)
Transfer to other reserves
Dividend to shareholders (on capital @ 10%)
Balance carried forward
|
73,500
--------
50,000
1,70,500
|
|
2,94,000
|
SCHEDULE 13 – INTEREST EARNED
Amount
|
|
Interest and Discount received (20,30,000+37,500)
|
20,67,500
|
SCHEDULE 14 – OTHER INCOME
Amount
|
|
Commission, Exchange and brokerage
Profit on sale of investment
Rent received
|
90,000
95,000
30,000
|
2,15,000
|
SCHEDULE 15 – INTEREST EXPENDED
Amount
|
|
Interest paid on deposit (12,02,000
|
12,02,000
|
SCHEDULE 16 – OPERATING EXPENSES
Amount
|
|
Payment to Employees
Rent Paid
Stationary
Postage
Audit Fees
Depreciation on Bank Properties
Director’s fees
Other Expenses
|
1,05,000
54,000
12,000
25,000
4,000
12,500
12,000
12,000
|
2,36,500
|
ADVANCED FINANCIAL ACCOUNTING PAST EXAM QUESTION PAPERS
NON-CBCS PATTERN: 2012 2013 2014 2015 2016 2017 2018 2019
CBCS PATTERN: 2021 (HELD IN 2022)
ADVANCED FINANCIAL ACCOUNTING PAST EXAM SOLVED PAPERS
NON-CBCS PATTERN: 2013 2014 2015 2016 2017 2018 2019
CBCS PATTERN: 2021 (Held in 2022)
4. (a) (1) Draw a
proforma of Revenue Account of life insurance company with imaginary
figures. 10
Ans: PROFORMA OF
REVENUE ACCOUNT AND PROFIT AND LOSS ACCOUNT OF A LIFE INSURANCE COMPANY
FORM
A-RA
REVENUE ACCOUNT FOR
THE YEAR ENDED 31ST MARCH, 20…..
Policyholder’s
Account (Technical Account)
No.
|
Particulars
|
Schedule
|
Current Year
(Rs.’000)
|
Previous Year
(Rs.’000)
|
Premiums earned – net
(a) Premium
(b) Reinsurance ceded
(c) Reinsurance accepted
Income from Investments
(a) Interest, Dividends &
Rent – Gross
(b) Profit on sale/redemption of
investments
(c) (Loss on sale/redemption of
investments.)
(d) Transfer/Gain on
revaluation/change in fair value’
Other income (to be specified)
Total (A)
Commission
Operating Expenses related to
insurance Business
Provision for doubtful debts
Bad debts written off
Provisions (other than taxation)
(a) For diminution in the value
of investments (Net)
(b) Others (to be specified)
Total (B)
Benefits Paid (Net)
Interim Bonuses Paid
Change in valuation of liability
in respect of life policies
(a) Gross”
(b) Amount ceded in Reinsurance
(c) Amount accepted in
Reinsurance
Total (C)
Surplus (Deficit) (D) = (A) – (B)
– (C)
Appropriations
Transfer to Shareholders’ Account
Transfer to Other Reserves (to be
specified)
Balance being Funds for Future
Appropriation
Total (D)
|
1
2
3
4
|
(2) How is bonus
is reduction of premium treated in the Revenue Account?
Ans: Bonus in Reduction of
Premium: Instead of paying bonus in cash, the insurer may deduct the bonus from
the premium due from the insured. This is known as bonus in reduction of
premium. If it is given in trial balance, then it is shown as expense in
revenue account. But if it is given as adjustment, then it is shown both as
expense and income in revenue account. The following journal entry is passed:
Bonus in reduction of Premium A/c Dr.
To Premium Account
Or
(b)
The Young India Life Assurance Co. Ltd. had a paid-up share capital of Rs.
25,00,000 dividend into 25,000 equity shares of Rs. 100 each. Its net liability
on all contracts in force as on 31st March, 2018 was Rs. 2,25,00,000
and on 31st March, 2017, this liability was Rs. 2,00,00,000. From
the following figures, extracted from the books of the company for the year
ended 31st March, 2018, prepare Revenue Account. The company has
paid an interim bonus of Rs. 11,00,000 and 20% of the surplus is to be
allocated to shareholders, 10% to catastrophe reserve and the balance being
carried forward: 14
|
|
Rs.
|
|
Life fund as on 1st April, 2017
Premium less re-insurance
Interest, dividend and rent
Fines and fees
Income-tax
Management expenses
Annuities paid
Commission
Surrenders
Bad debts
Claims less re-insurance claims
Consideration for annuities granted
|
2,45,00,000
1,38,00,000
75,00,000
40,000
11,80,000
17,50,000
1,00,000
5,40,000
8,50,000
10,000
89,00,000
4,90,000
|
Young India Life Insurance Co. Ltd.
REVENUE ACCOUNT
For the year ended 31st March, 2018
|
Particulars
|
Schedule
|
Amount
|
|
Premium Earned (Net)
Income from Investments:
Interest, Dividend and Rent
Surplus on Revaluation of
Reversions
Other Income:
Consideration for Annuities
Granted
Fines and Fees
|
1
|
1,38,00,000
75,00,000
40,0000
4,50,000
40,000
|
|
Total (A)
|
|
2,18,30,000
|
|
Commission
Operating Expenses relating to Insurance Business
Re-insurance irrecoverable
Income Tax
|
2
3
|
5,40,000
17,50,000
10,000
11,80,000
|
|
Total (B)
|
|
34,80,000
|
|
Benefits Paid (Net)
Interim Bonus Paid
Change in Valuation of Liability in respect of Life Policies:
Net
Liability on all Contracts in
force
on 31-3-12
2,25,00,000
Less:
Net Liability on all Contracts
In
force on 31-3-2011 2,00,00,000
|
4
|
98,50,000
11,00,000
2,50,000
|
|
Total (C)
|
|
1,34,50,000
|
|
Surplus (D) = (A) – (B) – (C)
|
|
49,00,000
|
|
Appropriations:
Transfer to Shareholders A/c (20%
of Rs.49,00,000)
Transfer to Catastrophe Reserve
(10% of Rs. 49,00,000)
Balance being Fund for Future
Appropriations
|
|
9,80,000
4,90,000
34,30,000
|
|
Total (D)
|
|
49,00,000
|
Schedule Forming Part of Revenue A/c
SCHEDULE 1 – PREMIUMS EARNED (NET)
|
Particulars
|
Amount
|
|
Premium less Reinsurance Premium
|
1,38,00,000
|
SCHEDULE 2 –
COMMISSION EXPENSES
|
Particulars
|
Amount
|
|
Commission Paid
|
5,40,000
|
SCHEDULE 3 –
OPEERATING EXPENSES RELATED TO INSURANCE BUSINESS
|
Particulars
|
Amount
|
|
Management Expenses
|
17,50,000
|
SCHEDULE 4 – BENEFITS
PAID
|
Particulars
|
Amount
|
|
Claims less Reinsurance Claims
Annuities
Surrenders
|
89,00,000
1,00,000
8,50,000
|
|
|
98,50,000
|
5. (a) Point out the main features of accounts of general insurance companies. What statutory books are required to be maintained by a general insurance company under the Insurance Act? 6+8=14
Ans: 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.
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 following
particulars, you are required to prepare Fire Revenue Account for the year
ended 31st March, 2018: 14
|
|
Rs.
|
|
Reserve
for unexpired risk as on 1st April, 2017
Additional
reserve as on 1st April, 2017
Claims
paid
Management
expenses
Insurance
Premium
Interest
and dividends
Income-tax
on interest and dividends
Re-insurance
premium
Profit on
sale of investments
Legal
charges regarding claims
Re-insurance
claims recoveries
Commission
on direct business
Commission
on re-insurance ceded
Commission
on re-insurance accepted
Outstanding
claims:
On 31st March, 2018
On 31st March, 2017
|
52,000
12,000
65,000
28,250
1,14,000
6,400
800
7,000
1,600
400
2,800
11,200
600
400
7,000
9,000
|
The company calculates the
Reserve for unexpired risks @ 50% of the net premium each year and increase
additional reserve by 5% of net premium annually.
Fire
Revenue A/c
For
the year ended 31/03/2018
Seven
Star Fire Insurance Company Limited
|
Particulars
|
S. No.
|
Amount
|
|
Premium (Net)
Profit on sale of investment
Interest Divided & Rent
|
1
|
1,0,6,950
1,600
6,400
|
|
Total (A)
|
|
1,14,950
|
|
Claims (Net)
Commission
Operating Expenses
|
2
3
4
|
60,600
11,000
28,250
|
|
Total (B)
|
|
99,850
|
|
Operating Profit (Total:
C = A – B)
|
|
15,100
|
Schedules forming Part of the Revenue
account:
1. Premium (Net)
|
Particulars
|
Amount
|
|
Premium recovered
Less: Premium on reinsurance
ceded
|
1,14,000
7,000
|
|
Adjustment for unexpired risk:
Closing
balance of unexpired risk:
50% of Net
Premium 60,500
Add:
Additional reserve (6,050+12,000) 18,050
78,050
Less: Opening
unexpired risk:
Unexpired
risk 52,000
Add:
Additional reserve
12,000 (64,000)
|
1,21,000
(14,050)
|
|
|
1,06,950
|
2. Claims Incurred (Net):
|
Particulars
|
Amount
|
|
Claims Paid
Add: Legal expenses (associated
with claim)
|
65,000
400
|
|
Less: Reinsurance recoveries
(ceded)
Less: Estimate liability in
beginning.
Add: Estimated liability in
the end
|
65,400
2,800
9,000
7,000
|
|
|
60,600
|
3. Commission:
|
Particulars
|
Amount
|
|
Commission on direct business
Add: Commission accepted
Less Commission ceded
|
11,200
400
600
|
|
|
11,000
|
4. Operating Expenses:
|
Particulars
|
Amount
|
|
Management Expenses
|
28,250
|
|
|
28,250
|
6. (a) What is
Investment Account? Explain about the nature and purposes of an Investment
Account. How are Investment Accounts prepared when there is issue of bonus
shares and right shares by the company? 2+3+3+6=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.
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.
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.
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.
Treatment of Bonus
shares, Rights Shares and Brokerage in investment account
Bonus Shares: When successful companies issue
bonus shares to capitalize their reserves, the shareholders are not required to
pay any amount for such shares. The number of shares will be entered in the
number column and nothing will be added in the amount of principal or capital
column. When bonus shares are sold, the profit on such shares is calculated by
deducting average cost of shares sold from sale price of bonus shares.
Valuation of investment in shares should be made at market value or average
cost price of shares, whichever is lower.
Right shares: If shares are first offered to
the existing shareholders as a matter of their right, such shares are called
right shares. Such shares may be purchased by the shareholder or the right may
be renunciated in favour of a third party for a consideration. If the shares
are purchased, the number of shares & amount paid will be entered in the
number & principal columns actively. If the shares are not subscribed for
but are sold in the market, the amount received will be entered only in the
profit and loss account.
Brokers and Brokerage: Brokers are primarily Commission agents and act as an intermediary
between buyer & seller of securities. They do not purchase & sell
securities on their behalf. They bring together buyers & seller and help
them making a deal. They charges commission from both parties. Such commission
is called brokerage. Brokerage is added with cost of investments and deducted
with sale proceeds of investments.
Or
(b) Mr. Investor furnishes the following
details relating to his holding in 6% Government Bonds of Rs. 100 each:
Opening
balance face value Rs. 60,000 (cost Rs. 59,000)
1.3.2017
100 units purchased ex-interest at Rs. 98.
1.7.2017
Sold 200 units ex-interest of the original holding at Rs. 100.
1.10.2017
Purchased 50 units at Rs. 98 cum-interest.
1.11.2017
Sold 200 units ex-interest at Rs. 99 out of the original holdings.
|
Interest dates are 30th
September and 31st March. Mr. Investor closes his books every 31st
December. Show the Investment Account as it would appear in his books. 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
1.3.11
1.10.11
31.12.11
|
To
Bal b/d
To
Bank
To
Bank
To
P/L A/c
(Bal.
fig.)
|
60,000
10,000
5,800
-
|
900
(60,000x6%x3/12)
200
(10,000x6%x4/12)
-
3,425
|
59,000
9,800
4,900
467
|
31.3.11
1.7.11
30.9.11
1.11.11
31.12.11
31.12.11
|
By
Bank
By
Bank
By
Bank
By
Bank
By
Accrued Interest
Balance
c/d
(4,900+9,800+59,000/60,000x20,000)
|
-
20,000
-
20,000
-
35,800
|
2,100
(70,000x6%x1/2)
300
1,500
(50,000x6%x1/2)
100
525
-
|
-
20,000
-
19,800
-
34,367
|
75,800
|
4,525
|
74,167
|
75,800
|
4,525
|
74,167
|
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
The figures in the margin indicate full marks for the
questions
1. (a) Fill in the blanks: 1x4=4
1)
Banks in India are under the general supervision
of the RBI.
2)
In the contract of insurance, there are two
parties namely the insurer and the insured.
3)
All properties of the insolvent,
both movable and immovable are shown under _______ of Statement of Affairs.
4)
Changes in the price level are
not taken into account in the preparation of _______ Accounts.
(b) Write True or
False: 1x4=4
1)
Rebate on bills discounted for a banking company
is an income. False, advance income
2)
General insurance includes all types of
insurance. false
3)
The insolvency proceedings begin
with an insolvency petition field in a proper court of law.
4)
In an Investment Account, cum-interest means
including accrued interest on an investment.
True
2. Write short notes on any four of the
following: 4x4=16
a)
Slip System of Posting.
b)
Bonus in Reduction of Premium.
c)
Statement of Affairs.
d)
Cum-dividend and Ex-dividend.
e)
General Price Level Accounting.
3. (a) From the following particulars,
prepare Profit and Loss Account of Safety Bank Ltd. for the year ended on 31st
March, 2018: 12
Rs. (‘000)
|
|
Interest
on Deposits
Commission
(Cr.)
Interest
on Loans
Sundry
Charges (Dr.)
Rent
and Taxes
Payment
to Employees
Discount
on Bills Discounted
Interest
on Overdrafts
Interest
on Cash-credit
Auditor’s
fees
Director’s
fees
Bad
debts to be written off
|
3,200
100
2,490
100
200
500
1,490
1,600
2,320
30
20
130
|
Or
(b) Give a proforma of Balance Sheet of a
banking company, showing imaginary figures. 12
4. (a) What is general insurance? How
does it differ from life insurance? Explain ‘Reserve for Unexpired Risk’ in
case of general insurance. 2+4+5=11
Or
(b) From the following particular,
prepare a Fire Revenue A/c of Tinsukia Fire Insurance Company for the year
ended on 31st March, 2018: 11
Rs.
|
|
Reserve
for unexpired risk on 1st April, 2017
Additional
Reserve as on 1st April, 2017
Claims
paid
Re-insurance
claim
Management
expenses
Premium
Re-insurance
premium
Commission
on direct business
Commission
on re-insurance ceded
Commission
on re-insurance accepted
Legal
charges regarding claim
Survey
expenses
Profit
on sale of investments
Interest
and Dividend
Income-tax
thereon
Contribution
to fire brigade
Outstanding
claims
|
1,40,000
30,000
80,000
10,000
20,000
2,00,000
12,000
20,000
2,000
1,000
2,000
1,000
1,000
20,000
2,000
1,000
5,000
|
The company calculates its reserve for
unexpired risks at 50% of the net premium each year and maintain additional
reserve same as in the last year.
5. (a) (1) Mention the various lists that
have to be prepared in support of the Statement of Affairs, prepared under the
Indian Insolvency Act, giving short particulars as to the contents of each of
them. 6
(2) Distinguish
between a Statement of Affairs and a Balance Sheet. 5
Or
(b) From the following information prepare a Statement of
Affairs of Mr. Dukhi Ram who is declared insolvent on 31st March,
2018: 11
Rs.
|
|
Cash in hand
Debtors:
Good
12,500
Doubtful (expected to realize Rs. 2,000) 6,000
Bad
10,000
Shares in X Ltd.
Bills receivable (Good)
Other securities (Rs. 30,000 pledged with partly
secured creditors and the balance with fully secured creditors)
Drawings
Trade expenses
Creditors (unsecured)
Creditors (partly secured)
Creditors (fully secured)
Preferential claims
|
2,500
28,500
50,000
42,500
2,80,000
1,74,000
74,000
2,50,000
1,70,000
2,37,000
7,500
|
6. (a) (1) Discuss about the nature and
purposes of an Investment Account. 3+4=7
(2) Distinguish between Cum-interest and
Ex-interest. 4
Or
(b) On 1.1.2017, 6% 200 debentures of Rs.
100 each in Y Ltd. were held as investments by X Ltd. at a cost of Rs. 18,200.
Interest is payable on 31st December. On 1.4.2017, Rs. 4,000 of such
debentures were purchased by X Ltd. @ Rs. 98 cum-interest and on 1.9.2017, Rs.
6,000 debentures were sold @ Rs. 96 ex-interest. On 1.12.2017, Rs. 8,000
debentures were sold @ Rs. 99 cum-interest. On 31.12.2017, X Ltd. sold Rs.
10,000 debentures @ Rs. 95 ex-interest. Prepare Investment Account for 6%
Debentures in Y Ltd. in the books of X Ltd. Ignore income-tax (apply FIFO
method). 11
Investment A/c
Date
|
Particulars
|
Face Value
|
Interest
|
Cost
|
Date
|
Particulars
|
Face Value
|
Interest
|
Cost
|
1.1.11
1.4.11
31.12.11
|
To
Balance
To
Bank
To
P/L A/c
|
20,000
4,000
|
-
60
(40,000x6%x3/12)
1,220
|
18,200
3,860
(40x98 – 60)
680
|
1.9.11
1.12.11
31.12.11
|
By
Bank
By
Bank
By
Bank
|
6,000
8,000
10,000
|
240
(6,000x6%x8/12)
440
(8,000x6%x11/12)
600
|
5,760
(60x96)
7,480
9,500
|
24,000
|
1,280
|
22,740
|
24,000
|
1,280
|
22,740
|
7. (a) What is Inflation Accounting? What are its objectives?
Discuss in brief the CPP method of Inflation Accounting. 2+4+5=11
Or
(b) The Balance Sheet of PK Ltd. revealed the following among
other things:
31.3.2016 (Rs.)
|
31.3.2017 (Rs.)
|
|
Investments
Book Debts
Cash at Bank
Advances for supply of Materials
Due to Suppliers
|
5,50,000
4,50,000
60,000
1,00,000
2,50,000
|
6,10,000
5,50,000
80,000
1,26,500
3,22,000
|
During 2016 – 17, material prices rose by 15% and those of
finished goods by 10%. Calculate the Monetary Working Capital Adjustment to be
made under Current Cost Accounting System. 11
***
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