November' 2017 Financial Accounting Solved Question Papers , Dibrugarh University B.Com 1st Sem (Non-CBCS)

 Financial Accounting Solved Question Papers November' 2017
Dibrugarh University B.Com 1st Sem

COMMERCE (General / Speciality)

Course: 103

(New course)

Financial Accounting

Full marks: 80

Pass marks: 24

Time: 3 hours

1.       (a) Write ‘True’ or ‘False’      1x4=4

a)      Sales – Gross Profit = Cost of goods sold                       True

b)      There is no difference between Hire Purchase System and Installments Purchase system. False

c)       Under debtors system, Branch Account discloses profit or loss of the branch.   True

d)      Royalty account is closed by transferring it to the Landlord’s account.  False, Production or P/L a/c

(b) Fill in the blanks:                        1x4=4

a)   Accounting Standard Board was set up in India in the year 1977.

b)   In hire purchase system, the buyer charges depreciation on the cash price.

c)    Selling expenses should be divided among the different departments on the basis of net sales.

d)   Short working is the excess of Shortworking over actual royalty.

2.       Write short notes on (any four)        4x4=16

a) The provisions of Accounting Standard-6

b) Termination of hire purchase agreement

Ans: Where a hirer makes more than one default in the payment of hire-purchase agreement then, subject to the provisions of Section 21 and after giving the hirer notice in writing of not less than -

a.    One week, in a case where the hire is payable at weekly or lesser intervals; and

b.    Two weeks, in any other case,

The owner shall be entitled to terminate the agreement by giving the hirer notice of termination in writing.

Where a hire-purchase agreement is terminated under this Act, then the owner shall be entitled to retain the hire which has already been paid and to recover the arrears of hire due.

c) 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.

d) Objectives of Departmental Accounts

e) Minimum rent

f) 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. These branches keep full system of accounting. They can purchase goods from the market, supply goods to the head office, pay cash expenses from the cash realised and deposit cash in their own account.

The main features of independent branches.

a)    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.

b)   They can sell goods only for cash and credit at any price they consider profitable.

c)    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.

d)   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.

e)   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.

3. (a) Das Co. purchased two machines of Rs. 5,250 each from Bharat Machine Co. on 1st January, 2011 on hire purchase system. As per agreement, payment to be made Rs. 3,000 down and the balance in three equal annual installments along with interest @ 5% per annum. Das co. writes off depreciation @ 10% per annum on written down value method. After having paid the first installment, the buyer could not pay the second installment and the seller took possession of one machine adjusting the value of other against the amount due taking the machine @ 20% depreciation on diminishing balance method. Seller, after spending Rs. 100 on repairs, sold it away for Rs. 4,000. Show the Ledger A/c in the books of both the parties. Books are closed on 31st December each year. 4+4+4+2=14

OR

(b) What is hire purchase system? Mention its chief features. Should depreciation on assets be provided for under hire purchase system? Discuss.                          3+7+4=14

Ans:-  Hire Purchase Meaning:

A trader could sell goods either for cash or for credit. For goods sold on credit, the payments may be made by the buyer in lump sum on a future date, or in installments spread over for a specified period of time. When goods are sold on credit, for which payment is made by the buyer in installments over a period of time, it is called purchase system or installment system.

Hire Purchase System defers to the system wherein, the seller of goods transfers the goods to the buyer without transferring the ownership of goods. The payment for the goods will be made by the buyer in installments. If the buyer pays all the installments, the ownership of the goods will be transferred, on payment of the last installment. However, if the buyer does not pay for any installment, the goods will be repossessed by the seller and the money paid on earlier installments will be treated as hire charges for using the goods. So, under this system, the transaction may result in purchasing of goods by the buyer or in hiring the goods. Hence, the system is called Hire Purchase System.

Features and Characteristics of Hire Purchase System

The characteristics of hire-purchase system are as under

a)    Hire-purchase is a system of credit sale.

b)   The price under hire-purchase system is paid in installments.

c)    The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.

d)   Hire vendor continues to be the owner of the goods till the payment of last installment.

e)   The hire purchaser has a right to use the goods as a bailer.

f)     The hire purchaser has a right to terminate the agreement at any time in the capacity of a hirer.

g)    The hire purchaser becomes the owner of the goods after the payment of all installments as per the agreement.

h)   If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.

Depreciation on assets in case of hire purchase

In case of hire purchase depreciation is provided on cash price of the assets only in the books of vendee or hirer. Depreciation is not provided in the books of the vendor. The main reason for this is the provision of Accounting Standard – 6. As per AS – 6, Depreciation is arises due to wear and tear of fixed assets.

In case of hire purchase, goods sold is treated as revenue item by hire vendor and shown in trading account. So depreciation cannot be calculated on goods.

But the vendee treats goods purchased under hire purchase as fixed assets. So, depreciation is provided only in the books of vendee.

4. (a) What do you mean by accounting Standards? Mention the procedure for issuing Accounting Standards. Distinguish between Accounting Standards and Accounting Principles          3+6+5=14

Ans: ACCOUNTING STANDARDS

Accounting Standards are the policy documents or written statements issued, from time to time, by an apex expert accounting body in relation to various aspects of measurement, treatment and disclosure of accounting transactions for ensuring uniformity in accounting practices and reporting. These standards are prepared by Accounting Standard Board (ASB). Accounting Standards are formulated with a view to harmonies different accounting policies and practices in use in a country.

Procedure adopted in formulation of Accounting Standards:

Following procedure will be adopted for formulating Accounting Standards:

a.      Identification of the broad areas by the ASB for formulating the Accounting Standards.

b.      Constitution of the study groups by the ASB for preparing the preliminary drafts of the proposed Accounting Standards.

c.       Consideration of the preliminary draft prepared by the study group by the ASB and revision, if any, of the draft on the basis of deliberations at the ASB.

d.      Circulation of the draft, so revised, among the Council members of the ICAI and 12 specified outside bodies such as Standing Conference of Public Enterprises (SCOPE), Indian Banks’ Association, Confederation of Indian Industry (CII), Securities and Exchange Board of India (SEBI), Comptroller and Auditor General of India (C& AG), and Department of Company Affairs, for comments.

e.       Meeting with the representatives of specified outside bodies to ascertain their views on the draft of the proposed Accounting Standard.

f.        Finalisation of the Exposure Draft of the proposed Accounting Standard on the basis of comments received and discussion with the representatives of specified outside bodies.

g.      Issuance of the Exposure Draft inviting public comments.

h.      Consideration of the comments received on the Exposure Draft and finalisation of the draft Accounting Standard by the ASB for submission to the Council of the ICAI for its consideration and approval for issuance.

i.         Consideration of the draft Accounting Standard by the Council of the Institute, and if found necessary, modification of the draft in consultation with the ASB.

j.        The Accounting Standard, so finalised, is issued under the authority of the Council.

Difference between Accounting Standard and Accounting Principles

Accounting Standard is the set of rules that should be applied for measurement, valuation, presentation and disclosure of a subject matter. For example, measurement of deferred tax, valuation of assets, intangibles and financial instruments etc. and presentation and disclosure of such measurements and valuations.

Accounting Principles however, are the fundamental principles providing a framework within which accounting should be done. These principles also govern the formulation of Accounting Standards. For example, Accrual accounting, Substance over legal form, Prudence etc.

Basis

Accounting Standard

Accounting Principles

1.Nature

Accounting standards are fixed in nature.

Accounting principles are flexible in nature.

2. Compulsory

Following of accounting standards is compulsory for every person.

Following of accounting principles is not   compulsory.

3. Responsibility

Accounting standards creates more responsibility in accountant and auditors.

Accounting principles are less responsible.

4. Uniformity

Accounting standard are uniform rules.

Accounting principles are various.

OR

(b) The following is the trial Balance of M/s Arun and Barun, a partnership firm, as on 31st march, 2017 and a Balance Sheet as on that date                                                  4+5+5=14

Trial balance

Dr. Balance

Rs.

Cr. balance

Rs.

Purchases

Advertisement

Wages

Bills Receivable

Printing and Stationery

Trade Expenses

Machinery

Sundry Debtors

Goodwill

Fuel

Opening Stock

Rent and Taxes

Land and Building

Interest on Loan

Cash in Hand

Depreciation on Machinery

Discount

Bad Debts

Furniture

2,50,000

11,000

1,50,000

10,000

5,000

13,000

72,000

78,000

85,000

24,000

90,000

19,000

1,65,000

8,000

32,000

8,000

4,000

3,000

20,000

Sales

Bills Payable

10% IDBI Loan(01.10.2016)

Sundry Creditors

Capital:

      Arun

      Barun

Commission

 

5,50,000

47,000

2,00,000

48,000

 

1,00,000

1,00,000

2,000

 

10,47,000

 

10,47,000

Necessary adjustment:

a)      Value of Closing Stock – Rs. 75,000

b)      Allow interest on capital of the partners @ 5% pa

c)       During the year, goods worth Rs. 10,000 has been destroyed by fire. But the insurance company agreed to a claim of Rs. 7,000 only.

5. (a) (i) Distinguish between Branch Accounts and Departmental Accounts                        5

(ii) How are the inter departmental transactions recorded in Departmental Accounts?   3

(iii) Explain the basis of allocation of common expenses over the various departments in Departmental Accounts. 6

OR

(b) Dipali Electronics Ltd. Opened a branch at Dibrugarh on 1st April, 2016. From the following figures relating to Dibrugarh branch, prepare Dibrugarh Branch a/c and Goods Sent to Branch A/c for the year ended 31st March, 2017:

Particulars

Rs.

Goods sent to branch

Cash sent to branch for:

            Rent

            Salaries

Cash Sales

Credit Sales

Cash collected from debtors

Stock(31.03.2017)

Petty cash (31.03.2017)

Goods returned by customers

Discount allowed to customers

42,000

 

1,800

4,000

15,000

29,000

23,000

5,200

120

1,700

1,300

6. (a) What is royalty? What are its different types? Why is minimum rent important in Royalty A/c? Distinguish between Rent and Royalty.            2+3+4+5=14

OR

(b) Sri Amit Phukan took a colliery on lease from Sri Mohan Singh for a period of 20 years from 1st January, 2011 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. The annual coal raised were:                      4+5+5=14

Year

Output(in tons)

2011

2012

2013

2014

2015

3000

3500

5000

9000

10000

From the above particulars, prepare the following in the books of Sri Amrit Phukan:

a)      Royalty A/c

b)      Short workings A/c

c)       Mohan Singh’s A/c

 

(Old course)

Full marks: 80

Pass marks: 32

1. (a) Fill in the blanks:   1x4=4

a)      Revenue is generally recognized at the point of sale.

b)      In hire purchase system, the buyer charges depreciation on Cash price.

c)       Royalty paid on sales is debited to profit and loss Account.

d)      After making payment to third parties, the loan due to a partner is paid.

(b) Write True and False: 1x4=4

a)      Accounting Standard Board was set up in India in the year 1977.   True

b)      The buyer has no option to return the goods in case of hire purchase.   False

c)       Branch Stock A/c is always prepared at cost price.     False

d)      When a partner is not able to meet his liabilities, he is said to be insolvent.  True

2. Write short notes on (any four):                          4x4=16

a) IFR Standards

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 (17) 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. 

b) Features of installment Purchase System

Ans:- Features and Characteristics of Installment Payment System:

a)    Under this system, there will be an outright sale of goods/assets.

b)   The possession as well as the ownership is passed to the buyer right at the time of signing the contract.

c)    The buyer can make the payment in installments.

d)   IN case of default in payment, the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid price.

e)   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.

c) Sub lease

d) 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. These branches keep full system of accounting. They can purchase goods from the market, supply goods to the head office, pay cash expenses from the cash realised and deposit cash in their own account.

The main features of independent branches.

a)    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.

b)   They can sell goods only for cash and credit at any price they consider profitable.

c)    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.

d)   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.

e)   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.

e) Realisation Account

Ans:- Realisation Account

Realisation account is prepared at the time of dissolution of firm. Realisation Account is a nominal account. It is prepared to find out profit or loss on realisation of assets and payment of liabilities when a firm is dissolved. Any profit or loss on realisation is transferred to the capital accounts of all the partners in their profit sharing ratio.

Realisation Accounts is prepared in the following manner:

a)    All the realisable assets given in the books of the firm are entered at their book values on the debit side of the Realisation Account

b)   All the external liabilities are entered at their book values on the credit side of the Realisation Account

c)    On the realisation of assets, the actual amount of cash received is entered on the credit side of the account. - Cash/bank account is debited

d)   On the payment of liabilities, the actual amount of cash paid is entered on the debit side of the account. Cash/bank account is credited

e)   Realisation expense if any, is also debited to the Realisation Account and bank account is credited

f)     After making the above entries in the Realisation Account, the account is balanced. The profit or loss on realisation is transferred to the capital accounts of all the partners in their profit sharing ratio.

3. (a) The following is the Trial Balance of Mr. Arup Baruah’s business as on 31st march 2017

Trial Balance

Dr. balance

Rs.

Cr. balance

Rs.

Opening stock

Purchases

Bills Receivable

Cash in Hand

Bad Debts

Machinery

Advertisement

Sundry Debtors

Goodwill

Land and Building

Fuel

Wages and Salaries

Rent and Taxes

Discount

Interest

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

Commission

Capital

1,50,000

87,200

8,40,000

40,000

10,000

5,20,000

 

 

 

16,47,200

From the following additional information, you are required to prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2017 and a Balance Sheet as on that date:     3+4+5=12

a)   Closing Stock as on 31st March 2017 Rs. 1,20,000.

b)   Depreciation machinery by 10% and furniture by 5%

c)    Create a reserve of 5% on sundry debtors for doubtful debts

d)   Write off ¼ th of the advertisement

OR

(b) What are Accounting Standards? State the objectives and scope of Accounting Standards.   3+4+5=12

Ans:-  ACCOUNTING STANDARDS

Accounting Standards are the policy documents or written statements issued, from time to time, by an apex expert accounting body in relation to various aspects of measurement, treatment and disclosure of accounting transactions for ensuring uniformity in accounting practices and reporting. These standards are prepared by Accounting Standard Board (ASB). Accounting Standards are formulated with a view to harmonies different accounting policies and practices in use in a country.

Objectives or Purposes of Accounting Standards:

The  whole  idea  of  accounting  standards  is  centered  around  harmonization   of   accounting  policies  and practices  followed  by  different  business  entities   so  that  the  diverse  accounting  practices  adopted  for   various  aspects   of  accounting  can be  standardized. Accounting   standards   standardizes diverse accounting policies   with a view to:

a.      To provide information to the users as to the basis on which the accounts have been prepared and the financial statements have been presented.

b.      To serve the statutory purpose of eliminating the impact of diverse accounting policies and practices and to ensure uniformity in accounting policies & practices, i.e., to harmonize the diverse accounting policies & practices which are in use the preparation & presentation of financial statements.

c.       To make the financial statements more meaningful and comparable and to make people place more reliance on financial statements prepared in conformity with the accounting standards.

d.      To guide the judgment of professional accountants in dealing with those items, which are to be followed consistently from year to year.

e.       To provide   a  set  of  standard  accounting  policies, valuation  norms  and  disclosure  requirements.

4. (a) Distinguish between Hire purchase system of sales and Ordinary Credit sales. Mention any three rights of hire vendor and three rights of hire purchaser as laid down in the Hire purchase act,1972.   5+3+3=11

Ans: Difference between Hire Purchase system and Sale

Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between Hire Purchase and Sale.

Hire Purchase

Sale

Hire purchase is governed by the Hire Purchase Act, 1972.

A ‘sale’ is governed by the sale of Goods Act, 1930.

In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments.

In case of sale, the ownership of the goods is transferred to the buyer immediately.

In case of hire purchase, the payment is made in installments.

In case of sale, the buyer makes payment in lump sum.

The hire purchaser pays for the price of goods and also some amount of interest.

The buyer pays only for the price of goods.

On non-payment of any installment, the seller can re-possess the goods.

On non-payment of the consideration the seller cannot take back the goods, but can only take legal action on buyer.

Either the buyer or the seller can terminate the contract at any point of time, until the payments of last installment.

Once a sale has taken place, neither the seller, nor the buyer can terminate the contract (unless it is for genuine reason like damage of goods etc.)

When the hire purchaser becomes insolvent, the seller can reposes the goods, and hence need not undertake the risk of loss.

When the buyer becomes insolvent, the seller has to undertake the risk of loss.

In this case, the sales tax will be leviable at the time of ownership (i.e. on payment of last installment).

 

A sale is subject to levy of sales tax at the time of contract of sale.

Rights and duties of the Hire vendor

RIGHTS OF THE HIRE VENDOR

(i) Rights of owner to terminate hire-purchase agreement for default in payment of hire or authorised act or breach of express conditions: Where a hirer makes more than one default in the payment of hire-purchase agreement then, subject to the provisions of Section 21 and after giving the hirer notice in writing of not less than-

c.     One week, in a case where the hire is payable at weekly or lesser intervals; and

d.    Two weeks, in any other case,

The owner shall be entitled to terminate the agreement by giving the hirer notice of termination in writing:

(ii) Rights of owner on termination: Where a hire-purchase agreement is terminated under this Act, then the owner shall be entitled to retain the hire which has already been paid and to recover the arrears of’ hire due.

Rights and duties of the Hire Purchaser

RIGHTS OF THE HIRE PURCHASER

a)        Right of hirer to purchase at any time with rebate: The hirer may, at may time during the continuance of the hire-purchase agreement and after giving the owner not less than fourteen days notice in writing of his intention so to do, complete the purchase of the goods by paying or tendering to the owner the hire-purchase price or the balance thereof as reduced by the rebate.

b)        Right of hirer to terminate agreement at any time: The hirer may, at Dairy time before the final payment under the hire-purchase agreement falls due, and after giving the owner not less than fourteen days’ notice in writing of his intention so to do, terminate the hire-purchase agreement.

c)         Right to appropriate payments in respect of two or more agreements in such proportions as he thinks fit.

OR

(b) Dumdum store purchased a generator from M/s Bimal Brothers on installment purchase system. Rs. 12,000 was payable on delivery on 1st April, 2012 and the balance in four annual installments of Rs. 12,000 each on 31st March every year. The seller charges 5% interest per annum on the yearly balance. The cash price of the generator on the date of delivery was Rs. 54,551. Depreciation @ 10% per annum on diminishing balance was written off each year. From the above particulars, prepare the following Ledger Accounts in the books of Dumdum Store: 4+4+3=11

a)      Generator’s a/c

b)      M/s Bimal brothers A/c

c)       Interest Suspense A/c

5. (a) What do you mean by Branch Accounting? Discuss the Objects and advantages of Branch Accounting. 3+4+4=11

Ans: The dictionary meaning of the word branch is any subordinate division of a business, subsidiary shop, office etc. According to the provisions contained in sec2(14) of the Companies Act 2013 it would appear that a branch is any establishment carrying on either the same or substantially the same activity as that carried on by head office of the company.

A branch is a separate segment of a business. In order to increase the sales, business houses are requires to market their products over a larger territory and may generally split their business into certain divisions or parts. These various parts or divisions may be located in different part of the same city or in different cities of the same country or in different countries in the world. These are known as branches. The head office controls the activities of various branches.

Purpose or Objectives of Branch accounting 

The main objectives and purpose of Branch accounting system are listed below:

a)    To ascertain the profit or loss of each branch separately.

b)   To ascertain financial position of each branch on a particular date.

c)    To evaluate the progress and performance of each branch.

d)   To have comparison of the results of a particular branch with previous year and also with the other branch of the same concern.

e)   To differentiate between profit making and loss making branch so that necessary steps can be taken to improve the performance of loss making branches.

Advantages of Branch Accounting

Importance and Advantages of Branch Accounting are listed below:

a)    Profit or loss of each branch can be found out.

b)   They help in controlling branches.

c)    Actual financial position of the business can be found out on the basis of head office and branch accounts.

d)   Commission payable to the manager of branch can be ascertained with the help of branch.

e)   Branch requirements of goods and cash can be estimated with the help of branch accounting.

f)     Evaluation of progress and performance of each branch can be done with the help of branch accounting.

g)    Inter branch and intra branch comparison can be done to assess the performance of each branch.

h)   Suggestions for increasing the efficiency of the branch can be sent on the basis of branch accounts.

i)      They help in complying with the requirements of law because accounts are maintained as per the requirement of Company’s act 2013.

OR

(b) Luit Ltd. Has a branch at Duliajan which sells goods at cost plus 25%. From the following particulars, calculate the value of closing stock and prepare Duliajan Branch A/c for the year ended 31st March 2017:    3+8=11

 

Rs.

Stock at branch on 01.04.2016

Goods sent to branch

Cash Sales at branch

Expenses paid by Head Office:

         Salaries                                                                              5,000

         Advertisement                                                                 2,000

22,000

1,78,000

2,00,000

 

 

7,000

A commission of 10% on the net profit after charging such commission is to be created to Branch Manager.

6. (a) A took a lease of a colliery with a minimum rent of Rs. 30,000 per annum merging into a royalty of Rs. 5 per ton of coal raised with a right to recoup short workings within the first four years of lease. The output for first five years was given below:

Year

Output (in tons)

1st

2nd

3rd

4th

5th

Nil

3000

5000

7000

8000

Prepare necessary Ledger A/c in the books of the lessee.                                                            11

OR

(b) What is royalty? State its different types. How does royalty differ from rent?               3+3+5=11

7. (a) What do you mean by dissolution of a partnership firm? How and under what circumstances a partnership firm may be dissolved? Discuss 3+8=11

Ans: Dissolution of a firm means discontinuation of the firm’s business and termination of relationship between the partners. When all the partners stop carrying on the partnership business, it is dissolution of the firm. According to Sec. 39 of Indian Partnership Act 1932, “Dissolution of firm means dissolution of partnership between all the partners in the firm."

In other words, if some partners dissociate from the firm and remaining partners continue the business of the firm, it is dissolution of partnership not the dissolution of the firm. Therefore when a firm is dissolved, assets of the firm are disposed off, liabilities are paid off and the accounts of all the partners are also settled.

Various modes of Dissolution of Firm

The dissolution of partnership between all the partners of a firm is called the "dissolution of the firm". A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. The Indian Partnership Act, 1932 provides that a partnership firm may be dissolved in any of the following modes:

1. Dissolution without Court’s order:

(i)     Dissolution by agreement (Sec. 40)

(ii)   Compulsory dissolution (Sec. 41)

(iii) Dissolution on the happening of certain contingencies (Sec. 42)

(iv)  Dissolution by notice of partnership at will (Sec. 43)

2. Dissolution by the court’s order

(i) Dissolution by agreement (Sec. 40): A firm may be dissolved with the consent of all the partners. A partnership is set up by an agreement; similarly, it can be dissolved by an agreement. If there is any contract between the partners about the mode of dissolution of the firm, it may be dissolved accordingly.

(ii) Compulsory Dissolution (Sec.41): A firm is dissolved compulsorily:

(a) If all the partners or a partner has been adjudicated as insolvent, then the firm is dissolved as on the date of his insolvency.

(b) If any event of the business of the firm becomes unlawful, then the firm is dissolved.

(iii) Dissolution on the Happening of Certain Contingencies (Sec. 42): Subject to contract between the partners, a firm is dissolved on the happening of certain contingencies:

a)      On expiry of the term for which the firm was constituted.

b)      If firm is constituted for a particular venture and that venture is completed.

c)       On the death of a partner; and

d)      By the adjudication of a partner as an insolvent.

(iv) Dissolution by Notice of Partnership at Will (Sec. 43): Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

(v) Dissolution by Court (Sec. 44): A court may order a partnership firm to be dissolved in the following cases:

a)      When a partner becomes of unsound mind.

b)      When a partner becomes permanently incapable of performing his/her duties as a partner.

c)       When partner deliberately and consistently commits breach of partnership agreement.

d)      When a partner’s conduct is likely to adversely affect the business of the firm.

e)      When a partner transfers his/her interest in the firm to a third party;

f)       When the business of the firm cannot be carried on except at a loss in future also.

g)      When the court considers it just and equitable to dissolve the firm. The following are the cases for the just and equitable grounds:

1. Deadlock in the management.

2. Where the partners are in talking terms between them.

3. Loss of substratum.

4. Gambling by a partner on a stock exchange.

OR

(b) X and Y are two sole traders. They desire to amalgamate their business and form a new form. The Balance Sheets of their business as on 31st March,2017 were as follows:

Balance Sheet of X as on 31st March, 2017

Liabilities

Rs.

Assets

Rs.

Sundry creditors

Capital

Profit & Loss a/c

50,000

2,00,000

30,000

Furniture

Stock

Cash

1,10,000

1,20,000

50,000

 

2,80,000

 

2,80,000

Balance Sheet of Y as on 31st March, 2017

Liabilities

Rs.

Assets

Rs.

Sundry creditors

Capital

 

1,10,000

2,60,000

Furniture

Stock

Cash

Profit & Loss A/c

1,60,000

1,80,000

6,000

24,000

 

3,70,000

 

3,70,000

You are required to:

a)      Close the books of X;

b)      Close the books of y;

c)       Draw up the Balance Sheet of the new firm 4+4+3=11

***

 

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