CA FOUNDATION ACCOUNTS SUPER 50 QUESTIONS | 1

Chapter 1 – Accounting Process

1. Enter the following transaction in Cash Bank with Discount and Bank columns. Cheques are first
treated as cash receipts -
2020 ₹
March 1 Cash in Hand 15,000
Overdraft in Bank 500
2 Cash Sales 3,000
3 Paid to Sushil Bros. by cheque 3,400
Discount received 100
5 Sales through credit card 2,800
6 Received cheque from Srijan 6,200
7 Endorsed Srijan’s cheque in favour of Adit
9 Deposit into Bank 6,800
10 Received cheque from Aviral and deposited the same into Bank by
allowing discount of ₹ 50 3,600
12 Adit informed that Srijan’s cheque is dishonoured. Now cash is received
from Srijan and amount is paid to Adit through own cheque
15 Sales through Debit Card 3,200
24 Withdrawn from Bank 1,800
28 Paid to Sanchit by cheque 3,000
30 Bank charged 1% commission on sales through
Debit/Credit Cards

Solution:
Dr. Cash Book Cr

Discount Cash Bank Discount Cash Bank

Date Particulars L.F. Date Particulars L.F.
₹ ₹ ₹ ₹ ₹ ₹

2020 2020
March 1 To Balance b/d 15,000 March 1 By Balance b/d 500
2 To Sales 3,000 3 By Sushil Bros. 100 3,400
5 To Sales 2,800 7 By Adit 6,200
6 To Srijan 6,200 9 By Bank C 6,800
9 To Cash A/c C 6,800 12 By Adit 6,200
10 To Aviral 50 3,600 24 By Cash A/c C 1,800
12 To Srijan 6,200 28 By Sanchit 3,000
15 To Sales A/c 3,200 30 By Commission 60
24 To Bank A/c C 1,800 31 By Balance c/d 19,200 1,440
50 32,200 16,400 100 32,200 16,400

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Note: If the received cheque is endorsed to the other party on the same day, then no entry is
required. However, in the above case posting has been done through cash column as the
endorsement is done on next day.

2. Prepare a Petty Cash Book on the Imprest System from the following:
2022 ₹
Apri 1 Received ₹ 20,000 for petty cash
“ 2 Paid auto fare 500
“ 3 Paid cartage 2,500
“ 4 Paid for Postage & Telegrams 500
“ 5 Paid wages 600
“ 5 Paid for stationery 400
“ 6 Paid for the repairs to machinery 1,500
“ 6 Bus fare 100
“ 7 Cartage 400
“ 7 Postage and Telegrams 700
“ 8 Cartage 3,000
“ 9 Stationery 2,000
“ 10 Sundry expenses 5,000

Solution: Petty Cash Book

Receipts Date Total Cartage Postage & Wages Sundries
V. Conveyance Stationery
Particulars Telegrams
No. ₹ ₹
₹ 2019 ₹ ₹ ₹ ₹ ₹
April
20,000 1 To Cash
2 By Conveyance 500 500
3 By Cartage 2,500 2,500
4 By Postage and 500 500
Telegrams 600
5 By Wages 600
5 By Stationery 400 400
6 By Repairs to machine 1,500 1,500

6 By Conveyance 100 100

7 By Cartage 400 400
7 By Postage and 700 700
Telegrams
8 By Cartage 3,000 3,000
9 By Stationery 2,000 2,000
10 By Sundry 5,000 5,000
Expenses
17,200 600 5,900 2,400 1,200 600 6,500

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By Balance c/d 2,800

20,000 20,000
2800 To Balance b/d
17,200 11 To Cash

Chapter 2 – Bills of Exchange

3. Mr. B accepted a bill for ₹ 10,000 drawn on him by Mr. A on 1st August, 2022 for 3 months. This
was for the amount which B owed to A. On the same date Mr. A got the bill discounted at his bank
for ₹ 9,800.
On the due date, B approached A for renewal of the bill. Mr. A agreed on condition that ₹ 2,000 be
paid immediately along with interest on the remaining amount at 12% p.a. for 3 months and that for
the remaining balance B should accept a new bill for 3 months. These arrangements were carried
through. On 31st December, 2022, B became insolvent and his estate paid 40%.
Prepare Journal Entries in the books of Mr. A.

Solution: Journal Entries in the Books of Mr. A

Date Particulars Debit ₹ Credit ₹
2022
August 1 Bills Receivable A/c Dr. 10,000
To B 10,000
(Being the acceptance received from B to settle his
account)
August 1 Bank A/c Dr. 9,800
Discount A/c Dr. 200
To Bills Receivable 10,000
(Being the bill discounted for ₹ 9,800 from bank)

November 4 B Dr. 10,000

To Bank Account 10,000
(Being the B’s acceptance is to be renewed)

November 4 B Dr. 240

To Interest Account 240
(Being the interest due from B for 3 months i.e.,
8000x3/12 x 12%=240)
November 4 Cash A/c Dr. 2,240
Bills Receivable A/c Dr. 8,000
To B 10,240
(Being amount and acceptance of new bill received from
B)

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December 31 B A/c Dr. 8,000

To Bills Receivable A/c 8,000
(Being B became insolvent)
December 31 Cash A/c Dr. 3,200
Bad debts A/c Dr. 4,800
To B 8,000
(Being the amount received and written off on B’s
insolvency)

4. Prepare Journal entries for the following transactions in Samarth’s books.

(i) Samarth’s acceptance to Aarav for ₹ 1,250 discharged by a cash payment of ₹ 500 and a new
bill for the balance plus ₹ 25 for interest.
(ii) G. Gupta’s acceptance for ₹ 4,000 which was endorsed by Samarth to Sahni was dishonoured.
Sahni paid ₹ 20 noting charges. Bill withdrawn against cheque.
(iii) Harshad retires a bill for ₹ 5,000 drawn on him by Samarth for ₹ 20 discount.
(iv) Samarth’s acceptance to Patel for ₹ 19,000 discharged by Sandeep Chadha’s acceptance to
Samarth for a similar amount.
Solution: Books of S. Samarth
Journal Entries
Dr. Cr.
(i) Bills Payable A/c Dr. 1,250
To Aarav A/c 1,250

Interest A/c Dr. 25

25
To Aarav A/c

Aarav A/c Dr. 500

To Cash A/c 500

Aarav A/c Dr. 775

To Bills Payable A/c 775
(ii) (a) G. Gupta Dr. 4,020
To Sahni 4,020
(G. Gupta’s acceptance for ₹ 4,000 endorsed to Sahni dishonoured, ₹ 20 paid
by Sahni as noting charges)
(b) Sahni Dr. 4,020
To Bank Account 4,020
(Payment to Sahni on withdrawal of bill earlier received from Mr. G. Gupta)

(iii) Bank Account Dr. 4,980

Discount Account Dr. 20

PAINT
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To Bills Receivable Account 5,000

(Payment received from Harshad against his acceptance for ₹ 5,000.
Allowed him a discount of
₹ 20)
(iv) Bills Payable Account Dr. 19,000
To Bills Receivable Account 19,000
(Bills Receivable from Patel endorsed to Sandeep in settlement of bills
payable issued to him earlier)

5. Anil draws a bill for ₹9,000 on Sanjay on 5th April, 2019 for 3 months, which Sanjay returns it to
Anil after accepting the same. Anil gets it discounted with the bank for ₹ 8,820 on 8th April,
2019 and remits one-third amount to Sanjay. On the due date Anil fails to remit the amount due
to Sanjay, but he accepts a bill for ₹12,600 for three months, which Sanjay discounts it for ₹
12,330 and remits ₹ 2,220 to Anil. Before the maturity of the renewed bill Anil becomes insolvent
and only 50% was realized from his estate on 15th October, 2019. Pass necessary Journal entries
for the above transactions in the books of Anil.

Solution: In the books of Anil Journal Entries

Date Debit Credit
Particulars Amount Amount
2019 ₹ ₹
5-Apr Bills receivable account Dr. 9,000
To Sanjay’s 9,000
account
(Being acceptance received from Sanjay for mutual
accommodation)
8-Apr Bank account Dr. 8,820
Discount account Dr. 180
To Bills receivable account 9,000
(Being bill discounted with bank)
8-Apr Sanjay’s account Dr. 3,000
To Bank account 2,940

To Discount account 60

(Being one-third proceeds of the bill sent to Sanjay)

8-Jul Sanjay’s account Dr. 12,600
To Bills payable account 12,600
(Being Acceptance given)
8-Jul Bank account Dr. 2,220
180

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Discount account (270 × 2/3) Dr. 2,400

To Sanjay’s account
(Being proceeds of second bill received from Sanjay)
Oct.11 Bills payable account Dr. 12,600
To Sanjay’s 12,600
account
(Being bill dishonoured due to insolvency)
Oct.15 Sanjay’s account (6,000+2,400) Dr. 8,400
To Bank account 4,200
To Deficiency account 4,200
(Being insolvent, only 50% amount paid to Sanjay)

Chapter 3 – Rectification of Errors

6. Mr. Roy was unable to agree the Trial Balance last year and wrote off the difference to the Profit and
Loss Account of that year. Next Year, he appointed a Chartered Accountant who examined the old
books and found the following mistakes:
(1) Purchase of a scooter was debited to conveyance account ₹3,000.
(2) Purchase account was over-cast by ₹10,000.
(3) A credit purchase of goods from Mr. P for ₹2,000 entered as a sale.
(4) Receipt of cash from Mr. A was posted to the account of Mr. B ₹1,000.
(5) Receipt of cash from Mr. C was posted to the debit of his account, ₹500.
(6) ₹ 500 due by Mr. Q was omitted to be taken to the trial balance.
(7) Sale of goods to Mr. R for ₹2,000 was omitted to be recorded.
(8) Amount of ₹2,395 of purchase was wrongly posted as ₹2,593.

Mr. Roy used 10% depreciation on vehicles. Suggest the necessary rectification entries.

Solution:
Journal Entries in the books of Mr. Roy
Dr. Cr.
Date Particulars LF
₹ ₹
(1) Motor Vehicles Account Dr. 2,700
To Profit and Loss Adjustment A/c 2,700
(Purchase of scooter wrongly debited to conveyance
account now rectified-capitalisation of ₹ 2,700, i.e.,
₹ 3,000 less 10% depreciation)
(2) Suspense Account Dr. 10,000

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To Profit & Loss Adjustment A/c 10,000

(Purchase Account overcast in the previous year;
error now rectified).
(3) Profit & Loss Adjustment Dr. 4,000
A/c To P’s Account 4,000
(Credit purchase from P ₹ 2,000, enteredas sales
last
year; now rectified)
(4) B’s Account Dr. 1,000
To A’s Account 1,000
(Amount received from A wrongly posted to the
account of B; now rectified)
(5) Suspense Account Dr. 1,000
To C’s Account 1,000
(₹ 500 received from C wrongly debited to his
account;
now rectified)
(6) Trade receivables Dr. 500
To Suspense Account 500
(₹ 500 due by Q not taken into trialbalance; now
rectified)
(7) R’s Account Dr. 2,000
To Profit & Loss Adjustment A/c 2,000
(Sales to R omitted last year; now adjusted)
(8) Suspense Account Dr. 198
To Profit & Loss Adjustment A/c 198
(Excess posting to purchase account last year, ₹
2,593, instead of ₹ 2,395, now adjusted)
(9) Profit & Loss Adjustment A/c Dr. 10,898
To Roy’s Capital Account 10,898
(Balance of Profit & Loss Adjustment A/c
transferred to
Capital Account)
(10) Roy’s Capital Account Dr. 10,698
To Suspense Account 10,698
(Balance of Suspense Account transferred to the
Capital Account)

Profit and Loss Adjustment A/c

(Prior Period Items)
Particulars ₹ Particulars ₹
To P 4,000 By Motor Vehicles A/c 2,700

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To Roy’s Capital (transfer) 10,898 By Suspense A/c 10,000

By R 2,000
By Suspense Account 198
14,898 14,898

Suspense A/c
Particulars ₹ Particulars ₹
To P &L Adjustment A/c 10,000 By Trade Receivables (Q) 500
To C 1,000 By Roy’s Capital Account (Transfer) 10,698
To P & L Adjustment A/c 198
11,198 11,198

7. The following mistakes were located in the books of a concern after its books were closed and a
Suspense Account was opened in order to get the Trial Balance agreed:
(i) Sales Day Book was overcast by ₹ 1,000.
(ii) A sale of ₹ 5,000 to X was wrongly debited to the Account of Y.
(iii) General expenses ₹ 180 was posted in the General Ledger as ₹ 810.
(iv) A Bill Receivable for ₹ 1,550 was passed through Bills Payable Book. The Bill was given by P.
(v) Legal Expenses ₹ 1,190 paid to Mrs. Neetu was debited to her personal account.
(vi) Cash received from Ram was debited to Shyam ₹ 1,500.
(vii) While carrying forward the total of one page of the Purchases Book to the next, the amount
of ₹ 1,235 was written as ₹ 1,325.

Find out the amount of the Suspense Account and Pass entries (including narration) for the
rectification of the above errors in the subsequent year’s books

Solution: Journal Entries

Dr. Cr.
Particulars
₹ ₹
(i) P & L Adjustment A/c Dr. 1,000
To Suspense A/c 1,000
(Correction of error by which sales account was
overcast last year)
(ii) X Dr. 5,000
To Y 5,000
(Correction of error by which sale of ₹ 5,000
to X was wrongly debited to Y’s account)
(iii) Suspense A/c Dr. 630
To P & L Adjustment A/c 630

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(Correct of error by which general expenses of ₹ 180

was wrongly posted as ₹ 810)
(iv) Bills Receivable A/c Dr. 1,550
Bills Payable A/c Dr. 1,550
To P 3,100
(Correction of error by which bill receivable of ₹
1,550 was wrongly passed through BP book)

(v) P & L Adjustment A/c Dr. 1,190

To Mrs. Neetu 1,190
(Correction of error by which legal expenses paid to
Mrs. Neetu was wrongly debited to
her personal account)
(vi) Suspense A/c Dr. 3,000
To Ram 1,500
To Shyam 1,500
(Removal of wrong debit to Shyam and giving credit
to Ram from whom cash was
received)
(vii) Suspense A/c Dr. 90
To P&L Adjustment A/c 90
(Correction of error by which Purchase A/c was
excess debited by ₹90/-, ie: ₹1,325 – ₹1,235)

Suspense A/c
Dr. Cr.
₹ ₹
To P & L Adjustment A/c 630 By P & L Adjustment A/c 1,000
To Ram 1,500 By Difference in Trial Balance 2,720
To Shyam 1,500 (Balancing figure)
To P&L Adjustment A/c 90

3,720 3,720

Chapter 4 – Bank Reconciliation Statement

8. The Cash-book of M/s ABC shows ₹ 27,570 as the balance at Bank as on 31st March, 2017. But this
does not agree with balance as per the Bank Statement. On scrutiny following discrepancies were
found:
(i) Subsidy ₹ 10,250 received from the government directly by the bank, but not advised to the

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company.
(ii) On 15th March, 2017 the payments side of the Cash-book was under cast by ₹ 350.
(iii) On 20th March, 2017 the debit balance of ₹ 2,156 as on the previous day, was brought
forward as credit balance in Cash-book.
(iv) A customer of the M/s ABC, who received a cash discount of 5% on his account of
₹ 2,000, paid to M/s ABC a cheque on 24th March, 2017. The cashier erroneously entered the
gross amount in the Cash-Book.
(v) On 10th March, 2017 a bill for ₹ 5,700 was discounted from the bank, entered in Cash-book,
but proceeds credited in Bank Statement amounted to ₹ 5,500 only.
(vi) A cheque issued amounting to ₹ 1,725 returned marked ‘out of date’. No entry made in Cash-
book.
(vii) Insurance premium ₹ 756 paid directly by bank under a standing order. No entry made in cash-
book.
(viii) A bill receivable for ₹ 1,530 discounted for ₹ 1,500 with the bank had been dishonoured on
30th March, 2017, but advice was received on 1st April, 2017.
(ix) Bank recorded a Cash deposit of ₹ 1,550 as ₹ 1,505. Prepare Bank Reconciliation Statement on
31st March, 2017.

Solution: Bank Reconciliation Statement on 31st March, 2017

Particulars ₹
Bank Balance as per Cash Book 27,570
Add: (i) Subsidy from government received directly by the bank 10,250
not recorded in the Cash Book
(iii) Debit balance of ₹2,156 brought forward as credit
balance on 20th March, 2017 in the Cash Book 4,312
(vi) Cheque issued returned marked ‘out of date’ 1,725 16,287
43,857
Less: (ii) Cash Book under cast on 15th March, 2017 350
(iv) Discount allowed to a customer, however entry made at
gross amount in the Cash Book 100
(v) Commission charged by bank on discounting of bill, not
considered in Cash Book 200
(vii) Insurance Premium paid directly by bank under
standing instructions 756
(viii) Discounted B/R dishonoured; not entered in Cash Book 1,530
(ix) Bank recorded short cash deposit 45 2,981
Balance as per Bank Statement 40,876

9. Prepare the Bank Reconciliation Statement of M/s. R.K. Brothers on 30th June 2018 from the
particulars given below:
(i) The Bank Pass Book had a debit balance of ₹ 25,000 on 30th June, 2018.

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(ii) A cheque worth ₹ 400 directly deposited into Bank by customer but no entry was made in
the Cash Book.
(iii) Out of cheques issued worth ₹ 34,000, cheques amounting to ₹ 20,000 only were presented
for payment till 30th June, 2018.
(iv) A cheque for ₹ 4,000 received and entered in the Cash Book but it was not sent to the
Bank.
(v) Cheques worth ₹ 20,000 had been sent to Bank for collection but the collection was reported
by the Bank as under.
(1) Cheques collected before 30th June, 2018, ₹ 14,000

(2) Cheques collected on 10th July, 2018, ₹ 4,000

(3) Cheques collected on 12th July, 2018, ₹ 2,000.

(vi) The Bank made a direct payment of ₹ 600 which was not recorded in the Cash Book.

(vii) Interest on Overdraft charged by the bank ₹ 1,600 was not recorded in the Cash Book.
(viii) Bank charges worth ₹ 80 have been entered twice in the cash book whereas Insurance
charges for ₹ 70 directly paid by Bank was not at all entered in the Cash Book.
(ix) The credit side of bank column of Cash Book was under cast by ₹ 2,000.

Solution:

Bank Reconciliation Statement as on 30th June 2018

Particulars Amount ₹ Amount ₹
Overdraft as per Pass Book (Dr. Balance) 25,000
Add: Cheques issued but not presented ₹ (34,000- 20,000) 14,000
Cheques deposited into the Bank by Customer but not 400
entered in Cash Book
Bank charges written twice in Cash Book 80 14,480
39,480
Less: Cheques received, recorded in cash Book but not sent to 4,000
the Bank
Cheques sent to the Bank but not collected 6,000
Direct payment made by the bank not recorded in the 600
Cash book
Interest on Overdraft charged by Bank 1,600
Insurance charges not entered in Cash Book 70
Credit side of bank column of Cash Book was undercast
2,000 14,270
Overdraft as per Cash Book 25,210

10. On 30th September, 2018, the bank account of XYZ, according to the bank column of the cash

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book, was overdrawn to the extent of ₹ 8,062. An examination of the Cash book and Bank
Statement reveals the following:

(i) A cheque for ₹ 11,14,000 deposited on 29th September, 2018 was credited by the bank only
on 3rd October, 2018.

(ii) A payment by cheque for ₹ 18,000 has been entered twice in the Cash book.

(iii) On 29th September, 2018, the bank credited an amount of ₹ 1,15,400 received from a
customer of XYZ, but the advice was not received by XYZ until 1st October, 2018.

(iv) Bank charges amounting to ₹ 280 had not been entered in the cash book.

(v) On 6th September 2018, the bank credited ₹ 30,000 to XYZ in error.

(vi) A bill of exchange for ₹ 1,60,000 was discounted by XYZ with his bank. The bill was
dishonoured on 28th September, 2018 but no entry had been made in the books of XYZ.

(vii) Cheques issued upto 30th September,2018 but not presented for payment upto that date
totalled ₹ 13,46,000.

(viii) A bill payable of ₹ 2, 00,000 had been paid by the bank but was not entered in the cash
book and bill receivable for ₹ 60,000 had been discounted with the bank at a cost of ₹
1,000 which had also not been recorded in cash book.

You are required: To show the appropriate rectifications required in the cash book of XYZ, to
arrive at the correct balance on 30th September, 2018 and to prepare a Bank Reconciliation
Statement as on that date.

Solution:

Cash Book (Bank Column)

Date Particulars Amount Date Particulars Amount

2018 To Party A/c 18,000 2018 By Balance b/d 8,062

Sept. 30 To Customer A/c Sept. 30 By Bank charges 280
(Direct deposit) 1,15,400 By Customer A/c

To B/R collected 59,000 (B/R dishonoured) 1,60,000

To Balance c/d 1,75,942 By Bills payable 2,00,000
3,68,342 3,68,342

Bank Reconciliation Statement as on 30th September, 2018

Particulars Amount ₹
Overdraft as per Cash Book 1,75,942
Add: Cheque deposited but not collected up to 30th Sept., 2018 11,14,000
12,89,942
Less: Cheques issued but not presented for payment up to 30th Sept., 2018 (13,46,000)
Credit by Bank erroneously on 6th Sept. (30,000)
Balance as per bank statement 86,058

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Chapter 5 – Consignment

11. Ganpath of Nagpur consigns 500 cases of goods costing ₹ 1,500 each to Rawat of Jaipur. Ganpath
pays the following expenses in connection with the consignment.
Particulars ₹
Carriage 15,000
Freight 45,000
Loading Charges 15,000

Rawat sells 350 cases at ₹ 2,100 per case and incurs the following expenses:

Clearing charges 18,000

Warehousing and Storage charges 25,000
Packing and selling expenses 7,000

It is found that 50 cases were lost in transit (which is an abnormal loss) and another 50 cases were in
transit. Rawat is entitled to a commission of 10% on gross sales. Draw up the Consignment Account and
Rawat's Account in the books of Ganpath.

Solution:
In the books of Ganpath
Consignment to Rawat of Jaipur Account

Particulars ₹ Particulars ₹
To Goods sent on Consignment 7,50,000 By Rawat (Sales) 7,35,000
To Bank (Expenses: (15,000+45,000+15,000) 75,000 By Goods lost in Transit 50 cases @ ₹ 82,500
1,650 each (WN1)
To Rawat (Expenses: 50,000 By Consignment Inventories:
(18,000+25,000+7,000) In hand 50 @ ₹ 1,695 each (WN2) 84,750
To Rawat (Commission) 73,500 By Consignment Inventories:
To Profit on Consignment 36,250 In transit 50 @ ₹ 1,650 each (WN3)
Transfer to Profit & Loss A/c 82,500
9,84,750 9,84,750

Rawat’s Account
Particulars ₹ Particulars ₹
To Consignment to Jaipur A/c 7,35,000 By Consignment A/c (Expenses) 50,000
By Consignment A/c (Commission) 73,500
By Balance c/d 6,11,500
7,35,000 7,35,000

Working Notes:

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1. Consignor’s expenses on 500 cases amounts to ₹ 75,000; it comes to ₹ 150 per case. The cost
of cases lost will be computed at ₹ 1,650 per case i.e. 1,500+150.
2. Rawat has incurred ₹ 18,000 on clearing 400 cases, i.e., ₹ 45 per case; while valuing closing
inventories with the agent ₹ 45 per case has been added to cases in hand with the agent i.e.
1,500+150+45.
3. The goods in transit (50 cases) have not yet been cleared. Hence the proportionate clearing
charges on those goods have not been included in their value i.e. 1,500+150 =1,650.
4. It has been assumed that balance of ₹ 6,11,500 is not yet paid.

12. A Products Limited of Kolkata has given the following particulars regarding tea sent on
consignment to C Stores of Mumbai:
Cost price Selling price Qty consigned
5 Kg. Tin ₹ 100 each ₹ 150 each 1,000 Tins
10 Kg. Tin ₹ 180 each ₹ 250 each 1,000 Tins

(i) The consignment was booked on freight "To Pay" basis. The freight was charged @ 5% of
selling value.
(ii) C Stores sold 500, 5 kg Tins and 800, 10 kg Tins. It paid insurance of ₹ 10,000 and storage
charges of ₹ 20,000.
(iii) C Stores is entitled to a fixed commission @ 10% on Sales.
(iv) During transit 50 quantity of 5 kg Tin and 20 quantity of 10 kg Tin got damaged and the
transporter paid ₹ 5,000 as damage charge.

Prepare the Consignment Account in the books of A Products Limited.

Solution:
A Products Ltd.
Consignment to Mumbai Account
Particulars ₹ ₹ Particulars ₹ ₹
To Goods sent on By C Stores
Consignment A/c

1,000 5 kg. tins @ ₹ 100 1,00,000 500, 5 kg. tins @ ₹ 150 75,000
1,000 10 kg. tins. @ ₹ 180 1,80,000 2,80,000 800,10 kg. tins. @ ₹ 250 2,00,000 2,75,000

To C Stores: By Bank A/c 5,000

Freight 20,000 (Damage charges)

Insurance 10,000 By Profit & Loss A/c –

Storage charge 20,000 Abnormal loss (Net) 4,225

Commission 27,500 77,500 By Inventory on consignment A/c 83,025

To Profit & Loss A/c – Profit 9,750

3,67,250 3,67,250

Working Notes:

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(i) Calculation of Freight

Sale value of total consignment:
1,000 5 kg. tins @ ₹ 150 1,50,000
1,000 10 kg. tins @ ₹ 250 2,50,000
4,00,000

Freight @ 5% of above 20,000

(ii) Inventories at the end:

450, 5 kg. tins @ ₹ 100 (Selling Price ₹ 67,500) 45,000
180,10 kg. tins. @ ₹ 180 (Selling Price ₹ 45,000) 32,400

77,400
Add: Freight 5% of (Selling Price ₹ 1,12,500) 5,625

83,025
(iii) Loss in transit:
Cost of 50, 5 kg. Tins @ ₹ 100 & 20, 10 kg tins @ 180 8,600
Freight @ 5% of Selling Price ₹ 12,500 625
Gross abnormal Loss 9,225
Less: Damage charges received (5,000)
Net abnormal Loss 4,225

13. Anand of Bangalore consigned to Raj of Pune, goods to be sold at invoice price which represents
125% of cost. Raj is entitled to a commission of 10% on sales at invoice price and 25% of any
excess realized over invoice price. The expenses on freight and insurance incurred by Anand were
₹ 12,000. The account sales received by Anand shows that Raj has effected sales amounting to ₹
1,20,000 in respect of 75% of the consignment. His selling expenses to be reimbursed were ₹
9,600 10% of consignment goods of the value of ₹ 15,000 were destroyed in fire at the Pune
godown and the insurance company paid ₹ 12,000 net of salvage. Raj remitted the balance in favour
of Anand.
You are required to prepare Consignment Account and ·the account of Raj in the books of Anand
along with the necessary calculations.
Solution: Books of Anand
Consignment to Raj (Pune) Account

Particulars ₹ Particulars ₹
To Goods sent on Consignment A/c 1,50,000 By Goods sent on Consignment A/c(loading) 30,000
To Cash A/c 12,000
To Raj (Expenses) 9,600 By Abnormal Loss 13,200
To Raj (Commission) 13,125 (out of which ₹ 12,000 received from
To Inventories Reserve A/c 4,500 insurance co.)
By Raj (Sales) 1,20,000
By Inventories on Consignment A/c 24,300
By General Profit & Loss A/c 1,725

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1,89,225 1,89,225

Raj’s Account

Particulars ₹ Particulars ₹
To Consignment A/c 1,20,000 By Consignment A/c 9,600
By Consignment A/c 13,125
By Bank A/c 97,275
1,20,000 1,20,000

Working Notes:
1. Calculation of Loading of goods sent on consignment: Abnormal Loss at Invoice price = ₹15,000.
Abnormal Loss as a percentage of total consignment = 10%.
Hence the value of goods sent on consignment = ₹15,000 x 100/ 10 = ₹1,50,000. Loading of goods sent on
consignment = ₹1,50,000 X 25/125 = ₹30,000.

2. Calculation of abnormal loss (10%):

Abnormal Loss at Invoice price = ₹15,000
Abnormal Loss at cost = ₹ 15,000 x 100/125 = ₹12,000
Proportionate expenses of Anand (10 % of ₹12,000) = ₹ 1,200
₹13,200
3. Calculation of closing Inventories (15%):
Anand’s Basic Invoice price of consignment = ₹ 1,50,000
Anand’s expenses on consignment = ₹ 12,000
₹ 1,62,000
Value of closing Inventories = 15% of ₹1,62,000 = ₹24,300
Loading in closing Inventories = ₹4,500 (30,000 x 15%)

4. Calculation of commission:
Invoice price of the goods sold = 75% of ₹1,50,000 = ₹1,12,500
Excess of selling price over invoice price = (₹1,20,000- ₹1,12,500) = 7,500
Total commission = 10% of ₹1,12,500 + 25% of ₹7,500
= ₹11,250 + ₹1,875
= ₹13,125

Note: Abnormal loss is calculated at cost and value of inventories is valued at invoice price as invoice price
is given.

Chapter 6 – Depreciation

14. A Firm purchased an old Machinery for ₹ 37,000 on 1st January, 2015 and spent ₹ 3,000 on its
overhauling. On 1st July 2016, another machine was purchased for ₹ 10,000. On 1st July 2017, the
machinery which was purchased on 1st January 2015, was sold for ₹ 28,000 and the same day a
new machinery costing ₹ 25,000 was purchased. On 1st July, 2018, the machine which was

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purchased on 1st July, 2016 was sold for ₹ 2,000. Depreciation is charged @ 10% per annum on
straight line method. The firm changed the method and adopted diminishing balance method with
effect from 1st January, 2016 and the rate was increased to 15% per annum. The books are closed
on 31st December every year. Prepare Machinery account for four years from 1st January, 2015.
Solution:
In the books of Firm
Machinery Account

Date Particulars Amount Date Particulars Amount

1.1.2015 To Bank A/c 37,000 31.12.2015 By Depreciation A/c 4,000
To Bank A/c (overhauling 3,000 31.12.2015 By Balance c/d 36,000
charges)
_______ _______
40,000 40,000
1.1.2016 To Balance b/d 36,000 31.12.2016 By Depreciation A/c (₹ 6,150
5,400 + ₹ 750)
1.7.2016 To Bank A/c 10,000 31.12.2016 By Balance c/d 39,850
_______ (₹ 30,600 + ₹ 9,250) _______
46,000 46,000
1.1.2017 To Balance b/d 39,850 1.7.2017 By Bank A/c(sale) 28,000
1.7.2017 To Bank A/c 25,000 1.7.2017 By Profit and Loss A/c (Loss on 305
Sale – W.N. 1)
31.12.2017 By Depreciation A/c 5,558
(₹ 2,295 + ₹ 1,388 +
₹ 1,875)
By Balance c/d 30,987
_______ (₹ 7,862 + ₹ 23,125) _______
64,850 64,850
1.1.2018 To Balance b/d 30,987 1.7.2018 By Bank A/c (sale) 2,000
1.7.2018 By Profit and Loss A/c (Loss on 5,272
Sale – W.N. 1)
31.12.2018 By Depreciation A/c (₹ 590 4,059
+ ₹ 3,469)
_______ 31.12.2018 By Balance c/d 19,656
30,987 30,987

Working Note
Book Value of machines
Machine I ₹ Machine II ₹ Machine III ₹
Cost of all machinery 40,000 10,000 25,000
(Machinery cost for 2015)
Depreciation for 2015 4,000
Written down value as on 31.12.2015 36,000

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Purchase 1.7.2016 (6 months) 10,000

Depreciation for 2016 5,400 750
Written down value as on 31.12.2016 30,600 9,250
Depreciation for 6 months (2017) 2,295
Written down value as on 1.7.2017 28,305
Sale proceeds 28,000
Loss on sale 305
Purchase 1.7.2017 25,000
Depreciation for 2017 (6 months) 1,388 1,875
Written down value as on 31.12.2017 7,862 23,125
Depreciation for 6 months in 2018 590
Written down value as on 1.7.2018 7,272
Sale proceeds 2,000
Loss on sale 5,272
Depreciation for 2018 3,469
Written down value as on 31.12.2018 19,656

Chapter 7 – Inventory Valuation

15. A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons, no
stock taking could be possible till 15th April, 2018 on which date the total cost of goods in his
godown came to ₹ 50,000. The following facts were established between 31st March and 15th
April, 2018.
(i) Sales ₹ 41,000 (including cash sales ₹ 10,000)
(ii) Purchases ₹ 5,034 (including cash purchases ₹ 1,990)
(iii) Sales Return ₹ 1,000.
(iv) On 15th March, goods of the sale value of ₹ 10,000 were sent on sale or return basis to a
customer, the period of approval being four weeks. He returned 40% of the goods on
10th April, approving the rest; the customer was billed on 16th April.
(v) The trader had also received goods costing ₹ 8,000 in March, for sale on consignment basis;
20% of the goods had been sold by 31st March, and another 50% by the 15th April. These
sales are not included in above sales.

Goods are sold by the trader at a profit of 20% on sales.

You are required to ascertain the value of Inventory as on 31st March, 2018.

Solution: Statement of Valuation of Stock on 31st March, 2018

₹ ₹
Value of stock as on 15th April, 2018 50,000

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Add: Cost of sales during the period from 31st March, 2018 to
15th April, 2018
Sales (₹ 41,000 – ₹ 1,000) 40,000

Less: Gross Profit (20% of ₹ 40,000) 8,000 32,000

Cost of goods sent on approval basis (80% of ₹ 6,000)
4,800
86,800
Less: Purchases during the period from 31st March, 2018 to 15th
April, 2018 5,034
Unsold stock out of goods received on consignment basis
(30% of ₹ 8,000) 2,400 7,434

79,366

16. Raj Ltd. prepared their accounts financial year ended on 31st March 2019. Due to unavoidable
circumstances actual stock has been taken on 10th April 2019, when it was ascertained at ₹
1,25,000. It has been found that;
(i) Sales are entered in the Sales Book on the day of dispatch and return inwards in the
Returns Inward Book on the day of the goods received back.
(ii) Purchases are entered in the Purchase Book on the day the Invoices are received.
(iii) Sales between 1st April 2019 to 9th April 2019 amounting to ₹ 20,000 as per Sales Day
Book.
(iv) Free samples for business promotion issued during 1st April 2019 to 9th April 2019
amounting to ₹ 4,000 at cost.
(v) Purchases during 1st April 2019 to 9th April 2019 amounting to ₹ 10,000 but goods amounts
to ₹ 2,000 not received till the date of stock taking.
(vi) Invoices for goods purchased amounting to ₹ 20,000 were entered on 28th March 2019 but
the goods were not included in stock.
Rate of Gross Profit is 25% on cost. Ascertain the value of Stock as on 31st March 2019.

Solution:

Statement of Valuation of Physical Stock as on 31st March,2019

₹ ₹
Value of stock as on 10th April, 2019 1,25,000
Add: Cost of sales during the intervening period
Sales made between 1.4.2019 and 9.4.2019 20,000
Less: Gross profit @20% on sales (4,000) 16,000
Free sample 4,000
1,45,000
Less: Purchases actually received during the intervening
period:

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Purchases from 1.4.2019 to 9.4.2019 10,000

Less: Goods not received upto 9.4.2019 (8,000)
(2,000) 1,37,000
Add: Purchases during March, 2019 but not recorded in stock 20,000
Value of physical stock as on 31.3.2019 1,57,000

17. A) The following are the details of a spare part of Sriram mills

1-1-2020 Opening Inventory Nil

1-1-2020 Purchases 100 units @ ₹ 30 per unit
15-1-2020 Issued for consumption 50 units
1-2-2020 Purchases 200 units @ ₹ 40 per unit
15-2-2020 Issued for consumption 100 units
20-2-2020 Issued for consumption 100 units

Find out the value of Inventory as on 31-3-2020 if the company follows First in first out basis

Solution:

First-in-First out basis

Sriram Mills
Calculation of the value of Inventory as on 31-3-2020
Receipts Issues Balance
Amoun
Date Units Rate Amount Units Rate Units Rate Amount
t
1-1-2020 Balance Nil
1-1-2020 100 30 3,000 100 30 3,000
15-1-2020 50 30 1,500 50 30 1,500
1-2-2020 200 40 8,000 50 30 1,500
200 40 8,000
15-2-2020 50 30 1,500
50 40 2,000 150 40 6,000
20-2-2020 100 40 4,000 50 40 2,000

Therefore, the value of Inventory as on 31-3-2020: 50 units @ ₹ 40 = ₹ 2,000

B) The following are the details of a spare part of Sriram Mills:

1-1-2020 Opening Inventory Nil

1-1-2020 Purchases 100 units @ ₹ 30 per unit

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15-1-2020 Issued for consumption 50 units

1-2-2020 Purchases 200 units @ ₹ 40 per unit
15-2-2020 Issued for consumption 100 units
20-2-2020 Issued for consumption 100 units

Find out the value of Inventory as on 31-3-2020 if the company follows Weighted Average
basis

Solution:
Weighted Average basis
Sriram Mills
Calculation of the value of Inventory as on 31-3—2020
Receipts Issues Balance
Date Units Rate Amount Units Rate Amount Units Rate Amount
1-1-2020 Balance Nil
1-1-2020 100 30 3,000 100 30 3,000
15-1-2020 50 30 1,500 50 30 1,500
1-2-2020 200 40 8,000 250 38 9,500
15-2-2020 100 38 3,800 150 38 5,700
20-2-2020 100 38 3,800 50 38 1,900

Therefore, the value of Inventory as on 31-3-2020 = 50 units @ ₹ 38 = ₹ 1,900

Chapter 8 – Sales on Approval

18. Ms. Madhu has supplied goods on sale or return basis to customers, the particulars of which are as
under.
Date of dispatch Party’s name Amount ₹ Remarks

01.03.2020 M/s. Piya 20,000 Awaiting approval from customers as on 31.03.2020

08.03.2020 M/s. Riya 25,000 Returned on 16.03.2020

15.03.2020 M/s. Ciya 24,000 Goods worth ₹ 4,000 returned on 20.03.2020

19.03.2020 M/s. Diya 22,500 Goods accepted on 24.03.2020

25.03.2020 M/s. Tiya 18,250 Good accepted on 28.03.2020
30.03.2020 M/s. Bhavya 23,000 Awaiting approval from customers as on 31.03.2020

Goods are sent on the terms of 10 days return window from the date of dispatch, failing which it
will be treated as sales. The books of Madhu are closed on the 31st March, 2020.

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Prepare the following accounts in the books of Madhu.

(a) Goods on “sales or return, sold and returned day books”.
(b) Goods on sales or return total account.

Solution:
In the books of ‘Madhu’
Goods on sales or return, sold and returned day book.

Date Party to whom Amount Date Sold Returned

L.F
2020 goods sent ₹ 2020 ₹ ₹
Mar 01 M/s. Priya 20,000 Mar 11 20,000 -
Mar 08 M/s. Riya 25,000 Mar. 16 - 25,000
Mar 15 M/s. Chiya 24,000 Mar. 20 20,000 4,000
Mar 19 M/s. Diya 22,500 Mar. 24 22,500 -
Mar 25 M/s. Tiya 18,250 Mar. 28 18,250 -
Mar 30 M/s. Bhavya 23,000 Pending
approval
1,32,750 80,750 29,000

Goods on Sales or Return Total Account

Date Particulars Amount Date Particulars Amount
2020 2020
Mar. 31 To Returns 29,000 Mar. 31 By Goods sent on sales or
return 1,32,750
To Sales 80,750

To Balance c/d 23,000

1,32,750 1,32,750

19. Mr. Ganesh sends out goods on approval to few customers and includes the same in the Sales
Account. On 31.03.2018, the Trade Receivables balance stood at₹ 75,000 which included ₹ 6,500
goods sent on approval against which no intimation was received during the year. These goods
were sent out at 30% over and above cost price and were sent to-
Mr. Adhitya ₹ 3,900 and Mr. Bakkiram ₹ 2,600.
Mr. Adhitya sent intimation of acceptance on 25th April, 2018 and Mr. Bakkiram returned the
goods on 15th April, 2018.
Make the adjustment entries and show how these items will appear in the Balance Sheet as on
31st March, 2018. Show also the entries to be made during April, 2018. Value of Closing
Inventories as on 31st March, 2018 was ₹ 50,000.

Solution:
In the Books of Mr. Ganesh
Journal Entries

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Date Particulars L.F. Dr. ₹ Cr. ₹

2018 Sales A/c Dr. 6,500
March 31 To Trade receivables A/c 6,500

(Being the cancellation of original

entry for sale in respect of goods
lying with customers awaiting
approval)
March 31 Inventories with Customers on Sale or Dr. 5,000
Return A/c
To Trading A/c (Note 1) 5,000
(Being the adjustment for cost of
goods lying with customers awaiting
approval)
April 25 Trade receivables A/c Dr. 3,900
To Sales A/c 3,900
(Being goods costing worth ₹ 3,900
sent to Mr. Aditya on sale or return
basis has been accepted by him)

Balance Sheet of Mr. Ganesh as on 31st March, 2018 (Extracts)

Liabilities ₹ Assets ₹ ₹
Trade receivables (₹ 68,500
75,000 - ₹ 6,500)
Inventories-in-trade 50,000
Add: Inventories with
customers on Sale or 5,000 55,000
Return
1,23,500

Note:
1. Cost of goods lying with customers = 100/130 x ₹ 6,500 = ₹ 5,000
2. No entry is required on 15th April, 2018 for goods returned by Mr. Bakkiram. Goods should
be included physically in the Inventories

20. From the following information show the journal entries in the books of ABC Limited for the year
ended 31st March, 2020.

(1) 100 units of goods costing ₹ 500 each sent to XYZ Limited on Sales or Return Basis @ ₹
750 per unit. This transaction was however treated as actual sales in the books of
accounts.
(2) Out of the above 100 units, only 60 units were accepted by XYZ Limited during the year @
₹ 700 per unit. No information was received about acceptability of balance units by the year
end.

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Solution:

In the books of ABC. Ltd. Journal Entries

Date Particulars L.F. Dr. ₹ Cr. ₹

March. Sales A/c (₹ 50 X 60) Dr. 3,000

31 To XYZ Limited A/c
(Being the60 units of goods accepted by 3,000
XYZ limited at 700 per unit.)

Sales A/c ( 40 X ₹ 750) Dr 30,000

To XYZ Limited A/c 30,000
(Being the cancellation of original entry for
sale in respect of 40 units of goods not yet
returned
or approved by customers)
March. Inventories with Customers on Sale or Dr. 20,000
31 Return A/c
To Trading A/c 20,000
(Being the cost of goods sent to customers
on
approval or return basis not yet approved,
adjusted)

Note: Quantity of goods lying with XYZ as on 31.3.2020 = 100-60 = 40

Chapter 9 – Average Due Date

21. Average Due date from the following information:

Date of the bill Terms Amount
August 10, 2010 3 months 6,000
October 23, 2010 60 days 5,000
December 4, 2010 2 months 4,000
January 14, 2011 60 days 2,000
March 8, 2011 2 months 3,000

Solution: Due date = Date of bill + Period in month/days + 3 days

(Days of grace are applicable in case of Bills of Exchange / Promissory Note only).
Let the base date be 13.11.2010
Due date Amount Days Product
10.8.2010 + 3 months + 3 days = 13.11. 2010 6,000 0 0
23.10.2010 + 60 days + 3 days = 24.12. 2010* 5,000 41 2,05,000

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4.12.2010 + 2 months + 3 days = 7.2.2011 4,000 86 3,44,000

14.1.2011 + 60 days + 3 days = 18.3.2011 2,000 125 2,50,000
8.3.2011 + 2 months + 3 days = 11.5. 2011 3,000 179 5,37,000
20,000 13,36,000

* Due Date Comes 25.12 which is a public holiday hence preceding working day is taken.

Average Due Date = Base Date + Sum of Product

Sum of Amount

=
13.11.2010  67 days

= 19th January 2011

22. Rakesh had the following bills receivable and bills payable against Mukesh.

Date Bills Receivable Tenure Date Bills Payable Tenure

1st June 3,400 3 month 29th May 2,500 2 month

5th June 2,900 3 month 3rd June 3,400 3 month
9th June 5,800 1 month 9th June 5,700 1 month
12th June 1,700 2 month
20th June 1,900 3 month

15th August was a public holiday. However, 6th September, was also declared as sudden
holiday. Calculate the average due date, when the payment can be received or made without any
loss of interest to either party.

Solution:

Let us take 12.07.2020 as Base date.

Bills receivable
Due date No. of days from 12.07.2020 Amount Product
04/09/2020 54 3,400 1,83,600
08/09/2020 58 2,900 1,68,200
12/07/2020 0 5,800 0
14/08/2020 33 1,700 56,100
23/09/2020 73 1,900 1,38,700
15,700 5,46,600

Bills payable
Due date No. of days from 12.07.2020 Amount Product

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01/08/2020 20 2,500 50,000

07/09/2020 57 3,400 1,93,800
12/07/2020 0 5,700 0
11,600 2,43,800

Excess of products of bills receivable over bills payable = 5,46,600 -2,43,800 = 3,02,800
Excess of bills receivable over bills payable = 15,700 – 11,600 = 4,100
Number of days from the base date to the date of settlement is 3,02,800
4,100 = 73.85
(appox.)

Hence date of settlement of the balance amount is 74 days after 12th July i.e. 24th
September. On 24thSeptember, 2020 Mukesh has to pay Rakesh ₹ 4,100 to settle the
account.

23. Mehnaaz accepted the following bills drawn by Shehnaaz.

On 8th March, 2018 ₹ 4,000 for 4 months.

On 16th March, 2018 ₹ 5,000 for 3 months.

On 7th April, 2018 ₹ 6,000 for 5 months

On 17th May, 2018 ₹ 5,000 for 3 months.

He wants to pay all the bills on a single day. Find out this date. Interest is charged @ 18% p.a. and
Mehnaaz wants to save ₹ 157 by way of interest. Calculate the date on which he has to effect
the payment to save interest of ₹ 157.

Solution:

Taking 19.6.2018 as a Base date

Transaction Date Due Date Amount No. of days from the Product
base date i.e. 19.6.2018
8.3.2018 11.7.2018 4,000 22 88,000
16.3.2018 19.6.2018 5,000 0 0
7.4.2018 10.9.2018 6,000 83 4,98,000
17.5.2018 20.8.2018 5,000 62 3,10,000
20,000 8,96,000

Average Due Date = Base Date + Sum of Product

Sum of Amount

= 19.6.2018 + ₹ 8,96,000/₹ 20,000

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= 19.6.2018 + 44.8 days (or 45 days approximately)

= 3.8.2018

Mehnaaz wants to save interest of ₹ 157. The yearly interest is ₹ 20,000 18% = ₹ 3,600.

Assume that days corresponding to interest of ₹ 157 are Y. Then, 3,600 Y/365 = ₹ 157
or Y = 157 x 365/3,600 = 15.9 days or 16 days (Approx.)

Hence, if Mehnaaz wants to save ₹ 157 by way of interest, she should prepone the payment of
amount involved by 16 days from the Average Due Date. Hence, she should make the payment on
18.7.2018 (3.8.2018 – 16 days).

Chapter 10 – Account Current

24. From the following particulars prepare an Account Current to be rendered by A to B at 31st
December, reckoning interest @ 10% p.a.

2017 ₹ 2017 ₹
July 1 Balance owing from B 600 Sept. 01 B accepted A’s Bill at 3 months date 250
July 17 Goods sold to B 50 Oct.22 Goods bought from B 30
Aug. 1 Cash received from B 650 Nov. 12 Goods sold to B 20
Aug. 19 Goods sold to B 700 Dec. 14 Cash received from B 80
Aug. 30 Goods sold to B 40
Sept. 1 Cash received from B 350

Solution:
B in Account Current with A
(Interest from Due Date to Dec.31, 2017 @ 10% p.a.)
Dr. Cr.
Due Amount Due Amount
Date Particulars Days Product Date Particulars Days Product
Date (₹) Date (₹)
July 1 To Balance July 1 600 184 1,10,400 Aug. 1 By Cash A/c Aug. 1 650 152 98,800
b/d
July 17 To Sales A/c July 17 50 167 8,350 Sept. 1 By Cash A/c Sept. 1 350 121 42,350

Aug. To Sales A/c Aug 19 700 134 93,800 Sept. 1 By Bills Dec. 4 250 27 6,750
19 Receivable
Aug.30 To Sales A/c Aug. 30 40 123 4,920 Oct. By Purchases Oct. 22 30 70 2,100
22 A/c
Nov.12 To Sales A/c Nov. 12 20 49 980 Dec. By Cash A/c Dec. 14 80 17 1,360
14
Dec.31 To Interest Dec. By Balance c/d 68.38 67,090
A/c 31
₹ (67,090 18.38
X 0.1 / 365)
1428.38 2,18,450 1428.38 2,18,450

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25. Mr. A owed ₹ 4,000 on 1st January, 2019 to Mr. X. The following transactions took place
between them. It is agreed between the parties that interest @ 10% p.a. is to be calculated
on all transactions.

₹
15 January, 2019 Mr. X sold goods to Mr. A 2,230
29 January, 2019 Mr. X bought goods from Mr. A 1,200
10 February, 2019 Mr. A paid cash to Mr. X 1,000
13 March, 2019 Mr. A accepted a bill drawn by Mr. X for 2,000
one month

They agree to settle their complete accounts by one single payment on 15th March, 2019.
Prepare Mr. A in Account Current with Mr. X and ascertain the amount to be paid. Ignore
days of grace. Assume 1 year = 366 Days.

Solution:
Mr. A in Account Current with Mr. X
(Interest upto 15th March, 2019)
Dr. Cr.
Date Particulars Amt Days Product Date Particulars Amt Days Product
2019 2019
Jan. 01 To Balance b/d 4,000 75 3,00,000 Jan. 29 By Purchase a/c 1,200 46 55,200
Jan. 15 To Sales a/c 2,230 60 1,33,800 Feb. 10 By Cash a/c 1,000 34 34,000
Mar. 13 To Red Ink product 58,000 Mar. 13 By Bills receivable 2,000
(₹ 2,000 @ 29) a/c
Mar. 15 To Interest a/c 110 Mar. 15 By Balance of 4,02,600
₹4,02,600 x 10 x 1 product
x 100 x 366
By Balance c/d 2,140
(amt to be paid)
6,340 4,91,800 6,340 4,91,800

Chapter 11 – Final Accounts

26. The following are the balances as at 31st March, 2019 extracted from the books of Mr. XYZ.
₹ ₹
Plant and Machinery 19,550 Bad debts recovered 450
Furniture and Fittings 10,250 Salaries 22,550
Bank Overdraft 80,000 Salaries payable 2,450
Capital Account 65,000 Prepaid rent 300
Drawings 8,000 Rent 4,300

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Purchases 1,60,000 Carriage inward 1,125

Opening Stock 32,250 Carriage outward 1,350
Wages 12,165 Sales 2,15,300
Provision for doubtful debts 3,200 Advertisement Expenses 3,350
Provision for Discount on Printing and Stationery 1,250
debtors 1,375 Cash in hand 1,450
Sundry Debtors 1,20,000 Cash at bank 3,125
Sundry Creditors 47,500 Office Expenses 10,160
Bad debts 1,100 Interest paid on loan 3,000

Additional Information:

1. Purchases include sales return of ₹ 2,575 and sales include purchases return of ₹ 1,725.

2. Goods withdrawn by Mr. XYZ for own consumption ₹ 3,500 included in purchases.

3. Wages paid in the month of April for installation of plant and machinery amounting to ₹
450 were included in wages account.

4. Free samples distributed for publicity costing ₹ 825

5. Create a provision for doubtful debts @ 5% and provision for discount on debtors @
2.5%.

6. Depreciation is to be provided on plant and machinery @ 15% p.a. and on furniture and
fittings @ 10% p.a.

7. Bank overdraft is secured against hypothecation of stock. Bank overdraft outstanding as

on 31.3.2019 has been considered as 80% of real value of stock (deducting 20% as margin)
and after adjusting the marginal value 80% of the same has been allowed to draw as an
overdraft.

Prepare a Trading and Profit and Loss Account for the year ended 31st March, 2019, and a
Balance Sheet as on that date. Also show the rectification entries.
Solution:

Rectification Entries
Particulars Dr. Cr.
(i) Returns inward account Dr. 2,575
Sales account Dr. 1,725
To Purchases account 2,575
To Returns outward account 1,725
(Being sales return and purchases return wrongly
included in purchases and sales respectively, now
rectified)
(ii) Drawings account Dr. 3,500
To Purchases account 3,500

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(Being goods withdrawn for own consumption included in

purchases, now rectified)
(iii) Plant and machinery account Dr. 450
To Wages account 450
(Being wages paid for installation of plant and machinery
wrongly debited to wages, now rectified)

(iv) Advertisement expenses account Dr. 825

To Purchases account 825
(Being free samples distributed for publicity out of
purchases, now rectified)

Trading and Profit and Loss Account of Mr. XYZ

For the year ended 31st March, 2019

Dr. Cr.
To Opening stock 32,250 By Sales 2,13,575
2,11,000
To Purchases 1,53,100 Less: Sales return 2,575
Less: Purchases return 1,725 1,51,375 By Closing stock
1,25,000
To Carriage inward 1,125 80,000 * 100/80 * 100/80
To
Wages 11,715
To
Gross profit c/d 1,39,535
3,36,000 3,36,000

To Salaries 22,550 By Gross profit b/d 1,39,535

To Rent 4,300 By Bad debts recovered 450

To Advertisement expenses 4,175

To Printing and stationery 1,250
To Bad debts 1,100
To Carriage outward 1,350
To Provision for doubtful debts
5% of ₹ 1,20,00 6,000
Less: Existing provision 3,200 2,800
To Provision for discount on
debtors
2.5% of ₹ 1,14,000 2,850
Less: Existing provision 1,375 1,475
To Depreciation:
Plant and machinery 3,000
Furniture and fittings 1,025 4,025
To Office expenses 10,160
To Interest on loan 3,000
To Net profit

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(Transferred to capital account)

83,800 _______
1,39,985 1,39,985

Balance Sheet of Mr. XYZ as on 31st March, 2019

Amount Amount
Liabilities ₹ ₹ Assets ₹ ₹
Capital account 65,000 Plant and machinery 20,000

Add: Net profit 83,800 Less: Depreciation 3,000 17,000

1,48,800 Furniture and fittings 10,250
Less: 11,500 1,37,300 Less: Depreciation 1,025 9,225
Drawings
Bank overdraft 80,000 Closing stock 1,25,000
Sundry creditors 47,500 Sundry debtors 1,20,000

Payable salaries 2,450 Less: Provision for doubtful 6,000

debts
Provision for bad
debts 2,850 1,11,150
Prepaid rent 300
Cash in hand 1,450
_______ Cash at bank 3,125
2,67,250 2,67,250

27. Following particulars are extracted from the books of Mr. Sandeep for the year ended 31st
December, 2018.
Particulars Amount Particulars Amount
Debit Balances: ₹ Credit Balances: ₹
Cash in hand 1,500 Capital 16,000
Purchase 12,000 Bank overdraft 2,000
Sales return 1,000 Sales 9,000
Salaries 2,500 Purchase return 2,000
Tax and Insurance 500 Provision for Bad debts 1,000
Bad debts 500 Creditors 2,000
Debtors 5,000 Commission 500
Investments 4,000 Bills payable 2,500
Opening stock 1,400
Drawings 2,000
Furniture 1,600

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Bills receivables 3,000

35,000 35,000

Other information :
(i) Closing stock was valued at ₹ 4,500

(ii) Salary of ₹ 100 and Tax of ₹ 200 are outstanding whereas insurance ₹ 50 is prepaid.
(iii) Commission received in advance is ₹ 100.
(iv) Interest accrued on investment is ₹ 210
(v) Interest on overdraft is unpaid ₹ 300
(vi) Reserve for bad debts is to be kept at ₹ 1,000

(vii) Depreciation on furniture is to be charged @ 10%

You are required to prepare the final accounts after making above adjustments.

Solution:

Trading & Profit and Loss Account of Mr. Sandeep

for the year ended 31st December, 2018

Particular s ₹ ₹ Particular s ₹ ₹
To Opening Stock 1,400 By Sales 9,000
To Purchase 12,000 Less: Sales return (1,000) 8,000
Less: Purchase return (2,000) 10,000 By Closing stock 4,500
To Gross Profit 1,100

12,500 12,500
To Salary 2,500 By Gross Profit 1,100
Add: Outstanding 100 2,600 By Commission 500
salary Less: Advance (100) 400

To Tax & Insurance 500 By Accrued interest 210

Add: Outstanding 200 By Net Loss 2,500
Prepaid insurance (50) 650
To Bad debt 500
Opening provision (1,000)
Closing provision 1,000 500
To Interest on overdraft 300
To Depreciation on 160
furniture
4,210 4,210

Balance Sheet of Mr. Sandeep as on 31.3.2018

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Particular s ₹ ₹ Particular s ₹ ₹
Capital 16,000 By Furniture 1,600
Less: drawing (2,000) Less: Depreciation (160) 1,440
Net loss (2,500) 11,500 Bill receivable 3,000
Bank overdraft 2,000 Investment 4,000
Add: interest 300 2,300 Add: accrued interest 210 4,210
Creditors 2,000 Debtors 5,000
Bills payable 2,500 Less: Provision on bad debts (1,000) 4,000
Outstanding expenses:
Salary 100 Closing stock 4,500
Tax 200 300 Cash in hand 1,500
Commission received in advance 100 Prepaid insurance 50

18,700 18,700

28. From the following Trial Balance of Hari and additional information prepare Trading and Profit &
Loss Account for the year ended 31st March, 2016 and a Balance Sheet as on that date:
Trial Balance as at 31st March, 2016
Dr.(Rs.) Cr.(Rs.)
Capital - 1,00,000
Furniture 20,000 -
Purchases 1,50,000 -
Debtors 2,00,000 -
Interest Earned - 4,000
Salaries 30,000 -
Sales -
3,21,000
Purchase Returns - 5,000
Wages 20,000 -
Rent 15,000 -
Sales Return 10,000 -
Bad Debt Written off 7,000 -
Creditors - 1,20,000
Drawings 24,000 -
Provision for Bad Debts - 6,000
Printing & Stationery 8,000 -
Insurance 12,000 -
Opening Stock 50,000 -
Office Expenses 12,000 -
Provision for Depreciation - 2,000
5,58,000 5,58,000

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Additional Information’s:
(1) Depreciate Furniture by 10% on original cost;
(2) A provision for Doubtful Debts is to be created to the extent of 5% on Sundry Debtors;
(3) Salaries for the month of March, 2016 amounting to Rs.3,000 were unpaid which must be provided
for. However salaries included Rs.2,000 paid in advance;
(4) Insurance amounting to Rs.2,000 is prepaid;
(5) Provide for outstanding office expenses Rs.8,000;
(6) Stock used for private purpose Rs.6,000;
(7) Closing Stock-in-Trade Rs.60,000.

Solution:
M/s Hari
Trading and Profit and Loss Account for the year ended on 31.3.2016
Particulars Rs. Particulars Rs.
To Opening stock 50,000 By Sales 3,21,000
To Purchases 1,50,000 (-) Return 10,000 3,11,000
(-) Return 5,100 1,45,000 By Goods used 6,000
To Wages 20,000 By Closing stock 60,000
To Gross profit c/d 1,62,000
3,77,000 3,77,000
To Salaries 30,000 By Gross Profit b/d 1,62,000
(+) Outstanding salary 3,000 By Interest 4,000
(-) Advance salary 2,000 31,000
To Rent 15,000
To Bad debts 7,000
(+) Provisions 4,000 11,000
To Printing and Stationery 8,000
To Insurance 12,000
(-) Prepaid 2,000 10,000
To Office expenses 12,000
(+) Outstanding 8,000 20,000
To Depreciation 2,000
To Net profit transferred to Capital 69,000
a/c
1,66,000 1,66,000

M/s Hari
Balance Sheet as on 31.3.2016
Liabilities Rs. Assets Rs.
Capital 1,00,000 Furniture 20,000
(+) Net profit 69,000 (-) Dep. Provision: Bal. B/f 2,000
(-) Drawings 24,000 + Current year dep. 2,000 4,000 16,000
(-) Goods taken 6,000 1,39,000 Stock 60,000
Creditors 1,20,000 Debtors 2,00,000

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Salary payable 3,000 (-) Provision: old b/f 6,000

Expense payable 8,000 (-) Additional provision 4,000 1,90,000
Advance salary 2,000
Prepaid insurance 2,000
2,70,000 2,70,000

Adjustment Entries
No. Particulars Dr. Rs. Cr. Rs.
1. Depreciation a/c Dr. 2,000
To Depreciation provision a/c 2,000
(Depreciation for the current year provided by SLM)
2. Bad debt a/c Dr. 4,000
To Provision for Bad debt a/c 4,000
(Provision for additional bad debts created. Required prov. 5% on
Debtors of Rs.2,00,000 i.e. Rs.10,000 less existing prov. Rs.6,000 )
3. Salary a/c Dr. 3,000
To Salary payable a/c 3,000
(Being salary for the month of March due)
Advance Salary Dr. 2,000
To Salary a/c 2,000
(Being advance salary paid transferred to advance a/c)
4. Prepaid Insurance a/c Dr. 2,000
To Insurance expenses a/c 2,000
(Being premium paid for next year, transferred to prepaid a/c)
5. Office expenses a/c Dr. 8,000
To Expenses payable a/c 8,000
(Being provision made for expense payable)
6. Drawings a/c Dr. 6,000
To Goods used a/c 6,000
(Being goods withdrawn by owner for personal use)
7. Stock a/c Dr. 60,000
To Trading a/c 60,000
(Being closing stock adjusted)

Transfer Entries / Book Closing Entries

No. Particulars Dr. Rs. Cr. Rs.
1. Purchase return a/c Dr. 5,000
To Purchase a/c 5,000
(Being purchase return balance transferred to purchases a/c)
2. Trading a/c Dr . 2,15,000
To Opening stock a/c 50,000
To Purchase a/c 1,45,000

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No. Particulars Dr. Rs. Cr. Rs.

To Wages a/c 20,000
(Being direct expenses of goods transferred to trading a/c)
3. Sales a/c Dr. 10,000
To Sales return a/c 10,000
(Being sales return a/c transferred to sales a/c)
4. Sales a/c Dr. 3,11,000
Goods used a/c Dr. 6,000
To Trading a/c 3,17,000
(Being sales a/c and goods used a/c transferred to trading a/c)
5. Trading a/c Dr. 1,62,000
To Profit & Loss a/c 1,62,000
(Being gross profit shown by trading a/c transferred to P&L a/c)
6. Interest a/c Dr. 4,000
To Profit & Loss a/c 4,000
(Being indirect incomes transferred to P&L a/c)
7. Profit & Loss a/c Dr. 97,000
To Salary a/c 31,000
To Rent a/c 15,000
To Bad debt a/c 11,000
To Printing and stationery a/c 8,000
To Insurance a/c 10,000
To Office expense a/c 20,000
To Depreciation a/c 2,000
(Being expenses a/c transferred to P&L a/c)
8. Profit & Loss a/c Dr. 69,000
To Capital a/c 69,000
(Being net profit as per P&L a/c transferred to capital a/c)
9. Capital a/c Dr. 30,000
To Drawings a/c 30,000
(Being drawing adjusted against capital a/c)

29. From the following Trial Balance of K. Katrak as on 31-3-2016. Prepare Trading Account, Profit and
Loss Account for the year ended 31-3-2016, and a Balance Sheet as on that date after making
necessary adjustments:
Trial Balance
Dr. Rs. Cr. Rs.
K. Katrak's Drawings 12,000 K. Katrak's Capital 60,000
Furniture & Fixtures 4,000 Returns Outward 2,000
Plant & Machinery 30,000 Sales 1,30,000
Opening Stock 20,000 Creditors 12,000
Purchases 80,000 Loan at 6% p.a. taken from
Salaries and wages 22,400 M. Mehta on 1-10-2015 10,000

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Debtors 20,400 Discount 600

Return Inward 5,000
Postage & telegrams 1,500
Rent, Rates and taxes 3,600
Bad debts written off 400
Trade Expenses 200
Interest on loan from M. Mehta 150
Insurance 800
Travelling Expenses 500
Sundry Expenses 300
Cash-in-hand 3,050
Cash at Bank 10,300
2,14,600 2,14,600

Adjustments
(1) Closing stock was valued at Rs.21,000;
(2) Of the debtors Rs.400 are bad and should be written off. Create a reserve for bad debts at 5%
on Sundry Debtors and a reserve for discount on Debtors at 2.5%.
(3) Salaries Rs.800 for March,16 were not paid.
(4) Interest on Capital is to be calculated at 6% p.a. and on drawings Rs.330.
(5) Prepaid Insurance amounted to Rs.100.
(6) Depreciate Furniture & Fixture by 5% and plant and machinery by 10%.

Solution:
M/S K. K. Katrak
Trading and Profit & loss Account for the year ended on 31.13.16
Particulars Amount Particulars Amount
To Opening stock 20,000 By Sales 1,30,000
To Purchase 80,000 (-) Return Inward 5,000 1,25,000
(-) Return outward 2,000 78,000 By Closing stock 21,000
To Gross profit 48,000
1,46,000 1,46,000
To Depreciation: Furniture 200 By Gross Profit
48000
Plants & Mach. 3,000 By Discount
3,200 600
To Sundry expenses
300
To Travelling expenses
500
To Trade expenses
200
To Salary & wages 22,400
+ Salary payable 800
23,200
To Postage & Telegram
1,500
To Rent, Rates & Taxes
3,600
To Bad debts 400
+ Addl Bad debts written off 400
+ Provision for bad debts 1,000

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Particulars Amount Particulars Amount

1,800
To Interest on loan from Mr. Mehta
150
+ Interest payable 150 300
To Insurance 800
(-) Prepared Insurance 100 700
To Discount on debtor Provided 475
To Net profit transferred to P&L 12,825
app. 48,600 48,600

Profit & loss Appropriation Account

Particulars Amount Particulars Amount
To Interest on capital 3,600 By Net profit as per P&L account 12,825
To Balance profit transferred to 9,555 By Interest on drawings 330
capital a/c
13,155 13,155

Interest on capital, interest on drawing, salary/commission etc. to owners and transfer to reserves
etc. is taken in P&L appropriation a/c.

Loan from Mr. Mehta has been taken 6 month ago for which the interest accrued is Rs.300 out of
which Rs.150 has already been paid and accounted balance Rs.150 is payable and is accounted now.

Balance sheet as on 31.13.16

Liabilities Rs. Assets Rs.
Capital 60,000 Furniture & fixture 4,000
(+) Interest on Capital 3,600 (-) Depreciation 200 3,800
(-) Drawing 12,000 Plant & Machinery 30,000
(-) Interest on drawing 330 (-) Depreciation 3,000 27,000
(+) Profit transfer from P&L a/c 9,555 60,825 Debtors 20,400
(-) Bad debt written off 400
Loan 10,000 20,000
Interest payable 150 (-) Provision for bad debt 5% 1,000
Creditors 12,000 19,000
Outstanding salary 800 (-) Provision for discount 2.5% 475 18,525
Closing stock 21,000
Prepaid Insurance 100
Cash 3,050
+ Bank 10,300 13,350
83,775 83,775

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Chapter 12 – Partnership

Admission of Partner
30. Gopal and Govind are partners sharing profits and losses in the ratio 60:40. The firms Balance Sheet
as on 31-03-2006 was as follows:
Liabilities Rs. Assets Rs.
Capital Accounts
Gopal 1,20,000 Fixed Assets 3,00,000
Govind 80,000 2,00,000 Investments 50,000
Long Term Loan 2,00,000 Current Assets 2,00,000
Current Liabilities 2,50,000 Loans and Advances 1,00,000
6,50,000 6,50,000

Due to financial difficulties, they have decided to admit Guru as a Partner in the firm from 01-04-2006 on
the following terms:
Guru will be paid 40% of the profits. Guru will bring in cash Rs.1,00,000 as capital. It is agreed that
goodwill of the firm will be valued at 2 years purchase of 3 years normal average profits of the firm and
Guru will bring in cash for his share of Goodwill. It was also decided that the partners will not withdraw
their share of goodwill nor will the goodwill appear in the books of account.
The profits of the previous three years were as follows:
 For the year ended 31-03-2004 Profit Rs.20,000 (includes insurance claim received of Rs.40,000).
 For the year ended 31.03.2005 Loss Rs.80,000 (includes voluntary retirement compensation paid
Rs.1,10,000).
 For the year ended 31.03.2006 Profit of Rs.1,05,000 (includes a profit of Rs.25,000 on the sale of
assets).
It was decided to revalue the assets on 31.03.2006 as follows:
Fixed Assets 4,00,000
Investments Nil
Current Assets 1,80,000
Loans and Advances 1,00,000
The new profit sharing ratio after the admission of Guru was 35:25:40.
Pass Journal Entries on admission, show goodwill calculation and prepare Revaluation Account, Partners
Capital Accounts and Balance Sheet as on 01.04.2006 after the admission of Guru.

Solution:
Calculation & Adjustment for Goodwill.
Year 31.3.04 31.3.05 31.3.06
Profit as given Cr. 20,000 Dr. 80,000 Cr. 1,05,000
Reversal of abnormal/ non recurring items:
Insurance claim received Dr. 40,000
Retirement compensation paid Cr. 1,10,000

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Year 31.3.04 31.3.05 31.3.06

Profit on sale of assets Dr. 25,000
Normal profit Dr. 20,000 Cr. 30,000 Cr. 80,000
Average future maintainable profit = -20000+30,000 + 80,000 = 90,000  3 = 30,000
Goodwill = 30,000 x 2 = 60,000
Adjustment of Goodwill:
Profit on account of goodwill Gopal Govind Guru
Credit in Old ratio (Raise the goodwill) Cr. 36,000 Cr. 24,000 --
Debit in New ratio (Reverse the goodwill) Dr. 21,000 Dr. 15,000 Dr. 24,000
Difference ( Cr.: Sacrifice and Dr.: Gain) Cr. 15,000 Cr. 9,000 Dr. 24,000

Entry: Cash Dr. 24,000

To Gopal 15,000
To Govind 9,000
Capital Account
Particulars Gopal Govind Guru Particulars Gopal Govind Guru
By Balance b/f 1,20,000 80,000 --
By Cash a/c -- -- 1,00,000
By Cash 15,000 9,000 --
(Goodwill
adjustment) a/c
By Balance c/f 1,53,000 1,01,000 1,00,000 By Revaluation 18,000 12,000 --
a/c
1,53,000 1,01,000 1,00,000 1,53,000 1,01,000 1,00,000

Revaluation A/c
Particulars Rs. Particulars Rs.
To Investment a/c 50,000 By Fixed asset a/c 1,00,000
To Current assets a/c 20,000
To Profit a/c Gopal 18,000
Govind 12,000 30,000
1,00,000 1,00,000

Balance Sheet as on 1st April 2006

Liabilities Rs. Assets Rs.
Capital Fixed assets 4,00,000
Gopal 1,53,000 Current assets 1,80,000
Govind 1,01,000 Cash/Bank 1,24,000 3,04,000
Guru 1,00,000 3,54,000 Loans and advances 1,00,000
Long term loan 2,00,000
Liabilities 2,50,000
8,04,000 8,04,000

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31. The Balance Sheet of A & B, a partnership firm, as at 31st March, 2006 is as follows:
Liabilities Rs. Assets Rs.
Capital Account: Goodwill 14,000
A 26,400 Land and Building 14,400
B 33,600 60,000 Furniture 2,200
Contingency Reserve 6,000 Stock 26,000
Sundry Creditors 9,000 Sundry Debtors 6,400
Cash at Bank 12,000
75,000 75,000

A & B share profits and losses as 1:2, They agree to admit C (who is also in business on his own) as a third
partner from 1.4.2006.
The Assets are revalued as under:
Goodwill – Rs. 18,000, Land and Building Rs. 30,000, Furniture Rs. 6,000.
C brings the following assets into the partnership- Goodwill Rs. 6,000, Furniture Rs. 2,800, Stock Rs.
13,600.
Profits in the new firm are to be shared equally by the three partners and the Capital Accounts are to be
so adjusted as to be equal. For this purpose, additional cash should be brought in by the partner or
partners concerned.
Prepare the necessary accounts and the opening Balance Sheet of new firm, showing the amounts of cash,
if any, which each partner may have to provide.

Solution:
Capital Account
Particulars A B C Particulars A B C
By Balance a/c 26,400 33,600 --
By Contingency res. a/c 2,000 4,000 --
By Goodwill a/c 1,333 2,667 --
By Revaluation a/c 6,467 12,933 --
By Goodwill a/c -- -- 6,000
To Balance c/d. 36,200 53,200 22,400 By Furniture, stock a/c -- -- 16,400
By Balance b/f 36,200 53,200 22,400
To Balance c/f. 53,200 53,200 53,200 By Cash/ Bank a/c 17,000 -- 30,800
53,200 53,200 53,200 53,200 53,200 53,200

Revaluation Account
Particulars Rs. Particulars Rs.
To Profit a/c By Building a/c 15,600
A 6,467 By Furniture a/c 3,800
C 12,933 19,400
19,400 19,400

Cash/ Bank Account

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Particulars Rs. Particulars Rs.

To Balance b/f 12,000
To Capital a/c
A 17,000
B 30,800 By Balance c/d 59,800
59,800 59,800
Balance sheet
Liability Rs. Assets Rs.
Capital Goodwill 24,000
A 53,200 Land and building 30,000
B 53,200 Furniture 8,800
C 53,200 1,59,600 Stock 39,600
Creditor 9,000 Debtors 6,400
Cash / Bank 59,800
1,68,600 1,68,600

 Goodwill of the old firm is valued at Rs.18,000 whereas book value is Rs.14,000, thus there is
profit due to Goodwill appreciation Rs.4,000 which is credited to old partners in old ratio.
 New partner also has goodwill value of which Rs.6,000 is credited to him. Thus the value of the
goodwill of new firm is Rs.24,000 which is appearing in books, if they decide to write it off the
same will be debited to new partners in new ratio.

Adjustment of Capital:
 Capital can be adjusted if required by the question.
 It can be adjusted in any ratio and taking anybody’s capital as base.
 But if not clarified in the question then adjust in profit sharing ratio.
 If not clarified take total capital as base, in this case partner whose capital is short will bring
cash and cash will be repaid to the partner whose capital is excess. Total capital will remain
unchanged.
 If highest capital (highest capital per share of profit) is taken as base then other partners
capital will fell short and they will contribute the required cash. (in this question it was hinted
that partner or partners shall bring cash, hence this alternative considered). Total capital will
increase.
 If smallest capital (smallest capital per share of profit) is taken as base then other partners
capital will show excess capital and the same will be repaid to them.
 Adjustment of capital can be done through cash or through current account.

32. Amit and Sumit are partners sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as on
31st March 2011 is given below:
Liabilities Amount Assets Rs.
Capital Accounts: Land & Building 3,20,000
Amit 1,76,000 Investments

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Sumit 2,54,000 (Market value Rs. 55,000) 50,000

Loan from Puneet 3,00,000 Debtors 3,00,000
General Reserve 30,000 Less: Provision for
Employer’s Provident Fund 10,000 doubtful debts 10,000 2,90,000
Creditors 50,000 Stock 1,10,000
Cash at Bank 50,000
Total 8,20,000 Total 8,20,000

They decided to admit Puneet as a new partner from 1st April, 2011 on the following terms:
(1) Amit will give 1/3rd of his share and Sumit will give 1/4th of his share to Puneet.
(2) Punnet’s loan account will be converted into his capital.
(3) The Goodwill of the firm is valued at Rs. 3,00,000. Puneet will bring his share of Goodwill in cash
and the same was immediately withdrawn by the partners.
(4) Land and building was found undervalued by Rs. 1,00,000.
(5) Stock was found overvalued by Rs. 60,000.
(6) Provision for doubtful debts will be made equal to 5% of debtors.
(7) Investments are to be valued at their market price.
It was decided that the total capital of the firm after admission of new partner would be Rs.
10,00,000. Capital accounts of partners will be readjusted on the basis of their profit sharing ratio
and excess or deficiency will be adjusted in cash.
You are required to prepare:
(a) Revaluation A/c
(b) Partner’s Capital A/c
(c) Balance Sheet of the firm after admission of new partner.
Solution:
Revaluation A/c
Particular Rs. Particular Rs.
To Stock (overvalued) 60,000 By Land & building 1,00,000
To Provision for doubtful debts 5,000 By Investments 5,000
To Profit transferred to
Amit’s capital A/c 24,000
Sumit’s capital A/c 16,000
1,05,000 1,05,000

Partners’ Capital Account

Particulars Amit Sumit Puneet Particulars Amit Sumit Puneet
Rs. Rs. Rs. Rs. Rs. Rs.
To Bank A/c 60,000 30,000 – By Balance b/d 1,76,000 2,54,000 –
(Goodwill By Puneets’
Withdrawn) Loan A/c – – 3,00,000
To Balance c/d By Bank A/c 60,000 30,000

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 CA FOUNDATION REVISION BATCH | 44

(Adjusted capital 4,00,000 3,00,000 3,00,000 (Goodwill

10,00,000 in Adjustment)
4:3:3) (W.N.2)

By Revaluation 24,000 16,000 –

By General
Reserve A/c 18,000 12,000
By Bank A/c 1,82,000 18,000 –
(Balancing –
figure)
4,60,000 3,30,000 3,00,000 4,60,000 3,30,000 3,00,000

Balance Sheet as on 1st April,2011

(After admission of a new partner - Puneet)
Liabilities Amount Assets Amount
Rs. Rs.
Capital accounts Land and building
Amit 4,00,000 (3,20,000 + 1,00,000) 4,20,000
Sumit 3,00,000 Investments 55,000
Puneet 3,00,000 10,00,000 Debtors 3,00,000
Creditors 50,000 Less: Provision for
Employers’ provident fund 10,000 doubtful debts (15,000) 2,85,000
Stock (1,10,000 – 60,000) 50,000
Cash at bank (W.N. 3) 2,50,000
10,60,000 10,60,000
Working Notes:
(1) Calculation of incoming partner’s share, new profit sharing ratio and sacrificing ratio
Amit Sumit
Old profit sharing ratio 3/5 2/5
Surrendered by old partners to puneet 3/5 x 1/3 = 1/5 2/5 x 1/4 = 1/10
Remaining share 3/5 – 1/5 = 2/5 2/5 – 1/10 = 3/10
Puneet’s total share in profits = 1/5 i.e. 2/10 + 1/10 = 3/10
New profit sharing ratio of Amit : Sumit : Puneet =2/5 i.e. 4/10 : 3/10 : 3/10 = 4:3:3
Sacrificing ratio of Amit : Sumit is 1/5 i.e. 2/10 : 1/10 : or 2:1

(2) Calculation of sharing of goodwill by old partners

Goodwill of the firm was Rs. 3,00,000
3
 
Share of Puneet in goodwill = Rs. 3,00,000 10 Rs.90,000

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Goodwill will be distributed among the old partners in their sacrificing ratio of 2:1 i.e. Rs. 60,000 to Amit
and Rs. 30,000 to Sumit. Goodwill is contributed by Puneet in cash which is credited to sacrificing partner
& the same is withdrawn by Amit & Sumit.

(3) Calculation of closing balance of bank account after admission

Bank A/c
Particulars Amount Particulars Amount
Rs. Rs.
To Balance b/d 50,000 By Amit’s capital A/c (Goodwill) 60,000
To Amit &Sumit A/c (Goodwill) 90,000 By Sumit’s capital A/c (Goodwill) 30,000
To Sumit’s capital A/c 18,000 By Balance c/d 2,50,000
To Amit’s capital A/c 1,82,000
3,40,000 3,40,000

33. The following was the Balance Sheet of 'A' and 'B', who were sharing profits and losses 'the ratio of
2:1 on 31.12.2006:

Liabilities Rs. Assets Rs.

Capital Accounts Plant and machinery 12,00,000
A 10,00,000 Building 9,00,000
B 5,00,000 Sundry debtors 3,00,000
Reserve funds 9,00,000 Stock 4,00,000
Sundry creditors 4,00,000 Cash 1,00,000
Bills payable 1,00,000
29,00,000 29,00,000

They agreed to admit 'C' into the partnership on the following terms:
(i) The goodwill of the firm was fixed at Rs. 1,05,000.
(ii) That the value of stock and plant and machinery were to be reduced by 10%.
(iii) That a provision of 5% was to be created for doubtful debts.
(iv) That the building account was to be appreciated by 20%.
(v) There was an unrecorded liability of Rs. 10,000.
(vi) Investments worth Rs. 20,000 (Not mentioned in the Balance Sheet) were taken into account.
(vii) That the value of reserve fund, the values of liabilities and the values of assets other than cash
are not to be altered.
(viii) 'C' was to be given one-fourth share in the profit and was to bring capital equal to his share of
profit after all adjustments.
Prepare Memorandum Revaluation Account, Capital account of the partners and the Balance Sheet of the
newly reconstituted firm.
Solution:

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Special note: Question requires that the value of reserves, assets & liabilities are not to be changed i.e.
such undivided or unaccounted profit will continue to remain as it is in new firm. Hence we should find out,
who are the gainer & sacrificer in the profit/loss on account of Reserves, Revaluation & Goodwill and
adjust the same.
Memorandum Revaluation Account
Particulars Rs. Particulars Rs.
To Stock 40,000 By Building 1,80,000
To Plant & machinery 1,20,000 By investments 20,000
To Provision for doubtful debts 15,000
To Unrecorded liability 10,000
To Profit on revaluation 15,000
2,00,000 2,00,000

Profit on account of Goodwill=1,05,000, Revaluation = 15,000 & Reserves = 9,00,000 thus totaling to Rs.
10,20,000 to be adjusted as follows:
Particulars A B C
Credit to old partners in old ratio i.e. 2:1 Cr. 6,80,000 Cr. 3,40,000
Debit to new partners in new ratio i.e. 2:1:1 Dr. 5,10,000 Dr. 2,55,000 Dr.
2,55,000
Difference (Dr. is Gain & Cr. is Sacrifice) Cr. 1,70,000 Cr. 85,000 Dr.
2,55,000
Adjustment entry for the above:
C A/c Dr. 2,55,000
To A A/c 1,70,000
To B A/c 85,000
Partners' Capital Accounts
Particulars A B C Particulars A B C
To A & B A/c -- -- 2,55,000 By Balance b/d 10,00,000 5,00,000 —
To Balance c/d 11,70,000 5,85,000 5,85,000 By C A/c 1,70,000 85,000 --
(Refer W.N.2) By Bank (Bal. 8,40,000
Fig.)
11,70,000 5,85,000 8,40,000 11,70,000 5,85,000 8,40,000

Balance Sheet of newly reconstituted firm as on 31.12.2006

Liabilities Rs. Assets Rs.
Capital Accounts Plant & Machinery 12,00,00
A 11,70,00 Building 0
B 0 Sundry Debtors 9,00,000
C 5,85,000 Stock 3,00,000
5,85,000 4,00,000
Reserve Fund 9,00,00 Cash/Bank (1,00,000+8,40,000) 9,40,000
Sundry Creditors 0

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Bills payable 4,00,00

0
1,00,000
37,40,000 37,40,000

Working Notes:
1. Calculation of new profit and loss sharing ratio
C is given 1/4lh share in the new profit sharing ratio.
Therefore, remaining share will be 4/4 - ¼ = ¾ is for A & B
Since question is silent, this balance ¾ will be shared among A & B in their old proportion of 2:1
Hence Share of A will be = 3/4 x 2/3 = 2/4
Similarly Share of B will be = 3/4 x 1/3 = 1/4
& Thus New ratio will be between A, B, C =2/4: 1/4: 1/4 = 2:1:1

2. Calculation of closing capital of C

Closing capitals of A & B after all adjustments are :
A=Rs.11,70,000 & B =Rs.5,85,000 i.e. total of A & B = Rs.17,55,000 for ¾ share.
Hence total capital of firm should be = =Rs.17,55,000/3 X 4 = 23,40,000
Hence, C's closing capital should be = 23,40,000 X1/4 = Rs. 5,85,000 His account is already showing
debit balance of Rs.2,55,000 hence C will have to contribute Rs.8,40,000

34. Dinesh, Ramesh and Naresh are partners in a firm sharing profits and losses in the ratio of 3:2:1.
Their Balance Sheet as on 31st March, 2018 is as below:

Liabilities (₹) Assets (₹)

Trade payables 22,500 Land & Buildings 37,000
Outstanding Liabilities 2,200 Furniture & Fixtures 7,200
General Reserve 7,800 Closing stock 12,600
Capital Accounts: Trade Receivables 10,700
Dinesh 15,000
Ramesh 15,000
Naresh 10,000 40,000
Cash in hand 2,800
Cash at Bank 2,200
72,500 72,500

The partners have agreed to take Suresh as a partner with effect from 1st April, 2018 on the
following items:

(i) Suresh shall bring ₹ 8,000 towards his capital.

(ii) The value of stock to be increased to ₹ 14,000 and Furniture & Fixtures to be
depreciated by 10%.

(iii) Reserve for bad and doubtful debts should be provided at 5% of the Trade Receivables.

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(iv) The value of Land & Buildings to be increased by ₹ 5,600 and the value of the goodwill be
fixed at ₹ 18,000.

(v) The new profit sharing ratio shall be divided equally among the partners.
The outstanding liabilities include ₹ 700 due to Ram which has been paid by Dinesh. Necessary
entries were not made in the books.

Prepare (i) Revaluation Account, (ii) Capital Accounts of the partners, (iii) Balance Sheet of
the firm after admission of Suresh.

Solution:

(a) Revaluation Account

2018 ₹ 2018 ₹
April To Provision for bad 535 April 1 By Inventory 1,400
1 and doubtful debts in trade
To Furniture and 720 By Land and 5,600
fittings Building
To Capital A/cs:
(Profit on
revaluation
transferred)
Dinesh 2,872.50
Ramesh 1,915.00
Naresh 957.50 5,745
7,000 7,000

Partners’ Capital Accounts

Particulars Dinesh Ramesh Naresh Suresh Particulars Dinesh Ramesh Naresh Suresh
₹ ₹ ₹ ₹ ₹ ₹ ₹ ₹
To Dinesh & 1,500 4,500 By Balance b/d 15,000 15,000 10,000 –
Ramesh By General Reserve 3,900 2,600 1,300

To Balance c/d 10,757.50 3,500 By Cash – – – 8,000

26,972.50 21,015
By Naresh & Suresh 4,500 1,500 – –

By Outstanding 700 – –
Liabilities (Ram)

By Revaluation A/c 2,872.50 1,915 957.50 -

26,972.5 21,015 12,257.50 8,000 26,972.50 21,015 12,257.50 8,000

Working Note:

Calculation of sacrificing ratio

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 CA FOUNDATION REVISION BATCH | 49

Partners New Old share Sacrific Gain

share e
Dinesh ¼ 3/6 6/24
Ramesh ¼ 2/6 2/24
Naresh ¼ 1/6 2/24
Suresh ¼ 6/24

Entry for goodwill adjustment

Naresh (2/24 of ₹18,000) Dr. 1,500

Suresh (6/24 of ₹18,000) Dr. 4,500
To Dinesh (6/24 od ₹18,000) 4,500
To Ramesh (2/24 of ₹18,000) 1,500

Balance Sheet of M/s. Dinesh, Ramesh, Naresh and Suresh as on 1-4-2018

Liabilities ₹ ₹ Assets ₹ ₹
Trade payables 22,500 Land and Buildings 42,600
Outstanding Liabilities 1,500 Furniture 6,480
(2,200-700)
Capital Accounts of Inventory of goods 14,000
Partners :
Mr. Dinesh 26,972.50 Trade receivables 10,700
Mr. Ramesh 21,015.00 Less: Provisions (535) 10,165
Mr. Naresh 10,757.50 Cash in hand 2,800
Mr. Suresh 3,500.00 62,245 Cash at Bank 10,200
(2,200+8,000)
86,245 86,245

Retirement of Partner
35. Atul, Balbir and Chatur were carrying on a business in partnership sharing profits in the ratio of
5:3:2 respectively. On 31st March, 2012 their Balance Sheet stood as follows:

Liabilities Rs. Assets Rs. Rs.

Atul's Capital 6,25,000 Goodwill 80,000
Balbir's Capital 3,75,000 Land and Buildings 7,00,000
Chatur's Capital 2,50,000 Furniture 1,65,000
General Reserve 1,00,000 Stock 2,86,000
Trade Creditors 2,10,000 Trade Debtors 1,80,000
Less: Provision for Doubtful 3,600 1,76,400

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Debts 1,52,600
Cash at Bank
Total 15,60,000 15,60,000

Atul retired on the above mentioned date and partners agreed that :
(i) The current value of goodwill be taken to be equal to the book value of the asset.
(ii) Land and Buildings be considered worth Rs. 9,00,000.
(iii) The provision for bad debts on trade debtors be raised to 5%.
(iv) Provision be made for compensation of Rs. 5,000 to an ex-employee.
(v) Half of the amount due to Atul be paid immediately in cash and the balance be treated as 10% loan,
repayable within 3 years.

In order to facilitate cash payment to Atul, Balbir and Chatur brought in Rs. 3,00,000 in the ratio of 3 : 2
respectively.

Prepare Revaluation Account, the Capital Accounts of all the partners and Bank Account. Also draw the
Initial Balance Sheet of Balbir and Chatur, immediately after Atul's retirement.
Solution:
Revaluation Account

Rs. Rs.
To Provision for doubtful debts 5,400 By Land and Buildings 2,00,000
[(5% of 1,80,000) – 3,600]
To Provision for compensation 5,000
To Profit transferred:
Atul 94,800
Balbir 56,880
Chatur 37,920 1,89,600
2,00,000 2,00,000

Partners’ Capital Accounts

Particulars Atul Balbir Chatur Particulars Atul Balbir Chatur

Rs. Rs. Rs. Rs. Rs. Rs.
By Balance b/d 6,25,000 3,75,000 2,50,000
To Cash A/c 3,84,900 By General Reserve 50,000 30,000 20,000
To 10% Loan 3,84,900 By Revaluation A/c 94,800 56,880 37,920
To Balance c/d 6,41,880 4,27,920 By Cash A/c 1,80,000 1,20,000
7,69,800 6,41,880 4,27,920 7,69,800 6,41,880 4,27,920

Bank Account
Rs. Rs.
To Balance b/d 1,52,600 By Atul's Capital A/c 3,84,900
To Balbir's capital A/c 1,80,000 By Balance c/d 67,700

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To Chatur's capital A/c 1,20,000

4,52,600 4,52,600

Balance Sheet of Balbir and Chatur

as at 31.03.2012 (after Atul's retirement)
Liabilities Rs. Assets Rs.
Goodwill 80,000
Capital Accounts: Land and Buildings 9,00,000
Balbir 6,41,880 Furniture 1,65,000
Chatur 4,27,920 Stock 2,86,000
10% Loan from Atul 3,84,900 Trade Debtors
Trade Creditors 2,10,000 Less: Provision for doubtful debts
1,80,000 1,71,000
(9,000)
Provision for Compensation 5,000 Cash at Bank 67,700
16,69,700 16,69,700

Note: Present value of Goodwill is equal to book value hence there is no profit/loss on account of goodwill,
hence no adjustment is required.

Retirement cum Admission of Partner

36. Ram, Rahim and Robert are partners, sharing Profits and Losses in the ratio of 5 : 3 : 2. It -was
decided that Robert would retire on 31.3.2005 and in his place Richard would be admitted as a partner
with new profit sharing ratio between Ram, Rahim and Richard at 3 : 2 : 1.
Balance Sheet of Ram, Rahim and Robert as at 31.03.2005
Liabilities Rs. Assets Rs.
Capital Accounts : Ram 1,00,000 Cash in Hand 20,000
Rahim 1,50,000 Cash at Bank 1,00,000
Robert 2,00,000 Sundry Debtors 5,00,000
General Reserve 2,00,000 Stock in Trade 2,00,000
Sundry Creditors 8,00,000 Plant & Machinery 3,00,000
Loan from Richard 2,00,000 Land & Building 5,30,000
16,50,000 16,50,000

Retirement of Robert and admission of Richard is on the following terms:

(a) Plant & Machinery to be depreciated by Rs. 30,000.
(b) Land and Building to be valued at Rs. 6,00,000.
(c) Stock to be valued at 95% of book value.
(d) Provision for doubtful debts @ 10% to be provided on debtors.
(e) General Reserve to be apportioned amongst Ram, Rahim and Robert.
(f) The firm's goodwill to be valued at 2 years purchase of the average profits of the last 3 years.

The relevant figures are:

Year ended 31.3.2002 - Profit Rs. 50,000
Year ended 31.3.2003 - Profit Rs. 60,000

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Year ended 31.3.2004 - Profit Rs. 55,000

(g) Out of the amount due to Robert Rs. 2,00,000 would be retained as loan by the firm and the balance
will be settled immediately.
(h) Richard's capital should be equal to 50% of the combined capital of Ram and Rahim.

Prepare:
(i) Capital accounts of the partners; and
(ii) Balance Sheet of the reconstituted firm.

Solution:
Partners' Capital Account
Dr. Cr.
Ram Rahim Robert Richard Ram Rahim Robert Richard
Particulars Particulars
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To Revaluation A/c 10,000 6,000 4,000 — By Balance b/d 1,00,000 1,50,000 2,00,000 —
To Robert's Loan –– –– 2,00,000 –– By General
To Bank A/c –– –– 58,000 –– Reserve A/c 1,00,000 60,000 40,000 ––
(Balancing figure) By Goodwill A/c
To Balance c/d 2,45,000 2,37,000 –– –– (raised) 55,000 33,000 22,000 ––
2,55,000 2,43,000 2,62,000 2,55,000 2,43,000 2,62,000
To Goodwill A/c 55,000 36,667 — 18,333 By Balance b/d 2,45,000 2,37,000 — ––
(written off) By Loan from
To Balance c/d 1,90,000 2,00,333 –– 1,95,167 Richard A/c –– –– –– 2,00,000
By Bank A/c –– –– –– 13,500
(Bal. fig.)
2,45,000 2,37,000 — 2,13,500 2,45,000 2,37,000 2,13,500

Balance Sheet of Ram, Rahim and Richard as at 31.03.2005

Liabilities Rs. Assets Rs.
Capital Accounts: Land & Building 6,00,000
Ram 1,90,000 Plant & Machinery 2,70,000
Rahim 2,00,333 Stock-in-trade 1,90,000
Richard 1,95,167 Sundry Debtors
Sundry Creditors 8,00,000 5,00,000 4,50,000
Robert's Loan 2,00,000 Less: Provision for Doubtful Debts 55,500
50,000 20,000
Cash at Bank (note 4)
Cash in hand
15,85,500 15,85,500

Working Notes:
1. Revaluation A/c
Particulars Rs. Particulars Rs.

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 CA FOUNDATION REVISION BATCH | 53

To Plant & Machinery A/c 30,000 By Land & Building A/c 70,000
To Stock-in-trade A/c 10,000 By Partners' Capital A/cs:
To Provision for Doubtful Debts 50,000 Ram (5/10) 10,000
A/c Rahim (3/10) 6,000
Robert (2/10) 4,000
90,000 90,000

2. Calculation of value of goodwill:

Total profit of last 3 years: Rs. (60,000 + 50,000 + 55,000) = Rs. 1,65,000.

Rs. 1,65,000
Average Profit = = Rs. 55,000
3
Goodwill = 2 years’ Purchase of average profit = 2 x Rs. 55,000 = Rs. 1,10,000

3. Combined Capital of Ram and Rahim: Rs.

Ram : Rs. (2,45,000 – 55,000) 1,90,000
Rahim : Rs. (2,37,000 – 36,667) 2,00,333
3,90,333
Richard’s Capital (50% of Rs. 3,90,333) 1,95,167
Cash to be brought in : Rs. (2,00,000 – 18,333 – 1,95,167) 13,500

4. Dr. Bank Accounts Cr.

Particulars Rs. Particulars Rs.
To Balance b/d 1,00,000 By Robert's Capital A/c (paid off) 58,000
To Richard's Capital A/c 13,500 By Balance c/d – (balancing figure) 55,500
1,13,500 1,13,500

37. A, B and C are partners of the firm ABC & Co., sharing profits and losses in the ratio of 5:3:2.
Following is the Balance Sheet of the firm as at 31.3.2008:
Liabilities Rs. Assets Rs.
Partners' Capital Accounts: Goodwill 1,00,000
A 4,50,000 Building 10,50,000
B 1,30,000 Machinery 6,50,000
C 1,70,000 Furniture 2,15,000
Investment Fluctuation Reserve 1,00,000 Investments (Market value Rs. 75,000) 60,000
Contingency Reserve 75,000 Stock 6,50,000
Long Term Loan 15,00,000 Sundry Debtors 6,95,000
Bank Overdraft 2,20,000 Advertisement Suspense 25,000
Sundry Creditors 8,00,000
34,45,000 34,45,000

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 CA FOUNDATION REVISION BATCH | 54

It was decided that B would retire from the partnership on 1.4.2008 and D would be admitted as a
partneron the same date. Following adjustments are agreed amongst the partners for the
retirement/admission:
(i) Goodwill is to be valued at Rs. 5,00,000, but the same will not appear as an asset in the books of the
firm.
(ii) Building and Machinery are to be revalued at Rs. 10,00,000 and Rs. 5,20,000 respectively.
(iii) Investments are to be taken over by B at the market value.
(iv) Provision for doubtful debts is to be maintained at 20% on Sundry Debtors. -
(v) The capital of the reconstituted firm will be Rs. 10,00,000 to be contributed by the partners A, C
and D intheir new profit sharing ratio of 2:2:1.
(vi) Surplus funds, if any will be used to pay the Bank Overdraft,
(vii) Amount due to retiring partner B will be transferred to his Loan Account.

Prepare:
(i) Revaluation Account;
(ii) Capital Accounts of the partners; and
(iii) Balance Sheet of the firm after reconstitution.

Solution:
(i) Revaluation Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Building A/c 50,000 By Investments A/c 15,000
To Machinery A/c 1,30,000 By Partners' Capital 3,04,000
To Provision for Doubtful A/cs 1,52,000
Debts A/c 1,39,000 A 91,200
B 60,800
C
3,19,000 3,19,000

(ii)
Partners’ Capital Accounts
Dr. Cr.
Particulars A B C D Particulars A B C D
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To Revaluation A/c 1,52,000 91,200 60,800 — By Balance b/d 4,50,000 1,30,000 1,70,000 —
To Goodwill 50,000 30,000 20,000 — By Contingency 37,500 22,500 15,000 —
(B.V. written off) Reserve
To A & B (G. Adj) — — 1,00,000 1,00,000 By Investment —
To Investments — 75,000 — — Fluctuation —
To Advertisement 12,500 7,500 5,000 — Reserve 50,000 30,000 20,000 —
Suspense
To B's Loan A/c — 1,28,800 — — By C & D (Goodwill 50,000 1,50,000 — —
(Balancing figure) Adjustment)
(note 2)

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 CA FOUNDATION REVISION BATCH | 55

To Balance c/d 4,00,000 — 4,00,000 2,00,000 By Bank 27,000 — 3,80,800 3,00,000

(note 3) (Balancing figure)
6,14,500 3,32,500 5,85,800 3,00,000 6,14,500 3,32,500 5,85,800 3,00,000
(iii)

Balance Sheet as on 1.4.2008 (After Retirement of

B and admission of D)
Liabilities Rs. Assets Rs.
Partners' Capital Accounts Building 10,00,000
A 4,00,000 Machinery 5,20,000
C 4,00,000 Furniture 2,15,000
D 2,00,000 Stock 6,50,000
Long Term Loan 15,00,000 Debtors 6,95,000
B's Loan 1,28,800 Less: Provision for Doubtful Debts 1,39,000 5,56,000
Sundry Creditors 8,00,000 Cash at Bank (note 1) 4,87,800
34,28,800 34,28,800

Working Notes:
1. Dr. Bank A/c Cr.
Particulars Rs. Particulars Rs.
To A's Capital 27,000 By Balance b/d (Overdraft) 2,20,000
A/c To C's 3,80,800 By Balance c/d (Balancing figure) 4,87,800
Capital A/c To 3,00,000
D's Capital A/c
7,07,800 7,07,800

2. Book value of Goodwill, appearing in the Balance Sheet of Rs. 1,00,000 is first written off and
then an adjusting entry is passed for revalued goodwill of Rs. 5,00,000 in sacrificing and gaining
ratio of partners.
Particulars A B C D
Credit to old partners in old ratio i.e. 5:3:2 Cr.2,50,000 Cr.1,50,000 Cr.1,00,000 ---
Debit to new partners in new ratio i.e. 2:2:1 Dr.2,00,000 -- Dr.2,00,000 Dr.1,00,000
Difference (Dr. is Gain & Cr. is Sacrifice) Cr.50,000 Cr.1,50,000 Dr.1,00,000 Dr.1,00,000

Adjusting entry to adjust Goodwill:

Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
C's Capital A/c Dr. 1,00,000
D's Capital A/c Dr. 1,00,000
To A's Capital A/c 50,000
To B's Capital A/c 1,50,000
(Being the goodwill adjusted through capital accounts of
partners)

3. Capital of A, C and D as per new ratio: Total capital given 10,00,000 Rs.

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2
A′ s Share = of Rs. 10,00,000 = 4,00,000
5
2
C ′ s Share = of Rs. 10,00,000 = 4,00,000
5
1
D′ s Share = of Rs. 10,00,000 = 2,00,000
5

38. Pathak, Quereshi, Ranjeet were partners sharing profits in the ratio of 7: 5 : 3 respectively. On 31st
March, 2013 Quereshi retired when the firm’s Balance Sheet was as fallows
Liabilities Rs. Assets Rs.
Capital Accounts : Land and Building 10,00,000
Pathak 8,50,000 Plant & Machinery 4,65,000
Quereshi 6,20,000 Furniture, Fixtures & Fitting 2,30,100
Ranjeet 3,70,000 Stock 1,82,200
General Reserve 2,25,000 Trade Debtors
Trade Creditors 1,13,000 2,00,000 1,94,000
Less : Provision for Bad Debts 1,06,700
6,000
Cash at Bank
Total 21,78,000 Total 21,78,000

It was agreed that :

(i) Land & Building be appreciated by 20%
(ii) Plant & Machinery be depreciated by 10%
(iii) Provision for Bad Debts be made equal to 4% of Trade Debtors.
(iv) Outstanding repairs bill amounting to Rs. 1,500 be recorded in the books of account.
(v) Goodwill of the firm be valued at Rs. 3,00,000 and Quereshi’s capital account be credited with
his share of goodwill without raising goodwill account .
(vi) Half of the account due to Qureshi be immediately paid to him by means of a cheque and the
balance be treated as a loan bearing interest @ 12% per annum.
After Quereshi’s retirement, Pathak and Ranjeet admitted Swamy as a new partner with effect from 1st
April, 2013. Pathak, Ranjeet and Swamy agreed to share profit in the ratio of 2:1:1 respectively. Swamy
brought patents valued at Rs. 20,000 and Rs. 3,80,000 in cash including payment for his share of goodwill
as valued by the old firm. The entire amount of Rs. 4,00,000 was credited to Swamy’s Capital Account.
Adjustment were made in the capital account for Swamy’s share of goodwill.
You are required to:
(a) Pass Journal Entries for all of the above transaction without any narration, and
(b) Prepare a capital account of all the partners.

Solution:
Journal Entries (without narration)
(i) Land & Building A/c Dr. 2,00,000
To Revaluation A/c 2,00,000

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 CA FOUNDATION REVISION BATCH | 57

(ii) Revaluation A/c Dr. 50,000

To Plant & Machinery A/c 46,500
To Provision for Bad debt A/c
2,00,000 x 4% = 8000 – 6000 = 2000 2,000
To Repairs charges outstanding A/c 1,500
(iii) Revaluation A/c Dr. 1,50,000
To Pathak A/c 70,000
To Quereshi A/c 50,000
To Ranjeet A/c 30,000
(iv) General Reserve A/c Dr. 2,25,000
To Pathak A/c 1,05,000
To Quereshi A/c 75,000
To Ranjeet A/c 45,000
(v) Pathak A/c 100000 x 7/10 Dr. 70,000
Ranjeet A/c 100000 x 3/10 Dr. 30,000
To Quereshi A/c 300000 x 5/15 1,00,000
(Goodwill adjustment on retirement)
(vi) Quereshi A/c Dr. 8,45,000
To Bank A/c 4,22,500
To 12% Quereshi’s Loan A/c 4,22,500
(vii) Bank A/c Dr. 3,80,000
Patent A/c Dr. 20,000
To Swamy A/c 4,00,000
(viii) Swamy A/c Dr. 75,000
To Pathak A/c 60,000
To Ranjeet A/c 15,000
(Goodwill adjustment on admission)

Goodwill Adjustment on Retirement

Pathak Qureshi Ranjeet
Credit in Old Ratio 7:5:3 Cr. 1,40,000 Cr. 1,00,000 Cr. 60,000
Debit in New Ratio 7:3 Dr. 2,10,000 -- Dr. 90,000
Cr. Sacrifice Dr. Gain Dr. 70,000 Cr. 1,00,000 Dr. 30,000

Goodwill Adjustment on Admission

Pathak Ranjeet Swamy
Credit in Old Ratio 7:3 Cr. 2,10,000 Cr. 90,000 –
Debit in New Ratio 2:1:1 Dr. 1,50,000 Dr. 75,000 Dr. 75,000
Cr. Sacrifice Dr. Gain Cr. 60,000 Cr. 15,000 Dr. 75,000

Capital A/c
Pathak Quereshi Ranjeet Swamy Pathak Quereshi Ranjeet Swamy
Quereshi 70000 – 30000 – Balance b/f 850000 620000 370000 –

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Bank – 422500 – – Revaluation 70000 50000 30000 –

12% Loan – 422500 – – General Reserve 105000 75000 45000 –
Pathak – – – 60000 Pathak – 70000 – -
Ranjeet – – – 15000 Ranjeet – 30000 – –
Bank – – – 380000
Patent – – – 20000
Swamy 60000 – 15000 –
Balance c/f 1015000 – 430000 325000
1085000 845000 460000 400000 1085000 845000 460000 400000

Death of Partner

39. P, Q and R were carrying on a business in partnership, sharing profits and losses in the ratio of 5 : 3 : 2
respectively. The firm earned a profit of Rs. 3,60,000 for the accounting year ended 31st March, 2012
on which date the firm’s Balance sheet stood as follows:

Balance Sheet as at 31st March, 2012

Liabilities Rs. Assets Rs.
P’s Capital 7,00,000 Freehold Land and 8,00,000
Q’s Capital 5,70,000 Building 3,50,000
R’s Capital 4,30,000 Machinery 1,02,000
Creditors 79,400 Furniture & Fixtures 2,98,800
Outstanding Expenses 4,900 Stock 1,60,000
Debtors 73,500
Cash at Bank
Total 17,84,300 Total 17,84,300

P died on 31st August, 2012, According to firm’s partnership deed, in case of death of a partner:-
(i) Assets and Liabilities have to be revalued by an independent valuer.
(ii) Goodwill is to be calculated at two years’ purchase of average profits for the last three completed
accounting years and the deceased partner’s capital account is to be credited with his share of
goodwill.
(iii) The share of the deceased partner in the profits for the period between end of the previous
accounting year and the date of death is to be calculated on the basis of the previous accounting
year’s profits. Post death of P, Q & R will share profit in the ratio of 3 : 2.
Profits for the accounting years 2009-2010 and 2010-2011 were as follows:-
Rs.
For the year ended 31st March, 2010 2,90,000
For the year ended 31st March, 2011 3,40,000

Drawings by P from 1st April, 2012 to the date of his death totaled Rs. 46,000.

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On revaluation, Freehold Land and Building was appreciated by Rs. 1,00,000; Machinery was depreciated
by Rs. 10,000 and a Provision for Bad Debts were created @ 5% on Debtors as on 31st March, 2012. P’s
sole heir was given Rs. 5,00,000 immediately and the balance along with interest @ 12% per annum was
paid to him on 31st March, 2013.
Prepare Revaluation Account, P’s Capital Account and P’s Heir Account, giving important working notes.

Solution:
Revaluation Account
Particulars Rs. Rs. Particulars Rs.
To Machinery 10,000 By Freehold Land & Building 1,00,000
To Provision for doubtful
debts (5% of 1,60,000) 8,000
To Capital Accounts:
P 41,000
Q 24,600
R (Profit transferred) 16,400 82,000
1,00,000 1,00,000

P’s Capital Account

Particulars Rs. Particulars Rs.
To Drawings 46,000 By Balance b/d 7,00,000
To P’s heir 11,00,000 By Q’s Capital A/c (goodwill adj.) 1,98,000
(Balance transferred) By R’s Capital A/c (goodwill adj.) 1,32,000
By Profit and Loss Adjustment A/c 75,000
By Revaluation A/c 41,000
11,46,000 11,46,000
P’s Heir Account
Date Particulars Rs. Date Particulars Rs.
31.08.2012 To Bank A/c 5,00,000 31.08.2012 By P’s Capital A/c 11,00,000
31.03.2013 To Bank A/c 6,42,000 31.03.2013 By Interest A/c
7
6,00,000 x 12% x 12 42,000
11,42,000 11,42,000

Working Notes:
1. Calculation of gaining ratio of Partners Q and R
New share Old share Gaining share Sacrificing share
P 5/10 5/10
Q 3/5 i.e. 6/10 3/10 3 3 63 3
5 - 10 = 10 = 10
R 2/5 i.e. 4/10 2/10 2 2 42 2
5 - 10 = 10 = 10

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2. Calculation of Goodwill
Profit Rs.
2009-10 2,90,000
2010-11 3,40,000
2011-12 3,60,000
9,90,000

Average Profit = 9,90,000/3 = Rs. 3,30,000

Goodwill = 3,30,000 x 2 = Rs. 6,60,000
Share of P in goodwill 5
= 6,60,000 × 10 = Rs. 3,30,000
Adjustment for P’s share of goodwill through Q’s and R’s capital accounts (in their gaining ratio 3:2) :

Q’s capital A/c (3,30,000 x 3/5) Dr Rs. 1,98,000

R’ s capital A/c (3,30,000 x 2/5) Dr Rs. 1,32,000
To R’ s capital A/c 3,30,000

Note: Alternatively weighted average can be taken because profits are in increasing trend.

3. Share of P in Profits for the period between 1.4.2012 to 31.8.2012 i.e. till the date of death

1st April, 2012 to 31st August, = 5 months

2012
Profit for year 2011-12 = Rs. 3,60,000
Estimated profit for 5 months 5 =Rs. 150,000
= 3,60,000 x 12
Share of P 5 = Rs. 75,000
= 1,50,000 x 10

Chapter 13 – Non Profit Organisation

40. On the basis of the following information, prepare Income and Expenditure Account for the year ended
31stMarch, 2015:
Receipts and Payments Account for the year ended 31st March, 2015
Receipts Rs. Payment's Rs.
To Cash in hand (opening) 1,300 By Salaries 2,58,000
To Cash at Bank (opening) 3,850 By Rent 71,500
To Subscriptions 4,94,700 By Printing & Stationery 3,870
To Interest on 8% Govt. Bonds 4,000 By Conveyance 10,600
To Bank Interest 160 By Scooter purchased 50,000
By 8% Govt. Bonds 1,00,000

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By Cash in hand (closing) 840

By Cash at Bank (closing) 9,200

5,04,010 5,04,010

(i) Salaries paid includes Rs. 6,000 paid in advance for April, 2015. Monthly salaries paid were Rs. 21,000.
(ii) Outstanding rent on 31st March, 2014 and 31st March, 2015 amounted to Rs. 5,500 and Rs. 6,000
respectively.
(iii) Stock of printing and stationery material on 31st March, 2014 was Rs. 340; it was Rs. 365 on 31st March,
2015.
(iv) Scooter was purchased on 1st October, 2014. Depreciation @ 20% per annum is to be provided on it.
(v) Investments were made on 1st April, 2014.
(vi) Subscriptions due but not received on 31st March, 2014 and 31st March, 2015 totalled Rs. 14,000 and
Rs.12,800 respectively. On 31st March, 2015 subscriptions amounting to Rs. 700 had been received in ad-
vance for April, 2015.

Solution:
Income and Expenditure Account for the year ended 31st March, 2015
Expenditure Rs. Income Rs.
To Salaries 2,52,00 By Subscription 4,92,800
To Rent 0 By Interest on 8% Government 8,000
To Printing and 72,000 bonds
Stationery To 3,845 By Bank Interest 160
Conveyance 10,600
To Depreciation on Scooter 5,000
To Surplus 1,57,515
5,00,960 5,00,960
Working Notes:
Rs.
(i) Salaries paid 2,58,000
Less: Salary paid in advance for April, 2015 6,000

Salaries for the year (21,000 X 12) 2,52,000

(ii) Rent paid 71,500

Add: Outstanding rent as on 31.3.2015 6,000
77,500
Less : Outstanding rent as on 31.3.2014 5,500
Rent for the year 2014-2015 72,000

(iii) Printing and stationery: Purchase 3,870

Add: Stock as on 31 .3.2014 340
4,210
Less: Stock as on 31.3.2015 365

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Printing & stationery consumed during the year 2014-2015 3,845

(iv) Depreciation on scooter = Rs. 50,000 ×

20
×
6
5,000
100 12

(v) Interest on Government bonds received 4,000

Add: Interest due but not received as on 31.3.2015 (bal. fig.) 4,000
Interest income for the year 2014-2015 8,000

(vi) Subscription received 4,94,700

Add: Accrued subscription as on 31.3.2015 12,800
Less: Accrued subscription as on 31.3.2014 14,000
Unearned subscription for April, 2015 700 (14,700)
Income for the year 2014-2015 4,92,800

41. On 31st March, 2015 Writers Club a cultural association had the following assets and liabilities:
Liabilities Rs. Assets Rs.
Trust fund 5,00,000 Cash 3,000
Accumulated surplus in Canara Bank:
income & expenditure a/c 1,05,000 Savings a/c 7,000
Membership fee received in Fixed deposits 2,00,000
advance for 2016-2017 10,000 Investments in:
Outstanding expenses 10,000 Government securities 3,00,000
Fixed assets 95,000
Membership fee receivable 15,000
Prepaid expenses 5,000
6,25,000 6,25,000

The following is the receipt and payment account for the year ended 31 st March, 2016:

Receipts Rs. Payment Rs.

Opening balance: Administrative expenses 1,25,000
Cash 3,000 Program expenses including 2,75,000
Savings with Canara Bank 7,000 10,000 cost of printing souvenir

Membership fee received Fixed deposits with Canara 1,25,000

Bank

Up to 31/3/2015 14,000 Fixed assets purchased 80,000

For 2015-2016 1,50,000 Investments in ICICI Bond 3,00,000
For 2016-2017 16,000 1,80,000 Closing balance:
Sale of tickets - 25,000 Cash 2,700
Programmed

Advertisements in Savings with Canara Bank 5,000 7,700

programmer souvenir 5,00,000

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Fixed deposits with Canara 75,000

Bank
Interest on bank a/c:
Savings 700
Fixed deposit 22,000 22,700
Amount received on 1,00,000
maturity of government
security inclusive of
interest Rs. 8,000 (cost
Rs. 80,000)

9,12,700 9,12,700

The club informs you that:

(i) Membership fee for 2015-2016 due is Rs. 25,000; it includes Rs. 1,000 due from the member who has not
yet paid also for 2014-15; provision for irrecoverable membership is to be made in respect of this
member.
(ii) Income receivable on 31-3-2016 on ICICI bond is Rs. 30,000 and on government securities is Rs. 24,000.
(iii) Prepaid expenses on 31-3-2016 amount to Rs. 7,000.
(iv) Outstanding expenses on 31-3-2016 amount to Rs. 8,000.
(v) Depreciation provision is to be Rs. 12,500.
(vi) Program is an annual feature.

The club asks you to prepare:

(a) Income and expenditure account for the year ended 31st March, 2016.
(b) Balance sheet as at 31st March, 2016.

Solution:
Income & Expenditure A/c
Expenditure Rs Income Rs
To Bad Debts A/c 2,000 By Membership Fees A/c 1,85,000
To Depreciation A/c 12,500 By Bank Interest A/c 22,700
To Expenses A/c 1,21,000 By Program
To Surplus c/f 3,96,200 Income 5,25,000
(–) Expenses 2,75,000 2,50,000
By Profit on sale
of Govt. security A/c 12,000
By Interest on Investment A/c 62,000

5,31,700 5,31,700

Balance Sheet As On 31.03.2016

Liabilities Rs Asset Rs

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Trust Fund 5,00,000 Fixed Asset 1,62,500

Income & Expenditure 1,05,000 Fixed Deposits 2,50,000
(+)Surplus 3,96,200 5,01,200 Interest Outstanding 54,000
Advance Membership Fees 16,000 Investments:
Expense Outstanding 8,000 ICIC Bond 3,00,000
Govt. Securities 2,20,000 5,20,000
Prepaid Expenses 7,000
Cash 2,700
Bank 5,000 7,700
Outstanding
Membership Fees 26,000
(–) Provision 2,000 24,000

10,25,200 10,25,200

Working Notes :-

By preparing this accounts we get missing information which may be a transaction (complete the double entry
of same) or a balance of that account. Complete accounting for whatever information is available in the
question. Then by balancing the account you will get missing information as a balancing information.

Membership Fees A/c [subscription]

Particulars ₹. Particulars ₹.
To Opening Outstanding 15,000 By Opening Advance Balance 10,000
To Income & Expenditure A/c 1,85,000 By Cash/Bank A/c 1,80,000
To Closing Advance Balance 16,000 By Closing Outstanding Balance 26,000

2,16,000 2,16,000

Expenses A/c
Particulars ₹. Particulars ₹.
To Opening Prepaid Balance 5,000 By Opening Outstanding 10,000
To Cash A/c 1,25,000 By Income & Expenditure A/c 1,21,000
To Closing Outstanding 8,000 By Closing Prepaid Balance 7,000
1,38,000 1,38,000

Fixed Deposits A/c

Particulars ₹. Particulars ₹.
To Opening Balance 2,00,000 By cash A/c 75,000
To Cash A/c 1,25,000 By Balance (c/f) 2,50,000
3,25,000 3,25,000

Government Securities A/c

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Particulars ₹. Particulars ₹.
To Opening Balance 3,00,000 By Cash A/c (maturity proceed) 1,00,000
To Interest on Investment a/c 8,000 By Balance c/f 2,20,000
To Profit on Govt. security 12,000
3,20,000 3,20,000

Fixed Asset A/c

Particulars ₹. Particulars ₹.
To Opening Balance 95,000 By Depreciation A/c 12,500
To Cash A/c 80,000 By Closing Balance 1,62,500
1,75,000 1,75,000

Interest On Investment A/c

Particulars ₹. Particulars ₹.
To Income & Expenditure A/c 62,000 By Govt. Security A/c 8,000
By Closing Outstanding 54,000
62,000 62,000

42. The following is the receipts and payments account of Jyoti Charitable Hospital for the year ended 31 st
March, 2016:
Receipts Rs. Payments Rs.
To Balance b/d 1,40,000 By Payment for medicines 6,00,000
To Subscriptions 10,00,000 By Honorarium to doctor 2,00,000
To Donations 2,90,000 By Salaries 5,50,000
To Interest on investments By Sundry expenses 10,000
@ 7% per annum for the year 1,40,000
To Charity show collections 2,00,000 By Equipment’s purchased 3,00,000
By Charity show expenses 20,000
By Balance c/d 90,000
17,70,000 17,70,000

Additional information:
On 1.4.2015 On 31.3.2016
(Rs.) (Rs.)
Subscriptions due 10,000 20,000
Subscriptions received in advance 20,000 10,000
Stock of medicines 2,00,000 3,00,000
Creditors for medicines 1,60,000 2,40,000
Equipment’s 4,20,000 6,00,000
Buildings 8,00,000 7,60,000

You are required to prepare income and expenditure account for the year ended 31st March, 2016 and balance
sheet as at that date.

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Solution:
Income & Expenditure A/c [ P&L A/c ]
Expenditure Rs Income Rs
To Honorarium to Doctors a/c 2,00,000 By Donation A/c 2,90,000
To Salary A/c 5,50,000 By Interest A/c 1,40,000
To Sundry Expenses A/c 10,000 By Charity Show
To Medicine A/c 5,80,000 Income 2,00,000
To Depreciation on Equipment A/c 1,20,000 (–)Expenses 20,000 1,80,000
To Depreciation on Building A/c 40,000 By Subscription A/c 10,20,000
To Surplus A/c 1,30,000
16,30,000 16,30,000

Balance Sheet As On 31.03.2016

Liability Rs Asset Rs
Trust Fund 33,90,000 Investment 20,00,000
(+) Surplus 1,30,000 35,20,000 Subscription Outstanding 20,000
Advance Subscription 10,000 Medicine Stock 3,00,000
Creditors for medicine 2,40,000 Building 7,60,000
Equipment 6,00,000
Cash/Bank 90,000

37,70,000 37,70,000

Working Notes:-

Important Points:

By preparing this accounts we get missing information which may be a transaction (complete the
double entry of same) or a balance of that account. Complete accounting for whatever
information is available in the question. Then by balancing the account you will get missing
information as a balancing information.

Subscription A/c
Particulars ₹. Particulars ₹.
To Opening Outstanding 10,000 By Opening Advance 20,000
To Income & Expenditure A/c 10,20,000 By Cash/Bank A/c (Received) 10,00,000
To Closing Balance (advance) 10,000 By Closing outstanding balance 20,000

10,40,000 10,40,000

Medicine A/c
Particulars Rs Particulars Rs

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To Opening Balance (Op. Stock) 2,00,000 By Income & Expenditure A/c 5,80,000
To Creditors A/c (Purchase) 6,80,000 (consumed)
By Closing Stock A/c 3,00,000

8,80,000 8,80,000

Creditors For Medicine A/c

Particulars Rs Particulars Rs
To Cash/Bank A/c (Payment) 6,00,000 By Opening Balance 1,60,000
To Closing balance c/f 2,40,000 By Purchase A/c (balancing fig.) 6,80,000

8,40,000 8,40,000

Equipment A/c
Particulars Rs Particulars Rs
To Opening Balance 4,20,000 By Depreciation A/c (bal. fig.) 1,20,000
To Cash/Bank A/c (Purchase) 3,00,000 By Closing Balance 6,00,000

7,20,000 7,20,000

Building A/c
Particulars Rs Particulars Rs
To Opening Balance 8,00,000 By Depreciation A/c (bal. fig.) 40,000
By Closing Balance 7,60,000

8,00,000 8,00,000

Balance Sheet As On 31.03.2015

Liability Rs Asset Rs
Advance Subscription 20,000 Cash/Bank 1,40,000
Creditors For Medicine 1,60,000 Investment*** 20,00,000
Trust Fund (Balancing figure) 33,90,000 Subscription Outstanding 10,000
Stock Of Medicine 2,00,000
Equipment 4,20,000
Building 8,00,000

35,70,000 35,70,000

*** Investment is calculated from interest. Investment = 1,40,000/7X100 = 20,00,000.

43. The following is the income and expenditure account of a club for the year ended 31st March, 2014:

Expenditure: Rs.
To Provision used:
Opening stock 10,000
Add: Purchases 1,40,000
1,50,000

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Less: Closing stock 5,000 1,45,000

To Salaries 18,000
To General expenses 5,000
To Depreciation on equipment’s 1,000
To Surplus, i.e. excess of income over expenditure 28,000
1,97,000
Income:
By Subscriptions 34,000
By Sale of provisions 1,63,000
1,97,000

The following balance sheets are also given to you:

Liabilities On 31.3.2013 On 31.3.2014
Creditors for provisions 8,000 10,000
Capital fund 47,000 75,000
55,000 85,000
Assets
Equipment’s (cost less depreciation) 10,000 25,000
Stock of provisions 10,000 5,000
Subscriptions receivable 5,000 10,000
Cash at bank and in hand 30,000 45,000
55,000 85,000

Prepare the receipts and payments account of the club for the year ended 31st March, 2014.

Solution:
Receipt & Payment A/c
Receipt Rs Payment Rs
To Opening balance 30,000 By Salary a/c 18,000
To Sale of Provisions a/c 1,63,000 By General expenses a/c 5,000
To Subscription a/c 29,000 By Creditors a/c 1,38,000
By Equipment a/c 16,000
By Closing balance a/c 45,000

2,22,000 2,22,000

Working Notes:
Creditors A/c
Particulars Rs Particulars Rs
To Cash / Bank a/c 1,38,000 By Opening balance 8,000
To Closing balance 10,000 By Purchase a/c 1,40,000

1,48,000 1,48,000

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Equipment A/c
Particulars Rs Particulars Rs
To Opening balance 10,000 By Depreciation a/c 1,000
To Cash/ bank a/c 16,000 By Closing balance 25,000
26,000 26,000
Subscription A/c
Particulars Rs Particulars Rs
To Opening outstanding a/c 5,000 By Cash / Bank a/c 29,000
To Income & Expenditure a/c 34,000 By Closing outstanding a/c 10,000
39,000 39,000

44. From the following particulars relating to Deena Nath Charitable Hospital, prepare
(i) receipts and payments account for the year ended on 31 st March, 2016; and
(ii) balance sheet as on 31st March, 2016:

Income and Expenditure Account

For the year ended 31st March, 2016
Expenditure Rs. Income Rs.
To Medicines used 29,980 By Subscriptions 56,000
To Honorarium to doctors 12,000 By Donations 9,500
To Salaries 27,500 By Interest on @ 11% 11,000
investment
To Printing and stationery 1,100 By Income from film
show:
To Electricity 475 Proceeds 11,450
To Rent 6,000 Less: Expenses 780 10,670
To Depreciation on Furniture 2,100
To Depreciation on equipment 3,250
To Surplus i.e. excess of income over 4,765
expenditure

87,170 87,170

Additional Information:
On 1.4.2015 On 31.3.2016
(i) Subscription due 120 160
(ii) Subscriptions received in advance 64 100
(iii) Electricity bills unpaid 92 115
(iv) Stock of medicines 7,820 9,750
(v) Estimated value of equipment’s 11,600 13,900
(vi) Furniture and fixtures 21,000 18,900
(vii) Land - 10,000
(viii) Interest accrued on investments in 11% debentures costing 3,750 3,750
Rs. 1,02,500 (face value: Rs. 1,00,000)

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(ix) Cash in hand 340 160

(x) Cash at bank 9,000 ?

Solution:
Receipt & Payment A/c
Receipt Rs Payment Rs
To Opening balance By Honorarium to doctors a/c 12,000
Cash 340 By Salary a/c 27,500
Bank 9,000 9,340 By Printing & Stationary a/c 1,100
To Donation a/c 9,500 By Rent a/c 6,000
To Charity show a/c 11,450 By Charity show a/c 780
To Interest a/c 11,000 By Land a/c 10,000
To Subscription a/c 55,996 By Equipment a/c 5,550
By Electricity a/c 452
By Medicine a/c 31,910
By Closing balance
Cash 160
Bank (balancing figure) 1,834 1,994

97,286 97,286

Balance Sheet as on 31.3.16

Liabilities Rs Assets Rs
Trust Fund 1,55,974 Subscription outstanding 160
Surplus 4,765 1,60,739 Stock of Medicine 9,750
Advance subscription 100 Equipment 13,900
Electricity outstanding 115 Furniture 18,900
Land 10,000
Interest (receivable) 3,750
Investment 1,02,500
Cash 160
Bank 1,834

1,60,954 1,60,954

Working Note:
Balance Sheet as on 31.3.15
Liabilities Rs Assets Rs
Advance subscription 64 Subscription outstanding 120
Electricity outstanding 92 Stock of Medicine 7,820
Trust Fund (Balancing figure) 1,55,974 Equipment 11,600
Furniture 21,000
Interest (receivable) 3,750
Investment 1,02,500
Cash 340

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Bank 9,000
1,56,130 1,56,130
Medicine A/c
Particulars Rs Particulars Rs
To Opening stock a/c 7,820 By Income & Expenditure 29,980
To Cash / Bank a/c 31,910 By Closing stock 9,750
39,730 39,730

Electricity A/c
Particulars Rs Particulars Rs
To Cash / Bank a/c 452 By Opening outstanding 92
To Closing outstanding a/c 115 By Income & Expenditure 475
567 567

Furniture A/c
Particulars Rs Particulars Rs
To Opening balance 21,000 By Depreciation a/c 2,100
By Closing balance 18,900
21,000 21,000

Equipment A/c
Particulars Rs Particulars Rs
To Opening balance 11,600 By Depreciation a/c 3,250
To Cash / Bank a/c 5,550 By Closing balance 13,900
17,150 17,150

Interest A/c
Particulars Rs Particulars Rs
To Opening outstanding 3,750 By Cash / Bank a/c 11,000
To Income & Expenditure 11,000 By Closing outstanding 3,750
14,750 14,750

Subscription A/c
Particulars Rs Particulars Rs
To Opening outstanding 120 By Opening advance 64
To Income & Expenditure 56,000 By Cash / Bank a/c 55,996
To Closing advance 100 By Closing outstanding 160
56,220 56,220

45. Following is the Income and Expenditure Account of Victoria Club for the year ending 31 st March, 2016
Expenditures Rs. Incomes Rs.
To Salaries & Wages 19,000 By Subscription 30,000
To Misc. Expenses (including Insurance) 2,000 By Entrance Fee Received 1,000

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To Audit Fees 1,000 By Annual Sports Income

To Chief Executives Honorarium 4,000 receipts 6,000
To Printing & Stationery 1,800 Less: Expenses 3,000 3,000
To Annual Day Celebration Exp. 6,000
Less: Donation 4,000 2,000
To Interest on Bank Loan 600
To Depreciation on Sports Equipment 1,200
To Excess of Income over Expenditure 2,400
34,000 34,000

Additional Information:
31.3.15 (Rs.) 31.3.16 (Rs.)
(1) Subscription Outstanding 2,400 3,000
(2) Subscription received in advance 1,800 1,080
(3) Salaries Outstanding 1,600 1,800
(4) Sports equipment (after deducting depreciation) 10,400 10,800
(5) Prepaid Insurance –– 240
(6) Cash in hand ? 6,400

7. The Club owned a sports ground of Rs. 40,000

8. The Club took a loan of Rs.8,000 from a bank during the yr 2014-15, which was not paid in 2015-16.
9. Audit fee of 2015-16 was outstanding, but Audit fees of Rs. 800 for 2014-15 was paid in 2015-16
Prepare Receipts and Payments Account for the year ending 31st March, 2016 and a Balance Sheet as on that
date.

Solution:
In the books of Victoria Club
Receipts and Payments Account for the year ended on 31st March, 2016
Dr. Cr.
Receipts Rs. Payments Rs.
To Balance b/d (Balancing figure) 5,560 By Salaries and Wages (note 4) 18,80
To Subscription (note 3) 28,680 By Audit Fee 0 800
To Donation 4,000 By Sports Equipment’s (note 2) 1,600
To Entrance fee 1,000 By Misc. Expenses 2,000
To Receipt for Annual Sport 6,000 Add: Prepaid Insurance 240 2,240
By Chief Executive's Honorarium 4,000
By Printing & Stationery 1,800
By Expenses on Annual Sports 3,000
By Annual Day Celebration Expenses By 6,000
Interest on Bank Loan 600
By Balance c/d 6,400
45,240 45,240

Balance Sheet of Victoria Club

As on 31st March, 2016

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Liabilities Rs. Assets Rs.

Cash 6,400
Capital Fund:
Subscription Outstanding 3,000
Opening Balance (note 1) 46,160
Sports Equipment 10,400
Add: Excess of Income
Add: Additions
Over Expenditure 2,400
48,560 1,600
Salaries Outstanding
1,800 Less: Depreciation 12,000
Audit Fee Outstanding
1,000 Sports Ground 1,200 10,800
Bank Loan
8,000 Prepaid Insurance 40,000
Subscription received in advance
1,080 240
60,440 60,440

Working Notes:
1.
Balance Sheet of Victoria Club
as on 31st March, 2015
Liabilities Rs. Assets Rs.
Capital Fund (Balancing figure) 46,160 Cash 5,560
Bank Loan 8,000 Sports Ground 40,000
Subscription received in advance 1,800 Sport Equipment after 10,400
Salaries Outstanding 1,600 Depreciation
Audit fee Outstanding 800 Subscription Outstanding 2,400
58,360 58,360

2.
Sports Equipment A/c
Dr. Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 10,400 By Depreciation A/c 1,200
To Bank A/c (Balancing Figure) 1,600 By Balance c/d 10,800
12,000 12,000

3.
Subscription A/c
Dr. Cr.
Particulars Rs. Particulars Rs.
To Opening outstanding 2,400 By Opening advance subscription 1,800
subscription
To I&E a/c (Income) 30,000 By Cash/Bank a/c (received: bal. 28,680
fig.)
To Closing advance subscription 1,080 By Closing outstanding 3,000
subscription
33,480 33,480

4.
Salary & Wages Account

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To Cash/Bank a/c (Paid : Bal. fig.) 18,800 By Opening Outstanding B/f 1,600
(Payable)
To Closing outstanding C/f 1,800 By Income & Exp. A/c (Expense) 19,000
(payable)
Total 20,600 Total 20,600

Chapter 14 – Company Accounts

46. Piyush Limited is a company with an authorized share capital of ₹ 2,00,00,000 in equity shares of ₹
10 each, of which 15,00,000 shares had been issued and fully paid on 30th June, 2018. The
company proposed to make a further issue of 1,30,000 shares of₹ 10 each at a price of ₹ 12 each,
the arrangements for payment being:
a. ₹ 2 per share payable on application, to be received by 1st July, 2018;

b. Allotment to be made on 10th July, 2018 and a further ₹ 5 per share (including the premium)
to be payable;

c. The final call for the balance to be made, and the money received by 30th April,
2019.

Applications were received for 4,20,000 shares and were dealt with as follows:

(1) Applicants for 20,000 shares received allotment in full;

(2) Applicants for 1,00,000 shares received an allotment of one share for every two applied for;
no money was returned to these applicants, the surplus on application being used to reduce
the amount due on allotment;

(3) Applicants for 3,00,000 shares received an allotment of one share for every five shares
applied for; the money due on allotment was retained by the company, the excess being
returned to the applicants; and

(4) The money due on final call was received on the due date.

You are required to record these transactions (including cash items) in the journal of Piyush
limited.

Solution:

Journal of Piyush Limited

Date Dr. Cr.
2018 Particulars ₹ ₹
July 1 Bank A/c (Note 1 – Column 3) Dr. 8,40,000
To Equity Share Application A/c 8,40,000
(Being application money received on 4,20,000
shares @ ₹ 2 per share)

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July 10 Equity Share Application A/c Dr. 8,40,000

To Equity Share Capital A/c 2,60,000
To Equity Share Allotment A/c
(Note 1 - Column 5) 4,00,000
To Bank A/c (Note 1–Column 6) 1,80,000
(Being application money on 1,30,000 shares
transferred to Equity Share Capital Account;
on 2,00,000 shares adjusted with allotment
and on 90,000 shares refunded
as per Board’s Resolution No…..dated…)
Equity Share Allotment A/c Dr. 6,50,000
To Equity Share Capital A/c 3,90,000
To Securities Premium a/c 2,60,000
(Being allotment money due on 1,30,000 shares
@ ₹ 5 each including premium at
₹ 2 each as per Board’s Resolution
No….dated….)
Bank A/c (Note 1 – Column 8) Dr. 2,50,000
To Equity Share Allotment A/c 2,50,000
(Being balance allotment money received)
Equity Share Final Call A/c Dr. 6,50,000
To Equity Share Capital A/c 6,50,000
(Being final call money due on 1,30,000 shares
@ ₹ 5 per share as per Board’s Resolution
No…..dated….)
2019
April 30 Bank A/c Dr. 6,50,000

To Equity Share Final Call A/c 6,50,000

(Being final call money on 1,30,000 shares
@ ₹ 5 each received)

Working Note :

Calculation for Adjustment and Refund

Category No. of No. of Amount Amount Amount Refund Amount due Amount
Shares Shares Received on Required on adjusted on [3-4-5] on Allotment received on
Applied for Allotte Application Application (2 Allotment Allotment
d (1x ₹ 2) x ₹ 2)

(1) (2) (3) (4) (5) (6) (7) (8)

(i) 20,000 20,000 40,000 40,000 Nil Nil 1,00,000 1,00,000

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(ii) 1,00,000 50,000 2,00,000 1,00,000 1,00,000 Nil 2,50,000 1,50,000

(iii) 3,00,000 60,000 6,00,000 1,20,000 3,00,000 1,80,000 3,00,000 Nil
TOTAL 4,20,000 1,30,000 8,40,000 2,60,000 4,00,000 1,80,000 6,50,000 2,50,000

47. B Limited issued 50,000 equity shares of ₹ 10 each payable as ₹ 3 per share on application, ₹ 5
per share (including ₹ 2 as premium) on allotment and ₹ 4 per share on call. All these shares were
subscribed. Money due on all shares was fully received except from X, holding 1000 shares
who failed to pay the allotment and call money and Y, holding 2000 shares, failed to pay the call
money. All those 3,000 shares were forfeited. Out of forfeited shares, 2,500 shares (including
whole of X's shares) were subsequently re-issued to Z as fully paid up at a discount of ₹ 2 per
share. Pass necessary journal entries in the books of B limited. Also prepare Balance Sheet and
notes to accounts of the company.

Solution:

In the books of B Ltd.

Journal Entries

Dr. Cr.
Date Particulars
₹ ₹
Bank A/c Dr. 1,50,000
To Equity Share Application A/c (Application money 1,50,000
on 50,000 shares @ ₹ 3 per
share received.)
Equity Share Application A/c Dr. 1,50,000
To Equity Share Capital A/c 1,50,000
(Transfer of application money to Equity Share Capital on
50,000 shares @ ₹ 3 per share as per Directors
resolution no… dated…)
Equity Share Allotment A/c Dr. 2,50,000
To Equity Share Capital A/c To 1,50,000
Securities Premium A/c 1,00,000
(Amount due from members in respect of allotment on
50,000 shares @ ₹ 5 per share including premium ₹ 2 per
share as per Directors resolution no… dated…)

Bank A/c Dr. 2,45,000

To Equity Share Allotment A/c 2,45,000
(Amount received against allotment on 49,000 shares @ ₹
5 per share including premium ₹ 2 per share.)
‘OR’
Bank A/c
Dr. 2,45,000
Calls in Arrear A/c
Dr. 5,000

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To Equity Share Allotment A/c 2,50,000

(Amount received against allotment on 49,000 shares @ ₹
5 per share including premium ₹ 2 per share. X, holding
1,000 shares failed to pay allotment money.)

Equity Share Call A/c Dr. 2,00,000

To Equity Share Capital A/c 2,00,000
(Amount due from members in respect of call on 50,000
shares @ ₹ 4 per share as per Directors resolution no…
dated…)
Bank A/c Dr. 1,88,000
To Equity Share Call A/c 1,88,000
(Amount received against the call on 47,000 shares @ ₹ 4
per share.)
‘OR’
Bank A/c Dr. 1,88,000
Calls in Arrear A/c Dr. 12,000
To Equity Share Call A/c 2,00,000
(Amount received against the call on 47,000 shares @ ₹ 4
per share. X, holding 1,000 shares and Y, holding 2,000
shares failed to pay call money.)

Equity Share Capital A/c (3,000 x ₹ 10) Dr. 30,000

Securities Premium A/c (1,000 x ₹ 2) Dr. 2,000
To Equity Share Allotment A/c (1,000 X ₹ 5) 5,000
To Equity Share Call A/c (3,000 X ₹ 4) 12,000
To Forfeited Shares A/c 15,000
(Being forfeiture of 3,000 equity shares for non-
payment of allotment and call money on 1,000 shares and
for non-payment of call money on 2,000 shares as
per Board’s Resolution
No…..dated ….)
‘OR’
Equity Share Capital A/c (3,000 x ₹ 10) Securities Dr. 30,000
Premium A/c (1,000 x ₹ 2) Dr. 2,000
To Calls in Arrear A/c 17,000
(₹ 5,000 + ₹ 12,000)
15,000
To Forfeited Shares A/c
(Being forfeiture of 3,000 equity shares for non-
payment of allotment and call money on 1,000 shares and
for non-payment of call money on 2,000 shares as per
Board’s Resolution No… dated…)
Bank A/c Dr. 20,000
Forfeited Shares A/c Dr. 5,000
To Equity Share Capital A/c 25,000

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(Being re-issue of 2,500 shares @ ₹8 each as

per Board’s Resolution No…..dated….)
Forfeited Shares A/c Dr. 7,000
To Capital Reserve A/c 7,000
(Being profit on re-issue transferred to Capital
Reserve)

Balance Sheet of B Limited as at

Particulars Notes ₹
No.
EQUITY AND LIABILITIES
Shareholders’ funds
Share capital 1 4,98,000
Reserves and Surplus 2 1,05,000
Total 6,03,000
ASSETS
Current assets
Cash and cash equivalents (bank) 6,03,000*
Total 6,03,000

*(5,83,000 +20,000)

Notes to accounts

₹ ₹
1. Share Capital
Equity share capital
Issued share capital
50,000 Equity shares of ₹ 10 each 5,00,000
Subscribed, called up and paid up share
capital
49,500 Equity shares of ₹ 10 each 4,95,000 4,98,000
Add: Forfeited shares 3,000
2. Reserves and Surplus
Securities Premium 98,000
Capital Reserve 7,000 1,05,000

Working Notes:

(1) Calculation of Amount to be Transferred to Capital Reserve

Amount forfeited per share of X ₹3

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Less: Loss on re-issue per share (₹ 2)

Surplus ₹1

Amount forfeited per share of Y ₹6

Less: Loss on re-issue per share (₹ 2)
Surplus ₹4

Transferred to Capital Reserve: X share (1,000 x ₹ 1) ₹ 1,000

Y’s Share (1,500 x ₹ 4) ₹ 6,000
Total ₹ 7,000

(2) Balance of Security Premium:

Total Premium amount receivable on = 1,00,00
allotment 0
less: Amount reversed on forfeiture = (2,000)
Balance remaining = 98,000

48. Riya Limited issued 20,000 14% Debentures of the nominal value of ₹1,00,00,000 as follows:
a. To sundry persons for cash at 90% of nominal value of ₹ 50,00,000.
b. To a vendor for purchase of fixed assets worth ₹ 20,00,000 – ₹ 25,00,000 nominal value.
c. To the banker as collateral security for a loan of ₹ 20,00,000 – ₹ 25,00,000 nominal value.
You are required to prepare necessary journal entries Journal Entries.

Solution:
In the books of Riya Company Ltd. Journal Entries

Date Particulars Dr. Cr.

₹ ₹
(a) Bank A/c Dr. 45,00,000
To Debentures Application A/c 45,00,000
(Being the application money received on 10,000
debentures @ ₹ 450 each)
Debentures Application A/c Dr. 45,00,000
Discount on issue of Debentures A/c Dr. 5,00,000
To 14% Debentures A/c 50,00,000
(Being the issue of 10,000 14% Debentures @ 90% as per
Board’s Resolution No….dated….)

(b) Fixed Assets A/c Dr. 20,00,000

To Vendor A/c 20,00,000

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(Being the purchase of fixed assets from vendor)

Vendor A/c Dr. 20,00,000

Discount on Issue of Debentures A/c Dr. 5,00,000
To 14% Debentures A/c 25,00,000
(Being the issue of debentures of ₹
25,00,000 to vendor to satisfy his claim)
(c) Bank A/c Dr. 20,00,000
To Bank Loan A/c (See Note) 20,00,000
(Being a loan of ₹ 20,00,000 taken from bank by issuing
debentures of ₹25,00,000 as collateral security)

Note: No entry is made in the books of account of the company at the time of making issue of
such debentures. In the “Notes to Accounts” of Balance Sheet, the fact that the debentures
being issued as collateral security and outstanding are shown by a note under the liability
secured.

49. Pure Ltd. issues 1,00,000 12% Debentures of ₹ 10 each at ₹ 9.40 on 1st January, 2018. Under
the terms of issue, the Debentures are redeemable at the end of 5 years from the date of
issue.

Calculate the amount of discount to be written-off in each of the 5 years.

Solution:

Total amount of discount comes to ₹ 60,000 (₹ 0.6 X 1, 00,000). The amount of discount to
be written-off in each year is calculated as under:

Year end Debentures Ratio in which discount Amount of discount to be

Outstanding to be written-off written-off
1st ₹ 10, 00,000 1/5 1/5th of ₹ 60,000 = ₹ 12,000
2nd ₹ 10, 00,000 1/5 1/5th of ₹ 60,000 = ₹ 12,000
3rd ₹ 10, 00,000 1/5 1/5th of ₹ 60,000 = ₹ 12,000
4th ₹ 10, 00,000 1/5 1/5th of ₹ 60,000 = ₹ 12,000
5th ₹ 10, 00,000 1/5 1/5th of ₹ 60,000 = ₹ 12,000

50. On 1st January 2018·Ankit Ltd. issued 10% debentures of the face value of ₹ 20,00,000 at 10%
discount. Debenture interest after deducting tax at source @10% was payable on 30th June and
31st December every year. All the debentures were to be redeemed after the expiry of five
year period at 5% premium.

Pass necessary journal entries for the accounting year 2018.

Solution:

Journal Entries

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Dr. (₹) Cr. (₹)

1-1-2018 Bank A/c Dr. 18,00,000
Discount/Loss on Issue of Debentures A/c Dr. 3,00,000
To 10% Debentures A/c 20,00,000
To Premium on Redemption of Debentures 1,00,000
A/c
(For issue of debentures at discount redeemable at
premium)
30-6-2018 Debenture Interest A/c Dr. 1,00,000
To Debenture holders A/c 90,000
To Tax Deducted at Source A/c 10,000
(For interest payable)
Debenture holders A/c Dr. 90,000
Tax Deducted at Source A/c Dr. 10,000
To Bank A/c 1,00,000
(For payment of interest and TDS)
31-12-2018 Debenture Interest A/c Dr. 1,00,000
To Debenture holders A/c 90,000
To Tax Deducted at Source A/c 10,000
(For interest payable)
Debenture holders A/c Dr. 90,000
Tax Deducted at Source A/c Dr. 10,000
To Bank A/c 1,00,000
(For payment of interest and tax)
Profit and Loss A/c Dr. 2,00,000
To Debenture Interest A/c 2,00,000

CA ZUBAIR KHAN