ACCOUNTS- ASSIGNMENT 2

True and False

1. Gauri purchased goods worth ₹75,800 at 5% trade discount and she paid half of the amount in
cash. The amount appearing in the purchase book is ₹36,005.

2. All the personal & real accounts are recorded in P&L A/c.

3. Amount spent on the replacement of worn out part of machine is Capital Expenditure.

4. When closing inventory is overstated, net income for the accounting period will be understated.

5. Goodwill is intangible asset therefore it cannot be valued.

6. Interest on calls in arrears is payable by company to shareholders.

7. Outstanding salaries for the previous year shall be shown as liability in the current year balance
sheet.

8. Debenture holders enjoy the voting rights in the company.

9. A tallied trial balance means that the books of accounts have been prepared as per accepted
accounting principles.

10. The rationale behind the opening of a suspense account is to tally the trial balance.

11. Reducing balance method of depreciation is followed to have a uniform charge for depreciation
and repairs and maintenance together.

12. A partnership firm can acquire fixed assets in the name of the firm.

13. Outstanding salaries for the previous year shall be shown as liability in the current year balance
sheet.

14. The financial statement must disclose all the relevant and reliable information in accordance
with the Full Disclosure Principle.

15. The debit notes issued are used to prepare Sales Return Book.

16.Bills receivable and bills payable books are type of subsidiary books.

17. The results and position disclosed by final accounts are not exact.

18. The gain from sale of capital assets need not be added to revenue to ascertain the net profit of
a business.

19. Sale of office furniture should be credited to Profit and Loss Account.

20. A partnership firm can acquire fixed assets in the name of the firm.

21. Debenture holders enjoy the voting rights in the company.

22. The financial statement must disclose all the relevant and reliable information in accordance
with the Full Disclosure Principle.

23. The debit notes issued are used to prepare Sales Return Book.

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24. Bank reconciliation statement is prepared to arrive at the bank balance.

25. If Closing Stock appears in the Trial Balance then the closing inventory is not entered in Trading
Account. It is shown only in the balance sheet.

26. Depreciation is a non-cash expense and does not result in any cash outflow.

27. Discount at the time of retirement of a bill is a gain for the drawee.

28. In case the due date of a bill falls after the date of closing the account, the interest from the
date of closing to such due date is known as Red-Ink interest.

29. A withdrawal of cash from the business by the proprietor should be charged to profit and loss
account as an expense.

30. Partners can share profits or losses in their capital ratio, when there is no agreement.

31. Fees received for Life Membership is a revenue receipt as it is of recurring nature.

32. Debenture interest is payable after the payment of preference dividend but before the payment
of equity dividend.

33. Re-issue of forfeited shares is allotment of shares but not a sale.

34. Subsidy received from the government for working capital by a manufacturing concern is a
revenue receipt.

35. The Sale Book is kept to record both the cash and credit sales.

36. Accounting Standards for non-corporate entities in India are issued by the Central Government.

37. A Company is not allowed to issue shares at a discount to the public in general.

38. Warehouse rent paid for storage of finished inventory should be included in the cost of finished
inventory.

39. A person holding preference shares of a company cannot hold equity shares of the same
company.

40. Business of partnership comes to an end on death of a partner.

41. Cash book is a subsidiary book as well as a principal book.

42. Any amount spent to minimize the working expenses is revenue expenditure.

43. Expenses incurred on the repairs for the first time on purchase of an old building are capital
expenditure.

44. The provision for bad debts is debited to sundry debtors account.

45. Non-participating preference shareholders enjoy voting rights.

46. Discount column of the cash book is never balanced.

47. A claim that an enterprise is pursuing through legal process, where the outcome is uncertain, is
a Contingent Liability. ·

48. At the end of the accounting year, all the nominal accounts of the ledger book are balanced.

49. The specific due date excludes the addition of grace days to arrive at the due date.

50. Any amount spent for replacement of worn out part of a machine is capital expenditure.
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51.Debentures Suspense Account appears on the Liability side of the Balance Sheet of a Company.

52.If the errors are detected after preparing trial balance, then all the errors are rectified through
suspense account.

Theoretical Framework

1. Distinguish between Money measurement concept and matching concept.

2. Change in accounting policy may have a material effect on the items of financial statements.”
Explain the statement with the help of an example.

3. Explain Cash and Mercantile system of accounting.

4. State the advantages of setting Accounting Standards.

5. Distinguish between fundamental accounting assumption and accounting policies.

6. Change in accounting policy may have a material effect on the items of financial statements.”
Explain the statement with the help of an example.

7. Explain Cash and Mercantile system of accounting.

8. Define revenue receipts and give examples. How are these receipts treated? Explain.

9. Define the following terms:

(i) Capital Commitment (ii) Expired Cost (iii) Floating Charge (iv) Obsolescence

10. Discuss the basic considerations in distinguishing between capital and revenue expenditure.

11. Explain the followings

(i) Accrual Basis of Accounting (ii) Amortisation (iii) Contingent Assets (iv) Contingent
Liabilities

12. Briefly explain the following Concepts of Accounting:

(i) Money Measurement Concept (ii) Periodicity Concept.

Journal Entries

1. Employees had taken stock worth ₹ 25,000 (Cost price ₹ 22,500) on the eve of Deepawali and
the same was deducted from their salaries in the subsequent month.

o Wages paid for erection of Machinery ₹ 16,000.

o Income tax liability of proprietor ₹ 3,400 was paid out of petty cash.

o Purchase of goods from Naveen of the list price of ₹ 20,000. He allowed 10% trade
discount, ₹ 500 cash discount was also allowed for quick payment.

2. M/s Shyam Textiles & Co. find the following errors in their books of account before preparation
of Trial Balance. You are required to pass necessary journal entries:

 A purchase of ₹ 4,700 from M/s Timber & Co. was recorded in the accounts of M/s
Ginger & Co. as ₹ 7,400. Day Book entry has also been passed incorrectly.

 A sale of ₹ 9,500 to M/s Aman Bros. was recorded in M/s Manan Bros account as ₹
5,900. Day Book entry has also been incorrectly passed.
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 Discount allowed ₹ 230 (as per Cash Book) has been posted to Commission Account.
But the Cash Book total should be ₹ 320, because discount allowed of ₹ 90 to M/s Aman
Bros. has been omitted.

 A cheque of ₹ 6,400 drawn by M/s Aman Bros. has been dishonoured, but wrongly
debited to M/s Manan Bros. How will the above errors impact trial balance?

3. You are required to pass necessary journal entries in the books of Kewal:

 Cheque amounting ₹ 9,000 from Hari Krishan in full settlement of his account for ₹
10,000.

 Withdrawn for personal use: Goods (Sales Price ₹ 8,000, Cost ₹ 6,000), cash ₹1,000

 Goods costing ₹ 3,000 (Sale price ₹4,000) distributed as free samples.

 Received commission ₹ 10,000, half of which does not relate of current year and is
received in advance.

 Purchased second hand machinery from Jawahar for ₹30,000 against a cheque. Goods of
₹ 12,000 (Cost ₹ 9,000) used in repairs of this machinery which is necessary to make it
ready for working.

4. Prepare Journal Entries for the following transactions in the books of Honey Singh

 Employees had taken stock worth ₹ 10,000 (Cost price ₹ 7,500) on the eve of
Gurupuarb and the same was deducted from their salaries in the subsequent month.

 Income tax liability of proprietor ₹ 8,500 was paid out of petty cash.

 Goods costing ₹10,000 distributed as free samples (Sale Price ₹ 1,2000)

 Purchase of goods from Sunny of the list price of ₹ 15,000. He allowed 10% trade
discount, ₹ 200 cash discount was also allowed for quick payment.

Capital or Revenue Expenditure

1. Classify each of the following transactions into capital or revenue transactions:

 Inauguration expenses of a new manufacturing unit in an existing Business.

 Installation of a new central heating system.

 Repainting of a delivery van.

 Providing drainage for a new piece of water-extraction equipment. -- Legal fees on the
acquisition of land.

 Carriage costs on a replacement part for a piece of machinery.

2. Classify each of the following transactions into capital or revenue transactions:

 Legal fees on the acquisition of land.

 Complete repaint of existing building.

 Repainting of a delivery van.

 Providing drainage for a new piece of water-extraction equipment.

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 Carriage costs on a replacement part for a piece of machinery.

3. Classify the following expenditures as capital or revenue expenditure:

 An extension of railway tracks in the factory area.

 Amount spent on painting the factory.

 Payment of wages for building a new office extension.

 Amount paid for removal of stock to a new site.

 Rings and Pistons of an engine were changed to get full efficiency.

4. Classify the following expenditures as capital or revenue expenditure:

 Expenses incurred to keep the machine in working condition.

 Registration fees paid at the time of purchase of a building.

 Expenses incurred for advertisement in newspaper.

 Amount spent on renewal fee of patent rights.

 Cost of repairs on second-hand car purchased to bring it into working condition.

5. A, B and C are partners in a firm. On 1st April 2019 their fixed capital stood at ₹ 50,000, ₹
25,000 and ₹ 25,000 respectively.

As per the provision of partnership deed:

 C was entitled for a salary of 5,000 p.a.

 All the partners were entitled to interest on capital at 5% p.a.

 Profits and losses were to be shared in the ratio of Capitals of the partners.

Net Profit for the year ended 31st March, 2020 of ₹ 33,000 and 31st March,2021 of ₹ 45,000
was divided equally without providing for the above adjustments.

You are required to pass an adjustment journal entry to rectify the above errors.

Cash Book

1. Prepare a Triple Column Cash Book from the following transactions and bring down the balance
for the start of next month:

2020 SEP ₹
1 Cash in hand 6,000
Cash at bank 24,000
2 Paid into bank 2,000
5 Bought furniture and issued cheque 3,000
8 Purchased goods for cash 1,000
12 Received cash from Mohan 1,960
Discount allowed to him 40
14 Cash sales 10,000
16 Paid to Amar by cheque 2,900
Discount received 100
19 Paid into Bank 1,000
23 Withdrawn from Bank for Private expenses 1,200
24 Received cheque from Parul 2,860

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Allowed him discount 40
26 Deposited Parul’s cheque into Bank
28 Withdrew cash from Bank for Office use 4,000
30 Paid rent by cheque 1,600

2. Prepare a Petty Cash Book on the Imprest System from the following:

2021 JUNE ₹
1 Received ₹ 1,00,000 for petty cash
2 Paid taxi fare 2,000
3 Paid cartage 10,000
4 Paid for courier 2,000
5 Paid wages 2,400
Paid for stationery 1,600
6 Paid for the repairs to machinery 6,000
Auto fare 400
7 cartage 1,600
Paid for courier 2,800
8 Cartage 12,000
9 Stationery 8,000
10 Sundry expenses 20,000

3. Prepare a Petty Cash Book on the Imprest System from the following:

2021 April ₹
1 Received ₹ 40,000 for petty cash
2 Paid auto fare 1,000
3 Paid cartage 5,000
4 Paid for courier 1,000
5 Paid wages 1,200
Paid for stationery 800
6 Paid for the repairs to machinery 3,000
Bus fare 200
7 Cartage 800
Courier 1,400
8 Cartage 6,000
9 Stationery 4,000
10 Sundry expenses 10,000

4. From the following transactions, prepare the Purchases Returns Book of Sulpher & Co. and
post them to ledger :

Date Debit Note No.

04.06.2022 101 Returned to Samuel Mills, Surat – 5 Calculator @ ₹ 100.
09.06.2022 James Mills, Kota – accepted the return of calculator
(which were purchased for cash) – 5 Kota Calculator @ ₹
40.
16.06.2022 102 Returned to David Mills, Bangalore –5 Calculator @ ₹ 260.
30.06.2022 Returned one printer (being defective) @ ₹ 3,500 to Lucas
& co.

Rectification of Errors

1. Write out the Journal Entries to rectify the following errors, using a Suspense Account.

 Goods of the value of ₹5,000 returned by Mr. Sharma were entered in the Sales

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Day Book and posted therefrom to the credit of his account;

 An amount of ₹7,500 entered in the Sales Returns Book, has been posted to the debit
of Mr. Hari, who returned the goods;

 A sale of ₹20,000 made to Mr. Amit was correctly entered in the Sales Day Book
but wrongly posted to the debit of Mr. Sumit as ₹ 2,000;

 Bad Debts aggregating ₹15,000 were written off during the year in the Sales ledger
but were not adjusted in the General Ledger; and

 The total of “Discount Allowed” column in the Cash Book for the month of
September, 2020 amounting to ₹12,500 was not posted.

2. Classify the following errors under the three categories – Errors of Omission, Errors
of Commission and Errors of Principle.

 Sale of furniture credited to Sales Account.

 Machinery sold on credit to Mohan recorded in Journal Properly but omitted to be posted.

 Goods worth ₹ 5,000 purchased on credit from Ram recorded in the Purchase Book as
₹ 500.

 Purchase worth ₹ 4,500 from Mr. X not recorded in subsidiary books.

 Credit sale wrongly passed through the Purchase Book.

3. The books of accounts of Dime Ltd. for the year ending 31.3.2021 were closed with a
difference in books carried forward. The following errors were detected subsequently:

 Return outward book was under cast by ₹ 100.

 ₹ 1,500 being the total of discount column on the credit side of the cash book was
not posted.

 ₹ 6,000 being the cost of purchase of office furniture was debited to Purchase A/c.

 A credit sale of ₹ 760 was wrongly posted as ₹ 670 to the customers’ A/c. in the
sales ledger.

 The Sales of ₹ 10,000 was omitted to be recorded.

Pass rectification entries in the next year.

4. Give journal entries (with narrations) to rectify the following errors located in the books of a
Trader after preparing the Trial Balance:

 ₹ 35,000 paid for purchase of Air conditioner for the personal use of proprietor debited
to Machinery A/c.

 Goods returned by customer for ₹ 5,000. The same have been taken into stock but no
entry passed in the books of accounts.

 An amount of ₹ 4,500 received on account of Interest was credited to Commission

account.

 A sale of ₹ 2,760 was posted from Sales Book to the Debit of M/s Sobha Traders at ₹
2,670

5. Mr. Joshi's trial balance as on 31st March, 2020 did not agree. The difference was put to a
Suspense Account. During the next trading period, the following errors were discovered:

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 The total of the Purchases Book of one page, ₹ 5,615 was carried forward to the next
page as ₹ 6,551.

 A sale of ₹ 281 was entered in the Sales Book as ₹ 821 and posted to the credit of the
customer.

 A return to creditor, ₹ 295 was entered in the Returns Inward Book; however, the
creditor's account was correctly posted.

 Cash received from Senu, ₹ 895 was posted to debit of Sethu.

 Goods worth ₹ 1,400 were dispatched to a customer before the close of the year but no
invoice was made out.

 Goods worth ₹ 1,600 were sent on sale or return basis to a customer and entered in the
Sales Book at the close of the year, the customer still had the option to return the
goods. The gross profit margin was 20% on Sale.

 ₹ 600 due from Mr. Q was omitted to be taken ·to the trial balance.

 Sale of goods to Mr. R for ₹ 3,000 was omitted to be recorded.

You are required to give journal entries to rectify the errors in a way so as to show the current
year's profit or loss correctly.

6. Mr. Ratan 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:

 Purchase of a scooter was debited to conveyance account ₹ 30,000. Mr. Ratan charges
10% depreciation on scooter.

 Purchase account was over cast by ₹ 1,00,000.

 A credit purchase of goods from Mr. X for ₹ 20,000 was entered as sale.

 Receipt of cash from Mr. Anand was posted to the account of Mr. Bhaskar ₹ 10,000.

 Receipt of cash from Mr. Chandu was posted to the debit of his account, ₹ 5,000.

 ₹ 5,000 due by Mr. Ramesh was omitted to be taken to the Trial Balance.

 Sale of goods to Mr. Ram for ₹ 20,000 was omitted to be recorded.

 Amount of ₹ 23,950 of purchase was wrongly posted as ₹ 25,930.

Suggest the necessary rectification entries.

6. A, B and C are partners in a firm. On 1st April 2019 their fixed capital stood at ₹ 50,000, ₹
25,000 and ₹ 25,000 respectively.

As per the provision of partnership deed:

 C was entitled for a salary of 5,000 p.a.

 All the partners were entitled to interest on capital at 5% p.a.

 Profits and losses were to be shared in the ratio of Capitals of the partners.

Net Profit for the year ended 31st March, 2020 of ₹ 33,000 and 31st March,2021 of ₹ 45,000
was divided equally without providing for the above adjustments.

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You are required to pass an adjustment journal entry to rectify the above errors.

8. Pass the Journal entries to rectify the following errors detected during preparation of the Trial
Balance:

Wages paid for construction of office building debited to wages account ₹ 20,000.

A credit sale of goods ₹ 1,200 to Ramesh has been wrongly passed through the Purchase Book.

An amount of ₹ 2,000 due from Mahesh Chand which had been written off as a bad debit in the
previous year was unexpectedly recovered and has been posted to the personal account of
Mahesh Chand.

Goods (Cost being ₹ 5,000 and Sales price being ₹ 6,000) distributed as free samples amount
prospective customers were not recorded anywhere.

Goods worth ₹ 1,500 returned by Green have not been recorded anywhere.

Bank Reconciliation Statement

1. From the following information (as on 31.3.2020), prepare a bank reconciliation statement after
making necessary adjustments in the cash book:

Particulars
Bank balances as per the cash book (Dr.) 32,50,000
Cheques deposited, but not yet credited 44,75,000
Cheques issued but not yet presented for payment 35,62,000
Bank charges debited by bank but not recorded in the cash-book 12,500
Dividend directly collected by the bank 1,25,000
Insurance premium paid by bank as per standing instruction not 15,900
intimated
Cash sales wrongly recorded in the Bank column of the cash-book 2,55,000
Customer’s cheque dishonoured by bank not recorded in the cash- 1,30,000
book
Wrong credit given by the bank 1,50,000
Also show the bank balance that will appear in the trial balance as on 31.3.2020.

2. On 31st March, 2021 the pass-book of a trader showed a credit balance of ₹ 15,65,000 but the
passbook balance was different for the following reasons from the cash book balance:

 Cheques issued to ‘X’ for ₹ 60,000 and to ‘Y’ for ₹ 3,84,000 were not yet presented for
payment.

 Bank charged ₹ 350 for bank charges and ‘Z’ directly deposited ₹ 1,816 into the bank
account, which were not entered in the cash book.

 Two cheques-one from ‘A’ for ₹ 5,15,000 and another from ‘B’ for ₹ 12,500 were
collected in the first week of April, 2021 although they were banked on 25.03.2021.

 Interest allowed by bank ₹ 4,500.

 Prepare a bank reconciliation statement as on 31st March, 2021.

3. From the following particulars of M/s Swapnil enterprises, prepare a Bank reconciliation
statement:

 Bank overdraft as per Pass Book as on 31st March, 2021 was ₹ 8,800

 Cheques deposited in Bank for ₹ 5,800 but only ₹ 2,000 were cleared till 31st March.

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 Cheques issued were ₹ 2,500, ₹ 3,800 and ₹ 2,000 during the month. The cheque of ₹
5,800 is still with supplier.

 Dividend collected by Bank ₹ 1,250 was wrongly entered as ₹ 1,520 in Cash Book.

 Amount transferred from fixed deposit A/c into the current A/c ₹ 2,000 appeared only in
Pass Book

 Interest on overdraft ₹ 930 was debited by Bank in Pass Book and the information was
received only on 3rd April 2021.

 Direct deposit by M/s Rajesh Trader ₹ 400 not entered in Cash Book.

 Corporation tax ₹ 1,200 paid by Bank as per standing instruction appears in Pass Book
only.

4. The Cash-book of M/s Rajat shows ₹ 1,10,280 as the balance at Bank as on 31st March, 2022.
But this does not agree with balance as per the Bank Statement. On scrutiny following
discrepancies were found:

 Subsidy ₹ 41,000 received from the government directly by the bank, but not advised to
the company.

 On 15th March,2022 the payments side of the Cash-book was under cast by ₹ 1400.

 On 20th March,2022 the debit balance of ₹ 8624 as on the previous day, was brought
forward as credit balance in Cash-book.

 A customer of the M/s Rajat, who received a cash discount of 5% on his account of ₹
80,000, paid to M/s Rajat a cheque on 24th March,2022. The cashier erroneously
entered the gross amount in the Cash-Book.

 On 10th March,2022 a bill for ₹ 22,800 was discounted from the bank, entered in Cash-
book, but proceeds credited in Bank Statement amounted to ₹ 22,000 only.

 A cheque issued amounting to ₹ 6,900 returned marked ‘out of date’. No entry made in
Cash-book.

 Insurance premium ₹ 3,024 paid directly by bank under a standing order. No entry made
in cash-book.

 A bill receivable for ₹6,120 discounted for ₹ 6,000 with the bank had been dishonoured
on 30th March,2022, but advice was received on 1st April,2022.

 Bank recorded a Cash deposit of ₹ 6,550 as ₹ 6,505.

Prepare Bank Reconciliation Statement on 31st March,2022.

5. Prepare a Bank Reconciliation Statement from the following particulars as on 1st December,
2020 :

Particulars ₹
Bank Balance as per Cash Book (Debit) 1,98,000
Bank Charges debited by the bank not recorded in Cash Book 34,000
Received from debtors vide RTGS on 31st December, 2020 not 1,00,000
recorded in Cash Book
Cheque issued but not presented for payment 45,000
Cheque deposited but not cleared 25,000
Cheque received and deposited but dishonoured. Entry for 5,000
dishonour not made in the Cash Book
Instruction for payment given to the bank on 31st December, 2020 4,000
but the same effected by the Bank on 01st January, 2021

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6. From the following information, ascertain the Cash Book balance of Mr. Bajaj as on 1st March,
2021:

Debit balance as per Bank Pass Book ₹ 3,500.

A cheque amounting to ₹ 2,500 deposited on 15th March, but the same was returned by the
Bank on 24th March for which no entry was passed in the Cash Book.

During March, two bills amounting to ₹ 2,500 and ₹ 500 were collected by the Bank but no
entry was made in the Cash Book.

A bill for ₹ 5,000 due from Mr. Balaji previously discounted for ₹ 4,800 was dishonored. The
Bank debited the account, but no entry was passed in the Cash Book.

A Cheque for ₹ 1,500 was debited twice in the cash book.

7. According to the cash-book of G there was balance of ₹ 4,45,000 in his bank on 30th June,
2021 On investigation you find that :

 Cheques amounting to 60,000 issued to creditors have not been presented for payment
till the date

 Cheques paid into bank amounting to 1,10,500 out of which cheques amounting to ₹
55,000 only collected by bank up to 30th June 2021

 A dividend of ₹ 4,000 and rent amounting to 60,000 received by the bank and entered in
the pass-book but not recorded in the cash book.

 Insurance premium (up to 31st December, 2020) paid by the bank ₹ 2,700 not entered
in the cash book.

 The payment side of the cash book had been under cast by ₹ 500

 Bank charges ₹ 150 shown in the pass book had not been entered in the cash book.

 A bill payable of ₹ 20,000 had been paid by the bank but was not entered in the cash
book and bill receivable for ₹ 6,000 had been discounted with the bank at a cost of ₹
100 which had also not been recorded in cash book.

You are required:

 To make the appropriate adjustments in the cash book, and

 To prepare a statement reconciling it with the bank pass book.

8. From the following particulars, prepare a Bank Reconciliation Statement on 31st March 2021·

Particulars ₹
Bank balance as per Pass Book 25,00,000
Bills discounted dishonored not recorded in Cash Book 12,50,000
Cheque received entered twice in Cash Book 25,000
Bank charges entered twice in Cash Book 5,000
Insurance premium paid directly by Bank under-standing instruction 1,50,000
Cheque issued but not presented to Bank for payment 12,50,000
Cheque received, but not sent to Bank 28,00,000
Cheque deposited in Bank, but no entry passed in the Cash Book 12,50,000
Credit side of the Bank column cast short 5,000

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Valuation of Inventories

1. Closing stock is valued by Zebra Stores on generally accepted accounting principles. Stock
taking for the year ended 31st March, 2020 was completed by 10th April, 2020, the valuation
of which showed a stock figure of ₹ 5,02,500 at cost as on the completion date. After the end
of the accounting year and till the date of completion of stock taking, sales for the next year
were made for ₹ 20,625, profit margin being 33.33 percent on cost. Purchases for the next
year included in the stock amounted to ₹ 27,000 at cost less trade discount 10 percent.
During this period, goods were added to stock of the mark up price of ₹ 900 in respect of sales
returns. After stock taking it was found that there were certain very old slow moving items
costing ₹ 3,375 which should be taken at ₹ 1,575 to ensure disposal to an interested customer.
Due to heavy floods, certain goods costing ₹ 4,650 were received from the supplier beyond the
delivery date of customer. As a result, the customer refused to take delivery and net
realizable value of the goods was estimated to be ₹ 3,750 on 31st March, 2020.

You are required to calculate the value of stock for inclusion in the final accounts for the year
ended 31st March, 2020

2. Submarine Ltd. keeps no stock records but a physical inventory of stock is made half yearly and
the valuation is taken at cost. The company’s year ends on 31st March, 2021 and their
accounts have been prepared to that date. The stock valuation taken on 31st March, 2021 was
however, misleading and you have been advised to value the closing stocks as on 31st March,
2021 with the stock figure as on 30th September, 2020 and some other information is
available to you:

 The cost of stock on 30th September, 2020 as shown by the inventory sheet was ₹
2,40,000.

 On 30th September, stock sheet showed the following discrepancies:

 A page total of ₹ 15,000 had been carried to summary sheet as ₹ 16,000.

 The total of a page had been undercast by ₹ 600.

 Invoice of purchases entered in the Purchase Book during the quarter from October,2020
to March,2021 totaled ₹ 2,10,000. Out of this ₹ 9,000 related to goods received prior
to 30thSeptember, 2020. Invoices entered in April,2021 relating to goods received in
March, 2021 totaled ₹12,000.

 Sales invoiced to customers totaled ₹2,70,000 from September,2020 to March, 2021. Of

this ₹ 15,000 related to goods dispatched before 30th September, 2020. Goods
dispatched to customers before 31st March, 2021 but invoiced in April, 2021 totaled ₹
12,000.

 During the final quarter, credit notes at invoiced value of ₹ 3,000 had been issued to
customers in respect of goods returned during that period. The gross margin earned by
the company is 25% of cost.

You are required to prepare a statement showing the amount of stock at cost as on 31st
March, 2021.

3. A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons, no
stock taking could be possible till 15th April, 2021 on which date the total cost of goods in his
godown came to ₹ 1,50,000. The following facts were established between 31st March and
15th April, 2021.

 Sales ₹ 1,23,000 (including cash sales ₹ 30,000)

 Purchases ₹ 15,102 (including cash purchases ₹ 5970)

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 Sales Return ₹ 3,000.

 On 15th March, goods of the sale value of ₹ 30,000 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.

 The trader had also received goods costing ₹ 24,000 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, 2021.

4. A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons,
no stock taking could be possible till 15th April,2022 on which date the total cost of goods in
his godown came to ₹ 2,50,000. The following facts were established between 31st March and
15th April,2022.

 Sales ₹ 2,05,000 (including cash sales ₹ 50,000)

 Purchases ₹ 25,170 (including cash purchases ₹ 9,950)

 Sales Return ₹ 5,000

 On 15th March, goods of the sale value of ₹ 50,000 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.

 The trader had also received goods costing ₹ 40,000 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,2022.

5. From the following particulars ascertain the value of inventories as on 31st March, 2020 :

Particulars ₹
Inventory as on 1st April, 2019 3,50,000
Purchase made during the year 12,00,000
Sales 18,50,000
Manufacturing Expenses 1,00,000
Selling and Distribution Expenses 50,000
Administration Expenses 80,000
At the time of valuing inventory as on 31st March, 2019, a sum of ₹ 20,000 was written off on
a particular item which was originally purchased for ₹ 55,000 and was sold during the year for
₹ 50,000.

Except the above mentioned transaction, gross profit earned during the year was 20 on sales.

6. From the following information, calculate the historical cost of closing inventories using adjusted
selling price method:

 Purchase during the year ₹ 5,00,000

 Sales during the year ₹ 7,50,000

 Opening Inventory Nil

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 Closing Inventory at selling price ₹ 1,00,000

Concept and Accounting of Depreciation

1. M/s Roxy purchased a brand new machinery on 1st January 2017 for ₹ 3,20,000 and also
incurred ₹ 80,000 on its installation. Another machinery was purchased on 1st July 2017 for ₹
1,60,000. On 1st July 2019, the machinery purchased on 1st January 2017 was sold for ₹
2,50,000. Another machinery was purchased and installed on 30th September 2019 for ₹
60,000.

Under existing practice, the company provides for depreciation @10% p.a. on Original cost.
However, from the year 2020 it decided to adapt WDV method and charge the depreciation @
15% p.a. You are required to show the Machinery Account for the years 2019 and 2020
considering the books of accounts are closed on 31st December each year.

2. The M/s Nishant Transport purchased 10 Buses at ₹ 15,00,000 each on 1st April 2017. On
October 1st, 2019, one of the Buses is involved in an accident and is completely destroyed and
₹ 7,00,000 is received from the insurance in full settlement. On the same date, another truck
is purchased by the company for the sum of ₹ 18,00,000. The company write off 10% on the
original cost per annum. The company observe the calendar year as its financial year.

You are required to prepare the buses account for two year ending 31 Dec, 2020.

3. M/s. Seven Seas purchased a second-hand machine on 1st April, 2017 for ₹ 1,60,000.
Overhauling and erection charges amounted to ₹ 40,000.

Another machine was purchased for ₹ 80,000 on 1st Oct, 2017.

On 1st Oct, 2019, the machine installed on 1st April, 2017 was sold for ₹ 1,00,000. Another
machine for ₹30,000 was purchased and was installed on 31st December, 2019.

Under the existing practice the company provides depreciation @ 10% p.a. on original cost.
However, from 1st April,2020 it decided to adopt WDV method and to charge depreciation @
15% p.a. You are required to prepare Machinery account for the years 2017 to 2021.

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4. A Firm purchased an old Machinery for ₹ 37,000 on 1st January,2019 and spent ₹ 3,000 on its
overhauling. On 1st July 2020, another machine was purchased for ₹ 10,000. On 1st July
2021, the machinery which was purchased on 1st January 2019, was sold for ₹ 28,000 and the
same day a new machinery costing ₹ 25,000 was purchased. On 1st July,2022, the machine
which was purchased on 1st July,2020 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,2020 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,2019.

5. M/s. Dayal Transport Company purchased 10 trucks @ ₹ 50,00,000 each on 1st July 2017. On
1st October, 2019, one of the trucks is involved in an accident and is completely destroyed and
₹ 35,00,000 is received from the insurance in full settlement. On the same date, another truck
is purchased by the company for the sum of ₹ 60,00,000. The company writes off 20% of the
original cost per annum. The company observes the calendar year as its financial year.

Give the motor truck account for two years ending 31st December, 2020

6. The balance of Machinery Account of a firm on 1st April, 2020 was ₹ 28,54;000. Out of this, a
plant having book value of ₹ 2,16,090 as on 1st April, 2020 was sold on 1st July, 2020 for ₹
82,000. On the same date a new plant was purchased for ₹ 4,58,000 and ₹ 22,000 was spent
on its erection. On 1st November, 2020 a new machine was purchased for ₹ 5,60,000.
Depreciation is written off@ 15% per annum under the diminishing balance method. Calculate
the depreciation for the year ended 31st March, 2021.

7. On 1st January, 2019 Kohinoor Transport Company purchased a Bus for ₹ 8,00,000. On 1st
July, 2020 this bus was damaged due to fire and was completely destroyed and ₹ 6,00,000
were received by a cheque from the Insurance Company in full settlement on 1st October,
2020. On 1st July, 2020 another Bus was purchased by the company for ₹ 10,00,000.

The Company charges Depreciation @ 20% per annum under the WDV Method. Calculate the
amount of depreciation for the year ended 31st March, 2021 and gain or loss on the destroyed
Bus.

8. The Machinery Account of a Factory showed a balance of ₹ 95 Lakhs on 1st April,2020. The
Books of Accounts

Depreciation is written off of the Factory are closed on 31st March every year and @ 10% per
annum under the Diminishing Balance Method. On 1st September,2020 a new machine was
acquired at a cost of ₹ 14 Lakhs and ₹ 44,600 was incurred on the same day as installation
charges for erecting the machine. On 1st September,2020 a machine which had cost ₹
21,87,000 on 1st April,2018 was sold for ₹ 3,75,000. Another machine which had cost ₹
21,85,000 on 1st April,2019 was scrapped on 1st September,2020 and it realized nothing.

Prepare Machinery Account for the year ended 31st March,2021. Allow the same rate of
depreciation as in the past and calculate depreciation to the nearest multiple of a rupee. Also
show all the necessary working notes

Bills of Exchange

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

 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.

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 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.

 Harshad retires a bill for ₹ 5,000 drawn on him by Samarth for ₹ 20 discount.

 Samarth’s acceptance to Patel for ₹ 19,000 discharged by Sandeep Chadha’s acceptance

to Samarth for a similar amount.

2. Prepare Journal entries for the following transactions in David’s books.

 David’s acceptance to Samuel for ₹ 5,000 discharged by a cash payment of ₹ 1,000 and
a new bill for the balance plus ₹ 100 for interest.

 Samantha’s acceptance for ₹ 8,000 which was endorsed by David to Flex was
dishonoured. Flex paid ₹ 50 noting charges. Bill withdrawn against cheque.

 Simon retires a bill for ₹ 2,000 drawn on him by David for ₹ 20 discount.

 David’s acceptance to Ralph for ₹ 20,000 discharged by Ralph’s Kent’s acceptance to

David for a similar amount.

3. On 1st January 2021, Swapnil draws two bills of exchange for ₹ 32,000 and ₹ 50,000.

The bill of exchange for ₹ 32,000 is for two months while the bill of exchange for ₹ 50,000 is
for three months. These bills are accepted by Vishal. On 4th March, 2021, Vishal requests
Swapnil to renew the first bill with interest at 15% p.a. for a period of two months. Swapnil
agreed to this proposal. On 25th March, 2021, Vishal retires the acceptance for ₹ 50,000, the
interest rebate i.e. discount being ₹ 500. Before the due date of the renewed bill, Vishal
becomes insolvent and only 50 paisa in a rupee could be recovered from his estate.

Show the Journal Entries (with narrations) in the books of Swapnil.

4. Mr. Tanu accepted a bill for ₹ 1,00,000 drawn on him by Mr. Manu on 1st August,2021 for 3
months. This was for the amount which Tanu owed to Manu. On the same date Mr. Manu got
the bill discounted at his bank for ₹ 98,000.

On the due date, Tanu approached Manu for renewal of the bill. Mr. Manu agreed on condition
that ₹ 20,000 be paid immediately along with interest on the remaining amount at 12% p.a.
for 3 months and that for the remaining balance Tanu should accept a new bill for 3 months.
These arrangements were carried through. On 31st December,2021, Tanu became insolvent
and his estate paid 40%.

Prepare Journal Entries in the books of Mr. Manu.

5. On 12th May, 2020 A sold goods to B for 36,470 and drew upon the later two bills one for ₹
16,470 at one month and the other for ₹ 20,000 at three months. B accepted both the bills.

On 5th June, 2020 A sent both the bills to his banker for collection on the due dates. The first
bill was duly met. But due to some temporary financial difficulties, B failed to honour the
second bill on the due date and the bank had to pay ₹ 20 as noting charges.

However, on 16th August, 2020 it was agreed between A and B that B would immediately pay
₹ 8,020 in cash and accept a new bill at 3 months for ₹ 12,480 which included interest for
postponement of the part payment of the dishonoured bill. A immediately sent new
acceptance to its bank for collection on the due date. On 1st October,2020 B approached A
offering ₹ 12,240 for retirement of his acceptance A accepted the request.

You are required to pass journal entries of all the above transactions in the books of A.

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Final accounts and Rectification of entries

1. The following is the trial balance of Manan as at 31st March 2020:

Dr. ₹ Cr. ₹
Manan’s capital account 1,53,380
Stock 1st April, 2019 93,600
Sales 7,79,200
Returns inward 17,200
Purchases 6,43,400
Returns outward 11,600
Carriage inwards 39,200
Rent & taxes 9,400
Salaries & wages 18,600
Sundry debtors 48,000
Sundry creditors 29,600
Bank loan @ 14% p.a. 40,000
Bank interest 2,200
Printing and stationary expenses 28,800
Bank balance 16,000
Discount earned 8,880
Furniture & fittings 10,000
Discount allowed 3,600
General expenses 22,900
Insurance 2,600
Postage & telegram expenses 4,660
Cash balance 760
Travelling expenses 1740
Drawings 60,000
10,22,660 10,22,660
The following adjustments are to be made:

 Included amongst the debtors is ₹ 6,000 due from Rahul and included among the
creditors ₹ 2,000 due to him.

 Provision for bad and doubtful debts be created at 5% and for discount @ 2% on sundry
debtors.

 Depreciation on furniture & fittings @ 10% shall be written off.

 Personal purchases of Manan amounting to ₹ 1200 had been recorded in the purchases
day book.

 Interest on bank loan shall be provided for the whole year.

 A quarter of the amount of printing and stationary expenses is to be carried forward to

the next year.

 Credit purchase invoice amounting to ₹ 800 had been omitted from the books.

 Stock on 31st March 2020 was ₹ 1, 57,200.

Prepare (i) Trading & profit and loss account for the year ended 31.3.2020 and (ii) Balance
sheet as on 31st March, 2020.

2. The following are the balances as at 31st March, 2021 extracted from the books of Mr.
Satender.

₹ ₹
Plant and Machinery 78,200 Bad debts recovered 1800

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Furniture and Fittings 41,000 Salaries 90,200
Bank Overdraft 3,20,000 Salaries payable 9,800
Capital Account 2,60,000 Prepaid rent 1,200
Drawings 32,000 Rent 17,200
Purchases 6,40,000 Carriage inward 4,500
Opening Stock 1,29,000 Carriage outward 5,400
Wages 48,660 Sales 8,61,200
Provision for doubtful debts 12,800 Advertisement Expenses 13,400
Provision for Discount on debtors 5,500 Printing and Stationery 5,000
Sundry Debtors 4,80,000 Cash in hand 5,800
Sundry Creditors 1,90,000 Cash at bank 12,500
Bad debts 4,400 Office Expenses 40,640
Interest paid on loan 12,000
Additional Information:

 Purchases include sales return of ₹ 10,300 and sales include purchases return of ₹
6,900.

 Goods withdrawn by Mr. Satender for own consumption ₹ 14,000 included in purchases.

 Wages paid in the month of April for installation of plant and machinery amounting to ₹
1,800 were included in wages account.

 Free samples distributed out of purchases for publicity costing ₹ 3,300.

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

 Depreciation is to be provided on plant and machinery @ 20% p.a. and on furniture and
fittings @ 10% p.a.

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

on 31.3.2020 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, 2021, and a
Balance Sheet as on that date. Also show the rectification entries.

3. Mr. Bansal submitted to you the following trial balance, which he has not been able to agree.
Rewrite the trial balance and prepare trading and profit and loss account for the year ended
31.3.2021 and a balance sheet as on that date after giving effect to the under mentioned
adjustments:

Particulars Dr. ₹ Cr. ₹

Capital 16,000
Opening stock 17,500
Closing stock 18,790
Drawings 3,305
Returns inward 550
Carriage inward 1,240
Deposit with X 1,400
Returns outward 840
Carriage outward 725
Rent paid 800
Rent outstanding 150
Purchases 13,000
Sundry debtors 5,000
Sundry creditors 2,200
Furniture 1,500
Sales 29,000

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Wages 850
Cash 1,370
Advertisement 950
46,505 46,505
Adjustments:

 Write off ₹ 600 as bad debt and make a provision for doubtful debts at 5% on balance
sundry debtors.

 Stock valued at ₹ 2,000 was destroyed by fire on 25th March, 2021, but insurance
company admitted a claim for ₹ 1,500 only and paid the sum in April, 2021.

 Depreciation to be provided on furniture at 10% per annum.

4. The following is the Trial Balance of Mr. T on 31st March,2022:

Particulars Dr. ₹ Cr. ₹

Capital 18,00,000
Drawings 2,10,000
Fixed Assets (Opening) 4,20,000
Fixed Assets (Additions 01.10.2022) 6,00,000
Opening Stock 1,80,000
Purchases 48,00,000
Purchases Returns 2,07,000
Sales 66,00,000
Sales Returns 2,97,000
Debtors 7,50,000
Creditors 6,60,000
Expenses 1,50,000
Fixed Deposit with Bank 6,00,000
Interest on Fixed Deposit 6,00,000
Cash 24,000
Suspense A/c 6,000
Depreciation 42,000
Rent (17 months upto 31.8.2022) 51,000
Investments 12% (01.8.2021) 7,50,000
Bank Balance 5,07,000
93,57,000 93,57,000
Stock on 31st March, 2022 was valued at ₹ 3, 00,000. Depreciation is to be provided at 10%
per annum on fixed assets purchased during the year. A scrutiny of the books of account
revealed the following matters:

 ₹ 60,000 drawn from bank was debited to Drawings account, but out of this amount
withdrawn ₹ 36,000 was used in the business for day-to-day expenses.

 Purchase of goods worth ₹ 48,000 was not recorded in the books of account upto
31.03.2022, but the goods were included in stock.

 Purchase returns of ₹ 3,000 was recorded in Sales Return Journal and the amount was
correctly posted to the Party’s A/c on the correct side.

 Expenses include ₹ 18,000 in respect of the period after 31st March, 2022.

 Give the necessary Journal Entries in respect of (i) to (iv) and prepare the Final Accounts
for the year ended 31st March, 2022.

5. Karuna decided to start business of fashion garments under the name of M/s. Designer Wear on
1st April, 2020. She had a saving of about ₹ 10,00,000. She invested ₹ 3,00,000 out of her
savings and borrowed equal amount from bank. She purchased a commercial space for ₹
5,00,000 and further spent ₹ 1,00,000 on its renovation to make it ready for business.

Loan and interest repaid by her in the first year are as follows:
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30th June, 2020 ₹ 15,000 principal+ ₹ 9,000 interest
30th September, 2020 ₹ 15,000 principal+ ₹ 8,550 interest
31st December, 2020 ₹ 15,000 principal+ ₹ 8,100 interest
31st March, 2021 ₹ 15,000 principal+ ₹ 7,650 interest.
In view of further capital requirement, she transferred ₹ 2,00,000 from her saving bank
account to the bank account of the business. She paid security deposit of ₹ 7,000 for telephone
connection. Furniture of ₹ 10,000 was purchased, All payments were made by cheque and all
receipts in cash were deposited in the bank.

At the end of the year, her business showed the following results:

Particulars Amount Particulars Amount

Total Sales 20,00,000 Total Purchases 17,00,000
Electricity Expenses paid 40,000 Telephone Charges 50,000
Cartage Outwards 60,000 Travelling Expenses 45,000
Entertainment Expenses 5,000 Maintenance Expenses 25,000
Misc. Expenses 15,000 Electricity Expenses Payable 20,000
Other Information:

 She withdrew ₹ 5,000 by cheque each month for her personal expenses.

 Depreciation on building @ 5% p.a. and oil furniture @ 10% p.a.

 Closing stock in hand as on 31st March, 2021: ₹ 5,50,000

Prepare trading account, profit and loss account for the year ended 31-3-2021 and Balance
Sheet as on that date.

6. On 31st March, 2021 the Trial Balance of Mr. Black was as follows:

Particulars Debit (₹) Particulars Credit (₹)

Stock on 1/4/2020 Sundry Creditors 1,50,000
Raw Materials 2,10,000 Bills Payables 75,000
Work-in-Progress 95,000 Sale of scrap 25,000
Finished Goods 1,55,000 Commission received 4,500
Sundry Debtors 2,40,000 Provision for doubtful debts 16,500
Carriages on Purchase 15,000 Capital account 10,00,000
Bills Receivables 1,50,000 Sales 16,72,000
Wages 1,30,000 Bank overdraft 85,000
Salaries 1,00,000
Telephone and Postage 10,000
Repairs to office furniture 3,500
Cash at Bank 1,70,000
Office Furniture 1,00,000
Repairs to Plant 11,000
Purchases 8,50,000
Plan and Machinery 7,00,000
Rent 60,000
Lighting 13,500
General Expenses 15,000
30,28,000 30,28,000
The following additional information is available:

Stocks on 31st March,2021 were:

Raw material ₹ 1,62,000

Finished goods ₹ 1,81,000
Work-in-progress ₹ 78,000
Salaries and wages unpaid for the year ended 31st March,2021 were respectively, ₹ 9,000 and
₹ 20,000. Machinery is to be depreciated by 10% and office furniture by 7½%. A provision for
doubtful debts is to be maintained @1% of sales. Rent is to be charged as to 3/4 to factory
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and 1/4 to office. Lighting is to be charged as to 2/3 to factory and 1/3 to office.

Prepare the Manufacturing Account, Trading Account and Profit and Loss Account for the year
ended on 31st March,2021.

7. From the following information, draw up a Trial Balance in the books of Shri M as on 31st
March,2021:

Particulars Amount Particulars Amount

Capital 1,40,000 Purchases 36,000
Discount Allowed 1,200 Carriage Inward 8,700
Carriage Outwards 2,300 Sales 60,000
Return Inward 300 Return Outwards 700
Rent and Taxes 1,200 Plant and Machinery 80,700
Stock on 1st April 2020 15,500 Sundry Debtors 20,200
Sundry Creditors 12,000 Investments 3,600
Commission Received 1,800 Cash in Hand 100
Cash at bank 10,100 Motor Cycle 34,600
Stock on 31st March, 2021 20,500

8. The following is the trial balance of Mr. B for the year ended 31st March,2021:

Particulars Debit (₹) Particulars Credit (₹)

Opening Stock: Sundry Creditors 1,75,000
Raw Materials 5,25,000 Purchase Return 17,500
Work-in-Progress 2,62,500 Capital 3,50,000
Purchase of Raw Material 17,50,000 Bills Payable 84,000
Land & Building 3,50,000 Long Term Loan 7,00,000
Loose Tools 1,05,000 Provision for bad and doubtful 7,000
debts
Plant and Machinery 1,05,000 Sales 29,75,000
Investments 87,500 Bank Overdraft 80,500
Cash in Hand 70,000
Cash at Bank 17,500
Furniture and Fixtures 52,500
Bills Receivables 52,500
Sundry Debtors 1,40,000
Drawings 70,000
Salaries 70,000
Coal and Fuel 52,500
Factory rent and rates 70,000
General Expenses 14,000
Advertisement 17,500
Sales Return 35,000
Bad Debts 14,000
Direct Wages (Factory) 2,80,000
Power 1,05,000
Interest paid 24,500
Discount allowed 10,500
Carriage inwards 52,500
Carriage outwards 24,500
Commission paid 17,500
Dividend paid 14,000
43,89,000 43,89,000
Additional Information:

 Stock of finished goods at the end of the year was ₹ 3,50,000.

 A provision for doubtful debts is to be created @ 5% on Sundry Debtors. Provide

Depreciation on building 3,500 and Plant and Machinery 10,500.

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 Accrued commission is 43,750. Interest has accrued on investment ₹ 52,500.

 Salary Outstanding is ₹ 7,000 and Prepaid Interest is ₹ 5,250.

You are required to prepare Manufacturing, Trading and Profit & Loss Account for the year
ended 31st March,2021 and Balance Sheet as at that date.

9. One of your clients Mr. X asked you to finalize his account for the year ended 31st March,2022.
As a basis for audit, Mr. X furnished you with the following statement:

Dr. Cr.
X's Capital 4,668
X's Drawings 1,692
Leasehold Premises 2,250
Sales 8,250
Due from customers 1,590
Purchases 3,777
Purchase Return 792
Loan from Bank 768
Trade Expense 2,100
Trade Payable 1,584
Bills Payable 300
Salaries and Wages 1,800
Cash at Bank 678
Opening Inventory 792
Rent and Rates 1,389
Sales Return 294
16,362 16,362
The closing inventory was ₹1,722. Mr. X claims that he has recorded every transaction correctly
as the trial balance is tallied. Check the accuracy of the above trial balance and give reasons for
the errors, if any.

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Partnership Accounts

1. Rose, Lilly and Lotus start business with capital of ₹ 2,00,000/-, ₹ 3,00,000/- and ₹4,00,000
on 1st April 2019. Lotus is entitled to a salary of ₹ 50,000 per annum. Interest is allowed on
capitals at 12% p.a. and is charged on drawings at 12% per annum. Profits are to be
distributed in the ratio 1:2:3 after the above-mentioned adjustments. Rose was given
guarantee of minimum profit of ₹ 50,000 by Lotus. Partners drawings during the year were
Rose ₹ 40,000/-Lilly ₹ 30,000/- Lotus ₹ 20,000/-. Lotus had paid ₹ 10,000/- as tuition fees of
his son on 31st March 2020, which was wrongly debited to salaries account. The profit for the
year 2019-20 before allowing interest on capital and charging interest on drawings and salary
paid to Lotus was ₹3,34,600/-. Assuming the capitals to be fixed, prepare the Profit and Loss
Appropriation Account and the Capital and Current Accounts relating to the partners.

2. The profits and losses for the previous years are: 2017 Profit ₹ 5,000, 2018 Loss ₹ 8,500, 2019
Profit ₹ 25,000, 2020 Profit ₹ 37,500. The average Capital employed in the business is ₹
1,00,000. The rate of interest expected from capital invested is 10%. The remuneration from
alternative employment of the proprietor ₹ 3,000 p.a. Calculate the value of goodwill on the
basis of 3 years’ purchases of Super Profits based on the average of 4 years.

3. Ramu and Mamu were partners in a firm sharing profits and losses in the ratio 3:2 Their
Balance Sheet as on 31st March, 2020 was as follows:

Liabilities Amount Assets Amount

Capital : Land & Building 1,50,000
Ramu 2,10,000 Machinery 1,80,000
Mamu 1,90,000 Bank 24,000
General Reserve 60,000 Furniture 44,000
Loan from LFC bank 25,000 Trade Receivables 42,800
Trade Payables 21,000 Inventory 65,200
5,06,000 5,06,000
Damu was admitted as partner from 1st April, 2020 on the following terms:

He shall bring ₹ 1,50,000 as capital and goodwill.

He shall get 1/5th share in future profits, to be acquired equally from Ramu and Mamu.

Goodwill of the firm to be valued at ₹ 2,50,000. It was agreed that goodwill shall not appear in
the books of accounts.

Land & Building is to be appreciated by 50% and inventory is revalued at ₹ 60,000.

Machinery to be depreciated by 20%. Debtors of ₹ 2,800 are to be written off as bad debts and
a Reserve for doubtful debts should be created @ 5% of debtors.

Furniture to be reduced to ₹40,000.

You are required to prepare:

 Revaluation account

 Partners’ capital accounts.

 Cash and bank account.

 Balance Sheet after admission

4. X, Y and Z entered into partnership on 1.1.2020 to share profits and losses in the ratio of
5:3:2. X personally guaranteed that Z’s share of profit after charging interest on capitals at 6
% p.a. would not be less than ₹ 15,000 in any year. Capitals of X, Y and Z were ₹ 1,60,000, ₹
1,00,000 and ₹ 80,000 respectively. Profits for the year ending 31.12.2020 before providing for

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interest on partners capital was ₹ 79,500. You are required to prepare the Profit and Loss
Appropriation Account.

5. Amar, Akbar and Anthony are in partnership sharing profit and losses at the ratio of 2:5:3. The
Balance Sheet of the partnership as on 31.12.2020 was as follows:

Balance Sheet of M/s Amar, Akbar, Anthony

Liabilities ₹ Assets ₹
Capital A/cs Sundry fixed assets 10,00,000
Amar 1,70,000 Inventory 2,00,000
Akbar 6,30,000 Trade receivables 1,00,000
Anthony 4,50,000 Bank 10,000
Trade payables 60,000
13,10,000 13,10,000
The partnership earned profit ₹ 4,00,000 in 2020 and the partners withdrew ₹ 3,00,000 during
the year. Normal rate of return 30%.

You are required to calculate the value of goodwill on the basis of 3 years' purchase of super
profit. For this purpose calculate super profit using average capital employed.

6. The following is the Balance Sheet of M/s. TMR as at 31st March,2021 they share profit equally:

Balance Sheet as at 31st March, 2021

Liabilities ₹ Assets ₹
Capital Tina 24,600 Machinery 30,000
Meena 24,600 Furniture 16,800
Rita 27,000 Fixture 12,600
General Reserve 9,000 Cash 9,000
Trade payables 14,100 Inventories 5,700
Trade receivables 27,000
Less: Provision for Doubtful debts 1800 25,200
99,300 99,300
Rita died on 5th April, 2021 and the following agreement was to be put into effect.

 Assets were to be revalued: Machinery to ₹ 35,100; Furniture to ₹ 13,800; Inventory to

₹ 4,500.

 Goodwill was valued at ₹ 18,000 and was to be credited with his share, without using a
Goodwill Account.

 ₹ 6,000 was to be paid away to the executors of the dead partner on 8th April, 2021.

 After death of Rita, Tina and Meena share profit equally.

Prepare Revaluation Account and Capital Accounts of the partners and also show Journal Entry
for Goodwill adjustment.

7. A and B are partners in a firm sharing profits and losses equally. On 1st April, 2020 the balance
of their Capital Accounts were : A ₹ 50,000 and B ₹ 40,000. On that date the balances of their
Current Accounts were: A ₹ 10,000 (credit) and B ₹ 3,000 (debit). Interest @ 5% p.a. is to be
allowed on the balance of Capital Accounts as on 1.4.2020. B is to get annual salary of ₹ 3,000
which had not been withdrawn. Drawings of A and B during the year were ₹ 1,000 and ₹ 2,000
respectively. The profit for the year ended 31st March, 2021 before charging interest on capital
but after charging B’s salary was ₹ 70,000. It is decided to transfer 10% of divisible profit to a
Reserve Account. Prepare Profit & L oss Appropriation Account for the year ended 31st March,
2021 and show Capital and Current Accounts of the Partners for the year.

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8. Tina and Rita are partners in a firm. Their capitals are: Tina ₹ 6,00,000 and Rita ₹ 4,00,000.
During the year ended 31st March, 2021 the firm earned a profit of ₹ 3,00,000. Assuming that
the normal rate of return is 20%, calculate the value of goodwill on the firm:

 By Capitalization Method; and

 By Super Profit Method if the goodwill is valued at 3 years purchase of Super Profit.

9. Acme & Co. is a partnership firm with partners Mr. A, Mr. B and Mr. C, sharing profits and losses
in the ratio of 10:6:4. The balance sheet of the firm as at 31st March, 2021 is as under:

Liabilities ₹ Assets ₹
Capital Land 30,000
Mr. A 2,40,000 Buildings 6,00,000
Mr. B 60,000 Plant and machinery 3,90,000
Mr. C 90,000 3,90,000 Furniture 1,29,000
Reserves Investments 36,000
un-appropriated profit) 60,000 Inventories 3,90,000
Long Term Debt 9,00,000 Trade receivables 4,17,000
Bank Overdraft 1,32,000
Trade payables 5,10,000
19,92,000 19,92,000
It was mutually agreed that Mr. B will retire from partnership and in his place Mr. F will be
admitted as a partner with effect from 1st April, 2021. For this purpose, the following
adjustments are to be made:

 Goodwill is to be valued at ₹3 lakh but the same will not appear as an asset in the books
of the reconstituted firm.

 Buildings and plant and machinery are to be depreciated by 5% and 20% respectively.
Investments are to be taken over by the retiring partner at ₹ 45,000. Provision of 20%
is to be made on Trade receivables to cover doubtful debts.

 In the reconstituted firm, the total capital will be ₹ 6 lakhs which will be contributed by
Mr. A, Mr. B and Mr. C in their new profit sharing ratio, which is 2:2:1.

 The surplus funds, if any, will be used for repaying bank overdraft.

 The amount due to retiring partner shall be transferred to his loan account

You are required to prepare

 Revaluation account;

 Partners capital accounts;

 Bank account; and

 Balance sheet of the reconstituted firm as on 1st April, 2021.

10. A, B and C entered into partnership on 1.1.2021 to share profits and losses in the ratio of 5 : 3
: 2. A personally guaranteed that C’s share of profit after charging interest on capitals at 5%
p.a. would not be less than ₹ 90,000 in any year. Capitals of A, B and C were ₹ 9,60,000, ₹
6,00,000 and ₹ 4,80,000 respectively.

Profits for the year ending 31.12.2021 before providing for interest on partners capital was ₹
4,77,000.

You are required to prepare the Profit and Loss Appropriation Account.

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11. Ashu and Suhan are partners in a firm. Their capital are Ashu ₹ 15,00,000 and Suhan ₹
10,00,000. During the year ended 31st March,2022 the firm earned a profit of ₹ 7,50,000.
Assuming that the normal rate of return is 20%, calculate the value of goodwill on the firm:

 By Capitalization Method; and

 By Super Profit Method if the goodwill is valued at 5 years’ purchase of Super Profit.

12. On 31st March,2022, the Balance Sheet of Aadi, Arnav and Aarush sharing profits and losses in
proportion to their Capital stood as below:

Liabilities ₹ Assets ₹
Capital A/cs Land and Building 1,20,000
Mr. Aadi 80,000 Plant and Machinery 80,000
Mr. Arnav 1,20,000 Stock of goods 48,000
Mr. Aarush 80,000 Sundry debtors 44,000
Sundry Creditors 40,000 Cash and Bank Balances 28,000
3,20,000 3,20,000
On 1st April, 2022, Aadi desired to retire from the firm and remaining partners decided to carry
on the business. It was agreed to revalue the assets and liabilities on that date on the
following basis:

 Land and Building be appreciated by 20%. Plant and Machinery be depreciated by 30%.

 Stock of goods to be valued at ₹40,000. Old credit balances of Sundry creditors, ₹8,000
to be written back.

 Provisions for bad debts should be provided at 5%. Joint life policy of the partners
surrendered and cash obtained ₹ 30,200.

 Goodwill of the entire firm is valued at ₹56,000 and Aadi’s share of the goodwill is
adjusted in the A/cs of Arnav and Aarush, who would share the future profits equally.
No goodwill account being raised.

 The total capital of the firm is to be the same as before retirement. Individual capital is
in their profit sharing ratio.

 Amount due to Mr. Aadi is to be settled on the following basis: @ 50% on retirement and
the balance 50% within one year.

Prepare (a) Revaluation Account, (b) Capital Accounts of the partners, (c) Cash and Bank
Account and (d) Balance Sheet of the new firm M/s Arnav & Aarush as on 1.04.2022.

13. The partnership deed of a firm consisting of 3 partners - P, Q and R (profit sharing ratio being
2:1:1) and whose fixed capitals are ₹ 30,000, ₹ 12,000 and ₹ 8,000 respectively provides as
follows:

 The partners be allowed interest @ 8% p.a. on their fixed capitals, but no interest to be
allowed on undrawn profits or charged on drawings.

 That upon the death of a partner, the goodwill of the firm be valued at 2 years purchase
of the average net profit (after charging interest on capital) for the 3 years to 31st
December preceding the death of a partner.

 That an insurance policy of ₹ 25,000 each was taken in individual names of each partner.
The premium was charged against the profits of the firm. The surrender value of the
policy was 20% of the sum assured.

 Upon the death of a partner, he is to be credited with his share of the profits, interest on
capitals, etc. calculated upto 31st December following his death.

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 That the share of the partnership policy and goodwill be credited to a deceased partner
as on 31st December following his death.

 That the partnership books to be closed annually on 31st December.

P died on 30th September, 2020. The amount standing to the credit of his current account as
on 31st December, 2019 was ₹ 5,000 and from that date to the date of death he had
withdrawn₹ 30,000 from the business.

An unrecorded liability of ₹ 6,000 was discovered on 30th September, 2020 and it was decided
to record it and immediately pay it off.

The trading results of the firm (before charging interest on capital) had been as follows:

 2017 Profit ₹ 29,340

 2018 Profit ₹ 26,470

 2019 Loss ₹ 8,320

 2020 Profit ₹ 13,470

You are required to prepare an account showing amount due to P's legal heir as on 31st
December, 2020.

Note: Impact for unrecorded liability not to be given in earlier years.

14. Rama, Krishna and Raghu shared profits and losses in the ratio of 5:3:2. They took out a Joint
Life Policy in 2017 for ₹ 50,000, a premium of ₹ 3,000 being paid annually on 10th June. The
surrender value of the policy on 31st December of various years was as follows:

2017 Nil

2018 ₹ 900

2019 ₹ 2,000

2020 ₹ 3,600

Rama retired on 15th April, 2021 and the policy was surrendered. You are required to prepare
Joint Life Policy Account from 2017 to 2021 (assuming the Policy Account is maintained at
surrendered value basis).

15. It was provided under the Partnership Agreement between Ram, Laxman and Bharat that in
the event of death of a partner, the survivors would have to purchase his share in the firm on
the following terms:

Goodwill is to be valued at 3 year's purchase of simple average profits of last 4 completed

years.

Outstanding amount due to the representative of a deceased partner shall be paid in 4 equal
half yearly installments commencing 6 months after the death plus interest @ 5% p.a. on the
outstanding dues.

They shared profit and loss in the ratio 9:4:3.

Ram died on 30th September 2020 and Partner's Capital account balances on that date were:
Ram - ₹ 21,600, Laxman - ₹ 12,800 and Bharat - ₹ 7,200. Ram's current account on 30th
September, 2020 after crediting his share of profit to that date, however showed a debit
balance of ₹ 1,920

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Firm profits were for the year ended

31st March, 2017 ₹ 70,400

31st March, 2018 ₹ 56,320

31st March, 2019 ₹ 48,160

31st March, 2020· ₹ 17,408

Show Ram’s Capital Account and Executor's Account (of Ram) till full payment is made to
Ram's Executor.

16. A, B and C are partners in a firm. On 1st April 2019 their fixed capital stood at

₹ 50,000, ₹ 25,000 and ₹ 25,000 respectively.

As per the provision of partnership deed:

(1) C was entitled for a salary of 5,000 p.a.

(2) All the partners were entitled to interest on capital at 5% p.a.

(3) Profits and losses were to be shared in the ratio of Capitals of the partners.

Net Profit for the year ended 31st March, 2020 of ₹ 33,000 and 31st March,2021 of ₹ 45,000
was divided equally without providing for the above adjustments.

You are required to pass an adjustment journal entry to rectify the above errors.

17. A and B are partners, sharing profits and losses in the proportion of 3/4th and 1/4th As at 31st
March, 2021, following is the Balance Sheet of A and B.

Balance Sheet as at 31st March, 2021

Liabilities ₹ Assets ₹
Capital accounts Cash in hand 1,15,000
A 2,85,000 Cash at bank 1,10,000
B 1,55,000 4,40,000 Sundry Debtors 1,60,000
Creditors 3,75,000 Stock 2,00,000
General reserve 60,000 Bills receivable 30,000
Land and building 2,50,000
Office furniture 10,000
8,75,000 8,75,000

They agreed to take C into Partnership on 1st April, 2021 on the following terms:

Goodwill is to be valued at ₹ 2,00,000. C is unable to bring cash for his share of goodwill. So, it
was decided that due credit for goodwill be given to A and B for their sacrifice in favour of C
through C’s current account.

C pays ₹ 1,40,000 as his capital for 1/5th share in the future profits.

Stock and Furniture to be reduced by 10%

A provision @ 5% for doubtful debts to be created on debtors.

Land and building to be appreciated by 20%.

Capital Accounts of the partners be readjusted on the basis of their profit sharing arrangement
and any excess or deficiency is to be transferred to their Current Accounts.

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Prepare Revaluation Account and Partners Capital Accounts.

18. Mr. X gives the following particulars in respect of business carried on by him:

Particulars Amount (₹)

Capital Invested in business 9,00,000
Market rate of interest on investment 8%
Rate of risk return on capital invested in business 3%
Remuneration per annum from alternative employment of proprietor if he 36,000
was not engaged in business
The business earned profits of ₹ 2,40,000, ₹ 2,16,000 and ₹ 3,00,000 in the years 2018, 2019
and 2021 respectively but made a loss of ₹ 36,000 in the year 2020.

Compute the value of Goodwill on the basis of 6 years' purchase of super profits of the
business, calculated on the basis of average profit of last four years.

19. X, Y and Z are partners sharing profits and losses in the ratio of 1:2:3. Their Balance Sheet as
on 31st March,2021 was as follows:

Liabilities ₹ Assets ₹
Capital A/cs Building 2,50,000
X 1,75,000 Machinery 3,37,500
Y 2,50,000 Debtors 3,25,000
Z 4,00,000 Stock 4,00,000
General Reserve 3,00,000 Bank 62,500
Trade Creditors 2,50,000
13,75,000 13,75,000
Z retired from business on 1st April,2021 on the following terms:

 Building to be appreciated by 25%.

 X and Y to bring in additional capital of ₹ 5, 00,000 each.

 Machinery to be depreciated by 10%.

 Stock is revalued at ₹ 3,72,250.

 Provision for Doubtful Debts to be created at 4%.

 Goodwill was to be valued at 3 years' purchase of average profits of past 3 years. The
profits of past 3 years were ₹ 2,75,000, ₹ 2,50,000 and ₹ 1,95,000 respectively.

 Goodwill was not to be raised in the Books of Accounts.

 Balance payable to Z was to be paid immediately.

Prepare Revaluation Account, Bank Account and Partners' Capital Accounts after giving effect
to Z's retirement, Also show the valuation of Goodwill and pass a Journal Entry for adjustment
of Goodwill.

Financial Statements of Not for Profit Organizations

1. The following is the Receipts and payments account of Rotary Club for the year ended on 31st
March, 2020

Receipts and payments A/c for the year ended on 31st march 2020

Receipts Amount Payments Amount

To balance b/d 8,450 By Salaries and wages 12,250
To Subscription 23,000 By Supply of refreshment 18,250
To Sale of refreshments 22,000 By Sports equipment 27,500

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To Entrance fees 26,000 By Telephone Charges 2,800
To interest on 4,550 By Electricity charges 15,600
investments @ 7%
By Honorarium charges 6,500
By balance c/d 1,100
84,000 84,000
Additional information:

 Following are the assets and liabilities on 31st March, 2019:

 Assets- Sports equipment- ₹ 32,000; Subscription in arrears- ₹ 7,600; furniture-₹

12,480

 Liabilities- Outstanding Electricity charges- ₹ 5,400; Subscription in advance-₹ 6,250

 Following are the assets and liabilities on 31st March, 2020-

 Assets- Sports equipment- ₹ 50,500; Subscription in arrears- ₹ 5,200; furniture-₹

11,180

 Liabilities- Outstanding Electricity charges- ₹ 3,800; Subscription in advance-₹ 4,850

 50% of the entrance fees to be capitalized.

 Interest on the investments is being received in full, and the investments have been
made on 1.4.2018

You are required to prepare Income and Expenditure account and the Closing balance sheet as
of 31st March 2020 in the books of Rotary Club.

2. The Receipts and Payments account of Peppapig Club prepared on 31st March, 2021 is as
follows:

Receipts and Payments Account

Receipts Amount Payments Amount

To Balance b/d 900 By Expenses (including 12,600
Payment for sports material
₹ 5,400)
Annual Income from By Loss on Sale of Furniture 360
Subscription 9,180 (cost price ₹ 900)
To Add: Outstanding of last By Balance c/d 1,80,900
year received this year 360
9,540
Less: Prepaid of last year 180 9,360
To Other fees 3,600
To Donation for Building 1,80,000
1,93,860 1,93,860
Additional information:

 Peppapig club had balances as on 1.4.2020 : -

 Furniture ₹ 3,600; Investment at 5% ₹ 54,000;

 Sports material ₹ 13,320;

 Balance as on 31.3.2021 : Subscription Receivable ₹ 540;

 Subscription received in advance ₹ 180;

 Stock of sports material ₹ 3,600.

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Do you agree with above Receipts and Payments account? If not, prepare correct Receipts and
Payments account and Income and Expenditure account for the year ended 31st March, 2021
and Balance Sheet on that date.

3. From the following receipts and payments account of Pune Club, prepare income and
expenditure account for the year ended 31.03.2021 and its balance sheet as on that date:

Receipts Amount Payments Amount

Cash in hand 4,000 Salary 2,000
Cash at bank 10,000 Repair expenses 500
Donations 5,000 Purchase of furniture 6,000
Subscriptions 12,000 Misc. expenses 500
Entrance fees 1,000 Purchase of investments 6,000
Interest received from bank 500 Insurance premium 200
Sale of old newspaper 150 Snooker table 8,000
Sale of drama tickets 1,050 Stationary 150
Drama expenses 500
Cash in hand (closing) 2,650
Cash at bank (closing) 7,200
33,700 33,700
The following adjustments are to be made while drawing up the accounts:

 Subscriptions in arrear for year 2020-21 ₹900 and subscriptions in advance for 2021-22
₹ 350.

 Insurance premium outstanding ₹ 40 and Misc. expenses prepaid ₹90.

 50% of donation is to be capitalized.

 Entrance fees are to be treated as revenue income.

 8% interest has accrued on investment for five months.

 Snooker table costing ₹ 30,000 was purchased on 31st March,2020 and ₹22,000 were
paid for it.

4. From the following information supplied by ABC. Club, prepare Receipts and Payments Account
and Income and Expenditure Account for the year ended 31st March 2022.

Particulars 01.04.2021 ₹ 31.03.2022 ₹

Outstanding subscription 8,40,000 12,00,000
Advance subscription 1,50,000 1,80,000
Outstanding salaries 90,000 1,08,000
Cash in Hand and at Bank 6,60,000 ?
10% Investment 8,40,000 4,20,000
Furniture 1,68,000 84000
Machinery 60,000 120000
Sports goods 150000
Subscription for the year amount to ₹ 18,00,000/-. Salaries paid ₹ 3,60,000. Face value of the
Investment was ₹ 10,50,000, 50% of the Investment was sold at 80% of Face Value. Interest
on investments was received ₹ 84,000. Furniture was sold for ₹ 48,000 at the beginning of the
year. Machinery and Sports Goods purchased and put to use at the last date of the year.
Charge depreciation @ 15% p.a. on Machinery and Sports goods and @10% p.a. on Furniture.

Following Expenses were made during the year:

Sports Expenses: ₹ 3,00,000

Rent: ₹ 1,44,000 out of which ₹ 12,000 outstanding

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Misc. Expenses: ₹ 30,000

5. Dr. Deku started private practice on 1st April, 2019 with ₹ 2,00,000 of his own fund and ₹
3,00,000 borrowed at an interest of 12 p.a. on the security of his life policies. His accounts for
the year were kept on a cash basis and the following is his summarized cash account:

Receipts Amount Payments Amount

Own Capital 2,00,000 Medicines Purchased 2,45,000
Loan 3,00,000 Surgical Equipment 2,50,000
Prescription Fees 6,60,000 Motor Car 3,20,000
Visiting Fees 2,50,000 Motor Car Expenses 1,20,000
Lecture Fees 24,000 Wages and Salaries 1,05,000
Pension Received 3,00,000 Rent of Clinic 60,000
General Charges 49,000
Household Expenses 1,80,000
Household Furniture 25,000
Expenses on Daughter's Marriage 2,15,000
Interest on Loan 36,000
Balance at Bank 1,10,000
Cash in Hand 19,000
17,34,000 17,34,000
1/3rd of the motor car expenses may be treated as applicable to the private use of car and ₹
30,000 of salaries are in respect of domestic servants. The stock of medicines in hand on 31st
March, 2020 was valued at ₹ 95,000.

You are required to prepare his private practice income and expenditure account and capital
account for the year ended 31st March, 2020. Ignore depreciation on fixed assets.

6. Summary of Receipts and Payments of AMA Society for the year ended 31st March, 2021 are as
follows:

Receipts Amount Payments Amount

Subscription Received 5,00,000 Payment for Medicine Supply 3,00,000
Donation Raised for meeting 1,50,000 Honorarium to Doctors 1,00,000
revenue expenditure
Interest on Investments @ 9% 90,000 Salaries 2,80,000
p.a.
Charity Show Collection 1,25,000 Sundry Expenses 10,000
Equipment Purchase 1,50,000
Charity Show Expenses 15,000
Additional Information:

Particulars 01.04.2020 31.03.2021

Subscription due 15,000 22,000
Subscription received in advance 12,000 7,000
Stock of medicine 1,00,000 1,50,000
Amount due for medicine supply 90,000 1,30,000
Value of equipment 2,10,000 3,00,000
Value of building 5,00,000 4'80 '000
Cash Balance 80,000 90,000
Opening Balance of Capital Fund 18,03,000
You are required to prepare:

(i) Income and Expenditure Account for the year ended 31st March, 2021.

(ii) Balance Sheet as on 31st March, 2021

7. The Income and Expenditure Account of the Women Club for the Year ended on December 31,
2021 is as follows.

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Expenditure ₹ Income ₹
To Salaries 47,500 By Subscription 75,000
To General Expenses 5,000 By Entrance Fees 2,500
To Audit Fee 2,500 By Contribution for Annual Dinner 10,000
To Secretary’s honorarium 10,000 By Annual Sports Meet Receipts 7,500
To Stationary and Printing 4,500
To Annual Dinner Expenses 15,000
To Interest and bank charges 1,500
To Depreciation 3,000
To Surplus 6,000
95,000 95,000
This account had been prepared after the following adjustments:

Particulars Amount (₹)

Subscription outstanding at the end of 2020 6,000
Subscription received in advance on 31st December,2020 4,500
Subscription received in advance on 31st December, 2021 2,700
Subscription outstanding on 31st December,2021 7,500
Salaries outstanding at the beginning and end of the year 2021 were respectively ₹ 4,000 and
₹ 4,500. General Expenses include insurance prepaid to the extent of ₹ 600. Audit fee for the
year 2021 is as yet unpaid. During the year 2021 audit fee for the year 2020 was paid
amounting to ₹ 2,000

The Club owned a freehold lease of ground valued at ₹ 1,00,000. The club had sports
equipment on 1st January, 2021 valued at ₹ 26,000. At the end of the year 2021, after
depreciation, this equipment amounted to ₹27,000. In the year 2020, the Club had raised a
bank loan of ₹20,000.This was outstanding throughout the year 2021.On 31st December, 2021
in hand was ₹ 16,000.

You are required to:

Prepare the Receipts and Payments Account for the year ended on December 31, 2021 and the
Balance Sheet as on that date.

8. The following is the Receipts and Payments Account of Mumbai Club for the year ended March
31, 2021:

Receipt and Payment Account of Mumbai Club

Receipts Amount Payments Amount

Cash in hand 20,000 Ground man's Fee 75,000
Balance at Bank as per Pass Book: Purchase of Equipment’s 1,55,000
Saving Account 1,93,000 Rent of Ground 25,000
Current Account 60,000 Club night expenses 38,000
Bank Interest 5,000 Printing and Office Expenses 30,000
Donations and Subscriptions 2,50,000 Repairs to Equipment 50,000
Entrance fees 18,000 Honorarium to Secretary 40,000
(2019-20)
Contribution to Club night 10,000 Balance at Bank as per Pass
Book:
Sale of Equipment 8,000 Saving Account 2,04,000
Bar Room receipts 20,000 Current Account 20,000
Proceeds from club night 78,000 Cash in hand 25,000
6,62,000 6,62,000
You are given the following additional information (All figures are in ₹)

Particulars 01.04.2020 31.03.2021

Subscription due 15,000 10,000
Amount due for printing etc. 10,000 8,000
Cheques unpresented being payment for repairs 30,000 25,000

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Interest not yet entered in the Pass book - 2,000
Estimated value of machinery and equipment 80,000 1,75,000
For the year ended March 31, 2021, the honorarium to the Secretary is to be increased by a
total of ₹ 20,000 and Ground man is to receive a bonus of ₹ 20,000. Prepare the Income and
Expenditure Account for period ended 31st March,2021 and the Balance Sheet as at that date.

Issue and Forfeiture of Shares

1. Alankit Limited issued at par 2,00,000 Equity shares of ₹ 100 each payable ₹ 25 on
application; ₹ 30 on allotment; ₹ 20 on first call and balance on the final call. All the shares
were fully subscribed. Mr. Dhawan who held 40,000 shares paid full remaining amount on first
call itself. The final call which was made after 3 months from first call was fully paid except a
shareholder having 4,000 shares who paid his due amount after 2 months along with interest
on calls in arrears. Company also paid interest on calls in advance to Mr. Dhawan.

You are required to prepare journal entries to record these transactions.

2. Samuel who was the holder of 12,000 preference shares of ₹ 100 each, on which ₹ 75 per
share has been called up could not pay his dues on Allotment and First call each at ₹ 25 per
share. The Directors forfeited the above shares and reissued 10,000 of such shares to Mr.
Robort at ₹ 65 per share paid-up as ₹75 per share.

You are required to prepare journal entries to record the above forfeiture and re-issue in the
books of the company.

3. On 1st April, 2020, States Ltd. issued 1,80,000 shares of ₹ 10 each payable as follows:

₹ 2 on application, ₹ 3 on allotment, ₹ 2 on First call 1st October, 2020; and ₹ 3 on Final call
1st February, 2021.

By 20th May, 1,50,000 shares were applied for and all applications were accepted. Allotment
was made on 1st June. All sums due on allotment were received on 15 th July; those on 1st
call were received on 20th October. You are required to prepare the Journal entries to record
the transactions when accounts were closed on 31st March, 2021.

4. Mr. Samphat who was the holder of 12,000 preference shares of ₹ 100 each, on which ₹ 60
per share has been called up could not pay his dues on Allotment and First call each at ₹ 20
per share. The Directors forfeited the above shares and reissued 10,000 of such shares to Mr.
Sushil at ₹ 50 per share paid-up as ₹60 per share.

You are required to prepare journal entries to record the above forfeiture and re-issue in the
books of the company.

5. On 1st June, 2020, Suraj Ltd. issued 43,000 shares of ₹ 100 each payable as follows:

₹ 20 on application;

₹ 20 on allotment;

First call of ₹ 30 on 1st Dec, 2020; and

Second and final call of ₹ 30 on 1st March, 2021.

By 20th July, 40,000 shares were applied for and all applications were accepted. Allotment
was made on 1st Aug. All sums due on allotment were received on 15th Sept; those on 1st
call were received on 20th Dec.

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You are required to journalise the transactions when accounts were closed on 31st March,
2021

6. Delta Ltd. forfeited 600 shares of ₹ 10 each issued at a premium of 10% to W for non-
payment of first and final call money of ₹ 3 (including ₹ 1 premium). At different intervals of
time out of these 400 shares were re-issued to Z, credited as fully paid for ₹ 9 per share and
100 shares were re-issued to X as ₹ 10 paid up for ₹ 11 per share. Record the journal entries
for forfeiture and reissue of shares.

7. Radha Ltd. invited applications for issuing 2,00,000 equity shares of ₹ 10 each.

The amounts were payable as follows:

On application ₹ 3 per share

On allotment ₹ 5 per share
On first and final call ₹ 2 per share
Applications were received for 3,00,000 shares and pro-rata allotment was made to all the
applicants. Money overpaid on application was adjusted towards allotment money. B, who was
allotted 3,000 shares, failed to pay the first and final call money. His shares were forfeited.
Out of the forfeited shares, 2,500 shares were reissued as fully paid-up @ ₹ 6 per share.

Pass necessary Journal entries to record the above transactions in the books of Radha Ltd.

8. A Limited is a company with' an authorised share capital of ₹ 1,00,00,000 in equity shares of

₹ 10 each, of which 6,00,000 shares had been issued and fully paid up on 31st March, 2020.
The company proposes to make a further issue of 1,35,000 of these ₹ 10 shares at a price of
₹ 14 each, the arrangement of payment being :

 ₹ 2 per share payable on application, to be received by 31st May, 2020;

 Allotment to be made on 10th June, 2020 and a further ₹ 5 per share (including the
premium to be payable);

 The final call for the balance to be made, and the money received by 31st December,
2020.

Applications were received for 5,60,000 shares and dealt with as follows:

 Applicants for 10,000 shares received allotment in full;

 Applicants for 50,000 shares received allotment of 1 share for every 2 applied for; no
money was returned to these applicants, the surplus on application being used to reduce
the amount due on allotment;

 Applicants for 5,00,000 shares 'received an allotment of 1 share for every 5 shares
applied for; the money due on allotment was retained by the company, the excess being
returned to the applicants; and

The money due on final call was received on the due date.

You are required to record these transactions (including bank transactions) in the Journal
Book of A Limited.

9. X Limited invited applications for issuing 75,000 equity shares of ₹ 10 each at a premium of ₹
5 per share. The total amount was payable as follows:

₹ 9 per share (including premium) on application and allotment

Balance on the First and Final Call

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Applications for 3,00,000 equity shares were received. Applications for 2,00,000 equity shares
were rejected and money refunded. Shares were allotted on pro-rata basis to the remaining
applicants. The first and final call was made. The amount was duly received except on 1,500
shares applied by Mr. Raj. His shares were forfeited. The forfeited shares were re-issued at a
discount of ₹ 4/- per share.

Pass necessary journal entries· for the above transactions in the books of X Limited.

10. Fashion Garments Ltd invited applications for issuing 10,000 Equity Shares of ₹ 10 each. The
amount was payable as follows:

On application ₹ 1 per share

On allotment ₹ 2 per share
On first call ₹ 3 per share
On Second and final Call ₹ 4 per share
The issue was fully subscribed. Ram to whom 100 shares were allotted, failed to pay the
allotment money and his shares were forfeited immediately after the allotment. Shyam to
whom 150 shares were allotted, failed to pay the first call. His shares were also forfeited after
the first call. Afterwards the second and final call was made. Mohan to whom 50 shares were
allotted failed to pay the second and final call. His shares were also forfeited. Al the forfeited
shares were re-issued at ₹ 9 per share fully paid-up.

Pass necessary Journal entries in the books of Fashion Garments Ltd.

11. A Limited issued 20,000 Equity shares of, 10 each at a premium of 10%, payable ₹ 2 on
application; ₹ 4 on allotment (including premium); ₹ 2 on first call and balance on the final
call. All the shares were fully subscribed. Mr. M who held 2000 shares paid full remaining
amount on first call itself. The final call which was made after 4 months from the first call was
fully paid except a shareholder having 200 shares and one another shareholder having 100
shares. They paid their due amount after 3 months and 4 months respectively along with
interest on calls in arrears, Company also paid interest on calls in advance to Mr. M. The
Company maintains Calls in Arrear and Calls in Advance A/c. Give journal entries to record
these transactions. Show workings of Interest calculation. (Ignore dates).

Issue of Debentures

1. Priya Ltd. issued 25,00,000, 12% debentures of ₹ 10 each at a discount of 10%redeemable at

par at the end of 10th year. Money was payable as follows :

₹ 4 on application

₹ 5 on allotment

Record necessary journal entries regarding issue of debenture.

2. Avantika Ltd. purchased machinery worth ₹9,90,000 from Avneet Ltd. The payment was
made by issue of 10% debentures of ₹100 each. Pass the necessary journal entries for the
purchase of machinery and issue of debentures when: (i) Debentures are issued at par; (ii)
Debentures are issued at 20 % discount; and (iii) Debentures are issued at 20%premium.

3. On 1st April 2020, XY Ltd. took over assets of ₹4,50,000 and liabilities of 60,000 of Himalayan
Ltd. for the purchase consideration of ₹ 4,40,000. It paid the purchase consideration by
issuing 8% debenture of ₹ 100 each at 10% premium on same date.

XY Ltd. issued another 3000, 8% debenture of ₹ 100 at discount of 10% redeemable at

premium of 5 % after 5 years. According to the terms of the issue ₹ 30 is payable on
application and the balance on the allotment on debentures. It has been decided to write off
the entire loss on issue of discount in the current year itself.

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You are required to pass the journal entries in the books of XY Ltd. for the financial year 2020-
21

4. Pure Ltd. issues 5,00,000 12% Debentures of ₹ 10 each at ₹ 9.40 on 1st January,2022. 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.

Write short notes on:

1. Fundamental Accounting Assumptions.

2. Retirement of bills of exchange.

3. Noting Charges.

4. Journal.

5. Importance of bank reconciliation to an industrial unit.

6. Bill of exchange and the various parties to it.

7. Objective of Accounting Standards.

8. Objectives of preparing Trial Balance.

9. Trade bill vs. Accommodation bill.

10. Going Concern concept.

11. Discuss the rules if there is no Partnership Agreement.

12. What are the advantages of Subsidiary Books ?

13. What do you mean by principal books of accounts?

14. What are the rules of posting of journal entries into the Leger?

15. What is petty cash book? Write it's any two advantages.

16. Zed Enterprises furnishes the following information for the year ended 31st March,2021.

Particulars Amount (₹)

Value of Stock as on 1st April,2020 28,00,000
Purchases during the year 1,38,40,000
Manufacturing Expenses during the year 28,00,000
Sales during the year 2,08,80,000
The following further information is also provided:

At the time of valuing stock on 31st March,2020 a sum of ₹ 2,40,000 was written off for a
particular item which was originally purchased for ₹ 8,00,000. This item was sold during the
year ended 31st March,2021 for ₹ 6,40,000.

Except for the above transaction, the rate of gross profit during the year was 1/3rd on cost.

Ascertain the value of Stock as on 31st March,2021.

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17. Mr. K is engaged in business of selling magazines. Several of his customers pay money in
advance for subscribing his magazines. Information related to year ended 31st March, 2020
has been given below:

On 1st April, 2019 he had a balance of ₹ 3,00,000 advance from customers of which ₹
2,25,000 is related to year 2019-20 while remaining pertains to year 2020-21- During the
year 2019-20 he made cash sales of ₹ 7,50,000.

You are required to compute :

Total income for the year 2019-20.

Total money received during the year, if the closing balance as on 31st March, 2020 in
Advance from Customers Account is ₹ 2,55,000.

18. From the following information prepare the Purchase. Book of Mis. Shyam & Company:

Purchased from Red & Company on credit:

10 pairs of black shoes.@ ₹ 800 per Pair.

5 pairs of brown shoes @ 900 per pair

Less: Trade Discount @ 10%

Purchased Computer from M/s. Rahul. Enterprises on credit for ₹ 40,000.

Purchased from Blue & Company in cash:

5 pairs of black shoes @ ₹ 700 per pair

15 pairs of brown shoes@ ₹ 100 per pair

Less: Trade Discount @ 15%

19. PQR Limited's Profit and Loss account for the year ended 31st March, 2021 includes the
following information:

Particulars
1 Liability for Income Tax ₹ 40,000
2 Retained Profit ₹ 2,00,000
3 Proposed Dividend ₹ 20,000
4 Increase in Provision for Doubtful Debts ₹ 25,000
5 Bad Debts written off ₹ 20,000
State which one of the items above is - (a) transfer to provisions; (b) transfer to reserves;
and (c) neither related to provisions nor reserves.

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